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Why the Irish were right to say No
The Financial Times 20/06/08
If you are looking for examples of nonsense on stilts you could hardly find a better instance than the reactions of the European political establishment to the Irish No vote in the referendum on the Lisbon treaty. To begin with, it is not "a defeat for Europe". It is not even a defeat for the European Union. It is a defeat for a certain vision of the EU. First and foremost there is the goal of shifting more and more decisions to the EU level...more |
A limited defence of Gordon Brown
The Financial Times 06/06/08
I see no reason to turn against the prime minister because he has struck a bad patch in opinion polls, by-elections and relations with the media. I have always advised politicians who run in terror muttering about the Daily Mail to treat the media like a fierce dog that will not harm you if you show you are not afraid of it...more |
Auguries for a 'vile' decade
The Financial Times 23/05/08
One thing is for sure. This is that the partial relief from inflationary pressures provided by cheap manufactures from China is over for a long time. And to the extent that China allows the renminbi to appreciate, the more expensive its exports will become. Michael Saunders, the Citigroup analyst, warns that the "nice" decade of Mervyn King, governor of the Bank of England, is likely to be followed by a "vile" one - volatile inflation, less expansionary. This applies not just to the UK, for which it was coined, but the old industrial west as a whole. Food and energy account for 15-20 per cent of the typical Organisation for Economic Co-operation and Development family expenditure. This may not seem enormous, but cost increases here, concentrated in a brief period, can make quite a dent in living standards...more |
Home truths on political humbug
The Financial Times 12/05/08
Review of Political Hypocrisy The Mask of Power from Hobbes to Orwell and Beyond
Runciman's concluding chapter contains passages that can be quoted by partisans of all political persuasions and of none. On the candidates for the US Democratic party's presidential nomination he is cautiously sympathetic to Barack Obama, but makes the best case I have seen for Hillary Clinton, even if it is ultimately unconvincing. What struck a chord with me was his gentle demolition of the idea that a politician's profession of his own sincerity, or passionate belief, proves anything at all, which was the real undoing of Tony Blair...more |
The financial crises of capitalism
The Financial Times 09/05/08
The beginning of wisdom is to recognise that financial booms and busts have been a feature of capitalism from the very start. Indeed they are as deep-rooted as human gullibility and greed. This is impressively documented in Charles Kindleberger's Manias, Panics and Crashes, the last edition of which appeared in 1989. He has a table listing more than 30 such events, starting with the South Sea bubble of 1720 and ending with the New York Stock Exchange crash of 1987. Although some analysts have tried to discern a periodicity in their occurrence, I can only see an irregular succession with some crises succeeding each other at intervals of about a decade so beloved by old-fashioned business cycle theorists, but others coming hot on the heels of their predecessors after only a couple of years. Their frequency tempts one to parody Churchill: capitalism is a bad system, but the others are worse...more |
A third way on immigration
The Financial Times 25/04/08
There are some good economic as well as cultural arguments for immigration. One has only to look at the number of successful British businesses founded by immigrants or their children, or the impetus that immigrants have recently given to trades as diverse as nursing, catering and construction. But the cause of toleration is not helped by relying on bad economics, as the government so often does...more |
The case for a 'dual mandate'
The Financial Times 11/04/08
Both the Fed and Fed watchers still accept the idea of a "dual mandate" for both growth and price stability...[One] criticism of the dual mandate is that one instrument, namely nominal interest rates, cannot be used to determine two objectives - growth and price level behaviour...There is a way of combining the objectives which avoids this trouble, namely to target what economists call nominal demand, but which may be simply translated as internally generated cash spending. It is then left to economic agents to determine how far this is reflected in real growth and how far dissipated in inflation...more |
When inflation comes from abroad
The Financial Times 28/03/08
The discussion of world credit problems has concentrated too much on the trees and not enough on the wood. We hear a lot about which financial institutions should be bailed out by central banks and on what terms; which financial instruments are most to blame and whether they can be better regulated in the future. Of course these are important questions, however embarrassing they are to those who have preached nonintervention and competition. Yet in all this detail it is easy to lose the point of the exercise, which is perhaps too simple for the technocratic mind. It is to ensure a growth of nominal spending - that is spending in cash terms - rapid enough to support sustainable growth but not so rapid that it generates unacceptably high inflation. Whether this is brought about by conventional central bank interest rate policy, the reanimation of moribund credit and capital markets, tax cuts or sensible government spending is secondary...more |
Budget's diminished role
The Financial Times 14/03/08
British Budgets are not what they were. Much of the job of steering the economy has shifted from fiscal to monetary policy and therefore to the Bank of England. Interest rates and exchange rates now play a greater role than the modest changes in taxes and spending that used to be the centrepiece of economic policy. In fiscal policy itself the fine-tuning philosophy has been replaced by long-term guidelines. The main influence on the tax-take is now the public expenditure review, which is supposed to determine spending three years ahead and is published at a different time to the chancellor's Budget statement. The latter must, in Bagehot's terminology, now be regarded as part of the dignified rather than the effective part of economic policy...more |
The pressure on UK living standards
The Financial Times 29/02/08
While the army of investment analysts has been trying to guess whether the Bank rate will be cut by a quarter per cent, a half per cent or not at all - it could even rise - the governor of the Bank of England said something much more important and interesting in his press conference on the Bank's February inflation report. It was that the UK faced "a genuine reduction in our standard of living compared to where it would otherwise have been". Despite the usual get-out qualifying clause, it made me sit up...more |
Defining the financial safety net
International Economy Winter 2008
Why should there be a safety net for banks and not for the steel industry, textiles or other victims of economic change? The cliché reply is that money, as the lubricant of the economic system, is "different". This might have had plausibility when there was a hard and fast line between banks and other financial institutions. Central bank safety nets could in principle be extended from deposit banks to investment banks. But there would be no shortage of other corporate bodies claiming to provide similar services; and if we are not careful, safety nets would be demanded for most of the economy, which would be either impossible or disastrous if attempted...more |
The British budget conundrum
The Financial Times 15/02/08
How did the UK move from Gordon Brown's initial "prudence" as chancellor to a state where, according to the Institute for Fiscal Studies, 19 out of 21 comparable countries have done more to improve their structural budget balances? I leave partisan theories to others. It all goes back to a seemingly technical mistake. It is common sense to allow the budget to move into deficit during a recession or slowdown and to accumulate a surplus during upturn or boom years. Mr Brown and his advisers were not content with doing this on a year-by-year basis, but insisted on relating their borrowing to the whole business cycle, the dates of which kept changing; so allowable borrowing today became dependent on highly conjectural computations going back to the 1990s. This, although backward looking, comes from the same kind of hubris as over-reliance on forecasts...more |
High time for all of us to 'buck up'
The Financial Times 01/02/08
Many years ago we had a family friend of Lithuanian Jewish descent who had picked up a smattering of idiomatic English expressions. One of these was "buck up". Looking at much of the comment on the credit crunch, I feel like saying that myself. Surely we know by now that market economies do not move in a straight line but are subject to periodic setbacks of varying strength...more |
We have defences against a slump
The Financial Times 18/01/08
A theme heard among financial analysts is that governments and central banks are running out of "ammunition" to fight a setback in economic activity. Their view seems to me profoundly wrong. The issue here is not whether there is going to be a recession in the world or individual countries, but what governments and central banks could do about it. There are many problems about policies to maintain activity, but lack of policy instruments is not one of them...more |
Business growth is not an end in itself
The Financial Times 04/01/08
Many practical businessmen, who have no time or inclination for political economy, suppose that we must go on churning out more and more to survive, whether or not we enjoy the process...The clue to the whole matter is provided, as so often, by a dictum from Adam Smith: "Consumption is the sole end and purpose of production; and the interests of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer." To demonstrate the falsity of the belief that we must continue to feed the productive machine with ever more ridiculous demands, let me indulge in a brief thought experiment...more |
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