Thursday, 31 October 2013

On yer bike

The result of the 2015 election in the UK will probably depend on two things; the effect of economic recovery on living standards and the success David Cameron has in renegotiating our terms of membership within the European Union.  In short, if the recovery delivers improvements in living standards the coalition will probably be re-elected and if the European negotiation is successful the Tories might expect to form a majority government.  I have argued for a long while that Labour’s crisis in living standards is erroneous; as the marginal nature of disposable income means that we will see a substantial recovery in take home pay over the next 18 months.  The European issue is more vexed.  Mr Cameron has two options on Europe, a Harold Wilson like renegotiation (nothing changes at all) or a Margaret Thatcher like renegotiation, which achieved some changes but within the broadly unchanged  framework.

Here come the Bulgarian's

Friday, 25 October 2013

Starman Waiting in the Sky

Britain’s star man central banker, Mark Carney, has hardly blown our minds, getting off to a pretty slow start.
Apologies to David Bowie
Since he arrived in July the economy has continued to recover and all the attention has been on Ben Bernanke at the Fed - and the talk of tapering QE in the US.  In his first few months he has taken the first tentative steps – issuing some forward guidance, taking on the funding for lending scheme and the Help to Buy scheme.  But today for the first time Mr Carney stepped out from the shaddows.  The occasion was a 125th birthday party for the Financial Times, so Mr Carney was able to talk to a well-informed audience rather than having to sound bite for the benefit of the BBC’s simple minded economics experts.  The back drop to his speech is that the UK is the best performing economy in the G7 with annual growth of about 2% and rising, relatively low unemployment and no prospect of a deflationary bust - that is still a possibility in Europe, Japan or even in the US.

Wednesday, 23 October 2013

Unglobalization - the decline in world trade

The declining growth in world trade has got economists baffled.  Some economists think this is important whilst others are not so fazed.  On the face of it we should care because the volume of trade has broadly mirrored the growth in GDP (wealth) across world so any decline may signal a slowdown in GDP growth.   The chart below shows the long run growth in world trade and the impact of the 2008 recession.  The steep decline and bounce back between 2008 and 2010 is not surprising but the lack of sustained recovery since 2010 is a worry, particularly in the developed world.

Thursday, 17 October 2013

The Selfish Giant and other fictions

Clio Barnard's film The Selfish Giant has already been described as "hauntingly perfect" and "jaggedly moving" as it premieres at the Cannes film festival, the director herself is being feted as a new and important presence in British cinema.  I have to declare some skin in this game as the original story (The Selfish Giant) by Oscar Wilde was my mother’s  favorite children’s book, and if you have children and you haven’t read the story you should pop out and buy it now!  The story goes something like this -
When the Giant returns from long trip away from home and discovers the local children playing in his beautiful garden, he chases the children away and builds a high wall around his plot to keep them out. The garden laments the loss of the children’s laughter and when spring comes, the plants and trees blossom everywhere except for the giant’s garden, which remains covered in winter snow.  From here the story then develops beautifully and sadly  -  you had better buy the book.
One of Ritva Voutila's original illustrations

Monday, 14 October 2013

Janet Yellen - she's a pussycat

In the UK there has been a major row about the politics of the leader of the opposition’s father and the fact that he was a communist.  Clearly the background of important politicians and officials is in the public interest, whether they like it or not.  In the US, Obama has nominated Janet Yellen to be Chairman of the Federal Reserve and whilst she is not a communist for some Republicans that fact that she is a self-confessed Keynesian is even worse than being a Marxist!  And as Gavyn Davies says “A 67-year old leopard is unlikely to change its spots”.
Janet Yellen - she's a pussycat

Wednesday, 9 October 2013

Ignoring the Wealth of Nations

When Adam Smith published his economic treatise in 1776 he gave the world a number of defining ideas for wealth creation and preservation.  The first was that regulations on commerce are a menace and counter-productive. Smith’s amazing insight was that a nation’s wealth is really the stream of goods and services that it creates not the gold it accumulates.  Another important idea was that a country’s future income depends upon this capital accumulation (wealth) and that the more that is invested in better productive processes, the more wealth will be created in the future. As an adjunct to this idea people must be confident that their capital will be secure. The countries that prosper are those that grow their capital, manage it well, and protect it. The final theme is of course the “pin factory” and that productive capacity rests on specialisation (the division of labour) and the accumulation of capital that this makes possible.
My thanks to the Adam Smith Institute

Monday, 7 October 2013

We're Mad As Hell

Many of us will be experts in the dark arts of sequestration, whereby we create an ultimatum that will have future consequences.  At a personal level it might be “Give up smoking or I will leave you” or it might have a geopolitical significance “declare war on Serbia and we will declare war on you”.  Some of the most dangerous events in history have been triggered by intransigence enshrined in law.  The problem with sequestration is that is hardens attitudes and creates false deadlines and makes sensible negotiation all but impossible.
It may be that comparing one of the causes of the First World War with the current debt crisis in the US is somewhat melodramatic; but the important point is that a possible default by the US government has been conjured from a law that was meant to protect the US economy. 
Tea Party Slogan - reads badly in English!

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