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A moment of realism

Paul Mason | 15:08 UK time, Wednesday, 26 January 2011

There are moments when realism finally impinges on the world of self-congratulation that is politics and broadsheet journalism, and yesterday was one of them.

It may turn out that the Office for National Statistics is wrong. That the figures being clung to in Downing Street are a better guide - tax receipts and the claimant count.

It may also be a blip, that 0.5 per cent fall in the output of the UK economy that happened in the three months when, traditionally, the economy booms. I will add that nobody predicted it: not the doomiest doom-monger.

Personally, as an inveterate counter of shopping bags in hands, of empty seats at the bar in my local pub, it did not feel to me like a minus 0.5 per cent quarter (compared with Q1 2009, which definitely did).

However, if the 0.5 per cent fall is not a statistical glitch, or a blip, it is a very sobering moment. Because it reveals the fragility in the UK economy even before the substantive reduction of public spending, which is set to take £110bn out of the economy in tax rises and spending cuts, has begun.

Two interventions by senior members of the policy elite that runs Britain highlighted important complicating factors.

First, the outgoing boss of the CBI, Sir Richard Lambert claimed the government has no growth strategy to offset the impact of the deficit reduction plan.

Then, last night, Mervyn King outlined the sheer scale of the collapse of spending power that the combined impact of inflation and wage restraint has produced. A 12 per cent fall in wages over the three years since Lehman; a six year period of stagnation since 2005, unparalleled since Britain's re-entry to the Gold Standard, and the defeat of the General Strike, flattened wages in the 1920s.

You can tell it is a serious moment because suddenly everybody in politics is fractious. The Labour shadow chancellor is ousted; the spinmeister general in Downing Street is ousted; frantic negotiations are taking place to assuage an Australian businessman based in America, causing several important people to miss Davos.

Let's take the three big problems facing the UK economy and look at the potential outcomes.

First, deficit reduction. If Britain had to act fast and decisively on the deficit, it was because of the size of the deficit, the lack of credibility of the Labour government and the Eurozone induced global sovereign debt crisis.

For the best part of nine months the need for rapid deficit reduction has gone largely unchallenged by the opposition because the new Labour leader wanted to set his political priorities out first, and mould an economic strategy to meet them, should he gain office in four years' time.

Now it is not simply the accession of Ed Balls to the job of shadow chancellor, but reality that is calling that apparent consensus into question.

Politicians of all stripes are having to face the question: is a possible double dip a price worth paying for deficit reduction?

Some are having trouble answering this in public but, philosophically, the Conservative part of the coalition has already answered it. It has always insisted deficit reduction comes before any impact on growth - arguing, as the OECD's Angel Gurria argued this morning, that in the longer term growth will come back stronger as a result.

But macro-economic policy is a two-edged sword: fiscal and monetary. George Osborne has repeatedly said that, in the event of a double dip, or of a slide back to stagnation which is more likely, the Bank of England should stand ready to do more quantitative easing: to print more money and keep interest rates low.

Two things now militate against that. First, inflation. King's speech last night was designed to soften us up for 5 per cent (and I think in that you have to read 6 per cent inflation).

Increasing numbers of economists - including people on the right as well as the left - believe there is already, secretly, an abrogation of the Bank's formal inflation target and that it would be best to get it out into the open.

Andrew Lilico, formerly of Policy Exchange, argues that the new mandate should be 2 per cent with a 2 percentage point band on either side (as opposed to 1 percentage point now).

King himself raised an interesting question last night, when he said it was against the Bank's remit to keep inflation on target in this situation:

"Of course, it is possible to argue that the current recession should have been even deeper in order to keep inflation closer to the target. But that proposition is one few commentators seem willing to embrace, nor is it consistent with the remit given to the MPC which states that "the actual inflation rate will on occasions depart from its target as a result of shocks and disturbances. Attempts to keep inflation at the inflation target in these circumstances may cause undesirable volatility in output".

This bats the ball back into the court of those who set the remit, who are, of course, politicians.

The second issue is the growth strategy.

Here's why it is important: in the run up to the election many Tories embraced the arguments of Mr Lilico and Policy Exchange that deficit reduction would, on the basis of both experience and economic theory, clear the way for a return to private sector-led economic growth.

This is the rebalancing story, or strategy and in the case of PX, as I have written before, it is postulated not on any kind of "hit and hope" attitude, but a well-argued theory, grounded in the work of Harvard professor Alberto Alesina.

They argued that British deficit reduction would have to go alongside further quantitative easing, and that, with caveats, this could stimulate growth even in the short term - though it would also boost unemployment:

"Macroeconomic modelling is complex, and always depends on the specifics of the country concerned. Nonetheless, we believe that it is of relevance that even the economies in our sample (with their - in most cases - much smaller deficits than the UK at present) found fiscal consolidation boosted growth even in the short term (and certainly did not undermine growth). It should also be noted, however, that even though periods of fiscal consolidation based on spending cuts are rarely, in our case studies, associated with exacerbating recessions, they do often coincide with rising unemployment."

The problem lies not with the authors of the above. It lies with politicians who have interpreted it as saying there is some automatic process whereby shrinking the state boosts the private sector: this argument is more closely associated with the work of Milton Friedman and Robert Barro.

Now there is a crucial difference. If you believe philosophically that the state gets out of the way, the private sector grows, you are not going to busy yourself writing a "growth strategy" full of micro-economic lever-pulling measures to make the latter happen. In addition you will see inflation targeting, and therefore monetary policy, in a far more hawkish light than that shone by Mervyn King on the subject last night.

So where is the government's growth strategy. Two days ago Sir Richard Lambert said this:

"Rather than a big picture of the kind of economic eco-system that the government wants to champion, we are left with a few rather vague ideas about the scope for supporting a number of predictable sectors, and the promise that more ideas will be forthcoming at the time of the spring budget."

Here's what I think is happening, and it's from as close to the horse's mouth as you can get. George Osborne scrapped the autumn growth white paper because the ideas in it were unimpressive. Instead what he's done is turn over to various departments the job of outlining sectoral growth strategies to be pulled together into the 23 March 2011 budget - pharma is owned by the Department of Health, transport by Transport, etc.

But Osborne acknowledges that the growth strategy is also balanced by various political commitments the Coalition parties have made - both to the electorate and to each other.

No third runway at Heathrow; an immigration cap; carbon reduction targets. The Treasury believes that, after yesterday, the see-saw will now tip towards growth and away from social policy, but the growth strategy does remain a compromise.

It is also a compromise with fiscal reality: you could, in theory, do a lot for growth by slashing taxes and business regulation but the deficit won't allow you in the first case, and Europe will not in the second.

The Coalition growth strategy is, in other words, philosophically conservative and liberal : it relies on removing obstacles rather than picking winners; it expects the decentralised parts to contribute to a synthetic whole. It is the opposite of dirigiste.

It may work but two problems present themselves. The first is timing: the Treasury and the Office for Budget Responsibility projections for UK rebalancing see a very rapid switch to investment and export led growth, starting this year.

That may happen - and if by late 2011 we are in an investment boom our only problem will be inflation and wages (see below). But if it is not rapid you are left with a growth gap and therefore potentially a fiscal gap.

It will not be long before somebody points out that, if the 0.5 contraction is consolidated into the 2011-12 growth projections, then the Budget might have to be more austere than expected.

The second problem is scale: Karel Williams of the Manchester-based CRESC has pointed out the huge obstacles to a tech and innovation led transformation: they defeated even the dirigiste government of Harold Wilson - another prime minister who saw Britain's deficit and currency problems being solved by a one-off voluntaristic march into the "white heat of technological revolution".

Since dirigisme failed, can a version of modern laisser faire succeed? As I've said before - probably not without some modern form of selective protectionism to go alongside it: for everybody is now in the game of trade delegations to India and China, and some of those in the game are perennially protectionist when it comes to growth policy.

Finally we come to inflation and the fall in real disposable incomes. It is this, not the impact of public spending cuts, or the snow, that is worrying policymakers.

If we have undergone a 12 per cent cut in real wages, and stagnation since 2005, then we are living through a sharp reversal of the "deal" on which financialisation was founded in the UK.

While in the USA credit more or less replaced rising wages in the 2000s, in the UK it did not; it went alongside a moderate rise in real wages, and had the effect of damping down inflationary wage demands.

Now the cheap credit age is over and so is the age of wage growth. Leave aside the implications of this for social justice, its implications for the economy are scary: because where does growth come from if the consumer is being hammered? (Incidentally I would discount the possibility of a wage-led season of discontent; not simply because of the weakness of the unions, but because financialisation has placed having a job above having a wage rise - employees will bargain their own wages down rather than face the possibility of life with a P45 but without a credit card, mortgage or monthly mobile phone bill.)

On consumption government here is ahead of the population: the OBR's scenarios for the recovery include a consumer boom as an unexpected negative: the recovery path needs the consumer to retrench, to save more.

But we may have miscalculated as to the sensitivity of consumer demand to this twin switch-off of disposable income growth and credit availability.

What does it all mean?

First, that the government will now have to scramble to fill in the gaps in its growth strategy. Second that monetary policy remains set on the course Mervyn King outlined: there will be no knee-jerk rate rises and there may even be more QE.

Third that the issue of bank lending becomes crucial. George Osborne remains confident he can get a deal with the banks - a transparent and monitor-able deal - that significantly boosts lending. One glance at any graph of M4 or M4 lending shows why this is crucial: the lending figure has collapsed into negative territory; the M4 figure itself (ex OFCs) turned upwards in mid-2010, from near zero, but I would like to see what it is now.

An economy with broken banks is like a machine with a dodgy dynamo: it is prone to cutting out abruptly and without warning. That's what I think happened in Q4, and like with an old-banger, the snow didn't help.

If the so-called Project Merlin does not deliver an agreement with the banks, and if they do indeed threaten to sling their hooks offshore, and resist to the hilt the FAT tax that is now building momentum within Europe and the G20, the results will be political before they are economic.

For, behind the scenes, the Liberal Democratss claim to be fighting tooth and nail for punitive sanctions on the banks and even - as Lord Oakeshott said on Newsnight last night - some form of socialised control of RBS and Lloyds Group.

If they fight and lose, and lose AV in the process, and then we get to the Vickers Report in autumn and any radical bank reform gets back burnered; and if we have any more quarters of negative growth, things will get even more tooth-and-nail inside the cabinet.


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  • Comment number 1.

    There are errors here.
    1. Here is Krugman, 5 October 2010, "First, the report takes on Alesina-type studies, which have been heavily promoted by some commenters here (especially the trolls). The IMF basically finds them all wrong, largely for the reasons I have pointed out in the past: their methodology does a really terrible job at identifying actual changes in fiscal policy. For example, as the IMF confirms, there was a large fiscal contraction in Japan in 1997 — indeed, the results of that contraction, the only modern large contraction to take place in the face of a liquidity trap, are one of the reasons some of us believe austerity is a terrible idea right now. But Alesina and Ardagna don’t pick up that contraction at all, instead identifying some spurious cases of austerity in other years. And it turns out that identifying the episodes right reverses the results: contractions are contractionary, after all."
    2. Krugman again 30 October 2010: "The background to the world economic crisis is that we went through an extended period of rising debt. Now, one person’s liability is another person’s asset, so rising debt made the world as a whole neither richer nor poorer. It did, however, leave the borrowers increasingly leveraged. And then came the Minsky moment; suddenly, investors were no longer willing to roll over, let alone increase, the debts of highly leveraged players. So these players are being forced to pay down debt...To avoid all this, we’d need policies to encourage more spending. Fiscal stimulus on the part of financially strong governments would do it; quantitative easing can help, but only to the extent that it encourages spending by the financially sound, and it’s a little unclear what the process there is supposed to be. Oh, and widespread debt forgiveness (or inflating away some of the debt) would solve the problem."

  • Comment number 2.

    At least the actions of the banks puts the actions of the trade unions in perspective. Their credit Go-Slow is just their version of industrial action, and 'Holds the Country to Ransom' for a much higher demand.

  • Comment number 3.

    An excellent blog again. However just a hint of assuming that the deficit is sensitive to cuts in public sector budgets when in terms of organisations for example widespread redundancies may directly lead in the shortish term to increased expenditure. Reforming (sorry I mean marketising the NHS cost £1.3Bn up front) and so on. This is before you consider the negative 'multiplier' of unemployment and reduced benefits and before you take into account the slashing of public works with some dire private sector consequences. Clearly QE has not helped Steptoe's break into modern recycling!

  • Comment number 4.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 5.

    the plan for growth

    1. training and education. finding ways and means using new media for people to retrain and upskill. this should also end the closed shop cap on doctor, dentist and lawyer training.

    2. focus on strengths. e.g in the uk that is content creation. one harry potter book generates billions. films generate millions etc

    3 use fractional reserve not for consumption but as unsecured risk capital. this was its original function.

    4.even a small leak can sink a big ship. end stupid wars and subsidies to millionaires. tax money is for the poor and needy not rich and greedy.

    5.identify ahead of the curve industries and see where the ball will be and not were it has been.

    6. set up a people's bank that will guarantee a functioning banking system allowing the others to fail. ie put risk back in the market. there is no moral hazard.

    there is so much that could be done. but the hayekists are locked in a spiral of failure who only seek to benefit their own class.

  • Comment number 6.

    Excellent post Paul
    You say "Here's what I think is happening, and it's from as close to the horse's mouth as you can get. George Osborne scrapped the autumn growth white paper because the ideas in it were unimpressive. Instead what he's done is turn over to various departments the job of outlining sectoral growth strategies to be pulled together into the 23 March 2011 budget - pharma is owned by the Department of Health, transport by Transport, etc."
    Reading between the lines of your "horses mouth" source (Danny Alexander prop.?), this effectively admits that the Treasury has no ideas about generating growth in this country, 'unimpressive' to quote your source close to the Chancellor. Osborne has no ideas of his own (how would he? he has never run so much as a sweet shop), so over to the government departments. They will have their own pet projects, but wait!, the departments and local authorities are being forced to cut between 10-25% of their budgets and probably some of the more expensive experienced senior staff who could implement these programs. We will see the departments responsible for transport rolling out Boris' bike scheme to the rest of the country to replace the railways, and the health department launching a balaclava knitting drive to protect against pneumonia during the cold weather.
    Yet again no leadership, no ideas, for too many, no hope. An Eton education isn't all that then is it?
    Is this the start of the long path where our country has to adjust to zero or a decline in economic growth and the spoils left after the bankers have sated themselves are left to be fought over among the NEETS and unemployed. About time someone owned up to how big the economic problems are. The UK economy, too big to save?

  • Comment number 7.

    "frantic negotiations are taking place to assuage an Australian businessman based in America, *causing several important people* to miss Davos."
    Paul, including Robert Peston? ;)
    We get irony on here.

  • Comment number 8.

    'THINKING ALLOWED' (Radio 4) WORTH A LISTEN (#4 redacted)

    Inevitable incompetence of politicians.

    I note Mrs Balls has gone from monetary wizard to law-n-order witch, in one wave of the bisom.

    It's just a game to them.

  • Comment number 9. the OECD's Angel Gurria argued this morning, that in the longer term growth will come back stronger as a result.

    I take it we still believe in boom and inevitable bust. Stronger growth = bigger bust next time.

    ....employees will bargain their own wages down rather than face the possibility of life with a P45 but without a credit card, mortgage or monthly mobile phone bill.

    How bad does it have to get before those at or near the minimum wage really do decide that it is not worth working (in the official economy)? Will they accept downward wages at all if they see their CEOs getting 50% awards?

  • Comment number 10.

    The really overarching issue which needs to be addressed is the relatively low quality of our political and Civil Service classes.

    There may be other structural faults on the supply side of the UK economy...but addressing such economic difficulties requires better elites.

    The trouble is that the Treasury 'mandarins' are caught up in their own inward looking self-regard. Too clever by three-fifths. The Cabinet Office in some ways beggars belief. And certain civil servants have made serious mistakes in the past but are not brought fully to account.

    Further trouble is the politicos. Mr Ed Balls may be clever but he is also too intellectually bullying and handicapped by his non-illustrious past regarding the Tripartite System. Mr G Osborne is unproven. Mr Cable, the one I find the most personally likeable, is too limited in his vision of the financial sector.

    My guess is that Mr Mason knows all this but etiquette prevents him from being so direct. Not that I wish to put words into his mouth.

  • Comment number 11.

    The best bit in the above is this paragraph:

    `An economy with broken banks is like a machine with a dodgy dynamo: it is prone to cutting out abruptly and without warning. That's what I think happened in Q4, and like with an old-banger, the snow didn't help.'

    I will leave the economics to the academics who confuse rather than enlighten. It is like me talking history or one of the techies here describing a complex mechanical process. Very meaningful; if you are one of the anointed.

    Our banks are broken but there are two bodies of opinion that like to contradict that idea and they are the bankers and the Treasury. No doubt they are recoiling in horror at Mervyn shouting `BOO!' last night. No wonder he did it on Tyneside.

    The trouble with all this is that government tends to listen to the academics, strong interest groups and senior civil servants. The great difficulty that undid the last government and may very well undo the current one is that there is always a reason to explain things, a reason not to change things and an even better reason to do nothing.

    What is needed now is politics as whilst the economy is recuperating of sorts - see the growth in manufacturing and agriculture last quarter despite eveything else - it is still a very sick animal and needs the attention of a capable vetinarian. This requires action: namely, decisions and deeds!

    We are being blown off course because after announcing the cuts the government thought it had solved the problem and has become complacent. This is clearly not good enough and they have had a good old kick up the proverbial as a consequence. I hope their minds are now concentrated.

    The previous government also became complacent over the deflation that was imported from China undermining our productive industries, a belief that markets are free on a global basis, and that the banks can provide a never ending pot of gold just like the leprachaun king. This is how we got into this mess.

    I am also interested to note the comment that as a consequence of the above a trend of decline was in place in 2005: something that became evident at the time in the stagnation of commercial and industrial wages but which could not be articulated as wasn't everyone doing so well and how about a loan?

    We need policies that can be enacted to fix the banks and we need them now, not next September. The ideas coming forward within the Commission form a sound basis for reform. No need to think about: just do it. The bankers won't like it but who cares any more.

    The other bit is to look at our economy and see what is performing and do more of the same: manufacturing and agriculture. This is where we can begin to rebalance our economy and get those fields, factories and workshops back into action once again.

    This will mean cultural change. This will mean house price deflation. This will mean the state will have to shrink to soemthing that is affordable. This will mean we will all have to work for a living. Now that won't be before time.

    As for money? Well, it was William Blake who said once you have had excess then you know satisfaction. There is enough and we need to use it wisely.

  • Comment number 12.

    You mention bank lending. I have understood from various interviews that the Banks are perfectly willing to lend if they receive financially viable proposals. Trouble is, with their newer tighter rules, many proposals are just too risky for them in the current climate.

    Is this true? Its certainly believable, particularly if we as a country are now up a creek without a paddle. In which case, the banks actions should be interpreted as a vote of no confidence in the chancellor and this government's policies.

  • Comment number 13.


    ''I will add that nobody predicted it: not the doomiest doom-monger.''

    I think you do your hapless contributers a dis-service.

    The end of year dip was correctly predicted .. on this very blog. On the basis of what was going on in the construction industry in june and related economic dynamics.

    Ref as below

    27. At 08:48am on 05 Jun 2010, Jericoa wrote:

    (sorry I do not know how to link it directly)

    I guess that makes me officially 'the doomiest doom monger'

    ermm.... thanks?

    Bet y'all cant wait for my next predictions :)

  • Comment number 14.

    11 Stan...You say "we shall all have to work for a living"....but since the 1980`s employment prospects have altered considerably...with the only growth areas being in public services which are being savagely cut.

    What are people going to DO?

    And will the jobs we create really benefit society or just keep the unemployment figures down? How many taxi drivers and lap dancers can society use before we realise that we don`t need more workers or as many people as we have "available for work".

  • Comment number 15.

    #13 addendum

    To be precise I predicted the negative growth 'by the end of the summer' i.e. from october onwards.

    Modesty gets you nowhere so I am claiming it.. I nailed it.. I am officially a much better predictor of ecomomic events than all the experts AND 'The doomiest of Doom mongers'.


    I just need to sit back now and wait for the offer to come in from the BOE monetary policy commitee to add a bit of grass roots pragmatism to their proceedings, if they dont get in first it will be the hedge fund managers clamouring for my insights.

    I would, for the record, give the BOE the first option as I would not wish to perpetuate the culture which spawned the crisis.. but hey a mans got to live right?

    Is that the phone ringing... it must be Merv.

  • Comment number 16.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 17.

    mass immigration is a ponzi scheme. the political class seem addicted to ponzi schemes?

  • Comment number 18.

    Ah the lilting call to realism again. Trouble is nobody agrees what the reality is, when it should be bleeding obvious - and that of course is the problem with realism.

    So once again we are left with the favourite interpretaions of politicos and pundits all peddling the latest snake oil remedy.

    For my own tuppence worth I think one quater's figures are not especially relevent. I don't expect interest rates to rise in the near term, if only because the architecture of UK's government bonds allows a subtle bit of inflating away of debt.

    My guess is that the best laid plans will go awry following some exogenic impetus, far more potent than a cold snap.

    Anyway a gift before I depart :

    The most interesting bit is the long term outcomes of inflation targeting even at 2% - ( but i don't believe anything like full reserve or grameen banking is the answer - maybe we need a modern potlatch - creative destruction please !)

  • Comment number 19.

    #13 addendum 2

    link to the relevent post where the dip was predicted.

    Dear me Paul, you should give your bloggers more credit.

    By the way, the dip will extend into the new year, which will make George Blaming it on 'the weather' ever more laughable and a source of great mirth at PMQ.

    There are quite afew other relevent economic insights offered on the comments string referenced above as well.

    We are pretty good on here you know.

  • Comment number 20.

    Why should anyone save money at these low interest rates....and if we all stop saving what effect will it have?

  • Comment number 21.

    AND THE WINNER IS! (#18)

    It is rumoured there is a secret legacy, held in trust, for the first person to use 'potlatch' on a BBC blog.

    Congratulations supersnaps.

  • Comment number 22.

    given QE people can just keep buying risk. ie go long the taxpayer. we are the bankers fuelling the bubbles. there is no moral hazard.

  • Comment number 23.

    Banks will only lend to SMEs in the amounts hoped for by the government if the taxpayer shoulders the lions share of any losses on those loans. Can we afford to do that on top of everything else we are stumping up for?

    Wage inflation has been flat since we opened our borders to anyone from the EU who wanted to come and work here. We are never going to come anywhere near full employment ever again, the pressure on wages will always be downward. Can you see pay rises anywhere close to the level of inflation in the next decade?

    Inflation of 5% plus is here to stay, it isn't going to fall away sharply in 2012 no matter how many times Merv tells us it will.
    Emerging economies will continue to grow and their currencies will rise in relation to ours pushing up the costs of imports and inflation. This isn't just going to stop in 2012.
    This same global economic growth will push up the costs of food and raw materials, again forcing up inflation. This isn't going to stop in 2012 either. We are in for at least 10 years of this in my opinion as part of our economic 'rebalancing'.
    So that is at least 10 years of rising inflation and stagnant wages on top of the 6 we've just had.

    What price a house as the years tick past?
    No-one I know who doesn't already own a home can afford to buy one, its not just a question of a deposit, they simply can't afford or want the 8 times salary mortgages they need, even now, to get on the 'property ladder'.
    Of all my friends who own their own homes only two say they could afford to live where they are living if they had no equity and were paying a mortgage at today's house prices.
    Just how viable are house prices that no-one can afford?

    In the end something will have to 'give' or the whole pack of cards is coming down.

  • Comment number 24.

    I fear we have quite deliberately got into debt ...both publicly and privately ...and are about to hand this mess onto the next generation while the "politicians" in Westminster are no more than bailiffs and asset strippers acting like vultures.

    Our human right`s activists are forever appealing to international courts and tribunals on behalf of their dodgy foreign clients (at our expense)so can we bring a class action to claim that we have been defrauded,robbed and stripped of our democracy?

    Or could we appeal to the UN to put in a provisional peacekeeping force while we conduct a full inquiry into the activities of these foreign loan sharks and their British cronies who masquerade as our political representatives?

  • Comment number 25.

    Bad news for you Paul - twitter use is in decline. What will Fivelive Presenters have to talk about now?

    Twitter Use Falls Sharply As Site Tries To Prove Itself

  • Comment number 26.

    24..A thousand apologies.... the first sentence should have read.."I fear we have been quite deliberately GOT into debt..."

  • Comment number 27.

    @1 Krugman has been bang on for the two years I have been reading him, (although I would disgree with his longer term aims.)

    Throughout history there have been debt crises, going back at least as far as the Roman Republic.

    The common thread is that the debt CAN NEVER BE REPAID. There is either default, partial forgiveness, or the murder of some or all of the creditors. Eg Sulla's and Mark Antony's proscriptions, Edward I's expulsions and mass murder of English Jews, etc etc.

    Bankruptcy was supposed to be a safety valve for capitalism, but the financial elite conned Gordon Brown's government and others into making private debt sovereign. The Tories did not oppose it because they were part of the class which had most to lose.

    There is no way out without default by one means or another. Any other "solution" is effectively selling our children into debt slavery. Inflation is one method of partial default, so long as property prices are forced down in real terms. BTW, as I don't have a mortgage, this would not be to my personal advantage, but it would be for the greater good.

  • Comment number 28.

    okey admit not reading comments

    'tis the language i's loves

    the author is real. i mean real.

    gonna read comments now

  • Comment number 29.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 30.


    Indeed we do seem condemned to re-enact the same mistakes in perpetuity (sounds biblical; doesn't it). Perhaps that is why some religions tried to shortcut the cycle by creating an edict from God on money lending.

    Perhaps the world would be adifferent place if one of the 10 comandments was 'thou shalt not charge interest on loans'.

    But there again, particularly in the west, religion is a poor mechanism of control now so I guess we have to come up with something else. Perhaps we could identify the 'greed gene' and genetically modify it out.

    The scary thing is we are kind of close to being at that point in our development when such decisions are possible but we seem hopelessy imature as a species on the social development front to be able to make best use of the power we have on the technological front.

    We are such strange unhappy creatures.

  • Comment number 31. I am out of this BBC blogging because I don`t believe that this forum is being offered in good faith ...or that NN is real investigative journalism or getting to the essence of our problems at all....quite the contrary!

    I have been sickened by my investigations into the deaths of Victoria Climbie and Baby Peter Connelly on Planet London .... while the Beeb gleefully scapegoted some pathetic powerless social workers for causing their horrific lives...the real culprits were our crazy capitalist borderless immigration system and the overcrowding and neglect of our underclass.

    But that isn`t something our potty liberal establishment like to it PAUL?The Paul Mason who would never tackle folk like Soros and his mad scheme to create a borderless world of the sort that brought Victoria to our dear London town to meet her fate!

    For shame yourself a journalist?

    I have a word for NN...but it would get me "referred for further consideration". As they say in Dragon`s Den...I am OUT!! Stuff the lot of you!!Carry on "speculating about speculation" while Sodom and Gomorrah" crumbles around you!

    What a shame you were allowed to destroy Mary Whitehouse and Enoch Powell with your sneering see what you have done!

  • Comment number 32.


    Which is why I 'cry out' (biblically) for the espousal of intangible rewards: integrity, virtue, humility, honour, altruism etc - all under the aegis of wisdom.

    Unfortunately, schooling for Mammon stands in the way of schooling for life, and our juvenile leaders lack wisdom.

    The world is full of de-facto orphans, deprived of guidance, and self-restraint that comes from wise parenting (in all senses).

    It seems man-made unhappiness will prevail, at least until cataclysm re-sets our priorities. Then, at least, we can blame the gods.

  • Comment number 33.

    14 jim

    `What are people going to DO?'

    The answer to that has to be manufacturing and agriculture.

    The question you are really asking is how do we from where we are now to where we need to be. It is a difficult one and this is what the government is stuck on.

    Government should be facilitating small business to develop, expand and employ rather than close down, make people redundant and shut up shop. The money, the ideas and the vision is out there. It just needs to be allowed to come through. This is what government, both local and national, should be facilitating: making premises available, providing training, creating local networks, local supply chains, free national insurance for new employees and so on . All low cost stuff, all ideas which have been used before.

    We are only in this situation because concepts were adopted which allowed us to accept it. We just need another mindset. The best advice I ever had was that nothing is forever.

  • Comment number 34.

    #27 Sasha wrote:

    'The common thread is that the debt CAN NEVER BE REPAID. There is either default, partial forgiveness, or the murder of some or all of the creditors.'

    I have to agree with you there Sasha, unfortunately

    the creditors won't allow default
    (Japan tried it with QE and the financial system forced them to keep going, student loans can't be discharged through bankruptcy etc.)

    the creditors have no forgiveness in their hearts

    so option 3 it is.

    On another note I have been looking at the Agents' Summary of Business Conditions on the BoE website.

    'This publication is a summary of monthly reports compiled by the Bank of England’s Agents, following discussions with around 600 businesses in the period (one month intervals). It provides information on the state of business conditions, from firms across all sectors of the economy. The report does not represent the Bank’s own views, nor does it represent the views of any particular firm or region.'

    These reports go back to February 05, they all follow the same format (Demand, Output, Employment etc.) so I will plot the confidence in the future level in each section against the previous month and see where the graph takes us.
    (simply, more confidence = +1, same = 0, less = -1)

    Paul, if the M4 contraction rate gets any steeper then Merv will have to set rates at -10% as well as QEing another £400bn.

  • Comment number 35.

    Great piece, Paul, and thanks. I would just mention the issue of exchange rate and the choices being now delegated to unelected bodies.Before Xmas George Osborne was asked by the Treasury committee some searching questions about the rise in inflation. He appeared to answer by referring to the views of the Office of Budget Responsibility, who in turn, were in agreement with the MPC in broad outline, that inflation would come back to target. Mervyn King is now pointing to alternatives outcomes.So, George Osborne is being led by quasi-independent unelected appointees oin these questions affecting all of us.

    A depressed exchange rate facilitates a rebalancing towards exports. Raising interest rates could mitigate against that objective, but might dampen imported inflation. Isnt there a trade off being made here? A competitive exchange rate maintained ( and support operations to large global corporates, banks and gilt markets via monetary policies)at the expense of real-wage decline , a depletion of the income of savers and a starvation of credit to SMEs who drive the domestic economy.

    To my mind these are deliberate political choices being made by unelected bodies, blindly followed by those in a coalition who, themslevs, have a thread-bare mandate.

  • Comment number 36.

    "What are people going to DO?"

    Why do people always look to the state. We live in a knowledge economy. Want to learn a new skill? Got no money? Get yourself down the library and read up on it. Use their free internet access.

    Go down there now - bet you get a seat.

    The state has a massive role to play and they are not doing their bit well, but I don't see the other side of the implicit social contract being fulfilled here.

  • Comment number 37.

    #36 Ben
    "Go down there now - bet you get a seat."
    While they are still open.
    #35 Shireblogger
    "A depressed exchange rate facilitates a rebalancing towards exports."
    likewise high public spending causes a distortion in the economy where businesses depend on public sector business.
    likewise cheap/easy credit distorts the economy so that businesses build a model dependent on easy finance. In future, the world will have rebalanced and changed so that businesses may no longer depend on cheap credit.
    These are an argument for converting the government owned banks into a utility co-operative finance houses for businesses in the UK.
    Nothing like competition to stimulate innovation in banking, Eh?
    They would charge SME's (limited to UK based SME's by the way) a competitive rate (except for the public's profit). This would be the conduit for QE2/3 or whatever if that becomes necessary. A sort of UK bank for Reconstruction and Development. To get on the board you must neither have attended Eton or worked for a bank in the period 2001-2011.
    Oh and I'd tear up all the PFI deals and renegotiate, isn't that what Phillip Green suggested?

  • Comment number 38.

    So we`ve identified several versions of the problem...which seem to boil down to the global capitalist system running our risible democracy like a glove now what?

    Is the internet to be just a vehicle for global whinging and are we implicitly expecting too much of the BBC by assuming it can or will do anything about our concerns?
    The evidence of my long association as a listener and viewer is that beyond promoting to death a few barmy Hampstead delusions and ill-considered fashionable causes the Beeb is no medium for change...and it`s too up the USA`s crevice to dare challenge neoliberalism and the rule of the CIA across large parts of the world.

  • Comment number 39.

    A moment of realism.
    I wish all the western politcians would in fact sit down, take several moments, and define the true reality.
    Articles like this one really annoy me.
    "...if the 0.5 per cent fall is not a statistical glitch, or a blip, it is a very sobering moment". Okay, but what caused this moment? What has made the UK economy fragile? If you don't know the problem, how on earth can you solve it appropriatately without imitating a chicken with its head cut off?
    Spending cuts may have been warranted, but not to the extent that The Coalition Government has applied them. Increased Vat was definitely unneeded and unwarranted.
    Here's the CBI, Sir Richard Lambert claiming the government has no growth strategy to offset the impact of the deficit reduction plan; do you believe him more than me?
    Mervyn King has outlined the sheer scale of the collapse of spending power that the combined impact of inflation and wage restraint has produced. Do you believe him more than me?
    First to the real problem: nefarious financial instruments that originated out of the big investment banks (7) too big to fail in the United States.
    These were bundled derivatives given an AAA credit rating which really merited a DDD credit rating; this alone strikes me as at least misleading, at worst fraudulent. These and other nefarious American financial instruments brought down Britain's economy, the Eurozone economy, and caused serious damge to sovereign debt.
    By betting on failure!
    So, what should be done?
    Those that caused this situation should be made to pay.
    In my book this means a financial activities tax across the Eurozone, or better across the globe, except that you will never get the United States of America to cooperate. If it did, there would likely be so many bed debts, write-offs and fines that the American economy would drop like a stone.
    Brussels is working on the details of a financial activities tax now.
    Will Britain take part? If not how will The Coalition Government explain to its citizens why they must carry the deficit which they did not cause?
    All Governments, but especially the PIIGS, need to examine their debt, need to pull out the derivatives, examine the bundles, CDOS, bets against sovereignty because if there was misrepresentation, if there was fraud, the debt should be in court, not on the backs of the taxpayers.

  • Comment number 40.

    I used to think that we were entering the jaws of a particularly unpleasant vice - on one side, cuts which have a negligible effect on deficits, and on the other, non-materialising sums of tax revenues from low growth.

    Howver, apart from the vice, I've realised that there is also a press bearing down - namely, increasing interest costs on the public sector debt total (which will be at least £1.5 Billion by the end of next year).

    Those three constitute one helluva squeeze.

    So, we may be Greece by 2014, but without the olives and sunshine.

  • Comment number 41.


    Lets not forget pension fund deficits. Those baby boomers ain't gettin any younger y'know and a bit of a peak is on the way.

    In an attempt to keep my self proclaimed title of 'doomiest of doom mongers' being the only one who predicted the q3 negative growth a nuclear weapon analogy is in order me thinks.

    In such ridiculous times the only sensible analogy is the ridiculous.

    At its most crude the detonation mechanism for a nuclear weapon involves shaped high explosives squeezing a blob of uranium as small as possible from all sides simultaneously under the blast wave generated while bombarding it with neutrons via a seperate mechanism.

    The bigger the squeeze and the more neutrons they manage to pack in there simultaneously the bigger the resulting chaotic destructive bang.

    Now think UK pensions,debt,austerity,inflation,housing bubble, wage stagnation, QE and a reliance on imported essentials all squeezed tight in there as the uranium while being simultaneously bombarded by meaningless red tape from Brussels.

    As for what the trigger may be that sets off the high explosive.. take your pick !!!! Sovereign debt default maybe, a bank failure leading to a domino effect, a few misplaced words uttered by Ben Bernanke in a bar, a 'fat finger' trade facilitating a computer system orchestrated cascade of selling of stocks... too many people reading this post and forwarding it on.

    Beat that someone.

  • Comment number 42.

    41 Jeremiah.....the scenario you describe might prompt a global debate about a revolutionary change in the way politics and economics are delivered in this age of change going forward....after a green shoots of recovery situation in which we reshedule our priorities downwards in a life enhancing divestment of all that has enslaved us since the invisible hands took us all by our throats.

    THANK YOU I feel better already!

  • Comment number 43.

    #36 Ben

    "What are people going to DO?"

    A very good question, and my answer is not directed at you personally.

    My take is that there will be a revolution (not that we do revolution in the UK)

    The cause of this revolution is inequality, the social contract has been broken.

    No longer is the State holding its side of the bargain, they broke ranks first.

    The ordinary hard working family clings to the hope (whilst working ever longer hours for ever diminishing pay) that someone will do something, and every day it is reported that profits are up, boardroom pay is up, bonuses are up, and meanwhile that family sink further and further, weighed down by colossal debt not of their making.
    (is that fair ?)

    Every day that passes it becomes more and more obvious that no-one (with the power) will do anything to even up the balance.

    Whilst we don't normally do violent revolution in this country, there is a growing awareness of where the power in a consumer society really lies, and that is with the consumer.
    Slowly but surely the consumer can exercise the only power that they have which is to not consume, to just stop and take stock.

    The dip in GDP is the first tangible indication of a buyers strike that started in 2008

    You can't tax what I don't earn and you can't profit from what I don't consume.

    I pay your wages.

    Not any more.

    Game over.

  • Comment number 44.

    no wonder the Tories wanted to make it impossible to get rid of them, even if they lose a vote of No Confidence!

    what to do:

    by fair means and/or foul, cause this Govt to fall.
    elect a UK Govt of stripes Green, Plaid and SNP,
    with the odd Blue, Red and Orange worthwhile MP.

    investigate the Banks and Corporates for shady dealings,
    for tax evasion, corruption, undue influence and frauds,
    asset-strip, workforces given shares, managers can fall on swords.

    reclaim agriculture (NOT flogging our Public forests!),
    low-oil perma-culture, organic foods, cooperative farms,
    Infinity Foods supermarkets, not Tesco McJob slave-labour.
    (except for now-poor ex-bankers?)

    food security done, build energy security & energy efficiency,
    training & employing manufacturers, installers, paying taxes.
    people working, not on benefits, growth to cut borrowing.

    (and of course we can also cut borrowing and State Debt by refusing to pay interest on money WE GAVE TO THE BANKS!!!)

    we have a crisis caused by rogue bankers, and then we elected bankers to sort it out. Oddly, they then decide that its OUR crisis, and slash wages, pensions, worker rights, education, health - AND the economy, leaving us in a state of permanent debt, for our children, and grandchildren, and our great-grandchildren...

    and i think most of us are aware that new labour, still pulling the strings in labour under Honking 'Ed, are about as likely to do the right things as Osborne is to hand over all his wealth to the Treasury and go live in a monastery.

    we have to get rid of them, simple as. And we also have to be aware that other Powers in the world, notably Russia, are attempting to derail any progressive movement in the UK, alongside UK undercover cops and MI5, as we publicly saw recently.

    ohhh, its going to be fun!!! :/

    done well however, and we should end up on a trajectory towards standards of living for all approaching current Scandinavian levels, and a rebirth of Democracy in the UK.

    done badly, and we will end up looking LIKE Russia in the 90s. - If we're lucky.

  • Comment number 45.

    #43 Bob Rocket, I have often posited the possibility of revolution (peaceful)but posited that it is the debtor who controls the means of repayment. If all mortgagors were to refuse to make repayments (cancel direct debits etc) then people would have to do something pretty sharpish.

    As it is you're probably right - and a consumption strike is more likely: but how do you distinguish that from people just getting poorer and/or paying down debt?

  • Comment number 46.

    Hi Bob

    "The ordinary hard working family clings to the hope (whilst working ever longer hours for ever diminishing pay) that someone will do something, and every day it is reported that profits are up, boardroom pay is up, bonuses are up, and meanwhile that family sink further and further, weighed down by colossal debt not of their making.
    (is that fair ?)"

    I'd say "it depends". I have little sympathy for families that have kids before they have any savings and a steady job who then get into trouble. I do have massive sympathy for their kids. I really hate kids not getting a fair start in life. That's the stereotypical estate family out the way!

    Families where both parents work all hours in low paid jobs only to get taxed to the hilt. These guys I feel really sorry for. What to do?

    Experience shows if you pay benefits to families you end up with a moral hazard and the bad section exploit it, meaning tax is higher for the good half. Why not cut back the state and tax with it? If you behave responsibly you get to keep what you earn.

    The state cannot provide an implicit safety net for all. The idea that nothing goes wrong for anyone and the modern state must shield us from these shocks is wrong and not possible. They should regulate where possible to prevent big shocks (banking) and let the rest sort themselves out.

    If we pay lots of tax to the government we are not in control of how it's used. Much of it is not used to help us when we loose our job etc. It's spent as soon as it's received on pen-pushers who often have a mandate to make our lives more difficult. This doesn't include key services but it does include a whole load of jobs for votes and benefits for votes people under a decade of Labour.

    From the ONS:

    Check out page 3. Phoar! How did we survive in 1999 before all these wonderful people were found and employed by the government? The employment of these people is paid for by the poor majority, many of whom are families. Yes some of them are in turn employed by the government but not many as a percentage.

    ps I've seen elsewhere suggestions of coordinated action such as stopping spending. I don't believe this is coordinated. It's a bunch of over-leveraged people running out of credit and getting scared. They spent when the media said it was all good forever and ever. They stop spending when credit tightens, spreads widen and the media says it's gonna get bad. But these are individual reactions, not coordinated decisions.

    Sorry for the long post. Too verbose but I can't be bothered to edit.

  • Comment number 47.

    Also the idea that the unions won't bite is IMHO a pipe dream. These guys have been taking the subs of hard working families for a decade when job loses were unlikely, with one bottom line:

    "If your job is under threat - we will fight for it"

    Now cuts are coming and they can do little about it. They have to make a show of it if unions are to continue getting subs from their members, which pay for all the union top-brass perks. Otherwise it's like car insurance that actually only covers the glove-box hinges and wear and tear to the boot carpet. Or snake oil.

  • Comment number 48.

    47 Ben...the unions have been sabotaged by years of the same way that the rest of us have...unless we are members of the Bullingdon elite!
    Try not to sound so exultant....and when your house is re-possessed please think of me laughing at your hubriscious stupidity.

  • Comment number 49.


    I totally agree, which is I why I have all but abandoned the BBC for more enlightened elucidation.

    Firstly, Max Kesier on RT, where the REAL news is actually discussed, sensibly and without pompous talking heads. This interview is fascinating in that the interviewee (about min 20-25) clearly describes how a bank can use accounting gimmicks to mask severely declining real asset values:

    Also worth checking out is David Malone, whose blog and book is very informative:

    After all, to anyone with half a brain, this crisis always has been the symptom of "An Inside Job".

  • Comment number 50.

    @47 Ben "taxed to the hilt" is a very subjective expression. Try living in Germany where, as well as high taxes, there are compulsory social security insurances for health, unemployment, pensions etc; ie de-facto taxes. I don't know the current rates, but I could ask my relatives there. Last time I discussed it, it amounted to considerably more than we pay here. Ditto in Scandinavia.

    In the '70s I had a free University education, though there was a means-tested parental contribution to my grant. (We also had excellent public libraries.) But the basic rate of tax then was typically about 33%.

    In the Thatcher years VAT went up, and direct taxes came down; also the government had oil revenues. People kept a greater proportion of their income, but I suspect that helped fuel the various housing booms. Thus much of the income released by tax cuts went straight to the banks.

  • Comment number 51.

    Do you think American Mothers are going to thank Ben Bernanke's food & fuel inflation printy printy policy when their sons are dying in Egypt to keep open the Suez Canal?

    Just asking.

  • Comment number 52.

    BBC Headline - UK Consumer Confidence In 'astonishing' Fall

    Well, no one saw that coming!

    Punishing all those who saved with ultra low IRs and 5% inflation has taken many millions out of the consumer market. Instead of spending they just save even more.

    That is the mentality of the prudent. If they had been given higher returns on savings they probably would be out spending.

    Well done Mr. King, well done Mr. Osbourne! Your banking chums are even wealthier but the rest of the economy is rapidly falling apart. How long before the road from Tunisia via Egypt ends up in the UK? The Autumn?

  • Comment number 53.

    #50: exactly!

    hawkeye - if you trust Russia Today you are a fool. Although they may have more critical analysis (because *they* do not have to worry about being slapped down by the UK Govt), they are also pushing their own agenda - and that is to prevent the UK from organising to prevent the oncoming energy and resource shortages through disinformation.

    there are in fact 2 limits to Free Speech - the commonly known one of "shouting fire in a crowded cinema", the other is telling people to "stay in their seats" - whilst the fire is spreading around the building.

    do you think RT is as critical of RUSSIA?? And its Mafiosi Leadership?

    WJ is simply the latest incarnation of Jaded_Jean, a professional disinformation agent who through his various on-line names has been practising his act. He works for the russian FSB/RT for certain.

    the UK needs to organise energy and resource security, WE do not have the vast reserves of Russia, and if we do not do this, then the UK will experience the same 20+ years off life-expectancy that Russia did at he end of the USSR, most likely also followed by the same open Gangland 'Rule of the Ruthless' that Russia has now.

    Russia is hardly a country that *i* would look to for advice.

  • Comment number 54.


    Sounds good to me..pity we have to wait for a horrible bomb to go off and struggle thropugh the toxic fallout before we can do any of that though.

  • Comment number 55.


    Firstly, I was referring mainly to the output from Max Keiser. From what I can see there is no editorial difference from what Max posts on his personal website with what he says and discusses on RT. The clear implication therefore that there is NO actual editorial control or reluctance on the part of RT to influence his output.

    (This is in stark contrast to Paul M, who's insightful blog content is usually tempered when on NN.)

    Max Keiser is not afraid to cover topics such as fundamental issues with banking, the financial oligarchy and fraud, as articulated by such people as:

    William K Black
    Steve Keen
    Michael Hudson
    Janet Tavakoli
    Fred Harrison
    Peter Schiff
    Simon Johnson
    Paul Craig Roberts
    Karl Denninger
    Yves Smith

    He is also not afraid to talk about energy issues, with such guests as Nicole Foss, Chris Martensen and Gregor MacDonald.

    The BBC on the other hand is just churning out "soma":

    P.S. How do I know that you are not an MI6 plant?

  • Comment number 56.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 57.

    OK nuclear attacks...just the rest of it....but soon please!

  • Comment number 58.

    Great post Paul.

    Three key issues:

    1. "it's not the business of Government to back winners" - how often have we heard this mantra from the Conservatives?

    So whose job is it?

    I presume it's supposed to be investment banking, private equity and the retail banks?

    Correct me if I'm wrong, but didn't the credit crunch and the banking crisis take out large chunks of these companies - and the scale of their loses has cast their competence to even run their own businesses into doubt, let alone choose which ones to invest in?

    We are left with a large hole where the economy's growth engine should be - so it's no surprise that GO's White Paper went in the bin because he has nothing to offer, the private sector having c*cked up big time and disappeared up its own tailpipe and the Tories credo that "public=bad private=good" means that government has no role in "backing winners" - and neither does anyone else anymore...

    2. The Negative Accelerator & Multiplier Effects of tax increases and spending cuts - taking £110 Bn out of the economy will be negatively magnified by these effects, yet if you go to the OBR's website, they seem to be unable to express an opinion on what the multiplier is for UK PLC and this contraction - they quote a range of figures from various studies, but don't come down off the fence either way.

    How about a factor of 5 in the current economic climate? That's taking out £500+ Bn of aggregate demand over four years - whilst total aggregate demand over the same period is about £2Tn, so the impact of the cuts package points to a 25% cut in activity - unless you believe the "crowding out" thesis - but surely only that would apply if the spending cuts were matched by tax reductions to transfer the spending power from the State to the private sector - THIS IS THE CENTRAL PLANK OF THIS THEORY - Government takes x% of the economy - so there's less resources available to the private sector - but that is not what is happening - we are cutting the whole economy, not just the balance of it.

    3. The REAL level of UK public debt - I think it is ludicrous to make no adjustment in our debt strategy about the VALUE of UK Financial Investments' holdings in the banks which must now be heading for £75 Bn. If you assume that unlike ordinary government debt the money borrowed to make this investment could be paid off by selling the shareholding asset, then this changes our perception of UK borrowing last year of £163 Bn, 11.6% of GDP - take out the UKFI value and the figures become £ 88 Bn and about 5%.

    So we are allowing investment for the future to go on indefinite hold - we are going to take up to 25% out of aggregate demand out of the economy and this is all needed because we are borrowing (NET of the value of the banking assets) a TERRIFYING.... 5% of the UK's GDP.

    The ConDems are either economically illiterate or they are so obsessed with libertarian political objectives of state-smashing that they are prepared to drive the economy off a cliff to achieve them.

  • Comment number 59.

    Folks, if you would like to register your disapproval of Spelman's rape of the UK forests (and I'm sure you would) a petition is here:

    Private Eye have a relevant article too:

    I'd rather see Eton sold to the Arabs than the English woodland be sold. Robin Hood will be spinning in his grave.

  • Comment number 60.

    Meanwhile, in other news today consumer confidence in the UK dropped off a big cliff.

    No one noticed so consumer confidence ran back up the cliff and proceeded to jump off several more times in the hope that someone would say something.

    An astonished man was later heard to say "You don't see that everyday. I am astonished!" before boarding his plane to Davos.

  • Comment number 61.


    Not so much that nobody noticed, nobody cares in an increasingly fractious societry based on 'the individual'.

    Heck, the 'most popular' article at the moment on the BBC is not economic contraction or consumer confidence or Eygypt (could be massive)it is 'man is sentenced for sex act with a horse'.

    Cant blame the BBC for that, they do offer good content but one can only take the horse to water they cant make then choose good content over titilation.

    The problem well, its the general population.. which is kind of a tricky thing to overcome in ademocracy.

    So whats the answer anyone?

  • Comment number 62.

    I see Dave at Davos calling for more UK innovation, somehow I don't think he meant this sort though

    Polly put the kettle on...

    More student demonstrations tomorrow, UKuncut tax avoider protests on Sunday, where will it end ?

  • Comment number 63.

    I am told that deep within the bowels of Downing Street Cameron and Clegg have a photo of Cheryl Cole in a new frock ready to be published if the people ever riot.

  • Comment number 64.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 65.

    Dave at Davos calling for more innovation is a bit rich isn't it.

    Aside from the fact that he should be leadering... I am still to hear of one single business incentive from the Coalition. They got elected some 9 months ago.

    Their lack of leadership in this area is only slightly less surprising than the meeja actually bringing them to task regarding this.

  • Comment number 66.

    Congrats on a thoughtful, provocative piece. A number of issues seem quite clear:
    1. The Coalition has not been very smart in thinking about how it can appear sensitive/responsive to it's stakeholder body. It needs to, and will do better.
    2. Clearly it will respond on the fuel tax issue in the March Budget and this may well include other responses on sensitive and yet low cost issues.
    3. The Coalition, stated or not, will have a series of "growth" measures in waiting, but would clearly be wrong to suggest as much at this juncture.
    4. At best 2011 was going to flatline, and thus +\- GDP data in this year is no real worry, providing the data off neutral is marginal. 2012 is the earliest we can realistically expect growth.
    5. There is currently no economic basis for interest rate rises, and such strategy could further choke off recovery.
    6. By whatever means bank lending, especially to SMEs must be significantly increased, as this restraint will inhibit investment, recruitment and growth.
    Whilst remaining alert to the need for growth stimulus measures, the critical need now is for the Coalition to remain aligned, collectively maintain the debt reduction stance, and play Ed Balls with a straight bat.

  • Comment number 67.

    65 ..tawse...Hate to break this to you but NO British government has given a toss about British industry of any kind ...other than financial services.

    I would go further and say they have deliberately destroyed our industry or flogged it to foreign much the same way US industries have been exported toGermany,Japan and China or wherever else Wall Street and its City of London offshoot can maximise profits.

    But if you complain they will tell you that you pension fund is invested in their Chinese industrial investments ...and to keep quiet.Get out of that!

  • Comment number 68.


    'British industry'

    Wash your mouth out with soap and water! (you naughty boy)

  • Comment number 69.

    We're all Egyptians now! Just that some of us don't realise it yet.

  • Comment number 70.

    I see that the traffic cameras are down in Trafalgar Sq and the Strand/Lancaster Place, just like the last time there was a student demonstration.

    Do you think that some people have something to hide that they don't want 'official' cameras capturing (on the basis that unofficial footage could be claimed to have been doctored)

    #69 Egypt is getting wall to wall coverage on the Beeb, events happening in the UK get one page on the BBC website updated twice in 7 hrs (obviously things happening 2000 miles is of more importance to residents here)

  • Comment number 71.

    I think Egypt illustrates the crass foolishness in educating young people and then not allowing them to get jobs.

  • Comment number 72.

    Student protesters target NUS president

    Police escort Aaron Porter away from crowds in Manchester on day of protests against cuts and rise in tuition fees


    Maybe heed was taken of this insightful (inciteful?) post from back in November

  • Comment number 73.

    58 richard bunning

    If you add up the National Debt, excluding bank bailouts, but add in state pension liabilities and public sector pension liabilities you get a total figure of government indebtedness in the region of GBP 4.7 trillion.

    This does not include liabilities under PFI which quite simply look rather like extortion to my simple mind. The Tories were nuts to introduce the PFI concept, New Labour stupid to continue with it and public sector management wholly incompetent in negotiating the arrangements.

    Also please note that the fiscal budget set by Mr. Osborne aims to raise government spending from GBP 640 billion to GBP 659 billion by 2014-5. In 2001 government spending was just GBP 343 billion: allow for inflation and this would be GBP 450 billion by now. A GBP 200 billion real times increase in ten years is a big difference. Hurrah for the big state, eh?

    This does not look much like an ideologically driven cut in the size of government to me. What it does suggest is that there are reductions in spending going forward due to the need to allocate funds to debt-servicing. This is just the same rational economic policy pursued by Gordon Brown between 1998 and 2001; that was before he abolished boom and bust and it went to his head.

    To that figure of GBP 4.7 trillion we need to add GBP 1.5 trillion which is private indebtedness largely secured against the value of shrinking domestic property assets. So if we put our liabilities into one big sum we are looking a a total debt of GBP 6.2 trillion.

    Given that our industry lost a million jobs under New Labour we have massive debts and a considerably narrowed means by which to service those debts and begin to repay them.

    I don't think fuliminating over perceived shortcomings of the Coalition is all that useful. They are a government and governments in my experience are none too bright and only radical when it comes to bribing the taxpayer with their own money.

    I think we should be focussing on methods as to how to get out of this utter shambles. More debt is not a solution. At some point in time, in the not too distant future if this government does not do the needful of reforming the banks and begin to restructure the economy, we will have to get a government that does do those things. Politics apart, the job just needs to be done and, until it is done, nothing will get better.

  • Comment number 74.


    I agree about the need for change - I just don't accept that the bank bailout and the borrowing it required can be seen as the same as normal government borrowing and that we simply ignore the asset HMG has in UKFI which IMHO is approaching £75 Bn, when we assess our credit worthiness.

    I agree that more debt isn't the answer - but neither is taking vast amounts of demand out of the economy and ending up where Eire now is, where their debt is rising because tax receipts have collapsed and unemployment benefits have skyrocketed due to their ludicrous attempt to drastically cut their way out of the mess.

    We need to unravel the bank bailout by selling the asset to pay off the borrowing in a sensible timeframe and what GO is doing isn't sensible if it drives the UK economy into a deep recession.

    The only way out of the shambles is to stop the tidal wave of imports to sort out the balance of payments through trade policy. Companies will then have to make things in the UK if they want to sell them to us - jobs increase, GDP rises, tax take rises ans welfare costs fall.

    Globalisation has failed - the City may love it, but it's killing the rest of us. We can do this in a planned way or we can allow the anarchy of the market to do it for us. As Sterling continues to slide inflation will erode our debt, but it will also cause a steep fall in living standards.

    World population rising and global warming are already creating food and energy shortages that will impact the UK very badly.

    Free trade sounds good - but it isn't sustainable and the abuse going on in rigging exchange rates, exploiting repressed workers and market rigging - oil etc - means that those that play by the rules get scr*wed.

    The manufacturing jobs offshored must be brought back - we must end our addiction to imported oil and food and refocus the economy towards being self-sufficient. The only way to do this is through government action - the private sector won't make it happen - indeed its greed caused the problem in the first place.

    I'm afraid the City is a millstone around our neck - we became dependent on it for tax income, but it's simply a portal to syphon resources overseas and we then have to bankroll its gambling as the taxpayer is expected to prop up the UK banks.

    The odds of a second much bigger bank crisis are very real and the UK will not be able to shore it up again and anyway I'd argue that allowing banks to fail would clear the way to fundamentally restructure the UK's financial system.

    My fulmination is because I fear we are about to go off a cliff into a deep, long lasting recession of GO's making and that the UK will sink into a generational morass of youth unemployment and pensioner poverty and plummeting living standards.

    I covered the Brixton/Southall riots, the miners' strike and the poll tax riots - the head of steam there will be this time next year will see the police (what's left of them) at breaking point, if as I predict we see unemployment topping 5M, GDP down 10%+, inflation @ 10%+ and Sterling down 50% since the election.

    A meltdown in house prices as in Eire would happen - and as tax take falls and welfare costs rise, debt will soar, also as it has in Eire.

    Break the middle class by gutting the value of their homes, their pensions and their jobs, crush their standard of living and the door will open to far right politics.

    We need to steer a middle way between rising debt and driving the economy into recession - there is no monetary option - and the fiscal options are limited - that only leaves trade policy. Allowing the Pound to fall by a third is effectively a trade policy anyway - but whilst it helps manufacturing exports, it hammers the rest of us through rising import prices.

    Ditch the pretense of not having a trade policy - get it out in the open and directly tax imports - create incentives to manufacture here and to invest in food and energy production.

    We will end up in this position anyway as the grain and oil won't be there to import in 5-10 years time and the rise of China and the fall in Sterling will at some point make their exports unaffordable.

    I regret to say that we Brits only learn the hard way. The coalition needs to try and fail badly before we'll change.

  • Comment number 75.

    74... Brits don`t "learn the hard way" Richard ...they never get their hands on the reins of power!

    Look much longer are we going to let a few crooked financiers and their cronies make a shambles of the entire world?

    While we borrow money to fight their wars and borrow money to rectify the chaos they have made in the global economy they will laugh all the way to their banks!

    This requires a global strategy. Expecting the Bullingdoneers to solve our problems is like giving a fox control of a hen house. Their instincts are to feed themselves and not worry about the supply of eggs "going forward".

  • Comment number 76.

    Can I please make a plea here for readers to take an interest in a massive threat to our economy: Mode 4. And Paul, the BBC needs to get on to this pronto before it's all fait accompli and nothing can be done to unravel things. Mode 4 will allow transnationals who win major contracts in Britain to bring in cheap labour from anywhere in the world to undercut the local workforce. Negotiations, particularly with India (Tata at the centre) are taking place as we speak, in secret. There are no formal documents to show what is going on. One person has been researching this for 10 years and she is desperate to bring it to the attention of those who need to know.

  • Comment number 77.


    You mean 'ANOTHER massive threat to our economy' quite a few clamouring for our attension out there I am afraid.

    Anyhow, point taken, a link would be useful though, I found this

    On reading it I am not sure if it is the most informative. In any event it is already 'locked in' pretty much within the EU and has been a dynamic at play in the Uk for some time already, unfortunately, while social benefits are high and a sense of social cohesion are low in this country nobody will complain if (for example) underage eastern europeans with dodgy documents come to man our slaughterhouses or pick our winter crops.

    To use a class system we are a nation (broadly) of

    1) Imported labour for totally unskilled labour markets
    2) A benefits class
    3) A benefits plus black market casual labour class...who are better off than 2 classes above them, have free time and a reasonable standard of living.. dishonestry pays in britain 2011.
    4) respectable working class- who via 3 above have almost been wiped out via economic pressure.
    5) skilled labour / lower paid professions (teachers, some engineers, middle management and the like) who just about earn enough for it to be worth staying together as a family without claiming benefits but struggle badly and are hammered by taxes on all sides. Increasingly becoming deeply resentful / struggling very badly.
    6) Middle class professionals (doctors /lawyers, senior management etc) - still managing but actively seeking an 'escape plan' from the UK and are getting nervous.
    7)upper class - bankers, top lawyers, old money, etc whom have a massivey disproportionate influence on government in this country through leveraged media and 'old school tie' networks.. They can take or leave UK plc as they please and have already hedged their positions. Not about to give up on their priviledged position and happy to ride the gravy train for as long as they can get away with it.

    It makes me weep.

  • Comment number 78.

    76 Carol...this has been going on in one shape or form since the last war and the lawyers and politicians and the BBC have the whole of society sewn up in such a way that no one can resist the never ending flow of immigrants.

    In fact there`s multi-billion pound industry dedicated to continuing the flow and suppressing any opposition to it.

    People are now so brainwashed and fearful that even my own sons accuse me of racism...and I despair of the mess that is engulfing us because I seriously believe we are heading towards a genocide....though it gets more likely that my "community" will get disappeared!

  • Comment number 79.

    I see that Ed Balls has mentioned Paul Krugman in his interview with the Sunday Independent 30 Jan 2011, having already cited him in his 26 August 2010 interview with Bloomberg. It is time for the BBC to take Krugman's views seriously, especially now that he is being brought into the heart of the political debate, and also because Ed Balls does not reflect accurately Krugman's solution to the economy. To get a proper overview I suggest that you go to his blog and find:

    1. 'Debt, Deleveraging, and the Liquidity Trap' November 18, 2010. This gives you access to Krugman's approach to growth and deficit reduction - both a precis and the acadamic paper.

    2. 'A Far Away Country Of Which We Know Nothing', October 25, 2010, which shows how the US got out of its last liquidity trap in the 1930s and 1940s.

  • Comment number 80.

    I'm quoting from my FaceBook page here, but want to emphasis one point up front: Mode 4 is for temporary skilled migrant labour - graduates.

    These are comments from Richard Murphy’s blog. Richard is asking Linda Kaucher for evidence of her claim that Mode 4 will undermine our economy by flooding it with foreign workers brought in to fulfil contracts secured by big international companies.


    In terms of evidence of the ‘Mode 4′ movement of temporary skilled labour aspect of trade commitments, the EU/India Free Trade Agreement is being fast tracked. Fact.

    The Trade Commission chief negotiator has made it clear that India will not sign up without Mode 4 access, allowing its transnationals like Tata to bring in own labour. Fact.

    The Trade Lawyer from the Trade Commission has said that this is the sole thing that India is asking for. Fact. This is an indication of how important it is to India, and just how much those megafirms expect to get from it.

    But those profits come from being able to offer cheap labour set-ups, outsourcing in particular, onshore, here, without the hassles of offshore. Who loses out? UK workers, displaced broadscale, with working conditions pushed down here forever. Trade commitments are effectively permanent so these effects will continue through generations too.

    In a recession - there can be no pretence that these are extra jobs being created. In services economies, it is wages that are the main cost. This is huge transnationals getting their hands on that, taking control of who is employed with them, ensuring that they get to cream off the main part of the profit from the wage differential between cheaper wage economies and the UK.

    And further evidence from the EU shows that of the 27 Member States, the UK govt is prepared to take a huge share of the commitment on this, in fact limitless. Fact. So what seems like an EU Agreement is effectively a UK one, which none of the other states will object to. Its just that people in the UK arent told about it. It is hidden by ‘EU’.

    The govt recently exempted Intracorporate Transferees from any limits. Fact. So UK national policy is now wide open ready for this aspect of this trade agreement.

    Who is going to collect the difficult-to-collect evidence of effects of labour liberalisation now, and projecting to when this is a trade commitment? Not the government, serving the interests of Financial Services London.

    You need to look to the evidence in the existing comparable structures - EU free movement of workers and services and existing UK national labour migration regulation.

    Engineering construction is using free movement of services broadly. The result is trained workers in this industry out of work around the country while firms bring in own workers. No skills are being passed on. We are losing the skills for an energy industry, as well as the immediate effects on individuals and the national economy.

    In IT, where ICTS are already brought in under national labour migration regulations, they are comparatively underpaid. IT degrees in universities here have slumped as a result.

    Common sense says that jobs going to people who don’t pay NI or tax, who send their cash home, who are employed in preference to those who would be supporting the earn/spend cycle we need, and in the process increase the welfare bill as people here are put out of work - does not auger well for the UK economy.

    I think the onus is to produce the counterfactuals to this - that support the mantra ‘migrants are always good for the economy, and benefit everyone’. If there was open debate about this, rather than silencing by the phoney ‘cap’ process, and liberal sensibilities, it would be hard to make that case.

    If you think this is a minimal economic factor - consider -

    according to Polish academic research, in 2008 1/3 of all the remittances to Poland were coming from tiny Ireland. (Another 1/3 from the UK). Now look at the economic state of Ireland, while Poland is NOT in recession.

    Is it really such a plus that the Olympics has been built to such a degree by cheap foreign labour, taking the cash home and undermining UK workers - even while the price to the public purse has trebled??? Now who would be pretending that ‘migrant workers benefit us all’? The financial services firms - and those who have shares in them…?

    Everyday, in so many areas I come into contact with foreign people working in all sorts of jobs. Maybe its different in your village.

    Simply - a UK person could be doing each of those jobs. The structures, as I have said, benefit the firm to hire foreign workers instead of UK workers - but not the national economy.

    The information about Mode 4 is fact; it is not public information because bilateral agreements are essentially secret (the texts and the offers) until the negotations are completed, and awaiting formal ‘assent’ from the European Parliament. In the EP, the only objections to this agreement are prompted by lobbying by paid devt agency workers - so concerns about how Indian people are affected. No one is raising the issue of the effects on workers here at the EP level.

    The factual stuff I have included here on Mode 4 is what I have bothered to find out. I’ve been researching this for 10 years.

    The EU/India Free Trade Agreement is likely to be at this ‘frozen negotiations’ stage, with negotations effectively complete, in 3 months or so. There is also a huge push in Davos, right now, to get the Doha deal agreed. In that, the EU offers Mode access to all 153 WTO Member States. That offer has been tabled since 2.6.2005.

    I highlight the EU/India bilateral because India is the country pursuing this access hardest. Tata is one of the world’s 10 biggest corps now. That is why this agreement matters so much - enough to go to great lengths to keep it secret from the UK public.

    So no one is going to give you page number references for this - but I have emails from key people, leaked documents, and have been in meetings in the right place at the right time to know what I am talking about.

    If you can’t understand it at this stage - well I don’t know…

    Racism? Forget it. What I am talking about is a huge step forward in global corporate control, with a matching demise of democratic govt control, in this case over labour migration - which is a big deal. It’s a big step forward in the commodification of labour (Polanyi), using the reserve army of labour (Marx) but now of migrant labour, as well as the unemployed he was referring to, to attack working conditions and bring workers to their knees - in one of the few places in the world that labour conditions were established. It rebalances the power of labour and capital, probably irreversibly. How can we ever regain any balance with an unlimited labour supply? So whose side are you on?

    The racism rhetoric has suited the purposes of transnational capital perfectly, with the (supposed) Left closing its ears and silencing itself, or calling other people names. Hasnt it worked well! ‘Supposed’ Left because of the failure - or laziness - re working out what is going on.

    Here’s a bit of evidence for you. Look around the Underground for rather strange posters that say how wonderful it is that Tata took over Jaguar. Subliminal preparation for the Agreement, if workers ever get the chance to find out about it.

    Yes I am certainly critical of people who silence this important material, especially when they have enjoyed a lot of privilege and set themselves up as trustworthy, like Caroline Lucas. We all expect Mandelson, Cameron and Cable to trick people - but they dont play goodie 2 shoes while doing so.

    As for the evidence you demand, of effects on employment and the national economy of the current overseas worker situation - with the evidence all around, alongside the unemployment figures, and the ONS evidence, the onus is now on anyone who refuses to see all this to justify and provide evidence that putting lots of people here out of work is good for us.

    And for all the free movement of labour - the economy here doesn’t look too clever - so prove that foreign labour is so beneficial. Agreed, the negative effects were not so noticeable when things were booming - esp in the Irish housing market!!

    We are the most liberalised country in the universe according to Gordon Brown, so we have endless foreign labour, and every investment opportunity goes to overseas investors - irreversibly, whether its private or public services. That’s what liberalisation is. Who says that is ‘normal’? Why should other views have to prove otherwise? I don’t know anyone who think its great that Tata is the biggest owner of UK manufacturing. Or that kids SATS are marked overseas. Etc etc. So prove that it is.

    The solution is, for starters, public information on what is really happening, especially in terms of trade commitments. No one talks about trade in the media – it’s a black box never to be questioned. Trade agreements are not just a developing country concern, and not just about agriculture and manufactured goods, they are about services and now very much about jobs.

    You have enough public platforms to be useful in this. The smug BBC, missing tricks on this every day, needs to be forced to become informed and start asking some relevant questions. No good just reporting what politicians say that day, when everyone is keeping it off the screen. Mode 4 is for temporary skilled migrant labour - graduates. Graduates here, with high unemployment, should have the chance to know about this.

  • Comment number 81.

    Morning fellow Masonistas!

    I'm afraid I have to agree with the recent gloomy comments. @76. @77. @78, especially @77. The analysis is bang-on Jericoa, though perhaps you slightly overstated the case with groups 4 and 5, for the moment anyway. The crucial thing with these groups is the current cost of housing, the threat of negative equity and the possibility of a future rise in interest rates. Some are in a much worse position than others.

    Business leaders lie about immigration. They say it is necessary because of a skills shortage, which is partly true, but mostly it is cheap and disposable labour, nominally paid the minimum wage, but also often exploited by being charged for what most of us would consider substandard housing. In West Wales care homes this practice is rife.

    As for real skill shortages, that's simply because we don't train enough of our own, as it's cheaper to poach from poorer countries. I'm absolutely reliant on the skills of my (excellent) Indian gastroenterologist and his Indian assistant. Although we don't train enough skilled workers of our own, higher education has plenty of pointless courses. Like some Arabic countries, we too are "educating" a class of young people who will have no proper job prospects.

    I believe that Jericoa's classes 1) (and maybe 2) and 3) ) have been deliberately created to divide the ordinary people of this country, so that in bad times the right wing press can divert anger away from our ruling class.

    Another crucial issue is inheritance tax. Especially since Lloyd George's budget in 1909, this has been crucial for enabling some social mobility in Britain. There have been calls in Tory ranks in recent years to abolish it or weaken it further.

    The issue is now dormant in view of the financial crisis, but I'm sure it will rear its ugly head again.

    The gap between rich and poor in Britain has grown enormously in the last 20 years. I belive that the powers that be have a deliberate policy of entrenching those differences and creating a modern feudalism. Sooner or later this will lead to violence. In the natural world, all you inherit is your genes: everything else you must fight to gain or hold. As Tunisia and Egypt have shown, people without hope have nothing to lose!

  • Comment number 82.


    I appreciateb the passion in your post (wish there was more of it in brainwashed britain).

    Still not convinced though that this is anything new that would (specifically?) damage graduates prospects here.

    The vast majority of uk graduates over the last 10 years have been sold a lie that a degree will get them places, it has provided many with an unrealistic expectation of a particular career path.

    When I graduated 7.5% of the population went to uni or poly (as was) it is now 40%. Yet people have not got any 'smarter' the system has 'dumbed down' to accomodate them and many found descent jobs (or non jobs created by Govt) in the boom.

    Now the myth is being horribly exposed. We have an army of graduates who were sold debt slavery with high expectations that 50,000 year on year 'media studies' graduates would all become Peter Sissons or Holly Willoughby etc etc.

    Those who do tough degrees in the uk (still a small percentage) still graduate with good career prospects both here and internationally irrespective of Mode 4 I would say.

    The expansion has come in 'non degrees' which were satisfied by 'non jobs' in the boom years.

    Mode 4 is certainly one dynamic to consider but I fear it is much worse than that if it is Graduates you are particularly concerned with.

    Even if Mode 4 is reversed there will still be no real jobs or sense of valuable purpose for the majority of graduates due to the dynamic described above.

    What we need is something close to a revolution in this country which critically re-examines our constitution and economic base in the context of a modern world.

    For that to happen all students mentioned above will have to wake up a bit, stop blaming it on foreigners and get angry at issues closer to home.

    The kind of vision offered by NEF is a good starting point for what a new kind of society could look like.

    Happy to debate more,dont lose you passion and keep an open mind.

    all the best.

  • Comment number 83.


    It's not just graduates who are in danger. I was responding to an earlier comment which seemed to suggest that it is unskilled jobs which are under threat here (actually I don't think that was the flavour). The UK is particularly under threat here because major engineering etc contracts go mainly to transnationals, unlike in rest of Europe. But negotiations are being undertaken (on our behalf) by EU reps. No one is therefore batting on our behalf. The ConDems are openly for the free market.

  • Comment number 84. you seriously think people do "blame foreigners" for the situation? I think that is put around to deter people from making criticisms of our ruling elite.To make us feel guilty.

  • Comment number 85.

    71. At 6:05pm on 29 Jan 2011, stanilic wrote:

    'I think Egypt illustrates the crass foolishness in educating young people and then not allowing them to get jobs.'


    In light of the comments on here re GAT Mode 4 (thanks Carol Wilcox)...maybe the idea was for the young educated Egyptians to be exported (just like a commodity) to the more developed nations to work for large corporations. However, they all got restless before they received their export notices.

    BTW Carol...I work for a large multi national corp engineering company. I work in an advanced research and dev centre of around 500 persons. Approx. one quarter of the employees there are graduate imports from India and approx. a fifth are from Poland. Oh, and by the way, my company has significant contracts with TATA.

  • Comment number 86.

    Carol Wilcox

    If Paul doesn't bite re GAT Mode 4, you could possibly try George Monbiot. He's a very good investigative journalist who writes for The Guardian.

    His website is here...

    ...and he can be contacted here...

  • Comment number 87.

    74 richard bunning

    The debt figures I gave excluded the bank bailout for the simple matter that the game there is till afoot and the numbers remain in play. Yes, I would agree that it is possible that eventually a paper profit might be achieved but this will only excite the bean-counters. The real cost is just crippling and is wholly unappreciated by the banking class.

    The Republic of Ireland is experiencing the same sort of debt spiral which the US is just starting to escape from. This will be more problematic for the Irish for the simple reason they do not have their own currency. We could well undergo a similar experience if and possibly when the UK domestic property market finally spins down the plug-hole: fortunately we do have our own currency. Both my immediate neighbours are already in trouble because of the excess debt they have taken on in the expectation of geting something for nothing. No sympathy, I'm afraid.

    The time to prevent this sort of thing from happening has long gone. The only way to avoid the consequences of debt is to never get into it. However, UK governments of all colours have had this desire to spend the future for jam today for far too long. I can recall having a horrible vision in 1980 at the start of that recession of the money finally running out leaving us all high and dry. I never thought it would happen but it now has.

    I regret to have to inform you that we off-shored our control of internaitonal trade to Brussels when the single-market was created. Therefore whatever options have to be adopted to ensure tariff increases so that we can achieve a rebalancing of our economy need to be conducted through a European context. This has its good points and its bad, but given there are other European countries facing similar dillemas to the UK there is eveyr possibility of a common policy being developed. I just wish there was as a sense of urgency from the policy-makers.

    I wholeheartedly agree that the City is just an illusion of prosperity as if Canary Wharf was some sort bizarre vision of El Dorado designed to tantalise the poor with its inaccessability. Although I did enjoy the story of the man recruited by a major bank on GBP 165,000 per annum who proved to have a bogus CV. He was found out after a month: pity it took a banking crash to find out the others.

    The Brixton riots burned out a good customer of mine and my old car went up at Broadwater Farm but by then the economy was slowly getting better. It was ironic as my employer at the time could not get applicants for jobs at the same time as people around the corner were rioting because they were unemployed. I don't think these issues are currently relevant. Neither do I think is the miner's strike which was very badly handled by the NUM and expected by the then government. The poll-tax riot again was before the 1990 recession began. Once things get better, then we can expect trouble: at the moment most people are hunkering down to survive the hard times.

    After the recession of the Nineties there was an industrial recovey bouyed along by the relatively low pound, the adoption of improved supply chains, the flattening of management hierarchies and a strategy of training. I don't like having to admit it but Hesseltine did a good job at the DTI in thiose days. Industry needs a champion of that quality in government today.

    There is already evidence of China failing in providing predictability in their supply chains which is causing European manufacturers to source within the EU. We do need to access more of those opportunities but high domestic costs are an issue. This is where government could oil the wheels.

    Whilst I sympathise with your view that the Coalition is not making sufficient progress in these matters but they have only been there for nine months. These things take time but there has been a certain detachment on their part in progresing policies for growth. Osborne to my mind is a bit out of his depth as is the Prime Minister but then so were their predecessors. Just what can you do? The government is always there and you have to deal with it accordingly.

  • Comment number 88.


    ok I got slightly the wrong end of the stick. In a paradoxical way the mismanagement (or attempt to placate) our youth could be the best chance for creating a force for change,if enough of them can be torn away from the endless stream of modern day distractions (like lotus eaters)that is... a good old fashioned dose of austerity may do that.


    '' you seriously think people do "blame foreigners" for the situation''

    I think a lot of people think like that actually (although not so much students) as is has sucessfully been made into a 'taboo' subject in the media and enshrined in various laws designed to promote 'equality', particularly in the workplace, which, of course, gets taught at Uni. I am always deeply suspicious of 'taboo' subjects, it makes me want to get right in there and look at the 'why' of it.

    It is interesting, before I left 'corporate world' last nov they were , in the private sector, starting to use what they term 'behavioural competancies' in employee selection and promotion processes to get (in part I believe)around equality legislation. It seems to be becoming very popular now.

    The 'behavioural competancies' the company selects as its core or role specific requirements for employment or advancement are 'pseudo science' psychological tests or even physical ones which could preclude certain cultural backgrounds but without recognising that as the reason, they eek out certain 'unwanted' attitudes rather than the cultural causes behind many of them, which does beg some interesting philosophical questions surrounding 'taboos' and the like...for another time maybe.


    Thanks for the feedback Sasha, 'class' has become a kind of taboo subject as well i think, but I find it invaluable to consider the social / economic dynamic in terms of classes, not to pigeon hole or 'judge' but simply to aid understanding. The traditional 'working, middle, upper' model is way out of date now for modern britain at least. If I get chance I will try to refine it and post it taking on board your comments.

    over and out.

  • Comment number 89.

    Recent posts re Tata
    Many of you may not have realised that with approx 2 million unemployed - graduates and all, the government has signed away the contract for administering the new NEST pension system to, you've guessed it, Tata.

    I was also advised that the NEST scheme will very soon become compulsory rather than auto-enrol/opt out initially planned. So that's effectively a new tax.

    Why would unemployed graduates get angry when they have computer games and daytime TV to fill their waking hours and the bank of Mum & Dad to ensure they do not starve? If they are successful at getting a decent job they will only have to pay back their loan. I am stunned at how little evidence there is of crisis there is, even in less affluent areas.

  • Comment number 90.


    The really worrying thing was that IMHO the Thatcher government only managed to pull the economy out of the deep recession they caused - (i.e. by spending cuts + LIBOR @ 20%+ in a vain attempt to stay in the ERM) - by deregulating the City via Big Bang.

    Big Bang let loose the banks who fuelled the boom with cheap money and dodgy finanical services products - mortgages, pensions & savings.

    Exports also played an important role as the devaluation restored competitiveness, but the reality was that whilst other countries nurtured their manufacturing, we stabbed it in the back.

    I cannot see anything that is going to repeat this escape trick this time - we're re-regulating the City, money is tight, the banks aren't lending and our export markets are also floundering.

    The Pound has already been devalued by a third - if we go back into recession then tax take falls, welfare bills rise and borrowing goes up as it has in Eire, then there is the meltdown in the housing market so well explained on R4 yesterday, I can't see any way out - we'll be in a WORSE position than Eire because our currency will be exposed without EuroLand to share the strain.

    What does this all mean?

    A steep rise in import prices - fuel, food, manufactured goods - a collapse in the stock market, another round of "panic" spending cuts with real pain attached - a wave of house repossessions as happened in the USA, Spain & Eire - this is what will spark the civil unrest IMHO.

    Teresa May should think long and hard about cutting the police numbers - she's going to need them - and with the Armed Forces cut hard and the Army at full stretch, it could be a very close run thing in rioters getting the upper hand and the police losing control of the streets.

  • Comment number 91.

    90. At 11:12am on 31 Jan 2011, richard bunning wrote: could be a very close run thing in rioters getting the upper hand and the police losing control of the streets.

    Sooner the better.

    We have been told in the past by the Tories that a short sharp shock is best.

    Bring it on.

  • Comment number 92.

    90 richard bunning

    I wondered when the word `thatcher' would appear. Whilst I would never use it as a roofing material the Left have to stop digging up the bogey because it throws them into a blue funk.

    Thatcher was a phenomenon but she never achieved what she set out to do which was push back the frontiers of the state. All she did was centralise the state making T Blair's task so much more simple and more dangerous. Then, when the old girl actually started to knock the big local councils into line, the Tory grandees could not shuffle her out of the back door fast enough. The Tories don't want a small state as it would stop them from feeling important.

    The big mistake of the Thatcher era is never spoken about and that was the refusal of her government to reinvent British industry. After the Seventies most of it was on its knees, but with some investment, better management and rational trade unionism it could have recovered very strongly. However, the real issue in all of that was the value of sterling.

    The City - and Big Bang was not until 1986 when the recession was well passed - needed a higher rate of exchange than industry could tolerate. The existence of North Sea Oil ensured that the rate of exchange drifted higher than exporting industries could sustain. This is one of the reasons why our industry has steadily declined over the last three decades. A high rate of exchange against the US dollar means unemployment at home.

    The Blair-Brown era continued this policy criminally preferring to use City profits to sustain welfare rather than ensuring that there was work for all at a decent wage.

    Currently sterling is at a workable rate against the dollar for industry but it periodically climbs towards the US$ 1.60 mark which is not healthy at all. However, the sterling-Euro rate continues around the very useful 1.15 to 1.20 rate. This is why our manufacturing sector is doing better than previously but it is having to grow from a very narrow and weak position. It needs to be nurtured.

    I think we can all work ourselves into a froth over trouble on the streets. It happens from time to time and it is quite ugly but so long as nobody gets killed or seriously injured then it can be taken as it comes. It need not have any significance as generally speaking the British are a docile crowd with a dislike for disorder.

    The big issue has to be over the reform of the banks followed by a rebalancing of the economy. If, as it appears, the banks are going to resist reform and the Coalition fails to take them on, then here is a policy issue around which the entire country could unite. At the moment it lies peacefully in the remit of the Banking Commission but potentially it is political dynamite. This is as big as the foundation of the Welfare State and will define what sort of society we are for the next fifty years and more. This is going to be worth the struggle, this will be the political earthquake.

  • Comment number 93.

    Maybe the only way out is a 'double dip'. Growth can only be 'organic', other than more QE there isn't many other options, and if Joe and Jane Public are too heavily in debt here then it has to be exports. With the massive overhang of private debt still to be paid down there is no alternative. The days of easy credit fuelling a 'want it all, and want it now' lifestyle are well and truly over, the world is a radically different place. It's not just the bankers that did this, it's also the people with two or more credit cards and a 100% plus mortgage.
    Regards, etc.

  • Comment number 94.

    A shortage of a new blog from Paul.

    Was the British Airways first class cabin Heathrow to Cairo so full of BBC journos that Paul has been sent on a camel?

    I await eagerly the economic ramifications for the pyramids.

  • Comment number 95.


    There is a good post from Mark Urban on Egypt worthy of debate.

  • Comment number 96.


    Paul is alive and well and last spotted at the LSE yesterday evening:

    The lecture and Q&A was very informative. It just goes to show that a group of educated people CAN severely critique the banking oligarchy maturely, with not a whiff of "mindless banker bashing".

    A Podcast may well be available in the next few days.

  • Comment number 97.

    An interesting and thoughtful piece Mr Mason.

    I particularly like the bit:

    'Since dirigisme failed, can a version of modern laisser faire succeed? As I've said before - probably not without some modern form of selective protectionism to go alongside it'

    That is the connundrum for the govt and all politicians ... will it upset the establishment ... can this be achieved without rattling their chief vested interest 'benefactors' to put it ... 'diplomatically'?

    Probably not ... and also and I would be interested here your views on the need for 'flattening out' the 'peaks of vested interests' and their 'privileges', monopolies, oligopolies, cartels, ... banks & supermarkets included ... to rebalance and redistribute and protect our domestic economy as I think your excellent analysis is otherwise a bit weak on domestic -v- global interests in the UK economy.

    My thinking is that 'modern selective protectionism' can be combined with 'vested interest flattening' to have massively strong rebalancing and redistributive effects in the UK domestic economy ... to everyone's benefit in terms of national real net disposable incomes.

    Only the vested interests themselves don't want it although most do not understand the issues anyway?

    That's why Newsnight could just put a glimmer of hope there for the real UK economy i.e. 'us' ... consumers, debtors, parents, taxpayers, workers, job-seekers etc?

  • Comment number 98.


    Arguing for a lower Pound in the coming era of massive price inflation in energy, food and other imported goods is dangerous - it may help one part of the economy but it hammers virtually all others.

    I agree with you about banking reform and I am with you in my determination not to budge on it.

    I did forget about the N. Sea - a bonanza squandered on tax cuts for the well off and a splurge of imports whilst industry was hung out to dry - compare this to Norway's Sovereign Wealth Fund - the oil money invested for the future.

    Thatcher herself is as you infer not that significant - what was significant was that Thatcherism was the crystalisation of Libertarian influence in British politics - I was making current affairs programmes at the time for C4/BBC and the IEA and ASI were all over the Tories like a rash - indeed Keith Joseph was probably more important in welcoming them in and opening channels to the NeoCon right in the USA than Mrs T. herself.

    This so-called "New Enlightenment" then insinuated itself throughout British mainstream politics and led us to swallow The Washington Concensus of deregulation, privatisation and globalisation. I was involved in various media projects at the time and I can confirm that it was a concious, deliberate policy of entryism backed up with serious money from the USA and the likes of Bernard Mathews in the UK.

    This has to end - globalisation is deeply damaging to societies, economies and the environment - indeed it will end one way or another because the finanical system simply cannot cope with production taking place in one economy and consumption in another on the scale we now have with China, etc.

    We can take action ourselves and manage the process or simply sit back and wait for the final finanical crisis to destroy the banking and finance system.

    However we are a bit stuck on which way to reform the banks - break them up and separate casino capitalism from retail banking - or maximise the value of HMG's holdings in them - currently £75 Bn worth?

  • Comment number 99.

    The biggest ‘privilege’ which is never addressedbut has the wident distortionary effects is untaxed landownership – rent. Where do you think most wealth is vested? Do you recognise the reason why banking has become so profitable? Banks used not to provide mortgages. Now they are collecting huge amounts of rent via interest on mortgages on inflated land values.

  • Comment number 100.

    #93 RWW
    But nobody is telling the country that a 'want it all, and want it now' lifestyle are well and truly over. Most of the population will have to work that out for themselveswhen inflation pushes up the cost of essentials and all of a sudden the credit limit on their cards stops rising.
    Someone somewhere has to wean us off credit driven economy - the banks will not as this is where they make money. many have got into serious trouble by habitually paying the minimum each month rather than clear the whole balance.


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