Wednesday, December 19, 2007

So the Lib Dems have elected Nick Clegg...

Clegg's election is probably a good thing for the Lib Dems. He's a palpably nice man in a way Chris Huhne is not and the Lib Dems have always marketed themselves as the "nice" party (indeed they started slipping in the polls when they displayed "not-nice" behaviour - knifing Charlie Kennedy and not standing up for the chilly but elderly Ming).

It's perfectly true that Clegg is a bit waffly, but I'm not sure this matters. Charlie Kennedy was also waffly and poor at party organisation, but he led them to their best performance for about eighty years. The public know that the LibDems won't form the government, so they don't pay much attention to LibDem policies, let alone whether their leader can explain them. Instead they look at the leader and ask whether he is a decent bloke that they can trust with their protest/tactical vote. Likeability matters more than anything for libDem leaders.

Clegg should help the Lib-Dems in LibDem/Tory marginals - Labour tactical voters in these seats will prefer the nice and genuinely good-looking Clegg to the balding and bullying Cameron. Both are public school men, and Labour voters will go for the least nasty one - Clegg in this instance.

Labour/Conservative marginals should be interesting too. In 2005 we had the interesting phenomenon of Tories winning seats off Labour without increasing their share of the vote, simply because some of the Labour vote switched to LibDem. And in other seats, Labour MPs saw their majority slashed for the same reason. These Labour switchers thought that Charlie Kennedy was a good bloke, a man of the people, whom they preferred to Blair whom they saw as increasing elitist and arrogant, particularly on the issue of Iraq. In a sense, these Labour voters felt that Kennedy was to the left of Labour and were comfortable voting for him. Clegg however nice, is not "the common man" in the way Kennedy was. Given the choice between earthy Labour (as it is in it's present incarnation) and the "posh" Clegg, these people should return to Labour, particularly as we are steadily withdrawing from Iraq and are unlikely to get involved in any new foreign adventures in the forseeable future. Labour should really work these marginals hard - there is all to play for.

I note with some amusement Tories trying to dismiss Clegg as a "Cameron clone" as though Cameron was some sort of original! But of course both Cameron and Clegg have modelled themselves on Tony Blair, who has turned into the John F Kennedy of European politics, influencing not only British oppposition parties but European politics too, with politicians from France to Sweden modelling themselves on him. (and in a sense if Kennedy had lived he would have faced Blair-like consequences in Vietnam). Clegg however comes closer to capturing the early "bambi" Blair than Cameron whose facade has slipped to exhibit his true personality which is nastier and altogether more off-putting. This will have implications in southern seats with a particular strand of "nice" middle class voters. Clegg out-nices Cameron by a mile.

Thursday, December 13, 2007

Lessons from History

IPSOS-Mori have produced a fascinating trend report called Ten Years of Blair, where they've produced graphs of trends on everything they've polled about since 1997.

Of particular interest is the graph for Economic Optimism (from page 43 of the report). In 1998, the hedge fund LTCM collapsed, Russia defaulted on her debt and the "Tiger" economies of the Far East saw a massive flight of money as the capital markets took panic. Conditions were similar to today. Liquidity collapsed, all banking share prices were marked down regardless of whether they were exposed to the problem countries and the Fed and other central banks struggled to pump liquidity into the markets to stabalise them.

Take a look at the graph to see what happens to economic optimism in the UK in 1998 (click on it to enlarge if you are having trouble viewing). Captains of Industry, MP's and the general public alike assumed that the crisis would affect the economy and confidence nose-dived. The economy however continued to grow healthily at a pace not that far off the current one (the dotted green line). Once everybody realised that the crisis had left the economy unharmed, optimism promptly recovered. There was more to the economy than the banking sector, even though participants in that sector have the knack of screaming loudest.

What happened in 1998 is not that different to what is happening now. For exposure to loans to the Russian and Far-Eastern economies, simply substitute exposure to US sub-prime paper. Labour people should hold their nerve. Just because the newspapers are in full panic mode and saloon-bar Tories talk incessantly about "the coming economic crisis" doesn't mean there will be one. The jury is still out as to whether the travails in the banking sector are affecting the real economy.

Saturday, December 01, 2007

YouGov on the Economy

Long-time readers of this blog know that it's my firm belief that general elections swing on the voters' perceptions of who will run the economy well. Everything else is just noise.

In 1992, in the midst of a recession and with house prices lower than in 1990, voters went for the Tories because of doubts planted in their minds about Labour's competence, and fears of tax-rises. In 1997, voters had experienced tax rises from the Tories (after their promises not to raise them), and most importantly house prices in 1997 were still below 1990 levels, seven long years on, and voters had lost confidence in any possible recovery under the Tories.

So perceptions of how the economy is doing matters, and we come to YouGov's poll for the Telegraph.

They found that 14% were very worried about a recession and 50% were "somewhat worried". On the question of "which party do you think will run the economy well" the Conservatives were on 33%, Labour on 32% and Don't knows on 36% (compared with conservatives on 27%, Labour on 49% and don't knows on 23% at the 2005 general election).

None of the above is surprising. People "predict" the future by what they read in the press and the newspapers have been full-on with "Recession is nigh" stories, seizing on such things as house prices dropping in October according to the Nationwide, and ignoring the figures from the Land Registry which showed a rise, let alone the figures from everyone showing house price growth strongly up over the year. However, despite the gloom, it's not clear that the American sub-prime crisis will cause a recession in the USA, let alone here. A strong indicator is the oil price - during world slowdowns, the oil price always retreats. The huge American economy is still the main driver for the world economy. Yes, China and India are now factors - but both countries have small economies relative to the USA, and both are dependent on the USA. And globalisation has produced a set of automatic stabalisers that we don't fully yet understand. Anyone who claims they know with certainty what will happen in the global economy next year is likely to be fibbing.

Of course that won't stop the newspapers with their doom-and-gloom stories. An article in Moneyweek makes the point that these doom-and-gloom predictions are nothing new. They note that "in 1997 many commentators predicted that a Labour party win would hit [house] prices hard". Then came predictions of collapse after 9/11, and then in 2003 Professor Oswald advised everyone to sell their homes and the IMF has been predicting a housing collapse every year since 2002.

What is likely to happen? In order to have a house price crash, you need forced selling. That means people selling their house because they have lost their job, and are desperate enough to sell at any price. High unemployment is a necessary condition for a house price crash. In the absense of high unemployment, what you have is a stalemate between buyers and sellers. Buyers try to force prices down by holding off buying in the hopes that the seller will cut the price in desperation. Sellers meanwhile are determined not to cut the price, and withdraw from the market and stay put. In this situation the number of transactions drop, but the overall prices stay relatively steady.

What about the buy-to-let people? They would off-load en masse only if they were struggling to rent their properties out. But there is no evidence at present of rental falls or an increase in vacancies. Indeed the Association of Residential Letting Agents say that tenant demand is at it's highest for five years.

What is happening now is not unlike what happened in Britain in 2005, in my opinion. In the absence of a recession, there will be a pause, and then buyers will get tired of waiting, and the market will move again. These pauses are actually healthy. They allow people to build up deposits, they allow people to pay off some debt, and most important, while the housing market stays level, earnings continue to rise, which eases things in a couple of years time.

There is a shrillness in the press at present that is determined to talk Britain into a recession and talk the Labour government out, but I believe the economy is too complex to be talked down like this. What is likely to happen is that growth will go from the current above-trend 3% to trend 2.2% and Labour will probably go into a general election in 2009 with a record of 12 solid years of growth and the opposition with a record of 12 solid years of wrong predictions.

Update 3/12/07. I see that Vince Cable is saying that the "housing bubble is about to burst": "Gordon Brown’s reputation is built on economic growth but there are ominous signs that the bubble is now about to burst." In my opinion this is a mis-reading of the situation. I think events will prove him wrong, and when they do, we should expose him mercilessly as yet another b$$$$cks-merchant masquerading as a serious politician, when all he's doing is engaging in scare-mongering.

Thursday, November 08, 2007

The Vision Thing

Commentators have been quick to criticize the Queen's Speech for not having a "vision". There wasn't any visionary rhetoric to be sure, but if you look closely at the content, vision looms large - the aim is no less than to secure the survival of the welfare state for the coming decades in the face of demographic stresses.

I've written before about demographic problems and some of the solutions such as getting older people to work, but the problem we face is best illustrated by looking at what can go wrong if the demographic "timebomb" is ignored. One country has already gone through this - Japan.

The graph left illustrates the distribution of Japan's population, and the bulges in the middle graph correlate to two baby booms, in 1947-49 and in 1971-74. Japan's overall population has already started to decline, and the shape of the "population pyramid" has also started to alter.

In 1950 most of their dependencies were under 14, now they are over 65. This has profound financial implications. The old are simply more expensive than children. They consume a huge amount of healthcare (as most serious expensive illnesses occur in the last decade of life). As adults, they also demand spending money in the form of pensions. Children by contrast simply need shelter, food and education (much cheaper than healthcare and pensions).

There are several solutions to this - getting the old to work longer, increasing the birth rate, increasing productivity per worker, curbing the size of the state and immigration.

Unfortunately, Japan refuses to consider immigration, their birth-rate per woman in 2006 was 1.36 up from 1.26 in 2005 (and way below Britain's 1.7). they haven't wanted to change the way their state is run, and their productivity has remained low (the lowest in the G-7 and not much improved over the last decade - Britain's productivity is 23% higher than Japan's).

Combined with financial mismanagement of their bubble economy in the late 1980's, this toxic combination has left them with recession for most of the 90's and weak growth this decade. Plus government debt of 164% of GDP, compared to 79.7% of GDP in 1994 (Britain's government debt including PFI is 43% of GDP, down from 50.8% in 1997 - see Eurostat).

Japan illustrates the perils of burying your head in the sand and saying "No" to every solution.

Which leads us to Britain. The point of the Queen's speech is that the Labour government is not burying it's head in the sand.

The education policy to the age of 18 is designed to improve the skill set of the population, and hence increase productivity in the future (we've increased productivity since 1997, see here, but need to do much more).

The family friendly policies - flexible working, increased maternity leave, introduction of paternity leave and child tax credits - have been about easing the stresses of parenthood so people arn't put off having children. The first increase in maternity leave happened in 2000, and has been extended since then, and the native birth-rate has increased since 2003. It's interesting to note that the Tories voted against all these things.

Legislation against Age Discrimination came into effect in December 2006, outlawing discrimination for the under 65's, and has given people the right to ask their employers if they can work beyond 65, with an obligation on the employer to seriously consider the request. The state pension age will rise to 65 by 2020. the idea behind this is to get older people to continue to work and pay tax.

The government continues to think about welfare-reform in particular as regards those claiming disability benefit.

And of course Labour wants us to remain in the EU and continue to attract migrants to work here in the short-term.

Essentially the Labour government is covering all solutions in a coherant program designed to secure the welfare state for the future. This is huge. The Tories by contrast simply say "No" to everything (immigration, family-friendly policies) Japanese-style, while claiming to support the NHS. They are being hypocritical - they know it would be unpopular to dismantle the welfare state, so they pay lip-service to it, which trying to block every policy that would keep it healthy. One can't help wondering whether their secret hope is for the welfare state to collapse under demographic stresses.

It amazes me that people can't see the Labour vision or the difference between the two parties. Labour's vision is to tackle the demographic problem head-on to secure the welfare state for the next fifty years. Tory policy is to block all solutions Japanese-style probably because their secret solution is to dismantle the welfare state.

Sunday, October 28, 2007

Kirstie Allsopp and the Tories

Last week came the news that the Tories had appointed Kirstie Allsopp of Location, Location, Location fame as their "Housing Tsar". According to the Guardian, she is to

head a review of home buying, working alongside shadow housing minister Grant Shapps, to come up with ideas which could regenerate the housing market and make it easier for first-time buyers to get a foot on the housing ladder.

Unfortunately, Kirstie Allsopp is very unpopular with first-time buyers, especially those who hang around at Housepricecrash, where she is something of a hate figure.

The spat started in 2004, when Allsopp stated that HousePriceCrash was set up with the intention of "creating panic" and that it's activities were "immoral" and would be "illegal" in the stock market. HousePriceCrash responded with a press release, where they asserted their rights of free speech, said that they were an information tool and that there are similar perfectly legal sites and boards discussing the likelihood of shares falling, and drew attention to Allsopp's conflicts of interest.

The spat has grown from there, with the forum members nicknaming her "Krusty", and starting threads with titles such as Phil and Krusty being Thick Again (posted yesterday and which dealt with Channel 4 being forced to apologise for Allsopp's error in claiming that one fifth of Stoke-on-Trent families were homesless, when that city has a total of just thirteen registered homeless families).

The HousePriceCrash people are a bit gloomy, but they are also right that relentless cheerleading from people like Allsopp is not good for the property market. The more prudent Sarah Beeny who emphasises that prices don't always go up, is more respected.

The interesting thing is that for most of this decade, the HousePriceCrash lot have blamed the government amongst others for the housing bubble (despite the govt's attempts to damp down speculation by increasing transaction costs like stamp duty on properties over 250k). These people should therefore be fertile pickings for Tories. But Cameron has shown how out-of-touch he is by appointing their hate figure to his team.

Allsopp's aims to make property transactions cheaper and quicker are of dubious help to the property market. As every market watcher knows, if you reduce transaction costs you increase churn and speculation and as a consequence, boost prices. It's bad enough that people trade houses as though they were stocks, - imagine what it would be like if transaction costs (designed to slow the process down and impress on people that housing is a long-term decision) were removed. People like Allsopp would be buying one week and selling another, in an orgy of speculation. Given her conflicts of interest, perhaps that's her aim.

Monday, October 22, 2007

The New EU Treaty's effect on the Labour Government

Some commentators are predicting that it will be like Maastricht. I don't think so. Britain has changed utterly since the early 1990's.

Though the Single European Act was signed in 1985, it didn't come into effect till 1 Jan 1993, which meant that Britain in 1991-1993 was still a country trapped on it's island looking fearfully outwards, with some older people like Nicholas Ridley muttering darkly about how the re-unification of Germany was sure to mean that World War Three was imminent. In this atmosphere, scare-mongering about Europe was easy.

In addition, when the Single Act came into force it contained many things that upset Tory little Englanders, such as health and safety regulations, which the anti-Maastricht people latched onto as a reason not to ratify any further treaties. The Sun began to campaign about the latest directive from Brussels (including many directives that didn't actually exist outside the Sun's imagination).

Stupider Tories blamed a conspiracy of eurocrats. Actually it was all the work of the Blessed Margaret, who had instigated and signed the Single Act some eight years previously. Mrs T did give a good defence of the provisions of the Treaty in her Autobiography, but few of her supporters bothered to read it. Indeed to this day they maintain that the Single Act merely removed tariff barriers. Actually tariff barriers were removed in 1968. The Single Act was about removing non-tariff barriers by harmonising health and safety and other standards. I think Tories practice self-delusion so that they don't have to admit to themselves that the only way to have stopped the EU harmonisation was to have voted for the then anti-EU Labour party in 1983.

Outside this mad Tory bubble though, Brits in general didn't fret too much about harmonisation, but focussed instead on another aspect of the Treaty which had just come into force in 1993 - freedom of movement. Booze cruises became popular overnight. Shows started to be made about the idyllic life lived by Brits in Provence. When the 1997 election came, people enthusiastically voted for New Labour's pledge to put Britain at the heart of Europe, and dumped the Tory eurosceptics.

By 1999, shows such as "A Place in the Sun" were drawing millions of viewers, and Brits had got into the habit of popping to Europe on the new low-cost airlines for their stag dos, and for any reason really. As property started to recover at home, some people cashed in to move permanently abroad. Meanwhile in France, newspapers started producing articles with titles such as "I went to London and got a job in a day!" Young Europeans moved to London and met and married Brits.

When the Eastern European countries joined, there was again a two-way movement. British property entrepreneurs went to snap up deals, and young easterners came here to work (and again, many have married Brits).

And now we have this new reform Treaty that will make the EU more efficient, and the euro-sceptic newspapers are promising to oppose it every bit as much as they did Maastricht in 1992, some of them using the same tired arguments as in 1992.

Only the readership of these newspapers has declined sharply since then, even while the population has increased, and Brits are enjoying their EU benefits and european connections too much to stir up angst over Europe (polls show that Europe hardly features in people's list of concerns). Besides, the euro-sceptic press didn't really make a difference to public opinion in the 1990s - people voted in droves for Blair's europhile New Labour and proudly watched him go to France and make a speech in French. So why should they make a difference now, when we are so much more integrated with Europe? There's a reason that 1983 Labour manifesto is known as the longest suicide note in history - it would be lovely if Tories adopted it's anti-EU provisions for the next election...

Saturday, October 20, 2007

GDP grew faster than expected in third quarter

GDP grew faster than expected in the Third quarter at 0.8% per quarter, which is 3.3% faster than a year ago.

According to the detail supplied by the ONS, the best performance came from business services and finance (in particular architects, engineers and management consultants), which grew a strong 1.7% per quarter. Distribution, hotels and restaurants grew by 1.1% in the quarter. By contrast growth in government and other services slowed, with zero growth, compared with a rise of 0.1 per cent in the second quarter. For the first time in a while ALL the growth is coming from the private sector.

This all came as a bit of a surprise to economists, who were expecting a slowdown due to a knock in confidence after the turmoil in capital markets, and the Northern Rock business. The Bank of England too had estimated slower growth in the third quarter in their August inflation report.

How to explain the robustness of the consumer? Part of it is that people have confidence in the abilities of the Labour government to protect them from a downturn. Part of it is that unemployment continues to drop. According to the ONS, the number of vacancies stands at 668,800 in the three months to Sept 2007, the highest since 2001. There is work out there for whoever wants it, including taking on a second job if interest rates are biting.

The global economy could still derail us - I've been worrying since April whether the American economy will affect ours. Plus there is oil, and the delayed effects of interest rate rises.

It's almost a certainty that interest rates will be held next month though, despite RPI dropping and CPI being unchanged for August at 1.8%.

Maybe the much predicted slowdown will come in the fourth quarter, with a rate cut in January.

Friday, October 19, 2007

Older People Working

If Nick Clegg is elected as leader of the Liberal Democrats, then Labour will have the oldest leader of the three political parties. It's almost a certainty that the other parties will begin taunts about "age" in an effort to injure Mr Brown in the way Ming Campbell was injured.

However, this presents an opportunity for Labour. Legislation against Age Discrimimation came into effect in December 2006. It's not just that the Labour government thinks it is wrong to discriminate against the old, the govt thinks that the survival of our welfare state depends on people working longer.

The old-age dependency ratio is the proportion of pensioners to people of working age. This ratio has been stable because though we have more pensioners, the number of people of working age increased sharply due to the baby boomers joining the workforce. These baby-boomers though are due to retire shortly, and there arn't enough young people to take their place in the workforce ( according to the ONS, the % of people under 16 has fallen from 26% in mid 1971 to 19% in mid-2006).

Another way of looking at it is the ageing index - this is the proportion of older people to children - this has jumped sharply from 64.0 in 1971 to 97.8 in 2006. This has big implications for the NHS. Most serious illness occurs in the last decade of life, which means the old are heavy users of the NHS. Children by contrast are light users - there's usually just the birth to worry about, and the coughs and colds of childhood illness are easily dealt with by GPs.

The obvious solution is to persuade the baby boomers to continue working (and paying taxes). Government has already announced that the state retirement age for men and women will be equalised at 65 from 2020, and has given people the right to ask their employers if they can work beyond 65, with an obligation on the employer to seriously consider the request. And age discrimination has been outlawed for those under 65.

But all of the above legislation comes to nought if society itself continues to discriminate against the old. If people start attacking the Prime Minister for being too old in his mere mid-fifties, then what chance does someone aged 60 have of getting work?

We in Britain need to have a serious discussion about our attitudes to age, and in particular about how much money discrimination against the old will cost. An ageing population means that the demand will outstrip our ability to increase spending on the NHS. To some extent we see this already - people ask "where has the money in the NHS gone" - answer, treating record numbers of people as the ageing index has jumped in the last 15 years. If we can't get older people to work longer, the alternative is a lower level of public services or a higher amount of taxation on those who are younger.

A general election would be a good time to have this debate. Let the opposition accuse the Prime Minister of being too old, so that we may have the opportunity of explaining to the electorate that the opposition's ageist attitude will be the ruin of Britain.

Tuesday, October 16, 2007

Poor Ming

He didn't even last two years.

His problem I think, was that he looked much older than he was, with the classic old man's hunch of the shoulders. And Britain is a country that doesn't value the old (unlike say Italy). The LibDems could have protected him by publicising the fact that he'd just recently recovered from serious illness (cancer I think) - the public tend to be very kind and sympathetic to people bravely carrying on in the face of illness. And they could have sent him to a deportment class to make him stand straight and not hunch. But they didn't. Instead we kept seeing black-and-white footage of him at the Olympics in by-gone times. As the black-and-white era is pre-history as far as most people are concerned, it made Ming seem even older.

So the LibDems are shortly going to have their third leader this parliament. They need to make sure that whomever they elect lasts at least five years, else they stand a good chance of being thought of as cavalier as the Tories.

At least this leadership election should keep the press busy. Let's hope it lasts for a good six months.

Sunday, October 14, 2007

The return of the TBGBs - or an attempt by the press to stir up trouble?

The Sunday Times leads today with the dramatic headline Blair rounds on 'empty' Gordon Brown but the article itself contained no such comment from Blair. Instead they quoted a conveniently un-named "friend" of Blair.

The Guardian too headlined with breathless speculation that the old Blairite trio, Byers, Milburn and Clarke are thinking about speaking out. But even the Guardian stops to add that

last night Blair's spokesman said: 'When he stood down Tony Blair said he would be completely supportive of Gordon Brown and that is what he continues to be.'

This view is confirmed by Matthew D'Ancona in the Telegraph who says that

Tony Blair has been telling his allies that they must under no circumstances join in the Gordon-bashing that is now all the rage.

This is probably correct. New Labour watched with horrified fascination when a deposed Thatcher helped to destroy the Tory party. The whole business of the seamless transition, painstakingly engineered earlier this year, was to prevent the type of bitterness caused by Thatcher's decapitation, and Blair certainly has a horror of being thought of as being so needy and desperate for power that he tries to do a back-seat driver number on his succesor the way Thatcher did to Major.

So where have these stories come from? We get a clue from John Rentoul in the Independent:

I have spoken to some of Blair's most loyal lieutenants who have been inundated by media requests for interviews – more than 200 in one case. Would they like to speak about the election timing or the Pre-Budget Report? No, they would not. They know that their interviewers are interested in only one story: Blair says Brown is useless.

200 requests for interviews! Undoubtedly one person has succumbed - but he probably speaks only for himself.

As for the Sunday Times and the Guardian, they have their own agendas. The Sunday Times is openly hostile to Labour and has been for some time. The Guardian isn't really a Labour paper, it's SDP, and since the demise of the SDP they've grudgingly given Labour some support, but always managed to find some excuse to fall out with the party. They fell out with Blair and campaigned strongly against Brown becoming leader while fawning over David Cameron in the first year after he became leader. Hardly the behavior of a Labour paper.

There is only one Labour paper, and that is The Mirror (which very helpfully broke the story of David Cameron's Lexus following his bike to work). The rest are at best lukewarm and at worst openly hostile. This is how it's been for ages, and we'll have to live with it. One thing Labour should do is not give ammunition to hostile papers that don't have our interests at heart. Blair's "friends" should take notice of Blair when he says Don't Talk. He really means it.

Sunday, October 07, 2007

This Election Business

So we're not going to have an autumn election. It's the right decision and will chime with voters' opinions. Polls showed substantial numbers unenthusiastic about having an election so early. Voters have got used to the Labour government going to the polls every four years in the spring and believe that the only reason to deviate from this cycle is if there is a crisis that urgently needs the voters verdict, and there is none now.

As to the volatility of the polls and the "embarassment" of having to say there will be no election - it will probably do Labour good. The Labour party works best when it thinks elections are on a knife-edge. Though Labour was strongly ahead in the polls in the run-up to the 1997 election, nobody believed it, and everybody worked to the bone and campaigned as though there were only a couple of points in it. And though Labour got a huge majority in 1997, the government behaved cautiously, as though things were finely balanced. The lead-up to the 2001 election was full of fretting from Labour about foot-and-mouth and fuel prices. The 2005 election was overshadowed with fretting about Iraq, and the recent Ealing-Southall by-election was fought with the sounds of crowing Tories ringing in Labour activists' ears.

Labour won all the above. But when we allow ourselves to believe it's in the bag, we get careless, we say things we shouldn't, and we lose. Think 1992. All the caution that Labour has shown in the last ten years has been correct. Voters really are brutal and un-sentimental. Look at what happened in 1992. Look at what the voters did to the Tories in 1997.

Voters don't like it when parties talk about "smashing" each other. They don't like it now and they didn't like it in the 80's when David Owen said Labour was "finished" or when Thatcher wrote in 1991 that it was unlikely Britain would ever see a Labour government again. Voters want all parties to be viable in case something goes wrong with the government, so that they have the option of changing government. When they hear talk of "smashing" they shift in the polls to give the would-be smasher a swift shock.

Voters don't like it when they hear talk about the "next ten years" or of people "going on and on". They might give us another ten years, but only if we don't take them for granted and don't act like it's in the bag. When they think people take them for granted, they have an irresistable urge to administer a good kick.

We saw what hubris did to the Tories in the early 90's. The good news is that while they delivered five full years of it, we've just had a couple of days of it at the conference. If we can end it now and go back to being our cautious New Labour selves, all will be well. We haven't lost an election, we've just had a few red faces and some people laugh at us.

We learn from it, and move on. And if the Tories want to be triumphant, let them. We all know where that leads.

Tuesday, October 02, 2007

Family Matters

For all the talk of the death of socialism, there is one social unit that remains as socialist as ever: the family. Husbands subsidise wives (and vice versa); siblings lend each other help and money when profit-motivated organisations such as banks refuse; parents try to help out the weakest child in the hopes of achieving equality among their children despite varying ability or effort; the black sheep gets bailed out in circumstances they wouldn't be if their situation was objectively assessed.

The tradition of family socialism goes back millenia, probably to when homo sapiens first appeared, and there was good reason for it - it was a way of ensuring that the old, the sick and the weak were taken care of.

More recently, we've had the phenomenon of perfectly healthy able-bodied people relying on their wealthy parents to subsidise their standard of living - something that was characterised as "Economic Outpatient Care" by American professors Thomas Stanley and William Danko in their book The Millionaire Next Door. It can be simple (and beneficial) starter help such as parents paying for university or helping their children to buy a home with the gift of a deposit, or the more destructive version where adult children live expensively and run up debt in the belief that inheritance from their parents will clear it.

Stanley and Danko observed that too much help from parents weakens the ability of their off-spring to cope when the parents pass away, as by then they are too old to learn how to survive on their own. The annals of the rich are full of stories of the next generation unhappily frittering away their wealth through dissipation and lack of drive. Indeed this was what motivated Bill Gates to decide to give away most of his money - he didn't want to weaken his children by removing their motivation. The best parents are the ones who push their children out of their nest and force them to stand on their own two feet, and the earlier they do this the better, as the parent is still around to watch progress, offer advice and if the child stumbles really badly, pick them up: what usually happens in these circumstances is that the young adult struggles mightily at first, and then gets the hang of it and begins to thrive and prosper.

As the welfare state sprung up, we've also begun to see conflicts between the powerful pure socialism that exists within the family and the much weaker state version. For instance, many elderly people are outraged that they have to sell their houses to pay for their nursing care at the end of their lives. They demand that the state (i.e. other people's children) pay for the nursing care, so that they can provide substantial socialism in the form of inheritance to their own children.

And so we come to the issue of inheritance. Here several threads merge powerfully - the tradition of family socialism, the fact that parents worry about their offspring, and as mortality approaches, seek to protect them from beyond the grave. It's not accidental that the people who worry the most about inheritance taxes are the elderly, even though it arises after their deaths. And not many are as clear-headed and logical as Bill Gates on how inheritance could hurt their children.

Family socialism has the same strengths and weaknesses as the state version. As a support system, nothing beats the family, especially if you are ill or disabled. But families can also be indulgent, enabling and entrenching bad habits and laziness - giving is equated to loving, so you see poor mothers running up debts to buy their children the latest toys instead of simply saying, no, we can't afford it, we're on a budget. And you see adults "counting" on inheritance to bail them out of their problems instead of striving to solve them themselves. If critics of state socialism say that it demotivates and weakens the recipients of it, family socialism does this a hundred-fold.

The only way to resolve this would be to go back to the original purpose of family socialism - to protect the old and the sick. I would be in favour of inheritance going completely tax-free into a family fund if it could only be drawn on for the purposes of paying for nursing care, supporting an ill/disabled family member and to provide an income in old age, and that if the family fund was drawn on in this way, you got an offsetting reduction in benefits from the state. It would solve the problem of an aging population needing nursing care. It would solve the problem of people not thinking about their income needs in old age. It would solve the problem of parents desperately worried about offspring who are ill. It would remove some of the imbalance in society where some people get a capital leg up in enterprise. And if it turned out that you were one of those rare people who enjoyed perfect health in your lifetime and worked to the end, then you simply pass the family fund untouched to the next generation. Over the decades and centuries, someone among your descendents will get old or ill and draw on it.

Obviously people who are living high in the hopes of getting "free" and unearned money from their parents will hate this. For many people though, they just want to know that they are protecting their descendents from the ills life can throw at them, and they will be satisfied. The big question is which group is the biggest? The first group would prefer the current system where you get free money and simply spend it as you like, including blowing it all and having the state look after you at the end, and sadly this group is probably too big for my idea to ever get off the ground.

Tuesday, September 25, 2007

Boardroom Pay

From time to time we get Guardian commentators lambasting the government about boardroom pay - notably Polly Toynbee. The assessment of the Labour government is always, "you may have helped the poor with the minimum wage and re-distribution, but you've done nothing about the rich, how can you call yourselves Labour".

Actually the government has done something about boardroom pay. In 2002, they legislated to require that boardroom compensation data was published, and to give shareholders an annual advisory vote on executive pay. Britain was the first country to do this (since then Australia, the Netherlands and Sweden have also legislated and the USA is thinking about it, despite fierce resistance from vested interests).

The thinking behind this legislation was two-fold - by insisting on disclosure, the government hoped to bring public pressure to bear on excessive pay. Director's pay comes out of shareholders money - the shareholder vote was to give shareholders a say for the first time - previously directors simply awarded themselves pay and sat on each other's remuneration committees recommending pay-rises for each other.

Sadly, the shareholders have only bothered to defeat boardroom pay once - in 2003, GlaxoSmithKline shareholders voted down their chief executive's pay and forced a substantial reduction.

Government can give shareholders the power to protect their money being siphoned off them by greedy directors, but government can't force the shareholders to use said tools.

My guess is that many of the commentators frothing about boardroom pay and blaming the government are simply unaware of the 2002 legislation (lazy journalism). They should be targetting their wrath at the institutional shareholders who are palpably not bothering to defend the money of the pension and unit-trust holders they represent.

For instance there have been lots of articles about the pay of Northern Rock board members, but not one newspaper has bothered to track down the institutional shareholders who voted in favour of these pay packages earlier this year and ask them why they did so. I suppose they think it is easier to somehow blame the government, even though in a free country government can have little say over private sector pay that is essentially a contract entered into freely between two private individuals, the board executive and the shareholder. Government can't impose pay controls. The only answer is that shareholders start acting like grown-ups and start defending their money (as is their right under the law), instead of vacuously going along with everything and then complaining afterwards.

Sunday, September 23, 2007

People of Newcastle try to Save Their Bank

According to the Guardian,

Newcastle's morning paper, the Journal, has a campaign to replenish Northern Rock's depleted assets by persuading citizens to open accounts. Footballers, the rugby team and local entrepreneurs have all had their photographs taken signing forms. Several people who two days before were queuing to get all their money out returned to put a prudently small amount back in.

The Guardian likens it to Frank Capra's "It's a Wonderful Life", where the Jimmy Stewart character experiences the failure of his bank, and is bailed out at the end by the citizens of his town in reward for his kindnesses to them.

It turns out that Northern Rock has been kind to Newcastle. They distribute 5% of pre-tax profits to the Northern Rock Foundation, which finances all sorts of things from homes for battered women to concert halls. The foundation has received £175m from the bank in the last 10 years. Northern Rock has built up goodwill on their home turf.

It's likely that unlike in the movie, the good burghers of Newcastle won't succeed in their quest - they are too few and probably don't have the collective savings to prop up the bank. But it's heartwarming to see them try.

If they did pull it off against the odds, what a tale of community spirit this would be! It might also encourage other firms to do charity work, if the benefits of such goodwill-building are demonstrated clearly.

Thursday, September 20, 2007

Labour Trusted on the Economy

A Populus poll done for the Times, showed that 56% trust Labour on the economy compared to just 18% for the Tories.

The significant thing about this poll was that it was carried out Monday afternoon and evening, after the Chancellor's announcement that he would guarantee existing Northern Rock deposits and after the scenes on Friday and Saturday of people queueing to get their money out of Northern Rock Bank.

Tories reacted with shock to the poll. They had fondly hoped that this was Labour's "Black Wednesday" (which happened exactly 15 years ago) and had hoped it would boost their prospects. So why hasn't it?

The defining moment of the Labour government was actually the period 2001-2003. The conjunction of 9/11 and the crash created a perfect global storm. Stock markets everywhere crashed. The FTSE100 went from 6900 in Jan 2000 to about 3100 in March 2003. The USA, France, Germany, Japan and scores of other developed countries such as Italy and the Netherlands went into recession, with attending rises in unemployment. People in Britain held their breath. In the previous 50 years, everytime the USA sneezed, we caught a cold, and in the last two recessions (1981 and 1992) we suffered worse than everyone else.

Only in 2001-2003, we sailed on undisturbed by world events. The economy continued to grow and unemployment stayed low. It was a non-event as far as the economy was concerned and the public took note. You only know how good a government is by how they perform during the bad times.

The current crisis is a minor thing compared to the crash. When people ask themselves whether the Labour government can cope with crises, they think back to 2001-2003, when the govt faced a world economic crisis and passed the test. However, when they ask whether a potential Tory government would cope, they think back to the last time the Tories faced such a test, 1992, and shudder. Especially as all those old photos show David Cameron standing close behind Norman Lamont.

If the current crisis is minor compared to 2001-2003, it is even more minor compared to 1992. Britain was in recession that year. 55,000 businesses went to the wall, unemployment was rising and the budget deficit that year was a horrifying 7% of GDP. Black Wednesday came on top of all that and was the final straw.

The world economy faces potentially significant obstacles ahead, but the public believes that the Labour government will strive mightily to protect them. After a hesitant start, the Chancellor Alistair Darling has come out enhanced by the Northern Rock crisis. He showed leadership, decisiveness, pragmatism and sheer guts, when everyone else was losing their heads. It's nice to know we have a heavyweight in the Treasury.

Thursday, September 13, 2007

Gordon Brown and Mrs Thatcher

Gordon Brown had tea today at Number 10 with Mrs Thatcher. It follows the comment he made last week when he said he was a "conviction politician" and noted Thatcher was one too.

Mrs Thatcher was so pleased at this, she got her official spokesman to acknowledge the compliment in public:

She was delighted to have such flattery, as she always is from any source,” the spokesman said. “It is nice to have someone say such things about you.”

It suggests that she is still hurting from the way the Tories despatched her 17 years ago, and starving for acknowledgement. Hence her willingness to visit Gordon Brown at Number 10 and be photographed with him on the steps.

She has only visited Downing Street twice since she left office, once at the invitation of Tony Blair, and now at the invitation of Gordon Brown. John Major kept her at a distance.

Some in Labour will raise eyebrows at this, given the hurt she inflicted on the country in the early 80's. But we're comfortably in power now, and vengence isn't part of the Labour character. We can afford to be magnanimous and kind to a very old lady who is clearly still upset at events of the past. Besides, by being a radical (as opposed to a conservative), Thatcher destroyed the Tories by turning them into an ideological party. Labour is in power because of the collapse of the Tories that she set in train. The least we can do is give her tea.

UPDATE: It turns out that this whole thing was initiated by Mrs T, who wrote to Gordon Brown when he became PM, they then corresponded and he then invited her to tea. The FT reports that Downing Street offered to let her enter discreetly through the back door, but Mrs T turned the offer down preferring to enter by the front door and be photographed.

It's clear to me that she is still angry with the Tories for the way they despatched her all those years ago, and is determined to stick it to them whenever she can. And of course the Labour party assists whenever it can.... It recalls the 1995 interview she gave when she practically endorsed Tony Blair and New Labour (which influenced many former Tory voters to abstain or vote Labour).

Downing Street reports that she brought toys for Mr Brown's sons (a cement mixer and remote controlled cars). Very sweet.

Friday, September 07, 2007

Taxes on Illegal Drugs

The Americans have been experimenting with this for some time. According to this article from CNN,

In Tennessee, when you acquire an illegal drug (even "moonshine"), you have 48 hours to report to the Department of Revenue and pay your tax, in exchange for which you'll receive stamps to affix to your illegal substance. The stamps serve as evidence you paid the tax on the illegal product.

Don't worry that you might get in trouble for admitting you have enough drugs to fuel a rave party for years. You need not provide identification to get the stamps and it's illegal for revenue employees to rat you out.

Still, next door in North Carolina, which has had a similar law for 15 years, only 79 folks have voluntarily come forward since 1990, according to the Department of Revenue. Most were thought to be stamp collectors, or perhaps just high. Another 72,000 were taxed after they were already busted.

North Carolina has collected $78.3 million thus far, almost all from those arrested and found without stamps.

North Carolina's population is only 9 million, so that's not a bad tax haul. 23 American states now have this law. I think we should consider doing the same but add a twist and outsource this as with parking tickets - I'm sure so many people would get busted they would think it better not to do drugs at all, and the drug-busting units would be self-financing and maybe even revenue contributors. And it would be funny watching the Daily Mail trying to argue against this tax.

Saturday, September 01, 2007

School Meals

Luke Akehurst has an excellent piece about the take up of school meals in London.

He highlights some very interesting data - for instance the entitlement to free school meals in England is 16% but in London it is 26%. Even more surprising is the fact that entitlement to school meals in Kensington and Chelsea, that Tory bastion, is a whopping 39%. In a recent study by Barclays, the average income in Kensington and Chelsea was £100,000, the highest in the country. I can only conclude that there are a few people earning several million and cancelling out those on income support, job seekers allowance or earning under £15k (the criteria for being eligible for free school meals).

City of London was second in the Barclays study with an average income of £81,425 - their free school meal entitlement is 24%. Westminster was third in the Barclays study with an average income of £77,500 - their free school meal entitlement was 36%.

What on earth is going on? How can these places top the league for average income, yet have a free school meal entitement of double the national average. Even if you account for the rich sending their children to private school, surely there is a bulwark of earners between £18k and £40k sending their children to state schools? House prices are expensive in Kensington and Chelsea and Westminster (about £1 million each), so it is probable that the ordinary middle classes/aspirant working classes, who are the bedrock of the rest of England, are simply absent from these boroughs and only the very rich and the very poor live there.

Luke's piece contains full stats for each London borough, together with the full criteria for claiming school meals - to read it click here.

Britain fights back US criticisms on our handling of Southern Iraq

In recent weeks, the Americans, upset that we are intent on pulling out of Iraq, have been rubbishing us, with anonymous US generals talking about "Who lost Basra?" One senior US intelligence man said anonymously that 'The British have basically been defeated in the south' and another that if there are further British withdrawals 'the situation will continue to deteriorate'.

All of which is infuriating to the British. For a start we didn't have much say in the strategy for Iraq war and post-war situation. Bremner disbanded the Iraqi army without consulting us, and when we advised that Abu Ghraib be shut down in April 2003, the Americans ignored our advice, with disastrous consequences.

The American criticism is a classic Bush/Cheney operation - accuse the opposition of failure and/or cowardice to make them back down - in this case they are trying to pressure Britain not to continue withdrawals from Iraq.

It might have worked with Blair, who refused to criticise publicly or allow anyone from his administration to criticise publicly. But the Brown administration is different from the Blair one. Yesterday, David Miliband and Des Browne wrote an article in the Washington Post, refuting the American allegations and saying "It's time to set the record straight".

We have also had General Sir Mike Jackson saying "I don't think that's a fair assessment" to American allegations of "deterioration" in Basra. He also said that the Americans were "intellectually bankrupt" over their Iraqi strategy.

It looks like this public refutation of the allegations is having an effect. Bush has now said that he is "fine" about the handover to Iraqi forces in Basra. I guess he realised that having Brits hit back at him publicly was more damaging to him than having them leave Basra.

The text of the Miliband/Browne article is interesting. It concludes:

We believe we remain on track to complete the return of full sovereignty to the Iraqi people as planned.

.........But while outsiders can support, advise and encourage, only Iraqi leaders can make the political decisions and compromises essential to the future of their country.

.........We urge Iraq's political leaders to take the necessary steps.

To me that sounds like a clear sign that Britain is going to continue to handover and continue to withdraw no matter what the Americans say.

Friday, August 31, 2007

The Diana Effect

In April (which seems an eon ago, it was still the Blair era), 15 Royal Navy men got captured by the Iranians, and then proceeded to make fools of themselves, selling their stories and complaining about being "neck-flicked" by Iranians.

The Americans, who unlike the rest of the world, have held fast to an image of Britain set in the 1930's complete with stiff upper lips and butlers, were especially shocked. Time magazine rushed to explain what had changed:

How did Britain get like this? How did a society whose professed virtues were once those of duty, honor and discretion become a place of in-it-for-myself, let-it-all-hang-out emoting? Step forward those two women whose influence, combined — though one suspects they loathed each other — shaped a nation: Margaret Thatcher and Princess Diana.

Thatcher first. Her political party may have been called Conservative, but she was in truth one of the most radical leaders Britain has ever had. Thatcher could not abide the cozy and mildly corrupt arrangements that — as she saw it — had condemned post-1945 Britain to a managed decline, and was determined to blow them up. As one of her more waspish M.P.s once said, Thatcher could not see an institution without "hitting it with her handbag." But she never understood that once you removed the need to show deference to any institution — the BBC, the labor unions, the professions — you had undermined them all. If deference to the established order was so bad, why show it (for example) to the monarchy? Moreover — really for the first time in British politics — Thatcher placed market values, not abstract ones of duty and honor, at the heart of a social definition of success. In the 1980s, if you didn't make money (loadsamoney ... ), if you didn't cash in on your talents or luck, then you were worse than an idiot — you were somehow letting the side down.

Diana's contribution was just as subversive of the old Britain. In her later life — through the hugs, the tears, the riveting BBC interview of 1995 — and even more in her death, the Princess of Wales turned traditional British values on their head. It was all right to cry! It was bad to suffer in silence, repress your emotions, say, "Steady on, old girl," and generally act in a tight spot like Trevor Howard on the train platform at the end of Brief Encounter. In today's remake, Howard would be bawling like a baby; or — as we now know — like a young squaddie.

Taken together, Thatcherite and Dianist thought has given us the recent horrors: a situation in which not even members of the armed forces — hell, not even the leaders of the armed forces — seem comfortable framing military obligation in terms of duty and honor, and in which the media's badge of heroism is conferred on those who are merely victims (only for it to be ripped off again when the victims behave less like heroes than heels). It is a sad and miserable tale.

Britain chose the Thatcher effect by voting her in. The Diana effect though was imposed. If Britain didn't have a monarchy, Diana wouldn't have been thrust on the nation (she was just an averagely pretty girl who had no qualifications), and the Dianafication of Britain wouldn't have happened. Is it too late? Could we ditch them after the Queen dies and end the whole sorry saga?

NHS heads for £983 million Surplus

From the Guardian:

The report forecasts that by the new financial year in April the NHS will have a surplus of £983m, up from the £510m reported in April this year, and the £547m deficit in April 2006

.......[David Nicholson, NHS chief executive] said that the £983m surplus - 1.3% of the £90bn annual bill for the NHS - was the right amount to provide for any unexpected expenditure such as new drugs.

This is good for the public finances. A 1.3% surplus is very small of course - but it's a good sign that the NHS is at last beginning to get the hang of sticking to it's budgets (something it hasn't ever managed to do since it's inception). As people in the private sector know, the discipline of sticking to budgets usually leads to higher efficiency and productivity. It's best these skills are learnt now, while we still have a lot of money to spend on the NHS, rather than in 10 years time when the demographic crunch of an increasingly elderly and ill population starts to weigh on the NHS and the taxpayer.

Sunday, August 19, 2007

The Carry Trade Unwinds

One big result of the recent turmoil in the financial markets has been the unwinding of the carry trade.

The Carry Trade is where traders borrow in a low interest rate currency and invest the proceeds in a high interest rate currency. It can be extemely dangerous, especially if the currency you have borrowed in strengthens and ends up higher than it was at the point when you borrowed. Abu Nidal of Polly Peck fame, came a cropper in the 1980's when he borrowed in low-interest Deutchmarks and invested in high-interest Lira and got wiped out as the Deutchmark strengthened sharply against the Lira (the Lira was dropping due to inflation in Italy).

In recent years the Carry Trade has involved the Yen. In 2001 the Japanese cut interest rates to zero, which meant that people borrowing in Yen paid no interest (i.e. it was "free" money). In addition, the Bank of Japan, under pressure from the Japanese government and Japanese business, started intervening in the currency markets to hold the yen down everytime it got close to $1:Y100. The notion that you were going to be protected from a strengthening yen by the Japanese authorities made the Yen Carry Trade irresistible - free money and no currency risk. In the last year the Japanese authorities have increased interest rates to a high of 0.5% - still way too low to deter carry traders. It hasn't just been hedge funds attracted to this trade. Japanese citizens have also been borrowing in their own currency and then selling yen to buy whichever currency has high interest rates. Australia and New Zealand have been favourite destinations.

Everytime they sell the yen to invest abroad, the Yen weakens, which makes Japanese business very happy. But it creates problems for the rest of the world, which has had to cope with a wall of Japanese money seeking a home and bidding up everything in sight. Without the Carry Trade, the Yen would be much stronger as Japan runs a huge trade surplus, has non-existent inflation (which means that the currency is holding it's purchasing power), has come out of it's decade-long recession and has low unemployment.

However in the last week, there are signs that the institutional investors are unwinding the carry trade. Australia's currency slumped 8.8% against the yen, as money rushed out. The New Zealand dollar slumped 9.6% against the yen. Indeed the Yen has strengthened against all 16 major currencies in the last week including the dollar, the euro and sterling. Carry trade money has flowed into emerging markets and commodities too - therefore as the trade unwinds all these should fall as investors sell assets in order to go back into the yen and pay off their loans.

Obviously people invested in these falling stock markets will squeal, but the unwinding of the carry trade should be a good thing for the real economy. A major source of current world-wide inflation has been commodity prices rising (the tradtional souce of inflation, wage demands, has been subdued by contrast). The world will be a healthier place if the price of oil, copper, nickel and the rest fell. We are all better off with a more realistic Yen exchange rate too. Japan has enjoyed an unfair advantage exporting into Europe and the USA due to the artificially depressed Yen. Japanese companies will suffer from a rising yen though - and this is why the Nikkei slumped more than any other exchange last week.

Central bankers are starting to make noises about the yen too. According to Bloomberg,

``It's fundamentally a distortion'' to have Japan's interest rates as low as they are, Stevens [Glen Stevens, Governor of the Reserve Bank of Australia] said. ``The sooner the Japanese interest rates are able to be normal again the better from the point of view of the global-financial system.'' ......South Korea's Finance Minister Kwon Okyu said this week carry trades based on the Japanese currency threaten global markets.

It's believed that Japanese interest rates would have to rise to 2% to kill the carry trade. The big question is will the Japanese allow normalisation? In the mid 1980's they were persuaded by the Reagan administration to allow the yen to strengthen very sharply to help America sort out her trade deficit. It resulted in Japan going into a deflationary recession that lasted a decade. As a result the Japanese don't see any value in co-operating with the rest of the world - they see "co-operation" as an euphemism for getting screwed and they prefer to concentrate on their own needs and let the rest of the world get screwed instead.

Saturday, August 18, 2007

Thursday, August 16, 2007

How Influencial are the Media?

The Economist published a very interesting graph (see left), showing the breakdown of newspaper readership by region. The most eye-catching statistic is how the readership of the broadsheets is concentrated in London and the South-East - nearly 60% of the readers of The Guardian, Independent and Times are in London and the South East, the figure for the Telegraph is about 50%.

The 2001 Census shows the population of London to be 7,172,091 and the population of the South-East to be 8,000,645, making a total of some 14 million out of a population of circa 60 million - in other words just 24% of the UK population lives in these regions.

Which means we should rethink our beliefs about how important these papers are. For instance when Matthew Parris does another of his anti-Labour pieces in The Times, he is mainly talking to Tories in Surrey, rather than influencing the national conversation.

In addition, the readership of these papers is not that large. According to the NRS, the average readership of newspapers is currently as follows:

The Sun 7,840,000
Daily Mail 5,253,000
Daily Mirror/Record 4,937,000
Daily Telegraph 2,117,000
Daily Express 1,742,000
The Times 1,730,000
Daily Star 1,620,000
The Guardian 1,239,000
The Independent 767,000
Financial Times 394,000

The conclusion has to be that the most influential papers in terms of spread of readers around the country and numbers sold are The Sun, The Mail and The Mirror. Of these only The Mail is increasing readership (thanks to giving out free CDs). The rest (including the broadsheets) are dwindling. Regional newspapers are also shrinking.

Television isn't doing that well either. While OfCom confirms that 73% of the population gets their news from television, viewing figures are plummeting. In 1995, BBC1 commanded a 32% audience share, it was down to 22.7% in 2005. ITV went from 37% in 1995 to 20% in 2005. Sky News is trying it's best but managed to reach just 0.5% of viewers in 2005. My guess is that people listen to the first couple of items on the 6 O'clock news, and then switch off.

More people are also likely to be getting their news from the web. Before bloggers and their ilk get excited, note that most people who log on arn't interested in news at all. So the news they get from the web in the main depends on what home page the net user sees when they first log on - eg Yahoo, Orange, Google News etc. These pages will list a mix of brief headlines, plus lots of celebrity gossip and lots of tech news about the latest gadget (iPhone, Wii etc). The net user will cast a swift eye over this, and then go on to their main business, whether banking or shopping. Some people will have logged on to actively seek out a news site such as the BBC or the online version of the national newspapers. For political parties, this may mean that they should be trying to get their items onto Yahoo, or Google News.

It may also mean that old fashioned methods of campaigning such as leaflets become important, especially when trying to get local issues across, as these arn't covered anywhere else and pushing something through someone's door may be the only way to get their attention.

Saturday, August 11, 2007

Part-time Tories

Interesting article in the FT, exposing how much outside work Tory MPs do:

David Cameron’s front-bench MPs and peers hold more than 115 paid directorships and other outside jobs, in addition to their political roles, research by the FT has revealed.

The sheer scale of outside interests is sparking concern within the party that the Tory “part-timers” lack the discipline needed to defeat Labour.

..........The front bench’s secondary sources of income range from farming and property to consultancies, speeches, journalism and – in the case of Robert Goodwill, shadow transport minister – running a “green” cemetery.

Some activists worry that the number of top Tories doing extra, non-political, jobs means the party is adopting an amateurish approach to attacking Gordon Brown, rather than replicating the focus displayed by Labour in the run-up to its 1997 victory. Almost half the shadow cabinet – 12 of the 27 MPs and peers disclosing their relevant interests – have at least one directorship or other external job

..........Senior Tories admit privately that the opportunity to supplement their £60,675 MP’s salary, plus expenses and allowances, is a factor in accepting outside jobs. “I’m not going to be disingenuous. One of the reasons why people do this is to boost their income,” a shadow cabinet member, who did not want to be named, told the FT. “But you don’t want a political class where all you have is narrow political experience and the only people who can afford to do it are those who are privately wealthy.”

The last remark reveals how far the Tories diverge from the general public. Most voters consider that an MP's salary of £60,675 plus expenses and allowances, to be very generous. Particularly as they get a good pension as well. The idea that it is too low and that you can't "afford" politics on it is extraordinary. As is the belief that the only people who would bother to be an MP on a £60k salary without extra directorships are the "privatly wealthy". Most of the Labour MPs manage on it, and most are not privately wealthy.

If the Tories came to power, the members of the cabinet would have to drop their outside interests, plus they'd have to do a thousand times more work (government is no picnic). Perhaps this is why the parliamentary Tories keep sabotaging themselves. Secretly they want Labour to win, and carry on with the hard work of governing, while they do a bit of token opposition and moonlight.

Tory voters should think hard about this - I'm sure this is not what they intend when they cast their vote. If they want a real opposition, perhaps they should switch to the LibDems?

Friday, August 10, 2007

Credit Crunch

Following yesterday's injection of €95 billion in emergency credit by the ECB into the money markets, other central banks rapidly followed suit: The US Federal Reserve put in $24 billion, the Bank of Japan put in 1 trillion yen ($8.5 billion), the Reserve Bank of Australia put in A$ 4.95 billion and Canada's central bank put in C$1.64 billion ($1.55 billion). Central banks of South Korea, Phillipines and Indonesia all signalled willingness to inject money if necessary, and the ECB has followed up this morning with more money. Central Banks are lenders of last resort, and essentially what they are saying to the market is, if you need to borrow money, we will lend it, at the base rate.

What has caused the crunch? Simply, investors who had borrowed money to finance their securities found their credit lines drying up, so they went to the money markets for cash, and the additional demand caused the inter-bank rates to shoot up way above base rates.

The root cause behind all this is the the sub-prime lending debacle in the USA, but that of course has been simmering for months. The immediate cause of the current crunch was Tuesday's US Federal Reserve statement, where Fed Chairman Ben Bernanke signalled unwillingness to cut interest rates to bail out financial investors in distress and put more emphasis on inflation. The markets had been hopeful for a cut, and it caused lenders everywhere to rethink and tighten and in some cases close credit lines.

What does this mean for the real world? The last time something like this happened was 1998, when the hedge fund Long-Term Capital Management went bust, casuing fall-out among those in the financial industry who were exposed to their fund, and whose who had lent to it. Alan Greenspan, who was US Federal Rererve Chairman at the time, not only supplied liquidity to the markets, he cut interest rates three times that year, and didn't raise rates again till May 1999. Cutting rates turned out to be a mistake. The real economy had not been affected by the hedge fund bust, and cutting rates simply stimulated a massive boom, with the tech/telecom/ sectors soaring. Then came a massive bust in 2001. It was the cutting of interest rates that had affected the real economy, not the collapse of Long-Term Capital Management.

My guess is that this time Central Banks will play it cool. They will continue to supply as much liquidity as is needed to the market, lending at or slightly above the base rate, but they will not cut the base rate. If turmoil continues to roil the markets though, they may be persuaded to stay their hands in continuing to raise rates till things calm down. They'll cut only if they are persuaded that the real economy was suffering. Given that global growth is at it's strongest for decades, cuts look unlikely.

Monday, August 06, 2007

Open Primary for Tory Nomination for London Mayor

The Tories are going to have an open primary for the nomination for London Mayor in September, where Boris Johnson is up against a bunch of Tory nonenities and everyone knows Boris is going to win. So why bother with an open primary? According to conservative activist Jesse Norman, "an open primary promises to reach out to new and untapped voters in London, and to start to re-engage them not merely with the Tories, but with politics itself."

Or it could just be a means of raising money. According to Boris Johnson's website, Conservative members are automatically registered to vote, but everyone else must phone a premium rate number that costs £1.00 per minute from a BT Landline. If Tories really wanted to reach out to untapped voters, they wouldn't have used a premium rate phone number.

My advice to non-Tories, is Don't Bother. Boris will win the Tory nomination anyway, so wait till the actual election for London Mayor to vote against him free of charge. And if you have £1 spare, give it to Ken.

(Thanks to my sister for alerting me to the above).

Income Inequality

We hear a lot about "the gap between rich and poor" but how big is it in reality, and how large is it compared to other major European nations? There are two ways to judge the gap - the gap in income between the top quintile and the bottom quintile, and the gap in capital assets between the top quintile and the bottom quintile.

Eurostat monitor the income inequality gap across Europe, calculating the ratio between the total income of the 20% of the population with the highest income (top quintile) to that received by the 20 % of the population with the lowest income (lowest quintile). Income is defined as disposable income, i.e. after tax income. The last figures they have are for 2005. The higher the ratio, the higher the income gap - eg a ratio of 5 means that the top quintile has 5 times more income than the bottom quartile. The EU 15 countries in the following table comprise the old Western Europe prior to enlargement.

Income Inequality
ratio in

EU 25 countries 4.9
EU 15 countries 4.8
Germany 4.1
France 4.0
Ireland 5.0
Italy 5.7
Spain 5.4
Sweden 3.3
UK 5.5

The UK isn't that far off the EU average, and the gap hasn't
really grown much - the ratio was 5.2 in 1994. Sweden's ratio is low - but is a reflection of how hard they tax the rich, as the ratio is based on disposable income. The income gap between rich and poor in the UK isn't as drastic as popular mythology would have it.

Thursday, August 02, 2007

Can a new Anglo-German axis supplant the Franco-German axis as the main driver of the EU?

London has always dreamed of breaking up the Franco-German partnership that has dominated the EU from it's inception. Every time the leaders of the three countries change, there are high hopes that the relationships between the three can be re-made. Blair, Chirac and Schroeder all came to power within a few years of each other, and there were expectations that Britain under the charismatic Blair, could muscle in on the relationship especially as Chirac and Schroeder didn't initially like each other. Unfortunately the Iraq war threw France and Germany back into each other's arms again.

But the relationships are again in state of flux. Angela Merkel became Chancellor of Germany two years ago and France acquired Sarkozy and Britain acquired Gordon Brown within the space of a few months this year.

And the initial signs are that that Sarkozy, just two months into his presidency, is seriously irritating Berlin. De Spiegel ran an article a few weeks ago titled, "Sarkozy Wrestles with Merkel for European Dominance" where they detailed a myriad of disagreements from economic policy (Sarkozy is protectionist and wants to renege on the EU's free movement of capital rules that allow any company to take over any other company within the EU), disagreements over EADS (who operate Airbus) to foreign policy disagreements (eg over relations with Libya) to the ECB (France wants politicians to be able to interfere with interest rate decisions, Merkel's icy response was "I don't think very much of that at all. I won't allow it to happen").

In another De Spigel article that got reprinted in the American magazine BusinessWeek, the Germans spell out the problem in detail:

At the European Union summit in Brussels in June, he convinced the stubborn Poles to support the simplified European Union treaty. German Chancellor and then-EU Council President Angela Merkel and her foreign minister, Frank-Walter Steinmeier, may have done most of the legwork to bring about the agreement but Sarkozy behaved as if bringing Poland's ruling Kaczynski brothers on board was entirely his doing. The way Sarkozy described it, he was the one who had managed to rescue the EU from one of its many, great historical crises.

The small-statured Sarkozy has assumed the role of the great statesman. Slapping shoulders, patting backs and distributing kisses, he leaves the impression of success in his wake. His approach is allowing the French to breathe a collective sigh of relief. After many years of near-paralysis, the country is assuming the leadership of an increasingly lethargic EU.

This, at least, is the impression Sarkozy would like to make. His European partners can only look on in speechless astonishment as Sarkozy rushes ahead. The crowing of the Gallic rooster is replacing the European anthem as Europe acquires a leader who has shown himself willing to flaunt tradition. His will, it appears, is the road to success.

There is only one problem: Sarkozy's victories are stolen victories. He is steadily co-opting successes which, in some cases, others have spent years diligently preparing. His policies are intended to radiate dynamism and energy. But in reality, he jumps from one issue to the next -- with apparently no system or coherence, but with a great deal of fanfare and fireworks.

His European counterparts are witnessing this spectacle with increasing annoyance. Instead of being a team player, Sarkozy likes to take the lead, even when he has contributed little to the team's successes.

All of which opens up opportunities for Britain. France can never be the driver of the EU, this is pure fantasy on Sarkozy's part, their economy is too weak. While Germany is strengthening and German unemployment has fallen sharply, France is stagnating and Sarkozy's hyperactivity doesn't seem to have addressed things yet. Britain is of course serenely knocking out quarter after quarter of growth. Respect in Europe depends on and follows economic performance. By rights it should be an Anglo-German leadership of Europe.

It's telling that Gordon Brown's first visit to a foreign capital after becoming PM was to Berlin - not Washington or Paris. Merkel was said to have been pleased at the honour and pleased too that Brown merely shook her hand rather than ostentatiously hugged her (Sarkozy) or tried to massage her shoulders (Bush at the G-8 summit last year). Merkel is temperamentally much like Brown - both children of vicars, both very intelligent and cerebral, both with a restrained manner. Plus they agree on fundamentals, such as that protectionism is stupid. Of all the photo-calls with foreign leaders in the last month, Brown looked most comfortable with Merkel.

If Brown and Merkel can forge a good relationship, and Sarkozy continues to irritate the Germans, there could be a massive opportunity for Britain, for the first time since we've been in the EU. A very strong Anglo-German partnership could crush the French resistance to reforming CAP for instance. The possibilities are endless.

Wednesday, August 01, 2007

The Ali Miraj Business

Labour people will have been watching the Cameron-Miraj row with some astonishment. Ali who? will have been the first reaction of many. Ali Miraj appears to be a Tory councillor who had some hopes of being selected as a parliamentary candidate (unsuccessfuly to date). And he appears to have made some criticisms of the Tory leadership. So far so normal - isn't this normal sport among Tories?

So what on earth was Cameron doing attacking Miraj personally for his criticisms? Surely it was beneath his dignity to even respond. He should have refused to be drawn and left it to the party chairman (or some such enforcer) to have a quiet word. Instead he attacks the man personally, on the BBC no less, and in the process made Miraj and his criticisms important.

It's a sign of weakness. If Cameron can't take a bit of criticism from a mere councillor, he won't last five minutes in government, where you get absolutely pounded by the press and vested interests, and have to be able to withstand things without losing your cool.

Both Blair and Brown have taken tremendous flak in their time from both within the party and from outside. Brown has never responded to any of the personal attacks people made over the last few years. And Blair was a past master at taking flak on the chin. Matthew Parris has a telling anecdote in his autobiography where he runs into Blair at a restaurant after he'd written a particularly vitriolic article about him. And instead of Blair giving him the cold shoulder, he came up to him, said hello without any sign of rancour, and then went on to his guests, leaving Parris feeling guilty.

The only time in his 13 years as leader that Blair responded personally to criticism was last September, when Tom Watson and 6 others resigned from the government. Blair fired off a statement saying "I had been intending to dismiss him anyway". It was a childish expression of weakness, the reaction of a man whose back is to the wall and is hitting out without thinking. A day later, Blair conceded to his critics and gave them what they wanted - he announced he would be stepping down before the next conference.

Wednesday, July 25, 2007

How representative of Britain are our parliamentary parties?

Given that the chattering classes like to talk about how voters no longer relate to parliament, I thought it would be useful to look at how representative of Britain the main political parties are. The theory is that the more representative the parties are, the more likely the public will feel affinity with parliament (rather than think of them as "others", who are nothing like them), and the more likely that the opinions of the public are reflected in parliament (in the sense that gender and background always inform and colour the viewpoints of the persons concerned).

First of all gender. Just over 50% of the population is female. Here's the breakdown in parliament:

Labour: 97 women MPs (27% of Labour MPs)
Tories: 17 women MPs (9% of Tory MPs)
LibDems: 9 women MPs (14% of LibDem MPs)

So none of the parties reflects the gender balance of the nation, though Labour is well ahead of the others.

Next up, education. 7% of current students go to public school. 88% of current students go to comprehensives and 5% of current students go to grammar schools. The following data on Parliament comes from the Sutton Trust:

Labour: 18% of MPs went to public school
Tories: 59% of MPs went to public school
LibDems: 39% of MPs went to public school

Labour: 53% of MPs went to state comprehensives
Tories: 20% of MPs went to state comprehensives
LibDems: 41% of MPs went to state comprehensives

Labour: 29% of MPs went to state selective schools
Tories: 21% of Tories went to state selective schools
LibDems: 20% went to state selective schools.

Most of the MPs who went to state selective schools (aka grammar schools) are over 40. As time goes on, they will dwindle as a % of MPs, reflecting the abolition of grammars in most parts of the country in the 1970's.

Regarding university attendance the figures are as follows:

Labour: 67% of MPs went to university
Tories: 83% of MPs went to university
LibDems: 81% of MPs went to university

All the parties have been increasing the number of graduate MPs over time (in 1964 the figures for MPs who had attended university were Labour 42%, Tories 63% and LibDems 78%).

I am most surprised by the LibDem figures for public schools. Most LibDem MPs entered parliament in 2001 and 2005. Their public school MPs are not a legacy of candidate selection policies of 20 or 30 years ago, in the way some of the Tory public school MPs are accounted for.

Considering ethnic minorities, 7.7% of the UK population is non-white and 92.3% is white. There are only a total of 15 ethnic minority MPs in parliament out of the 646 MPs (2.3%). 13 are Labour and 2 are Tories. None are LibDems. The two Tory ethnic minority MPs entered parliament in 2005.

Obviously Labour is the most representative of Britain as it actually is (though they could increase the number of women and ethnic minorities).

The Tory position looks awful - but some of that is down to legacy. They got decimated in 1997, hardly improved in 2001 and gained only a modest number of MPs in 2005. Lots of their fuddy-duddy male public school MPs were elected in the Thatcher years or before. Until this "old guard" retires it is unlikely that they will get to govern Britain as the assertive modern voter no longer tolerates the idea of "elites" who are nothing like them, ruling over them. If they had any sense they would be trying to deselect as many of the old guard as possible and replacing them with more normal people. But Cameron and Osborne and co are handicapped by the fact that they too are part of the elite public school brigade. To give Michael Howard credit though, he did put through two ethnic minority MPs and more women in 2005.

But the big surprise is the LibDems. They prattle the most about "representative democracy" (aka proportional representation), but they don't exactly practice it in-house. Unlike the Tories, they don't have the excuse of "legacy" MPs. Most LibDem MPs entered parliament in the last decade. You would have thought that like Labour they would seek to have more comprehensive school educated people, more women, more ethnic minorities - but this is not the case.

You get a glimpse of this looking at who attends the party conferences. Labour has the broadest range of people from all backgrounds, creeds and colours. And while the toffs are heavily represented in the Tories, they do have a minority of self-made working class Tories that Thatcher attracted to their party - and these working class Tories are the most hostile to the elitist Cameron - in a peculiar Tory way, the grammar school row was covert class-war row, as Nick Robinson observed.

The LibDems though tend to be awfully nice white middle class people, the narrowest group of all. This is why they are the third party and failed to break through and become "the real opposition". Charlie Kennedy masked this narrowness temporarily when he was leader because of his egalitarian Scottish tone. Since he's gone, they've fallen back, as people look at them and think, they don't really represent me. If the LibDems really want to break through, they need to broaden their tent. But this means dealing with people from very different backgrounds whose views might not be as "pure" as their own. Do they really want to do this? My impression is that the LibDems find this too distateful to bother with.

P.S. Regarding ethnic minorities, someone pointed out to me that the SNP have an ethnic member in the Scottish Parliament and Plaid Cymru have an ethnic member in the Welsh Assembly. This means that of the five major parties (Conservatives, labour, LibDems, SNP and Plaid) the LibDems are the only party to have no ethnic representative at Westminster, the Scottish Parliament or the Welsh Assembly. And they don't appear to be disposed to readdress this either.