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Green double philosophy on GDP

Oct 24

Posted by Jeff in Economy | 9 Comments

Back in the day when I was an SNP member, I must admit that I took a certain joy from blogging a position that was contrary to the remarkably well disciplined view across the party members as a whole. As generally ornery as I am, I like to think that I actually believed what I was writing so I have thought through the below post more than I ordinarily would to ensure that I am not being unfair on my beliked Greens.

The world is a complicated place and one way that power-brokers make sense of it all is to calculate the GDP of the ‘countries’ that exist either side of the arbitrary borders that history, war, imperial ambition and no end of murder has helped to create.

A common riposte from those less than impressed with GDP as the apparent be-all and end-all of our daily 9-5,(6,7) lives is that if everyone paid for their partner to sleep with their neighbour then GDP would go through the roof. It wouldn’t make us a better off country. Indeed, the main proponents of this view seem to be the Green Party (yep, here I go) many of whose members are in favour of replacing GDP with some sort of ‘happpiness index’ that reflects quality of life.

I am not against the idea of a more appropriate, fuzzier economic index and would even say that I am, on balance, in favour of it. I certainly agree that an increase in a country’s GDP is not always necessarily a good thing. However, the flip side of that argument, and one that the aforementioned Greens should accept, is that GDP decreasing is not necessarily a bad thing.

Therefore, I raised an eyebrow with interest when I saw that leader of the Green Party in England & Wales, Caroline Lucas, was arguing passionately that George Osborne’s cuts may result in a double dip recession. After all, why should she care? The converse of what Caroline is proposing is not related to the GDP index and is not even affected by a double-dip recession, not directly anyway. I just suspect that the Green leader is picking the convenient response and easily sellable soundbites over the more relevant line of argument.

One tweet from the GPEW leader is that we “need investment, not cuts, or we risk a double dip recession”. Granted there’s only so much one can squeeze into 140 characters but that’s a skin deep response to an issue that is cutting to the very bone.

I understand that the minority must, at times, operate and argue within the parameters set down by the majority but it’s not enough to cry foul at a double dip recession that might (might!) be necessary and it’s not even enough to put forward the Gordon Brown-esque no-brainer option of ‘investment vs cuts’.

What is required is an explanation as to why investment, a costly increase in GDP and a Green revolution is a better option for the country than cutting bloated spending, the risk of a double dip recession and avoiding crippling interest payments.

I am already sold on the former but if the leaders proposing it are stopping short of deepening the argument and appear to artificially make it a black & white, good & evil issue, then one can’t help but wonder about the latter and the intellectual rigour that may be holding it up behind the scenes.

The Greens may be playing on the Capitalist court but that doesn’t mean that they have to play by their rules. Throwing GDP in the garbage bin must surely also mean resisting using its accompanying lingo.

Or maybe I’m just a wind-up merchant.

Scotland’s newest ghost town

Oct 22

Posted by Malc in Defence, Economy, Westminster | 4 Comments

The CSR and the SDSR have provided bad news for Moray. RAF Kinloss, which employs anything between two and five thousand people depending on your source, is to close. Those jobs were directly linked to the RAF, but beyond that, the town of Kinloss itself will effectively collapse. Added to that, the future of RAF Lossiemouth remains uncertain. Moray has taken a huge hit from these spending reviews and, even if RAF Lossiemouth remains open, the effect of cutting RAF Kinloss will be felt for years to come.

At this point, I’ll declare an interest – my parents live in Moray (though about as far away from Lossie and Kinloss as you can be yet still be in Moray!) and I know a couple of folk who work(ed) at Kinloss, as well as local elected representatives in the area. So this case of cuts, more than many of the others, seems a lot more real to me, and I’m perhaps a little more circumspect when it comes to discussing them.

Of course, losing one and possibly two RAF bases in the area is an absolute disaster for local people, the local community and the local economy. Jobs will go, there will be mass migration from the area, shops will be forced to close through lack of business leading to further job losses and a prolonged period of pain for those in the area trying to escape the economic downturn.

The UK Government established RAF Kinloss for use in the Second World War and have held squadrons based there since 1939. For 70 years the government has made use of the permanent facility there, sending Nimrods from Kinloss to numerous conflicts, including the Persian Gulf in the early 1990s and Iraq and Afghanistan more recently. Around the Air Force Station, the local community grew, with much business based upon their continued presence in the area. In short, the local community relied upon the base for its economy to survive – which meant that the government was effectively responsible for protecting the local economy. This isn’t the same as a car plant or whisky bottling plant closing for business reasons. This is a government deciding to cut the heart out of a local community. I don’t see how this will help the economy here at all, which is the main reason the government has given for the cuts.

On the other hand, look at this from the government’s perspective for a moment. You have a £150+ BILLION deficit to get under control. First on your list of things to do is identify things which are necessary and ring-fence spending on them. Then trim the fat – which means that everything which is not necessary is expendable. You then examine your needs, work out what may be needed for particular policies – in this case, for the defence of our borders – and again, ring-fence spending in these areas. Everything else… well, you cut, or get rid of entirely. You can’t be sentimental when there’s a huge debt to recover. And so RAF Kinloss and its Nimrods were deemed expendable, unnecessary for the future of Britain’s defence.

From this perspective, it makes some sense. We’d be hugely pissed if they’d turned around and said “look, we’ve decided that defence is our priority, so we’re going to keep RAF Kinloss, order more Nimrods and spend much more on air defence. To do that, I’m afraid we have to make cuts elsewhere – which means the NHS will no longer be free and we’re doing away with all welfare spending”. Obviously, that’s an overstatement. But can you imagine what the left would have said – particularly those who are also anti-war types – if that had been the case? The bottom line is, the government has identified that RAF Kinloss no longer fits with Britain’s defence and will no longer fund it. If they’d kept it open and not used the personnel, they’d be decried as wasting taxpayers money simply to maintain the local economy in Moray.

So yes. There are good reasons for closing the base, and I understand the thinking to an extent. But I don’t like it.

Spending Review – A Scottish Perspective

Oct 20

Posted by Jeff in Economy, Holyrood, Westminster | 8 Comments

Well, the Comprehensive Spending Review has finally been delivered. There were no showstoppers today as most of the bad news had been drip-fed out to the public over the past few weeks. Half a million people losing their jobs, a slashing of welfare and a drastic cut to Social Housing were the biggest bouts of bad news for me, particularly as charging claimants near market rates surely takes the ‘social’ aspect out of it. I will be looking on in interest as this Green Investment Bank gets up and running but I suspect it is a new name for old money as the “up to £1bn” funding was half of what was expected and way short of the hoped for £6bn. There is certainly little evidence that the Chancellor is making good on the “greenest Government ever” boast.

From a Scottish perspective, this is all largely irrelevant of course. Osborne’s decisions on health, education and justice spending won’t make a difference to what money is spent by Holyrood. The big figure is how much the devolved budget would be cut by.

The expectation from the Scottish Government was that there would be a £4bn cut in the devolved budget over the next four years, starting with a £1.2bn cut from next year. My suspicion of an element of expectations management and low-balling from the First Minister on this one was pleasantly unfounded as there will be below-inflation cash rises for each of the devolved regions as a result of increased spending in health and education. Cameron’s ‘respect’ agenda in operation or just a lucky corollary of decisions taken elsewhere?

However, Scotland is nonetheless now at a double risk of having a welfare state culture without the welfare and a public sector reliant economy without a sufficiently sizeable public sector. Whether Osborne will be phasing (some could say weaning) claimants off their cheques remains to be seen but we are now living the doomsday scenario of the almighty clash of an ardent capitalist Tory Government in London and an unapologetic socialist Government in Scotland.

The unavoidable fissures that this creates around the geographical differences in political philosophy and squeezed debits and credits of a shrinking Scottish budget may make life significantly more painful north of the border than it will be in the south.

The word fairness has been hammered into the British public by the coalition leaders but it seems to have been merely sledge-hammered into the CSR as a presentational bolt-on.

One could argue that Scotland is dealt with fairly through the strict Barnett formula. If England and Wales see spending decrease, then so too will Scotland and in equal measure (more or less). However, that is to perhaps overlook any disproportionate effect of Defence cuts north of the border, on the increased cost of fuel north of the border, on the punitive Grid charges holding back Scotland’s renewable revolution and on the lack of Barnett consequentials from the Olympics to Crossrail.

They are all separate battles for separate occasions though. The real unavoidable challenge lies at John Swinney’s door and the Scottish Parliament’s as a whle as they must now implement a Scottish Spending Review and budget with the figures that can now be punched into a calculator to find how much is at our disposal.

Osborne has done what he thinks is his best, the baton has been passed to the Scottish Government so, to amend an old phrase, pain devolved is pain delayed.

Put another way – the worst is yet to come.

Cameron finally accepts that Trident shouldn’t cost a bomb

Oct 19

Posted by Jeff in Economy, Parties, Westminster | 2 Comments

There is something of a boating theme to today’s posts on here as the latest news in the drip-drip-drip of announcements before George Osborne’s CSR speech is that David Cameron has decided to delay the the replacement of Trident until at least beyond 2015.

Given the choice between Trident being replaced from tomorrow and Trident being replaced after the next parliamentary term, anyone against nuclear weapons would opt for the latter so in that respect today’s news is to be welcomed. However, given the choice between deciding once and for all that we will not renew our nuclear weapons and postponing the decision until later, the former is by far preferable. So, in short, good news but the fight goes on.

In political terms, the Conservatives are at risk of leaving themselves exposed by attempting an understandable compromise. The hawkish right wing of the Tory party will be deeply dismayed that they will have to wait longer for new toys in the arsenal and the left-wing anti-nuclear camp may be concerned that this was their best chance to put Trident to bed forever and that opportunity has been missed.

For the Lib Dems, while they have been criticised for reneging on some of their principles on here before, they should only be applauded when they make good on their objective to ‘leftify’ how a Conservative majority Government would have operated. It looks like this is one area where Clegg, Alexander, Huhne and Cable can be satisfied with their contribution.

For Labour, I have been unable to find a response from Jim Murphy on the Trident issue as it seems Jim’s deputy Kevan Jones has taken the lead on this one. I rather suspect that the coalition postponing the Trident decision will push Labour into being more ardent defenders of the (literally) indefensible and I equally suspect that Jim Murphy will step back from the headlines, for fear of painting Labour as the sole defenders of Trident which may not play well at the Scottish Parliament elections.

All in all though, this is surely a good day for the Greens, for the SNP and a for a significant tranche of the Lib Dems who have all argued that building Cold War bombs is a hideous waste of money.

QE2 is sailing our way, but should we give it a wide berth?

Oct 19

Posted by Jeff in Economy | 2 Comments

In 2009, the Bank of England embarked on a brave new strategy of Quantitave Easing, never before tried and tested in the UK. The idea was that the BoE buying £200bn of corporate bonds from financial institutions would increase the amount of money in the British economy and stimulate the markets out of recession and back into growth.

The adventure was hailed as a success but what is not so widely known is that Quantitative Easing did not work as it was supposed to.

There exists no evidence that the 2009 bout of Quantitative Easing increased the circulation of money as many lending institutions simply stocked up on their capital or let the money move outside of the UK. However, crucially, there exists no counter-factual that the Bank of England’s decision was harmful.

Sure, the UK is the only deveoped country with high inflation which QE may or may not have caused (it certainly took Mervyn King by surprise) but the difficulty that exists in controlling this index means that one should tread carefully for fear of hyperinflation and drawing Zimbabwe comparisons. Anyway, this higher than expected inflation is a good thing as energy sales and retail sales (despite VAT) staying robust are evidence of a healthy economy and a strong recovery.

Possibly as a direct result of this rather woolly ‘QE doesn’t seem to be causing problems so let’s crack on with it’ mentality, there is a growing expectation that a second round of Quantitative Easing is on its way, possibly as early as November, (the Bank of England has to produce inflation reports and Mervyn King holds a Press Conference every quarter so it is likely that big QE decisions would coincide with these).

So expect the price of Sterling to remain low as we attempt to embark on an export-led, tourism-driven, soaked-in-money recovery to take place.

Here is the thing though – Quantitative Easing is pointless if everyone does it.

More Sterling gives the UK no competitive advantage if there are also more dollars in the US, no Euros coming out of Europe and overflowing Renminbi in China. Given that the US Fed is expected to bring in Quantitative Easing, Europe has no joint strategy with Germany holding its hordes of cash and China not far off triggering a currency war with its stocks of US dollars, now might not be the right time for the UK to go printing more money.

Is the following scenario really that unlikely? – QE pushing inflation up further, inflation rising again due to rising oil/food prices, wages increase to cover increased costs, strikes and wage demands in protest at George Osborne’s slashing of the public sector, companies raise prices to maintain profits and bonuses. In short, wages chasing prices and prices chasing wages. The classic wage-price spiral.

Then again, perhaps there is a clever game being played here. The mere suggestion of QE2 in the UK has helped dip the Sterling currency lower, so too the Dollar. Might the Bank of England and the Fed be boosting exports without having to actually see QE2 through to inflation-causing execution? It’s a strategy that makes sense if you don’t actually know what Quantitative Easing actually did the first time around and you feel like jumping ship before even getting onboard.

So, here’s the economic weather forecast. Becalmed interest rates, biting frost from Chancellor’s cuts, choppy winds from all overseas directions and a QE2 trying to hold its course without any meaningful direction from its captain.

We don’t really know if we’re being handed lifejackets or being shepherded onto the Titanic but, either way, it’s going to be all hands on deck from Wednesday.