7th January, 2009

Will Hutton’s – ‘The World We’re In’ Pt 1

by Shariq at 5:34 am    

I can’t recommend this book highly enough. It makes the best case for a centre-left economy that I have read and I doubt there are clearer or more persuasive thinkers on this subject than Hutton. I’ve divided my review into two parts. This post will look at his critique of American style capitalism and the second one will examine his positive case for European capitalism.

Critiquing Economic Conservatism

The main point of this book is to demonstrate the huge gulf between the capitalism practised by America (and to a lesser extent Britain) since the Reagan revolution and the liberal capitalism seen in most of Europe. Hutton is unapologetic in arguing that ‘European Capitalism’ is superior and that not only should Britain be learning from how continental economies are managed, but that the majority of the British people also believe.

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23rd December, 2008

I’m Agreeing with Nick Clegg

by Shariq at 10:51 am    

Unlike Sunny, I found a lot in Nick Clegg’s speech at Demos that I agreed with. I have some areas of disagreement with the Lib Dems but I think that Clegg lays out a more coherent case for a centre-left democracy than either New or Old Labour.

Take taxation. The present government has always obsessed with being revenue neutral. Rather than making a bargain with the public in which slightly higher taxes will lead to better public services, they have tried to have it both ways.

During the economic bubble, rather than taking action to regulate the financial services sector and reducing Britain’s dependency on it, they let it inflate so that the additional tax revenues would finance the increases in public spending.

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12th December, 2008

While we’re dissing the Counterpunch left

by Shariq at 8:00 am    

I thought I’d add some substantive stuff on why I think the centre-left is the right place to be. Today’s topic, Globalisation.

The narrative amongst the counterpunchers almost always seems to be based on how rapacious capitalists are ruining the lives of the third world. That this all a new imperialism and the colonial multi-nationals must be resisted. This sometimes leads to a response from people on the right like Niall Ferguson that imperialism wasn’t all that bad to begin with but lets not go over that again right now.

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Filed under: Economics
3rd December, 2008

Fair trade: myth and reality?

by Rumbold at 5:15 pm    

As Starbucks announces that it will only sell Fairtrade products, it does sometimes seem as if people are being pushed into purchasing goods labelled fair trade. We are told that free trade hurts the poorest countries, and only ‘Fairtrade’ can guarantee a fair price. Fortunately for the world’s poor, the majority of whom don’t, nor will ever, benefit from fair trade, the ethical superiority of Fairtrade was challenged in February, at least on an academic level (after a research paper from the Adam Smith Institute was published):

• Fair trade is unfair. It offers only a very small number of farmers a
higher, fixed price for their goods. These higher prices come at the
expense of the great majority of farmers, who – unable to qualify for
Fairtrade certification – are left even worse off.

• Fair trade does not aid economic development. It operates to keep the
poor in their place, sustaining uncompetitive farmers on their land and
holding back diversification, mechanization, and moves up the value
chain. This denies future generations the chance of a better life.

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28th November, 2008

Celebrating a recession

by Ala at 5:57 pm    

It looks like America’s and Britain’s fiscal stimulus packages could fail for more reasons than one: people aren’t going to spend the savings they make from tax cuts in a climate of fear and anxiety over future financial security… oh and some environmentalists are going to make a virtue of spending nothing at all.

Now in its 17th year, Buy Nothing Day, which is celebrated every November by environmentalists in over 65 countries, is set to take place on Black Friday in the United States at a time when retailers are looking to that day for salvation for their business.

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26th November, 2008

Give Brown and Darling Some Credit

by Shariq at 4:17 pm    

It may turn out that their decisions were wrong. However the moves to recapitalise the banks were backed by most economists, finance people and business journalists as a sound measure to try and restore confidence in the markets and prevent an economic catastrophe.

On the other hand the deal which Hank Paulson has given to bail out Citigroup has been universally condemned as being too generous and not safeguarding taxpayers interests. Via Kevin Drum, here is a summary of what economists have said about the deal.

Do check it out. It seems staggering that this is being allowed to happen. Unfortunately Obama is sticking firmly to his ‘one president at a time’ mantra because he doesn’t want to be associated with what Paulson does. I guess that’s fair enough but it would be nice if someone tried to stop this happening.

Sunny updates: I can’t wait for the right-wing libertarian trolls to exclaim somewhere that Citibank should be allowed to fail or that this isn’t symptomatic of most financial companies badly failing obligations to shareholders.

Filed under: Economics

The ‘wealth creators’ myth

by Sunny at 12:56 pm    

So, taxes are raised slightly for high income earners and suddenly some people are up in arms. Here is Boris Johnson’s policy advisor Anthony Browne stupidly stating the obvious:

Short of introducing a London banker tax, this is as close a direct hit that the Chancellor could get on those who brought the country to its knees. It is overall an Old Labour redistributive budget, yanking up taxes on the rich to help the poor.

Yes, progressive taxes usually are redistributive and most people including economist Adam Smith were in favour. Boris Johnson himself turned up on TV later saying higher taxes would hit the ‘wealth creators’ who were the life-blood of the economy.

Let’s shoot this fallacy down right here. The bankers from London’s Sqare Mile, earning over £150,000 a year have actually been net wealth destroyers over the past decade. All the wealth created by the big banks here and in the US has been destroyed and much more – taking other industries down with them. These former Masters of the Universe were so rubbish at gauging risk and so good at flogging off bad debt that when the wobble came – confidence crashed everywhere.

Destruction so swift comes only when people know they are living in a house of cards. They knew the boom would not last because the models were dubious, and would not withstand a crisis of confidence.

Furthermore, these so-called Wealth Creators have been Wealth Re-distributors too: enriching themselves during the boom while playing around with other people’s money. But now that the economy has crashed and pension funds have lost money – do these Wealth Creators give any of their money back? Nope. They made their money while the going was good, now tax-payers have to pick up the pieces.

24th October, 2008

It’s the environment, stupid

by Ala at 4:11 pm    

Far from this being a time for the environment to take a back seat as some EU countries have suggested recently, the worst financial crisis since the great depression is not only the best catalyst to create a new system of low- carbon growth but environmental prioritisation may be the only way we can fortify our economy in the long-term.

The British government has already resurrected the Keynesian model and now all it needs to do, as it has done in creating Ed Miliband’s new department, is wisely direct spending towards ushering in an economy that will ensure environmental security, and in this way reduce the chances of a future recession. It might be an unregulated free-market system that has failed us in the short-term, but it is unsustainable capitalism that will fail us in the long-term, especially when economies threaten to collapse on the frail or non-existent foundations we have built them on. In reality, we have a heavy debt to the earth that we’ll never be able to repay. The least we can do is stop borrowing.

We are yet to see the full extent of the knock-on effects of this crisis, but at least we’ve learnt that we don’t have to stupidly spend our hard earned salaries on things we don’t need. Many new opportunities and sectors can be created on the relics of old, redundant ones; we can have all the innovation, growth and prosperity one could desire while stopping runaway climate change at the same time: and who said you couldn’t keep your bonus? For things to get better, much better, it seems they have to have gotten this much worse first. Maybe we needed this kick up the backside.

14th October, 2008

Terrorists lose money on investments

by Rumbold at 4:47 pm    

Ha ha ha ha ha.

“The IRA may have lost a substantial amount of its fortune in the banking collapse in the United States, according to republican sources.

Sources say that in recent years the IRA’s financial bosses moved large amounts of money through front companies into a number of Wall Street financial institutions that were offering high dividends, but which have been devastated by the sub-prime market collapse. One source put the amount invested in the US institutions at €200m. They said most of this was made through the sale of commercial properties mainly here in the Republic.”

The money dried up after September 11th anyway when funding terrorists who blew up civilians lost its lustre on the East Coast of America.

13th October, 2008

Nassim Nicholas Taleb’s ‘The Black Swan’

by Shariq at 11:07 am    

I wanted to read ‘The Black Swan’ because I thought it would provide some interesting insights into how we got into this financial meltdown. Enjoyably, the scope of the book extends well beyond finance. In fact it is one of those books which can change the way you think about the world in all sorts of ways.

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Filed under: Economics
12th October, 2008

Surviving the credit crunch weekend open thread

by El Cid at 5:05 pm    

We’re all Lidl shoppers now

Galbraith’s seminal The Great Crash topped my reading list last Christmas. But that still hasn’t stop me from being blown away by recent events. Bear Stearns, Lehman, Merrill Lynch, AIG, HBOS, Hypo Real Estate… and it hasn’t even finished. In fact, it has only just started. “Your safest bet is to leave your money on deposit!”

Well not if you are an ISaver customer. Saving money will never be the same again. But saving is exactly what we will have to do — to pay down debt, to live within our means, to build up a bigger deposit to put down on a house, and to prepare for a rainy day, in case we lose our jobs. The economic consequences of that will be even less spending, more job cuts, and slower growth. From Birmingham to Berlin, Baltimore to Beijing — we are on the cusp of humanity’s first-ever global recession. Worst still, if you are a Londoner — we’re right on the frontline, along with NY. But, hey, why be miserable!! Where’s that famous Blitz, post 7/7 devil-may-care spirit? Get over yourself!

So can we best survive this test? What tips do you have for surviving the global credit crunch? What music will we be listening to, what films will we be watching, what books will we be reading, what food will we be cooking, what holidays will we be having? I’ve already been drawn to Money Don’t Matter by Prince, and I am thinking of buying a tent (I’ve never been on a camping holiday). I’m also looking to tap my brother-in-law trader for his wholesale merchants card: it’s time to get baked beans by the palett. What about you?

Filed under: Blog,Economics
9th October, 2008

How it all went Pete Tong

by Kulvinder at 3:33 pm    

I thought I’d write a brief history of what went wrong in the banking industry. It should be noted that this is essentially an introduction to the current crisis in the financial sector, my article isn’t meant to present a comprehensive version of events but a core narrative that helps explain the problems to someone with no prior knowledge.

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Filed under: Economics,Events
1st October, 2008

How we Got into a Financial Meltdown

by El Cid at 5:30 pm    

The funny thing about this mess — the mother of all credit busts — is that it can be legitimately attacked from both left and right.

Those on the left can point to the old Marxian critique about how profits are privatised in a capitalist system while losses are socialised. The man and woman on the street and the middle class professional bamboozled by a subject out of his or her comfort zone can rail against fat cat bankers bloated on ill-gotten gains and protected from their own incompetence.

Those on the right meanwhile can rail against government interference in the market and argue in favour of letting it all go to pot, which would allow the free flow (eventually!) of capital to sort things out, no matter the damage caused in the interim. In the log run we would be better off and stronger. They can also point to the fact that credit extended by a quasi-state institutions to poor people so that they could live the American dream and buy their own homes lies at the heart of this crisis. After all, the Federal National Mortgage Association (or Fannie Mae) was created in 1938, a key pillar of Roosevelt’s New Deal policies.

So if we can steer clear of the ill-informed knee-jerk partisanship for a moment, I would make the following observations.

(Bullet points after the fold)

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30th September, 2008

Financial crisis open thread

by Rumbold at 2:26 pm    

Any ideas to solve the problems? Stop handing over taxpayers’ money to a bunch of thieves perhaps?

Filed under: Economics
23rd September, 2008

The Centre-Left and the EU

by Shariq at 2:00 pm    

Sunder Katwala had an excellent piece about Tory confusion over how to deal with Europe. In the Blair years, I think the Labour government did a reasonably good job in fending off the euro-skepticism of the likes of William Hague. Unfortunately that’s all they did – fend. Understandably, they didn’t want to use their political capital in defending their status quo when they were looking to make numerous reforms in health, education and ultimately the decision to pursue the war in Iraq.

However the effectiveness of the domestic policies didn’t match the investment and the foreign policy we all know about. As the centre-left anticipates being in opposition after the next elections, again understandable after 12 years in power, I think now is a good time to develop persuasive arguments about the importance of the EU rather than being stuck playing defence.

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11th September, 2008

The Centre-Left and Small Businesses

by Shariq at 6:13 am    

I think this is partly because of the language politicians use and the emphases they place on who is struggling. Even when as talented a politician as Barack Obama addresses middle class anxieties, he proposes middle class income tax cuts, making higher education more affordable and reducing the amount of people without health insurance. These are all great points and need to be reiterated. However I think he could also say the following;

That the American dream isn’t just accessible through college education but the ability to expand a small business through getting affordable bank loans. This ties in with the credit crunch and would emphasise the fact that the interests of small and big businesses aren’t always the same.

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26th August, 2008

The economics of immigration: a double edged-sword

by Rumbold at 9:51 pm    

The think tank the Institute for Public Policy Research (IPPR) has just released a report saying that the state is underestimating the economic benefits of migration to this country:

“The report shows that migrants play a key role in changing the local ‘skills mix’ by filling skills gaps, and doing jobs that UK workers don’t want to do. IPPR argues that local government and employers need to ensure that the benefits produced by employing migrant workers are accompanied by local strategies to ensure that indigenous workers’ wages and job opportunities aren’t damaged; and to ensure local businesses don’t become overly reliant on migrant workers.

IPPR says that employers benefit from diversity because diverse workforces tend to be more productive and creative, which boosts business performance.”

This new report is at odds with the recent House of Lords report on immigration, which argued that net immigration has little impact on GDP per head in this country. Other bodies have suggested that high levels of net immigration has a negative effect on the economy.

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18th August, 2008

The financial scandal no one’s talking about

by Sunny at 6:53 pm    

Steve at Pub Philosopher is right, where is left-wing outrage when you need it? He points out that:

So, while Merrill Lynch is being sued by the US government for mis-selling toxic sub-prime debt, the same bank is taking advantage of the UK’s tax regime to offset all its losses against its tax liability. Yes, that’s all its losses, worldwide.

Merrill Lynch has transferred $29 billion worth of losses, mostly from its US operations, to its UK subsidiary in London. This means that, despite any profits it might make in the future, the UK arm of the firm will be able to show a loss for many years to come. The Financial Times estimates that even if Merill Lynch’s UK operation were to continue to generate profits at 2006 levels, a record year,  it would pay no UK corporation tax for the next sixty years.

This government’s pandering to financial companies, to make up for their decades of anti-business stances, means that as financial companies go into recession, they’ll be doing their best to take advantage of favourable tax laws to ensure they don’t have to pay tax. So much for corporate responsibility eh? And will New Labour ministers exhort them to pay their fare share, like it does to poor people? Let’s see shall we?
PS, Steve, Dave Osler did mention it actually.

Filed under: Economics
13th August, 2008

Policy Exchange endorses command and control economy

by Rumbold at 10:43 am    

Boris Johnson’s favourite think tank (and the place where he gets most of his staff from) Policy Exchange have just released a report saying that residents of Northern Cities such as Sunderland should be encouraged to move to the more prosperous South East, and that this should go hand in hand with a massive programme of house building in these areas. Never mind that much of the South East is too crowded already, or that a massive house building programme would blight the landscape, or that it is none of the government’s business where people live. None of this really matters in a command and control economy:

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11th August, 2008

Evo Morales wins again!

by Sunny at 4:02 pm    

A bit of foreign news folks, for those inclined – the socialist president Evo Morales wins in Bolivia again. Good stuff! via Jim Jay. Good news for Latin Americans and Bolivians in particular. As the New Statesman points out:

Waldo, a driver who gives tours through the altiplano and Bolivia’s famous salt plains, pointed out the benefits of Morales’ redistribution policies when recognising small villages.

Many once only had three or four hours of electricity. But, thanks to Morales’ initiatives, now have up to eight hours of light due to solar panelling. Morales’ future plans are to introduce 24 hours of energy a day in these once forgotten places, and also to pave their mountainous roads with concrete.

More on the BBC site. For some reason I’ve had this interest in how Eva Morales is doing, and wrote about his win when he was first elected. Its about time Latin Americans had someone who looked after their interests than those of the rich minority.

31st July, 2008

The India rising illusion

by Sunny at 1:13 pm    

One of the common arguments in that recent discussion about nuclear power went like: OMG how dare you diss capitalism, its just helped like hundreds of millions of Indians and Chinese to come out of poverty!

Don’t get me wrong – I’m a believer in free markets, but capitalism is overrated. Chinese capitalism for example has been incredibly tightly government controlled, so its rather difficult to compare with American capitalism when talking about lifting people out of poverty.
And then there’s India:

The long-term future of the Indian middle class is secure. The factors that have driven its success — a sure grasp of English, a facility with technology, a talent for innovation — will continue to be important in the global economy.

But the 300 million or so Indians living in acute poverty are being crushed by inflation. If they thought washing the floors, driving the cars and cleaning the windows of the middle class would open the doors to a better life, they know now that they were wrong. With prices rising, their savings are being eaten away. Higher food and fuel prices are being driven by big changes in the global economy that look set to continue. Even the most cheerful optimist in the past decade has seen the huge divide between the haves and have-nots, but the hope has persisted that it would somehow go away. Inflation has set like cement into that divide, solidifying the gap between the two Indias. The future for the country is two futures: rosy and grim. Indian companies will buy more foreign businesses and more Indian children will starve. In economic terms, India has become neither the U.S. nor Sudan, but something in between — a Latin American republic with an entrenched class chasm. Higher levels of crime and social unrest are almost certain to follow.

So not only is there the myth that Indian capitalism’s benefits are trickling down to everyone, but people are explictly ignoring the dangers that come with an incredibly class-divided society. I would argue that it should be an aim of any government to prevent its society becoming more materially unequal. Not only does that indicate that there is huge market failure, but it doesn’t bode well socially.

My point is that economic growth has to be managed. I much prefer the open economy India has now compared to the old tightly regulated ‘license Raj’. But let’s not kid ourselves about the downsides to unfettered capitalism and pretend its the only solution to how society works.

22nd July, 2008

Are the oil companies in trouble?

by Sunny at 5:42 am    

Its good at least that high gas prices are forcing Americans to finally talk more loudly about diversifying away from oil. Of course, George Bush is trying his best to avoid that by calling for more drilling. In this Faux news discussion, author Naomi Klein (who’s book No Logo is one of my top books ever), does a good job of slamming his plans. Interesting though that these ideas are now becoming more mainstream.

Expect Brendan O’Neill to write an article in the coming days that anyone who wants to deny oil companies drilling for oil and destroying wildlife is an authoritarian bastard in the pay of “environNazis” who should be strung up alongside the Dalai Lama.

11th July, 2008

Knife crime ‘epidemic’

by Sunny at 2:57 am    

I’ve written an article for CIF on the knife crime ‘epidemic’. Typically, the audience is so defensive that they think I mean knife crime isn’t a serious enough issue (it is), or that somehow I’m excusing the kids involved (I’m not). But it really is amazing how many people buy into the idea that politicians and media must say and do something while simulateously complaining on other articles that we live in a nanny / police state. Don’t they realise the two are related? The fact that knife crime summits are being announced by the day should make people think whether anything will come out of this once the media agenda has moved on.
Point of note, I also hat-tipped Septicisle, John Band and Anton Vowl in my article but they took those links off. I think that’s bad etiquette.

19th June, 2008

Pakistan’s official defence budget revealed

by Rumbold at 11:31 am    

A new openess, or a facade?

“Pakistani Finance Minister Naveed Qamar has revealed the details of his country’s defence budget to parliament for the first time in 40 years…The army accounts for 188bn rupees ($2.80bn) out of a total defence expenditure of 294bn rupees ($4.39bn). The country’s air force gets 71bn rupees ($1.07bn), while the navy gets a comparatively measly 29bn rupees ($432m). Most of the army’s budget is going to be spent on its staff. The case is similar as far as the air force and navy are concerned. Operational costs for the two services are listed as 16bn ($238m) and 4bn rupees ($59.56m).”

The overall level of government spending is two trillion rupees, or around £15 billion, which suggests that the official budget for the military is not excessive given the circumstances. What would be more interesting to know is the real cost of the military, as the military controls so many companies.

11th June, 2008

Excellent Globalisation Articles

by Shariq at 5:09 pm    

Thought I’d post a couple of links on globalisation. Tyler Cowen has an interesting piece on how the benefits of free trade continue to be underestimated.

More than 400 million Chinese climbed out of poverty between 1990 and 2004, according to the World Bank. India has become a rapidly growing economy, the middle class in Brazil and Mexico is flourishing, and recent successes of Ghana and Tanzania show that parts of Africa may be turning the corner as well.

Despite these enormous advances, however, there is a backlash against globalization and a widespread belief that it requires moderation. Ordinary people often question the benefits of international trade, and now many intellectuals are turning more skeptical, too. Yet the facts on the ground show that the current climate of economic doom and gloom simply isn’t warranted. The classic economic recipes of trade, investment and good incentives have never been more successful in generating huge gains in human welfare.

Dani Rodrik responds on his blog with an excellent post of his own.

It is important to understand this because it provides an important clue as to why domestic and international trade are different. Domestic trade takes place within thoroughly embedded markets; there are clear rules and they apply to all transactions equally. International trade, on the other hand, is conducted in only weakly embedded markets: the rules either do not exist or apply unevenly. I believe this is the fundamental reason why their consequences are often perceived so differently.

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