Tag: Patrick Minford

A not-so-warm welcome for our new PM

As we change prime ministers, a few thoughts.

Let’s start with integrity. Journalists at the self-described ‘right leaning’ GB News weren’t like the BBC, ‘because at least they got their facts right’. This was Liz Truss a few weeks ago. A throwaway line from one of the candidates in the Tory leadership debate. No more than that? Or Truss, in pursuit of Tory member votes, peddling a ‘fake news’ agenda.

Emily Maitlis just now setting up her own podcast with Jon Sopel is good on the subject. Politics she argues has changed fundamentally and journalism and broadcasting haven’t caught up. ‘We haven’t realised that when people say fake news they are trying to disorientate you and demean your work, so they can ignore any scrutiny you put them under.’

I jib at calling the new incumbent ’our PM’, just as I did with Johnson. Playing the ‘fake news’ game is, let’s not beat about the bush, pretty base. Not that she would understand for a moment the deeper implications of what she said. She’s doing no more than her predecessor did during the Brexit debate. Plus ca change…

Another cheap line from Truss: the jury is out on whether ‘Mr Macron is Britain’s friend or foe’. A quote from the poet Ian Duhig’s ‘Fauvel’s Prologue’ applies:

‘De Gaulle would snigger; he well knew
The tactic of imperialist Brits
Who ruled by inculcating splits.’

Tories of the current dominant persuasion have this preference for enmity over amity, for two fingers rather than a handshake.

Facts are one thing. What about opinion? Maitlis is also good in this subject. The BBC back in Brexit time tried to balance argument. But their notions of balance were politicised.

‘Balance is a word we always used at the BBC but balance is complicated. If it takes me five minutes to find ten economists who think Brexit is a terrible idea, and five hours to find an economist who says it will be absolutely brilliant, then having one of each side isn’t balanced.’

The Daily Telegraph carried an interview a few days ago with someone who might claim to be ‘the one economist’. (Though to be fair there are a few hanging out at the Institute of Economic Affairs, Policy Exchange and the Adam Smith Institute – low-tax ‘free-traders’ all.) I’m thinking of Patrick Minford, one-time advisor to Thatcher. He rails against the Treasury’s short-term rules ‘in which borrowing mustn’t happen’.

But with massive support about to be announced for energy bills, £100m or more, and built-in increases in health and social care expenditure, and defence, and other areas, which will push borrowing to an even high level, maybe unsustainable as the Institute of Fiscal Studies has warned – how and where do we cut?

Borrowing as a proportion of national debt was 41% in 2007 and 74% in 2010, and it’s 99% now. But Minford remains cool. ‘Solvency doesn’t mean we should be paying off debts tomorrow. It means a long-term strategy in which state spending is consistent with our tax revenues…’ Minford argues for the importance of infrastructure, health and education, ‘but ‘state spending has to be controlled’.

‘The NHS has to be made more efficient.’ One good example. For Minford and far right opinion more generally this is an ancient mantra. And we can all agree. But they see it in market terms. The competition-led Lansley reforms under Cameron were a miserable failure. So where now for ‘efficiency’. The focus should have been then and must be now on the better integration of health and social care. What chance Truss?

A recent Telegraph leader laid into Matthew Taylor, CEO of the NHS Confederation, for highlighting the impact of the energy crisis on the NHS. Focus on reform and leave the energy crisis to others was the deeply unhelpful conclusion.

Taylor, policy advisor to Tony Blair, author of a key report for Theresa May on employment practices, and for fifteen years chief executive of the Royal Society of Arts, is one of the people to get behind to help reform the NHS, someone with a skill set and experience way ahead of anything the government, or a Telegraph leader writer, could offer.

Policy Exchange, a right-wing think tank, reminds us of the wider context. ‘Public spending that yields clear economic and social returns, including spending on the welfare state, enhances the performance of the economy, but beyond a certain point the cost is greater than the return and government spending begins to crowd out private sector economic activity and the tax base that public spending depends on.’

It’s an old-as-the-hills mantra. ‘Crowding out the private sector.’ And it might have applied in the days of mass nationalisation. But the state these days works, and has to work, in different and much more productive ways – working with the private sector.

Ultimately, we’re back to the old small-state low-tax trickle down shibboleths. Free traders argue that recent Tory governments pushed up taxes and obsessed about borrowing. The wrong targets they think. They argue for a diametrically opposite approach. At the same time they miss altogether the real focus, which has to include maximising opportunities in markets close to home – far more important than the Antipodes. Also, the Chinese aren’t a bunch of free traders. And the Americans have a vast internal market. We’re 70 million, and on our own. We need to get real.

Let’s see how the next year or two pan out. I think Truss and her team will find that they are radically disconnected from realities. Also, that they simple lack the ability to carry their policies through. They’ll jib at Civil Service resistance – from people who have to be cautious because they know the implications of foolishness.

They’ll also increasingly divorce themselves from the levelling-up cohort within the party. To argue that levelling up has to come from improved economic performance will not cut the mustard. The regions have been promised some evidence of jam now, or in the foreseeable, and they won’t get it.

Truss is also on record as saying that people outside London don’t work hard enough and, going back to a book she co-authored in 2012, that British workers as among the ‘worst idlers in the world’. ‘If you go to China it’s quite different. There’s a fundamental issue of British working culture.’ Yes, we are falling short compared to our neighbours on measures of both growth and productivity. I’d agree absolutely we need a more entrepreneurial spirit in this country. But blame the workers??

From all I’ve seen I have to conclude that Truss is simply unqualified for the job, a woman lacking the experience and the ability, and connection with realities, that we have a right to expect from our prime ministers. The same applies to her cabinet, a right-wing rump which has self-excluded the wisest and brightest in the wider party.

Do I (and so many others with me) misjudge? Time will tell. But I thought I’d put marker down, against which I can judge her in future time.

Free trade – whatever the cost?

Free trade and a hard Brexit are all but synonymous. There’s an obsessive quality about free traders, men on a mission, who feel their time has come: seize the moment, lest it slip away.

Daniel Hannan and Boris Johnson recently helped launch the Institute of Free Trade, arguably duplicating the work of the long-established Institute of Economic Affairs. I’ve always had a sense of vast lacunae between argument and reality among free traders, and I turned to an article on the IEA website, by its chief economist, Julian Jessop, to check out whether this judgement was justified. For the full article see:  https://iea.org.uk/whos-afraid-of-free-trade/

Jessop expresses puzzlement as to why ‘the economics commentariat’ (i.e. most economists) had given a ‘sceptical, with some downright hostile’ response to two papers advocating a policy a free trade once the UK leaves the EU, by Professors Kevin Dowd and Patrick Minford.

It may be unfair to quote passages and not reproduce the whole article, but to my mind they do speak for themselves.

‘… it has been suggested that Prof Minford’s analysis shouldn’t be taken too seriously because his forecasts of the economic and market impacts of the vote itself were inaccurate. As it happens I don’t know what Prof Minford was forecasting in 2016. But nor, frankly, do I care….’

‘Professor Minford’s current and past work in this area has been challenged for using what some regard as a simplistic and out-dated model of world trade. But the ‘gravity models’ favoured by many of his critics also have their flaws. Even if Professor Minford’s numbers are only as good as his models (which is always the case) …’

The phrase, ‘the underlying principles are as sound as any’, is key: there is a millenarianist belief in free trade as a universal panacea, the UK’s adoption of which will open the eyes of the rest of the world, as Britain did once before, in the early 19th century. ‘Gravity models’ refers to the long-established and incontrovertible pattern of a much heavier weighting toward trade with one’s neighbours, than with more distant countries.

Nonetheless, whatever the correct interpretation here, these legal points do not weaken the more important economic argument that the UK would be better off lowering its own trade barriers regardless of how the rest of the EU responds.

Free trade it seems works because it works, regardless of circumstance. In what sense better off – who would be better off?

‘… of course, there would be some losers from free trade among consumers as well as producers …

‘….there would be some losers..’ The reality is that the disruption would be extraordinary.

Others have suggested that trade can never be fully ‘free’, because of non-tariff barriers. But this is tedious semantics. Even if unilateral free trade only results in freer trade, relative to the status quo, that would be an improvement.

‘…tedious semantics’? There’s an impatience here, a touch of the Gadarene swine.

What then about things that we do produce ourselves but where other countries have a genuine comparative advantage? Why should we subsidise domestic producers if consumers can buy better or cheaper products elsewhere?

A few suggestions as to why… Easily disrupted supply chains, sourcing expensively at long distance, security implications, quite apart from the disruption to urban and rural landscapes as industries close and new ones – we would hope – spring up elsewhere. But in the chaos, and the economic disruption, what certainty is there that new industries, competitive on the world stage, would rise up?

**

Read the whole article: you may find you’re on his side, not mine.

The fantasies of free trade

Walking and swimming, conjuring turtles (see my last post) and building castles… since the Brexit vote politics have been more a burden, less a pleasure – how we (as country and individuals) might hold on to our sanity while others attempt to build castles in the air.

Brexit has many castles, most of them air-borne, from the immigrant threat to free trade. Closing down on one, on the free movement of labour, runs directly counter to a fully libertarian approach to free trade – if this was a board game, or a novel, I’d want to see how it all worked out. As political reality, I hope not to.

Focusing on free trade, last week we had ‘From Project fear to Project Prosperity’, a report from the free-trading supply-siders ‘Economists for Free Trade’, chaired by one-time Thatcher adviser, Patrick Minford. Matt Ridley in The Times (21st August) pours praise upon them. We hear the old shibboleth, ‘Fortress Europe’, curiously used to describe 28 countries which have taken down the barriers and practise the four freedoms – goods, capital, services, and labour. Ridley argues that ‘external barriers are pure self-harm’, and you’d have thought that he’d take the EU as a shining example. Instead he focuses on the tariffs the EU imposes on non-EU countries – apparently the tariff on unicycles is 15%. What he totally and wilfully fails to recognise is that free trade isn’t a level playing-field, but self-interested countries seeking common ground on which they can co-operate – not for another’s interest, but for their own. We hear from Brexiters about countries keen to reach trade agreements with the UK – but on whose terms? On ours, on the UK’s?

Garvan Walshe on the Conservative Home website is helpful on the subject. (There is an awful lot of sanity still left in the Tory party – but the sane too often these days are the quiet and the cautious.) In trade between countries, ‘the distance relationship is paramount’.

The effect of that decision [the referendum]  is to forego [the EU’s] economic benefits, and they can’t be replaced by shallower trade agreements with other countries, because they are too far away. And while there could, as Minford suggests, be economic gains from deregulation, they won’t happen while Britain´s politics is moving leftwards … Far from bringing benefits through other trade deals, leaving the EU erects an enormous trade barrier with the rest of our continent. Economists for Brexit should have renamed themselves Economists for Protectionism.

Back to Matt Ridley: ‘…after Brexit, Britain should try unilateral free trade, no matter what everybody else does’. This would Economists for Free Trade argue benefit the British economy by as much as £135 billion a year. (Compare the NIESR – leaving would cut our total world trade by a quarter.) The Minford report assumes that we’d reach an agreement with the EU broadly comparable to what we have now, and a level of de-regulation which simply won’t, and shouldn’t, happen in the current climate.

Ridley is also guilty of a selective use of history, an old bete noire of mine. He quotes Sir Robert Peel in the 1846 Corn Law debate – ‘we should cease haggling with foreign countries about reciprocal concessions’. He argues that ‘the closer countries get to free trade, the more they thrive’ – and quotes Britain in the period 1846-80, and Hong Kong and Singapore today. In all three cases the circumstances are radically different – Britain in a period after 1846 when we could dictate the terms of world trade, and two city-states (treating Hong Kong a city state) operating as low-tariff entrepots.

Ridley also attempts a distinction between the Roman civil law ‘prescriptive, rules-based system’, and a ‘better’ common law (and distinctively English to his mind) approach, ‘which is principles-based, outcome-focused, consumer-friendly’. He continues: ‘Because of our history and the nature of our economy Britain can be an effective champion of this challenge.’

The risk is all ours.

We are back, happily for my argument, to ‘castles in the air’. There is no hard evidence that ‘free trade works’, no hard evidence that supply-side economics will deliver any of the benefits (above all increased tax revenues on higher output, and collective benefits deriving therefrom) it claims.

And finally… Adam Smith. Ridley tries to corral him into the Leave camp: ‘As Adam Smith put it, describing the European Union in advance, “in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer”.’

‘…describing the European Union in advance…’ – this is populist and emotive junk.

The founders of the Adam Smith Institute don’t do much better: ‘We both take the view that the UK now has the chance to trade freely with the rest of the world, since it will no longer be locked inside a protectionist bloc of diminishing economic and political significance.’

The EU isn’t doing too badly at the moment, and it carries political clout – the ‘diminishing economic and political influence’ will all be ours if Brexiters have their way.