A Cheer for Alistair
Despite the fact that he doesn’t act on most of my recommendations, I like Alistair Darling. Crucially, he knows that ‘you cannot cut your way out of a recession’.
The measures the government has taken (fiscal and monetary) have not been bold enough. Nevertheless, it is likely that they will restrict the fall in output this year to around 4% (instead of 7 or 8%), and unemployment to around 3 million (instead of 4 or 5 million).
The Tory response is pathetic, dishonest and opportunist. Gordon Brown is right to call them ‘the do nothing Party’. They oppose government policies, without offering any of their own.
They are dishonest in blaming Gordon Brown, when the financial and economic mess we are in originated in the Thatcher years. New Labour’s mistake was to continue with the Thatcher policies (e g privatisation and low taxes for the rich).
Because they are the Opposition they cannot be blamed for opposing government policies. But their lack of any ideas of their own means they are not a credible alternative government.
Vince Cable and the Liberal Democrats are a different matter. They do have relevant policies, some of which Labour would do well to adopt (e g raising personal tax allowances to take the lower paid out of tax brackets).
A Missed Opportunity
However, sadly, the budget was a missed opportunity. The political context prevented the radical measures (requiring more spending) necessary for a speedy recovery.
Instead of apologising for the 50% tax on incomes over £150,000, it should have been accompanied by further measures: to raise revenue and to create a more equal society. For example:
(i) a wealth tax;
(ii) an increased capital gains tax;
(iii) a windfall tax on excessive profits;
(iv) a 55% tax rate on incomes over £200,000.
Such measures might, as vested interests claim, cause some to leave to reside in countries with lower tax rates. Why should we be concerned about this? The most likely to leave are the financiers who precipitated the current crisis.
Better Late Than Never
Such policies, along with cuts in expenditure (mainly on defence – e g Trident), must be matters for a late summer budget. The revenue raised must permit a credible strategy for repaying borrowing, and for further expenditure on:
(i) new jobs in the green energy sphere;
(ii) job support to keep people in work;
(iii) tax relief for the lower paid;
(iv) support for the housing market, especially first time buyers.
All of these measures require a political context which banishes any thought of returning to the capitalism which caused the crisis: instead, it must place the emphasis on creating a more equal, a more democratic and a more compassionate society.
Sunday 26 April 2009
Thursday 9 April 2009
DARLING'S LAST CHANCE
Budget 22 April 2009
22 April 2009 is Alistair Darling's last chance to:
(i) end the recession and drastically reduce unemployment;
(ii) take major steps to create economic and social equality;
(iii)convince people to vote Labour when the general election comes.
Ignore the reactionaries
Reactionaries, who are determined to defend the unequal society, are advising the government not to spend to ease the recession. It is notable that the most vocal opponents of government expenditure are in well-paid (mostly very well-paid)jobs.
They must be ignored. The unemployed, poor families, pensioners, the disabled are the priority.
£100 Billion To B oast The Economy
£100 Billion is the minimum expenditure necessary to:
(i) create jobs to get people back to work;
(ii) increase pensions and allowances for families, the unemployed,the disabled;
(iii) build houses and flats for the homeless,schools, colleges, hospitals.
Borrowing and Repayment
The government is nervous about borrowing because it is reluctant to take the appropriate steps for repayment.
These steps, as I have argued in earlier Blogs, are to:
(i introduce progressively higher income tax rates on incomes over £80,000;
(ii) tax excessive company profits;
(iii) slash expenditure on defence, especially by abandoning Trident.
Without these bold moves, in the budget 22 April, the recession will not end, we shall remain a grossly unequal society, Labour will not be elected.
22 April 2009 is Alistair Darling's last chance to:
(i) end the recession and drastically reduce unemployment;
(ii) take major steps to create economic and social equality;
(iii)convince people to vote Labour when the general election comes.
Ignore the reactionaries
Reactionaries, who are determined to defend the unequal society, are advising the government not to spend to ease the recession. It is notable that the most vocal opponents of government expenditure are in well-paid (mostly very well-paid)jobs.
They must be ignored. The unemployed, poor families, pensioners, the disabled are the priority.
£100 Billion To B oast The Economy
£100 Billion is the minimum expenditure necessary to:
(i) create jobs to get people back to work;
(ii) increase pensions and allowances for families, the unemployed,the disabled;
(iii) build houses and flats for the homeless,schools, colleges, hospitals.
Borrowing and Repayment
The government is nervous about borrowing because it is reluctant to take the appropriate steps for repayment.
These steps, as I have argued in earlier Blogs, are to:
(i introduce progressively higher income tax rates on incomes over £80,000;
(ii) tax excessive company profits;
(iii) slash expenditure on defence, especially by abandoning Trident.
Without these bold moves, in the budget 22 April, the recession will not end, we shall remain a grossly unequal society, Labour will not be elected.
Friday 27 March 2009
Spend and Tax
Government Must Spend
The government must ignore the advice of the Bank of England governor - and those who agree with him.
As I have argued consistently in earlier Blogs, the April budget must include at least £100 Billion additional spending - to create jobs, take the lower paid out of tax brackets, increase benefits.
And all measures should aim to create a more equal society.
Repayment of Borrowing
What is not sensible is to borrow £100 Billion without a clear strategy for repaying it.
The repayment should be from taxing progressively incomes over £80,000, taxing excessive profits, and drastic cuts to expenditure on defence.
Defenders of the Status Quo
The reason for opposition to the new expenditure is a determination to defend our unequal society. It is a reasonable bet that almost all opponents of new expenditure would have to pay more tax as part of the repayment strategy.
Also, they yearn for a return to the capitalist dominated economies which caused the current crisis.
For these reasons they must be ignored.
The government must ignore the advice of the Bank of England governor - and those who agree with him.
As I have argued consistently in earlier Blogs, the April budget must include at least £100 Billion additional spending - to create jobs, take the lower paid out of tax brackets, increase benefits.
And all measures should aim to create a more equal society.
Repayment of Borrowing
What is not sensible is to borrow £100 Billion without a clear strategy for repaying it.
The repayment should be from taxing progressively incomes over £80,000, taxing excessive profits, and drastic cuts to expenditure on defence.
Defenders of the Status Quo
The reason for opposition to the new expenditure is a determination to defend our unequal society. It is a reasonable bet that almost all opponents of new expenditure would have to pay more tax as part of the repayment strategy.
Also, they yearn for a return to the capitalist dominated economies which caused the current crisis.
For these reasons they must be ignored.
Monday 23 March 2009
DAVID BLANCHFLOWER: HE WAS RIGHT
Blanchflower’s Predictions
In the Guardian last week (Thursday 19 March 2009), David Blanchflower reminds us that, a year ago, he told the Treasury Select Committee that 'something horrible might come’. He was one of the very few to predict a serious recession.
He was largely ignored. It took the Bank of England’s Monetary Policy Committee six months (after his warning) to even start cutting interest rates. Yet, well before then, it was clear to many of us (especially those losing jobs) that there was an economic crisis deepening by the day.
Blanchflower’s Guardian article is headed ‘Now for the Jobs Stimulus’ He expresses the fear, now shared by many, that, unless the government acts speedily and decisively, unemployment will exceed 3 million.
Labour’s Opportunity: £100 Billion Stimulus
In his article, Blanchflower is, in effect, arguing for government expenditure along the lines I have proposed in earlier Blogs. Gordon Brown and Barack Obama, we are told, will argue for a worldwide fiscal stimulus at the G20 meeting in London next month
Blanchflower’s emphasis is on creating jobs, and taking steps to prevent long-term unemployment, especially amongst young people,
I would add (and I have no reason for thinking that Blanchflower, Brown and Obama would disagree) that the action taken should also aim to create a fairer, and more equal, society.
Government Borrowing and Repayment
For a package on this scale it is obvious that there would be a major increase in government borrowing. However, this is a problem only if there is no clear strategy for repayment
Such a strategy should be developed in a context of creating greater equality. This means higher income tax for people earning over £80,000 a year, with progressively higher rates.
£80,000 45%
£110,000 50%
£150,000 55%
£200,000+ 65%
In this context, part of the spending should be used to take at least 1,000,000 of the lower paid out of tax brackets and increase unemployment benefits. For obvious reasons, this extra income would be spent - a stimulus to the economy.
The second element of the repayment strategy should be a windfall tax on companies with excessive profits (e g utilities and oil companies).
The third element should be cuts to expenditure on defence and government quangos (by abolishing them).
This is Labour’s opportunity. A recent opinion poll (also published last week) indicated that 82% of respondents supported higher taxation for the better off.
Monday 16 March 2009
The Economy: Who Is In Charge?
Action October-February
Although both were slow starters, the government and the Bank of England have taken significant action to end the recession. We have had:
(i) interest rate cuts - from 5.5% to .5%;
(ii) Alistair Darling’s £20 Billion Fiscal Stimulus;
(iii) hundreds of £ Billions to support banks;
(iv) a decision for the Bank of England to pump £150 Billion into the economy to increase lending (‘quantitative easing’);
(v) a number of small initiatives to support small firms and borrowers.
More could, and should, have been done – as I have argued in earlier Blogs. However, the above, and the fall in sterling and commodity (especially oil) prices, amount to a significant stimulus to the economy.
Why is it, then, that the doom and gloom persists – in forecasting, as well as in every day experience?
No Conviction
The crucial factor is that, with few exceptions (e g David Blanchflower), the government’s and Bank of England’s forecasters are useless.
When everything seemed to be going well in 2007, the majority of forecasts predicted that things would continue to go well. Now, when everything seems dreadful, most predictions are that things will continue to be dreadful.
To be fair, today (16 March 2009) the Bank’s governor says that the period of deflation need not be long if there is ‘prompt and decisive action’. Although he does not specify, he presumably means government action.
And to be fair to Alistair Darling, he has not, so far as I am aware, departed from his October forecast that we would start to come out of the recession in the middle of 2009.
As I have indicated in earlier Blogs, I am in the Darling camp: my forecast in a February Blog was that ‘green shoots’ will start to appear April/May 2009.
‘Green shoots’ are not, of course, the same as significant recovery, which is why I added that government action on a large scale is necessary.
No Control?
Uncertainty about the future is very largely the result of the government’s, and Bank of England’s, limited control of the economy.
Banks are told to increase lending but they do not – even when it is part of a ‘deal’ when they receive £ Billions of taxpayers’ money.
My prediction on the bottoming out of the recession April/May is based on the fact that the Fiscal Stimulus, aggressive interest rate cuts, the fall in sterling (against the dollar and the Euro), the fall in commodity prices (especially oil), quantitative easing must have an effect.
Timing is clearly a difficulty. April/May will be more than 6 months from the time of the Fiscal Stimulus, and from the beginning of interest rate cuts.
But the recovery will be extremely slow without further government action. This must include taking more control. The priorities are:
(i) lending, to businesses and households, through institutions under government control (Post Office, Northern Rock, Bradford and Bingley, Royal Bank of Scotland, Lloyds Group);
(ii) assisting first time (house) buyers with deposits (e g an interest free government loan);
(iii) additional spending to create jobs, build houses etc along with a convincing strat al egy to repay borrowing from increased taxation (progressive rates on incomes over £80,000) and reducing expenditure (mainly on defence).
These should all be included in the Budget in a few weeks time.
For the details of these proposals see my February Blogs.
.
Although both were slow starters, the government and the Bank of England have taken significant action to end the recession. We have had:
(i) interest rate cuts - from 5.5% to .5%;
(ii) Alistair Darling’s £20 Billion Fiscal Stimulus;
(iii) hundreds of £ Billions to support banks;
(iv) a decision for the Bank of England to pump £150 Billion into the economy to increase lending (‘quantitative easing’);
(v) a number of small initiatives to support small firms and borrowers.
More could, and should, have been done – as I have argued in earlier Blogs. However, the above, and the fall in sterling and commodity (especially oil) prices, amount to a significant stimulus to the economy.
Why is it, then, that the doom and gloom persists – in forecasting, as well as in every day experience?
No Conviction
The crucial factor is that, with few exceptions (e g David Blanchflower), the government’s and Bank of England’s forecasters are useless.
When everything seemed to be going well in 2007, the majority of forecasts predicted that things would continue to go well. Now, when everything seems dreadful, most predictions are that things will continue to be dreadful.
To be fair, today (16 March 2009) the Bank’s governor says that the period of deflation need not be long if there is ‘prompt and decisive action’. Although he does not specify, he presumably means government action.
And to be fair to Alistair Darling, he has not, so far as I am aware, departed from his October forecast that we would start to come out of the recession in the middle of 2009.
As I have indicated in earlier Blogs, I am in the Darling camp: my forecast in a February Blog was that ‘green shoots’ will start to appear April/May 2009.
‘Green shoots’ are not, of course, the same as significant recovery, which is why I added that government action on a large scale is necessary.
No Control?
Uncertainty about the future is very largely the result of the government’s, and Bank of England’s, limited control of the economy.
Banks are told to increase lending but they do not – even when it is part of a ‘deal’ when they receive £ Billions of taxpayers’ money.
My prediction on the bottoming out of the recession April/May is based on the fact that the Fiscal Stimulus, aggressive interest rate cuts, the fall in sterling (against the dollar and the Euro), the fall in commodity prices (especially oil), quantitative easing must have an effect.
Timing is clearly a difficulty. April/May will be more than 6 months from the time of the Fiscal Stimulus, and from the beginning of interest rate cuts.
But the recovery will be extremely slow without further government action. This must include taking more control. The priorities are:
(i) lending, to businesses and households, through institutions under government control (Post Office, Northern Rock, Bradford and Bingley, Royal Bank of Scotland, Lloyds Group);
(ii) assisting first time (house) buyers with deposits (e g an interest free government loan);
(iii) additional spending to create jobs, build houses etc along with a convincing strat al egy to repay borrowing from increased taxation (progressive rates on incomes over £80,000) and reducing expenditure (mainly on defence).
These should all be included in the Budget in a few weeks time.
For the details of these proposals see my February Blogs.
.
Monday 9 March 2009
Will Government Listen?
Forget the City
The Blair governments’ strategy, which has persisted since he resigned, was to avoid upsetting the City at all costs. Favourable financial conditions (e g low taxes, the prospect of big bonuses, high returns on investment) would, it was argued, keep money flowing into London and support an expanding economy.
We now know where this strategy has landed us. Without government £ Billions, the banks would have collapsed – resulting in the collapse of the capitalist economy.
It is now clear that the position would have stabilised much more quickly if, instead of the half-cock arrangements we now have, the banks had been nationalised. The government could then have determined a level of lending (and interest rates) to save jobs and stabilise the housing market.
YouGov Poll (Guardian 9 March 2009)
This poll of Labour Party members found over 70% support for most of the measures advocated on this Blog over the past 3 months. There is support for:
A Windfall Tax on excessive company profits (e g the utilities);
Ending, or drastically reducing, bonuses;
Higher rates of tax on those earning over £100,000 a year;
Greater equality (through legislation).
The only major issue (which I regard as very important) not mentioned in the report is a large reduction of expenditure on defence.
The Budget and Economic Recovery
In 20 February Blog (Will April Be The Cruellest Month?), I predicted that there would be signs (green shoots) of the recession end April/May 2009. Significant recovery will follow, however, only if the government takes further action.
The action must include job protection/creation, taking at least a million out of tax brackets, increases in allowances and pensions - and, vitally important, a strategy for repayment of the necessary borrowing over a 5 year period.
The strategy for repaying the borrowing is a key factor in creating a fairer, and more equal, society.
My proposal, which the YouGov poll indicates would be supported by a large majority of Labour Party members (and, I believe, a majority of citizens) is for borrowing of £100 Billion to fund the above.
The repayment strategy, over a 5 year period, should be along the following lines.
Reductions of expenditure (mainly defence) £35 Billion
Windfall Taxes on Companies £25 Billion
Higher Tax Rates on Personal Income £30 Billion
A Wealth Tax £10 Billion
Without this kind of strategy, any claim that the government intends to create a fairer, and more equal, society will lack conviction.
Tuesday 3 March 2009
The Real Income Scandal
Sir Fred’s Pension
A £650,000 a year pension for ruining a bank is clearly a scandal. In perspective, it is about 100 times what an old age pensioner gets. As Gordon Brown says, we are all entitled to be angry.
But what can be done about it? There is, the lawyers tell us, very little chance of any legal challenge succeeding. In reality, talk of legal action – or even M/s Harman’s act of parliament – is really a diversion.
The Real Scandal
The real scandal is that Sir Fred is not alone. Dozens, maybe hundreds (nobody knows how many) in the last ten years, have received similar awards. Indeed, we now learn that some (including at least one from the Royal Bank of Scotland) have been awarded much larger pay-offs.
To receive a large pension, you need a large ‘pension pot’. In Sir Fred’s case, this is said to be something over £16 million. In other words, without this, it would have cost the taxpayer (you and me) £ millions less to bail out the Royal Bank of Scotland.
£10 million, £20 million, £30 million ‘pension pots’ have been accumulated, significantly from tax free contributions. The first step in action to be taken is to impose, by legislation, a wealth tax which includes pension pots.
Wealth Tax on Pension Pots
In would not be at all unreasonable to levy a tax rate of 40% on that part of the pot which is assessed to provide a pension above £100,000 a year. In Sir Fred’s case, this would mean a one-off payment of around £4.5 million.
However, this would still leave him, and his like, with annual pensions of around £500,000. – still grossly over generous when an old age pensioner receives little more than £6,000 a year.
Higher Rates of Tax
These scandalous payments draw attention to the real issue – that the UK is a grossly unequal society. Because everyone is now aware of this, the government should act immediately.
Higher rates of tax (the existing top rate is 40%) on all incomes, including pensions, should be introduced along the following lines.
Incomes over:
£80,000 45%
£120,000 50%
£150,000 55%
£200,000 60%
£250,000 70%
These rates are not unduly punitive. I, and I suspect many readers, would support higher rates.
However, the above would make it possible to take a million of the lower paid out of tax brackets – a significant first step towards a more equal society.
And, as I have argued in earlier Blogs, more income for the poor would help towards economic recovery.
A £650,000 a year pension for ruining a bank is clearly a scandal. In perspective, it is about 100 times what an old age pensioner gets. As Gordon Brown says, we are all entitled to be angry.
But what can be done about it? There is, the lawyers tell us, very little chance of any legal challenge succeeding. In reality, talk of legal action – or even M/s Harman’s act of parliament – is really a diversion.
The Real Scandal
The real scandal is that Sir Fred is not alone. Dozens, maybe hundreds (nobody knows how many) in the last ten years, have received similar awards. Indeed, we now learn that some (including at least one from the Royal Bank of Scotland) have been awarded much larger pay-offs.
To receive a large pension, you need a large ‘pension pot’. In Sir Fred’s case, this is said to be something over £16 million. In other words, without this, it would have cost the taxpayer (you and me) £ millions less to bail out the Royal Bank of Scotland.
£10 million, £20 million, £30 million ‘pension pots’ have been accumulated, significantly from tax free contributions. The first step in action to be taken is to impose, by legislation, a wealth tax which includes pension pots.
Wealth Tax on Pension Pots
In would not be at all unreasonable to levy a tax rate of 40% on that part of the pot which is assessed to provide a pension above £100,000 a year. In Sir Fred’s case, this would mean a one-off payment of around £4.5 million.
However, this would still leave him, and his like, with annual pensions of around £500,000. – still grossly over generous when an old age pensioner receives little more than £6,000 a year.
Higher Rates of Tax
These scandalous payments draw attention to the real issue – that the UK is a grossly unequal society. Because everyone is now aware of this, the government should act immediately.
Higher rates of tax (the existing top rate is 40%) on all incomes, including pensions, should be introduced along the following lines.
Incomes over:
£80,000 45%
£120,000 50%
£150,000 55%
£200,000 60%
£250,000 70%
These rates are not unduly punitive. I, and I suspect many readers, would support higher rates.
However, the above would make it possible to take a million of the lower paid out of tax brackets – a significant first step towards a more equal society.
And, as I have argued in earlier Blogs, more income for the poor would help towards economic recovery.
Thursday 26 February 2009
THE FAILURE OF CAPITALISM
The global economic crisis is the strongest evidence of the failure of capitalism. It reveals the nonsense of the oft-made claim that only a free market can lead to prosperity and higher standards of living for everyone.
In reality, unregulated capitalism has always resulted in higher and higher booms, followed by deeper and deeper busts. The most serious consequence is persisting inequality with, worldwide, hundreds of millions living in poverty.
When the rhetoric is swept away, and the evidence examined, it becomes all too obvious that capitalism has failed even to provide stable economies.
The issue of inequality, and the determination of the establishment to maintain it, is the subject of the three publications described below. They provide the background to the articles on this Blog.
Capitalism in Crisis: a Socialist Solution
This pamphlet analyses the current economic crisis in the UK and demonstrates that a solution will emerge only when a socialist strategy is adopted.
Further Education and Democracy
This book illustrates inequalities in the further education system in the UK. It explains how more than half the population aged 16 and over (‘The Neglected Half’) are denied the education they need - to obtain jobs, and to become fully participating members of society.
Who Killed Bilston Community College?
Bilston Community College, the most successful in the country for creating new opportunities for working-class (especially ethnic minority) citizens, was closed illegally in 1999. The government’s decision to close the college resulted in the denial of opportunities for tens of thousands.
An appeal against the closure, supported by over 50 voluntary community organisations, was completely disregarded by the then Secretary of State for Education and Employment.
All the above are all available on ebay.co.uk, or from keithwymer@blueyonder,co.uk
In reality, unregulated capitalism has always resulted in higher and higher booms, followed by deeper and deeper busts. The most serious consequence is persisting inequality with, worldwide, hundreds of millions living in poverty.
When the rhetoric is swept away, and the evidence examined, it becomes all too obvious that capitalism has failed even to provide stable economies.
The issue of inequality, and the determination of the establishment to maintain it, is the subject of the three publications described below. They provide the background to the articles on this Blog.
Capitalism in Crisis: a Socialist Solution
This pamphlet analyses the current economic crisis in the UK and demonstrates that a solution will emerge only when a socialist strategy is adopted.
Further Education and Democracy
This book illustrates inequalities in the further education system in the UK. It explains how more than half the population aged 16 and over (‘The Neglected Half’) are denied the education they need - to obtain jobs, and to become fully participating members of society.
Who Killed Bilston Community College?
Bilston Community College, the most successful in the country for creating new opportunities for working-class (especially ethnic minority) citizens, was closed illegally in 1999. The government’s decision to close the college resulted in the denial of opportunities for tens of thousands.
An appeal against the closure, supported by over 50 voluntary community organisations, was completely disregarded by the then Secretary of State for Education and Employment.
All the above are all available on ebay.co.uk, or from keithwymer@blueyonder,co.uk
Wednesday 25 February 2009
WILL APRIL BE THE CRUELLEST MONTH?
Inexcusable Late Start
The Bank of England did not spot the recession until October 2008: the warnings of David Blanchflower (a lone voice on the Bank’s Monetary Policy Committee) were ignored for more than 6 months. Interest rate cuts, October-February, should have started at least 4 months earlier.
We cannot know how many lost their jobs and/or homes as a consequence of this delay. Whatever the number, it was unnecessary and in excusable.
The government, despite its many advisers and consultants, was also a late starter. Thousands had been made redundant, and tens of thousands more were facing redundancy, when Alistair Darling launched his, extremely modest, Autumn Fiscal Package.
‘Too little, too late’ is the, not unreasonable, criticism levelled at both the Bank and the government; although the situation is rather more complex. The Bank was certainly a late starter but, apparently not knowing what else to do, has continued to cut interest rates beyond the point of their effectiveness.
It would have been much more sensible for the Bank to start its ‘quantitative easing’ (pumping more money into the economy) in December rather than March. Late again! Incidentally, the public would be much better informed if the Bank, and the media, explained, clearly, what was happening, instead of using obscure terms like ‘quantitative easing’.
Full-Hearted Recession: Half-Hearted Response
The criticism of the government is not so much that it has failed to act but that it has acted half-heartedly. A string of minor initiatives to halt the recession do not amount to a convincing strategy. What should have been done (e g a much larger Autumn stimulus) is described in detail in my Blog: March 2009? It’s too Late.
The £14 Billion for Northern Rock to lend (announced 23/2/09) is a case in point. The figure should be at least £56 Billion: £14 Billion each, for lending, for the other institutions owned by the government – Bradford and Bingley, the Post Office; Royal Bank of Scotland.
The £14 Billion is intended, particularly, to help first time buyers. Yet, coinciding with the announcement, Gordon Brown wrote an article in the Observer arguing that a 10% deposit should be a minimum requirement. Although this is clearly sound in principle, it is no encouragement for first time buyers - until the government explains how it intends to help them to acquire such a deposit.
The government is unable to act on the scale required because it has boxed itself in. It is afraid to launch a £100 Billion expenditure plan because it lacks the convincing repayment strategy I described in my last Blog.
Will April 2009 be the Cruellest Month?
With the exception of a few ‘Blanchflowers’, experts failed in their predictions. While the sun was shining (people in jobs, house prices rising etc) they, in broad terms, predicted that the sun would continue to shine. Now, when all is gloom and doom, they predict more gloom and doom.
Because the downturn is global, it is impossible for the UK to recover in isolation. However, it seems likely that the action taken by USA’s new President, and his decision (implied in Hilary Clinton’s comments last week) to work more closely with China, will result in greater stability in the next few months.
It is in this context that the UK’s prospects must be considered. My view is that, if the Bank and the government had acted when Blanchflower gave his first warning, the bottom of the recession would have been reached January/February 2009. Their tardiness makes it look more like April/May 2009.
This prediction is made on the assumption that the belated action taken by the government, and the Bank of England, will begin to have an effect from March. The bottoming out of the recession is not, of course, the same as recovery.
The downturn would have been worse without the action taken but it is difficult to see significant recovery without further action.
Action for Recovery
I have been assisted in my predictions by an excellent article by Kevin Daly and Ben Broadbent (Goldman Sachs economists) in The Sunday Times (22/2/09); although the judgements below are, obviously, my own.
My view is that the situation in April will be ready for recovery but that this will not occur without a government expenditure stimulus of, at least, £100Billion, along the lines outlined in my last Blog. As I emphasise there, the key for the government to get out of its box is a convincing repayment strategy.
Providing the government acts now, the factors which will assist the recovery (as Daly and Broadbent point out) include:
(i) the reduction of interest rates (from5% t0 1%);
(ii) the fall in sterling, which makes exports cheaper;
(iii) import substitution – for example, people taking their holidays in the UK, instead of overseas.
In the current global crisis, the fact that the UK relies less on exports than, say, Germany and Japan means that government action can be more effective. It can be more effective because government expenditure can support the production of goods to replace imports, and also because governments can give people money spend.
With regard to ‘import substitution’, Pontins and Butlins are creating new jobs in anticipation of expansion of the home tourist trade. In the retail sector, a number of companies (including Asda, Tesco and Morrisons) have announced the creation of thousands of jobs.
The bringing forward of a number of government capital projects, and the boost to green energy will also create jobs.
Although these are ‘green shoots’, significant reduction of unemployment depends on further government action – quickly, and on a large scale.
For a more detailed discussion of these issues see me two previous Blogs: March 2009? Its Too Late, and A Clear and Convincing Strategy is Required – Gordon.
The Bank of England did not spot the recession until October 2008: the warnings of David Blanchflower (a lone voice on the Bank’s Monetary Policy Committee) were ignored for more than 6 months. Interest rate cuts, October-February, should have started at least 4 months earlier.
We cannot know how many lost their jobs and/or homes as a consequence of this delay. Whatever the number, it was unnecessary and in excusable.
The government, despite its many advisers and consultants, was also a late starter. Thousands had been made redundant, and tens of thousands more were facing redundancy, when Alistair Darling launched his, extremely modest, Autumn Fiscal Package.
‘Too little, too late’ is the, not unreasonable, criticism levelled at both the Bank and the government; although the situation is rather more complex. The Bank was certainly a late starter but, apparently not knowing what else to do, has continued to cut interest rates beyond the point of their effectiveness.
It would have been much more sensible for the Bank to start its ‘quantitative easing’ (pumping more money into the economy) in December rather than March. Late again! Incidentally, the public would be much better informed if the Bank, and the media, explained, clearly, what was happening, instead of using obscure terms like ‘quantitative easing’.
Full-Hearted Recession: Half-Hearted Response
The criticism of the government is not so much that it has failed to act but that it has acted half-heartedly. A string of minor initiatives to halt the recession do not amount to a convincing strategy. What should have been done (e g a much larger Autumn stimulus) is described in detail in my Blog: March 2009? It’s too Late.
The £14 Billion for Northern Rock to lend (announced 23/2/09) is a case in point. The figure should be at least £56 Billion: £14 Billion each, for lending, for the other institutions owned by the government – Bradford and Bingley, the Post Office; Royal Bank of Scotland.
The £14 Billion is intended, particularly, to help first time buyers. Yet, coinciding with the announcement, Gordon Brown wrote an article in the Observer arguing that a 10% deposit should be a minimum requirement. Although this is clearly sound in principle, it is no encouragement for first time buyers - until the government explains how it intends to help them to acquire such a deposit.
The government is unable to act on the scale required because it has boxed itself in. It is afraid to launch a £100 Billion expenditure plan because it lacks the convincing repayment strategy I described in my last Blog.
Will April 2009 be the Cruellest Month?
With the exception of a few ‘Blanchflowers’, experts failed in their predictions. While the sun was shining (people in jobs, house prices rising etc) they, in broad terms, predicted that the sun would continue to shine. Now, when all is gloom and doom, they predict more gloom and doom.
Because the downturn is global, it is impossible for the UK to recover in isolation. However, it seems likely that the action taken by USA’s new President, and his decision (implied in Hilary Clinton’s comments last week) to work more closely with China, will result in greater stability in the next few months.
It is in this context that the UK’s prospects must be considered. My view is that, if the Bank and the government had acted when Blanchflower gave his first warning, the bottom of the recession would have been reached January/February 2009. Their tardiness makes it look more like April/May 2009.
This prediction is made on the assumption that the belated action taken by the government, and the Bank of England, will begin to have an effect from March. The bottoming out of the recession is not, of course, the same as recovery.
The downturn would have been worse without the action taken but it is difficult to see significant recovery without further action.
Action for Recovery
I have been assisted in my predictions by an excellent article by Kevin Daly and Ben Broadbent (Goldman Sachs economists) in The Sunday Times (22/2/09); although the judgements below are, obviously, my own.
My view is that the situation in April will be ready for recovery but that this will not occur without a government expenditure stimulus of, at least, £100Billion, along the lines outlined in my last Blog. As I emphasise there, the key for the government to get out of its box is a convincing repayment strategy.
Providing the government acts now, the factors which will assist the recovery (as Daly and Broadbent point out) include:
(i) the reduction of interest rates (from5% t0 1%);
(ii) the fall in sterling, which makes exports cheaper;
(iii) import substitution – for example, people taking their holidays in the UK, instead of overseas.
In the current global crisis, the fact that the UK relies less on exports than, say, Germany and Japan means that government action can be more effective. It can be more effective because government expenditure can support the production of goods to replace imports, and also because governments can give people money spend.
With regard to ‘import substitution’, Pontins and Butlins are creating new jobs in anticipation of expansion of the home tourist trade. In the retail sector, a number of companies (including Asda, Tesco and Morrisons) have announced the creation of thousands of jobs.
The bringing forward of a number of government capital projects, and the boost to green energy will also create jobs.
Although these are ‘green shoots’, significant reduction of unemployment depends on further government action – quickly, and on a large scale.
For a more detailed discussion of these issues see me two previous Blogs: March 2009? Its Too Late, and A Clear and Convincing Strategy is Required – Gordon.
Tuesday 10 February 2009
A Clear, and Convincing, Strategy is Required - Gordon
The Brown government took decisive (if belated) action when banks reached the point of collapse last October. Hundreds of £ Billions was provided, mainly as loans to be repaid over years. It is important to emphasise that this is not expenditure – in the longer term, there could even be a profit for the taxpayer.
The banks have been ‘saved’ but they have not kept their part of the bargain - to increase lending to the level the economy, and individuals, need. The reasons for this must be addressed urgently. Steps are likely to include extending the period for repayment to the government, and perhaps a lower interest rate on the loans.
If the privately-owned banks do not co-operate to the full, they must be nationalised. In any case, the banks already controlled by the government – Northern Rock, Bradford and Bingley, Royal Bank of Scotland (and the Post Office) - should be developed as a People’s Banking System.
Make Do and Mend No Good
The banks have been supported with hundreds of £ Billions. In comparison, the rest of us have received very little. Alister Darling’s £ 20 Billion package was woefully inadequate; as are the small ‘make do and mend’ measures to help the unemployed.
The government gives the impression that it believes the financial markets will recover in their own time, and that we shall eventually be back to where we were in 2007. This seems most unlikely and, in any case, this is not where we want to be.
The state, albeit reluctantly, is heavily involved in the financial markets. It must stay there and take the steps necessary to create a much fairer and more equal society. The challenge is not to mend a broken system, which has undermined the economy and caused large-scale unemployment, but to create a new system.
The new system must function in the interests of the whole nation, not just a few speculators.
2009 Priorities and Cost
‘Make do and mend’ will not do. Because there is no convincing strategy, the government is boxed in. It recognises that borrowing is necessary but is afraid to borrow on the scale required because it refuses to make the policy changes required for repayment.
The priorities are to:
(i) keep the elderly alive, by ensuring that they are warm and properly fed;
(ii) keep families in their homes;
(iii) ensure that children have proper care;
(iv) prevent unemployment and to create new jobs.
This requires £200 Billion, rather than the £ 20 Billion of the Autumn Package This obviously requires government borrowing but there must be a clear and convincing strategy for repayment.
Strategy for Repayment
Repayment is a major problem only if it is believed that restoring the old, free market, system is the solution. Even if restored, it would be a pale shadow of its former self – and, even more important, the old inequalities would continue.
Gordon Brown and Alister Darling are nervous about the necessary expenditure because they do not have a convincing strategy for repayment. Without it, they are open to the charge of ‘irresponsible borrowing’.
To repay the £ 200 Billion, the first step is to stop spending on what we do not need and cannot afford. The obvious example is Trident and armed services geared to intervention in the affairs of other countries (e g
The second step is to crack down on tax avoidance (companies and individuals) and to impose a windfall tax on companies which make excessive profits.
The third step is progressively higher rates of tax on incomes over £80,000 a year.
Over a 5 year period, starting 2010, these steps would more than repay the 200-300 £ Billion of borrowing to see the country through the recession. They would also result in a fairer, and more equal, society.
.
Tuesday 27 January 2009
March 2009? It's Too Late
Action Now
We are told that Alistair Darling is considering further action to end the recession - to be included in his budget statement in March. Why wait until March? It is obvious that people need help, and jobs are needed, NOW.
There is no case for delay. There is much uncertainty about: one certainty is that it is impossible to give too much help to struggling people, or to create too many jobs.
The Banks
In dealing with the banking crisis the government has done only half a job. We all agree we need a banking system. But we need a system which serves the people, not bankers and shareholders.
The banks owned by the taxpayer – Bradford and Bingley, Northern Rock, Royal Bank of Scotland (along with the Post Office) must be converted to a People’s banking system.
Instead of state control through nationalisation, which the government does not like, these banks should be established as Mutual Societies. They would then be owned by their members, which was the position of Bradford and Bingley and Northern Rock before the stupid Thatcher policy allowed them to convert to banks.
In the re-organisation, the commercial bits of RBS should be separated from the domestic bits. It could then operate as a separate company to take the lead in implementing government policies for the commercial sector.
The message from anyone (which appears to include government ministers) opposed to these proposals is that such matters are best left to the capitalist financial markets: this position is obviously out of touch with reality.
Action on Unemployment and Poverty
Some government ministers have made vague noises about measures taken creating a fairer society, as well as ending the recession. This is not true in any significant sense of the measures taken so far. Vague statements about the borrowing being repaid from ‘government receipts in the upturn’ are not good enough.
The vagueness gives some creditability to the Tory’s claim that the borrowing is irresponsible. It is not the borrowing, so essential to ending the recession, that is irresponsible but the vagueness on repayment.
A package to stimulate the economy at the same time (now) as President Obama’s will be much more effective than waiting until March. It should be more ambitious than the November £20 Billion: a £100 Billion, at least, but with a convincing strategy on repayment.
The priorities for the £100 Billion are to:
(i) take at least one million out of income tax brackets and increase allowances, including pensions;
(ii) provide finance for local authorities to support families unable to pay their mortgages (either by offering easier mortgage repayments, or renting arrangements);
(iii) create jobs, especially in the sphere of green energy.
Repayment of the £100 Billion Borrowing
A convincing repayment strategy, over a 5 year period, is aim to acquire the finance from:
(i) cuts in defence expenditure, where £50 Billion could be found (including £20 Billion from abandoning Trident);
(ii) Progressively higher tax rates for incomes over £80,000, and measures to prevent tax avoidance;
(iii) Windfall taxes on excessive company profits and, again, steps to prevent tax avoidance.
It is only with a strategy along these lines that movement towards a fairer society will be convincing. Until such a strategy is launched voters will continue to believe that government is on the side of bankers, not the people.
We are told that Alistair Darling is considering further action to end the recession - to be included in his budget statement in March. Why wait until March? It is obvious that people need help, and jobs are needed, NOW.
There is no case for delay. There is much uncertainty about: one certainty is that it is impossible to give too much help to struggling people, or to create too many jobs.
The Banks
In dealing with the banking crisis the government has done only half a job. We all agree we need a banking system. But we need a system which serves the people, not bankers and shareholders.
The banks owned by the taxpayer – Bradford and Bingley, Northern Rock, Royal Bank of Scotland (along with the Post Office) must be converted to a People’s banking system.
Instead of state control through nationalisation, which the government does not like, these banks should be established as Mutual Societies. They would then be owned by their members, which was the position of Bradford and Bingley and Northern Rock before the stupid Thatcher policy allowed them to convert to banks.
In the re-organisation, the commercial bits of RBS should be separated from the domestic bits. It could then operate as a separate company to take the lead in implementing government policies for the commercial sector.
The message from anyone (which appears to include government ministers) opposed to these proposals is that such matters are best left to the capitalist financial markets: this position is obviously out of touch with reality.
Action on Unemployment and Poverty
Some government ministers have made vague noises about measures taken creating a fairer society, as well as ending the recession. This is not true in any significant sense of the measures taken so far. Vague statements about the borrowing being repaid from ‘government receipts in the upturn’ are not good enough.
The vagueness gives some creditability to the Tory’s claim that the borrowing is irresponsible. It is not the borrowing, so essential to ending the recession, that is irresponsible but the vagueness on repayment.
A package to stimulate the economy at the same time (now) as President Obama’s will be much more effective than waiting until March. It should be more ambitious than the November £20 Billion: a £100 Billion, at least, but with a convincing strategy on repayment.
The priorities for the £100 Billion are to:
(i) take at least one million out of income tax brackets and increase allowances, including pensions;
(ii) provide finance for local authorities to support families unable to pay their mortgages (either by offering easier mortgage repayments, or renting arrangements);
(iii) create jobs, especially in the sphere of green energy.
Repayment of the £100 Billion Borrowing
A convincing repayment strategy, over a 5 year period, is aim to acquire the finance from:
(i) cuts in defence expenditure, where £50 Billion could be found (including £20 Billion from abandoning Trident);
(ii) Progressively higher tax rates for incomes over £80,000, and measures to prevent tax avoidance;
(iii) Windfall taxes on excessive company profits and, again, steps to prevent tax avoidance.
It is only with a strategy along these lines that movement towards a fairer society will be convincing. Until such a strategy is launched voters will continue to believe that government is on the side of bankers, not the people.
Monday 19 January 2009
The UK Banks and the Wider Economy
Banks With No Money
The UK government’s £200 Billion package, announced 20 January 2009, follows worries about the banks. Their shares appear to be in freefall. However, the Prime Minister, and the Chancellor, insist that the purpose of the package is not to bale out the banks, but to support the wider economy - by increasing lending to companies and individuals who need mortgages.
Is this convincing? Companies and people who need mortgages have been pleading for help for months, yet the action was not taken until it became clear that the banks were in difficulty. Even more important, will the £ Billions made available end the recession?
There will obviously be some easing in the lending market as a result of the terms which accompany the £ Billions provided for the banks. This will apply especially to the government controlled Northern Rock (which is nationalised), and the Royal Bank of Scotland (where the government has a majority shareholding).
It remains to be seen how far the other banks will keep their promises. Although they have an incentive to increase lending, because they need new profitable business, they will weigh this against other considerations (such as how to maintain their dividends).
A More Radical Approach
The fundamental problem is that the government fails to recognise that the old free market system has collapsed. This would have been more obvious if the banks had collapsed, which would have happened in November if taxpayers’ money had not saved them.
Using our money in this way is justified only if it is seen as an interim measure while a new system is created. There is, sadly, no sign of the intention to build a new system. The government appears to believe that, given Billions of £s, the old system will be restored to health.
Yet, every day, it becomes increasingly evident that this will not occur. The obvious message from the past 18 months is that economies cannot be left at the mercy of the financial markets. If governments had not stepped in, especially in the USA and the UK, unemployment would be even higher than the dreadful figures reported almost daily.
Obama and the World Economy
The most promising development is the election of Barack Obama as American President, with his commitment to take urgent action to save the economy. Unlike his predecessor, he is not reluctant about government intervention. He has promised over $800 Billion to create jobs, support householders, and move towards a more equal society.
Although economic recovery in the USA is the most important single factor, the challenges are global. Ending the recession requires other countries, especially in Western Europe, to follow the new President’s lead. And the importance of the involvement of Russia, China and India in economic recovery action must also be recognised.
Where Next For The UK?
For the UK, it is essential to match (in comparative terms) Obama’s job creation and householder support measures. As I have argued in an earlier Blog, there is no danger that too many jobs would be saved, or created.
However, fundamental to success is a co-ordinated approach to the government’s involvement in the economy. It will not be possible to end the recession unless the availability of finance (for companies and mortgages) is ensured.
This will occur only if the government determines that relevant financial support is available: this cannot be left to market forces. The obvious solution is to co-ordinate the state controlled entities so that they function as a state bank. A co-ordinated operation through the Royal Bank of Scotland, Northern Rock, Bradford and Bingley, The Post Office should lead the way.
With the prospect of competition from state controlled lenders, the other banks would be more likely to co-operate. To do business, and make profits, they would have to focus on consumer need, rather than dividends and bonuses.
A New Financial World
The reality is that financial systems are now inevitably global. The UK and other West European countries must work with the new USA President to restore order and lead economic recovery.
Policy must be determined by governments working together, not by market forces. Stability is essential for greater prosperity in developing countries, as well as for the wealthier nations.
The UK government’s £200 Billion package, announced 20 January 2009, follows worries about the banks. Their shares appear to be in freefall. However, the Prime Minister, and the Chancellor, insist that the purpose of the package is not to bale out the banks, but to support the wider economy - by increasing lending to companies and individuals who need mortgages.
Is this convincing? Companies and people who need mortgages have been pleading for help for months, yet the action was not taken until it became clear that the banks were in difficulty. Even more important, will the £ Billions made available end the recession?
There will obviously be some easing in the lending market as a result of the terms which accompany the £ Billions provided for the banks. This will apply especially to the government controlled Northern Rock (which is nationalised), and the Royal Bank of Scotland (where the government has a majority shareholding).
It remains to be seen how far the other banks will keep their promises. Although they have an incentive to increase lending, because they need new profitable business, they will weigh this against other considerations (such as how to maintain their dividends).
A More Radical Approach
The fundamental problem is that the government fails to recognise that the old free market system has collapsed. This would have been more obvious if the banks had collapsed, which would have happened in November if taxpayers’ money had not saved them.
Using our money in this way is justified only if it is seen as an interim measure while a new system is created. There is, sadly, no sign of the intention to build a new system. The government appears to believe that, given Billions of £s, the old system will be restored to health.
Yet, every day, it becomes increasingly evident that this will not occur. The obvious message from the past 18 months is that economies cannot be left at the mercy of the financial markets. If governments had not stepped in, especially in the USA and the UK, unemployment would be even higher than the dreadful figures reported almost daily.
Obama and the World Economy
The most promising development is the election of Barack Obama as American President, with his commitment to take urgent action to save the economy. Unlike his predecessor, he is not reluctant about government intervention. He has promised over $800 Billion to create jobs, support householders, and move towards a more equal society.
Although economic recovery in the USA is the most important single factor, the challenges are global. Ending the recession requires other countries, especially in Western Europe, to follow the new President’s lead. And the importance of the involvement of Russia, China and India in economic recovery action must also be recognised.
Where Next For The UK?
For the UK, it is essential to match (in comparative terms) Obama’s job creation and householder support measures. As I have argued in an earlier Blog, there is no danger that too many jobs would be saved, or created.
However, fundamental to success is a co-ordinated approach to the government’s involvement in the economy. It will not be possible to end the recession unless the availability of finance (for companies and mortgages) is ensured.
This will occur only if the government determines that relevant financial support is available: this cannot be left to market forces. The obvious solution is to co-ordinate the state controlled entities so that they function as a state bank. A co-ordinated operation through the Royal Bank of Scotland, Northern Rock, Bradford and Bingley, The Post Office should lead the way.
With the prospect of competition from state controlled lenders, the other banks would be more likely to co-operate. To do business, and make profits, they would have to focus on consumer need, rather than dividends and bonuses.
A New Financial World
The reality is that financial systems are now inevitably global. The UK and other West European countries must work with the new USA President to restore order and lead economic recovery.
Policy must be determined by governments working together, not by market forces. Stability is essential for greater prosperity in developing countries, as well as for the wealthier nations.
Wednesday 14 January 2009
The Brown Government Must Govern
Help for Small Businesses
The help for small businesses announced today (14/1/09) must be welcomed, mainly because it will keep a few workers in jobs. But, regretably, it is a much smaller step than is needed.
While it would be a mistake to rely on the gloom and doom predictions of experts (almost all of whom got it wrong last year), unless we have government action on a much larger scale it is clear that thousands more will lose their jobs this year.
In my last Blog (Who Runs the Country?) I argued that the government, not bankers or financiers, must be seen to govern. The Brown government must get ahead of events and take action on a much larger scale. There is no danger whatever that too many jobs would be saved or created.
Tackle Inequality
There are claims by ministers that the action being taken aims to create a stronger economy and a fairer society. But, as I pointed out in an earlier Blog (Gloom and Doom: Kick It Out), there is a reluctance to tackle the unfairness issue.
A great deal more government spending (and, in the short term, borrowing) is required. However, the Conservative Opposition must not be allowed to get away with their 'saddling of future generations with debt' argument. The scale of national debt (incidentally a much lower % than other G7 countries) is the result of allowing the wealthy to keep too much money in their pockets or boardroom coffers.
The answer is to take action to demonstrate that the repayment will be from policies which (i) create a much fairer society and (ii) end damaging military intervention across the world. In other words, the money must come from wealthy individuals (eg the bonus gang); companies with excessive profits; drastic cuts in expenditure on so-called defence.
Intervention in, for example, Iraq and Afghanistan, and investment in Trident, have nothing to do with defence. They are to do with illusions on our world role, and individuals' world leader aspirations.
World Leadership
The £ Billions saved from the defence budget could not only repay debt but also make a major contribution to eradication of world poverty. This is where we should aspire to world leadership.
The help for small businesses announced today (14/1/09) must be welcomed, mainly because it will keep a few workers in jobs. But, regretably, it is a much smaller step than is needed.
While it would be a mistake to rely on the gloom and doom predictions of experts (almost all of whom got it wrong last year), unless we have government action on a much larger scale it is clear that thousands more will lose their jobs this year.
In my last Blog (Who Runs the Country?) I argued that the government, not bankers or financiers, must be seen to govern. The Brown government must get ahead of events and take action on a much larger scale. There is no danger whatever that too many jobs would be saved or created.
Tackle Inequality
There are claims by ministers that the action being taken aims to create a stronger economy and a fairer society. But, as I pointed out in an earlier Blog (Gloom and Doom: Kick It Out), there is a reluctance to tackle the unfairness issue.
A great deal more government spending (and, in the short term, borrowing) is required. However, the Conservative Opposition must not be allowed to get away with their 'saddling of future generations with debt' argument. The scale of national debt (incidentally a much lower % than other G7 countries) is the result of allowing the wealthy to keep too much money in their pockets or boardroom coffers.
The answer is to take action to demonstrate that the repayment will be from policies which (i) create a much fairer society and (ii) end damaging military intervention across the world. In other words, the money must come from wealthy individuals (eg the bonus gang); companies with excessive profits; drastic cuts in expenditure on so-called defence.
Intervention in, for example, Iraq and Afghanistan, and investment in Trident, have nothing to do with defence. They are to do with illusions on our world role, and individuals' world leader aspirations.
World Leadership
The £ Billions saved from the defence budget could not only repay debt but also make a major contribution to eradication of world poverty. This is where we should aspire to world leadership.
Friday 9 January 2009
WHO RUNS THE COUNTRY?
We must address this question because the message from the media is that control of events is with the Bank of England, the City of London, the High Street Banks and, a poor fourth, the government.
The Brown government must assert itself and take urgent action to address the challenges we face. This must include, if necessary, taking control of institutions to ensure that government policies are implemented.
For months it has been recognised that the crucial issue is lending - to householders and companies. Despite the £ Billions of support from the government, the banks are not lending at the rate anticipated when they received the £37 Billion for re-financing.
There are genuine reasons for the drying up of lending - for example, that the Bank of Ireland has retreated from the market, and that Northern Rock is reducing its mortgage loan book as part of its recovery plan. The other banks are either unable, or because of their strategy, unwilling, to fill this gap.
The government acted with commendable speed when the banks were in danger of collapse.
But they have not shown the same urgency in addressing the dearth of credit which is resulting in loss of jobs and difficulties in the housing market.
The Bank of England's .5% reduction of interest rates will have only a very marginal effect, and this is likely to be true of any further reductions. There are rumours that the government is likely to announce measures to address the credit crisis 'in weeks'.
However, the action will be effective only if the requirements of the banks are supported by legislation, which could include nationalisation - a step which, it is noted, was not ruled out by the Governor of the Bank of England when questioned last year.
As an alternative to further nationalisation, the government could arrange the necessary lending through the institutions it already controls - Northern Rock, Bradford and Bingley, the Royal Bank of Scotland, the Post Office.
There is a proposal to use the Post Office as a State Bank in John McFall's article in the Guardian today (9/1/09). It must be clear to all (with the exception of the Conservative leadership) that current problems cannot be solved without a great deal more state involvement.
The government must overcome its reluctance about this.
The Brown government must assert itself and take urgent action to address the challenges we face. This must include, if necessary, taking control of institutions to ensure that government policies are implemented.
For months it has been recognised that the crucial issue is lending - to householders and companies. Despite the £ Billions of support from the government, the banks are not lending at the rate anticipated when they received the £37 Billion for re-financing.
There are genuine reasons for the drying up of lending - for example, that the Bank of Ireland has retreated from the market, and that Northern Rock is reducing its mortgage loan book as part of its recovery plan. The other banks are either unable, or because of their strategy, unwilling, to fill this gap.
The government acted with commendable speed when the banks were in danger of collapse.
But they have not shown the same urgency in addressing the dearth of credit which is resulting in loss of jobs and difficulties in the housing market.
The Bank of England's .5% reduction of interest rates will have only a very marginal effect, and this is likely to be true of any further reductions. There are rumours that the government is likely to announce measures to address the credit crisis 'in weeks'.
However, the action will be effective only if the requirements of the banks are supported by legislation, which could include nationalisation - a step which, it is noted, was not ruled out by the Governor of the Bank of England when questioned last year.
As an alternative to further nationalisation, the government could arrange the necessary lending through the institutions it already controls - Northern Rock, Bradford and Bingley, the Royal Bank of Scotland, the Post Office.
There is a proposal to use the Post Office as a State Bank in John McFall's article in the Guardian today (9/1/09). It must be clear to all (with the exception of the Conservative leadership) that current problems cannot be solved without a great deal more state involvement.
The government must overcome its reluctance about this.
Sunday 4 January 2009
Gloom and Doom: Kick It Out
In my last blog (Urgent Action To End Recession) I pointed out that most of the forecasts for 2008 were widely inaccurate. So what notice should we take of what they are predicting for 2009?
It is obvious that we are in a recession and almost all the news is bad: indeed, it sometimes appears that the media has resolved to report only bad news. So the forecasters join in, with most of them predicting that things will get either worse, or much worse.
The underlying belief is that market forces beyond our control will continue to cause havoc and hardship. Governments, most commontators believe, can do very little to end the recession.
When the government takes action, the standard response of the Conservative opposition, and in much of the media, is to claim that it will not work. What they do not explain is what will work.
The impression they give is that they do not believe any government action will work - so do nothing, and leave it all to 'market forces'.
'Doing nothing' cannot be regarded as an acceptable response of politicians who are elected to serve all members of society. It is likely that over 70% of the population will survive the recession largely unscathed: it is for the other 30% that urgent, and radical, action is required.
The relevant criticism of the government is not that it has taken too much action, but too little. What it should do is outlined in my previous blog: Urgent Action To End Recession.
Pessimism will continue to reign if it is believed that government will allow thr recession to take its course. The challenge is that the action required can occur only with radical policy changes; changes which not only stimulate economic recovery, but also create a more fair and equal society.
Although there is no objection to government borrowing in the short term, a convincing strategy for repayment is essential. As I have argued in previous blogs (see The Current Crisis: A Layman's Perspective) , the resources can, and must, be acquired from:
(i) a windfall tax on excessive profits;
(ii) closing tax loopholes used by companies and wealthy individuals;
(iii) progressively higher rates of tax for incomes over £100,000 a year;
(iv) heavy cuts in defence expenditure (including Trident), based on a policy of not getting involved in wars.
This is not only the appropriate and necessary action but it would, I am convinced, receive widespread public support.
It is obvious that we are in a recession and almost all the news is bad: indeed, it sometimes appears that the media has resolved to report only bad news. So the forecasters join in, with most of them predicting that things will get either worse, or much worse.
The underlying belief is that market forces beyond our control will continue to cause havoc and hardship. Governments, most commontators believe, can do very little to end the recession.
When the government takes action, the standard response of the Conservative opposition, and in much of the media, is to claim that it will not work. What they do not explain is what will work.
The impression they give is that they do not believe any government action will work - so do nothing, and leave it all to 'market forces'.
'Doing nothing' cannot be regarded as an acceptable response of politicians who are elected to serve all members of society. It is likely that over 70% of the population will survive the recession largely unscathed: it is for the other 30% that urgent, and radical, action is required.
The relevant criticism of the government is not that it has taken too much action, but too little. What it should do is outlined in my previous blog: Urgent Action To End Recession.
Pessimism will continue to reign if it is believed that government will allow thr recession to take its course. The challenge is that the action required can occur only with radical policy changes; changes which not only stimulate economic recovery, but also create a more fair and equal society.
Although there is no objection to government borrowing in the short term, a convincing strategy for repayment is essential. As I have argued in previous blogs (see The Current Crisis: A Layman's Perspective) , the resources can, and must, be acquired from:
(i) a windfall tax on excessive profits;
(ii) closing tax loopholes used by companies and wealthy individuals;
(iii) progressively higher rates of tax for incomes over £100,000 a year;
(iv) heavy cuts in defence expenditure (including Trident), based on a policy of not getting involved in wars.
This is not only the appropriate and necessary action but it would, I am convinced, receive widespread public support.
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