We may be heading for double dip, but don’t blame the government

Ours wont be as sweet

Reading the responses to Tuesday’s news that the British economy shrunk by 0.5% in the fourth quarter of 2010 will have left many confused.

On the one hand the Keynesians made the preposterous claim that government spending cuts which haven’t happened yet are ‘taking money out of the economy’. ‘Free market’ economists rapidly responded to the contrary, blaming the weather and dodgy stats. There is, they assured us, no danger of double dip.

As well as demonstrating the truth in Harry Truman’s old joke about the one armed economist, the confusion of mainstream economics in the face of the recession demonstrates their failure to address the fundamental question: what, actually, is a recession?

Austrian theory holds that the recession is the inevitable contraction in credit which follows its previous unsustainable expansion. Interest rates are cut by central banks, perhaps as response to something like the dot com boom in 2000 in the US or simply because, as in the UK, the government has diddled the inflation figures. Whatever the reason, as interest rates fell ever more marginal investment projects began to look viable and entrepreneurs borrowed to finance them. Individuals too can get involved, as they did over the last cycle with property.

But eventually, even in a world with dodgy inflation figures and, thanks to the vast productive capacity of countries such as China, prices which should be falling, the inflation caused by this credit expansion starts to show even in the central bank’s figures. Interest rates are raised, and those marginal investments that looked viable a short while ago are now underwater.

This is the recession. Over the previous boom period, capital has been allocated to investments, more properly called malinvestments, which have no hope of ever producing a return above their borrowing costs unless interest rates are kept low and credit is kept flowing. The recession is the liquidation of these unviable credit positions and it will not be over until this process is complete.

The response of policymakers to the current downturn has generally, however, been to try and inflate an air mattress of new credit under the nose-diving economy. If borrowing costs can be kept cheap, they reason, the malinvestments of the boom can be sustained, sparing the undoubted human cost that would accompany their liquidation. But, as we’ve seen, continued credit expansion leads to the inflation we are also seeing now. Continued attempts by central bankers to prevent a short, sharp, corrective recession will simply lead to a prolonged depression as demonstrated in Japan most recently.

The alternative is to let the recession run its course. Metaphors about hangovers often obscure just how painful this would be for many people but the historic record of these ‘free market’ recessions, most notably in the United States after both world wars, shows that they can purge the economy of malinvestments and set the stage for sustainable growth quite quickly.

The full corrective gale has yet to blow through the British economy and the frenzied efforts of the Bank of England’s printing presses to avoid it have only delayed it. But with inflation starting to roar they appear unable to postpone this second dip for much longer. The British economy may well be heading for double dip, but don’t blame the government.

This article originally appeared at The Cobden Centre

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Sean O’Casey

Born that rarest of Irishmen, a poor southern Protestant, in a Dublin slum in 1880, Sean O’Casey was always an outsider. A communist in the Catholic, increasingly nationalist Ireland of the late nineteenth and early twentieth centuries he joined the Marxist Irish Citizen Army but had left before the Easter Rising which he witnessed as an outsider.

The 1916 Rising was the start of seven tumultuous years which saw Ireland’s war of independence, a civil war and independence in 1923. O’Casey used this as the backdrop for three classic plays.

‘The Plough and the Stars’ (1926) shows the Rising jostling for its characters attention with every day gossip while they drink, loot and try to stay alive. The War of Independence of 1919 – 1921 is the setting for ‘The Shadow of a Gunman’ (1923) where a young poet lodging in a Dublin flat courts tragedy by allowing the other lodgers to persist in their mistaken belief that he is a glamorous IRA assassin. Some IRA men saw the treaty with Britain which ended this war as a sell out and civil war erupted in Ireland in 1922. This was the background for ‘Juno and the Paycock’ (1924) where the colourful Boyle family come to realise that the promises of an inheritance on which they have staked their dreams are empty.

If Shakespeare dramatized the birth of modern England on the bloody fields of Bosworth, O’Casey did it for Ireland in the back streets and tenements of Dublin. And where Shakespeare’s heroes were dukes and earls O’Casey’s were tragic women like Bessie Burgess, Minnie Powell and Mary Boyle whose fates flowed from the actions of fanatics like Jack Clitheroe, dreamers like Donal Davoren, and chancers like ‘Captain’ Jack Boyle.

But despite his nationalism O’Casey was an outsider in the new country. Riots erupted at performances of ‘The Plough and Stars’ over a scene which intercuts a heroic speech by Patrick Pearse, executed leader of the Easter Rising, with some drunks boasting and brawling in a pub. Instead of the liberation O’Casey craved Ireland became an insular theocracy where the oppressive Catholic Church, its “special position” enshrined in the constitution, dominated swathes of Irish life from health and education to public morality. The ‘Dublin plays’ had dramatized the Irish revolution, ‘Cock a Doodle Dandy’ (1949) depicted its result.

The inhabitants of O’Casey’s rural post independence Ireland are dominated by their “pastors an’ masters”, the church, manipulating their prejudices and superstitions. The women encounter most prejudice; socially ambitious bog owner Michael Marthraun’s wife Lorna and his daughter Loreleen. Women often suffer in O’Casey’s plays, but whereas they are victims of the various pretensions of male characters in the Dublin plays, here they are victims of pure sexism, “Women is more flexible towards th’ ungodly than us men” warns one character.

Given the continued existence of such as the Taliban regime O’Casey’s depiction of how the threat of sex and it’s supposedly dire consequences are used to control are as relevant as ever.

First Rough Fellow : …It’s an omen, a warnin’, a reminder of what th’ Missioner said last night that young men should think of good-lookin’ things in skirts only in th’ presence of, an’ under th’ guidance of, old and pious people

The men begin ascribing demonic causes to everything. Typically O’Casey riddles this grim panorama with wild comedy; trousers are blown away, chairs collapse and cocks run rampage, each event causing greater terror among the menfolk. Soon they are repeating any rumour as truth

Michael : (almost shouting) Have you forgotten already th’ case of th’ Widow Malone who could turn, twinklin’, into a dog or a hare, when she wanted to hide herself? An’ how, one day, th’ dogs followed what they thought was a hare that made for th’ widow’s cottage, an’ dived through an open window, one o’ th’ dogs snappin’ a leg off before it could get through. An’ when th’ door was burst open, there was th’ oul’ witch-widow screamin’ on her oul’ bed, one leg gone, with blood spoutin’ from th’ stump, so that all th’ people heard her last screechin’ as she went slidderin’ down to hell!

Such beliefs can only flourish in isolation, new ideas are frowned upon.

Michael : (ferociously) Book o’ Durrow! It’s books that have us half th’ woeful way we are, fillin’ broody minds with loose scolasticality, infringin’ th’ holy beliefs an thried impositions that our fathers’ fathers’ fathers’ gave our fathers’ fathers’, who gave our fathers’ what our fathers’ gave us!

Life at such a pitch of hysteria gives rise to grim preoccupations

Mahan : (abjectly) What’s a poor, good livin’, virtuous man to do then?

Michael : He must always be thinkin’ of th’ four last things – hell, heaven, death, an th’ judgement

Unsurprisingly the women leave for England where “life resembles life more than it does here”, a journey O’Casey had made in 1927. Marthraun remains, a lonely man in a shrunken world. Unlike the expansive panorama of ‘The Plough and the Stars’ which used all Dublin as its backdrop ‘Cock a Doodle Dandy’ takes place entirely in Marthraun’s front yard. Ireland itself had shrunk.  The play was not performed there until 1975.

“The artist’s life,” O’Casey believed, “is to be where life is, active life, found in neither ivory tower nor concrete shelter; he must be out listening to everything, looking at everything, and thinking it all out afterward”. Coming to drama in his 40’s after jobs including construction labourer and shop assistant, O’Casey had a wealth of life experience to draw on and his characters sing and plays hum with Dublin speech lifted straight from real life.

In England, removed from the vein of Dublin dialect he had mined so successfully, O’Casey’s plays became more abstract and less popular. But he remained a Marxist and Irish nationalist to the end of his life wearing a hammer and sickle badge on his jacket and in tranquil, Tory Torquay, where he died in 1964, still the outsider.

This article originally appeared at Middlebrow Magazine

The end of the affair, but it was a fool’s love from the start

Breaking up is hard to do

On January 5th the Independent reported that the Liberal Democrats had hit an all time low in the polls of just 11%. Part of this is down to students falling out of love with the Lib Dems, just 15% continue to support them according to YouGov in November. As recently as last May this figure was 45% and ‘I agree with Nick’ was a slogan popular on campuses nationwide. Where did the love go?

Students fell in love with the Liberal Democrats over Iraq and stayed in love over the unaffordable promise that taxpayers continue to pay 60% of the cost of 50% of all British kids studying for three years. It was never a relationship with stable foundations.

For all the sound and fury at the time Iraq receded as an issue. This left the unaffordable promise.

The promise had been made in more carefree days when no one had to worry about how it would be paid for, the Liberal Democrats were never going to get elected so who cared? Not since Sonny serenaded Cher had lovers been so blasé about the bills.

Then the unthinkable happened. The Lib Dems actually did end up in government. Curiously, many of those who voted Lib Dem were upset at this outcome; it seemed they had voted Lib Dem to bring about a Labour government.

Faced with actual power the Lib Dems were forced to dump the unaffordable promise on fees and as the old folk song went the hottest love was the soonest cold. The sweet nothings of May had been replaced by angry chants of “Nick Clegg, shame on you, shame on you for turning blue”

But like any break up the blame isn’t all on one side. Students who voted for the Lib Dems on the strength of their pledge on tuition fees need to ask themselves a question; why was it that the only party willing to sign it was the party that had no expectation of actually being asked to deliver on it?

Both Labour and the Conservatives went into the last election with the possibility of forming a government. Both made some pretty wild pledges but even they ran a mile from the tuition fee pledge. The Lib Dems probably knew they couldn’t keep it but didn’t think they’d have to so persisted in the fantasy that the taxpayers pockets were bottomless. It’s often asked whether students would have voted Lib Dem if they hadn’t made their tuition fee promise. An equally pertinent question is would the Lib Dems had made the promise in the first place if they’d thought they’d have to honour it?

But surely that fact that no party with a realistic proposition of power was willing to make this promise should have set a few alarm bells ringing among the student leadership? Surely they should have asked why this was? They are clever people, that is why they believe the taxpayer should to continue fund their education. But they fell for a fantasy. If they chose Lib Dem fantasyland over the real world then shouldn’t they take a look at themselves and take some responsibility?

The death of the Liberal Democrats may well be the consequence of this most acrimonious break up since The Smiths. But so what? The Lib Dems have always offered an alternative, but not an alternative to the policies of Labour and the Conservative,s but an alternative to grim, real world politics where money doesn’t grow on trees. What’s left of the Lib Dems is moving on. The student leadership should too.

Printed in London Student, 17/01/11

Oldham East and Saddleworth

A case of premature congratulation

“The voters have spoken for the country” said newly elected MP for Oldham East and Saddleworth Debbie Abrahams a little before 2am this morning. “Across the country there is growing anger against your reckless policies, your broken promises and your unfair cuts. You are making the wrong judgements for the long-term of our country” she continued.

Lets just hang on a minute. The claim was made that this was “better than Labour did during the 1997 landslide”. In one sense this is true, in 1997 Labour got 41.7% of the vote, yesterday this was up to 42.1%. The majority, 3,389 in 1997, was also up yesterday to 3,558.

And yet Ms Abrahams won 14,718 votes yesterday. This is an increase of 532 from May 2010. It is 7,828 votes less than Labour won in the constituency in 1997. Not an incredible result given Ed Miliband’s three visits to the constituency.

Ed Miliband still tried to claim that drumming up 532 extra voters in three visits had sent a message to the coalition to “think again on VAT, think again on the trebling of tuition fees, think again on the police cuts that are going to affect their communities” but the fact is that the combined Liberal Democrat and Conservative vote was 15,641.

The real interest lies not with Labour holding onto a seat it already held with a few hundred extra votes, but in the other party’s results.

Despite opinion poll ratings in the single figures the Lib Dems scored a fairly respectable 11,160 (31.9% of the vote). The Conservative vote, on the other hand, fell from 11,773 to just 4,481.

The answer to the question ‘where did those Conservative voters go?’ is crucial to answering the question of who can take most comfort from this result and what does it signal for the long term. Given that the Labour vote, in terms of actual numbers, barely budged, there are two possibilities;

1 – The Conservative voters from May 2010 stayed at home. This is worrying for the Conservatives and encouraging for the Lib Dems as it means their voters, largely, stayed faithful.

2 – The Conservatives switched to the Lib Dems. This was floated as a possibilty by the Lib Dems candidate himself. But this is worrying for the Lib Dems. With a fall in their vote it means that Conservative voters switching to them were simply making up for the voters deserting them. If this is the case these are the sorts of voters who will switch back to the Conservatives in a general election.

Which of these two scenarios is more likely? If Lib Dems from May 2010 deserted they must have stayed at home given Labours static vote or Labour voters from May 2010 may have stayed at home and been replaced by Lib Dems. This seems unlikely. Scenario 1 is more likiely, the Conservative vote collapsing. Given his half hearted campaign this might not be surprising but there is a limit to how long he can sacrifice the Conservative Party for the coalition.

What does the ‘far right’ believe?

The former editor of the Socialist Party newspaper

Today a friend of mine brought this to my attention, perhaps the most witless attempt yet to make political capital out of the dreadful Arizona shootings.

Ive talked about some of the reaction to this awful event previously but something struck me about this one. What does being ‘far right’ involve?

Look at the National Front in France. They are labeled ‘far right’ just like the Tea Party. So what beliefs do they share? According to Newsweek the incoming National Front leader, Jean Marie Le Pen’s daughter, is “a big believer in the state’s ability and obligation to help its people. ‘We feel the state should have the means to intervene’ she says. ‘We are very attached to public services à la française as a way to limit the inequalities among regions and among the French’ including ‘access for all to the same level of health care'”

In the UK the British National Party are called ‘far right’. Yet they support nationalisation and higher taxes. Given that Margaret Thatcher also gets called ‘far right’ you have to wonder what ground they do share. Indeed, the BNP call themselves “the Labour party your grandparents voted for”.

The Tea Party dont have a leader but if you visit the Tea Party Patriots website youll see that they list their core values as “fiscal responsibility, constitutionally limited government and free markets”. Where, exactly, is the synergy? What do these two phenomena have in common that would make them both ‘far right’?

So as for what being ‘far right’ is supposed to involve, Im still stuck. Any suggestions?

A tragedy is not an opportunity to score political points

The woman who blamed Sarah Palin for inciting violence

On January 8th a 9 year old girl who had just been elected to the student council at her local elementary school was taken to see Representative Gabrielle Giffords at a mall in Tucson Arizona as a treat. Shortly after 10 am Christina Taylor Green was shot dead along with five other people. Representative Giffords, shot in the head at point blank range, remains in a coma.

A 22 year old man named Jared Lee Loughner has been charged with the shooting. Like Arthur Bremer, who shot Alabama governor George Wallace in 1972, Loughner may simply have wanted “to do SOMETHING BOLD AND DRAMATIC, FORCEFUL & DYNAMIC, A STATEMENT of my manhood for the world to see”. On his YouTube account Loughner lists his favourite books as ‘The Communist Manifesto’, ‘Mein Kampf’, ‘We the Living’ by the libertarian Ayn Rand and Plato’s ‘Republic’. On the morning of the shooting he posted on MySpace “Goodbye friends. Please don’t be mad at me. The literacy rate is below 5%. I haven’t talked to one person who is literate. I want to make it out alive. The longest war in the history of the United States. Goodbye. I’m saddened with the current currency and job employment. I had a bully at school. Thank you. P.S. –plead the fifth!”

Quite simply we do not know what prompted a deranged lunatic to carry out these awful acts.But where most saw tragedy some saw opportunity. The horrible death of Christina Taylor Green quickly became simply the latest stick with which beat Sarah Palin and the Tea Party.

It started with the reaction of Pima County Sheriff Clarence Dupnick, a Democrat, who said in the immediate aftermath of the shooting “When you look at unbalanced people, how they respond to the vitriol that comes out of certain mouths about tearing down the government. The anger, the hatred, the bigotry that goes on in this country is getting to be outrageous. And, unfortunately, Arizona I think has become sort of the capital. We have become the Mecca for prejudice and bigotry”

This is quite a jump. Already the motives of the gunman are seen as political despite the fact that Dupnick had not yet spoken to him. Dupnick can be forgiven for his this lapse. A local Sherriff thrust into the media spotlight and also dealing with the death of his friend, John Roll, a local judge.

But from there a gaggle of left wingers were ready to hijack the tragedy.

On MSNBC Keith Olbermann blamed, not the gunman who shot Christina Taylor Green, but a list of well known conservatives such as TV hosts Bill O’Reilly and Glenn Beck, former Senate candidate Sharron Angle, former Congressional candidate Jesse Kelly, Congressman Allen West, the Tea Party as a whole and bete noir of the left, Sarah Palin. Olbermann, a Democrat, made the nonsensical statement that

“If all of these are not responsible for what happened in Tucson, they must now be responsible for doing everything they can to make sure Tucson doesn’t happen again”

The argument seemed to be that the rhetoric of those on the right is ‘extreme’ and had pushed the Arizona gunman to act. That there was no evidence for this is one thing, but it is also grosly hypocritical. Olbermann, after all, routinely claims that the “Worst man in the world” is not Osama Bin Laden or Josef Fritzl, but Bill O’Reilly, a man who’s political opinions he happens to disagree with. When Republican Scott Brown was surprisingly elected to the Senate for Massachusetts, Olbermann called Brown “an irresponsible, homophobic, racist, reactionary, ex-nude model, Tea Bagging supporter of violence against women, and against politicians with whom he disagrees”

Paul Krugman, a Nobel Prize winner in economics, revealed a hitherto unsuspected gift for clairvoyance when he wrote on his blog for the New York Times “We don’t have proof yet that this was political, but the odds are that it was”.

The left quickly bumped Palin to the top of its suspect list for those ‘really’ guilty of the shootings. Jane Fonda who, during the Vietnam War, posed for photographs at the controls of a North Vietnamese anti aircraft gun which was used to shoot down American pilots, accused Sarah Palin of “Inciting to violence” (she also threw in Glenn Beck and the Tea Party).

The reason for blaming Palin seemed to boil down to a map on her website which highlighted Congressional districts she wanted the Republicans to win in October. She marked them with cross hairs which, in the minds of some, equated to an incitement to violence.

These people have probably never been involved in a political campaign before. You have ‘target seats’ and the people stuffing envelopes through doors are routinely called ‘foot soldiers’. Indeed, the very word ‘campaign’ was also used to describe the German invasion of Soviet Russia. If Sarah Palin is guilty then everyone is. Even President Obama who said, back in June 2008, “If they bring a knife to the fight, we bring a gun. Because from what I understand folks in Philly like a good brawl. I’ve seen Eagles fans”

Obama is no more or less guilty than Palin. The truth is that the guilt lies with the psychotic who murdered six people.

The deaths of these six people at the hands of a maniac are heartbreaking. As human beings our first reaction should be to empathise with those who are wounded or bereaved. That the reactions of some on the left has simply been to try and pin a political rosette to the coffin of Christina Taylor Green ought to make them ashamed of themselves.