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.