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Archive for October, 2010

Do candidates count?

October 28, 2010 1 comment

I’m reading Paul Richards ‘Labour’s Revival: A Moderniser’s Manifesto’’, as background for my own book writing exploits

I’ll reserve judgement on the whole tome for another time, but this amused me……

Paul explains why he didn’t manage to win a very winnable seat in 1997, but came close:

It would be nice to think they were voting for me but of course they weren’t.  Individual candidates make only a marginal difference in elections, unless they’ve done something bad (p. xxiv).

Perhaps Paul did something bad, because he’s clear on why some Labour candidates held their seats in 2010 against the odds:

The clear lesson from the campaigns that where local candidates were supported by active community-based campaigns, built on years of incumbency, with local issues to the fore, they stood a much better chance of winning (p.48).

 ps. I much prefer Don Paskini’s analysis of how to win elections.

pps.  I also know a thing or two about winning elections through local efforts.  Candidates do count.

The Tea Party’s love of our Cam

He won’t tell me any details, but apparently Paul – yes, you know him, the one who writes on this blog – spoke to none other than Phillip Blond at the Labour Party conference, supposedly – and among other things – about me and my utilisation of the term “epistemic closure” to designate a good portion of the electorate who support the Conservative Party, despite being theoretically very removed from actual conservatism.

Paul has written some blog posts opposing my use of this term, so I can only imagine it was a critical conversation, but at least I got those two fogey’s talking.

Not one to blow my own, it turns out I’m not alone in thinking there is some parity in the Conservative Party and those for whom the charge “epistemically closed” had originally been levelled at by Julian Sanchez – those dreaded Tea Party folk in the US.

Four days ago, Patrick J. Buchanan of The American Conservative magazine – yes my favourite too – labelled Cameron the ‘Tea Party Tory’. (h/t Freddy Gray of the Speccie).

In fact, he goes further than I do. In my writings, I said Cameron is probably a limp-wristed leftie Tory who is able to sleep at night under the pretence he cares for the poor, but in order to be electable in his party, needs to appeal to a certain section of the party, what I call the epistemically closed section.

Buchanan, in fact, says that Cameron’s party’s cuts reflect exactly the ethos of the tea party – small government at a drastic scale.

No doubt as the money talks, Cameron’s soft social Toryism will be piss in the wind compared to the damage wielded by his cust agenda. Perhaps I didn’t go far enough in calling Cameron out for the epistemic closure inside his party.

 

Background articles:

The epistemic closure of the Conservative Party

Cameron will fail in reviving Conservatism

David Cameron and the Conservative identity crisis

 

0.8% growth Q3 still needs to be viewed with caution

October 26, 2010 18 comments

Unfortunately, today’s growth figures act as a Rorschach test; the coalition government and its supporters see growth at 0.8% in the third quarter of 2010, and growth for the last six months at 2%. What the opposition will see is a drop of 0.4% when between April and June growth was positioned at 1.2%.

Since growth was forecasted far lower than expected, many – such as Vince Cable, who was said to have a big smile on his face this morning, possibly after finding out the data – are probably just pleased to see a higher figure, not because it is necessarily a good sign for the economy, but simply because it will make for easy smoke and mirrors. Look we can cut and grow, it’s easy.

Others may note that the worst of the cuts have not been factored into the figures yet. It’s important to note that cuts will have been factored in already; the squeeze for many councils started a while ago, redundancies are a reality now, and small and medium businesses (SMEs) are already checking their books with a grimace.

Construction was the real winner with contributions of 4% (p. 3), compared with an increase of 9.5% in the previous quarter, and 11% since Q3 2009 and Q3 2010.

Read in a certain way, today’s figures will prove politically opportune for the Tory/Lib Dem government, which may set back Labour’s current lead in the polls. But it is not mere politicking to point out that the severity of the cuts, spelt out in the CSR last week, have not been entirely factored in, and that growth really needs to be sustained and sustainable.

There is even tension within the government about the road to growth. Vince Cable has recently slammed David Cameron’s optimism, saying that the “sunlit uplands” strategy will not necessarily be the case. If he has any sense about him, Cable’s supposed smile this morning will be matched by caution.

In Cameron’s “new economic dynaims” vision, he wants to “make sure we have a banking sector that is really focused on small business lending … rather than the banks thinking how [they] can become bigger and bigger investment banks.”

Cameron hopes to get those banks which the government has a stakeholder share of, to start lending again and fuelling a private sector revolution.

According to a recent NEF report entitled Where did our money go? the 2009 budget noted that RBS needed to lend an additional £25bn (£9bn – mortgage / £16bn – business); Lloyds an additional £14bn (£3bn – mortgage / £11bn – business); Northern Rock an additional £5bn in 2009 / £3-9bn from 2010 onwards.

After the bailout, there was disappointment that the banks were increasing the bonus pot without actually kickstarting small businesses with money. In an ongoing discussion I had with an acquaintance, I was reminded that the bailout was paid in order to cover liabilities at the time, but the reason behind doing so, and not allowing them to fail, was so they could start lending again – for this is the reason why those banks are too big to fail.

The EDL and the poppy trade

October 25, 2010 2 comments

No hyperlinks to racist thug organisations here, but if you google your way to the (a?) English Defence League site via words like ‘casuals’ ‘united’ and ‘poppies’, you’ll find that the EDL are selling customised poppies in advance of Remembrance Day.

Most graciously, they say they’ll be giving ‘a percentage’ of their profits to the British Legion, who are generally recognised to have a monopoly on the poppy selling trade at this time of year.  

That”s one trade monopoly people haven’t been to bothered about challenging.

At least until now.

I wonder what the British Legion think of this ‘support’ they’re getting from the EDL, and what they think of the EDL using ‘contacts’ within the British Legion to pass on their contribution.

Boycott the 35

October 25, 2010 12 comments

This is a cross post from my local blog for local people.  Yup, it’s another boycott.  Getting a bit hard to keep track.

What’s the difference between 35 and 33?  We all wanted the 33 to get out of the hole they’d helped dig.

As for the 35 ‘business leaders’ (being 34 men, one woman) who signed the Daily Telegraph letter in support of the Tories’ socially savage and economically incoherent cuts?  I’m joining the boycott of their businesses, announced today at the Liberal Conspiracy website, and encouraging others to do the same.

This follows on from an article I wrote for that site setting out the hypocrisy of business leaders calling for public sector cuts when they’ve either just signed of big public sector contracts or stand to gain directly from these cuts.

So you won’t find me going into Carphone Warehouse, or Boots, or ASDA, or any of the other retail outlets set out in this list.

Now, I don’t think the bosses of these firms are going to be quaking in their business shoes at my stance.  I generally go to ALDI anyway, and I’m not even sure what Harvey Nicholls sells.

Nor am I making any great claim that my actions will get at all the 35; I’m not in the market for an aircraft carrier at the moment.

But the thing about consumer boycotts is that they can and do sometimes just catch on, especially when powerful new social network tools do their thing.

 It may just come to pass that the shareholders of some of these firms start to ask questions, when they see their quarterly results, about why their Chairs and Chief Executives decided to make such a statement, especially when there is very good evidence that their principle claim – that public spending cuts of this magnitude will lead to private growth – is utterly wrong (so wrong, in fact, that one of the 35 firms actually says it’s wrong in an internal email).

If the 35 want to glory in their own status at the expense of millions (including their own employees), they need to know there may be consequences.

Of course, the common argument against boycotts is that you simply harm people who did not cause the offence in the first place.  The right argued that about South Africa for years.  So I should make it clear that the boycott I’m doing my best to promote here, in my own small way, is not an attack on all the people in West Lancashire and beyond who have to make their living in Boots and ASDA and Carphone Warehouse and Marks and Spencers et al. 

It is an attack on their bosses, who seem quite happy for their employees to be facing massive reductions in vital public services and much-needed tax and welfare benefits, of the type that these very bosses do not need.

Will you, loyal readers of the Bickerstaffe Record, join me?  It might just work.

(Note: while Kate at Liberal Conspiracy says she’ll never ‘darken the doors’ of the firms she lists again, I think that’s over the top.  I won’t darken their doors till their bosses have offered a public apology, or been fired by their boards for their recklessness in putting their own status interests ahead of the interests of their firm).

Are the Tories anti-investment and anti-social?

October 23, 2010 1 comment

I’ve just been re-reading the Compass’ think-report entitled In Place of Cuts: Tax reform to build a fairer society. It postulates some very heavy hitting criticisms of two of the three major parties (formerly known as both major parties) on the level at which tax will be important in reducing the deficit until 2014-15.

It also makes some keen observations, very relevant today; namely, private investment’s dependency on aggregate demand from public investment and public consumption. Rightly the report notes that balancing the budget in the way the coalition is – in break neck speed – will shrink aggregate demand.

The report also puts forward some tax proposals that only few “orthodox” economists are pushing for today: they include a 50% tax rate for earnings of £100,000 – securing, to their estimates, a minimum of £4.7bn (compared to the saving made, introducing the same tax rate for those earnings at £150,000, which they estimate would be at a mere £2.3bn).

The report recommends a change of the definition “tax residence” and a tax on all financial transactions at 0.1% which would secure £4.2bn, among other measures set at achieving a total of £47bn – this revenue reducing the burden on cutting at the public sector.

As it is, cuts to the public sector mean 490,000 jobs will be cleared – just like that – and as many as that will shift in the private sector, for as Compass suggests, much of the demand comes from public investment and public consumption; take these away and the private sector suffers its own shrinkage.

Furthermore, take this many people out of taxation, then you reduce the amount of revenue drawn from that pot – not to mention the welfare payments that’ll have to be dished out as a consequence.

Most of this has already been spoken about, and indeed most people know this already. But what has been less spoken about is the severity of tax revenue being lost. As it stands, over the next four years the government intends to cut in the public sector and rely on taxation at a ratio of 80:20. But seemingly, that 20 will reduce in value as more jobs are lost, and, as is inevitable, the private sector becomes totally incapable of replacing them.

How long will it be before even 80:20 is no longer affordable on the grounds that the 20 is not drawing enough revenue? What’s more, when we cut at jobs and demand too hard, we fail to invest and grow – that’s obvious.

The context of Labour’s spending throughout its three terms was a previous Tory government who left behind a historically low level of spending and long term under-investment. With plans as they are, the Tory-Lib Dem coalition seems intent on doing the same thing to investment as it is cutting without growing (or only hoping, against ALL odds that growth will appear through magic).

At what point, really, do we just accept the Tories are anti-investment and anti-social?

I’m sure stranger, less logical, things have happened, but if we do invest and grow in the next five years, it will be a magical fluke. What’s for sure is there is no imagineable plan for growth that is anywhere near orthodox in its economic strategy – the mind truly boggles.

The IMF: The Intentional Macro-economic Fallacy

October 22, 2010 13 comments

In circles where this kind of thing matters, there’s been a lot of attention paid to the most recent World Economic Outlook report from the IMF, and more particularly the findings in Chapter 3.   I’ll let David Osler take up the story, as he puts it succinctly:

IMF analysts looked at all known instances of fiscal adjustment in OECD countries.They found only two episodes in which economies expanded as deficits were cut: Denmark in 1983 and Ireland in 1987.

‘All known instances’ isn’t entirely accurate; in fact one of the purposes of the study is methodological – to show that you get different results depending on whether you study swings in the ‘standard’  ‘Cyclically Adjusted Primary Budget Balances’ or whether, as the authors do in this study, they study ‘action-based’ fiscal adjustments. 

It’s technical stuff, worthy of the appendices afforded it, but it’s important stuff, in that it really challenges the dominant view, on its own grounds, that cutting spending in the way the Tories, and other European countries (under differing levels of duress) can stimulate the economy through, for example, improvements in household and business confidence.

Nevertheless, the point is well made by Dave (and Martin Wolf does it in more detail in the FT): when you get down to it there really isn’t much evidence at all that what the Tories are now selling as their ‘no alternative’, ‘common sense’ measures.

This dominance of the ‘common sense’ idea is the type so loved by the largely economics-free zone that is the BBC, who recently devoted a whole week of prime-time radio programming to touring the country, hawking around the key idea that cutting £x in spending would lead to exactly the same level of reduction in the deficit.

Simply to equate spending cuts with deficit cuts is, we now know even more surely from this IMF paper, a total fallacy, but a sadly widespread fallacy, courtesy of  a largely compliant media and government more intent on serving its own narrow class interests than on the actual economic health of the country.

Now, we might be tempted to excuse the BBC for this apparently rank stupidity, seeing it more as an act of survival – toadying up to the government to save itself from being killed of completely.  

What’s more interesting, though, and perhaps more worrying, is that the IMF won’t even take any notice of their own findings.  As this paper from the US-based Centre for Economic and Policy Research, analyzing the same World Economic Outlook report, says:

[T]he Fund has so far not given any consideration to central bank financing of additional stimulus, in spite of the WEO’s assessment of the fragility of the current recovery in the high-income economies. Instead, it has emphasized the need for fiscal consolidation in the high income countries– if not immediately as in the pro-cyclical policies described above, then beginning very soon: “fiscal adjustment needs to start in earnest in 2011. Specific plans to cut future budget deficits are urgently needed now to create new room for fiscal policy maneuver.”

Even so, if it was only the fact that the top policy guys at the IMF hadn’t read the papers by their researchers, then we might still be hopeful that soon, when they’ve had time to digest the important new research, they’ll adjust their views and start to talk enthusiastically to governments about them, and how budget cuts of the scale they’d been promoting might not actually be such a good idea after all.

But it’s worse than that.

The authors themselves of this important chapter decide that what they’ve found is not actually in keeping with what they are ‘supposed’ to find, and take steps to avoid the conclusions that come from it.

Because having gone to all the trouble of finding that ‘action-based’ fiscal contraction leads to lowered outputs and increased unemployment in 168 of the 170 cases studied, they then go on to say:

The discussion so far has focused on short-term effects. We now turn to the long term. Does fiscal consolidation generate long-term gains? And if so, how soon do the long-term gains arrive? This question is one that cannot be adequately addressed using the empirical framework used in the previous section, and so we again use model simulations…….

The simulations suggest that, over the long term, a reduction in the debt-to-GDP ratio is likely to raise output both in the G3 economies and in the rest of the world.

The problem is not that simulations are used for this part of the study, rather than the empirical data used for the study of shorter term effects of fiscal consolidation.  Fair enough, if there’s no data, there’s no data.

The problem is much more basic than that.

The problem is that they’ve  just proved, beyond what they themselves consider is reasonable doubt, that action-based fiscal contract does not in fact increase output or decrease unemployment, but then immediately go on to assume that it does, and that this then decreases ‘the debt-to-GDP ratio’, in order then to model how that reduced ratio leads to greater output.

In so doing, they make absolutely the same error as the simpletons at the BBC, and as the class-interested thugs in 10 and 11 Downing Street are happy to see peddled.

Fair enough, the data they analyse in the first half of the study, shows that on average a country’s output as a % of GDP is reduced at a slower rate than the rate of the fiscal ‘consolidation’ (0.5% compared with 1%), so in ‘average’ circumstances it might be argued that it is worth cutting, because you DO get a bit of a reduction in debt-to-GDP ratio, meaning that the second half of the study may have validity.

But these are not ‘average’ times, as the study also make abundantly clear.  Nominal interest rates are already near zero, so the traditional rate cutting exercise can’t help.  More importantly, the studies recognsises that at the moment, many countries are looking to consolidate at the same time:

Overall, these results illustrate that changes in both the interest rate and the exchange rate are important to the adjustment process. When countries cannot rely on the exchange rate channel to stimulate net exports, as in the case of the global consolidation, and cannot ease monetary policy to stimulate domestic demand, due to the zero interest rate floor, the output costs of fiscal consolidation are much larger. Thus, in the presence of the zero interest rate floor, there could be large output costs associated with front-loaded fiscal retrenchment implemented across all the large economies at the same time (my emphasis). (See also my earlier post on the way in which stimulus is more effective when it’s global?  Does the reverse happen with global consolidation?)

So what’s going on?  Why is this research, which could be so influential for the common good – and I hope parts of which may still be – being corrupted by its own authors, with conclusions and recommendations about fiscal consolidation that are out of keeping with their really very innovative findings? 

I think the simple answer may be that these IMG guys, brilliant though they may be, are just like most of us. They want to do what looks right to their bosses, rather than do the right thing. 

Hah-Jooh Chang, from the inside, is less charitable about his  colleagues in the profession:

Economists are not some innocent technicians who did a decent job in within the confines of their expertise until they were collectively wrong-footed by a once-in-a-century disaster that no one could have predicted…..[Economics has been worse than irrelevant. Economics, as it has been practised in the last three decades, has been positively harmful for most people (23 Things They Don’t Tell You About Capitalism, pp.247-8, also featured in Duncan’s Weldon’s ‘Alan Johnson’s essential reading list‘).

‘Three decades’, and counting.

Categories: General Politics
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