Category: Blog

Andrew Sentance of the MPC has rushed into print this morning in the Sunday Times. He tells us we might have a very feeble recovery, thanks to the huge debt overhang in the US and UK, or we might have an inflationary recovery if India, China and other better placed economies generate their own growth and propel the world economy forward.

You don’t say! The MPC is not only meant to realise that, but to make a decision about which is the most likely and plan accordingly. It appears from their very loose money policy that they think the recovery will be weak and feeble. If they don’t they must have abandoned all pretence of trying to control future inflation, and be working under political instructions to try to generate any kind of recovery before the next General Election.

Make up your mind Andrew. We can judge what you think by what you do. What you do tells us you must think the recovery is going to be poor, hence all the extreme monetary activism. If it’s a normal recovery then beware the inflation your present policies will unleash.

President Bush and Prime Minister Blair made themselves unpopular by fighting the Iraqi war. In the UK a majority of people most of the time opposed the war. In the US a vocal minority against it gained strength and hounded the administration over its purpose and origins. Both leaders presided over an apparently strong economy, denying that the credit explosion behind it was unsustainable. Both were re-elected despite the war. In George Bush’s case he was re-elected with a better majority than his first win. In Tony Blair’s case he lost large amounts of voting support for his second and third victories, but people stayed at home rather than vote for his opponents. They did so mainly over the economy.

President Obama and Prime Minister Brown find themselves in an altogether more worrying position with their popularity. Both are presiding over a collapse in their economies. President Obama can blame the Clinton/Bush policies of allowing excess mortgages and credit. It is poetic justice that in the UK the main architect of our current economic woes, the former Chancellor, is the man now presiding over the high and rising levels of unemployment and the collapse of demand in many areas. President Obama himself may find that people are more interested in what he does to right the problem than in who was to blame for where they now are. On both sides of the Atlantic the governemnt is fighting fire with fire – a problem brought on by over borrowing in the private sector is being tackled by over borrowing in the public sector instead. Many people are becoming alarmed by the huge build up in public debt which one day has to be repaid out of taxes.

The poorer economic background means that both governments may experience less tolerance over their Afghan war than Bush and Blair experienced over the war in Iraq. Just as Blair and Bush had to answer difficult questions over weapons of mass destruction, over how a democracy could be created in Iraq, and over their timetable for declaring victory and withdrawing, so we can expect Obama and Brown to meet more and more questions about their war in Afghanistan. These will include:

1. How can you prevent the war acting as a recrutiment opportunity for the Taliban?
2. How do you stop the war bringing Afghan nationalists and strong supporters of Islam into supporting the Taliban?
3. How do you deal with the Taliban ability to maintain their main camps, supplies and training grounds elsewhere, in Pakistan and other adjacent territories?
4. Once you have held territory to permit elections, will you have a policy of handing over those “safer” areas to the civilian authorities? When do you think they will be up to the job?
5. Why did previous attempts to secure the peace in Afghanistan by foreign forces fail?

Democracy thrives on the clash of ideas. It needs open and public debate of what government is doing well and badly. It needs a choice for the people, with rival parties being able to articulate a different approach. Of course lively politics has lots of other noise in the system, and there will always be personality clashes and those who tackle the man and not the ball.

The Labour style of thuggish and dishonest attacks on their opponents when taken to extremes does the opposite. This week they decided to take the remarks of one backbench MEP and try to erect an entirely false story about the true intentions of David Cameron’s Conservatives on the back of it. Their pulling power with the media remains quite strong. Suddenly Conservatives who had not opined on the subject were invited in for exploratory interviews in the hope that the unwary would say just half a sentence that would allow Labour to brand them Hannanites. Hannanites are to be lumped with climate change deniers and others beyond the pale.

Some in Labour will say this is exactly what they should be doing. It forces the Conservatives to respond to their lies, instead of being able to develop their own agenda. It means that no Conservative this week has felt like talking about public service reform – the topic I wanted to move onto – as we know that just half a sentence identifying a problem in the NHS would immediately be twisted as evidence to wrongly argue we want to abolish the NHS and ensure only the rich can have health care.

My view is they are wrong for them, let alone for the rest of us. It will not help Labour.The sillier they are the lower they stay in the polls. It will reinforce the view that they are the nasty party. Their over the top bombast makes intelligent debate impossible, and makes it difficult to move the UK debate on.I think it will confirm people in their judgement that they are no longer suitable to govern, as all they can do is falsely rubbish their opponents.

Some parts of the media aid and support this approach. They wish to make politics a freak show, entirely about “gaffes” by personalities. Take their treatment this week of Hilary Clinton. This is a politician many in the media are more in tune with than Conservatives. Yet even she had her African adventure entirely taken over by a few remarks about her husband. Her response to that question was understandable if not stateswomanlike. Some of us wanted to know what if anything was different about Obama’s Africa strategy from Bush’s. We wanted to know if they had anything new to say and offer to deal with African poverty and poor governance in some places. That was all drowned out by this relatively unimportant issue of what her husband’s view was on something.

Early this morning I heard Farming Today. A couple of people were given substantial air time to explore the issues surrounding gm food, population growth and the escape from starvation. They were allowed to speak in paragraphs without interruption. They were not asked about their biggest mistake, reminded of their most embarrassing moment, or even asked about how they earned thier money and what their connection was to business interests in gm and farming. Why is there such a different approach to this and to the politicians who have to make decisons about this? Surely we need to know in a level headed way where such contributors are coming from and what their interests are. And surely we do need to know what the politicians think they are doing and what they are trying to achieve, as well as being told about their own foibles and lifestyles?

The news yesterday that the French and German economies grew a little in the second quarter whilst the UK one was still plunging has led to reappraisal of the UK strategy. The UK kept interest rates too high for too long in 2007-8, as I pointed out at the time. Modest recovery will come in the UK, but lower interest rates always takes sometime to filter through. We should see some benefit from late 2008 cuts in rates before the end of this year.

The UK’s curent policy is for the government to pre-empt most of the cash for its own borrowing needs, and then to lecture the banks on how they ought to be lending it to someone else! Let’s just remind ourselves what quantitative easing entails.

The Bank of England buys let’s say £5 billion of government bonds from investors. Shortly afterwards the UK government issues another £5 billion of bonds to meet its immediate cash needs by borrowing.Very often the bonds the Bank buys are similar in interest and length of time to repayment as the new bonds the government is issuing.

Who benefits from these transactions? Dealers in bonds do, as there is more turnover and more commission. Investors in bonds may do, as often the terms offered on the new bonds they buy may be slightly better than the terms surrendered on the ones they sell back to the authorities. Foreigners benefit, as some of them just sell their government bonds for cash, and move out of sterling if they are nervous of the UK future. The biggest winner is the government, which finances its large deficit relatively easily.

Some of the UK sellers of bonds do not immediately buy new ones. They deposit the proceeds of their sales in banks. Banks money holdings go up. The Regulator tells the banks that they must keep more money liquid and must not lend this out to the private sector. So the banks use the new cash deposited to buy government bonds themselves, as these are regarded by the Regulator as safe and liquid assets.

Current policy is to push more cash into the system, but to demand more caution by the commercial banks. This policy will help the government borrow the money it needs without too much competition for funds. We should not expect it to release large sums for private ventures or to help companies. It is a policy to make financing the deficit easier before the election. It is interesting to note that the net deficit is forecast at £175 billion this year, and by coincidence the approved quantitative easing programme is now also £175 billion.

I am invited by so called journalists to attack the NHS and side with Republican criticisms of it. I have this simple message for journalists now wanting me to appear on this topic – try reading what I wrote about the BBC and Obama’s health plans. This is just more lies and more pathetic attempts to smear. Don’t waste my time by asking. Check your facts first.

The handling of this issue just shows how desperate Labour are and how they still have power with the media. Labour wants to make lies about Conservative attitudes to the NHS central to the election and is trying to create the stories around this theme.

They are pulling out all the stops against Dan Hannan. Their websites condemn, and they are using welovethenhs to build the story. Shouldn’t grown men who are meant to be governing the country have something better to do than to whip up a storm about one MEP’s remarks? What matters is what Ministers do . It would be good if they tried a bit harder at the day job and spent a bit more time explaining what they are up to and defending it.

A few days ago I had an odd call. Would I like to appear on Newsnight to discuss Jack Straw’s decision over the Great train robber? “No” I said, “of course not”. I have never spoken, written or blogged about it. I have not studied it and do not think it an important issue compared with the state of the economy or the damage done to our government and constitution, which I write about regularly. Why didn’t they invite me on to talk of quantitative easing, unemployment, and the banking crisis? I expected nothing more.

I was therefore pleased that yesterday I was invited to take part in a discussion of the state of our economy on the back of some terrible unemployment figures. It was interesting to see the way the debate has been circumscribed by Labour spin, and to try to break through the prison of distorted opinion created by the government’s idiot soundbites.

It was a difficult task, as I received so little air time given the large number of points that needed correcting or challenging. Here are a few of the problems with the conventional explanation that dominated in the Newsnight introductory package and the views of the other three interviewees:

1. “This is a global crisis”. The implication is we imported the problem. Wasn’t Northern Rock a British bank lending to British people under a British regulator? Didn’t the UK authorities themselves hike interest rates too far, starve markets of money and bring on the UK crash?
Cursory study shows that India, China and much of the rest of the developing world does not have a banking crisis like the Uk or US one. The problems of the strong exporters like Japan and Germany are different from the problems of the big deficit importers, the US and the UK.
2. “Quantitative easing is not inflationary.” Couldn”t it become so? What if it started to work and the banks did kick in with substantial lending once they have hit the new exacting targets for liquidity? Why are commodity prices surging already? Could the pound have another nasty bout of weakness? Haven’t they noticed that UK inflation has remained much more persistent despite the economic collapse than elsewhere? How do we get out of it again?
3. “The problem is the banks refusal to lend.” The banks cannot lend more money to the private sector, because the authorities are demanding that they increase their liquidity and capital. If they want them to lend more they need to relax the regulations. It’s no good lecturing them to do one thing, and instructing them to do the opposite.
4. “The money has disappeared into the banking system and not come out. The banks should be criticised for this.”Yet the banks are lending it back to the government so they can run a huge deficit. Isn’t that what these people want, as they are so keen on the public spending?
5. Wouldn’t “Tory cuts” of “£5 Billion” do enormous damage now to prospects? There are no planned “Tory cuts of £5bn”. That is a Labour invention. There are clear statements that the Conservatives would bring the deficit down by doing more for less in the public sector. Far from causing damage, that would allow more of the money to pass into the private sector to create more private demand. Today’s public borrowing is tomorrow’s tax hike.

I was delighted to hear Norman this morning on the radio turning out a pheasant dish to offer some variety to dinner. The seasoned campaigner is game for a different role in life, and good luck to him.

Norman was one of an important breed in the 1980s – a Conservative Trade Unionist. He had the sharpest political brain of any man in the Cabinet. He bravely championed the rights of individual trade unionists against their Union bosses.

His life and that of his wife was badly damaged by the Brighton bomb. An ungrateful country offered him no compensation for the injuries sustained in the public service.

I look forward to trying his recipes.

The bank’s judgement today was more about output than inflation. There was no public recognition that the UK’s inflation rate has been high compared to most other countries over the last year, and no convincing explanation of why another £50 billion of quantitative easing was thought necessary or how it might work.

The Governor rightly stressed the bad fiscal position and the need to take corrective action. The government will dooubtless ignore this good advice. In the meantime, the pound after its recent rally against the dollar has fallen back a bit. There is no sign of deflation at the petrol pumps.

The latest unemployment figures bring home the evidence that our economy has become uncompetitive and is suffering badly from the boom/bust policies that have been followed since 2003.

Peter Mandelson comes over as a little rattled today in the Guardian with his personal attack on George Osborne. Yesterday George made it more difficult for him, by refusing the BBC’s request to spell out the numbers “behind the cuts” so Labour could go back to playing their childish and boorish spin game of “Labour investment versus Tory cuts”. Not even the BBC’s spin dominated interviewers could get the necessary ammunition out of Mr Osborne, who understood exactly what they wanted and knew he was in enemy territory when in the BBC studio.

Despite the usual Labour noises off steering the interviews, George did get across three crucial messages. We face a spending crisis, not a crisis of taxing too little. The way out of it is doing more for less. The way out has to encompass fundamental public service reform, as well as driving for much greater efficiency. Gordon Brown has always been the roadblock to reform, including the welfare reform that Labour failed to achieve in their first term , and their health and education reforms which Blair, Milburn and others wanted but failed to put through in the following two terms.

So let us look at what becoming the progressive party, the party of public sector improvement and reform, means. It means showing that Conservatives wish to govern in the interests of all the people. We do not wish to divide the country into a privileged public sector and the rest. We do not wish to heighten class divides, pick on groups like motorists or financial service personnel for special taxes and condemnation, or create a client state at the expense of everyone who supports themselves and their families. We do not regard it as a crime if you work for yourself, make profits in your business, save for a pension, drive to work, want to send your child to a better school, want to run a cake stall at a local fete, put out your rubbish for collection weekly or improve your home.

In the 1980s we took over responsibility for a near bankrupt quite poor country which had been gravely damaged by Labour economic mismanagement. I proposed popular capitalism. The idea was to offer people a stake in their country. We needed to harness the energy, goodwill and savings of many British people to bring about economic recovery, and to rebuild the social fabric. We launched portable pensions, more employer based private pensions, shareholdings in privatised companies, employee share schemes, worker buyouts of public enterprises and Council house sales. We created new armies of owners, people with a stake in the country, people who wanted to take a pride in their home or their business, people who wanted some idependence from the state. Labour of course rubbished it and caricatured it, but it proved popular. The big privatisations transformed telcoms and energy production, cutting prices and improving service. National Freight went from strength to strength when the lorry drivers and their managers bought it from the government. BY the time Labour took over we had more shareholders and much more saved for retirement than the rest of Europe put together.

Today the vision we need to offer has to be even bigger. The state is closer to bankruptcy, the public finances are in a much worse condition, and society is broken in many places. We need to offer people a hand up, not a hand out. We need to tackle too much dependency on the state. We need to remind people that they can be better off and feel better about themselves if they are freer of state interference. We need welfare reform, as the best way of looking after the family’s financial needs is a job. We need educational reform, to end the apartheid of private and state schools, whilst ensuring free places for all who want them. We need health reform. We have to show we can do more for less, as private industry has to do every year to stay in business.We need transport reform, as our economy and our daily lives are badly impaired by the inadequacies of Labour’s politically correct transport mess.

I will be writing about each of these in turn in the days that follow.

I hear from my American contacts that the opposition to the Obama health plans is deep, spontaneous and strong. Many Americans think the state scheme will combine the usual characteristics of nationalised service – they think the cost will be too high for taxpayers, whilst the quality and volume of care delivered will be disappointing. Many Americans are already paying large sums for good health care. They don’t want to have to pay twice. Businesses are worried that they will end up with bigger tax bills, making them even less competitive against India and China. The US public accounts are already in almost as big a mess as the Uk ones, so why on earth some Americans ask would you choose now to make such a huge increase in public spending which you cannot afford?

Meanwhile here the BBC uses the Obama experience to demonstrate its bias. The story apparently to them is the “orchestration” of the opposition by right wing Republicans, and the false claims they think the opposition is making. They want to deny the strong sentiments amongst many American middle of the road voters against this proposal from the President. This is a bit rich from an organisation whose news values seem to think that Labour’s false claims, systematic lies about Labour’s opponents and a one sided presentation of the public spending argument is what constitute journalism here in the UK. Labour has spent years fibbing about Conservative plans and past practise with health and education. The BBC faithfully trots out the lies and soundbites – they always report that Conservatives will have to cut services, and suggest this means sacking teachers and nurses and all the rest. Why isn’t the story ever the techniques of Labour opposition to the possible next government? Why don’t they do a series of enquiries as I have been doing into the bureaucracy and waste that is now so manifest, and opppresses most normal people? Why can’ they grasp that Conservatives do not intend to sack nurses and doctors?

The more I listen to them, the more old fashioned, out of touch and low grade it all seems. I don’t think many people believe Labour’s spin and their reports based on it any more, as they are are so biased and far fetched. The world is changing. More and more people I meet think and talk in a conservative way, recognising there has to be big change in the UK public sector, and knowing we cannot carry on wasting money on the current scale. The BBC will have a rude awakening if they don’t get it soon, and the Conservaitves do win the election.

Meanwhile, wouldn’t it be refreshing if they tried to do a piece on why so many Americans dislike the President’s proposals? Where is the criticism of the Obama scheme? Where is the balanced treatment of the pros and cons of the plan and the proposals to modify or improve it? And when will they treat the over borrowing scandal on both sides of the Atlantic seriously?