Who's a democrat?

Hurrah!  Another Johann Hari article!  And it’s another one that would have required a reasonable knowledge of history.  The hook for it is that Kenyan survivors of the Mau Mau emergency have been petitioning the British Government for redress for the treatment they suffered during the 1950s.

Without going into the circumstances of  Mau Mau (and it is fair to say that Hari has read Catherine Elkins book and accepted it as gospel – a view that is not exactly universal among Africanist historians)  Hari makes some fairly breathtaking assertions.

While talking (oddly) about the Gurkhas, for example, he says this:

We have all waxed lyrical over the Nepalese soldiers who were, for two centuries, hired by the British Empire to fight its battles. Sometimes they were used in great causes, like the defeat of Nazism. Sometimes they were used to crush democratic movements in India or Malaya or Pakistan.

Well, Pakistan didn’t exist until after the British left, so that bit is simply nonsense.  But what is strange is Hari’s casual aside that the insurgency in Malaya was between imperialists and democrats.  Does he believe this?  Does he know anything whatsoever about the Malayan Emergency?  One can only really assume that he doesn’t, as he surely doesn’t believe that Chin Peng’s communists were a democratic movement.  They were barely even an independence movement, representing instead an attempt by Malaya’s ethnic Chinese minority to take control over the country.

I rather suspect that Hari on history is even less worth listening to that Hari on politics.

What really gets me...

The expenses scandal has been driven by two conflicting stories – the amusing and the serious.  Moats, duck houses and helipads are all intensely funny (as well as being infuriating of course).  But I am, candidly, surprised that people are surprised that MPs have been using their Parliamentary allowances to the fullest extent allowed.  And really, once you accept that, for example, a Sky Sports package is an allowable expense what is the qualitative difference between that and a flat screen TV?  If gardeners are allowed, what does it matter whether they are mowing the lawn or clearing the moat?

Rather more serious are those where the spirit of law seems clearly to have been broken, through the constant flipping of primary and secondary residence designation and the associated avoidance of CGT paid as a result.

But the one that really gets me going is the ways in which MPs (and most especially ministers) have been going round the houses to find ways to avoid paying the taxes they foist on the rest of us.  Bad as it was that Jack Straw had been claiming the full Council Tax levy on expenses, while only paying the reduced rate, what really got to me was that paying Council Tax was an allowable expense at all.  Is this why the Labour Government have been so insouciant about spiralling Council Tax rates?  Because they’ll just claim it all back anyway?

When you throw in the specialist tax accountancy advice that ministers (including, for God’s sake, the Chancellor) have been claiming on their tax-free expenses, which is specifically unlawful under British tax law for everybody else, the impression grows that MPs really do believe that the law is for the little people.

And the apparent inability of the Chancellor to apply the laws he makes to his own personal finances throws a harsher light on the quality and quantity of financial legislation that has been pouring out of Westminster for the last decade.  As Rupert Darwall in the Wall Street Journal puts it:

Britain would have a far better tax code and lower tax rates if those who make the tax laws reflected a little on their own behavior and what it says about people's ability to arrange their affairs to avoid excessive taxation. As chancellor, Gordon Brown wrote more legislation designed to fight tax avoidance than any of his predecessors. The result is that the U.K.'s tax code is impossibly complex. The 2004 Finance Act ran to 746 pages, and the 2005 Finance Act was so long it had to be published in two books. The publication of the lawmakers' expense claims revealed the delicious irony of Mr. Brown making arrangements to pay his cleaner in a way that reduced her National Insurance taxes.

You do that voodoo that you do so well

Further to my rather intemperate analysis of Johann Hari on David Cameron's "voodoo economics", have a look at John Taylor's gloomy opinion piece on the US economy in light of the massive debts currently being run up (and to which There Is No Alternative in Hari's eyes).

I believe the risk posed by this debt is systemic and could do more damage to the economy than the recent financial crisis. To understand the size of the risk, take a look at the numbers that Standard and Poor's considers. The deficit in 2019 is expected by the CBO to be $1,200bn (€859bn, £754bn). Income tax revenues are expected to be about $2,000bn that year, so a permanent 60 per cent across-the-board tax increase would be required to balance the budget. Clearly this will not and should not happen. So how else can debt service payments be brought down as a share of GDP?

Inflation will do it. But how much? To bring the debt-to-GDP ratio down to the same level as at the end of 2008 would take a doubling of prices. That 100 per cent increase would make nominal GDP twice as high and thus cut the debt-to-GDP ratio in half, back to 41 from 82 per cent. A 100 per cent increase in the price level means about 10 per cent inflation for 10 years. But it would not be that smooth – probably more like the great inflation of the late 1960s and 1970s with boom followed by bust and recession every three or four years, and a successively higher inflation rate after each recession.

The fact that the Federal Reserve is now buying longer-term Treasuries in an effort to keep Treasury yields low adds credibility to this scary story, because it suggests that the debt will be monetised. That the Fed may have a difficult task reducing its own ballooning balance sheet to prevent inflation increases the risks considerably. And 100 per cent inflation would, of course, mean a 100 per cent depreciation of the dollar. Americans would have to pay $2.80 for a euro; the Japanese could buy a dollar for Y50; and gold would be $2,000 per ounce. This is not a forecast, because policy can change; rather it is an indication of how much systemic risk the government is now creating.

What are the options? A doubling of prices, 60% tax increases across the board or reductions in spending. I'm far from convinced that the third option is either the most harmful or the most irresponsible.

Hari on Cameron, again...

Ah, Johann Hari. I've missed him. It seems like only yesterday he was writing lame attack pieces about David Cameron (it might surprise you to hear this; but did you know that David Cameron was personally wealthy? Horrific huh?). And now, here he is, writing, um, lame attack pieces about David Cameron. And, as ever, marvellously wrong in almost every particular. A long post this, I'm afraid, but hey, when someone is so wrong so often, it takes a bit of documenting.

Let's start with a tiny story, that points to a bigger untold tale. A few days ago, the Leader of the Opposition was asked how many homes he owns. "I own a house in North Kensington and... in the constituency in Oxfordshire and that is, as far as I know, all I have," he said. He then started to get confused, said he might own four homes after all, and pleaded: "Do not make me sound like a prat for not knowing how many houses I've got." Imagine if Neil Kinnock said this in 1991. Do you think you might have heard?

Indeed so hidden away, practically unreported really, was this teeny, tiny story that it was in the lead piece in the Saturday Times magazine. Hidden in plain sight, you might say. Interestingly, the full quote gives a slightly different impression to Hari's interpretation:

So how many properties do you own? "I own a house in North Kensington which you've been to and my house in the constituency in Oxfordshire and that is, as far as I know, all I have."

A house in Cornwall? "No, that is, Samantha used to have a timeshare in South Devon but she doesn't any more." And there isn't a fourth? I don't think so, not that I can think of." Please don't say, "Not that I can think of... You might be... Samantha owns a field in Scunthorpe but she doesn't own a house"

Incidentally, odd ellipses in Hari's piece aren't they? Inaccurate for one thing, and to leave out the words "my house" is a bit weird.

Anyway, on to more serious stuff. And it's a warm welcome to the great Inheritance Tax disingenuousness.

He is committed to spending billions on a massive tax cut for the richest inheritees, paid for by the bottom 94% of us.

Three billions that is, except probably less now given that house prices have been dropping so precipitately. And the whole 6% figure for IHT is a sham, as I've gone into again and again.

Although currently only about 6% of estates are hit by Inheritance Tax, this is irrelevant. In the 'hit by a bus' scenario that has to drive personal tax planning in this field, about 34% of the population would be caught by Inheritance Tax. Saying, 'don't worry, by the time you're likely to die, you won't have as much money' isn't terribly reassuring. IHT raises comparatively little money at the cost of a lot of heartache and complex financial planning. Abolishing it would not merely benefit the elderly in immediate contemplation of bequeathing their estates, but also the healthy who are not inclined to leave it to luck that they don't walk under a taxi on the way to work.

What's next?

Although you wouldn't know it David Cameron's economic philosophy was already surprisingly far outside the political mainstream before his latest revelation. Cameron is almost alone in the democratic world in disagreeing [with the need to increase public spending in a recession] and demanding immediate cuts in public spending as the global economy grinds to a halt. When I asked this year's Nobel Prize-winning economist Paul Krugman whether this would make the recession worse, he replied: "Yes. For sure," and then added that Cameron's policies were "pure Herbert Hoover."

So, following Hari's argument to its logical conclusion, the Government ought to be substantially increasing public spending, above and beyond the traditional automatic stabilisers, and funding it all through increased borrowing. Which is, after all, pretty much what the current Government is doing. But the problem with this policy is that Britain's public finances are already stretched to the limit. As I mentioned yesterday, Standard & Poor's are teetering on the brink of downgrading our sovereign debt. If that happens, the cost of borrowing (otherwise known as interest rates) will have to rise significantly, or there will be massively high inflation – or both. Then we really will be in an excrement/ventilation interface incident. What's next?

He was asked about whether the government's proposals to increase taxes on the richest one percent would raise more money for the Treasury. He replied: "It's a very difficult calculation about where we are on the Laffer Curve... We have to put this [top rate of tax] in a queue of things we would want to get rid of... and I'm always interested in topping up my study of Laffer" To most people, this sounds like gibberish. Who is this "Laffer" who Cameron is turning to as the measure of whether tax policy works?

Is Art Laffer really so obscure?

Arthur Laffer is an economist who was fired from the Nixon administration in disgrace and went on to invent a false economic theory. He was picked out by the Watergate-wet Richard Nixon when he made a prediction about economic growth that was way ahead of every other economist. Nixon put it into every speech - until it was revealed that, while other economists had used thousands of variables to arrived at their predictions, Laffer had used just four - and got it totally wrong. He was fired, and that should have been the end of him.

Uh-oh

At the University of Chicago Laffer impressed George Schultz, head of the School of Business, and when Schultz went to Washington to run the Office of Management and Budget in 1970, he took Laffer along as his assistant. The next year, as the brashest of whiz kids in the Nixon administration, Laffer made headlines rosily predicting a GNP of $1,065 billion - a forecast his fellow economists found hilarious. The GNP did in fact rise to $1,063.4 billion, if only briefly, proving that Laffer was a prophet with some honor.

Hmm, not picked out by Nixon, and didn't get his prediction totally wrong. If getting things wrong meant the end of careers, Hari's would have been remarkably brief. Anyway, the Laffer curve as a concept is both simple and obvious - the relation between tax rate and tax take isn't a straight line. At some levels, tax rises will reduce revenue and tax cuts will raise it. Or, as Hari sees it:

It was a magic formula - you can cut taxes for the rich and you won't lose a penny in tax revenues! There's no business cycle - only marginal tax rates make the economic weather. There's just one problem. It's a fantasy. Look at the facts in Laffer's own country. From 1947 to 1964, the top rate of tax in the US was 91 percent. Using the Laffer Curve, the economy should have been in the tank - but in fact it was enjoying the longest sustained boom of the twentieth century. In the 1980s, Reagan slashed the top rate - but there was a severe recession in 1982, and the growth that followed was merely an average recovery. Then in 1993, Clinton increased the top rate of tax from 31 to 39.6%, and Laffer predicted an economic collapse. In fact, there was the next long boom.

Hari presumably hasn't read the US Congress's Joint Economic Committee's review of the Reagan tax cuts, so I'll just summarise them for him.

Since 1984 the JEC has provided factual information about the impact of the tax cuts of the 1980s. For example, for many years the JEC has published IRS data on federal tax payments of the top 1 percent, top 5 percent, top 10 percent, and other taxpayers. These data show that after the high marginal tax rates of 1981 were cut, tax payments and the share of the tax burden borne by the top 1 percent climbed sharply. For example, in 1981 the top 1 percent paid 17.6 percent of all personal income taxes, but by 1988 their share had jumped to 27.5 percent, a 10 percentage point increase…individual income tax revenues rose from $244 billion in 1980 to $446 billion in 1989.

Or I suppose we could ask the IFS about Browns proposed 50% rate. But facts are less fun than personalities aren't they?

(Remember: this is a man who said his wife is "highly unconventional" because "she went to a day school"

Can anyone find the source of this anywhere? Google provides no joy at all, except for a link to Hari's own article, but surely he wouldn't just have made this quote up would he? Seems unlikely, but there it is. Lets finish with a line that sums up Hari's writing perfectly.

As one political journalist recently said sardonically that if Cameron announced the slaying of the first born, he would be applauded for having a great policy for second children.

Ungrammatical, unpleasant, unsourced. That's our Johann.

Labour & the BNP

I was thinking recently (probably at about 3am, so forgive me if it is a little disjointed) about the apparent rise of the BNP.  Now, the question as to whether the BNP is a far-right party or a far-left one arises every so often, to the screaming disagreement of those on the moderate right and left.  A look at their economic programme would certainly suggest that they are left wing, as Dan Hannan says:

It favours nationalisation, higher taxes, protectionism and (though it keeps quiet about this) republicanism. It markets itself as "the Labour Party your parents voted for". Its manifesto calls for "the selective exclusion of foreign-made goods from British markets and the reduction of foreign imports," and promises to "restore our economy and land to British ownership" and "to give workers a stake in the success and prosperity of the enterprises whose profits their labour creates by encouraging worker shareholder and co-operative schemes".

But to look solely at the BNP’s economic policy to determine their politics seems a little inadequate.

As might be expected, I think that the BNP, insofar as it fits at all onto the left-right spectrum, is a left-wing party.  But I don’t particularly draw this from their policies, but from their tactics.  The BNP is an electoral threat to the Labour Party, and not to the Conservatives.  Its councillors are predominantly in Labour areas (or what were or should be Labour areas).  It is much stronger in Burnley and Bradford than in Haywards Heath and Bradford-on-Avon.

But why does a party that might be specifically designed to be Harriet Harman’s antithesis pose such a threat to Labour?  One of the things I was doing while waiting for my wife to go into labour, was watching the BBC coverage of the ’79 election (I know).  A lot of attention was focused then on the National Front, with coverage of their rise during the late 1970s, and the possible breakthrough they might achieve.  They were annihilated, averaging only 1.6% of the vote and getting the worst result of any party ever to have contested more than 100 seats.  1983 was even worse.

Now there are two possible interpretations of this, and the recent rise of the BNP.  One is that extremist groups flourish when there is a weak Conservative opposition, but when the Tories look strong, the extremist voters flock back to them.  That’s pretty much the conventional wisdom. 

But the other view is that these groups flourish under Labour Governments not because of the weakness of the Conservatives, but because white working class voters (who are much more likely to vote Labour than Conservative), when they feel abandoned by the Government have nowhere else to turn to.  The visceral anti-Toryism that still lingers in the North means that they won’t turn to the Conservatives.  The Liberal Democrats are too much of a middle class, right-on party to be attractive.  And there’s no-one else.  In Scotland, by way of contrast, when people are sick of Labour, there’s a ready alternative in the form of the SNP – whose support has been massively increased by a Labour Government.

So there’s my theory on the rise of the BNP.  It has succeeded because the Labour party in power has alienated a group of its voters who feel that they have no other mainstream party to represent them.  Does that make the BNP a left-wing party?  Perhaps, but what looks certain is that they have a left-wing electorate.

AAA?

One of the more worrying bits of news, that has gone relatively unreported as we concern ourselves with duck islands and flipping has been Standard & Poor’s decision to put Britain’s credit rating on a negative outlook.  While they haven’t yet downgraded the UK’s AAA rating (and if and when they do, it will be a big big problem) it’s nonetheless a serious piece of news.

But isn’t there an argument that we should no longer treat pronouncements from S&P Moody’s and Fitch as gospel?  After all, among all the reasons for the credit crisis, one of the most immediate was the utter uselessness of the rating agencies at providing realistic ratings for credit derivative products.  If they were so utterly incapable of providing accurate ratings then, why should they be right now?

None of this is to provide the Government with cover for their extraordinary economic incontinence, merely to wonder quis custodiet ipsos custodes.

Serving their country

Before I start on all that constitutional crisis stuff, I just thought I’d comment briefly on the reliably useless Mary Riddell in the Telegraph.  Reacting with dismay to the news that a large proportion of people coming forward for the Jury Team are ex servicemen, she says:

Nothing wrong with that, except that military figures may be even worse at power-sharing populism than S Club 7. As the Duke of Wellington remarked after chairing his first Cabinet meeting as PM: "An extraordinary affair. I gave them their orders, and they wanted to stay and discuss them."

Would these be military figures like Lt. Col Winston Churchill, Major Clement Atlee, Capt. Anthony Eden, Capt. Harold Macmillan, or Major Edward Heath?  The disconnect between Parliament and the Armed Forces has been a recent, and unfortunate occurrence.  I believe that there is only one Labour MP with military experience (the grim Eric Joyce, who is not a terrific advertisement admittedly).  It’s hard to argue that the House would not be improved by more.

Did I miss much?

Well, I’m back.  A little bleary-eyed, and with some rough edges knocked off, but otherwise unchanged.  And I’ve missed one of the most extraordinary months in British political history.  I’ll write about that whole shebang soon, but I seem to have a lot of catching up to do…

Just rejoice! Rejoice!

On May 3rd, after a long, dark, painful time under labour: time you never thought would end, time that left you hoping desperately, but almost not believing, that things would come right eventually, the lady finally arrived. This isn't, in fact, a reference to the events of 30 years ago but to the fact that at 8.30 yesterday morning my little baby daughter announced herself to the world.

I rather suspect that for the next few days posts will be both sporadic and somewhat coloured by the big daft smile that's been a permanent feature on my face ever since.