Surely not foreshadowing August 27, 2012 at 8:00 pm
Now, far be it from me to call what is plainly an unrelated natural phenomenon ominous, but there is a history of storms preceeding – although obviously not portending – really nasty phenomena.
Category / Politics
Now, far be it from me to call what is plainly an unrelated natural phenomenon ominous, but there is a history of storms preceeding – although obviously not portending – really nasty phenomena.
Aditya Chakrabortty makes an interesting point in today’s Guardian:
After the drubbing in Atlanta in 1996, from which Steve Redgrave and Matthew Pinsent brought home Britain’s single gold, lottery money was pumped into elite sports… The result? Dramatic improvements at every Games since, with 29 golds scored at London this summer. Much of this is down to remarkable talent and gruelling training, for sure. But it is also one of the most significant public-sector successes in recent British history: £511m was spent in the run-up to these games, most of it from either the Lottery or the Exchequer…
I can think of lots of private companies less exacting with their cash than UK Sport. Its Investment Policy and Principles speak of a “no-compromise” approach and “a willingness to realign funding in the light of persistent under- or over-performance”. In other words, only potential medallists need apply – a philosophy that applies to whole sports, such as handball, as well as athletes… There is no denying that this policy – of picking winners and backing them – works.
There are lessons to be learned from our Olympics achievements. Britain’s economy is mired in a historic slump, which the government is making worse by cutting spending… Cabinet ministers bang on about growing our manufacturing base, and yet their solution is to spread a little bit of money very thinly. To do otherwise, they claim, would be to pick winners and we know how badly that ends. Really, there’s something wrong with picking winners? Tell that to Bradley Wiggins.
But of course while it is acceptable to the Tories to support sporting success, manufacturing or industrial winners are another matter entirely: they could not be more mistaken. Still, with the worst chancellor of the modern era, is it any wonder that we have yet again fallen into deficit?
In the aftermath of the G4S humiliating shambles, this question needs to be asked. It seems to me that there are at least three preconditions that have to be met before it makes sense for the government to pay a private company for a public service:
It is bizarre that there are few political voices setting out these concerns and demanding that outsourcing of public services provides clear value for money. As
Seumas Milne said yesterday after G4S, what’s needed is a political sea change.
The Guardian has a fascinating if depressing exclusive on a new report from Democratic Audit. It notes that while there have been some positive trends – including stronger select committees; devolution; and enhanced disclosure of expenses and party donors – the overall trend is down.
Britain’s constitutional arrangements are “increasingly unstable” owing to changes such as devolution; public faith in democratic institutions “decaying”; a widening gap in the participation rates of different social classes of voters; and an “unprecedented” growth in corporate power, which the study’s authors warn “threatens to undermine some of the most basic principles of democratic decision-making”.
For me, party funding is the biggest of these. If we don’t fix this, parties can’t be democractic because they have to go where the money is or lose to their opponents (who will). This leads to disenfranchisement and a corrusive distrust of political institutions.
Go Stephen King. From the Daily Beast:
I’ve known rich people, and why not, since I’m one of them? The majority would rather douse their dicks with lighter fluid, strike a match, and dance around singing “Disco Inferno” than pay one more cent in taxes to Uncle Sugar…
Mitt Romney has said, in effect, “I’m rich and I don’t apologize for it.” Nobody wants you to, Mitt. What some of us want—those who aren’t blinded by a lot of bullshit persiflage thrown up to mask the idea that rich folks want to keep their damn money—is for you to acknowledge that you couldn’t have made it in America without America. That you were fortunate enough to be born in a country where upward mobility is possible (a subject upon which Barack Obama can speak with the authority of experience), but where the channels making such upward mobility possible are being increasingly clogged. That it’s not fair to ask the middle class to assume a disproportionate amount of the tax burden. Not fair? It’s un-fucking-American is what it is. I don’t want you to apologize for being rich; I want you to acknowledge that in America, we all should have to pay our fair share.
An interesting initiative this, from the US. The HuffPo explains:
Both Houses of Congress are currently considering a bill which, in my humble estimation, would be wildly popular with the public — if they knew about it, that is. This is a truly non-partisan issue, one that pits every taxpayer in the country against the 535 members of Congress themselves — regardless of their party affiliation. The idea is a simple one, as evidenced by the bill’s official title: the “No Budget, No Pay Act.”
That’s it in a nutshell. The title is so good, it barely needs explaining. If Congress doesn’t pass a completed budget on time — both the budget blueprint and the 12 appropriations bills necessary — then when the new federal fiscal year dawns on the first of October, they stop getting paid. Their paychecks halt until the budget is complete, and they are not allowed to (later on, under the cover of night) award themselves retroactive pay for this period.
What is interesting about this – apart from the idea itself, which rocks – is that it pits the interests of all politicans (or very nearly all, at least) against those of the people. As such, it is very hard to get measures like these enacted. When you have cartel parties, though, such measures are necessary.
Update. It turns out that this comes from a rather interesting group, No Labels. Check them out.
The behavior of politicians, in Europe as in the United States, suggests that the people to which they are accountable are not primarily the fraction of their labor force that is out of work. This is different from the 1970s, when elected officials did seem to behave as though they were accountable to unemployed people, and put central bankers under intense pressure to be accommodative. Something has changed.
[parties became] ‘catch-all’ parties, no longer focused on mobilizing a core electorate, but instead diluting their ideological identities to attract voters from outside their traditional hunting grounds. In order to do this, parties became more centralized around their leaderships, whilst the membership – which constrained the leaders’ strategic room for manoeuvre – were neglected. Increasingly parties become professionalized, with the role of grassroots activists replaced by paid experts in media and communications…
Where mass parties [of the past] acted as links between civil society and the state… [these new cartel parties] have been entirely absorbed by the state, and correspondingly detached from civil society.
In other, plain words, they don’t work for you even – especially – if you are a party member. They work for the apparatus; and that, of course, means mostly those with the money, the media, and the lobbyists.
Jonathan Hopkin has an excellent post discussing neoliberalism and why it isn’t a dead idea yet. The final paragraph is especially insightful:
The problem is that academic political economists know a lot more about the historical record than the average voter does, and there is no point in assuming that voters are going to come to the same judgement – they don’t have time to read Quiggin, Crouch and Krugman (alright, a few read Krugman). Voters never understood Keynesianism, so why would they understand neoliberalism? To achieve change, we need a mythical story about social democracy that sounds as good as the mythical free market – a vehicle for aspiration of a better life. If nobody has ever explained to voters how a better life doesn’t always come through a market, than we can’t expect neoliberalism to die the death it deserves.
Radio 4 has rebroadcast Václav Havel’s Leaving. It’s a play nominally about the chancellor of an ex-soviet state, perhaps Havel’s own Czeck republic, who is leaving office. But about ten minutes in, Havel in uncomfortable self-parody has the Chancellor say something that could have been Tony Blair (or David Blunkett):
I have always placed great importance on human rights. In the name of freedom of expression, I imposed significant limits on censorship. And during my term fewer than half of all public demonstrations were broken up by the police.
There is a certain contemporary resonance too…
Blairites can’t understand why they lost the leadership. Their trouble is an affinity with exiled royalty; Ed Miliband’s succesful candidacy has been treated as a sort of Orléanist family treason. The reason is different. David Miliband, starting as heir presumptive, was rejected as Blair-compliant, a sparrow on the wrist. He embodied everything Jim Murphy seems to want for his party: assent to what a Conservative government does and yearning to do it oneself. Without discernible point, it is careerism transformed into Clause Four, yet a cause for which people are whispering and arming. David Cameron looks on.
Indeed. The Blairites’ position is, as Len McCluskey in the Guardian puts it, last gasp of the neoliberalism, but it is no less dangerous for that. Labour risks not only alienating its natural supporters by supporting austerity; it is also (as if that mattered in the calculus of position) profoundly wrong-headed. A party that says ‘we’ll do what they would, only not quite so much’ hardly has a convincing message. Labour needs to have the confidence to purge its quasi-Tory wing and actually start acting like an opposition party.
European Union officials may abandon U.K.-backed safeguards on derivatives legislation, four people familiar with the situation said, a week after Prime Minister David Cameron’s demands to protect London’s financial industry almost wrecked an EU summit.
Ambassadors for the EU’s 27 nations, meeting yesterday in Brussels, discussed weakening an October agreement to grant national regulators powers over clearinghouses, according to the people, who couldn’t be identified because the talks are private. The British government has argued that the accord was essential to protect U.K.-based clearing firms from pressure to move part of their business to the euro area.
The possible unravelling of the derivatives deal follows Cameron’s decision to break ranks with French President Nicolas Sarkozy and German Chancellor Angela Merkel at an EU summit last week.
First, is the agreement the 26 have reached a good one? I tend to agree with Foreign Policy on this one:
Merkel’s short-sighted, audaciously Germany-first reaction to staunch the eurocrisis is the Germanization of European monetary and fiscal policy, foremost the codification of its obsession with tight money, fiscal purity, and budgetary orthodoxy. In spite of all evidence to the contrary, she insists that what’s good for Germany is good for everybody else, too. It’s clearly not. And with the world’s leaders begging her to do “whatever it takes” to stave off global calamity, she’s doing it with Sarkozy at her side and over the heads of the now completely irrelevant European “voters” (“subjects” is the more fitting word). This is a catastrophic mistake, which, politically, vastly expands the EU’s centralized authority while robbing it of even the fig leaf of democratic legitimacy it had sported. Moreover, the economics of Berlin’s Germanocentric prescriptions for the eurozone compound the very problems that landed Europe’s weaker economies in the mess they’re in right now.
In other words, it is politically dangerous – because it has no democratic legitimacy – and it probably won’t work in the long run (and maybe even the short run).
By a certain point on Thursday night, I am told, a majority of countries were growing interested in a quick and dirty legal fix, suggested by the president of the European Council, Herman Van Rompuy. The fix was dreamed up by lawyers working for Mr Van Rompuy. They said that a legal device, known as “Protocol 12”, would allow the 27 leaders of the EU to agree most of the new rules and mechanisms for fiscal union in the euro zone by a simple, unanimous decision among themselves.
Suddenly, Germany looked isolated. Mr Van Rompuy, a former Belgian prime minister elected by EU leaders to chair their summits, decided to see if he could sweeten the deal for the wavering EU leaders, and asked Mr Cameron if he would consider dropping some of his requests. This made sense to some leaders in the room. Mr Cameron’s demands were already more than many of his colleagues would tolerate, and Britain had already said publicly it would tailor its demands to the scale of the treaty change on the table. Mr Cameron said he would not lower his ambitions, and that his demands would be the same in the event of Protocol 12 being used, or a full-blown EU treaty.
A hostile view of this is that Mr Cameron overplayed his hand. In this version of events, the British prime minister thought the mood of the room was running towards Protocol 12, and because Protocol 12 is decided by unanimity, he thought he had the whip hand.
Instead, my source tells me, the room turned on Mr Cameron. This, I am told, “was the point at which the Protocol 12 route, which requires unanimity, was effectively closed down and one country after another accepted a new treaty at 17+.”
Did Mr Cameron miscalculate? Did he want to end up with a treaty being crafted at almost 26, with Britain on the outside? My source is certain that was not Mr Cameron’s goal, and my source is not alone in this thinking.
It is now almost inevitable that separate structures be set up, with Britain on the outside, it seems. Talk in London of preventing the “Eurozone-plus” from using the Court of Justice is also a mistake, I am told. Article 273 of the treaty allows just this.
You can choose to believe this account or not. It comes from a single source, who is well-placed but clearly viewing this from a particular perspective.
Time will tell. But what a mess.
What Britain wanted was a return to inanimity for votes on certain issues in financial regulation; that was Cameron’s price for agreeing to Protocol 12. Clearly he overplayed his hand. The more you read about it, though, the more extraordinary it seems that a compromise could not be reached. Perhaps Cameron didn’t want an agreement in order to appease his backbenchers. (I typed ‘bankbenchers’ the first time I wrote that sentence, a telling error.) Perhaps the French waited for Cameron to go too far then shot down his balloon. In any case, the outcome – both in terms of what has been agreed and where it leaves Britain – is depressing and unsatisfactory.
One key point – a point I didn’t get on Friday – is that Cameron wasn’t trying to stop Sarkozy from doing something: he was trying to get agreement to change the voting system for financial regulation. He didn’t succeed. In other words, he annoyed the 17 (or more) and got precisely no gain for Britain. This, I suspect, is why Clegg changed his tune over the weekend. In any event, Cameron looks more incompetant now that the facts are clearer.
Oh dear me. This is very hard. I dislike David Cameron and most things he stands for. I think Britain’s future is in Europe, and I was (wrongly) in favour of the UK joining the Eurozone – so I’m not exactly a Europhobe. But much to my distaste, I have to admit that Cameron might – might – have done the right thing in Brussels last night. Now clearly it wasn’t diplomatic, and the veto might have been better wielded later in the process. But if this list of Cameron’s demands (from the Guardian) is correct, then they are pretty reasonable:
- Any transfer of power from a national regulator to an EU regulator on financial services would be subject to a veto.
- Banks should face a higher capital requirement.
- The European Banking Authority should remain in London. There were suggestions that it might be consolidated in the European Security and Markets Authority in Paris.
- The European Central Bank be rebuffed in its attempts to rule that euro-denominated transactions take place within the eurozone.
It seems to me that Sarkozy tried to impose policies which would have moved a lot of financial activity from London to Paris or Frankfurt, and Cameron wouldn’t let him. So yes, this veto represents a tragedy in terms of Britain’s influence in Europe and it is to be hugely regretted on those grounds, but David might actually have had reason for what he did.
Update. So why were these issues so important?
Well, financial services are (rightly or wrongly) hugely important to the UK economy. So Cameron wants to make sure that UK bank regulation, and indeed regulation of foreign bank subsidiaries operating in the UK, remains under UK control. In particular I would guess he doesn’t want a Paris-based EBA to set capital ratios for UK Banks. This cuts both ways; EBA requirements might be either too high or too low from a UK perspective. Also of course it is important for the UK to be able to impose the Vickers Commission requirements without having to ask for permission from Brussels.
The final point is in many ways the most interesting. It is very much against the UK national interest for there to be a requirement to clear Euro denominated derivatives in the Eurozone – as London is a (in fact, currently the only) credible alternative. So Cameron wanted to make sure that this was not forced upon him.
If Sarkozy thought that he could impose these changes on Cameron by force of will, he sorely mis-read his man (and his man’s backbenchers, it must be said). It would have been an enormous miscalculation to use something as important as this summit to try to grab financial services business away from London.
I don’t know, but I think it is an interesting question. These musing follow from a conversation I had with a man who knows a lot more than I do earlier in the week.
Divided We Stand: Why Inequality Keeps Rising “finds that the average income of the richest 10% is now about nine times that of the poorest 10 % across the OECD.”
Now, regardless of what you think the answer to this is – even regardless of whether you think it needs an answer – this set of facts has political consequences. The Occupy movement and its slowly forming demands are one early result, but I suggest that it is possible that this is the tip of the iceberg. A state of affairs that cannot continue, won’t. Enough people – enough people with votes – are unhappy enough with the fact that their real income is falling while the 1% are making out like bandits that they will do something about it. And if voting doesn’t work, then maybe rioting will. It certainly might feel like a chance to get even.
I’m not saying this is justifiable. I’m not saying it would be a good thing. But I am saying that these economic facts have political consequences and if they are not managed, there is the possibility that things might get really ugly.
We are approaching the Europroblem in a dangerous way. Disenfranchisement is the flipside of technocracy: sure, if all those wise men really do fix the problems, then the rich can go back to crashing their Ferraris in peace. But if it doesn’t, then either we are going to need solutions with democractic legitimacy, or it will be a really good time to invest in companies that make riot shields.
Due to the planned strikes on the 30th November, my talk at LSE has been postponed. Up the workers!
While the strike is about public sector pensions, it is perhaps worth examining while we are talking about political unrest the related topic of the Occupy London demands. It is striking how reasonable they are:
- We must abolish tax havens and complex tax avoidance schemes, and ensure corporations pay tax that accurately reflects their real profits.
- Legislation to ensure full and public transparency of all corporate lobbying activities must be put in place. This should be overseen by a credible and independent body, directly accountable to the people.
- Those directly involved in the decision-making process must be held personally liable for their role in the misdeeds of their corporations and duly charged for all criminal behaviour.
An article on Bloomberg this morning is interesting more for the fact that it has been written – and that it appears on the Bloomberg front page – than for what it says. It is about Taunus, which is the holding company for Deutsche Bank’s US activities. Simon Johnson points out
it’s the U.S.’s eighth-largest bank holding company… with assets of just over $380 billion…
The latest figures … show Taunus with total equity capital of just $4.876 billion. This implies an eye-popping leverage ratio of around 78.
Now let’s just pause for a second. A Bloomberg commentator has bothered to look at the leverage, not of a bank, but of the US subsidiary of a large foreign bank. The fact that it isn’t particularly well capitalised has made the Bloomberg front page, and under ‘Top News’ rather than ‘View’ too. This would have been inconceivable a few years ago. Few people worried about the leverage of banks, let alone that of obscure subsidiaries. Deutsche was even viewed as basically German government credit by some.
I’m not saying Johnson is wrong to look at this. He may even have a point that Deutsche could be a vehicle for contagion; although I think he’d have a better point if he focussed on the French banks. But the outright nationalism of his position is worrying:
Why would the Federal Reserve and the new council of regulators known as the Financial Stability Oversight Council allow Deutsche Bank to operate in the U.S. with sky-high leverage — with its huge implied risk to the rest of the financial system? Presumably, in the past, U.S. authorities have taken the view that Deutsche Bank had a strong enough balance sheet worldwide that more capital could be provided to its American subsidiary, if needed…
Such a presumption now seems questionable, at best.
What Johnson is saying implictly is that governments should not trust each other’s bank inspections and capital regimes, as they have in the past, and instead should require foreign subsidiaries to be separately capitalised. If other countries adopt that approach, by the way, Citi, JPMorgan and BofA would be amongst the biggest losers. Moreover this approach would pretty quickly lead the way to the breakdown of the Basel consensus, and it would force banks to raise more capital simply to support foreign subsidiaries. As they can’t do this easily, they would instead contract off-shore activities, reducing lending.
Now all of this may be a desirable outcome eventually. But right now, it would be catastrophic. The last thing we need is the US banks holding a strike on lending to the Eurozone, or the big Eurobanks withdrawing from the US. Neither economy is strong enough to handle a shock like that.
This kind of regulatory nationalism, in other words, would be a modern day version of the Smoot Hawley act.
Reports that Germany and France have begun talks to break up the eurozone amid fears that Italy will be too big to rescue
If this happens, it will make the aftermath of Lehman look like a day in the park. An utterly preventable disaster is now looking entirely possible. Truly our leaders have let us down.
Update. I strive not to be drawn into hysteria. As the economist says:
I hate to get this pessimistic about the situation. It feels panicky and overwrought. I can’t believe that Europe would allow so damaging an outcome as a financial collapse and break-up to occur… the window within which something could be done to prevent it is closing, and fast. I hope to be proven astoundingly wrong in my assessment, but I’m struggling to see alternative outcomes.
These folks are not known for proclaiming the end of the world on a regular basis. Neither is Brad DeLong, and he says:
I have been complaining for some time now that Reinhart and Rogoff think that the time is always 1931 and that we are always Austria–that the great fiscal crisis is about to erupt and send us [i.e. the US] lurching down toward Great Depression II.A little historical perspective may be helpful. One of the first events in the Great Depression, and a major contributor to the loss of confidence, was the failure of Creditanstalt. This was a proto-investment bank, one of the largest in Austria; its collapse was unexpected – just like Lehman. So, um, yes Brad; it does look altogether too much like 1931 for comfort.
Well, right now guess what? The time is 1931, and we are Austria.
The Federal Reserve needs to buy up every single European bond owned by every single American financial institution for cash before the increase in eurorisk leads American finance to tighten credit again and send us down into the double dip.
The Federal Reserve Needs to do so now.
The forgive student debt movement seems to be gaining some traction. What I think is interesting about this – other than the fact that ex-students seem rather more deserving of forgiveness to me than sovereigns who have spent beyond their means – is the change in tone of the debate. Suddenly, partly thanks to the visibility of OWS, a lot seems possible. Now certainly history is littered with popular protest movements that came to nothing, but equally progressive change is unlikely without this kind of clamour. The autumn has signs of spring.
Update. I love the use of the term temporary autonomous zone for what is happening in Zuccotti Park. For more on that, including a lovely analogy from Slavoj Žižek (and a measure of utter nonsense), see here.
Ed could do with saying:
“We used to think that you could cut your way out of a recession, and increase employment by reducing Government spending. I tell you in all candour that that option no longer exists”
It’s a tough sell, but to refuse the challenge condemns Labour, should it win, to the kind of centrist no man’s land Obama finds himself in. The electorate have to be told what is going on, however counter-intuitive it is. There is nothing to gain by offering a softer version of Cameron’s Hooverism.
Hopkin is riffing on Jim Callaghan for the first part, but what I really like is that phrase ‘Cameron’s Hooverism’. It is all too accurate I am afraid.