Category Archives: David Smith

Riding the IMF Horse


There used to be a day when the British economy was not run to please bankers or technocrats in international bodies. Alas, they are passed. However, it is worth asking when you read a forecast, in whose interest is it published? The IMF believes that it is important for its members to reduce public indebtedness and makes it a public objective regardless of the beggering of any nation’s citizens until this goal of public policy is realised. Naturally it is supportive of the budget deficit programme of the Coalition. The IMF  addressed  the issue of a Plan B. You will be pleased to know that if growth remains low the IMF would support monetary easing, keeping interest rates low and putting a brake on cuts (without anyone noticing it). In this way the deficit would not come down quickly in the first two years but would come down faster in subsequent years.

This revelation of the existence of Plan B is hopeful but not reassuring. If growth is slow, the main body of public expenditure cuts is realised , and assuming all other parameters are stable (other than unemployment) the deficit will not come down. The credibilty of the Government in the markets, which Boy George goes on about, will be lost. If then the Government persists it will be confronted with a mountain to climb in years 3 and 4 when credibility is lost and the deficit stubbornly high. If then Georgie  presses on growth will remain low throughout the five years, So what then Grannie do we do next?

Well, dear, says Grannie, it might not be as bad as that. That’s what they all say, says I. What is the use of saying that when the flood waters have reached the bedroom sill? Shouldn’t we have been alerted before this time to leave the house? Hindsight,  says Grannie, it is an easy art.

There are other dangers. The IMF talks bravely about global growth rates remaining high,  surviving high commodity prices and resuming stable growth and low inflation. But then he would, wouldn’t he? But  we know that all recessions and recoveries are unique. Perhaps this depression will last for ten years or more. And what shall we do then Granny, says I. Don’t worry dear, says she, I’ve put a little money aside to cope with the odd crisis. Well Granny, that’s the problem. We have been using it. Using it? No one told me that. The problem Grannie is that debts continue to rise. Good gracious, what did you say about the bedroom sill. Take me there. There’s time to jump. A splash is heard, off stage. Granny, you can’t swim! These words came too late. Poor Granny, poor me -oh, and by the way, poor you.

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The Economy: Spotting the Runes (Ruins)


One of the mysteries of our lives is the constant confidence of the OBR in economic recovery. There is, it is said, no need for a Plan B because the independent OBR tells us that the economy will recover. Each OBR forecast downgrades its predecessor but there is no denying the cheerful tone of its forecasts. In its recent forecast the OBR expresses the thought that the slide in output in the last quarter of 2010 was a dud figure and suggests that the decline was 0.2 percent and not 0.6 percent. On the back of this assumption the OBR confidently expects a bounce of 0.8 percent in the first quarter of 2011. The OBR gives a reassuring drop in inflation in 2012 to a rate of 2.5 percent.

We shall have to wait for the inflation figures but the output figures are available in some four weeks time, that is before the May local and assembley elections.  If the OBR is right, or nearly right, the Coalition can heave a sigh of relief but if they are wrong or mostly wrong they are up to their fetlocks in the mire.

One forecasting way out of such a dire consequence is the use of fan charts. These charts show a range of outcome. You can rely on it that the Government will finish some way between higher and lower points. It does this time. What a relief. But supposing , just supposing,  in April it is towards the bottom and not the top of the range. Is there then a Plan B? And what does the Daily Mail say then, poor thing? And what is the answer?

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Words, Words and the Economy


Nick Clegg has emerged as the Coalition champion of the economy since Vince Cable’s well- publicised setbacks. Nick uses a great many words all spoken at a great rate of knots with an intonation that defies interruption. To be fair to him, I understand from my children that this is the way children speak in the playing fields these days. The words he uses are very fine and well-meaning and will convince some people – but not me – that he and his Tory colleagues have fine plans for the future of the British economy. It seems churlish of me to express the opinion that his words are either misleading or disingenuous. My main objection to them is that they do not rest on any firm and defensible theory of what works and doesn’t work in the British economy. Take the jargon on re-balancing the British economy. You know the sort of thing:  shift the British economy away from services, in particular financial services, to manufacturing, and shift economic activity away from London and the South East with a resulting shift in population and jobs. This is pie in the sky.  It is not a new narrative for it has been a constant theme of the last fifty years. I have no no wish to be boring but to be prief capitalism does not work like this in a capitalist economy.  Industry location, population and investment follows the laws of comparative costs. It will be located in London and the South East so long as these comparisons favour these locations. There are advantages in mass. London has become the leading financial services centre in Europe accounting fot 9 percent of British GDP compared with 12 percent for manufacturing. Why is it so obvious that you should constrain financial services growth in London when it is a world leader?  

Successive Governments have recognised the problems of the North by shifting public services to  there with incentives for industry to follow. Their pump priming has been partially successful Now the Coalition is busy destroying these jobs. No wonder they need to mollify electors with meaningless promises of other jobs being created.

It used to be the case that these arguments were encapsulated in the simple division betwees monetarists and advocates of supply side reforms and Keynesians with their concentration on the demand side of the debate. At present those on the supply side of the argument are having a hard time of it. Money aggregates are weak with all that flows from it. The demand side is precarious and faltering. Those of us who observe these matters from the sidelines might well despair. It is a long way to Rotherham from Central London, Cleggie boy. Is your journey strictly necessary for a display of groping in the dark?

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Let’s Play Consequences


The electorate is a sceptical lot. So far that has worked in favour of the Coalition. After all it has to be accepted by reasonable people that the budget deficit must be lowered as rapidly as possible and if the OBR tells us that there will be more people in employment  by the end of 2011 then who will gainsay them. Opposition doomsayers predicting a 1930’s style depression  for some years can be safely shrugged aside. ‘They would say that wouldn’t they’ being  a common reaction. However, today’s increase in the  unemployment figures may make a difference to all that. Whichever way you look at it these are grim figures. So far the Coalition has benefited from the Labour fiscal stimulus and the first economic upturns in world trade. But as the blessed Gordon has told us there has been no follow through internationally to a viable global economic growth stategy. The moment has been lost and the monetarists have had their day. Goodness! Might Gordon (blessed be his name)  have been right all along? 

So far the Tories have been continued to ride high in the opinion polls at around 40 percent , marginally higher than in the General Election  while the Lib Dems have incurred the  public wrath with 60 percent of their vote disappearing. As the recession grips this will change , although given the nature of Tory  support among the affluent it is likely that support will  remain in the 30’s. The Tory position relies on  self-engendered high levels of confidence and David Cameron’s exuberant leadership. It can be expected that he will lash himself to the mast as the storms break upon the ship of state but not all the crew will remain. Some will cower below deck while others will wash overboard. The storm reaches an early climax in May with local and assembly elections and the AV referendum.

It is not all cheer for Ed Milliband. He has sought to play a long game and to plead unpreparedness for an early tilt at power. Might it not be desirable to build an acceptable platform much earlier than he has supposed? Come on Ed, get on with it. I have always believed that there should be good odds for an early General Election, say June 2011. I notice that the smart money has shifted  to it with the odds shortening  from 20/1 to 4/1. There is still time for you to put your money on. 

And a word to the besieged Lib Dems. Jump now while you have the opportunity to do so. Labour could do a deal not to oppose Lib Dem MPs linking  loosely with Labour at least in those seats in the south where the Libs may still have a chance. After all if the ship is sinking who could blame you for wishing to save yourselves.

You might think that I am in advance of my self and you would be right. But judgement is crucial in politics as in life itself. For God’s sake jump, your country needs you.

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The Politics of Uncertainty


Economic forecasting is an art and all who practice it are merely players. That having been said there is little doubt that the latest OBR economic forecast gives the Coalition more to crow about than the Labour Opposition. The odds of the Coalition’s deficit reduction strategy, or in fancy language the Consolidation,  working out is now over 50 percent, employment will remain high, the economy will start to re-balance, in the jargon, and all should be well and improving when the next General Election is upon us. After all, as we all know economic growth is cyclical, recessions are followed by recoveries, one is taking place, and all is well with the world.

It takes some believing. Exports bounce ahead with an annual growth rate of 6 percent and investment is sharply upwards despite the fragility of currencies and uncertainties in world trade. It might be right though and as my mother used to say, there really are fairies at the bottom of the garden. Why don’t I see them then, if that’s the case. You don’t see them because they only come put to play in the night, when you are asleep. And no, no camping out in the garden

Might all this happen? Yes it might but then on the other hand it might not. For the moment the Coalition has the better of the argument and yahboo is not an answer. There are many good tactical reasons for vagueness and indecision on the Opposition benches but it disappoints. Were Labour really to believe that growth will grind along in the valley of despair and unemployment and short time working is our fate, what do they propose to save us? If by a freak of fortune Labour became the Government in a few weeks time, what would it do? What for goodness sake is the Labour Party’s platform?

I don’t expect to receive an answer and for this vapidity I blame Ed Milliband. Leaders come in many shapes and sizes but one thing is for certain: they must be Pathfinders. By all means consult, detail is a virtue, listening is good BUT you are the leader and what do you say? Where do you wish to lead the Labour Party? What is your opinion? All these questions can be answered without detailed policies with all the t’s crossed. Tell us where you are and where you are going with this. And for God’s sake do it soon. A few more weeks of empty generalisations and you are lost for ever. Who really, in their mind of minds, wishes to go down in history as the Ian Duncan Smith of the Labour Party. Surely one Ian Duncan Smith is enough. Fail now and you are lost for ever.

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Can Governments Arrest Economic Growth?


I used to deliver a lecture with the title, ‘Can Governments Arrest Economic Growth.’ My considered answer was, yes, if they tried hard enough. The gist of the argument was that, ‘all things considered’ (the usual cop out) entrepreneurs and the rest of us were determined to improve our lot by hard work, skill and imagination, and that hampered as we  were by government meddling and poor policy making, we usually succeeded. That is where we are now. We should expect the UK economy to bounce back from a depression given the fiscal and monetary stimulous it has been given. Left alone, so to speak, we would come out of it and resume our normal growth.

What is different this time is twofold: we have a huge budget deficit which the Coalition is determined to eliminate in four years and a concious decision to run back public service for ideological reasons. What we all need is economic growth and ‘full employment’ and an end to deficit reduction delusions. The Labour stimulous has given us an inflation rate which will not come down and  there can be no more fiscal encouragement or quantity easing. Zilch and minus zilch for incomes per head for price increases will outscore the growth in wages, unemployment will rise as the VAT increase comes in  January,  and Boy George will be in trouble. He will not admit it. He dare not.

I had hoped, delusionist that I am, that we would then  have a change of Government. I do not believe this now. I do not expect the Coalition will change course, the Lib Dems will not rebel in sufficient numbers, and the Tories will maintain most of their support  amomg eectors as the  the country endures bleak times (there is something masochistic in the British psyche). And so we shall muddle on hoping for the best. It will be said that the British lose every battle but the last. So Boy George will cling to the mast, violently sick, together with the rest of the crew, but buoyed to the last with the conviction that the storm will blow itself out and the ship will find a harbour.

Well it might. It is possible but I plead unlikely. No one in their last mind would want George to fail for we would all go down with the ship. What do we do then as the crew is washed overboard? Best to do whatever there is to be done sooner rather than later you might conclude. Mutinies sometimes succeed but not often. As our Dave might say, if you want to have a mutiny, have a plan. Can someone help me. What, please is the Plan?

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A Bad Case of TNA


The Coalition is desperate to get us to believe in an acronym. It suffers from a bad case of TNA- There is No Alternative to the cuts announced in Chancellor George Osborne’s Government Spending Review. To this is added a myth: the British economy under Labour had reached meltdown  with an imminent threat of a Greek style collapse , a run on the pound and rising interest and bond rates. Nick Clegg told Radio 4 listeners of Desert Island Discs that he had searched his conscience about the cuts and had concluded there were ‘no pain free alternatives’. Unfortunately for Nick Clegg, his timing was poor. Almost at the same time a British Nobel Prize winner of Economics, Professor Pissarites said the the Government was taking ‘unnecessary risks’ with the economy and that the risks of a crisis in bond rates were minimal.

Consider the use of terms. Philosophically, the chances that there is no alternative to any decision is highly dubious. In most instances there are alternatives as in this instance. Clegg does not deny there are alternatives but he insists they are ‘not pain free’. Note that Clegg does not deny alternatives but states they are not pain free. We might think that if this is so what course of action would cause us least pain. This type of analysis, a choice between disagreeable alternatives and an issue of judgement,  we might be able to accept. Not TNA but a choice between difficult choices. Now you are talking. You admit that there are difficult choices, you might accept that the risk of the collapse of the British economy is minimal and that you together with George Osborne have opted for one of them. 

There is something of Uriah Heep in Nick Clegg. He is at pains to tell us that he searched his conscience. This statement differentiates him from others who might be thought not to have a conscience. He may have searched it but one is bound to remind him that he found it wanting on this occasion – it let him down!

It is the philosophy of the Right in politics that it is in favour of small government, the diffusion of power from the centre, low taxes and the denial of the enabling powers of the state. Perhaps on this occasion Clegg found his conscience wanting because at heart his soul belongs to a Right wing Tory philosophy. Indeed it a fit of honesty a few days ago he admitted it. If this is so it would not be insulting to the intelligence to admit that you cannot put a cigarette papoer between the politics of David Cameron and Nick Clegg. I am inclined to argue, being somwehat sceptical in outlook, that he will at some time join the Cons taking some power greedy Lib Dem members of the Government with him and splitting the Lib Dems. We could write the speech he might make at an e4mergency meeting of the Lib Dem Parliamentary Party.

This speech will begin with the words, ‘As you know I am a Lib Dem supporter to my very core (he shows his membership card). I am bound to conclude that there is no TNA. I have searched my conscience and found that, as I suspected, there is no TNA. Applause, a few mutters and stewards standing by the emergency doors.

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