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The economics of a hung parliament

Paul Mason | 12:05 UK time, Saturday, 24 April 2010

Last week there were some graphic warnings from the Conservative front bench about the economic perils of a hung parliament. Ken Clarke warned:

"Bond markets won't wait. Sterling will wobble. We have seen even minor flickers in the opinion polls causing problems with interest rates in the recent past. If the British don't decide to put in a government with a working majority, and the markets think that we can't tackle our deficit problems, then the IMF will have to do it for us."

Since then I have been speaking to my contacts in the bond markets. Being self-proclaimed "bond-bores", preferring tweed jackets to the red braces and lap dancing image, they do not want to speak in public, but the message was clear: a hung parliament is already largely factored in to UK bond market.

It may sound prosaic but, as one explained, "the City takes the bookmakers as the best guide to the future, where politics are concerned". If you think about it, it's logical - even the hi-falutin' "global strategy analysts" inside the biggest banks don't have the kind of intelligence operation that could second-guess the UK electorate. Right now the polls and the bookies are signalling a hung parliament. William Hill has it at 4/7.

It's not that my interlocutors like the idea of a hung parliament. Indeed one professed to be amazed by the lack of market reaction to such a violent polling shock as the post Clegg-Thursday leap of the Libdems into second place. (Sterling is different, being tossed between the troubled Euro and the dollar)

On the basis of these conversations think the majority view in the bond market is that any government was going to find it hard to impose 38bn worth of cuts, especially when there has been no attempt to lay out where those cuts will fall during the election campaign.

Just to put this into context I've converted yesterday's 0.2% quarterly GDP growth into billions. One percent of GDP is £14bn; so 0.2% is about 3bn. The Conservative efficiency savings for this financial year potentially take £6bn out of demand; Labour's planned NIC rise in 2011 takes out roughly the same, but later - and there is a legitimate argument as to when and how to do it, and which stands the best chance of avoiding recession, which I will put to one side here.

But if growth is going to achieve 1.25% - let's say £18bn in notional money - then you can see the headwind that taking down public spending creates: £20bn of Labour pay/pension cuts plus efficiencies; £6bn of Conservative efficiencies plus whatever they find in the emergency budget. £38 billion envisaged in Budget 2010.

My own judgement if the 0.2% provisional figure turns out right is that unless something miraculously stimulates UK growth in the next 3 years, at some point the scale of public service cuts means a real danger of a public-sector-led double dip recession.

That's because we also know more about the way the UK economy is responding: it's been a jobless recovery so far - in which employment has declined and unemployment (OECD measure) has risen. Plus the worrying uptick in inflation makes it harder for the Bank of England to maintain its loose monetary policy.

For those in the bond markets who share this view, there are swings and roundabouts between a low-majority single party government and a big-majority coalition.

Provided there are advanced and swift negotiations between the parties (see below), and a clear common ground on deficit reduction in the medium term, there are even some who see the hung parliament scenario as positive. Moody's - one of those ratings agencies who were once thought to be about to plunge Gordon Brown into the abyss my slashing Britain's credit rating - said this:

"We do not think that a hung parliament will have a direct impact on the UK credit rating. If you had a fiscal plan agreed by a coalition, that could actually be quite positive, because it would imply broad popular support."

What the markets fear is a "chaotic hung parliament" - as one market participant put it to me - with "the DUP, Plaid, SNP - and maybe one each of Respect, BNP or the Greens holding the balance of power".

You can see why if you take into account the facts David Cameron referred to in last night's interview with Jeremy Paxman. Northern Ireland, Wales and North East England each sees more than 2/3 of economic activity driven by the public sector. Due to the recession the percentage of GDP accounted for by the public sector nationally has risen from 40 to 50% in just three years.

Even if there is no differential application of cuts to the high-public-sector regions - and there is no suggestion of this - it means any across-the-board cuts have a differential impact in these particular nations and regions.

This inevitably places pressure on MPs from these areas - and not just those from nationalist or Unionist parties. Once party loyalties are muddied by the creation of a coalition, there is temptation for MPs from any party to go native over local spending priorities. And this is true even if you buy the analysis that says rapid pending cuts produce private sector growth and eventual rebalancing.

When Ken Clarke sounded his warning this week, many heard only the frightening bits "sterling will wobble" etc. But there was another subtler implication to the phrase "the bond markets won't wait" - and that is that the parties may have to face the polling evidence and spell out what they would offer each other in case of a hung parliament.

And, by no coincidence at all, this seems to be what Mr Clarke has begun to do in today's Daily Telegraph.


  • Comment number 1.


    Wot (still) no error band? How do your talk of 0.2% increase in output, with a straight face paul?

  • Comment number 2.

    My feeling about a hung Parliament is that it would reflect public opinion. I rather object to the idea of a minority government seeking another General Election this year (or next).

    The issues raised by a hung Parliament have been aired. The public are aware that a vote for the Liberals is a vote for a hung Parliament and electoral reform. It is arrogance in the extreme to then tell the country that they got it wrong and that we will have election after election until they get it right.

    The Tories especially have talked about instability caused by a hung Parliament. This view needs examining. What causes the instability? The decision of the electorate or the refusal of the politicians to work together? If our economic position weakens through instability who will get the blame?

    An interesting situation could be if two parties went to the Queen and said that they could form a coalition with an agreed programme which would last for say two years. What would happen if the party with the largest number of seats were confronted with this situation? I hope the Queen is making soundings and seeking advice.

  • Comment number 3.

    69% of Welsh GDP dependent upon the Public Sector - Hmm, explains the rising house asking prices and the widespread lack of any sense of recession by many in Wales.

    I think a double-dip recession is no longer a question of if but when and, in my opinion, we are already heading into it.

    Over breakfast this morning myself and several meeja/journo types were discussing, amongst the quality of the sausages and whether the bacon was cooked enough, the various possibilities for the economy going forward. OK, we are not bond traders or highly paid economists but, well, we like to chew the cockles and lavabread of economic and political debate each Saturday morning.

    The conclusion was that whoever wins, be it an outright majority by one party or a hung Parliament Coalition Govt, the end result is that a double-dip recession is unavoidable.

    As a country we simply cannot go on spending beyond our means and thinking that all is well in the World as long as house prices rise 2% per month and those in the Public Sector believe in the illusion of a fat pension awaiting them 10, 20 or 30 years from now. It is all an illusion and we need to not just cut the Public Sector spending but to actually start earning our way in the World again - and some pretty dramatic, difficult and unpalatable things in both areas need to be done to achieve this.

    We all know this. We have discussed this numerous times on here before. It is not a question of whether there is a majority-led Parliament or a hung Parliament but whether the needed cuts will happen sooner or later - if not sooner then, I have no doubt, the markets will look very dimly on a UK continuing to spend well above its means.

    Yes, there will be a double-dip Public Sector cuts led recession coming - they too will have to go through the pain - but it will be best for the country in the long-term.

    The economy must be rebalanced. If not, all those bright people in the private sector will shrug their shoulders and go work and live somewhere else.

    I fully expect to see brutal Public Sector spending within weeks of the election being over. Either that or a UK Greek-style crisis as foreign investors abandon the country. The speed at which it happens will take most by surprise.

  • Comment number 4.

    with QE in the picture any 'growth' has to be false. with the true figures appearing only after the assets bought by QE have been sold off?

    there is lots of money sloshing about the system e.g.

    we pay millionaire landowners 4 billion a year merely for owing land. why? unlike most other countries there is no land tax. isn't time they rowed on the oars too? or are they above it all like a protected species?

    if all public servants took a 10% pay cut the debt hole would be filled.

    end the neocon wars of 'democracy' through arms and we save more billions.

    rationally its not difficult but since democracy is a system of soft corruption one has to say that democracy is more likely to result in default and crisis?

    as John Romer says in his tv programmes on Byzantium 'Rome didn't fall. it just got poor'. The UK getting poor is the logical result of globalisation as 'wealth is distributed'. The socialists should be happy with their work? The uk is on a course of increasing poverty.

  • Comment number 5.

    So the debt of the government, which stands behind 50% of GDP (does this include PFI chicanery?), is (including pension liabilities) over 500% of GDP.

    Explain to me again why this is ok.

  • Comment number 6.

    How will a Parliament – hung or otherwise – change the debt or the cost of servicing that debt - except of course to increase the petty debates, the endless procrastinations, the accusations, and other political time-wasters?
    How many voters noticed that borrowing undershot the Brown’s Government's target on Thursday, but the debt itself still soared to a record high in 2009/2010. Only economists seemed to welcome the news but then came their warnings: tax rises and spending cuts appear mandatory to fix the enormous debt mountain, NO MATTER WHICH PARTY GETS ELECTED OR BY WHAT MARGIN.
    The public sector net borrowing has established a new record of 152.8 billion pounds in the 12 months to March, 2010; whereas, Finance Minister Alistair Darling, had forecast that borrowing, excluding financial intervention, would hit 167 billion pounds in 2009/2010.
    The 152.8 billion pounds figure = US$235 billion.
    These figures are astronomical.
    In fact, if you look at the big picture, you will find this borrowing is on a par WITH THAT OF GREECE.
    So what does it matter which party gets elected – saving shells here, peas there and nuts somewhere else will not make the borrowing requirements into peanuts.
    The UK figures are not yet in total meltdown.
    Britain's jobless total had struck the highest level since 1994.
    Unemployment rose by 43,000 to 2.502 million people in the 3 months to February - highest total since the three months to December 1994.
    So no matter who wins, whether hung or not, the leaders had better cling to one another for the sake of country. The bickering will have to stop, and these scrimmagining polticians will have to listen very hard to one another to hear good ideas.

  • Comment number 7.

    3. At 5:22pm on 24 Apr 2010, tawse57

    I agree. We are in trouble.

    What few pundits seem to point to - Paul you are alone in your efforts as far as I can see - is why if the markets are so wonderful, if the private sector is to be our saviour, then where have they been over the past 13 years.

    If let's say we have 20 jobs and 10 of those are with the government and we have 30 unemployed, then the government looks like a major employer. Why haven't the wonderful private businesses picked up the 30 unemployed? We'd have the government instead of employing 50% of the working population employing just 20%. It seems to me by creating the big society of social entrepreneurs Cameron will create not only a mirage but reduce the workding conditions, the salaries and the benefits of those providing the very same services, and of course he'll be able to claim government is smaller and private business is ever so successful.

    We need a fix to our employment problems, not childish games.

  • Comment number 8.

    the Greeks don't give a monkeys....who is to say they are wrong?

  • Comment number 9.

    It is good to see that our predicament is slowly starting to reach the mainstream. I think a majority of electors are slowly getting the message that no matter who they vote for it will be the same outcome; namely, vicious cuts in the public sector coupled with more unemployment.

    This will induce a double-dip recession.

    However, in our economy a significant proportion of private sector activity is supplying goods and services into the public sector. Government spending cuts will then trigger a further implosion of demand in the private sector. Furthermore newly unemployed public sector employees will not be able to spend any more money either.

    So we get a triple-dip recession.

    It is pointless in engaging in the party political rhetoric of this election as they are all trying to tell you that our lives will not change that much and that public services can be ring-fenced so only efficiency savings will be necessary.

    This is all stuff and nonsense as my grandfather would say. Stuff and nonsense!

    The truth is we are bust and that is the begining, middle and end of the equation. We are all going to get poorer. The illusion is over. Accept it and move on.

    The last words of the Wobbly Joe Hill before he was shot by a firing squad for organising labour against the copper bosses were `Don't mourn, organise! Now that is a good point from which to start to reclaim control over our own lives.

  • Comment number 10.

    7 copperDolomite: -

    Because big business will always choose profit given the opportunity, especially when CEOs benefit enormously from share options and bonuses re share price, and if Governments give them the opportunity to outsource to third-World countries then they will.

    A huge problem for the UK economy is outsourcing and the idea that seems to have been drilled into politicians' minds that you can do nothing about it. This has resulted in some of our top Engineering and IT sectors - high tech, highly skilled, high paying jobs - basically disappearing in the past 10 years. There was no need to do this if the right rules and regulations had been put into place.

    Working within these industries you got the distinct impression over recent years that there was a crusade to destroy these industries and one can only speculate why this was so?

    I have my own suspicions.

    Certainly, some foreign firms allegedly profitted enormously from the outsourcing overseas of major IT Public Sector projects from what I have heard and read. Why was this allowed - the question needs to be asked? In fact, some serious questions need to be asked about the whole issue.

    It is an oft forgotten fact that the tax intake from UK IT workers dropped considerably after Brown brought in IR35 and it has never recovered to those pre-IR35 levels. The industry was decimated, the country lost a hugely valuable resource and actually was made worse-off revenue wise. Nuts!

    Alas, you do not see these subjects covered in the mass media in the UK at all - nothing.

    How does the UK benefit, for example taking a hypothetical scenario, if a major UK IT Public Sector project costing hundreds of millions is outsourced to, for example, a firm in India?

    How does the UK benefit if the costs for that is bid at, hypothetically, UK wage levels and then most of that work is done in India or by Indian workers brought into the UK and who are not paid anywhere near UK wages nor do they pay UK taxes?

    All that is happening is that UK Public money is being handed over to a foreign firm, to foreign workers, whilst our own are kept economically inactive, are deskilled and end up on benefits. There is no benefit to the country at all so, in our hypothetical example, why does it happen?

    Why does anyone even think about doing it?

    What profit is there for the UK in doing this?

    If you believe the mantra put about by politicians' that nothing can be done to stop outsourcing then no job is safe - except for politicians and bankers.

    The result is that the Middle Classes are slowly but surely being eradicated by moving their work off-shore. At either end of the spectrum you have the super-rich and the benefits class - in the middle you have a Middle Class that is being taxed to the hilt, mortgaged to the hilt, pension benefits eroded and in constant fear of their jobs going overseas to the Third World.

    You simply cannot compete and there is no point in retraining or reskilling because the goal-posts could be changed by politicians, at a whim, tomorrow and, again, that new job is outsourced abroad. I expect to see most of these 'brave new world' eco-green industry jobs end up in Bangalore and elsewhere in Asia.

    I can only assume that UK politicians have such little real-world understanding of what is going on that they are truly oblivious to what is happening or...

    ...I'd rather not tell you what I think the 'or' is.

  • Comment number 11.

    #4 jauntycyclist

    'if all public servants took a 10% pay cut the debt hole would be filled.'

    It's not going to be enough, they also need to cut 10% of everything they spend as well as a 10% tax increase for everyone (the public servants as well, on top of their wage cut)

    The major parties do not want to talk about it because the numbers are terrible.

    You could cut 600,000 public sector jobs which would save just about enough but it costs money to do so and then you have to give them benefits as there is no alternative employment. The 600,000 soon turns into nearly 1 million when you add in those costs.

    Imagine what sacking 1 million people would do to the economy.

    There is no alternative, the cuts won't work.

    We have to grow our economy (rapidly), it is the only way out of this mess.

    I have no idea how that could be achieved and I don't think I'm alone in that. (although Gordon, David and Nick couldn't possibly admit to it)

    If we don't grow our economy then those 1 million won't be enough.

  • Comment number 12.

    I have read that Public Sector budgets in Eire have had a 26% cut and all Public Sector workers have had a 20% cut. In fact, I have also heard it on a BBC radio programme - be nice to see this on a BBC TV programme at some point.

    It is quite amazing actually - this is happening only 50 miles from the UK in a country very much like our own but it is almost unknown to the majority of British people that it has happened. It might be a good wake-up call to the British to have it brought into their living rooms.

    If you sack those 600,000 Public Sector workers not all of them will get benefits - many of them will have savings and/or property that will make them ineligible for benefits - so little need to worry about a massive benefits cost initially.

    Secondly, it does not have to be a 'keep them in work or fire them' as the only option. Re Eire above you simply enforce a 20%, or more, pay cut on them - you give them a choice of the cut or no job. The unions will cry blue murder, there will be some strikes and much vitriol but, as the economic reality hits home to the Public Sector, I suspect most will choose the pay cut over no job.

    Of course, there would be implications then for those with mortgages or those who have large personal debts. No doubt there will be much anger over bankers and their wages/bonuses whilst the Public Sector faces wage cuts... but I think the wages cuts is the only way forward.

    Take the cut or lose your job - the UK has to do one or the other to help balance the books.

  • Comment number 13.

    10. At 9:47pm on 24 Apr 2010, tawse57

    Oh you've no idea how well I know that story.

    And remember, middle class is someone in the middle, on a salary of 23K or so. Living on that money is no life of easy shopping!

    The market isn't working for the population and hasn't worked for years, if at all - it's a charade at best.

  • Comment number 14.

    12. At 10:35pm on 24 Apr 2010, tawse57

    What I want to see is a 0% corporate welfare - for every employee needing tax credits to live we take it off the larger employers. Why should the tax-paying public subsidise the wages for huge international companies who won't pay their own cleaners, back-office admin staff etc a living wage?

    For every subsidised training course, we stop the subsidy. Make the employers pay their way because we can not afford to support people let alone profit-making businesses. The business leaders are playing an unrealistic, greedy racket and getting away with it, while we harangue the unemployed for being idle, a drain on society. Nonsensse. Utter nonsense.

  • Comment number 15.

    #10 tawse57

    Best post I've read on here for a while! You are extremely articulate.

    However, when I read your comment...

    "I can only assume that UK politicians have such little real-world understanding of what is going on that they are truly oblivious to what is happening or...

    ...I'd rather not tell you what I think the 'or' is."

    I was tempted to call you a coward!...but of course I won't.

    I'm an engineer by the way. It has been extremely painful to watch my industry decimated over the last 30 years by Conservative and New Labour Governments over that time.

    Engineers are taught that you cannot begin to fix a complex problem unless you know what the real root cause of that problem is. Until this is the case everything else is just conjecture and rhetoric. Only when the real root cause is understood can you progress forward.

    IMO. only one other person on the NN web blogs has explained the real root my satisfaction.

    I would certainly be interested to hear matter how politically incorrect they may be. I truely believe that you don't believe it's the former of the reasons you state!

  • Comment number 16.

    11 If we don't grow our economy then those 1 million won't be enough...

    the govt will say we need more migrants then? ;)

    the global wealth distribution is working. why should they change it? are we not happy with the transition to 'fairer world'?

    the 'fairness' model demand human sacrifice. everyone loves fairness till they see the axe.

  • Comment number 17.

    ..`Frankenstein' Derivatives Described in E-Mail by Goldman's Fabrice Tourre

    ...The so-called ABX index is “the type of thing which you invent telling yourself: ‘Well, what if we created a ‘thing,’ which has no purpose, which is absolutely conceptual and highly theoretical and which nobody knows how to price?’” Tourre said in a Jan. 29, 2007, e-mail released yesterday by Goldman Sachs. Watching the index fall is “a little like Frankenstein turning against his own inventor.” ...

    ...In a March 7, 2007, e-mail Tourre describes the U.S. subprime mortgage market as “not too brilliant” and says that “according to Sparks,” an apparent reference to Daniel Sparks who ran Goldman Sachs’s mortgage business at the time, “that business is totally dead, and the poor little subprime borrowers will not last too long!!!” ....

    ..Some e-mails indicate that selling securities to customers was part of the firm’s effort to get rid of its mortgage risk and take a negative stance on the market.

    “My basic message is let’s be aggressive distributing things because there will be very good opportunities as the markets goes (sic) into what is likely to be even greater distress and we want to be in a position to take advantage of them,” Chief Financial Officer David Viniar wrote in a Dec. 15, 2006, e-mail to a colleague. ..

    a new horror film themed word to play with.

    doesn't the Dr normally end up killed by its creation?

  • Comment number 18.

    #15 DebtJuggler : -

    Thank you for your kind words.

    Alas, I am a poor man and if I wrote down the things I suspect, or the things I have heard from reliable sources, the laws of slander and libel in the UK could potentially make me a much poorer man.

    If my name was on the Times Rich List then I would tell it is like it is - publish and be damned!

    Of course, I have my suspicions but I know they are suspicions shared by a great many in the IT & Engineering sectors. What has gone on in the past decade just does not make any economic sense for the benefit of the United Kingdom - it just doesn't.

    Going forward, trying to be positive, there are some simple, basic changes that an incoming Government can make to the Engineering & IT sectors which can, I believe, quickly help us to re-grow a vibrant and economically viable Tech sector which then can go on to become a huge global revenue earner for the country.

    It is not rocket science after all - oh, hang on... it is.

  • Comment number 19.

    What do you think about the rise in the nationalised banks share price? According to estimates the government has so far made around £6bn on RBS and £1bn on Lloyds. And there is a lot of upside to those numbers. RBS share price was 10 times its present level in the years up to 2008.
    Why not just wait for the banks to recover to something like their "natural" level and pay the entire budget deficit out of the money they make? The government paid £45 bn for its shares at 50p. If they hit even 200p, just a third of their previous level, then the government's stake will net them a profit of over £150bn or 12% of GDP.
    Or alternatively hold onto them and pay the interest on the national debt out of their profits, which stood at around £20bn a year in the run up to the credit crunch.
    Budget deficit financing crisis? I don't think so.
    As for the GDP numbers, they need to be taken with a big pinch of salt. They're almost certainly an underestimate. They don't include March which saw a significant strengthening of the up trend. For example construction which fell up to February, and deducted a fair bit from the numbers, grew for the first time in three years in March.
    And on employment its been a jobless recovery so far of course, but let's not forget before employment is going to recover, it has to stop falling. It has stopped falling at a level much higher than would be traditionally anticipated by the fall in GDP.
    Sorry for sounding like an apologist, but there is a difference between a weak recovery and the start of the recovery. The start of the recovery is always weak in as much as it is still characterised by the recession its just escaped. It does not necessarily signal where things will be after that.

  • Comment number 20.

    Bill I know you are a fellow Kondratieff fan - however, here's what the bond guys who share your view think: Conservative government; heavy cuts to public spending, done early; public-sector-led double dip; rapid restructuring of UK economy with private sector-led recovery. So even those who believe there is a strong upturn coming cannot see it realistically anything else as the other side of a double dip that - 1981 style - rips out the dead wood. However that's not the majority view: it's a minority view and there is money riding on it.

    The point you make re asset sales is a good one. Labour put a little clue abotu this in the manifesto - it is one of the things they are holding onto that would avoid the need to go through with the 38bn cuts programme: notice it does not appear as a projection in any of the categories for deficit reduction in Budget 2010 though it would surely raise 10s of billions.

  • Comment number 21.

    18 tawse57

    Thank you for the reply.

  • Comment number 22.


    You write as if governance and banking (and government banking) are rational and predictable Bill.

    I was just listening to a profile of Lloyd Blankfein - as above (USA) so below(UK)? I am reminded of Bernie Madoff.

    'Money' has a nasty habit of evaporating in modern times. Pre-counting might be bad for your health.

    I don't think there is need to apolgise. ON THE FACE OF IT, your summation appears sound.

  • Comment number 23.


    if the govt was that competent and driven by reason rather than the need for soft corruption to get votes one might say we would never be in the mess in the first place?

    what you say in theory is correct and rational. that is the problem. although the banks will never go back to where they were before given that was a fabricated bubble.

    my prediction is that the opportunity will be squandered in some 'give away' sell of to the public etc or other political forces will tax and regulate the banks into a lower share price.

    as globalisation is being used to create a 'fairer world' ie redistribute wealth then the growth is in developing countries as the wealth is transferred there . Most the new financial jobs are in those new markets. The uk is by design on a path of becoming poorer. in short the UK is a sell. Asia is a buy.

    Kondratiev looks more like Alvin Toffler for marxists? those who try to trade with that model have to keep finding excuses why it doesn't work. i see no evidence of him ever trading the markets. pity he didn't see the 50 years wave in communist thinking about himself?

  • Comment number 24.

    actually he might have been better of viewing the markets with some of the 'Moscow Rules'?

  • Comment number 25.

    #23 jauntycyclist: -

    I wonder if the people in Asia/India will be so generous about creating 'a fairer World' when they have all the jobs and all of ours have been outsourced to them?

    One of the problems of being British and believing in the British sense of fair play, women and children first and men nobly standing to attention whilst the band plays as the ship sinks... is that not everyone else believes in our sense of equality for all.

    They might just see us as mugs?

  • Comment number 26.

    25 ...not everyone else believes in our sense of equality for all...

    monarchists don't either. they demand a class society.

    the 'fair' [socialist] model of society demands human sacrifice. those promoting it want us all to wear gimp masks in their role gaming dungeon.

    a thief who robs everyone is a model of 'fairness'. he is multicultural, has no bias regarding colour,creed or sexuality. he treats everyone 'equally'. So it is possible to be fair and equal but have no good in it.

    Thus the good society is a better and more rational and so superior model. but they would call that discriminatory and so an 'oppression'. Fairness is the pig philosophy that results in a pig society .

    you are right others might see the uk pig society that has little good for its citizens as irrational, bad guardianship and a moral collapse of statecraft.

  • Comment number 27.

    #19 and 20

    Thanks for the introduction to ''Kondratieff''. The graph plotting large scale economic cycles against key technological development is compelling and something I guess I had suspected also (in my own way).

    Kondratieff's view is probably not a popular view to take as it's timescale is too long for most people to want to believe it. It is much easier to believe that the external forces that shape our lives act on a timescales shorter than 1 to 2 generations.

    We like to think we are masters of our own destiny, and we are, to an extent, but it is more like improvising within the confines of a script written by someone else, we cant write the script itself.

    Nobody wants to know they are born 16 years before a structural 'dip' which runs on a 60 year cycle with the bottom of the dip lasting maybe 20 years.

    The current crop of young adults would come under that very uncomfortable heading of 'nurtured during boom times' and therefore being ill prepared, then having to spend the prime of their lives riding out a 15 to 20 year (say) clyclical dip.

    But be warned.

    The 45 to 60 years cycle (like everything) is relative and I'm afraid will be riding on the back of another cycle which runs on an even larger return period.

    Kondratieff's graph is very specific to the western technological development during a period of relative stability of 'other external factors' between about 1750 to 2010, there must be a much larger return period on philosophical (maybe even geographical) cycles which underpins Kondratieff's cycles.

    Then to really mix things up dont forget there will be the 'random mutation' element, the global climate changing volcanic eruption for example to throw the cat amongst the pigeons.

    Be it genetics and evolution or technology and economics or gravity and the formation of solar systems, everything appears different but the base line driving algorhythems are the same, it is simply the fact that they operate on different scales in terms of time and space and substance that stops people from perceiving them.

    When you consider the above, Labour hoping for a bit of a windfall on their bank bail outs and selling more family silver at rock bottom prices to cushion the cut backs may prove to be a bit of a mute point, the embedded un-examined assumption within that position is that Kondratieff's graph acts in isolation, when clearly it can not.

    As for bond markets and bookies, the reaction thus far does seem to suggest that the bond markets did recognise a hung parliament as the most likely dynamic before the bookies did.

    Not surprising really, the bookies base their odds on popular perception which lags behind the forward predictions of broad social and economic dynamics which I imagine is what the bond market types will engage in.

    I hate to say it but i bet on the lib dems polling >20% several weeks ago at 5/6, the bookies are not even offering that bet anymore, if they did it would probably be 1 to 150 on.

    Similarly I was on the hung parliament at 7/4, it is now 8 to 13 on.

    Obviously I have now hedged those positions and a return is now guaranteed.

    The election dynamic has almost run its course now, betting on the details is much more difficult and (unlike banks) i always follow the golden rule in my new found hobby of only gambling (erm sorry i mean investing) an amount of money which I can afford to lose and which actually belongs to me. Nor do I have the benefit of the good British taxpayer to bail me out if I get drunk abd start betting on greyhounds one night.

    There are good odds available on the lid dems getting a bigger share of the vote than labour though (5 to 6)which looks insanely generous to me especially as I think many people who say they will vote labour on current opinion polls will simply not vote for anyone on the day.

    Be careful though, I am bound to get one of these wrong soon!

  • Comment number 28.

    Dear old Kondratieff pops up in every major recession as we turn to the bones of the saints to pray for a miracle.

    Kondratieff's view is interesting as far as it goes but the implication is that we are stuck in an inexorable Wheel of Life unable to control our destiny.

    This need not be the case as our culture is that of the Journey. My view is that there are ebbs and flows in perceptions of reality where objective observation is undermined by elites with agendas. We are stuck in one of those cycles at the moment but eventually change comes because it has to and the dustbin of history gets another load for recycling.

    We should be more concerned that the Wheel of Life gets detached from its axle as nobody is maintainng the chariot. So long as there is enough food and water, the means to keep warm and dry and the means to quietly improve our lives what else do we need money for? In reality itt is just a means to an end, not as our culture demands that it is the end in itself.

  • Comment number 29.

    Thanks Paul and its clear that an all out assault of the public sector could lead to a UK double dip notwithstanding developments in the world economy. Although I'm sceptical, essentially because of the strength of the recovery outside of the major old powers. According to the CPB trade monitor;

    "In January, industrial production was 3% below the peak level reached in March 2008. It has risen steadily by an accumulated 10% from the March 2009 trough."

    As that series is two months old, its likely that world industrial production has already retraced its entire fall. That's pretty remarkable as the fall was four times larger than that experienced during the hi-tech bubble recession of the early 2000s, but it has recovered six months sooner than then.
    So I suppose it comes down to the necessity of that all out public sector assault. And that's where I would draw a distinction between this crisis and that of the early 1980s, its not btw original or whatever, but simply that profits have recovered very sharply since 2003 and during this crisis have remained well above their historic lows. In fact they are already higher as a proportion of GDP now than they were at the start of the crisis.
    When you throw in the inevitable recovery the nationalised banks, then its clear that they could pay the entire budget deficit from the re-privatisation of those banks or by hanging onto them and keeping the cash.
    So I don't think it is "objectively" necessary for them to put the boot into the public sector in order to restore profits rates, but that doesn't mean its not going to happen of course. Maybe it is "subjectively" necessary, the capitalist rich don't like wasting money on the undeserving poor. As Paul Beresford the compiler of the Sunday Times rich list explained on Sunday after its largest ever rise;

    "The rich have come through the recession with flying colours. The stock market is up, the hedge funds are coining it. The rich are doing very nicely....The rest of the country is going to have to face public spending cuts, but it has little effect on the rich because they don’t consume public services.”

  • Comment number 30.

    #28 Stanilic
    "....unable to control our destiny..."
    It troubles me greatly that we are still able to abdicate our national destiny to the efficient market hypothesis and interest rate targetted financial policy. In turn, if one accepts Kondratieff, why not accept WS Jevons' Sunspots? External factors may aid understanding but do not provide answers for planning the future UK economy.
    It seems to me we have to have a national plan that spells out what comes after 10-20 years of austerity. The ethical, political and economic debate on this hasn't been started yet as far as I can see. Austerity crowds out choice for most people as survival imperatives take over. The market can't be left to exclusively decide our national destiny unless we want our green and pleasant land to become a decaying grey overcrowded island off Europe, forever peripheral.
    Growth in GDP comes from investment - should we allow banks to funnel capital to speculative investment. Does government (any leadership?) know enough to deliver a sustainable economic model rather than peddle flimsy bribes to the electorate every 5 years. We actually need leadership that transcends the three main parties (not advocating minority, special interest parties) that will tackle the fundamental problems and if the bond markets can't see that it may be that they are inexorably tied to the status quo. While we owe so much to the markets they hold a lot of the cards, but I'm sure they would be receptive to a constructive credible plan, the same for Greece.

  • Comment number 31.


    The developing economies don't need us any more. There is no reason to believe that a strong recovery in the developing nations will translate into significant benefits here this time.

    A large aspect of the outcome to the crisis was about disconnecting the developing and developed economies, we can not consume enough (on borrowed money)to keep all the increasingly effcient developing nations factories busy. They are now creating their own demand (thank you very much)and have plenty of spare cash to loan in their own banks to fund further development.

    It is fantasy to think that we can still hitch a ride to recovery on the success of others this time.

    Worse than that the 'others' will soon realise that they can not grow enough either to keep the massess in gainful employment, anybody noticed the price of Oil and copper recently?

    It would be nice if you were right but at best the dynamic you describe just buys a little bit more time to manage the transition into a completely different type of economic model.

    In that respect at least I hope you are right, and instead of wasting it they invest it in tangibles instead of creating millions of 'non jobs' i.e. jobs for the sake of it, jobs which offer no real value to society.

    To quote some lyrics from Julie Delpy.

    '' you and I have such futile jobs.. we should stop acting like kings and queens''

    How many kings and queens engaged in futile jobs to feed growth will the existing world economic model support do you think?

  • Comment number 32.

    30 tonyparksrun

    The Sunsport Theory was based around good and bad harvests. This was very valid for an agrarian economy. If anything, this does not apply to the UK today given the decimation of the agriculural sector these past twenty years. It might have some relevance in the future as food and fresh water becomes scarcer given increased population. Now that will induce some survival imperatives!

    You are quite right that the ethical debate has not yet started but I do feel it is not that far off once public policy is forced to react to the next stage of the debt crisis.

    This will inevitably draw us all into debate as to the function and purpose of government, how banks should behave, how large a business should be and what actually is a market?

    I see markets as a place where people trade. It cannot have any moral content other than in the behaviour of the traders. If some of them are either cynical or corrupt as would appear to be the case then confidence in the market as a fair and equable space to inhabit in an economic sense will erode.

    As an austere person in life I see nothing much wrong with austerity as it induces a reasonable discipline in one's life and promotes a dislike for incontinent behaviour. So long as there is enough for all then there is sufficiency.

    If there is any role for government in this then it is to facilitate the rebalancing of the economy from the excesses of those who spend other people's money to those who add value. If we can achieve that then we can let the bond markets look after themselves.

  • Comment number 33.

    I think the British electoral system is no longer fit for the world we live in. If the 3 main parties get roughly the same vote - why should one of them have dictatorial powers for the five years?

    Time for a change - time for full PR.


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