Austerity: The UK Government’s Current Motives Are Not The Original Ones

It looks as if the UK government’s austerity drive to reduce the deficit in haste no longer has the objective of improving the economy. It has other objectives.

It looks this way because the excuses for austerity not apparently actually improving the economy are transparently weak. They boil down to ‘our main export markets are in a terrible state, the global economy is in a pretty poor state, other countries are in the same boat, so we are doing the best we can under highly adverse circumstances; but don’t worry – we are getting there, slowly – just look at our improving employment situation‘.

This is transparently weak because, for a start, it ignores the fact that our major companies are simply not investing. These companies do not need to borrow (or borrow much) to invest as they are generally sitting on large cash-piles. So while it is true that our SMEs may be experiencing difficulty raising funds – because the banks are still in a ‘delicate’ position – if our major companies were to be investing we would be seeing some real growth. But they not despite the once-alleged confidence building effects of the austerity policy. This is because they are fearful there won’t be enough demand to justify their investment in new products, new plant, new machinery. They see a lack of demand stretching into the future. This demand shortfall is because consumers do not have the wherewithal or confidence to go out and spend. For some years now, their wages and salaries have not kept pace with consumer prices and they are nervous about their jobs. One major reason why their wages remain ‘stickily’ low.

But what about our ‘improving’ employment situation? Well, it’s true that private employment has grown and even outpaced the engineered decline in public sector employment. But at pretty low wage levels. And anyway, there is a marked decline in productivity associated with these employment improvements. More private jobs is not translating into more production and growth. Cheap labour is being hoarded by firms and hired, too, as a cheaper or less risky alternative to capital investment. And in the service sector much labour is being expended fruitlessly chasing more business which refuses to materialise because this is a negative-demand-led recession.

David Cameron, George Osborne and Nick Clegg are none of them stupid. Neither (now, at least) are they ignorant. They know all this stuff. So what is their stated excuse for not abandoning their policy of short term fiscal consolidation – though, of course, it is now not quite so short term because the end-of-this-parliament targets are definitely going to be missed, and the government has admitted it? Instead, they could be borrowing – at what are actually negative real interst rates – in order to boost demand through increased capital investment in productivity-enhancing infrastructure, building works, school repairs, more housing, etc. All things which are really needed, and which would, much of it from the get-go, have significant economy-boosting effects. The stated excuse is that to be seen to be changing the austerity policy and embarking on a borrowing ‘binge’ when the national debt is ‘so large’ in relation to GDP would cause the bond markets to freak out. The markets would suddenly cease purchasing UK government bonds. And this would result in a rapid rise in market interest rates on the bonds significantly increasing the price of government borrowing in the future. Also, they claim, the UK would lose its AAA status because the government would have lost credibility in its perceived ability to reduce the deficit and ultimately the natioanl debt. Um… well the credit rating agencies are going to do that anyway, and soon. Because, clearly, the government is failing in its endeavours to fix the economy, while the deficit remains stubbornly high, with debt still increasing in relation to GDP. GDP is still bumping along the bottom, if not actually decreasing, further exacerbating the debt-to-GDP ratio. Obviously the best way of actually reducing this ratio would be to increase GDP, the denominator in the equation. We really, really need growth.

There is also, of course, a major unstated reason for not changing policy: that no senior politician can be seen to admit they were wrong, as this would have a seriously deleterious effect on their personal credibility and future career path. Tough one that… Moral dilemma, eh?

So therefore the purpose of continued austerity is now no longer to fix the economy, but (i) to try to hold off a sudden rise in UK government bond interest rates (a sudden drop in demand for bonds) and (ii) to shore up policymakers’ personal credibility until ‘something turns up‘. This is just finger-in-the-dyke stuff. It can’t help but fail. Even more disturbing is that, actually, there is also a third reason (iii) that some Very Serious People, possibly including Mr Osborne – but if not, certainly people he rubs along with at dinner parties, perceive government debt as immoral. They do, too. They may give reasons for this, relating to future generations – reasons which don’t generally hold water. This is really ideological, emotional, not susceptible to argument. Oh, and a related fourth reason (iv) The belief that the state must be shrunk so that the well-off can keep as much of their income as possible and not be burdened by more than the minimal amount of taxation: purely ideological, this one, to put it politely.

So – there we have it: four motivations for continued sharp fiscal retrenchment – none of which actually relate to the reason we were given for front-loaded fiscal retrenchment at the outset: that this austerity would cause the private sector to invest and grow. This was the myth of ‘expansionary austerity’. A myth, by the way, cleanly, neatly and tightly debunked in an essay/paper from the USA’s Center for Economic Policy Research (CEPR) published some 7 months ago. Here (PDF).

Way back in 2010 Olivier Blanchard of the IMF clearly said ‘Commandment II: You shall not front-load your fiscal adjustment, unless financing needs require it’. That was in June 2010.

All this is not to say that the national debt is too low, or just right. The national debt is, by general agreement, even among KrudeKrugmaniteKeynesians, too high in relation to GDP. A credible plan for its reduction – and therefore reduction of the deficits which feed it – is definitely needed. But we do not have such a plan at the moment. Plan A has, indeed, been discredited. To be at all credible, a rational plan needs to be stated now, to be implemented when GDP does significantly turn up in what looks like being a sustained manner. Austerity in a time of growth may be a virtue. In a time of depression/recession it is definitely a self-defeating ‘sin’. As the IMF pointed out way back then.

Addendum

1. How does our debt to GDP ratio actually look? Is it as bad as it is claimed? Well, it is not brilliantly good. But putting it into a historical perspective shows that it is not actually all that terrible, either. Here are some charts.
So we need to do something to bring it down. But all that now-now-now panic was totally unnecessary.
2. Did the last government cause the sharp increase in national debt? Well, it did happen on their watch. But that was mainly because of the extreme financial crisis caused by the meltdown of the banks, requiring and expensive bank rescue operation, and causing a sharp drop in tax receipts.
3. Could we have been in a stronger position whan all this actually started? Probably. But remember, Spain and Ireland were paragons of fiscal rectitude, and still got sunk by their banks (and the euro and the ECB – but that is another story). While the UK was not particularly fiscally profligate before this all happened. The fiscal deficit of the UK was actually less than 3% of GDP at the time. Not so bad, as it hapens. Similar to the USA and France. But, of course, if the banks had been better regulated… Well, that’s another story. And the blame for that can certainly be partially laid at the door of Gordon Brown – among so many others. But the Conservative party at the time was all for very light-touch regulation too.

EDIT
There is one potential flaw in the argument that the government should switch course, and borrow for investment in beneficial infrastructure, etc, etc… But nah… That’s for others to elucidate… If they have some evidence, that is…

…Oh well, all right then. The potential flaw is that – although I do not believe it would happen, it is, theoretically possible that some muddled thinking on the part of some people in ‘the markets’, combined with herding, might result in either refusal to buy new UK government debt, or, if not immediate, a sudden rise in their yields (free market interest rates) as those who had bought the new debt (mainly banks) found that they could not sell it on at prices above or equal to what they had bought it for. In other words, if the UK government were to abandon current austerity policies and borrow for worthwhile capital-type investment to boost GDP (fiscal stimulus, yay!) interest rates on UK debt might possibly go stratospheric.

As I said, I don’t belive this would happen. But, if it did… what would happen then? The answer, from history, seems to be here. Nice charts and explanation from that KrudeKeynesianKrugman (KKK).

So, not Greece, nor Spain, nor Ireland today. But but France in the 1920s. When an awful ‘bond vigilante’ strike actually happened. So France, which had started with an enormous post WW1 debt problem, recovered strongly. what a surprise! The effect of the sharp rise in French bond yields caused a sharp decline in the value of the franc (surprise? No). Resulting in increased exports (surprise? No). Some inflation eroding the value of the debt (but no Weimar, note). And on to a full economic recovery. France boomed in the 1920s – until the Great Depression. But that is a whole other story.

Meanwhile here is a blogpost and chart chart snitched from Not The Treasury View (aka Jonathan Portes and NIESR) which says it all about the current recession, compared with previous ones.

To Snitch Or Not To Snitch?

I just came back from our local Supermarket-Local/Express (well-known retailer). I paid for some confectionery at the self-service tills. As I waited at the front of the queue for a till to become free, I noticed that the woman at the left-hand till had taken her last item – a packet of eggs – straight from the resting shelf, across the scanner, onto the ‘bagging area’ without actually scanning it. Not surprisingly, the till complained ‘Unexpected Item In Bagging Area’. So she put the eggs back on the shelf before the scanner, paid for the items she had scanned, and then took the eggs she had not scanned and placed them in her bag.
Should I have complained loudly ‘Madam you didn’t scan your eggs!’, or should I have gone up to her before she left and offered to pay for her eggs? Maybe I should have simply rushed to the security guard and pointed her out as she was leaving the shop. Instead, what I did was precisely nothing. I scanned my confectionery, paid and left (actually I was sufficiently distracted that I forgot to pick up my own receipt. It would have been ironically funny if I’d been stopped).
I don’t know if this was truly the reason for my deciding not to snitch on her, or offer to pay for her goods, or quietly tell the guard – but this is my rationalisation: From the way she was dressed, she was obviously no well-off celeb chef out to get something for nothing perhaps because of some sense of victimhood, deprivation, entitlement or whatever (like, say, Antony Worrall Thompson of recent like fame). Neither did she look like the local squire/dowager or actor kleptomaniac. I might have been happy to snitch on any of them. Actually, she looked like someone who’d just got off work from a low-paid job and needed the eggs but didn’t actually have the money to pay for them. So – I didn’t want to embarrass her, or get her into trouble. And I reckoned that shoplifting is a normal part of retail life. Don’t they even call it ‘shrinkage’ in the trade? (Most of it due to staff, actually, I was once told). It has to be indirectly built-in to the price-setting algorithm of the retailer. Thus the rest of us – the other customers – end up paying for it. Depending on how much ‘shrinkage’ there is, maybe we pay up to 10% more than we might otherwise pay (or maybe lower profits are declared, and the management and shareholders pay – but I suspect not).
So… to snitch or not to snitch? That is the question… My answer is ‘it depends’.

Inflation – Getting My Head Around it… With ‘Common Sense’ (Oh Dear)

The topic of ‘helicopter money’ recently arose in a family discussion. Helicopter Money, I guess, is the modern equivalent of digging holes in the road and then filling them up again (or, with extra redundancy, digging holes in the road, putting money at the bottom of them, filling them up again, then paying people to get the money…). Or something similar that Keynes may or may not have said in jest.
The government dropping money from helicopters would, of course, never run politically.
But the only slightly more ‘respectable’ notion of the government spending money (borrowed at current extra low interest rates, or maybe just created at the stroke of a pen (‘printed’), or collected by VAT-taxing pasties and caravans) on ‘infrastructure’, like roads, high-speed rail, new or modernised schools – or, indeed, anything that would (a) put more people to work and (b) have a long-term beneficial effect in its own right, might just be feasible politically. Though, laudable though this might sound, the chances are currently rather slim of it happening here in the UK.
The argument for doing this is that the private sector is in ‘saving’ mode – private individuals paying down debt, and companies sitting on their plentiful cash-piles (oh yes – this is true) and refusing to invest in new or improved products – because they fear there would be no demand – because, surprise, surprise, we are in a recession… So, if people will not spend, and companies will not spend/invest – how is the economy going to grow? Exporting does not offer salvation right now, with so many other countries battening down the hatches. Thus, only by the government spending and thus stimulating local demand by increasing the amount of money in circulation.
The notion that if the government cuts its spending this will ‘release’ businesses to invest/spend has proved to be wrong in this recession. Though it would be right in a situation where the government was competing for investment-money with the private sector. But it is not.
Thus the main argument against the government increasing its spending is that it will just cause inflation. The spectre of Weimar/Zimbabwe is invoked. I’m ignoring the cliched chant ‘you can’t borrow your way out of a debt crisis’ because it is truly meaningless – as it confuses a sovereign country with a household within a country – and they are not at all the same thing. What is true of a part is definitely not true of the whole in this case. Fallacy of composition. A household or a firm cannot create money out of thin air, but a sovereign country may do so to pay off its debt, or it may borrow at such advantageous terms for so long that the debt would be eroded over the long run by ‘normal’ levels of inflation (eg 2%). It may do the latter for as long as ‘the markets’ are willing to purchase its bonds at an interest rate that the government can afford to service.
But I want to get back to the issue of ‘inflation’.
I’m not going to get into Keynesian versus Monetarist versus Austrian versus Modern Monetary Theory versus Rational Expectations stuff here. Rather, I’m going to try to apply ‘Common Sense’. Common Sense is often handy. But it is also often dangerously misleading. I think it was Einstein who said something to the effect that it was nothing more than the sum of the prejudices we have acquired by the age of 18. It amounts to a series of handy simple algorithms – simple instinctive thinking which may or may not lead to correct answers, depending on whether the actual situation in which it is being applied does accurately reflect the situation which led to the creation of the algorithm in the first place. It is a sometimes useful quick alternative to thinking things through from first principles. So we need to keep the dangers in mind as I try to apply Common Sense.
So, inflation. I’m going to mainly use the definition of ‘too much money chasing too few goods/services’. What is ‘too much’? Enough money to cause the demand for the goods to exceed the supply. If the demand exceeds the supply, the price of the goods/services will increase. So the ‘value’ of the money (in terms of what it will buy) goes down. Ah… but while this must always be true in the very short term, for the less immediate term an increase in demand for goods and services will lead to an increase in their supply, as the sector supplying the goods and services aims to increase turnover and profits by supplying more goods/services to meet the increased demand. At least, it will do so if it has the capacity to create more of these goods/services (and it believes the demand increase is not just a short term blip). If, on the other hand it does not have this supply capacity, or cannot create it quickly, then we get persistent and probably runaway inflation. It becomes runaway (Weimar, Zimbabwe) when people demand higher wages to meet their day-to-day needs as the value of the currency ‘in their pocket’ has declined such that it will not meet their needs, and they believe that this will continue and get worse . A vicious spiral results. Inflation may also be imported, as when the demand for some internationally traded commodity (oil, energy, minerals, food) increases on the international markets to exceed the supply to the international markets. It is also imported if the domestic currency declines in value on the international money exchange markets causing prices to increase domestically. My common sense may deceive me if I fail also to take account of all this stuff.
OK – so let us look at the current UK situation. Helicopter Money or any other form of increased government spending will increase the amount of money in circulation, and, provided people are prepared to spend this money and not simply shove it under the mattress or put it in a bank (as they might under conditions of ‘deflation’, as a store of future wealth) will lead to increased demand for goods and services, which will lead to (at least) a ‘firming up’ of prices. The question is – does the UK economy have the capacity to increase the supply of goods and services to meet this increased demand? We do know that businesses – especially large ones – have the financial resources. They are sitting on a lot of cash. And borrowing for them is getting cheaper and easier. They also have under-used capacity. We can deduce the latter by the fact that UK productivity levels are currently rather low. And, we have historically high levels of unemployment. So – assuming all this spare capacity is not ‘structural’ (eg outdated/obsolescent plant, the unemployed labour not having necessary skills) it should be easy for UK PLC to increase supply. This will not always be the case as there are ‘hysteresis’ effects: make someone unemployed for long enough and their skills become outmoded, or they lose their skills and they become square pegs looking to fill round holes. We must assume this is already beginning to happen, but it is unlikely to be so serious yet as to cause us to say that our excess capacity is a mirage. So – there should not be any reason for UK PLC not to increase supply to meet the increased demand generated by the dreaded fiscal stimulus of government action. So we then get a virtuous circle of increased money supply leading to increased demand leading to increased supply and thus growth, more taxes being collected, less spent on welfare, etc, etc.
Ah, but I hear you say, what about the bond and currency markets? Won’t they lose confidence, causing the price of openly traded Treasuries to drop and the yield to increase unsustainably, while the value of the pound will drop causing the price of imported commodities etc to increase, leading to inflation which would then run away because of increased labour costs as workers demand and get more money? Here we come back to common sense… Why should this occur if the UK embarks on a fully fledged growth strategy? If the markets sense sustainable growth on the horizon they will cheer. True – there is often an unfortunate herd instinct in the markets, but in order for them to lose confidence they would need to believe that the government’s new strategy will squeeze private investment out, or that it will lead to nothing more than inflation. Which means that they believe in the wrong kind of common sense. Disproved by recent events. Only an external oil price shock could derail this strategy. Hello Iran? No, surely not…

EDIT:
Regarding the imported inflationary effects of a possible decline in the external value of the currency through running a budget deficit, that wise old coot, the Conservative-leaning Samuel Brittan, in a recent FT blog, quotes himself thusly: “A permanent secretary under an earlier Labour administration once asked me what I thought were the limits to permissible Budget deficits. My answer was: ‘Up to the point where the gains to output and employment are offset by the inflationary effects of a fall in the exchange rate.’ I thought it more important to state the principle than to give a spurious back-of-the envelope numerical estimate. Even the principle is slightly ambiguous. There could still be valid differences of opinion between those who regard inflation as an evil in its own right, to be weighed against any output stimulus, and those who worry mainly about the effects of raised inflationary expectations in offsetting the output effects of the stimulus.”

Some Thoughts on Global Warming Denialism on Both Sides

Global warming denialism might come in a number of forms:
1) Denial that the Earth is warming at all;
2) Denial that Earth is warming outside of ‘normal’ variation caused by ‘normal’ solar energy output changes and/or position of the solar system in the galaxy;
3) Agreement that the Earth appears to be warming, but denial that there is any persuasive evidence that the cause is manmade (ie – it is not ‘anthropogenic’); this requires the assumption that vast numbers of climate scientists are either mistaken, or are taking part in a conspiracy of one kind or another, or both: either a political conspiracy with an political-economic agenda, or a conspiracy to ensure employment and funding for climate scientists, and both;
[3 & 2 essentially amount to the same thing - depending on timescale definitions of 'normal']
4) Agreement that there probably is ‘some’ anthropogenic global warming, but that the dangers have been grossly exaggerated with respect to the size of the eventual global temperature increase and its effect on human society.
5) Agreement that there may be some anthropogenic global warming (AGW), but that there is, as yet, insufficient evidence to decide definitively, and, even if AGW is occurring, how dangerous this is likely to be.

I do not propose to go into the science at all. Just like the majority of people on all sides of the debate, I’m not equipped to do so. There is a very interesting and informative blog, which goes into the science a bit and which appears to take the point (5) stance here. It’s in two excellent parts.

My own view is that funding and peer pressure may indeed play some part in the research undertaken and the views publicly expressed by climate scientists, some of whom have become somewhat emotional. However, I believe that science is a self-correcting exercise and also I generally prefer cockup theories to conspiracy theories, except where the conspiracy in question is one by what outgoing President Eisenhower warned against: the Military-Industrial-Complex (which we should, perhaps, now call the Industrial-Energy-Financial-Complex…) – who are always so happy to accuse others of conspiracy, because they think that’s how everyone behaves.

Therefore, I am convinced that there is global warming and that it is at least largely anthropogenic. Further, I am quite sure this will be a direct cause of major calamities, societal disruptions, wars and large numbers of deaths on a global scale unless we do something quite fast.

I am also convinced that it is politically impossible to do something fast where it counts most: in the major developed countries and Brazil, China and India.

I am also extremely bothered by the fact that among many who otherwise share my beliefs about AGW, there is too often only one solution proposed: cut our emissions of greenhouse gases. Not that I don’t think we should. We really, really should. But, as I said, I think that is impossible: it won’t happen in time.

The neglected solution (ideally as-well-as) is to develop technologies for controlling our climate by other means. But, unfortunately, this is widely considered, by those who are otherwise on the side of the angels, to be a heretical proposal. Of course there is a risk of unintended consequences. But that should not be an excuse for near-theological objection to mitigation policies, which need to be developed and trialed. From time to time I read in the press that this or that mitigation technology is being considered, trialed, experimented with. But then I hear very little about it, aside from the loud commentary concerning it not getting to the root cause of our problem: mitigation seems to be politically and theologically incorrect.

I don’t think there is too much time left, really. All the knowledgeable estimates for the advent of practical fusion power place it between 20-40 years into the future. Germany has recently cancelled all its fission-power deployment. I think we should be doing all we politically and practically can to mitigate the problem of anthropogenic global warming.

We could start by admitting that we will not be able to solve it ‘properly’ in good time.

On the thin skin of famous bloggers

I’ve come across an interesting phenomenon since using Twitter: some bloggers whom I respected for their apparent insight, intelligence, knowledge and where-their-heart-appears-to-be, have turned out to be neurotically sensitive to criticism of their expressed views, or even disagreement with a ‘fact’ which they have stated. And, because they were apparently hurt by my attempted correction (Blimey! Little me! Whodathunk it?) they have blocked me from ‘following’ them on Twitter. It has happened three times over the last couple of years. Am I a troll? I don’t think so.
One of them ended up being publicly disgraced over making up parts of interviews/plagiarism – so, clearly, a genuinely flawed personality.
Another tweeted to me that not only was I wrong about something I was right about – (he had claimed that a certain scientist had said in a CNN interview that hurricane Katrina was definitely caused by anthropogenic global warming, when, had he bothered to watch/listen to the end of the interview he would have realised that the scientist’s early ‘yes’ response was only a verbal place-holder, not an agreement with the question-assertion of the interviewer, because the scientist later said the data to make such and assertion would not be fully analysed until April of this year) – but ended his tweet to me with comments about my obvious display of perceptual defence and the epithet #Fail.
Another apparent giant of the blogosphere blocked me for reasons I still cannot fathom – but had the grace to reinstate me after I made a public tweet appeal to him, and then, amazingly and also somewhat neurotically, started to follow little me! And retweeted me a couple of times (so far).
So – what are we to make of all this nonsense?
I really do not know – except to think that public blogging may sometimes serve a purpose which has more to do with bolstering an insecure ego than it has to do with a desire to inform and influence (or make money from advertising).
Who knows, maybe mine, too…

Iran, Israel and the Purpose of Nuclear Weapons

Does Israel have nuclear weapons? It has never admitted to this, but everyone assumes it does.
So what is the purpose of nuclear weapons? In my ignorance, I assume that in ‘conventional’ warfare there are tactical nukes and strategic nukes. Tactical nukes are ‘battlefield’ weapons, intended to destroy all or part of an opponent’s military capabilities. Strategic nukes are, potentially, state-destroying. Though, used in a ‘limited’ way, as on Japan in 1945, they might be considered as just bringing about an extreme form of ‘regime change’. With horror.
I assume that tactical nuclear weapons are, ultimately, for use in war, while strategic nuclear weapons are really intended only for deterrence. Should a state consider itself to be suffering an immediate ‘existential’ threat, then, should that threat become reality, the strategic nuclear weapons it has would be deployed to ensure the aggressor state would also be destroyed.
So I need to modify my original question to – does Israel have strategic nuclear weapons?
It could be argued that Saddam Hussein of Iraq was (ultimately) self-defeatingly opaque over Iraq’s claimed destruction of its ‘weapons of mass destruction’ because he did not want to let Iran know for sure that he did not have them, lest his old enemy take advantage of this. Too bad Cheney, Wolfowitz and Rumsfeld, in a fit of self-serving instrumental psychosis had convinced themselves that he did have weapons of mass-destruction. Hussein really needed a back-channel of communication with the Americans. Perhaps he did, but C, W and R decided they just wanted to get rid of him anyway.
Currently, members of Israel’s ruling regime are making high frequency threatening noises towards Iran, about carrying out a limited objective pre-emptive strike on Iran’s alleged (but very likely) nuclear enrichment and weapons development programme. So an important question is – does this make sense if Israel has a strategic nuclear deterrent?
It may, of course, be that they are, with increasing desperation, trying to chivvy the USA and Europeans into stronger sanctions, or maybe even military action against Iran’s nuclear programme. Or it may be because they genuinely believe that their nudge-nudge, wink-wink deterrent may not actually deter a regime that is looking forward to its own Shi’ite Islamic form of the ‘second coming’, post Armageddon. Or it may be because Israel does not actually have a viable nuclear strategic option and they fear that this bluff may be called by Iran.
As an addendum, I personally am not quite sure what to do with the thought that Iran may never have actually said that it actually intends to destroy Israel as a state. It is difficult to know, in the Middle East, with its tradition of ‘death to…’ hyperbole, whether people mean what they say or not, or even whether they have actually said it or not, since they often say one thing in some media and another in other media. Not to speak of ‘translations’. What is for sure is that most Israelis (and not just the current regime) have convinced themselves that Iran is, indeed, intending to destroy them. This is not a case of ‘the Holocaust Racket’ – it is a real fear among a Holocaust-traumatised people.
Update 8 March 2012: Ha’aretz Poll: 58% of Israelis against Israeli strike on Iran.

Further Thoughts on the Riots

It now seems obvious that there were at least three distinct types of people involved in the riots:

1) Angry disaffected male youth with low self-esteem, no jobs, no education and no hope for the future – these were at the core. Mainly, but certainly not exclusively, black – although black youth are disproportionately represented in this class as a whole – and also because of the initial trigger, which was the shooting of a young black man by the police;

2) Professional criminals and fences using the cover of the mob to inject their own criminal gangs into the melee purely for the purpose of looting and mugging;

3) People of all classes, ethnicities and both sexes, not normally ‘criminal’, who impulsively took advantage of open and damaged stores to grab some free goodies.

This last lot is very interesting because they were really displaying the same kind of ‘criminality’ as tax-evaders (even little ones), politicians-on-the-take, officials-on-the-take, people who fiddle their expenses, people who ‘nick’ stationery from their work, members of the press corps who indulge in nefarious and illegal practices (or hire others to do it for them), ‘big wheels’ in investment banks and other financial institutions who do immoral things bringing our whole economy down and senior executives of any  large company (remember Enron?) who take such large sums of money out of their company in the way of bonuses, gaming the system to make the bonuses larger, as to bring the company down – while they personally walk away rich and otherwise unscathed. In other words – people of all types who cannot resist an opportunity for self-gratification and enrichment, usually allaying any conscience they may have with the thought that they would be mugs if they didn’t – because – well, ‘wouldn’t you?’ and ‘everybody is doing it’. These are not ‘professional’ criminals – but there is very little difference really, except that professional criminals do it as their main living. Like dishonest investment bankers.

So – what public policy needs to be adopted, in order to try to ensure this kind of problem doesn’t happen again, or as rarely as possible?

What is clear is that assuming the ‘rioters’ were a homogeneous bunch of people will not lead to any kind of sensible policy for avoiding the problem again. My view is that types (2) and (3) above would not have had a situation to take advantage of, had not the disaffected youth been sparked into rioting in the first place. Therefore the solution must be to focus on the two issues of  (a) dealing with the anti-social behaviour of the individuals who make up the gangs of young people with no jobs and no hope and little self-esteem and (b) longer-term, reducing their numbers.  Interesting stuff on the first part  has been going on in Scotland recently (Strathclyde ‘Community Initiative to Reduce Violence’ – based on the USA Boston Mass. ‘Ceasefire Project’). But one thing is sure – for the longer term we need to deal with the issue, well-demonstrated by an econometric study, that social unrest is related to austerity policies. [Edit] : A very recent academic paper  – a study by economists Hans-Joachim Voth and Jacopo Ponticelli shows that from 1919 to the present,  a policy of austerity has lead to violence and instability. In their summary the authors concluded:

Does fiscal consolidation lead to social unrest? From the end of the Weimar Republic in Germany in the 1930s to anti-government demonstrations in Greece in 2010-11, austerity has tended to go hand in hand with politically motivated violence and social instability. In this paper, we assemble cross-country evidence for the period 1919 to the present, and examine the extent to which societies become unstable after budget cuts. The results show a clear positive correlation between fiscal retrenchment and instability. We test if the relationship simply reflects economic downturns, and conclude that this is not the key factor.  [My italics]

 

 
EDIT
Regarding type 1) above – soon became obvious that, outside London at least, these not mainly black
Regarding the difference in effect on people between an economic downturn and government austerity measures, this makes sense. Why? Because in an economic downturn people may get less work or become unemployed, but tend to see it as ‘one of those things’, maybe suffering greatly, but not actually able to blame someone for taking something away from them (OK – maybe I need to work on this argument a bit…). However, austerity measures cause some people to have their taxes increased (but not all) and some people to have some benefits withdrawn or decreased. This is perceived as the government ‘taking something away from me’. The feeling may just as equally affect the rich as the poor (I recall seeing a relatively wealthy friend going red in the face with anger and spluttering that he was simply going to stop working after the 50p tax rate was first announced – needless to say he didn’t stop working). Behavioural Economics experiments well demonstrate that people are highly loss-averse. This is loss. Not surprising, therefore, if it spills over into social unrest, while a downturn alone may not: downturns make people depressed, austerity targeting makes people angry.