Sunday, 30 November 2008

Confession

It was a youthful habit that some said went to far. It did a lot for me but in the end I had to give it up and get my life straight. It got me through tough times but when things got better I didn't need the fix anymore. Now, things have got worse again I've taken up the habit once again. I know I'm weak. I know I'm letting down my friends and family. But it makes sense to me and I will need all your help to get through. Yes, I've started reading Will Hutton once again. There I've admitted it to myself and all of you. I hope you'll be there for me.

Actually, I'm rather enjoying reading Will Hutton. He's saying the sorts of things I need. Today he borrows an idea from the economist Robert Shiller to vary mortgage repayments in accordance with changes in income. This is the pure stuff. It really is. Amazing that not one of the brilliant creatives in our breathtakingly innovative financial markets thought up an idea such as that. They could protect their investment and keep people in their homes. That's way too clever. You see how I'm adopting a slightly sarcastic edge to my prose? This is one of the side effects....

But perhaps I should have become an occasional taker in social settings once I'd cracked the addiction. Maybe Will could have warned me of the trouble ahead if I'd only taken the time to scan the odd article? Perhaps in future I need to control my habit rather than going cold turkey once the LIBOR rate declines again and the world is fixed?

I have an even bigger confession. I dusted down my copy of The Great Crash by J.K.Galbraith last weekend too. I re-read it. Keynes is staring alluringly at me on the shelf. Don't worry friends, I have not yet felt the urge to pull down Das Capital. There will need to be hunger marches and civil unrest before I go there. For now Hutton, Galbraith, and Keynes will be enough. Just leave me be.

Saturday, 29 November 2008

The scale of Obama's victory

An interesting analysis has been done by www.fivethirtyeight.com on the scale of President-elect Obama's victory. It is the second largest of all time in terms of popular vote as a percentage of population. Obama's 68.7 million votes (the largest ever) represented 22.62% of the population; only Ronald Reagan's landslide 1984 victory represented a higher amount.

In terms of percentage of the vote, Obama's 53% share is comparable to that of George H W Bush but greater than any freshman presidential candidate since Eisenhower in 1952. Only Reagan in 1984 and Lyndon Baines Johnson have won a greater share of the vote. By historical standards this victory was huge. It was not a wipe-out but it was a landslide.

Post script: An interesting perspective on Obama's foreign policy by E.J.Dionne where he makes a useful comparision with the policies pursued by George H W Bush is worth a read. Robert Gates was a senior figure in that administration.

Tuesday, 25 November 2008

June 2009 election now a remote possibility

The one clear consequence of yesterday's Chancellor's Statement is that the possibility of a June 2009 election has receded massively. Essentially, the wrangle over yesterday's fiscal package will only be resolved by its ultimate impact on the economy. In the short term, watch what happens to sterling. In the longer term, will the economy follow the growth path forecast by the Chancellor? Should it do so then the Government will be able to make a strong case that its intervention was effective.

Unless the economy rapidly and unexpectedly out-performs the Chancellor's forecast, this means that it will not be until the end of 2009/ beginning of 2010 that we can make that assessment. It is difficult to foresee an election in 2009 on that basis.

Will it work? There's not an economist in the land who can make that prediction. Astrologers are likely to be as useful in making that forecast. A fiscal stimulus is the right thing to do in this situation with the banking system as weak as it is. That does not mean it will work however as we are in incredibly uncertain economic times. It is little over two months, yes TWO MONTHS, since Lehman Brothers went to the wall. It is notable that President-elect Obama's economic team is willing to be even more aggressive than our Chancellor should it be necessary. It is worth holding that thought.

As for the Tories, they are on completely the wrong side of the economic argument. They have got themselves into the preposterous situation of arguing that a fiscal contraction in the early 1980s was the cause of the economic recovery in the 1980s. It is half right. Monetary stimulus did work. The recovery was made far more painful by a masochistic fiscal contraction and that left a lasting scar on the nation; one that is still felt today.

It may not matter that they are wrong in political terms. If this stimulus package is not seen to have worked they may reap a political dividend anyway. In terms of their ability to make the right decisions in office it doesn't create much confidence at all.

Monday, 24 November 2008

Lord Lawson's contradiction

Lord Lawson makes a point that monetary policy is the effective club for these times in an article in the FT this morning. On reading the piece, it was striking that he went on to state that monetary policy is problematic due to 'the continuing weakness of the banking system.' He goes on to suggest further capitalisation and de-toxification of banking balance sheets: a similar-ish broad approach to that adopted by David Cameron who would use state guarantees to underwrite lending.

The problem with the argument is that while this approach, which may be of no less risk to the tax payers than a fiscal stimulus, is taking time to have an effect, the economy is still tanking. The government's chosen method of stimulus is, in addition to a monetary loosening, a VAT reduction with some additional public works and an extension of tax cuts announced earlier in the year. In an environment where the banking system is weak, perhaps weaker than at any point since the 1930s, this fiscal intervention becomes necessary.

To say that we should rely on monetary expansion solely while it is ineffective as a policy is a strange and contradictory perspective and this seems to be the position that Lord Lawson has manoeuvred himself into.

The effectiveness of the Chancellor's Report, political as well as economic, will be determined in major part by the reaction of the capital markets- watch sterling with an eagle eye over the next few days. Will they buy the argument that this is a stimulus that will work? If they do, then the economic and political dividend could be significant. If they do not, then this gamble, and it is an enormous but necessary gamble, then things become very difficult indeed.

Over to the Chancellor.....

Obama's Treasury Secretary

Tim Geithner is an Obama man through and through. In temperament that is. Calm, razor sharp, diplomatic, consensual, the qualities that lend themselves to working with the President-elect. The announcement to be made today that Geithner will be Treasury Secretary with his former mentor, Larry Summers working alongside him as Chairman of the National Economic Council marks a heavyweight economic team to deal with heavy economic times. The National Review had a good biographical piece on him a couple of weeks ago.

People will know Larry Summers as former Treasury Secretary under President Clinton and Deputy Treasury Secretary in the Robert Rubin years (and current FT columnist.) Does this mean a return to the fiscal and economic conservatism of those years? No, the Rubinites are not quite so Rubinite anymore (see James Crabtree in the latest edition of Prospect.) In fairness, Rubin never had to contend with anything of the magnitude of the current economic crisis so quite how he would have responded is not clear. Just look at the change in posture of our own Prime Minister which will be confirmed in a breathtaking Pre-Budget Report today; a moment that could define the next election.

Actually, that Rubin instinct will become invaluable further down the line. These times, given the rapid and bold response that we've seen both sides of the Atlantic, should not continue indefinitely. While a new regulatory impulse will be needed to help to avoid or diminish the impact of future crises of this nature, a more fiscally conservative approach will become inevitable, even critical, as the economy recovers.

Geithner's regulatory experience as President of the Federal Reserve Bank of New York, his experience in the Clinton/ Bush I Administrations and his sharp end focus on the current financial crisis in both the Bear Stearns and Lehman Brothers emergencies should be invaluable.

Friday, 21 November 2008

Obama's movement for change

E.J.Dionne poses one of the fundamental questions for Obama in the Houston Chronicle: what should he do with the movement that he has created?

What he absolutely should not do is try to merge it with the Democratic Party. It can exist and coordinate with the official party structure, and indeed needs to, but its attractiveness to so many was that it didn't resemble a traditional party. At a basic level, this involved moving power away from traditional party elites.

One of the errors made by new Labour in the UK was that it worked exclusively through the Labour party. That was not attractive to so many people who joined the new Labour cause and so organisationally new Labour collapsed over time. What is left is the traditional party structures.

Obama won't make that mistake. Equally, his movement can not simply be the Obama party. When his personal popularity wanes as it will inevitably do over time and when his presidential term is over, the movement will be absent of meaning if it is solely owned by him.

Instead, he has to capture the upsurge essence of the movement for change. Its strength will be as a group of people collectively committed to civic engagement and change. It is not ideologically driven other than in the belief that citizen action can improve neighbourhoods, communities, and the nation. It will be there for him when his bid for reelection comes. It will be useful to him is pressurising Congress to support his policies. It will work to get Democrats elected both locally and in Congress.

The movement nature of Obama '08 can't be lost. If that spirit is retained then it becomes something broader and more enduring than a machine behind a single man. It becomes a popular force for change that will last beyond a single generation.

Post Script: The blog entries have been sparse for the last few months. The reason being that I have been writing a book, Barack Obama: The Movement for Change, which is published in a few weeks by Arcadia Books. More will follow nearer the time- please check back for details.

Wednesday, 19 November 2008

BNP poison named and shamed

Data protection! Human rights! Tough! If you are a member of the fascist, holocaust denying BNP, if you are willing to pour pure poison on society then prepare to have your veil of anonymity removed. Whoever put the BNP membership list online you are a hero. Simply search for it on google and confront anyone who you may know on it.

Monday, 17 November 2008

David Cameron's Sarah Palin problem

It was obvious long before his issues with Oleg Deripaska and his habit of putting foot in economic mouth that George Osborne is an incredibly weak link at the top of the Cameron shadow team. At every single point of the current economic travails Osborne has been behind the curve. He has made no intervention of any significance and has shown a chronic absence of intellectual ballast.

The real problem for David Cameron now is that Osborne is trapped in a net, unable to move in any direction without losing his feet. The pound has fallen considerably but Osborne was utterly incapable of credibly providing a narrative about that without tripping himself up.

Just as every move of John McCain's running mate, Sarah Palin, ended up in a PR disaster other than in the eyes of the Republican ultras, George Osborne has become a severe liability for the Conservative Party. The question now is what David Cameron can do about it. John McCain, having made the error of selecting Sarah Palin, was completely caught. Is David Cameron in the same boat?

It is screamingly obvious that George Osborne is not capable of being Chancellor of the Exchequer. It has been revealed since the US election that McCain's campaign team knew that Sarah Palin was in no way ready to assume high office. It is to John McCain's discredit that despite his 'country first' message he was willing to jeopardise American well-being and national security by potentially allowing Sarah Palin to be elected Vice President. The situation with Osborne is not as severe as the Palin case but it's a similar issue.

Britain will still face significant economic challenges come the next election whether it is next year or 2010. Can David Cameron seriously think that based on his performance over the last twelve months that George Osborne is in any way capable of responding appropriately to those challenges? Of course not.

So whether he opts for Kenneth Clarke, which lets face it has a certain strategic intrigue, or someone else, David Cameron has a tough choice to make. He has to ditch his friend and co-conspirator, or foist him on the nation despite his obvious deficiencies.

It can't be 'country first' and Osborne in No.11. Osborne has not passed the threshold, David Cameron now has to show some degree of leadership. If he does not, then it is only a matter of time before people start to ask whether David Cameron is capable of making the tough calls that a leader has to.

Tuesday, 4 November 2008

First US election results in.....

It's very good news for Obama. He was won 15-6 in Dixville Notch, New Hampshire. Turnout was down but it seems that is because of a very depressed Republican vote. Bush won here by 19-7 in 2004.

This is going to get silly but quite fun.