CentreRight

RE: Printing money now could lead this nation to fiscal and monetary ruin

I see there is quite a bit of concern about the Bank of England's quantitative easing measures, but I don't think it quite hits the target (i.e. I'm concerned about something different from other commentators).  Central banks engage in quantitative easing all the time - they just usually refer to it by the name "interest rate cuts".  For the way in which many central banks cut interest rates is to offer banks more money (i.e. print money), so the price of money (the interest rate) falls.  On other occasions they engage in "quantitative tightening" - i.e. interest rate rises.

The key interesting thing in the current situation does not relate to the principle of quantitative easing but, instead, to the form or method of it.  For once interest rates reach zero, one cannot employ the same methods to increase the quantity of money.  So if they are to engage in monetary easing, they have to use "unconventional monetary policy".

Against a house-building programme

I see in the press this morning that the house builders, some councils, and other usual suspects are lobbying for a huge house-building programme. They still want us to believe that house prices went as high as they did because of some kind of "housing shortgage". The census data clearly refuted the claim that there was any kind of housing shortgage in the UK - since the early 1990s we have consistently increased the number of houses faster than the number of households in every region of the UK. To those of us (such as myself) that pointed this out, they responded that we should ignore the census data as "misleading", because (they said) the rises in house prices clearly showed that there were "hidden households".

Well, guys, I know it's pointing out the obvious, but house prices are falling like a stone. Your story is kaput, dead, an ex-story, devoid of life, nada, nothing, The End, game-over-insert-coin. There never was any aggregate housing shortgage. There may have been some problems with what kinds of houses were built, but that's another story. And there was obviously a purchasing affordability issue (doh!) such that first-time buyers exited on mass circa 2004, but that was a symptom of prices being too high, not of there being fewer houses than households.  (I became blunt to the point of rudeness recently with a panel including Labour and Lib Dem MPs that tried to persuade us that there was a terrible affordability issue and that without a huge house-building programme prices would spiral upwards indefinitely, making home ownership an unattainable dream for the middle classes.)

House prices were not high because there were not enough houses being built. It...wasn't...true.

Against banning 100%+ mortgages

So, Gordon Brown now wants to discourage 100%+ mortgages.  This is no better an idea now than it was when Vince Cable suggested it.  It's a pretty daft idea in general, but even if you thought it might be a good idea at some point, now is certainly not the time for it.

On polygamy

This morning, Baroness Warsi argued that the government is failing to act adequately against polygamy.  She said "in this country, one married man is allowed to marry one woman".  In contrast, Manzoor Moghal, chairman of the Muslim Forum, asked:

Why would you not allow Muslims to conduct their affairs in their cultural, religious framework, without interference from the state?

Why should we take them to task for having a second, third and a fourth nikah [marriage] which is compatible with their religion?

I believe that Mr Moghal is broadly correct and Baroness Warsi misguided.

Two other ways to think about material public expenditure control

My post yesterday, proposing that we should not spend more, as a proportion of the economy, in 2010/11 than we did in 2004/5 - implying a £95bn reduction in 2010/11 plans - did not result in universal acclaim.  My suggestion there was that the public would accept that, since the economy might only be as big in 2010/11 as it was in 2004/5, we should not spend more than in that year.  My scheme was obviously an application of David Cameron's previous commitment that public expenditure should grow more slowly than the economy as a whole.

Let's try two other ways to think about matters:

• Even with only a 6%-7% recession, the economy in 2010/11 will be 10% smaller than was expected at the time of the pre-Budget report.  So it would not seem unreasonable if 2010/11 public spending were 10% lower than planned at the time of the pre-Budget report.  That implies a cut of £68bn versus those plans - or, to put matters another way, it implies that expenditure in 2010/11 should be about £6bn less than it was in 2008/9 - a £6bn absolute cut.
• Or try this: since we are going to have deflation, or at least precious little inflation between now and 2010/11, and since the economy is going to shrink considerably over that period, why would the public expect us to be spending any more in 2010/11 than was done in 2008/9?  A freeze versus the 2008/9 budget would imply a reduction of £62bn in the 2010/11 plans.

The government wants to tell us that to make these cuts would be crazy in the face of the Depression.  But that is because they want us to believe that expanding public expenditure is the only kind of fiscal policy possible.  I, of course, have argued that the only true fiscal stimulus is a tax cut.  Be that as it may, if we want to implement fiscal expansion - if, say, we want to borrow £100bn+ a year as the government plans - we could do that by cutting taxes versus a 2004/5 base (if you liked yesterday's proposal) or versus a 2008/9 base (if you prefer today's).  We don't need to raise public spending to implement fiscal stimulus.  We should not allow this depression to be used as an excuse for the government to raise the role of the state by expanding expenditure at a time when the economy contracts significantly.

Correcting the public finances: Back to 2004/5, so cut public expenditure plans by £95bn (for starters)

For obvious reasons, there is currently a debate about how to rectify the UK's public finances.  Apparently many people favour doing it mainly by tax rises; a few favour mainly public expenditure cuts; presumably almost everyone favours some combination.  To me, however, the debate seems to be starting in the wrong place.  As the economy grows, we raise public expenditure in real terms because, since we are richer, we can afford (and prefer) to spend more on health and education and defence and so on.  As the economy grows there is also a process called "fiscal drag" which arises because of tax thresholds - and so we tend to raise tax thresholds, also.

Now, however, the economy is shrinking.  So the very principles that suggested that before we should raise expenditure and tax thresholds now imply that we should cut expenditure and thresholds.  I personally still maintain my forecast of 6%-7% shrinkage in the economy before it starts to grow again, but since most of the risks are on the downside and since even when it starts growing the economy may not grow as rapidly as it was doing in the recent past, it would be prudent to plan for the economy shrinking by 10%.  Let's go for that.  That would take the size of the economy back to its position some time in 2004.  Let's suppose we reach that some time in 2010/11.  So I propose that the startpoint for the debate over how to rectify public expenditure ought to be the public expenditure and tax system of 2004/5.  That is to say, the first thing we should think about doing is cutting public expenditure (in real terms) for 2010/11 to its 2004/5 level and lowering tax thresholds to their 2004/5 levels, and then think about how we might vary the system from there.  As a headline, that implies cutting total public expenditure from its planned 2010/11 levels by about £95bn (and the NHS England budget by £25bn).  Furthermore, since the Conservative Party has rightly argued that Gordon Brown's expenditure plans at that point were extravagant, the debate should then be about how much further we should cut.

Freedom of speech includes the freedom to be gratuitously rude and the right to incite non-violent hatred

Iain Dale did a Total Politics interview with David Cameron.  One of his questions was "How will you defend the right to offend?"  Cameron replies:

This goes back to the 'do you listen' question because on the one hand you don't want someone inciting hatred of gays but on the other hand you want to live in a society where people don't feel their free speech is restricted if it is about humour. So there is a balance. We all rage against political correctness and there's lots of political correctness which is ridiculous- silly health and safety worries that stop children grazing a knee on an outward bounds adventure. We have got to get rid of that. But there's one bit of political correctness which is terribly important and that's about politeness. I have a disabled son and I don't want people to call him a spastic. You are a gay man, you don't want someone to call you a poof. If you have a black friend, you don't want someone to call them something offensive. It's about manners and I think what we've got to do is frame this debate in a sense of what is good manners and politeness and what is common sense.

This quote indicates what is to me a very disturbing notion of "free speech".  First, Mr Cameron does not in any way attempt to distinguish between what should be circumscribed by convention or manners and what should be circumscribed by law.  And since we live in a society in which "inciting hatred" of various forms - even non-violent hatred - is illegal, I consider it very important that our leadership should emphasize the distinction between what should be circumscribed by convention or manners and what circumscribed by law.  Second, Mr Cameron says "on the other hand you want to live in a society where people don't feel their free speech is restricted if it is about humour".

Presumably the setting of bonuses is the taking of operational control?

The government says that it has set limits for RBS bonuses.  I opposed this, of course, but wish to note something different on this occasion.  Presumably the setting of bonuses is the taking of operational control?  So presumably that will trigger payout on various RBS credit derivatives?  Do those that will be obliged to make these payments have sufficiently robust balance sheets and sufficient cash to do this?  Is the government prepared for what might happen next?

Is is "extremist" to believe there are limits to the value of democracy?

This morning's Today programme had two pieces, ahead of tonight's Panorama programme, about a plan to marginalise even Muslim preachers that previously might have been thought of as relatively "moderate" (e.g. they might vigorously oppose violence; they might preach that Muslims living in non-Muslim states should obey the law) if they teach that Islam is not truly compatible with Western democracy.  Is that the business of government?

The wicked principle that "the welfare of the child is paramount"

The basic legal principle in all public and private proceedings concerning children is that the welfare of the child is paramount.  This principle is set out in in 1(1) of the Children Act 1989

When a court determines any question with respect to—
(a) the upbringing of a child; or
(b) the administration of a child’s property or the application of any income arising from it,
the child’s welfare shall be the court’s paramount consideration.

This is the key thing to understand when considering cases such as that Iain Dale highlighted this morning: in which a couple were accused of child abuse, their children were taken from them, the allegations were (after a couple years) found likely to be false (in 2007), but in the interim their children had been adopted (in 2005).  The case is now in the news because a court has ruled that the adoption cannot be overturned even though the court accepted that the parents may have suffered from a miscarriage of justice.

Random remarks

Short selling

In case you had doubted my case at the time, we can now demonstrate that banning short selling in financial stocks made things worse not better.

Apologies

Since everyone who has ever been involved in banking or regulation seems likely to be dragged before some kangaroo court to undergo ritual reputational disembowelment, I thought I'd get my plans in.  I think apologies always sound better in Latin, and I'm hoping that mine can be made to an operatic soundtrack, or perhaps a setting of the Mass or a Requiem - Mozart, perhaps.  The following seem to me to be the key phrases to memorise:

1. me poenitet
2. ex toto corde poenitet me omnium
3. mea culpa, mea culpa, mea maxima culpa
4. lacrimosus venit judicandus homo reus
5. ignoram, feles abegit exercitationes
6. ibi non eram, raptus fui ab hominibus ex astris

Could we sue Gordon Brown?

Since it now seems to be established that you can sue your MP over her poor performance, following the case of Ann Keen, perhaps some of Gordon Brown's constituents could sue him for having lost them each thousands of pounds in the credit crunch - and that's before the emotional damage!

When it's pointless to coordinate

EU finance ministers and other honchos gathered yesterday afternoon and today to consider a coordinated policy response to the depression and the financial crisis.  But there's only any point in coordinating policy when we have a pretty good idea what the best thing to do is.  If we really don't have a clue - if we admit we are in "uncharted waters" and eighteen months of endless policy initiatives has been making things worse rather than better, demonstrating (in case there was any doubt) that we really don't know what the best thing to do is - then coordination is a device for everyone getting things wrong in the same way.

Better, when you don't know what to do, would be for each of us to try our own thing.  Then we can look around at what others have tried and what seemed to be working better or worse, and gradually iterate towards some kind of solution.  It's obviously politically attractive to all herd together - that way who can blame you if you get it wrong?  Herding is what everyone tends to do in conditions of great uncertainty - we see it in wild stock market fluctuations, in the lending policies of banks, in business decisions in the wider economy.  But we should not let our politicians get away with that.  Herding is nothing more than political cover.  It isn't a constructive policy.

On bonuses and other incentive schemes

Many companies offer annual bonuses, bonuses attached to particular projects or milestones, commissions, and other incentive schemes.  Let us consider a few reasons why this is done:

• To create loyalty.  In many companies a non-trivial component of total salary is paid in the form of a six-monthly or annual lump-sum for which staff are only eligible if they continue to work for the company past a specified date.  This gives staff an incentive not to change jobs prior to that date.
• To manage cash-flow.  By paying staff only at the end of the year, companies ensure that they have earned profits before paying out cash.  A clear example would be a start-up company with limited initial resources that promises to pay its Managing Director a lump sum at the end of the year.
• To transfer risk.  If you have a start-up company or a company undergoing rapid growth there may be uncertainty about how much you could pay staff and yet still be profitable.  By having a pay strucuture with a limited base salary and a bonus paid at the end of the year, the Chairman is in a position, when considering bonuses, to decide on total remuneration with less risk to the company.
• To reward staff more precisely according to their individual output.  Two staff members that on the surface appear similar may, in any one year, differ considerably in their contribution to the company.  It is economically efficient for staff to be paid according to their individual productivity.  Bonuses allow this to be done more accurately.  This allows companies to pay enough to keep their highest quality staff whilst not over-paying for lower quality staff.
• To direct the efforts of the company to specific objectives.  If the shareholders desire that the company should achieve certain strategic goals - e.g. establish a new branch in some country, or establish a certian market share in a new sector.

Something not to tolerate and to make a big fuss about

Ridiculous amounts of media coverage this week about names such as "one-eyed" (definitely unworthy), "golliwog" (probably inappropriate, though since raised privately it's hard to be sure), "Lady Thatcher" (I actually thought this one rather clever and funny, as well as offensive), and whether the pulling of a slant-eyed face is racially abusive (so ridiculous I'm not even going to comment).  I don't say that politeness issues don't have their place, but do they really merit the amount of press coverage they've had whilst stories such as this one (hat tip Cranmer), about proper, nasty oppression instituted by the state, get almost none?

In this tale, a foster parent of long experience, whose selfless efforts and sacrifice have helped more than 80 children, has been struck off - costing her her house as well as her job and vocation - because a 16 year old young woman chose to convert from Islam to Christianity whilst in her care!  It also appears the council officers attempted to dissuade the young convert from continuing as a Christian and to re-embrace Islam.  For example, "council officials told the girl that she should not attend any church activity for six months, so that she could reconsider the wisdom of becoming a Christian.  The carer was also instructed to discourage the girl from participating in any Christian activities, even social events." Six months!  Who on earth to they think they are?!  Who do they think appointed them to chose people's religion for them?  What business is it of theirs whether a sixteen year old attends a religious service?

If the story is as it appears, this is a disgrace  and should not be tolerated.  It is straightforward, outrageous and unacceptable state-enacted religious oppression - oppression of the carer, and oppression of the young woman.

An answer to Clive Davis

Over at the Spectator, Clive Davis asks:

Am I missing something or does CentreRight blogger Andrew Lilico really not understand the difference between a golly, Krusty the Klown and the Michelin Man?

Yes Clive.  I understand the difference.  Being hailed "Look!  It's the Michelin Man!" might be intended to offend or upset you if you were overweight.  Being hailed "Look!  It's Krusty the Clown!" might be intended to offend or upset you if you were Jewish and balding.  Being hailed "Look!  It's the golliwog!" might be intended to offend or upset you if you were of African or Afro-Caribbean extraction.  That's the difference.

Now, Clive, am I missing something or does Spectator blogger Clive Davis really not understand the similarity between a golly, Krusty the Klown and the Michelin Man?

[P.S. Clive goes on to imply that I am trying to defend Carol Thatcher's "phrase".  I have no idea what Carol Thatcher's phrase actually was and hence have no idea whether I want to defend her phrase or not.  That's one of the problems with firing people on the basis of gossip about private conversations.]

On chains of psychological association

Consider these three comments, in each case reporting a fact about the speaker:

1) "Whenever I see my friend Bill in his biker kit, I am reminded of the Michelin Man!"

2) "I had this professor at university that always reminded me of Krusty the Clown!" (let's imagine he had quite wild hair)?

3) (Early in his career before he was in the movies): "Jim Carey, in his manic moments, often reminds me of that comic book character - the Mask."

Is there an important difference between these comparisons between real people and cartoon images and this one?

4) "Whenever I see that tennis player with the big hair, I am reminded of the Robertson's jam golliwog!"

If so, what, precisely, is the difference?  If not, is it that we should not tell other people about our internal chains of association (is it improper for us to report to our friends these perhaps somewhat bizarre insights into our internal psychology)?  Or is it that it is wrong for us to have any internal chains of association between drawn characters and real people and we should struggle to remove such associations rather than indulge them by reporting them to other people?  Or are, perhaps, all four statements equally harmless?

Should the Bank of England target asset prices?

George Osborne says yes.  I say no.

The trickle of well-known economists now calling for the banks to be allowed to go into administration

Latest one is Joseph Stiglitz.

Love is not quick to take offence

There is an important moral division in our society.  Many people seem to believe that we all have a duty not to give unintentional offence, to moderate our behaviour and language in all kinds of ways because someone might take offence at it even if we are not aiming to give any offence.  I, in contrast, believe that it is just as morally wrong to take offence where none is intended as it is to give offence where none is warranted.  And, given that it is wrong to take offence where none is intended, why should we pander to this wrong-doing by bowing to it in our behaviour?

Cameron's State Capitalism

This afternoon - at the World Economic forum, mind, not some whacky think-tank where we might have thought he was pandering to his audience - Cameron gave this speech.  It is pure Red Tory.  Now, I know I said we shouldn't be too quick to dismiss the Red Tory position.  And I know I said that Private Capitalism is finished and that we have a new era of State Capitalism before us.  But it's still a shock to read it all set out so explicitly.

Cameron says that Capitalism is "broken".  He says we must abandon the "old free market orthodoxy".  He says that competition should be "local".  He objects to the distribution of wealth that Capitalism results in.  He buys the Red Tory view that globalisation promotes monopoly.  He objects to multinational companies, calling them "global corporate juggernauts".

Why would I have any interest in the Chief Medical Officer's opinions on good parenting?

Amongst the main news today has been advice from England's Chief Medical Officer, Sir Liam Donaldson, that parents should not give any alcohol at all to their under-15s and only to 15-17 year olds under supervision.  Broadcasts noted that many parents think it responsible to introduce their children quite young to small amounts of alcohol so as to get them into the habit of responsible drinking and to reduce the mystique of alcohol.  We are told that the government now thinks that is wrong.

What???????

Listen to the following, from the Today programme this morning, about how schools fail to deliver adequate literacy to students.  The early part is an interview with Vernon Brown, who left school aged 16 with what they described as "a literacy level below that of an 11 year old".

RE: It would be risky for the BBC to broadcast the Gaza appeal

I got a remarkable amount of normative disagreement in this post, given that my comment was entirely positive in nature.  Few of you that claimed to disagree with me actually engaged with my point.  So I'll ask:

Is it acceptable for Parliament to be intimidated by threats of mass mobilisation?

Assuming it's accurate (and others would know better than I), I want to know what our Front Bench team thinks about this from Cranmer.

I'm rather reminded of this story about Douglas Murray and the LSE.  Apparently, these days, if you can credibly threaten to make enough fuss you create a "security issue" and get your own way.  Of course, in the long term, people will (alas!) discover that more than one side can play at that game, and tolerant debate will become impossible.