There is a new fear abroad. There is the fear of deflation gripping the world economy in its icy hands. So is deflation terrible? And is it likely? I suggest the fears are being overdone.

Deflation means a general fall in the price level of a country or currency zone, not a fall in some prices like energy whilst others may rise. Falling prices can then react to encdourage falling wages, which in turn can generate falling output. As prices fall so people hold off buying the inessentials, knowing they will be cheaper later. This in turn can induce further price falls as stocks hang heavy on producers which they need to discount to sell.

This is not currently happening in any major economy in the world. The world’s two largest economies, the USA and China, are both growing at satisfactory speeds, and both have low levels of inflation, not falling prices. The same is true of the UK. Latin America’s largest economy, Brazil, has the opposite problem. Inflation and currency weakness have been too pronounced, so Brazil has hiked interest rates and is forcing down the growth rate to try to get inflation down. India has quite high inflation and good growth. Russia has high inflation following a currency collapse. Even Japan, a country which had no inflation to speak of for over 20 years, now has some inflation mainly thanks to a tax hike, and a monetary policy designed to get price rises up to 2% per annum.

So the worry comes down to Euroland. There inflation is now very low, and may dip further into negative territory this year. Growth is very sluggish, and parts of the zone including Italy are back in recession. The fear of deflation is being used by the doves at the European Central Bank to encourage moves towards creating more money to ease the squeeze on the distressed parts of the zone.

Deflation is to be feared if a substantial fall in the price level is part of a general slump in incomes and output, as in the early 1930s. Even the Euro area is not on the threshold of such a development, barring a sudden whirlwind Euro crisis and collapse which is unlikely at the moment. Sharp falls in some prices like energy can provide a stimulus, especially for countries which import a lot of it. Price stability or even a small fall in the general price level need not mean recession or worse, as Japan, Switzerland and some others have demonstrated in recent decades. Deflation only gets serious when it is spurred by banking collapse or consolidation, leaving an economy short of credit for worthwhile new ventures.

As a freedom lover, and as an MP, I support free speech.
As a moderator of this site and as a legislator, I appreciate there do have to be legal limits to free speech. Today I invite you to explore what limits should be placed on this crucial right. I invite you to do so in ways I can easily publish.
There have been many fine defences of free speech in the media over the last two days. I also note that the BBC and the main newspapers decided against reproducing the cartoons which were cited in connection with the mass murder and outrage in Paris. I here will stick to their line.
We can all agree that the barbarism in Paris is inexcusable. Our thoughts are with the families of those who lost loved ones in the various murders.
To have a vibrant democracy all institutions, especially government and people in power, have to be exposed to public criticism and popular scrutiny. To have a vibrant democracy there also have to be open and agreed limits to how far people can go in exercising their right to free speech. Satire, biting comment and cartoons all have their role to play.
Most people also agree that individuals, even individuals in elected office, have the right to protection against harmful and false allegations. To have a strong but healthy debate people need to be able to criticise or ridicule individuals, but not to make false claims without the individual concerned having the right to demand an apology and damages for the extreme cases. I regularly delete comments for this site because they make claims – often about my political opponents – that are hurtful if untrue, are often lies, or are difficult to prove. Comparisons of people with views you do not like to Hitler for example are common but normally excessive or disproportionate.
Most people also agree that groups, churches and other institutions should have to accept criticism and satire along with the rest of us. However, we also do need law to keep this within acceptable bounds. On this site I tend to protect institutions as I myself do not wish to attack or libel them and do not have the time to be dragged into disputes if the institution hits back.
To take an extreme case, Germany before the wars allowed and encouraged harsh language against Jews, which gave way to causal violence and discrimination which led to a programme of mass murder from the state. The development of insult and false allegation at the beginning helped fan the rest. This bitter history is part of the reason we have a law against inciting hatred.
The difficult issue for any democracy is to know what is fair comment, what is permissible satire and banter, and what is unacceptable racist abuse or incitement to hatred. At a time when we come together rightly to support free speech, we need to remember the daily compromises and judgements that editors have to make. We all need to consider the impact our language will have on those hearing it before making a public statement. We all also need to condemn unequivocally those who regard mass murder as an acceptable way of life to make a higher religious or political point.

Additional comment

People will enjoy the irony, but I have deleted more responses than usual to this topic as I am busy and do not have the time to edit each of the long contributions that pose interesting issues.

The media and media quangos are finding it difficult to decide who should be part of this year’s leaders’ debates for the General Election.
The easiest version would be a debate between Labour and Conservative. This would pit the two main contenders for the job of Prime Minister against each other without the intervention of other leaders who are unlikely to be in a position to be PM.
Trying to find a set of criteria to provide an objective view of who should attend is easiest if you confine the debate to the two largest parties in Parliament, the two parties with the highest share of the polls for the GE, and to the current PM and Leader of the Opposition. Each of those criteria gives you the same two people as the answer. They are the two people most people want to hear, and most people think the main judgement in the end comes down to which of those two do you want as PM.
As soon as you broaden out the criteria you get into difficulties. Including Mr Clegg can be based on representing the party with the third highest number of MPs at present, who came a good third in the last GE. It would be a bit odd to leave out the Deputy PM many would say. However, the Lib Dems struggle to qualify if you consider current poll ratings, or performance in the recent European election.
If you include Mr Farage you can make a case on the performance of UKIP in the last European election, and on his current poll rating in third place in most polls. It is more difficult if you wish to make the number of MPs an important criterion, as there are several other parties with more than UKIP, leaving aside the two main parties.
The Greens say if UKIP attends then they must. They are prepared to go to law on this. They point out they did win a seat in the last GE when UKIP did not, and they are ahead of the Lib Dems in some polls. They are clearly a nationwide party with a distinctive point of view.
The Scottish nationalists could qualify if winning a recent election matters, as they won well in the last Scottish Parliament election. However, they can never form a government in the UK or be PM by winning a majority, as they only put up candidates in Scotland. They have a claim based on number of Westminster seats and current poll ratings indicating they are likely to win more than any other of the 2010 minor parties.
Once you allow the Scot Nats there are difficult issues with regional parties from Wales and Northern Ireland.
I understand the broadcasters difficulties. I think we do want a tv debate. The easiest to justify would be Labour versus Conservative. Once you wish to reproduce the rich diversity of a modern election it is difficult to know where to stop. If you are going to have one or two of the minor parties from 2010 there is a case for having them all, as they come from different angles and attack different parts of the main parties, so in the interests of fairness more is better.

This government has been keen to increase the numbers of apprenticeships on offer. Expanding these programmes gets more people into work, and gets more people into better paid opportunities. 2 million people have taken advantage of this so far this Parliament.
Employers interested in developing apprenticeship schemes should contact Stephen.lamb@oracle.com as the Thames Valley LEP executive responsible. It can be a good way for a company to train and grow its own workforce.

Many western democracies in the second half of the twentieth century had two main parties competing for power – a centre right party and a centre left party. This model is being blown apart by Euro membership and the austerity policies it has generated.

The most extreme outcome so far is in Greece, which has arguably the worst experience of Euro membership to date. There latest polls for the forthcoming General Election put Pasok, the old centre left party, on just 5.8% of the vote, with electors put off by its implementation of EU austerity when it was in government. The centre right party is in second place on just 29% of the vote, also damaged by its association with the iron discipline of the Euro. The relatively new left wing anti austerity party, Syriza, currently leads in the polls on 33%. So the two old parties that used to alternate as governments command just 35.2% of the vote.

In France a recent poll for the 2017 Presidential election showed Hollande’s socialist cause struggling on just 15% and the recent version of the Gaullists, Sarkozy’s team UMP, on 27%, both behind the National Front. So there the two main old parties (and successors) on this particular poll were on just 42%.

In Spain PP, the right of centre party is on 28.6% and PSOE, the left of centre party on 23.4%, before the onslaught of Podemos, the left wing anti austerity party on 23%.

In Italy, with no tradition of stable majority governments, the present left grouping is polling well at 37% whilst the right of centre alternative, Forza Italia, languishes on 14%. The 5 Star challenger movement is on 19%. The latest surge has come for the regional party , the Lega Nord, with 13% of the overall vote, concentrated in the north where they seek a largely independent Padania under a loose federal structure. In both Italy and Spain the richer parts want to split from their nations, or at least control more of their own money.

Even in Germany, where the Euro has worked well for the country and where recent economic performance has been much better, the CDU and SPD only marshall 65% of the vote between them and have ended up in grand coalition as neither can win outright or win in coalition with similar allies.

The interesting question is why do these traditional parties across the zone remain so keen on the whole project, when increasing numbers of their electors reject it or want it modified, and when electorally it is so damaging to these parties? It appears that the southern countries cling to the idea that Germany will pay more of the bills and they need to stay in and try and change it, whilst Germany makes clear she can only put up with it if the Euro is on German terms of no bail outs, no cross guarantees, and tight control of spending and deficits.

It is also interesting that none of the challenger parties so far have managed to win a majority, and none of the challenger parties outside Germany (save in France) want to get out of the Euro anyway. The Euro has helped make a mess of the old parties, but has so far not triggered its nemesis with strong anti Euro parties. The Greek election will be fascinating, to see if Syriza can win as a challenger, and then to see if they can stay in the Euro and deliver their promise of debt cancellations and less austerity.

The Coalition when it came to office had sensible aims to rebalance the UK economy. It wished to cut the state deficit, and create a better balance between the productive sectors paying the taxes, and the state sector spending them.  It wished within the private sector to increase manufacturing as a percentage of the whole.

Almost five years on the government has made progress in cutting the share of GDP spent  by the state, but has further to go to eliminate the deficit altogether. The private sector in the second half of the Parliament has grown much more quickly than public spending, adjusting the balance between the two in a welcome way. It has also seen a  manufacturing revival with some notable success stories,  but not sufficient to increase the proportion of manufacturing in the total.

Rebalancing the private sector is more difficult for a government to achieve than rebalancing the state sector versus the rest. The government has considerable control over the size of the state sector, so can vary that as it sees fit. It has little control over the sizes of the manufacturing and service sectors. When trying to shift the balance it should want to do it  by helping grow the manufacturing sector more rapidly, rather than by cutting the size of the service sector through adverse taxes and regulations.

As someone who has led manufacturing businesses in the past, with more than a decade of experience in senior positions at  industrial groups, and who believes in making things, I do not need convincing of the desirability of expanding industry here. Nor is it difficult to say what other measures would help. As I have often pointed out, the single biggest stimulus to more industry here would be more reliable cheap energy, as the USA is discovering. Better purchasing by government would also help, so that more state spending could be used to buy things we need that are made here, without infringing competition rules. France and Germany seem to find ways of buying more of their own goods.

The boundaries between service and industry are not well defined. If a large industrial business decides to contract out its cleaning, catering and other back office services, the national accounts are likely to report a decline in manufacturing activity and a rise in service activity, though nothing real has changed. If an engineering business decides to buy in engineering consultancy to design its next product or solve some of its technical problems, again the figures flatter services and reduce manufacturing.

Sometimes the UK discovers that some of its engineering talent is drawn to the city where they can command higher salaries. Some people think this wrong, but they are adding value and earning  their living. If those same engineers are better paid by working for an engineering consultancy, which in its turn can be hired by UK manufacturers, that may be a sensible model for advancement.

Labour hit a new low in its presentation of figures in its dossier on the NHS. It is common and acceptable for parties to highlight accurate figures that most serve their case, but not acceptable to get figures deliberately wrong. The Conservatives have already highlighted Labour’s  mistake over numbers of medical staff. The numbers have gone up since 2010, whereas Labour said they had gone down.

Worse still is Labour’s continuing abuse of the percentage of national income figures supplied in the Red Book for total state spending in 2020.  This is forecast at  35%, after five more years of modest cash increases in total state spending and the economy growing faster than the public sector.

In their health brief Labour argue that the Conservatives wish to cut state spending “to levels in countries where up to half their health service is privately funded. ” They cite Mexico and Korea as two such examples. They then argue that this proves the Conservatives must have plans to privatise parts of the NHS and by implication people will have to pay for their health care.

The figures are wrong. They later have a table showing that Mexico has state spending at 27% of GDP, not 35%, and Korea at 20.6%. It is clearly not the government or Conservative plan to get UK state spending down to Korean or Mexican levels, not even as a percentage of their respective economies, let alone in real terms, as the published figures show. The Conservatives plan a much larger state sector than Korea or Mexico. They also ignore the fact that the UK is a lot richer than these two c0untries, so 35% of our GDP is worth more than 35% of their GDP. UK GDP per head of nearly $40,000 is  50% above South Korea and 3.6 times Mexico’s. So even if these two countries were at 35% of state spending to GDP, they would be able to afford a lot less healthcare.

The whole lie that Conservatives want to take state spending back to 1930s levels is bizarre. The UK is a much richer country than it was in the 1930s, so 35% of our national income now will buy us a lot more state service than it bought us then.

I was interested to see that Labour’s press release said at the bottom “Designed and built by Bluestate Digital. Hosted by Tumblr, 35 E 21st Street, 10th Floor, New York City, 10010 USA”.  Such is Labour’s confidence in our country and contribution to our economic success.

Mrs Merkel is a clever politician. In Berlin she speaks German, and in Brussels she talks European. She wants the Euro area to reform in a Germanic way, but she wants Germany to stay within the wayward zone and gradually to assume the responsibilities of leadership for the currency.

Her German electors were never keen on the Euro. I remember when senior Germans came to London to persuade me and others of the joys of the Euro which they categorically said the UK would join, they had to admit 70% of the German people wanted to keep the DM.  How wise the people were. Their leaders’ predictions that the UK would lose its City business and find trade difficult outside the currency were less well judged.

Now Germany is in the Euro there is relentless pressure on her to put the German trade surplus and strong tax revenues at the disposal of states with weak finances,  to assist Euro  countries with trade imbalances, and to guarantee commercial banks with weak balance sheets. Just as the UK government, taxpayers and Central Bank stands behind the cities and parts of our country that are in trade and budget deficit, and behind all the main UK banks, so many think Germany should now stand behind  the Greek state and Spanish banks, to name but two problem areas.

Mrs Merkel knows she cannot openly back major subsidies or guarantees from German taxpayers to the problems of the zone . She needs to play brinkmanship with the troubles, only in the end agreeing expensive compromises and even then trying to avoid any direct German payment.  This is why Germany does not want to see the UK leave the EU.

Accepting that the UK has stayed out of the Euro – something the German establishment would not accept  before and shortly after the formation of the Euro –  the UK has a couple of important uses for Germany. The first is the UK can normally be relied on to be more fierce against expansion of EU budgets, subsidies and taxes than Germany, providing good cover for the German position. Second, the UK is a useful unpopular large member of the club making Germany look more mainstream and acceptable. I doubt  Mrs Merkel is stupid enough to think they need to keep the UK in in order to be able to carry on exporting  so much to us, and her Ministers have said sensibly that if the UK left the EU they would want a free trade agreement so they could sell to us and we to them.

Mrs Merkel now has another reason to be nice to the UK. The adverse reaction of many UK voters to the scale of European migration, and to the required favourable benefit treatment of migrants from within the EU, is mirrored by some of the reactions in Germany. Mrs Merkel is wise enough to heed the warning, and needs to take some action to show German opinion that there have to be some limits to generosity to recently arrived individuals, and some understanding of worries about the pace of change in once settled communities.

She and Mr Cameron may well be able to agree some reforms to the EU rules on these matters that are mutually beneficial. She also needs to understand on this visit, however, that the “British problem” is not going to be fixed by a few modest changes to benefit rules. The British problem is an advanced version of the German one. The UK stayed out of the Euro. We did so because UK taxpayers do not wish to stand behind the Greek state, or Cypriot banks or any other country’s trade deficit. Our worry is the whole Treaty architecture is now designed for the Euro area and not for us. That is why we need a new relationship.

When the UK joined the EEC I opposed it for two main reasons.  The first was the likely long term erosion of our sovereignty. The Treaty of Rome made clear it was much more than a free trade area or more accurately a custom union that  they had in mind. The second was the economic damage high UK contributions and the asymmetric approach to trade was likely to do to our economy.

Which brings me back to the UK balance of payments. The UK is not uncompetitive. We have a healthy trade surplus on a regular basis with our number one trading partner, the USA. We regularly sell more to Australia and Switzerland  than they sell to us, two other important trade partners.  When it comes to the rest of the EU it is always the other way round. We have usually suffered bad deficits.

In the early years of our membership the whole approach was to ease duties and restrictions on trade in goods where Germany had the advantage, and to restrict or fail to liberalise trade in services where the UK had an advantage. That worked very well for the rest of the EU who ran big surpluses at our expense.

In more recent years the EU has dangled the carrot of a better trade in services for the UK as a means  to gain more and more control over our service areas by endless regulation. Whilst some of the new rules have helped build pan European business opportunities, more of the rules have driven up costs and damaged the UK’s worldwide competitiveness in services.

The official Pink Book for 2013 shows the UK running a massive deficit of £88bn on the current account with the rest of the EU, led by Germany at minus £35bn.  In all years since 1997 the UK has run a current account surplus with the Americas, Australasia and Oceania.  We have been large importers from China, but the German deficit has far exceeded our Chinese deficit. Trade with India is well matched.

The UK’s surplus on services is heavily dependent on insurance, pensions and financial business, which recorded a £58bn surplus in 2013.  Our travel account is in heavy deficit, as we travel more and spend more than foreigners do when visiting the UK.

When conducting domestic policy we need to remember just how this country earns its living. When conducting foreign policy, we need to remember just what a bonus the rest of the EU gets from its current relationship with the UK. £14.8bn of our current account deficit in 12013 was our  net payments to the rest of the EU, for the privilege of them selling us goods! They would want to keep their access to our market, whatever other sensible political arrangements we might insist on.

2015 should bring more economic growth to the UK. The banking system is now able to finance more of a recovery. Many individual consumers will get a boost as wages are now on average rising faster than prices. The new year will bring further falls in petrol and diesel prices. This will relieve family budgets directly, as vehicle fuel is  a large cost, and help lower other prices as delivery costs to shops and to customers decline.  The food retail sector remains intensely competitive, with lower prices resulting from that and from some falls in commodity prices.

Voters will naturally wish to see per capita growth, which should happen. They will more importantly wish to see their own living standards rising. The government will have to push on with its p0licy of cutting the rate of inward migration by a variety of means, and make early progress on benefit entitlement issues for recently arrived people. It will be popular if more and more of the new jobs the economy is generating are taken by people already settled here legally, cutting unemployment and related welfare costs.  All this is possible.

The government will also need to do more to tackle the problem of housing. House prices are now very high in some parts of the country, particularly in the areas with the most new jobs available. Limiting new arrivals will help. There will need to be more actions to ensure a decent supply of new housing in locations where people wish to live and where there is employment opportunity. The best place to start is London, where the building rate is rising but more needs to be built within the urban area.  Much of this can be done by redeveloping brownfields and previously developed sites, and by changing uses intelligently.

The mortgage market needs to be sufficiently responsive to give people a decent chance of climbing the property ladder. Of course it is right to avoid excessive lending with no deposits and very high multiples of income that make it difficult to repay. It is important not to lurch too far the other way and  make it too difficult for buyers, especially first time  buyers, to get started.