Rupert Murdoch isn't the man he used to be. First he bought MySpace for $1/2 billion just as Facebook was taking off. Then he got the New York Post (the American equivalent of the Sun), to endorse John McCain, shortly after McCain chose Sarah Palin as his vice-presidential candidate. Murdoch was clearly convinced that the Palin appointment was a game-changer...
Then News International announced in August that it made a $3.4bn loss. Then James Murdoch launched a vicious attack on the BBC - which prompted previously indifferent people to rally around the Beeb.
And yesterday we had the news that Rupert Murdoch instructed the Sun to say they were backing the Conservatives in the next general election.
No surprise there - the Sun has been hostile to Labour since Cameron became Tory leader in 2005. So this won't change many Sun readers minds.
But it will affect how Labour voters feel. Labour's problem at the moment is widespread apathy. The September Guardian ICM poll showed Labour certainty to vote at just 53% (compared to 68% for the Tories and 59% for the LibDems). The ICM for 23/24th Sept was a little better - our certainty was 59% (but the Tories certainty had climbed to 70%). Labour needs to get people to the polls, and this could galvanise our voters. One person said to me, if Murdoch is against you, you must be doing something right...
Wednesday, September 30, 2009
Thursday, September 03, 2009
The Murdoch plans for media pricing
It's been a couple of months since I last posted - mainly because I have been so busy in my off-line world, I haven't had time to watch the news let alone blog a response to it.
It's an odd sensation not watching or reading news. You very quickly get used to concentrating on real everyday issues, and you only hear about what is going on elsewhere as a sort of distant muffled echo when a news item is big enough that it gets mentioned in conversation by largely non-news following people. When I logged into the Guardian today, I was sort of disorientated by what they deemed to be important news - most of what was on there (murders, Libya etc) seemed pointless and irrelevant to my life (is it sacrilege to say this?).
Only two pieces of news actually got through to me over the summer - the whole upset about the Tory chap thinking the NHS was a "60 year mistake", and the news that Murdoch wanted to charge for access to his newspapers.
Of the two, the Murdoch news is actually the more significant (the NHS is the third rail of British politics, no-one except a suicidal politician would dare to touch it), so I thought I'd explore what it means for the Labour party.
Throughout the 109 years of it's existence, the Labour party has faced a right-wing news-media in Britain. The Daily Mail scuppered the 1923 Labour government, by printing a fabricated letter about imminent communist revolution. Throughout the 1980's and early 90's Labour faced a hostile press given to personal attacks when they couldn't attack on policy.
Despite this however, the three biggest landslide wins any political party has won since universal franchise have been by Labour (1945, 1997 and 2001). We know how Labour achieved the 1997 and 2001 wins - it was done by a two-prong strategy where Blair schmoozed the press while Alistair Campbell ran a relentless rapid rebuttal unit determined to close down negative stories.
But what about the 1945 landslide? Atlee certainly had no PR skills nor any friends in the press. And he faced his equivalent of Murdoch in the form of Lord Beaverbrook, who poured out relentless poison about Labour in the 1945 election campaign, and even managed to influence Churchill so far that he made his shameful "gestapo" speech during the campaign.
So why did this relentless right-wing campaign fail so spectacularly, handing defeat to Churchill just three months after D-day?
In my opinion it was because though the press was pouring out it's bile, a significant part of the electorate wasn't consuming it, for the simple reason that they were still abroad at war, posted in places such as Germany, Burma, North Africa, all over the place really. They weren't reading any of the rubbish the press were putting out, and therefore their choice of party was based on what they personally wanted from post-war Britain - they didn't want soldiers forgotten as they were after WW1, they didn't want unemployment as in the 1930's, they weren't impressed by Tory appeasement of Hitler leading up to the war, and they were fully aware of Churchill's deficiencies as a manager, as they witnessed one cock-up after another in the theatre of war (Churchill was running the war while Atlee ran the home-front). So Labour was swept to power.
How does the 1945 experience inform today's politics? Simple. If Murdoch puts his newspapers behind a pay-wall, we will have once again a significant part of the electorate not exposed to his poison. Except instead of circumstances of war insulating the public, Murdoch will himself be walling off the public from his thoughts.
When the New York Times experimented with it's pay-wall a couple of years ago, their readership fell by 90%. Those 10% who paid did cover the bills - so the experiment was profitable. But significantly the NYT abandoned the paywall because for them profit was not enough - they wanted to be influential as well.
Suppose Murdoch goes ahead with his pay-wall - and suppose for argument that all the other newspapers follow. Suppose even further that he succeeds in his campaign to get the BBC to axe their website. He is assuming that because people cannot get news for free (a dubious assumption as due to the nature of the net, there is always leakage), they will "have" to pay.
I don't think people will be rushing to pay at all, even if all news online was behind a paywall. What will happen instead is a whole bunch of people simply "give up" the news. It's not necessary to daily life after all, and indeed when detached from the emotive poison put out by the news media, life takes on a pleasant tenor. I didn't miss the news at all this summer, and I don't think I'll be consuming it in the same quantity in the future - it now just seems a collosal waste of time, especially if you are busy. A whole generation of twenty-somethings and thirty-somethings have already come to this conclusion, and simply find out what is going on by spending 10 seconds scanning the headlines on their email portal (they don't even bother to click the links).
This is a huge deal for the Labour party. It means one of the biggest headwinds against us eliminates itself. It means that on-the-ground work by Labour members to inform the population (leaflets, canvassing etc) takes on new importance. It means that the influence of media barons over government diminishes (will anyone pay attention to what Murdoch wants if no-one is reading his output?). At a stroke emotive personal attacks on our leaders will lose their power (because no-one will be listening) and policy issues will gain importance (as they actually do affect daily life). Absurd situations where people fear crime even while they don't experience it will disappear if there is no media to fuel fear and people start to draw their conclusions from their own experiences. This probably sounds sacrilegious, but even the elimination of the BBC as a news provider would benefit Labour (as we would no longer be subject to the constant "not good enough" criticism we face no matter what we do, which leads voters to take us for granted and to discount our achievements).
I think this will be a watershed - a step-change in how politics is conducted, which will make the next thirty years very different to what we've known in the last thirty.
I only wish Murdoch was bringing in his pay-wall now, before the general election. I wonder how we could persuade him to go ahead sooner?
It's an odd sensation not watching or reading news. You very quickly get used to concentrating on real everyday issues, and you only hear about what is going on elsewhere as a sort of distant muffled echo when a news item is big enough that it gets mentioned in conversation by largely non-news following people. When I logged into the Guardian today, I was sort of disorientated by what they deemed to be important news - most of what was on there (murders, Libya etc) seemed pointless and irrelevant to my life (is it sacrilege to say this?).
Only two pieces of news actually got through to me over the summer - the whole upset about the Tory chap thinking the NHS was a "60 year mistake", and the news that Murdoch wanted to charge for access to his newspapers.
Of the two, the Murdoch news is actually the more significant (the NHS is the third rail of British politics, no-one except a suicidal politician would dare to touch it), so I thought I'd explore what it means for the Labour party.
Throughout the 109 years of it's existence, the Labour party has faced a right-wing news-media in Britain. The Daily Mail scuppered the 1923 Labour government, by printing a fabricated letter about imminent communist revolution. Throughout the 1980's and early 90's Labour faced a hostile press given to personal attacks when they couldn't attack on policy.
Despite this however, the three biggest landslide wins any political party has won since universal franchise have been by Labour (1945, 1997 and 2001). We know how Labour achieved the 1997 and 2001 wins - it was done by a two-prong strategy where Blair schmoozed the press while Alistair Campbell ran a relentless rapid rebuttal unit determined to close down negative stories.
But what about the 1945 landslide? Atlee certainly had no PR skills nor any friends in the press. And he faced his equivalent of Murdoch in the form of Lord Beaverbrook, who poured out relentless poison about Labour in the 1945 election campaign, and even managed to influence Churchill so far that he made his shameful "gestapo" speech during the campaign.
So why did this relentless right-wing campaign fail so spectacularly, handing defeat to Churchill just three months after D-day?
In my opinion it was because though the press was pouring out it's bile, a significant part of the electorate wasn't consuming it, for the simple reason that they were still abroad at war, posted in places such as Germany, Burma, North Africa, all over the place really. They weren't reading any of the rubbish the press were putting out, and therefore their choice of party was based on what they personally wanted from post-war Britain - they didn't want soldiers forgotten as they were after WW1, they didn't want unemployment as in the 1930's, they weren't impressed by Tory appeasement of Hitler leading up to the war, and they were fully aware of Churchill's deficiencies as a manager, as they witnessed one cock-up after another in the theatre of war (Churchill was running the war while Atlee ran the home-front). So Labour was swept to power.
How does the 1945 experience inform today's politics? Simple. If Murdoch puts his newspapers behind a pay-wall, we will have once again a significant part of the electorate not exposed to his poison. Except instead of circumstances of war insulating the public, Murdoch will himself be walling off the public from his thoughts.
When the New York Times experimented with it's pay-wall a couple of years ago, their readership fell by 90%. Those 10% who paid did cover the bills - so the experiment was profitable. But significantly the NYT abandoned the paywall because for them profit was not enough - they wanted to be influential as well.
Suppose Murdoch goes ahead with his pay-wall - and suppose for argument that all the other newspapers follow. Suppose even further that he succeeds in his campaign to get the BBC to axe their website. He is assuming that because people cannot get news for free (a dubious assumption as due to the nature of the net, there is always leakage), they will "have" to pay.
I don't think people will be rushing to pay at all, even if all news online was behind a paywall. What will happen instead is a whole bunch of people simply "give up" the news. It's not necessary to daily life after all, and indeed when detached from the emotive poison put out by the news media, life takes on a pleasant tenor. I didn't miss the news at all this summer, and I don't think I'll be consuming it in the same quantity in the future - it now just seems a collosal waste of time, especially if you are busy. A whole generation of twenty-somethings and thirty-somethings have already come to this conclusion, and simply find out what is going on by spending 10 seconds scanning the headlines on their email portal (they don't even bother to click the links).
This is a huge deal for the Labour party. It means one of the biggest headwinds against us eliminates itself. It means that on-the-ground work by Labour members to inform the population (leaflets, canvassing etc) takes on new importance. It means that the influence of media barons over government diminishes (will anyone pay attention to what Murdoch wants if no-one is reading his output?). At a stroke emotive personal attacks on our leaders will lose their power (because no-one will be listening) and policy issues will gain importance (as they actually do affect daily life). Absurd situations where people fear crime even while they don't experience it will disappear if there is no media to fuel fear and people start to draw their conclusions from their own experiences. This probably sounds sacrilegious, but even the elimination of the BBC as a news provider would benefit Labour (as we would no longer be subject to the constant "not good enough" criticism we face no matter what we do, which leads voters to take us for granted and to discount our achievements).
I think this will be a watershed - a step-change in how politics is conducted, which will make the next thirty years very different to what we've known in the last thirty.
I only wish Murdoch was bringing in his pay-wall now, before the general election. I wonder how we could persuade him to go ahead sooner?
Wednesday, June 10, 2009
How much do the euro elections matter?
For the best analysis of last week's turbulent politics, I refer you to Hopi Sen's excellent article How Not to Plot. He says it all.
But there is a question that hasn't been addressed. How important are the euro-elections anyway? It's fashionable to claim that because the Tories got 27.7% and UKIP got 16.5% and "of course" UKIP people will vote Tory in a general election, the Tories are on course for a general election share of 44.2%.
But this overlooks turnout, which was an abysmal 34%. What happens when turnout rises to general election levels? The best way to gauge this is to see what happened between the euro elections of 2004 and the general election of 2005.
Looking back to the 2004 european elections, the Tory and UKIP results were not that different to now. Here's how the results panned out.
The Tories plus UKIP are 42.8%. And in number of votes Tories plus UKIP total 7,047,858.
Now look what happens in the 2005 general election:
The Conservatives plus UKIP are now 9,375896 (2,328,038 up from their 2004 euro election showing). But Labour puts on a whopping 5,843,439 votes in the 2005 general election compared to the 2004 euro elections.
The message from the above that the Tory+UKIP vote is a reliable indicator of what they will get in the general election - their supporters turn out to the ballot box come rain or shine for all manner of elections. They will put on a bit in the general election, but only marginally. But look at the Labour voters - they just don't bother to vote in non-general elections at the best of times. And in 2004, some were probably abstaining because of Iraq. But they came out in the general election.
Now to the 2009 euro elections. the results were as follows:
In terms of numbers of votes, everyone is a bit down from the 2004 euro elections, apart from the Greens and the BNP. But Labour's vote is sharply down. It hasn't "gone" to anyone. They've just stayed at home.
The challenge for the general election is in getting them to come out and vote. All the plots etc have probably put them off big time. But now that the plots are over, if the party can focus on the idea that the next election is a make or break election, which is going to be close, with clear differences between Labour and the Tories, then, well, it's not over.
It's all about getting out the vote. The most disturbing article to be written in recent days was the one penned by John Prescott where he alleged that certain members of the government were not even trying to win. He's right to be concerned. If that attitude is replicated in the general election, we will lose badly. If the govt pulls up it's socks and starts to fight, that needn't be the case.
But there is a question that hasn't been addressed. How important are the euro-elections anyway? It's fashionable to claim that because the Tories got 27.7% and UKIP got 16.5% and "of course" UKIP people will vote Tory in a general election, the Tories are on course for a general election share of 44.2%.
But this overlooks turnout, which was an abysmal 34%. What happens when turnout rises to general election levels? The best way to gauge this is to see what happened between the euro elections of 2004 and the general election of 2005.
Looking back to the 2004 european elections, the Tory and UKIP results were not that different to now. Here's how the results panned out.
Party Votes %
Conservative 4,397,090 26.7
Labour 3,718,683 22.6
UKIP 2,650,768 16.1
LibDem 2,452,327 14.9
Green 1,033,093 6.3
BNP 808,200 4.9
Respect 252,252 1.5
SNP 231,505 1.4
Plaid Cymru 159,888 1.0
The Tories plus UKIP are 42.8%. And in number of votes Tories plus UKIP total 7,047,858.
Now look what happens in the 2005 general election:
Party Votes %
Labour 9,562,122 35.3
Conservative 8,772,598 32.3
LibDem 5,981,874 22.1
UKIP 603,298 2.2
SNP 412,267 1.5
Green 257,758 1.0
BNP 192,746 0.7
Plaid cymru 174,838 0.6
Respect 68,094 0.3%
The Conservatives plus UKIP are now 9,375896 (2,328,038 up from their 2004 euro election showing). But Labour puts on a whopping 5,843,439 votes in the 2005 general election compared to the 2004 euro elections.
The message from the above that the Tory+UKIP vote is a reliable indicator of what they will get in the general election - their supporters turn out to the ballot box come rain or shine for all manner of elections. They will put on a bit in the general election, but only marginally. But look at the Labour voters - they just don't bother to vote in non-general elections at the best of times. And in 2004, some were probably abstaining because of Iraq. But they came out in the general election.
Now to the 2009 euro elections. the results were as follows:
Party Votes %
Conservative 4,198,394 27.7%
UKIP 2,498,226 16.5%
Labour 2,381,760 15.7%
LibDem 2,080,613 13.7%
Green 1,223,303 8.6%
BNP 943,598 6.2%
SNP 321,007 2.1%
Plaid Cymru 126,702 0.8%
In terms of numbers of votes, everyone is a bit down from the 2004 euro elections, apart from the Greens and the BNP. But Labour's vote is sharply down. It hasn't "gone" to anyone. They've just stayed at home.
The challenge for the general election is in getting them to come out and vote. All the plots etc have probably put them off big time. But now that the plots are over, if the party can focus on the idea that the next election is a make or break election, which is going to be close, with clear differences between Labour and the Tories, then, well, it's not over.
It's all about getting out the vote. The most disturbing article to be written in recent days was the one penned by John Prescott where he alleged that certain members of the government were not even trying to win. He's right to be concerned. If that attitude is replicated in the general election, we will lose badly. If the govt pulls up it's socks and starts to fight, that needn't be the case.
Thursday, May 21, 2009
Should the taxpayer be buying ginormous houses for MPs?
A Tory MP who has been forced down over expenses has claimed that people were jealous of his big house. Of course there might be some envy flying around - but in general people accept that if you pay for things yourself you can have as large a house as you like. It's only when you get ordinary taxpayers on low incomes to pay for it through their taxes that it becomes a problem.
The second home allowance was designed to help MPs conduct their parliamentary duties and look after their constituents as well as attend Parliament. They can have as large a main house as they like, as they are paying for it themselves, but do they need a massive second home? Wouldn't a modest three-bed or four-bed in the constituency do to enable them to conduct their constituency duties?
And we come to David Cameron's £750,000 second home in Oxfordshire. The Daily Mail, actually raised this issue last year. It's worth having a look at the photo of Cameron's house.
Does he really need something that large to carry out his constituency duties and should he have charged the taxpayer for it?
Cameron bought the second home when he got elected in 2001. Here's what Cameron has claimed on his second home alowances since then (mostly mortgage interest):
2001/2: £18,009
2002/3: £19,722
2003/4: £20,328
2004/5: £20,902
2005/6: £21,359
2006/7: £20,563
2007/8: £19,626
Total: £140,509
No doubt Tories will swarm on here accusing me of class envy - but he's welcome to have as big a house as possible as long as I don't have to pay for it. It's not clear to me that he needed such a large house to do his constituency duties, he clearly bought the biggest one he could at the taxpayers expense and clearly intends to make a profit from it by selling after he has left parliament whenever that is. Thus he is as guilty of taking the taxman for a ride as some of the other cases we have heard.
The second home allowance was designed to help MPs conduct their parliamentary duties and look after their constituents as well as attend Parliament. They can have as large a main house as they like, as they are paying for it themselves, but do they need a massive second home? Wouldn't a modest three-bed or four-bed in the constituency do to enable them to conduct their constituency duties?
And we come to David Cameron's £750,000 second home in Oxfordshire. The Daily Mail, actually raised this issue last year. It's worth having a look at the photo of Cameron's house.
Does he really need something that large to carry out his constituency duties and should he have charged the taxpayer for it?
Cameron bought the second home when he got elected in 2001. Here's what Cameron has claimed on his second home alowances since then (mostly mortgage interest):
2001/2: £18,009
2002/3: £19,722
2003/4: £20,328
2004/5: £20,902
2005/6: £21,359
2006/7: £20,563
2007/8: £19,626
Total: £140,509
No doubt Tories will swarm on here accusing me of class envy - but he's welcome to have as big a house as possible as long as I don't have to pay for it. It's not clear to me that he needed such a large house to do his constituency duties, he clearly bought the biggest one he could at the taxpayers expense and clearly intends to make a profit from it by selling after he has left parliament whenever that is. Thus he is as guilty of taking the taxman for a ride as some of the other cases we have heard.
Tuesday, May 19, 2009
Looking at how different approaches to the recession have produced different results
Eurostat published Q1 GDP figures on the 15th, and they were all but ignored because of the expenses scandal. But it's worth looking at to see how different approaches to the crisis have affected economic performance
All the following figures for GDP are growth per quarter. Eurostat also show American GDP stated per quarter, for comparison.
All the countries that stimulated have mitigated the bad effects of the recession.
The Americans in particular have applied several stimuluses to their economy. Their growth was positive in Q208 because the Bush stimulus bill signed in Feb 2008 released $178bn in tax rebate cheques in May 2008, then $300bn for distressed homeowners in July 2008, and then Obama signed a $787 billion package in Feb 2008. No wonder the American economy is doing less badly than everyone elses.
Elsewhere the centre-left Labour govt of the UK and the centre-left socialist govt of Spain also stimulated in the fourth quarter of 2008. The Germans didn't bother and the Italians under Berlusconi were also slow.
Germany belatedly started to take action earlier this year. But the delay has been costly - some economists reckon that the cost to fix things will be more than the cost of re-unification. The real cost of recessions is the drop in tax revenue - and the longer and deeper the recession is, the worse that cost is. Germany has now admitted that it will experience it's biggest budget deficit since WW2. It's actually cheaper to go for a stimulus early to mitigate the recession and ensure it is short-lived than to let it run and run. Tories like George Osborne cheered Germany to the rafters when they were making their idiotic comments last Sept about "crass Keynesianism". But they are strangely silent now.
It's not fashionable to say this, but we in Britain were lucky to have Gord at the helm in Sept 2008. No one else would have had the sense to take the right course of action.
All the following figures for GDP are growth per quarter. Eurostat also show American GDP stated per quarter, for comparison.
Country Q208 Q308 Q408 Q109
France -0.4% -0.2% -1.5% -1.2%
Germany -0.5% -0.5% -2.2% -3.8%
Italy -0.6% -0.8% -2.1% -2.4%
Spain 0.1% -0.3% -1.0% -1.8%
UK 0.0% -0.7% -1.6% -1.9%
USA 0.7% -0.1% -1.6% -1.6%
All the countries that stimulated have mitigated the bad effects of the recession.
The Americans in particular have applied several stimuluses to their economy. Their growth was positive in Q208 because the Bush stimulus bill signed in Feb 2008 released $178bn in tax rebate cheques in May 2008, then $300bn for distressed homeowners in July 2008, and then Obama signed a $787 billion package in Feb 2008. No wonder the American economy is doing less badly than everyone elses.
Elsewhere the centre-left Labour govt of the UK and the centre-left socialist govt of Spain also stimulated in the fourth quarter of 2008. The Germans didn't bother and the Italians under Berlusconi were also slow.
Germany belatedly started to take action earlier this year. But the delay has been costly - some economists reckon that the cost to fix things will be more than the cost of re-unification. The real cost of recessions is the drop in tax revenue - and the longer and deeper the recession is, the worse that cost is. Germany has now admitted that it will experience it's biggest budget deficit since WW2. It's actually cheaper to go for a stimulus early to mitigate the recession and ensure it is short-lived than to let it run and run. Tories like George Osborne cheered Germany to the rafters when they were making their idiotic comments last Sept about "crass Keynesianism". But they are strangely silent now.
It's not fashionable to say this, but we in Britain were lucky to have Gord at the helm in Sept 2008. No one else would have had the sense to take the right course of action.
Why Hazel Blears is a crap communicator
I was trying to work out what bothered me so much about Hazel Blears appearing on TV waving her cheque for £13k which she will repay to the taxpayer. Why was this so much worse than other MPs like Margaret Moran, and David Davis merely saying that they were repaying money?
It came to me that there was a touch of "loads-of-money" about Blears actions. Waving cash at people, waving cheques implies you have got a lot of money on hand. Essentially she was saying with her body language, I'm rich, I can write a cheque for £13 grand just like that (imagine smug click of the fingers). Which makes things so much worse.
The median income in Britain is about £25,000, which implies that about half the workforce, 14 million, earn less than that. They don't have £13k on hand to be able to write cheques to wave in people's faces. And if you've got lots of money on hand, why do you need to nick from the public purse?
Hazel Blears has been making a big fuss in recent weeks about how she is a better communicator than Gordon Brown. It's perfectly true that Gord doesn't know how to do anything but serious. Put him in front of a camera and ask him to smile and he struggles. But he has never been known to wave cheques in the faces of people either. If Hazel Blears was really the great politician and communicator she claims she is, she wouldn't have done it. Instead she'd have been contrite and apologetic. If she's such a useless politician, should she be an MP?
Today's NEC meeting has provided some guidelines of what will happen. There is going to be independent scrutiny of every claim made by every Labour MP in the last four years. The people breaking the spirit of the rules will be made to return the money. An NEC panel will recommend the deselection of the worst cases regardless of whether they have repaid or not (i.e. repaying will not save you). I hope Hazel Blears is one of those given the chop.
It came to me that there was a touch of "loads-of-money" about Blears actions. Waving cash at people, waving cheques implies you have got a lot of money on hand. Essentially she was saying with her body language, I'm rich, I can write a cheque for £13 grand just like that (imagine smug click of the fingers). Which makes things so much worse.
The median income in Britain is about £25,000, which implies that about half the workforce, 14 million, earn less than that. They don't have £13k on hand to be able to write cheques to wave in people's faces. And if you've got lots of money on hand, why do you need to nick from the public purse?
Hazel Blears has been making a big fuss in recent weeks about how she is a better communicator than Gordon Brown. It's perfectly true that Gord doesn't know how to do anything but serious. Put him in front of a camera and ask him to smile and he struggles. But he has never been known to wave cheques in the faces of people either. If Hazel Blears was really the great politician and communicator she claims she is, she wouldn't have done it. Instead she'd have been contrite and apologetic. If she's such a useless politician, should she be an MP?
Today's NEC meeting has provided some guidelines of what will happen. There is going to be independent scrutiny of every claim made by every Labour MP in the last four years. The people breaking the spirit of the rules will be made to return the money. An NEC panel will recommend the deselection of the worst cases regardless of whether they have repaid or not (i.e. repaying will not save you). I hope Hazel Blears is one of those given the chop.
Sunday, May 10, 2009
Labour should move swiftly to deselect MPs who have abused the expenses system
It's hard to overstate how shocked Labour members have been over the revelations about MPs expenses in the Telegraph and other newspapers.
Members after all join parties for idealistic reasons - and they then proceed to give money, give up spare time to attend meetings to select candidates, give time delivering leaflets and canvassing, give time defending the party online, give, give, give, in an act of civic altrusim without which we would have no democracy. And to find that we've been betrayed by the MPs who were solely focused on their own profit and who then have the gall to traipse around the TV studios trying to defend the indefensible...
MPs may bleat that "all parties are at it" or that they are underpaid compared to GPs or they are victims of the press, but none of this washes. To your average voter, MPs arn't underpaid at all. To your average party member who gives so much for free, the MPs sense of entitlement is shocking.
There is only one response to this - the MPs with the worst abuses must be deselected. To use the GP analogy, if doctors are found to be incompetant or have brought their profession into disrepute, they are struck off. The job of a politician is to understand what voters are thinking. Barbara Follet and Margaret Moran to name two MPs, appear to have no political nous whatsoever. So what is the point of having them as MPs?
There is also the issue of the reputation of the Labour party - this must come above the needs of individual MPs. In the 80's, Labour was constantly attacked over letting extremists hijack the party. It wasn't till Neil Kinnock publicly took on Derek Hatton and other Militant extremists at the party conference that the tide started to turn and the public began to see that Labour was serious about putting it's house in order. Indeed Kinnock took the whole issue so seriously, he actually missed Prime Ministers Questions, in order to attend Hatton's disciplinary meeting in 1986, which was scheduled at the same time. He prevailed and Hatton was expelled.
By contrast, the Conservatives did not deal with Neil Hamilton in the 1997 election. They foolishly allowed him to represent them, so the story became "Conservatives back MP who receives money in brown bags". They should have protected their party and forced him to step down.
Labour musn't make the same mistake. The MPs with the worst abuses cannot be allowed to contest the next election representing Labour. But how to force the rotton MPs out is exercising many. As seen by the way they seem to be defending themselves, they clearly mean to fight to stay on. And because we are so close to a general election, many sitting MPs will have already been reselected for their seat. There are several ways the CLPs can act. They can put pressure for the MPs to stand down and they can start disciplinary proceedings. Under rule 2A.8 of the Labour party rule book, "No member of the party shall engage in conduct which in the opinion of the national constitutional committee (NCC) is prejudicial, or in any act which in the opinion of the NCC is grossly detrimental to the party." To any reasonable person, MPs engaging in property speculation at the taxpayers expense is "grossly detrimental to the party".
It's always hard for individual members to stand up at constituency party meetings to question the MPs. But they must do it if the Labour party is to survive with it's reputation intact. The public won't be happy till MP's have been punished and brought to heel. If we dont act, the voters will act, by choosing "anyone but the incumbant", and as we have the most incumbants, we have the most to lose.
Members after all join parties for idealistic reasons - and they then proceed to give money, give up spare time to attend meetings to select candidates, give time delivering leaflets and canvassing, give time defending the party online, give, give, give, in an act of civic altrusim without which we would have no democracy. And to find that we've been betrayed by the MPs who were solely focused on their own profit and who then have the gall to traipse around the TV studios trying to defend the indefensible...
MPs may bleat that "all parties are at it" or that they are underpaid compared to GPs or they are victims of the press, but none of this washes. To your average voter, MPs arn't underpaid at all. To your average party member who gives so much for free, the MPs sense of entitlement is shocking.
There is only one response to this - the MPs with the worst abuses must be deselected. To use the GP analogy, if doctors are found to be incompetant or have brought their profession into disrepute, they are struck off. The job of a politician is to understand what voters are thinking. Barbara Follet and Margaret Moran to name two MPs, appear to have no political nous whatsoever. So what is the point of having them as MPs?
There is also the issue of the reputation of the Labour party - this must come above the needs of individual MPs. In the 80's, Labour was constantly attacked over letting extremists hijack the party. It wasn't till Neil Kinnock publicly took on Derek Hatton and other Militant extremists at the party conference that the tide started to turn and the public began to see that Labour was serious about putting it's house in order. Indeed Kinnock took the whole issue so seriously, he actually missed Prime Ministers Questions, in order to attend Hatton's disciplinary meeting in 1986, which was scheduled at the same time. He prevailed and Hatton was expelled.
By contrast, the Conservatives did not deal with Neil Hamilton in the 1997 election. They foolishly allowed him to represent them, so the story became "Conservatives back MP who receives money in brown bags". They should have protected their party and forced him to step down.
Labour musn't make the same mistake. The MPs with the worst abuses cannot be allowed to contest the next election representing Labour. But how to force the rotton MPs out is exercising many. As seen by the way they seem to be defending themselves, they clearly mean to fight to stay on. And because we are so close to a general election, many sitting MPs will have already been reselected for their seat. There are several ways the CLPs can act. They can put pressure for the MPs to stand down and they can start disciplinary proceedings. Under rule 2A.8 of the Labour party rule book, "No member of the party shall engage in conduct which in the opinion of the national constitutional committee (NCC) is prejudicial, or in any act which in the opinion of the NCC is grossly detrimental to the party." To any reasonable person, MPs engaging in property speculation at the taxpayers expense is "grossly detrimental to the party".
It's always hard for individual members to stand up at constituency party meetings to question the MPs. But they must do it if the Labour party is to survive with it's reputation intact. The public won't be happy till MP's have been punished and brought to heel. If we dont act, the voters will act, by choosing "anyone but the incumbant", and as we have the most incumbants, we have the most to lose.
Sunday, May 03, 2009
On fanciful talk of defections from the LibDems
Paddy Ashdown created a bit of a stir when he claimed that some Labour MPs might defect to the LibDems.
This is so off-base, where to start? First of all the searing memory in the Labour party is of the split in the early 80's when the SDP broke away. It's not just about the fact that the Labour party dislikes disloyalty above all things. It's also about the fate of the MPs who defected to the SDP - 28 Labour MPs left to join the SDP, along with loads of PPCs and activists, and they thought they were leaving a Labour party that was "finished" and going on to form the next government. Actually, they were trashing their careers and going nowhere.
By contrast, parliamentary candidates like Tony Blair, standing for election in 1983 for the first time, stuck with the Labour party, fighting from within to make it electable. He then became leader of the Labour party and Prime Minister for 10 years. If Vince Cable had stayed put, he would now be chancellor, but instead has to content himself with appearances on TV when they need a third voice. The lesson is clear - stay and fight your corner and you eventually prevail. Flouncing out pays no dividends. Politics is a long, long game.
In addition Ashdown and others who believe that Labour will lurch left have absolutely no understanding of the make-up of current Labour activists nearly 30 years after the SDP was formed. The party is a different animal.
It's not just the Labour party that has changed of course. The entire political landscape has changed. The Tories are now further to the right than they've been in 60 years. They are also more euro-sceptic than they've ever been, more isolationist, more fearful of the rest of the world. This closes off options.
It's a cliche to say that the left of the Labour party has nowhere to go - it was true in 1996 and is true now. But what is new is that the right of the Labour party also has nowhere to go. If like me you are centrist in the grand scheme of things (which means on the right of the Labour party), believing in and engaged in commerce, and understanding that globalisation needs rules and safety nets, and that the EU supplies these in Europe and that we have to be in the EU; if you rather like the world and it's peoples, instead of fearing and hating it, there isn't anywhere else to go apart from Labour.
Pro-europeans like Peter Mandelson and Charles Clarke need the Labour party as much as Dianne Abbot and Dennis Skinner do. That's why no MPs have crossed the floor away from Labour since Gordon Brown became leader in 2007, and why there won't be any coming up in the next few months. We are all locked together in mutual need and must help each other to get anywhere.
This is so off-base, where to start? First of all the searing memory in the Labour party is of the split in the early 80's when the SDP broke away. It's not just about the fact that the Labour party dislikes disloyalty above all things. It's also about the fate of the MPs who defected to the SDP - 28 Labour MPs left to join the SDP, along with loads of PPCs and activists, and they thought they were leaving a Labour party that was "finished" and going on to form the next government. Actually, they were trashing their careers and going nowhere.
By contrast, parliamentary candidates like Tony Blair, standing for election in 1983 for the first time, stuck with the Labour party, fighting from within to make it electable. He then became leader of the Labour party and Prime Minister for 10 years. If Vince Cable had stayed put, he would now be chancellor, but instead has to content himself with appearances on TV when they need a third voice. The lesson is clear - stay and fight your corner and you eventually prevail. Flouncing out pays no dividends. Politics is a long, long game.
In addition Ashdown and others who believe that Labour will lurch left have absolutely no understanding of the make-up of current Labour activists nearly 30 years after the SDP was formed. The party is a different animal.
It's not just the Labour party that has changed of course. The entire political landscape has changed. The Tories are now further to the right than they've been in 60 years. They are also more euro-sceptic than they've ever been, more isolationist, more fearful of the rest of the world. This closes off options.
It's a cliche to say that the left of the Labour party has nowhere to go - it was true in 1996 and is true now. But what is new is that the right of the Labour party also has nowhere to go. If like me you are centrist in the grand scheme of things (which means on the right of the Labour party), believing in and engaged in commerce, and understanding that globalisation needs rules and safety nets, and that the EU supplies these in Europe and that we have to be in the EU; if you rather like the world and it's peoples, instead of fearing and hating it, there isn't anywhere else to go apart from Labour.
Pro-europeans like Peter Mandelson and Charles Clarke need the Labour party as much as Dianne Abbot and Dennis Skinner do. That's why no MPs have crossed the floor away from Labour since Gordon Brown became leader in 2007, and why there won't be any coming up in the next few months. We are all locked together in mutual need and must help each other to get anywhere.
Sunday, April 26, 2009
The Obama factor in Labour's budget
Most of the commentariat are busily discussing the supposed "death of New Labour" and trying to come up with reasons why Peter Mandelson and co sanctioned the introduction of the 50% top rate if income tax.
They've overlooked an important point: Labour was only able to do this because the election of Barack Obama gave us cover. Here's what I wrote on 5th November 2008 (the day after his win):
People always overlook the fact that you may want to do something, but are constrained by your neighbours and can only take action when they move. This applies to tax more than anything. It explains why there is a lot of corporate tax competition within the EU, with every EU nation's corp tax rate coming down including Germany's - in the UK corp tax is 28% compared to 33% in 1997. But in the USA, even under Bush, the corporate tax rate remained 35%. That's because the US federal government is able to impose a blanket rate (the state corporate tax rates are offset against the federal ones). The EU imposes no such blanket rate, and hence this opens things up for the states to compete on corporate tax, the opening salvo of which was fired by Ireland in the early 1990's. The American states compete on income tax rather than corporate tax.
All movements in matters of taxation have to be relative to that of your main rival. London's main rival is New York in high paid individuals and the financial services industry. In the USA, Obama has also helpfully capped the earnings of people in bailed out firms at $75000 (£51724 at current exchange rates). Many bankers will prefer to remain in the UK and bite the bullet of the 50% tax than move to the USA. I expect the Labour government is also calculating that their move on income tax will give cover to the other EU nations should they need to raise taxes (and many will not want to do this, but will need to do so due to the exceptional circumstances we are living in). Many of the high paid of the UK have been threatening to go to Switzerland. But the Swiss are in trouble with their banking system, which will probably need to be bailed out by the Swiss government - and they will likely have to pay for it by, you guessed it, tax rises.
As for the "death of New Labour" - what is happening is no different to the evolution that took place in our sister party the US Democrats, from Bill Clinton to Obama. We sustained the "Bill Clinton" bit a little longer than they did - but then they had to endure the extreme-right wing Bush in the interim, which provoked a bigger backlash. One of the what-ifs of history is what would have happened had Al Gore been elected in 2000. The forces bearing on the Labour government would have been quite different. Oh well.
They've overlooked an important point: Labour was only able to do this because the election of Barack Obama gave us cover. Here's what I wrote on 5th November 2008 (the day after his win):
Obama has stated that he thinks a person on an income of $250k is rich (this is about £158k at current rates). He intends to raise the top federal tax rates to to 36% and 39.6% (from the current 33% and 35%). Remember that Americans pay state income tax in addition to federal income tax. The American state that mirrors Britain's economy most is New York State. There, the state income tax if your income range is between $100,001 and $500,000, is 7.375%. If your income range is $500,001 and over, your tax rate is 7.7%. People living in New York City pay city income tax too of between 2.9% and 3.6%.
That means that the top marginal rate of tax for high earners in New York City (London's great rival) will go up from the current 46.3% to 50.9% under Obama. Compare that to the 41% levied in the UK. It gives cover for the Labour govt to raise N.I. by a mere 1% over the upper earnings limit (to take the marginal rate to 42%), should they wish. Especially as the Irish have introduced an income levy of 1% (and 2% for earnings over €100000) to take top rate to 43%. Alistair Darling has ruled out tax increases for now. But what has happened in the USA gives us room for manoeuvre if we need it.
People always overlook the fact that you may want to do something, but are constrained by your neighbours and can only take action when they move. This applies to tax more than anything. It explains why there is a lot of corporate tax competition within the EU, with every EU nation's corp tax rate coming down including Germany's - in the UK corp tax is 28% compared to 33% in 1997. But in the USA, even under Bush, the corporate tax rate remained 35%. That's because the US federal government is able to impose a blanket rate (the state corporate tax rates are offset against the federal ones). The EU imposes no such blanket rate, and hence this opens things up for the states to compete on corporate tax, the opening salvo of which was fired by Ireland in the early 1990's. The American states compete on income tax rather than corporate tax.
All movements in matters of taxation have to be relative to that of your main rival. London's main rival is New York in high paid individuals and the financial services industry. In the USA, Obama has also helpfully capped the earnings of people in bailed out firms at $75000 (£51724 at current exchange rates). Many bankers will prefer to remain in the UK and bite the bullet of the 50% tax than move to the USA. I expect the Labour government is also calculating that their move on income tax will give cover to the other EU nations should they need to raise taxes (and many will not want to do this, but will need to do so due to the exceptional circumstances we are living in). Many of the high paid of the UK have been threatening to go to Switzerland. But the Swiss are in trouble with their banking system, which will probably need to be bailed out by the Swiss government - and they will likely have to pay for it by, you guessed it, tax rises.
As for the "death of New Labour" - what is happening is no different to the evolution that took place in our sister party the US Democrats, from Bill Clinton to Obama. We sustained the "Bill Clinton" bit a little longer than they did - but then they had to endure the extreme-right wing Bush in the interim, which provoked a bigger backlash. One of the what-ifs of history is what would have happened had Al Gore been elected in 2000. The forces bearing on the Labour government would have been quite different. Oh well.
Wednesday, April 22, 2009
Initial Budget Reaction
Well no-one can accuse Alistair Darling of being boring now! It was the most exciting budget in decades.
The reaction from the Tory Commentariat is interesting: Ian Dale in the Guardian declared he was "fizzing" with anger at the 50% tax rate for earnings over £150k, and Danny Finklestein wrote in the Times that "I think the tax rises will go down very badly with the bulk of voters". Both of course opposed the VAT cut because it benefitted rather more than the top 2% of the workforce.
Their knee-jerk response is very much the politics of the last 30 years. They assume that everyone identifies with the rich and that at least 40% of the population believe they will become part of the top 2% next year. While simultaneously believing that ordinary people are unhappy with the VAT refund on their sales slips.
I'm not sure if this thinking holds anymore. We shall find out if there has been a step-change in attitudes soon enough, at the next election...
Of course Tories will try to get around the "we are the party of the top two percent" by claiming that this hurts "entrepreneurs". But as most entrepreneurs will testify, they take their income in the form of dividends, are careful to retain as much in the company as possible (to fund future growth) and only set the dividend amount to be within the lowest tax rate bands. And when they make it and cash out (usually by allowing their small firm to get taken over by a bigger one for a tidy sum), they take their money in the form of capital gains which are taxed at just 18% (compared to 40% under the last Tory government). And why not if they've created a company and jobs out of nothing. So true entrepreneurs will not suffer at all.
However what could be termed the "officer" class, those who are high level management and directors, who pay themselves big amounts at the shareholders expense, bankers in the City who've done so much to ruin their industry, some extremely high paid staff in councils - these are the types of people who will be taxed at the new 50% rate. But they are not entrepreneurs. If they are encouraged to switch from being rentier types to becoming true entrepreneurs, then good. And if some of the bankers wish to bestow their talents for ruining businesses on the good people of Hong Kong or Dubai instead, I wish them bon voyage and cross my fingers that those countries will take them in.
The reaction from the Tory Commentariat is interesting: Ian Dale in the Guardian declared he was "fizzing" with anger at the 50% tax rate for earnings over £150k, and Danny Finklestein wrote in the Times that "I think the tax rises will go down very badly with the bulk of voters". Both of course opposed the VAT cut because it benefitted rather more than the top 2% of the workforce.
Their knee-jerk response is very much the politics of the last 30 years. They assume that everyone identifies with the rich and that at least 40% of the population believe they will become part of the top 2% next year. While simultaneously believing that ordinary people are unhappy with the VAT refund on their sales slips.
I'm not sure if this thinking holds anymore. We shall find out if there has been a step-change in attitudes soon enough, at the next election...
Of course Tories will try to get around the "we are the party of the top two percent" by claiming that this hurts "entrepreneurs". But as most entrepreneurs will testify, they take their income in the form of dividends, are careful to retain as much in the company as possible (to fund future growth) and only set the dividend amount to be within the lowest tax rate bands. And when they make it and cash out (usually by allowing their small firm to get taken over by a bigger one for a tidy sum), they take their money in the form of capital gains which are taxed at just 18% (compared to 40% under the last Tory government). And why not if they've created a company and jobs out of nothing. So true entrepreneurs will not suffer at all.
However what could be termed the "officer" class, those who are high level management and directors, who pay themselves big amounts at the shareholders expense, bankers in the City who've done so much to ruin their industry, some extremely high paid staff in councils - these are the types of people who will be taxed at the new 50% rate. But they are not entrepreneurs. If they are encouraged to switch from being rentier types to becoming true entrepreneurs, then good. And if some of the bankers wish to bestow their talents for ruining businesses on the good people of Hong Kong or Dubai instead, I wish them bon voyage and cross my fingers that those countries will take them in.
Saturday, April 04, 2009
G20 Reaction
It's safe to say that the outcome of the G20 last week was a surprise to everyone. Last November the Americans were expecting to sweep into London and dictate the agenda, while the French and Germans were expecting they would get to lecture everyone about how their economies had survived intact while the Anglo-Saxon economies had not. And both the Tories and the press were loudly anticipating a failure by the Brown government to get all the differing parties onto the same page right up to the eve of the summit.
As it turned out, Gordon Brown not only pulled it off, Britain was central in driving the agenda (the first time this has happened at these meetings in decades).
It wasn't just the official agenda that went right, the peripheral one of welcoming the Obamas on their first visit abroad went right too. We saw Sarah Brown again for the first time since Glenrothes, and again she was a hit. She managed to strike exactly the right note, from getting her friend JK Rowling to give a reading (thrilling not only the Obamas but the Medvedevs), to making tea in a cancer centre, she was pretty much the perfect representative for Britain.
Everyone likes Sarah. Part of it is that she isn't pushy like Cherie (who was vilified by the press) but not cringingly shy like Norma Major (who was bullied by the press). She is very much as middle England likes to see itself - kind, well-mannered, endearingly plump and sometimes a little frumpy. Cherie (and Samantha Cameron who fancies herself as a fashionista) would not have been able to resist competing with Michelle Obama in the fashion stakes. Sarah, who is the same age as Michelle, didn't bother to try, and her instincts were right. While the Americans and French supposedly don't mind seeing their leaders' wives spend thousands on couture in the middle of a recession, Brits are a different cup of tea.
It's a rare skill to be able to tap your country's mood without even trying. Sarah Brown turned out to be the big winner of the G20 summit.
Thursday, March 19, 2009
When will the recession end?
The old-fashioned answer is "When the market clears". That is, when gluts are eliminated, balance sheets repaired, debts repaid and pent-up demand builds to the point where it can't be postponed and people spend again and the economy rebounds.
The biggest threat to markets not clearing is the banks' balance sheets. As the BoE noted in it's Feb09 inflation report:
"UK banks need to restructure their balance sheets,reducing their overdependence on wholesale financing and realigning the scale of their loans relative to their deposit base.That in turn will require adjustment to private sector balance sheets — in part by the non-bank financial sector, but alsothrough higher saving and lower spending by households and companies"
But of course to do this, the banks need money to repay their wholesale loans. The best way to do this is have the household sector repay some of their debt, which in turn allows the bank to use the money received to repay some of their wholesale debt. But whenever someone suggests this (I've been writing posts urging people to repay their debt since early Feb), the Paradox of Thrift is invoked. When Bush urged Americans to "go shopping" in the 2001 recession, he was invoking the Paradox of Thrift. Greenspan urging Americans to invest in housing and abandon the traditional American 30-year fixed year rate mortgages in favour of variable-rate mortgages, so they saw a rise in disposable income (temporary as long as interest rates remained low), was also acting on the Paradox of Thrift and trying to keep consumption going.
It's perfectly true that if everybody stops spending (households, businesses and government), the economy spirals down in a vicious cycle. However, lets get a few things clear. This is not the 1930's. In the UK at least, we now have a full-blown welfare state, and government spending automatically increases in a downturn on things like unemployment benefit, housing benefit, mortgage help and so on (the so-called automatic stabalisers), which support a degree of consumption in the economy. And governments can always expand spending beyond that on public works (the Olympics-related spending being an example).
As long as government stands ready to take up the slack, there isn't any danger of a spiral down. But recovery depends on the private sector clearing - without the private sector clearing you get a stalemate and stagnation.
The best way to illustrate this is the Japanese example. Japanese businesses took on a tremendous amount of debt in the 1980's. Their debt to equity ratio was 4 (they were financing about 20% of assets with equity and 80% with debt). In US companies in the 80's the ratio was 1.02 (equity was financing 49.5% of assets). When Japan went into recession in the early 1990's, after some hesitation the Japanese government embarked on a Keynesian expansion. As Stephen King points out, they managed pretty well to avoid a collapse 1930's style: "growth was very low but not entirely absent; unemployment rose, but not too far; and per capita incomes were maintained at a high level by international standards.". It was a success, as they prevented the spiral down.
But they still lost a decade in stagnation and barely-there growth, and in the meantime the government debt kept climbing (Japan's debt as a % of GDP is forecast to be 217% in 2009). People focus on the stupendous Japanese government debt and shudder and claim that thus we shouldn't go down that path. But their government debt rose so much only because it took so long for the private sector to clear. If they had cleared in about five years instead of a decade, they wouldn't have the public sector debt they have now.
The problem was not in the government action (they did what they had to do), but in the private sector which took forever to repay debt and thus "clear". Worse, in a deflationary situation, debt becomes harder and harder to repay as incomes and corporate revenues fall, so the longer you leave it, the worse it gets.
The conclusion must therefore be that we should encourage our private sector to clear as fast as possible, while letting the government take the strain. Those whose disposable income has increased thanks to interest rates being cut should do their bit for their country (and themselves) and repay debt as fast as possible, including overpaying their mortgages if they are allowed by their mortgage terms. We'll have a few bad quarters, but at some point a tipping point will occur. The banks will clear their wholesale loans and start to think about profits again (which they can't make unless they lend again). When households repay their debts they will find disposable income jumps as their monthly debt commitments disappear, and they will spend some of the money freed up. Pent-up demand will build (purchases of things like cars can only remain at current depressed levels if existing cars last about 27 years, which they are not designed to do). Obviously it will help a lot if those who have no debt carry on spending as normal and are not panicked into drawing in their horns.
What happened in Japan was that corporations hesitated to clear their debt and carried on like zombies, while some Japanese households who had no debt cut back on spending in a panic. If we do this the other way round (people with debt clear it at speed while people with no debt continue as normal), we should be out of this recession as rapidly as we got into it. Of course if this doesn't happen, this could drag on for years.
The biggest threat to markets not clearing is the banks' balance sheets. As the BoE noted in it's Feb09 inflation report:
"UK banks need to restructure their balance sheets,reducing their overdependence on wholesale financing and realigning the scale of their loans relative to their deposit base.That in turn will require adjustment to private sector balance sheets — in part by the non-bank financial sector, but alsothrough higher saving and lower spending by households and companies"
But of course to do this, the banks need money to repay their wholesale loans. The best way to do this is have the household sector repay some of their debt, which in turn allows the bank to use the money received to repay some of their wholesale debt. But whenever someone suggests this (I've been writing posts urging people to repay their debt since early Feb), the Paradox of Thrift is invoked. When Bush urged Americans to "go shopping" in the 2001 recession, he was invoking the Paradox of Thrift. Greenspan urging Americans to invest in housing and abandon the traditional American 30-year fixed year rate mortgages in favour of variable-rate mortgages, so they saw a rise in disposable income (temporary as long as interest rates remained low), was also acting on the Paradox of Thrift and trying to keep consumption going.
It's perfectly true that if everybody stops spending (households, businesses and government), the economy spirals down in a vicious cycle. However, lets get a few things clear. This is not the 1930's. In the UK at least, we now have a full-blown welfare state, and government spending automatically increases in a downturn on things like unemployment benefit, housing benefit, mortgage help and so on (the so-called automatic stabalisers), which support a degree of consumption in the economy. And governments can always expand spending beyond that on public works (the Olympics-related spending being an example).
As long as government stands ready to take up the slack, there isn't any danger of a spiral down. But recovery depends on the private sector clearing - without the private sector clearing you get a stalemate and stagnation.
The best way to illustrate this is the Japanese example. Japanese businesses took on a tremendous amount of debt in the 1980's. Their debt to equity ratio was 4 (they were financing about 20% of assets with equity and 80% with debt). In US companies in the 80's the ratio was 1.02 (equity was financing 49.5% of assets). When Japan went into recession in the early 1990's, after some hesitation the Japanese government embarked on a Keynesian expansion. As Stephen King points out, they managed pretty well to avoid a collapse 1930's style: "growth was very low but not entirely absent; unemployment rose, but not too far; and per capita incomes were maintained at a high level by international standards.". It was a success, as they prevented the spiral down.
But they still lost a decade in stagnation and barely-there growth, and in the meantime the government debt kept climbing (Japan's debt as a % of GDP is forecast to be 217% in 2009). People focus on the stupendous Japanese government debt and shudder and claim that thus we shouldn't go down that path. But their government debt rose so much only because it took so long for the private sector to clear. If they had cleared in about five years instead of a decade, they wouldn't have the public sector debt they have now.
The problem was not in the government action (they did what they had to do), but in the private sector which took forever to repay debt and thus "clear". Worse, in a deflationary situation, debt becomes harder and harder to repay as incomes and corporate revenues fall, so the longer you leave it, the worse it gets.
The conclusion must therefore be that we should encourage our private sector to clear as fast as possible, while letting the government take the strain. Those whose disposable income has increased thanks to interest rates being cut should do their bit for their country (and themselves) and repay debt as fast as possible, including overpaying their mortgages if they are allowed by their mortgage terms. We'll have a few bad quarters, but at some point a tipping point will occur. The banks will clear their wholesale loans and start to think about profits again (which they can't make unless they lend again). When households repay their debts they will find disposable income jumps as their monthly debt commitments disappear, and they will spend some of the money freed up. Pent-up demand will build (purchases of things like cars can only remain at current depressed levels if existing cars last about 27 years, which they are not designed to do). Obviously it will help a lot if those who have no debt carry on spending as normal and are not panicked into drawing in their horns.
What happened in Japan was that corporations hesitated to clear their debt and carried on like zombies, while some Japanese households who had no debt cut back on spending in a panic. If we do this the other way round (people with debt clear it at speed while people with no debt continue as normal), we should be out of this recession as rapidly as we got into it. Of course if this doesn't happen, this could drag on for years.
Tuesday, March 17, 2009
The Recession and Journalism
From tomorrow, the Seattle Post-Intelligencer becomes an internet only newspaper, as the Hearst Corporation tries to stem losses. According to the New York Times, they will go from news staff of 165 to 20 people who will provide commentary, with the news coming from feeds (presumably from Reuters or Associated Press). The problem was this: no one buys print anymore, and advertisers are loathe to spend high rates to advertise in newspapers. But internet advertising rates are so low that they can't support more than a staff of 20 (compared to print advertising supporting a staff of 165).
The Recession combined with the Internet is creating a bloodbath among American newspapers, (and can British and European newspapers be far behind?) The best article about the phenomenon is an essay written by someone called Clay Shirky - I urge people to read it in full.
He points out that the old newspaper model was built on a barrier to entry that doesn't exist in the internet world:
"If you want to know why newspapers are in such trouble, the most salient fact is this: Printing presses are terrifically expensive to set up and to run. This bit of economics, normal since Gutenberg, limits competition while creating positive returns to scale for the press owner, a happy pair of economic effects that feed on each other. In a notional town with two perfectly balanced newspapers, one paper would eventually generate some small advantage — a breaking story, a key interview — at which point both advertisers and readers would come to prefer it, however slightly. That paper would in turn find it easier to capture the next dollar of advertising, at lower expense, than the competition. This would increase its dominance, which would further deepen those preferences, repeat chorus. The end result is either geographic or demographic segmentation among papers, or one paper holding a monopoly on the local mainstream audience."
Because of this monopoly, newspapers could use their advertising revenue to subsidize all sorts of things such as war correspondents, whether or not the advertiser wanted their money spent that way or not. But with the internet, the advertiser can target their ads. Further, because there is no barrier to entry online and so many places to put advertising, the advertising rates that newspapers can command online are way lower than in print. After all, why advertise on a newspaper site such as the Guardian or the Times, where the readers might or might not be interested in your product, when you can target the ads like a laser by placing them on the Google search results, so that only people searching for your product niche see them. Google continues to do so well precisely because the ads on their search engine have a much higher convertability into sales than ads in almost any other medium, whether print, television or other internet pages.
But there is a side-effect to this - if the revenue supporting journalism dries up, stories won't get broken anymore, apart from by Reuters and Associated Press, who should do well by everyone buying their feeds. And as a result, pretty much all newspapers will start to feature exaactly the same news.
There is only one organisation that is immune from all this - The BBC. Alone, they can afford to send correspondents to Baghdad or Timbuktu. Alone they can afford to cover every part of the planet.
This is most certainly NOT the moment to curb the BBC whether by trying to cut their income by freezing the licence fee or by trying to force them to compete for the rapidly diminishing television advertising revenue (which is being hit by both the better targetting of advertising on Google and by the ability to tape shows and fast forward through the ads) - by doing so you would curb the one last source of free independent news (one of the pillars on which our democracy rests).
Journalism benefits society as a whole, and public service journalism has never been so vital when the private sector looks like it will curl up and die. Clay Shirky asks the question, So who covers all that news if some significant fraction of the currently employed newspaper people lose their jobs? and answers, "I don’t know. Nobody knows." One answer is that every country adopts the BBC model of a license fee funded public service journalism. It's either that or accept that most of the world's news will be coming from Britain via the Beeb (I can see the BBC selling news feeds to the world in much the way Associated Press does), which will have the side-effect of making our country the centre of the planet information wise.
The Recession combined with the Internet is creating a bloodbath among American newspapers, (and can British and European newspapers be far behind?) The best article about the phenomenon is an essay written by someone called Clay Shirky - I urge people to read it in full.
He points out that the old newspaper model was built on a barrier to entry that doesn't exist in the internet world:
"If you want to know why newspapers are in such trouble, the most salient fact is this: Printing presses are terrifically expensive to set up and to run. This bit of economics, normal since Gutenberg, limits competition while creating positive returns to scale for the press owner, a happy pair of economic effects that feed on each other. In a notional town with two perfectly balanced newspapers, one paper would eventually generate some small advantage — a breaking story, a key interview — at which point both advertisers and readers would come to prefer it, however slightly. That paper would in turn find it easier to capture the next dollar of advertising, at lower expense, than the competition. This would increase its dominance, which would further deepen those preferences, repeat chorus. The end result is either geographic or demographic segmentation among papers, or one paper holding a monopoly on the local mainstream audience."
Because of this monopoly, newspapers could use their advertising revenue to subsidize all sorts of things such as war correspondents, whether or not the advertiser wanted their money spent that way or not. But with the internet, the advertiser can target their ads. Further, because there is no barrier to entry online and so many places to put advertising, the advertising rates that newspapers can command online are way lower than in print. After all, why advertise on a newspaper site such as the Guardian or the Times, where the readers might or might not be interested in your product, when you can target the ads like a laser by placing them on the Google search results, so that only people searching for your product niche see them. Google continues to do so well precisely because the ads on their search engine have a much higher convertability into sales than ads in almost any other medium, whether print, television or other internet pages.
But there is a side-effect to this - if the revenue supporting journalism dries up, stories won't get broken anymore, apart from by Reuters and Associated Press, who should do well by everyone buying their feeds. And as a result, pretty much all newspapers will start to feature exaactly the same news.
There is only one organisation that is immune from all this - The BBC. Alone, they can afford to send correspondents to Baghdad or Timbuktu. Alone they can afford to cover every part of the planet.
This is most certainly NOT the moment to curb the BBC whether by trying to cut their income by freezing the licence fee or by trying to force them to compete for the rapidly diminishing television advertising revenue (which is being hit by both the better targetting of advertising on Google and by the ability to tape shows and fast forward through the ads) - by doing so you would curb the one last source of free independent news (one of the pillars on which our democracy rests).
Journalism benefits society as a whole, and public service journalism has never been so vital when the private sector looks like it will curl up and die. Clay Shirky asks the question, So who covers all that news if some significant fraction of the currently employed newspaper people lose their jobs? and answers, "I don’t know. Nobody knows." One answer is that every country adopts the BBC model of a license fee funded public service journalism. It's either that or accept that most of the world's news will be coming from Britain via the Beeb (I can see the BBC selling news feeds to the world in much the way Associated Press does), which will have the side-effect of making our country the centre of the planet information wise.
Monday, March 02, 2009
January lending figures from the Bank of England
The monthly lending figures from the Bank of England were released today, and predictably the newspapers have reacted with screaming headlines saying that Mortgage lending plunges by 60% and lamenting how this would affect the economy.
Delving into the figures shows a more interesting picture, however. It's net lending that had plunged (i.e. new lending less repayments and redemptions). Mortgages issued for purchases of houses were slightly higher in value compared to December. Remortgages are down - but that's because of a lot of people coming off their fixed-rate onto the standard variable rate are deciding to stay there instead of remortgaging for another fix (rational as the arrangement fees on new fixed rate mortgages have soared). As a result, gross lending is down by £875 million.
But net lending is down by £1104 million. Which suggests that in January households made a concerted effort to use the money released by falling interest rates to pay down their existing mortgages. This is actually a good thing. It puts households in a stronger position, and as explained in my previous post, repayments of capital help banks and building societies who wish to reduce their wholesale funding.
It's coping with the roll-over of wholesale debt that continues to pose a problem for the banks. According to UBS, HSBC has $97.3bn in securities maturing in 2009/10, Barclays has $69.8bn, and HBOS has $57.6bn in securities maturing in 2009/10. They can either try to refinance these over by issuing new securities - but every bank in the world will be trying this, and competing with governments also seeking to borrow from the markets at the same time. They can try for a rights issue to raise money from shareholders (as HSBC is doing). They can simply get more capital from governments through bailout schemes (but will make them even more "nationalised" than they are), or they can rely on households repaying debt at an accelerated rate.
The commercial sector is not repaying debt (most of the horror story of the HBoS losses concerns their commercial lending unit). Shareholders are reluctant to inject more money into banks - see the sell off of HSBC's shares today following the reports of the losses they made in the US and Asia and the announcement of their rights issue. Governments can inject more money, but there is a reluctance to nationalise, and the more money injected the closer outright nationalisation gets. That leaves households, the one sector that has had their disposable income increase, thanks to falling interest rates, falling oil and falling prices. As I said before, if I was in charge of these banks, I'd be writing to every mortgagee on a tracker or standard variable mortgage, pointing out the benefits of making extra capital repayments. The banks are not making much profit on these mortgages anyway, so they might as well encourage people to pay the money back.
Delving into the figures shows a more interesting picture, however. It's net lending that had plunged (i.e. new lending less repayments and redemptions). Mortgages issued for purchases of houses were slightly higher in value compared to December. Remortgages are down - but that's because of a lot of people coming off their fixed-rate onto the standard variable rate are deciding to stay there instead of remortgaging for another fix (rational as the arrangement fees on new fixed rate mortgages have soared). As a result, gross lending is down by £875 million.
But net lending is down by £1104 million. Which suggests that in January households made a concerted effort to use the money released by falling interest rates to pay down their existing mortgages. This is actually a good thing. It puts households in a stronger position, and as explained in my previous post, repayments of capital help banks and building societies who wish to reduce their wholesale funding.
It's coping with the roll-over of wholesale debt that continues to pose a problem for the banks. According to UBS, HSBC has $97.3bn in securities maturing in 2009/10, Barclays has $69.8bn, and HBOS has $57.6bn in securities maturing in 2009/10. They can either try to refinance these over by issuing new securities - but every bank in the world will be trying this, and competing with governments also seeking to borrow from the markets at the same time. They can try for a rights issue to raise money from shareholders (as HSBC is doing). They can simply get more capital from governments through bailout schemes (but will make them even more "nationalised" than they are), or they can rely on households repaying debt at an accelerated rate.
The commercial sector is not repaying debt (most of the horror story of the HBoS losses concerns their commercial lending unit). Shareholders are reluctant to inject more money into banks - see the sell off of HSBC's shares today following the reports of the losses they made in the US and Asia and the announcement of their rights issue. Governments can inject more money, but there is a reluctance to nationalise, and the more money injected the closer outright nationalisation gets. That leaves households, the one sector that has had their disposable income increase, thanks to falling interest rates, falling oil and falling prices. As I said before, if I was in charge of these banks, I'd be writing to every mortgagee on a tracker or standard variable mortgage, pointing out the benefits of making extra capital repayments. The banks are not making much profit on these mortgages anyway, so they might as well encourage people to pay the money back.
Sunday, March 01, 2009
On part-privatisation of the Royal Mail/Post Office
Not sure why there is such a furore about this. It's exercising certain unionists but I'm detecting indifference from the general public. Most people don't actually get that much mail these days - we are all being incentivised to get our statements by email instead and given discounts off our bills to do so. Nobody sends cheques out any more, it's all done by automated bank transfer. No one sends personal letters anymore, all contact is made by phone, text and email.
The only mail that seems to be delivered is junk mail, and does it matter who delivers that?
And while people feel indifferent to the Royal Mail, they feel outright irritation with Post Offices. I remember having to go to the post office in my lunch hour to get my tax disc renewed. After queueing for ages, you finally got to the counter only to be told by a jobsworth, sorry I can't give you the disc, as your insurance starts tomorrow, you should have brought your old insurance papers with you as well. I'd protest in vain that they knew my old insurance was in place as the system had granted me a tax disc last year. To no avail. So I'd have to come back the next day and repeat the process. What a relief when the DVLA started doing tax disc renewal online!
One of the great achievements of the Labour government these last twelve years has been to automate government services and make them all available online. No need to venture into a hideous post office any more. I'm sure millions feel the same way I do - people have been voting with their feet, and that is why the numbers using post offices has dropped.
As to why the government is pressing ahead with this - to raise money of course. Doh! Because of the recession, tax revenue is down. And it's a bad idea to raise taxes in a downturn. And no self-respecting Labour person will countenance cuts to essential services like the NHS (which is well-loved, unlike the Post Office). So Royal Mail privatisation it is.
I also predict that the government will prefer to get the banks to buyout the government at the earliest opportunity, so the taxpayer gets their money back, rather than keep the bank shares and raise taxes. And I'm pretty sure that Northern Rock will get flogged off at the first opportunity too. If it's a choice between keeping public services and flogging off these albatrosses, the choice is clear.
The only mail that seems to be delivered is junk mail, and does it matter who delivers that?
And while people feel indifferent to the Royal Mail, they feel outright irritation with Post Offices. I remember having to go to the post office in my lunch hour to get my tax disc renewed. After queueing for ages, you finally got to the counter only to be told by a jobsworth, sorry I can't give you the disc, as your insurance starts tomorrow, you should have brought your old insurance papers with you as well. I'd protest in vain that they knew my old insurance was in place as the system had granted me a tax disc last year. To no avail. So I'd have to come back the next day and repeat the process. What a relief when the DVLA started doing tax disc renewal online!
One of the great achievements of the Labour government these last twelve years has been to automate government services and make them all available online. No need to venture into a hideous post office any more. I'm sure millions feel the same way I do - people have been voting with their feet, and that is why the numbers using post offices has dropped.
As to why the government is pressing ahead with this - to raise money of course. Doh! Because of the recession, tax revenue is down. And it's a bad idea to raise taxes in a downturn. And no self-respecting Labour person will countenance cuts to essential services like the NHS (which is well-loved, unlike the Post Office). So Royal Mail privatisation it is.
I also predict that the government will prefer to get the banks to buyout the government at the earliest opportunity, so the taxpayer gets their money back, rather than keep the bank shares and raise taxes. And I'm pretty sure that Northern Rock will get flogged off at the first opportunity too. If it's a choice between keeping public services and flogging off these albatrosses, the choice is clear.
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