Economics: November 2008 Archives

Pollyanna.

on November 26, 2008 2:22 PM | Permalink | Comments (0)

Polly Toynbee thinks the Pre-Budget Report shows the era of New Labour is over, and social democracy is back (and as vague a term as ever). She finds the evidence that Darling's massive borrowing has worked in an unusual place: the FTSE100.

"No one alive has ever lived through such a crisis or faced the danger of a slump so deep, so if enough people say that the right thing was done yesterday, then it was. The stock market rewarded Alistair Darling with the biggest ever one-day rise - so for now, it worked."

Right. So the logic is that if the City's happy with the Chancellor, we can tell Labour's back to being a social democratic party? What utter nonsense.

It's not even as if she likes the VAT cut. The only part of the PBR she appears to support is the higher rate of tax for the wealthy, which is fine, but shouldn't it be for a better purpose?

In a stunning piece of cognitive dissonance, the truth about Labour is buried elsewhere in her piece.

"Here is a reminder of the shape of national incomes now: only 10% of people earn more than £40,000, to reach the top tax bracket. Half the working population earns under £23,000. A couple need £11,000 to rise above the poverty threshold - and over a fifth of people fall below, with a third of children born poor."

This is Labour's record now. They've failed to tackle the inequalities the Tories left behind, and failed absolutely as a social project. They're not social democrats, they're just about where the Tory wets were in the early 1980s. Trimming VAT for 13 months won't change that, and Polly knows it.

Inviting the catastrophe.

James

on November 25, 2008 7:27 AM | Permalink | Comments (0)

The Chancellor on the radio this morning tried to persuade me that the "credit crunch" is a random global event, something Britain is best placed to deal with.

It's unpredictable, like a lightning strike. It's incomprehensible and scary, like finding piranhas in your toilet bowl.

The British Government wasn't involved. Perhaps not even there when it happened. And it's hitting every country around the world equally.

No. Pure hand-waving. Factually inaccurate. This crisis was spawned by three overlapping problems, two of which the UK Government actually promoted, and the third they merely failed to tackle.

First, it's a housing bubble, and not just a US subprime bubble but a UK one too, egged on by the former Iron Chancellor. Second, and intertwined with that, it's a consequence of irresponsible market deregulation, backed by the same man. Third, it's a resource crunch, which triggered a summer oil price spike, which Brown singularly failed to prepare for by starting to decarbonise our economy.

Also, we're simply not best placed to deal with it. Darling claimed the Government has the lowest debt in the world. I make that the 4th highest in the OECD.

The genesis of the crisis is not a spooky mystery or something that puzzles economists. It was grimly inevitable, given Labour's policies. Their fingerprints are all over this fiasco as it affects us, and the best they can credibly claim is that it might have been worse if the Tories had been in charge.

I give you a vainglorious Brown, from his 2005 Labour conference speech:

"Why has it been that at every point since 1997 faced with the Asian crisis, the IT collapse, a stock exchange crash, an American recession, last year a house price bubble, this year rising world oil prices, why has it been that at every point since 1997 Britain uniquely has continued to grow?

"In any other decade, a house price bubble would have pushed Britain from boom to bust.

"In any other decade, a doubling of oil prices would have put Britain first in last out and worst hit by a world downturn.

"I tell you, it is because with Bank of England independence, cutting debt, fiscal discipline and the New Deal this Labour government has shown the strength to take the tough long-term decisions, that inflation is low, interest rates are low, growth has been sustained in every year, and we are closer than ever to the goal which drives us forward: the goal of full employment for our generation. Labour, the natural party for economic strength in our country today."

Given that Labour was at that exact time actually working to reinforce the instabilities in our economic system, this speech should be understood as the equivalent of standing on the top of a mountain in the middle of an electrical storm, holding a sword over your head and shouting "all gods are bastards".

All in.

James

on November 23, 2008 4:03 PM | Permalink | Comments (1)

Michael Lewis, author of Liar's Poker, the accidentally timely tale of 1980s' Wall St excess, has written a fascinating article following up the story.

I know by now we all know our credit default swaps from our collateralised debt obligations, but this is still worth a read if you're curious about how it all came about.

The overwhelming irony of the piece for me is that the people who recognised the screwed nature of the market bet against it, and thus supported it. Extraordinary. (illustration above by Ji Lee parodies this)