Some Inconvenient Truths Emerge

They weren't right then

I’d planned to follow up last weeks item with some more on the economy but I couldn’t resist a few words on the leaking of emails from some of the worlds leading climate scientists. Quite simply, it doesn’t look too good for them.

The emails come from The University of East Anglia's Climate Research Unit which, we are told, is a “world-renowned centre” on the subject. One, from the CRU’s Phil Jones to Michael Mann, Raymond Bradley, and Malcolm Hughes, authors of the utterly discredited ‘Hockey Stick’ upon which Al Gore based ‘An Inconvenient Truth’, is dated November 16th 1999. It reads

“I’ve just completed Mike’s Nature trick of adding in the real temps to each series for the last 20 years (ie from 1981 onwards) and from 1961 for Keith’s to hide the decline.”

Another, dated October 12th 2009, comes from Kevin Trenberth, Head of the Climate Analysis Section at the National Center for Atmospheric Research. It reads

“The fact is that we can’t account for the lack of warming at the moment and it is a travesty that we can’t.”

Another, from Keith Briffa of the CRU and dated June 23rd 2008, concerns the requests made under the Freedom of Information Act (FoIA) for the CRU to release the data it bases its conclusions on (the CRU has turned down 60 such requests). It reads

“I have been of the opinion right from the start of these FOI requests, that our private inter-collegial discussion is just that – PRIVATE. Your communication with individual colleagues was on the same basis as that for any other person and it discredits the IPCC process not one iota not to reveal the details. On the contrary, submitting to these “demands” undermines the wider scientific expectation of personal confidentiality . It is for this reason, and not because we have or have not got anything to hide, that I believe none of us should submit to these “requests”.”

Back to Professor Jones again. On May 5th 2008 a request was submitted under the FoIA for correspondence relating to AR4, an IPCC report that Keith Briffa and others at the CRU worked on together. On May 29th 2008 Prof Jones sent the following email

“Can you delete any emails you may have had with Keith re AR4? Keith will do likewise. He’s not in at the moment – minor family crisis. Can you also email Gene and get him to do the same? I don’t have his new email address. We will be getting Caspar to do likewise.”

Under the FoIA destroying information once a request has been put in is a criminal offence.

This indicates some pretty alarming behaviour at the CRU. Even George Monibot, a leading believer in Man Made Global Warming, said '”There are some messages that require no spin to make them look bad“.

The aforementioned Professor Mann, director of Pennsylvania State University 's Earth System Science Centre, was indignant; "I'm not going to comment on the content of illegally obtained emails. However, I will say this: both their theft and, I believe, any reproduction of the emails that were obtained on public websites, etc, constitutes serious criminal activity. I'm hoping the perpetrators and their facilitators will be tracked down and prosecuted to the fullest extent the law allows." Mann’s outraged sense of justice is commendable but as the world's leaders gather in Copenhagen to commit ever greater sums of our money to fighting Climate Change, isn’t it worth noting that obtaining money (or research grants) under false pretenses is theft as well?

‘Climate change’ is the new religion of the age. Skepticism earns you the epithet of “Climate Change Denier”. We must all tithe only now it’s called Green Taxes. And non belief earns a wrath which wouldn’t be out of place in the medieval Inquisition. Environmental blogger David Roberts once thundered “When we've finally gotten serious about global warming, when the impacts are really hitting us and we're in a full worldwide scramble to minimize the damage, we should have war crimes trials for these bastards—some sort of climate Nuremberg."

Indeed, Climate Change even has its own Holy Trinity of boosters; the media, the scientists and the politicians.

An article on the Climate email controversy in The Guardian complained that that the “The emails show the frustration some climatologists have had at having to operate under such intense, often politically motivated, scrutiny” (1). My heart bleeds for them. But whether the scrutiny is “politically motivated” or not (the Guardian must have a mind reader on staff to be able to report that) releasing your data so that your conclusions can be checked and corroborated is a basic part of scientific research. If the scientists involved can’t even match this basic standard then why should we take them seriously?

The BBC, it was revealed, had been sent these emails back on October 12th but had decided to sit on them (2). This brought to mind the comments of BBC anchor Peter Sissons that "The Corporation's most famous interrogators invariably begin by accepting that ‘the science is settled’" and that when it comes to skeptics “it is effectively BBC policy... that those views should not be heard". Would they have been so reluctant to report a similar set of emails suggesting fraud and deception at, say, a bank?

The reason for the media's fondness for the theory that we are all about to die is simple enough to understand. Ask yourself which newspaper front page will sell more copies; “We’re all going to die!” or “Natural Processes at Work as They Have Been Since Time Immemorial – Nothing to Worry About”?

The scientists also have a pretty obvious reason for shoveling coal into the engine of the gravy train. According to reports, Phil Jones, the man who may soon be facing a £5,000 fine for offences under the FoIA shouldn’t be unduly concerned. Since 1990 he has brought in $22.6 million worth of funding (3). Would so much money have come his way if he hadn’t been offering solutions to the end of civilization as we know it?

The politicians’ case is slightly more opaque. After all, wouldn’t a politician who told us what we’d like to hear, that everything is ok, clean up at the polls? Possibly, but this overlooks the fact that the Holy Grail of modern politics is to raise taxes without it getting you kicked out of office.

Politicians want money as it enables them to dispense patronage. We should also not forget that many of them think (and some of them are right) that they genuinely are doing good by spending money on this or that. But the desire to tax eventually outruns the public’s desire to be taxed. So Climate Change offers the perfect solution. Politicians can dig their hands ever deeper into your pocket and its all for your own good.

And the beauty for the media, the scientists and the politicians is that Climate Change is the gift that keeps on giving. Ronald Reagan once said "the best sign that our economic program is working is that they don't call it Reaganomics any more." Indeed, the best sign that we have less to worry about than we are told is that they don’t call it Global Warming anymore. Hands up if you remember Global Warming? Like Pearl Jam it was quite the rage when I was a kid. Indeed, it's best year ever came in 1998 when record breaking temperatures proved we were all about to be fried.

But then the world stopped getting warmer. As Paul Hudson, the BBC man who sat on the email, reported recently “For the last 11 years we have not observed any increase in global temperatures” (4) Indeed, in the last couple of years it’s started getting colder again. Could it have been that the scientists had been as far out with their predictions as they had been in 1973 when falling temperatures prompted the world's leading climate scientists to put an article on the front page of Time magazine warning of ‘The Big Freeze’? Possibly. They didn’t seem to trust their ability to predict anymore having been proven wrong the last two times.

So they fixed upon Climate Change as the new bogie man. The beauty of this was that whether it started snowing or whether the sun started shining it was all evidence of Climate Change. It didn’t matter that your predictions weren’t worth the magazine covers they were printed on, now the unpredictability was the very problem!

I thought about ending this with a joke about the emission of hot air and the Copenhagen summit. But look again at the evidence and look again at what is being done. It's no laughing matter.

1 - http://www.guardian.co.uk/environment/2009/nov/20/climate-sceptics-hackers-leaked-emails

2 - http://www.telegraph.co.uk/earth/environment/climatechange/6684281/BBC-weatherman-was-sent--climate-change-emails.html

3 - http://www.detnews.com/article/20091127/OPINION03/911270333/1031

4 - http://news.bbc.co.uk/1/hi/8299079.stm

Meltdown

When economic crises hit people eventually turn to ask two questions; 1) How did it happen? 2) How do we stop it happening again? The current crisis has been no exception.

The popular reason put forward is “greed”, usually bankers lending to people unlikely to pay it back to achieve their bonuses. Such a simple minded explanation leaves many questions unanswered such as where did the bankers get all this money to lend out in the first place?

On a more scholarly level the old Keynesian theory of recessions has been dusted off which, essentially, puts everything down to a decline in business confidence. But this begs the question of what caused the decline in business confidence. It treats the symptom, the recession, without addressing underlying illness.

At times like this the search for explanations covers ground usually left alone. Marxists have been happily claiming that Marx has, after 160 years of waiting, been proved right. But another usually obscure theory offers answers to the two questions posed at the top.

Austrian Business Cycle Theory sounds like a tedious nightmare. In fact it is a school of economic thought which proudly renounces long winded, irrelevant, and often self defeating mathematical equations, relying, instead, on logical deduction. It is probably this accessibility to the general reader that accounts for its being largely ignored by mainstream economists eager to give their art the appearance of science by dressing it up in algebra.

Austrian Theory starts with the idea that the interest rate is a price like any other, matching the supply of something to the demand for it. In this case the supply is savings and the demand is funds for investment. So, if the public decide that they want to increase the amount of money they are saving they put it in a bank. A business, on the other hand, which wants to borrow cash to invest in a new factory, must go to the bank and borrow this money.

The interest rate matches the two sides of this transaction. When people save they are, essentially, postponing spending today for spending tomorrow. The banks offer interest to savers so they can encourage them to deposit their money with them and, thus, give the banks money to loan out to businesses for investment. When people decide to save the banks don’t need to offer such a high incentive to deposit so can afford to offer lower interest rates. These lower interest rates are passed on to the businesses. They see that the cost of borrowing from a bank has fallen so they borrow to fund investment projects, such as new factories, which will not produce a return in the short run but will in the future. The signal has passed, via the interest rate, from the savers who wish to postpone their spending, to businesses who will now borrow this money to cater for the future spending.

So far so good. Savings equal investment. And when people decide they want to spend rather than save they pull their money out of the banks which forces them to offer higher interest rates to attract loanable funds. These higher rates are, as before, passed onto business which sees the signal that people are spending their money now so investment spending on future projects is stopped.

But then the monetary authority steps in. In the UK it is the Bank of England, in the US the Federal Reserve, in the EU the European Central Bank, and there are as many around the world as there are currencies to be issued. Say, for example, that the Federal Reserve decides that it wants low interest rates to spur investment and economic growth, exactly, in fact, what it is doing now. It does this through what are called ‘Open Market Operations’. The Fed offers to buy securities from banks and buys them with money created out of thin air. It’s that simple.

But this intervention destroys the interest rates ability to balance saving and investment and the two things rapidly tumble out of kilter. This is where it hits the fan.

The banks are now awash with cash and can go merrily lending out to anyone they like whether they can pay it back or not (especially if, as in the US, they are under Congressional pressure to lend to poor families). Indeed, interest rates are so low that to make a profit they may be forced to lend to just the sorts of marginal borrowers least likely to be able to pay it back.

Business, meanwhile, sees these low interest rates and begins borrowing to invest assuming that people are saving to spend in future. They may decide to build units in places like Michigan assuming that they will be bought in a few years when people have decided to start spending again.

But people are already spending. The lower interest rates mean there is no incentive for them to save as they will see no reward for it. So they go out and spend and, encouraged by the low interest rates, they borrow and run up massive credit card bills and take out mortgages at 6 times their salary.

The economy is, by now, being constantly pumped up by continuing injections of new money. But eventually the penny drops. The central bank raises interest rates. Business can no longer borrow to fund investment. People begin saving thanks to these higher interest rates and, coupled with a fall in consumer borrowing, another source of income for business dries up. We now have a recession.

That, in a nutshell, is the theory. How does it stack up in practice?

A recent book by Thomas E Woods, ‘Meltdown’, applies the theory to the US and shows how the property bubble (like the dot com bubble before it) was inflated then popped by the loose monetary policy of Alan Greenspan’s Federal Reserve.

But the theory doesn’t just hold for the US. In Britain too we’ve had a long period of historically low interest rates. Between 1993 and 2001, interest rates averaged 6%. From 2002 to 2008 they averaged 4.5%. This prompted corporate borrowing in the UK to balloon from £99 billion in 2003 to £269 billion in 2008. Consumer debt also rocketed to more than £1.4 trillion. Then interest rates rose from 4.5% in July 2006 to 5.75% in July 2007; right when the crisis began.

Much has been left out here, notably the role of the inevitable inflation which follows the credit expansion in prompting central banks to raise interest rates. In the UK the RPI index rose from 2.6% in April 2006 to 4.8% in March 2007 prompting the Bank of England’s to raise interest rates from 4.5% to 5.75% in July 2007. Similar inflationary pressures in the US saw the inflation rate rise from 2.6% in spring 2005 to 4.75% in the autumn. This prompted the Fed to edge the Fed Funds Rate up from 1% in mid 2004 to 5.25% in early 2006 where it stayed until late 2007. These central bank rate increases were a direct cause of the bursting of the property boom the same authorities had created.

We’ve also not looked at how the credit expansion especially effects the capital goods industries, such as manufacturing or building which thrive on cheap borrowing but suffer disproportionately in the credit contraction. In June this year LDV Vans went bust in the UK after failing to secure a government bailout. In the US Chrysler had no such trouble getting its hands on taxpayer cash. In the UK the housing construction market declined by 13% in 2008. In the US McGraw-Hill Construction calculated a 12% decrease in construction starts in the same year.

So we have, perhaps, an answer to our first question. We can also answer another question of why Austrian Theory is paid little attention by monetary managers; Shifting the blame from greedy bankers, mysterious declines in business confidence or inherent flaws in capitalism and placing responsibility squarely with the mangers of the national currency is a sure way to earn the opposition of those very same managers. For an answer to the second question, how stop this happening again, Ill return next week.

Heres a link to the book 'Meltdown' http://blog.mises.org/archives/009387.asp

Bill Maher - American Idiot

The Constitution of the United States opens with the words “We the People”. It doesn’t say ‘We the Government’ or ‘We the Politicians” or ‘We the Experts From Ivy League Universities’. From its very inception the government of the US was based on Locke’s idea of the consent of the governed.

Clearly someone needs to explain this to TV comic Bill Maher. A few weeks ago he described the US as a “stupid country”. In response to the flood of opposition he got to this he responded on the Huffington Post blog.

Maher rattled off a list of facts proving the stupidity of the average American that would do the smuggest European proud. Ignorance of American constitutional arrangements, basic science and elementary history were just some of the nuggets trotted out to prove it. Maher asked “And these are the idiots we want to weigh in on the minutia of health care policy?”

Well if you believe in We the People then yes, that’s exactly the sort of people you want weighing in. It is We the People, after all, who will end up footing the bill for whatever healthcare measure is eventually churned out by Congress. These idiots that Maher has such contempt for are hard working taxpayers. Before the elites can do a single solitary thing they must first confiscate the resources to do it from the earnings of these idiots hard work. To simply take their money and then deny them any say in how it is spent is nothing less than legalized robbery. The cry of the American Revolution was “No taxation without representation”. We can only conclude that Maher would have fought with the redcoats at Lexington.

A famous Republican, Abraham Lincoln, once described "government of the people, by the people, for the people”. Maher unashamedly believes in only two of these; government of the people for the people as he views the average American (though, one guesses, not himself) as too dumb to participate in government by the people.

Maher concluded his tirade by saying “And if you want to call me an elitist for this, I say thank you. Yes, I want decisions made by an elite group of people who know what they're talking about.”

But Ronald Reagan nailed this, discussing the American tradition of democracy, in his 1964 speech to the Republican convention; “This idea? that government was beholden to the people, that it had no other source of power is still the newest, most unique idea in all the long history of man's relation to man. This is the issue of this election: Whether we believe in our capacity for self-government or whether we abandon the American Revolution and confess that a little intellectual elite in a far-distant capital can plan our lives for us better than we can plan them ourselves.”

http://www.huffingtonpost.com/bill-maher/new-rule-smart-president_b_253996.html

Mea Culpa

The guilty men

I find it very difficult to say anything bad about the Republican party. After all, this is the party which was founded to eliminate the original sin of the United States; slavery. It is the party which fought the racist Jim Crow laws of the southern Democrats and pushed, against opposition from Democrats in Congress, for an anti lynching bill. It is the party which, through Robert Taft, Barry Goldwater and Ronald Reagan, stopped the onward march of collectivism, proved Marx’s ‘laws of motion’ to be the fantasies they were and defended the liberal freedoms of the enlightenment.

But the GOP is going to have to offer up a few mea culpa’s. The mid terms of 2010 and the Presidential election in 2012 are likely to be focused on the dire state of the American economy. If the GOP are to fight the spendaholic suicide of the Democrats in the White House and Congress they need to make a confession; they are partly responsible.

In 2001 the American economy was reeling from the twin shocks of the bursting of the dot com bubble in stocks and the 9/11 attacks. As a new book by Charles K Rowley and Nathanael Smith* shows, during the 1980’s the tight monetary policy of Paul Volcker’s Federal Reserve offset the loose fiscal policy of the Reagan deficits. In the 1990s, by contrast, the loose monetary policy of the Greenspan Fed was offset by the tight fiscal policy of the Congressional Republicans. “So, in the two decades before 2000”, Rowley and Smith write, “fiscal and monetary policies tended to offset each other, and were never both expansionary at the same time.”

In reaction to the shocks of 2001 this was changed. Bush Jnr embarked on a massive program of Keynesian stimulus spending. From a budget surplus of $236 billion in Clinton’s last year in office the Federal budget plunged into deficit to the tune of $413 billion in 2004. As is commonly held, this was not the result of tax cuts. As Rowley and Smith point out “Tax revenues and social insurance contributions in 2007, at $13,866 per capita, were higher than their 2000 levels”. From 1992 Federal spending per capita held steady at $12,500 per annum. From 2001 it began climbing by 2.45% per annum climbing to nearly $15,000 in 2008....Dick Cheney defended the ballooning deficit with the ludicrous assertion that “Reagan proved deficits don't matter”. But, as we’ve seen, Reagan’s deficits were offset by the monetary tightness of the Federal Reserve. No such restraint was offered by Alan Greenspan. Over the course of 2001 the Fed Funds Rate was repeatedly slashed from 6.25% to 1.75%.

These Keynesian mistakes led directly to the current mess. From mid 2004 Greenspan began trying to mop up some of the money he had sprayed around to soften the landing of 2001. By mid 2006 the Fed Funds Rate was back up over 5% and many Americans, who had taken on the adjustable rate mortgages Greenspan himself had recommended in early 2004, found themselves unable to keep up repayments. The rest, as they say, is history.

Out of simple honesty the GOP needs to acknowledge the disastrous economic policies of the Bush administration. But aside from offering up a dose of humility which could be a welcome tonic to the hubris and arrogance of Obama, Pelosi and Co, this would offer an opportunity for the Republicans. When looked at more closely we see an object lesson in the downside of crude Keynesianism and a warning of a grim future stemming directly from this administrations woefully misguided policies.

Bush’s expansionary fiscal stance was mild compared to Obama’s eye watering $1.6 trillion deficit forecast this year. The Fed Funds Rate, at a range of between 0% and 0.25%, is lower than even Greenspan dared go. And we saw where that got us. The recession of 2001 – 2002 was one of the shallowest on record but this was bought with Keynesian policies at the price of the greater meltdown we face now. But then Keynes himself, the intellectual giant so much back in vogue, simply shrugged his shoulders when faced with this and famously declared “In the long run we are all dead”.

Well Keynes might be but we are stuck with the fallout of such glib, short termist thinking. The philosopher George Santayana wrote “Those who cannot remember the past are condemned to repeat it”. Remembering the doomed Keynesian policies of the Bush administration might be difficult for Republicans going into elections. But if the American economy is going to return to the growth and job creation which is the source of real, long term prosperity, the failure of these policies needs to be highlighted. And if they can prove they have learned from their mistakes, the GOP might be best placed to make the case.

* ‘Economic Contractions in the United States – A Failure of Government’ by Charles K Rowley and Nathanael Smith

Unhealthy Obesession

Dean Acheson famously said that Britain had “lost an Empire and has not yet found a role”. That was in 1962. In 2009 it seems we Brits have finally found one; looking down our noses at the Americans.

Russell Brand recently took time off from making offensive phone calls to old men to weigh into the debate on US healthcare, proudly announcing at the MTV Video Music Awards (a novel setting for a policy pronouncement) that in the UK , unlike the US , “instead of letting people die in the street we have free healthcare!"

You probably shouldn’t expect someone’s eyesight to be too sharp when they’re peering down their nose from astride their high horse but even so, Brand managed to fit two glaring errors into just 12 words.

First, the National Health Service is not free. Doctors and nurses aren’t volunteers and neither are the 2 administrators for every single bed in the system. The NHS consumes 18% of all government spending. That comes from taxes. Secondly, he is right that people rarely “die in the street”. In the UK you die of poor treatment or hygiene in the hospital.

That’s if you get in. As a centralised, socialised system the NHS is driven not by profit and loss in competition but by a deluge of ever changing targets and directives from central government. One target mandates the maximum amount of time a patient should wait after arriving at the hospital before receiving treatment. But targets invite fiddling and ambulances are kept waiting outside hospitals so as not to start the clock ticking. A letter obtained under the Freedom of Information Act from Chairman of the Ambulance Trust Graham Meldrum reveled 7,600 instances of this in October last year alone.

Once inside the NHS cannot even keep its premises clean. One result is Clostridium difficile, a bacterial infection. In England in 2007 C Diff was mentioned on 5,465 death certificates being listed as the main cause of death on 2,298 of them. By contrast, in the same year, 47 British soldiers died in Iraq . Then there is Methicillin-resistant Staphylococcus aureus, MRSA for short. In 2007 MRSA was mentioned in 1,593 death certificates being given as the cause of death in nearly 500. Again, in 2007, 42 British soldiers died in Afghanistan.

If the unsanitary conditions don’t get you the treatment, or lack of it, might. For example, for all cancers 66.3 % of American men and 63.9 % of women survive more than five years. In Europe just 47.3% of men and 55.8% of women survive that long. Breast cancer mortality is 88% higher and Prostate cancer mortality is 604% higher in the U.K. Neither do these treatments bankrupt poor families. Out-of-pocket expenses by American patients are 12.6% of national health spending, lower than in Germany, Japan, Canada and most of Europe.

These are the facts that get lost in the debate about ‘Obamacare’. The primary aim of ‘reform’ is not to improve the health of the people, though its supporters no doubt believe this would follow, but to introduce ‘equality’. These moral considerations are far less quantifiable.

Earlier this year Conservative MEP Daniel Hannan was interviewed about the NHS on Fox News and called it a “60 year mistake” which he “wouldn't wish it on anyone”. For this saying this the Health Secretary of the UK government branded Hannan “unpatriotic”. He didn’t say he was wrong, and any attempt to debate the NHS in the UK invites the charge that you want to see poor people die. Its often said that in secular Britain faith in the NHS is the closest thing we have to a religion these days. Indeed, to see the venom directed at Hannan was to see something not a million miles from the denunciations of the medieval church. But blind faith, even in socialism, is no substitute for reason.

The same thing is being tried in the US in the current debate; the smearing of opponents of socialization as uncaring and elitist, or, as Jimmy Carter tried to put it recently, racist. That is why it is so vital to look at the statistics behind the socialists empty rhetoric.

Florida Congressman Alan Grayson said 44,000 Americans (out of a population of 300 million) die each year as a result of not having health insurance. But no system will be perfect. Leading oncologist Karol Sikora estimated 10,000 cancer deaths (out of a population of 60 million) in the UK every year because we have the NHS as opposed to another, more efficient system.

One of the most honest and insightful commentators on socialized medicine in the UK, James Batholomew put it this way; “I certainly do not hold up the USA as a model healthcare system. It is deeply flawed. But it is still much better at saving the lives of the greatest possible number than our, far more deeply flawed system. It depends what you want: a flawed system that saves more lives or a disastrous system that people feel is virtuous. This is a secular version of creationism. Many people in Britain love the NHS. They don't care about evidence. They don't care how many die. Believing in the NHS makes them feel good about themselves. I find it appalling that people are so self-indulgent and so uncaring about the reality.”

For more information on James Batholomew and his thoughts please refer to his book "The Welfare State We're In" at http://www.amazon.co.uk/Welfare-State-Were-James-Bartholomew/dp/1842750631

Reasons to be Cheerful

Leader of Germany's Free Democrats, Guido Westerwelle, looking smug. And rightly so

As the world economy gasps for breath there is a struggle to form a narrative for the momentous events of the last two years.

On the one hand we have the likes of Richard Posner who, in his new book ‘A Failure of Capitalism’, treads the familiar ground of blaming greedy bankersand other such out dated clichés for the credit crunch. On the other are those like Thomas E Woods who, in his book ‘Meltdown’, lay the blame at the door of interfering legislation like the Community Reinvestment Act and the Federal Reserve’s irresponsibly lax monetary policy.

It is a struggle worth fighting. In the wake of the Great Depression ofthe 1930’s the standard story came to be that unregulated capitalism had conned innocent investors into putting their life savings in a bubble market in stocks which burst in 1929. The ‘do-nothing’ president Herbert Hoover vainly trusted in the free market to revive the economy and recession turned into Depression. Franklin Roosevelt was then elected who rescued the economy with vast amounts of Keynesian deficit spending.

Excellent recent books by Amity Shlaes and Burton W. Folsom comprehensively demolish this myth. But it was a myth which persisted for decades and it was used to justify ever more debilitating levels of taxation and government spending culminating in the economic chaos of the 1970’s.

So ideas matter. If the wrong conclusions are drawn and false lessons learned from the last two years of turmoil we could find ourselves, once again, saddled with its doleful effects for decades.

Unsurprisingly the ‘market bashing’ explanation has found favour on the left. In the US President Obama castigated Republicans for filleting financial regulation “for the sake of a quick profit at the expense of a healthy market”. In the UK Gordon Brown condemned “the right wing fundamentalism that says you just leave everything to the market” in his party conference speech in late September.

But there are encouraging signs for the right that this view isn’t becoming received wisdom as the Depression myth so damagingly did.

Back in June the voters of Europe went to the polls to elect the European Parliament in one of the biggest elections in the world. Or it would be if more than 43% of voters turned out. Even so, the results were an unequivocal slap in the face for the centre left whose largest grouping in the Parliament, the Party of European Socialists, slumped to just 161 seats compared to 264 for the centre right European People’s Party’s 264.

On September 27th Germany went to the polls. The Social Democrats (SPD - imagine the Democrats inlederhosen) were dumped out of government after 11 years with their lowest share of the vote since the 1930’s. Even more encouraging was the nature of the parties who benefited. The SPD’s former grand coalition partners, the centre right Christian Democrats (imagine Arlen Specter in lederhosen – on second thoughts, don’t) and Christian Social Union saw a modest decline in their share of the vote and will form a coalition with the elections big winners, the Free Democrats, a small government party in the Goldwater/Reagan mould.

The same day the Portuguese electorate slashed the Socialist party’s share of the vote from 45% to less than 37%. Next year the UK votes and with the Conservative party holding a lead of between 10% and 14% in the opinion polls a further advance for the right looks on the cards.

So we have a real dissonance here between the narrative exampled by Posner, Obama and Brown, of the perils of free market capitalism and the decisions of voters in the midst of this crisis. True, the circumstances are wildly different. The SPD had run Germany for 11 years, the Socialists in Portugal have been in office for 11 of the last 14 years and the Labour Party have run Britain since 1997. For them to have only just come to their conclusions about capitalism suggests a doziness which would do Rip van Winkleproud.

But the clear signal from voters of the realisation that it will be the private and not the public that pulls us out of this, of the necessity of fiscal responsibility and the rejection of government as a solution can only be encouraging for the Republican Party as it heads into the midterms late nextyear.

Gutless Gordon

Doh!

It's difficult to remember now but just over a year ago, in July 2007, the Independent could write that “The prospect of a snap election was increased by two weekend polls which showed that the change of prime minister has given Labour a "Brown bounce" after the departure of Tony Blair”. Labour had a 7 point lead over the Conservatives in the polls and had just won two by elections.

How things change. At the Conservative party conference that October David Cameron announced plans to raise the inheritance tax threshold to £1 million. Overnight the Conservatives saw a 6 point Labour lead in the poll turn into a 3 point lead for them.

Gordon Brown, the man who became Prime Minister after a sham of a Labour leadership election, called a sudden halt to talk of an early election, admitting that he’d considered it, but explained that he “wanted to get on with my job of putting my vision of what the future of the country was to the people of the country” before he held it.

His claim that he was not influenced by opinion polls convinced no one. Cameron said “The Prime Minister has shown great weakness and indecision”, and then Liberal Democrat leader Menzies Campbell said “We are talking about loss of nerve”.

A pattern of behaviour soon began to emerge. In October 2004 the new European Union Constitution was signed. The Labour party manifesto for the 2005 election stated clearly “We will put it (the Constitution) to the British people in a referendum”. Then, in early 2006, both France and the Netherlands rejected the Constitution in their referendums and the document died.

But, like a ‘Halloween’ movie, it rose from the dead, this time as the Lisbon Treaty in early 2007. But in August Brown decided that the Lisbon Treaty was, in fact, so different to the Constitution that Labour’s 2005 manifesto commitment to a referendum no longer held. Again, he claimed that opinion polls showing a 2 to 1 majority against the treaty were not a factor.

It was difficult, however, to find anyone who actually agreed with this view of the Lisbon Treaty. From his own party, Austin Mitchell MP said “If it looks like a constitution, if it smells like a constitution, if it reads like a constitution, so far as I'm concerned it's a constitution”. Valery Giscard D'Estaing, one of the authors of the Constitution, said “The difference between the original Constitution and the present Lisbon Treaty is one of approach, rather than content. The proposals in the original constitutional treaty are practically unchanged”. Danish Prime Minister Anders Fogh Rasmussen said “The good thing is that all the symbolic elements are gone, and that which really matters - the core - is left”. Angela Merkel, the German Chancellor, stated that “The substance of the constitution is preserved. That is a fact”. The Irish Taoiseach Bertie Ahern proudly stated that “90 per cent of it is still there…These changes haven’t made any dramatic change to the substance of what was agreed back in 2004.”

The game was given away in a speech at the London School of Economics when Giuliano Amato, another who drew up the Constitution, said “The good thing about not calling it a Constitution is that no one can ask for a referendum on it”. Brown now said that “The proper way to discuss this is in the House of Commons and the House of Lords, and I believe Parliament will pass the legislation”. Like the election in October, the promised referendum was cancelled.

And the pattern has continued. In the week before the Labour conference in September a group of MP’s contacted the party’s National Executive Committee asking for nomination forms to be sent out. They cited a clause in the party's constitution which states that nominations “shall be sought each year”. But after a meeting attended by Brown the NEC refused to send out the ballots citing a ‘convention’ of not doing so while in power. It went on to say it did not want to encourage “internal debates”.

That now makes three elections which this un-elected Prime Minister has run away from; the general election he was considering last autumn, the referendum on the Lisbon Treaty and the ballot of his own party membership.

In the future psychologists will probably produce entire theses on Gordon Brown’s almost pathological timidity but for now it seems clear that the man who spent so long plotting in the background for the top job doesn’t function well in the glare of publicity it actually brings. The voters will have to wait until 2010 before they finally get their say.

(Printed in The Caerulean, Issue 12, December 2008)

Laissez faire is not the only culprit

Not guilty






















Not since Henry I ordered “that all the mint-men that were in England should be mutilated in their limbs; that was, that they should lose each of them the right hand, and their testicles beneath” have bankers been so unpopular.

Politicians, grateful for cover for their own responsibility for this mess, issue blood curdling threats against bankers salaries. The left argues that banks should be left to stew as they brought this on themselves, a stance they have never adopted towards other failing enterprises such as coal mines or car factories. Meanwhile the ordinary voter is wondering why there appears to be a bottomless pit of cash for banks when parties are proposing spending cuts.

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A reply to ‘National Socialist Health System?’

In the US this summer everywhere I went the second thing people said upon finding out I was British (after ‘thanking’ us for Dancing With the Stars) was to ask about the NHS. The debate over healthcare reform is raging in America.

The debate is raging here too it seems as evidenced by the article ‘National Socialist Health System?’ in the last London Student. Like many contributions to the debate, it contained some fallacies.

The first fallacy came with the assertion that the controversy over nationalizing 1/7th of the American economy was “essentially manufactured and delivered by some of the most toxic elements of the American right-wing press.” I spent two weeks in Minnesota, one of the most social democratic states in the US (the only state never to vote for Reagan). Contrary to the articles assertion, the people quizzing me about the NHS were not raving right wing lunatics but ordinary Americans understandably concerned about the vitally important question of what happens when they get sick.

Next the article referred to the “46 million Americans without any health-care cover whatsoever”. First, the figure of 46 million contains 35 million who could afford insurance if they wanted to but choose not to. They may be young, sporty, don’t drink and smoke. Like a man who lives on top of a mountain doesn’t take out flood insurance, these Americans decide the chances of them needing healthcare are so small it’s not worth the cost.

Also the author didn’t mention Medicaid, the government insurance scheme for Americans on low incomes. Medicaid spent $204 billion in 2008 and will be bankrupt in the next decade.

The article mocked the “Freedom to suffer and to die prematurely due to inadequate health-care access”. But this sarcastic freedom doesn’t hold up. For example, for all cancers 66.3 % of American men and 63.9 % of women survive more than five years. In Europe just 47.3% of men and 55.8% of women survive that long. Breast cancer mortality is 88% higher and Prostate cancer mortality is 604% higher in the U.K. Neither do these treatments bankrupt poor families. Out-of-pocket expenses by American patients are 12.6% of national health spending, lower than in Germany, Japan, Canada and most of Europe.

Finally the article said that the NHS does not have “Orwellian death panels or bureaucratized guidelines on the worthiness of treatments for various categories of people”. This ignores the existence of the National Institute for Health and Clinical Excellence (NICE). This is the body which decides whether the NHS can afford this or that treatment, such as memantine for the treatment of Alzheimer's disease and various drugs for treating renal cell carcinoma, both of which NICE refused to provide as not being “cost effective”.

American healthcare is clearly not perfect. Florida Congressman Alan Grayson said 44,000 Americans (out of a population of 300 million) die each year as a result of not having health insurance. But neither is ours. Leading oncologist Karol Sikora estimated 10,000 cancer deaths (out of 60 million) in the UK every year because we have the NHS as opposed to another, more efficient system. Discussing these issues makes you a concerned citizen, not a foaming nutcase.

(Printed in London Student, vol 30 issue 3, 19/10/09)

Learning how to tolerate debate

Voltaire is reputed to have said “I disapprove of what you say, but I will defend to the death your right to say it”. The controversial barring from the UK of Dutch MP Geert Wilders shows that, among our leaders anyway, Voltaire’s attitude is now about as fashionable as shell suits.

Foreign Secretary David Miliband resorted to the old saw that opponents of free speech traditionally use, saying "We have profound commitment to freedom of speech but there is no freedom to cry 'fire' in a crowded theatre”. But Wilders isn’t planning to scare people in an Odeon. Besides, if the theatre in question was showing Wilders film Fitna Miliband is unlikely to be troubled. When asked whether he’d seen the film he described as full of “extreme anti-Muslim hate”, he said no.

Free speech is not simply a convenient cloak for the ‘far right’ to hide racism. The International Covenant on Civil and Political Rights defines freedom of speech as "the right to hold opinions without interference. Everyone shall have the right to freedom of expression". Left wing icon Noam Chomsky wrote “If we don't believe in freedom of expression for people we despise, we don't believe in it at all”.

I won’t address whether Wilders is right or wrong to call the Koran a “fascist” book. What will be addressed is whether Wilders is a racist. He may be, he may not, but his film isn’t for the simple reason that being anti Islam is not the same as being racist. Islam, after all, is not a race but a religion. You are born black or white, you are not born Muslim anymore than you are born Communist.

So if Islam is not a race but a religion is it still open to criticism? In a democracy, the answer has to be yes. For example, The Communist Manifesto has been accused of sending millions into gulags and killing fields but you don’t get communists in the UK clamoring for the people who say this to be banned or prosecuted.

Communism is an ideology, Islam is a religion. But if you don’t believe in God there isn’t a difference. Then Islam becomes, not a path to paradise, but a way of viewing the world just like Communism. And in a modern secular society the right to criticize competing ideologies is vital. Revealingly, when Communists did get the power to set the limits of debate they sent those that disagreed to the gulags and the killing fields.

Christianity has learned to live with democratic debate and, in some cases, simple abuse. In 1997 Cradle of Filth released T shirts declaring “Jesus is a Cunt”. In 2005 the BBC screened Jerry Springer - The Opera which depicted Jesus as a gay baby. In 2006 Richard Dawkins wrote in The God Delusion that “The God of the Old Testament is arguably the most unpleasant character in all fiction”. In none of these cases was action taken by the authorities worried that the Archbishop of Canterbury was about to declare a fatwa.

Considering the lengths which our leaders go to to say that Islam is a peaceful religion it certainly seems odd that free speech has to be curtailed so as not to provoke violence. Indeed, the majority of Muslims, like most people right now, are probably more worried about their jobs and homes than a previously obscure documentary made by an extravagantly coiffured Dutchman.

Miliband and others have demonstrated in this episode not just contempt for free speech but a singular lack of faith in Muslims to take part in a plural democracy. Supreme Court Justice Potter Stewart said “Censorship reflects society's lack of confidence in itself”. In this case the real lack of confidence is that of our leaders in their Muslim constituents.

Printed in London Student Issue 10, 02/03/09

Must feminism be left wing?

Sisters are doing it for themselves

When Sarah Palin received the nomination as vice presidential candidate in August she became the first woman in 26 years and only the second woman ever to run for the office. Surely this was a triumph for women’s equality? To listen to the reactions of some feminists you’d never have guessed.

The Australian author Kathy Lette said “There’s something wrong with her … She’s a post-feminist - she’s kept her Wonderbra and burnt her brain”. The scholar Wendy Doniger, author of the much ignored ‘Tales of Sex and Violence: Folklore, Sacrifice, and Danger in the Jaiminīya Brāhmaṇa’, said “Her greatest hypocrisy is in her pretense that she is a woman”

But they were surpassed in a rant posted on YouTube where American ‘comedienne’ Sandra Bernhard said Palin was a “turncoat bitch [and] Uncle Woman …who jumps out of the shed and points her fingers at other women…You whore in your cheap fucking…cheap-ass plastic glasses and your hair all up” before warning that if the Governor of Alaska visited Manhattan she would be “gang-raped by my big black brothers”. In fairness to Bernhard, she justified the racist ‘gang rape’ comment by saying “it is part of a much larger, nuanced, and yes, provocative (that’s what I do) piece from my show about racism, freedom, women’s rights…”

Palin hails from the political right so left wing opposition should be no surprise. What is shocking, as the above examples show, is the hateful, bilious abuse that takes the place of a reasoned discourse or critique. Some on the left who often champion gender issues can come out with abuse that is, quite simply, sexist. Where does this dissonance come from?

The answer lies in the nature of identity politics. Ever since Karl Marx wrote of the “contending classes” the left has seen society as competing groups; Bourgeois and Proletarians, workers and bosses, labourer and capitalist etc, rather than as the self interested individuals of classical liberal philosophy.

But in the second half of the 20th century socialism tended to give to way to postmodernism which JF Lyotard defined as “incredulity towards metanarratives” which have been defined as “attempts to make sense of the world as an interconnected whole or totality”. Thus, postmodernism meant the rejection by the left of Marx’s grand, over arching conception of history.

As a result, by the late 1960s, the left’s belief in society as an arena of struggle between socio economic classes had been splintered into a myriad of smaller interest groups based on race, gender, sexuality, disability or a variety of other potential identities. Instead of being the vehicle for the interests of the working class, the left and its affiliated parties, in varying degrees, became vehicles of these special interest groups and identity politics was born. And where previously the left had subordinated the interest of the individual to the interest of class, it now subordinated them to the special interest group.

This is what Jonah Goldberg has called “the iron cage of immutable identity”. Members of these special interest groups, who deviate from the proscribed ‘Weltanschauung’ of their designated interest group, like Palin, are seen as having betrayed it. Referring to a female Republican senator the feminist writer Gloria Steinem wrote “Having someone who looks like us, but thinks like them is worse than having no one.”

Dividing society into competing groups playing a zero sum game generates these intense emotions. It makes politics, ‘the art of compromise’, almost impossible as demonstrated by America’s bitter culture wars. The solution is to see the unique qualities of each individual. Just because someone may share a race, gender or disability with someone doesn’t mean they can be lumped together in a monolithic group with a self appointed leader. Steinem and fellow feminist writer Betty Friedan, among many others, have identified feminism with a kind of socialist economics. Figures like Palin and Margaret Thatcher do not fit this paradigm and invite the charge of heresy.

When we can end the crude, debasing tyranny of identity politics and look beyond characteristics and see character we may be closer to realising the advice of Barry Goldwater; “To disagree, one doesn’t have to be disagreeable”.

Its the end of the road for Ireland's Progressive Democrats

So long it's been good to know yuh

On November 8th 2008 Ireland’s Progressive Democrats did something unusual; they voted themselves out of existence.

The PD’s formed in 1986. Then, Irish politics was dominated by two parties, Fianna Fail and Fine Gael, and party allegiance depended on attitudes towards the Civil War. Both parties embraced corporatist economics and Ireland’s economy was a mess. Culturally the Catholic church still dominated.

Formed by a group of Fianna Fail members, led by Des O’Malley, disgusted by the corrupt leadership of Charles Haughey and a couple of high profile members of Fine Gael, the PD’s sought to inject ideology into Irish politics. A small presence in the Dial, peaking with 11 seats in 1989, Ireland’s proportional election system saw the PD’s enter a coalition government with Fianna Fail.

The PD’s pushed on Fianna Fail the free market approach of Margaret Thatcher and Ronald Reagan to resuscitate Ireland’s economy. Business taxes, 30% in the UK, went to 10% and the Celtic Tiger began to roar. Government spending fell from 30% of GDP in 1990 to 25% in 2000. In the same period economic growth rose from 2% annually to 11% and unemployment fell from 12% to 4%.

The PD’s liberalism extended from the economic to the social sphere. By the end of their first spell in government in 1992, the PD’s had helped liberalise abortion laws. Back in government in 1997, under the first female leader of an Irish party, Mary Harney, divorce became legal with PD support.

The PD’s social attitudes chimed with a broader reassessment of Irish nationality. Long based on the twin pillars of nationalism and Catholicism, these were questioned from the late 1980’s. ‘Father Ted’ and Sinead O’Connor mocked ascetic Catholicism with differing degrees of severity as the PD’s social stance challenged it directly.

Michael McDowell, the PD’s spokesman on foreign affairs, took a strong line against Sinn Fein and the IRA just as nationalism too came to be questioned in the south. The Cranberries song ‘Zombie’ discarded the mythologizing of ‘The Foggy Dew’ to cast a jaded eye over the Easter Rising. The popular film ‘The Commitments’ ignored the national question altogether, a far cry from Yeats’ Cathleen Ní Houlihan who said of the nationalists “The people shall hear them forever”. The Irish were no longer listening.

But the PD’s were never able to expand their support much beyond middle class south Dublin and Limerick, Des O’Malley’s old powerbase. Fianna Fail took the credit for the Celtic Tiger and at the 2007 election the PD’s lost 6 of their 8 seats. At a meeting a meeting in November, considering their work done, the PD’s disbanded.

R. F. Foster wrote of a “pragmatic new Ireland” determined “to live aggressively in the present”. In government for 13 of their 23 years, the PD’s played a vital role in bringing this new Ireland about economically and socially. Journalist Ruth Dudley Edwards says “The PD’s had a short but glorious life. Once they had brought the Fianna Fail party to its senses, they became electorally expendable”. The party is over, but it was good while it lasted.

Printed in London Student, vol 29 issue 8, 02/02/09

Sarah Palin

John McCain’s main charge against Barack Obama has been inexperience. So it was a shock when, in August, he named Sarah Palin as his running mate. The governor of the sparse state of Alaska for less than two years and mayor of Wasilla (population 5,469) for six, she seemed a risky choice as deputy to a man in his 70s who has suffered recurrent bouts of cancer.

McCain chose Palin for three reasons. The first was to get someone youthful and good looking on the ticket to balance Obama. The second was to reach out to blue collar voters who might have tended towards Hillary Clinton in the primaries and hesitated over voting for the exotic Obama. As a moose hunter and “hockey mom”, Palin certainly ticks these blue collar boxes. The third, and most important, was to cement his support on the Christian right.

McCain has always had a tense relationship with the religious vote. As a western, as opposed to a southern, Republican, McCain is heir to the small government libertarian tradition of the last Arizona Republican to run for president, Barry Goldwater. Back in 2000 McCain branded evangelical leaders Pat Robertson and Jerry Falwell “agents of intolerance”.

With her strong pro life views and belief that creationism should be “discussed” in schools, Palin does much to energise the ‘values voters’ who have been the bedrock of Republican support since Richard Nixon’s time.

The concern, apart from her lack of foreign policy experience given questions over McCain’s health, is that this is not a values election but an economic one. No matter how strongly American voters may feel about abortion, gun rights or religion in schools, with the economy heading into recession they are likely to go for the candidate who best addresses their concerns over jobs and mortgages.

Written for London Student, October 2008

Are Nick Clegg’s Lib Dems more Liberal and less Democrat?

Nick the Kingmaker

For a long time ‘Liberal Democrats’ was usually a punch line to political jokes. Their leadership merry go round and policies which jumped to the right then the left of Labour and back again, apparently doomed them as just a protest vote. But this schizophrenia is a reflection of the odd history of Britain’s third party.

The Liberal Democrats are a hybrid. On the one hand, are the old Liberal party of Gladstone. They were heirs to the classical liberal tradition of John Stuart Mill, of social and economic liberalism. On the other hand is the Social Democratic Party. The SDP was founded by a group of disillusioned moderate Labour MPs in 1981, distressed by Labour’s lurch to the left. The two merged in 1988.

This duality at the heart of the Liberal Democrats has been brought to the fore in recent years. With ‘New’ Labour seemingly drifting toward the centre right on many issues, former Lib Dem leader Charles Kennedy sought to move the party to the left. In a clear echo of the SDP tradition, he pledged higher taxes to fund increased public spending and bitterly opposed the invasion of Iraq.

This prompted a response from the party’s Liberal wing and 2004 saw the publication of ‘The Orange Book – Reclaiming Liberalism’. With contributions from Nick Clegg and Vince Cable the book was a surprisingly frank statement of classical liberal beliefs.

The party’s 2007 leadership election between Nick Clegg and Chris Huhne was a straight shoot out between the two wings. The Liberal Clegg beat the more Social Democratic Huhne by just 1.2% of the votes cast. This victory, for the time being, of the Liberal faction over the SDP, was confirmed at the party conference in September when delegates voted to approve a platform of tax cuts.

This shift could see the one time joke party become something more important. For years it has been assumed that the most natural coalition in British politics was between Labour and the Lib Dems. Indeed, the late 1970s saw the Lib-Lab Pact whereby the Liberals propped up the ailing Labour government. In the 1990s, Paddy Ashdown and Tony Blair seemed on the verge of practically merging their parties.

But the ascendancy of the old Liberal tendency changes that. With his new rhetoric about the “smaller state”, Nick Clegg sounds closer to David Cameron than to Gordon Brown. Obstacles still exist, namely the differing stances over Europe and electoral reform and there is still the antipathy of the mostly SDP majority of rank and file members. But in the very possible situation of a hung Parliament after the next election, a new political cocktail could be on the menu.

(Printed in London Student, vol 29 issue 3, 20/10/08)

Capitalism in crisis?

Leader of the French student protests of 1968, Daniel Cohn-Bendit, recently emerged to declare “This financial crisis is for capitalist neo-liberals what Chernobyl was for the nuclear lobby”. Is it?

It’s important to note that we have been here before. Events like the Tulip Mania of 17th century Holland and the South Seas Bubble in Britain in the 18th century were what Karl Marx was referring to when he described the “commercial crises that by their periodic return put the existence of the entire bourgeois society on trial” back in 1848.

But it is capitalism that survived while the socialist alternative, tested to destruction in the Soviet Union, was consigned to Trotsky’s ‘dustbin of history’. This is because of its inbuilt mechanism for self correction which is what we are seeing now.

Capitalism, like socialism, is a philosophy of the creation and distribution of economic resources. In theory, capitalism directs resources to where they will generate the maximum economic return and with this increase in wealth wider society will prosper. But when these economic resources are directed towards enterprises which do not maximise return the market will pull them back and reallocate them. The initial contraction is painful, but the long run result is greater prosperity.

This is why George W Bush is wrong when he said “The market is not functioning properly” in his Presidential address. He was referring to the need for the US Congress to pass his bail out plan for the US banking industry.

US banks have made huge profits over the last few years lending money to people who were only marginally able to pay it back. These sub prime borrowers could only get into the market because, by 2004, the Federal Reserve had slashed interest rates to 1%. With inflation of around 2%, it paid to borrow. This was the period of misallocation.

But when this sub prime market fell into chaos it took the bankers who had feasted off it down too. Banks like Lehmann Brothers had billions of dollars of these sub prime loans on their balance sheets as assets. But when the repayments dried up the banks were left with properties they couldn’t sell and, as assets, their value collapsed and their balance sheets were spattered with red ink. This is the painful contractionary phase of the righting mechanism of capitalism.

But the plan Bush has put before Congress proposes spending $700 billion of taxpayers money in buying up these assets to enable ‘Wall Street’ to get back to providing credit for ‘Main Street’ to take out new mortgages in Florida or Michigan. By chucking a wrench into this self righting mechanism the Bush administration will ensure that economic resources will stay locked up in this unproductive economic enterprise.

It also means that the re-allocation towards more profitable areas will not happen. Despite what Bush says, echoing Cohn-Bendit and Marx, it isn’t the functioning of markets but of government interference which may cause greatest long term harm.

(Printed in London Student, vol 29 issue 2, 06/10/08)

This is why the Left is not right

A couple of weeks ago the front page of London Student carried a quote from a SOAS student, Clare Solomon, saying “We’re going to be having a fancy-dress, all night ‘Dance on the grave of Capitalism’ protest outside Lehman Brothers on October 31st”.

Sadly the party spirit demonstrated by Ms Solomon and her comrades in the Socialist Worker Student Society is unlikely to be shared by the 164,000 people who lost their jobs in the three months to October. I was made redundant in August as a result of the credit crunch so I hope Ms Solomon will forgive me for missing the party.

The sound of champagne corks popping on the political left as people lose their jobs and homes should come as no surprise. We are, after all, finally in the midst of the ‘final crisis of capitalism’ which Marxists the world over have been waiting for since 1848.

In that time Capitalism has had plenty of final crises and survived them all. The depression of the 1870’s was followed by the Great Depression of the 1930’s and the economic turmoil of the late 1970’s and early 1980’s.

Communism, on the other hand, when faced with its crisis, utterly collapsed in the late 1980s. The USSR and its empire evaporated. The Chinese, who once sacrificed more than 30 million on the altar of communism, ditched it as an economic system and their economy has boomed. Outside of SOAS it is now taken seriously only in Cuba and North Korea, respectively a police state and the world’s largest concentration camp. It is communism, not capitalism, that rests with Tsarist Russia in Trotsky’s famous dustbin.

The ‘Workers Paradises’ so bloodily created by the likes of Lenin, Stalin, Mao, Guevara, Pol Pot and Mengistu, oppressed and murdered millions. In Berlin a wall had to be built around the Workers Paradise to keep them from scarpering en masse to the capitalist west.

Quaint views like Ms Solomon’s are getting a more mainstream airing in these chaotic times. On Radio Four’s Today Program on October 20th, Professor Eric Hobsbawm, historian, Marxist and President of Birkbeck College, expressed his “schadenfreude” at having his Cassandra like warnings about the evils of capitalism proved right after all these years.

But should we take it seriously? Its worth bearing in mind that Professor Hobsbawm spent most of his adult life as a leading apologist for communism, an ideology which left millions dead from Cambodia to the Czech Republic in the course of its decades long, failed experiment.

The Marxists who are currently crowing about capitalisms woes can be forgiven. Like a cult of UFO enthusiasts, this has been a long time coming for them and to quote ‘Withnail & I’, “a stopped clock is right twice a day”. But given its history of resilience and reinvention compared to socialisms miserable failure, capitalism could respond as Mark Twain did; “The reports of my death are greatly exaggerated”

(Printed in London Student, vol 29 issue 5 , 17/11/08)

Back to the 80’s

Timeless

It’s never hard to find somewhere in London that is hosting an 80’s night. Charity shops are raided for ra-ra skirts and leg warmers so that people can dance the night away to Wham and Erasure. The 80’s are back in fashion but far more than the music and clothes are back in vogue.

To the party goers rolling their jacket sleeves up like Don Johnson it probably rarely occurs that we face an economic situation very similar to that of the decade of Dynasty and 3 million unemployed. In June Mervyn King, Governor of the Bank of England, said “The lesson of the past fifty years is that, when inflation becomes embedded, the cost of getting it back down again is a prolonged period of sluggish output and high unemployment. Price stability – returning inflation to the target – is a precondition for sustained growth, not an alternative”. This could almost be a justification for the 1981 budget which prompted the famous letter of protest from 364 economists. Like re runs of Airwolf, monetarism is back.

In the 10 years before Margaret Thatcher’s election victory in 1979, inflation averaged close to 12%. Various explanations were put forward. The most popular was the ‘oil shocks’ of 1973 and 1979 when disruptions in Middle Eastern oil production sent prices skyrocketing. Another was the pay demands of trade unions which brought the country to a shuddering halt in the winter of 1978.

Indeed, both of these arguments have echoes today. The rise in oil prices since 2003 has been presented by the government as a major factor in current inflation and the trade unions are squaring up to Gordon Brown and demanding higher pay to match inflation.

In 1979 the incoming Conservative government largely ignored both of these arguments armed as it was with the theory of monetarism. Popularised by Milton Friedman monetarism held that “Inflation is always and everywhere a monetary phenomenon”. The key, indeed probably the only, determining factor in inflation was the increase of the money supply.

The money supply is the total amount of money available in an economy at a particular point in time. It includes cash, deposits, checking accounts, liquid assets and much else besides. The exact make up depends on which measure of the money supply you happen to be using. In essence, monetarism held that if the growth in the money supply matched the growth of the economy then prices would remain stable. If it exceeded economic growth however, the resulting gap would be inflation.

In the case of rising oil prices being a cause of inflation, monetarism held that they were not, that in the 1970’s as now, they were merely price rises reflecting relative demand and supply. Inflation is not the rise in price of a particular good or service but “the increase in the general level of prices over a specified period”

Likewise, the wage demands of trade unions need not be inflationary. If the government raises wages by £X but raises taxes by £X to cover this, the money supply has not increased, rather a portion of it has simply been shifted from one large and disparate group (taxpayers) to a smaller and more concentrated group (the public sector). If the government funds wage increases by taxation, it will not be inflationary, if it funds them through an increase in the money supply, it will not only be inflationary but will prompt another bout of demands in the future.

This is what happened through the 1970’s. Government expenditure eventually reached the limits that taxation could support with marginal rates of 90% but even this was insufficient to fund it all. So the government took to expanding the money supply, “printing money” in the popular phrase of the time, which fuelled inflation. And as wage settlements caused further inflation unions came back with further wage demands. This became known as the ‘wage-price spiral’. But according to the monetarist doctrine of the Thatcher government and its Chancellor Geoffrey Howe, the inflationary factor was not rising wages but the governments’ expansion of the money supply to pay for them.

How relevant is this today? We have inflation albeit not of the double digit variety the Conservatives inherited in 1979. As we have seen, we also have people eager to blame oil prices and public sector wage demands. But what’s been happening to the money supply? Simon Heffer explained back in June.

“There is not inflation because of rising prices, or rising wages…Growth is at present about 2 per cent, and predicted to fall to about 1.4 per cent over the next year.

Inflation, on the bogus measure of Consumer Price Index, is more than 3.3 per cent. Even if we believe these two figures, their sum is about 5 per cent. How fast is the supply of money increasing in the M4 measure? More than 12 per cent.”

This is the real cause of inflation now at its highest rate since 1992. Since Gordon Brown ditched the Conservative spending plans he adhered to in the first Blair administration, public spending as a share of GDP has risen by nearly 5% of GDP to 42% for 2007-2008. This has been paid for by government borrowing which has produced a deficit of 2.8%. This avalanche of cash has flowed straight into the money supply.

It is likely that an incoming Conservative government in 2010 will have to deal with circumstances similar in their fundamentals to the situation of 1979. Sadly, the remedy is likely to be similarly painful with unemployment and higher interest rates. One note of comfort comes from the new monetarist consensus as demonstrated by Mervyn King, it is hard to imagine 300 economists taking up their pens in anger now.

Ultimately it proves the truth of Kenneth Clarke’s observation that Labour governments are elected for as long as it takes them to wreck the economy and Conservative governments are then elected to sort it out.

(Printed in The Caerulean, Issue 11, September 2008)

Labour's Economic Lunacy

Since the British economy hit trouble last summer, Gordon Brown and Alistair Darling have been pumping out the message that this is a global problem and that they are not to blame. In his Mansion House speech in June, Darling blamed the “twin global shocks of rising commodity prices and the credit crunch” and claimed “No country can escape these”

The rise in oil prices and the collapse of the US housing market were, indeed, beyond Brown’s control. But this government has been in power for 11 years and the current situation owes much to its actions. Not only has the government tied its own hands in the face of an economic downturn, but it did much to bring it about in the first place.

To trace the problem back from its effects to its causes the property market is a good place to start. Between 2001 and 2006 UK house prices rose by a staggering 90%. To meet the rising prices people borrowed and mortgages account for 80% of a UK consumer debt of £1.4 trillion.

It was cheap for people to borrow. Between 1993 and 2001, interest rates, averaged 6%, from 2002 to 2008 they averaged 4.5%. Since 1997 rates have been set by the Monetary Policy Committee (MPC) of the Bank of England which was given this task in almost the first act of the Labour government.

Why has the MPC been setting such low rates? Its orders from the government are to keep inflation at 2% per year with a 1% either margin, failure to achieve this requires the Governor of the Bank of England to write an explanatory letter to the Chancellor.

Given its importance its worth asking what exactly inflation is. What it is not is a rise in oil or wheat or house prices when all other prices remain the same. These are just price rises reflecting relative demand and supply. Rather, inflation is “the increase in the general level of prices over a specified period”.

Its important to understand how inflation is measured. Back in 2003 Brown ditched the traditional measure of inflation, the Retail Price Index (RPI), for the Consumer Price Index (CPI). Like the RPI, the CPI works by picking out a basket of goods and services (including everything from tinned tuna to adult magazines) and seeing how the prices rise or fall over a given period.

There are crucial differences between the two measures. Unlike the RPI, the CPI doesn’t include Council Tax and a range of housing costs, such mortgage interest payments, which have been some of the fastest rising components of household spending in recent years. As well as the incredible rise in house prices, Council Tax increased by 67% between 2001 and 2007. Any inflation measure, like the CPI, which excludes them, is fundamentally flawed.

Since 2003 the CPI has averaged 1.9%, meeting the governments target. In contrast the RPI, a more honest measure of inflation, has averaged 3.3%. If the MPC had had to base its interest rate decisions on the RPI instead of the CPI, rates would have been higher earlier and much of the disastrous borrowing would not have happened.

This is how the government has been responsible for much of the pain being felt now. By adopting an artificially low inflation measure, Brown prompted the Bank of England to maintain artificially low interest rates. These have encouraged people to borrow more than was sensible. In the short term this made people feel richer, no bad thing for a politician seeking election. However, it has left borrowers exposed to just the sort of economic storms we now face and the direct effect of these actions are a rise in repossession orders of 24% compared with a year ago.

But not only has Brown prompted the public to play with fire, he’s thrown away the extinguisher by fuelling inflation.

The price of money acts like any other price. When money is scarce its price, the interest rate, will be higher. So, to bring the price down the central bank must make more money available. It does this through ‘open market operations’. These involve the central bank buying bonds from other banks. The money paid by the central bank for these bonds then, through these other banks, goes out into the wider economy in the form of loans and lowers interest rates.

But the central bank pays for these bonds by writing cheques which are not backed by anything. The money used to buy the bonds is simply created out of thin air. But if the amount of goods and services available in an economy is not increasing at the same rate as the supply of money, if there is too much money chasing too few goods, we see an “increase in the general level of prices over a specified period” – inflation.

Indeed, fact bears out the theory and the money supply has been growing. According to the Bank of England, “Provisional figures for June indicate that M4 (a measure of the amount of money in circulation) rose by £34.1 billion, seasonally adjusted; above the average flow for the previous six months of £13.6 billion.” This avalanche of cash brought about by a loose monetary policy is where the current bout of inflation has come from. Even the CPI is now outside Brown’s range at 4.4% although the more reliable RPI has it at 5%.

This is the second charge against Gordon Brown stemming from his adoption of the CPI. By giving the MPC an artificially low inflation target interest rates have been lower than they would have been with the more realistic RPI measure and the resulting flood of money has caused inflation.

And this is where Gordon Brown has tied his own hands. To fulfil its mandate of bringing inflation back below 3% into the governments target range, the MPC will have to raise interest rates but this will slow investment, weaken an already wobbly economy and inflict more pain on a public already struggling under its burden of debt. On the other hand an economic boost of interest rate cuts is out of the question without causing further inflation. Thus Gordon Brown and the MPC find themselves in a Catch 22 situation; raise interest rates and see the economy struggle still further or cut them and see higher inflation.

(Printed in London Student, vol 29 issue 1, 15/09/08)

He needs to fix the economy before we can really believe

In March John McCain looked a good bet to be the next President of the United States. He had just won the primaries in Texas, Ohio, Vermont and Rhode Island and his last serious opponent had conceded. Barack Obama and Hillary Clinton meanwhile, were locked in a bitter wrangle which dragged on for another three months.

But, in January, it will be Barack Obama who is sworn in as President. How did a man who has just three years experience in the Senate, who, in Sarah Palin’s words, “has authored two memoirs but not a single major law or reform”, become president?

McCain chose to fight the election on cultural issues. Obama’s pastor hollering “God damn America!”, his remark about “bitter” small town voters clinging to guns and religion and his relationship with former terrorist Bill Ayers were all used to paint him as out of touch with the average patriotic American. A month after the collapse of Lehman Brothers and less than a week before the election McCain was still pursuing this line of attack in radio interviews and stump speeches.

But these cultural tactics failed. McCain was re fighting the campaign of 1972 when Richard Nixon thrashed George McGovern by painting him as the ‘Triple A’ candidate; Amnesty (for Vietnam deserters), Abortion and Acid. This convinced many socially conservative working class Democrats to vote Republican.

In reality, with the economy heading into recession, this was a re fight of the 1992 election. Back then a charismatic neophyte, Bill Clinton, beat a war hero with extensive foreign policy experience by hammering home on message; “Its the economy stupid”.

Obama followed this blueprint to victory. He went around the country hammering home the message that he empathised with the economic hardships of ordinary Americans. In North Carolina, for example, he said “You don't have to read the stock tickers or scan the headlines in the financial section to understand the seriousness of the situation we're in right now. You just have to go to Pennsylvania and listen to the man who lost his job but can't even afford the gas to drive around and look for a new one.”

A pre election poll in The Economist showed how right Obama was. It found that American voters preferred Obama to McCain on economic management by 43% to 36% and on values McCain was preferred by 39% to 33%. Crucially, however, whereas 84% of Americans placed the economy in their top three concerns, just 15% placed values in their top three. McCain chose to fight on ground which few voters considered sufficiently important.

This has been an exceptional election in many ways; the first black candidate, the second female candidate and the first election since 1928 in which neither an incumbent president or vice president has run.

But the transformational nature of the election can be overstated. Obama won a slightly smaller share of the popular vote than George Bush in 1988 and Bush was voted out four years later. Also, the Republicans cultural conservatism isn’t so far out of synch with wider opinion. Twelve states voted to ban gay marriage, five of them while voting for Obama.

President Obama’s mandate is an economic one. With a narrow margin and the cultural winds still blowing favourably for the Republicans, he will have to go beyond the rhetoric to grapple with horrendous economic circumstances. If he can do that, he really will be something to believe in.

(Printed in London Student, vol 29 issue 5, 17/11/08)