Posts Tagged ‘Mervyn King’

The economic questions behind and beyond the election

10/04/2015, 04:46:25 PM

by Jonathan Todd

Ed Conway characterises this as “fast becoming the election that economics forgot”. If non-economic factors are determining votes, we might note the uptick in Ed Miliband’s ratings, showing improvement against the variable that I’ve argued Labour should focus on: leadership.

It is a big Tory theme to ask, “do you want this oddity as prime minister?” If the people say, as they seem to, “actually, he’s not that bad”, then this a Tory problem. Nonetheless, Miliband’s ratings have been poor enough for long enough that they risk the electorate buying the stories that the incumbents peddle. Even when reality is inconsistent with rhetoric.

This rhetoric has claimed that Labour caused the global financial crisis (when Mervyn King, the ex Governor of the Bank of England, says otherwise), that Labour spent too much at crucial junctures (when the Tories then backed this spending), and that Labour failed to properly regulate the banks (when the Tories wanted less regulation).

As galling as it may be, though, too much time may have passed for public opinion to substantially shift on these debates. But there remain questions about where the economy is now and where it is going.

The rhetoric was of “the march of the makers” and renewal of competitiveness. The reality is that the balance of payments and productivity are both unprecedentedly awful, evidencing a troubling lack of competitiveness, which may explain two-thirds of economists recently surveyed reporting concerns about the government’s economic management.

The political vogue of economic metrics waxes and wanes. We were more agitated by the balance of payments in the 1960s. Unemployment became a bigger issue in the 1970s. Thatcherism made the money supply “the thing” in the 1980s.


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Miliband must make, not accept, the political weather

20/05/2013, 07:00:18 AM

by Jonathan Todd

“Are our problems so deep nobody can actually make a difference to them? My emphatic answer to that is yes.” The state of the nation was revealed in Ed Miliband’s slip of the tongue in the run-up to the local elections. Only one in three of those eligible to vote in these elections bothered to do so, down 10 points from when these seats were last contested in the halcyon days of 2009. Where given the opportunity, one in four voters gave their support to Ukip, which is as near as it gets to voting ‘none of the above’.

This is no glad, confident morning. It is a nervous twilight. “When Cameron talks”, as Rick Nye notes, “about the global race – the opportunities that lie ahead for Britain and the risks of being left behind” – those that voted Ukip “look at their very personal race, and fear it has already been run. They feel they have been abandoned by all political parties. It is no accident that Ukip does disproportionately well among older, non-graduate, white men.”

One Nation Labour is yet to convince that it can build hope in this cold climate. Politicians make, as well as experience, the weather, however. Perhaps voters would be more confident about the future if Ed Miliband seemed to them more of a prime minister in the waiting with answers to their problems.

Conservatives have long insisted that Cameron looks more prime ministerial than Miliband. Given that Cameron is presently the prime minister, this is to be expected. Yet Miliband is behind where Cameron and Tony Blair were at the same stages in their leaderships in terms of being perceived ready to be prime minister.

While 19 percent more voters thought Jim Callaghan “the best PM” than thought Margaret Thatcher in the last poll before the 1979 election, the sea change that was that election still swept Callaghan from office. His current polling may not be a barrier to Miliband being a similar sea change prime minister.

But Miliband should not assume such a sea change or that he would be its beneficiary. It’s hard to look at the rise of Ukip and feel we are living in a country moving to the left. This rise has contributed to Cameron finally abandoning his modernisation project and adopting policies reminiscent of their 2001 and 2005 general election campaigns: tough on welfare, strident on immigration and offering a referendum on the EU.


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A gift from Alastair to George

13/11/2012, 07:00:00 AM

by Dan McCurry

The funniest line of George Osborne’s letter to Mervyn King begins with the words, “As you are aware, my predecessor agreed…”

The predecessor is Alistair Darling and the letter concerns the £35 billion of interest payments, or coupons, that would have been paid on the gilts bought up by the Bank of England, under the policy of quantitative easing (QE).

The agreement struck by the Labour chancellor, is that the treasury would not make coupon payments on the gilts, since it would be pointless for the treasury to pay interest to the Bank of England (the state to pay the state).

The reason the letter is amusing is that Osborne won an election on the promise to reduce the deficit at spectacular speed, but has spectacularly failed to do so. However, he has done a good job of blaming his predecessor for his own failure. In this letter he has been forced to admit that his predecessor has delivered a £35 billion gift to the public purse.

All this means that George Osborne must be tremendously happy. You can picture him getting out the bunting in number 11 Downing street. He’s probably kissing a photo of Alistair Darling at this very moment. There must be a proper spring in his step.

All of his efforts to remove Britain’s debt mountain have failed, but then this one policy of Alistair Darling has delivered a massive contribution to the effort.

In all, one third of the UK’s total debt has been bought up by QE. I can only presume that George will immediately take the air waves to thank the previous administration for their brilliant policy.

Without inflationary pressures, the Bank of England can sit on the gilts in perpetuity. This means that next year and the year after, the Treasury will receive a further £35bn in gifts.

The inflationary pressure expected by the policy has been marginal. Paul Krugman explains this by pointing to the lack of demand in the economy. Few workers are demanding higher wages at present. They are mostly just clinging onto the jobs they’ve got. Shopkeepers aren’t seeing the shelves empty at such a rate that they wish to increase their prices.

It may be that once growth returns there will be too much money swirling around the economy. If that were the case, then inflation would be a prospect. The bank would respond by returning the gilts to the market and the treasury would resume making coupon payments. If that were the case, then the benefit would have been temporary, but much appreciated none the less.

However, the people who do sums on this type of thing tell us that there isn’t too much money in the economy. If they are right then there will be no inflationary pressures once growth returns. At that point, if he wanted to, the Bank of England governor could strike a line through a number on a ledger, and the gilts would no longer exist. More likely he would simply allow them to expire, according to their stated lifetime.

All of this must be music to the ears of George Osborne. You can imagine him, with the prime minister and his cabinet mates, drinking a toast to Alistair Darling and sharing a warm glow of affection towards the Labour party.

We feel a warm glow back. Good luck, George. This one’s on us. We look forward to seeing you thank us publicly.

Dan McCurry is a Labour activist whose photographic and film blog is here.

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The root causes of today’s problems go back further than the crash and require structural economic change

29/09/2012, 06:22:58 PM

by Jonathan Todd

We continue to live through the hangover from what Mervyn King called the NICE decade – non-inflationary continuous expansion. Just like all hangovers what we are living through is consequence of what came before. The supposed NICE decade was always pregnant with the nastiness of now.

This nastiness includes growth that is so feeble that GDP remains 4 per cent below its 2008 peak; a longer contradiction in growth than the notoriously grim 1930s; youth unemployment worse than in the 1980s; and an unprecedented incomes squeeze. It’s hurting but it’s not working: we’re told this is all the price for reducing the deficit but government borrowing is on the rise.

In what senses was the NICE decade pregnant with this nastiness?

Outside of London real median wages began to stagnate in 2003. The level of investment in the real economy was also weak over this period. Public finances became increasingly dependent on one sector of the economy (finance, obviously). The problem of youth unemployment, as David Miliband says, didn’t originate with this government but they made it worse. That can be said for other kinds of nastiness as well.

What was happening in the financial sector – the credit that it extended to households allowing them to live lives their incomes could no longer sustain; the taxes and bond purchases that it provided to government enabling them to spend more than otherwise – disguised the scale and extent of the structural problems with median wages, investment in the real economy, public finances, and youth unemployment.

We’ve transitioned from a “let them eat debt” era into a protracted period of public and private deleveraging and as we’ve done so, the structural problems have become more apparent and more pronounced – but they haven’t been created; they were always there.


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Cameron and Osborne are not for learning. King should know better.

24/02/2011, 11:30:48 AM

by Jonathan Todd

“Is not the lesson from the noble Baroness Thatcher that, when you have set an economic course, you should stick to it – ‘there is no alternative'”?

So asked Jacob Rees-Mogg at PMQs recently. The IFS cautions “a Plan B might be needed, potentially involving some reduction in the size and pace of cuts in the structural deficit”. But David Cameron knows best. He did not demur from the insufferable Rees-Mogg.

But for what did Thatcher think the grinding unemployment and dislocation of the 1980s was a price worth paying? Low and stable inflation. The NUM was, she thought, the enemy within and the wage/price spirals of the 1970s were part of the damage they wrought. She was right that high inflation is no basis for a dynamic economy. But her policies didn’t deliver this. In his memoirs, Nigel Lawson concedes that he should have raised interest rates in 1986. Instead, with a general election looming, he offered tax sweeteners. Inflation topped 8 per cent by 1988.

It wasn’t until Labour took politics out of monetary policy by making the Bank of England independent that the inflation dragon was slain. Now politics is back at the Bank and so is inflation. Not that Mervyn King’s grovelling praise for George Osborne’s ideologically-driven deficit reduction strategy has caused inflation to be persistently above target. But that that is not his job. The governor’s remit is to run monetary policy to defend this target. It isn’t to provide cover for Osborne’s politics. (more…)

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Jonathan Todd on the emerging politics of deficit reduction

24/05/2010, 12:01:51 AM

The deficit must not become the elephant in the room of Labour’s leadership election.  Labour needs economic credibility to form the next government.  Good candidates should – among other things, obviously – demonstrate that they would provide the leadership necessary for this credibility.

The deficit will define much of the politics of this parliament.  The temptation will be great for Labour to duck its tougher questions.  This won’t just be because ducking is always a tempting response to tough questions, especially questions as tough as those raised by public spending cuts.  Temptation will also derive from a Labour reading of the future that is so optimistic that it risks complacency.  On this interpretation, the deficit will require the coalition to do deeply unpopular things and a horrified electorate will therefore rush to the comforting embrace of Labour government on the next occasion that they are offered the chance.

This analysis seems to come recommended by Mervyn King.  The Governor of the Bank of England is said to believe that the present parties of government will be forced into such extreme austerity measures as will keep them out of power for a generation.  But this thinking has a worryingly “one more heave” characteristic to it.  It tends towards a view that simply says: “We told you the Tories and Liberal Democrats were horrible and they are now being horrible. Come home to Labour.” (more…)

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