Tuesday, 24 March 2009

The man must be mad

Increase unemployment benefits! More student grants! Special social security payments! Tax rebates for low incomes! The man must be mad. Doesn’t he know that there are hungry bankers out there who need our money.

Luckily for us, the man is not Gordon Brown but Barack Obama who, unaccountably, does seem to have read the Keynes for Dummies book if not all of The General Theory of Money. The general stimulus package passed by the US legislature has to some degree been ignored here amidst the plethora of vast sums which are being handed out almost daily to ‘rescue’ the financial institutions. It does, however, reward a closer scrutiny.

The total cost of the package is $825 billion which amounts to about 2.8% of the US annual domestic product. The sheer size of this number makes it difficult to understand so let’s put it in UK terms. As the UK economy is, at current exchange rates, about 1/25 the size of the American, it helps to convert all the numbers to a British scale so in what follows everything has been divided by 25 and then converted to pounds. This means that in British terms, Obama proposes to disperse some £23 billion over two years.

A part of this is in the form of tax cuts for business which may not translate into spending but two-thirds of it goes to direct spending of various kinds. For example, a direct tax credit of £3.1 billion and an increase in unemployment benefits of almost £1 billion. Help to states to prevent education cuts comes in at £1.45 billion whilst money for highways and bridges amounts to £0.75 billion. £84 million will go to improving public parks, £37 million on rural water and waste facilities, on and on through dozens of items down to £1.4 million for research into alternative fuel pumps. (All this in UK equivalents remember).

There has been some criticism of this package on the grounds that it has too much ‘pork’, that is projects in the constituencies of influential politicians and there is probably some truth in this. It has also been criticised for being too little with some estimates for the level of stimulus required to return to full employment three times or more the proposed amount. But it is certainly a genuine effort to boost actual employment.

On 17 March, the New York Times reported on the ‘race’ to be first to actually implement a project financed by the stimulus package. (www.nytimes.com/2009/03/17/us/17shovel) In a very tight finish, the winner was deemed to be the California Conservation Corps who had 18 workers doing “trail work” in the San Bernardino National Forest. And, lo, there is a picture of them, stalwart chaps in hard hats with their shovels hitting the dirt. Close behind was the Missouri Department of Transportation which had started the approval process for work on a dilapidated bridge within minutes of Obama actually signing the bill. Presumably the grants to train health workers might engage a wider spectrum of workers but it is a start.

How different to our own neo-Keynesians whose direct stimulus package to date consists of…well, what does it consist of? Nothing? Almost nothing? Something so close to nothing that it resembles an economic neutrino? Certainly the blessed Lord Mandelson does seem to go to a number of lunches which must count for something towards keeping the catering industry going. We know that on 20 March he visited the North East “to meet with local businesses and see how they are taking advantage of the new global low carbon economy” and that he had a breakfast meeting before going to the Nissan factory. We also know that his Department wants have a “vision” for a low-carbon economy and is anxious to hear our views on this. But actual hard cash seems to flow one-way only, that is bankwards.

The question has to be asked: do these boys really want to get the economy out of recession? Is this some kind of Manchurian candidate scenario where the long-time sleepers set up by various Trotskyite sects finally get to work to doom British capitalism? Or are they just so deeply, painfully in hock to their banker advisers that they cannot get their heads round Keynesian economics, Level 1. In the 1930s, my unemployed grandfather was given a shovel and told to get working widening the A11 nears Enfield just like the healthy men of the CCC seem to be doing. It was demeaning work for a craftsman jeweller but it did bring money into the house. Today, there have to be many more constructive ways in which people’s skills can be used. Have the intellectual powers of Brown, Darling and Mandelson degenerated to the point where they cannot even understand this basic point, that to reduce unemployment you need to get people working?

Monday, 9 March 2009

Mandelson's trail of green slime

Paul Dirac, the greatest British physicist of the twentieth-century, had it just right. In 1933 in a speech at the presentation of his Nobel Prize, he stated that in a depression it was important to protect the workers’ wages. He was probably more impressed with Soviet Russia than was Maynard Keynes but, even so, the greatest British economist would have agreed with the essentials of this. Both, after all, were fellows of good Cambridge colleges.

It seems as if Obama also thinks along these lines at least when in front of the cameras. A couple of days ago he popped up in Columbus, Ohio, to publicise the fact that federal funds had been provided to save the jobs of forty Columbus police cadets who, otherwise, would not have been given jobs on their graduation.

However, in Salford things seem to march to a different tune. On Saturday, there was a demonstration against the possible loss of 180 jobs in Salford Council over the next 12 months. A month ago, the same streets were packed as hundreds protested against proposals by Salford University to cut 150 jobs and close courses as the University sought to save £13.5 million over the next three years. This is a local response to a national situation. According to The Times (2 March) some 40,000 council jobs could go this year. Leeds Council, for example, plans to lose some 650 people in 2009.

Similarly, there is a pattern of national job cuts in many English universities not just Salford. A random search shows cuts at Plymouth, Cumbria, Reading, even prestigious Cambridge University and it is certain that these are not isolated examples. Perhaps the most savage are proposed at London Metropolitan where some 500 redundancies are proposed following a statistical error in reporting course completion data which has resulted in the government insisting that £38 million should be returned to the Treasury.

All these job losses are happening not because of the collapse of banks nor because the market for their services is dropping. Councils report, naturally enough, a growing demand for social services following increasing unemployment in their area. They are happening because central government is squeezing public expenditure and demanding jobs cuts throughout the public sector.

It is difficult to over-emphasise the totally dysfunctional way in which this government is behaving. On the one hand, it pumps not just million but billions and more billions into the banks without any obvious result. On the other, it squeezes the public sector for a few millions in alleged cost savings with the result that tens of thousands are added to the dole queues. Even at the level of crude politics, it defies belief that Brown does not see that an appearance at Salford Town Hall announcing that funds are being made available to avoid job cuts would be worth far more votes than any brown-nose speech to the US Congress. If Obama can see the point, why can’t Brown?

The answer clearly lies in the problem Brown and his ministers have in shifting the economic and political vision which has informed their policies for ten years. Perhaps the best example of this is the appointment of Peter Mandelson as Business Minister. Leave aside the essentially undemocratic nature of this appointment. What is striking about it is the history of Mandelson whose direct knowledge of British industry (or Business and Enterprise as his Ministry is now called) dates from 1997 when he had a brief tenure as Minister for Trade and Industry (as it was then termed) during which his main claim to fame was his declared intention to abolish its work. Having resigned from this job (due to monetary problems), he popped up a year later as Secretary of State for Northern Ireland. After resigning from this (again after monetary problems, not criminal you understand just unwise), he was given the job of European Commissioner as the gift of his friend Tony Blair, perhaps to assist with his monetary problems. He then spent several years unsuccessfully attempting to negotiate a world trade deal whose main component was unrestricted free trade for the EU though not into the EU.

Just why Brown appointed Mandelson to oversee British policy with regard to industrial intervention in the recession is unclear. Possibly to gain his undoubted skills in presentation. Certainly it could not have been his beliefs in Keynesian public works given that his entire intellectual mindset previously seems to have been opposition to anything other than the free market doctrines of Friedman and Hayek. And so it has proved. A succession of speeches at conferences has affirmed a new-found belief in Keynesian policies. The words ‘a green new deal’ may even have passed his lips. But action has there been none. His department’s commitment to green industry turns out to mean more nuclear power (though without subsidy and unlikely to start before 2012) and some money for a pilot project in carbon-capture-and-storage from coal stations which may start in a few years.

According to Mandelson, “we are already one of the world's most competitive producers of low carbon technologies and services.” (6 March speaking to a grandly titled ‘Low Carbon Industrial Summit’) OK, let us take windpower, a resource with which Britain is better endowed than any other European country. In 2002, Vestas, the leading manufacturer of wind-turbines opened a manufacturing facility in Scotland at Machrihanish. In August, 2008, this closed because of a lack of orders with a loss of 92 jobs. Now, such turbines have to be imported from Denmark. Support from Mandelson. Nothing. Grand phrases from Mandelson. Uncountable.

Mandelson still lives in a world where British industry has thrived under New Labour policy “I believe that, over the last decade, in our fundamentals, the UK has overwhelmingly made the right choices. In our openness to trade and investment. In our competition regime and flexible product and labour markets. In the research and development policies that have helped innovative firms grow and prosper here.” (4 March, Mansion House Speech on Trade and Investment). “Our manufacturing record over the last decade in the UK is impressive - more than impressive. Our prospects are also better than good. We drove the first industrial revolution. And we will drive the next one.” (5 February, speech to CBI Manufacturing Dinner). He seems blithely indifferent to the fact that in the decade after 1997, Britain lost more manufacturing jobs than in either of the Thatcher recessions.

The fact is that it seems entirely outside of the intellectual universe of Mandelson and Brown to provide money for public works or for support any kind of British enterprise. They still cling on to the discredited PFI concept to finance public projects, stepping in to bail-out some collapsed schemes but still refusing to consider any form of direct finance. No doubt some loans to the most prominent of companies will eventually be squeezed out but, overall, the message is clear. If your are a banker, step up; anyone else, get back. In the case of Salford council employees, it will be back to the employment office.

The squeeze on public expenditure is already with us, quietly underway whilst Labour ministers carry on making grand speeches at grand conferences. And quietly the jobs are being lost. The great economist and the great physicist will be revolving in their graves. Obama will, no doubt, be grateful that he did not commit the US government to greater expenditure than the $100 for a set of DVDs. The money saved can go to another city government for some more jobs. And Lord Mandelson will carry on dragging his trail of green slime.