Filed under: Europe
In the new e4u collection, there are some admirable pieces, which deserve to be read for their making their arguments soundly and honestly (this one is hilariously overwrought, mind). One of these is Stefan Collignon’s essay ‘Sovereignty, Democracy and the Euro’, which is especially admirable because it doesn’t dismiss the (frankly obvious) notion that having a single currency has implications for political power. Collignon says:
“The introduction of the Euro as a common currency to all citizens has significantly increased the range of European public goods… They are concerned by policy decisions that affect these economic variables.
“As owners of public goods, citizens in democracies appoint governments as their agents to administer these goods in accordance with their preferences. Because they are affected by the consequences of policy decisions, they must have the right to choose between different policies and to revoke their agent if they so wish. But making collective decisions requires also structures and institutions that allow them to deliberate together on what policy decisions serve their interests best… and this requires politicizing policy-making at the European level.”
As a purely descriptive matter, this seems right. Much of the economic pains seen in places like Spain is a natural consequence of what is essentially too much policy autonomy at the national level, given the constraint of a shared currency (Krugman makes the point about the lack of Euro-level central government). Where I disagree is as to the desirability of such a development; I don’t want Britain to become part of a European polity – for that reason, I don’t want us to ever join the Euro. But I’m also highly sceptical as to the project of evolving such a polity. In the concluding paragraph, Collignon writes:
“Joining the Euro means joining a monetary economy where the nature of policy externalities will significantly increase. It will create new bonds of trust among citizens. Sharing the same currency, operating in a large single market is creating new interests shared by ordinary citizens… With the substantial increase of private contractual relations across borders in Europe, national identities become less important.”
But surely we have learned that such simple, deterministic explanations of social change are best treated with great caution? The state didn’t wither away, and secularisation stalled – if the principle of equality and the consequences of the empirical method didn’t lead to their supposed destinations, then forgive me if I question that changing one currency might have such a profound impact as to transcend bonds built on 1,000-year-old national mythologies, with all their embedding in language, social practice and political institutions?
Euro members might of necessity consent to the creation of common public institutions, but the act of coming together to divvy up the loot does not a tribe make. Giving even a single precursor of the shared interest of a fiat currency defining the identity of a new political community would be a start. (The previously cited Krugman post also identifies the relatively poor labour market integration as the other key factor in the Euro area’s painful asymmetric shocks; this same fact of our living separately would surely also inhibit the forging a European political union.)
That said, well done for the honesty. If pro-Europeanism is to have any future, it is precisely this kind of candid positive message which is needed. I wouldn’t like to be tasked with selling it, though.
Filed under: Politics
Ken’s back. Good.
Eric Pickles seems a good move, if only to replace the ineffective (and damaged) Caroline Spelman; he also, like Ken, brings a great contrast to the Cameron-Osborne (and Grieve, Letwin, Hunt, etc.) public schoolboy on-the-make type. Grayling’s move to home affairs also has something of the same effect, and his attack-dog style will find easy prey shadowing Jacqui Smith.
I’m intrigued by the thinking behind putting Theresa May in at Work and Pensions. I’m not May’s biggest fan – she seems competent, but not inspiring; whereas Purnell, love him or hate him (being a Tory, I incline to the former), is very sharp. My guess is that Cameron’s realised that amidst recession, and with the Government already doing the lifting on welfare reform, any attempt to outflank them on reform (as headline-chasin’ Grayling probably would’ve tried) will be easily portrayed as “the same old nasty Tories…” - so probably easier to support all that they do while pointing out the elements (like lone parent return-to-work rules) which their own supporters won’t like.
On the wider politics, I think Liam Murray’s got a good point that appointing Ken looks like an attempt to shore up possibly limited Shadow Cabinet credibility, but I wouldn’t go that far myself, and for two reasons. First, and most obviously, times have changed: before the economic crisis, we didn’t need the Old Bruiser, but now we do – Ken’s statement plays up to this point. Second, times have changed in a different, more positive, way; earlier on, Cameron had to build his team – a reliance on Ken (or Michael Howard, equally) would look like an admission that the ‘novice’ hasn’t got what it takes. Now, Cameron’s position is beyond question, and his Shadow Cabinet is no longer being looked at by people purely as spokesmen, but as an alternative governing team*; the former factor gives him the freedom, the latter factor the necessity, to draw on what talents he does have available. Taking that step demonstrates that he is both secure in his leadership and willing to make the compromises necessary for power.
There might be some chatter about the European question with Ken; already I’ve seen replays of old Britain in Europe TV footage. Fine. Even if Ken causes a bit of rumbling, there’ll be no great movement – in the parliamentary party the pro-Europeans are a diminishing and ageing number, not to worry. The problems the Tories will have with Europe will come from the other direction, and will happen in office… But we have to get into office first.
Update: Iain Martin has the inside story.
* To see this shift in action, see here, in which New Labour loyalist Jessica Asato (who seems to be the kind of person who repelled me from student politics) lays into Cameron’s “sub-standard team”. Incidentally, if this is the kind of article in which labourlist.org is to specialise, Dolly’s wasting his time.
Nosemonkey points to the launch of this year’s new pro-Euro campaign. Apparently driven by the notion that Britain’s economic troubles could be solved (or, anyway, ameliorated) by our rapid entry to the Euro, they’ve got a 256-page collection of essays against the eeevil Eurosceptics.
As NM says, the list of contributors includes some good names – Michael Artis, Willem Buiter, Peter Sutherland, to pick out a few… But from my look over them, they’re all the same old names we’d have seen back in the period when it all seemed a live possibility, and probably less convincing because they seemed to be the true committed Euro advocates from some time back, rather than those arguing strictly on the empirical merits (this is no disrespect; we all have our priors, and mine go the opposite way – my point is that you have to have some on your side who obviously might’ve split the other way if you’re to win the argument… I don’t see any).
And anyway, no campaign will be won by the economists. The public figures are what matters here, and the same problem applies – that it’s the same old rump. We’ve got John Stevens and Brendan Donnelly (former Tory MEPs who formed the Pro-European Conservative Party – you may have missed this), Dick Taverne (Labour-turned-SDP-turned-Lib Dem), Chris Haskins (Labour-supporting former industrialist), and Will Hutton. Only Will Hutton, who manages to be both media fave and deep macroeconomic thinker* even before breakfast, is a leading public figure; the rest are all rather second- or third-tier has-beens, all with cards well marked for their head-banging pro-Europeanism (Stevens, Donnelly and Taverne effectively left mainstream political careers because of their commitment).
But the really worrying sign if you believe that Britain should join the Euro is the sheer incompetence of its presentation. I obviously think that joining the Euro would possibly be the worst mistake since the passage of the Third Reform Act or the execution of Laud**, (more…)
Filed under: Economics
Oliver Kamm quite rightly gives Alex Singleton a firm thwack for his advocacy of a return to the gold standard. He doesn’t even mention the fact that
- it’d be extremely unstable if only Sterling were placed on gold (its self-correcting mechanisms work best through trade, and the gold price would be all over the place, making the price level follow it);
- it’s not likely there’s enough gold to provide enough in reserves necessary for the developed economies and fulfil other valuable uses without sending its price absolutely sky high;
- if the world gold supply doesn’t expand as fast the world’s gold-backed economy, the (fixed) price will have to rise again, which means deflation deflation, which will hit wage rigidities and create unemployment (as it did in 1873-1896 Long Depression); and
- holding enough gold to ensure convertibility carries a not insignificant resource cost – not just because gold pays no interest, but also because of the rise in the cost of gold losing opportunities for its other use.
(I’m surprised by Kamm’s statement that “a central bank cannot both maintain convertibility of the currency into gold and act as lender of last resort to the banking system”; surely the idea of the LOLR function comes to us from Bagehot, writing in 1873, the height of the classical gold standard. The 1844 Act, although regulating currency issue, included reserve powers for its own suspension.)
Filed under: Politics
Two articles in The Times today command my attention.
Daniel Finkelstein quite correctly points out that the seeming return to old economic battles does not warrant an end to the Cameron project of finding a kindler, gentler reaction. I think he overstates the case a little, but I am in entire sympathy with his message – that we Tories have to give a positive prospectus if we wish to engage people in how we want the country to be, especially if we end up governing in tough times.
The supposed alternative, as Finkelstein says, is that we can jettison all the fluffy stuff and stand clear as the Party of Cruel-but-Efficient, because being Kind-and-Efficient is either too difficult or doesn’t allow you to make crass jokes at constituency dinners (I guess). The main problem with this is that people don’t actually see us as especially efficient; the polling data’s a lot more positive than it used to be, and Labour are no better, but many people distrust claims of competence as such – and we’ve been out of power so long that people won’t give any of our claims credence until we can prove it in power. This is no time for one-club golf, ahem. (I’m assuming of course that we can prove it.)
I think Finkelstein overstrates because although the critics of Kind-and-Efficient as such are wrong, they might be right that we need more work on demonstrating the Efficient, given the political mood. What I’m thinking about here is that we seem too much to lack the ability to deploy brute force in political discussion; on the economy most obviously, at times we seem to lack either the thinking or the willpower to deliver the sharp, incisive critique when the Government blunder. There’s narrative that says not only what we want Britain to be like, but immediately, instinctively how we’re going to get there still seems vague.
Peter Riddell talks about Ken Clarke. Now, it is true that I have said some harsh things about KC in years past, and I think it is a good thing he was never elected leader. But I think Riddell is too hard on what he offers. Clarke coming back to the Cabinet would not just add another high-profile, big-hitting figure (much needed ahead of a General Election), but also signal that the Cameron leadership is big enough and mature enough to have some rivals on the inside. (That said, I agree with Riddell that there are big risks. Cameron needs to extract watertight promises from him, but I think it’s doable – Clarke would love another time as a senior Cabinet Minister before he retires.*)
Also, Riddell says:
“I am a fan of the Tory websites, which carry stories not reported elsewhere. But bloggers feed a frenetic mood that militates against long-term thinking. Another result has been a flood of statements and initiatives by party spokesmen.“
Quite. And as he says, much of it is for little actual effect.
* Try this possibility: Ken Clarke renegotiates the EU relationship. Ah, paradox: Nixon goes to China, in reverse.
Filed under: Economics
David Cameron and George Osborne are both talented men, but they really are struggling to pull together a coherent narrative on what’s wrong with the economy and what they want to be different. Hopi Sen is right that the jumping rhetoric reflects a lack of a cogent underlying analysis. Things have improved sufficiently to stop the drowning look the Tories seemed to be specialising in back in the autumn, but every twist in events seems only to emphasise the gaps in the Tory position.
The example Hopi points to, of Patrick Minford’s attack on the Tory position, shows the consequences of the weakness – and they’re very bad. One of the great strengths of Cameron’s leadership has been the realisation that the Tory Party can’t win power without at least the acceptance of serious, elite opinion. Where Hague, Duncan-Smith and Howard rested their hopes on building popular support in the lower middle classes, almost by glorying in setting themselves against elite opinion, Cameron realises that English deference makes such a strategy self-defeating.
The failure here is all the more telling because the Government’s arguments hardly stack up, but the Tories’ seeming inability to find traction is letting those arguments through almost by default. There are after all economists out there like Minford who do have criticisms of the Government; but unless the Tories can find some consensus with them. After all, partly because of the City and partly because the Labour Party pretty much didn’t do serious economics at all back in the 1980s, there are not a few respected economists who will at least fellow-travel with the Tories.
Filed under: Economics
It has become fashionable to denounce opponents to your own preferred recession-beating policy interventions as the intellectual inheritors of 1930s “do nothing” liquidationism, often simplistically cited as Austrian economics.*
The allegation made is that, like the liquidationists, those who favour doing “nothing” now do so because they read their economics as if a morality play, where recession is a necessary corrective for past excesses (e.g. Martin Wolf). The consequence of this ascetic prescription is that not only is there nothing we can do, but there really is nothing we should do, because it’s cosmically ordained that there is to be a recession, which must run its course. In its worst form, growth is something to be feared (it’s all a sham) and recession to be embraced – all expansion seems to be the economy overheating.
Particularly on the political Right, there is a temptation to make a virtue out of necessities we should be content to accept – to celebrate our complicity with our travails. Here and now, I don’t think there are many who raise questions about whether some policy responses are too costly or will damage long-term growth potential because they privilege asceticism. That said, it’s a ready defence for those advancing new and radical proposals, and it’s easier than arguing the point.
But just as for some there’s the temptation to celebrate paying for our past sins, for others there is the temptation to deny that there’s any potential downside to economic success. (more…)
Filed under: Economics
If you’re fairly familiar with economics, you should read this paper by Daron Acemoglu, because it’s really rather good. A few extracts:
The inevitability of the business cycle: “Much of creative destruction takes place at the micro level. But not all of it. Many companies are large and replacement of their core businesses by new firms and new products will have aggregate implications. Moreover, many general-purpose technologies are shared by diverse companies in different lines of business, so their failure and potential replacement by new processes will again have aggregate ramifications.”
The decay of our economic paradigm: “Forgetting the institutional foundations of markets, we mistakenly equated free markets with unregulated markets… In hindsight, we should not be surprised that unregulated profit-seeking individuals have taken risks from which they benefit and others lose.”
Sacrificing long-term growth to deal with the recession: “Barring a complete meltdown of the global system, even with the ferocious severity of the global crisis, the possible loss of GDP for most countries is in the range of a couple of percentage points, and most of this might have been unavoidable given the overexpansion of the economy in the prior years. In contrast, modest changes in economic growth will cumulate to much larger numbers within one decade of two. Thus, from a policy and welfare perspective, it should be self-evident that sacrificing economic growth to deal with the current crisis is a bad option.”
Ensuring stimulus activity doesn’t impede creative destruction: “Market signals suggest that labor and capital should be reallocated away from the Detroit Big Three and highly skilled labor should be reallocated away from the financial industry towards more innovative sectors. The latter reallocation is critically important in view of the fact that Wall Street attracted many of the best (and most ambitious) minds over the past two decades and we now realise that though these bright young minds have contributed to financial innovation, they also used their talents for devising new methods of taking large risks, the downside of which they would not bear. Halted reallocation will also mean halted innovation.”
The whole paper’s worth a read because it focuses on the lessons for economic thinking and especially the needs to maintain the sources for long-term growth amidst all the clamour for short-term solutions. Too much of the current debate seems predicated on the idea that minimising the effect of recession is more important than any other goal, but the consequences of such an approach are potentially lethal for our long-term economic performance.
