Category Archives: Britain

Cameron, rebooted

I posted this video earlier on. It’s not the subtlest bit of work I’ve ever done. David Cameron didn’t in fact take his standing ovation to the sound of “Kill The Poor” by the Dead Kennedys. (His choice instead was to misappropriate “Move On Up” by Curtis Mayfield, actually an anthem for an entirely non-Thatcherite kind of upward mobility.)

I’m not a fan of the Tory party, and their conference reminds me on a yearly basis why that is. But with the video done, and out of my system, it’s worth saying a few words about my reading of this well-written speech.

For what it’s worth, I think the speech shows up Cameron’s shortcomings as a politician and as a prime minister. And to defend that view I’m going to cite two hotbeds of seething leftism: The Economist magazine and the International Monetary Fund.

The Economist first. Bagehot, reporting from Birmingham, says it was “a notably more right-wing conference than last year”, and in response Cameron “indulged his party in a populist, rightward feint”.

This is the latest, clearest tactical move away from Cameron’s original incarnation as a ‘moderniser’. Seven years ago, in opposition, he began his leadership of the party by attempting to moderate its image. He talked about global warming, travelling to the Arctic to have his photo taken on a husky sled. He championed gay marriage as part of a wider message of social tolerance. Most famously he talked compassionately about the disadvantaged in a series of statements now remembered under the label “hug a hoody”. Close advisers spoke about the need to “detoxify the Tory brand”, and cited Tony Blair’s New Labour project as a model.

Seven years later, with the warm glow of forming a government now faded, and with the economy continuing on its path of unremitting gloom, discontent has spread both on the backbenches in parliament and among party activists in the constituency associations. Familiar resentments against welfare claimants and immigrants have deepened. The taste is sour. A practical need to safeguard the coalition’s parliamentary majority with a series of minimal concessions to the Liberal Democrats has further distanced the leadership from the rank and file. In response a critique has hardened against what is perceived as an insulated, privileged, metropolitan clique, running the country from West London during the week and the Cotswolds at the weekend.

This resentment broke very visibly into the open earlier this year when backbencher Nadine Dorries went on television to call Cameron and chancellor George Osborne “arrogant posh boys”. Asked what she meant by this, she explained that she was trying to

“speak directly into the heart of Number 10, and to the leadership who have become slightly disconnected from the rest of the people who are working very hard for true Conservative values and causes.” She said the main problem was that Mr Cameron saw himself as “a social liberal”.

As we’ve seen in the press over the last few weeks, David Cameron confronts an increasingly unpleasant party management problem. And you’ll notice that I’ve described the situation without yet mentioning the single biggest issue currently riling up grassroots Tories: Europe. Europe has been a Tory headache for decades. It was the principal cause of Mrs Thatcher’s downfall. Thanks to Europe, the Tory party tore itself apart in government (John Major, 1991-97, rest in peace) and relinquished power to the Labour party. It took a decade to restore a plausible claim to be a party of government.

Back in the 90’s the party was split, and the fights were vicious, between a populist rump strongly represented in cabinet and a core group of pragmatic, mildly pro-European moderates (Major himself, chancellor Ken Clarke, deputy prime minister Michael Heseltine). Today the party is far more uniformly europhobic. The differences between Tories these days come down to the precise degree of eye swivel and the amount of spittle in the mustache. And the problem for today’s government comes from the constant and insatiable call for dramatic action against the european menace.

Cameron’s speech didn’t have much on Europe. He banked a warm round of applause by reminding conference of his “veto” of the european fiscal pact. Beyond that, he contented himself with mocking French president François Hollande as a whining Olympics loser:

“I was trying to think of my favourite moment. Was it telling President Hollande that no, we hadn’t cheated at the cycling, we didn’t have rounder wheels, it was just that we pedalled faster than the French?”

As standard Tory frogbashing goes, this doesn’t rise above the level of background noise. [For an example of background noise, a few days before the conference the government announced a knighthood for Bernard Arnault, Europe’s richest man and the owner of a luxury goods conglomerate (Louis Vuitton, Moët, Hennessy, Veuve Clicquot, Dom Perignon, Château d’Yquem, Christian Dior, Givenchy, Fendi, Donna Karan, Kenzo, Guerlain, Bulgari, TAG Heuer, Hublot, etc, etc) who a week previously outraged French opinion by responding to Hollande’s tax-hiking budget with an application for Belgian citizenship.]

Instead, Cameron’s main response was to the remainder of the malcontents’ roster of complaints. Far from being an elitist, Cameron strove to depict himself as the champion of the aspirational man in the street. The cutbacks of the austerity programme were presented as a welfare crackdown on benefit scroungers. Controversial education reforms were portrayed as an assault on entrenched leftists in the teaching establishment.

Now, having taken Cameron’s words ever-so-slightly out of context in the video, let me be fair to him here and let Bagehot speak up in his defence:

“The prime minister tried to lay out how the compassionate conservatism he espoused in opposition relates to the deficit-cutting and often painful transformation of the welfare state that have characterised his term so far … The prime minister sought to revive the idea of an ‘aspiration nation’.”

Bagehot thinks that this was entirely successful, and that as a result “the tale of how to revive post-crash Britain is still his to tell for some time to come”.

I’m far less convinced. The compassion on display was pretty much identical to that on offer from Paul Ryan, the hardline candidate for America’s vice presidency. According to Ryan, the safety net has become a comfortable hammock. It’s a line that wouldn’t have looked out of place in Cameron’s speech.

And I’m not alone in detecting a change of tone on Cameron’s part. Joel Budd, editor of the Britain section of The Economist, had this to say: “I thought it was pretty Thatcherite. David Cameron calls himself a compassionate conservative. But there was considerably more conservatism in this than compassion.”

Of course, if you work for The Economist, ‘Thatcherism’ is very far from being a term of abuse. And the idea that Cameron’s sudden discovery of an overarching Thatcherite theme tallies poorly with his previous compassionate modernising is mine, not Budd’s. But if you click play on the podcast, you’ll hear Budd say

“I think most of the problems came in the moments when he spoke about the economy. Listening to Cameron’s speech you would think that the only things holding back Britain at the moment is pointy headed intellectuals, trade unionists, the Labour party, and a sort of lack of vigour. And that is fairly obviously simply not true. And it’s going to be obvious to anybody watching the ten o’clock news where they see economic trouble in America and in Europe that the reasons for the sluggish economy are not distinctly British. So I thought that was an implausible aspect of David Cameron’s pitch.”

Whatever you think of the supply side arguments familiar from the 1980s and freshly repurposed for Cameron’s right-facing self-reinvention, the main problem facing the British economy is a lack of demand, both domestic and international. Weak demand is depressing investment and stifling growth.

All of this creates a real problem for Cameron when he attempts to defend austerity. As we’ve seen, austerity was presented in part as the removal of counterproductive state coddling for the workshy. This can be seen either as a fairminded championing of aspirational ordinary Brits who play by the rules and want to make their own way in life (Bagehot), or as a piece of pandering to the resentful Tory base motivated largely by political self-interest (me). I wouldn’t disagree if you decided the truth lay somewhere in the middle.

But Cameron had more to say on the subject, and this is where the problems multiply. For his conference crowd he doubled down on his existing justification for austerity:

Right now, while we’ve got a deficit, the people we’re borrowing money from believe that we’ll pay it back – because we’ve set out a tough plan to cut spending and live within our means. That’s why our interest rates are among the lowest in the world, even though the deficit left to us by Labour was one of the highest in the world.

If we did what Labour want, and watered down our plans, the risk is that the people we borrow money from would start to question our ability and resolve to pay off our debts. Some may actually refuse to lend us that money. Others would only lend it to us at higher interest rates. That would hurt the economy and hit people hard. If you have a mortgage of £100,000, just a 1% interest rate rise would mean an extra thousand pounds to pay each year.

Labour’s plan to borrow more is actually a massive gamble with our economy and our future. And it would squander the sacrifices we’ve already made. We’re here because they spent too much and borrowed too much. How can the answer be more spending and more borrowing?

The first point to make is that there was only one crisis country where a government that “spent too much and borrowed too much” lay at the root of subsequent problems: Greece. The governments in Spain and Ireland ran surpluses in the years running up to the crisis. As did Estonia. The financial crisis came from a huge runup in private sector debt, and the sudden seizing up of credit in the international financial system. The ongoing euro crisis took the shock caused by the financial crisis, and worsened it thanks to the constraints of the single currency. Crisis countries in the eurozone cannot devalue to restore lost competitiveness, and as a result their uncompetitive economies now prove incapable of growth. Nor can they pay creditors by cranking up the money printing presses, which means that lenders extract a premium for the consequent risk of default, causing havoc in national budgeting.

Gordon Brown did run a deficit prior to the crisis. If for some reason you feel moved to defend him you might point out that the figures for those years are broadly similar – in fact slightly better – than the deficits run by Norman Lamont and Ken Clarke between 1990 and 1996. And you might add that in the early years of New Labour, Brown ran a surplus and paid down a chunk of debt. Even so, the fact remains that he ran a pre-crisis deficit. But the huge deficits racked up since 2008 are the consequence not the cause of the crisis. And David Cameron’s claim that “we’re here because they spent too much and borrowed too much” is straightforwardly false.

So much for the argument about how we got here. Does Cameron’s speech contain hope that he offers us a way out? The short answer is no. A very much longer answer can be found by reading the latest International Monetary Fund report on the World Economic Outlook. It’s been argued before that austerity in a recession hurts growth. In the jargon, austerity is procyclical. The IMF report confirms this. One of the Alphaville bloggers for the Financial Times quotes the paper’s front page story (“The fund warned earlier this week that governments around the world had systematically underestimated the damage done to growth by austerity”) and comments:

“To say it’s a big deal is possibly understating matters … The key game-changing finding from the IMF report is that activity over the past few years has disappointed more in economies which were implementing aggressive fiscal consolidation plans than those that weren’t. Which means the contractionary effects of fiscal consolidation are substantially bigger than policy makers were assuming.”

So, by doubling down on austerity, David Cameron damages the recovery. There has already been a double dip recession, and worse may yet be in store. Cameron claims that to respond by changing policy would “squander the sacrifices we’ve already made.” He and George Osborne are now in blood stepped in so far, that sunk costs dictate there be no turning back.

More substantively, Cameron tells us that without severe austerity, interest rates would rise. We saw his chain of logic in the passage I quoted above. Continued deficits may cause a drop in confidence in the bond markets which may lead government borrowing costs to rise which would translate into higher mortgage rates. It’s quite a contorted case to construct a major policy around. The IMF findings suggest that austerity, by depressing growth, is actually worsening the fiscal position, and that the policy is therefore failing on its own terms. But are Cameron’s terms even correct? Is there a risk of rising interest rates?

I’ve taken this chart from Paul Krugman.

One of the governments shown in the chart fought two unfunded wars in Afghanistan and Iraq, bailed out its banks, spent around $700 billion on stimulus (much of it in tax cuts), bailed out carmakers in Detroit, had its credit rating downgraded by Standard and Poor’s, has its national budget-making gridlocked with both spending cuts and tax increases blocked by politics, and is now marching towards a ‘fiscal cliff’ where an axe will be taken to the budget with highly contractionary consequences for the wider economy. The other government is David Cameron’s.

The two governments’ borrowing costs are essentially the same.
Indeed David Cameron’s costs are slightly higher.

The interest rates currently set by our central banks are effectively zero, and have been for a good while now. If rates could have gone any lower than that, they would have. And it will take a large and sustained rise in inflationary pressures to force them up off the floor. Krugman draws the conclusion: “Every advanced country with monetary independence has seen very low borrowing costs, reflecting the expectation of low policy rates for many years to come. It’s the weak economies, stupid.”

I’m not suggesting that deficits don’t matter (as Dick Cheney once said).
I’m suggesting instead what ought to be obvious: that Cameron’s case for austerity fails at multiple points.

Which leaves us with one last problem. As Krugman would no doubt concede, these guys aren’t stupid. What explains their insistence on the current destructive path, which failed in the 1930s and is failing now? I can only conclude that it comes from an ideological commitment to a shrunken state. Which may be a perfectly defensible commitment to have, but right now is a rotten way to run the economy, given the problems we’ve got.


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Cameron, clarified

Got the video editing kit out at the weekend:

There’s a New Yorker cartoon involving two dogs. One says to the other, “On the internet, nobody knows you’re a dog.”
On the assumption that somewhere out there dogs will be reading this, let me say: consider yourselves whistled, guys.

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Separatism and European crisis

In the weekend NY Times there’s an article by Steven Erlanger about the apparent resurgence of regional separatism in Europe. It’s not exactly a bad piece. It talks to the right people, and makes some good points. But Erlanger tries to stitch these elements together to make a wider case, and I’m not buying. Let me see if I can explain why.

He starts with a warning about a “renewed wave of separatism in the European Union”, for which he has a two part explanation. Firstly, the eurozone crisis is delegitimising national governments. Secondly, the risks entailed by a push for regional independence are lessened by the EU providing a supportive framework based on shared sovereignty.

The situation in Catalonia today shows that there’s a lot of truth in that first point. On his excellent blog Paul Mason, the economics editor for BBC Newsnight, quotes a man in the Barcelona street: “The situation has evidently changed a lot. It’s no longer about what people are feeling in their hearts, it’s what they feel in their pockets too. And the feeling is that they would be a lot better off if they were not a part of Spain.”

But that’s not the whole truth. A highup in the Catalan leadership tells Mason:

“One cause of it is the crisis, but the crisis just gave the last push. It’s the addition of obstacles, one on top of the other by Madrid, over the past two years. Political obstacles – and obstacles to identity, which really says to us there is no option to have Catalonia as we imagine it inside the Spanish state.”

Not just the past two years, either. In another blogpost, Mason traces today’s problems back to the 1930’s and the Civil War. Clearly the eurozone crisis has everyone at each other’s throats. But it’s an exacerbating factor in a long history of separatist resentment. To focus on the euro crisis as the source of a new wave of separatism is a strong claim, and a wrong one.

That conclusion goes double for Scotland, which is only indirectly affected by the problems of euroland. Indeed, the crisis has created a series of nasty dilemmas for the Scottish Nationalist government. Would Scotland, as a new member state, be obliged to join the euro as required in the EU treaties? The leadership says no. But that would mean staying with sterling, and suffering the same structural liabilities as the euro members, who use a currency over whose monetary policy they have no control.

Similarly, Erlanger’s second claim that the EU encourages separatism because it “lowers the stakes for regions to push for independence” isn’t as solid as it seems. Erlanger quotes the Blairite foreign policy thinktanker Mark Leonard:

“The whole development of European integration has lowered the stakes for separation, because the entities that emerge know they don’t have to be fully autonomous and free-standing … They know they’ll have access to a market of 500 million people and some of the protections of the E.U.”

But the piece contains plenty of evidence otherwise. As Erlanger writes, “the crisis has also presented a real conundrum for regional leaders, because it has undermined the attraction of the European Union”. And this is a real change from the old pre-crisis days. Once upon a time the EU was indeed a strong force for regionalism. The European Commission assessed structural fund spending on a regional basis, and backed a range of dull-but-important initiatives like Interreg. To quote again from the Erlanger article:

Traditionally, the European Union has been popular with the leaders of these regions, said Josef Janning, director of studies at the European Policy Center. “They see strengthening the power of Brussels as diminishing and relativizing national governments, a process accelerated by the single market in Europe.”

The past, though, is another country.

“But now,” Mr. Janning went on to say, “comes the crisis,” which presents a dilemma for the regions, because it also means a reconcentration of power by national capitals trying to cut the national budget. “Now eyes are again on Madrid and Rome and Paris and Berlin,” he said, “so regional opportunities are squeezed, and the affluent [ – Catalans among them – ] are made to pay.”

It now seems almost inevitable that Spanish prime minister Mariano Rajoy will be forced to take a bailout on terms dictated from the centre. Spain’s budget will be backed up with European money only on strict conditions. Further austerity will be required, and will be enforced from Brussels and Frankfurt. Regional authorities will quickly lose the habit of looking to the EU for relief, assuming that habit’s not already been comprehensively broken by the hard experience of the last four years.

Likewise in Scotland, the longstanding lovein between regional activists and the EU has steadily soured. Scotland is less eurosceptic than the rest of Britain, but even so the latest polls show a majority of Scots voting to leave the EU if given the choice in a referendum. According to Josef Janning, “these regional entities and leaders need to be on the right side of public sentiment and feel close to public opinion and regional identity. So now they’re torn.”

What to conclude from all of this?
I’ve got my own two points to make.

One, that today’s regional separatist movements have long and tangled roots that draw on deep resentments. They ebb and flow to their own historical logic.
And two, that the crisis has wrought chaos. It’s now pushing Europe’s institutional settlement in many different directions at once. At the highest levels there are moves for further integration, most obviously on financial matters. At the same time the nation states are being forced to take the lead in imposing crisis measures. And below them, in those areas where there are long-established problems of consent and legitimacy, regional grievances are gathering. It’s a volatile mixture, and you’d need to be brave or foolish to predict how it plays out from here.

Maybe I’ll get brave enough, or foolish enough, in a future post.

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Mark Zuckerberg gets teabagged

A surprising ad campaign is airing on British TV at the moment. Here’s a piece of unsolicited investment advice: if anyone out there owns Facebook stock, this has to count as a pretty clear sell signal.

Tetley Tea is an iconic brand in the UK, and they do plenty of customer research to make sure things stay that way. They’re not attempting to target some self-conscious niche here. Tetley is bang in the middle of the mass market, stacked high on the shelves of every supermarket in the country. While the focus in this ad is on single women, overall their marketing is aimed at the general public in the most general sense.

And the message here is that Facebook is impersonal, intrusive and creepy. It is infested with terrible people you want to avoid; Facebook friends are nothing of the kind; and if you want to keep in touch with your actual friends you’re better off using email.

It’s something the cool kids have been telling each other for a while, of course (minus the email part). Let’s see if this is the first sign that a more widespread conventional wisdom is starting to congeal.

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