Posts Tagged ‘economics’

The Coalition Government has killed Enterprise in the UK

January 31, 2011

Enterprise UK was the body set up to promote entrepreneurialism in the UK. It was started by people like the CBI and British Chamber of Commerce and had that Peter Jones from Dragon’s Den as the Chairman.

Precisely the sort of organisation that would be favoured by Tories (and their Lib Dem minions) who get all excited by enterprise and who have gambled all their money on a private sector-led recovery for the UK economy. Except not.

Enterprise UK got most of its money from the Department for Business, Innovation and Skills. This week, the Enterprise UK Chief Exec had to declare:

I’m writing to update you about the position of Enterprise UK, following the government’s decision to end our grant-in-aid funding from April 2011.

Since the announcement in December 2010, I have been working closely with staff, trustees and key stakeholders looking in detail at the implications of these cuts and the options for the charity to continue in some way post-April, albeit in a different guise. The proposals we considered included the establishment of a legacy organisation to take forward initiatives like Global Entrepreneurship Week and our various other enterprise education programmes.

Following a meeting of the Board of Trustees on 24th January where full consideration was given to all the options, we have decided to instigate an orderly wind down of the charity with immediate effect. We will still be delivering on some key operational activities like Tenner during March, but we also aim to have closed down our offices and activities by the end of April 2011.

A microcosm-like example of how private enterprise so often depends on a bit of public spending to keep it going? Instead of being mutually exclusive, private and public sectors can be mutually dependent.

This doesn’t bode well for any of us.


Delayed Budget reaction

June 23, 2010

It was predictably unpleasant. I don’t have much to say that isn’t better said by the Fabians, Anthony Painter, the TUC Touchstone blog, and the Institute for Fiscal Studies.

Labour’s reaction was also fairly predictable. I thought Harman’s response was barely adequate.

The party has a few problems in providing proper opposition at the moment.

Firstly, there’s no leader to act as a figurehead for Labour’s response to the Budget.

Secondly, there’s no clear policy programme to push as a viable and attractive alternative to Gideon Osborne’s cuts.

Thirdly, even if there was a distinct Labour alternative there would be an issue with credibility, as only a few months ago when our party was in government many of the big economic policy cheeses spoke of imposing cuts worse than Thatcher’s.

Unfortunately we are stuck with this coalition Government for the next few years. Fortunately, Labour will have a new leader in place by the autumn. Having had a few months to consider the situation and to debate with Labour members about the party’s future, hopefully the new leader would be in a good position to push for that credible economic alternative and to reinvigorate Labour as an effective opposition.

Hayek versus Keynes rap battle

February 13, 2010

This is geeky, hilarious, and educational. Watch it now!

Comments under YouTube videos typically read: “LOLZ!!!1!!111!!!”, “that wos grosss” and “the pimpin baby and the donkey r da gr8est!”

However, the Hayek versus Keynes rap video has provoked more thoughtful reactions:

Frankidealist35 (17 hours ago)

Although then again I guess this video is mostly based on FA Hayek’s philosophy in Economics in One Lesson… it would be neat if they could make another video comparing Keyne’s and Hayek’s view on planned vs spontaneous economies.
Jackcodak (18 hours ago)
The debate on currency seems relatively simple to me. It doesn’t matter if we have a gold standard or a fiat currency. Markets happen. If we were prisoners of war, we would trade cigarettes. If smokes weren’t available like in prisons today, we would trade mackerel. A devalued dollar helps exports in the short run but drives up the cost of inputs. A strong dollar helps us to buy more trinkets but makes our output look less attractive. Neither gold nor silver nor the Fed will “save” us…
mbburch06 (20 hours ago)

There are, of course, other factors in play with commodities. The point is that gold is mainly used as a hedge against inflation. So when you say that gold has deflated 30% for 5 years, you are confusing cause with effect. It’s the buying power of the dollar –not gold– that’s unstable.

The dollar has lost value as the Fed fires up its printing presses, and this has devalued the dollar relative to gold (and everything else). Obviously under a gold standard this would not happen.

Love it!

Complaint to Dave of ‘Though Cowards Flinch’.

December 9, 2009

Comrade Dave of the blog ‘Though Cowards Flinch’ has written an assessment of today’s pre-budget report. He makes decent points on the good and bad aspects of Darling’s announcements.

However, I must protest at this: “About the best thing one can say regarding today’s pre-budget report is that it’s not quite so bad as Ramsay MacDonald slashing unemployment benefits in order to return public finances to some ‘order’”.

Whilst not wishing to detract from the central thrust of Dave’s post, my determination to try to rehabilitate Ramsay MacDonald’s reputation (at least partially) means that I can’t leave this be.

The public spending cuts eventually imposed by the National Government were more the responsibility of Chancellor Philip Snowden than Ramsay MacDonald. Snowden was the true disciple of orthodox economics; MacDonald was wishy washy on the subject and would have been pushed in any direction wanted by a forceful Chancellor. The Labour Cabinet also voted by a majority to accept the cuts, but Arthur Henderson made it clear he would resign from the government rather than let this pass.  

It’s wrong to demonise Ramsay MacDonald. It absolves people like Snowden who were more blameworthy. Anyway, instead of focusing on individual failures, it’s more interesting to ask why the Labour Party was so institutionally clueless when it came to the question of how to govern the country in a socialist manner.

Pedantic complaint over.


December 3, 2009

“Dubai’s enthusiastic embrace of capitalism, which some find disconcerting, is exactly what the Middle East needs.”

This article was perhaps not Sunny Hundal’s best prediction ever?

(Hat tip to Gene at HP)

Why wealth matters

July 3, 2009

Over the past 12 years Labour has generally shied away from expounding on the subject of wealth, preferring instead to be seen to wish to “reward success” and focus efforts on giving aid to the worst off, rather than taking pops at the rich.

This wasn’t such a bad political strategy – especially in the 1990s, when, for good or for ill, we needed to do everything we could to convince the British public that we were able to accept the status quo in a society which fetishized great wealth.

But the way things are now, we need to focus on the issues that wealth and its present distribution present; both in terms of the way our political discouse takes place, and in the nuts and bolts of policy.

The first point is on the very different ways in which moral judgements are made about the rich and the poor. Consider the 50% tax rate. This comes via a particularly daft unreconstructed Thatcherite:

Economic think-tanks have already readily condemned the tax rise as pointless with the Institute of Fiscal Studies warning that the treasury’s predictions regarding the tax have a “very high degree of uncertainty” and many predicting that this could lead to an overall loss in government revenue rather than a gain with businesses simply moving abroad and many using loopholes to declare their income as Capital Gains.

Forget for a second that he’s simply wrong. Forget that there is no evidence to suggest that the 50% rate will have a negative tax yield (no matter what the Laffer-curve believing monetarist flat earthers think), and that very few of the extremely rich will actually leave the UK (most of them seem to like London, for some reason).

What’s significant here is a complete moral absolution of people who choose to arrange their affairs such that they avoid paying UK tax, and so drive up the tax that must be found from you and me. The wealthy are never – never, ever, ever – condemned for this sort of behaviour.

But the wealthy are not the only group in society against whom it is levelled that they arrange their work affairs so that they can maximize their own income – the unemployed are, if you believe the tabloids, very assidious about avoiding work and maximizing the benefits that they receive as a result.

The outcome here? Widespread and loud moral condemnation, of a sort that drowns out the calmer voices in debates about economc inactivity and work.

It’s clear to me, then, that – despite the fact that “economic rationality” is acting in the same way in each instance – the “public debate” holds that the poor have very strong moral duties to the rest of us which trump their economic self interest. The wealthy, on the other hand, have no moral obligations of any kind: they must simply carry on being splendid.

That this is the case has led to a deterioration in the way we think about wealth, poverty, inequality and social cohesion.

The second point about wealth is that growth benefits the general public in different ways, depending on where it is generated. I’ll take just one small example of what I mean.

An important, and oft-overlooked, component of the benefits of economic growth is the externalities that arise from increasing demand for certain goods and services – usually, in the form of product improvements and market enhancement.

What this means is that broad based growth, which raises the disposable income of a relatively large number of people, has the potential to be extremely beneficial to future consumers.

The economic good years of the 1950s, for example, were broad based, and resulted, famously, in a huge expansion in the ownership of consumer durables – fridges, TVs, washing machines and vacuum cleaners.

But the best bit is that this becomes a virtuous circle, because the demand in these sector drives innovation and competition. So, a family which bought a fridge for £75 in 1952 were benefiting families who bought a better fridge for £40 in 1957.

Growth in the last 25 or so years, though, has been based on a very small number of very wealthy people – and this is where the mass benefit breaks down.

The improvements to the quality of yachts, or the redesign of the Bentley Continental, have far less application to our own lives than would improvements to products that we actually buy – and in a world where the wealthy are increasingly cut-off from the rest of us in lifestyle, this is increasingly the case. The growth and its benefits we have seen in positive GDP growth figures up to before the recession has, in actuality, been concentrated in a very few hands.

Before we can be honest with ourselves about the limitations of Britain’s wealth fetish, we will have a blinkered view of what can be done to make our economy one that is broad based, and so able to benefit more people more of the time.

Monarchy: a radical proposal

June 29, 2009

I don’t envy the Royal accountants at the moment – by all accounts things are going a bit Pete Tong down at Buck House. The Queen is apparently going to run out of money by 2012, and Prince Charles has already started making cutbacks in the running of his household – presumably, he’s going to have to start putting his own toothpaste on his toothbrush, the poor mite.

I think there’s an obvious analogy with the Royal Mail privatization debate: if the Monarchy is so inefficiently managed as a monopoly that it will – barring a huge injection of public cash – go bust within the next three years, why don’t we seek a private sector solution?

Think about it: we could put The Crown out to tender, maybe at 10-year intervals. Businesses, indivuduals or families could make bids to operate the Monarchy (which, as far as I can see, means wearing a lot of bling and waving), and the government could consider them on a cost-basis.

I think there is much to be said for this approach. I see that the current contractor (known now as the Windsor family, after a successful rebranding from the unfashionable “Saxe-Coburg-Gotha” label in 1917) costs £41.5m per year. I reckon that the Paintbrush collective could put in a bid for at least half  that.

Speeches I wish Gordon Brown had made (number 94)

June 29, 2009

I’ve been thinking recently about the comparisions between the Credit Crunch and the post-9/11 crisis in foreign policy, mostly in terms of how leaders have chosen to respond to the emergent situation.

In 2001, the US/UK consensus on foreign policy came to an abrupt end, and leaders – foremost among them Tony Blair – were keen to expound new doctrines to guide the formation of the post-9/11 policy on diplomacy, allies and security.

Surveying the scene less than a month after 9/11, Tony told the Labour Party conference on 2nd October 2001:

This is a moment to seize. The Kaleidoscope has been shaken. The pieces are in flux. Soon they will settle again. Before they do, let us re-order this world around us.

Today, humankind has the science and technology to destroy itself or to provide prosperity to all. Yet science can’t make that choice for us. Only the moral power of a world acting as a community, can.

“By the strength of our common endeavour we achieve more together than we can alone”.

For those people who lost their lives on September 11 and those that mourn them; now is the time for the strength to build that community. Let that be their memorial.

Whatever his faults and whatever the flaws in this “re-ordering” process, this is Tony’s raw leadership quality shining through.

The world needed a new foreign policy for a new age: Tony sought, within a month, to establish its case, to demonstrate that this posed an opportunity and not just a threat, and to establish some clear moral principles around which the new way would be ordered.

So how does Gordon compare?

Personally, I think Gordon has handled the technical detail of holding back the worst of the recession well. I also think that a lot of the blame being laid at his door for the recession happening is unfair.

But all of this assesses Gordon as if he were a mechanic, called in to fix a broken machine. He’s not: he’s a leader. What is really lacking – and is is particularly lacking in comparison to Blair’s approach post-9/11 – is the vision for what is to come next. Indeed, it’s the analysis of what got us here in the first place too.

I’m no speechwriter, but I’d like to have heard something along these lines: (more…)

*sigh* defending Gordon. Again.

June 24, 2009

As a self-confessed Gordon-sceptic this may seem odd, but I am still occasionally able – nay, willing – to defend Gordon’s handling of the economic crisis, and his general record of Chancellor.

My view, for the record, is simply that Gordon – for all that he has done for Labour over the past 25 years – simply isn’t the right leader to take us forward once the recession is over.

This all becomes particularly embarassing when even members of my own family start to put the boot in to the ol’ Gord. I worry sometimes that I’ll beginning to sympathize with the poor man.

Obviously thinking that his poor Labour activist son needed cheering up, poppa VoteRedGoGreen – a Labour man, but no fan of the Gord – sent me this list of Gordon’s “10 greatest financial gaffes” via email today, with the subject line “Another nail in the coffin…”

Cheers Dad. I notice you waited till after Father’s Day before deciding to send this particular piece of political cheer to your first born.

Anyway, feeling in a contrary mood, and being 200 miles away and thus robbed of the opportunity of skulking off to my bedroom and slamming shut the door, I formulated the following list of responses to the 10 “gaffes”.

1. Taxing dividend payments

Pensions aren’t really my strong suit, to be honest, and I’m sure that pops knows a bit more than I do – nevertheless, I’m happy to stand up for Labour’s record for pensioners. Minimum Income Guarantee anyone? Or the Winter Fuel Allowance? Pensioners, especially the poorest, are a lot better off, and pensions are set to be index linked once again.

2. Selling our gold

Duncan has said it far better than I have. Selling the gold was a move to diversify Britain’s reserve stocks, and (as Duncan rightly points out) pales into insignificance when set against Thatcher’s £450bn oil revenue spree in the 1980s.

3. Tripartite financial regulation

I’ve expounded on this myself. The tripartite system was sensible, given that the Bank of England was taking over control of Monetary Policy, and was far more stringent than any previous system. It’s also unarguable that every regulartory system in Europe failed – begging the question, was it possible to construct a regulatory system that would withstand the recession?

4. Tax credits

The Times seems to suggest that the overpayment problem means that tax credits have simply been a complete failure. Nonsense. The OECD says that inequality and poverty have dropped quicker in the UK than in any other country, and tax credits have been a big part of Labour’s determined strategy to make this the case.

5. The £10,000 corporation tax threshold

The Times seems to be complaining that Brown made taxes lower, and then put right his error as soon as it became clear. Curious. The new sliding scale is working well, though. It’s certainly no “smoking gun” on a Brown Chancellorship or Premiership.

6. Abolition of the 10p tax rate

OK, I’ll give you that one. Next!

7. Failing to spot the housing bubble

Well, yeah but no but – what? It’s not that the housing bubble wasn’t spotted that is the problem, it’s that there was precious little the government could actually do about it. Fundamentally, it’s lack of supply that has caused massive inflation in house prices in the past decade, and only huge numbers of new housing units could hope to have even a slight impact.

Of course, I’d support this, but Middle England (Peace Be Upon It) just loves forming groups of Nimby residents to oppose new housing developments – mostly, I suspect, because they think that poor people might live in them. They can use current planning law to impose costly holdups on developments. When the government tries to change planning law, there’s an outcry. Nobody said it was easy, did they?

8. 50 per cent tax rate

This one is based on a quote from one Robert Chote, Director of the Institute for Fiscal Studies and, it would appear, a complete muppet:

“If you look at what happened when higher rates were last changed in the 1980s, that might lead you to suggest that such a move might actually lose you revenue, rather than gain it.”

This is Laffer Curve theory at its daftest. Once again, a slam dunk for our favourite blogging leftie economist – empirical evidence strongly suggests that, among OECD countries, all but Sweden have marginal tax rates below the point at which maximum revenue can be collected. There’s also no evidence to speak of that the 50% rate will lose Britain any significant output or business – Denmark’s tax regime is far harder, and yet it is apparently the best country in which to do business.

9. Cutting VAT

They’re really scraping the barrel here. All this item quotes is an unnamed “tax accountant”.

And there’s no actual evidence in the item to back up its assertion that “shopkeepers, not shoppers, felt the benefit”. The retail output figures for the last 6 months saw a considerable increase, AND it’s one of the reasons why Tesco has a 7% supermarket market share in Ireland when it doesn’t have any stores in the Republic – Irish shoppers crossed the border into the North to shop.

It was the only way that a tax cut could be guaranteed to go straight where it needed, into the consumption side of the economy, and as far as it goes, it worked.

10. Public-sector borrowing

UK net borrowing is still a lot lower than in the USA, Japan, France and Germany. Duncan’s not worried, and nor is Chris Dillow. An aggressive pursuit of government budget balance during the recession, as in Ireland, would be disastrous.

So all in, I’m not convinced. Poor old Dad’s going to have to try harder.

Note to Dad: don’t worry, I love you really. And your card really is in the post.

Banking: it’ll make you go blind, you know

June 19, 2009

In my quest to bring the Paintbrush reading public their favourite type of non-Lily Allen related post (srsly, guys, she really isn’t here), I’ve been considering Banking reform.

The beeb is reporting that Mervyn King and Alistair Darling are clashing over what needs to be done. The Governor’s view is that there needs to be more done to allow intervention in banks that are “seen to be behaving riskily”; The Chancellor, on the other hand, favours leaving the tripartite system as is.

So far so predictable. I have some sympathy for King’s view, in honesty: but the important question is, how do you tell when banks are behaving riskily?

So here’s my two penn’orth for banking reform: Nationalize banking audit.

At present, banks (like other large businesses and financial institutions) must have their accounts audited, and spend large sums of money on getting the large auditors like PwC, Accenture and KPMG to come in, sift through everyone’s desk, and sign off on the accounts.

However, there have clearly been problems. There’s not a suggestion that any of the banks or mortgage lenders that have run into difficulties in the last two years came close to failing an audit; surely that’s a damning indictment of the present audit system?

There’s clearly a peverse incentive operating here. If a bank is paying an auditor hundreds of thousands of pounds to perform a service, there’s little incentive for the auditor to give their client bad news.

They are, after all, keen to get the contract again next year. In fact, the sort of personal relationships that can build up at a management level between banks and auditors that work with one another for a long period of time could work to make this worse.

That’s why, I think, the state should get involved. I think that a new consensus emerging from the financial crisis is that the public interest stake in the stability of the banking sector should be acknowledged more, and that there is a legitimate role for the state.

So, once the state relinquishes the stakes it has bought in the banks which required bailing out, we need to look at how that role is to be maintained.

Having a nationalized Office of Banking Audit – financed by an Audit Tax on banks, which would more or less replace the fees banks currently pay to their private auditors – would ensure that a stringent watch could be taken on risk taking, and that banking balance sheets can be kept in check.

Nationalizing bank audit is a neat “third way”, if you like, between returning to the light and limited touch of the past, and all-out state intervention in banking through ownership of stakes in large banks.

Can it happen? I’m not sure the government is feeling bold enough. But it should do. The time for being squeamish about nationalization is past: I think we’re all past the days when it meant going for the “commanding heights” of the economy.