Tag Archives: economy

Intergenerational equity and the perils of groupthink

As the implications of what it appears that the coalition is about to do in the upcoming budget sinks in, I have to admit to growing increasingly concerned. No-one – outside of the Labour leadership contest anyway – denies that the structural deficit needs to be tackled or that we don’t face some unpleasant spending cuts over the next few years. But I’m mystified by the economic strategy behind what the government apparently has planned.

If the government does have a game plan, thus far it has not been spelled out. Nick Clegg’s speech on Monday was remarkably void of much of an argument, resting as it did on two points:

1. There is no alternative: “to do anything else would not only be irresponsible, it would be a betrayal of our progressive values”.

2. It is a matter of intergenerational equity: “There is nothing progressive about condemning ourselves and our children to decades of debt, higher interest rates, fewer jobs.”

Nick Clegg and company keep emphasising how shocked they were by the state of the country’s finances, but thus far – despite all the welcome transparency – they have offered nothing to explain why they were quite as shocked as they were. The report of the Office of Budget Responsibility was mixed: it suggested that the structural deficit was worse than we’d thought but that public spending was actually under better control. Clegg himself keeps talking about this meeting he had with Mervyn King and how it made him see the light; it is almost as if he has come back from Mount Sinai carrying tablets of stone. But Mervyn King is just one man, and not one whose prognostications in the past have proven to be infallible. What is King saying in private that he can’t tell us in public? Why wasn’t it being said before the election? And how has it shattered Clegg’s and Cable’s own views of economic policy so irrevocably? I always knew that both of them were fiscally conservative, but this is radical neo-liberalism. It is the most spectacular policy volte-face I’ve ever seen.

More to the point, why does no-one else in the world appear to be pursuing a similar strategy. The UK is not in the mess that Greece is in, yet the coalition government is behaving as if it is. We know why the Tories want to do this: they’re Tories. I’ve yet to hear a single, coherent Liberal Democrat argument for why we should be going along with this.

The thing is, we do have choices here; lots of them. The government have made two fundamental choices which, on the face of it, contradict the advice of a very large number of economists and thus urgently need to be explained. Firstly, they are seeking to tackle the whole structural deficit within five years (something which the Lib Dems denounced during the election). Secondly, they are seeking to do this overwhelmingly by cutting rather than taxing (something which, to be brutally frank, the Lib Dems fudged during the election). I can see nothing in the OBR figures which suggest that such a strategy would be madness; quite the opposite. If the structural deficit is larger than we imagined, then surely there is a case for tackling it over the longer period of time, and an even greater scope for tax increases? To do otherwise would just risk damaging the economy, surely?

It is one thing to cut £6 billion this year: frankly I was pretty unfazed by that. But the numbers the government has started talking about really will risk – if not guarantee – a double dip recession. Withdraw the amount of money from the economy that we are talking about, and it is hard to see how the outcome will be anything other than negative growth. It actually looks as if, despite all the reassurances a few weeks ago, the government’s agenda is to actually engineer a new recession, seeing it as a necessary bit of pain with a view to long term benefits.

The last time that was done was the early 80s, under Thatcher. The result? In some parts of the country a whole generation was left on the scrapheap. Far from tackling the structural deficit, we’re still paying for it. That shocking welfare bill that Frank Field and Iain Duncan Smith have been given the task of slashing? A large proportion of it is due to the government plonking a large proportion of ex-miners onto incapacity benefit. The price has not just been financial; lives were shorn of value overnight; communities were destroyed; the following generation grew up with no hope and no aspiration. Social mobility fell. This is what shock doctrine economics does to a country and even the Tories pledged we would never return to it.

This brings into question the claims that such a hard and fast approach is progressive from an intergenerational perspective, and also causes us to consider some other worrying trends emerging from the government. Leaving aside David Willetts’ extraordinary views that higher education is an intolerable burden on the taxpayer, we have the fact that one of the main things the government has slashed over the past month has been youth employment schemes. Clegg’s argument that it is progressive to cut now to ensure that future generations don’t end up paying for our mistakes are only actually convincing if the future of those generations are not being curtailed by the same economic policies. Deny a graduate or teenager a chance of either employment or training now, and it won’t matter to them how high taxes are in the future because their own earning potential will go through the floor.

All of this flatly contradicts Clegg’s emphasis on social mobility, or does it? Because when he talks about social mobility, as he did on Thursday, Clegg’s emphasis is all on children. We can all agree that the most effective time in a person’s life to invest in is their early years, but this truism appears to have fallen victim to doctrinal reductionism. Simply put, it makes no sense whatsoever to invest in early years and schools while having nothing to offer people once they hit 16. What is the value in the government creating the most aspirational dole queue in history?

All of this adds up to an emerging picture of futures of the current crop of teenagers and young adults being sacrificed in the name of their younger and older generations. You’ve got to ask what they’ve done to deserve it? Equally, you’ve got to wonder if Clegg and Cameron would be quite as ready to do this if Antonio, Alberto, Miguel, Nancy and Arthur were a little older.

No-one else seems to be taking as much of a hit. Wealth taxes have been almost entirely ruled out, despite the fact that taxes on property values (or, better yet, land values) would have the least negative economic impact. And yet, far from being an economic burden, it is the 14-22 generation that we will largely depend on to make our economic recovery over the next decade a swift one. I am completely mystified; it makes no sense to me whatsoever. It seems to have been concocted by a bunch of people more concerned with sounding tough and being seen to make grown up decisions than actually steering the country down a fair and economically sustainable path. In short, it screams of groupthink; I pray that I’m wrong.

Late last week I spoke to someone on the “inside” and painted them a rosy picture. I speculated that all this doom and gloom that had been coming out of the Treasury and Downing Street over the past fortnight was a shadow play designed to placate the Tory headbangers and that what would emerge would be something surprisingly progressive and far-sighted; people like me all breathe a collective sigh of relief.

I still like to think that is a distinct possibility, but my source didn’t seem to find my theory anything more than charmingly off the ball. If they would at least offer us an actual economic argument, it would be something. Instead we just get echoes of Thatcher’s There Is No Alternative.

Conference and canards

God know’s why I’m still up at 3am. Still a bit wired after conference I guess. I’m not staying up much longer but I wanted to write that I thought it was an excellent weekend both for the party generally, the Social Liberal Forum in particular and me personally. A few random thoughts:

1. I was pleased by the answer Danny Alexander gave me regarding the FPC playing a more pro-active role in formulating a response to government legislation in light of the Digital Economy Bill debacle. I have a few thoughts on this but will write about them later.

2. I was less pleased by Nick Clegg’s non-commital answer to my “friendly” question about if he rules out further tax rises, as he appeared to do in the Spectator this week. He neither confirmed nor denied the position he took. SLF Chair David Hall-Matthews also pressed him on this during the economy debate. The rumour going round was that he privately acknowledges “misspeaking” but it is concerning nonetheless.

3. Despite my constant grumblings, I really do think that Nick Clegg nailed it in his conference speech. “Change that works for you. Building a fairer Britain” is a lousy slogan but then, aren’t they all? As spelt out during the speech however, at its core is a brilliant narrative which encapsulates what distinguishes the Lib Dems from the other parties. The fact that we even have a narrative (or rather, a narrative of our choosing rather than one imposed on us) is a bit of an innovation for the Lib Dems going into an election. The four themes work well and, crucially, join together. The bad old days of the 2005 policy pledges seem long ago.

4. Standing room only at both SLF fringes, including the one about passing a constitution. FTW!

Finally, over on the SLF website, I’ve written a response to the Left Foot Forward/Fabian “research” which purports to prove that the Lib Dem tax policy is regressive – by its own admission it only applies if you cherry pick the tax cut while ignoring the tax rises being introduced to pay for it. Spectacularly bad.

Rafael, the thing about golden ages is that they tend to end

Congratulations to Rafael Behr for writing what is possibly the most complacent, ahistorical article I’ve read thus far in 2009. It’s not that any of the facts he alludes to are particularly wrong, its that he completely misses the point.

Can the era we currently live in be legitimately described as a “golden age of liberty”? In as much as any era can be described as a golden age, certainly. We don’t ban plays (even if certain individuals do manage to get them shut down from time to time), we no longer reserve social opprobrium for gay people or children born out of wedlock. I can declare, here, that God does not exist and instead of being burned at the stake, receive the odd plaintive comment. Christ, you can even walk down the street with a name like “Rafael Behr” and not get punched (I would imagine).

A note of caution: the whole notion of golden ages is at odds with liberalism. It is no coincidence that fascists, religious zealots and nazis (and superhero comics fans) love to bang on about them. By contrast, if you don’t believe that utopia is either attainable or desirable, you should be sceptical that any era could be described as a golden age. It is entirely unsurprising that all the golden ages in history have one thing in common: they all came to a crashing end and were often quickly followed by what can only be described as a “dark age.”

What is particularly dumb about Behr’s article, is that two years ago you could read remarkably similarly toned articles about the economy which drew the same conclusion: we live in a golden age, the pessimists who are predicting economic doom and gloom ignore the fact that we have enjoyed economic growth for X number of years; anyway, they are middle class wankers who live in big houses and have lived off the fat of the land; what about [insert reference to token minority group here]?

Our liberty and economic security go hand in hand – just as failing democracies tend to do worse economically, failing economies find their democracy under threat. The police and media are already irresponsibly stoking up the hype about 2009 having a “summer of rage.” “British jobs for British workers” is in danger of becoming the far-right’s new rallying cry (thanks, Gordon). Behr brags about how we don’t spy on our neighbours, blithely ignoring the fact that the government actively encourages us to do so when it comes to benefit cheats. He ignores the fact that the current government agenda is not merely to store information about us on computer, but to use that data to monitor people who seem to be involved in criminal activity (regardless of the number of false positives that will throw up). Whitehall knows less about me than Tesco? Well, I don’t have a Tesco Clubcard but even if I did, Tesco wouldn’t be able to use that information for much more than to sell me more stuff, and they can’t fine me £1,000 for putting someone else’s shopping on my card. And if I am forced to register for an identity card, the Home Office will know a LOT more about me than Tescos – or even Ryanair. If Jack Straw comes back with Clause 152 of the Coroners and Justice Bill (now dropped but will almost certainly return again soon), there will be almost no information about me they won’t be able to look at.

The whole “transformational government” agenda is only really about five years old. We are at the very early stages. Already though we’ve seen an emboldened police force arresting people for taking photographs in the street and banning boardgames which could be used in an act of terrorism. We’ve seen nonsenses like Form 696 (something tells me Behr is not a bashment fan).

Behr is keen to look at the past and remark how much more free we are compared to then. What worries civil liberties campaigners is that we are headed back there and that all the progress of the last 100 years will be for nothing. Ten years ago, I remember newspapers – even the Telegraph and the Daily Mail – prepared to contemplate that cannabis prohibition isn’t working. Now the Guardian and the Independent rail against skunk. Where will we be in ten years time? Fifty? Why should we take anyone seriously who feeds us with atrocity-porn about the past yet doesn’t address that?

Behr claims to “give thanks that there is a well-mobilised artistic [note this comes first in his order of priorities], media [second] and political lobby exercising the necessary eternal vigilance” but then immediately goes out of his way to belittle them in the very next sentence “I’m glad there are intelligent, dedicated people carefully monitoring our progress down the slippery slope, demarcating in units of kilo-outrage our incremental creep towards the thick end of the wedge.” In other words, he couldn’t really give a hoot. It won’t affect you after all, will it Pastor Niemöller?

Caveman politics from Fawcett

Has the Fawcett Society gone quite mad? Yesterday, they published the report Are women bearing the burden of the recession? Now, I’m quite open to the argument that the answer to that question might be yes. Fawcett goes further however, claiming that “this is, literally, a man-made recession.” The report itself qualifies this slightly:

It is important that the argument about why this is a problem is made without descending into simplistic caricatures of women and men’s behaviour (i.e. that men are testosterone-fuelled risk takers while women are risk averse and compassionate). We would argue that the problem lies, rather, in the fact that these institutions have drawn their senior gures from one narrow demographic. This means, rstly, that they are by denition missing out on the talents of 52% of the population. This clearly compromises their search for the best talent. Secondly, engaging only men – and frequently only white Oxbridge educated men – at the very top carries a high risk of creating ‘group think’ within the institution. Where decision makers are drawn from the same background they are likely to have a similar world view, the same sources of intelligence and are less likely to challenge one another. Thirdly, women and men continue to have different life experiences and their needs and interests are often different as a consequence. Better governance comes when a rich variety of life experience is reected among decision makers. Not surprising then that studies have identied that the most creative and innovative institutions arise where there is a gender balance in the senior teams (McKinsey 2007; Catalyst 2007).

The most obvious problem with that argument, apart from the fact that it is clear that the simplistic caricature is exactly what Fawcett sought to invoke as part of their press strategy (after all, since this is probably the least important aspect of the report, why make it the headline issue?), is the last thing the financial organisations that have brought us economic ruin could be accused of is a lack of creativity. It was creativity, finding ever new ways to lend the same money and to speculate on the speculation of the speculation of shares, that got us into this bloody mess.

I’m relatively open minded about the idea of gender quotas on boards. It has worked in Norway. The one thing that has made me wary about it though is the realisation that far from expanding the diversity of the boardroom, the new places have been taken up by a narrow group of businesswoman holding several directorships at a time. Reading this article last year, I was struck by how divorced the interviewees seemed to view their roles from the actual business of doing business. If it happened in the UK, I see no evidence at all to suggest that such a law would replace those accursed “white Oxbridge educated men” with anything but “white Oxbridge educated women.” For Fawcett, that may be progress, but not for me.

But before I get denounced as an unreconstructed misogynist, let me give the last word to Catherine Bennett:

To see the reality of male-female sex difference, in all its wonderful complexity, we need look no further than the British cabinet. Women have a nurturing and cautious influence? Didn’t every woman in the cabinet vote to invade Iraq? An innate aversion to risk and short-term greed? Must we return to Jowell’s bribe-funded mortgage, of which she still claims she was ignorant, or Smith’s second home scam? Are women more co-operative, more calm and less hierarchical than men? With Blears jabbing at Harman, while the latter plots against Brown for the leadership?

Just as the banks rewarded horrible behaviour in a particular subset of men, the higher echelons of politics appear to encourage the antics of a particular sort of second-rate, power-obsessed, preachy yet surprisingly unprincipled woman.

It is quite natural to find such women repellent. But would any of them be better if they were John Prescott?

Lord Jacobs becomes rightwingers’ new poster child

The Times reports that Lord Jacobs has quit the party to sit as a crossbencher on the grounds that the party’s position on tax does not include tax cuts for the rich, paid for (if Lord Rennard is to be believed) by a 6p hike in NIC. Despite Sam Coates’ best attempts to dress this story up into another typical Times piece of donor porn (I was half-expecting the piece to start going on about the quality of the soft-furnishings in his central London home and to coo erotically over the prospect of him owning a yacht), it hardly looks damaging for the party. Old man in a hurry throws toys out of pram. Shrug.

What is rather more interesting has been the reaction on Lib Dem Voice. The general reaction has been one of bemusement, but Tim Leunig leapt to Jacob’s defence:

It is easy to rush to attack someone who is leaving, but I think this is a bit churlish. Lord Jacobs has worked very hard for the party over the past twenty years, in financial and other ways. He is not someone who turned up, donated £100k one day and became a Lord the next without understanding or supporting our principles. When someone that committed leaves the sensible thing is to sit them down and talk to them. Because who knows, they may be representative of a chunk of the party.

Except that, um, no-one was attacking him. Later still, Oranjepan quipped:

“…Jacobs his obviously flounced off in a huff…”

Oh dear, I don’t think anyone could seriously believe that (I mean seriously!).

For someone who has been around our party (and forebears) for so long he is clearly aware of our role in the process and pragmatic enough not to have walked away during more contentious times.

Jacobs clearly sees some other merit in these actions as he is still overtly supportive, so I think it will be interesting to see whether he continues to be a donor to the party… wheels with wheels…

My feeling is that he has deliberately isolated himself in order to open up a debate on this issues. If the Fabians and others are coming out in favour of Clegg’s leadership then these manoeuvers demonstrate clear political dexterity and a full awareness of how opinion is formed.

At age 77 such a principled gambit should be applauded and it shows he has both the nous and the cojones to make one more throw of the dice.

I genuinely don’t understand this. Cutting personal taxes by raising employer NIC is not a tax cut at all. To use Osborne-esque rhetoric, it is a tax con. It would massively increase the cost of employing people. Those who weren’t made redundant as a result of the hike would find their wages suppressed over the medium term and find themselves no better off over the longer term. And what is this to pay for? A tax cut for the pensions of the wealthy.

I can understand why an old school Tory would be attracted to such an idea – as I said before they aren’t the free marketeers they are often portrayed as – but why would an economic liberal be attracted to it?

It does seem, superficially at least, that they got drawn in by the Times (and Jacobs’ own) spin about tax cuts and thought they would portray him as some kind of martyr of the right. The enemies’ enemy is my friend, and all that. It is quite curious and generally surprising. I look forward to seeing if this is the start of a discernable pattern with interest.

The return of clear blue water? I’m bored already

As regular readers of this blog will be able to testify, whenever I say nice things about the other parties, it always comes back to bite me in the bum.

So it was that I backed Caroline Spelman and Ray Lewis, shortly before it became clear their actions were indefensible. And last weekend I wrote a favourable review of plans to cut VAT, responding to reports that the Labour Government were planning to do precisely that.

I still say that cutting VAT now and short term unfunded tax cuts in general, makes a certain amount of sense right now. They won’t stave off recession, but they could give us a softer landing. Doing nothing and whinging about how “I wouldn’t start from here” – the Tory approach – is likely to make things worse. What a shame therefore that the Pre-Budget Report was such a confused mess.

You can sum up the confusion at the heart of the PBR with one statistic: NI is set to increase by 0.5p in the pound. When you’re reduced to playing with silly numbers like that in taxation policy (and that’s only after 2011 – something tells me the Treasury will have rewritten their plans several times by then), it’s clear you lack the confidence of your convictions. It’s just so faffy.

Putting VAT back up in 13 months is just daft. Personally, I’m willing to be on it not happening. We’ll get to next November and the CBI, FSB et al will be lining up to demand the rise get deferred another year. And since when did the Treasury do January-January budgeting anyway?

What we needed was something strategic. Gordon Brown is a tactician, not a strategist and this has always shown in his budgets. It is all about the detail. The Lib Dem proposals for a tax shift are all about strategy – where we want to be in 5-10 years time not merely about getting out of the current hole. As it happens they would help there too.

And what of the Tories, this back to the 1992 bombshell stuff is already getting old. They’ve now replaced the vague, ominous threats with specific threats. The Treasury’s stupid fumble over releasing the wrong draft of the PBR enabled them to start talking about a VAT increase to 18.5%, and now they’ve managed to magic up a VAT increase to 20%. All very scary sounding stuff, except for two things. 1) You cannot argue, as Cameron and Osborne are that a 2.5% reduction will have no effect on the economy while claiming that a 2.5% increase is a “bombshell”; 2) If the situation is really as bad as they claim it is, if they do get into power they will either have to detonate the “bomb” themselves or slash public spending – we’re talking decimate the numbers of schools and hospitals here. In reality, they’ll probably end up doing a bit of both.

So it appears we are back to clear blue water: the Tories scarifying about tax increases and Labour scarifying about public funding cuts. None of this is to question the fundamentals of our economy or to ask why it is that individuals at the bottom of the socio-economic ladder pay so much in tax while those at the top pay so little. None of this is to question whether we can continue to base our economy on financial speculation. None of this is to ask how we might start to rebuild our industrial base. And don’t even mention the environment, that is so 2006. A return to party politics in other words, in which the main parties conspire to avoid talking about anything that actually matters.

Curb your enthusiasm.

What Clegg should ask in PMQs tomorrow

Unusually for me, for the past couple of weeks I’ve been watching PMQs.

It hasn’t been a happy experience for me. On both occasions Clegg has been felled by Brown, who on both occasions has simply swatted him away by smearing about £20bn cuts in public services. And I can’t help but feel that the confusion at the heart of Clegg’s own strategy has lead these blows to be effectively self-inflicted wounds.

It’s time he rethought this strategy. Instead of flailing wildly once Brown has accused him of wanting to cut public services, he should confront it face on. I’d like him to say something like:

The Prime Minister has repeatedly accused me of wanting to cut public services. If by that he means I am calling for him to abandon the appalling money pit of the national identity card scheme, scaling back the NHS IT programme and [your choice here], then I plead guilty. In this time of economic crisis, how can he possibly justify continuing to waste public money on these projects?

Come on Nick, don’t make me put my head in my hands for the third week running.

Eee, those slippery Tories.

I’m still seething after Cameron’s speech on Friday. Coming in late, I won’t rant on redundantly except to add a couple of points:

1) Sometimes soundbites can bite you on the bum. Gideon Osborne on the Today programme on Friday managed to claim that a) it was time to question how the “house caught fire” and b) that Labour “didn’t fix the roof when the sun was shining.” Now, I may not know much about housing, but I am unaware of how a lack of roof could cause a house to catch fire. This may sound a rather pedantic point, but it does seem that during a time of crisis all we are getting from the Tory front bench is pat phrases.

2) The Tories have chosen this moment because they judge the immediate crisis to be over. In the City maybe, but the rest of the country has barely begun to feel the after effects. It speaks volumes that politicians, and the Tories in particular, only judge it necessary to put on a show of unity for the City and not the rest of the country. It shows who they consider their true masters to be.

3) Crude is now cheaper than it was 12 months ago, and half what it was in July. Back then, when the market cost was high, the Tories were offering to “share the pain” and cut fuel duty. The quid pro quo was that when the price of crude was low, they would raise taxes. So why aren’t they calling for increases now? Doesn’t this show the vacuousness of their policy in the first place?

Power, Cable?

While I think making Vince Cable Chancellor of the Exchequor would be an intriguing move, it behoves on James Graham BA(Hons) – Theology and Religious Studies – to point out that “biblical prophets” rarely end up in control of things.

Moses died before the Israelites reached Jerusalem. John the Baptist ended up on a platter. That bloke Jesus didn’t exactly get hold of the levers of power either (unless that’s how he managed to move that bloody big stone in front of his tomb). Prophets rarely profit.

Panic! Panic! Hold on, is the economy really in a worse state than 1982?

The Telegraph has breathlessly flourished a new poll showing that the “feelgood factor” is worse than at any point since records began. In, er, 1981.

What this suggests is that the general public genuinely believes the current slowdown in the economy (note, not even a recession, just a reduction in growth) is a worst economic situation compared to the dole queues of the early 80s and the negative equity of the early 90s.

Now, I have my criticisms about the government and things could indeed get much, much worse than they are now. But I would humbly suggest that this illustrates how the public has become increasingly infantilised over the last 30 years, and arguably the uselessness of this measure, more than it says anything about the government’s handling of the economy. The fact that the Torygraph seems completely incapable of grasping that doesn’t say very much about its sense of proportion.