Author: johnredwood

On Monday I was at last a winner in the lottery to get to ask a question in the Commons. The occasion was the Urgent Question on the government’s approach to the lock down.

I followed up the work I have been doing and the issues I have been raising with Ministers over the scientific advice concerning the transmission of the virus and how we arrest it. The Secretary of State confirmed my argument that I have been putting for some time that to get a more accurate estimate of the transmission rate the scientists need a run of numbers of how many people in the country have the virus, based on sample tests that seek to capture the population as a whole.

He also confirmed my other point, that it is difficult constructing an accurate trend for the UK for the early weeks of the disease, because this sample testing was not then carried out. There is a danger that the numbers collected then are misleading, or that the presence of many more tests later detects more of the virus than was detected in the period of few tests.

It must also follow that as they move to more localised lock downs they will need even more accurate sampled testing to see what is going on town by town or smaller area. It appears that infection control in hospitals and care homes is also crucial, as these centres may have spread the disease more intensely than social gatherings.

There is a good case to relax the social distancing requirement from 2 metres to 1 metre as soon as possible. The evidence is very little extra protection is offered by the longer distance, though the economic impact of the reduction would be most helpful to hospitality and travel businesses.

Yesterday, I delivered a talk  about the independence of central banks. I am reproducing the slides from my lecture below:

Four assertions to test

• Central Banks are not independent, and never have been. They are the agents of the state or regional grouping they serve
• Euro area government bonds are not sovereign bonds as the governments which issue them cannot create money to repay them
• The Karlsruhe judgement underlines the lack of a transfer union in the Euro area to ensure smooth running of the currency and banking system
• National Central Banks are now working closely with national governments to try to offset the huge economic damage done by the anti virus lock down and social distancing policies

Independent?

• Central Banks are usually established by elected assemblies on the advice of governments. Their functions, objectives and constitutions can be changed any time the political sovereign wishes
• In Europe the doctrine of CB independence was strongly promoted as part of the creation of the Euro. It derived from the German CB set up after the war to create a low inflation stable currency the DM
• The UK also changed from a CB that worked with the Treasury to a narrow idea of independence based around the decisions on interest rates. The Labour government also gave the powers of the CB over the banking system away to a new Regulator

Collaborative?

• The Fed always had a twin objective of low inflation and decent growth or employment, and always accepted it had to be in sympathy with government policy
• The Peoples Bank of China makes a virtue out of working within the economic policy framework set out by the President of China

How independent was the Bundesbank?

• The German Central Bank enjoyed a long run making its own decisions about interest rates and general levels of money and credit. It was able to do so because it was successful in its remit and had no serious political opposition to what it was doing
• It proved to be anything but independent when East and West Germany merged. The Bank’s advice on delayed timing and on the rate of exchange for the merger of the Ostmark and DM was ignored. The political imperative of union took priority
• The final irony of the so called independent Bank was when the German government decided to abolish the successful DM currency that the Central Bank was there to uphold and support
• The Bundesbank accepted most of the important monetary powers it possessed being transferred to the ECB

How independent was the Bank of England, 1997-2019?

• The Bank had to accept the loss of powers, including the power to regulate the commercial banks, and the power to issue government debt, in the legislation passed to create so called independence
• The Bank then had to accept a change of inflation target when it suited the Labour government to flip to the softer target of CPI from RPI
• The MPC agreed to an extraordinary meeting during the banking crash to lower rates as part of an international agreement brokered by the Chancellor
• The Bank accepted joint control with the Treasury over Quantitative easing
• The Bank then agreed to a change of powers from the Coalition government, who wished to give it back some powers over commercial banks

The battles between the Fed and the President 2016-20

• The Fed decided on a policy of raising interest rates which the President opposed in public. He favoured zero or negative rates like the EU with more QE
• In 2019 the Fed had to admit they were wrong and changed course to rate cutting, given the sluggish performance of the economy compared to forecasts and aspirations
• In 2020 the Fed altered their opposition to near zero interest rates and proposed more QE as the virus effects gave them good reason to do so

Sovereign bonds are treated differently in markets, usually commanding lower rates and higher prices than corporate bonds, for two main reasons:

1. The state that issues them can demand tax payments on threat of imprisonment to service and repay its debts
2. The state can require the Central Bank to create extra domestic currency to repay the debts if necessary. German, Italian French and Spanish government bonds no longer enjoy this latter characteristic. The ECB and the EU authorities determine money creation in the Eurozone

The ECB offers mixed messages on Euro government bonds

• Mrs Lagarde famously said the spreads or differential interest rates between say Italian and German state bonds was not a matter for the ECB to manage
• The sharp adverse reaction by markets led to the ECB announcing Euro 750 bn  more QE, and spending some of it on trying to get the prices of Italian state debt up
• In practice the ECB partially manages the spreads, but allows Italian, Greek, Spanish and other weaker country debts to offer higher yields than German
• Intervention has been controlled by the so called capital key

The Karlsruhe judgement goes to the heart of whether the ECB should make it easier and cheaper for Italy and others to borrow, drawing on the strength of other member states finances:

• It says of QE “The more its total volume increases, the greater the risk that the Eurosystem becomes dependent on member states policies as it can no longer simply terminate and undo the programme without jeopardising the stability of the monetary union”
• The Judgement condemns QE saying the ECB “completely disregards the economic policy effects of the programme”

The constitutional battle for control of the ECB

• The German court asserts that the member states are “the masters of the Treaties” that embody the laws and constitution of the Union
• It dismisses the judgement of the ECJ, the EU’s Supreme court, as “a view”
• It asserts that the ECJ’s upholding of ECB monetary policy is “simply untenable”
• The Court however seems to give the final power to the German state which may well wish to confirm ECB power over QE

A new era of collaboration between Central banks and governments

• The advent of anti Covid policies closing down great swathes of the world economy and requiring new business models when lock down is relaxed has led to joint Bank and government action
• In the USA, the UK, Japan and elsewhere  the government encourages the Bank to lend and create money on a huge scale, and the Bank encourages the government to spend and borrow on a huge scale
• Both have done so with the approval of each other
• In the Euro area the Bank has expanded QE substantially, but the lack of a clear single sovereign for the EU has limited the fiscal response at EU level and caused more debates about pooling of risks and EU borrowing levels
• Meanwhile member states have expanded their budget deficits greatly without EU demands to limit them to the 3% of the Treaties

The future

• How will the new era of collaboration work out?
• Can the pretence of independence be re created and should it be?

I am asked why I did not write today about the violence over the week-end. I am not running a newspaper and had nothing original or new to say about it. The Home Secretary made a Statement today condemning it and telling us the perpetrators would be prosecuted.

There are democratic ways of moving statues from prominent places if people no longer wish to remember the individuals concerned. The Labour Mayor of Bristol did not get around to doing that.

One of my many disappointments with our membership of the EU was the EU’s attitude towards animal welfare.

As an opponent of bull fighting, I thought it bad that farmland and farmers involved in rearing bulls for fighting attract payments under the CAP, even though they can claim there is no direct subsidy for bullfighting itself. 

As a lover of wild birds, I thought it unfortunate that the so called Wild Birds conservation Directive was also a hunting of wild birds directive, allowing countries to permit hunting a wide range of species that goes well beyond the permitted species like gamebirds  allowed in the UK.

As someone concerned about standards of farm rearing, I thought the EU unduly slow in responding to UK pressure to improve standards over veal crates and sow tethers. It has still left us with relatively low standards.

Worse still for the animals, the UK banned veal crates in 1990  but the EU failed to do until 16 years later. We banned sow tethers in 1998, with the EU resisting until 2013, 15 years later. These differences led to relative gains in market share serving price conscious customers to the continental industry at the expense of our farmers.

In the very vexed area of chicken breeding, the EU was again reluctant to improve the cage space for battery hens. It took until 2012 to get a ban on  the worst conditions.

I find the argument over chlorine washes misleading. The EU allows chlorine washes for items like bagged salad, which I never get complaints about, yet I get complaints about alleged chlorine washes for US chicken. Our water system relies on chlorine washes for hygiene in the pipe network, and medics advise that small traces of chlorine are  not harmful.

I am strongly in favour of proper labelling and explanations of how food is produced. It will always be the case that those with higher incomes will be able to afford the best welfare standards. There does need to be a minimum standard. The question we should ask is can we raise that standard a bit as we leave the EU, without making affected foods unrealistically expensive? I think we can. Those who think the EU guarantees high standards should look at this dreadful history of opposition to and delay of better standards to grab commercial advantage. All the time we were in the single market we have had years of being forced to take meat and eggs produced in cruel conditions we had banned at home.

I find some of the media and email arguments I read  and hear about our trade future bizarre. Remain politicians and spin doctors are still peddling the lie that we cannot live with any changes to our  current tariff  free trade arrangements with the EU, whilst we must not enter into a tariff free  Agreement with the USA.

There has always been a central lie behind the Remain position on  trade, based on  the so called gravity model. This states that trade with near neighbours is both more likely and more important than trade with countries further away., The model’s economic forecasts are  weighted so EU trade matters and rest of the world trade doesn’t, for no particularly good reason.

In recent years our single biggest national trading partner is the USA, not Germany or France. 3000 miles has beaten a few hundred miles of distance. Our trade with China on the other side of the world has grown far more quickly than our trade with the low countries, near by.  This is despite facing tariffs on our non EU trade and no tariffs on our EU trade. How much more could we   trade with  the TPP and the USA on a tariff free basis?

The dislike of opening a Free Trade Agreement with the USA predates President Trump but has been intensified by Remain’s distaste for the present incumbent of the White House. There has been an orchestrated attempt to disrupt good relations between our two countries, and to vilify US food. The people who do so have often flown across the Atlantic and enjoyed US meals in hotels and restaurants without a murmur then about what they are eating other than to sometimes praise it and their hosts.

In a few posts I am going to explore some of these issues one more time. Today I wish to stress four obvious truths from the figures concerning our trading patterns in recent years.

1. Our trade has grown more quickly with the rest of the world than with the EU in recent years, despite EU barriers and tariffs and despite distance. Non EU trade is now the majority of our trade.
2. Our non EU trade shows you can have a substantial and profitable trade without a special FTA in place. FTAs are helpful but not essential to trade, expanding it a bit.
3. If you enter a Free Trade Agreement with another country you do not have to obey their law codes, and you do not have to buy products they make which you do not want or like.
4. Once we are fully out of the EU we will decide on our animal welfare and food growing standards.

We are waiting for the science to catch up with events. It is clearly not easy understanding and combatting a  new virus in a hurry, when crucial information has to come from patients suffering from the disease willing to submit to various treatments to see what happens. We have, however, had all too many cases and deaths, so soon perhaps more knowledge will be forthcoming.

We need to know, for example, whether any of the proposed existing licenced medicines for other complaints can help alleviate symptoms, ease severity or reduce the time the illness lasts. The UK has now approved remdesivir, but there are other remedies taken on their own or with others that might help. We need an update.

There is the question of the Oxford/Astra Zeneca vaccine. This is going into production before the results of clinical trials. We are told there may be results early autumn. There are also other vaccine hopes around the world.

The UK has  now  been testing random samples to represent the population as a whole to find out infection rates. This should enable a more accurate R or transmission rate to be calculated. When will we see proper graphs and charts of these  numbers with a better evidence base for R? This could be helpful in making decisions about the  pace of further easing, which is much needed for the sake of livelihoods.

What is the expert view on why the new case rate and death rate has stayed as high as it has during a strong lock down? Shouldn’t they have subsided more. How was the virus  being transmitted during this period? Can we now use track and test to head off further  localised outbreaks?

Are we now in  the position where too many deaths are  being attributed to CV 19 when it is not even known whether some had the disease or not, or when they also had other serious conditions that might have been the true cause? How comparable are our figures with other counties, that follow different criteria for reporting deaths?

Much now rests on making a success of test and trace. That requires the willing collaboration of the public, taking tests if and when they develop covid like symptoms they do not normally suffer. It needs the rest to agree to self isolate if they have been in close contact with someone who has the disease.

We cannot keep the whole country in  lockdown for more months, with just the NHS and a few basics up and running. It was possible to borrow and print the money for a couple of months, but it does not work if you try to do that as a  new lifestyle with no limit on the cash .

The Chinese authorities attempted to introduce a right of appeal of Hong Kong court cases to the mainland, seeking to put HK law more firmly under China’s control. This deeply unpopular move sparked many protests in Hong Kong and led to running fights between the police and the protesters. A hapless Chief Executive tried to persuade a split legislature that this was an benign and sensible move, without success.  

Grasping the opportunity of the Covid 19 preoccupations of the rest of the world, China has now moved to legislate her supremacy in Beijing, bypassing the Hong Kong legislature. The new law will allow either the Hong Kong police or Chinese officials to determine if someone’s democratic protest amounts to treason or sedition. Wanting independence is banned.

Mr Trump has responded strongly to this development. Each year by law the President has to confirm that Hong Kong is still sufficiently independent of China to qualify for the continuing special trade deal it enjoys with the USA. He says he is not willing to do so, given the new incursions on Hong Kong independence. This will mean Hong Kong business will face the same tariffs, bans and penalties as trade from mainland China to the USA does.

The UK is the co signatory of the Treaty  with China to establish Hong Kong  as part of China under the one country two systems mantle. The two systems were meant to encompass the right of Hong Kong to settle many of its own matters and court cases in return for maintained access and privileges to western markets. What action should the UK take to seek to  uphold this Treaty? Is it right to offer UK residence to Hong Kong citizens?

The famous clauses 18 and 19 which provide for Hong Kong judicial and law making independence do also contain a provision allowing the imposition of Chinese national laws when there is a break down in government in Hong Kong.

Yesterday in the Commons some MPs were allowed to ask questions of a Transport Minister over the bad news of possible job losses and worse terms and conditions of employment for BA staff who keep a job. All felt the same, that IAG are treating BA employees badly after years of profiting from prime slots at Heathrow and from the successful UK based international travel business.

The Minister pointed to the deferral of VAT payments, the Covid commercial finance facility and the Job retention or furlough scheme as government help to the industry. She expressed regret about the job losses at BA, Virgin and Easyjet. She told us the Job retention scheme money being used by BA was not “designed for taxpayers to fund the wages of employees only for those companies to put these same staff on notice of redundancy within the furlough period.” She said the government has “set up a restart, recovery and engagement unit to work with the aviation industry on the immediate issues affecting the restart of the sector and its longer term growth and recovery”.

She said she did not have legal powers to remove landing slots from BA nor did she set out any legal means of using leverage from the Job Retention grants. When challenged about the proposed worsening of terms of employment, she said she expected companies to “treat their employees with the social responsibility that one would expect.”

I am following up with a letter to the government asking them to show more urgency over the threats to BA jobs, and asking them to take a tougher stance over IAG’s actions. IAG have large cash reserves, will want to run airlines as we recover and has profited a lot in the past from its U.K. investment. So why is it picking on U.K. staff for redundancies?

I have had a number of emails from people understandably concerned about the death of George Floyd and the riots in the various US cities.

Before replying I decided to read what the President and what Mr Biden said to have some greater understanding. These are matters for the USA to resolve. As their friend and ally we wish them well in doing so.

The words of the President capture the problem. He said:

“All Americans were rightly sickened and revolted by the brutal death of George Floyd.  My administration is fully committed that, for George and his family, justice will be served.  He will not have died in vain.  But we cannot allow the righteous cries and peaceful protesters to be drowned out by an angry mob.  The biggest victims of the rioting are peace-loving citizens in our poorest communities, and as their President, I will fight to keep them safe.  I will fight to protect you.  I am your President of law and order, and an ally of all peaceful protesters.

“But in recent days, our nation has been gripped by professional anarchists, violent mobs, arsonists, looters, criminals, rioters, Antifa, and others.  A number of state and local governments have failed to take necessary action to safeguard their residents.  Innocent people have been savagely beaten, like the young man in Dallas, Texas, who was left dying on the street, or the woman in Upstate New York viciously attacked by dangerous thugs.

“Small-business owners have seen their dreams utterly destroyed.  New York’s Finest have been hit in the face with bricks.  Brave nurses, who have battled the virus, are afraid to leave their homes.  A police precinct station has been overrun.  Here in the nation’s capital, the Lincoln Memorial and the World War Two Memorial have been vandalized.  One of our most historic churches was set ablaze.  A federal officer in California, an African American enforcement hero, was shot and killed.

“These are not acts of peaceful protest.  These are acts of domestic terror.  The destruction of innocent life and the spilling of innocent blood is an offense to humanity and a crime against God.

“America needs creation, not destruction; cooperation, not contempt; security, not anarchy; healing, not hatred; justice, not chaos.  This is our mission, and we will succeed.  One hundred percent, we will succeed.  Our country always wins.”

He went on to offer National Guard help to State Governors, urging them to enforce the law and protect people and businesses from violence.

Mr Biden said:

“These last few days have laid bare that we are a nation furious at injustice. Every person of conscience can understand the rawness of the trauma people of color experience in this country, from the daily indignities to the extreme violence, like the horrific killing of George Floyd.

“Protesting such brutality is right and necessary. It’s an utterly American response. But burning down communities and needless destruction is not. Violence that endangers lives is not. Violence that guts and shutters businesses that serve the community is not.

“The act of protesting should never be allowed to overshadow the reason we protest. It should not drive people away from the just cause that protest is meant to advance.

“I know that there are people all across this country who are suffering tonight. Suffering the loss of a loved one to intolerable circumstances, like the Floyd family, or to the virus that is still gripping our nation. Suffering economic hardships, whether due to COVID-19 or entrenched inequalities in our system. And I know that a grief that dark and deep may at times feel too heavy to bear.

“I know.

“And I also know that the only way to bear it is to turn all that anguish to purpose. So tonight, I ask all of America to join me — not in denying our pain or covering it over — but using it to compel our nation across this turbulent threshold into the next phase of progress, inclusion, and opportunity for our great democracy.”

This was a more dignified statement than Mr Biden’s comment “you ain’t black” if you vote for Trump.