Monthly Archives: June 2016

My instinctive take on Brexit (now that it’s happening)

NOTE: Blue and 10 March 2017 edit-inserts are the latest…

The Brexit result has been achieved through the anger of many of the British people.

  1. It will be bad for the UK economy in the short-medium term. I have no idea about the long term (but in the long term we are all dead, especially the elderly)
    • JURY STILL OUT – PLUS SEE ORIGINAL EDIT MUCH BELOW(edit 10 March 2017)
  2. Unfortunately, before the long term it is also likely to facilitate the break-up of the EU and boost the already growing fascist movements across Europe
    • LOOKING MORE LIKELY – JURY STILL OUT (edit 10 March 2017)
  3. In the UK this will be because the ‘promise’ of Brexit (control over our laws, regulations and, above all, immigration) will not produce the effects the mass of Brexiters will be expecting: immigrants will still come in as long as and in the numbers our economy needs them, which is what has been happening up to now
    • DOH! (SIGH…) JURY STILL OUT (edit 10 March 2017)
  4. And if the UK economy no longer needs them, or it does need them, but is deliberately starved of immigrants by border controls, that means our economy will be shrinking
    • DOH! (SIGH…) JURY STILL OUT (edit 10 March 2017)
  5. Which means the majority of British people will be poorer and more angry
    • JURY STILL OUT (edit 10 March 2017)
  6. Scotland may begin the process of leaving the UK… And Northern Ireland may see a renewed outbreak of civil war as many there will want to join the Republic of Ireland. Those events will add to the messiness of things, to say the least
    • BOTH LOOKING MORE LIKE A RACING CERTAINTY (edit 10 March 2017)
  7. Back in England and Wales, the regulations which protected UK workers rights as employees will be dismantled in the name of setting business free of its shackles (which will do bugger-all to help free enterprise boost the economy, but may put extra money into the salaries and bonuses of the most senior managers and owners of SMEs and some large corporations), thus making the poor even more angry
    • JURY STILL OUT (edit 10 March 2017)
  8. UKIP will then morph into a fully-fledged fascist party and more people will vote for it
    • INCOMPETENCE LOOKS LIKE PUTTING PAID TO THIS; AND IT MIGHT SPLIT, LIKE MOST EXTREMIST PARTIES WITHOUT A VERY STRONG CHARISMATIC LEADER (edit 10 March 2017) 
  9. While similar stuff will be happening happen all over Europe (it is already beginning in France, Holland, Poland, Hungary, Austria)
    • AT LEAST ONE FAIRLY SUCCESSFUL ER… POST-DICTION (edit 10 March 2017)
  10. In the meantime, elsewhere, Trump may well be elected US president
    • YUP THAT DID HAPPEN (edit 10 March 2017)
  11. It’ll be the 1930s all over again
    • JURY STILL OUT, BUT IT IS GOING IN THAT DIRECTION (edit 10 March 2017)
  12. Russia may take advantage of the chaos to physically join up with Kaliningrad via either an invasion of Poland or an invasion of Lithuania (probably Lithuania), which might spark a major European war
    • BIT LIKE AN EARTHQUAKE OR VOLCANIC ERUPTION IN THE MAKING, RUSSIA IS DOING EARTH-TREMORS, BUT JURY STILL OUT (edit 10 March 2017)
  13. But a Trump-led America could well stay out of that, saying ‘not our problem’
    • MOST LIKELY SCENARIO WITH A BULLY-COWARD IN OFFICE, BUT EVEN WORSE, GO ATOMIC TO ‘BOMB THE SHIT OUT OF THEM’ – (NOW THERE’S A DISTRACTION FROM HEALTHCARE AND OTHER INCOMPETENCIES) (edit 10 March 2017)
  14. Lithuania falls, because an enfeebled NATO has no chance of stopping Russia. But I don’t think this will seem very important in western Europe
    • BUT HAND-WRINGING IS A POSSIBILITY (edit 10 March 2017)

EDIT the first

I think the expression ‘clusterfuck’ was invented for just such a rolling scenario.

Here was The Economist’s Kal’s take

In the meantime…

  1. What I’d now be very interested to see is the UK’s balance of trade figures broken down by sector and the likely effect on this of a newly persistent GBP£/US$ ratio of 1.4 and GBP£/euro ratio of 1.3. with tariffs imposed as if we were not in the EEA (free trade area).
  2. Also a back of envelope calculation of the likely effect of just these two items on UK domestic inflation and on UK GDP (ignoring ‘confidence’ effects ie all other things being equal, which I’m sure they won’t be… But let’s keep it simple)
    • THIS WAS ME WONDERING WHETHER A DEVALUATION MIGHT NOT BRING SIGNIFICANT SHORT-TERM GAINS TO THE UK ECONOMY WHILE MOST PUNDITS WERE PREDICTING IMMEDIATE DISASTER. lLOOKS LIKE I WAS RIGHT TO WONDER…

EDIT the second

As for 1930s … Trump’s America looks very much like going Authoritarian (Fascist? Racist?). The relationship of Trump’s USA with Putin’s Russia look like becoming very ‘interesting’ indeed. I’m obviously not the only one who thinks so. This from Frances Coppola’ s blog on the likely repercussions of the Trump administration.

She sees a major realignment of powers taking place, with chunks of eastern Europe returning to Russia’s fold and a likelihood of the return of American military action in the Middle East (and elsewhere – China, North Korea), less tentative than recently. With North African and Midddle East oil taken out of ISIS and other radical Islamist control – no accident that an ex-oil boss is now Trump’s Secretary of State – and possible Russian takeover of Iran’s Caspian oilfields.

If it gets any more ‘interesting’ we won’t have to worry so much about jobs and pensions…


On Immigration into UK. It’s (not so) complicated…

I don’t think there is much doubt that the primary emotional driver behind the Leave campaign is that of immigration. Namely, a strong feeling among many British citizens that there are just too many immigrants in Britain now and that the flow should at least be reduced substantially.

Of course there are other drivers too: about the alleged ‘undemocratic’ nature of the EU, its alleged inefficiency and financial profligacy, its alleged ‘red tape’ regulatory regime over which we Britons are alleged to have little or no control, its alleged control over our justice system. All of these could be argued. For instance, there are some sectors of the business community (particularly some SMEs and swashbuckling entrepreneurs) which just hate regulation of any sort. But I don’t wish to talk about any of this now because these issues, none of them, or in combination, provide the sheer emotional charge behind the Leave agenda.

So let’s look at immigration.

We’re in the here-and-now, so best not to rabbit on about Britain being a ‘nation of immigrants’. Rather better to start with the fact that we have an order of net immigration from outside the EU which is similar to that of the net numbers from within the EU.   Net migration from within the EU and from outside the EU were both running at around 185,000 per year in 2015. Thus, despite the EU ordained requirement that the UK accept ‘free movement of labour’ to and from the EU, we have been perfectly free to cut non-EU immigration very substantially if the UK government had wished to do so. And despite David Cameron’s stupid promise to cut immigration to the tens of thousands, his government has done absolutely nothing to start any process of restricting non-EU immigration.

The reason the promise was stupid and the reason nothing has been done about non-EU net migration into the UK is that our economy has needed the immigrants, irrespective of source. The evidence for this is that, despite the total volume of immigration, the rate of unemployment in this country continues to decline. Within this, the level of employment among UK-born citizens continues to rise. See here. Both are now at near-record levels. This fuels our economic growth, such as it is.  Why this has not led to near record growth is another matter, to do with piss-poor UK business and state investment levels.

But the evidence of the need for immigration is also clear from the sheer numbers of immigrants gainfully employed in our social services, health services, construction and commercial sectors, without whom all these sectors would be in an even more woeful state than they are currently. Their state would be woeful because the UK-born population is ageing itself into retirement and ill health and our youngsters are simply not breeding enough to make up for this.

Were it not for the immigrants there is no doubt that some sectors would have invested more significantly in IT/Robotics/Automation to replace the greying UK population – but it has proved cheaper and more convenient to avoid doing this by simply employing more human bodies, irrespective of origin. I have argued in previous posts why business investment is so low in the UK (most especially the UK), but the problem is not only business – the state sector could also have been investing more, likewise argued in previous posts.

But since we are where we are, we need the immigrants who have come and are coming to fill the job vacancies we have in the UK. Without them our economy would decline and our social and health services would be in an even worse state.

But what about the over-demand (‘pressure’) on our social-service, education and health sectors?

This is simply the increased demand we should expect from an increasing population. Provision should have been made for it.

Indeed, up to 2010, until the coalition government abolished it, there had been a poor, underfunded, Migration Impact Fund (MIF) which had been half-heartedly designed to deal with precisely this issue. But of course that would have required government investment in the housing, health, social services and educational sectors expected to be negatively impacted in demand terms by a growing population. Not that a young, healthy immigrant inflow would be making significantly greater demand on social services and health (except probably GPs). But surely they would on eduction and housing needs. We can see the dilemma the UK government is in: its policy of austerity forbids it from borrowing more or taxing more so it can spend more, even on investments that would provide significant medium- and long-term economic returns for the state.

So, when it comes to immigration and the increased pressure it puts on housing, the GP health service (less so hospitals), and education in particular, the government is fighting the Leave campaign with one hand tied behind its back.

Which is most unfortunate, as otherwise it could easily have taken the steam out of the part of the anti-immigration movement which is not wholly motivated by a dislike of foreigners.

Meanwhile, Labour has been quite hopeless in its misguided and half-hearted emphasis primarily on the protection of workers rights, etc, in its fight against Leave.

Even if the Remain campaign wins, the referendum (delightfully referred to in the FT as the ‘neverendum’) has been a wholly unnecessary, wholly disruptive and damaging event. And a cockup from beginning to end.

 

 

 


A Critique of the NeoLiberal Agenda from the IMF (well…the bit of it that doesn’t mind offending finance ministers)

A paper from three IMF economists was recently published in the IMF’s Finance & Development online magazine (F&D) which is primarily aimed at non-economists. It examines neoliberalism in terms of success and failure.The paper defines neoliberalism as follows:

The neoliberal agenda—a label used more by critics than by the architects of the policies—rests on two main planks.

  • The first is increased competition—achieved through deregulation and the opening up of domestic markets, including financial markets, to foreign competition.
  • The second is a smaller role for the state, achieved through privatization and limits on the ability of governments to run fiscal deficits and accumulate debt.­

It’s marvellous stuff – and quite balanced in showing that there may be some benefits. But there are also severe risks, depending on how the agenda is carried out.

Free movement of ‘capital’ across borders, in the opening up of financial markets, for example, can carry very severe risks – depending on what capital and where (as Greece and Spain can well attest):

  • Some capital inflows, such as foreign direct investment—which may include a transfer of technology or human capital—do seem to boost long-term growth.
  • But the impact of other flows—such as portfolio investment and banking and especially hot, or speculative, debt inflows—seem neither to boost growth nor allow the country to better share risks with its trading partners.
  • This suggests that the growth and risk-sharing benefits of capital flows depend on which type of flow is being considered; it may also depend on the nature of supporting institutions and policies [My emboldening]

It concludes that:

  • The benefits [of the neoliberal approach] in terms of increased growth seem fairly difficult to establish when looking at a broad group of countries
  • The costs in terms of increased inequality are prominent.
  • Such costs epitomize the trade-off between the growth and equity effects of some aspects of the neoliberal agenda.­
  • Increased inequality in turn hurts the level and sustainability of growth.
  • Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects.­ [My emboldening]

In sum – shrinking the state is far from an unqualified good in itself, and where it leads to increased inequality, as it usually does, this is very bad – not only ethically, but also in terms of reducing national growth. And, as for financial deregulation, it can lead to… well, we’ve seen what it can lead to.

But don’t take my word for it. Here is the complete paper…

Oh, and by the way, I’ve been banging on for ages about the need for more government spending (housing, NHS, defence, education, wotevah). And now even the OECD has called for it as a matter of urgency (urgency, I tell you…)

Actually ‘Rick’ at flipchartfairytales gives a neat summary and analysis of the OECD call for action here…