So what did 2011 teach us?

Well, it's the end of a long year. I'm about to go on leave, and I'm exhausted. But I thought I'd leave you with what we might have learnt from this year - about economics, history and public policy. Which is, after all, the point of this blog. I guess I'd sum it up like this:

You can't deflate your way out of a crisis. You'd think, with all those clever advisers - including expert on the Great Depression and Chairman of the Federal Reserve, Ben Benanke - that politicians would have learned from the lessons of the 1930s. Don't all try to devalue. Don't threaten trade wars. Don't cut spending to try to gain a competitive advantage that others can just seize from you again with a fresh wave of spending reductions - a trap that circulates, round and round, until all semblance of forward motion has drained from the system. But do they listen? Do they hell. The US Congress, mightiest of legislatures, remains gridlocked and likely to stumble its way to some of the biggest spending cuts since the Depression. Good idea, guys.

Confidence does matter. Not many people listen to Ministers that much. Only policy wonks watch Newsnight and pore over the Financial Times. But when you cut through to the voters, you had better make sure you watch your Ps and Qs. UK Chancellor George Osborne neglected to think about this when he talked up (and up) the country's fiscal crisis in order to blame it all on Labour. What happened? Consumers took fright. And they kept taking fright until British consumer confidence bumped along near an all-time low. Governments have made this mistake before - notably when Labour took office in 1964 - but never with such deleterious consequences.

Good public policy takes time and a sense of historical change. I have, of course, gone on until I'm blue in the face about the failure of the British Government's new policy for Higher Education in England. It abounds with unintended consequences or half-guessed-at longer-term endpoints, not least the not-unlikely privatisation of the Russell Group elite over the next ten or fifteen years. What did Ministers need? They needed a Royal Commission. They needed a sense of the delicate balance of a very successful part of the economy. They needed a synoptic vision that saw the links between student visas and our general well-being. They needed both policy and history - something that's far from easy to achieve.

The West still does rule - for now. That's nearly the title of a fairly good book on this topic, and I think it's an important reminder. No matter how many dollars and how much gold builds up in Beijing's coffers, and no matter how fast the less developed countries' economy grow, each Chinese and Indian citizen remains far, far poorer and far, far less able to exert their views than does each American or European. In the 1960s, 'experts' thought that the Soviet Union would overtake the West; then, in the 1970s, it was the oil-producing Middle East; then, in the 1980s, Japan. All those models failed. India's and China's are experiencing extreme growing pains and will soon falter as they hit structural limits to their exponential growth - environmental and educational, to name but two. They may emerge triumphant in the end, but that's by no means a done deal.

So that's it then. I'm a whole new book, a whole new edited book, what I think is a really good article, two PhD completions for my students and two Third Year Special Subjects further forward. So it's time for a break. But I'll be back in the New Year.

In the meantime, Merry Christmas and a Happy New Year!

What's going to happen to the Euro in 2012?

People often say to me: okay, what does economic history tell us about the future? What's the point of a skills set and a big bag of knowledge that doesn't help us divine what's likely to happen next?

I'll have a go. There's a health warning, though: don't invest any of your money based on what you read here. We live in strange and uncertain times. The level of turbulence we face is unprecedented since 1945. Just about anything could happen.

Start with this: the odds are higher than 50% that Greece will indeed fall out of the Euro. There are all sorts of risks involved. But an economy that has shrunk by 50 per cent over the last few years just can't take any more. Observers from Left and Right know that much the best thing would be for the Greeks to leave. Sure, that's no panacea. Greeks might lose all their savings - not that they're going to have any if we go on as we are. There might be a very sharp rise in inflation - though it's hard to see how the citizens of that country could be made much poorer than they're going to be anyway. A black market might develop if Greece's new currency isn't trusted as a true carrier of value.

But they're probably going to go anyway. Think that a democratic state can stand up to basically taking modern prosperity to pieces and taking living standards back to 1950s levels? Think that Greek public sector workers - nurses, teachers, doctors - who did absolutely nothing wrong whatsoever, are going to bear the pain that others have loaded on them? No? Then Greece has to leave the Euro.

What will happen then? The crisis won't be over. The doubts, the risks and the speculators will move on. To Portugal and Ireland. To Spain. And to Italy. There's no way that those countries will leave unless they are absolutely, absolutely forced to. And almost certainly not in 2012 or 2013. So it'll be a slow-motion agony, with the citizens of those countries forced to swallow cut after cut after cut (and tax rise after tax rise) with not much effect on markets that won't be impressed anyway.

Brits will suffer too. The Eurozone's economy will slow. British growth will be dragged down. If the Chancellor is as good as his word about paying off structural debt in this Parliament, he'll need to add to the £18bn or so extra cuts he said were required in the Autumn Statement. If there's no growth at all in the next two years, that's probably another £50bn in cuts. So £80bn plus £68bn equals £148bn - all of education and defence added together. And then some. Or more than the entire NHS budget. Now I know it doesn't work like that, partly because many spending reductions are already in train - and the latest news on the deficit is actually a tiny bit better than predicted. But it's a good indicator of the challenge before us.

It's gloomy. You didn't expect anything else, did you?

Vaclav Havel and the art of the impossible

The death of Vaclav Havel (above) this week has robbed Europe of one of its most impressive and visionary political thinkers - if not always its most effective actual ruler. His passing brings to mind one of his most famous speeches - his New Year Address as President of the new Czech democracy in 1990.

What was it that he said? He evoked the memory of Jan Masaryk, the country's Foreign Minister in the 1940s and often looked on as the father of his nation. You can read the full text here, but the key passage runs:

Masaryk based his politics on morality. Let us try, in a new time and in a new way, to restore this concept of politics. Let us teach ourselves and others that politics should be an expression of a desire to contribute to the happiness of the community rather than of a need to cheat or rape the community. Let us teach ourselves and others that politics can be not simply the art of the possible, especially if this means the art of speculation, calculation, intrigue, secret deals and pragmatic maneuvering, but that it can also be the art of the impossible, that is, the art of improving ourselves and the world.It's a tremendous ambition, and one that calls us to imagine what our politics might be like - not the art of the possible, but of the seemingly impossible. As his obituaries note, Havel was preparing the way for the future of Europe while western diplomats, supposedly 'realistic' but actually with their heads in the sand, were projecting a future in which the Soviet dictatorship in Europe went on and on.

What would we look for today in this 'art of the impossible'? I suppose I'd try the following:

A truly democratic world financial and payments system. Too much of the world's monetary infrastructure is governed by an alphabet soup of the unelected. The IMF. The G10. The G20. The EU. The WTO. And so on. And on. One of the reasons for the present reaction against our leaders - our un-politics, as it were - is down to this fact. Can we make our global economic system more transparent, more responsible, more accountable?

A permanent and a concrete politics. Our elective politics is similarly mired in mistrust. This is in part due to excessive focus grouping, convergence and 'triangulation' - the art of getting so close to your opponent that you can steal as many of 'their' voters as possible. But this has long come to seem stale, second-hand and outdated. Very few politicians are now able to 'cut through' to citizens and speak in anything close to any authentic language. Can our leaders start to talk to people in a way that they understand without testing their ideas to destruction beforehand?

A distributional economics of the future. Too much of our present economic thinking is 'present-orientated'. It doesn't think about the future. It doesn't accept that the future can't (in the jargon) be discounted as much as we've often posited. Without thinking about the effects of our actions a long way ahead - in terms of housing need, for instance, which is desperate in the UK right now - we are going to get stuck with the problems I've listed under our first and second categories here.

Impossible? Maybe. But wasn't the destruction of the Czech tyranny and the Berlin Wall impossible too?

European conference triumphs often turn sour

David Cameron bestrides the British political landscape today. If a week is indeed a long time in politics (apologies for that cliche), he's just lived through one of the most important. Going into the European Summit where he wielded his veto, his position was weak. His backbenchers were restive. He was going to struggle to get a new Treaty through the Commons. His economic plans were falling apart.

Now? Boosted by public approval of his 'strength', 'patriotism', 'decisiveness', as well as by his sure-footed obliteration of his political rivals, his stock rises ever higher. He would probably win a General Election held tomorrow, even in the teeth of the Great Recession.

But wait a moment. Conservative Prime Ministers have a habit of coming back from Europe with claims of diplomatic triumph. It often doesn't last long.

Benjamin Disraeli (above) claimed 'peace with honour' after restraining Turkey without war at the Congress of Berlin in 1878. Within two years his government had come apart over a nasty and expensive war in Afghanistan.

Though this column would never be so crass as to compare Mr Cameron to Neville Chamberlain (unlike the Prime Minister's own backbenchers), that Conservative leader's piece of paper turned out to be absolutely worthless after the Munich Conference with Hitler in 1938. He was out of office two years later as well.

John Major came back from Maastrict in 1991 claiming that it was 'game, set and match to Britain' after securing an opt-out from the Euro and the Social Chapter of the new Treaty. He then went on to win the next year's General Election. Within three years he was totally at odds with other European leaders, he was the second most unpopular Prime Minister on record, and had to resign his Party's leadership just to get his MPs to back him.

Triumph? For now. But hold your horses. History says: wait and see.

UK debt: don't worry, someone will buy it

One hears lots of arguments expounded in favour of Chancellor George Osborne's debt strategy - basically, going hell for leather for cuts and hoping that the debt stocks falls (er, it won't).

One of the most common goes like this: we have to cut to keep our credibility in the bond markets. Otherwise investors will flee, interest rates will rise and the monetary side of the equation will be hurt as badly as the fiscal-public spending side is bleeding. British debt prices have been falling (above) - pretty much the only good news the Treasury has had for months.

I don't believe this one. Low bond yields are a sign of depression, not recovery. And they threaten the health of the banks that hold them just as much as they lighten the debt load on the taxpayer (a little). I don't believe any of them, actually, but this one's a bit of a red herring that looks convincing on the surface. So it's important to address.

And preventing any steep rise should be child's play at the moment. Start from the position that investing in bonds is a relative decision. It's British sterling-denominated debt or something else. Not nothing or nowhere. Not under your bed. Where would you put your money? In euro-area debt? Er, no. In the bank? Not at these interest rates. In companies via shares? Too risky at the moment.

So the present monetary crisis may well present the British with an opportunity - to reduce the pace of their deficit reduction programme while still keeping the money rolling in.

It would be a bit like the American debt situation, which is puzzling some people. American bonds are continuing to do really well, even though the economy is strengthening and there should be the usual flight from safety as investors take more risks. You won't be surprised to hear that they don't want to take any risks, don't want to put any more money in the Eurozone, and don't want to place their bets on the 'real' economy - even though it's been strengthening for months. So the American public debt position is a little better than it looks, at least in terms of the short- to long-term.

You know what I say? People's money has to go somewhere, as this incredibly detailed but I think important London Met Working Paper demonstrates. It'll now flood into sterling pretty much whatever happens.

The worse the Euro-crisis gets, the more room there is for a Plan B which involves borrowing more than we planned. I wouldn't call this exactly luck. But it might help us to weather the storm.

Coalition makers: listen to historians!

Well, you can't say that I didn't tell you so.

Chiming in with what I said on Friday, most commentators now suspect that the coalition's days are numbered, and among Cameroons as well as those on the Left. Maybe it's a big number. One year. Two years. But very few serious commentators now think it'll last until May 2015. It might. But the odds are now against. The Lib Dems are drifting Labour's way - too late to save themselves, in all probability, but maybe soon enough to save something, anything, from the wreckage.

What did I say back in December 2010? That the likelihood of coalition for the Liberal Democrats was 'acrimony, split, electoral defeat'. After their leader's extraordinary stay-away from one of the most important and historic Westminster debates in years, and his obvious profound pain at the destruction of lifelong dreams and goals, can you gainsay that?

What did I say back in May 2010? That 'Nick Clegg would be crazy to go into a formal coalition with the Conservatives'. Given that he now seems to be trapped in the most neo-liberal and right-wing government the UK has had in the modern era, does anyone fancy debating this one? I can't hear you at the back.

The lesson? I'd listen to public policy historians before you take fateful political steps, if I were you.

A truly, truly historic day

The word 'historic' gets bandied about far too much. Historic this, historic that, you hear - normally about stuff you can't quite remember a few years later.

But today is a truly historic day. The day Britain wielded its veto at last. The day that British Prime Ministers have struggled to avoid ever since they turned their minds to joining the European 'project', in some form, during the 1950s. They day she was excluded from the inner core.

Unprecedented. Momentous. Defining. Symbolic. Historic. Choose your word. None of them will be big enough.

It's set Britain on the fast track to an outer ring of European states, along with perhaps Sweden and the Czech Republic. She will not be able to exercise much influence on the course of events from that position. All the hard-won gains of the past fifty years - in terms of Britain's voice in Europe - might now dribble away.

It's earned Westminster and Whitehall the enmity of France and Germany, who blame her 'Anglo-Saxon' economics for the whole mess in the first place. If we see fight after fight about the powers of the 'ins' and the 'outs', the inner core of 23 might well now insist on the UK leaving altogether.

And it's emboldened the Eurosceptics in the Conservative Party to call for full British withdrawal. They're not going to go away. They're going to get stronger and stronger, and louder and louder. They feel vindicated. They long to throw off the Coalition mantle, govern on their own and withdraw into an 'association' with the EEC, rather than full membership. They may well get their way - though only after fighting another General Election.

So what does today mean?

The failure to agree a treaty probably makes the breakup of the Euro, or at least the creation of a 'hard core' at its pinnacle, a little more likely. Bond markets will be unimpressed that the 27 could not stitch up a deal. Who is to say that 23 will do any better?

The UK Coalition government has probably had its span of days fixed - for remember that the great Victorian and Edwardian Liberal Party was originally shattered over great questions of peace and war in 1914-22. This is a set of principles that they have to hold on to. If they don't, their existence as a separate party is in doubt.

The British government has made its choice. For many years, at least since Edward Heath signed the Treaty of Accession in 1973 (above), the British have been uncertain. Were they atlanticists, citizens of the world, or were they truly Europeans? Now they have chosen. They are not Europeans.

The die is cast. An entirely new political landscape, even a new idea of what Britain is and is for, is being forged. No-one knows what it will look like - but it will be utterly different from the Britain we have known.

Why is Thomas Cromwell like Forrest Gump?

So I've just finished Wolf Hall (above), the first part of Hilary Mantel's masterpiece about the 1530s and the rise and fall of Thomas Cromwell. OK, I know I'm late on this one, but I've got a lot to do, all right?

It's been showered with awards. Critics loved it. Historians have said how it opens up the character of the King's first minister, Thomas Cromwell, after years of seeing him as a robotic business machine through his letters, or - worse, with the Victorians - a villain to set alongside the saintly Thomas More. Cromwell emerges into the light from the dark.

I loved it. It was dense, sensitive, empathetic, powerful, dangerous, subversive. All those things. But as the book wore on, I tired of Cromwell. It's harder to paint a character sympathetically when you're portraying their period of power, I grant you. Earlier in the book, when Cromwell is caught up in the fall of his mentor Cardinal Wolsey, it's easier to feel for him. When he's running the country and basically ordering people's deaths, it's harder. But I felt that somewhere, deep down, Mantel couldn't let go of More, his obstinate silence and refusal to obey the King becoming gradually something sneakingly admirable. And she couldn't hide the rage and the revenge that she felt lurked deep down in Cromwell's soul.

Anyway. What did this remind me of? Forrest Gump.

No, stop, don't navigate away.

There, too, we were presented with a very ambivalent 'hero' - someone praised as embodying the American dream like a President (no less), but who in fact often looked much more like 'a pitiful stooge' in many ways, running across the continent and taking part in inane sports for no reason whatsoever that we can see. I laughed myself silly at this incredibly successful satire while other Britons were nonplussed by its apparently simple-minded celebration of Americana.

Perhaps I'm just partisan. I would have regretted the passing of Catholic England (since you ask). But I felt that Cromwell's darker and darker glimmerings may have played a trick on the readers just like Gump played on its audiences. Celebrate him? Rediscover him? Reader, it's not as simple as that.

Which Europe should we choose?

Sometimes I'm hard on governments. Especially this one. It has little sense of history, little sense of the value of what it has inherited, and little strategic sense beyond hacking away at a deficit they should probably take a knife to rather than an axe.

But it's getting painted into a corner on Europe, and I'm a bit more sympathetic than usual. It's a corner we've been in before - under Harold Macmillan, Harold Wilson, Margaret Thatcher and John Major.

Prime Minister David Cameron (above) faces an unenviable balancing act. There'll probably be a new Union Treaty in the new year. But his party don't want much to do with federalist schemes that would basically create a European budget, a European chancellor and a European economic policy. The public aren't that keen on the idea either - to put it mildly. Both party and voters would like him to repatriate at least some powers.

But on the other hand, he faces the most pressing crisis of all: the overriding need to prevent the Euro crashing and dragging the world economy (and, incidentally, his premiership) down with it. So he can't sit there and ask for a long list of concessions. He'd be ignored - or worse, thrown out of the room while the Euro-17 discussed an entirely new structure, with perhaps a new executive council or board. He's going to have to be constructive.

It's exacty the same dilemma that Macmillan and Wilson faced when their entry to the European Economic Community was barred by General de Gaulle. They wanted 'Europe' to become an economic and a military entity that could punch its own weight in the world; they wanted to boost world trade and secure world payments while plugging the UK economy into one of the most productive and efficient economies in the world. But they didn't want to get absorbed into a 'superstate'. They couldn't convince enough Europeans (or de Gaulle) that they were on the side of the European 'project'.

So the Brits went on, through their referendum, through the Thatcher rebate years when she banged the table and demanded her money back, and then onto the disasters of the Major premiership, when the Conservatives tore themselves to shreds over the Maastricht Treaty. All the while they told themselves that they'd solved their dilemma - that 'their voice being heard' in both Brussels and Washington made it all right.

Perhaps they were deluding themselves.

Will they face their dilemma head-on now? I doubt it. The government has painted itself into a corner. It can't leave. It can't even threaten to leave. So it's going to have to let the Eurozone members do what they like, while grabbing some sort of fig leaf about a 'threat to the City of London' that probably never existed.

Then we can all go back to forgetting our real dilemma. Are we fully paid-up Europeans, or aren't we? And if we're not, can we let the others go ahead as fast as they might like, even though that might hurt our interests?

Historical perspectives on the Government's shock 'poll lead'

There have been some sharp intakes of breath this week at opinion polling showing the Conservatives taking the lead.

You can almost hear commentators wondering: 'how can this be?' The Government's economic policy has just come spectacularly unstuck. They have just a tiny, tiny bit of wiggle room about their key pledge - to see Britain's debts falling as a proportion of GDP this Parliament. It's part of the Chancellor's 'fiscal mandate' that's set in concrete and that he can't nuance or massage - unlike his five-year rolling horizon on the deficit.

Does anyone actually believe they'll manage it? No, not really. So all that pain? It'll push us forward precisely, well, not a single inch.

But yet they lead in ICM's monitor - the most reliable poll of all for many years.

Perhaps voters are holding tight to nurse for fear of something worse. Perhaps the fact that the pain is mostly still to come shelters the Government's rating. Labour is certainly blamed by the electorate for 'spending all the money' - an economically illiterate untruth that the party is unlikely to slough off under its present Miliband-and-Balls economics team.

But I'd like to look at this a bit more historically. We're now eighteen months into this Parliament. How have governments fared at this point after a change in the governing party since 1945? Well, there's no real pattern. Suffice to say they've usually looked quite good. Only the Conservative government of 1979-83 did worse than the present one, which on most measures is probably still two or three points behind Labour. And that took a massive and more sudden manufacturing catastrophe, and sharply rising unemployment - and an unpopular pre-Falklands Margaret Thatcher as the Conservatives' leader.

On average (and I know this is skewed by Tony Blair's extraordinary electoral honeymoon, that lasted well into 1999) governments in the post-war era have been about two or three points behind at this stage. Harold Wilson's government managed to be eleven points ahead, going into a new and early General Election, despite having been buffeted by financial crisis and at least two rounds of spending cuts.

So you know what? This isn't unusual. It seems strange, but new governments often get the benefit of the doubt. Nothing is predetermined. Only what happens next in politics and governance that will tell us whether the main two parties' balance of polling terror will last.

Oh, this is going to hurt. A lot.

One of the most depressing, eye-watering, head-in-hands and indeed terrifying facts to emerge from last week's economic policy debacle is the fact that we're all about to feel a lot poorer. And I mean a lot.

Take a look at the chart above (worked out from Institute of Fiscal Studies figures). It's the rise or fall in average disposable household income over the next few years, expressed in per cent terms, using forecasts from the spring and from last week.

The first thing that jumps out is that, on this count as on so many others, the numbers just got much worse. Real incomes rose a bit more than we thought last year, but they're going to fall quickly this year and next, before starting to rise in a paltry way we won't even feel in 2013 and 2014. As growth hopes fade with every new official report, so do future incomes.

In fact, the 'average' household (and yes, I know that's a construct that doesn't really exist) will be no richer in 2015/16. This has just never happened before. Economic historians such as Jim Tomlinson rightly point out that we've had the brakes slammed on before after periods of prosperity - most notably, in the mid-1970s, when real household disposable income fell by two per cent between 1974 and 1977.

But nothing on this scale - a near-five per cent fall between 2009 and 2012 - has happened before. Certainly not since the Great Depression, and probably not since the 1870s and 1880s. We're basically in uncharted waters for a modern, developed, 'progressive' and dynamic society. Everyone's going to have to tighten their belts in a way that neither they, nor their parents or grandparents, can remember. We're in uncharted waters.

The IFS does point out that the downward revisions to household income made by the OBR are mostly to non-labour incomes - profits, for instance. And that's likely to weigh most heavily inside the richest households, which of course can take relatively more of the burden.

But that's only because the new figures on investments and profits are so much worse than they were before. Figures for wage income increases are still scarily low - it's just that they were already grim.

Trust me, this is going to hurt. And it's going to hurt a lot.

The autumn statement - for better and for worse

Make no mistake, today's Autumn Statement by the Chancellor, George Osborne (above) is very, very, very bad news for every Briton. Despite a sequence of quite well thought-out and welcome measures - especially on lending to small and medium-sized firms, credit easing and infrastructure spending - the forecasts coming out of the Office for Budget Responsibility overwhelm all of that in a tsunami of gloom.

The OBR used to say that growth this year, and over the next two years, would be between two and three per cent. Now it's likely to be less than one per cent this year and next, and then only just two per cent in 2013.

Why? Ministers would have you believe this is due to the crisis in the Eurozone. It's not true. It's in fact due to the enormous risk that Liberal Democrats and Conservatives launched out upon in their austerity drive - a high-stakes gamble that this column always opposed.

Unemployment has been rising for months; consumer confidence flatlining; growth stagnating. In fact, it's been clear since the spring that something is very, very wrong with the British economy. What's wrong is a massive hole where demand should be. John Maynard Keynes, that great master of twentieth century British economics, would say something very simple now: borrow. Spend. Look confident. Talk the economy up. Ministers' failure to do that since May 2010 has done immeasurable harm to many companies, many lives and many of Britain's poorer regions (who just got told, with the end of national pay bargaining, that they're getting their economies hacked back yet again).

And although lots of Mr Osborne's ideas announced today are good, they represent only a partial U-turn - an L-turn, perhaps. New youth employment programmes? Then why scrap the Future Jobs Fund in 2010? More infrastructure funding? Why did you cut £50bn from it last year? More lending for small firms? Why did you go so easy on the banks during the ill-fated Project Merlin, then? The questions go on and on.

What lies ahead is now a long, grim slog. There will be round after round of public sector spending cuts. There will be higher taxes. There will be higher unemployment and more uncertainty. And the debt stock still won't peak until early in 2015 - just before the next General Election. All because growth is likely to be so slow.

Tell me again what a good idea it is to take a lot of risks?

Immigration: more, please

So the news on immigration is that it has gone on rising - despite the Government's unrealistic and unlikely target to bring it down to the 'tens of thousands'. Good luck with that, Ministers, because it's simply not going to happen.

Anyway, I say this is news to make us get the champagne out, not to don the sackcloth and ashes. For three reasons really:

1. The country needs more young people. Someone needs to pay for our pensions, and the ageing 'home' population won't be able to go on doing that forever - at least not on such generous terms. This has been clear for many years. It's simple. So the arrival of young people, who often have more children themselves, can only be welcome.

2. Immigrants work harder. Historically, influxes of new peoples do the work that the 'British' (whoever they are) won't do, or don't want to do. Many people in the host population are as clear about this as the newcomers. Irish building workers among my own forebears helped to build the railways, roads and canals that criss-cross Britain today. Evidence piles up, all the time, about the long hours and the sacrifices immigrants will bear to secure a better life for their children - putting in more to the social security system than they take out. More power to them.

3. Migration says we're open for business. There's lots of evidence that (for instance) Mexican immigration into Texas draws in more and more investment, as well as raw movements of people. Confidence follows. Physical infrastructure gets built. A signal is sent that the United Kingdom is a dynamic, fast-moving, energetic place to live and work.

Jewish immigration in the 1880s and 1890s; Afro-Caribbean immigration in the 1950s; immigration from the Indian sub-continent in the 1960s and 1970s; the arrival of the Ugandan Asians in the early '70s: each wave has made Britain a better place to live. But those groups have also (and this is the critical point) ensured that the country has always been younger, more productive, harder worker and richer than it would otherwise have been.

Rising immigration? Time to celebrate.

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.

Retoxifying the Tory brand

David Cameron (above) has made a political career out of being 'not Conservative' - or, at least, not like those nasty Conservatives his pollsters and spin doctors warned him about. The British folk memory associates the Thatcher era with mass unemployment, with the poll tax, and with 'cuts' to the welfare state and public spending (even though precious little of the latter were actually achieved).

Cameron's whole historical appeal has been: I'm not like this. 'Detoxification', it's called.

But recent events all threaten to unravel all that good work. Cosying up to News International and Rupert Murdoch in order to get elected. Re-organising the NHS after promising to leave it alone. Subjecting the same service to a teeny, tiny real terms cash increase that it's never had to suffer - ever before (and which might turn out to be a cut after all, if inflation stays high) Presiding over a sharp rise in unemployment - particularly youth unemployment, that tragic and unnecessary waste of hope and talent. Taxing an axe to the welfare state - including the middle class welfare state of Child Benefit payments for the relatively wealthy. Raising flat taxes that fall on the poorest hardest.

Leave aside the efficacy or wisdom of any of these measures. Are they really good politics? Harold Wilson spent years building Labour up as the 'natural party of government', which knew how to manage a mixed economy alongide the unions and the nationalised industries. When it all came apart, in the November 1967 devaluation of sterling, he was left ideologically naked in the storm. Labour posed again as the party of fiscal rectitude and hard-nosed economic self-interest again in the 1990s and 2000s, only to see retoxification take hold when the banking system threatened to collapse and the public came (wrongly) to believe that the Government had 'overspent'.

Labour has retoxified itself twice since the Second World War. Are the Conservatives about to follow suit?

Financial crises: when history speeds up

Time doesn't pass at one speed. It's an insight from quantum mechanics, but it could apply to the historian's trade too.

Sometimes it slows down, and sometimes it speeds up. You can track a problem in an archive - say, the struggle to defend sterling between the IMF London visit of 1961 and the final and traumatic devaluation of November 1967, when Harold Wilson's Labour Government and Chancellor James Callaghan (above) finally had to admit defeat. Some months look pretty calm: there are a couple of letters expressing satisfaction with the state of the currency and bond markets, perhaps, or a few press cuttings. And then some months (for instance, during the crisis of November 1964, after Labour had raised old age pensions and spooked the markets) see a great big deep tray of documents crash onto your desk.

In fact, the long, slow break up of one fixed exchange-rate system - the Bretton Woods link to the dollar, which took shape at a New Hampshire hotel in 1944, experienced trauma after trauma from the moment most currencies became convertible again after the Second World War (in 1959) to the 'closing of the gold window' and the destruction of the system at the hands of the Americans themselves in 1971.

The Suez Crisis of 1956 lifted the curtain on this period, in actual fact, when the Americans pulled the plug on sterling and forced an Anglo-French invasion of Egypt to turn tail. Then there was the aforementioned financial crisis of 1961 following a short, sharp pre-election recession; then an ill-fated 'dash for growth'; then three years of agony when the markets took against the election of a Labour administration in 1964; then the general gold crisis of March 1968. Policymakers ended up exhuasted, unhappy and deeply disillusioned.

The underlying cause? One currency (the dollar) was completely misaligned against the others. Sound familiar? Today, when effectively the German Deutschmark is far too weak against the other currencies held prisoner within the Eurozone, there's the same problem. But if Ireland, Italy, Spain, Greece and Portugal can't revalue or be rescued by a radical one-state fiscal union across the Eurozone, they'll have to go on suffering for years and years - and years.

We could be in for a lot of this, and for a long time. I know it's depressing, but that's the lesson of post-war financial crises. Sorry.

Banking can and should be a moral occupation

Want to know what a hate figure looks like these days? Ask a banker. Anyone donning pin stripes, bowler hats and a haughty demeanour in central London these days risks being tutted at or stared down in the street - the British equivalent of Greek rioting against the country's absurdly unrealistic 'rescue' package.

Everyone from Ed Miliband to David Cameron seems to be saying that there's something seriously wrong with the 'casino mentality' of the sector.

Occupy London, of course, is at the forefront of these demands - though it's far from certain that ordinary people find their views congenial, driven back as many citizens have been on more prosaic demands for better schools, hospitals and public transport.

The former chairman of Lazards Investment Bank, Ken Costa, has gone even further, calling for the City of London to rediscover its 'moral compass' - which presupposes that the financial services industry has lost it somewhere. Surveys of city workers themselves accept that something is seriously wrong - though they propose to do little to actually change their ways.

There is no doubt that something has to change. Very high salaries in this part of the economy add to the grotesque inequality which is not only harming our society, but turning western capitalism into a plutocratic network of internship and merit point connections, stifling opportunity, innovation and both geographical and social mobility. The banking sector's behaviour in the run-up to the Great Recession was, by definition, catastrophically misguided.

But banking itself should be an honourable, powerful, well-respected profession. Lending spreads opportunity, wealth and the ability to back oneself and ones intutions. The importance of cash itself is that it allows us to make decision, one against the other, with the same unit of value. Making good decisions with shareholders' money is actually boosting all our pension funds. Investing in companies' ideas boosts productivity and growth.

The tragedy is that a previous generation of 'gentleman bankers', so derided from the 1980s onwards, understood this all too well - Siegmund Warburg (above), for instance, who arrived in Britain with very little but the clothes he was standing up in during the 1940s, and went on to found the country's most famous merchant bank and the Eurobond market itself. What did he say about banking and morality, as Niall Ferguson pointed out in his St Paul's lecture of 2010? Well, if nothing else about behaviour was ever stuck up above a trading floor, this would serve (the originals now reside at the London School of Economics):

Success from the financial and from the prestige point of view... is not enough. What matters even more is constructive achievement and adherence to high moral and aesthetic standards in the way in which we do our work.

Let's hope that Costa and the fellow members of his initiative 'to reconnect the financial with the ethical', can come up with some concrete proposals - on worker value to match shareholder value, on employee representation, on salary scales.

Because if he can't, the dynamic and creative capitalism that we need to get us out of this mess will be further away than ever.

Heath Robinson fixes in English Higher Education

So numbers of university applications are down following the near-tripling of English fees. What a surprise. It's early days, of course, and there was a bounce-back after a slump in 2006 when 'top-up' fees were introduced. But in general it does seem rather likely that the massive expansion of Higher Education which began in the 1960s has come to a halt - at least for now.

The Government's response to this troubling consequence of their own policy has been threefold. Take the cap off any courses that offer an AAB bid or above, Ministers say, and you'll allow 'opportunity for all' and universal access to the 'best' and most famous institutions. Massively expand apprenticeship numbers to take up the 'slack' among those who are now put off the very high fees English universities are charging. Thirdly, put back the date at which part time and mature students have to pay back their hybrid loan-taxes.

But it's all rushed, contingent, hurried - a madcap dash to shore up a system that is going to cost the taxpayer and the student more in the short term, without delivering any really clear benefits in the long run. Lifting the 'cap' off AAB courses is likely to do long-term harm to the prospects of strategic and shortage subjects, as well as the next two tiers of universities, who will find their students sucked away by topics and departments that may be no better academically, but are certainly more prestigious. Expanding apprenticeship numbers this quickly bolsters the dangerous myth that university expansion has 'gone too far' (for other people's children, of course). Many of these new 'courses' are rebranded corporate training courses that, while worthy, don't foster transferable skills in the way apprenticeships should in the public's imagination. And lastly, who is really listening among part-time students to one-year fee remissions? Does anyone really think that makes a difference to low income families' spending decicions when sums as large as £50,000 are bandied about? Er, no.

All in all, it adds massively to the confusion. That's one of the elements students and young people themselves, such as Callum Hurley and Katy Moore (above) are complaining about. As they put it, launching a probably-doomed legal bid to halt the fee increases, 'this makes it difficult to decide what to do about our futures'.

Heath Robinson fixes? They won't work. But you need public policy experts, conscious of the passage of time, the realities of decision-making and the confused fog that stands between governed and governors to tell you why.

It's just another example of the value of the humanities to the nation.

If you want to make good policy, you have to understand your history

I'm always banging on about poor policy-making.

Think about its ubiquity. Overly sado-masochistic economic policy in the early 1980s? European Exchange Rate Mechanism debacle? Iraq War? Tuition fees foul-up? All good instances of where a historian might have helped. Respectively, experts on the Great Depression, British Governments' attempts to avoid devaluation between 1961 and 1967, the Suez Crisis (above) and inter-war health charging might have all said: er, don't do this. It'll go awry.

Whitehall and Westminster don't listen all the time. But they should.

Recently, historians have begun to sharpen up their act, and the History and Policy group at King's College London, with whom I am remotely associated, are a good example.

I could give you lots of examples of their work, but let me zero in on just a few.

Want to know why we'll need a fundamental overhaul of our politics, re-creating a sense of community and shared sacrifice, if we're to fight global warming? Read Mark Roodhouse of York on the 'blitz spirit' and wartime rationing.

Want to know why the Conservative Party in Scotland is unlikely to make a comeback, new name or no new name? Read David Torrance on the manner in which the Scottish Nationalists have (bizarrely) moved onto the intellectual ground the Unionists used to monopolise.

Want to understand the possible conditions under which the Euro could survive and, indeed, thrive? Read Richard Roberts of King's College London on the Austro-Hungarian currency union and the powerful central bank that made it work.

These are all examples of how history (and History) should guide decision-making. Have a good look round the site. Wouldn't it be better if Ministers browsed here before they acted?

Conservative Europhobes' faulty history

One of the most depressing things about Monday night's rebellion among Conservative backbenchers - of whom 90 voted for or abstained on a motion calling for a referendum on Britain's membership of the European Union - was the lack of historical knowledge displayed among the Euro-sceptics.

They're aware of the long campaigns for a new referendum, all right.

But as for the wider history of going in and staying in? They were and are nowhere near the mark.

Because there are two reasons Conservative and Labour leaders such as Harold Macmillan (above), Harold Wilson, Edward Heath and Jim Callaghan went into Europe, and fought to stay there. They can be filed under 'national interests' and 'necessity'.

In the 1950s and 1960s Britain's growth lagged behind that of continental Europe. That was to some extent because Europe's war-shattered economies started some way behind, and during the 1950s were catching up. But after the Treaty of Rome in 1957, which envisaged and then built a Common External Tariff wall around the original six members of the EEC, this disappointing economic performance was also due to the fact that the UK was locked out of a huge, dynamic and advanced market - right next door. Both Macmillan and Wilson decided that Britain had to be 'in' rather than 'out'.

And here's the vital point. Many Conservative backbenchers want to 'renegotiate'. They want to become members of a European Economic Area, along with Norway and Switzerland, enjoying free trade with the EU but not being subject to its laws. But any half-decent historian knows that this is what Macmillan and Wilson wanted too. And they couldn't have it - because the French wouldn't let them. The British wanted a 'pick and mix' Europe in which they could keep their trading links with the USA and the Commonwealth (and the wider world). The Six said: no, that would breach the Common External Tariff and drag the internal market's coherence down to the lowest common denominator of any one country's taxes, benefits and low tariffs. It's not an al a carte menu, said General de Gaulle - twice. Take the set menu or stay out.

The UK is not Norway or Switzerland. It's not a small oil-rich country with oodles of a raw material other energy-hungry Europeans want. It's not a banking superpower that can hold its own whatever happens. It's a country whose trade has been moving Europe-wards since the 1950s, in an unstoppable process of economic integration that yesterday's Conservative and Labour leaders (by no means all of them Europhiles like Heath) understood. We might not like it - it means that European food costs much more than it would if we bought it from North and West Africa - but it's an irreducible fact of life. Get used to it.

This amnesia brings to mind John Major's 'warm beer and cycling to church' remark, in which he summoned up an England that never has been and never will be.

Or - now I come to think of it - proposals to roll back some employee rights at work, on the basis that they've 'gone too far'. Never mind that calls for security of work began to gain political or legislative purchase in the 1880s, let alone the 1980s.

The past is a historical weapon. It's important to know which bits of it are mythic nonsense. Withdraw from the EU and enjoy the benefits without the burdens of free trade? I don't think so.

England's university landscape: darker than ever

The latest news out of English Higher Education is not encouraging, to say the least. Surveys that show that one in ten potential students might be put off by the new fees structure. Rumours about today's early UCAS application numbers that show about the same drop in numbers actually applying, concentrated especially among mature students looking to attend mid-ranking universities in expensive cities. And that humanities courses might be suffering in particular.

It is certainly true that we'll have to wait a little while to see what those UCAS figures actually mean. The number of 18-year olds is going down anyway. And it's hard to see what the social or grade composition of the potential is at this early stage. But the numbers are highly suggestive. The era of English university expansion is over.

All this at the same time as the depressing uncertainty about what many universities really will charge. As English HE tries desperately to react to Ministers' latest screeching u-turns and hairpin bravado, some may lower their headline fees to take advantage of low-cost places 'freed' from the Government's overall cap. It's an unedifying picture of ad hoc policy adaptation, just made up on the fly.

So congratulations to Sir Leszek Borysiewicz, Cambridge Vice-Chancellor (above), for speaking up and saying what a degree should really be about. Experiencing different views of the world. Developing a critical mindset that nevertheless remains constructive. Asking questions both of yourself and of the people around you. Wondering what it is to be a person.

Attaching such a figure as large as £27,000 to undegraduate courses can only add to the instrumental sense that one invests a huge amount of money in a course, and then expects a return on it. Indeed, the higher the return, the higher the payments, but the quicker they disappear. So 18 to 21-year olds might choose to take law, management, business and medicine to the exclusion of all else.

This poses a real problem for our society. As Borysiewicz asked: 'Medical science can make us live to 90. If you haven't got the arts and humanities what's the point of living until 90?'

As we await the outcomes of one of the most reckless gambles in the history of British public policy, we can only say: hear, hear.

City protests: no-one knows where they're headed

Occupy Wall Street and Occupy London are fascinating examples of a groundwell of feeling about the banking sector and its power. Tens of thousands have marched around the world to express their discontent about the financial system and its disproportionate rewards and influence. About 250 protestors are continuing to camp out at St Paul's Cathedral (above) to register their disgust at a sytem which nationalises the costs failure while privatising the benefits of 'success'.

Conservative newspapers, politicians and thinkers have expressed sympathy for the anger. But they haven't moved much from their position that financial services, and City workers in general, are crucial to Britain's tax base, its balance of payments and its prosperity.

In the long run, they might be highly significant. The Chartists, campaiging for universal suffrage in the early nineteenth century, saw their halcyon days and attempt to emulate continental revolutionaries peter out on Kennington Common. 'Established' opinion and 'common sense' condemned the Suffragists. The Socialist Medical Association spent years fighting for a national health service that would be free at the point of use. Conservative Ministers poo-poohed 1980s and 1990s grass roots movements calling for a National Minimum Wage. Did it destroy jobs, as they claimed it would? Er, no.

All of those ideas seemed outlandish to many at the time. But in the end they came to seem irresistible - a process in which sit-ins, petitions, protests and speeches were vital, whatever some official, archivally-based or 'top-down' histories say. Last year saw the UK elect its first Green Member of Parliament - something deemed impossible a couple of decades ago.

Occupy Wall Street and London's City protestors might just fade away, a few concessions hemming in bankers' behaviour all they have to show for it in the short term.

But in the long term? We might be witnessing an upheaval that historians write about for many decades to come.

Conservatives beware - women voters might walk away

One of the main reasons for the Conservatives' electoral dominance in the twentieth century was the Party's popularity among women voters.

This 'gender gap', in which women voted for the Conservatives in much greater numbers than men, gradually faded away in the 1980s and 1990s, though the gap was only closed finally at the 2005 general election.

Scholars reckon that women were put off by the 'macho' and male-dominated culture of the trade unions and the Labour Party, choosing perhaps to take out their frustration with their own Labour-supporting husbands within the privacy of the ballot box. Inflation, that bugbear of anti-Labour voters and thought from the 1940s onwards, hit housewives disproportionately hard as they shopped for household goods. The Conservatives appealed to an idealised vision of family life, for instance in the 1959 election, during which the party put up poster after poster of a happy family tucking into a huge dinner or watching their new television.

And so on. Mrs Thatcher, with an appeal to women voters all her own, was later to mix these elements together in a powerful electoral cocktail.

Now that's all at risk. Why? Because the evolving economic and social situation is turning women off the Coalition in their droves. Most of the Coalition's falling poll ratings are due to women turning away from its message and intent.

Retail price inflation is raging again. Women are much more likely to lose their (low paid, part time) jobs in this Great Recession than are men. Pension changes seem to be discriminating against women, especially older women who are likely to vote. The withdrawal of some public sector services (for instance Sure Start Centres) will make most women's lives much, much more difficult and exhausting. Most of the Government's key figures are men. David Cameron's 'calm down, dear' quips don't help.

Right now, David Cameron has the opportunity to remake the political scene and emerge as a new type of centrist Baldwinite Conservative.

But he ignores women voters at its peril. If this continues, it won't be Baldwin he'll be compared to. It'll be the one-term Prime Minister Edward Heath.

Great recessions don't necessarily make governments unpopular

Well, today what we've known for some time became even clearer: we're all going to be feeling a lot poorer over the next two years. An Institute for Fiscal Studies report is absolutely adamant that unemployment will rise, incomes will stagnate, poverty will go up, and inflation will probably remain stubbornly high. Even those of us who still have jobs will feel less well off and more insecure.

Bad news for a government which is going to preside over the fastest fall in living standards since the mid-1970s?

Well, you'd think so. But I think that's unlikely, and twentieth century British history is in fact pretty clear that governments need not suffer in such circumstances.

For one thing, all elections are a choice between alternatives. The electorate shows absolutely no desire whatsoever to elect a left-leaning government under Labour's leader, Ed Miliband. Impressions of political leaders are settled very early in every Parliament. William Hague looked dead in the water very, very quickly - as even some of his own party grandees said at the time. So did Iain Duncan Smith. So, to go further back, did Michael Foot. That's one political reality that's not changed.

Neither has the aura of success or failure. It will escape most people's notice that the IFS has long been saying that the next few months and years will be the worst since 1975 and 1976 - just as spending cuts on a very similar same scale to those years rain down on an anaemic recovery. But the Labour governments of that time, led first by the wily Harold Wilson and then the avuncular, popular, 'normal' Jim Callaghan, were relatively popular - until the Winter of Discontent brought British social democracy crashing to the ground. Why? Because its leaders looked like they knew what they were doing. Because they were able to say 'we inherited a mess'. And because the Labour Party represented many of the British people's instincts about how to ride out an economic and social crisis.

Sound familiar?

It is of course always possible that the Coalition will run into its own crises - more about this later in the week, especially if the Defence Secretary is forced to resign - but at the moment, the constantly-worsening news from the economy doesn't mean anything is settled about the future of British politics.

Modern political history tells us only that ongoing and chronic recessions create political opportunities. But someone has to go out there and seize them. At the moment, that's David Cameron.