This is a failure of democracy not capitalism

Many leftie commentators have been rather enjoying the recent travails of the city. The banks have been partially nationalised and might be completely publicly owned within a few months, something people like Darling and Mendelssohn thought they would only ever dream about as student Communist Party members. The failure of capitalism, they say, has to be put right.

Thing is, it's not a failure of capitalism: it's a failure or democratic control. Governments in the West have been in a corrupt alliance with big business, a conspiracy against the people. Politicians have benefited by staying in power. Bankers have benefited from getting rich. Bureaucrats have benefited with expanded empires and higher pay. The only people not to have benefited are ordinary workers. Who, in the last 20 years, has been representing tax payers?

The children have taken over the sweet shop and there is now no effective control over the executive exercised by Parliament or the people it is supposed to represent.

Jefferson, in a letter to James Madison, wrote, "that the earth belongs in usufruct to the living." That is, no generation has the right to impose unreasonable debts on the next. He correctly saw that it was theoretically possible for one generation to vote its obligations to the next. Alas, his point was not taken and now it has become a reality for children across the Western world.

We don't need just a financial response the credit crunch: we need a constitutional one too. It's isn't a failure to regulate big companies that is at the root of our problems: it's our failure to regulate our politicians, to regulate the regulators.

We now stand at the brink of the worst social unrest across Europe since the 1930s. Let us hope that the new constitutional theory that arises as a result is a good one and not yet more evil. The Anarchist riots in Greece and elsewhere before Christmas are not an encouraging omen.

Israel’s Real Choices in Gaza

Thinking about this as Machiavelli might have or as modern Islamists do, rather than a post-secular, UN-sponsored, PC modern man, what could Israel do to win in Gaza? The options are:

1. Siege Gaza. This is less dramatic than sending the army in. It also gives Israel's international enemies more time to marshal themselves. The advantage is that by seizing the Philadelphi strip (which is Hamas's supply route from Egypt) and stopping all land, sea, air and electronic communication, Israel would have finally isolated Hamas from its supporters abroad. Hamas could then be given the choice: surrender or die. As religious zealots, they could be expected to choose the latter. However, the same does not apply the rest of the 1.5 million inhabitants and they would probably choose life as soon as they genuinely believed there was no alternative. The process could be speeded up by continuing with Option 2, below, during the siege. Support for Hamas already seems wobbly and it would be a reasonable gamble to assume that the siege wouldn't last too long. In reality of course, Israel might settle for a conditional surrender but that would be a great improvement over where they are now.
   

   
    

2. Deliberately kill more civilians. Hamas is democratically elected and clearly has popular support. There is therefore less of a problem with this than in, say, Iraq. Also as Hamas deliberately sites military installations in nursery schools etc, it is difficult to avoid anyway. The question is whether there is any real distinction between civilians and military in Gaza. Does avoiding killing civilians make any more sense in Gaza than it did in Nazi Germany? The biggest difference is hostile Western and Muslim powers who would seek to punish Israel for doing this. On the other hand, it may not be possible for Israel to win unless it starts to kill Gaza people in much larger numbers than it has so far. She must hurt them, not merely annoy them.
   

   
    

3. Raze Gaza. Its advantage is that it would remove the problem for ever. The disadvantages are:
   
   1. Dead men don't pay taxes or otherwise contribute to the society of man. The world's best outcome is Palestinians and Israeli's living side by side in productive harmony.
      
   2. By destroying a city, Israel sets a precedent that would justify its own cities being destroyed in the future. Iran, for example, might feel less constrained by world public opinion. True, if Iran nuked Tel Aviv one morning then Tehran would probably be a car park by the afternoon courtesy of the Americans. (Historically, the only countries to get away with 'final solutions' are super-powers and then only occasionally – e.g. the U.S. in WWII against Japan and the Romans when the razed Jerusalem in the first century A.D.).
      

      
       

4. Withdraw. The Jesus solution would be to turn the other cheek. This takes great courage and strength, however, and it's far from clear that any nation on earth has this degree of forbearance. Many Arab countries seem to agree and the Egyptian Foreign Minister recently criticised Hamas for its apparently senseless bombing of Israel say, "don't pull the wolf's tail if you cannot kill it". That we humans typically lack the strength doesn't make it stupid though. The casualties being caused by Hamas are trivial compared with Israel's population even including the odd "lucky shot" that hits a school or a busy market. Ultimately, Hamas would have to answer to its electorate and explain not only their military failure but also their failure to feed their people or provide them with jobs.
   

I remain far from confident that the Israeli Operation Cast Lead will work because it is based on a false, or at least unproved, premise. Their strategy at current is a watered down version of Option 2 above together with an incomplete Option 1. However, it will not be successful if it only achieves its stated aim of killing Hamas soldiers, as these can easily be replaced from a large population with little else to do. It will only be successful if it removes Gaza's appetite for the fight. Option 1 would be a gamble with world opinion. Israel has made Option 2 a gamble by, rather than going all-out to kill, trying to calibrate the exact level of death and destruction required to get Palestinians to abandon the fight. Have they guessed correctly?

Inciting racial hatred

I wish my council would do something like this. Then I could have them prosecuted for inciting racial hatred.

It's about time all these loony lefties had their own laws turned on themselves. There isn't one law for working white people and another, more indulgent, version for racial minorities and their panderers.

When the extreme, politically correct zealots seek to ban Christ from Christmas, the people most offended by such actions are the Muslims and other religions, the very ones they claimed to be being sensitive about. In reality of course they are using 'inclusiveness' as cover for their own militantly atheist agenda. The unintended consequence, however, is that antagonism between religions and races is likely to be increased.

The Public Order Act 1986 states:

18 Use of words or behaviour or display of written material

(1)A person who uses threatening, abusive or insulting words or behaviour, or displays any written material which is threatening, abusive or insulting, is guilty of an offence if—

(a)he intends thereby to stir up racial hatred, or

(b)having regard to all the circumstances racial hatred is likely to be stirred up thereby.

Therefore, in this mad, politically correct, illiberal piece of legislation it is no defence that you didn't intend to stir up racial hatred. Doing it accidentally is sufficient to have you convicted. This clearly applies to many of the actions of local authorities, including the one I link to above where threatening and abusive remarks are made about anybody who raises objections to a new gypsy camp near their home.

If you live under a council that behaves like this, write to them to let them know. With a civil unrest phase of the downturn possible perhaps as soon as within a year, you never know, you might prevent a riot.

It just ain’t going to happen

Over the Christmas period I have asked a number of people how long they think this downturn, as the BBC still calls it, is going to last. Most estimates vary from 6 to 18 months. Many economists refer to historical recessions as lasting about 5 quarters.

It just ain't going to happen!

I've just been reading this after following a link from Guido. Average U.S. indebtedness is getting towards $1 million per family. Counting off balance sheet items, the UK isn't far behind. The trouble is that the average family just isn't capable of repaying that sort of debt. It's also getting worse as highly productive indigenous families get smaller. America's only way out of this crisis is to devalue the dollar dramatically. This will fundamentally alter its relationship with the rest of the world – permanently. Moreover, the ramifications of this are huge. China, Japan and the other dollar 'hoarders' will feel enormous pain as this happens; it's unlikely that their governments, not to mention systems of government, will all survive.

The upheaval on the West side will be just as great with the EU, or parts of it, as good contenders for collapse. Just as the 'hoarding' governments will have to learn to share more with their people, the West will have to learn again to live within its means.

There is absolutely no way that all this is going to work its way out in just a couple of years.

My economic prediction for 2009

David Smith is running a competition to predict the economy for next year. This is my prediction...

I remain amazed that the consensus from economists is that the inflation toothpaste will conveniently squeeze itself back into the tube next year.

My prediction for the next year is that inflation will fall as the commodity bubble works its way out. It will then rise again, to 3% CPI, by the end of the year and keep on rising. This is as the delayed effect of this year's crash in sterling works it's way onto company P&L spreadsheets. This year it could be argued that most businessmen were taken by surprise by the crash. Shop's for example might have believed the economists' consensus of 2% growth and ordered stock accordingly. When they repeat the exercise early this year, they are unlikely to make the same mistake and will focus on margin rather than revenue, preferring to err on the cautious side with volumes.

GDP will, therefore, fall dramatically, by 5%.

The banks will need further bailouts stretching the government's credit to a point where investors start to question the country's ability to pay it back. This will precipitate another, more serious, run on sterling. The BoE will, therefore, be forced to raise rates back to 3%, having cut them further as inflation seemed to be under control during the middle of the year.

The current account will continue to worsen, to - £50 billion, as invisible exports (mostly from the City) collapse and manufacturing is unable to make any headway in a world recession, especially as other countries re-impose trade barriers. Despite sterling's fall imports will rise in value terms, as the country still imports food, energy and other essentials. (This problem is worsened as domestic production capacity has atrophied over the last 2 decades, as has the whole private economy of much of the north of Britain, and cannot easily or quickly be rebuilt. It will be made more difficult still due to the collapse in education standards and the poor attitude to work of most graduates and school leavers these days, as I and many other employers will testify.)

The crash in sterling will force the government into savage cuts in expenditure. Unemployment will spiral much higher than the current consensus range to a shocking 3.5 million by the end of the year.

House prices will have a 'sucker's rally' midyear, as low inflation and free money (in the form of a near zero base rate) fool many into thinking the crisis is over and we can get back to the 'normality' of ever rising prices and consumption. By the end of the year, however, they will have fallen a further 20% since the beginning of the year and still be falling.

Britons meanwhile will console themselves that it is much worse on the continent. The current illusion of stability in the Euro zone will be shattered in 2009 and the Euro will fall dramatically. Italy and Spain will join Greece with civil unrest that they struggle to control. Spreads between German and Mediterranean Euros will soar leading to the official abolition of such markets and many, more draconian actions by the European elite, including suspensions of freedoms and border controls.

Longer term, everything comes down to the number of people. Italy and other Club Med countries have already passed what demographers call 'lowest low', the ratio of children to women below which no society has every recovered (2.1 children per woman is required for a stable population. That of Greece is 0.9.) They will become increasingly Islamic as the vacuum created by atrophied birth rates creates uncontrollable immigration. 2008 will be these countries' all time highest GDPs and they will follow Japan on the road to demographic oblivion. Britain will be less far behind them than the statistics suggest.

Disproportionate Public Inconvenience

Unions of old used to target greedy bosses. They would threaten to put them out of business unless the bosses gave them a decent wage. Unions were an important counter-weight to the employers' cartels that effectively existed in previous centuries. (The option of leaving your job as a dockworker in Portsmouth, for example, for a better paid one simply wasn't an option if all the employers in the area offered indentical terms or told each other about trouble makers.) Those days are long gone.

Now, instead, unions are more likely to be picking on the general public than a private employer. Tube strikes, the annual Heathrow strike, job centre strikes, the Grangemouth strike: all these were aimed at the innocent public. The reasoning from the unions seems to be that by putting enough political pressure on the employer (which is usually government owned or at least highly regulated) new terms can be achieved that simple market forces would never be able to match. For example, tube drivers are paid more than many teachers in London.

The latest example is postal workers, who now are threatening to ruin Christmas for countless children unless they're paid more. And this in an industry made increasingly irrelevant by email and that already offers such poor service that even old-fashioned business such as Christmas cards and presents are being driven elsewhere.

The simple answer is simply to ban strikes that cause 'disproportionate public inconvenience'. It is unacceptable for these dinosaurs to hold us all to ransom.

Bonking for Britain

We're not having enough sex. That's the reason for this recession.

Before I explain this, imagine you're driving a classic car with your partner, Prudence. This car not only looks a million dollars with its curvy lines, long bonnet and round headlights, it's a miracle of mid twentieth century engineering. And because everything was so new when it was built the driver is intimately involved in the minutiae of engine management. There are dials and gauges for everything. Oil pressure. Oil temperature. Oil level. Water. Vacuum. Voltage. Amps.

Whilst the car used to be in the garage all the time, recently it's been so reliable you've come to believe that you've finally fixed all the problems. Now you hardly even look at the gauges. But today you're driving happily along with your partner beside you and you happen to glance down and one of the gauges is off the scale. Your first thought is that the gauge itself is faulty. You tap it, hoping it will just flick back to its normal position. It stays stubbornly off the scale and you decide that it's probably not important, especially whilst you're having such a good drive and there's the promise of better still this evening with Prude. The engine seems to be producing so much more power than it used to. It's really unlikely there's anything wrong with it.

Sometime later you look down again. Now even more gauges are off the scale. Some are swinging wildly from one extreme to the other. Still, power's still coming from the engine and you confidently tell your passenger you know what to do. You tweak some controls and that makes some of the gauges look a bit better, reassuring Prudence.

Then smoke starts coming out the engine and it's impossible to pretend anymore that there isn't a problem. Later still you hear a loud knocking noise. Again, you reassure your date by confidently declaring that it's probably just a temporary blockage of fuel so you drive even faster. Eventually, you run out of fuel, the knocking gets worse, you lose all power and grind to a halt at the road side. You open the bonnet but you don't know much about cars (it's your dad's). You do have some oil in the boot but not knowing where to put it, you just confidently pour it all over the engine.

For a while, this seems to calm the smoke and you bask in the admiration of your passenger, who smiles sweetly at you from the passenger seat. You adjust your leather riding cap seductively. Seconds later, the car explodes into flame. You are miraculously unscathed but Prudence, who stayed in the car at your insistence, is taken to hospital screaming in pain from horrendous burns.

When the emergency services ask you what happened, you say, "well it all started in the instrument panel..."

This, of course, is an analogy for modern economic analysis. Everybody is focussed on the gauges, the financial indicators, and not on the things they actually represent. Saying this recession started in the City makes no more sense than saying an engine fire started in your temperature gauge.

Gordon Brown. For the last 10 years he, Tony Blair and Peter Mendelssohn have been focused on making sure that everything looks ok, that the gauges of a modern economy all say the right thing. Meanwhile, something critical has been going wrong with the economy and they've made it better not by fixing that but by fiddling the books. They've got so good at fiddling that they've even convinced themselves that that is all they need to do. They have confused the appearance of success for success. So addicted are they to managing appearance that even as smoke pours from the engine room of the new economy, Canary Wharf, the most important thing to them is how it looks.

Well what's all this got to do with us not having enough sex? The answer is in Japan.

Japan is slipping back into recession and perma-slump. Nothing the government there does seems to help. They've spent trillions of dollars trying to solve the recession of the 90s and yet the result just seems to be that they're still in recession just now with added debt.

Understanding why Japan has failed to come out of recession is the key to understanding why Brown's borrowing binge won't work. He's focussed on the symptoms of the recession, the gauges, not the underlying cause.

In Japan, the primary cause of the recession isn't anything the government has or hasn't done. It's far more fundamental.

Imagine you're the last man alive. How much then would all the gold in the world be worth? Nothing. As this thought experiment reveals, the only true value in the world is people. And Japan's running out of them. Their population is set to collapse by over 30% (from about 130 million to under 100 million) in the next 40 years. Even this apoplectic forecast masks the true horror: 30% of those remaining will be retired leaving a working population of approximately half what it is now but with even more debt. When people are the only true resource and you've got half the number you had, it follows as surely as night follows day that your economy's going to take a comparable hit. The small percentage falls in Japan's economic health that we've seen so far are only the beginning of an exponential decline that will shake the world.

Even if the Japanese started having more babies, it would take 20 years for them even to begin to turn it around. They probably haven't got that long. They have passed what demographers call 'lowest low', the fertility rate from which no civilisation has ever recovered.

In Britain we have a similar problem. We too have a problem with declining birth rates (the average for a City worker is 1.1 babies per woman – again lower than 'lowest low'). Like Japan, we seem no closer to admitting it. Like Japan our government remains resolutely focused on palliatives rather than addressing the core problem. On this basis it would be a disaster if the City recovered quickly. How on earth could it remain at the forefront of global capital if its workforce halved every generation. There aren't enough immigrants either from the rest of Britain or the rest of the world to feed it. Anyway, what dynamic, globally mobile, young people would want to emigrate to any area full of old people in a culture's that's had its day?

Unlike the Japanese, we don't work as hard. This is an additional problem (as the collapse of wealth producing manufacturing has shown) but it may also be our saving grace because unlike Japan (and countries like Greece) it's not too late for Britain. And this is what leads us back to sex. We shouldn't be too tired for it when we get home. If you love your country and you're not already too old, it's time to give your partner a bit more loving too. Bonk for Britain – and make sure you don't use a condom.

A Scary Prediction for the Next Epoch, Post Credit Crunch

When the dust settles after this crisis there will be a profound shift in the relative power between East and West, to a situation that more closely represents the underlying reality. Western people are unlikely to take kindly to this, however. I would not rule out similar strife to what we had in the thirties. The disillusionment with the political class threatening democracy itself just as it did eighty years ago, leading to a large scale war in 10-20 years' time.

My bet for the spark that lights this tinderbox is Italy, its demographic collapse with the highest debt per worker is totally unsustainable.

Russia will soon be free to push further back into its former satellite states as NATO will be too weak to do anything about it and pre-occupied with keeping Western governments in place. She too will eventually weaken, however, as her oil money runs out and her population also collapses to the extent that the Muslim world pushes its boundaries northwards in a series of vicious wars. China, meanwhile, will continue quietly to build an empire in all but name in Africa.

Credit Crunch Canards No. 1

The credit crisis is spreading to the 'real economy'

If a dial in the dashboard of your car indicates that your engine is overheating and then later steam starts coming out of the bonnet, you don't say that the problem started in the dashboard. Similarly, if the accounting and banking centres of the country starts to show extreme stress, you would be unwise to look there for the root of the problem.

IMHO the primary cause of the current crisis is the collapse of Western competitiveness. Our indebtedness is a symptom of this problem as we have used both sovereign and personal debt to mask the fact that our lifestyles were no longer within our means.

Only once we have thrown off the health and safety, 30 hour week, consumerist culture will we truly have turned the corner. Until that day the true position will just keep getting worse, whatever the stock market says.

Bankers should be admired (if not thanked) for doing such an amazing job covering up this unsustainable position for so long. Sure, they were well paid, but it wasn't easy inventing all that money from nowhere or getting the eventual certainty of default to be seen as a small risk. The real villains, as ever, are governments who conspired with the bankers against the people, whilst (of course) benefitting greatly themselves. The current round of nationalisations is just politicians' latest wheeze to delay the day of reckoning just a bit longer.

Credit Crunch Canard

"This is a crisis that started in the finance industry and is now spreading to the high street." Words to this effect, e.g. "Wall Street to Main Street" in U.S. parlance, are everywhere in the media.

They are repeated so often in our media that one could be forgiven for believing them.

In fact, the opposite is true. Fundamentally, this crisis is about the collapse of Western competitiveness. Just 40 years ago the G7 accounted for 80% of world GDP. It could justifiably speak for the whole world. Today it is just 40%, not even a majority. This is the true root of our present crisis.

Despite the decline in our relative wealth and power, we have carried on behaving as if we still ruled the world (if not militarily then at least economically). When we could no longer afford the luxuries we were used to, instead of doing without or working harder, we simply borrowed. Even if we didn't borrow ourselves, we elected legislators to borrow on our behalf.

Clearly, this was never going to be sustainable. Also, no politician was going to get elected if he simply promised to get people's children to pay for their debts. So a way of camouflaging the debt had to be found.

Banks, at the behest of our governments, have therefore done an excellent job of covering up the decline of the West relative to the East, and even to the Middle East. Miles of red tape and a hugely bloated state for years seemed to make no different to living standards in Europe and the U.S. It seemed perhaps that socialism was right: in defiance of the belief of old-fashioned people, perhaps all these regulations and taxes really did help growth. Perhaps the 30 hour week in France just didn't go far enough.

To understand that we haven't even come to the end of the beginning of this crisis, one needs to ask what questions were important in previous crises that aren't even being mentioned today? What dead moose is in the room, which until it is faced up to the problem can't even begin to be addressed? Well, it turns out there isn't just one dead moose but a whole family:

1. Western productivity.
   
2. The balance of payments.
   
3. Sterling.
   
4. Pensions.
   
5. Demographics.
   

Only when our body politic faces up to the crisis in every one of these points, will we know we are past the initial stage of denial.

 

Open Source Government

When was is that the government became the enemy of the people?

Take the Department of Transport, for example.

As somebody who drives over a thousand miles a week on average, I'm regularly infuriated by the government's lunatic driving policies. I don't want to die any more than the next person but at the same time I simply don't believe some of their claims.

Remember the M4 bus lane and the 40 mph speed limit that was introduced at the same time? The government's best boffins insisted that this would, counter-intuitively, increase average speeds. Why then, a few years later was the speed quietly increased back to 50 and then 60? Clearly the boffins were wrong.

Remember some newspapers attempts to get data on accidents supporting speed camera positions? Incredibly, some police forces, went to extreme lengths to oppose the Freedom of Information requests?

Remember the Jeremy Clarkson interview with the then transport secretary, Mr Ladyman? Clarkson asked for evidence and ineffectually argued over statistics. Ladyman insisted that they had the evidence but that they hadn't published it yet because they were still working on it. Working on it? Is that the same as 'cooking the books'?

Why on earth would our government, servant of the people, want to hide information from us? Two years later, they're still 'working on it'? Could it be that the evidence doesn't support their policy position and they're busy massaging the raw data to support their own prejudices? Worse still, as a tax payer, I'm paying to have myself deceived.

If the government had published their information as soon as they recorded it, hundreds of people would have quickly (and for free) done the difficult statistics to establish reasonable conclusions from it. More importantly, because this would have been done in a spirit of openness and honesty, the conclusions would have had more respect and people would be more likely to obey speed limits that are worthwhile.

Sir Humprey would argue that making Civil Service advice public would change the nature of that advice and open up Civil Servants to attack with no right of reply. But that is exactly the point. We don't want them plotting behind closed doors. It worries us and makes us hostile even when they do the right thing. Moreover, Civil Servants need to up their game. They shouldn't be associated with politically controversial, partisan politics in private any more than in public. That is a role of universities, think tanks and lobby groups. Instead the servants of the people should be able to advise ministers on policy ideas, not lead on them.

Far from representing a demotion for Sir Humprey, it would require a much higher calibre of official, with the intellectual rigour to separate his own prejudices from the argument and to be able to serve either Labour or Conservatives equally well. What would diminish is politicians and bureaucrats' power to impose their own ideas based on partial evidence. If they wanted to build a new dual carriageway in the West Country they would have to win the argument for it. It might be the right thing to do but if it is then why does it have to be built by stealth, building by-passes bigger than they need to be and then later joining them all up at greater expense? Who knows, if they treated the people of the West Country like adults, perhaps they might find more agreement than they expected?

Instead of making everything secret by default and forcing the people to fight to have it released, a new government should make everything open by default. Only specific exceptions (e.g. national defence) would be allowed. Any scandal to emerge would be drowned by the sheer volume from every corner of government. It would be a cathartic experience. This would not be just in the negative sense, as in the disinfectant of sunlight, but also in the release of more information and energy. With Open Government, we could all be involved in decisions that affect us, rather than a select few, saving the government money and making decisions faster. Government would be on our side, facilitating our decisions, rather than against us.