Economic Growth: Desperately seeking 'some thrilling and utterly unexpected change'

Cameron at Davos: (AP Photo/Keystone, Laurent Gillieron)

When I'm after some pointed comment on economics I often read Chris Dillow, the avowed Marxist who writes a column for Investor’s Chronicle and a blog (rather more noticeably Marxisant) called Stumbling and Mumbling. He posts a lot, always provocatively; but with the UK economy shrinking over another quarter – this piece from a US vantage in The Atlantic, ‘Britain's Economy Is a Disaster and Nobody Is Entirely Sure Why’, pretty well sums up the dismal mood - I'm reminded that I've kept revisiting a post on Dillow’s blog from August 2011, ‘The Growth Problem’, which still seems to these eyes to tell the whole predicament. There's no good bolthole for capital to flock to, the Eurozone isn’t buying, generous credit is for yesterday, the coming industries we ought to have nurtured and developed we lag hopelessly behind in, our austerity - whatever you make of its degree - isn’t working, because none of the conditions under which it’s worked previously are now present - and so on. Last week Dillow suggested he believes the economy is being further depressed by ‘irrational animal spirits that drive [investor] sentiment and capital spending.’

Another economics commentator I look to a lot is Merryn Somerset Webb at Money Week, who is not a Marxist, or at least I doubt she is. She ended 2012 on a note not so far from that Dillow sounded in 2011: 'It is perfectly obvious that, barring some thrilling and utterly unexpected change in our national circumstances, we should continue to be in a low growth environment for the foreseeable future. It is also pretty obvious that there isn’t much we can do about it.'

And there was me thinking I was a black pessimist... In the past I may have sounded sarky on this page about Ed Balls’ Five Point Plan, but then the leading critiques of it have argued that Balls isn’t indicating willingness to borrow/spend what it might take; and for various reasons, he’s not going to get a chance to do that. As for the government, I have in recent times been quite sympathetic to David Cameron’s arguments that the UK must ‘rebalance its economy’ and ‘pay its way in the world’, but now I think – trying to be charitable to myself – that I’ve been wasting my own time, talking a load of wishful rot. I guess these are nihilistic times. Here's to the surpassing of rock-bottom expectations, then - or else to that thrilling, bolt-out-of-the-blue change...

Political dilemmas: even harder than you may think

One reason this blog fell into disuse in the autumn of 2010 was that I had formerly employed it to pontificate quite a bit about politics. But it’s not been a good last few years for politics... and I’ve lost a bit of fight for the subject (for which, inter alia, I like to blame Ed Miliband.) That said, in the autumn of 2010 I also got onto Twitter, and became accustomed every morning to reading political opinions, long and short, with which I agreed, and found to be more robustly and eloquently expressed than my own. (And I didn't even have to pay for them - talk about a guilty pleasure.)

The stuff I don’t agree with, meanwhile, I find I mostly haven’t the will to tackle. I was a bit nettled last week, though, by this New Statesman piece from Rafael Behr – and not, you understand, solely on account of the gruesome photo that tops it off.

It gets underway well enough, seeming to be a piece on Labour ‘recoiling from the whole spectacle of government on a shoestring’ – a problem on which Hopi Sen has been doing some hard thinking for a while. Behr further ventures that the British public ‘do seem grimly reconciled to the idea that politics, which used to be about favours bestowed from the Exchequer, is now about pain selectively inflicted’ – a debatable point, but one that Janan Ganesh also makes quite a lot.

However this is what Behr’s piece winds round to (with my emphases):

"There is a caricature of Labour’s public-sector debate that pits the frugal, reforming idolators of Tony Blair against spendthrift, reactionary disciples of Brown. The distinction is increasingly meaningless. Orthodox Blairites are a rare and neutered breed and even they accept that Balls, for all that the Tories paint him as Brownism incarnate, is wedded to budget discipline. The real tension is both subtler and more profound. It is between the need to defend Labour’s legacy of investment in public services and the impulse to imagine different ways of effecting social change. It is the dilemma of how to rehabilitate the abstract principle that government can be the citizen’s friend while also attacking the current government as a menace to society. It is the battle between Brown and Blue shades of Labour which remains unresolved, because Ed Miliband is personally steeped in both."

You could nearly imagine Miliband a brooding colossus, astride two great clashing ideas... In fact what Behr describes at the end there is not a ‘dilemma’, not by any definition. A dilemma is a choice between two more or less equally undesirable options: it’s what politics is mostly made out of. But for Labour it is a perfectly pleasant and natural thing – the usual day’s work – to offer itself as the citizen’s good angel, while pointing out that the other lot all have horns on their heads.

I suppose if you accept Ed Ball’s conversion to fiscal toughness, and also feel that his 5-point plan for growth is what the Coalition really should have been doing since 2010, then you could also take a view that Labour has progressed from its recent and rather backward stint in government (and from its nominal leader in that ‘moment’) and is now in ‘profound’ contemplation, even if only about new ways to keep on saying the things it's always liked to say. But if the unfinished Thoughts of Chairman Brown and the pamphlets of Blue Labour are really all that Ed Miliband has to mull over for inspiration then I can't see that this current version of The Party is engaged in any kind of dialectical process at all.

Financial Crisis Redux: We are all Japanese now

Very interesting this week to see the sudden, riled, edgy urging of a Plan B For Growth/Contra Recession by a good many financial journalists – this urging upon a Chancellor who clearly has wished to be seen as a Man of Iron, and whose confidence is probably rice-paper-thin right now, as the economic forecasts start to turn over the ballast in everybody’s guts. In these circumstances it’s no wonder that Ed Balls, with his mildly psychotic and probably permanent air of assurance, is unusually happy to be asked to give a lot of sound-bites on the general theme that, since everyone in the world has now stopped spending money, then it’s time for the UK to resume the practice.
I can see that George Osborne hates the thought of humiliation, maybe even more than the rest of us. I hadn’t thought he could bear the idea of calling a slippage on his deficit-reduction programme. But I’m truly curious to see what else he can do now. No amount of small-beer red-tape-cutting or enforced ‘flexibility’ upon the labour market, no greenbelt home-building or income tax tinkering can turn around the grim figures. Some big infrastructure projects – ‘public works!’ – would be the smallest start, and very welcome to my mind – but themselves inconceivable as of a few months ago, and thus a lot for Osborne to swallow. Let’s see if he can face the idea of ‘finding’ money to stuff into the public maw.
My problem with Ed Balls – sorry, one of my problems – is that I don’t believe he’s bothered by the notion of rebalancing the economy, only with slackening the pace of deficit reduction, and what that could mean for him in the eyes of Labour’s usual voters. And I don’t think that’s an adequate showing from an Opposition in these circumstances. Obviously no Opposition would put up costed plans this early in a parliament but, given the State of the Nation and the slough of public disregard that Labour's fallen into, I think they could do themselves a favour by seeming to be chomping at the bit with smart cost-efficient fiscal ideas.
I’ve been intrigued to see the amount of press play given (as here in the New York Times) to Adam S. Posen, the American economist on the Bank of England’s monetary policy committee, ‘a leading expert on what is often called Japan’s lost decade’ who sees the US and Europe as repeating ‘the same monetary policy mistakes that left Japan’s once-robust economy stagnant...’ Posen is nakedly advocating ‘more monetary stimulus’, and I admit I don’t see why that’s going to work now rather than before. But I’m more interested in his conviction that ‘the Bank of England and the British Treasury form a government-backed bank to make small-business loans.’
I've just written a long paper about the prospects for the North East England economy, to be discussed at the Durham Book Festival next month. It was largely concerned with urging entrepreneurialism and growth in SMEs. However I fought shy of too many policy prescriptions, just because the paper assumes tight-fisted Tories in power until 2015 at the very least. But then maybe Osborne really is about to un-constrict the spending sphincter, in which case all bets are off. If I were urging positions upon Labour now... well, business-targeted job-creating infrastructure projects, the full gamut of tax breaks for start-up businesses (research, employees, profits), establishment of sector-specific state investment banks, vocational training (also adult re-training) in hi-tech, digital and green energy skilling... yeah, I'd probably be focusing on things like that, in respect of what the state can do as an engine for growth, and not just a dispenser of hardship funds.