Surprising discoveries in the Jenkins biography

As a rather late LibDem, I needed to study the excellent John Campbell biography of Roy Jenkins, “A well rounded life” more than most.  It has given me a schooling in foundational Party history that I sorely lacked.  Thank you to Matt Turner, commenting here, for the recommendation.

If I’d read it on Kindle, these are some of the surprising bits I would have highlighted.  In no particular order, some discoveries that surprised me:

The author is convinced that Tony Crosland seduced Jenkins “at least once”. The tone of their letters was certainly extraordinary, and renders even more striking how they went on to be political allies and rivals in various different arena, right up to Crosland’s death in 1977, moving gradually apart as Jenkins overtook and then exceeded Crosland’s promise and achievements.

His lifestyle appeared extraordinary relaxed even during the heat of high ministerial office.  Every day had its one and a half hours for lunch, usually social. It always involved wine, and was often with one of his mistresses.  This pattern extended into an evening life seemingly dominated by dining clubs, then weekend trips to country houses, all larded through with enough leisured reading time to polish off Proust in his first few weeks as  Home Secretary.  In fact, social affairs (a typical week is described on p290) sounded far the most exhausting aspect of living: Nevertheless …

…he achieved an astonishing amount in a short time in the Home Office In less than two years he helped end flogging in prisons, legalise homosexuality and abortion, end theatre censorship, and bring in a Race Relations bill.  The latter is despite the fact that …

…both the TUC and CBI opposed Jenkins’ measures to improve racial equality The author explains the former simply with “there was still a lot of casual racism in the workplace”.  I still don’t understand it.

In 1970 he could command £1500 for each of ten 10-15,000 word biographical essays for the Times.  By today’s standards this is an astonishingly generous amount.  By this inflation calculator it is £20,000 per piece, or £1.50-2.00 per word.  (another way of putting it: writing four such pieces could earn him enough to buy a house). That looks like 5-10 times today’s rate, for what seems like a pleasurable hobby (despite the biographer not regarding Jenkins as consistently original or insightful)

Matthew Oakeshott was a really important SpAd to Jenkins The biography mentions many advisers, acolytes and “Jenkins-ites” who clustered around him for decades. The book is peppered with references to those who went on to dominate LibDem politics, and who clearly learned their trade and gained political leanings somewhere in Jenkins’ circle.  But having known (now Lord) Oakeshott*, this is the reference that tickled me most.  His speeches written in the Home Office for Jenkins were adjudged “extraordinarily good”, something I can believe, and he was close enough to  the birth of the SDP to be the one who  photocopied the Limehouse Declaration for the press. During a less happy phase (see below) Shirley Williams blamed him for a hurtful anagram of her name, “I whirl aimlessly”.

In 1976 Jenkins said “I do not think that you can push public expenditure above 60 per cent and maintain the values of a plural society with adequate freedom of choice”. This, he knew, would “provoke a storm”, and sure enough had Barbara Castle noting bitterly “how these people come out in their true colours!” Astonishing, how large the Left assumed the State should be.

As European President, Jenkins felt he lacked a purpose so put European Monetary Union on the agenda.  It was accepted as a proper policy aim for Europe within 18 months, with a $50m fund and the ECU brought into existence.  I think it tells you something about the monetary trauma of the previous decade that such a flawed idea could be accepted so quickly

I had no idea how hate-filled and bitter were the days of the Alliance, despite the astonishing initial success of the SDP.  Their very first poll put them on 36% (without the Liberals), and they had 43,000 members within days of forming (close to current LibDem levels), plus £0.5m in donations (the equivalent of £2m today).  A failed Liberal who in 1979 had finished fourth in Croydon North West with 10% won the post-SDP bye-election with 40%. What an astonishing appetite for a centrist alternative there must have been, culminating in that 51% poll for the Alliance in December 1981.

Yet they blew it, in any number of ways: perhaps by failing to push Shirley Williams to stand in Warrington, perhaps by failing to act like a cohesive force in Parliament and stamping their identity there, but above all through persistent Liberal-SDP fighting over seats and party management, and strategic direction.  From today’s vantage point, it seems extraordinary that these parties should squabble over whether or how to combine, given the prize on offer and the size of the challenge. But above all, I was amazed by …

… the degree of animosity between Owen and Jenkins David Owen was once part of a band of MPs who clustered around Jenkins during his ministerial heyday in the mid 1960s, frustrated by the lack of killer touch shown during leadership opportunities when Wilson was weak in 1968.  But by the 1980s they were fighting horribly: over the right relationship with the Liberals, over policy detail, but really about Jenkins’ poor leadership of the SDP during its vanishing opportunity in 1982-3.  The near simultaneous release of their memoirs rehearsed the bitterness again, with Owen one of the few people Jenkins could not bring himself to treat generously.

Overall, I think this book should be a part of the modern Liberal Democrat canon, as I am sure it will come to be.  I have no idea how dispassionate it is towards a subject the author clearly admires.  But the way he balances  adulation for Jenkins’ setpiece Parliamentary occasions of the 1960s with bleak honesty about his portentousness in the 1980s is a reasonable test.  By displaying the  social liberalism, fiscal competence, internationalism and political radicalism of his subject so well, I think John Campbell has provided a good portrait of the sort of politician we need more of now.

*personal disclosure: he was one of those who interviewed me for my job advising Vince Cable

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Insecurity flashbacks

In 1995 I quit a regular (albeit wildly un-remunerative) job in publishing to come to London and temp for a few months. A year of editing had taught me extreme pedantry and how to type at 70wpm; I thought this enough to get me a choice of well paid jobs, maybe even as much as £8 per hour. That dizzying prospect was as far as my forward planning stretched.

It was miserable. The macro graphs may suggest otherwise but even in London I experienced nothing resembling a boom. The rosy picture painted by my female friends – of long glamorous gigs in the media sector, generally ending in an appreciative review and job offer -failed to materialise. The closest I came was an evening of free curry and PowerPoint at Saatchi’s (I boasted about this). More usually it was a couple of days here and there typing letters for insurance salesmen, on pre-mouse green screen computers. I had to sign up to a dozen agencies, calling them each daily, to have any chance of covering the rent and economy bag of Iceland potato croquettes.

I learned a lot. Above all, that there isn’t a steady demand for 23 year old male Oxford educated temps. My cv met with incredulity, and an intelligent guess that I must be somewhat flawed to be in this position. But I also gained a lasting apprehension towards very flexible work, even though the flexible labour market ultimately paid off for me and gave me a far better return than becoming a lifer at a multinational might have.

I don’t much enjoy remembering 1995-6 and the risks I took, despite the stakes being low; I had no kids, the worst that awaited me was a shameful shuffle back to my parents’ place and months of applications to banks and accountancy firms. This astonishingly good piece on the gritty reality of the Sharing Economy shows how much worse it may be now, despite or even thanks to the wonders of new technology. Please read it – it is fantastic journalism. My experience of needing to call several agencies a day for work is the reality of this new economy – people with one phone for Uber, another screen for TaskRabbit, ads on Craiglist, and so on.  But this time for (clearly inspirational) parents with nowhere else to go.

Please read it.

As a special adviser I occasionally met people evangelical about the sharing economy and the possibilities on offer.  I have nothing against the idea that there are missing markets out there, extra useful work with willing buyers and sellers on each side of the bargain.  But as a model for an entire economy it feels dismal.  Just because technology makes it possible for the world to be run in an atomised way, with millions of odd-job men and women, doesn’t mean that this is the best or fairest institutional design.

You don’t need to read Coase to know that there is a reason for firms to exist.  Seven years after my time as a temp I wrote my MBA dissertation on Loyalty and how vital commitment is within a firm – in the customer relationship, and towards employees.  Finding data to back up this soppy notion was a doddle. Investing in your staff, rather than trading them, is so often the obvious and intelligent thing to do.

I was lucky to be able to move up and away from having to trade myself daily.  It sometimes feels like, as an economy, we have moved too much the other way.

 

Status Anxiety

Thus far this holiday I’ve read Dune by Frank Herbert (there’s nothing like an imaginary desert world for a little escapism); The Lion and the Unicorn, on Gladstone and Disraeli and a multi decade rivalry; the illustrations and life of Osbert Lancaster; and am about a halfway through Chinese Whispers by Ben Chu, Patrick Lee Fermour’s Between the Woods and the Water (the follow up to A Time of Gifts) and (thanks to a commenter here) the John Campbell biography of Roy Jenkins.

I have also polished off Status Anxiety by Alain de Botton. I have never failed to enjoy his books and this is no exception -but I found it curiously unsatisfactory, despite being as chock full of references and illustrations as usual. The first half ably describes the disease and its proximate causes – crude snobbery, native belief in meritocracy, the fickleness of fate that leaves one’s status dependent on much beyond our control, and above all bourgeois expectation and the inanity of the consumer culture that was definitively eviscerated by Veblen a century ago. To very little surprise we are given such insights as: newspapers make this worse: equating riches with merit induces anxiety, and so on.

In the solutions section he reminds us that philosophy, Art, some political impulses and religion can dissolve the self harming mental damage caused by these sources of status anxiety. There are pleasing excerpts from Tolstoy and Bach to illustrate this, alongside some fairly obvious analysis of what Mansfield Park is teaching us about real nobility. It is nice to be reminded of how exposure to the vastness of nature, glorious medieval cathedrals or pleasant town centres can put our petty rivalries into perspective.

I was surprised there was not more anthropology in the book; a greater exploration of how irreducible status anxiety really is regardless of context. This irreducibility is best illustrated by the unconvincing argument in the very last pages, which offer Bohemian groups as examples of how conventional status anxiety has been evaded. No doubt the various countercultures he entertains us with were very successful in cocking a snook at the stuffy bourgeoisie of their day. But it’s immediately apparent that these bands of Dadaists, hippies or beat poets themselves would have struggled under their own hierarchies of status. What advice is there for the incompetent, ugly Bohemian who still can’t get a girl or a round of applause for his sonnet? Rejection by the bourgeoisie is only part of the problem -counter cultures will be riven with rivalries and anxieties just as painful for the losers.

In the end I felt that de Botton illustrated and discussed something interesting but offered solutions that probably work best for people as erudite and clever as he is. Most others are probably still condemned to status anxiety and bourgeois values whether they agree or not.

Written on a phone so forgive grammar.

What ARE the big UK supply side issues?

The different way in which the Uk and USA have reacted to fairly similar NGDP pathways has occasioned some useful but high level blog commentary. The basic conclusion is that the UK suffered a supply shock as well as a demand shock; see Historinhas on the not so much Siamese twins qualities here, and Professor Sumner, who says we combine fantastic labour market flexibility with lousy labour productivity.

I am not so sure. Labour productivity shocks don’t just hit an economy like a sudden storm. I can list some sharp supply side hits – to oil, financial sector activities, and the withdrawal of credit does damage capacity and can do so sharply. But the way the shock had coincided with the massive aggregate demand hit has always made me look there, first. Ockham’s law. The US economy reacted to weak demand by shedding labour. The UK by lowering it’s price. But we’re both Anglo Saxon economies trading internationally, with many of the same products, multinationals, and markets.

But when Marcus says the UK needs structural reform I take it seriously. So- what reforms do we need? Not the labour market. Bank credit, sure. But for me, the biggie is the one you can see from space. Land.

Any others?

Read Robert Hetzel

Because I was on holiday I failed to notice and approve a comment from one of the greatest economists writing about money and the economy, on this very blog.

I apologise. Robert Hetzel is one of the godfathers of the Market Monetarist school, and the book he has written and rightly recommended, The Great Recession: Market Failure or Policy Failure?, is one I recently finished and learned greatly from. It is an excellent history, of crises long gone as well as the recent one. Moreover it is a thorough grounding in the difference between a credit crisis and a monetary crisis.

If you only read the press you would never realise the difference. They lump everything into the box “stuff that the Bankers do”. There is a key difference. Read Hetzel to see why.

 

 

Can we bear higher interest rates?

That is the sort of question that has really annoyed me in the past, but I think the way the Resolution Foundation puts it in their important new report, it may be the question to ask.

If you don’t have the time for a 77 page report on such a sunny day, Gavin’s NS blog captures the gist of it.  He says that the absolute aggregate numbers are not necessarily scary, and I agree.  While he talks about how a gentle increase in house prices will help deal with the higher debt levels, I would say it is also a gentle increase in incomes that should do so. In aggregate.

The reason the question has annoyed me* in the past is that whoever decides the level of demand in the economy presumably factors debt interest in.  They have a model, and that model will have all the various actors who lose or gain from changes in rates.  What matters is what they are targeting.  If it equates roughly to 4.5-5% NGDP growth (or nominal income growth if you like), then they will only be reducing the monetary stimulus if they think this is consistent with that continuing level.

Suppose a car is determined to stick at 50mph over a hilly road (see Nick Rowe’s post);  the question in this blog post would be the logical equivalent of saying “I am not sure whether you can ease off the accelerator right now”. If the driver is competent, you are not worrying about that.  All you need to know is what speed he is aiming for.

So when Carney says (it’s in the FT today):

“History shows that the British people do everything they can to pay their mortgages,” Mr Carney said. “That means cutting back deeply on expenditures when the unexpected happens. If a lot of people are highly indebted, that could tip the economy into recession.”

Well, that would mean Carney has failed in his job; if he has tightened policy, forced spending down, and then watched as RGDP growth fell below zero, that would be like the driver failing utterly to see that what looked like a downhill stretch was in fact uphill. What he is saying (as the article clarifies) is that the economy is right now very sensitive to rates; they are not quite sure what the delta on this change would be.

But the reason I don’t find this irritating is that the RF has found that the problem  is distributional. There is a risk that whatever rule the MPC is following will cause it to tighten policy and hurt really vulnerable people stranded on variable rate mortgages, and that this will be perfectly consistent with them hitting their target.  You would normally at this point expect me to start ranting about how the Bank is targeting the wrong thing.  Well, they might be, but what the Resolution Foundation has shown is that this would even happen under a perfect monetary regime.

If it were credibly aiming for NGDP growth of 6%, you might expect earlier rate movements if the market fully believed it (if you doubt this, imagine a 100% NGDP growth target).  But given the way some pockets of the economy don’t see their incomes respond so quickly to economic good times – these are the people the RF are set up to help – you could still see really bad pockets of distress.

This has happened before, I am sure, in the 1990s, when money did ease up a lot after Sep 1992, but the distress went on and on.

RepossessIR

We will have a very differently shaped recovery, but the Resolution Foundation has found that it might produce serious pockets of unhappiness. Insolvencies and repossessions can rise in a recovery.

As they identify, the solution is not necessarily with the Bank – although they have suggestions for how to improve its model.  The answer instead for distributional issues lies in their fiscal/regulatory ideas.  I like “help not to be repossessed”.  Help to Buy is the biggest fiscal stimulus this Government attempted – funny that they don’t describe it as such.  And I can see the case for the state to get heavy handed in regulating the banks to be reasonable here.

But there are no easy answers.  Recoveries can have as many victims as recessions.

 

*(Obviously, I also find seeing things through the point of view of low rates stimulating the economy irritating too: I doubt very much you can find much strong data suggesting the corporate Britain starts investing like crazy when rates are low: eeerr, look at 2012.  And look at the investment booms in 1988 and at other times. I also doubt that low rates correlate well with consumer booms. Look at the 1980s again.  Booming money growth, high rates, consumer boom …)

New article up on the FT: don’t mourn our missing tech billionaires

I have another article up in the FT.  You surely subscribe? You should.  Here it is.

I could add many thoughts to this piece.  Even with the help of great sub editors it is difficult to capture every nuance. (None of what follows is in the FT piece.  Please subscribe and click …)

Essentially, the article brushes against the big issue of competitive versus Schumpeterian growth.

Sorry.

What I mean is that: on the one hand you need strong competitive forces to drive growth, to keep the pressure on all the players in the capitalist economy.  These count against the accumulation of massive fortunes. If you heard that your nearby cornershop owner was absolutely minting it you would a) realise someone was paying for those supernormal profits and b) expect some competition to come in pretty quickly.  If not, you would c) wonder what on earth is going wrong; perhaps the State is maintaining him in a monopoly position.  And that obviously happens: in badly run economies, de facto monopolies can be maintained in all sorts of ways.  The state grants concessions, keeps unnecessary regulatory barriers around certain industries, helps to bully away the competitors.

On the other hand, and less acknowledged in my piece, you can need the prospect of monopoly returns to encourage innovation.  The efforts of innovation are only worthwhile if they produce some sort of return, and that return takes the form of the innovator gaining some market power, some ability to charge a price well above the marginal cost. That could mean: a strong brand, a better manufacturing technique, a sales channel that can’t be assaulted.  This is the Schumpeter position: as this paper says:

only companies that have market power, at the best the monopolist, can support the costs related to innovation, indeed, is the innovation itself determines that a monopoly position, the defense of which  brings further innovation a virtuous circle.

My FT piece is written against an extreme naive view: that Britain’s failure to create tech billionaires indicates some fundamental failing in our economic model.  In my view, this is garbage.  You can imagine a brilliantly functioning economy that nevertheless kept eroding such fortunes.  And you can imagine another that keeps generating billionaires – even “tech” billionaires – that nevertheless was both unjust, and inefficient.

My biggest concern is that so star-struck are some of the politicians by the tech-types they meet that they skew their economic policies towards the wrong target.  “Pleasing the man in the meeting” is a tempting strategy when he is a wealthy winner. How this might happen is up to the imagination of the reader.  But that is why I end the article as I do.  How is that?  Well, read the piece I say (some walls should be protected)

Bleg: political memoires for summer reading

Reading Philip Stephens Politics and the Pound has reminded me how much I love reading political history, particularly with an economic slant.

I am about to get 3 weeks off.  I would love to spend the child-free moments devouring more political memoires.  So: any good suggestions? I have already got through a fair few:

Gladstone, Peel, Palmerston, Disraeli biogs;

Churchill War diaries, Jenkins, Wilson Healey Benn Crossman memoires/biogs

“One of us” on Thatcher, Alan Clarke, Lawson View from No11 from Thatcher period

Blair, Mullins, Darling, endless Rawnsley, Mandelson, Jonathan Powell from New Labour.

What reads really well?  Tweet or comment, many thanks

 

The real hypocrisy around the bedroom tax

A policy wonk needing to find fiscal revenues realises that there is a disconnect between citizens’ ownership or use of property, and how it is treated fiscally. In simple terms, the charge for the property doesn’t properly reflect how much of that property there is.  So he devises a top up to make the system more progressive, and raise more funds.

The objections are obvious: people’s possession of property and their ability to pay liquid funds over to the tax man do not align neatly together.  You will force people to live indigent lives.  Little old ladies will suffer.

The above could describe either the bedroom tax or the mansion tax.  In the case of the former, housing benefit is cut if the tenants have more than they need, based on a statist “this is what you need” formula.  Its defenders point to the sheer unfairness and inefficiency of allowing overconsumption of property.  A system that charged more for the excess room would encourage the tenants to shift and use the limited space more efficiently.  Forcing people to move is a feature not a bug.

For the mansion tax, similar logic applies.  Property should be taxed at its full value. If a pensioner is rattling around in 5 bedroom mansion, a more proportionate charge will encourage them to move and free up the property for a family that needs it.

However, “you will force people out of their family homes” is regarded as a fatal criticism of mansion taxes, or indeed anything resembling the sort of flat rate property tax that is quite normal in the United States.  In fact, “little old lady” worries were one of the factors behind the Conservatives’ replacement of rates with the Poll Tax – they resented how the rates charge the same for the family of five wage earners as the little old lady.

In reality, the mansion tax in its current form will have few of these “little old lady” cases. The numbers of owners of £2,500,000 homes unable to afford a £5000 charge is going to be vanishingly small; after all, if it had a 50% mortgage at 4%, that would alone cost £50k in interest.  If there is no mortgage, we are talking about people with extreme wealth. Such enormous wealth gives people a huge variety of financial options.  Buried within such wealth is enough to pay that tax for 500 years.  And there is indeed the option of moving – after all, upkeep and maintenance on properties is typically 1% or so per year, so that “£25,000 leaky gutters etc” bill will be forcing the decision anyway, long before the mansion tax.

These mitigating possibilities are nowhere near as available to the family being asked to pay the bedroom tax.  There are few of the financial resources to fall back on.  The spare room is not so easily let.  Being poorer, whatever they have to cut will be much closer to the bone.  Moving is far more expensive in relative terms – as the recent DWP evidence of none of them moving suggests.

All tax and benefits systems have their illogicalities: anyone for pasties? You can tell a political disposition from which ones get the blood boiling.  There is clearly a degree of inefficiency in allowing the same housing benefit to go to families with or without a spare room.  But these pale in comparison the regressive nature of council tax that a mansion tax was meant to alleviate.  When the bedroom tax first emerged I was astonished to hear the same arguments were used being to justify its creation as lay behind the need for a mansion tax.  Property isn’t being properly evaluated in the calculation of a fiscal imposition.  If it forces people to move, that is tough: property is scarce and it needs to be moved by market/financial incentives to those who need it more/can pay for it.

The word “hypocrisy” is being thrown at the LibDems for revisiting the bedroom tax.  This is unfair.  The policy is not doing what it was meant to do.  The real hypocrisy is that the “little old lady” reasons for not pushing the fiscal treatment of property to its rational conclusion are only applied by certain parties when that little old lady might be worth several million pounds.