Defying mounting criticism from almost all sides, David Cameron has made it clear again in the last few days that fiscal austerity still overrides all other goals in his mind. The Treasury has asked spending ministries to identify possible targets for a further round of spending cuts in order to keep the deficit reduction programme on track.
Inevitably, the axe will fall heavily on social programmes -- unemployment benefits, welfare, pensions and the like. That's partly because those programmes account for such a large proportion of government spending, but it's also because Tories instinctively feel that a large proportion of spending on such things is wasted. But where are the cuts likely to fall? Despite the fiasco over the so-called "Granny Tax" in the recent budget, the pampered elderly (including yours truly) are likely to be largely exempt, mainly because we turn up at the polling stations in awkwardly large numbers at election time. So I, along with such impoverished souls as Sir Richard Branson, Sir Mick Jagger and Dame Helen Mirren, will continue to enjoy free bus travel, free prescription meds and the ludicrous "winter fuel allowance", without any attempt being made to check whether we actually need the money.
This morning on BBC Radio 5 Live, a call-in show offered a reminder of just how pervasive the sense of entitlement is. The subject du jour was a new think-tank report calling for more affordable child care. One of the callers was a gent who felt he wasn't getting nearly enough public help (read: money) to look after his three kids. It emerged that both he and his wife are top rate taxpayers, which implies that the family is comfortably in the top 10% of UK households in terms of income. The host, Victoria Derbyshire, who has kids of her own, and may also be a top-rate taxpayer, asked him "Why do you think you deserve more help?" To this he replied, "Well, I'm doing a lot for my children", prompting Victoria Derbyshire to blurt out "You're supposed to do that, you're their Dad!". You'd hope she spoke on behalf of a lot of the audience there, but to be honest, you wouldn't be sure of it.
So it goes. The elderly are largely untouchable, and the aggrieved middle classes are quick to take to the airwaves to demand more for themselves. That leaves the poor and disadvantaged to bear the brunt of the cuts, which is how we find ourselves with a newspaper story of the London borough of Newham, home of the Olympics, looking to ship its social housing tenants to Stoke-on-Trent because it can't afford to house them, side-by-side with a story that private landlords in the same borough are evicting long-standing tenants with a view to charging Olympics visitors up to £10,000 a week for accommodation during the Games.
Monday, 21 May 2012
Saturday, 19 May 2012
Irresponsibility
John Maynard Keynes famously batted away questions about the long term outlook by noting that "In the long run, we are all dead". Now Robert Chote, head of the OBR*, the UK Government's rather pointless "independent" forecasting agency, has concocted a variant, on the lines of "in the really long run, we're all up the creek".
According to Chote, the impact on the UK of a messy collapse of the Euro could be not just long term, but permanent:
“If you have a permanent impact on the productive potential of the economy, then it will have a permanent impact on the ability to raise tax revenue and a permanent impact on public finances,” he told the Daily Telegraph. (Full story here).
Oh, please. Over the past century, the UK has endured two world wars with shocking loss of life (and mass destruction of productive capacity and infrastructure in WW2); the Great Depression; loss of the Empire; and Sterling's demise as a global medium of exchange. And yet, living standards have risen sharply (if not steadily), and reached their highest level ever just before the financial crisis hit in 2008. Is Robert Chote really suggesting that recovery from a Euro collapse will not just take longer than recovery from all of those shattering events, but may in fact NEVER happen? Because that's what "permanent" means. It's a ridiculous assertion, and one that someone in Mr Chote's position should have known better than to make.
* Office for Budget Responsibility
According to Chote, the impact on the UK of a messy collapse of the Euro could be not just long term, but permanent:
“If you have a permanent impact on the productive potential of the economy, then it will have a permanent impact on the ability to raise tax revenue and a permanent impact on public finances,” he told the Daily Telegraph. (Full story here).
Oh, please. Over the past century, the UK has endured two world wars with shocking loss of life (and mass destruction of productive capacity and infrastructure in WW2); the Great Depression; loss of the Empire; and Sterling's demise as a global medium of exchange. And yet, living standards have risen sharply (if not steadily), and reached their highest level ever just before the financial crisis hit in 2008. Is Robert Chote really suggesting that recovery from a Euro collapse will not just take longer than recovery from all of those shattering events, but may in fact NEVER happen? Because that's what "permanent" means. It's a ridiculous assertion, and one that someone in Mr Chote's position should have known better than to make.
* Office for Budget Responsibility
Wednesday, 16 May 2012
Saints and sinners
All in a day's news....
* There's a story in The Times today (paywa££) about Sir/St Bob Geldof, who is still badgering people to give aid to Africa. And good for him. However, when the reporter ventured to suggest that Sir Bob's own tax arrangements might not bear scrutiny, he promptly went off on one: "How dare you lecture me about morality?" I assume the question wasn't meant ironically because really, Sir Bob, what have you been doing to the rest of us for the past three decades? You surely can't imagine that your fame is entirely due to your musical talents.
* Love the response of Charlie Brooks, husband of the flame-haired ex-News Corp. honcho Rebekah, to the news that his missus has been charged with conspiracy to pervert the course of justice -- with Charlie himself similarly accused, it must be added. According to Charlie, this is all a "witch-hunt". Well, given than nobody has shown fewer scruples about hounding the innocent than the newspapers for which Mrs Brooks was responsible, we can at least say that poetic justice is being served here.
* And moving right toward the diabolic end of the spectrum, we find Michael O'Leary of Ryanair. That company's website is to close down for two days this weekend, so if you're flying during that period, you have to print your boarding pass well ahead of time, or face a £60 charge for having one printed at the airport. Can there be any other company, anywhere in the world, that would use its systems upgrades as yet another opportunity to chisel even more money out of its customers?
* There's a story in The Times today (paywa££) about Sir/St Bob Geldof, who is still badgering people to give aid to Africa. And good for him. However, when the reporter ventured to suggest that Sir Bob's own tax arrangements might not bear scrutiny, he promptly went off on one: "How dare you lecture me about morality?" I assume the question wasn't meant ironically because really, Sir Bob, what have you been doing to the rest of us for the past three decades? You surely can't imagine that your fame is entirely due to your musical talents.
* Love the response of Charlie Brooks, husband of the flame-haired ex-News Corp. honcho Rebekah, to the news that his missus has been charged with conspiracy to pervert the course of justice -- with Charlie himself similarly accused, it must be added. According to Charlie, this is all a "witch-hunt". Well, given than nobody has shown fewer scruples about hounding the innocent than the newspapers for which Mrs Brooks was responsible, we can at least say that poetic justice is being served here.
* And moving right toward the diabolic end of the spectrum, we find Michael O'Leary of Ryanair. That company's website is to close down for two days this weekend, so if you're flying during that period, you have to print your boarding pass well ahead of time, or face a £60 charge for having one printed at the airport. Can there be any other company, anywhere in the world, that would use its systems upgrades as yet another opportunity to chisel even more money out of its customers?
Good numbers, bad outlook
What are we to make of this? Today, the Bank of England released its latest Quarterly Inflation Report, a document of Stygian gloom in which it admitted that inflation would stay above the 2% target for longer than previously expected (well, colour me surprised!), while GDP growth will reach only 0.8% for the year, down from a previous forecast of 1.2%. However, we also learned today of an unexpected 45,000 fall in unemployment during the first quarter -- a quarter during which, it should be remembered, the UK economy supposedly entered a double-dip recession.
Let's look first at the Inflation Report. The prospect of sticky inflation is, as usual, dismissed as something the Bank can't do anything about, even though it's the only part of the economic outlook that it has a specific target for. As for growth, the downward-revision of the forecast is partly a reflection of the problems in the Eurozone, but the Bank acknowledges other factors, including the "squeeze on household earnings", which is apparently in no way related to the fact that inflation has remained above target for so long!
The recent fall in global energy prices and the strength in Sterling, if sustained, hold out the prospect that inflation may fall somewhat faster than the Bank is now predicting, which would be good for domestic demand. However, it would be rash to suggest that the Bank is overstating the risks to UK growth posed by the crisis in the Eurozone, which Gov. King depicted as "tearing itself apart without any obvious solution".
Turning now to the unemployment data, a look beyond the headlines shows a mix of good and not-so-good news. The fall in the unemployment rate and the 105,000 rise in the number employed are of course welcome, as is the decline in the separate "claimant count" measure, which has been rising in recent times partly because of changes in the structure of welfare programmes. There was also a small decline in youth unemployment, though at 21.7%, this remains criminally high.
Less welcome is the fact that part-time jobs accounted for all of the improvement, rising 118,000 in the quarter. There are now signs that an increasing proportion of the part-time workforce is only working shorter hours because of a shortage of full-time jobs: the number of people saying they are in that situation rose by 73,000 in the quarter. (Even so, fully 82% of the people working part-time are quite happy about that fact). The number of long-term jobless (out of work for more than a year) continues to rise. Lastly, average earnings only rose 0.6% from a year earlier. The fact that this is so far below the rate of inflation indicates that even a turnaround in the jobs market may not be sufficient to give a lasting boost to domestic demand.
The fact that the jobs market improved at all during the first quarter suggests that the ONS GDP data, which have already come in for some strong criticism, must surely be flawed. (Compared to other national agencies, the ONS publishes its first GDP estimates much sooner, but spends much longer revising them, with the final story not told until years after the event. Time to rethink, perhaps?) At the same time, it would be wrong to see the numbers as a sign of a return to sustained growth. Even if falling inflation boosts consumers' real purchasing power, the increasingly doom-laden scenario for the Eurozone, and the prospect of renewed turmoil in financial markets, will weigh heavily on the UK for the rest of this year. The Bank's forecast that real GDP will not regain its 2008 peak until 2014 seems all too likely to be accurate.
Let's look first at the Inflation Report. The prospect of sticky inflation is, as usual, dismissed as something the Bank can't do anything about, even though it's the only part of the economic outlook that it has a specific target for. As for growth, the downward-revision of the forecast is partly a reflection of the problems in the Eurozone, but the Bank acknowledges other factors, including the "squeeze on household earnings", which is apparently in no way related to the fact that inflation has remained above target for so long!
The recent fall in global energy prices and the strength in Sterling, if sustained, hold out the prospect that inflation may fall somewhat faster than the Bank is now predicting, which would be good for domestic demand. However, it would be rash to suggest that the Bank is overstating the risks to UK growth posed by the crisis in the Eurozone, which Gov. King depicted as "tearing itself apart without any obvious solution".
Turning now to the unemployment data, a look beyond the headlines shows a mix of good and not-so-good news. The fall in the unemployment rate and the 105,000 rise in the number employed are of course welcome, as is the decline in the separate "claimant count" measure, which has been rising in recent times partly because of changes in the structure of welfare programmes. There was also a small decline in youth unemployment, though at 21.7%, this remains criminally high.
Less welcome is the fact that part-time jobs accounted for all of the improvement, rising 118,000 in the quarter. There are now signs that an increasing proportion of the part-time workforce is only working shorter hours because of a shortage of full-time jobs: the number of people saying they are in that situation rose by 73,000 in the quarter. (Even so, fully 82% of the people working part-time are quite happy about that fact). The number of long-term jobless (out of work for more than a year) continues to rise. Lastly, average earnings only rose 0.6% from a year earlier. The fact that this is so far below the rate of inflation indicates that even a turnaround in the jobs market may not be sufficient to give a lasting boost to domestic demand.
The fact that the jobs market improved at all during the first quarter suggests that the ONS GDP data, which have already come in for some strong criticism, must surely be flawed. (Compared to other national agencies, the ONS publishes its first GDP estimates much sooner, but spends much longer revising them, with the final story not told until years after the event. Time to rethink, perhaps?) At the same time, it would be wrong to see the numbers as a sign of a return to sustained growth. Even if falling inflation boosts consumers' real purchasing power, the increasingly doom-laden scenario for the Eurozone, and the prospect of renewed turmoil in financial markets, will weigh heavily on the UK for the rest of this year. The Bank's forecast that real GDP will not regain its 2008 peak until 2014 seems all too likely to be accurate.
Monday, 14 May 2012
Dim(on) and dimmer
Supposedly, Jamie Dimon of JPMorgan Chase has the distinction of being President Obama's favourite banker. (Who knew that accolade existed? And what does it say about Obama? A favourite basketball player or a favourite rapper or even a favourite Marx brother, maybe, but a favourite banker??) Anyway, being near the top of Barack's Christmas list doesn't seem to have curbed Dimon's behaviour very much. As we have learned over the last few days, JPM has racked up monster losses ($2 billion and counting) by continuing to indulge in the kind of trading practices that regulators have been vowing to curb ever since the financial crisis hit.
The exact details of the loss-making trades are not known, but they seem to have involved large positions in structured derivatives, including credit default swaps (CDS). The very name "credit default swaps" seems to imply that these are an instrument for hedging risk, but once you recall that the volumes of CDS outstanding far outstrip the volume of underlying bonds, you soon realise that the role of the market has moved way beyond risk hedging and into outright speculation.
In seeking to reform financial sector regulation in the aftermath of the crisis, the Obama administration's underlying principle has been that low-risk transactional banking activities should be kept separate from investment banking -- the so-called "Volcker rule". Despite his apparent closeness to the administration, Jamie Dimon has been among the leaders of Wall Street's steadfast opposition to the Volcker rule, or even to less stringent regulatory reform. The revelations of the last few days show that JPM has been flouting the spirit of the Volcker rule on a massive scale, booking gargantuan speculative trades in London while attempting to maintain the fiction that they were being undertaken for risk management purposes.
It's instructive that the announcement of a $2 billion loss has wiped $15 billion off the value of JPMorgan Chase's shares, while hitting confidence in banks generally. Dimon has admitted that the losses could well end up much higher, and markets are well aware of the oft-proved cockroach theory: there's never just one, and who knows whether the next one or six will crawl out at JPM or at one of its competitors? Meantime, all the hedgies on the other side of JPM's disastrous trades will be seeking to maximise their own profits by making it as hard and expensive as possible for JPM to unwind its positions. Thus does the financial services industry add to the sum of human happiness, or as Goldman's Lloyd Blankfein put it, "do God's work".
In an egregious piece of bad timing, David Cameron last week dismissed any attempts by the new French President, Francois Hollande, to impose curbs on the activities of the City of London, saying that Europeans were just "envious" of the UK's success. I'd say they're worried and angry about the UK's unwillingness to admit there's a problem, rather than envious. In the meantime, back in the US, the events at JPM have given a fresh impetus to the Volcker rule. Here, for example, is a cogent analysis, together with a set of specific proposals, from Eliot Spitzer. It contains one remarkable yet somehow unsurprising fact: Jamie Dimon is a member of the board of the New York Fed!
The exact details of the loss-making trades are not known, but they seem to have involved large positions in structured derivatives, including credit default swaps (CDS). The very name "credit default swaps" seems to imply that these are an instrument for hedging risk, but once you recall that the volumes of CDS outstanding far outstrip the volume of underlying bonds, you soon realise that the role of the market has moved way beyond risk hedging and into outright speculation.
In seeking to reform financial sector regulation in the aftermath of the crisis, the Obama administration's underlying principle has been that low-risk transactional banking activities should be kept separate from investment banking -- the so-called "Volcker rule". Despite his apparent closeness to the administration, Jamie Dimon has been among the leaders of Wall Street's steadfast opposition to the Volcker rule, or even to less stringent regulatory reform. The revelations of the last few days show that JPM has been flouting the spirit of the Volcker rule on a massive scale, booking gargantuan speculative trades in London while attempting to maintain the fiction that they were being undertaken for risk management purposes.
It's instructive that the announcement of a $2 billion loss has wiped $15 billion off the value of JPMorgan Chase's shares, while hitting confidence in banks generally. Dimon has admitted that the losses could well end up much higher, and markets are well aware of the oft-proved cockroach theory: there's never just one, and who knows whether the next one or six will crawl out at JPM or at one of its competitors? Meantime, all the hedgies on the other side of JPM's disastrous trades will be seeking to maximise their own profits by making it as hard and expensive as possible for JPM to unwind its positions. Thus does the financial services industry add to the sum of human happiness, or as Goldman's Lloyd Blankfein put it, "do God's work".
In an egregious piece of bad timing, David Cameron last week dismissed any attempts by the new French President, Francois Hollande, to impose curbs on the activities of the City of London, saying that Europeans were just "envious" of the UK's success. I'd say they're worried and angry about the UK's unwillingness to admit there's a problem, rather than envious. In the meantime, back in the US, the events at JPM have given a fresh impetus to the Volcker rule. Here, for example, is a cogent analysis, together with a set of specific proposals, from Eliot Spitzer. It contains one remarkable yet somehow unsurprising fact: Jamie Dimon is a member of the board of the New York Fed!
Saturday, 12 May 2012
Oxymoron
A good few years ago, the great goaltender for the New York Rangers hockey team, John Davidson, was asked by a reporter which team gave him the most trouble. His answer: the New York Rangers.
As we gasp at the crass behaviour of the US "intelligence" community in relation to the latest underwear bomb scare, you have to wonder if the brass at MI6 may be thinking on the same lines. Which country in the "war on terror" worries you the most, Mr Bond? Why, that would be the United States.
As we gasp at the crass behaviour of the US "intelligence" community in relation to the latest underwear bomb scare, you have to wonder if the brass at MI6 may be thinking on the same lines. Which country in the "war on terror" worries you the most, Mr Bond? Why, that would be the United States.
Thursday, 10 May 2012
Mr Yeats peruses the Rich List
A few weeks ago, the Sunday Times published one of those appalling "rich lists" that sends my blood pressure skyrocketing each year. They chose to make it their main front page headline for the day, too: something to the effect that "UK's rich get even richer". Next to that was a political story under the headline "Tories fall to 8-year low in public support". I was watching one of those "press preview" things on TV during the evening, and remarkably enough, neither of the two expert panellists sought to make any connection between the two stories, though that may have had something to do with the fact that one of them appeared to have indulged rather heavily in the "green room" before going on air. Well, it was a Saturday evening after all.
There surely is some connection, though, isn't there? We seem to be seeing a full-fledged shareholder revolt against "fat cat" pay in the UK. Bob "shine on you crazy" Diamond at Barclays managed to trouser his bonus, at the cost of some embarrassment, but others, including Sly Bailey at TrinityMirror and the CEO at Aviva, have had to bow out in the face of shareholder wrath. Bob and Sly and the Aviva guy may not be in the Abramovich/Mittal/Green stratosphere of wealth, but they're doing OK: newly-released data show that remuneration for FTSE-100 CEOs jumped more than 11% last year, while average earnings across the economy rose barely more than 1%. "All in this together", is it?
It's not just in the UK that this is happening. Even in the US, where greed is still mostly regarded as a virtue, eyebrows are starting to get raised by statistics showing a burgeoning wealth and income gap. Not so long ago, American CEOs used to earn about 40 times as much as their average employee; now it's closer to 400 times. And there can be little doubt that the "throw the buggers out" trend in recent European elections, which has now claimed President "bling-bling" Sarkozy in France, has its roots in voters' sense that the wrong people are bearing the costs of fixing the financial crisis.
There are moral arguments to be made about all this, of course: it is easier for a camel to pass through the eye of a needle than to for a rich man enter the Kingdom of Heaven, and so on. That sort of thing doesn't wash with most people in today's society, sad to say, but there are sound practical reasons to fret about the consequences of rising inequality.
Yesterday on CNBC's morning panel show, one gent (whose name I didn't catch) bravely argued the case that inequality in the US risks causing profound damage. The regular hosts, who never met a plutocrat they didn't like, tried their best to talk him to a standstill, but he held his ground admirably. His fundamental point was that if society becomes more and more polarised between rich and poor, then politics becomes more polarised too, until eventually you reach a point where it's almost impossible to agree on any moderate solutions. You can see how that works in the results of the recent Greek elections. Call it Yeatsian economics:
"Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity."
(W. B. Yeats: The Second Coming, 1921)
A further serious consequence of inequality is that it makes it ever harder to generate economic growth. Putting "a chicken in every pot" will ultimately result in a much greater lift to GDP than building another yacht for Larry Ellison. And growth is important. When overall income and wealth are rising, it's possible (though possibly ill-advised) for people to shrug wearily at the excesses of the plutocrats, but when ordinary people are feeling the squeeze, they get angry very quickly. Then you get riots and looting, and you see headlines like "Tories fall to 8-year low in public support".
Let's give the last word to Yeats and his wrist-slitting "Second Coming", with a question whose answer we can hope we never find out:
"And what rough beast, its hour come round at last,
Slouches toward Bethlehem to be born?"
There surely is some connection, though, isn't there? We seem to be seeing a full-fledged shareholder revolt against "fat cat" pay in the UK. Bob "shine on you crazy" Diamond at Barclays managed to trouser his bonus, at the cost of some embarrassment, but others, including Sly Bailey at TrinityMirror and the CEO at Aviva, have had to bow out in the face of shareholder wrath. Bob and Sly and the Aviva guy may not be in the Abramovich/Mittal/Green stratosphere of wealth, but they're doing OK: newly-released data show that remuneration for FTSE-100 CEOs jumped more than 11% last year, while average earnings across the economy rose barely more than 1%. "All in this together", is it?
It's not just in the UK that this is happening. Even in the US, where greed is still mostly regarded as a virtue, eyebrows are starting to get raised by statistics showing a burgeoning wealth and income gap. Not so long ago, American CEOs used to earn about 40 times as much as their average employee; now it's closer to 400 times. And there can be little doubt that the "throw the buggers out" trend in recent European elections, which has now claimed President "bling-bling" Sarkozy in France, has its roots in voters' sense that the wrong people are bearing the costs of fixing the financial crisis.
There are moral arguments to be made about all this, of course: it is easier for a camel to pass through the eye of a needle than to for a rich man enter the Kingdom of Heaven, and so on. That sort of thing doesn't wash with most people in today's society, sad to say, but there are sound practical reasons to fret about the consequences of rising inequality.
Yesterday on CNBC's morning panel show, one gent (whose name I didn't catch) bravely argued the case that inequality in the US risks causing profound damage. The regular hosts, who never met a plutocrat they didn't like, tried their best to talk him to a standstill, but he held his ground admirably. His fundamental point was that if society becomes more and more polarised between rich and poor, then politics becomes more polarised too, until eventually you reach a point where it's almost impossible to agree on any moderate solutions. You can see how that works in the results of the recent Greek elections. Call it Yeatsian economics:
"Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity."
(W. B. Yeats: The Second Coming, 1921)
A further serious consequence of inequality is that it makes it ever harder to generate economic growth. Putting "a chicken in every pot" will ultimately result in a much greater lift to GDP than building another yacht for Larry Ellison. And growth is important. When overall income and wealth are rising, it's possible (though possibly ill-advised) for people to shrug wearily at the excesses of the plutocrats, but when ordinary people are feeling the squeeze, they get angry very quickly. Then you get riots and looting, and you see headlines like "Tories fall to 8-year low in public support".
Let's give the last word to Yeats and his wrist-slitting "Second Coming", with a question whose answer we can hope we never find out:
"And what rough beast, its hour come round at last,
Slouches toward Bethlehem to be born?"
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