Samuel Brittan: Articles, speeches, books

Politicians should stop their talk of competitiveness

Fri, 14 Jun 2013 05:25:00 GMT

The reason why I feel strongly on the matter is that competitiveness language makes world trade - and with it much of economic and even foreign policy - a zero-sum game in which my gain is your loss. Talk of "performance", on the other hand, suggests that it can be a game from which all can benefit.

Modern economics for the diligent seeker of truth

Fri, 31 May 2013 05:25:00 GMT

The diligent seeker of truth about our current discontents should turn to a book whose title seems almost designed to be as unglamorous as possible: The Rediscovery of Classical Economics, by David Simpson, former economic adviser to Standard Life. Its ostensible object is to resurrect what he calls the "classical tradition" emanating from Adam Smith and distinguish it not only from Keynesian economics but also from today's mainstream - known to aficionados as the "neoclassical" orthodoxy. Without going into academic details, this orthodoxy stands accused of replacing a theory of relative prices (how many loaves will buy a pullover) with a more sophisticated account of economic growth, and of foisting on us a theory of "rational expectations" that are anything but rational.

Britons want to work more - let's help them do so

Fri, 17 May 2013 05:25:00 GMT

Most people do not have much choice in how many hours of work they do, which is determined by their employer. But surveys have asked whether people would rather work more or fewer hours each week if given the choice. Before 2008 the number who would like to work extra hours was balanced by those who would like to work fewer hours. But from 2008 onwards there was a big divergence. By the end of last year the total number of extra hours wanted was twice as great as the number wanting fewer hours.

Kenneth Rogoff, Carmen Reinhart and the spell of magic numbers

Fri, 03 May 2013 05:25:00 GMT

Humanity will never cease its futile search for magic numbers. The latest example of this quixotic quest is to be found in the saga of Harvard professors Kenneth Rogoff and Carmen Reinhart, who suggested that a debt to gross domestic product ratio above 90 per cent was bad for economic growth. Those conservative politicians and their counsellors who based their advocacy of strict fiscal policy on this magic ratio have retreated with egg on their faces.

Thatcher was right - there is no 'society'

Fri, 19 Apr 2013 05:25:00 GMT

Thatcher meant, I believe, that people should first try to solve their own problems and those of their families and friends, and only as a last resort rely on government. The government is simply a mechanism with which people can help each other and force would-be free riders to make a contribution. I interpreted her remarks as an expression of methodological individualism (although I pity any speech writer who sought to persuade her to say those words).

Forget trying to change any country

Fri, 05 Apr 2013 05:25:00 GMT

The general point I want to make is that it is best to take German policy as a given rather than to try to lecture the country into something else. This point was made clear at the ill-fated Bonn conference of 1968 when Roy Jenkins, then UK chancellor of the exchequer, vainly called for a Deutschmark revaluation to complement the earlier British devaluation. He failed. It was the only time that I remember the normally equable Jenkins losing his cool, slamming his car door shut, remarking "I have nothing to say" ... The general moral is that - except when conferring at high-level international meetings - national policy makers should treat the behaviour of other governments as being what econometricians call exogenous. In other words, they had better accept the world.

Budget 2013: It's the monetary policy that matters

Thu, 21 Mar 2013 05:25:00 GMT

One can argue until the cows come home about whether the 2013 Budget is slightly expansionary or slightly contractionary, probably the former. But the most important part is the review of the monetary policy framework issued with the Budget. By and large this is a helpful review of the subject, although biased towards the status quo, which is labelled "flexible inflation targeting".

The British Budget is not as great as it was

Fri, 15 Feb 2013 05:25:00 GMT

The Budget came into its own as an economic instrument after the second world war. In the 1950s and 1960s, economists and civil servants persuaded successive chancellors that varying the surplus or deficit was the best way of steering the economy between the Scylla of inflation and the Charybdis of deflation, with or without the adjunct of a so-called incomes policy. The high point probably came in 1966, when James Callaghan, then Labour chancellor, introduced the selective employment tax, inspired by economist Nicholas Kaldor. It is fair to say the Budget as such has never regained its economic eminence.

Review of Libertarianism: What Everyone Needs to Know

Thu, 14 Mar 2013 05:25:00 GMT

Professor Brennan defines a libertarian in this excellent handbook as someone who believes that "people should be allowed to do almost anything they like, provided they do not violate other people's equal rights." Many would endorse this, but Libertarians really mean it. Left-wing interventionists would like to dismiss them as capitalist stooges, but a glance at Brennan's book shows that this is wrong. He is concerned not just with people who vote in various parts of the world for small parties of that name, but with a set of attitudes. In the United States, most libertarians vote for one or other of the two big parties or abstain.

A not-so-secret sterling devaluation ploy

Fri, 08 Feb 2013 05:25:00 GMT

If there is one piece of news over which I lost no sleep in the past week it has been the demotion of the UK from its triple A rating by Moody's credit rating agency. It has no more significance than a critical newspaper article. The US and France have already been degraded with hardly a ripple. Nor have the agencies shown great insight about the strains on the world economy in recent decades. They remain the assessments of individual people. Rather more important has been the depreciation of sterling.

The folly of beggar-my-neighbour policies

Fri, 01 Feb 2013 05:25:00 GMT

The Japanese government needs to watch that its campaign for a lower yen does not go beyond talking. The pretty open desire of the government for the BoJ to buy overseas bonds to prevent the exchange rate rebounding is the element that needs most scrutiny, although it would be hardly worse than China's use of its huge underlying payments surplus to buy up a considerable part of the developing world. The international economy is in too fragile a condition to sustain a currency war.

A funny way of firing up the locomotive

Fri, 18 Jan 2013 05:25:00 GMT

Railway buffs will be familiar with trains that have a locomotive behind as well as in front of the carriages. But a train with only a rear locomotive? Maybe in some remote part of the Andes, but hardly a normal phenomenon. Unfortunately this metaphor describes all too well the UK's strategy for restoring the economy to growth. And you do not have to be a growth fanatic to realise that it needs restarting. On the last count, UK gross domestic product was 3 per cent below its 2008 peak. This was a fall exceeded only by Italy among the Group of Seven leading nations.

The decline of western dominance

Fri, 04 Jan 2013 05:25:00 GMT

The intriguing question is what the emerging nations will do with their accumulating surpluses. There are already many signs that they have had their fill on holdings of dollars and other western currencies that earn low or even negative real interest rates. The next stage is both portfolio investment and direct investment in areas such as Africa, but also in America and Europe. For the moment, they can be assured of a welcome but what will happen as their stake grows? There are almost bound to be tensions.

A case remains for economic liberalism

Fri, 21 Dec 2012 05:25:00 GMT

As far as normal goods and services are concerned, there is still a great deal to be said for giving a leading role to prices and profits. But for financial markets economic liberalism, at least in the form we have known it, has proved fatally flawed. The tendency of capitalist economies to boom and bust is intimately connected with that failure. As almost every government and central bank is committed to its reform, I would for the present concentrate on other aspects.

Stale debate holds back Britain's recovery

Fri, 07 Dec 2012 05:25:00 GMT

There is an approach which would separate partisan bickering from genuine differences in economic analysis. This is to divide the national budget into three sections: normal current expenditure; a capital budget; and a stabilisation fund. The first should normally be covered from revenue. If we want to have more soldiers or more science teachers the taxpayer would have to pay the full costs here and now. Some at least of the capital budget might be financed from borrowing at market interest rates, especially where a tangible financial return was expected. The material already exists for these first two divisions. The third section, the stabilisation fund, would inject purchasing power in the face of threatened recessionary conditions and remove it during periods of inflationary overheating. It would not be confined to the traditional public works, but cover any type of public spending or provisional tax cuts. It might be best to finance such a fund from Bank of England ways and means advances, really a form of the helicopter drop.

Britain's policy echoes Habsburg decline

Fri, 23 Nov 2012 05:25:00 GMT

It is difficult to plough through the Bank of England's recent inflation report and associated Monetary Policy Committee minutes without being reminded of a slogan current in the last years of the Habsburg empire: "The situation is hopeless but not desperate." Or was it the other way around? In any case, the main message of the report is that the outlook is gloomy and the risks are on the downside, but nothing much can be done about it.

A call to the west in its last-chance saloon

Mon, 12 Nov 2012 05:25:00 GMT

After struggling through inconclusive technical arguments on subjects such as fiscal multipliers it is a relief to come across a civilised book on political economy by Niall Ferguson. Unlike most historians the author is capable of understanding the technical literature and explaining its conclusions in straightforward terms. Even if you do not believe a word of his thesis in 'The Great Degeneration', I guarantee an informative and enjoyable read.

America must be doing something right

Fri, 09 Nov 2012 05:25:00 GMT

I have a table of the behaviour of the main industrial economies since their pre-recession peak of 2007-08. Taking both that recession and the recovery from it, Canada heads the list with a net gain of real gross domestic product of 4.1 per cent. The US comes next with 2.2 per cent, followed by Germany with 1.7 per cent. France is still 0.8 per cent behind its earlier peak and Japan is 1.9 per cent short. The UK is almost bottom of the class with a net fall of 3.1 per cent, a drop exceeded only by Italy among the G7 countries. These numbers contain some estimation but they are historical records, not forecasts. The discrepancies are too large to be explained by demography. The US must be doing something right.

Explanation for Britain's economic puzzle

Fri, 26 Oct 2012 05:25:00 GMT

The late Wynne Godley was one of the most thoughtful of UK Treasury forecasters, and later went on to become a Cambridge professor. One of his characteristics was a tendency to find a puzzle in each set of economic data - something that did not make sense on the basis of past relationships. There is now a conundrum that would have made his day: the productivity puzzle. Despite David Cameron's incredibly silly optimistic response to a much predicted Olympics-based short-term variation in quarterly estimates, UK gross domestic product is still 3 per cent below its 2008 peak. Yet there has been virtually no change in employment ... The real puzzle is why employment has held up comparatively well. On the basis of past relationships, there might have been an unemployment rate of 3.5m instead of 2.5m; the Cameron government would have been out on its ear and the search would be on for a truly national government, if only anybody suitable could have been found to lead it.

The harmful myth of the balanced budget

Fri, 12 Oct 2012 05:25:00 GMT

I have no doubt Oliver Cromwell could balance the UK budget with sufficiently draconian measures. But there are such things as conflicts of objectives. The aim of the macroeconomic side of a national budget should be to help balance the economy. George Osborne's comparison, when he took office as chancellor, of the national budget to "every solvent household in the country" was wrong, wrong, wrong. Around the same time Sir Mervyn King, governor of the Bank of England, called for a grand bargain in which lower domestic demand in deficit countries was offset by an increase in domestic demand in the surplus countries. Predictably there was no such bargain and the half- million increase in UK export sector jobs he hoped for did not materialise. There is really no alternative to an "alliance of the willing" of countries deciding to go ahead with internal Keynesian expansion however much Bourbons protest.

A liberal case for scepticism of the EU

Fri, 28 Sep 2012 05:25:00 GMT

Since anything that can be mis�understood will be misunderstood, I must start with some disclaimers. I am not urging the EU should end. Like the Holy Roman Empire, it may spend many years in gentle decline doing little good and little harm. Nor am I urging that the UK or any other member state should leave the EU. What I am saying is that the EU no longer deserves the devotion of practical idealists. When voices in Paris or Berlin say the answer to any problem is "more Europe", by which they mean more centralised power to EU institutions, we should turn a deaf ear. And when some leaders say that "without the euro there is no Europe" we should shrug our shoulders and look at an atlas to reassure ourselves.

The Lib Dems need to be more liberal

Fri, 14 Sep 2012 05:25:00 GMT

The UK party conference season is almost upon us, starting as usual with the Liberal Democrats. Looking at statements in the run-up to the meeting, the party seems to be confused about whether to stress its visceral hatred of the Tories or its desire to remain in the coalition government. Many of the resolutions try to justify a soak-the-rich agenda, without always being clear whether this is meant as part of the fiscal austerity package to which the party has unwisely signed up, or as more permanent changes.

Come on Bernanke, fire up the helicopter engines

Fri, 07 Sep 2012 05:25:00 GMT

Some practical men do not like the idea of a thought experiment. Yet these exercises are an essential part of the growth of human knowledge. Indeed, Friday's address by Ben Bernanke at the meeting of central bankers in Jackson Hole, Wyoming makes it appropriate for one such experiment: to ask what would happen if, in the main industrial countries, currency notes were to drop from helicopters as a deliberate act of policy?

The pursuit of happiness is no job for government

Fri, 03 Aug 2012 05:25:00 GMT

By all means let the UK Office for National Statistics carry on its attitude studies. But, at the end of the day, the government can best contribute to happiness by the indirect route of concentrating on its traditional responsibilities for public order, national security, creating the conditions for prosperity and correcting gross disparities in income and wealth. We have still a long way to go.

The New Depression

Fri, 30 Jul 2012 05:25:00 GMT

Review of 'The New Depression' by Richard Duncan. Duncan believes, with many others, that credit cannot continue to grow at pre-2008 rates. But any hawk expecting him to argue for fiscal austerity or a monetary clampdown will be disappointed. He is as unequivocal as any Keynesian in saying: "Austerity means collapse." He sees no realistic possibility of either private consumption or business investment taking over from the US federal government as a source of demand growth. If a new Great Depression is to be avoided, fiscal stimulus will have to continue. Here he pulls a rabbit out of a hat. He favours devoting fresh stimulus neither to encouraging private consumption nor to normal government public spending, but to what he describes as an American solar initiative to derive energy from the sun. Whether this is a viable idea I would not pretend to know, but I am afraid I doubt the author's credentials for pronouncing on the subject.

An ancient Greek approach to modern economics

Fri, 20 Jul 2012 05:25:00 GMT

The cultural critics have a point in saying that current institutions and attitudes prioritise take-home pay over leisure and encourage forms of growth that pollute the environment. Think of all the burial fields for used cars. The growth advocate can legitimately retort that growth need not take a material form. Suppose that you play the flute and I write poetry. If both the flute-playing and the poetry improve, that is growth. How do we know that it has improved? Because others will hand over more material goods (in the form of cash) for the privilege of hearing and listening to us. This is as far as one can sensibly take the argument.

The Price of Inequality

Sat, 14 Jul 2012 05:25:00 GMT

For most of my writing career I have been unmoved by the "equality" brigade. I remember the late Lionel Robbins, a leading British economist and a former chairman of the Financial Times, saying: "Equal opportunity to compete for equal prizes. What an ideal to put before a young person." Nevertheless, I have always believed that we had a duty to help, collectively if necessary, those who drew the short straw in terms of income and wealth. But I did not feel that the best way to do this was to despoil those at the top, because they simply did not have the resources for the purpose; and even a modest disincentive effect would negate the attempt. Much of the hostility to "the rich" was based on envy. If those at the bottom were really to be helped, most of the rest of us would have to make a contribution, whether by supporting welfare payments or by funding public services such as health and education, which have a redistributive element.

The fight against crony capitalism

Fri, 06 Jul 2012 05:25:00 GMT

What all forms of cronyism share is a passion for secrecy and a hatred of open discussion. I first saw this in the official attempts to stifle discussion of the possibility of UK devaluation before 1967, when it happened. But I came across it more recently when an otherwise intelligent head of one of the many EU banking bodies said to me in the deepest privacy that any break-up of the euro was unthinkable and undiscussable.

Enough of the bookkeeping, Mr Osborne

Fri, 22 Jun 2012 05:25:00 GMT

Does the plan to boost credit for British business, outlined by chancellor George Osborne and Bank of England governor Mervyn King in their Mansion House addresses, amount to a U-turn? Let us say it marks some change, and call it a 45-degree one. We should at least be pleased that the British authorities have at last recognised the need for a stimulus over and above minor so-called supply-side reforms. The more important questions, though, are whether these changes are in the right direction and whether they are adequate. The answer to the first question is "yes", and to the second, "probably not".

You don't need to be a lefty to support Krugman

Fri, 08 Jun 2012 05:25:00 GMT

The remedy for too little spending is more spending. Everything else is commentary. This is the moral I draw from Paul Krugman's End This Depression Now! Although it is not without flaws, I hope without much confidence that the book's wide readership includes the UK prime minister and chancellor.

A new Europe of competing currencies

Fri, 25 May 2012 05:25:00 GMT

Suppose that Greece were to leave the euro. The best guess one can make is that the country would go through a period of hell for a year or two, after which it would have a reasonable prospect of expansion and prosperity. Whatever might be decreed during a transitional emergency, the euro would be unlikely to disappear from the country. It would make sense for exporters and tourist operators to gain some competitive advantage by using newly devalued drachmas. But many organisations, for instance in shipping and finance, might find it convenient to continue using euros. The main difference is that the Greek government would have to finance its own budget, but would be free of German-led instructions on how to run its affairs.

A real alternative to austerity economics

Fri, 11 May 2012 05:25:00 GMT

The term austerity was introduced into political discourse by Sir Stafford Cripps, a postwar Labour chancellor known as "Austerity Cripps". He was a moralist rather than an economist; and Winston Churchill is supposed to have said of him: "There but for the grace of God goes God." Sir Roy Harrod, a Conservative Keynesian, gave a more erudite refutation, titled "Are these hardships really necessary?" Austerity economics is now being increasingly rejected by European public opinion and for once the popular reaction is right.

Free market fairness

Mon, 07 May 2012 05:25:00 GMT

Review of 'Free Market Fairness' by John Tomasi. Tomasi much prefers the libertarian interpretation (of liberalism). But he notes that most of his friends and colleagues are left liberals, who are sceptical of the moral significance of private economic liberty and believe that a central function of government is to provide a wide range of social services ... Being a theorist rather than a party manager, he is not content with an opportunistic compromise between the two ideals. He has his own conception, which he sometimes calls "market democracy" and sometimes "free market fairness". His position is so sympathetic that I was looking forward to hailing his book as the most important of its kind for several decades; but in the end I could not.

Inside the Department of Economic Affairs - Samuel Brittan's new book

Wed, 02 May 2012 05:25:00 GMT

The rise and fall of the Department of Economic Affairs (DEA) parallels the promised but eventually unfulfilled modernization agenda of the 1964-6 Wilson government. The diary kept by Samuel Brittan (in contravention of civil service rules) for the fourteen months in which he served as an 'irregular' in the DEA provides a unique source for understanding the growth ambitions of the new government and why they quickly ran into the sands.

The BoE needs neither a bureaucrat nor a dictator

Fri, 27 Apr 2012 05:25:00 GMT

There is still time for others to enter the field to become the next governor of the Bank of England. But on present evidence I would award the palm to Mark Carney, who was appointed governor of the Bank of Canada in 2008 and was deputy governor before that. He also chairs the international Financial Stability Board. Canadian economic performance since the onset of the credit crunch has been by far the best of the G7 leading industrial countries. This owes something to the plethora of minerals in the country, and successive Canadian governments have played a role. But some people make their own luck.

Left vs Right - still a bogus dilemma

Fri, 13 Apr 2012 05:25:00 GMT

Clearly there is range of issues - and personalities - which it still makes sense to describe in left-versus-right terms. But there are many which are not. Is an interventionist foreign policy in the spirit of the late US Democrat Senator, Henry Jackson Society, designed to promote so-called democracy abroad a left or right wing attitude? And what is one to say of the great English Liberal Statesman, Richard Cobden, who wrote in 1847 "how much unnecessary solicitude and alarm England devotes to the affairs of foreign countries; with how little knowledge we enter upon the task of regulating the concerns of other people; and how much better we might employ our energies in improving matters at home"?

Robbing selective Peter to pay for collective Paul

Fri, 23 Mar 2012 05:25:00 GMT

There can be few more bizarre events than the British Budget day. The chancellor has to cram into one hour-long speech, surrounded by much razzmatazz, a vast series of announcements on tax rates, the tax structure and anti-avoidance, some expenditure and financial measures, an economic lecture and a vast number of other proposals, some of which have nothing to do with the Budget but are there to beef up the statement. It is taken for granted that all these proposals, however ill-digested, will automatically become law, even when there is a coalition government. On the day itself, armies of experts assemble to make sense of the more cryptic sentences in the speech; and finally someone like the chancellor congratulates everyone on a magnificent job of interpretation. Anyone who remarks that the job is unnecessary and unknown in other lands is treated as a spoilsport, like someone who wants to call off Derby day.

This time they really may be 'green shoots'

Fri, 09 Mar 2012 05:25:00 GMT

Norman Lamont, Conservative chancellor in the early 1990s, was fiercely attacked in some of the tabloids for discerning too soon the "green shoots" of economic recovery. Although we are again seeing a few sporadic green shoots now, I do not expect the current chancellor, George Osborne, to use this phrase in his Budget speech on March 21; but it would be a mistake to ignore these signs altogether.

The Bank of England's real failings

Mon, 05 Mar 2012 05:25:00 GMT

Review of The Bank: Inside the Bank of England, by Dan Conaghan, Biteback Publishing, RRP£18.99
There has long been a need for a book bridging the gap between the last official history of the Bank of England, which ended in 1979, and the present. Conaghan's very unofficial history covers the last part of the gap, from the granting of operational independence to the Bank by the incoming Labour Government in 1997 almost to the present day. It is written in what is known in the trade as the Time-Life style of journalism. The very first paragraph starts: "In the early morning, the chauffeur of the dark green Daimler allocated to Sir Mervyn King, the Governor of the Bank of England, drives him from his flat in Notting Hil ... " No one will look here for a critique of the ideas that drove the Bank during this period. And the unfolding of one event after another may confuse those new to the subject, although it may be useful for those who have been trying to follow events, but would like an aide memoire to what went on and when.

It is time to tax England's green and pleasant land

Fri, 24 Feb 2012 05:25:00 GMT

Properly thought through, a land tax should appeal to both main political parties, let alone LibDem backsliders. Whatever one thinks of fiscal austerity, Governments will need a new source of income in future if only because of demographic trends. Land taxes of a modest kind exist in several countries. but do not yield nearly enough to replace all other taxes, as envisaged by the 19th century reformer Henry George. It is only worth the upheaval if it is a major revenue raiser.

Why the world economy is still spluttering away

Fri, 10 Feb 2012 05:25:00 GMT

There is something not right about the world economy, or at least the older developed countries. The US seems to be doing reasonably well for now; but even here output is in any case still well below the pre-recession trend. The European economies are much further behind, which says something for the stimulus packages of the US administration, by comparison with the German-led sado-orthodox fiscal policies.

Diogenes was right to value more than happiness

Fri, 27 Jan 2012 05:25:00 GMT

The stretching of the term "happiness" beyond the area in which it is normally used is what is wrong with the happiness agenda so eagerly embraced by UK prime minister David Cameron and French president Nicolas Sarkozy. In opposition, Mr Cameron suggested we focus not just on GDP, gross domestic product, but on GWB, general well being. More recently he ordered the Office of National Statistics to investigate the possibility of a national happiness index. This is an instance of the way in which he (or his advisers) is irresistibly drawn to fashionable left-of-centre gimmicks but eschews genuinely radical measures such as stopping official support for arms sales or instituting a land value tax.

Capitalism still has no rivals

Fri, 13 Jan 2012 05:25:00 GMT

My central case for competitive capitalism is that it is that it promotes personal and political freedom. A businessman, outside the financial sector, will prosper by providing what adults wish to have - even if that is pop records, candyfloss or nude shows rather than what our supposed elders and betters think is good for them. Above all the individual is free to use his abilities in line with his or her own choices. He or she can concentrate on personal pleasure, social service at home, the relief of poverty abroad or any combination of these and numerous other activities.

Now is the time to eat, drink and be merry

Fri, 30 Dec 2011 05:25:00 GMT

Have you had a good time this Christmas with plenty to eat and drink and expensive toys for the children? Do you look forward to similar festivities on New Year's eve? Do you feel guilty about indulging yourself amid all the headlines about austerity? Well don't. Bear in mind the complaint of Alice: "Jam yesterday, jam tomorrow but never jam today."

'More Europe' is a mindless slogan

Fri, 16 Dec 2011 05:25:00 GMT

David Cameron's veto of the proposed new European constitution was the right decision, possibly for the wrong reasons. As has been explained ad nauseam, the British prime minister was heavily influenced both by the perceived need to satisfy his Tory backbenchers and by one interpretation of the needs of the City of London. It is difficult to say whether the proposed rules would have done more to promote much-needed banking reform or to harm the legitimate interests of the City as a top export earner and source of employment. But as the European Union has been lurching for years in the wrong direction, a line had to be drawn somewhere and this is where the opportunity arose.

A chancellor still wedded to wrong dogma

Fri, 02 Dec 2011 05:25:00 GMT

It is in a sense difficult to argue with Mr Osborne. He sees government finances as akin to those of a corner shop whose outgoings must not exceed its incomings - the difference being that cost-cutting by the shopkeeper is unlikely to affect the prosperity of his customers. Others see the budget balance as a policy instrument which can, if need be, reinforce monetary policy in stimulating or restricting demand. It is not easy to find common ground between these approaches.

The Dictator's Handbook

Tue, 22 Nov 2011 05:25:00 GMT

Review of The Dictator's Handbook: Why bad behaviour is almost always good politics This is presented as a reader-friendly distillation of many years of research. Its basic insight is that to stay in power, a ruler has to distinguish between the nominal selectorate, the real selectorate and the winning coalition. The authors, somewhat confusingly, change their terminology from time to time. On the page after these groups are introduced they are renamed interchangeables, influentials and essentials. I am tempted to say that in the pre-Blair Labour party, the nominal selectorate was the party membership, the real selectorate the college of those who elected the leader, and the winning coalition the trade union leaders who counted for most. Maybe matters are different today, but events leading to the anointment of Ed Miliband as Labour leader makes one wonder.

Five simple steps to curing Britain's new depression

Fri, 18 Nov 2011 05:25:00 GMT

The appointment of so-called technocrats to head the Italian and Greek governments make one wonder who would be chosen to head a technocratic British government if things came to such a pass. There is one clear candidate: Adair Turner, head of the Financial Services Authority. Mr Turner has written extensively on wider economic matters and has no clear links with either of the main political parties. We could do a great deal worse.

Morality and War

Sat, 05 Nov 2011 05:25:00 GMT

If I intentionally kill another person I will be subject to a long term of imprisonment or even, in some jurisdictions, the death penalty. But if I kill 1,000 people, I might receive a medal; or if a million, I might be promoted to field marshal or even president, provided only that those killed come from another side of a border in a state known as "war".

Why I would have voted no in a Greek referendum

Fri, 04 Nov 2011 05:25:00 GMT

Nearly all the action and discussion on problem countries and areas take the form of financing packages. And if such a package runs into difficulties another refinancing package is dreamed up. Moreover, nearly all the unofficial comment is on the same lines, with ever more ingenious insurance and leverage introduced. For those who like this sort of thing, this is the sort of thing they like. Meanwhile, those of us who were brought up think of international economics in terms of costs, prices and exchange rates are made to feel like dinosaurs.

Getting better all the time

Sat, 22 Oct 2011 05:25:00 GMT

Review of The Better Angels Of Our Nature: The Decline Of Violence In History And Its Causes by Stephen Pinker

It has become a cliché that the great increase in material wealth over the centuries has not been accompanied by any corresponding moral advance. Human nature, it is said, remains the same - with the implication that much of it is pretty nasty. Here, however, comes a leading evolutionary biologist, Stephen Pinker, to claim that human violence has decreased over the millennia and centuries.

The splintered opposition to fiscal austerity

Fri, 21 Oct 2011 05:25:00 GMT

What has a logical error to do with the economic doldrums in which many countries find themselves? Absolutely everything. The error in question is the "fallacy of composition". This is defined by the Oxford Dictionary of Philosophy as that "of arguing that because something is true of members of a group, it is true of the group as a whole". The application to economics is to suppose that the principles of sound finance, such as avoiding debt and balancing the books, that may apply to a family or small business are applicable to governing nations. Despite economic stagnation and rising unemployment, most industrial countries, with the honourable exception of the US under the Obama administration, are engaged in fiscal austerity. These programmes are likely to fail in their own budget-balancing terms because of their kickback effects on growth; but that is not the main argument against them.

Call off the misguided crusade against 'inequality'

Fri, 07 Oct 2011 05:25:00 GMT

Before the credit crunch it used often to be said that the Right had won the economic argument and the Left had won the cultural one. But the Left had also appeared to win a third argument, the linguistic one. I refer to the use of the term "inequality" to signify differences in income and wealth. The implication is that equality should be the norm, deviations from which need to be explained.

Use the UK's state bank holdings to speed a recovery

Fri, 23 Sep 2011 05:25:00 GMT

My alternative proposal is to use the state-owned banks as the nucleus of Mr Posen's proposed state lending bank for small and medium enterprises. Who knows what obstacles well-paid lawyers could think up? But in principle this could start next week. The main thing needed would be a Treasury directive to these banks to replace profit maximisation with a requirement to promote economic recovery. In practice this would mean that they would lend for projects which would be just below the threshold of viability in normal banking terms.

Where an Augustinian fiscal policy falls short

Fri, 09 Sep 2011 05:25:00 GMT

St Augustine is known for saying: "Make me continent and chaste, but not yet." Nearly all the world's finance ministers stress that they want to balance their budgets, but over a period of years. The difference is between those like the UK's George Osborne and US Republicans who want to go fairly fast and those like the International Monetary Fund's Christine Lagarde and the UK shadow chancellor Ed Balls who want, in today's depressed conditions, to take longer. The slow motion brigade legitimately points out that too severe a fiscal austerity slows down or even prevents growth, which in turn makes budget deficits harder to curb. This is especially so when many countries are simultaneously imposing austerity packages. At times the argument seems to be between different strategies for deficit reduction. It would be interesting to have some econometric studies of the rival strategies for given countries and regions. We could even find different growth or no-growth paths yielding similar deficit results. Yet contemplating such an exercise shows how absurd the argument is.

Mistaken Marxist moments

Fri, 26 Aug 2011 05:25:00 GMT

During almost every one of the periodic crises that affect mercantile economies, voices are raised saying "Marx was right after all". A few years ago Nicolas Sarkozy was seen ostentatiously clasping a copy of Das Kapital, while in recent weeks financial gurus, including Nouriel Roubini and George Magnus, have written articles referencing the communist thinker. When recovery occurs the cry vanishes, only to reappear next time there is a bust ... Marx has suffered not only from sycophants, but from critics who identify him with the Stalin dictatorship or even the regime of Mao Zedong. It is, of course, absurd to blame Marx, who lived from 1818 to 1883, for the crimes committed decades after his death. Indeed, the great man himself once said: "Whatever else I am, I am not a Marxist." Many serious analysts have written on what Marx meant or should have meant. I am not one of their number and my main excuse for giving my own highly selective take is that I have neither demonised nor worshipped the man.

Can complexity unmake civilisation?

Mon, 22 Aug 2011 05:25:00 GMT

There are many people in the financial world and in the US Republican party (and more sotto voce in the German government) who believe that the worldwide explosion in government spending lies behind many of the recent currency crises. Whether or not this is true, the government spending trend is worth studying for its own sake. Far and away the best guide to this trend is a new book by Vito Tanzi, a former economic counsellor of the International Monetary Fund. If anyone claimed to have read the whole of this massive work, I would not believe them. But the beauty of this volume is that you can learn a great deal from sampling almost any handful of pages. And there are few, if any, equations.

First of all do no harm, then start thinking

Fri, 12 Aug 2011 05:25:00 GMT

My first piece of advice is along the lines of the medical motto: above all, do no harm. It goes without saying that central banks in western countries should not raise short-term interest rates any further and if possible quietly rein them back towards near-zero. But the US Federal Reserve's semi-undertaking to hold rates until the middle of 2013 seems a pretty cack-handed way of doing this. Should there be more "quantitative easing" by the Fed or the Bank of England? That is a close call. Is it worth upsetting the financial markets which, however irrationally, distrust such measures in the absence of clear-cut evidence of what earlier rounds have achieved? A lesser, but still important, measure would be for the US Congress to end "the oligopoly of Nationally Recognised Statistical Ratings Organisations before they contribute to or ignite another financial crisis", as suggested by Bill Miller of Legg Mason Capital Investment. And above all we need more quantification and analysis of the derivatives market.

The euro is still far from out of danger

Fri, 29 Jul 2011 05:25:00 GMT

During an enforced absence from column writing I tried to keep up with events - not so much by reading a vast number of books, analyses and speeches, which would have been incompatible with eating and sleeping, but by reflecting on what might have happened if Greece had not joined the euro in 2001. Similar reflections might apply to other peripherals such as Portugal but might need modification in relation to Spain, Italy and Ireland. The first thing to say is that neither the Greek government nor the Greek private sector would have been able to borrow for so long at German interest rates.

It is time for Britain's economy to buck up

Fri, 08 Jul 2011 05:25:00 GMT

The relative decline of the British economy in the century up to the late 1970s has been reversed. Since then, the UK has caught up with and even overtaken its principal trading partners. The previous two sentences are neither a typing mistake nor a daydream. They are the sober conclusions of the country's leading quantitative historian, Prof Nicholas Crafts.* UK per capita output, which had fallen in 1979 to 86-90 per cent of German and French levels, was by 2007 1-6 per cent above theirs. There was still a gap compared with the US, but less than before. On a more subtle comparison of productivity in the market sector, the UK still lagged behind its main trading partners, but the gap had very much shrunk. Yet it was in just this period of improvement that an investigation of "British declinism" became a major industry among other academics.

Economics of Good and Evil

Sat, 25 Jun 2011 05:25:00 GMT

For Sedlacek economics is not - or at least not merely - a science with its roots in the north-western fringes of Enlightenment Europe; it stands, rather, at the heart of every philosophy and religion since the first civilisations arose on the Mesopotamian delta. His book, accordingly, is effectively a critical history of western thought. The author, a prominent Czech commentator who was an adviser to Václav Havel when he was president, uses the attitudes of various cultures towards getting and spending as a thread on which to link his reflections. Moreover, unlike most books with large pretensions, this one is beautifully written and at least for the first two-thirds I could not put it down or turn my mind to anything else.

Greece's euro exit can now only be a matter of time

Fri, 24 Jun 2011 05:25:00 GMT

A Greek debt default, however disguised, is a foregone conclusion. More interesting is the fate of the euro. On November 5 last year, I wrote that Greece should and would leave the euro, but most certainly could not give a date. Little has changed since then despite the increasing complexity of the financial packages being negotiated to save Greek membership. It is time to look at what the UK chancellor Denis Healey used to call the real economy. Greek unit labour costs have risen by 50 per cent since 2001. This compares with a eurozone average of about 25-30 per cent and a German cost increase of little more than 6 per cent. Even Portugal has a much lower increase than Greece of some 36 per cent.

Good servants can make bad masters

Fri, 10 Jun 2011 05:25:00 GMT

The expression "good servants and bad masters" has been applied to so many things: technology, government officials, mathematical models and much else. Today I want to apply it to the financial markets. It goes without saying that we need mechanisms for channelling surplus savings into physical investment, for a second-hand market in titles to ownership, for shifting personal spending over time, for saving for old age, and much else. But when these markets become overextended to the point of determining the fate of governments it is time to call a halt. This is especially the case when the funds in question arise from artificially created money rushing across frontiers. To change the metaphor, it is the tail wagging the dog.

The follies and fallacies of our forecasters

Fri, 27 May 2011 05:25:00 GMT

What do the Arab uprisings and the world financial crisis have in common? They seem very different subjects and are written about by different "experts". What they have in common is the complete failure of almost all these experts to predict them. This elementary point has not been well covered in the so-called literature on the origins of the credit tsunami. But it has been made very well in June's issue of Foreign Affairs by Nassim Taleb (of Black Swan fame) and Mark Blyth. "The critical issue in both cases is the artificial suppression of volatility in the name of stability," they write. One moral is that the US government should stop supporting dictatorial regimes "for the sake of pseudostability" and that a robust economic system encourages early failures. Alan Greenspan is criticised for intervening at the slightest sign of a downward tick.

Who is winning in the race for recovery

Fri, 13 May 2011 05:25:00 GMT

It is far too early for a final assessment of the relative behaviour of the different parts of the industrial world in the recent nearly unprecedented recession, but it is not too early for a preliminary examination.If we look at the fall in output from the peak quarter before the recession in 2007 or 2008 to the recession trough and the recovery since then, the US emerges as the easy winner. The fall in output was slightly less than that experienced in the eurozone, the UK or Japan and the recovery has been much more impressive. It is the only one of the four main groups where output has recovered to above the pre-recession peak. You might think that the domestic American reaction would be one of rejoicing, but it is not.

Ancient Greek lessons for bank reform

Fri, 15 Apr 2011 05:25:00 GMT

As expected, the UK's Independent Commission has provided a thorough analysis of the deficiencies of the banking system and of proposals for reform. It plunges straight into the current debate, but does not discuss in any depth the purpose of banking.

For good or ill, rentiers resist euthanasia

Fri, 01 Apr 2011 05:25:00 GMT

It is time to turn to the low-rates-of-interest part of the formula. The fact is that low real rates - let alone the negative real rates that sometimes occur - are extremely unpopular with millions of people, not merely top-hatted financiers but small savers looking forward to retirement pensions or merely looking for a safe haven where their money will not lose its value too quickly. Many British chancellors have reported that despite media rage at interest rate increases, it is low rates that excite the greatest volume of protest.

Another growth strategy; politics as usual

Fri, 18 Mar 2011 05:25:00 GMT

The UK government is "going for growth", ignoring sage advice that growth, like happiness, is best achieved by concentrating on more specific goals (advice given by no less a sage than John Stuart Mill). But then David Cameron, the prime minister, has also asked the Office of National Statistics to investigate the possibility of a "gross national happiness" index - following the lead of the Himalayan state of Bhutan. All of which puts me in mind of Karl Marx's saying that history repeats itself, first as tragedy and then as farce.

Why there are two kinds of conservatism

Fri, 04 Mar 2011 05:25:00 GMT

There have been two kinds of answers over the past century and a half to the challenge of socialism by what, for want of a better term, might be called the centre-right. The first might be called the economists' response. This has been to emphasise the need for competitive markets, not only to provide incentives but also to decide what should be produced and by what methods; and in practice it has proved difficult to provide competitive markets without a high degree of private ownership. There is a second and entirely different response. This is to say that the various types of socialism are all theories about how to conduct politics; and the last thing we need are theories of this type.

Flat-earthers cannot see around the squeeze

Fri, 18 Feb 2011 05:25:00 GMT

Mervyn King, the governor of the Bank of England, gave a remarkable estimate in a speech in Newcastle on January 21. This is that real UK wages in 2011 "are likely to be no higher than they were in 2005". He went on: "One has to go back to the 1920s to find a time when real wages fell over a period of six years." Yet so obsessed are the financial markets and those who comment on them with inflation that this statement did not receive the attention it deserved and was generally discussed only in the context of the Bank's overshoot of those wretched inflation targets.

Still they are fighting for dead men's shoes

Fri, 04 Feb 2011 05:25:00 GMT

If Marx were alive today he would be 193 years old. Keynes would be 128. Discussions of what they would think today implicitly assume that they would have retained the intellect of their prime and adjusted their thinking to later events. How can anyone know how they would have done this? I first realised the absurdity involved when, as a student at Cambridge, I came across a lecture by the veteran economist A.C. Pigou entitled "What would Alfred Marshall have thought of current developments in economics?" Marshall was a quintessentially Victorian figure who founded the Cambridge school of economics, and who died in 1924. Milton Friedman remarked to me that Pigou had simply not understood modern developments. Would it not have been simpler if Pigou had simply made his own observations and argued them out with Friedman?

The 'inflation nutters' are only half right

Fri, 21 Jan 2011 05:25:00 GMT

Media commentators and business analysts in the old industrial west are locked in combat. The "hawks", who have, mostly but not entirely, a financial orientation, point to the upward creep of inflation indices in the UK and some European countries, including even Germany. They also point with alarm to the central banks' indulgence in quantitative easing, which they castigate as "printing money". One of the semi-hawks, Jean-Claude Trichet of the European Central Bank, has, however, tried to draw a distinction between official funds injected to safeguard the banking system and the overall stance of monetary policy. But he is in line with the fully fledged hawks in arguing for acting soon, before inflationary expectations have taken hold and the cost of a cure has become very much bigger ...

Look behind the myth of global imbalances

Fri, 07 Jan 2011 05:25:00 GMT

Nigel Lawson was the longest serving as well as the most controversial of Margaret Thatcher's chancellors. His inaugural Adam Smith Lecture (reprinted in the January issue of Standpoint) shows him true to form. It is entitled Five Myths and a Menace. His menace is - or should be to Financial Times readers - the least controversial of his assertions. It is that of a "recrudescence of protectionist sentiment that threatens to repeat the disaster of the 1930s". The "myth" on which I wish to concentrate is his fifth - that big current account imbalances are unnatural and dangerous. He is broadly right, but the argument needs to be taken further ...

Brown's is a message that we need to hear

Fri, 17 Dec 2010 05:25:00 GMT

The reception accorded to Gordon Brown's 'Beyond the Crash' does not say very much for Britain's scribbling classes. In too many parts of the media, it has been ignored, misrepresented or used to settle partisan scores, its serious message ignored. Even some of the more favourable reviews wander off into discussing possible implications for UK politics. One should admit straight away that the book is not a laugh a minute and it is unlikely to find its way into many people's Christmas stockings. Nor is the former prime minister the clearest and most elegant of writers ...

Budgetary lessons for our age of austerity

Fri, 03 Dec 2010 05:25:00 GMT

The newly established Office for Budget Responsibility has done a Herculean job in its report on the Economic and Fiscal Outlook. It has thoroughly analysed every aspect of the economic and fiscal scene using state of the art methodology. Its three man "Budget Responsibility Committee", led by Robert Chote, has taken over the Treasury's forecasting role. It moreover has access to every nook and cranny of Whitehall and has had extensive discussions with outside experts...It would be foolish to suppose that I can improve on (its) projections by back-of-the-envelope figures. But some of the assumptions and analysis are worth discussing ...

Economic and political liberalism

Wed, 01 Dec 2010 05:25:00 GMT

The separation of two kinds of liberalism in the world of politics impoverishes them both; and so even does their separation in the world of academic disputation. It is therefore still worth looking for ideas which both kinds ought to be able to share. Purely political liberals are impoverished when they fail to see that freedom to spend one's own income in one's own way - above all, in sensitive areas such as health and education - is an essential part of freedom. So too is freedom to start a business or too move money across frontiers. But liberal practice and thought are impoverished when there is too great a concentration on ownership, earning and spending and when matters such as open government or the rights of suspects against the police are overlooked ...

Fuddy-duddyism without money

Mon, 01 Nov 2010 05:25:00 GMT

Forrest Capie's book 'The Bank of England: 1950s to 1979' recounts the Bank's history from the mid-1950s to the end of 1979, roughly the third quarter of the 20th century. He is evidently not impressed by what he has unearthed. He argues that the Bank neglected the monetary forces behind inflation for far too long and also that operations were conducted, at least at the start of the period, in an amateurish way. The atmosphere was very much that of public (i.e., private) schoolboys who had not been to university. Things began to change before the end of the period Professor Capie reviews. But they did not reach their culmination until later when the Bank was given clear responsibility for promoting a low and stable rate of inflation and inflation targets were given pride of place. Room for manoeuvre in dealing with the real economy was supposedly provided by allowing inflation temporarily to go above or below target, especially in responsible to external or fiscal shocks ...

Conventional wisdom, the royals and the Republic

Fri, 19 Nov 2010 05:25:00 GMT

The last few days have been extraordinary. The announcement of Prince William's engagement has been accompanied by suggestions that there should be an austere royal wedding in keeping with the spirit of the times - as if we should counter the threat of a double-dip recession or an inadequate recovery by encouraging people to spend less. Meanwhile, in a reversal of the normal creditor-debtor relationships, Ireland's European Union partners have been thrusting a loan at the country that its own government, far from requesting, was originally anxious not to receive ...

Keynes and myself

Fri, 18 Oct 2010 05:25:00 GMT

The main point of this lecture was to show how one could favour the broad thrust of the Thatcher Government's macroeconomic policies in the 1980s but be against the Budget deficit alarmism of the Tory Government that came to office in 2010. But the section that seems to have attracted most attention is the suggested threefold division of the budget into a current and capital budget and a stabilisation fund. The main purpose of this division is to separate clearly arguments about demand maintenance (or containment) from arguments about the "size of the state" ...

The futile attempt to save the eurozone

Fri, 05 Nov 2010 05:25:00 GMT

To some who went through the unsuccessful struggle from 1961 to 1967 to stave off sterling devaluation, the series of crises surrounding the euro will be drearily familiar. First there is a surprise loss of confidence. Then there is a series of rescue operations, usually taking the form of international guarantees of one kind or another. These are backed up by domestic restrictive measures leading to a domestic recession of sorts. In time the financial pressures ease and near-normality is seen to return. But then, when few are looking, there is another crisis, another set of international rescues and another set of domestic restrictions. And so on. Eventually the struggle is abandoned, and political and financial leaders work to pick up the pieces ...

Deficit should be a policy variable

Fri, 22 Oct 2010 05:25:00 GMT

Very near the beginning of his speech introducing the comprehensive spending review, George Osborne attempted to frame the exercise in the simplest of terms: "We are going to ensure, like every solvent household in the country, that what we buy we can afford; that the bills we incur we have the income to meet." Either you accept the chancellor's analogy or you do not. I do not. Of course the deficit matters. But it should be a policy variable rather than targeted to meet a dim accountant's idea of balance ...

The Big Society comes under the microscope

Fri, 22 Oct 2010 05:25:00 GMT

When I hear about "the Big Society" I have some difficulty in remembering whether it comes from Tony Blair or David Cameron. This is not entirely unfair. Cameron was a professed admirer of the former Labour Prime Minister and tried to borrow some of his methods to revitalise the Conservatives. But in truth of course Blair called his approach The Third Way. This earned the dismissive comment from the Czech Republic's controversial president Vaclav Klaus: "The Third Way is the quickest way to the Third World" ...

The impoverished fiscal debate

Fri, 08 Oct 2010 03:02:54 GMT

When George Osborne, the British chancellor, stands up on October 20 to announce his long awaited "cuts", we must at least insist on some essential clarifications. Are they cuts compared with public spending in the past fiscal year or compared with the tentative projections for a five-year period left behind by the last Labour government? Are they cuts in money terms or in real terms, taking into account anticipated inflation? If and when these basic matters are out of the way, we can then move on to the more fundamental confusions behind the current debate ...

Guzzle for the sake of the world economy

Fri, 24 Sep 2010 03:02:54 GMT

We are all used to self-denying exhortation. Eat less to escape obesity. Save more for future prosperity. Drink less for all the well-known reasons. Give away more of your income to help the poor at home or increase overseas aid. And so on. What is relatively novel is the exhortation to indulge oneself and consume more for the sake of the world economy ...

The secret of Osborne's popularity

Fri, 10 Sep 2010 03:02:54 GMT

I would suggest that there is something more specific to the chancellor's popularity. Many people have got it into their heads that the government is spending £4 for every £3 it is receiving in revenue - or some such ratio. They think that if they were in such a situation they would be heading straight for bankruptcy. Such simple arguments strike a chord in the way that earlier Budget presentations in terms of inflationary or deflationary pressure, or even the balance of payments, never did. There is nothing new in this popular acceptance of the "fallacy of composition". In 1931, as the Great Depression was gathering pace, a near-grand coalition of Conservative, Labour and Liberal ministers won an overwhelming victory at a general election on a promise to slash the Budget deficit. Dissenting Labour and Liberal MPs were reduced to a rump. In his excellent Bloomberg lecture on August 27, Ed Balls, the Labour political economist and leadership contender, gave a better concise explanation of the fallacy of Osbornomics than any I have read ...

The return of beggar-my-neighbour policy

Fri, 27 Aug 2010 03:02:54 GMT

The academic name for the economic policy into which the British prime minister has stumbled is "mercantilism". According to the Encyclopaedia Britannica, this is "the economic theory and practice common in Europe from the 16th to the 18th centuries that promoted government regulation of a nation's economy for the purpose of augmenting state power at the expense of rival national powers". Among its doctrines was that the trade balance must be favourable, meaning an excess of exports over imports...The best name [for modern mercantilism] is "beggar-my-neighbour" economics. This was coined by the leftwing Cambridge economist Joan Robinson - no market fundamentalist she. By this she meant that because governments were unwilling or unable to promote output and employment by domestic means they had to resort to trying to promote it at the expense of other countries ...

Thoughts on the troubles of banks

Fri, 13 Aug 2010 03:02:54 GMT

There are three alternative courses of action for a political economist to take when a crisis blows up in an area that is far from his speciality or range of interest, such as banking in my case. The first is to stay silent. The second is to bone up as quickly as possible on the new area and to talk plausibly about Basel I, Basel II, the looming Basel III, first and second tier capital and so on. The third is not to bluff one's way into the technical discussion but to use the crisis to think about a few fundamentals. The third is the course that appeals to me ...