Wednesday, 23 November 2011

Expanding on my guest blog for The Independent


So my guest blog for The Independent (above) generated a bit of heat and bit of light.

Judging from emails, messages - and the message board at the bottom of the blog - some readers weren't convinced.

It is always hard, in such a short piece, to be really convincing. One has to be oratorical, rhetoric, short and sweet.

But I stand by every word in longhand as well as shorthand, and I can back it up. Let's look at four things I said:

1. We face a political, and not an economic, crisis. What are the states facing the sovereign debt downgrading? Are they the United Kingdom, with one of the highest deficits in the world? Er, no. British bond yields are some of the lowest in history - far too low, in fact, for the health of its banking system. But that's an argument for another day. The point to take here is that its Washington DC, with its absurd 'supercommittee' and its failure to agree both tax rises and spending cuts, Rome, with its comic opera politics, and Athens, with its in-out-shake-it-all-about referendum, that have felt the heat. What do bond markets and investors not like? You got it - uncertainty.

2. Europe is in demographic trouble - not a sovereign debt crisis. Europeans are ageing, rapidly, and that's going to drag down productivity and force up pensions - the ultimate intergenerational transfer payments. There's only two solutions to that problem. They can either (a) have more children, and the UK's birth rate has been moving upwards, or they can (b) allow more immigration. Anyone think that they're going to move on that second front anytime soon? No? Neither do I. In fact, misguided immigration policies, such as the UK Government's attack on student numbers and visas, are at the heart of a new right-wing populism right now, and there's no sign of any change on that front any time soon.

3. No-one rules in Berlin. The German Chancellor, Angela Merkel, has it in her hands to end the Euro crisis today. If Germany would give a lead, the European Central Bank could print enough money to fight off any attack on any Eurozone state. Anywhere. At any time. Or, as proposed today, the European states could issue 'stability bonds', backed by every member. As my old tutor Niall Ferguson used to say, 'to say that the financial markets rule the world is to say that the plankton rule the sea'. A directing mind, conscious of the vast power the German state now wields in the Eurozone, could force them to retreat. In fact, Mrs Merkel will bumble on, firing off broadsides of cash that are just too small to make a difference - the ultimate waste of money. Her voters, coalition partners and her constitutional court form a very high bar to clear if she truly wants to save the Euro and secure the future of Germany's export-and-lend economic miracle.

4. Britain's economic policy is tragically misguided. What are the Coalition's solutions of the moment to our economic malaise? Making it easier to sack workers - with a shorter consultation period and fewer opportunities to go to a tribunal. Does anyone seriously believe that the world economy had a near-fatal heart attack, and is still in intensive care, because of lazy or poorly-motivated workers in Western European economies? If they do, they need either (i) a quick Economics 101 course at one of Europe's many fine institutions of higher learning, or (ii) quick rehab from the hallucinogenic drugs they've been taking. What we face is a huge crisis of confidence and demand (which is why uncertainty or divided governments are so fatal to political survival right now) - something less secure jobs will make worse and not better.

There we have it. A world economy mired in political confusion, demographic decline among the developed countries, without proper leadership, headed in the wrong direction.

Proper growth - the growth that would get us out of this fix - will resume someday. But it would have happened sooner if our own Anglosclerosis hadn't caught on quite so widely.

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