Some observations from signed up members of the sensible party

First, from Chris Dillow: our gilt rates  do not makes us a more risky proposition than Italy:

Granted, UK five-year yields are slightly higher than Italy’s: 2.81% vs. 2.72% for benchmark bonds. But this is not a pure measure of creditworthiness. Bond yields also depend upon inflation and currency risk. One reason why gilts yield more than their Italian counterparts is that the latter is perceived as greater for the UK than for Italy; the market thinks there’s more chance of sterling falling against the euro than of Italy leaving the euro. Indeed, CDS prices tell us – if they tell us anything – that the UK government is more creditworthy than the Italian. I don’t mention this merely to point to the village idiot

The finger is permanently pointed at the Spectator, when it comes to economics.  In another area of expertise, they have fingered my colleague as Clegg’s Consiglieri. I hope this whets your appetite for when he starts his Blog.  And if you want more village idiots, just read the homophobic cr*p beneath that blogpost.

Next for the sensible party is David Smith who points out that the fuss about economic inactivity is no good reason to decry the unemployment figures.

Yes, too, there was a rise in economic inactivity, to 21.5% of people of working age, but this was higher in 2004 and higher still in the mid-1990s. The important number to hang on to is that the recession saw a 6.2% decline in gross domestic product but only 2.4% in employment, much better than could have been expected.

One reason it just doesn’t feel as bad as the early 1980s, something Labour would be well advised to play up in the weeks ahead.

The Guardian: focus stimulus measures on Investment, not Spending:

The measures unveiled since the collapse of Lehman Brothers were aimed primarily at keeping consumption going: a big cut in VAT, in stamp duty on homebuying, a whopping £2,000 subsidy for new cars. As emergency interventions, these helped reflate the economy – but they did not restructure it. Yet that is what the UK needs to get away from the overreliance on financial services and the housing market, and to create more private-sector jobs north of Watford. Mr Darling should go for stimulus – but aimed at investment in the economy of the future rather than shopping. The state investment bank which Treasury officials have been talking about could help achieve this goal.

As Charles Bean’s speech made clear:

the evidence from past sharp downturns after banking crises is that they can have a significant impact on the economy’s supply potential (Chart 8). Downturns typically lead to less investment, more capital scrapping, fewer business start-ups and more business closures and a restriction in the availability of credit is likely to aggravate these effects.

That might actually put pressure UPWARDS on inflation.  We need investment to prevent supply constraints muddying the picture and making the cost of this recession even worse.

More League of Gentleman commentary on Phillip Blond.  No sign of coherence yet:

Most confusing of all was his position on markets. He condemned neo-liberalism, but his reasons for doing so oscillated during the talk. On the one hand he seemed to suggest that the problem with neo-liberals is that they were not thorough enough, undermining the true principle of laissez faire with various state subsidies for various large businesses. On the other hand, he floated the idea that the whole idea of free markets relies on a misconstrual of human sociality, a criticism entirely at odds with his first.  while I recognize the difficulty of articulating a contemporary conservative vision that isn’t in thrall to neo-liberalism, I can’t see that his views add up to a coherent political philosophy independent of the exigencies of policy.

And John Rentoul has noticed how Cameron is Son of Clegg: nicking his lines about the banks being a special interest.

ThoughCowardsFlinch use a phrase that resonates for me: “ the inner circle of blogincest,”

Paul Krugman has spotted that the Anglo Saxon world is not the entire climate.  Check out his graph. This year is HOT.   On that subject, I’m going out to play in the sunny garden with my 1.6 year old boy.

Published by freethinkingeconomist

I'm former special adviser (Downing Street 2017-19, BIS from 2010-14), former FT leader writer and Lex Columnist, former financial dealer (?) at IG, student of economic history, PPE like the rest of them, etc, and formerly in my mid-40s. This blog has large gaps for obvious reasons. The name is dumb - the CentreForum think tank blog was called Freethink, I adapted that, we are stuck now.

13 thoughts on “Some observations from signed up members of the sensible party

  1. “As emergency interventions, these helped reflate the economy – but they did not restructure it. Yet that is what the UK needs to get away from the overreliance on financial services and the housing market, and to create more private-sector jobs north of Watford. Mr Darling should go for stimulus – but aimed at investment in the economy of the future rather than shopping.”

    How Austrian of them. A recession is a time of recalculation, of necessary sectoral shift.

    However, we should take the second point that the same people make slightly more seriously. No one actually knows what the economy of the future is. Therefore we cannot plan for it nor can government bring it into being. Only entrepreneurs, through trial and error, bring that new economy to fruition.

    So, how do you encourage entrepreneurs?

    “A state investment bank”?

    Well, given that loans and investments will only be made to those already politically connected, no, that ain’t the solution. That’s entrenching those who already have State power and their idea of the economy.

    A bonfire of regulations?

    Yes, that’s it!

    So, shoot the bureaucrats and lets have some captitalism red in tooth and claw: she’ll be right, no worries.

    1. Sorry, last answer less coherent thxn usual. I’ll leave it there as proof of how tricky it is to type when being bitten by a toddler.

      Obviously the notion of state investment ought to trouble an econ liberal like me; I actually argued with the guardian about how much the uk needs to do ‘different’ things. But there are huge missing markets as well as Keynesian under investment , hence even Policy exchange like the idea of a National infrastructure bank.

  2. but entrepreneurs also need an expectation of future orofit. Business investment w-wide didn’t dive simultaneously because govts everywhere suddenly dumped a tonne of red tape on us all. Sometimes something is needed to break us out of the fallacy of composition.

    I’ve no doybt that the tech frontier can only be pushed out by experimenting entrepreneur. but it’s a mistake to confuse that wth all economic activity. some of the bogstandard styff needs support – like housing, say. tho’ a few less regs in THAT sector wouldn’t go amiss.

  3. The Spectator have form with talking rubbish on debt. There was a spat about 9 months ago between Ed Balls and Fraser Nelson. It was obvious that FN could not understand that the total stock of nominal debt could be rising but the only meaningful measure the ratio of debt-to-GDP be falling. Last week he was at the same thing saying the Tories should stop talking about the deficit and instead concentrate on the total stock of debt. It was not obvious why this would be relevant other than confirming that they are obsessed with big numbers. For example, if the total stock of debt is the relevant issue should the government concentrate their efforts on immediately reducing the stock as he implies? Well you could but it would lead to a serious depression and the ratio of debt-to-GDP would rise. I don’t think even George Osborne is likely to fall for Fraser Nelson’s nonsense.

      1. I’m really hogging this thread, but just read that piece of yours on Balls v Nelson. Can we have more of this snark please?:

        “If Nelson thinks this is not the standard understanding, he should educate people, rather than opportunistically joining the confused brigade”

      2. I was darned proud of that post. You are now the 5th person to read it …

  4. Tim Worstall, surely one of these two propositions is true:

    1. Regulation A is bad, and should be gutted.

    2. Regulation A is sensible government policy and should be kept.

    (repeat for B through Z etc).

    As a libertarian, I suspect you’re probably more inclined to lean towards 2 for a lot of regulations. Fair enough if that’s what you think. But then you should be advocating getting rid of such regulations anyway, not as a response to the economic crisis! If you don’t support getting rid of such regulations because they are bad, then you are stupid to advocate gutting them to get out of the recession (as well as a bad libertarian). Similarly, sending the unemployed to the gulag may help the economy, and lower the deficit to boot, but it would be a despicable thing to do.

    Oh, and I’m skeptical that gutting regulations would help that much anyway: this will increase supply, but does little for demand, which is the main problem.

  5. Alex….I do of course lean to 1) for most but not all regulations.

    I am not arguing for them to be abolished because of the financial problems….I am using the financial problems as an excuse to continue to argue against them.

    As to supply and demand….I think just about everyone agrees that the best way, if it were possible, of reducing the deficit and paying down the national debt (or at least reducing it to a percentage of the economy where it is a boring expense rather than a threatening one) is through economic growth in said economy.

    And it’s hardly an unusual thought that, while many regulations might be worthwhile or desirable for all sorts of reasons, they do limit said economic growth.

    1. I could make sarky comments about the wonderful growth rates in unregulated Somalia, but won’t.

      I find a lot to praise in the Douglas North institutional theory of growth. Regulations have made a big difference. The first really important ones were those limiting arbitrary behaviour by the state … but that is not the only way they can help property rights and the enforcement of contracts, or complete markets. The market for lemons?

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