Tuesday, November 30, 2010

The $*%& hits the fan

Today has been extremely bloody in the markets.

In short the collapse in confidence is pushing the Euro towards meltdown. Either a de facto central Treasury is established in the Eurozone or there will be a series of Sovereign defaults, starting with Ireland, but including Greece, Portugal, Spain, and probably Belgium and Italy as well.

If the German constitutional court vetoes German participation in the Treasury, then the Euro will implode and the currency will fail with drastic but at this point unknowable consequences.

The spreading of contagion into the corporate credit market is now pulling emergency measures ever closer.

Estonia is scheduled to join the Euro on January 1st. After today I would say that there is only not much more than about a 60/40 chance that the currency will survive that long, and no more than evens that it survives the first quarter of 2011.

It is that serious.

The Democratic Abdication

The forecasts that were published for the British economy by the newly constituted Office of Budget Responsibility (OBR) yesterday were troubling for two reasons. The first is that the numbers show that the UK is a very long way from having a fiscal structure that can be sustained for the long term. The second, though, is more to do with the existence of the OBR itself.

The OBR was created because the Conservatives in opposition had lost trust in the official Treasury forecasts which seemed to pander to the political agenda of the then Labour government. What this represents is actually quite serious: what had been previously considered politically neutral is now considered politically compromised. As with the interest rate decisions, which have been transferred to the Bank of England, because the MLR decisions of the Treasury were deemed "too political", so budget forecasts have now fallen to an unelected Quango.

In part this transfer could be argued to be technocratic- as the complexity of modern finance has increased, so the ability of laymen to understand it has fallen. Thus, the need for technical experts to take these critical decisions. Yet it also reflects a failure of accountability. The fact is that the electorate have not understood what was going on either, and have not therefore punished those politicians who were deemed to have made decisions in their own short term political interest, as opposed to the longer term national interest.

Yet the electorate HAS smelled a rat: public trust in the political institutions of the UK has been falling steadily for years. Political parties- all of them- are now a pale shadow of their former size. Political engagement has diminished as politics falls to a narrow club of professional activists. After the petty venality revealed by the expenses scandal, public trust in Parliament is at an all time low. Even the announcement of the Royal Wedding has been greeted- outside the public school clique that dominates the media- with not much more than a shrug of indifference from the country at large.

There is a mood of total disenchantment with the entire apparatus of state in the United Kingdom.

The dead tree and cathode ray media may be largely to blame, with their shallow sensational and often sensationally inaccurate reporting. However the new media has not filled the gap either. People may be disenchanted by politics, but in a way they are in the same ignorant boat as the politicians themselves when confronted with the technical difficulties of economic and policy decision making. Few, outside the politically engaged even understand the way that the legal and constitutional framework shapes the policy debate. Frankly, after hearing Ed Miliband's first interview with Today on Radio 4, I am not even sure that the Leader of H.M.'s Official Opposition does either. Posturing Populists are not the best guardians of the delicate apparatus of the Constitution- they are too tempted to bend or break the rules for short term advantage.

So, it seems that Politicians can not be trusted- many would say that this was no surprise. The problems is that the failure of trust and the increasing lack of respect for politics is undermining our entire framework of political freedom. Without the bonds of social trust, then political accountability begins to disappear. When that happens, then the very root of our Democracy is undermined.

The most advanced countries on the Human Development Index, like Denmark, have a greater levels of social trust. Even Estonia, despite the appalling history of Soviet and Nazi occupation, has a greater trust in their government than the UK does. The Estonians regard the government as a limited service provider, and are therefore happy enough to use an ID card system, which they trust, in order for them to gain access to state provided services. The failure of trust in the competence as well as the good intentions of the British government condemns the country to using outdated and expensive information systems, which only undermine government efficiency- from taxes to health care- still further.

At the end of the day, the British political class, isolated from fundamental realities is continuing to lose the trust of the British people- and until confidence in the system can be restored- preferably by a dramatic increase in direct accountability enforced by constitutional reform- then the outlook for the UK continues to be increasingly poor.

The OBR is a symptom of a huge failure of British political accountability- and without greater understanding of the breakdown of the British social contract, the entire political edifice- including the increasingly clueless fourth estate, is headed for the rocks.

Monday, November 29, 2010

Wikileaks

Not much surprising in the leaks of the US diplomatic cables: the fact that Obama doesn't much care for Europe has been obvious since he came into office, and it is also not much news that the Gulf Arabs hate the clerical regime in Iran.

Of course for Brits there is the news that Prince Andrew engaged in "inappropriate behaviour".

However anyone who has met him will know that he can be abrupt beyond the point of rudeness. He has most of his father's faults with none of his redeeming virtues. Mind you you don't need Wikileaks to tell you this, even the most fawning snob columns have asked questions in the past.

So is the Wikileaks expose nothing more than an embarrassment?

On current trends, it may not be. Unless you live in the Middle East, of course.

Why Ed Miliband should lose

The British Lefty commentariat became increasingly less keen on Labour while they were in office. The repeated failure of left wing policies in government (Brown) combined with outrageous hypocrisy (Blair) to reveal to many Labour supporters that their party was at best sanctimonious- at worst dishonest. So the left-sympathising, chattering classes began to look elsewhere. Some went Green, some went Liberal Democrat, most declined to vote.

Now the chattering classes feel a certain relief- they see the Coalition being forced into tough decisions, while Labour has the freedom to try to make itself popular. Indeed there is secret delight that they are back in the 1980s- with the Hated Tories leading cuts, while the Red Flag can be raised at student demos and protests grow with every cut that is announced.

Yet, despite the small lead that Ed Miliband has opened up in the opinion polls, the interview the Labour leader gave to BBC Radio's Today programme on Friday contained the seeds of Labour's future defeat.

Socialism is a dead ideology. Everywhere it has been tried, in whatever form, it has failed. It is wedded to a social model of massed society that no longer exists. This is why New Labour was so tentative about proclaiming itself a Socialist programme. The fact is that the more nebulous word "progressive" was both more inclusive and more accurate. The repudiation of state ownership that was implied by abolishing clause 4, opened up a more pragmatic, consensus building approach which was very successful electorally

Ed Miliband doesn't see it that way. His language is confused- he seeks to speak for "the poor", but when he understands that this is not enough to get elected, he waffles about who the poor actually are: apparently it is all, or at least 90%, of us.

This political confusion is simply naked opportunism: talking about joining students "in peaceful protest" against tuition fees is also pure hypocrisy, when you consider that he was a minister in the government that introduced them.

The solid policy proclamation that he has made is that "I am a Socialist". So he is guided by the demands of state ownership of the means of production? Well it appears that this is true only some of the time, the rest he is guided by the will of the people.

Err... this is not a programme for government, it is intellectual bankruptcy.

As for the left wingers who are queuing up to give the Liberal Democrats a good kicking- David Mitchell is only the latest- we will defend our record on its merits when the time comes. However, if all Labour has to offer in the anti-AV campaign are the tired old retreads like John Prescott and Margaret Beckett, then just maybe we might win the referendum after all. THAT would put the final nail into the political zombie of Socialism.

Under fair votes it is hard to see the uneasy informal coalition of the Labour party being any more stable than the well structured official coalition of Conservatives and Liberal Democrats. Mr. Miliband may rue the day he wore his Socialist heart on his sleeve without understanding the abject failure of Socialist ideology.

Friday, November 26, 2010

Waiting for the Euro default: Write down, Rescue and Restructuring

In the final analysis, why should citizens take the full burden of rescuing banks, while the bond holders take no punishment at all?

That, in essence is why I now expect to see the next step in the Euro crisis being a debt default- or as it will probably be termed, "debt restructuring". The rescue of the Irish banks was really only supposed to be about the depositors- who are generally businesses and individuals in Ireland, not the bond holders who are generally governments and financial institutions from overseas. The sovereign guarantee to the banks that was so thoughtlessly extended by the Irish government has turned into a black hole, and the price is beyond Irish means to pay it. The market understands this, and is increasingly sceptical of the ability even of the ECB and the IMF acting in tandem to secure the position. Since this assistance largely comes in the form of new loans, then essentially Ireland is solving the problem of too much indebtedness... by increasing its indebtedness still further.

No, it is quite clear that bond holders could, indeed probably should, be taking a haircut on their exposure. The market certainly thinks so, which is why they are pushing yields on the most problematic economies up so sharply. These yields are justified when one considers the ever increasing chance of a debt restructuring which will indeed force at least some bondholders to take a haircut, and others will see their paper rescheduled to a longer maturity. That is what the market believes is now most probable.

A default is not the same as the collapse of the Eurozone, which is fraught with danger for any economy that took that step. Indeed the default would be instead of the Eurozone collapse. A country that enters a restructuring process will keep the currency, but inevitably will be forced to borrow at higher rates over the longer term, as bondholders become far more discriminating between Eurozone credits, including Sovereign ones. In the short run this creates further pressure on economies as they incorporate higher borrowing costs into their system, but over time it will encourage the radical restructuring that is still necessary, especially in Portugal, Greece and Spain.

In fact the process of restructuring,would crystallise what is already happening with the ad hoc rescue measures that are being attempted at the moment. The supposedly temporary measures are already been developed into permanent fund, which looks to me very much like the permanent Euro Treasury in embryo that was missing from the Euro equation from the outset. Of course the fact is that the German government will not wish to become the blank cheque for the profligate economies to draw upon, which is why I believe that- more or less whatever happens- there will be significant restructuring/default special measures imposed on creditors.

One way or another the process of painful government retrenchment in the PIIGS is going to have to happen. Better that this takes place within the context of the orderly framework of the Eurozone than in a blizzard of newly re-created national currencies, most of which will have so little confidence behind them that they will be worthless.

Yes, yields will spike in the short term, but since that is already happening now, it is hardly a worse option. In the medium term, the restructuring process brings state finances under control and growth can resume. We can, I think, learn a lesson from the Baltic here. Latvia maintained their peg to the Euro, avoiding a devaluation of the Lats, by a slash and burn budget way beyond what any of the PIIGS are contemplating now. At the same time they have also restructured their position in the rescued Parex Bank group which has involved drastic write-offs. These are write-offs that mostly damaged the Latvian state, which held the equity, but several more "unusual" creditors took the pain as well.

The result is that Latvia has returned to a more normal risk environment, with the local RIGIBOR now trading inside EURIBOR. The crisis in the Baltic is now essentially over. The flexibility of the Baltic model has been proven, and the low levels of debt- in Estonia, negative government debt- provide comfort for the future, as pension funds and investments begin to swell.

The slash and burn tactics of the Baltic are not likely to be politically acceptable in the PIIGS, but a combination of write down, rescue and restructuring may yet help create more competitive economies for the future.

Of course it means that PIIGS borrowing will be more expensive than the more disciplined Balts, but then, that would be the rational free market in action.

It is certainly worth a try.

Wednesday, November 24, 2010

The Bond Market speaks

James Carville, President Clinton's political strategist once famously said "I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody."

The European Union is now not only intimidated, it is actively terrified.

The Irish bail-out is breaking down.

The fact is that the blanket guarantee which the Fianna Fail government offered the banking system has bankrupted the country. Even despite a slash-and-burn budget, there is just not enough money to avoid a Sovereign default. The costs of the bail-out are now approaching €100 billion, which is now nearly three quarters of the total Irish GDP. The Irish deficit next year will be over 30%.

Meanwhile Portugal is facing a general strike.

CDS spreads for Ireland, Portugal, Spain and now Belgium are hitting new record highs.

A Sovereign default is now odds-on in the next three months, and the likelihood is that if one state defaults, then three or four or even more countries could go under.

The Great Depression of the 1930s did not start in Europe with the Wall St. Crash, it began with the bankruptcy of Creditanstalt in 1931. I fear that the European Sovereign defaults could be the Creditanstalt moment.

The policy makers are staring down the barrel of a gun. The bond market no longer believes in the ability of the EU states to act in concert to avoid a Euro member state defaulting: there simply is not the fire power to guarantee anything more than the smaller economies, so Greece, Yes; Ireland, Maybe; Portugal, possibly; Spain, very unlikely; Belgium, almost certainly not.

As I repeatedly say on this blog, the crisis is not a currency crisis, it is a structural crisis and only radical structural reform can solve it. The failure, over decades, to tackle the structural sclerosis in most European economies is now forcing a moment of truth.

The UK may have gained a breathing space because it has been able to devalue Sterling, but in fact it faces precisely the same problems. If the crisis takes a further turn for the worse, then the UK may be forced into even more drastic cuts than are currently contemplated by the Coalition. Years of unfunded welfare and pensions, mis-allocation of capital, government waste and extravagance, and the whole litany of missed opportunity and failure to reform, is now coming back to haunt us.

It is going to be a rocky ride over the coming weeks.

Kremlinology

Amidst the unfolding disaster of North Korea, and the market confusion as the ECB contemplates how to cope with sovereign guarantees of Banking black holes, it is easy to overlook the developing crisis in Russia.

Two stories caught my eye over the last twenty four hours. One is in the FT, showing that Russian capital flight is now touching $3 billion a week.

The other story is in the London Evening Standard and is an update on the terrifying story of how the Russian State stole Hermitage Capital from its rightful owners, and then brutally murdered the lawyer who tried to stop it.

What is particularly significant is the owner of the Evening standard is Alexander Lebedev.

As the next Presidential handover in 2012 draws near it is clear that much is happening in Russia.

The country is becoming ever more unstable. Russia remains on the brink, and may be about to take a big step forward.

Tuesday, November 23, 2010

Property, the Banking system and the end game for the Euro

The fundamental problem of Europe is not the Euro.

The fundamental problem is the economic structure of most of the European economies. The standard model of these economies has been to pay for today's bills with cheques drawn against the future. Instead of saving up for things today and acquiring them later, we have chosen to acquire them today and pay for them in the future. To a degree, it has worked: the levels of average prosperity in the present day would stagger most of our forefathers. Yet, there has always been a critical piece of small print: growth needed to continue, and not just economic growth, but population growth too, so that the costs were painless enough for the next generation to carry.

Yet about 40 years ago, the oil shocks created inflation that was not the result of economic collapse or war, but for several years was a normal part of business. In the face of this, real assets, especially property, held their value in real terms, but looked like they were appreciating sharply in nominal terms. Property became more and more popular, and banks began to prefer not only lending to property purchasers, but also lending against property to finance other asset purchases. All the time the central banks, trying to "even out" the cycle, provided excess liquidity in the downturn, while failing to tighten sufficiently in the upturn. Since this helped to erode money as a store of value, property began to look like a one-way bet.

At more or less the same time, we lost sight of another basic issue. People began to retire earlier and earlier, believing that the inflated asset-largely property- values that supported this decision were normal. Even as life expectancy increased into the eighties, people began to stop working in their mid fifties. The time a pension had to cover went from a few years to several decades. The cheques we were drawing against the future grew ever larger.

It was not just in the private sector that saving became a dirty word: States too began to hand out increasingly extravagant welfare packages: for millions of people, it was not economic to work. Skills rotted, and both Western Europe and the USA acquired a burden of the unemployable unemployed who nonetheless made a substantial call on the public purse.

Then over the course of the last decade bankers began to securitise their loans, that is to package them for sale to third parties. In doing so they also packaged the asset that the loans applied to. These asset-backed securities (ABS) were supposed to be safe because of the value of the collateral bound up within their structures. It is the mistake that bankers always make: that taking collateral against a loan gives them "security".

It was a long time coming, but the property bubble finally burst. The result was not merely the failure those of banks most directly involved in property, but also those banks exposed to the ABS market- which in practice meant pretty much all of them.

The impact in Europe was twofold. Those countries most exposed to property: the UK, Ireland and Spain saw large parts of their banking system evaporate. Domestic rescue plans were initiated and guarantees were issued. Meanwhile those countries with large state debts based on an unaffordable welfare state found that their access to the capital markets closed. Populations to pay for the welfare are generally falling- and resistance to immigration is making the problem even worse.

At first it was the poorly structured economies that fared worse: Greece was forced to address its long term deficit. However, the absolute breakdown of the Irish property market increased Irish government liabilities to several times the Irish GDP. The deficit yawned to over 30% of GDP.

At this point the anti Euro crew will argue that had the Irish been able to devalue their currency, then the crisis would have been resolved, because the bubble would have burst far sooner if the demand for Punt, as opposed to Euro, assets had reflected the smaller size of the Irish economy alone versus the Eurozone as a whole. Furthermore, the Irish could have mitigated the crisis, as the UK has done, by devaluing their currency.

Mitigated, perhaps, but as the experience of the UK, which can devalue its currency, shows it is certainly not solved.

As I have argued repeatedly on this blog, devaluation is only ever a temporary solution, and if it is used- as it has been in the UK- simply to avoid painful structural adjustment then it ends up permanently reducing the economic potential of the entire economy as people simply build in higher inflationary expectations. Arguably the reason for the instability in the Eurozone's periphery is a function of the fact Germany- the core Euro economy- has been undergoing a long and difficult restructuring, and has emerged extremely competitive, indeed too competitive for the other unrestructured economies to cope with.

Now the breakdown of the property based savings and welfare system is creating a second meltdown: not only a meltdown of the banking system, but also of the states that have issued guarantees to that banking system.

It is a meltdown that will lead to sovereign defaults, and not just in Europe. The policy of competitive devaluation can not work where China- the worlds largest surplus economy and the worlds manufacturing base- maintains its own artificially low currency level. Without the unlikely prospect of a dramatic Chinese revaluation, even the breakup of the Eurozone and drastic devaluation by the most insolvent economies will not solve anything. The Germans will remain efficient, the Chinese will remain efficient and investors will be more fearful than ever about the prospects of the ex-Euro countries.

The only solution is to do what the Baltic states have done: make a drastic cut in costs by an "internal devaluation", in the case of the Baltic by around 25%. That means wages fall by 30% and house prices by 50%, and the overall level of costs by about 15%. The Balts did in last year. The Greeks propose to do half as much over five years, the Irish by 15%- not 25%- over 3 years.

Not enough, and the result is that these Euro-delinquents will require a rescue that is beyond the ability of the rest of the Eurozone to finance. A debt default is therefore now very likely. Only this is where we can criticise the ECB and the European Council: we still do not understand how such a default will be handled.

But after the inevitable default happens, we are in a whole new ball game, and no one knows what happens then. One thing is for sure, very few of my generation and none of the following one will be retiring from work at 55.

The age of austerity that looms before us is set to be measured in decades rather than years.

Monday, November 22, 2010

The Mail, Dan Hannan and never having to say you're sorry

Blogging has been even thinner than usual: despite much to write about, I have found so little time. Fittingly, perhaps, I choose to break my silence by focussing on time, or rather time zones.

Since daylight saving was first adopted in the UK in 1917 (interestingly, one year after Germany had already done so), there have been various attempts to get the best use out of daylight. During the Second World War there was even "Double Summer time", while in the late 1960s I can remember that clocks stayed on GMT+1 all year for several years. In short there is nothing ordained about the time zone in the UK. In recent years however, the UK has settled on GMT in the winter and "British Summer Time (BST)", i.e. GMT+1 in the summer.

There are pros and cons about reverting to GMT for the winter- it does allow more daylight in the morning hours, but of course this is at the cost of an earlier dusk. For school sports, such an arrangement is not ideal, and in any event in the far north and west sunrise is still very late anyway. So, as I say, pros and cons and it is a fair argument to have.

Fair, that is, unless you read the Daily Mail. The reaction to the idea of changing the time zone (and by coincidence having the same time zone as some other parts of Europe) has been borderline hysterical. "Join our campaign against BERLIN TIME" etc.

What a load of horseshit.

Apart from the fact that there are multiple time zones inside the EU- I, for example, am living in a time zone 2 hours ahead of GMT and 1 hour ahead of Berlin- this kind of knee jerk anti-Europeanism is fatuous in the extreme. The debates about whether we should move time zones is about the quality of of life in Britain and nowhere else: for goodness sakes the MP who is proposing the move is a Conservative !

So should we chalk it down to the usual dim wittedness of the right wing press?

Well another Right wing journalist (not, please note, a banker or an economist) is Dan Hannan. He of course has been gloating over the travails in the Eurozone for some time. Though only a total ignoramus would propose- as he did- that Ireland should adopt the Pound Sterling in place of the Euro. The economy of Ireland, and especially its history, make such a proposal not only wrong but even offensive to many people in Ireland. Such "Little Englander" triumphalism belongs in a sixth form debate, not in serious politics: but then Hannan would say that since he is an MEP, he is not a serious politician anyway, so perhaps we have something we can all agree on.

Virtually the only currency weaker than Sterling recently has been the Greenback. The Euro has risen in value against both those former reserve currencies.

The fact is that the Euro is not dead, and the crisis is forcing the Eurozone members to face a necessary and serious reality check- and it is only the advent of the coalition in the UK that has forced Britain to take the same decisions. Nevertheless, let us not let the facts get in the way of a good story.

Hannan asks those who support the Euro to "apologise".

Will he apologise, I wonder, if Sterling continues to devalue against an intact Euro over the next year?

I doubt it- the world view of the right wing press admits no error- secure in absurd bigotry they will continue to bathe in paranoid fantasy for many years to come. The trouble is that they make life so unpleasant for the rest of us.

As for the Euro: the crisis is certainly not over with the Irish bail out. However it may prove to be the beginning of the end.

Saturday, November 13, 2010

Henryk Mikolaj Gorecki

Krakow.

A May morning, before the dawn of a Golden day of clear sunshine.

It is the early 1990s. I have walked from the Krakow Glowny station to the Main Square in the dark. The Square- Rynek- is empty and I am alone. It will be many hours before I can go and find a place to stay.

I sit on a stone bench, resting my rucksack by my side. The Rynek then was uncluttered, so the full sweep of the magnificent cloth hall was unhidden. To my left the Kosciol Mariacki loomed, smoky, with a single gleam of bright light behind a shutter of a room high up on one of the towers.

The sky was growing lighter by the minute. across the City the bells of churches, monasteries and Wawel Cathedral began to ring for 5 o'clock. A chorus glorying in the new day. High up in the tower, the shutter opens, and a man holding a silver trumpet can be seen.

It is him and me in the whole square.

Then he begins to play. The Hejnal Mariacki - the warning to close the gates against the Tatars, the Mongols, the Austrians, the Germans, the Russians. Always it ends in mid note. four times: for each of the points of the compass he plays, then the shutter is closed.

I have been entranced. The sun floods the square.

Finally, I think, I am here.

I have come to beloved Poland, whose language I have tried to master and whose history I have tried to understand and whose future I hope to help, and I have come for the first time.

A few days later.

A train back to Krakow from a small industrial town whose German name is a byword for evil.. I have found the first part, despite the room of shorn hair, the room of shoes, the room of suitcases, the Death bloc, the trial gas chamber, strangely familiar.

Then I went to the place of the birch trees: Brzezinka, Birkenau.

The gate.

The forest of brick chimneys marking where wooden huts have rotted away. These were the places for the lucky ones who survived the choice of slavery or death. Mostly it was death, often death by slavery.

The concrete monument, ugly. In the seven languages of the United Nations it says in front of the altar of the gas chambers and the crematoria and the pit and the pond: "Never Again".

And I am crying because I know in Omarska and Prijedor it is happening again right then.

And it happened again in Cambodia, in China, and Korea, and the Gulag, and will happen again in Rwanda and Sudan and Congo.

And at Auschwitz no birds sing- it was true. I too am silent on another summers day.

And in the train I listen to the Symofonia piesni zalosnych. As I travel from horror to humanity I am listening to the souls of the tortured, and they are alive and they sing of the joy of life and the sorrow of the end of life.

I am comforted.


Niech Bog blogoslawi Henryka Mikolaja Goreckiego.

Thursday, November 11, 2010

Looking in the Media Mirror

I am on a very quick trip to the UK, and wandering around Central London yesterday, I espied the gathering demonstration "against the cuts" by some students.

As demonstrations go it was not a particularly big one. There have been far bigger demonstrations which have not been reported at all in the national media. This relatively small demo has attracted media attention pretty much because a bunch of fringe nutters- Socialists, Anarchists etc.- decided that it would be fun to have a bit of a barney at the Milbank tower. Unfortunately the Police were not prepared, and there were not enough of them, so the nutters managed to hurt people and cause damage. The fact that the TV pictures were so good has meant that these criminal acts of petty violence are being reported as some kind of apocalypse.

Some of the Media have gone so far as to hint that the Coalition in some way "provoked the students". Leaving aside the fact that it was not students who led the riot, the fact is that the Anarchist and Socialist fringe have never been reconciled with the current social order: not capitalism, and not democracy either. They will always seek excuses to play their infantile and doomed games of violence because they are deluded that a revolution in Britain is not only necessary but popular.

I am willing to bet that the number of people who believe in Anarchism or Revolutionary Socialism as a practical political programme in the UK is a vanishingly small number. So why then has the media given any of the events of yesterday any political significance at all? I think the answer is that even the moderate left - which has a very strong swell of support amongst the chattering classes- does not believe in the sincerity of the politicians of the Coalition. Reporting of the past few months has been coloured by the idea that the Liberal Democrats are traitors to the progressive cause, and that the Conservatives are simply spittle flecked bastards. This media narrative as been so prevalent, most noticeably at the party conference season, that no one in the media- or at least the BBC- seems to understand that it is not true. The Coalition, is turning into an efficient and effective administration, particularly in contrast to the shambles of the last Labour government. That is not to say that they are not making mistakes, but the media narrative of incipient Liberal Democrat rebellion and/or collapse is simply a travesty of the truth. The party membership since the election has been growing - at times very rapidly. We are winning by-elections, and if the opinion polls are a bit weaker, then to be honest it was only to be expected. Party morale is high and while there are disagreements amongst the Parliamentary party, these are very far from being the coalition threatening challenges that, for example, Polly Toynbee thinks that they should be.

After the fiasco of the Brown government and the shallow cynicism of Tony Blair, I might have thought that the Labour Party would be a little less shameless about their opportunism- especially since they agree in private, and often in public too, that they would be following policies in government that would differ from those of the Coalition only in degree. However we must remember that some in Labour carry a visceral hatred as part of their Socialist legacy: political opponents are not merely wrong, they are morally corrupt, or even, a word used far too often: "evil". The idea that Clegg and Cameron are decent men trying to do their duty in very difficult circumstances is held up for the deepest contempt- too often, Labour are not the "loyal opposition" and this gives tacit encouragement to the radical left that violence is justified.

But such violence as we saw yesterday is never justified- it is simply criminal.

Therefore I hope that the media, caught up in the dramatic narrative that their own pictures provide should not give a bunch of Socialist and Anarchist narcissistic thugs any validity. Blowing up a Socialist "good day out, smashing the state" into a challenge to that state is grossly irresponsible. Whatever the personal sympathies of the journalists, they have a duty not just to reflect the immediate pictures but to place those pictures into a context, and the rolling news of the past 24 hours has failed to do this. These thugs do not represent any groundswell and it is outrageous to state that they do.

Of course, seeing red flags of the Socialists and the red and black flags of the Anarchists raises my hackles dramatically. For me, the only difference between the Soviet Socialists and the Nationalist Socialists is that Stalin killed more people, more brutally and for longer than Hitler. There is a complete moral equivalence between the two monsters of the Twentieth Century, and those who march in the name of this ideology should know that they attract loathing and contempt in equal measure. However the "Old Left" of fellow travellers, from which Ed Miliband springs, retain an affection for the revolutionary left, which is blind and morally cowardly.

It is time for Labour to stop excusing the revolutionary left- it is time for Labour to engage in grown up debate, accepting that their political opponents are worthy of respect. Alas I really don't think that they will. It is a pity, because without such an intellectual renewal I can see the British people- who do not support political violence- drawing their own conclusions. There are decent people in Labour but too often they have been marginalised in favour of the political grandstanding and cynical opportunism that a party shorn of a coherent ideology seems to encourage in its leaders. Blair was a dead end for Labour, but his poisonous legacy- and that of Peter Mandelson- remains. unchallenged.

Monday, November 08, 2010

Woolas: Liar and New Labour Minister... and?

Phil Woolas loathes Liberal Democrats, and the feeling is completely mutual. He has always been extremely hostile and combative towards us. It is not therefore a surprise that he overstepped the line and became the first MP in over a century to be chucked out of the House of Commons for the disgraceful way he conducted his campaign.

Except that Mr. Speaker Bercow has decided that his ejection from the House must await the outcome of his appeal. I won't speculate on why the Speaker has made such a strange decision- it seems to second guess the appeal- it shows a slight contempt for the lower court, but then Mr Speaker Bercow is not too big on legal niceties.

In any event the decision of the lower court is pretty damning- it will be exceptionally difficult for the Court of Appeal, or even the House of Lords/Supreme Court- if it comes to it- to set aside the judgement.

But then the issue is removed for the legal and returns to the political: a by-election may need to be held. Given the change in Circumstances, many commentators- such as John Rentoul- dismiss the chances of the Liberal Democrats out of hand. They may well underestimate the determination of the Lib Dems to fight this to the last vote- it is not certain that Labour can or should recover from this disgrace, should the by-election actually take place.

On the other hand, Labour have something of a track record of dishonesty and hypocrisy, so why should Woolas be punished when Harman, Blair and the rest were not? I think the answer is "pour encourager les autres", to show that there are limits and that the personal hatred of Woolas led him beyond the acceptable limits by quite some way.

If the Appeal is dismissed, then the by election is profoundly interesting. It will be an acid test after the Liberal Democrat choice of entering the coalition and the equally controversial choice of Labour for Edward Miliband.

We will see the the result, but despite the polls, I see the Liberal Democrats are attracting a lot of new members, and the loathing of Woolas by the Liberal Democrats is equally visceral- if restrained by law in a way that Labour were not.

I am not afraid of the current position, and despite the contempt of Labour, I am increasingly sure that the country at large recognises the fact that Labour in office was more divided and drastically less competent that the Coalition- and that even the Conservatives now publicly recognise that the presence of the Liberal Democrats in office has improved the administration of government. We need to take our case to the country, and in particular to take the case for electoral reform to the country. The crux of this government will depend of the strength of the Lib Dems: now we must demonstrate this. The Oldham by election will be very difficult for the Lib Dems, but it will also be crucial: the future success of the party is riding on it.

I fear it may be that simple.

Wednesday, November 03, 2010

Science as a candle in the dark


OK so the State of Delaware may not have elected a Witch ("I'm not a Witch, I'm not a Witch..." WHATEVER).

However the United States has elected an awful lot of people whose opinions do not vary a whole lot from such simple superstition. Evidence gathered from peer reviewed papers is not the way that the US Congress conducts its business. Over 95% of the members of Congress- both new and old- have no Scientific background whatsoever.

There are more people in American politics who say that they believe in the "literal truth" of the Bible than those who acknowledge the demonstrable truth of the theory of evolution by natural selection.

If you can not base your political ideas on the Scientific method of sceptical empiricism then you might as well believe in witchcraft and spells to put things right. It is through such methods that we have been able to start to catch the merest glimpse of the spectacular wonders of the Universe, and our place within it. It is not superstition that is providing answers to our most deeply felt questions, but the steady progress of research based on looking for provable truth.

Once, an Astronaut, Jack Schmitt of the Apollo 17 Mission to the Moon, graced the benches of the US Senate. Now it is an array of trial lawyers and social workers. These politicians have a facility with words even while they lack a facility with ideas. Now, whether Democrat or Republican, American politicians are suppose to respond to the feeling of inchoate rage that is said to be the feeling of the American people.

I don't think they can.

I think the whole basis of American politics is now more Superstition than Science, and that is pretty bad for everyone. Ignorance is not bliss, it is fear and misunderstanding. The inchoate, primal fear of the mob may end up burning witches, but it is unlikely to find too many solutions to their problems.

Now America's leaders, from the President and the new leaders of Congress down, have a responsibility to inform their people about the realities that they face, and the price of dealing with the crises.

It is going to be a very difficult task.

Tuesday, November 02, 2010

The Mistakes of Margaret Thatcher

As Lady Thatcher emerges from hospital, she must have been somewhat buoyed by a poll that suggests that she remains the most influential woman in the World. However her influence rests with a period of office that came to an end nearly twenty years ago.

With the benefit of the hindsight given by those twenty years I think its is possible to begin to make a judgement on the eleven years that she served as Prime Minister. Certainly for all the adulation that the Conservatives offer her now, she was not generally popular either in the country at large or in her own party for large periods of her time in office. The confrontational way she addressed the challenges that the post war decline of the UK created for the country was never going to make her a healing figure- despite her quotation of St. Francis when she entered office.

There are two, sharply polarised, positions of conventional wisdom concerning the Thatcher government. The first is the adulation of the Conservatives- and not just in the UK- Margaret Thatcher defeated the Communist funded Unions at home and the Communist governments of the Warsaw Pact and ushered in a new more energetic spirit of entrepreneurship into a UK that had grown tired of the tepid failure of post war "Butskillism". The second is the view of the Left, which has been forcefully -and offensively- expressed in the past couple of weeks: that Thatcher was evil, that she knowingly destroyed entire communities and inflicted unnecessary damage on the productive capacity of the UK.

I have met Lady Thatcher in recent years, and if her health is now very poor, it is still possible to get a spark of the combative personality that she once was. However when she asked "is he one of us?", she was, remember asking it of members of her own party. The habits of compromise were deeply ingrained into the Conservative Party and partly as a result, the Thatcherite revolution remained incomplete at the time of her defenestration in 1991. I think Margaret Thatcher did not understand that, against all her most conservative instincts, the only way to secure her move to free markets in the economy was to open up the political system too. It was her failure to understand the need for a free market in politics that condemned Britain to the bathos of the Major years and the dead end of Blair. It was a failure that destroyed the Conservative Party in Scotland- once one of the strongest Tory heartlands- and created a constitutional crisis that remains unresolved to this day.

As for the critique of the left- that her policies inflicted unnecessary damage on the British industrial base- I think that there is indeed much evidence that this is the case. Despite the global migration of industry to China, Germany has not seen the kinds of declines that the UK has, and is a far stronger economy as a result. While the 1986 "Big Bang" unleashed a tide of creative destruction in finance, the long term consequences remain unproven, but the destruction of manufacturing has permanently impoverished large areas of the Kingdom. Defenders of the Thatcher legacy argue that she had little choice given the dependency of much of this industry on the state and the Communist penetration of the Unions in enterprises such as British Shipbuilding, British Leyland and of course British Coal. Certainly, now we have been able to read the KGB archive, there is little doubt that many Union leaders, directly or indirectly, were dancing to Moscow's tune.

If the economic legacy of Thatcherism is highly controversial, her foreign policy is far less so. Her determination to forge a stronger resistance to the USSR in the wake of the invasion of Afghanistan and the crushing of the Polish Solidarity movement, at times made her seem at least the equal partner of her political soul mate, Ronald Reagan, who was elected eighteen months after she had come to power. The deployment of short range nuclear missiles to match the Soviet deployment of the SS-20 in the early 1980s was hugely controversial at the time, but in retrospect it was the only way to reinforce NATO in the face of a concerted attempt to subvert it by the Soviet leadership. Yet, as soon as Mikhail Gorbachev emerged from the senile pack of the CPSU leadership, she recognised his value. In the end it was not her resistance that undermined the USSR, it was the fact that she was willing to "do business" with the Soviets that accelerated the pace of change in the moribund Soviet state.

Arguably, had the Thatcher government understood the need for a wider revolution - a constitutional one- then the UK would have been able to transform itself far more radically. In the end she could not transcend her own conservatism in order to complete the liberal revolution that she aspired to. She had a wider vision internationally than she had domestically. Figures such as Arthur Scargill or Jack Jones- self declared militant Socialists- prevented any engagement with the government that could have addressed the problems of British industry pragmatically. Then- as now- the loathing of Margaret Thatcher by the Left did not allow them to engage with or even understand her: the polarisation of politics that resulted (and remains) is at least the result of the vituperation of the defeated Left as the inflexibility of Margaret Thatcher herself.

Even today the language of the Labour Party refuses to accept that Conservatives or Liberal Democrats are motivated by good motives. Labour then, as now, ascribes the basest motives to their political opponents, failing to recognise that they are at least as idealistic as themselves. It is this wilful blindness that allowed people on the left to behave so disgracefully: talking of parties to celebrate the death of Margaret Thatcher when she entered hospital. This visceral hatred from the left is now being turned on the Liberal Democrats, who are routinely pilloried as "traitors", as though Socialism had any greater moral force than the Liberal ideal of freedom. The hatred of the left is a fearful thing, but it has allowed Liberal Democrats to finally understand the fact that it rests on the fear of the Left that Socialism has failed.

Indeed Socialism has failed, and it was not just the years of Margaret Thatcher that demonstrated this failure. The Blair-Brown years have ultimately been as economically catastrophic as the 1970s, and if the legacy of John Smith forced Labour to at least begin to address constitutional reform, the advent of the coalition should now allow that work to be completed. Freer votes, an elected House of Lords, local government reform, a transfer of powers from Whitehall to Scotland, Wales, Northern Ireland and English local government, and a wholesale slimming of the state may only gain the partial approval of Lady Thatcher, but they are at least as necessary as the radical economic changes that she brought about.

I think it interesting how little today's politicians claim the mantle of Margaret Thatcher, and the reason is that her legacy is not an unalloyed success. If in foreign policy her instincts were almost always right, this was far less true domestically. Although the mistakes of her political enemies allowed her the victory of the Miner's Strike in 1984, in fact British manufacturing was not renewed: it was replaced by the more intangible benefits from the success of the City. That such success was questionable was evident even as early as the crash of 1987, which forced a bargain price onto the BP privatisation, and it is even more questionable today.

So although I wish Margaret Thatcher well on her recovery, I would also say that as a historical figure she made many mistakes and that her lasting impact may be that she may inspire greater change than she herself was able to achieve in office. She does indeed remain influential.

She does not leave an unblemished legacy, but at least she recognised the scale of the problems and made attempts to address them. If we compare her demonstrable sincerity with the charlatanism and personal greed of Tony Blair, she certainly looks better by personal comparison. In the end, if the coalition can continue to deliver a structured programme of economic and political reform, then perhaps the mistakes of the 1980s may not be repeated.

That would not be a dishonourable legacy.

Monday, November 01, 2010

What is to be done?

On the eve of the US Mid terms, it may be a bit perverse to turn away from the travails of America, but this is what I propose to do.

Regular readers will know that I am generally pretty critical of the regime in charge of Russia. In my view the gradual erosion of freedom and the spectacular accumulation of ill gotten wealth in the hands of a mere handful of individuals marks Russia out as an increasingly nasty place to live. I also believe that the aggressive use of military force to challenge democratic forces in any area that the regime considers within its "sphere of influence" is dangerous for the entire international system.

Yet the Putinistas are not having it all their own way.

There has been a steady increase in the visible opposition, with protests on subjects as diverse as car import duties, press freedom and freedom of assembly becoming routine. In honour of this last, every month that has a thirty-first day has become the occasion of regular demonstrations. The date is chosen because article 31 of the Russian constitution permits freedom of assembly and the right to demonstrate. Of course the regime has not permitted those freedoms, and as a result the 31st has become a litany of public arrests.

Meanwhile the increasingly odd attempts by Vladimir Putin to portray a rather macho public image have been rather undermined: his summer tour of the Russian Far East in a Yellow Lada Kalina turned out to be a one hundred vehicle motorcade. Youtube showed the visible derision of the locals as this absurdity passed by. The increasingly strange shots of Putin stripped to the waist in various poses may have been intended to reinforce his image as a strong man, but instead, as is the Russian way, has led to a string of jokes.

Meanwhile, Russia continues its drift. The attempts by the Kremlin to use the gas pipelines to Western Europe as a political an economic lever have spectacularly backfired. The United States has pressed ahead so fast with the development of Shale gas reserves that they are set to essentially withdraw from the gas market. Other countries, notably Qatar and Turkmenistan, have seen dramatic new investments by Western oil majors, and alternative gas pipelines designed to avoid transit across Russia are now virtually certain to be built. The macho posturing of the Kremlin has ended up reducing their power: the Norwegians will not sell Russia proprietary technology to develop the Barents gas fields, and increasingly the bullying of investors in Russia is leading to major changes in the outlook for growth, as more and more investors reassess the risk profile they are taking on in the country. Crime and corruption are undermining the economic capacity of the whole country. Every foreign motorist has their tale of the corruption and bribery required simply to drive to Moscow or St. Petersburg from the border.

Yet despite the increasing difficulties, the regime continues to provide irritation to the international system. Russian Air force planes continually violate other country's air space. An Ill timed visit by Mr. Medvedev to the Kuril Islands has outraged Japan. Even Vladimir Putin's summit meeting with Chancellor Merkel and President Sarkozy did not provide more than platitudes. Despite the visit of Foreign Minister Hague to Moscow, Russo-British relations remain in the deepest of deep freezes. It was something of an irony that the chairman of the Russian Football authority attacked the English bid for the FIFA world cup on the basis that the UK has high levels of drinking and crime. Of all things to attack the UK with he chose the area where the Russian social problems remain spectacularly unresolved.

The drug money accumulating in Afghanistan has found an outlet funding the smugglers in Russia, and the lack of effective borders between Kabul and Moscow is renewing the heroin problem in a new generation of Russian addicts. The economic crisis has not taken much gloss off the glitz of Moscow, but away from the capital the infrastructure is still crumbling and the poverty is there for all to see. Russia is going backwards.

Yet the situation now is better than the Soviet times in one important respect: there is public discussion of the problems of the country. Russian language media, both inside and outside the country is making the Russian people more aware of the scale of the problems- YouTube showed the reverse Potemkinisation of Putin in the most graphic way. His black eyes- if that is what they were- have been seen across the Russian Federation- questions are being asked.

In the end the question facing Russia remains the one that has been posed for most of the past 2 centuries: "What is to be done?".

In the end Russia has always chosen the path of its own exceptionalism: the Slavophils were more influential than the Westerners in the 19th century, so Autocracy persisted; the Bolsheviks overthrew the Liberals in 1917 to create the Leninist dictatorship; the Stalinists defeated the more internationalist Trotskyites in the early 1920s. At each turn Russia has rejected the West. Some Russian nationalists argue that it was the West that rejected Russia, but the problem that they face is that there is no evidence: the fact is that the acceptance of the Putinistas today shows not a hatred of Russia, but a combination of ignorance and increasing indifference.

Russia still sees itself as a great power, entitled to trespass against its neighbours: an equal of the European Union and of China. Yet even Ukraine now does more than 75% of its trade with the EU, and Belarus is headed in the same direction, despite being part of a Russian/Belarusian common market! Russia may seek to build gas pipelines to China, but neither the Chinese nor the Europeans now take seriously the implied threat that the Russians will play the two giant economies off against each other in a battle to maintain gas supplies: the economic weapons that both can bring to bear against Russia are far more powerful that the simple cessation of gas shipments.

Sooner or later, Russia will have to accept the inevitable: the macho posturing always costs more than it brings. The huge expenditure on military might brings no leverage in Europe, sheltering under the US umbrella, and really only irritates the Chinese. In the end, as P.J. O'Rourke put it:

"Russia has been part of, or at least the idiot step brother of, Western civilisation for over a thousand years now. There really is no excuse for them"