Public sector strikes: Unaffordable and unfair

Hands off my wages

And so the world keeps turning. An estimated two million public sector workers have gone on strike and the nation has kept ticking along.

The false argument about public sector pensions is put rather well by this which is going round on Facebook

“Remember when teachers, nurses, doctors, lollipop ladies and disabled people crashed the stock market, wiped out banks, took billions in bonuses and paid no tax? No, me neither. Please copy and paste to your status for 24 hours to show your support for the strikes against the government pensions”

It is hugely dishonest to try and make out that these reforms to public sector pensions are simply a result of the financial crisis. They aren’t. There were threats of strikes over the issue in 20042005 and an actual strike in 2006. Yes, the dire state of Britain’s finances has made dealing with public sector pensions more pressing, but the simple fact is that the current arrangements aren’t affordable after the credit crunch and weren’t affordable before it.

The issue of pensions is about the worst one public sector workers could choose to strike on. According to figures from the Office of National Statistics, reported in the Telegraph

“The calculations show that a mid-ranking teacher on £32,000 a year will receive a final salary pension that is the equivalent of having built up a £500,000 pension pot.

This is 20 times higher than the average private sector scheme, according to figures from the Office for National Statistics. Private sector workers would have to save more than 20 percent of their salaries for 40 years – more than £500 a month for a similarly paid person — to amass the same amount in a defined contribution pension”

This state of affairs was, just about, sustainable when it could be passed off as the reward for lower wages in the public sector. But the last Labour government richly rewarded its loyal clients in the public sector and, as a comprehensive report by Policy Exchange found

“On an hourly basis, the typical public sector worker is now 30 percent better paid than the typical worker in the private sector. On top of this, public sector employees have better pensions. The difference is worth an extra 15 percent of their salary. Over their lifetimes, people in the private sector work 23 percent more hours (equivalent to 9.2 years of a public sector employee’s working life) – where their public sector counterpart will either be on sick leave, holiday, strike or in retirement”

Union leaders like Mark Serwotka have derided George Osborne’s claim that “we’re all in this together”. As well they might, another Policy Exchange report found that

“Since the start of the recession, the hourly pay premium for the typical public sector worker has increased. After taking into account differences like age, experience and qualifications, the hourly pay premium for a public sector worker was 8.8 percent as of December 2010. This almost doubled from 4.3 percent two years earlier”

The public sector hasn’t been in anything at all yet.

The strikers have argued that the terms and conditions of their employment are being changed. So they are. But consider what happens to a private sector company which can no longer fund its pension commitments; it defaults and its members don’t get a penny. Renegotiation is a pretty good deal by comparison.

Of course, the private sector company defaults because it has run out of money. Governments, it is believed despite mounting evidence from the eurozone, don’t.

But this reveals the central fallacy and the central issue which lies behind this strike. There is no such thing as ‘government money’. There is only taxpayer’s money. When public sector unions say the government should pay more they mean the taxpayer should pay more.

The unions at least used to make a show of supporting things like ‘fairness’ and ‘social justice’. They are now, quite brazenly, simply trying to protect the privileges of a public sector labour aristocracy supported by the galley slaves in the private sector. They are worked until they drop to pay for these generous pensions and then thrown overboard.

This is not only unaffordable, it is unfair. That is what today’s strike is about.

This article originally appeared at The Commentator

The late, occasionally great, Ken Russell

Ken Russell, 1927 – 2011

The 1960s ‘Harry Palmer’ spy films starring Michael Caine were intended as the antithesis of James Bond. They were downbeat, gritty, and realistic. The first in the series, ‘The Ipcress File’ (1965), opened with Palmer fumbling for his horn rimmed specs and sleepily making coffee. Then Ken Russell, who died yesterday aged 84, was hired to direct the third instalment, ‘Billion Dollar Brain’ (1967).

Perhaps the producers were attracted by Russell’s intellectual cache and documentary film background. He made his name with a string of films he produced in the 1960s for ‘Monitor’, the BBC’s arts show. In themes he would return to in his films Russell’s finest television work focused on artists. His documentary on Edward Elgar (1962) was more than a simple biography with some musical clips. By setting up shots and scenes and using Elgar’s symphonies almost as incidental music Russell placed the composer squarely in his time and setting. It was as much an evocation of the high noon of Imperial Britain as a documentary about Elgar.

Russell took these techniques further in his film on the life of Claude Debussy (1965), which interspersed more conventional documentary film with dramatised scenes from his life. Oliver Reed gave a stunning performance as Debussy, powerful and passionate, and launched his career, a career he spent the rest of his life merrily trying to destroy.

So Ken Russell might have been the ideal director for the hyperrealism of Harry Palmer. Instead, where the ‘The Ipcress File’ had utilised no location more exotic than Balham and climaxed with a strung out Palmer in a disused warehouse, ‘Billion Dollar Brain’ went to the frozen wastes of the Arctic Circle and culminated with a right wing madman’s private army crashing through the Baltic ice on its way to invade the Soviet Union and trigger World War Three. The world had seen a sneak peak of Ken Russell, movie director.

‘Flamboyant’ and ‘outrageous’ are just two of the adjectives applied equally to Ken Russell and his films. Movies like ‘Tommy’, ‘Lisztomania’ (both 1975), and ‘Crimes of Passion’ (1984) are less coherent films than sensory assaults. There seemed to be no idea so loopy that Russell wouldn’t include it. ‘Lisztomania’, for example, a film ostensibly about the life of the composer Franz Liszt, featured Rick Wakeman of prog rockers Yes as Thor, God of Thunder (and Ringo Starr as the Pope), and a plot that saw a musical battle between Liszt and Richard Wagner over the Nietzschean concept of the Superman. His films became bywords for extravagance.

They also became synonymous with controversy. Most famously Russell’s film of ‘Women in Love’ (1969) became the first mainstream film to show frontal male nudity when its two stars, Reed and Alan Bates, wrestled in the buff in front of a fireplace. ‘The Devils’ (1971) with its horde of naked, masturbating nuns remains unreleased in its original form to this day. “Monstrously indecent” said one critic, a “grand fiesta for sadists and perverts” said another.

Russell appeared to shelter from some of the controversy behind a shield of silliness, something he only encouraged by saying he was writing a series of books on the sex lives of great composers with titles like ‘Brahms Gets Laid’. When he entered the Celebrity Big Brother house in 2007 warbling Singin’ in the Rain Russell appeared to be revelling in his role of eccentric. He’d have been called an enfant terrible if he hadn’t been over 80.

Sadly all this this often obscured a ferociously intelligent man, one who thought deeply about religion (he converted to Catholicism late in life) and about the creative process and was capable of producing scintillating cinema.

‘The Devils’, for example, is a stunning exercise in cinematic expressionism; Russell cited Fritz Lang and Jean Cocteau and early influences. Though based on a true story from 17th century France the screen is full of billowing, anachronistic black flags. The sets, designed by Derek Jarman, are similarly dissonant; the cells in the convent where the nuns are interrogated have smooth, white tiled walls evoking a modern day psychiatric institution. Russell is signalling the timelessness of the story.

Russell’s film is about the perversion of ideology, in this case religion in the form of the Catholic Church. The film shows a desiccated Church, become simply an instrument in repression, prostituting itself to the temporal power of the French King.

Oliver Reed’s Father Urban Grandier defies an edict from the King to demolish the walls of his town. Meanwhile Sister Jeanne, a crippled nun played by Vanessa Redgrave, becomes sexually obsessed with Grandier. When she hears of his secret marriage and tells the King’s agents they co-opt the full power of the Church to destroy Grandier and the walls of Loudon by accusing him of sexual deviancy.

The town erupts in an orgy of grotesque sexuality as repression is cast asunder and is proved to have perverted desire so long denied. This includes the now infamous ‘Rape of Christ’ sequence where the nuns descend on a statue of Jesus and pleasure themselves. This was cut from the released film and was the core of the outrage but it is absolutely integral to the movie, a vicious visual of the defilement of faith. Throughout the film scenes of the private, more personal, spiritual rites of Grandier and his wife are shown for contrast.

Along with ‘Tommy’ ‘The Devils’ was a rare case of Russell’s subject matter being matched to his incredible capacity for cinematic imagination. The late medieval Church which Russell depicts was rotten to its core, stinking and corrupt, and he captures it perfectly. Rarely has a film set out to depict such horror and succeeded so well.

Ken Russell’s imagination was capable of producing utter confusion. It was also, as in the case of ‘Altered States (1980), capable of making ordinary material watchable. And, given the right subject matter, it was able to create unforgettable cinema. Ken Russell made some bad films but he never made a boring one.

This article originally appeared at Middlebrow Magazine

Versus: Death of the Author

The late Roland Barthes

Holly Steell:

The Death of the Author by Roland Barthes was published in 1967, and in this controversial essay he criticises the tradition of interpreting text through the author’s history, personal views and actions.

Barthes argues that the text is not the sole product of the author, but rather it is the sum of society – every sentence is the quotation of a previous work and the author merely the channel it is expressed through; they are the “Scriptor”, not the creator.

A text is made from a multiple of writings, that is built upon every generation and drawn from many cultures; but there is one place where this multiplicity comes together, the reader.

The reader is the space on which all the quotations that make up writing are inscribed without any of them being lost; a text’s unity lies not in its origins but in its destinations.

If we follow this argument, than it becomes irrelevant for us to search through biographies and dusty letters in order to unlock the meaning of texts, because as the reader we already have the necessary tools at our disposal.

No more should we should be attempt to understand the text by first endeavouring to ‘know’ the author; the author is a distraction from the text, too much knowledge of the author is a barrier to our true understanding and enjoyment of the text.
The works of Shakespeare are undeniably the most beloved in the English language, and yet what do we know of the man? That his son died young and that he left his wife the second best bed in his will? He is a mystery and I for one am glad. Shakespeare the man never interferes with that incredible body of text that has been left to be constantly reinterpreted by the next generation of reader.
Sean O’Faolain:

Death of the Author is very French. On one level this reflects the French intellectual tradition which, as an Englishman, frequently moves one to amused bemusment. The French seem to revel in intellectualism for its own sake whereas we ‘rosbifs’ have always had a pronounced practical streak. Harold Macmillan said it was the difference between an English intellectual approach which reasoned a posteriori “in the tradition of Bacon and Newton” and a French intellectual approach which reasoned a priori in the tradition of St Thomas Aquinas. We invented the industrial revolution, they invented literary theory.

On another level it reflects the essays central place in French intellectual life in the twentieth century. The bedrock of Barthes work, and the subject of his best known book Mythologies, is the idea of language as a system of socially constructed ‘signals’ which builds on the earlier work of Ferdinand de Saussure. This, which also lies behind the Death of the Author, points towards Jacques Derrida’s ‘deconstruction’ which argued that everything was essentially without inherent meaning and ultimately to Jean Baudrillard who famously deconstructed the Gulf War out of existence.

But what of its argument? It is hard to avoid the idea that, like much writing of its kind, Death of the Author is an exercise in stating the bleedin’ obvious as impenetrably as possible (possibly a Brechtian distancing technique?). It is, of course, tedious to crawl through every nook and cranny of a text and try to find a corresponding biographical point in the author’s life. There are also limits to the usefulness of this. You can buy a biography of JD Salinger that is longer than everything he ever had published put together.

But neither can we completely banish the author from their work. You can enjoy the James Bond books perfectly well if you know nothing of Ian Fleming or his times. But when you think that he had been a spy, that he was frequently very publicly humiliated by his wife, and that he was writing his fantasies of British potency at the time the Empire was evaporating, the books take on new depth, new light and shade.

Rather than the death of the author or domination by them, the act of reading is, rather, a meeting between equals, author and reader, in the process of bringing the text to life.

Holly Steell:

For me the most important part of Barthes argument is the freedom it gives readers; yes influences on the author are interesting to know and can illuminate the text in surprising ways, but it can also limit the reader’s interpretation and experience.

I think the way we are taught Literature puts far too much emphasis on context, particularly at GCSE and A Level, when we should be concentrating on the actual words.

Reading should be between the reader and the text. For example, Jane Austen wrote books of incredible enduring popularity, and yet very little of her life is in those books and I think that is a chief part of their charm. While her work was inspired by her observations, they are not influenced by her own love affairs, and despite researcher’s best attempts to uncover secret romances, very little is know about her private feelings or experiences. Therefore there is no distraction from the text, you do not read Northanger Abbey or Emma and imagine the ‘real life’ scenario that occurred between Austen and X, and therefore there is no filter between the text and the reader.

Sean O’Faolain:

I agree that we do not want to be tyrannised by the author but neither should we be tyrannised by literary theorists.

Your example of Jane Austen is a good one. I would add Stephen Crane author of The Red Badge of Courage, one of the most vivid descriptions of war ever written. Crane was twenty four years old when the book came out and he had never seen a battlefield or an army on the march in his life. The book is a pure product of the writer’s imagination and there is nothing in Crane’s life of particular interest from an interpretative point of view. There is no author to kill.

So it is in the power of some writers to write pure imaginative fiction and render pointless any autobiographical baggage. Of course, some, like the Beat writers, make autobiography the centre of their literature. What is On the Road if not a travel diary with the names changed?

So we are, as Barthes argued, free as readers. Not only to kill the author if we so wish, but to judge for ourselves how well we want to get to know them and to choose how far they come with us on our creative journey as readers. Just as we can choose how free we wish to be from the author we are free just to read unencumbered by the self-serving intellectualism of much of literary theory.

This article originally appeared at Middlebrow Magazine

What’s holding the British economy back? Debt, debt, and more debt

Maxed out

Last week the coalition government was hit with a combination punch of bad economic news. On the same day unemployment was up and the Bank of England’s growth forecasts were down.

Labour were quick to point the finger. Shadow Chancellor Ed Balls said “The British economic recovery was choked off well before the instability in the last few months in the eurozone…The government is cutting too far and too fast and it’s pushing borrowing and unemployment up at the same time”

You have to wonder whether Balls actually believes any of this. In Labour’s last year in office government spending was £660 billion. This financial year it is forecast to be £703 billion. Only in the weird world of Labour party economic policy could a rise in spending of 6.5 percent be described as “cutting too far and too fast”

In other words, for all the sound and fury about ‘heartless’ ‘Con-Dem’ cuts, there actually aren’t any. And non existent cuts obviously cannot be harming the economy.

But while we might have come to expect Ed Balls to say stupid things about the economy the coalition isn’t being totally honest either.

“These figures show just how much our economy is being affected by the crisis in the eurozone” was Employment Minister Chris Grayling’s reaction. Slightly more circumspect, Chancellor George Osborne has said“There’s no doubt that growth in Britain, jobs in Britain, have been hit by what’s going on in theeurozone”

Pinning the blame for Britain’s sluggish growth on the euro crisis has left the government open to charges of hypocrisy. In opposition didn’t they scorn Labour for its claims that Britain’s ruinous finances were all the fault of exogenous economic shocks beyond our control? Well no, they didn’t. They blamedLabour for increasing debt when the economy was growing in the years before the crash; the global nature of the crisis was always understood.

And unlike Balls’ nonsensical claims about the effect of phantom cuts there is a grain of truth to what Osborne and Grayling say. The very real possibility that the monetary system of our biggest trading partner could collapse is bound to have an effect on British business.

But this still misses the heart of Britain’s economic problem; debt. In the years leading up to the credit crunch, debt, both public and private, exploded in Britain. By 2008 household debt in Britain stood at 173 percent of household incomes, higher even than in Japan in 1990 on the eve of the bursting of its property bubble and ensuing 15 years of stagnation.

British households are now trying to repay that debt, reduce the amount they owe, or, to use the technical term, deleverage. That is why their spending has slumped.

The standard Keynesian remedy would be for government to step in and take up the slack, replacing the vanished spending of households with government spending. But, thanks to the lunatic profligacy of the Labour government, we don’t have that option.

Desperate to shed the image for financial mismanagement which had cost it the 1992 election, Labour, in 1997, committed to stick to Conservative party spending plans if elected. They were and they did. The national debt fell from 42 percent of GDP to under 30 percent. As fantastic as it may seem now, Chancellor Gordon Brown’s nickname ‘Prudence’ was well earned.

Then, in 2001, Labour won a second big electoral majority. Hubris set in and the spending sluice gates were opened. At a time when Britain’s economy was growing and, according to the simplified Keynesian theory, we should have been running budget surpluses, Labour began running deficits. This was in 2002; five years before the first banker came rattling the begging bowl. Labour applied its stimulus to an already growing economy.

The sorry story can be seen in the graph below.

Under Labour’s splurge national debt rose from around 30 percent to around 35 percent on the eve of the crash. That might not sound like much but consider two things; first, that is a percentage of what was, then, a growing economy. Second, where would we have been without it?

If we look at the trend of debt when Labour were adhering to Conservative spending plans and continue that we could have been heading into this crisis with a national debt of around ten percent of GDP, just think how much more room that would have left for government stimulus.

Either way the upshot of this massive private and public borrowing binge is simple; we have had a period of overconsumption which will now be followed by a period of underconsumption. As long as the dead weight of this debt is pressing down on the British economy the best we can hope for is the sluggish growth we have had.

We can forget the delusional sniping of the ridiculous Balls. The real problem for the coalition is that by blaming the crisis on the eurozone for Britain’s economic ills they convey the impression that the solution might be other than it is.

David Cameron made a start on disabusing the public of this notion this week when he said “High levels of public and private debt are proving to be a drag on growth, which in turn makes it more difficult to deal with those debts”.

The coalition thus has a tricky tightrope to walk. On the one hand they risk being accused of talking down the economy if they tell the grim truth on debt. On the other they risk being punished for the dashing of false hopes conjured up by deflections.

Yet as we’ve seen, it is not non-existent cuts which are holding the British economy back nor even, yet, the meltdown of the euro. It is Britain’s suffocating debt burden. Until that has been dealt with we will not see recovery.

This article originally appeared at The Commentator

Maggie, Maggie, Maggie!

Four more years

According to an old joke a dancefloor will have to built over Margaret Thatcher’s grave to accomodate the vast number of people who plan to dance on it.

Perhaps not. I’ve looked before at how such a hated and unpopular leader, for so we are often told she was, could have won every general election she fought.

This weekend saw further evidence that hatred of Thatcher id neither so widespread nor so deep as those who really do hate her would have you believe. A YouGov poll for The Sunday Times placed her firmly at the top of a list of post war British prime ministers with a whopping 27%, more even than Winston Churchill. The sainted Clement Atlee, architect of the welfare state, overseer of the NHS, and nationaliser of industries, limped home with just 5% of the vote behind Tony Blair and, mysteriously, Harold Wilson.

This is not to say that some people do not hate Margaret Thatcher ver much but they are not so numerous as they would have you think. They may need that dancefloor, albeit a smaller one than they expect, and the DJ might be playing ‘Dancing With Myself‘.

Cameron faces a fight on two fronts against Germany’s Merkel

Watch out for those Prussians on the left!

It has become a terrible cliché to discuss Anglo-German relations using World War Two metaphors. But as David Cameron advanced on Berlin for a showdown with Angela Merkel on Friday other military antecedents sprung to mind.

Cameron is fighting Merkel on two fronts. First, he is attempting to resist the tax on financial transactions which the European Union wants to introduce. And so he should. The tax, which is supposed to fund future Eurozone bailouts, will get an estimated 80 percent of its take from the City of London.

Why should Britain fund bailouts for misbehaving members of currency it isn’t in?

Some European leaders even now refuse to accept that the real causes of the euro’s woes are the inherent and obvious flaws in a disastrously designed and constructed currency arrangement.

Instead, as Philippe Mills, head of France’s budget management office put it this week, “What is clear is that you have a market environment which has recently developed and which has its own dynamic, its own self-fulfilling prophesy in a way, which is very far from any evaluation of any elements of fundamental analysis of whatever country”. Spanish finance minister Elena Salgado wailed that the euro was under “systemic attack”. The real architects of the Eurozone’s ills are held to be speculators based in the City of London.

The second front is over the role of the European Central Bank in fighting the crisis. As yields on Italian, Spanish and, now, French bonds spiral up to “unsustainable” levels Cameron and Merkel differ on how the Eurozone should deal with this.

Merkel believes that the countries involved should aim to bring their bond yields down by using spending cuts and tax rises to get borrowing under control. Cameron, while supporting fiscal consolidation in these countries, believes the ECB should also be playing a role by buying their bonds in order to reduce yields. This is similar the Quantitative Easing program of asset purchases carried out by the Bank of England.

But German aversion to anything whiffing of inflation is deep rooted. The deputy leader of Germany’s Christian Democrats, Dr Michael Fuchs, explained to Radio 4 that “Printing money means inflation…The Germans have it in their genes, they are against inflation. Every German is very much scared about inflation”. The spectre of the mid twentieth century haunts German policymakers just as much as British tabloid editors.

With battle lines drawn, Cameron was met with a verbal barrage as he headed to Berlin on Friday. Angela Merkel urged him to fall into line at the risk of the old federalist threat of being “left behind”.Voker Kauder, the parliamentary leader of the CDU, complained that Britain was “defending only its own interests” and Der Speigel branded Britain a “diseased empire”

But this was an unusual skirmish in Britain’s volatile relations with its fellow EU members; it was bilateral. Usually Britain is alone or has the support of only a couple of east European countries in its struggles with Brussels and the Franco-German axis. Here Germany was alone in its battle with Britain.

This is because, unusually but none too surprisingly, there is plenty of support for Cameron’s stance among the European countries afflicted by eye watering borrowing costs.

The day before Cameron and Merkel’s showdown in what the Telegraph’s Ambrose Evans-Pritchard said was “clearly a co-ordinated move by top EU players”, French budget minister Valérie Pécressesaid “The ECB’s role is to ensure the stability of the euro, but also the financial stability of Europe. We trust that the ECB will take the necessary measures”.

Meanwhile Jose Manuel Barroso the (Portuguese) head of the European Commission said “Should the central bank be responsible for financial stability as well as price stability? My reply is yes, definitely”.

There has been talk of Britain leading a coalition of non-euro EU members. Now it looks like a few euro members might be willing to sign up too.

So this is not 1940. Rather, it is more like 1815, 1809 or 1704. Britain is not stood alone against a German dominated Europe. It could, potentially, be stood at the head of motley coalition like that led by the Duke of Marlborough to the Danube to thwart Louis XIV’s domination of Europe or any one of the seven which fought Napoleon’s plans for continental dominance.

A future Tory Prime Minister, the Duke of Wellington, led the seventh coalition in 1815. David Cameron could lead an eighth in 2012.

This article originally appeared at The Commentator 

Monetarism: what it is and what it isn’t

Mr Monetarism

On last week’s Question Time two people in the audience angrily condemned the “monetarist” policies apparently being pursued by the British and German governments. I groaned. It seems that the only people who use the phrases ‘monetarist’ or ‘monetarism’ anymore are people who haven’t got a clue what they mean.

Monetarism was at its height around thirty years ago. With double digit inflation in Britain, the United States, and elsewhere, and the failure of Keynesian policies to deal with it (indeed, they were the cause of it) the search was on for a set of policies which would. As the chaos grew in the late 1970s many fixed on monetarism as the answer. It went where few economic theories had gone before; debated in Parliament, the front pages of national newspapers, and TV current affairs shows. Rarely has a reasonably technically involved economic concept achieved such widespread discussion among non-economists.

Though it had roots deep in the history of economic thought monetarism was popularized in the 1970s by Milton Friedman, a Nobel Prize winning economist from Chicago University. Friedman was on a roll at the time. In 1953 he had argued for floating exchange rates and in the 1970s these had come about. In 1968 he had predicted the breakdown of the Phillips Curve relationship between unemployment and inflation and, again, in the 1970s this had come about.

His theory was really very simple and was based around one of the oldest, and certainly one of the very few useful, equations in economics, the equation of exchange


Here M stands for the amount of money in an economy and V stands for velocity of circulation; how many times in a given period a unit of currency is spent. Thus, if M was, say, £50 and V was 3 then MV would equal £150 which would be the total amount of spending in that economy in that given period.

P stands for the price level, a statistical aggregate of prices in the economy like the inflation figure reported monthly in newspapers. T stands for the real value of aggregate transactions in the economy in a given period. If that sounds like a slippery concept don’t worry, Freidman swapped it for y, or income in the economy in a given period, to give a refined equation

MV = Py

So far we have a truism; an equation which is true by its very definition. It simply says that spending (MV) will equal income (Py) in the economy in the given period which, when you think about it, is obvious.

Freidman took the truism and made it into a theory by holding V and y constant. V would depend on people’s habits which would change little over the short and medium term. Y was fixed by the economy’s capacity; given a set amount of capital and labour in the economy in a given period production could not be expanded in the short and medium term.

The conclusion that followed utterly logically from this was that increases in P, the very inflation which was plaguing economies, must have been caused by increases in M. Indeed, in his mammoth 1963 book A Monetary History of the United States 1867 – 1960 (written with Anna J Schwartz) Freidman claimed to have found conclusive empirical proof of this theory.

The policy prescription that followed was equally utterly logical; if you wanted to lower and control inflation you had to lower and control increases in the money supply. Freidman argued that the aim should be for price stability, that the money supply should grow at a fixed, pre announced rate which would be calculated to match the trend growth rate of the economy.

That, and nothing else, was monetarism. Its supporters might have argued for and its practitioners might have enacted a raft of other policies such as lower taxes, lower public spending, and privatization which could crudely be labelled ‘right wing’ but these were not part of monetarism which was a narrow theory of monetary management. It would have been perfectly possible for a left wing government to have raised taxes, raised spending and nationalized and still committed itself to monetarism. Indeed, the first monetarist government in Britain was the Labour government of Jim Callaghan in 1976.

And plainly not Britain, Germany, nor anyone else today is following anything which could be called a monetarist monetary policy. Monetarism prescribed control of the money supply to control inflation; it said nothing about interest rates which it left to the market. By contrast Britain and the German controlled European Central Bank follow the monetary management method which replaced monetarism when it fell out of favour towards the end of the 1980s. Nowadays the control of interest rates is the chosen tool in the fight against inflation. It is the money supply, central to monetarism, which is left to the market.

This isn’t necessarily to praise monetarism or even to bury it. It is simply to wash off of it some of the mud thrown at other ideas.

From Miliband and Balls to Osborne: riding our luck in the bond market

Only the second most dangerous type of Bond there is

String theory posits the possibility of multiple universes exiting at the same time and in the same space. Economically we saw a little of that last week.

In London a few thousand students and professional protestors marched against the government’s plans to make them pay more towards their education.

Meanwhile, in Rome, the Italian government was faced with borrowing rates of over 7 percent. With over €300 million of debt to be rolled over in the coming year these increased borrowing costs threatened to eat up nearly one third of the Italian government’s proposed €60 million cuts. This is catastrophic.

The British government, which was borrowing at rates of just 2 percent, could breathe a sigh of relief. But it was almost very different. In June 2009 UK ten year gilt yields were 3 percent. By February 2010 they had risen to a peak of nearly 4.5 percent.

Gilt yields were moving in tandem with Labour’s opinion poll ratings, the more likely Labour looked to return to power the more panicked investors became.

And why shouldn’t they? As The Guardian revealed, “Civil servants came under increasing pressure from ministers in the dying months of the Labour government to carry out expensive orders that they disagreed with and responded by submitting an unprecedented number of formal protests in the run-up to the general election”.

The Guardian went on: “Such ministerial orders are rare and signify an irresolvable dispute between a minister and his most senior civil servant. Whitehall sources told the Guardian there had been five this year. Public records also show nine last year and five between 2008 and 2005…That marks a big increase on the previous decade. A list of these ministerial directions published in the House of Commons shows that they were issued at a rate of two a year between 1990 and 2005”.

As The Sunday Times put it “One former Labour minister told The Sunday Times: ‘There was collusion between ministers and civil servants to get as many contracts signed off as possible before the election was called…One former adviser to the schools department said there was a deliberate policy of ‘scorched earth…The atmosphere was ‘pull up all the railways, burn the grain stores, leave nothing for the Tories’ he added’”.

The anonymous advisor may have been wrong and instead of poisoning the wells Labour may have been sincerely engaging in a dose of Keynesian fiscal activism. Either way, it was the fast route to an Italian style crisis. And despite the economic vacuities of Eds Miliband and Balls, it still is.

We can see this in the performance of gilt yields since the coalition assumed office and set about restoring some sanity to Britain’s government spending; down from 3.8 percent to 2.2 percent.

There are two possible explanations for this. One is that markets believe the UK is, as George Osborne says, a “safe haven” and have bought the coalition’s tough talk about deficit reduction. Because talk is all it has been. Public spending in April-May 2011 was 4.1 percent higher than in April-May 2010.

By starting the austerity talk in 2009 Osborne has earned a sort of ‘first mover advantage’ over countries in the Eurozone who have been dragged into it kicking and screaming in a desperate attempt to save their currency. Much of Osborne’s cutting has taken place in the minds of investors and for all the fury directed at ‘Con-Dem’ cuts you would rather be a civil servant in Britain than Greece or Italy right now.

A second explanation for the performance of British gilt yields, advanced by the Telegraph’s Jeremy Warner, is that Osborne has been to some extent the unwitting beneficiary of crises elsewhere.

Warner writes that “The (British) budget deficit is bigger and on current projections remains larger for longer than anywhere in the Eurozone bar Greece, while the UK’s overall indebtedness – public, private and financial – is amongst the highest in the world, and certainly bigger relative to GDP than anywhere in the Eurozone bar Ireland”

But no matter how bad things might be in Britain, at least we’re not the Eurozone.

Whichever of these interpretations is correct, whether markets have been reassured by his rhetoric or whether he has been lucky that the euro has gone into meltdown, George Osborne’s room for maneuver is limited.

If investors really start to scrutinise the non-cuts so far and Britain’s still dreadful fiscal position, bond yields could rise and, given the damage it would do to the British economy, praying for continued disaster in the Eurozone wouldn’t be much of an idea.

If bond markets lose faith in George Osborne and the coalition Britain will see real austerity. If that happens those few thousand protestors who demand that the taxpayer teat continues to suckle them might wonder what they were ever complaining about.

This article originally appeared at The Commentator

Protesting is soooooooooooooo last year

Put an X in any of the many empty spaces where you think a protestor was and send your coupon to…

Late last year some students, many of whom turned out to be rather plummy middle class kids, decided it would be larks to smash up bits of London to register their annoyance at having to pay for a service they were using.

Today saw students take to London’s streets again. But, perhaps because the news that universities are cutting tuition fees to compete on costs suggests the coalition’s policy is working as they said, only 2,500 are estimated to have turned out. Rather embarrassingly for the revolutionaries this dismally small gathering, nearly 2,000 fewer than saw Yeovil vs Walsall in the Third Division a couple of weeks ago, was outnumbered by the Police.

That’s the thing about fashions, whether for leg warmers or protests. They’re fickle.

More regulation is not a good thing

Courtesy of the Financial Times

A common interpretation of the credit crunch and ensuing global turmoil is that it was all down to unregulated or under-regulated financial institutions and markets. As a result, one of the most commonly advanced solutions is for more and/or better regulation. Indeed, this call is about as close as we get to a firm demand from the presently fashionable ‘occupy’ protests.

There are many things wrong with this view. First, the underlying causes of the recent boom and bust could be found, as so often, in monetary disturbances. In comparison to the damage wrought by a deluge of credit, any regulatory deficiencies are just hundreds and thousands atop a cake that was always going to turn out pretty sour.

Secondly, nothing says ‘profit opportunity’ to financial institutions quite like some new financial regulation. To give just one of countless examples, the Eurodollar market sprang into life thanks to attempts like Regulation Q to impose limits on interest rates. The financial innovators will only ever be one step behind the regulators for as long as it takes them to read the regulation. Then they streak ahead.

And thirdly, it is a mistake to think that financial markets were notably under-regulated. After redesigning British financial regulation almost from scratch, the Labour government never ceased tinkering with it. As Terry Arthur and Philip Booth wrote recently (PDF)

To obtain permission to carry out regulated activities an organisation must meet certain qualifying conditions. These include having adequate resources (financial resources as well as internal systems and procedures). The conditions are laid out in the FSA’s Integrated Handbook…Regulation is bureaucratic in the extreme. It is no longer possible to determine the number of pages in the handbook, but an indication is given by the following example. There are ten main sections in the book. One of those main sections…is that on ‘Listing, prospectus and disclosure’. This contains three subsections which have between nine and 23 sub-subsections each. Taking one of those sub-subsections, under the ‘Listing rules’, there are six sub-sub-subsections

Fortunately we can look at the economic impact of regulation worldwide with the release by the International Finance Corporation of the World Bank of its annual ‘Doing Business’ report which compares regulatory environments and the ease of doing business across countries. The reports message is unequivocal; regulation is mostly bad and those calling for more of it are calling for economic suicide.

A report on the report by The Economist picked out some notably egregious examples

A typical company in Congo with a gross profit margin of 20% faces a tax bill equivalent to 340% of profits…How long, for example, does it take to register a company? In New Zealand it takes one day and costs 0.4% of the local annual income per head. In Congo it takes 65 days, involves ten steps and costs 551% of income per head…Other procedures the IFC measures include registering a property (which takes one day in Portugal, 513 in Kiribati); obtaining a construction permit (five steps in Denmark, 51 in Russia); enforcing a simple contract through the courts (150 days in Singapore, 1,420 in India); and winding up an insolvent firm (creditors in Japan recover 92.7 cents on the dollar, those in Chad get nothing at all)…A young entrepreneur in Liberia who builds a new warehouse must wait on average 586 days to connect it to the power grid. In Ukraine it takes 274 days; in Germany only 17. Guess which of these countries has a thriving manufacturing sector?”

The chart below illustrates the point

Source: ‘Doing Business 2010′ (PDF) and International Monetary Fund ‘World Economic Outlook Database’ – Puerto Rico, Palau, the Marshall Islands, Micronesia and West Bank and Gaza are omitted for lack of a comparable data point

We see that while a light regulatory environment is not a guarantee of wealth, it is a necessary precondition. Not surprisingly, The Economist sees a causal relationship

Cutting red tape makes countries richer, if the 873 peer-reviewed articles and 2,332 working papers that use the “Doing Business” data are anything to go by. A study in Mexico found that simplified municipal licensing led to a 5% increase in the number of registered companies and a 2.2% increase in jobs. It also lowered prices for consumers. Bankruptcy reform in Brazil caused the cost of credit to fall by 22%. Countries with flexible labour rules saw real output rise by 17.8% more than those with rigid ones”

Calls for more regulation are both pointless and dangerous; pointless in that it won’t solve the undoubted problems in our present economic system and dangerous in that it could end up making us even worse off. More regulation is not the answer.

This article originally appeared at The Cobden Centre