The Golden Rule has lead to Economic Ruin

The current financial debt crisis can be laid at the door of the Golden Rule and its interpretations. It states

“The Golden Rule states that over the economic cycle, the Government will borrow only to invest and not to fund current spending.

Therefore, over the economic cycle the current budget (ie, net of investment) must balance or be brought into surplus.”

This gave two consequences for the UK.

1. For a number of years there was a deficit to finance the creation of assets which would give non-monetary returns.

2. This deficit increased the nominal National Debt faster than the nominal growth in GDP.

That is the new assets were either in the category of having no significant financial returns (such as schools or hospitals) or had financial returns that would never cover the capital cost.

In terms of level of public services, the country is probably benefitting. But we entered the severest downturn in 60 years with a structural deficit. Yet these assets created liabilities as well. There are the running costs of the new assets and there is the interest on the debt. Furthermore, there are a huge number projects financed by Public Finance Initiatives (PFI). That is the Private Sector meeting the initial capital cost and charging for the flow of services.

The consequence is the UK entered the severest downturn in 60 years with a structural deficit. This was for the financing of “investment”. Further, each addition to the capital stock added to the Nation’s liabilities. For a new school or hospital to deliver its’ stream of benefits requires staff and maintenance.

The Golden Rule turns out to be far from Prudent, because it was not for investment in the accounting sense. That is assets acquired with expectation of a future stream of revenue generation or cost savings. Rather, the acquisitions were liabilities. Under Labour, we have acquired extra debt to pay out extra money year after year. Gordon Brown took a gamble with the Nation’s finances, by failing to understand the term “investment”. It should not come as a shock that in the long term it would unravel.

For clarity, here is a simple analogy.

1. Someone sets up as a plumber. They acquire a van to transport themselves, tools and equipment to places of work. The van has running costs, and also there is a loan to repay. But it enables chargeable work to be undertaken. It therefore enables or augments an income stream by an amount that is expected to exceed the cost.

2. Someone owns a basic low-cost reliable car, acquires a new 4×4, partly financed by a loan. The fuel, servicing and insurance all go up, along with the finance cost. It may increase their standard of living, but substantially increases that person’s outgoings.

Most Government “investment” is in the second category. It may provide services that people individually could not afford, but increases the sense of well-being. However, if debt financed, will just result in extra costs.

The Impact of Labour on the Current Crisis


John Redwood today claimed that

“Labour governments typically devalue the currency, run out of money, and preside over industrial chaos. Welcome to the spring of discontent.”

However, Redwood fails to attempt to quantify the extent of this economic mess. Gordon Brown would counter that the current situation is none of his doing. The Labour Spin Doctors might try to imply that the Tories are saying that the worsening of the deficit & national debt is 100% down to them. This is literally untrue. The opposite – that none of the current economic crisis is due to Labour’s economic management – is equally not true.

It is important to be able to split out the worldwide impact from the Labour Government’s

economic ineptitude.

I did some simple calculations comparing two situations (all as a % of GDP)

1) An actual (Labour) one where in 2007, at the top of the cycle there was a budget deficit of 3.5% and a national debt of 44%.

2) A fiscally prudent (Prudence) one where budget deficits had not been incurred in the good years, so in 2007 the budget surplus was 0.30% and the national debt just under 30%.

Let us assume there is a similar worsening of public finances of 8.5% of GDP, so under Labour the deficit peaks at 12.2%, under Prudence 8.6%.

Under a Labour the national debt peaks at 87% of GDP in 2015; under Prudence 48% in 2013.

Under Labour we have a structural deficit of at least 6% of GDP; under Prudence at most 2%.

This is graphed below.

That is, the Labour (or specifically Brown) effect  is an increase if the National Debt of over 40% of GDP and a structural deficit of £90bn that must be eradicated. Under Prudence the increase in National Debt is less than 20% of GBP and a structural deficit of £30bn.

This is, however, much too generous on Labour, as I have assumed.

1)     Growth Rates are the same.

2)     The average level of interest on the National Debt is the same.

3)     The worsening of the Government Finances is the same from peak to trough.

4)     The effectiveness of the fiscal stimulus is the same.

5)     The turnaround in the public finances is the same.

6)     The growth forecast through to 2015 is 3.2% growth. This is roughly as forecast in the 2008 Autumn Pre-Budget forecast. Thereafter the growth rate will settle at 2% per year.

Therefore, by implication:-

–         There is no impact on the recovery through massive cuts in government spending and/or real tax rises.

–         There is no rise in interest rates as a result of the ballooning deficit.

–         There is no real problem in reducing public spending by 12% of the total in five years (or by around 30% of the total excluding the health sector, education and transfer payments), as against a 4% reduction.

–         The existing deficit pre-downturn had no impact on the size of the downturn.

–         The effectiveness of the economic stimulus was the same regardless of the size of the deficit, or whether it was on the back of a fiscal stimulus (through public expenditure increases) for the last seven years.

So going forward, it is fair to say that as long as the recovery is strong and interest premium does not rise in relation to the euro area, and the government achieves the deficit reduction targets, the national debt is at least 80% larger due to Labour, and the fiscal squeeze is at least 3 times greater.

Futerra – The Propagandists of Climate Change Totalitarianism?


Ian Dale takes issue with the way taxpayer money is being used to indoctrinate people about climate change
The PR agency Futerra have produced a leaflet which allegedly make “It’s the use of totalitarian indoctrination techniques designed to manipulate public opinion.”

Having a quick look at their website, I am not sure from what perspective Futerra are coming from.

From the comments Dale makes they seem like a bunch of frustrated Marxists. The deniers are suffering from false consiousness. Hence the comments about there being no ‘rational man’ and using social learning. Then again, they could be frustrated telly-evangelists from the comments about “Link climate change mitigation to positive desires aspirations” and again use of social learning (or collective worship).

This can be more clearly seen from other documents on their website.

Be part of the revolution.” (

But this document provides the best clues. –

“For years we’ve tried to ‘sell’ climate change, but a lot of people aren’t buying. Despite a strange recent resurgence in denial, the science is unequivocal.” “For all of us desperately promoting action, finding ingenious ways to communicate climate change or just banging our heads against the hard brick wall of climate denial – we need to find the sizzle.”

Translated as – the truth is self-evident to those of us who are in the know, we just have to explain it better.

The religious analogy is then clearly stated.

“Climate change sounds like hell, so where is heaven?

Climate change itself isn’t the sizzle, it’s the sausage. That’s where our second metaphor comes in. The most common message on climate change is that we’re all going to hell.” And “Hell doesn’t sell”


“Heaven sizzles

But there is one message that almost every audience responds to. A narrative that changes hearts, minds and even behaviours. An approach needed now more than ever before. And it’s the opposite of climate hell. We must build a visual and compelling vision of low carbon heaven.”

Or maybe neither is right. Maybe it is just a sideline of the Prime Minister’s. After all Futerra state For nearly nine years we’ve helped you save the world.” We know that such a statement can only refer to Gordon Brown. ( The New Labour theme also chimes with the ‘message is right, just the communication that is wrong.’

Maybe it is time for some of their clients to take another look at their Eco PR agency. Beneath its thin green veil lie fanatical, intolerant and pseudo-religious views.

If we are truely concerned with the planet, maybe we should weigh up the evidence, take on board genuine complaints and listen. In the realm of science it means a bit of humility and recognizing when we get things wrong.

Labour Down to 120 seats in 2010?

Could Labour really be reduced to 120 seat’s at the next general election? Not impossible, but would hand the Conservatives a poison chalice

Jackie Ashley claims in the Guardian.

“Some Labour people may think I’m sounding too gloomy, but those who have been privy to recent private polling are a lot more than gloomy. This suggests that Labour could return to the Commons with just 120 MPs or thereabouts, taking the party back to 1930s territory. As ministers look for jobs to keep themselves going after politics, a Miliband move to Europe looks sensible.”

Most polling data based on even swing would give Labour over 200 seats, with the Conservatives getting a majority of 80 to 100. But  this result may be at the extreme end, but should not be unexpected. Compared with the Conservatives in 1997
1. Labour are polling lower in the polls.

2. There is greater de-seated resentment. Labour are not just out of touch, they have

3. Gordon Brown seems less capable than John Major at the job. Furthermore, he shows it. He is nervous, repetitive and cliché-ridden.

In 1997, many voted to punish the Tories. Next year it will be voting to punish Labour. It is not something a Conservative should revel in, as Labour has bred a deep distrust in politics in general (through their spinning and ignoring parliament) along with decimating the nation’s finances. So the Conservatives will have to rebuild trust whilst pushing through deeply unpopular policies.

A word of caution. Although ConservativeHome and Politicalbetting both recognize Jackie Ashley as being close to Labour and a reliable source, the comment is made in a long article on how the Europe question could damage the Conservatives. So maybe we could have a Lib-Dem government?

Pensions – The Missing Factor

We are told (for instance here and here, the major reason increase in the real cost of pensions (and the consequent demise of private sector final-salary pension schemes) over the last few years are

1. The increase in life expectancy.

2. Changes to accounting rules, meaning that companies have to include future pension liabilities in their balance sheets

3. The low returns from the stockmarket since 2000 – exacerbated in the current recession.

4. In the UK the 1997 Gordon Brown tax on the investment income of pension funds.

But the biggest cause of the rise of the pension deficits is the fall the long-term real rate of interest. This not only impacts on the compound returns to the pension “pot”, but also the size of the annual annuity that can be purchased on retirement. As a consequence, a fall of just 1% in the rate of interest might increase the contributions by 50% to obtain the same size pension. Always low interest rates benefit borrowers to the disadvantage of savers. Like sub-prime, pensions are another long-term hangover from the low-interest party since 2000.

In the UK, as a consequence of the low interest rates and high government spending we now have the following problems.

EITHER – We have low interest rates, meaning those working now have to save more for retirements

OR – We have higher interest rates, meaning higher taxes to fund the ballooning national debt and a steep fall in house prices.

The short-expediency of boosting the economy by low interest rates and deficit spending has reduced living standards for the elderly in the long term.

MPs Expenses – Cameron should be Machiavellian

Just posted the following comment to John Redwood’s Blog

MPs Expenses are (highly symbolic) distraction. If each MP’s cost us £300k each, 650 MPs cost £195m, or 0.03% of total government expenditure. A 50% saving on MP’s costs will be less than 0.1% of the total we need to save. Conservatives should be Machiavellian on this. David Cameron should remove the party Whip from the 3 worst offenders (according defined criteria, including failure to recognize their waywardness), forgive the rest (after appropriate admissions and apologies) and move on. That would set a clear precedent for the Prime Minister to follow.  

Further, it would also show David Cameron to be able to make decisive and bold moves for the sake of the country, even if it means losing some friends on the way. With unprecedented cuts to be required in public expenditure when he enters office, this would increase his stature for much bigger battles ahead.

Gordon Brown – The blinkered General

I got tot to thinking that the Labour Government’s strategy in dealing with the credit crisis can be compared with an Eighteenth Century Military Campaign.
Imagine the Grand Old Duke of York of nursery rhyme fame, for years believing that all that his troops were for was to make him look impressive. So he concentrated on spending on shiny uniforms and the latest equipment, and plenty of retinue. Further the troops were trained in drill, but not how to fire their muskets, or fix their bayonets.

Then the general has to face a critical battle. Fearing for his personal safety, (and distrusting his generals), the glorious general sends his personal valet to inspect the area. The valet spots a nice hilltop, with trees for shade where the area can be surveyed in safety. The troops on the low ground, so the general can view them. When the enemy is sited, he gets the cannons and muskets to fire a series of salutes to impress the enemy of the importance of the mighty general that they face. With the ammunition depleted, the order is given for the entire army to advance, with the band at the head, playing a victory anthemn. When the enemy give a warning shot, suddenly the general is no where to be seen….

Number 10 needs a literate secretary

Whilst reading the Prime Minister’s speech made today at St Paul’s Cathedral, I noticed some typos. I know that I make grammatical and typographical error. But for the website of the British Prime Minister? Do they not have literate secretaries nowadays? It is disappointing that they did not even run this report through a simple spell-checker. Goes to show that not even the Prime Minister’s closest aides can be bothered with what he says – or rather what his speech writer’s prepare for him.


I have spotted 7 errors (using Word spell-checker). I am just a (slightly) manic beancounter, so have probably missed some. Please see if you can spot any more.


With Kevin Rudd, the Prime Minister of Australia, I come here to St Paul’s, a church of enormous beauty and monumental history, a place of sanctuary which amidst the passing storms of time has always been a rock of faith at the centre of our national life. St Paul’s is a place to which over the centuries people have come in hope and faith – a great national institution standing between Westminster and the City, midway on the horizon between the world of politics and the world of finance, and with a lot to teach both.

So just as i came here to speak in this cathedral before Gleneagles in 2005, I believe there is no more appropriate place to talk with you about the G20 summit which opens in London tomorrow. And let me say there is no more appropriate leader to join us in this discussion than Kevin Rudd, a Prime Minister of high courage, a leader of great conscience and a visionary for reform.

And today he and I want to discuss with you not the details of specific or technical financial programmes or policies, but instead enduring values – indeed the enduring virtues – that we have inherited from the past which must infuse our ideals and hopes for the future.

And I want to suggest to you today that this most modern of crises, the first financial crisis of the global age, has confirmed the enduring importance of the most timeless of truths – that our financial system must be founded on the very same values that are at the heart of our family lives, neighbourhoods and communities.

Instead of a globalisation that threatens to become values-free and rules-free, we need a world of shared global rules founded on shared global values. I know it’s hard to talk about the future when you’re having a tough time in the present. You don’t redesign a boat in the midst of a storm.

But we need to talk about the future – because it falls to us to shape it. When Dr Martin Luther King talked about the fierce urgency of now, he asked us to awaken to a ttde in the affairs of men which if missed means you can end up being literally too late forhistory.

It is usually only in hindsight that people can interpret the forces which have so transformed their lives – only in the classrooms of the future that the people of a country can stand back to identify and analyse the great turning points in their national story.

But we do not need the benefit of hindsight to know that the sheer scale, scope and speed of today’s global change throws up problems which, if we do not address them, will condemn millions around the world to a life that is unsustainable, insecure and unfair.

There are four great global challenges our generation must address urgently financial instability in a world of global capital flows, environmental degradation in a world of changing energy need, violent extremism in a world of mass communications and increased mobility, and extreme poverty in a world of growing inequalities.

Answering these questions will determine whether people have continued faith in globalisation, in multilateralism and in modernity itself. And what these challenges have in common is that none of them can be addressed by one country or one continent acting alone. None of them can be met and mastered without the world coming together. And none of them can be solved without agreed global rules informed by shared global values.

The oil price crisis last year, the financial crisis this year, and a climate change crisis every year, all mean that we are not at a moment of change we are in a world of change. Twenty years ago only one billion people were part of the world’s industrial economy – but now 4 billion are. For centuries people rarely moved even from their home town, now every single year 200 million people – the equivalent of the whole populations of Britain, Germany and France – move from their country of birth – and next year another 200 million will do so again.

In one decade the majority of the world’s manufacturing, for two centuries focussed in Europe and America, has shifted to Asia. The global sourcing of goods and services means we now depend so much on each other that what happens anywhere can have an impact on what happens everywhere.

And today this raises anxieties and questions for people about what will happen to them, and what it means for their dream that their children, the children who are the next generation, will do better than the children of the last. I recognise that for too many families anxious about jobs, worried about the mortgage, uncertain about their future, the most important financial summits are those that take place around their kitchen table.

And so I understand that people feel unsettled, and that the pain of this current recession is all too real. And the danger is that in every country workforces will become so worried that they try to pull up the drawbridge and turn the clock back, and will retreat into a dangerous protectionism that in the end protects no one. If people’s fears are not addressed, they may choose to walk away from the benefits the opening up of the world can bring.

But managed well, the same global economy that has brought so much global insecurity can also bring global opportunity. Over the next two decades billions of people in emerging markets will move from being simply producers of their goods to consumers of our goods, leading the world economy to double in size with twice as many opportunities for our businesses and twice as many middle class jobs and incomes across the world.

That is why I am an avowed supporter of open markets, free trade, private capital and a flexible, inclusive and sustainable globalisation.

But let us be honest – the globalisation which has done so much to improve choice and driven down the cost of everything form clothes to computers, and which has lifted millions out of poverty, has also unleashed forces that have totally overwhelmed the old national rules and systems of financial oversight.

And as I have always said I take full responsibility for all of my actions.

But I also know that this crisis is global in source and global in scope. We’ve seen worldwide changes happen so fast that they have outpaced people’s understanding of them – so that managers sitting in boardrooms were selling financial products they didn’t know the value of, to traders and investors who didn’t know what they were trading and investing in, covered by insurers who didn’t know what they were insuring. Complex products like derivatives and securitised loans which were supposed to disperse risk around the world instead spread contagion.

And the sensible limits to markets agreed in one country became undermined by global competition between all countries as each raced to the bottom. Instead of banks being, as they should be, stewards of people’s money, some of them became speculators with people’s futures.

I say to you plainly the world of the old Washington Consensus is over, and what comes in its place is up to us Instead of a global free market threatening to descend into a global free for all, we must reshape our global economic system so that it respects the values we celebrate in our everyday lives.

For I believe that the unsupervised globalisation of our financial markets did not only cross national boundaries – it crossed moral boundaries too. In our families we raise our children to work hard and to do their best and do their bit We don’t reward them for taking irresponsible risks that would put them or others in danger, and we don’t encourage them to seek short-term gratification at the expense of long term success.

And in Britain’s small businesses, managers and owners are the enterprising people our country depends on and we rightly celebrate. But they do not tram their teams to invest recklessly, behave secretively or keep their biggest gambles off the books.

Most people who have worked hard to build up their firm or shop understand responsible risk taking but don’t understand why any company would give rewards for failure, or how some people have grown fabulously wealthy making failed bets with other people’s money. So it is absurd for those on the extremes to blame the private sector for our problems – what we actually need is the practice of most of our private sector to be adopted by all of our private sector.

And so our task today is to bring our financial markets into closer alignment with the values held by families and business-people across our country. Yesterday I said there were five tests for the G20, and the first of these is to clean up the global banking system.

Most people want a market that is free, but never values-free, a society that is fair but not laissez faire. And so across the world our task is to agree global economic rules that reflect our enduring values.

That means rules that make transparent the risks that banks take, rules that bring hedge funds and shadow banking inside the regulatory net, rules that force banks to hold sufficient capital and ensure their liquidity, rules that require boards who understand their business and take responsibility for the decisions they take, and systems of pay and bonuses that reward people for long term value and not short term risk taking.

Let me put markets in context they can create an unrivalled widening of choice and chances, harnessing self-interest to produce results transcending self-interest. When they work well they fulfil the promise of Adam Smith that individual gain leads to collective gain, that even when people are pursuing their private wishes they can nonetheless deliver public good.

But as we are discovering to our considerable cost, the problem is that without transparent rules to guide them, free markets can reduce all relationships to transactions, all motivations to self interest, all sense of value to consumer choices, all sense of worth to a price tag So unbridled and untrammeled, they can become the enemy of the good society.

And we can now see that markets cannot self regulate but they can self destruct and, again if unbridled and untrammeled, they can become not just the enemy of the good society, but the enemy of the good economy too. Markets are in the public interest but not synonymous with it.

And the truth is that the virtues we admire most and make society flourish – hard work, taking responsibility, being honest, being fair – these are not values that spring from the market, they are the values we bring to it. They don’t come from market forces they come from the heart, and they are the values nurtured in families and in schools, in our shared institutions and our neighbourhoods.

So markets depend upon that which they do not create – they presuppose a well of values and work at their best when these values are upheld. And that is why what I argued controversially some time ago is now in my view more generally agreed, that there are limits to markets just as there are limits to states.

Just as in the 1970s and 80s people felt government was too powerful in the grip of vested interests that had to be channelled to work in the public interest, so too it is now clear that financial markets can become too powerful and come to be dominated by vested interests of their own. And so it falls to us, supporters of free markets, to save free markets from the most dogmatic of free marketeers.

To say this is not anti-business, anti-private sector or anti-market. Quite the contrary – my point is that strong rules rooted in shared values are the best way to serve both ourselves and our market system. Markets need morals.

The reason I have long been fascinated by Adam Smith who came from my home town Kirkcaldy is that he recognised that the invisible hand of the market had to be underpinned by the helping hand of society, that he argued the flourishing of moral sentiments is the foundation of the wealth of nations.

So the challenge for our generation is whether or not we can formulate global rules for our financial and economic systems that are grounded in our shared values.

Now that people can communicate instantaneously across borders, cultures and faiths, I believe we can be confident that across the world we are discovering that there is a shared moral sense. It is a sense strong enough to ensure the constant replenishment of that well of values on which we depend and which must infuse our shared rules.

And when people ask can there be a shared global ethics that will lie behind global rules, I answer that through each of our heritages, our traditions and faiths, there runs a single powerful moral sense demanding responsibility from all and fairness to all.

Christians do not say that people shoufd be reduced merely to what they can produce or what they can buy – that we should let the weak go under and only the strong survive. No, we say do to others what you would have them do unto you.

And when Judaism says love your neighbour as yourself. When Muslims say no one of you is a believer until he desires for his brother that which he desires for himself. When Buddhists say hurt not others in ways that you yourself would find hurtful. When Sikhs say treat others as you would be treated yourself. When Hindus say the sum of duty is do not unto others which would cause pain if done to you, they each and all reflect a sense that we all share the pain of others, and a sense that we believe in something bigger than ourselves – that we cannot be truly content while others face despair, cannot be completely at ease while others live in fear, cannot be satisfied while others are in sorrow We all feel, regardless of the source of our philosophy, the same deep moral sense that each of us is our brother and sisters’ keeper.

Call it as Adam Smith did the moral sentiment, as Lincoln did the better angels of our nature call it, as Winstanley did the light in man, call it duty or simply conscience – it means we cannot and will not pass by on the other side when people are suffering and we have it within our power to help.

So I believe that we have a responsibility to ensure that both markets and governments serve the public interest, and to recognise that the poor are our shared responsibility and that wealth carries unique responsibilities too.

I know that there is one analysis which says we must seize the opportunity of this crisis to reject materialism in all its forms. But for me, the answer doesn’t he in asking people to foreswear material things or giving up on aspiration for their futures, but instead in remembering what our pursuit of growth and prosperity was really all about, spreading freedom so that ever more people can live the lives they choose.

But it is no repudiation of wealth to say wealth should help more than the wealthy, no criticism of prosperity to say our first duty is to those without it, no attack on the life-long attachment I have had to aspiration to say each of us has a responsibility to ensure no-one is left behind.

Today we must reaffirm the age old truths about society that when those with riches help those without, it enriches us all, and the truth when the strong help the weak it makes us all stronger. But our meeting is only the start and world leaders only one part. I am still humbled by the memory of one of the protestor’s signs I saw at the make poverty history rally in Edinburgh in 2005 It said “you are G8 we are 6 billion”.

The campaigning groups, faith communities, companies, social enterprises and trade unions represented here today rightly demand a lot of us as leaders in coming days, but you too are part of the solution. And I believe religious leaders, business leaders and leaders of the financial sector, charities and unions and teachers at our universities and schools must
begin a conversation, a national debate, as serious as any we have entered in to in my lifetime, about the shape of the economy we are about to rebuild.

Let me conclude – the battle the leaders of the G20 are fighting this week is not the old one against old enemies – but a new one, against global recession, against climate chaos , and against unemployment, insecurity poverty and hopelessness.

And leaders meeting in London must supply the oxygen of confidence to today’s global economy and give people in all of our countries renewed hope for the future.

Our first test is that we must clean up our banking systems, curb the use of tax havens and introduce principles for pay and bonuses so that instead of banks serving themselves they serve the people.

Our second test is that we must take the action necessary to prevent the suffering of the past in mass long-term unemployment and save and create more than 20 million jobs.

Third, by international economic cooperation we must reshape the global financial system for new times so that with early warning and precautionary action we can prevent crises like this happening again.

Fourth, we must avoid the mistakes of the 1930s and not descend into protectionism and isolationism.

And fifth, we must press ahead with the low-carbon revolution.

And we must never, ever forget our obligations to the poor. Just yesterday I received a letter from the Holy Father, Pope Benedict, reminding us that “positive faith in the human person, and above all faith in the poorest men and women – of Africa and other regions of the world affected by extreme poverty – is what is needed if we are truly to come through the crisis”.

And so today I speak for all the leaders of the G20 when I say the duty of leadership is to identify, name and then help shape the changes of this new global age in the interests of people and so we completely reject the idea that the only thing we can do in the face of a recession is to let it run its course and do nothing, as if the economy operates according to iron laws and the only role of men and women is to live by what these laws dictate.

That is to demean our humanity – because there are always options, always choices, always solutions that human ingenuity can summon. A few years ago when economists were pressing the most dogmatic of free market policies on poorer countries, they argued for it by saying “Tina” – short for there is no alternative.

But African campaigners came up with a shorthand of their own “Themba” – short for there must be an alternative. In that cry – Themba – we hear everything that must guide us today because while it was an acronym – it was also the Zulu word for the most important thing that humans can have.


Themba – the confidence, conviction and certainty that where there are problems there are always solutions, and we do not need to accept the defeatism of doing nothing.

The conviction that through pursuing cooperation and internationalism we need never return to the isolation and protectionism of the past. The certainty that there is always an alternative to fear of the future, and what conquers fear of the future is faith in the future.

Faith in who we are and what we believe, in what we are today and what we can become Faith most of all in what together we can achieve.

So we are not here to serve the market, it is here to serve every one of us. Governed by rules which reflect our morality it is our best hope of a better world. Let us imagine that world together. Let us fight for it together. And then with faith in the future let us build it together, for the world we build tomorrow is born in the hopes we share today.


Gordon Brown should learn from the Medical Doctors

The Government yesterday announced plans to “help 500,000 people into work or training.” This was my rely to John Redwood’s postingWhat do we want? Jobs. When do we want them? Now.



You are right Mr Redwood in saying due consideration needs to be given to the relative success past schemes. However, this needs to be in the context of the current realities.


  1. The budget deficit is already ballooning, with a very real prospect of debt running out of control. Committing to endless schemes will mean massive rises in taxes just as a recovery may be getting underway. George Osborne should make a couple of visits to the IMF to get to know the place, and practice shuffling on his knees.
  2. Any employment schemes will prove most cost effective when the recovery is underway, not while the economy is still shrinking.


RULES-OF-THUMB need to be used in evaluating policy. At a minimum, any stimulus, business subsidy or job-creation strategy should follow the following criteria.


  1. It must have a reasonable chance of generating more economic benefits that costs. Preferably it should have the prospect of having a positive impact on the Exchequer.
  2. Each project should be, at most, an annual commitment with limits imposed. Reviews should be stringent and the plug pulled if costs run out of control, or if projected benefits are not materializing.
  3. The timing is crucial. If the time is not right existing policies should be pulled. For instance, stamp duty should be re-introduced until the market has started to recover. (Lord Lamont has admitted that it did not work in 1992 and it is not working now) Similarly, if job creation schemes are to be effective, they should only be enacted on a large scale once the economy has bottomed out, when the marginal impact will be greater.
  4. The government should be aware of its own limitations. To be effective means to be shrewd, ruthless of failure and focused on realities. As with any elected government, this conflicts with pleasing popular opinion and maintaining an image.
  5. Finally, the government should limit the difficulties it is imposing. It should critically look at the regulations that have little benefits but impose onerous costs, either temporarily suspending them, or removing them off the statute book.


However, the Rules-of-Thumb might be too complex in these panic-stricken times. Instead consider the analogy is with a doctor who he presented with a condition that has not been fully diagnosed. The doctor will first do no harm. Then she will diagnose the best she can, after which will then try various treatments, monitering the patient constantly. If a treatment does not show positive effects, something else will be tried. But with each treatment, the doctor will study and learn. The doctor would consult with others, and not introduce two treatments that known, or likely to, conflict. She was would also be aware of the side effects of dangerous drugs, such as using pain killers that may become additive.





Learning from the Credit Crunch in the UK

Following in from my response to Brown Tries to Sugar the Medicine on Iain Dale’s Diary on 11th December.


The PM evades understanding the issues, as he is to some extent responsible. However, that responsibility is shared by many, including myself, who cheered on the cuts in interest rates in 2000 and 2001 to avoid a recession.

The independance of the Bank of England was irrelevent to the issue. The vast majority believed that after the bubble burst and then after 9/11 it was necessary to reduce interest rates significantly to avoid a recession. This worked, but only at the expense of creating a credit bubble, shown in this country both by the housing market boom, and being able to borrow on credit cards at 0% interest. In the US housing market, there was a similar event, with fixed rate mortgages being granted at very low interest rates.

To blame the financial intermediaries so

The only one of the commentators who comes close (in my view) to getting things right is “not an economist”

The PM not only followed public opinion as Chancellor, but also the most respected minds in the business, lead by Alan Greenspan at the Fed.

To blame the is financial intermediaries is nonsense. The structure in which they operated by created by the Central Banks, the oversupply of the cheap money is due to the Central Banks. They followed a consensus view, climbing a roller-coaster theat  was never going to slide.




  Central banks must be dogmatically conservative and deaf to public opinion.


In so far as we know how the economy operates, it is always going to be tainted by the need to please public opinion and their elected representatives. Further, a can-do approach is more popular than one that says we are not sure, or maybe it could cause trouble. But collectively, we did not see this one coming. Therefore, we need to learn some humilty. A rule will not do, as they can be circumvented. Instead need to learn the conservatism of the former Bundesbank.





The impact of the Brown high-spend era was to run a budget defecit when the government should have been running surpluses. Whilst talking about prudence, Gordon Brown assumed that we had done away with recessions for ever. The most important change that he instigated was changing the rule



  “Balance the budget over the business cycle”


TO :-

  “A deficit only for investment”


The “GORDON BROWN EFFECT” in public finance, is the changing of the rules to suit the moment, whilst maintaining the perception of continuity.