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Are we all long-termists now?

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Stephanie Flanders | 13:03 UK time, Tuesday, 9 June 2009

The shadow chancellor has given a surprising speech this morning to the Association of British Insurers - well, surprising to those of us who did not imagine he was a fan of Will Hutton.

I'll explain more in a minute. But, as an opener, Mr Osborne makes a fairly bald claim about the markets. He says that:

"the credit ratings agencies and international investors are looking beyond the election to a potential new Conservative government for reassurance that Britain will get its public finances under control."

There aren't any polls of international investors, so we can't know for sure. But every conversation I have with bankers and city analysts suggests that this is true. Investors read opinion polls, and right now, ironically, the expectation of a Labour defeat might well be making the Treasury's job a little easier by giving them breathing space they might not otherwise have had.

At least one senior civil servant I've spoken to believes that the pound and the government debt market have been helped by the fact that "the markets are expecting the Conservatives to get in and slash spending."

It makes for a nice line in a speech - Osborne goes on to say that "re-electing the incumbent government is now the risky choice". But it also puts enormous pressure on him to deliver a credible economic plan.

Does this speech have the makings of such a plan? Well, no and yes. Osborne has very little to say here about how he would meet the rating agencies' call for dramatic action on the budget, if he ever becomes chancellor. That's a pretty big hole.

But longer term, he does make the point that it's not just public borrowing that has to fall. For a more balanced recovery, private borrowing also has to fall and saving has to rise. That's where things get a little more interesting.

He has a list of ideas for boosting private savings, like abolishing the basic rate tax on savings income, which he's raised before. But perhaps most eye-popping, for those of us who've been around for a while, is the shadow chancellor's admission that Will Hutton was right all along.

You may remember that Will Hutton - now chief executive of the Work Foundation - wrote the 1995 best-seller The State We're In which, for a time, was New Labour's bible on all the things that were wrong with the UK economy under the Conservatives.

The book's basic line, which its author has come back to lately, is that our economic system encourages short term rent-seeking and undervalues long-term investment in productive assets. It's fair to say that it received pretty short shrift from Conservatives at the time.

Will Hutton and George OsborneNow, after years of Conservatives promoting a largely "hands-off" attitude to investment, George Osborne seems to have decided that Hutton has a point.

He says that he's not talking about "picking winners and national champions". Heaven forfend - no-one would admit to that these days. But he wants "a long-term and more strategic attitude to investment in infrastructure, skills and new technologies".

How these exciting new investments - in a high speed rail network, for example, or a new electricity grid - will be paid for is left a bit vague ("the role of government would vary according to the investment").

But at the heart of all this, he says, will have to be a more long-termist financial system. For years, the Conservatives have defended the City against claims that it was too short-termist. Now the shadow chancellor admits that "the events of the last two years make the charge of short-termism harder to refute."

How do you make the City take a longer view? With difficulty, as I think even Will Hutton would admit.

Mr Osborne talks tough of reforming bankers' bonuses, as Robert Peston has noted today. He also wants to give institutional shareholders more power and, of course, to have better financial regulation. Doesn't everyone?

He also, in a very Huttonesque vein, talks of creating new institutions to invest in start-ups and entrepreneurs. Here too, there's an admission that that there are investments that the market isn't good at making.

Whether government-sponsored institutions are any better at making those investments, of course, is another matter - but I'm fairly sure that you could find speeches of Gordon Brown's, when he was shadow chancellor in the mid-1990s, saying similar things.

All in all, a rather surprising speech from the the shadow chancellor for anyone who's been listening to Conservatives talking about markets and the economy for for past 25 years. I would be interested to know what John Redwood, one of the party's most ardent free marketeers, thinks of Osborne's speech. But who knows? Maybe the financial crisis has turned him into a fan of Will Hutton as well.

Here the rub. Mr Osborne can talk about long-termism all he likes - but whoever wins the next general election, the single most important priority facing the government will be very short-term: proving to the markets that they have a credible plan for putting borrowing on a stable path. The international investors who set the price of government debt and the pound are not known for their patience, and I suspect they never will be.


  • Comment number 1.

    When are the banks going to starT lending to the building industry again??
    Many firms are on the brink, many of them with projects they have won but which the clients cannot proceed with because the finance is not available.

    What is the Goverment ACTUALLY DOING about this? These are mostly our banks now and the Government does not appear to be following thro. on it's good work in saving the banks, has it forgotten what it saved them for? i.e. to be 'BANKS'.

  • Comment number 2.

    I think you touch on the GBP 224 billion question or is it just the GBP 175 billion question: just how does the next government get from where we are now to where we need to be.

    The answer is `with difficulty'. This problem has been creeping up on us for a long time and it will take a long time to deal with it. Do the markets have that amount of time? I fear they will just have to adjust. The markets can have their expectations and their desires but we have reached the point where their expectations and desires are cloud-cuckoo nonsense. If they don't shut up then it might be necessary to shut them up.

    The next government is firstly going to have to bring public spending back under control. This will have a murderous affect upon the public sector and, since it will mean axing a lot of very well rewarded jobs, on the level of demand in the economy. The current government already has GBP 49 billion cuts in the system it is refusing to talk about so weird and arbitrary things are already happening in the public sector. I think there are going to be a lot more very unhappy people about in due course.

    The big issue is going to be with longer term investment presumably in infrastructure and manufacturing. A lot of this can be achieved by switching public expenditure away from the abstruse into things like railways and social housing. This can mop up a lot of the skilled unemployment and generate demand in the economy but do we have the right skill-sets in the economy without immigration? Perhaps we need to start training first. Anyway we need to refocus the taxation system onto economic development and investment in business.

    The question I have is whether all this is politically acceptable? Shutting down vast swathes of the public sector will lead to political unrest. Forcing the largely soft population of Britain into careers making things when they would rather sit in front of a computer screen all day is also not going to be easy. I would suggest that we get a shirt-sleeve government as this has to be turn around time.

    I have helped to turn around a few businesses in my time. What you have to do at first doesn't make you popular but once the people can see you are hard at it and the thing is working they usually shut up and join in. This is the sort of government we need; it is going to be a hard trick to pull it off whilst the markets are looking over your shoulder in a jeering and abusive sort of way.

  • Comment number 3.

    Steph you say : "it's not just public borrowing that has to fall. For a more balanced recovery, private borrowing also has to fall and saving has to rise wait a mo ! are we not in a recession ? and is this not, a priori (based on dodgy economists models) caused by too much consumer savings who need confidence to spend their excess savings ? and you want more savings ? let me help you with your confusion : If I pay you as a worker 10p to make a widget and you want to buy that widget as a customer then you cant afford it from your wages because its on sale for 11p. So, because of the silly financial system we use instead of NEFS Net Export Financial Simulation, you have to get money from somewhere else to have a life. The silly Spanish raided the Aztecs to get the extra money back when gold was used, nowadays, the silly Brits go into debt to get the extra money - buying and selling each others houses for more money, credit cards, government debt. In each case the Double entry bookkeeping at the bank is
    Dr Loan Account 1p
    Cr Current Account 1p
    this current account is money and it appears without the bank needing a saver to borrow it off the bank creates 1p of saver and 1p of borrower in the same entry we dont need savers to have borrowers ! So think of double entry bookkeeping ask someone in the accounts dept to explain it to you.
    Your statement - We need more savings - means we need more borrowings !they are the same accountancy entry - two sides of the same coin - have a look a the national accounts - every penny that anyone has in the whole country is matched by a loan of some sort - to the penny.
    If private borrowers pay back their debts - reduce private borrowings as you say, and government does the same then we will have no money left... unless some other body - business ? borrows more - business will borrow only what it needs to make a profit and if there is no money left then they will not be inclined to borrow so much. If this is too complex for you then you can use the free financial_scenarios.xls spreadsheet model at the NEFS site to learn how the basic patterns numbers work in an economy.

  • Comment number 4.

    In this balance sheet recession, banks will repair their balance sheets before anything else. This means they will hoarde cash and only lend to the few safe risks that exist (asides of the certainties of death, taxes and...public sector pensions).

    The reality therefore is that George Osborne has no options but to create new institutions to invest in start-ups and entrepreneurs.

    His "too big to bail" speech was a welcome move towards smaller banks therefore allowing regular but small banking failures to happen, but more and more regulations could foster even greater devious activities.

  • Comment number 5.

    The politics of politics always carries the smell of insincerity. Critics will need a plan, something specific this time and not just the jingles that have gotten people elected. Maybe the public has smartened up a little and will ask those seeking office exactly what it is they intend to do, with details.
    The banks continue to play their power game and hope to avoid accountability and any new regulation that might impact their dishonest book-keeping and high-risk ventures with other people's money. The banks crashed the economy and now will let it continue to decline as it protects high salaries an expectations that previous political donations will result in further promotion on their agenda and protections. The economics have taken a back seat to the organization and distribution of power. In Asia there is a saying: When the elephants fight, it is the grass that is trampled.

  • Comment number 6.

    #2 stanilic said : "Forcing the largely soft population of Britain into careers making things" - stop being such a miserable economic Puritan ! (make'm work hard -it'll do'em good) Be an Economic Catholic as it were : Thanks to modern computerised production technology we already have too many things. Thanks to modern computerised production technology only a small fraction of the population are required to actually work. So by the grace of the state of our industrial development we can all be saved/free.... but by the curse of our pre-machine age financial system we use, if we don't go and make something else whether someone wants it or not, then we will starve - Shall we have another war with Germany to fight for export markets to sell our excess production to ? or... Plan B Let's have a modern financial system that is based on the machine that recognises a) The purpose of the economy is Humans (our happiness etc) but b) that it does not require full time full employment of human labour to provide for all our creature comforts. NEFS is a starter for ten in this direction

  • Comment number 7.

    At his press conference last week, to detail his new cabinet, Brown, in response to a question asking him to be honest about spending after the election, asserted very clearly that it will continue to rise.

    I am surprised that the media did not pick this up.

    It suggests that if spending is not going to be cut - taxes will have to rise massively.

  • Comment number 8.

    It does seem to me that there is smoke around the term 'Government spending,' especially by Gordon Brown who spins that any question of public sector spending reductions will take out infrastructural improvements. All spending by the government is lumped under that term but as the article and one of the previous posts indicates, it is capital expenditure that will give us the long term benefits and should (assuming the project is worthwhile), be preserved at this time. The spending from the current account is what needs to be scrutinised and attacked.

    As one of my previous bosses once said, 'cost walks in on two legs' so having a go at the bloated public sector will not only reduce spending in the short term but also the long term if these cuts are made permanent. And it's not only their salaries -- they have to have somewhere to sit, a computer screen, employer pension and NI contributions, sick pay etc etc. These non-jobs everywhere in the public sector like Diversity Advisors are just the tip of the iceberg. The manpower used to track and try to fiddle performance against targets is another example. The private sector, and manufacturing in particular, is shedding labour, the public sector is still hiring, paid for by borrowing.

    Anyone who has had dealings with the NHS recently will know that the waste in the system just in terms of making an appointment, let alone at the point of delivery, is huge. These billions on NHS computer systems are either not delivering or the systems are not being used. It also can't be rocket science to train managers at the sharp end to walk their patches and enlist their teams' support to look at improvements that can be easily and cheaply implemented. The Japanese showed us how to do it in manufacturing 20+ years ago!

  • Comment number 9.

    Mr Osbourne is right to talk about sustainable growth over the longer term, since it is important to depoliticise the long-term UK economic strategy from short-termist party-politics. Populist decisions such as 'tax raids', and even 'excessive profit-taking' by private firms, are never going to be good sound economic sense. In order to overcome the 'boom & bust' economics driven by debt-fuelled consumerism, a total economic reform is required and a different ethical process installed to ensure proper adequacy of investment and more moderated profit-taking.

    Pension policy is a great example of why it is necessary to consider the longer term view, since these are 'lifetime' contracts and should be upheld regardless of political expediency, rather than subjected to interim-change, as we have seen with Gordon Brown's disasterous meddling with the taxation system and the subsequent closure of almost all company pension funds as a result of his meddling.

    Banks could learn a lot from the LMX scandal of the 80's, when insurers reformed their business model and set in place sensible controls on reinsurance contracts. The same could equally be applied to the mortgage and debt-financing sectors.

    In terms of the economy, I am convinced the Conservatives will have a very strong plan for recovery; at least they listen to ideas from their constituents (as I know from personal experience) when it comes to plans for economic reform and I have found them much more receptive than the current incumbents in listening to positive input.

    Finally the message seems to be getting through.

  • Comment number 10.





  • Comment number 11.

    "He also, in a very Huttonesque vein, talks of creating new institutions to invest in start-ups and entrepreneurs. Here too, there's an admission that that there are investments that the market isn't good at making."

    More ammunition for the interventionists: the market has failed, they scream, therefore, the state must intervene (and no, I'm not trying to be poetic!). Even the clueless Tories can't resist it!

    "Whether government-sponsored institutions are any better at making those investments, of course, is another matter..."

    Yes, Ms Flanders, it is quite another matter. Does anyone really believe that more government bureaucracy is the answer to turning the "economy" around?

  • Comment number 12.

    "a long-term and more strategic attitude to investment in infrastructure, skills and new technologies".

    Well there's the truth of the saying "be careful what you wish for". This is a synthesis of what I've been asking for over the last monhs. So why does it depress me so?

    Perhaps it us the expectation of savage cuts in public spending that will accompany it. The track record of previous Conservative administartions would suggest that rather than taking on the hard choices they will 'clean-up' the benefit systems and create yet more problems in the long term.

  • Comment number 13.

    Are we all Chrematisticians now?

    When did economics become subserviant to banking and finance?

    If politicians and (so called) economists are to be true long-termists (and not puppets of the banking classes), then perhaps time to institute some major policy reforms:

    1) Gradual return to 100% reserves for banking (end the farce of privatised debt creation)
    2) Regulation AND taxation of financial transactions (as most do not add value to society, merely redistribute fictitious wealth, i.e. debt)

    A genuine economist would understand the real origin of wealth, and the long-term prospects for a society:

    Any chance of doing an interview with Herman Daly?

  • Comment number 14.

    Message 6 GlenisDevereux

    Yes, I am a puritan, plain and simple, who sees salvation in work. This does not prevent me from working smart and does not preclude me from enjoying and deriving personal satisfaction from that work.

    I find your view that computerised machinery allows us sufficent suplus value for us all to enjoy our lives rather than work as quite simply so last century. I can recall some fifty years ago being told that in my life time we will only need to work twenty hours a week. Even dear old Karl Marx argued that under socialism we will all be able to go hunting, shooting and fishing in the afternoon.

    Nice idea, but it is in our dreams, isn't it? All my life I have known that you can only get the money on which to live by producing value with which to pay one's way. It is called meeting a wage bill. I don't like it either but it is the way it is all over the world.

    I am now going to sound off like a tired old wind-bag. The problem with this country is that we have forgotten the value to be found in work. We pay people to be idle. We pay people to perform pretend jobs in the name of perceived social progress. We pay people to do jobs they can't do and then reward them with a bonus when they fail. We also pay people to get their moats cleaned and to buy trouser-presses. However, do we reward people who go to a factory, a warehouse, an office or a shop five, six or even seven days a week, to make things that other people want to buy, to service the needs of others, to make all our lives better? No, we penalise such people by taxing them hard on their income at the same time as complaining that they are being paid too much for what they do. It is a joke!

    As a society we need to find a way to create value so we can clear these monstrous debts that have been stuck around our necks by the incompetent. I can see ways in which this can be done but the one message that I keep getting is that it is going to take a very long time to come out on the other side.

  • Comment number 15.

    #2 #14 Stanilic

    Cut hard, cut early... classic advice... just what we haven't done!

    I agree with a lot of what you say - truth is also that the politicians are scared of inflicting the pain the country needs to go through to change. No bad thing you may say in a democracy, but we haven't faced up to the problems for years and this just puts off the day of reckoning.
    Don't sense the current generations have the appetite for pain or even any discomfort...not until the noses are against the wall.

    We still haven't dealt with the pensions time bomb let alone aligning rewards with work and honest toil.

    Anyone advocating service/media led recovery is delusional - just ask ITV.

    The more the painful choices are put off the larger the cost, financial, cultural(i.e. social fabric, reputational for the UK and quality of life in these islands and the West) and political. What price politics after 10 years or 2+ parliaments of austerity?

  • Comment number 16.

    #14 "paying people to be idle"

    What you have described is what Tainter would call the parasitic class. As societies become more complex, many proclaim the wondrous "progress" being achieved, but all the while lurks diminishing returns:

    Science is running out of steam (well, oil to be more precise!), and yet the masses feast on trash TV and gluttonous consumption.

    Put Tainter together with the likes of Daly and Soddy (see post 13), and not only do you see the real causes of our current predicament, but what it means for us all if we continue expending natural resources on frivolous artefacts and a freeloading mentality.

    The rise and fall of Homo Consumnivores.

  • Comment number 17.

    Re #14. Thank you stanilic for your reply. I have similar feelings to your "We pay people to be idle..." paragraph - but I try to suppress them and ignore them. We all have a Puritan in us but I think that Puritanism isn't so much a religion as more a defect in human perception - we see miss the wood for the trees. Whether you agree with abortion or not I don't, it's a pretty desperate state of affairs that 600 mothers are so desperate/un-caring/something ! in our pinnacle of thousands of years of civilisation advanced country that they end their un-born babies lives every day here in the UK. Where is the daily hand wringing about this that is anywhere near the Puritanical moral outrage caused by a trouser press receipt! - I think you have to dis-engage your emotions and engage the thnking part of your brain - make sure your brain is focused on the big picture, the facts... things like that. As a rule of thumb, if what you have to say can be said in a pub with a beer in your hand and starts with the phrase " an' I'll tell y' somethin' else ..." it's probably some small stuff that you shouldn't be sweating over.
    I want you to think technically about the next bit I'm gong to say : You say that the surplus created by machines is a myth/ an unrealistic dream going back 200 odd years at least. But then you tell me that we pay people to be idle and do pretend jobs - you could add to that list 30 odd years of 'work' done in the city of London now that they've lost every penny they ever earned ! Ok now take your annoyance and sense of injustice about this away : from a purely technical point of view - is it not a fact that we have had the production capacity to afford for all these people to have stayed at home and never have gone to work ever ! and I don't just mean 30 quid a week dole money - I mean BMW them up - just like they have been ! - And yet BMW are no where near to running out of BMW making stuff ! You say this is the way of the World - Have you ever played the game monopoly ? - At the end of the game, if you have lost you say I am broke, I have run out of money. The financial system we have is just a game that is every bit as artificial in it's rules as the rules in monopoly or any other game. It is arguable that these rules had a basis in reality when they were invented/developed in 15th Century pre-machine age Venice but now ? - the rules are not God given, neither are they evolving (that one for the Darwinists).
    Imagine an Alien planet where the technology is so advanced that robots do all work. If the Aliens used our financial system then they would starve as there is no work. Whatever financial system they use - we need half of it. The NEFS site Net Export Financial simulation is a first stab at looking at what the rule changes might be.
    The only other way to have full employment is to ban all tools and machinery - apart from some shovels and hammers - there is nothing so Puritanically pure (and utterly useless) as a man wearing a cap and a scarf banging a rivet into a steel girder Hard work has gone go to the Gym ! - At base, if we can physically afford to have 90% of the population never work then we should have a financial system - new rules - that reflect this reality - rather than the old rules impose the reality from a bygone age on us.

  • Comment number 18.

    The other day, just for fun, I had a look at the Treasury forecasts for public debt the other day. The figures for 2010/11 are £1199bn or 82.1% of GDP and rise annually to £1351bn (87.2%)£1478bn(89.9%) and then £1582bn (90.7%).

    The interesting thing about these figures is that, for the percentages to be correct GDP would have to be rising at an annual rate of about 6%. I always thought that the estimates for growth were exaggerated - but not that much.

    Moreover, thinking about this the amount of public debt as a percentage of GDP is not the most useful guide as to the Government's ability to repay. Anyone on a mortgage knows that repayments are made from income - and in the Government's case tax revenues. As matters stand, even on the Treasury's forecasts debt will be roughly 3x income and still rising in four years time.

    A final, beer mat calculation for you. Taking a more reasonable estimate of GDP growth of around 2%pa I reckon that HMG would have to raise tax, or cut spending by between 15 and 20% just to stabilise the debt at around 100% of GDP.

    Not exactly an economic stimulus, just as the phantom recovery based on the current borrowing and printing money starts to run out of steam.

  • Comment number 19.

    Gordon Brown will stay! Under the combined effect of bailouts for failed companies, soaring debt paid for by quantitative easing, welfare handouts and the minimum wage, will the UK achieve a vigorous recovery in the remaining year to the next election? Or will the government dig a bigger hole? Place your bets!

    In December 2007, the UK unemployment rate was 5.0% (National Statistics online figures). By January 2009, the rate had climbed to 6.6%.

    Assuming our current socialist policies are working, surely by may 2010 the unemployment rate will have gone down again! We shall see!

    Obviously Brown will not set any target for himself, that would prevent him from saying: "Look! No one could have done a better job! Only I, Flash Gordon, could save the world! The other bunch would only savage our glorious NHS and our very efficient schools!"

  • Comment number 20.

    #16 Hawkeye_Pierce,

    Did you have to? " Science is running out of steam " You just won't be able to stop JJ now! The whole discusion will be Quined out of existance!!

    More seriously, the climate for a major technological shift is developing everyday. I laid out some indicators in a previous thread but to them can now be added the economic imperative and the strategic one (as inditified by Gasprom's chalenge to Europe).

    All prvious technological breakthroughs have been facilitated by major developments in power generation - water, steam, oil, electricity, gas. Perhaps it is this area that we should be concentrating our attentions. The Alchemists Dream of cold fusion was supposed to give us endless cheap power - is that dream now dead? We know about the heat resources under he Earth's mantel so is it now time to tap that effectively? Whatever it is, the release of bountiful energy will drive the advancement of other productive technologies.

  • Comment number 21.

    With your speech-writing experience I enjoy reading your deconstruction of George Osbourne's words. I am with you in that how good it would be to hear the Conservatives put the meat on the bone.I hold no candle for them. However, they seem to have some very interesting ideas. Kenneth Rogoff and other grandees are helping them construct their plan for an office of Budget Responsibility which independently monitors all borrowings, including govt off balance sheet stuff like unfunded pensions.Future chancellors would answer to this panel.This will tie in to extra powers for the BoE to keep banking debt in check.Wouldnt bond investors like that? They say CPI inflation needs to be altered to reflect housing costs following the 2003 decisions.Debt - public and private- would be scrutinized. Sounds like good sensible stuff to me and worthy of your mention....or do you dislike the notion that borrowing is cut loose from political manipulation as inflation was?

  • Comment number 22.

    2 stanilic

    I am afraid that I have to suggest your assessment ignores the fact that the electoral system gives the vote to people who do not create wealth so the interests are not in common in the short term.

    In the 'lets turn the business around' model there is a common interest, those participating, in the main, expect to survive and share the reward for a change in practice. I am not suggesting people should not have the vote, I am simply pointing out that there are not necessarily many common interests in the short term.

    I have lost count of where things are in terms of economic shrinkage and I am sure the figure are out before they are published. However the last report I saw advised that the public sector was still in growth at 2 percent pa. You can therefore view all the contraction as occurring in the private sector.

    Therefore the private sector where the wealth is created is currently heading towards a near double contraction of the economic shrinkage figure that is quoted so casually. Total tax take being in the region of 46 pence in the pound.

    Cuts in the public expenditure are almost certainly needed to pay for the increase welfare costs of those dispossessed of their homes and the new jobless. That is before the plumenting tax revenue is considered. Or before the banking bung jamboree.

    Many consumers of public services do not create wealth, they are most unlikely to vote for cuts at any point however the outcome has to be cuts are inevitable. The difficult election is not the forthcoming 2010 one, if Browns mob last that long, it is the one after. When people largely unaffected so far start to feel diminished.

    Furthermore, the opinion is starting to come through that this environment, the economic brownfield site, is here for some considerable time, with only muted growth for 5 to 8 years a possibility.

    It is reported that the young are bearing the brunt of this slump. The key issue becomes how to create worthwhile employment for the young generation who are being asked to pay the price for the gluttony of the older generations.

    The impact of recession is skewed and arbitary.

    Arguing for a public sector status quo which some do, is a waste of time, there simply will not be the money. The BoE was not joking when King advised a second major intervention as Brown was promoting could not be funded, there is not the money in the kitty.

    All this talk of we are 'nearly out of it' etc which floats about the media is just so much rhubarb. We are 'nearly out' of Stage 1 - main collapse, Stage 2 major job losses - approx 1 million jobs still to go is in part process. Stage 3 public sector cuts have yet to, or barely, got started. Stage 4 what do you do with a damaged young generation is not even being talked about. Stage 5 people who are economically inactive agitating about what public services they want will finish the scenario off nicely.

    Meanwhile some young people who are skilled and highly qualified and wanted here are emigrating. Not only does the grass look greener it actually is. Pay in some professions is higher and house costs are lower.

    The government has evidently a policy of encouraging graduates to emigrate, it is a bald as - go away for a year or two. Now the economists say that working age immigration is a good thing and boosts an economy. If immigration of this group of people is good then emigration is bad and will damage the economy.

    There is an absolute dearth of policy to improve the situation. In the USA housebuilding was used as a way forward. In the UK house building is at a standstill. I find this government absolutely useless, less use than a chocolate frying pan.

    Many of those in the public sector seem to have yet to grasp the reality of what is going on. Tonight I had to listen to yet another presentation of only a small amount of extra money would enable something worhtwhile to be done, trying to fly a goodtime kite when there is an ill wind. There is endlessly talk of cuts will damage integrity and value blah blah blah. When the Titanic went down the passengers did not expect to continue with the same silver service or even ask for a better service.

  • Comment number 23.

    At least this thread hasn't got to the point of "jargon ping - pong" yet, so a non - economist has a small chance!
    In #20 foredeckdave seemed to be hoping for (or even relying on) a technological breakthrough to provide hitherto unavailable sources of power, I assume to sustain our lifestyles at what is and certainly will be an otherwise unattainable level.
    Is this not wishful thinking? Even if it is possible, I suspect that any such breakthrough is a very long way off, and unless it is a British development there is no certainty that we would be able to benefit from it without paying others for the privilege as we do now for oil and gas. As has been noted in another BBC Blog today very few university students are studying anything remotely applicable to that sort of research.
    That apart, any future Chancellor (and of course for the purposes of this thread that assumes George Osborne) is going to be very hard pressed to find a route out of the present predicament. With so much financial commitment "off balance sheet" (and in many if not all cases completely unavoidable) the true scale of the way in which the economy has become skewed is still far from clear.
    I would like to think that Osborne is capable of identifying the right measures, but has he the experience and maturity to do it? From the viewpoint of a self - confessed (near) old fogey, I strongly suspect not. Even if he can formulate a coherent plan, is there not a serious risk that his own party will stop him on the grounds that his solution is just not politically viable? He is not superman (neither is anyone else; neither is anyone else superwoman) so he would have to be reliant on others - advisers - who will of course have their own axes to grind.
    I am mindful of the old saying that "it is impossible to unscramble an omelette" and there must be a nagging worry that there is an economic equivalent to this.

  • Comment number 24.

    I run a small business and was approached by my bank manager today with offers of a commerical property mortgage and an extended loan facility.....clearly his part nationalised bank has cash to lend.

    My view of the business environment is that businesses now fall into one of three categories;
    -companies whose customers have gone away (eg. housebuilders)
    -Companies who have lots of customers (eg primary food processors) but are suffocated by debt
    -companies with lots of customers and without debt

    Thankfully (it was not always the case) my company falls into the latter category. Maybe the bank manager has worked that one out for himself?

    Similarly countries with lots of potential bond customers (ie bonds denominated in a reliable currency) and without too much debt should sail through this crisis.

    Regarding the reduction of government debt, I propose that not one state employee be laid off. Rather that they all are subjected to a 15% pay cut and 50% cut in support for any unfunded pension liability. I guess this makes me something of an evil minded sadist (in the eyes of non-business people).

    By the way, I told the bank manager I was not interested......should've seen the look on his face.......

  • Comment number 25.

    20 foredeckdave
    "heat resources under the earths is it now time to tap...". I appreciate it may take many thousands of years to cool the earth down by dissipating heat into the universe, but is this not the phylosophy which got us into this present situation?
    We ought to be looking at ways of reducing our energy and other resource demands. Population control??
    Is it not like transport? The more roads you build the more cars you make to fill them. The more energy you have the more people you crate to use it.
    There was a 'hot rocks' investigation in Cornwall several years ago where they drilled down into the Granite to extract heat. It appears to have run out of steam!!!

  • Comment number 26.

    In order to boost private savings, rather than tinker with taxes, Osborne should as a start legally require all deposit-takers to pay a minimum level of interest on retail deposits, equal to the risk-free day-rate available in the market. After all, most of these deposits are underwritten by the public, why should banks receive them for free and lend them back out, without risk, at a profit? There needs to be a "minimum wage" for money, equal to the actual risk-free market interest rate.

    Yes, this would force banks to charge fees for banking services, and remove the illusory and harmful "free banking" concept. This concept not only distorts the cost of basic banking services, removing any incentive for banks to compete for savings customers on operational efficiency. It also distorts the time value of money at the most basic level, and removes any incentive for customers to keep a positive balance in their accounts, and lowers the benchmark for returns on other basic savings products.

    The savings interest rate has far too great macroeconomic importance to allow banks to hijack it as "competition" differentiator. Force banks to pay it out in full, and the let them attempt to claw back what they need for providing the service of channeling deposits to the market. It should rapidly improve both savings and banking efficiency.

  • Comment number 27.


    I am not relying upon a major technological breakthrough, I have argued long and hard for major invesment in new technologies, R&D and training as the major ways forward for the UK. However, using the same kind of indicators that are applied to markets to look at the national and international economies we can identify that many of them are pointing towards the likelyood of major technological change. The major indicators are:

    The major economies and markets can be considered as mature - particularly in The West
    The costs of product developments are increasing whilst the performance improvement levels are reducing
    Investment levels are being directed towards process rather than product
    The cost of expanding the customer base is increasing more than the expected return.
    Support activities (eg customer care) is measured in efficiency rather than effectiveness terms.

    To that we can now add

    National economic imperatives to stimulate growth
    Strategic vunerability of oil and gas supplies
    Unknown costs and effects of global warming (mid-long term)

    Now none of the above can tell me what the 'breakthrough' will be or when it will arrive. However, as more of these indicators turn positive or negative (depending upon your standpoint) the greater the likelyhood of major technological change.

    I share your suspicion that Osbourne doe not have the ability of clout to make the right policy decisions - but he is not alone as I see none of our MPs having the stature.

  • Comment number 28.

    #25 Uhuru2,

    "We ought to be looking at ways of reducing our energy and other resource demands."

    Why? I have never 'bought into' this reduction idea as it runs contrary to the whole history of human development. We do not need to reduce our energy demands. We do need to develop more efficient and effective ways - greener if you like - of producing it.

    As for population control. I am not in favour of eugenics, though 1 person here is. I do not fear expanding populations. We are very inefficient in our present agricultural practices. I therefore feel confident that we can rise to the challenge of feeding more people. Even on a densely populated island like ours, there is still plenty of land that can be utilised for food production though farming techniques
    will have to change.

    Solve the power dilema and many more possibilities will open up. It might not be too far fetched to envisage a UK that could become self-sufficient in power and food production. But this will not come about if the concenration is fixed upon austerity and reduction.
    The resources that we plunder today will not necessarily be the ones that we plunder tomorrow. As resources become scarcer then so will the race become hotter to find alternatives. Man has alwys been very inventive when it comes to developing different ways of meeting his/her wants and needs.

    You mention transport. It is already possible to concieve of electric cars replacing both petrol and diesel cars inside of the next 15 years. The demand for oil would be significantly reduced but the demand for electricity production would be majorly increased. So let's look for ways of producing that electricity more efficiently and yes sustainably, let's develop ways of storing electricity effectively. Do you really believe that people are willingly going to go back to having to only use public transport? I know that I would not be happy to see my wife or children forced to have to use public transport at night.

  • Comment number 29.

    what a load of pointless speculation Stephanie! no-one in the know expects anything from the major political parties any longer. As for Osbourne's comments, they are not worth a mention

    what arewe meant to do in this next election? vote for pain? the rich fully expect to stay rich and someone else to get the pain, whilst our politicians expect to carry on as usual; working-class people (which includes most so-called middle class people) will bear the brunt of this continuing economic downturn

    when it comes to the election it will be all smoke and mirrors, but all the bigger parties will no doubt scold those who have given up for 'wasting' their vote on a Green candidate or voting for the nasty BNP, and that really could backfire in the latter case, as a lot of ordinary people have lost their moorings and no longer have a connection with Labour!

    but getting back to the main point, many analysts feel that we face a double-dip or 'W' recession which will drag on for years; what Osbourne claims he would do could make the second dip worse

    do I have an answer? not a traditional economic one I'm afraid

    as for elected representatio you could do worse than vote for the PIRATE PARTY

  • Comment number 30.

    Funny. GlenisDevereaux and Hawkeye_Pierce both above refer to economic perspectives that collectively could be called "Technocracy", which was formulated during and after the great depression.

    The simple fact is, we individuals, as machines, can never produce more energy than we consume. We would have to be perpetual motion machines. We consume a damn sight more energy than we produce, if we take into account the quality of life we have. We "pay" for it using a virtual-reality nonsense called "debt". "Debt" is divorced from reality. It is just a record of how much we actually owe reality. Eventually we have to abandon debt, by developing technology that produces energy in great abundance.

  • Comment number 31.

    "But longer term, he does make the point that it's not just public borrowing that has to fall. For a more balanced recovery, private borrowing also has to fall and saving has to rise. That's where things get a little more interesting."

    That's rather strange. I would have thought in a debt deflation, which we currently have, falling private borrowing and increased saving would have been a natural consequence. Regardless, even if we are not in a debt deflation and this scenario of rising savings and falling borrowing will have the effect of unemployment, as money is taken out of the system and existing business models fail. In short, it would induce a debt deflation.

    If private debt is their concern they should just write it off.

  • Comment number 32.

    Sorry "and this scenario" should say ",then this scenario"

  • Comment number 33.

    If you look at it from the perspective of global energy consumption, the financial crisis is a positive interlude in rising demand:

  • Comment number 34.

    Having read all that above the equation seems to be that if we can achieve a technological breakthrough we can have utopia but if things stay as they are then we will get a choice of dystopias.

    I will confess to being both a big picture man and a detail person. A bit like Gordon Brown really as he and I share a genetic base. However, often the big picture collapses on the detail and quite often the detail cannot be achieved because of the big picture. So life is full of choices rather than full of choice.

    In the late eighteenth century Britain achieved a technological breakthrough with the industrial application of steam-power. For some this was a uptopia, for others it meant the `dark satanic mills' that William Blake condemned.

    There are always winners and losers. One cannot square the circle comnpletely but there are options of graduation and we need to find the one which is most optimal otherwise the species falls back into the same feudal squalour which the Taliban would wish us to enjoy.

  • Comment number 35.

    33 FrankSz

    That's a scary link, Frank. Never thought I'd agree with Dick Cheney about anything, ever! Funnily enough, it brings the Rumsfeldian maxim to mind because it's telling us something blindingly obvious, yet most of us probably didn't know that we knew it.

    Stanilic/foredeckdave/glanafon and others - the Utopia/dystopia debate is always interesting, but as usual we are bound to end up with a bit of both, depending on who and where you are and what purchasing or productive power you can keep hold of. Glanafon - I like your 5 stage scenario, I guess stage 5 will arrive in time for the Olympic opening ceremony, do you agree?

    We know we cannot guide the immediate future by electing politicians, as we will end up with a social democratic government and biggish state of one hue or another. The only power that most of us can exercise is as consumers and we should really all be doing this as ethically as possible: how, and how much, to travel, where to shop for food, what are the food and clothing miles of what we buy etc.

    We also have the power to withhold our labour by disengaging from the workforce and stick our savings under that ever expanding mattress. Maybe less will finally turn out to be more!

  • Comment number 36.

    Re Comment 14 from Stanilic. I think you miss Glenisdeveraux main point. It isn't a moral issue about the value of employment. The fact is that modern methods of production and distribution are so efficient( e.g.all those millions that no longer need to work the land), that we do not all need to work all the time to meet our needs and wants. And infact we don't wide there is massive unemployment and under employment. Full employment within current market systems is a chimera....... This underemployment is a waste....because of course there is plenty that needs doing that isnt being done, like lookng after old people properly for instance,or greening the desert,but our economic system cannot value these enough to employ people at good wages, or subsidise families, to do this work. So high unemployment will remain with us as a fact, and much that needs doing won't get done.....

  • Comment number 37.

    It is difficult for governments to be long-termist because of immediate political commentary and daily opinion polls. This will not change.
    However, we have incentivised company executives to be short-termists by giving them bonuses and share options based upon annual results. As a an economy we need to change to incentivising executives on a longer term basis, such as future bonuses over say five years performance. Some organisations have used this method with the result of stable, continued growth, with the added strength of apprenticing the most able as future leaders. However, I can only see reform if there is more external control over remuneration of directors.

  • Comment number 38.

    Message 36 gtuson

    I think their is an understanding gap here. I am not interested in blue-sky thinking mainly becuase I have done a lot of it in my time and `ifs' and `ands' were pots and pans there would be no need of tinkers.

    Without work people lack structure. Either they find something to do and use to good purpose or they decline in various ways. It is not good enough to to say this is because production and distribution is so efficient this is how it is unless we find other criteria.

    You say that we don't need people to work the land; but we do. I live in the country and there is now only one farmer left around us because he is a livestock farmer. The milk and dairy herds have all gone and the main crop where it is grown tends to be oil seed rape. Yet the milk in the supermarkets is trucked in from Italy and Poland. The vegetables are also trucked in from both far and wide. This is insane! We have the land on which to graze dairy herds and grow our vegetables. This change has all happened in my lifetime and is largely due to variable labour costs around the globe.

    So why not get people to work on the land? The variation lies in the costs of transport which, we are told, is heating up the planet.

    I am sorry but I don't think our production and distribution are efficient within a global sense at all. This is the market-place I work in and it has its insanities. In fact I would argue that because we can only now live in a globalised world our production and distribution is quite inefficient.

  • Comment number 39.


    Very interesting energy consumption data! Would love to see some more up to date figures. Broadly speaking GNP (wealth) has a 0.83 correlation with energy consumption. However, the most striking thing about this is the extent of variation in this relationship by country. The first column of the main table shows BTUs per $1 GNP (see below). This is the extent of efficiency in creating monetary wealth from energy consumption.

    Top of the class is Japan & Germany: Hi-tech, but efficient
    Middle table: USA (taking 3 to 4 times as much energy as Japan & Germany)
    Bottom of the class: India, China, Russia (10 times the amount of energy to extract wealth - the price of being low-end industrial nations?)

    Quantity AND Quality of energy use needs carefully managing over the coming decades. Can the market mechanism take on this task?

    Country BTUs per $1 (US)
    Japan 3,472
    Germany 5,302
    France 5,582
    Brazil 5,854
    Italy 6,023
    Spain 6,223
    Sweden 7,118
    Belgium 7,170
    Argentina 7,609
    United Kingdom 7,784
    Netherlands 8,062
    Australia 11,215
    South Korea 11,345
    Thailand 12,172
    Turkey 12,259
    United States 12,583
    Indonesia 15,382
    Canada 15,670
    Mexico 20,750
    Saudi Arabia 25,162
    South Africa 25,499
    India 30,752
    Poland, Rep 32,268
    Venezuela 36,155
    China 46,622
    Romania 47,382
    Uzbekistan, Rep 77,752
    Russian Federation 80,584
    Ukraine 82,287
    Kazakstan, Rep 122,502

    P.S. Given the huge thirst of China and Russia's energy consumption, how long before oil is traded in Yuan / Roubles?

  • Comment number 40.

    "I would be interested to know what John Redwood, one of the party's most ardent free marketeers, thinks of Osborne's speech. But who knows? Maybe the financial crisis has turned him into a fan of Will Hutton as well." S.F.

    Do you ask your husband who's at the door when the bell rings? ;-)

    Why not just ask Redwood? Mind you, as Irwin Stelzer's gone a bit quiet since he featured with Husson on Newsnight's 'The Credit Crunch Who Dunnit?' special, maybe not, he might do an Alan Sugar. Paxman, I recall, told Stelzer it was all his fault (along with his chums of course, or something along those lines).

    PS. If you do speak to Redwood, ask him if he knows he's an anarchist and then tell him that it doesn't matter much what he thinks, as he is! OK? The accuracy of human insight/self-perception being much over-rated except by narcissists.

  • Comment number 41.

    Erratum (#40): Don't know how Hutton came out as Husson.

    PS. The article is a bit Westminsterbubbleish.

  • Comment number 42.

    Surely setting objectives for directors over a 3 or 5 year term is more sensible than measuring on an annual basis, while punctuated with quarterly updates that are met with wild speculation by the press. Companies who reward and bonus their staff based on quarterly achievements, or an annual basis, increase the chance of making hasty decisions that others may be forced to deal with over coming years.

    It works this way in the IT Industry at any rate. Someone can be bonused on making savings through outsourcing, the recipient can move on (rather better off than they arrived), while the team left after the outsource has to make sense of chaos. At the front end of this the user receives poor quality service. A small number of people benefit financially, while the general trend is to fixing problems created by the policy.

    The short-termist approach demanded by the markets creates a hit and run effect. I can't see any government acting to change this.

  • Comment number 43.

    "Are we all long-termists now?"


    See existential and universal quantifiers and how they're related.

    Are you reading these comments or what? ;-)

  • Comment number 44.

    The temptation is always going to be to make a quick profit and leave the mess for someone else to clear up.

    Hopefully enough "rich" people (and try and quantify that!) will now see the value in long term sustainablity. After all; we forget that the oppersition have; over the past three terms, not been pushing for more legerslation in this area and assume that it has all been Labours fault.

    "after years of Conservatives promoting a largely "hands-off" attitude to investment, George Osborne seems to have decided that Hutton has a point."

  • Comment number 45.

    Tables like that energy one are a bit misleading - a lot depends on the extent to which energy consumption has been outsourced. For instance, most of the energy required to make a plane is consumed in refining aluminium. If Britain or Germany imports aluminium ingots from Canada, they're effectively importing solidified electricity. Canada gets little GDP benefit from a huge amount of energy consumption, whereas the Europeans get a lot of GDP for little energy consumption in transforming those ingots into an Airbus. And everyone in developed countries needs that aluminium to be smelted somewhere, in order to enjoy their Easyjet flights. Same with the outsourcing of steel production and other heavy industry. That's why the Chinese are keen to promote the idea of "embedded carbon" as way to get the West to pay for carbon emissions caused by outsourced energy consumption.

    Peak oil type arguments are another matter. The effect of that will be to fix the maximum size of the total oil "cake". What's happening is that the developing countries will take a bigger proportion of that cake as they industrialise - the OECD already consumes less oil than the non-OECD. So instead of sharing a fixed amount of oil between say 1 billion people, we'll have to get used to sharing the same amount of oil among 3 billion people. So the cost will go up, and oil will be used for fewer frivolous things and more "essentials".

    Incidentally - widespread adoption of electric vehicles before 2030 is pie-in-the-sky, we won't be able to make enough batteries because there won't be sufficient supply of things like lithium and lanthanum. Already forecasts of Prius production have been slashed due to resource limitations, it's probably better to spread the lanthanum across three hybrids with smaller batteries than one electric-only vehicle. Or just use a non-hybrid diesel outside cities....

    In fact the best electric vehicles we have are trains and trolley buses, I hope we'll see planning policy adjust to encourage more development based around such transport.

    Interesting speech though from Osborne, even if I suspect most of it came from pointy-heads behind the scenes. I don't agree with all of it, and I doubt he'll implement half of it, but I'd give it a B- for effort.

  • Comment number 46.

    #45 & #39

    It is an important point - without the financial crisis, we'd be facing a rapid increase in oil consumption and for that reason the Asian consumers would be undermining the USD (which they can do).

    Regarding electric vehicles, that's not correct. Check out ultracapicators and Eestor and that kind of thing. 'Batteries' as conventionally understood won't be necessary.

  • Comment number 47.


    You present some interesting points. Although not the purpose of your argument it appears to me that the big problem for Europe is not materials but plentiful and cheap power. If we can crack that then all of the other problems become manageable.

    If we can't have electric cars in a reasonable short time then why bother with hybrids and concentrate upon say hydrogen? However, trains and trolley buses/trams are not going to meet all of out transport needs. The genie is well out of the bottle with private transport and air travel and you are not going to be able to re-cork it.

  • Comment number 48.


    The important thing about alternative propulsion systems is not the cleverness of the science, but sheer economic realities.

    Petrol was an almost accidental discovery, that cost next to nothing to develop, and (relative to it's energy capability) is currently cheap to extract.

    Remember petrochemicals are both a store of energy, AND the source of energy. There are two fundamental economic challenges for the sort of electric capacitors you mention:

    1) Can they be developed and manufactured cheaply (probably not, given that they are described as "involves sintering very small grains of coated barium titanate powder into a bulk ceramic" - sounds costly to me)
    2) You still need to find a means of generating the electricity to put into the cell

    Compare how easy it is to extract the energy from petrol - just apply oxygen (freely available) and a few milliwatts of electricty, and KABOOM - you're off!!

  • Comment number 49.

    FrankSz (#46) - I think it would be more accurate to say that we would be facing a rapid increase in oil demand, but in 2007 we didn't have much capacity to add to consumption. So the price, rather than consumption, would have been the thing that increased.

    foredeckdave was talking about electric vehicles replacing (implying 100%?) petrol and diesel by 2019-24. Widespread use of ultracapacitors just ain't going to happen on that timescale, it takes a long time for new technologies to break the automotive market. Remember how a decade ago Ballard were telling us that we'd all be driving fuel cell cars by 2010? Fuel cells are coming, it's just taken a lot longer than they thought. Same with eestor, it's technogeek heaven, but a commercially viable product - fully tested for long-term endurance, crash resistance etc - is still essentially vapourware at the moment. Once they have something sellable, then you can start incorporating it into your forecasts for the next 10 years. But for significant adoption this side of 2020 as foredeckdave was talking about, batteries are the only technology in town for EVs. I'm not saying that there will be no EVs by then, but they will have replaced petrol/diesel in 2020 to the same extent that hybrids have in 2009. On sale, commercially viable and quite possibly selling in the millions worldwide - but a long way from the 100m's needed to "replace" petrol/diesel.

    In fact the most significant technology to reduce oil consumption by passenger cars in the next 10 years is the diesel engine - or rather, the diesel catalyst. Historically the US emissions regulations have been used to keep out diesel cars (typically from Europe), but Euro V and Euro VI cars with cats now have low enough NOx emissions that they can now be sold in the US. So in the next 10 years there's going to be a huge switch from petrol to diesel for domestic cars in the US - and to a lesser extent in Japan. The diesel engine is not nearly as sexy as supercapacitors or fuel cells, but it's a mature technology whose time has come.

    foredeckdave (#47) - all resources matter. But yes, energy is always the big one - and to be honest we'd be better off concentrating on sources of energy first, and then worrying about the climate change implications than vice versa.

    "trains and trolley buses/trams are not going to meet all of out transport needs". Absolutely - but nor will personal boxes on wheels. We've been spoilt rotten by cheap oil, which has been able to serve as fuel for planes, and rural transport and urban transport. We're never going to have the luxury of that "universal" fuel again, we're going to have to save it for the real essentials.

    For instance, Concorde is already looking like a relic of the cheap oil age. The chunk of world oil production that used to zip Joan Collins to New York in 4 hours now transports commuters round the Beijing ring road or ambulances in Delhi. Thus oil consumption is being democratised and being concentrated in more "essential" than "frivolous" uses.

    The electric versus hydrogen thing is another example of how we'll have to get used to the end of "one size fits all". We'll have both - electric is well suited to intra-urban use, hydrogen is a better fit for rural and inter-urban use. And despite Top Gear's rigged tests, electric is closer to widespread adoption, there's still some significant technology obstacles before hydrogen goes mainstream.

    Sure transoceanic air travel is going to be one of the last redoubts of hydrocarbon usage. On the other hand, 40 years ago who would have predicted that London-Paris planes would be pretty much superceded by trains? And while I hear your arguments against public transport, a lot of that comes down to culture. 20 years ago I would never have dreamt that today I'd be using trains for maybe a third of my "pleasure" miles. I suspect that your children will be a lot more relaxed about public transport than you are. They'll learn to organise more of their social life away from late-night transport problems, and when they can't, "individual" transport home will be even more of a luxury price than late-night taxis are today. They'll adapt.

    As I say though, perhaps the most important answer to all of this lies in the town planning departments of Britain. If we can get them to start planning for the energy environment of 2040 or 2050, that will make life much better and cheaper for all of us.


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