Monthly Archives: April 2013

Polly Toynbee has it right, the key to growth is much more housebuilding

“… if Miliband needs a golden policy key, housebuilding looks set to be it. Build a million homes to cut housing benefit waste, employ hundreds of thousands, create apprenticeships, breathe life into the real economy, stop house price bubbles, replace those right-to-buy social homes. Building is not just good policy, but the best symbol for optimism. Bookies don’t like to lose: a Labour majority is their strong favourite, so Labour should cheer up.”

Major decline in trust of EU – another Marshall Plan is needed

The Guardian newspaper (24 April) includes a disturbing report on the dramatic decline in trust of the EU by its residents. The six largest countries in the EU include 350m of the 500m EU population, and now in all but Poland more people distrust than trust the EU. In Spain the level of distrust has dramatically grown from 23% in 2007 to 72% in 2012.

A key extract is:

” ‘ The damage is so deep that it does not matter whether you come from a creditor, debtor country, euro would-be member or the UK: everybody is worse off,’ said José Ignacio Torreblanca, head of the ECFR’s Madrid office. ‘Citizens now think that their national democracy is being subverted by the way the euro crisis is conducted.’ EU leaders are aware of the problem, [but are] utterly at odds over what to do about it …”

ECFR is a thinktank, the European Council on Foreign Relations, and they analysed data produced by Eurobarometer, the EU’s official polling organisation.

This loss of trust is not confined to the EU, similar great losses are found in trust of national politics, of banks, and of international organisations such as the International Monetary Fund and the European Central Bank.

But trust of the EU has held up the most in Poland and it is no coincidence that their country has received the largest injection of EU funds in recent years to develop their economy after the fall of the Berlin Wall. In 1989 we saw the crisis in communism, but fewer politicians have yet acknowledged that in 2007 we saw a crisis in capitalism.

After World War 2 it was realised that Europe’s devastated economy needed to be rebuilt, to avoid repeating the chaos and decline into political extremism that had followed the mis-managed political and economic arrangements after World War 1.

The Marshall Plan was the lesson we seem to have forgotten, or some political interests have chosen to ignore.

One hundred years later the people of Europe feel this mis-management is being repeated and there is little trust left.


Cycling Cities

Regular readers of the blog (!) will know that I am not News International’s greatest fan. However, The Times’ campaign for safer cycling investments in the UK, Cities Fit for Cycling, is one I fully welcome.

In my young days, being hit twice myself by lorries while cycling (Ardwick and Hendon) and knowing people who have died while cycling, this is very real to me. The injuries a year ago to their journalist, Mary Bowers, is a stark reminder of the dangers involved.

We do not have to rehearse all the arguments here – the all-party report published by Parliament today covers all the bases.

My contribution to the debate is to ask the Highways Agency what plans they have to make cycling in the UK as safe and as commonplace as in places such as Amsterdam and Copenhagen? They have the money. We saw the massive enlargement of the M60 between junctions 6 and 8, which is now surely a wider road than are some suburbs in Luxembourg. And more money is set to flow soon on the M60 further west.

Improving cycling infrastructure will always be gradual, a process of joining the dots so that individual improvements grow into a network. London Underground have taken this process to adapting their stations for access by disabled people. It has been going some years now and the fruit is ripening.

Of course, local authorities have a role on so-called minor roads as well as the Highways Agency for the major routes. A start would be to politically and financially interconnect LAs with the HA as much as the roads they invest in are interconnected.

One of the times I was hit by a lorry, I went forwards, and my bike went backwards under the lorry. It was a straight road, early morning, dry, not near a junction. The driver had a child in the cab. He jumped down and said to me, “you are lucky I have air brakes”.

We need a better policy than luck.

I’d strongly recommend attending the Greenbuild Expo, Manchester UK, 8-9 May 2013

I can strongly recommend the following event:

Held each spring at Manchester Central (GMex), the Greenbuild Expo this year is on the 8th & 9th May 2013, and it is the sustainable building and refurbishment event for the professional.

It’s free to attend, of specific interest may be the Green marketing sessions or some of the sessions relating to energy savings for businesses. There are also sessions on smart buildings, materials, methods, insulation, renewables and of course the Green Deal and ECO debates and presentations addressing fuel poverty and concentrating on large scale schemes like Warm Up North and the very soon to be announced Manchester City Council and AGMA programme (the 2nd largest in the UK!).

There are still limited spaces available should you be interested in exhibiting, but if not I hope you can take the time out to visit and perhaps consider being part of it in 2014.

Visit to register for free or for more information.

(No conflict of interest)

Carbon Bubble means other uses will be needed for hydrocarbons, eg pharmaceuticals

The report today by Lord Stern and the think tank Carbon Tracker shows that over 66% of oil owned by stock market companies will have to stay in the ground if governments are to achieve their plans to limit climate change to a 2C increase in average temperatures. The report calls this situation a Carbon Bubble because these oil assets are therefore at risk of being over-valued if they have to remain in the ground forever.

Alternatively, there is a view that oil and coal are too good to burn. The rich mix of hydrocarbons in crude oil varies from place to place, and like coal it can provide a strong stream of raw materials for a range of valuable materials from plastics to pharmaceuticals. We can even imagine a hydrocarbon refining process powered by renewable energy sources such as solar power.

However, for this new economic model to work we need to reduce the demand for energy sourced by burning carbon. A carbon tax would have the effect of pushing production towards higher value-added processes as well as providing a new revenue source for the transition to sustainable production and consumption. We can imagine and create a better use of sustainable plastics than the current overproduction of water bottles.


Are we heading for a second global financial crisis?

Yes we are, according to John Kay, Oxford economics professor, FT journalist for 17 years and government advisor where he led the Kay Review in 2012 on equity markets.

He takes the view that the financial world has not yet learnt the lessons from the 2007/8 global crisis and is still in denial. He claims that the Value At Risk model, discredited by some, is still being used to make high-risk investments and that senior economists in the major banks still believe in their models.

These senior economists comfort themselves by saying that the global financial crisis was an extreme event within the model, whereas Kay argues that it was outside the model and points to its limitations.

Kay has been criticised for being stronger on diagnosis than solutions. However, he does point out the benefits of moving towards smaller banks, towards longer-term investment decisions rather than quarterly earnings, and with improvements in how we regulate financial markets.

But perhaps his most interesting analysis is that economists need to change their culture and become open to learning from other disciplines. The example he gives is how the legal profession deal with probability – they require a convincing narrative as well as itemised facts.

In his book, The Art of Thinking Clearly, Rolf Dobelli (2013, p204) reports on a study by two researchers, Hirschleifer and Shumway on 26 stock exchanges between 1982 and 1997.

“They found a correlation that reads much like a farmer’s adage: if the sun is shining in the morning, the stock exchange will rise during the day. Not always, but often.”

It is good to remember that there are limits to the uses of a spreadsheet econometric model and that ‘animal spirits’ still need to be factored in and controlled.

The Art of Thinking Clearly, Rolf Dobelli, translated from German by Nicky Griffin. 2013. London: Hodder & Stoughton, Spectre.

We already know the legacy of Thatcherism

In the week in which Margaret Thatcher dies, some are asking if it is too soon to think about the political legacy of Thatcherism 1979 – 1990.

The Financial Times front page coverage (9 April) ended with the unanswered question of whether current crises have their foundations in the Thatcherite 1980s, such as:
1. council house sales (housing crisis),
2. big bang in the city of London (banking crisis),
3. privatisation of utilities (energy crisis),
4. deindustrialisation (manufacturing crisis).

Added to which could be the deregulation of buses outside of London, the poor maintenance of state schools and hospitals, and the general limitations placed on local government all as legacies which still leave us with work to be done.

There are then the political party legacies: New Labour (1993-2010) and where next for the Labour Party; Conservatives and how long the scars of their ousting of Thatcher (1990) will continue to poison and divide it; and the Liberal Democrats, UKIP and the Green Party in trying to reach voters outside their core supporters through a sustained popular or populist movement.

There is a respectable argument that Thatcherism is best understood as a form of Maoism, in that it was a cultural revolution, anti-intellectual, anti-establishment and focused around a strong leader, a personality who can relate directly with ‘the masses’ as if unconnected with their government. However, there is a price to pay afterwards. I remember hearing a retired school headteacher who said that the best way to leave and hand over to the next leader was “if the water simply closed over your head”.

This humility and wisdom in a leader is unfortunately rare, but perhaps the best measure of a time of rule is the quality of the times afterwards.

“Prosperity gap widens as welfare cuts hit north hard” says Financial Times front page on 11 April

Much ink has been rightly used to write about the Bedroom Tax and cuts to welfare, but worse is around the corner.

Full credit to the Financial Times in its front page coverage in both its UK and US editions today (link below) where the FT reports on the results of the analysis of welfare cuts it commissioned from Sheffield Hallam University. In short, the impact in poor areas across the north of England will be up to FIVE times worse than in richer areas in the south.

Analysis has shown that the Bedroom Tax will take around £500 million from poorer families during the term of the coalition government, but more insidious still is the recent change in linking benefits down to the CPI lower rate of inflation instead of the more accurate and generous RPI. This change will cut around £11 billion from poorer families in the same term of office of the coalition government.

What the FT front page report today shows is where those families live from who will lose that £11 billion. For example, Blackpool’s local economy will lose £914 for every working age adult living there, whereas Cambridge will lose £247.

And this follows the spacial modelling that the CLES think-tank in Manchester did on the impact of the Bedroom Tax at neighbourhood level, which showed similarly what we knew instinctively, that the poorest places will bear the heaviest loss.

The response by the coalition government to this FT article today is that “our welfare reforms … will help people back to work”.

But how will this happen when unemployment is so high and the local economies of the places where poor people mostly live will get even less income?

@FinancialTimes: Front page of the Financial Times UK Thursday, April 11

If we are moving towards contributions-based welfare, why are we abolishing SERPS?

There is much current UK debate about making ‘work pay’, and I and others have commented on the lack of ethics if that means lowering benefits rather than raising wages. And part of this trend in lowering benefits has been to propose that payments in future should be linked to the person’s previous National Insurance contributions.

OK, but then why are we abolishing SERPS (the Second Earnings Related Pension Scheme)? The name has been changed over the years, but SERPS did what it said on the tin. It was also very progressive, using contributions from the ‘best 30’ years which helped women who had had career breaks.

The recent ‘improvements’ in the state pension arrangements have answered the problem of the disincentive where some people were losing some of their state pension because they have savings.

However, the money for this change has been taken by phasing out the state second pension, the current name for SERPS. So in the future, a benefit related to contributions is to be abolished. It really would be better to be planing these things more consistently.

Is the Bank of Japan leading the way for UK recovery and growth?

The new Governor of the Bank of Japan, Haruhiko Kuroda, has announced $1.4 trillion of quantitative easing over the next two years. The FT reports (Japan starts monetary revolution, 5 April) that the BoJ will double Japan’s money supply in an effort to end decades of deflation, and that Barclays estimate this will be a 1% growth in GDP each month for this year followed by 1.1% monthly growth in 2014.

This bold move by the BoJ will certainly cause a reconsideration of strategy by both the Bank of England and the European Central Bank, both of whom recently announced no changes in their QE policies.

The UK Treasury will also show an interest, but perversely for a different reason. John Kay has written (Politicians bow to pressures to bend data, 13 March) about the growing tendency by the UK government to be very selective and misleading in its use of economic data, and to be fair he points the finger at previous governments too. Recently the UK government made its borrowing figures look better by counting as government income the extra interest payments that the BoE are receiving following its QE measures, while not counting the QE amount itself as increased public sector debt.

So the more QE is pumped into the UK, the better the government’s deficit will look on paper.

But can any increase in money supply be directed at jobs and sustainable growth, or is it doomed to be blown on asset price inflation and another bubble crisis? The USA approach to QE has changed recently to focus on employment levels as well as on inflation, and there have been discussions in the UK that the new Governor at the BoE this summer will somehow try to follow suit, with some early moves in that direction already started. Certainly the BoJ have accepted that inflation is better than deflation, and a modest growth in inflation in the UK, if accompanied by growth in the jobs market, might encourage personal savers to start spending more again at a time when UK personal savings are at their highest level since 2004.

The experience in the UK to date has been that QE has helped some large firms build up very strong cash reserves, but their finance directors have been mostly sitting on their hands waiting to see how the economy will develop; and small and medium firms have been denied almost any bank credit other than high-interest overdrafts and credit cards. The need now is for QE to reach smaller firms and not just the corporate head offices.