Ed’s Zero Base

Labour have spent the last week fretting about economic credibility, the cause is the realisation that the economy has probably bottomed and growth is returning. In fact yesterday saw an upwards revision of previous GDP figures which effectively halved the supposed depth of recession. The unemployment figures are going in the right direction, private sector growth is still anaemic though getting healthier, the re-balancing of the public sector is proceeding. The much awaited expansionary fiscal contraction is, whisper it quietly, almost upon us. This will fatally undermine the Balls mantra of “too far, too fast”. When Shadow Minister Ian Murray endorsed the idea of reviewing every single piece of public spending, he sent Balls into a spasm. Nobody came out to defend the policy or Murray, especially not Chuka Umunna, who despite numerous opportunities, ran to the hills. Now Ed Balls has stolen the policy in an interview with the Guardian.

In what looks like a a pre-conference policy side-step, Ed Balls has jumped on the “Zero Base Policy” bandwagon this morning. This state-slashing policy was outlined by Labour’s Miss Goody-Two-Shoes Stella Creasy earlier this summer. First advanced by the Adam Smith Institute this sensible policy is one that every government should embrace. Incoming governments should assess every single line item and every penny of taxpayers’ money spent. That should not be controversial.

Guido is glad that Balls has come round to this idea, though he does find it odd that just 48 hours ago Labour were trying to distance themselves from the very same policy when we asked. The problem Guido has with this Damascene conversion from Labour is that they have had years to review their spending. Instead of tackling waste they borrowed to spend and spend and spend – like a drunken sailor in a knocking shop. Balls has consistently denied debt fuelled overspending was ever a problem, repeatedly claiming (as recently as last month) that it was all going tickety-boo until the 2008 bank crisis hit. The metamorphosis of Balls into a supposedly frugal fiscal hawk willing to cut spending is something to behold.

Guido will only believe Balls if he announces – before the election – plans for line item spending cuts, in detail, in every government department and agency to balance the budget. Ed Balls won’t because he is only shifting his position because he knows an expanding economy with healthy growth will leave him looking foolish come election day. The only thing that is “zero based” is Ed’s fiscal credibility.

The 2015 New Coalition

Cameroons like to remind the disgruntled Tory right of a simple bit of coalition electoral arithmetic: Tories on 34% + LibDems on 8% = 42%, just about enough to form a government again in 2015. Well UKIP have been also been polling between 6% to 10% for over a year now. If those right-of-centre voters could be brought back into the Conservative Party embrace they would have a good chance of forming a majority government. UKIP have no MPs in Westminster under first past the post, they do however have plenty of voters for Westminster elections.

During the 2010 general election readers of this blog raised over £15,000 to “Get Balls Out” by supporting the Tory candidate in Morley & Outwood. On election night Balls survived by a mere thousand or so votes, fewer votes than the UKIP candidate received. UKIP HQ called Guido on the night and said if they had known it was going to be so close they would have stood their candidate down. Perhaps a formal pre-election pact is politically impossible. However the Eurozone is likely to fall apart in the near future, new arrangements will be put in place by the EU radically altering the existing structure. On that basis the government will be entitled to bring the EU referendum promised by both governing parties. If the LibDems refuse to countenance a referendum the Conservatives need only to promise an immediate referendum within a year of the general election to bring about an implicit electoral pact with UKIP.

If you think this is improbable you could be surprised. The Conservative Party’s main internal Thatcherite pressure group, Conservative Way Forward, has quietly changed its constitution to allow UKIP members to join. The unhappy experience of coalition with the LibDems has opened the eyes of many on the Tory right to the electoral logic of coalition with UKIP. Dan Hannan isn’t the only one who wants it to happen

Happy Fathers Day: Gay Marriage and Divorce

The progressive chattering classes and David Cameron have got themselves worked up about gay marriage – though as many gays point out, they have already got the same rights via civil partnerships. The Equal Love Campaign says the combination of the Matrimonial Causes Act 1973 and the Civil Partnership Act 2004 creates a system that segregates couples into two separate legal institutions, with different names but identical rights and responsibilities. It is not a matter of substance.

Where it seems to Guido the gay marriage campaigners have got it wrong is if they intend, as many suspect, to go on to legally force religious institutions to marry them contrary to the teachings of their churches, mosques, synagogues and temples. Legislation forcing people to do something against their faith seems to Guido to be a breach of human rights, not an extension.

Yet there is an almighty Lilliputian row going on over mere nomenclature. If people want to describe themselves as married, partnered, hitched, contracted or whatever, so be it. Live and let live. Hopefully it won’t go as far as Spain where the socialists have, in the name of equality, legislated so that birth certificates read “Progenitor A” and “Progenitor B” instead of “father” and “mother”.   As a libertarian Guido isn’t convinced that the state should be in the marriage/partnering or birth certifying business in any event.

As it is Fathers Day it seems to Guido a good time to bring up a matter of sexual equality before the law that is a matter of substance – fathers and mothers should be entitled to a legally binding “presumption of shared parenting” after separation, whether it is a divorce or un-partnering. You don’t need to be a Fathers4Justice campaigner to see that the current presumption in favour of the mother is unjust. Where is the Campaign for Equality in Divorce?


News Brands Eclipse Newspapers
Newspaper Industry Officially Accepts Dead Tree Press Finished

In January 2010 Guido gave a presentation at Microsoft’s HQ to the Online Journalism Association, the thesis was that newspapers as we know them will die and journalism would thrive. Guido’s pitch was that the old deadline based “news cycle” is being replaced by “news streams” and that newspapers as we know them will be replaced by “news brands”.

Today the industry trade body for the dead tree press, the Newspaper Marketing Association, accepted the thesis and announced it is renaming itself “Newsworks”, dropping dead entirely the word “newspaper”. CEO Rufus Olins says “We need to start thinking differently… It’s all about newsbrands, about delivering content through a range of platforms.” Guido thinks we can only measure the strength of news brands in terms of their mindshare. The broadsheets – Guardian, Times, Indy – all lose money and are more akin to vanity publishing than profit motivated businesses. It is about who they reach and how much they influence their consumers.

As the news industry and more importantly – from a financial perspective – the advertising industry comes to realise that online and print consumers are fungible, reality starts to hit home. In under a decade this blog has become as strong a news brand in our field in terms of readership and mindshare as the New Statesman, hell we’re part way through a reverse-takeover of The Spectator. The great thing for consumers is that because of low barriers to entry, we have an ever more competitive, pluralist, thriving free market in news. Without slaughtering trees…

In Praise of Workfare

“Boycott Workfare is a UK-wide campaign to end forced unpaid work for people who receive welfare” says the new campaign website. They’re planning UK Uncut style occupation of retail stores participating in the schemes. The schemes include DWP organised Work Experience, the Community Action Programme, Sector Based Work Academies and Work Programme placements. The left-wing rhetoric claims that this is exploitative slave labour for big business.

Slaves are forced to work for no return, workfare is what Ed Miliband might describe as “something for something”, long term unemployed young people without work experience, who are on benefits, are given work to do as a condition of continuing to receive those benefits. Is that so unfair?

Millions of working taxpayers on low incomes will think not. Cait Reilly was asked to work for three weeks at Poundland, doing five hours a day. Not too onerous. The 22 year-old graduated last year with a BSc in geology from Birmingham University. She had claimed £53.45-a-week Jobseeker’s Allowance (JSA) since last August and was asked by the Job Centre to work at Poundland. She objected and left-wing lawyers argued in the courts that her human rights were violated by being asked to sweep floors and stack shelves.

She got a chance to get some real world work experience, in the kind of job millions of less privileged, less educated taxpayers do every day. The people who work to pay taxes to pay her to be on the dole are the ones who are forced to slave.

There are two easy ways to boycott workfare; get a job or stop claiming benefits. When people say “there are no jobs appropriate for me” they’re really saying they don’t want to do readily available jobs. Walk around London and you’ll hear a lot of foreign accents, Poles digging the road, Latvians serving sandwiches, it seems like almost every entry level job is being done by East Europeans. The fact is many Britons don’t want to work hard for low pay.

Guido’s first proper job (after working in Westminster) was as a ticket clerk in a City brokers. Aged 25, earning just above minimum wage, overdrawn at the end of every month. Poring over spreadsheets for most of the day was pretty soul-destroying, running from dealing desk to back office with illegible tickets at the beck and call of screaming brokers, it was pretty lowly. It was also an opportunity. Chatting to the older brokers, trying to be helpful, showing willing. To get up at 5.30 in the morning for near minimum wages month-after-month is to believe that you can progress. One crazily busy day during the ERM crisis while waiting for a broker to get off the phone, a short-staffed head dealer holding two phones to his ears and looking at a bank of flashing lines, shouted to Guido “pick up that line”.

Mrs Fawkes worked three jobs in her summer holidays every year for three years, cleaning in the mornings, waitressing in the afternoons and babysitting in the evenings to pay her way through law school.  You have to start at the bottom.

If you want to boycott workfare, fine, get a job. If you are young there are plenty of entry level jobs for those who want to work. Take a job, any job. No matter what your qualifications, you have to start somewhere, however lowly, it is better than making other people slave to pay you dole.

Labour-Centrists Laying Down Reality-Based Policy Ideas

Talking to Labour insiders, ambitious young PAds, think-tankers and old hands alike, the candid admission is that they are stuck with Ed Miliband because as with Gordon Brown, there is no-one else. Ed gets a regular mauling at PMQs despite a terrible economy, still looks and sounds like the kid who does the photocopying, has failed to impress the British public and is unable at this stage of the electoral cycle to push further ahead in the polls. His shadow chancellor can never win the argument, because the argument he makes is that the British public is wrong and because it is Ed Balls who is making the argument. Dislodging Ed Balls would risk fraticidal conflict and not getting him off the television screens will guarantee Labour won’t be given a hearing on the economy.

The Labour Party’s centrists and the realist operators who just want power have written off the 2015 electoral prospects of the Labour party under the two Eds. So it is against this backdrop that we should look at two new publications that have just come out. Labour’s Business written by Luke Bozier and Alex Smith argues that the party should be pro-business, it even has one brilliantly simple business-friendly idea that the government should steal immediately – small businesses should have one person as their point of contact at the HMRC. One person who is responsible for dealing with issues arising from the complexity of the myriad of taxes – VAT, NI, capital gains, corporation taxes and the like – burdening small businesses.

“In the Black Labour: Why fiscal conservatism and social justice go hand-in-hand” is a new Policy Network discussion paper in which the authors; Graeme Cooke, Adam Lent, Anthony Painter and Hopi Sen, call for Labour to embrace fiscal conservatism. Policy Network is backed by Peter Mandelson, so is not exactly a fringe ginger group. The paper can be seen as a direct rebuttal of the kamikaze economics of Ed Balls endorsed by Ed Miliband, which poll after poll shows is not seen as credible by the public. Despite the state the economy is in George Osborne is believed and supported by the British public.

The policy details in the two papers won’t worry their Coalition opponents, they will however be seen as part of a slow move back towards the electorally potent reality-based politics of New Labour, rather than the one-more-heave-to-the-left politics of Ed Miliband. Ed Miliband and those around him believe the electorate is moving towards the positions of the Occupy and UK Uncut activist groups, a strategic error that will guarantee them electoral defeat in 2015. If Labour’s reality-based wonks want to be in government before they are old men, they have got to either get rid of the Eds or convince them to tack to the centre. These are the opening salvos…

Grow Faster, Go Further

Growth is anaemic, that much of the Balls critique is true, the cause is not the government’s spending cuts, they are a mere 1% of GDP. Osborne has made mistakes, hiking VAT hit the High Street by taking money out of the real economy whereas QE at the moment only puts money into high finance money markets. Back in June the IMF issued a report recommending

“…tax cuts are faster to implement and more credibly temporary than expenditure shifts and should be targeted to investment, low-income households, or job creation to increase their multipliers… Simultaneous adoption of deeper long-run entitlement reform would be desirable to safeguard fiscal sustainability and market confidence…”

It also pointed out that

“The level of public spending as a percentage of GDP in our forecast has reduced by about half a per cent of GDP as compared to the previous fiscal year. However, it remains very far above the pre-crisis levels of spending and represents a long-term high in spending. It’s important to maintain that perspective”

Plan B, the Balls plan for bankruptcy and bond market collapse, is for higher taxes and more spending, this can be dismissed. Osborne is right when he says the international bond markets would crucify Britain if he switched to Plan B, for as Jeff Randall points out this morning

“At the moment, the Chancellor is pulling off a brilliant confidence trick: persuading the markets that Britain remains a triple-A credit, able to borrow on the same terms as Germany, while managing an economy with an inflation rate 66% higher than the eurozone’s average, and a national debt that is forecast to hit £1.32 trillion in 2015, nearly 40% greater than today.”

Tricky. Gordon Brown inherited an economy in a sweet spot and left an economy drowning in debt, Osborne believes he must bear down on the deficit to keep the confidence of the bond markets. Yet a paper produced by Dr Tim Morgan of bond brokers Tullett Prebon argues that if the government is going to miss its deficit reduction target anyway, what option would placate the bond markets more?

  1. “Britain has missed its deficit target because growth hasn’t happened”
  2. “Britain has missed its deficit target because the government failed to cut spending sufficiently”
  3. “Britain has missed its deficit target because taxes have been cut in pursuit of growth”

We’re currently in the first situation, the second situation is unpalatable to the government, the LibDems don’t have the stomach for a shock doctrine style short term austerity programme. Balls advocates stimulus in the form of higher spending, no one in government is advocating the alternative, which is to stimulate the economy by cutting taxes instead. Of course if we also rolled back government spending there would be more room for tax cuts to boost consumer confidence and the economy, without matching spending cuts the deficit will rise. Osborne is going to miss his deficit target regardless of which option he takes, it wouldn’t scare the bond market so much if cut taxes in pursuit of growth…

Moral Markets and Other People’s Money

Guido has just got round to reading The Big Short by Michael Lewis, author of the eighties-era defining Liar’s Poker. It is the most readable book on the American sub-prime crisis that was the catalyst for the global sovereign debt crisis we now face. Essentially Lewis has found and written the story of the few who not only foresaw the crisis but bet on it, big bets. Was it moral for traders to bet that sub-prime lending would end in disaster? Via synthetic Collateralised Debt Obligations risk was added to the financial system, purely for speculative purposes. In a free society with a free economy it is good that consenting capitalists are allowed to take risks, the problem was that the PhD-equipped quantitative-modelling geeks who inhabit investment bank trading rooms got the models for analysing risk completely wrong. The ratings agencies bought into the models because their customers demanded it. When it all went wrong governments and central banks stepped in to bailout banks out of fear that the financial system would fail. The banks had allegedly become too big to fail.

Guido was an investment banker, has a lot of friends who are investment bankers, hell Guido even married an investment banker. Since the days of the Long Term Capital debacle at dinner parties Guido has argued that the problem with investment banking was that the geeks had brilliant reasons for losing big money, in that they had complex models that impressed management better than traditional trader’s gut instinct. The second problem was that investment banks were no longer partnerships, they were publicly listed companies, with shareholders who were not involved in day-to-day management. This has proved to be a disastrous form of capitalism, with owners who don’t know what the managers of their money are doing.

Up until Salomon Brothers listed in 1981 the investment banks were partnerships. That meant the firm’s capital was provided and risked by the partners who ran the firm. The oldest and most experienced partners tended to have the most capital in the firm. This had a risk management effect greater than any Nobel Prize winning computer-calculated risk model, the old guy with the grey hair stood to lose everything when some testosterone charged 27 year-old trader bet the firm’s capital. This incentivised senior management to control risk, because they know there are old traders and there are bold traders but there are very few old, bold traders. The bosses’ desire to keep their retirement pots concentrated their minds.

Michael Lewis points out that public listings transferred all the risks from management partners to the firm’s shareholders who had no idea what risks were being taken. Now we have huge financial combines with managements incentivised to bet the shareholders capital big, win and get out with their annual bonus. If they lose, the shareholders lose, or if they lose really big the taxpayer eventually bails them out because they have retail banking High Street subsidiaries which democratic governments are terrified will be dragged under as well. Capitalism with the risk being taken with Other People’s Money has the same fundamental problem associated with socialist governments spending Other People’s Money. Why worry if it isn’t your money?

Downing Street is briefing that the PM will be promoting the idea of “moral markets”. It is of course human nature to act in your self-interest, what has gone wrong is that the incentives have been given to those who manage the capital to take risks which informed owners would never knowingly take. There is nothing moral in asymmetric markets where the risks are borne by others than those taking the risks. If taxpayers in Western democracies are to implicitly insure retail banks – in effect owning the risk – the cost of that insurance should be such that it is prohibitive for retail banks to take exotic trading risks. Proprietary trading is for proprietors. Moral markets require risk and reward to be fairly priced.

Climate Change: Global Flatlining

The now famous global warming graph (top), popularised by Al Gore, shows rising global temperatures. Now a well funded team called the Berkeley Earth Surface Temperatures project (BEST) led by Professor Richard Muller, of Berkeley University in California, has been […]

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Occupy the Bank of England
Inflation Helps Central Bankers, Hurts Us All

The “Occupy the London Stock Exchange” and “Occupy Wall Street” crowd have got the wrong target. Living standards are being deliberately and systematically undermined by central bankers not stockbrokers. The London protestors should head over to the Bank of England […]

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Science is Never “Settled”

The likes of George Monbiot and Al Gore get pretty hysterical about global warming / cooling / dimming or whatever current theory is in vogue. The science is settled / the evidence is overwhelming they scream in an attempt to […]

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The Guardian’s Self-Delusion

The police have tight rules on releasing information to the press for fear it could prejudice a trial and because over the course of an investigation police arrest suspects to eliminate them from inquiries once they determine their innocence. Occasionally […]

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