Monday, January 12, 2009

the time has come to shoot you down

OK, the last post wasn't totally serious.

But is it too much to say that John Redwood is back? He's been given a committee to chair, which sounds like a kick to touch, but we live in committee times. The Government is handling the economic crisis through a combination of outside committee-ists and a civil service-run mixed cabinet committee that super-sets the outsiders, some cabinet members, and some officials.

And the Conservative line is becoming increasingly clear. They believe the rate of interest is too low; this means they want to put it up. So much for independent central banking, the guarantor of sound money. The justification is that they want to encourage saving. They also want to cut or hold public spending. And they vaguely suggest that they want to fix the exchange rate, or at least intervene upwards in it.

These are all deflationary and demand-reducing steps. If you're a monetarist, they want to increase the price of money by reducing its supply; if you're a pragmatist, they want to push up sterling and keep imports cheap, which implies pressing down the level of prices generally; if you're a Keynesian, they want to pull money out of the circular flow into a storage tank, whether private or public. If you're a 1980s New Classicist, they want to make cash scarce compared to goods, so that the price of labour eventually falls far enough so that the price of goods and services clears the market.

Bing! That's it. They are still obsessed by the idea of hammering down wages, as they were in 1985, and 1995, until we get to...what? Where can it go, in a world that includes Bangladesh, and overheads? For them, that is the solution. Strangely, no-one ever suggests that the price of enterpreneurship ought to fall; haven't we had enough bad ideas for a while? The only answer is what it was back then; we've got to make good stuff, or good services, and the best way to do this is not by bidding up the price of houses in the suburbs of Middlesbrough.

Yes, there's the idea of guaranteeing loans to small businesses. But here's a question for you. Not so long ago, it appeared that the Government guarantee of wholesale interbank lending would result in a monster liability on the public balance sheet - but only if the Government charged a fee for this service. Weirdly, if the Government did it for free, the liability vanished out of the moneysphere. Either way, certain pol.....no. Fuck him. George Osborne used the liability to back his own version of the numbers.

Now, George wants to guarantee £50bn worth of loans to small businesses, and charge a fee; but for him, the wholesale guarantee is "Labour bankrupting the country again". I know I'm a sad, twisted bastard, but I still remember when lying in the House of Commons was a resigning matter. Perhaps I should have learned something when Jack Straw and Hoon back in 2003-2004....no. The struggle of man against power is the struggle of memory against forgetting, said Havel.

Maintain your rage, said Gough Whitlam. I happen to know that some really serious donors to the Tories think Osborne ought to be sacked, moved to Communities and Local Government, /dev/null, Siberia or wherever. Most of all, they want him nixed. Step away from the controls.

7 comments:

Nick said...


And the Conservative line is becoming increasingly clear. They believe the rate of interest is too low; this means they want to put it up. So much for independent central banking, the guarantor of sound money. The justification is that they want to encourage saving. They also want to cut or hold public spending. And they vaguely suggest that they want to fix the exchange rate, or at least intervene upwards in it.


You've not been reading Redwood's blog where he was advocating cuts in advance of Labour.

So a question for you.

Is it acceptable to shaft the prudent who have saved to bail out the reckless and feckless?

Cutting interest rates is such a policy

Richard said...

Nick - if the policy protects their jobs and prevents a society-weakening depression, perhaps the prudent would be fine with the short-term pain of low rates. And I'd love to hear your definition of the "reckless and feckless". People with jobs and mortgages? Damn their eyes!

I'm not certain lower rates will save us, mind you. And politically, it's all rather depressing. Labour continues to make dim-witted decisions in the search for effectiveness in the face of an accelerating recession no-one can control. The Tories' policy of not saying anything much about their alternatives looks positively inspired every time they do open their mouths with their view on What Is To Be Done. And while - like... everyone - I think Vince Cable should be PM of a government of national unity right now, Nick Clegg is just smells wrong.

I guess I'm voting Green. (Terrific post, Alex, by the way...)

ajay said...

Nick, it is high time that people started treating possible government actions with a view to determining what will work, rather than what is morally acceptable.

Alex said...

"the reckless and feckless" here appears to include "everyone who derives their income from either wages or profits". If the Tories want to be the Rentier Party, that's their funeral.

Graydon said...

It's very, very important that people be prevented from noticing that a capital-holding (as just narrowly possibly distinct from a capital managing) class are a serious part of the problem, because running the economy so that it generates widely distributed prosperity in the future (what it ought to be doing) is very different from running the economy so as to secure existing wealth and social status (what the folks running the economy really want to make sure it does.)

When there was little surplus, little mechanism to generate surplus, and little institutional support for automating the problem in some useful way, sure, you need people whose job is to be rich so there can be enough capital concentrated to build a canal. It wasn't a good solution, it was just the solution you could get coming out of the general agrarian labour trap.

That need for a capital holding class isn't true any more, to the point where five honest people with decent computer support and modest salaries can and will run your capital project, using money from millions of people buying in for a couple beers' worth each, for pretty much arbitrary values of capital project. (Sometimes it's a case or three of wine instead of the beers, but the point holds.)

Core goal for pretty much the entire political system is keeping that from becoming really obvious, especially since the discrediting of communism means the probable replacement will be empirical, and thus decently likely to work.

All that takes is a little bit of public honesty and one working example, and it's poof, distributed Cromwell, diffuse and amorphous and very hard to stop. For statistical values of no, no one who currently has a lot of wealth or power wants that.

It's all in how things are really organized. That has to change; it will change, too, sometime between now and Greenland going.

Alex said...

Graydon - consider your federated whuffie state incremented by one. That is an interesting comment with novel and nontrivial content.

Graydon said...

Thank you!

I've been working on saying that sufficiently clearly for awhile now.

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