Tag Archives: Theresa May

Fake Economics and the Great Shock Theory of Economics

This is the age of fake news it is also the age of fake economics. One such is the Big Bang or Great Shock theory of economics. It is the policy preference for those politicians that have a disdain for the facts. They have an impatience with the world of fact or reality as it does not fit with their view of the world. In a very prescient film ‘Who Shot `Liberty Valance’ , John Ford has one memorable line in the film in which the news editor states that ‘when the facts become legend, print the legend’. This very much describes today’s politicians who have a preference for their ‘legend’ or story over reality. One consistent and common story is that by administering some great shock to the economy they will shake it out of its torpor and kick start a new dynamic economic era.

Believers in fake economics or the story predominate in the politics of the Anglo Saxon world whether its in the form of Donald Trump or Theresa May. The latter believes the necessary shock treatment that will revive the UK economy is the leaving of the EU. Once firms are deprived of their cosy relationships with the European market, they will be forced to find new markets outside Europe (or go out of business). The necessity of finding new markets for their products will inject a new dynamism into business, so transforming British businesses into world beaters. Businesses will now put a premium on those leaders who are doers and the influx of doers into the top levels  of business will have this transformative effect. The proponents of this shock therapy do admit that some businesses will fail to adapt and have to close, but these failures will be more than made up for by the new enterprises that will replace the old failing businesses. However what the proponents of shock theory fail to admit is that the shock is as likely to kill as cure. Evidence from the past suggests whenever the government administers shock therapy to the UK economy it kills more than it cures.

The classic shock treatment occurred in 1981, when the government decided to introduce the reforms that are associated with Neo-Liberalism. The shock killed of 20% of UK manufacturing industry and unlike the theory suggests new businesses did not develop to replace them. One consequence is that the UK now has the largest trade deficit of any developed country (as a proportion of GDP). Good fortune has enabled the UK so far to escape the consequences of this folly, but that good fortune cannot last forever.

Much as in a John Ford movie legend has replaced fact. Politicians generally accept that despite the evidence to the contrary the 1980s were a success story. With such a complex institution as the economy it is always possible to find evidence for your own good story and even when there ar plenty of bad facts, as their existence can be conveniently ignored. Ignorance of the workings of the economy is so widespread amongst the political classes and the media that its easy to sell the fictitious ‘good story’.

One consistent story coming from the government is that British business can find new markets to replace those lost through leaving the EU. India is one of the most populous of Asian nations and it is home to one of the world’s fastest growing economies. This is claimed by government ministers to be one of the new markets British business can exploit.This year India has been the subject of two trade missions to India, one led by the Prime Minister and another by the Chancellor of the Exchequer.  What India requires from the UK is an easing of restrictions of Indian migrants coming to Britain and until that is granted it will not consider a new trade deal. This government has made its priority restricting immigration into the UK and this means that all those trade missions have been in vain. Until Britain makes some concessions on immigration, India will not open up its markets to UK business.

Trade deals with other nations are also fraught with problems that make any negotiations fruitless. Brazil and Argentina are the two largest economies in South America and as such should be a potential markets for UK exports. However there is one issue that prevents a new trade deal being negotiated. These two countries both have a large beef industry and would love to export beef to the UK. However in these two countries the cattle diseases such as foot and mouth are endemic. If the UK accepted imports of beef from these countries it would possibly be importing disease into the country. Then the UK would lose its status as possessing a disease free cattle industry. British beef farmers would then be prohibited from exporting their beef to such as the disease free countries of the European Union. The powerful UK farmers union would prevent such a trade deal, particularly as the governing party is the party of the largest of agricultural landowners. Economic realities mean this is yet another potential market that is closed to UK exporters.

However for the practitioner of fake economics none of this matters. When one of the most significant purveyors of false economics said that the public were tired of experts, what he meant was that they were tired of hearing the difficult truth. They like their political leaders want believe the easy to fictions of fake economics. What fake economics does convey is the false story that the political leaders of this and other countries know what they are doing and that they are making those policy decisions that will be of benefit to the economy and the people. Nobody wants the truth which is that our political leaders have only the vaguest grasp of economic realities and that are doing the equivalent of shooting in the dark.

There is one other great advantage of fake economics. When the train wreck of the great shock inevitably materialises the politicians can claim that is not their fault. They have done their bit in that they  have administered the correct medicine, the failure now is with the patient for not taking the medicine correctly. Business leaders and workers have failed to respond in the correct way, the failure lies with them, not with the government. When one of the major purposes of a policy is to transfer blame to some other party than the policy maker it is always going to be the wrong policy. Being unwilling to take responsibility for one’s actions suggests that at least sub consciously the policy maker knows that they are in the wrong.

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The nonsense politicians speak on economic matters (a decoding of politician’s economic speak)

What people don’t realise is that when politicians speak on economic policy matters, they don’t really know what they are talking about, its just a glorious pretence of a speech. Their speeches are usually peppered with phrases supplied by their speech writers to create the impression that speaker is knows what they are talking about. Often this is done through the spurious use of statistics and handy method of knowing when a politician is pretending to a knowledge they lack is the number of times they refer to statistical evidence in their speech. The more statistics in a speech the more likely the politician is totally ignorant of the issue they are discussing. Politicians differ from economists in that economists know that they know something about the economy but the not everything and the speech of a good economist is cautious. Economists don’t wish to claim a knowledge they lack, whereas a politician would never admit to their ignorance.  Their sense of amour propre would never allow them to appear as lacking in knowledge. They are the solvers of mankind’s problems and unlike the common run of mankind they never admit to any failings.

What I hope to do is this essay is reveal some of the real thinking that underlines much of policy making.

The most common policy is  the ‘wishful thinking’ economic policy. This policy making is usually to be associated with the new right, although the new left can also be guilty of the same. Wishful thinking policy making is based on a wilful ignorance of economic realities or to put it more succinctly a wishing away the facts of economic life. Of all the developed countries Britain has the largest trade deficit as a proportion of national GDP. The simplest and most correct explanation is that the country is no longer producing the goods and services that other countries want. The solution would usually be to develop an industrial strategy that encouraged businesses to focus on producing those very goods and services that other countries want. This is wrong according the EU leavers as what is preventing our exports abroad is EU regulations, which prevents us exporting to countries outside the EU. However there is nothing in EU regulations that prevents the UK exporting to any country in the world. This analysis would only have any validity if there are as yet undiscovered countries to which the UK can export, as all the known and existing countries are already free to buy our goods if they want them.

Another common form of economic policy making in the UK, is that it will be all right on the day policy. This thinking can be summed up in a few words, in the past many serious crisis which have occurred and yet the nation rose to the occasion and survived relatively unscathed. If it had not we would not be enjoying the level of prosperity that we do today. Why look for trouble when it can be avoided. Mrs May’s government will not put into practice any serious measures to prepare the economy for Brexit, as there is the belief that the country which managed the 1940s existential crisis  will somehow manage the 2020s EU exit quite comfortably. Complacency might be another word to characterise this policy. The Chancellor’ claim that his was a budget that prepares for Brexit will be shown be meaningless. No action is proposed to counter any negative impacts of Brexit and the so called reserve to cushion the economy through Brexit will be shown to be largely a figment of the Chancellor’s imagining. Another phrase to describe this type of policy making would be hoping for the best policy making.

Big gesture little action the policy making of fear, the fear that any policy introduced could make things worse. Nothing scares a politician more that being blamed for a bad policy. To be fair to politicians rather than do nothing, they do tend to produce distractors which are small easy to make policy changes, which function to distract from the real problem. This is why the budget is always about small changes in tax and never about big policy measures to tackle the real problems afflicting the nation’s economy.

Elephant in the room economics (very similar to the previous policy), this is when the politician ignores the real problem and instead focuses on a smaller less significant problem which they believe will focus attention away from the major problem. The annual budget statement is a conjuring trick in which the government produces lots of small policy measures that capture the attention and distract from unpleasant reality. The one great problem of today is the growing level of household debt which reached the level of 160% of GDP prior to the crash of 2008 and is today nearing the same levels. Rather than take action to reduce this debt which would in effect make people poorer and be very unpopular, the government prefers to do nothing. It is sleep walking into yet another financial crisis, a policy which also has the advantage of postponing the coming crisis into the future and making it the responsibility of a future government.

I could make this an endless list but my intention is to introduce some scepticism about the grand policy claims of our political leaders on matters economic. There was a famous American journalist Louis Heron, who said his approach to interviewing politicians, was to think ‘why is this lying bastard lying to me’. This `i would rephrase as why is this ignorant bastard trying to pretend to me that they know what they are doing.

Flying Pig Economics

Quite possibility in twenty years given advances in biochemistry and medical science, scientists will be able to breed a race of pigs with wings. In a similar vein PwC produced a report stating the Brexit could possibly be a resounding economic success. This is an exercise in which economic forecasters regularly indulge. This is an imaginative thought experiment in which they think of a world in which all the good possible events and changes that could possibly occur have occurred creating the most desirable of future outcomes. Even the great Keynes was capable of this wishful thinking. He said that due to advances in technology people would be able to have greatly increased leisure time, because the increased productivity of the new machines would require a much shorter working week. A prediction which this century has demonstrated to be fallacious

PwC should not be singled out for blame as ‘flying pig economics’ is regularly practised by politicians, usually when they wish to be elected or in the case of the UK win a referendum. The examples of this economic practice are too well known to require repeating.

Obviously the current master of ‘flying pig economics’ is Donald Trump. He has promised to restore prosperity to the people of the USA through a number of fantastical schemes. One is abandoning free trade treaties, which he claims have encouraged US firms to move their factories to low wage countries such as Mexico, causing unemployment in the US. While he is correct to state that American have lost their jobs due to American companies outsourcing their businesses to other countries, his solution to the problem is unreal. If he does withdraw from the North American Free Trade Agreement, of which Mexico is a beneficiary, he will wreak havoc on the US economy. Mexico is the USA’s second largest export market and its third largest trading partner. The sudden ending of free trade between the two countries would lead to a dramatic drop in trade between them probably throwing both into recession. He would through this action cause more jobs to be lost through increased unemployment than he would create through forcing US firms to relocate back to the USA. It is significant that all he has so far all he proposed as President is a US Mexican wall and not an ending to free trade. Perhaps realism as regards US Mexico trade has seeped into his consciousness.

Going back to the PwC story it is quite possible to construct a number of scenarios in which Britain gains from Brexit, however these scenarios are purely imaginary and require an abandoning of any sense of reality. The following three items will demonstrate the unreality of the report.

One target for the new trade deals is China, our government claims that freedom from EU controls means that we can arrange a new free trade deal, that will more than offset our trade losses from exiting the EU. Nobody in government seems to have a realistic understanding of the situation. China is far more interested in trade with Germany from whom it buys large numbers of machine tools, rather than the UK from whom it buys little. Our exports to Belgium, one of the smallest of EU states, exceeds in total the value of our exports to China.

The other large untapped market for British goods is India. Mrs May made a great show of visiting India to conduct a new trade deal. India would be very interested in a trade deal, but for one outstanding issue. The government there wants an ending to the restrictions on Indian immigration into the UK. Mrs May has made it very clear that the last thing she will countenance is increased immigration from India, making a new trade deal highly unlikely.

Then there is the USA and Donald Trump, he has said he is eager to have a new free trade agreement with the UK. However a new trade deal could prove to be problematic. Will the trade deal be of benefit to the USA or the UK? Donald Trump has already said that Brexit gives US banks a great opportunity to win trade from the City of London. One only has to think of some of the countries that have a free trade agreement with the US such as Puerto Rico and Haiti to realise that whatever deal is reached, the primary beneficiary will be the US.

What can be said is that the PwC report was made for the highest of motives that is designed to win favour with the government and future business for the company. The ‘flying pig economics’ of both Donald Trump and that of Theresa May is far more disturbing. Obviously they both believe that there policies are right and only if there is catastrophic change in their country’s economies are they likely to rethink their policies. The question has to be asked are they both naive or stupid (although one hesitates to use such abusive terms)? I think the answer is no, they both demonstrated intelligence to win power. I think they are fantasists who confuse the world of their imaginings with reality. History demonstrates that when a powerful authoritarian ruler gets to impose their fantasies of the world the people suffer. Although Donald Trump and Theresa May are not to be compared with Pol Pot, Chairman Mao and Stalin they are at the other end of the same spectrum. People won’t die in their thousands but thousands will be poorer because politics has given Donald Trump and Theresa May the opportunity to impose there fantasies on the real world.

I realise what I call ‘flying pig economics’ is usually referred to by commentators as post truth politics. While they may both indulge in post truth politics, it is unfair to call them post truth politicians as usually they believe that they are stating simple plain and obvious truths and it’s only the misguided metropolitan elites that refuse to recognise the truthfulness of their statements.

A Letter to Donald

Dear Donald

This short letter is my attempt to try to come to try to answer the question who is the real Donald, why does he behave as he does and why are you such a threat to the continued existence of liberal democracy. It is my attempt to come to terms with the phenomenon that is Donald Trump. If you met me you would notice a distinct difference in our manner. I am a man who  values modesty in conversation and behaviour. In short I am one of those Englishmen who overuses the world sorry, so I guess you can see why I find your behaviours so hard to understand. Not only that but I am also a liberal so we are so different in manner and our politics.

Although your personality is one steeped in anger, I think your anger comes from a fear of modernity. The world that you knew as a child, the America of the white heterosexual males is now being challenged, Now instead of the television presenter is less likely to be an Ed Sullivan, than a lesbian woman such as Ellen DeGeneres or a woman of colour such Oprah Winfrey. This is becoming an increasingly unfamiliar world to you in which you are not sure of your place in it. Formerly you would have been lauded for being a billionaire and having a much younger and beautiful wife, now many doubt the value of your achievements. This must be confusing to you, their must  be times when it seems that you are adrift in a hostile world. One reaction only is possible for you to this fearful world and that is anger, an anger which is so often caricatured by others as a snarl.

Unlike you I welcome the ‘differenceness’ of modernity, something I first encountered in a trip to Scandinavia in 1966. A difference demonstrated in the design of there housing and the beauty of their cities and towns, a beauty lacking in Britain. Other and later trips to Europe instilled in me an enthusiasm for the different. In 1970 I went to France where I had my first taste of French coffee, it was love at first taste. Until then coffee was instant coffee, either Nescafe or Maxwell House. A harsh tasting drink that you drank to keep you alert and buzzing. This French coffee tasted nice, it had flavour you enjoyed, coffee drinking now became an unalloyed pleasure. Getting to know other cultures and taking from them what I enjoyed has enriched my life.

New York as with London where I taught has become an increasingly cultural melting pot with an increasing diverse ethnic mix of peoples. While the integration of new ethnic groups could present problems of which as a teacher I was well aware. They also brought their cultures with them. Some saw these cultures as alien and a threat to the host society. Yet these cultures embodied a whole new range of cultural experiences that enriched the host culture. One such obvious enrichment was the West Indian carnival in Notting Hill. A diverse open society is a creative society and London at present is the leading cultural centre in Europe. The constant making and remaking of London culture that is the consequence of having to adapt and absorb new cultures is  a source of the creativity that makes London a leading culture centre. However with Brexit the open and welcoming culture of London will be lost as new ethnic groups and their cultures are increasingly excluded from Britain. What is likely to replace it is a cultural resistant to change and closed to new ideas?  In fact many of our new right politicians would welcome this, a London that increasingly resembled one of those dull provincial towns or cities that characterised Britain in the 1950s.

Although you regard Muslims as that most alien of the other, my experience of them is entirely different. I have encountered them as students and friends.   Coming into contact with them made me realise that there was another exciting culture and life to get to know. I have read the poetry of the Sufi master Rumi. No doubt you are familiar with the life of St. Francis of Assisi, but what you don’t know is that this greatest of Christian saints regarded Rumi as a spiritual master. This intermingling of European and Islamic culture has been of benefit to both societies throughout the millennia. The classics of Greek philosophy might have been lost if they had not been preserved in the translations of the Arab philosophers. Unlike you when coming into contact with a new culture, my reaction is not to reject it as something alien and foreign; instead I want to explore it, to learn from it. I have a friend who as you do rejects muslim culture as being alien and benighted, yet even he enjoys the poetry of Omar Khayyam.

What is frightening about your anger and that of your fellow believers of the right is that you have the power to turn back those aspects of modernity that you despise?  This is why you want to make abortion illegal. If women no longer have control of their bodies, they will be unable to live independent lives and will be forced back into the box of domesticity. Similarly there are the new Jim Crow laws of the South, which make it difficult for Americans of colour to vote.  These laws reduce the presence in the political arena of people of colour, a change which is ensuring that the white dominance of the South is continuing.  Another alien group is put back into its box, but this time it is the box is one of servitude. Although this turning back is but a temporary measure, history shows that regimes such as yours can successfully hold back the tide of history for many years.

What worries me is your destructive attitude towards those institutions that make civilised life possible. Liberals such as myself think that John Rawls political thinking provided the essential  template for making of a successful political system. He wanted to answer the question to which all liberals want a solution. How do you construct a political system that gives voice and sanction to people of different and often incompatible views in a manner which avoids the worst of the destructive and divisive effects of political conflict? Societies can be torn apart by warring factions as demonstrated so well in Shakespeare’s Romeo and Juliet. There the two rival factions, the Capulets and the Montague’s constantly threaten the peace of Verona with their constant feuding.

To this problem John Rawls had an interesting answer. His answer was that the constitution makers should indulge in an act of collective forgetting. When devising a constitution they should strive to forget their own beliefs and prejudices and try to exclude them from there thinking. Then they should focus on the building of a belief and bias free constitution. The emphasis should be on functionality not belief. One such example is the American constitution of 1787. The political system they devised was not free from fault, but until recently it had functioned effectively by containing political conflict within a system that delivered effective governance. Now unfortunately the new right that is the Republican party has set out to destroy that system that worked so well for two hundred years. The behaviour that you displayed towards former President Obama is demonstrative of the destructive behaviours of the new right. One of the main voices accusing Obama of being ineligible for office was yours. This nasty ‘birther’ campaign was a child of your making and did nothing other than to bring discredit American politics.

There are two requirements for a good political system. The first is how the winners treat the losers. The winners must accept the reality of the rotation of power, that is that the losers might be the winners next time around. They must accept the threat of the loss of power with good grace. While it is legitimate for politicians to seek to retain power, it is not legitimate when they use means which can only be described as illegitimate. American political history of the recent past has been little more than the attempts by the Republicans to change the political system in such a way as to permanently exclude the Democrats from power. Using the conservative Supreme Court to open elections to undue influence by the rich and powerful business corporations is one. These so called ‘super PAC’s  (political action committees) are free to spend as much money as they want to influence an election. The same court has permitted the gerrymandering of the electoral process to exclude potential Democrat voters in the South. When the winner refuses to acknowledge the right to dissent and opposition, the tenor of politics changes it becomes more shrill and intolerant. Politics is conducted in the language of a Fox News presenter or the ‘shock jock’.

What has been lost from contemporary politics is the civility of manner? In the early twentieth century the members of the various political parties in Britain would be at each others throats in the Chamber, but they were able to distinguish politics from the person. These same men would then meet at various country houses for weekend parties at which there was no trace of animosity. This courtesy no longer exists in contemporary politics and you are the exemplar of the new rude and brutal politics. Without the practice of courtesy politics becomes degraded into being an unpleasant fight in a bear pit. When intolerance towards the other is the practice of each party democratic politics becomes impossible. The ‘give and take’ that made democratic politics possible in the past has ceased to exist. The obstructive behaviour of the Republicans toward President Obama which culminated in the threat to shut down government is an example of the new destructive politics. Similarly the behaviour of the Republicans toward former President Clinton demonstrates most effectively the breakdown of the American political system. Shutting down government for a month by refusing funding and impeaching the President over an affair with an intern was the nadir of American politics. All the worst practices of Republican politics have culminated in you. The destructiveness of your political reign is likely to exceed in destructiveness the damage inflicted on American society by the actions of Senator McCarthy. HIs witch hunts inflicted irreparable damage to the lives of individuals, you threaten to inflict irreparable damage to the fabric of American society.

What I believe disqualifies you from high office in a democratic society is your lack of civility. This is incivility derives in a part from your fear of and anger at modernity, as a relatively  inarticulate man it is second nature to express your anger in abusive language and in uncivil behaviour. It is not the belief in reasoned argument that is practice which enables democracy to thrive. All to often recorded parliamentary debates in England and those in the Senate or Congress fail to demonstrate reason. Civility was one of the factors that influenced the construction of the House of Commons after it was destroyed by German bombs. It was deliberately made too small to accommodate 600 MPs comfortably, it small size was intended to ensure that debates would tend to brevity because of the discomfort of being too long in the Commons. This with the regular emptying of the Chamber for numerous votes would be a tension releasing mechanism, so preventing that build up of tension that would lead to outbreaks of bad temper and behaviour, evidenced in other parliaments. Unfortunately British politics all too often copies the worst of American practice and incivility is now becoming the dominant mode of British politics. By civility I mean the civilised behaviour that makes debate and political dialogue possible, not the abuse and demeaning of one’s opponents which is now the common practice of British politics. When Theresa May came to the US it was not just to make a trade deal but to meet a like minded politician, a man who is the master of incivility. Why I want you to go is not just because you threaten the existence of liberal democracy in the US, but because you give encouragement to those many European politicians that also want an end to liberal democracy. Manners are said to make a man, manners are needed to make a President.

The Great Lie and the Rise of Trump and the alt.right

Economists have to shoulder their share of the blame for the dawning of the age of Trump, May and Farage. Their responsibility lies with the creation of the ‘Great Lie’ which led to the economic and social change which caused the current economic malaise. Governments longer seem to be in control, they seem powerless to arrest the decline in living standards. We now have government that operates on the Pontius Pilate principle, it shares the people’s pain, but it is powerless to anything to alleviate their suffering. In such circumstances when government claims to be helpless in the face of the current crisis, it is hardly surprising that those who claim to have a solution, no matter how wrong headed that solution are now gaining  power.

The ‘Great Lie’  is the one propagated by economists that they have discovered the economic model that if adopted will resolve all the economic and social problems that beset society, that is  the free market. A great lie can be easily identified, it is when economists claim that they have the answer to all society’s problems. Usually such optimistic solutions are called utopian, but economists have greater credibility and there claims are never subject to such scepticism. Economists never seem to accept that the economy as a human creation is as flawed as its makers, mankind. They will never admit that there proposed model for change is but an experiment that may contain as many or more flaws than the system it is replacing.  It is hard to explain why the free market model was so widely accepted, when the very failures of such a system had led to the Great Depression of the 1930s. Until the 1970s it had been accepted that the unfettered free market system was subject to extremes of volatility, whose worst manifestation were the periods of economic depression. Times whne unemploynent was high and people were impoverished. Overnight economists seemed to forget all the negatives of a free market economy and all began to speak from the same hymn sheet, the free market one. The deciding factor seemed to be the unending slow growth and high inflation crisis of the 1970s. A crisis whose origin lay in politics not economics, yet this fact was ignored by politicians desperate a for a solution to the current crisis. (For this particular economist the origins of the crisis were in the excessive demand for raw materials that the Americans required to fight the Vietnam war, which pushed up prices for steel to astronomic levels.)

Economics is pervaded by dishonesty, an unconscious dishonesty but dishonesty never-the-less.The free market or monetary economists never admitted that there would be any downsides to their free market model. Humility was the one quality lacking among these economists. They could make valid and reasoned criticisms of practice of social democratic economics, but were completely blind to the failures of free market economics. When such dishonesty is prevalent among government policy advisors, it should be no surpise that the dishonest claim made by the alt. right with its claim that immigration is the cause of all the problems is an acceptable a truth as the one that the free market works,when it it obvious to many that it does not. 

What these new economists failed to admit was that in creating a free market economy that the people would be exposed to the negative effects of adverse changes in the market. There would be many more losers in the free market. One such example comes from Sunderland, one of the areas that voted in large numbers to leave the EU. One of the main employers is  the Swan Hunter shipyard, which built merchant ships. In the 1970s it was failing to win orders because it could not compete with more modern shipyards in the Far East. The government realised that if it invested in re-equipping the yard with the latest in ship building technology, it could compete with other major shipyards. This would create many new jobs in an area of high unemployment. In 1979 a Neo-Liberal government came to power who thought any government intervention in the economy was wrong and they withdrew their support for the shipyard. All the new shipbuilding technology was sold to a rival shipyard in South Korea. Swan Hunter survives as a manufacturer of warships and equipment for the North Sea oil industry. However the people of Sunderland seem never to have forgotten the government’s betrayal of them and this year they could demonstrate their hostility by voting to leave the EU, against the advice of the government.

While the economists cannot be held responsible for the decisions of the government, they were the cheerleaders for the changes in economic policy making. One of the greatest of these new economists Milton Friedman supported the government of Pinochet when it tortured and killed its opponents, claiming that Chilean society would be better off without these people. A variation on the saying that you cannot make an omelette without breaking eggs, except that in this case the eggs are people.

One chilling example of the eggs being broken is housing policy. Increasing numbers of people, particularly the young are being forced into the private rental market. There they suffer from the twin problems of exorbitantly high rents and insecurity of tenure. When it has been suggested that the solution is to give private tenants security of tenure and to introduce rent controls, the social democratic party in this country has always rejected it as an unworkable solution. They claim that the introduction of such controls would reduce the number of properties for rent and so be against the long term interests of the private tenant. In reality a policy that did both things and which included measures to prevent a reduction in the number of rental properties could be devised. Yet this party clings to the Pontius Pilate principle of politics, vicariously sharing the pain of the private tenant while saying that bad as the situation is there is nothing they can do to improve the lot of the private tenant. When such is the official policy of this party it is no surprise that it is threatened with losing constituencies to the party of the alt. right that claims to have an answer.

There is little doubt that the adoption of free market economics has created an increasing number of losers in society and it is these losers that are looking to the alternatives for a solution. The only solution to the woes of society appear to be those  offered by the xenophobic right; as all the other political parties seem to adopt the same message which is that things may appear to be bad now, but they would be much worse if the government tried an alternative policy.

One solution to the current malaise is for politicians to accept responsibility for their actions, instead of looking for unreal solutions from the world of economics. While it was the unregulated financial markets that caused the crash of 2008/9 the slow recovery has been due to the governments adoption of an austerity policy. If the governments of the West had learnt anything from the 1930s it should be that adopting those economic policies to tackle non existent problems, they should take action to ameliorate the negative effects of the crash. Austerity programmes designed to do little more than cut government debt and increase and prolong the agonies of 2008/9. What is required is imaginative solutions to the crisis, usually not available from economists who are stuck with ‘Big Lie’, that the market will solve the current crisis if left to itself,when it quite obviously won’t.

Warning signs

Sometimes as an economist you notice things that others don’t. Today I visited the centre of the city in which I live and for the second time this week, I noticed that the cafes and shops were relatively empty. One reason is the belt tightening that invariably happens after the Christmas shopping spree. The other reason is more ominous and that is that the uncertainty generated by fears about Brexit which are causing people to be more careful with there spending. In times of uncertainty it is sensible to be cautious about spending, it makes sense to increase one’s savings to protect against future uncertainties. All the extra spending on credit cards that was recorded last year will come to a halt once people start to fea the future. They won’t want to saddle themselves with extra debts.

While the evidence I present is only anecdotal this is how economic downturns start. Consumers become more and more cautious with their spending  because they fear for the future. This action becomes something of a self fulfilling prophecy as failing consumer spending means that firms cut back on there spending on staff and purchases of stock. Gradually at first but then more rapidly people become poorer, because of falling spending by businesses and the down turn in economic activity can  within a short time develop into a recession.

These downturns occur because of flaws in the economic system,  as happened with the financial crisis of 2008/9 or because of misguided economic policy making. The second is happening now. There should be a golden rule in politics, that governments never take action that might be detrimental to economic welfare except in the most extreme circumstances. The problem about such actions is that there is no way of foretelling whether the action taken by the government will lead to an uncontrollable downturn in economic activity or whether it will result in a more modest adjustment.

There is a terrible warning that all politicians regularly fail to heed. When the Prime Minister Jim Callaghan returned to the country in 1976 from an overseas trip, there was a crisis developing in the financial markets. He made a foolish remark in response to a journalists question about the crisis, he said ‘what crisis?’ This gave the impression that the government was not in control and the financial crisis rapidly got out of hand.

Yesterday the Prime Minister Theresa May had her Jim Callaghan moment. She stated that Britain will be leaving the single market, giving the impression to informed observers that she had little grasp of economics. The EU is the largest market for British exports and announcing that she intends to make it more difficult for British firms to access that market, is an act of supreme folly. Today two banks announced in response to her speech that they are moving some banking operations to Europe. There will be many more such announcements in the following weeks and months. This will generate fear and uncertainty amongst British consumers, leading to large cuts in there spending, as they save more and more for the expected rainy day. The consequence is that it likely that later this year  that the economy will tip into recession.

Unfortunately the folly of her decision is compounded by the school boy howlers  made by her ministers. Today the Foreign Secretary compared the attitude of the French President to Brexit to that of a Second World War prison camp guard. Such remarks will merely serve to convince the financial markets that this government has little understanding of the economic reality and has but a very weak grasp  of the essentials of policy making.

As I said in the second paragraph my evidence is anecdotal but the incompetence of this government makes me fear for the future.