It is time to jettison the forecasts
The Financial Times 21/12/07
More than 30 years ago, Denis Healey, a UK Labour chancellor of the exchequer, said he wanted to be to economic forecasters what the Boston Strangler was to door-to-door salesmen. Unfortunately, he did not succeed...more |
That old stagflation dilemma again
The Financial Times 07/12/07
There is not all that much difficulty in steering a modern economy when it is faced with one main danger. If that is inflation, the need is clearly to rein back on the growth of demand. If the central bank overdoes the restraint it is not all that difficult to correct its error by loosening its policy. If its first measures prove inadequate, it can step up the dose. Should the main danger be recession or a severe slowdown it will need to apply a stimulus, for instance by lowering the policy-determined short-term interest rate...What, however, should they do if the economy is faced with both increasing inflation and severe growth slowdown? This is the dilemma of stagflation...more |
Mill! Thou shouldst be living at this hour
The Spectator 01/12/07
Britain has had few public intellectuals. The one undeniable example was John Stuart Mill who lived from 1806 to 1873 and whose utterances dominated the more intelligent public debates of the mid 19th century - predictably he was keenly studied by Gladstone and mocked by Disraeli. In the last year of his life he was persuaded to be godfather to the infant Bertrand Russell, who was the nearest runner up in the UK public intellectual stake. Mill's own influence was on the wane in much of the 20th century when Marx became the centre of attention. But it has been rekindled in the last few decades as faith in collectivist nostrums has evaporated and there have been numerous academic studies of different aspects of his work. The time is therefore ripe for a full-scale modern biography which provides reliable pointers to the main doctrinal issues, but concentrates on the man and his career. This is amply provided by Richard Reeves in his well, but unobtrusively, documented new book...more |
Please spare us this 'vision thing'
The Financial Times 23/11/07
Gordon Brown seems to me to have two overriding passions. One is an urge to better the condition of the poorest countries, whose inhabitants subsist on a couple of dollars a day and lack the elementary decencies of hygiene and elementary schooling. The other is to eliminate child poverty in the UK. Both these objectives are admirable, however much one may want to argue with him over the means. Beyond that he is a conventional politician trying to compromise between the needs of competent government and the tricks of the political trade. There is nothing to gain from getting a speechwriter to wrap all this up in some cloudy and unconvincing "vision"...more |
All hail to the new Establishment
The Financial Times 10/11/07
Review of The Triumph of the Political Class and Crap: a guide to politics
In 1955 Henry Fairlie wrote a classic article in the Spectator defining the Establishment as a whole class bound together by similarities of outlook, accent, and education. It included such luminaries as the Archbishop of Canterbury, the Earl Marshall, and the director general of the BBC, as well as sundry figures associated with the Times newspaper. This Establishment has now been replaced by what Peter Oborne calls the political class...more |
Are the imbalances on the mend?
The Financial Times 09/11/07
Problems are not so much solved as replaced by other problems. How many people remember that only a few months ago the main problem facing the world economy was supposed to be that of "imbalances": the large current payments deficits of the US and a few other countries, offset by surpluses in China, Japan and the oil-exporting countries? Since then, while all eyes have been on the bank credit crisis the imbalance problem has begun to fade away...more |
How to put money in the bank
The Financial Times 26/10/07
The US subprime lending fiasco and its repercussions on Northern Rock and international credit markets in general have brought back questions about the banking system that most macroeconomists had hoped were over and long forgotten. The confidence of what are called, rather disdainfully, "retail depositors" is not the only problem of the world monetary system, but it is still the bedrock on which everything else stands. Outside the US, deposit insurance is rarely complete and there are usually delays before reliable cheques denominated in central bank money duly arrive. In the UK it is only since October 1 this year that the Financial Services Compensation Scheme has been extended to cover eligible deposits of up to £35,000 and the new official discussion paper leaves open the possibility of raising the amount. But the implications of sweeping guarantees have not been digested. They have the dubious feature of bringing questions such as "What is a bank?" and "What is money?" into practical politics...more |
The tragedy of the pre-Budget report
The Financial Times 12/10/07
I feel sorry for anyone who has tried to make head or tail of the British government's fiscal plans from reading or listening to the statements made to the House of Commons by Alistair Darling, the new chancellor. It was the usual confusing mixture of propagandist figures, some year-on-year, others covering three years at a time, some in nominal terms and some in real terms, and the poor listener would have to work out for himself what they were changes in. I imagine the comparison was made with projections in earlier Treasury documents which did not previously have the status of firm policies...more |
Fixed parliaments would be fairer
The Financial Times 28/09/07
It was no surprise to find fixed-term parliaments omitted from the discussion document on constitutional reform, which Mr Brown presented soon after taking office, even though this is a radical demand going back to the time of the Chartists. Like some other reforms it will probably have to wait until the unpredictable time when there is a hung parliament - when the Liberal Democrats and other minority parties should make it part of the price of their co-operation with either of the main parties in supporting a government. It is a defect of Britain's increasingly wobbly, so-called unwritten constitution that a simple, commonsense reform looks like crying for the moon...more |
Trade and development: The case for unilateralism
Contribution to Globalisation: a liberal response, CentreForum London Sept 2007
The fundamental thesis of this chapter is that globalisation is equivalent to a large part of the world becoming a single market economy. The main difference is that in a domestic market economy there is a national government that can cushion the impact of economic change or redistribute income towards the losers - admittedly an idealistic account of what they in fact do. There is no such international government. Nor is there likely to be and it is wishful thinking to suppose that either international aid or institutions such as the World Bank can supply the deficiency. My contention is that a tit-for-tat negotiating attitude to trade liberalisation will not in practice be any kind of substitute for these cushioning forces. The use of such arguments mainly gives a veneer of respectability to policies designed to protect the vocal local interest groups and have nothing to do with rational policies of either cushioning or adaptation...more |
Challenge facing the 'academic'
The Financial Times 14/09/07
One of the more ridiculous charges against Ben Bernanke, chairman of the Federal Reserve, aired on the lower reaches of Wall Street is that he was an academic and that now was not the time for an academic...It so happens that Mr Bernanke's academic work is highly relevant. It has nearly all been on the Great Depression of the 1930s, whose scars still remain on American life and thought. When he first joined the Fed in 2002, Mr Bernanke had to lay aside 120 pages of a book he was writing on that depression. This must have been forced on him by a middle-level security-obsessed bureaucrat. Surely the Fed ought to have the benefit of its chairman's research, especially when dealing with credit crunches such as the present one? He himself ought to have the opportunity of revising his text in the light of recent developments...more |
Europe begins to rise early
International Economy Summer 2007
Despite all the contradictions within the Single
Currency venture, this zone has started to confound its
critics. Is a recurrent feature of economic analysis that no
sooner has a trend become conventional wisdom than it begins
to change. In every year after 2000, up to and including
2005, the growth rate of the Eurozone was less than that of
the UK and usually less than that of the US, while
unemployment was much higher. Recently however, while
attention has been concentrated elsewhere the Eurozone growth
rate has at last started to pick up and overtook that of both
the UK and the US in the last few months of 2006...more |
'Competitiveness' rears its ugly head
The Financial Times 31/08/07
There are many specialist terms that have descended into common speech and are used pretty indiscriminately. "Competitiveness" originally had a clear meaning but has now been taken up by politicians and business leaders as an all-purpose slogan. It is a relative concept. We cannot all be competitive against each other. I still remember Emil van Lennep, a former secretary-general of the Organisation for Economic Co-operation and Development, asking: "Against whom should the world be competitive? Against the moon?" If one needed a quick critical reaction to John Redwood's economic report to the Conservative shadow cabinet, it could have been provided by its title, "Freeing Britain to Compete" and its frequently asserted stress on competitiveness...more |
The crooked path of capitalism
The Financial Times 17/08/07
The decade and a half of steady low inflation growth enjoyed by the UK since leaving the European exchange rate mechanism in 1992 has been quite exceptional, as have even the four years of similar behaviour enjoyed by the Group of Seven leading industrial nations as a whole. The confidence of mainstream forecasters in predicting yet another Goldilocks period for the world economy should have made one suspicious, not because of the faltering in the second quarter of this year, but because experts are never as likely to be wrong as when they speak with near unanimity...more |
The case for a top-down approach
The Financial Times 03/08/07
With the international dimension now so important, the time may have come for a degree of joint management of world demand. The last thing I want to propose is yet another intergovernmental committee or another high-sounding body with a new acronym. The informal monthly meetings of central bankers at the Bank of International Settlements in Basle could do the job, as long as the emphasis is gradually shifted from comparing notes about each central banker's own country to a top-down view of world activity and inflation...more |
The devil in democracy
The Financial Times 28/07/07
Reviews of The Myth of the Rational Voter and The Rise of the Unelected
Anyone looking for evidence of cultural dumbing down need look no further than the way in which "democracy" has become a one-word slogan for all desirable objectives. What do both American neo-conservatives and European liberal interventionists say they hope to achieve in the Middle East? "Democracy." What is the most common complaint in elite circles against the working of the European Union? The "democratic deficit"...more |
Summon the ghost of Lloyd George
The Financial Times 20/07/07
Carefully designed fiscal redistribution remains a better response to globalisation than the protectionist threats with which the US Congress, for example, so loves to play. If you are looking for a tax to provide the wherewithal that has little or no disincentive effect you need look no further than that old favourite, a tax on land not on development but on pure space. The case for it was eloquently expounded before the first world war by those two great non-socialists, Winston Churchill and David Lloyd George. Plans were well advanced for introducing it when the war came about and diverted these two statesmen to supposedly higher things. We need to summon up their ghosts...more |
Two and a half cheers for tax credits
The Financial Times 06/07/07
Among the political cognoscenti the role of tax credits is often cited
as Gordon Brown’s biggest mistake as Britain's chancellor of the
exchequer. On the contrary I believe that they are among his
achievements...more |
The power of expectations
The Financial Times 22/06/07
Indicators of capacity pressures, pricing intentions and inflation
expectations remain in central bank-speak "elevated", or in English too
high. Moreover, inward migration has not proved sufficient to offset
rapidly rising domestic and overseas demand, although, I would add,
that is clearly "a good thing" at least from a central banker's point
of view. As the governor remarked: "A position in which growth is above
its long-run average and businesses are already operating with
pressures on capacity is unlikely to be without inflationary risks."
Bankers, unlike columnists, are allowed double negatives...more |
Towards a true price for energy
The Financial Times 08/06/07
An enhanced [climate change levy] could be the basis for a genuine
shadow price for energy, which could become the basis for energy policy
and replace the mind-boggling variety of specific schemes now in place.
But for this to happen the consumer exemptions would have to go, and
the levy first increased and then raised each year by more than
inflation. An approach along these lines would be a contribution to an
international effort to reduce dependence on imported and polluting
fuels; but it would also benefit any particular country taking this
route. And if Opec made disapproving noises we would know that we were
really on to something...more |
An economist on Fantasy Island
The Financial Times 25/05/07
There has long been a flourishing literature proclaiming that we are
living in a fool's paradise and that behind a facade of prosperity and
good fun the cracks are beginning to emerge. This was, for instance,
the message of Cato the Elder in ancient Rome, of Oliver Goldsmith in
his 18th century poem, The Deserted Village, and of mid-twentieth
century Labour critics of the UK's supposedly candyfloss economy,
epitomised by prime minister Harold Macmillan's "you have never had it
so good". Larry Elliott and Dan Atkinson, two economics editors,
present a worthy statement in this tradition...more |
From a Nice decade to 'not-so-bad'
The Financial Times 11/05/07
What is needed is a shift in the way people think of the Bank of
England monetary policy committee's work, which is too dominated by
financial analysts trying to predict whether or not there will be a
further 1/4 per cent change in the bank rate in the next couple of
months. ..more |
The tragedy of Tony Blair
To appear in International Affairs
This is not to say that earlier British Premiers were all paragons of
intellect. But men like Attlee, Callaghan or Major were content to go
with the flow. A leader with Blair's mission to save the world needs to
have a more penetrating intellect and a more subtle moral instinct.
Many of Blair's foreign policy ideas were pretty much Foreign Office
mainstream, eg to stay close to the US in public and try to influence
it in private. But it was the blinkered determination with which he
pursued them that left so many of his officials standing - which is
where Iraq fits in...more |
Democracy is far from everything
The Financial Times 27/04/07
Winston Churchill is often quoted as saying that democracy is a very
bad system, but all the others are worse. The last part of his saying
meets with near-universal acclaim. But not enough weight is put on the
first part...more |
Almost a new economic miracle
The Financial Times 13/04/07
Something is stirring in the heartlands of the European Union, by
which I mean the 12 original members of the eurozone...The eurozone
growth rate has at last started to pick up and overtook that of both
the UK and the US in the last few months of 2006...What I find
heartening about what has happened is that the Germans have pulled
themselves up by their bootstraps and have not waited for a Thatcher or
Erhard to wake them up.more |
Why this should be the last 'Budget'
The Financial Times 23/03/07
Now that Mr Brown has had his fun with 11 Budgets, if he becomes prime
minister he should ensure that these are the last of the present
series...I am simply suggesting that the three-year public expenditure
review this autumn should be regarded as "the Budget" with some
indication of whether the Treasury thinks it can be financed at
existing tax rates. There will obviously then be adjustments in each of
the succeeding years, but the process will resemble much more what a
company or a family thinks of as a budget, without the razzmatazz...more |
Regime change at the Bank 10 years on
The Financial Times 09/03/07
The virtues of independence for central banks are celebrated across the
political spectrum and much comment treats them as omniscient and
omnipotent. This May will not only be the 10th anniversary of the Blair
government but also of what some regard as its major domestic economic
achievement: the granting of operational independence to the Bank. The
institutional change was accompanied by the elevation of inflation
targets to the dominant position in macroeconomic policy. There was a
Roman saying: "If you want peace, prepare for war."; Today's
equivalent might be: "If you want growth, focus on price
stability."..more |
The mediocrity of circumstances
The Financial Times 23/02/07
Many defence experts agree that the decision whether or how to replace
Trident can be postponed for at least five years. A statement urging
this course was issued last Monday by a range of non-governmental
organisations and endorsed not only by the usual actors and actresses
but by some distinguished retired generals and Sir Menzies Campbell,
the normally cautious Liberal Democrat party leader. The only reason I
can think of for rushing the decision is Mr Blair's obsessive desire
to make this a part of his famous legacy...more |
On climate change and good sense
The Financial Times 09/02/07
Years ago I used to see a South African relation who had married what I
can only call a financial trophy husband. Whenever this unfortunate man
dared to express an opinion he would be silenced by his wife, who would
say: "Barney, don't talk about things you don't know." It is to
avoid Barney's fate that I have written so little about global
warming...more |
A pregnant bump in British inflation
The Financial Times 26/01/07
In every year since 1999 and in many since the mid-1990s, UK inflation
has been notably less than that of the eurozone, the US and the average
of the Group of Seven developed countries. That is until the middle of
last year. Since then, the UK inflation rate, now 3 per cent, has crept
up to about a percentage point above these groups. In itself that is
not so tragic. But the trouble with a little bit of inflation is that,
like a little bit of pregnancy, it grows...What has gone wrong?..more |
A semi-hard landing faces America
The Financial Times 12/01/07
All these matters fade into insignificance compared with the
repercussions of a strike by Israel against Iran, from which it would
be difficult for the US to stand aside. Such an attack would have to be
within the next two years while President George W. Bush is still at
the White House. "This is improbable but not as remote a possibility
as the market appears to think." These words do not come from a
cantankerous academic or a journalist looking for a headline but appear
in a study by the highly respectable international banking firm of
ING...more |
