Friday, April 09, 2010

UK 2010 General Election

Christ, this election is annoying. See this typical story:

General Election 2010: Tories' public sector savings 'could cost 40,000 jobs'

All the political parties, including the Tories, are at fault for (a) pretending the cuts to come will be anything but savage and (b) making uncosted promises.

So when the Tories make a (drop in the ocean) promise to remove £2b from the (insanely bloated) public sector the rational reaction is "right, where's the next £60b coming from?". Instead we get hysterical shrieking from the other (even more deceitful) parties about it, as I heard on the radio this morning.

A few questions:
* Apparently the interest we're currently paying on our (ever escalating) national debt is £42b, so bigger than the defence budget. Why aren't the opposition parties hawking that figure around more?
* Why are all the political parties indulging in this ludicrous ring-fencing of health & some other big-spending departmental budgets, meaning the cuts in the non-ring-fenced departments will be twice as great? Given the real-term rises health & others have seen over the last few years, and the fact that transport, defence etc are all important too, why the hell shouldn't all depts take their share of cuts?
* All parties are making promises of efficiency savings. Why the hell aren't the Tories and the Lib Dems campaigning on the grotesque waste & incompetence of a govt that allowed such waste to develop? (Not that they'd have been any better, of course)

Douglas Murray in the latest Standpoint (not online yet) bemoans the Tories' performance - given how pathetic Labour are, for the Conservatives *not* to be trouncing them is inexcusable.

Bollocks to it all.


Wembley71 said...

Debt doesn't matter as much as you think.

The best, simple explanation of why is in the Steven E. Landsburg Book 'The Armchair Economist'. Runs like this:

You have £1000 in the bank. The prevailing interest rate is 10%. You want to spend £100.

There are three ways to do this:

A - you spend £100. In a year's time, your £900 remaining will have accrued £90 interest, so you have £990 - which is £110 less than if you'd spend nothing. Total cost of spending money now = £110.

B - you borrow £100 at 10%. Your bank balance remains at £1000, but in a year you owe the £100 + £10 interest. Your total cost of spending on credit and paying it off after a year = £110.

C - you borrow £100 at 10%, but don't intend to pay it off. At the end of the year, you have accrued £100 interest on your grand, and you only owe £10 on the loan. Your bank balance is £1090. BUT. You need to set aside £100 to generate the interest to cover the interest on the debt. So the effective bank balance you have is £990.


Its a simplistic form, but in general terms the point holds: it makes no difference if you spend cash from the bank, or if you borrow that money to spend - the net result is EXACTLY THE SAME.

This only holds true with an important caveat: that the interest rate at which you lend, and the rate at which you borrow, are the same. For us humble consumers, that is not the case. Banks make their money by borrowing money at, say, 3%, and then lending it out in mortgages etc at, say 5%. Their profit is in the margin.

But governments don't have that problem. The borrowing and lending rates are the same - shored up, indeed, by government-issue bonds that underwrite the debt.

As economies fluctuate, and sometimes dramatically, the responsibility of government in economic terms is to smooth out the ride so its people don't suffer too much or get giddy at the heights. All governments do this in some measure, and there are significant arguments to say Brown's government has done it better than most across the globe.

If, and only if, a government's credit rating declines, might this change. There is no serious economist on the planet who regards the UK as being in this position - not only are we not Iceland or Eire, but the OECD regards our economy as the most bouyant in Europe and second only the Canada in the western world.

On the original point - "saving" means "cutting", and staff are the biggest fixed cost of any organisation. Waste and inefficiency - mmm. Maybe, maybe not.

Interesting note from my mate who works at the benefit office. They had to make "savings", and so cut 30,000 staff UK-wide. Just before the onset of recession. At which point, they were heavily understaffed - and so had to recruit 15,000 new people to deal with the resulting increase in claims. These new people all needed training, and were inexperienced, so taking far longer to do the job and costing more.

All businesses - especially private sector - have staffing issues regarding the contradictions of efficiency and effectiveness. Eg, if you phone a call centre and are answered straight away, it means there was someone sitting around doing nothing before you called. Effective, but not efficient. If all the staff are always busy on the phone, you never get through. Efficient, but deeply ineffective. "Savings" almost always mean - improved 'efficiency' - i.e. individual output - against declining 'effectiveness', for which read 'service'.

Last point: the issue with the proposed Conservative amendments to the NI increase (and their arguments against it are valid) is that it requires immediate cuts to support a budgetary change in 2011 - i.e. the 'pain' is now, but the benefits are later. There is a very strong case to say this is a-over-t in the early stages of a recovery... let the economy grow and THEN curtail inflationary pressure of that growth with cuts and/or taxes depending on your ideology.

JP said...

Hang on, are you arguing that governments can literally borrow as much as they like with no consequences whatsoever, as long as their credit rating doesn't change??

Wembley71 said...

Yes, but 'as long as their credit rating doesn't change' is key.

Iceland, and to a degree Greece and Eire, have nothing like our GDP and turnover.

Those countries, in varying degrees, were no longer able to 'set aside' money to meet interest payments... in other words, their cashflow ran out and they became bankrupt (Iceland) or at least a credit risk (the others).

The UK is a much bigger economy. Moreover, we are the most important financial centre in Europe, possibly the world - that's why our recession was deeper and longer (it originated in and permeated through the money markets), it’s also why Brown's actions were of world-leading significance, & why the OECD is convinced we're better placed than anyone else (bar Canada, which is 'not even a real country anyway').

It’s also why, when the budget was announced, there was no panic, no drop in the currency, the footsie, or the government bonds market (excepting a market-normal nudge in relation to the US bonds market). We are absolutely nowhere near crisis in terms of our creditworthyness, and the economic programmes outlined by the departing administration have the confidence of the global markets.

All three parties are paying lipservice to debt - the Tories to bash the Labour record, the government to bash the tories tax-cutting agenda on NI and Inheritance tax, and the Lib Dems because their role is to bash everyone on anything. The country seems to like that perfect example of a politician with no responsibility to act as he speaks, Vince Cable.

In practice, the current government has kept the economy stable - more or less - through the recession, and we are well placed for strong growth. Growth prompts inflationary pressures, which the Conservatives traditionally fight with control of the money supply (cuts) and unemployment (cuts, especially in the public sector), plus high interest rates.

But we have low interest rates (a first through a recession, and a major reason why things aren't worse). The obligations to stop borrowing/start repaying bring their own deflationary counters, so the oldskool Tory response is bad... repayments can be made by freezing spending in a growing economy, rather than cutting spending in a flat economy (which turns recession into depression).

There's little evidence that Cameron or Osborne have any solid grasp on economics, or that their Tory party has gone through the same ideological root-and-branch rethink that Labour did in the 90s. Cameron's only track record is as the Special Advisor behind Black Wednesday.

There is a real danger that shrinking the public sector to pay off debt will (a) stop the recovery and therefore (b) mean there's less money with which to pay off that debt, and less creditworthyness to maintain the existing debt.

Increasing NI is a risk - it IS a tax on employment, although I note that the companies complaining are all healthily in profit. The Labour gamble is that the growing economy will make it a zero-sum game... it will raise revenue to pay off the loans but will do so when the economy is growing, so there will be no resulting downshift, just a checking of the inflationary pressure of a growing market.

The Tory gamble is that removing the NI increase from the budgets for 2011/12 will stimulate further and faster growth.... but the danger is that cuts now will undermine the current position of the economy, so the 'more tomorrow' approach will result in so much less today that the baseline position of the economy falls back several rungs. At best, running to stand still, at worst, undermining the whole lot.

In sum: debt doesn't matter so long as you can service it and your credit rating is fine. Borrowing indefinitely would change that, but nobody is advocating that option. The world is happy with the UK.

Rushing to pay off the debt now might damage the economy so much that those conditions are no longer met, and then debt becomes a self-fulfilling crisis.

JP said...

There have already been rumblings about the UK's credit rating. You just dismiss those?

Andy said...

I'm not informed enough on economics, but was just discussing with my Dad. He agrees with Wembley (this doesn't extend to being a Labour supporter mind). He particularly agrees with his comment on Vince!

My Dad's remedy - cut tax on low earners massively, put up VAT (UK has one of the lowest in Europe) and put the retirement age up to 67 (Germany's is 68). Bingo - you've just saved masses of money... whether anyone would vote for that or not I don't know.

Wembley71 said...

Agree with Andy, and his dad who knows a thing or two about it. The one danger of a VAT hike (as was discovered when John Howard introduced the GST in Australia) is that other taxes don't come down, the government just gets bigger. Nobody wants that, not even us socialists ;-)

To answer JP's question - yes, I do dismiss the rumblings about the UK's credit rating. While there have been some cautionary notes from independent organisations like the OECD, the shit stirring has come from avovedly right-wing sources in avowedly right wing media outlets.

An example: consider this week's OECD report, which flagged the UK as the most bouyant of the G7 economies, set to outstrip all bar Canada.

This report was delivered with a general, global caveat 'Despite some encouraging signs on activity, the fragility of the recovery, a frail labour market and possible headwinds coming from financial markets underscore the need for caution in the removal of policy support," said the OECD's chief economist, Pier Carlo Padoan...

...which is exactly the Labour Party's position on cutting now to free up budget later. Here's how three UK papers reported what should ostensibly be a strong endorsement of Gordon Brown's past record and future policies;

"UK needs 'drastic austerity measures' to prevent debt explosion
Bank for International Settlements issues stark warning on debt as OECD cuts growth forecast for British economy." - Telegraph

"Britain poised to outpace European rivals on a rocky road to recovery" - Times

"Britain's economic recovery set to outstrip Japan, US and Germany • Thinktank figures show boost for Labour's election hopes" - Guardian

JP said...

The disadvantage the LibDems face of having a more-or-less even spread of support across the country is clear, but does anyone know why there also seems to be a bias against the Tories under the current first-past-the-post system? I think they need to be 4-6% ahead in the polls to match Labour for seats. It can't have been ever thus...?

dan said...

I think it's the same principle. Labour's safe seats (in the North particularly) are SO safe that the Tories need a bigger swing. Even in 1983 Labour held on to over 200 seats with only 28% of the popular vote. Does that sound right to those that know more than me about this?

JP said...

Got off my ass and did the research. It's actually the opposite issue - you don't want to win seats safely, that's what the Tories do, you ideally wanna win each one by 1 vote.

The Harford/Patten interview well worth it.


Britain 2010: An election briefing

Tories are scattered, they turn out to vote more and the seats they win tend to be larger than Labour’s, so a lot of Tory votes are “wasted”. Rounding the numbers, in 2005 Labour emerged with one MP for each 27,000 votes cast and the Conservatives with one for each 44,000 (the Liberal Democrats fared worst, with one for each 97,000).


Listen: Electoral system 'disadvantage' for Tories
BBC News

David Cameron must secure a national swing of 6.9 percent from Labour to the Conservatives to win the election with an outright majority, a feat no party has achieved since 1945. In the general election of 2005 the Conservatives won a quarter of a million more votes than Labour, but had 92 fewer MPs in England. Radio 4's More or Less presenter Tim Harford and Lord Patten, former chairman of the Conservative Party, examine whether the electoral system is biased against the Tories.

Andy said...

Oliver Kamm asks if Labour's election strategy is reputable and/or honest?

'What's going on here? Labour believes there is electoral advantage - in the partial sense of restricting Tory gains - by talking up the Liberal Democrats. The price may be a perverse election result in which Labour loses much popular support and many seats, but remains a significant presence in the Commons - and perhaps even the largest party - as the Liberal Democrats take or retain seats that would otherwise be held by the Tories. Because of the idiosyncrasies of the electoral system, the gap between votes cast and seats won would be more than usually large, and the pressure for electoral reform would be formidable.

This isn't in Labour's interests. Two historical episodes indicate why. First is the brief and ill fated flirtation of the French Socialists with proportional representation in the 1980s. The party was hugely unpopular and deserved to lose (even though its economic management, after the initial disastrous venture into mass nationalisation and inflationary wage settlements had been promptly reversed, was not so bad). It was an obviously cynical manoeuvre to introduce PR for the legislative elections in 1986, and so is Labour's electoral strategy now.

Secondly, the pact agreed in 1903 between the Liberals (engineered on their part by Herbert Gladstone) and the emerging Labour Representation Committee was a gift to Labour. From the standpoint of the Liberals, to offer concessions to a smaller party - and thereby in effect abandon the attempt to win a working-class constituency for the Liberals - had initial attractions but severe long-term weaknesses. It would be ironic if, a century later, Labour replicated the mistake. From Labour's standpoint, there would have a been a good case for cementing the gains of the 1997 election by then forming some sort of arrangement with the Liberal Democrats - in the limited sense of freezing out the worst sections of the Labour Party. But things are different now. Gordon Brown is not Tony Blair and the Liberal Democrats collectively are way out of line with the views of Paddy Ashdown.

I don't mean these observations to be sectarian and mean-spirited. There are leading Liberal Democrats - and Nick Clegg is among them - whom I respect and who I recognise have many political qualities. Vincent Cable has his detractors, but I'm not one of them. I reviewed his book on the financial crisis enthusiastically, and his belief in open trade and economic integration is right and by no means universal within his party. But a system of three-party politics that first constrains electoral volatility is not in my view a good thing. When the main parties cease to observe the conventions of two-party politics, and listen to their activists rather than the electorate - as Labour did in the 1980s and the Tories did in the 1990s - then it's important that they lose big.

The least bad political system for a constitutional democracy in which votes count is one where rational and tolerant parties of the moderate Left and the moderate Right compete directly, and between whom office periodically alternates. In their different ways, this view is rejected by Tony Benn, John Redwood, Ed Balls and Nick Clegg.'

Andy said...

Peter Hitchens on the election:
Mark Hirst asks how a coalition might affect my long-hoped-for break-up of the Tory Party. Well, I never expected things to work out like this, assuming that the Clegg surge continues and is reflected in the votes. So I shall therefore just think aloud.

The possibilities seem to me to be roughly these:

Assume that the polls correctly predict the outcome, which would then be Labour with the third largest vote and the largest number of MPs, the Liberal Democrats with the largest vote and the third largest number of MPs, and the Tories roughly where they ought to be, that is, second biggest vote, second biggest number of seats. No majority. The Queen would then be pretty much obliged to ask Gordon Brown to try to form a government. I don't find this specially outrageous myself. All voting systems have quirks and disadvantages, and we have to ask ourselves if they're justifiable in the light of the countervailing benefits.

For me, an adversarial parliament, plus the possibility of a strong government (made up of a coalition formed *before* the election and honestly presented to the people), plus the ability to dismiss an unwanted government outright, all offer unanswerable arguments for our existing system - together with the direct personal link between MP and constituency which weakens the power of the centre over individual members. If the Tories want to get all hoity-toity about unfair outcomes, they must ask themselves why in that case they didn't decline the offer to form a government in 1951, when they won a majority of seats on a minority of votes. I'm sure there are other precedents of this kind.

In this case, it seems to me that the voters would be saying that they don't wish to sack Labour outright, nor do they wish to give the Tories a working majority. Voters in recent years have learned how to get what they want from our system, especially since tactical voting became common. And while I don't necessarily think they all agree with me about the Tories, or many other things, I do suspect that the voters agree with me that the old parties are finished and discredited, and that a Cameron government offers nothing specially attractive. They're also worried about the economic abyss which will open up after the election. They don't like the look of George Osborne, and they are reassured by Vince Cable's mixture of business experience and lived-in blokeishness. They also like the fact that he is out of his teens.

As for Cleggomania, the Tories and their media and blogosphere groupies can't really complain about this either. They have fervently embraced the cults of youth and novelty. They have also joined enthusiastically in the attempt to wipe out Labour by making direct and highly vituperative personal attacks on Gordon Brown. These attacks are essentially non-political. They have to be, because they are intended to hide the awkward fact that the Tories agree with Gordon Brown about almost every major political issue.

They also obscure the other fact, that David Cameron doesn't actually have all that much positive charisma, and hopes to get to office thanks to Mr Brown's pungent negative charisma, which is considerable and possibly unique. There is no special reason why this Brownophobia should only benefit the Tories, and no great injustice in the fact that it seems mainly to have benefited Nicholas Clegg. If you unleash personal spite as a weapon, don't be surprised if it comes whizzing back to clonk you on the head. In the world of 'Britain's Got No Talent' and 'Big Bruvver', a new face can't be expected to stay new for four long years.

Andy said...

Hitchens on the election continued:

'Right, so Her Majesty calls Mr Brown in. And he accepts her commission to try to form a government. Lord Mandelson (let us say, since the Lib Dems quite like him) is despatched to Clegg HQ to do the diplomacy. Back comes the word: ‘We'll make a deal, but not with Gordon. Or Ed Balls’. Here's a difficulty. Much hinges on whether it could be overcome.

Labour's terrifyingly cumbersome and unpredictable electoral college has only been used twice for a contested election (in the ritual Hattersley-Kinnock contest, long ago, and the wholly unequal match between John Smith and Bryan Gould). Nobody has risked it when there was a chance of a close fight. Dangerous or divisive challengers have been persuaded not to stand, as they were when Michael Howard was 'elected unopposed' as Tory leader. When both Blair and Brown took over, the succession was carefully stitched up in advance. But my suspicion is that David Miliband has already done the work and made the deals (could Lord Mandelson have been involved in this?) and that if Gordon Brown stepped down, the major unions would immediately declare in favour of the Banana Man, as would a large chunk of the remaining Labour MPs. If this is done quickly and convincingly enough, there'll be no contest (Ed Balls might even have lost his seat, though this is a long shot). And then there could be talks about a coalition.

Andy said...

Hitchen's part 3:

Labour has already talked about introducing the Alternative Vote system (whose effects seem to me to be hard to predict but which might in fact squeeze third parties rather hard). They would - I suspect - offer a referendum on it to the Lib Dems (this would not look too unprincipled given their attempt to get such an idea through Parliament before the election was called). Or we might see a revival of the 1997 Roy Jenkins proposal of AV+ (look it up). Would they accept? I have no idea. They would also, I expect, be offered Cabinet positions, and policy concessions. Mr Clegg would not, I imagine, be very keen to attempt a deal with the Tories, as his own MPs would not like it, and the Tories are publicly wedded to keeping the existing system. Also, I suspect David Cameron might risk splitting his party if he made a deal with the Liberal Democrats.

All of this would take place in conditions of some urgency, as the pressure from the Bond Markets, to get on with economic emergency measures, will be irresistible whoever wins or whoever comes first.

What happens to the Tories then? Assuming they are excluded from the new government, the Cameron project will be seen to have failed, and I doubt if Mr Cameron would wait around for long. The actual conservatives in the party, who have long stayed silent, would be entitled to point out that Cameronism has failed and that by becoming Liberal, they have only managed to persuade the voters to become Liberal too. But as long as they remain wedded to the Tory party as such, they will have nothing original to say. The Tory left will continue to claim that conservative policies have failed too (when the truth is that it is their association with the Tory Party that has doomed them to failure, combined with the half-hearted way in which the Tory Party has embraced them). I won't be encouraged by anything short of a large-scale breakaway from the Tory Party by conservatives who are prepared to say that it is time for something new. It would also be encouraging if the Tories' traditional supporters in the media began to look in this direction. If anything of the kind is to happen, I'd expect it towards the end of the summer, in time for the Tory conference.

Andy said...

Hitchens part four:

If the putative Lib-Lab coalition goes for and wins a referendum on AV or AV+, I would say that all was by no means lost. Both systems could still create decisive results and sustain the adversarial system. But if actual Proportional Representation results, then a wholly different prospect opens up. I am reluctant to say that it would be entirely hopeless, as I can imagine the creation of two socially conservative, anti-EU parties, one with Labour roots and one with Tory roots, which might be able to combine to form an effective majority government against the pro-EU social liberals. But it would certainly make everything much more difficult, and would threaten the traditional adversarial shape of the Commons in a worrying way.

I may be accused of having helped to bring this unintended (for me) consequence about. Maybe I will have played a small part. I wouldn't want either to boast of any greater influence than I actually have, or to be burdened with too much blame either. But the real blame lies with those, in politics and the media, who threw themselves behind the Michael Howard takeover of the Tories on behalf of the establishment after the IDS collapse (detailed in my book 'The Cameron Delusion'), and the Cameron project which machine-gunned Gordon Brown with personal venom, while refusing to develop or offer a political alternative, because they preferred to adopt the policies of the Left. The venom was highly effective. Labour is more or less in ruins as a result of it. But that did not and could not guarantee that the Tories would accede to power or office. If we now face a new age of PR and continental-style politics, it is the Cameroon method of attacking New Labour which is largely to blame - as I argue above - for the current popularity of Nicholas Clegg. From my point of view, an uncomplicated mass desertion by Tories would be better, giving nobody anything that really amounted to a mandate and dealing a blow to all the major parties. But I think a lot of the Cleggomania vote actually comes from young non-Tories who had previously been planning to stay at home. I doubt if many of them would listen to pleas from me.'

JP said...

Good idea, actually.

The Tesco - a new unit of measurement

As shops go, Tesco is the daddy. It's often said that £1 in every £7 spent in the shops is spent at Tesco. The company's global sales this year were about £60bn ... [M]ost of the numbers in public argument have gone enormous too. Billions, trillions? Too many zeros. What better way to understand them than with a new unit of measurement? ... If we use the global sales of Tesco as our standard unit, at about £60bn, then...

The UK economy = about 24 Tescos
US economy = about 156 Tescos.
Total UK government spending = about 11 Tescos.
Total UK government debt = about 13 Tescos.


JP said...

I dislike Gordon Brown intensely, but I'm with this blogger on the "bigot" comment thing:


The attack on Brown is hypocritical
Ian Dunt
Yahoo! Comment
April 28 2010

Andy said...

Tom Harris Labour MP writes a spirited defence of first-past-the-post here

"As a supporter of FPTP I can acknowledge that the system has its faults and that the alternatives have some merits. From what I’ve seen so far, supporters of reform cannot make a similar leap.

So I’ll make it easy from them: all electoral systems are rubbish. I just happen to believe that first-past-the-post is a bit less rubbish then the rest.

Because if what you’re looking for is the perfect system that will accurately reflect every vote cast and provide good government, then don’t bother. Go and take up something useful instead. Like gardening. Or stamp collecting.

All electoral systems are flawed in some way. They all have disadvantages and weaknesses. And when the LibDems and their supporters in the Labour Party claim otherwise, they’re deliberately trying to deceive.

So, as I say, FPTP is a rubbish electoral system. But let me qualify that: it’s a rubbish system for electing a legislature. As a system for electing a government, it’s actually a very good one. So as this debate continues, the various proponents of the different systems should be clear about what we think general elections are for – are they primarily for electing 650 MPs? Or for electing a government?"