Looks a lot like Plan B to me

As expected, given all the pre-announced measures and semi-official hints, there were few surprises in the Autumn Statement delivered by UK Chancellor George Osborne today. The Statement itself can be found herein pdf format. Interesting that it shows a price of £45 for the paper version on the second page. Maybe that's how they plan to pay for some of the Chancellor's giveaways.

Unsurprisingly, Osborne and his "independent" advisers at the Office of Budget Responsibility (OBR) have had to mark their growth forecasts sharply lower. Real GDP is now forecast to grow by less than 1% both this year and next, with modest acceleration after that. Unlike the OECD, the OBR is not forecasting a return to recession -- the dreaded double dip -- but with such anaemic growth in prospect, this may prove difficult to avoid. Slower growth in turn means that previous fiscal projections have had to be ditched. Borrowing for the current fiscal year is now forecast at £127 billion, £5 billion more than before, with a decline only to £120 billion in the year that starts next April; and then, guess what, a more rapid decline thereafter. Experience strongly suggests such forecasts of fiscal improvement in the "out years" should be treated with extreme cynicism.

The price of this fiscal shortfall will fall heavily on public sector employees. Public sector wages, frozen until the end of next year, are to be limited to rises of 1% in each of the two following years. In addition, the shrinkage in public sector employment is now forecast to be more severe and more long-lasting than before. The OBR now expects over 700,000 jobs to go by 2017, 50% more than its earlier estimate. That should put public servants in a good frame of mind as they prepare for their pensions walkout tomorrow.

As expected there are a few giveaways, including deferral of the fuel tax hike scheduled for January and a cap on train fares. In an echo of Thatcherism, council-owned homes will be made available for sale to their tenants at a 50% discount to market value, though in a very unThatcher-like touch, councils will be required to invest the proceeds in new social housing. Against expectations, the government is not watering down the annual inflation adjustment of social benefits, with the rather perverse exception of the working tax credit that is supposed to encourage the lower paid to stay off benefits.

Probably the most interesting aspects of the Statement are the Chancellor's attempts to answer criticisms that he has no Plan B, by putting in place a series of measures to promote economic growth. One element of this is the £40 billion "credit easing" scheme, whereby the Treasury will underwrite bank lending to small and medium sized businesses. The hope is that the Treasury backstop will allow the banks to raise funds more cheaply, with that lower funding cost passed on to the borrowers. As always with such a scheme, it is likely to prove impossible to tell whether any truly new lending actually takes place, or whether banks will simply reclassify loans they would have made anyway.

Even more intriguingly, the government is planning a big infrastructure investment programme, with a long list of road, rail, broadband and other projects announced. About £5 billion towards this programme will come from public funds. Supposedly there will be no addition to government borrowing; the funds will be provided from interest savings resulting from lower-than-expected borrowing costs. (Thanks for the quantitative easing, Sir Mervyn King!)

The government is also expecting two pension fund groups to invest up to £20 billion into UK infrastructure. If it works, this could turn out to be one of the long-term benefits of the current (not-so-) short-term pain. Pension funds have long been important players in North America -- think of CALPERS in California, or the two big public sector pension funds in Ontario (Teachers and OMERS). In fact, the Ontario Teachers fund has already become a major investor in UK infrastructure, with a stake in HS1, the Channel Tunnel rail link. It's past time for UK funds to expand their horizons in the same way, so big up to Osborne, and potentially a big boost to the economy, if he can make it happen.

Just one thing, though: a few years ago, when the Canadian pension funds started to flex their muscle like this, the term "pension fund socialism" was coined. Don't tell Osborne -- we don't want to put him off!

Should be an interesting week!

The OECD's latest forecast for the UK economy, released today, shows the economy returning to mild recession in early 2012. The Bank of England sounded an equally gloomy note in its most recent update, and the government's arms-length forecasting unit, the OBR, will doubtless do the same when it publishes its latest update this week, to coincide with the Autumn (formerly Pre-budget) Statement.

The excellent Chris Dillow wrote an interesting piece on his blog recently about why politicians are always so anxious to keep the economy expanding. One of the reasons he gave was that rising GDP makes it easier to meet more of the competing demands of various segments of the population. When GDP isn't rising, or worse, when it's actually falling, politicians face unpleasant choices about which demands get met, and those who are passed over tend to get nasty.

Chris Dillow's analysis, together with the OECD's downbeat forecast, offers a useful framework for looking at the two big events in the UK this week: Chancellor George Osborne's Autumn Statement tomorrow -- in truth, a budget in everything but name -- and the mass walkout of public sector unions on Wednesday, in protest against planned changes to their retirement pensions.

The old British tradition of budget secrecy is long gone. There have been so many pre-announcements and heavy hints that there are likely to be few big surprises in Osborne's statement. There will be some focus on getting the economy moving, via a plan to boost bank lending to medium-sized businesses and a fresh commitment to infrastructure spending, though it's not clear how much of this will be truly new. There will also be a sop to the "squeezed middle", with a planned increase in fuel duties scheduled for early 2012 to be scrapped, and rail fare increases capped. Remarkably, it's likely that this will be paid for by scaling back the inflation adjustment of social benefits that normally takes place each April -- though there's every possibility that payments to the elderly will be exempt from this.

Notice any common theme here? The "squeezed middle"; cash-strapped entrepreneurs; the elderly. Tory voters all. It looks as if Osborne's response to the prospect of a shrinking GDP pie is to ensure that his natural constituency continues to get its share.

The public sector unions seem to be thinking on the same lines. They have been unable to prevent significant job losses over the past year, with the prospect of more to come. However, the likely scale of Wednesday's strike -- a walkout of more than two million people, the biggest since the General Strike of 1926 -- indicates that they are not prepared to give up one of their most prized possessions, the so-called "gold plated" pensions of their members, without a fight. The (largely true) argument that these pensions will be paid for by taxpayers who themselves enjoy much less generous pension schemes is simply brushed off by the union leaders. If the pie is shrinking, they intend to fight to hold onto their members' share.

Not much "Big Society" thinking here, either by Osborne of the unions, is there? Mind you, it has been some time since that vacuous term had much of an airing. More on all of this as the week progresses.

Electric shock

One of our neighbours just had a massive solar panel installed on their roof, and will benefit from the 45p per unit "feed-in tariff" for surplus power sold back to the national grid. However, there are fears that the boom in solar power in the UK may abruptly hit a brick wall. The feed-in tariff is to be cut to 21p per unit for any solar installation not completed and certified by 12 December. This change was only announced last month, so there has been a predictable uproar from installers, from consumers who had arranged installation but won't get the work done before 12 December, and of course from environmentalists. The government stands accused of hypocrisy, having loudly and repeatedly stated its aspirations to be the greenest government in UK history.

So why is the government doing this? Well, a little clue plopped onto my doormat this morning, in the unlikely form of our monthly free local magazine. Deep inside this little collection of advertisements for hairstylists and plumbers is a piece by one of the local firms that has been slapping solar panels on roofs all over the city. It bemoans the abrupt cut in the feed-in tariff, but then goes on to make a remarkable claim: even at the reduced tariff, consumers will still be able to lock in a return on investment of 6-8% per year "because of the expected decline in the price of panels after the new year".

Just why should the price of panels be expected to fall in 2012? This looks like the clearest possible admission that the cost of these installations has been driven up by the feed-in tariff, and bears little relation to the cost of materials and labour. Perhaps now we know why the government is cutting the tariff, and why it is unapologetic about providing so little notice. Many thanks, then, to our local contractor for (probably inadvertently) blowing the whistle on this scam.

Misreading the markets

Consternation ruled today as Germany's planned 6 billion euro 10-year Bund sale received investor bids for less than 4 billion euros, leaving the Bundesbank to sop up almost a third of the tender. "Disaster" was the general view: is no part of the Eurozone now exempt from the crisis?

There may be another way of looking at this. Just a day ago, the Buttonwood column on The Economist's website pointed out that if a Eurozone rescue deal does materialise, investors will rush to dump Bunds and buy Spanish and Italian debt. If you keep that in mind, then today's 10-year Bund auction may indicate that investors still expect that such a deal will be reached. If you really think that Spain or Italy will default, you certainly want to own Bunds; but if you think there's a deal brewing, why would you want to own 10-year Germany at less than 2% yield when you can strap on Spain or Italy at closer to 7%? Looking at the healthy bid-to-cover on Italy's auctions as recently as last week, it seems a good number of investors may be asking themselves just that.

Make no mistake: these are dangerous and scary times. But despite all the panic in the media, even today's market action seems to indicate that there are still plenty of investors willing to take quite a large punt.

A footnote to all this: one of the UK media websites breathlessly reported that the yield on the 10-year Bund had risen by "7 percentage points" (7.0%) today. The actual increase was 7 basis points (0.07%), so they were off by a factor of 100! One of the things that may be making this crisis so scary is that it's accompanied by a 24/7 rolling commentary from journalists who don't have the faintest idea what they're talking about.

Air Heads

The UK's four major airlines normally fight like weasels in a sack. Virgin Atlantic ratted out BA to the US authorities over the fixing of fuel surcharges, even though it was doing the same thing itself; the CEOs of Ryanair and BA (Irish Napoleons Michael O'Leary and Willie Walsh) are the kind of people who could start a brawl in a Buddhist monastery; EasyJet is riven with internal feuding and is about to relocate many of its London flights to distant Southend airport in the hope of grabbing a commercial advantage; and so on.

So it was a shock to see the four air heads, the CEOs of these airlines, sharing a podium in London last week. (BBC story, with video of Messrs Walsh and O'Leary pretending they like each other, here). They came together to present a petition to the Government to abolish its Airline Passenger Duty (APD), an admittedly sneaky tax that adds between £24 (for European flights) and £170 (long haul) to the cost of every airline ticket sold.

The airlines blame APD for reducing the number of flights taken in the UK in recent years, and for discouraging foreign visitors from coming to the UK. I'm sure they're right about that. That single tax is obviously much more of a turnoff for flyers than the plethora of add-ons that the airlines themselves tack onto every ticket they sell. Ryanair, for example, charges £40 if you don't print your own boarding pass; even the supposedly full-service BA now tries to bounce you into paying extra to reserve seats in advance; and all the airlines charge extra for paying with debit cards, while offering no real alternative to doing so.

If all that's not enough to put you off, there's the consistently dispiriting experience of the journey itself, whether you're doing the Ryanair rush for the best seats when flying from the glorified bus station known as Luton airport, or waiting for ages for your overnight flight to move onto a gate at spanking new T5 at Heathrow because BA can't get its departing flights away on time. When those things happen to you, it's unlikely that your first instinct will be to curse the APD.

APD is expected to raise £2 billion for the Treasury this year. Environmental campaigners have been quick to point out that this is dwarfed by the estimated £11 billion annual subsidy that the industry receives by virtue of the fact that airline fuel is not subject to the usual array of taxes and duties. And of course, you have to wonder how the four air heads would respond in the highly unlikely event that the government were to listen to their whining and abolish the APD. How much do you think fares would rise, in remarkably short order, if that happened? Best guess: somewhere in the area of £24 (for European flights) to £170 (long haul).

Don't blame me!

To nobody's surprise, the Bank of England's latest inflation forecast includes drastically lower growth projections, accompanied as always by an expression of confidence that inflation will soon fall much closer to the Bank's 2% target. Both in the report itself and in Governor Sir Mervyn King's remarks to the press, there's even more uncertainty than usual about the outlook for the UK economy. But there's one thing that Sir Merv is adamant about: whatever you don't like, whether it's slow growth or high inflation, it's NOT HIS FAULT!

That denial of responsibility even applies to the past. In the Bank's interpretation, the slow growth the economy has endured over the past year or so is a result of the squeeze on real household incomes. However, in his remarks at the media conference when the report was released, King was quick to deflect the blame:

"Real take-home pay should gradually begin to recover after a period in which prices have grown faster than wages. It would be wrong, though, to think that monetary policy was the reason for the sharp squeeze in real take-home pay. Instead the squeeze was an unavoidable consequence of movements in world energy and other commodity prices, the need to rebalance the UK economy, and the cost of the financial crisis in terms of lower productivity. Indeed, lower inflation would have been possible only with lower nominal pay growth and higher unemployment".

Just about everyone but the Bank is to blame, then, because "the need to rebalance the economy" is just code for "government cutbacks" -- and we all know how well that's working, with the Treasury quietly admitting that cumulative borrowing for 2010-2014 will be £100 billion higher than was projected in the budget. Leaving that aside, however, it remains difficult to accept that the Bank is blameless. UK inflation has been significantly higher than in the Eurozone, which is equally exposed to world commodity prices. Is Gov. King really saying that divergence has nothing to do with historically low interest rates, quantitative easing and the weakness in Sterling? Meanwhile UK growth has generally lagged behind not only that of larger Eurozone economies, notably Germany, but also that achieved by the United States, so the Bank can't even convincingly claim that it has accepted a bit more inflation in order to achieve higher growth. (Yes, I am aware you can't prove a counterfactual).

Looking forward, the Bank blames its downgrading of growth prospects for 2012 on the Eurozone crisis:

"The outlook for output growth is unusually uncertain. That reflects in particular the exposure of the UK economy to developments in the euro area. The euro area faces substantial challenges as several members seek to ensure the sustainability of their public and external debt and maintain financial stability. Implementation of a credible and effective policy response in the euro area would diminish uncertainty and so support the UK recovery. Even in this case, however, the scale of the imbalances means that there is likely to be a prolonged period of subdued growth within the euro area. But a failure to meet these challenges would almost certainly have significant implications for the UK economy."

Politicians from George Osborne to Barack Obama are eagerly shovelling all the blame for the world's ills in the direction of the poor old Eurozone, so King is unlikely to find much dissent about playing everyone's favourite get out of jail card. The big question is, what is the Bank planning to do about it? Most commentators seem to feel that the Bank is leaving the way wide open for yet more quantitative easing, despite the lack of clear evidence that this policy has had much impact on growth up until now. That media consensus may well prove to be accurate, but the Bank will need to be careful. For the first time in at least three years, the Bank's stale forecast of sharply falling inflation stands a reasonable chance of coming true. It will not want to risk reigniting inflation expectations with another bout of unproductive money printing.

When Chancellor Gordon Brown gave the Bank of England full independence back in 1997, the move was widely welcomed. Widely, but not universally. One dissenter was one of Brown's predecessors at the Treasury, Ken Clarke, who always felt it was a mistake to rob the government of the day of any overt role in setting monetary policy. Even now, Clarke's view would find very few adherents, but it's hard not to feel that the UK economy might be faring better with a slightly tighter monetary policy and slightly less fiscal retrenchment. That's just another of those counterfactuals that we'll never be able to prove.

Heard on the news...

* The lead story on all UK news bulletins today is the government's sale of Newcastle-based bank Northern Rock to Sir Richard Branson's Virgin Money. The Rock was the first UK victim of the financial crisis. Virgin wanted to buy it when the crisis hit, but failed to agree terms. The price agreed now, £747 million, means the taxpayer takes a big hit on the deal, but Virgin's expression of confidence, given all the doom and gloom at the moment, is important, at least symbolically. And, just in case wrong stuff starts to appear in the media, no, a sale like this doesn't automatically reduce the budget deficit.

Given Newcastle's well-earned reputation as Party Central, there must be all sorts of jokes to be made about Virgins, but we're above that sort of thing here.

* About the sixth item on the radio news bulletins this morning, and warranting only one sentence, was the report that UK retail sales rose 0.6% in October. Pop quiz folks: if sales had fallen 0.6%, do you think it would still have merited sixth place and only a single sentence? Me neither.

* FIFA President Sepp Blatter's cretinous comments about racism in football have attracted well-earned contempt from all quarters. Amazingly, Blatter has attempted to respond by posting a picture of himself hugging a black politician, the wonderfully-named South African, Tokyo Sexwale. Unsurprisingly, Sexwale jumped to the top of the Twitter trending topics list, where one wag has dubbed him "Blatter's Biggus Dickus". Sexwale, a businessman as well as an ANC stalwart, is one of the richest black men in South Africa, which means he's pretty damn rich. Second pop quiz then: does Tokyo Sexwale get his picture taken with Sepp Blatter (a) because he's black or (b) because he's rich.

At least try to get your facts straight

The Bank of England's quarterly report on "Project Merlin", its oddly-named agreement with the main UK banks to try to boost business lending, was released today. (BBC story here.)As the relative paucity of screaming, bank-bashing headlines in the online media would suggest, the four banks involved have largely met the targets they agreed back in February. In fact, lending for the first three quarters of this year was running at a rate about 11% above the target.

But wait! Small businesses are feeling short changed. There's a separate target of £75 billion for new lending to SMEs (small and medium sized enterprises). Hitting that target would imply a three-quarter figure of £56.8 billion, and the actual number in today's report was....£56.1 billion!

Most people would think that marginal shortfall wasn't worth blowing a gasket about, but then most people don't work for small business lobby groups. Let's hear from someone who does, via the BBC website:

John Walker, national chairman of the Federation of Small Businesses, said the banks had "yet again missed the small business target".

He added that the lending targets failed to address the "lack of competition" in the banking sector.

"We need to see a clear change: more competition and new lines of credit opening for small firms if they are to help boost the recovery," said Mr Walker.

"Yet again missed the small business target", is it? Let's look at it another way i.e. by examining the facts. The £75 billion annual SME target equates to £18.3 billion per quarter. The actual figure for Q3 was £18.8 billion. The figure for Q2 was £20.5 billion. In other words, pace Mr Walker, the banks have in fact exceeded the SME target in each of the last two quarters. The only time they failed to do so this year was in Q1, when SME lending was £16.1 billion -- but as the Project Merlin agreement was not signed until mid-February, that seems a very pardonable lapse.

Elsewhere in the media today (in The Times, behind the paywall), we read that the "help" promised by the Government to small businesses affected by the rioting in August has been slow to materialise. According to Libby Purves, "Of £250 million worth of claims filed, only £3,584 has been paid out. Small traders complain of a chaotic, slow, repetitive bureaucratic process, shunted between five or six different people and bodies.". In the meantime private insurers have paid out £200 million in riot-related claims. Perhaps Mr Walker and his members should recognise that the banks just might not be their biggest problem.

Mamma mia!

The Eurozone debt crisis seems to be causing a few folks at the News International media outlets in the UK to become a bit unhinged. In The Times today there was a long, finger-wagging editorial saying that to solve the debt crisis, it would be necessary for Germany to overcome its qualms about inflation, and allow the ECB to print money and wade into the bond markets.

Meanwhile, over in the business section, editor Ian King was sounding off against the ECB for....getting involved in the market in advance of Thursday's Italian debt auction! (To the chagrin of doomsayers everywhere, this went surprisingly well, with a bid-to-cover of almost 2). According to Ian King, if any private company intervened in the market just before it issued securities, the people involved would very soon find themselves locked up. Which may be true, at least theoretically, but is of dubious relevance here. Every central bank in the world involves itself in securities markets around the time of new government issues, and in most cases is itself a bidder for the bonds that are being auctioned.

Apparently in Ian King's world, it's fine for short sellers to push up the yields on the paper in advance of the auction, but it ought to be forbidden for the ECB to intervene to keep the market orderly. It's not as if the ECB's action pushed the yields down so low that it caused investors to boycott the auction -- the healthy bid-to-cover is clear evidence of that. As I've written here in the past, ensuring that primary debt sales proceed smoothly is one of the main things that the ECB should be doing as it attempts to navigate its way through the crisis.

Maybe before the next Italian debt sale (next week!), Ian King and The Times editorialists can get together and decide whether they want the ECB to step up its involvement in the market or not. Possibly to help them make a decision, News International stablemate SKY News has recruited a new expert to explain the Italian situation. Step up, on today's "Boulton and Co." lunchtime news broadcast.....Nancy Dell'Olio! Yes, the permatanned, permapouting celebrity hanger-on herself, described on screen as a "former advisor to Silvio Berlusconi". Words fail me, though alas, they did not fail her.

On, swiftly, to the next

The likely appointment of Lucas Papademos as Greece's new Prime Minister, charged with implementing the Eurozone bailout deal, should be received positively by the markets. Papademos served as deputy to Jean-Claude Trichet at the ECB a few years ago, and has a high level of credibility with both investors and Eurocrats. That credibility is, apparently, untarnished by the fact that before going to the ECB, he was head of the Bank of Greece, at a time when data about the country's economic and financial performance may have been subject to, how can we put this delicately, a certain amount of massaging.

There's an obvious comparison, though it may not be one that resonates too much with the Greeks, with the role played by Kemal Dervis in Turkey during that country's severe economic crisis at the start of the last decade. Dervis, a long-time player at the World Bank, was parachuted back into Ankara as Minister of Economic Affairs, and deserves much of the credit for the remarkable turnaround that Turkey has since achieved. If Papademos can do as well, both Greece and the Eurozone will be able to breathe a lot easier.

Of course, with things looking a mite more stable in Greece, markets have shifted their focus. The media formulation is that investors are now "worried" about Italy, but a more accurate way of putting it is that some investors have identified Italy as the next place they can make money by stirring up trouble.

Italy's main problem (aside from the ludicrous Silvio Berlusconi) is the level of its outstanding debt, which equates to about 120% of GDP. Its current budget deficit of less than 5% of GDP is well below those of many of its Eurozone partners, not to mention the US and UK. Moreover, and again in contrast to the US and the UK, Italy is a nation of savers, and has not historically relied to any great extent on foreign buyers to support its government bond market. That has, of course, changed somewhat since the inception of the Euro, which has led more banks to become involved in the market. Even so, Italy's debt situation cannot reasonably be compared with that of Greece.

Be that as it may, the result of the market's "worries" is, according to the media, that "Italy's borrowing costs have soared to unsustainable levels". As usual, this says more about the media than it does about Italy. While the effective yield to maturity on Italy's outstanding debt has certainly risen, the actual interest cost that the country has to pay has risen only slightly, if at all. The higher rates demanded by the market only have an impact when Italy is forced to raise new money, or to roll over previous debt. Even if an interest rate of 7% is "unsustainable", as media pundits keep saying (and just where does that figure come from anyway?), it would take several years of refinancing and new borrowing at current interest rates before Italy's actual interest costs even approached the 7% level.

This suggests that the ECB and EFSF should resolve to worry less about the falling value of Italy's outstanding bonds, and focus more on ensuring that the country's upcoming borrowing needs can be met smoothly. That in itself will be a challenge: a large tranche of Italy's debt comes due before the end of 2012. Still, it is a lot less daunting than pouring money into trying to preserve the secondary market value of Italy's entire existing debt stock, especially as only the most pessimistic believe that Italy will not ultimately be able to meet its obligations.

That last point -- that Italy is still solvent -- was cast in an interesting light by the recent failure of MF Global, supposedly as a result of its high exposure to peripheral Eurozone bond markets. Discussing the situation on CNBC, one commentator blurted out that MF's holdings of Italian and other PIIGS' bonds were almost certainly "money good". In other words, they would almost without doubt be repaid in full when due. What this means is that MF didn't collapse because Italy's or Portugal's balance sheet was rubbish; it collapsed because its own balance sheet was rubbish.

Debt markets, dysfunctional? You might think that. I, as a former international bond guy, couldn't possibly comment.

St Paul's epistle to the Occupiers

The OccupyLSX crowd are still camped outside St Paul's Cathedral in London, still displaying their "What would Jesus do?" banner and still occasionally brandishing crucifixes. It seemed a good idea to take a look and see whether St Paul might have had anything to say to the protesters...

"We gave you a rule when we were with you: not to let anyone have any food if he refused to do any work. Now we hear that there are some of you living in idleness, doing no work themselves but interfering with everyone else's." (2 Thessalonians, Ch. 3 v. 10-11)

"We do urge you, brothers, to go on making even greater progress and to make a point of living quietly, attending to your own business and earning your living, just as we told you to, so that you are seen to be respectable by those outside the Church, though you do not have to depend on them." (1 Thessalonians, Ch. 4 v. 10-12)

"Beware of dogs! Watch out for the people who are making mischief. Watch out for the cutters." (Philippians Ch. 3 v. 3)

Phew -- that's a relief. It was starting to sound as if maybe St Paul wasn't exactly on the side of the protesters, but that last sentence is amazing -- St Paul was obviously trying to warn people about Cameron and Osborne! Well, not exactly. The "cutters" referred to pagan self-harm practices. Either way, though, it looks like good advice.

O tempora! O mores!

You wait for months for a "racism in sport" furore to come along, and then two arrive at the same time. Here in the UK, the England football captain John Terry is in trouble for allegedly calling an opponent, Anton Ferdinand, a "f***ing black c***". The unloveable Terry's bizarre defence is that he did indeed yell those words at Ferdinand, but only for the purpose of denying that he had yelled them as an insult. Good luck with that, John.

Meanwhile, in the US, Tiger Woods's former caddie, Steve Williams, won a minor award a couple of days ago, and announced in accepting it that he was glad to be able to "stick it up that black a******", meaning Woods. Williams is by all accounts just as nice a man as John Terry is, but Woods has, probably sensibly, chosen simply to express his regret at the outburst, rather than going off on one and threatening to sue Williams's (white) a******.

Here's the puzzling part about all this. Neither Terry nor Williams resorted to any of the proscribed words that were once used to insult people of colour. The term "black" was by far the least insulting of the terms either man used (even though it's not entirely accurate -- both Ferdinand and Woods are of mixed race), yet it's that word, rather than any of the other thoroughly unpleasant insults, that have got them into trouble. Am I missing something?

Meanwhile, over at the Church of England, more evidence of changing times and values. Attempting to show his solidarity with the protesters at St Paul's Cathedral, the admirable Archbishop of York, John Sentamu, has a remarkable proposal:

"....the Archbishop of York yesterday entered the debate about the church’s relationship with City financiers, arguing that greed should be made as socially unacceptable as racism, sexism and homophobia".

A quick check of the 'net reveals that greed is still listed as one of the Seven Deadly Sins*, so it's a bit unclear whether Dr Sentamu thinks it would have to be upgraded or demoted to be in line with the other ills he mentions. One suspects, alas, that it's the former. It's news to no-one that our society has almost completely lost touch with religious values, but it's a bit of a shock to think that one of the most senior figures in the Church of England may have done the same.

* They have their own website!

Dummy variables

There are lots of jokes about economists. Few of them are complimentary, and even fewer are funny. "If all the economists in the world were laid end-to-end they wouldn't reach a conclusion".*

Or how about the one where a physicist, a chemist and an economist are stranded on a desert island, with only a single can of bully beef for sustenance. One problem: no can opener. The physicist proposes breaking it open with a rock, but they can't find a rock. The chemist wants to use seawater to erode the can, but they're not going to live long enough for that to happen. In despair they turn to the economist, who says, "Well, first let's assume we have a can opener". LOL (not).

The results produced by economic models are notoriously dependent on the starting assumptions, but there's nothing unique about that. Discovery Channel ran a programme this week called "Is everything we know about the Universe wrong?". Despite the title, the show was mainly a parade of cosmologists bragging about how good their "standard model" is at explaining the way the universe works. So well done them.

One problem, though. The model only "works" if you assume the existence of dark matter (never seen, measured or even described), dark energy (likewise), and the new kid on the block, dark flow (don't ask). As the cosmologists admit, their calculations suggest that these never-seen phenomena have to be significantly greater in scale than the bits of the universe that we can see if their theories are to hold. It casts a whole new light on the notion of something "working".

It seems as if economists have missed a trick here. "Yes, I know we forecast growth of 5% and the economy actually shrank, but that's fully explained by a swing in Dark GDP, which is entirely in line with our models".

Physics and economics may be coming together in another sphere too. The new book by baby-faced physicist Brian Cox, "The Quantum Universe", is sub-titled "Everything that can happen, does happen". As a summary of the last couple of days' events in Greece, that's unimprovable.

* Slightly funnier variant from David Frost some time in the late 1960s: "If all the dolly birds in swinging London were laid end-to-end, I wouldn't be a bit surprised".

Democracy, but only when it suits

The right-wing media in the UK are wetting themselves with excitement at the Greek government's plan to hold a referendum on the latest EU rescue package. According to The Times, Telegraph, Daily Mail and others, the will of the people must be heard, not least because those running the EU apparently react to democracy the same way a vampire reacts to garlic. Sample article from today's Telegraph: "Eurocrats: terrified of democracy".

There's a foul stench of hypocrisy here. Back in 2003, more than a million people took to the streets of London to protest against possible UK involvement in the planned invasion of Iraq. Prime Minister Tony Blair went ahead and did it anyway -- with the full, nay, enthusiastic support of the right-wing media. If memory serves, their position at the time could be summed up as, "governments are elected to govern". It now appears that noble principle doesn't apply when it conflicts with the media's deep-seated prejudices.

Consistency aside -- because hey, who cares about that? -- there's another reason for the Torygraph and others to ease up on the Euro-Schadenfreude. If things really do go horribly wrong in the Eurozone, the consequences for the UK are likely to be severe. No-one is likely to be exempt from the pain -- not even expats sipping tea at their boltholes on the costas, reading about "broken Britain" in the Mail and complaining about the lack of Marmite on the supermarket shelves.