Thursday, October 27, 2011

Default, decouple, devalue

Greece, as may have been mentioned once or twice, is pretty much screwed. Its debts are so monstrously disproportionate to its economy that it is not feasible that they can be repaid in full. It is, therefore, not a question of whether Greece will default, but in what circumstances it will do so.
There's growing support for the triple 'd' option of default, decoupling from the Euro and devaluation. There is, however, one point that should be raised in this regard. When Jeffrey Miron writes:
If Greece defaults, the country gets immediate relief from the crushing interest payments on its debt, leaving it with a relatively modest primary deficit which excludes the big interest payments Greece is faced with now.
In such a scenario, the pressure for austerity would therefore diminish. This would allow Greece to choose policies that encourage growth, rather than ones that shrink the deficit but retard growth by imposing higher taxes.
I think he might be missing something. As he acknowledges, Greece is running a primary deficit - i.e. even if you ignore interest payments on its debts. So while a default would free Greece from paying that interest, and thereby greatly reduce its budget deficit, it wouldn't eliminate it entirely. Greece would still be spending more than it earned. There are four ways of dealing with this. Spend less, earn more, borrow the difference or print money to make up the difference. Option 3 will definitely be out - Greece has just repudiated its debt, how keen would you be to lend it more? Options 1 & 2 are the austerity measures that Miron deplores.
That leaves option 4 - printing money. To be able to do this, of course, Greece needs to decouple its currency from the Euro - a task that is far from straightforward or painless. Assuming, however, that it can be done, there will inevitably be substantial downward pressure on the value of the new Drachma (that's rather the point, in fact - the third 'd' is for devaluation). Adding to that existing downward pressure by substantially increasing the money supply to pay for current spending really increases the risk of hyper-inflation which, when coupled with the fall in living standards that's going to happen in Greece over the next few years, would really be extremely unpleasant.
Conclusions? Greece is screwed. There are no neat solutions to this problem. I'm afraid that the time is coming when we're all just going to have to bite the bullet and take it.

Friday, October 21, 2011

Ignorance is strength

Megan McArdle absolutely nails a phenomenon I've talked about before - the greater the certainty with which solutions to problems are put forward, the greater the ignorance of the speaker.

Then there are the tax nuts, which is nearly everyone. I have seen reporters, wonks, and innumerable blog readers repeat the administration's claim that oil companies were getting unconscionable tax breaks which need to be reformed to pay for urgent policy priorities. I have yet to encounter one who could describe any of these tax breaks; even if they knew the words "percentage depletion allowance" or "intangible drilling costs", they can't describe what those things are. Nor are they aware that many of these allowances are already disallowed for the large oil firms, who effectively almost have their own special tax code.

Don't get me wrong: I'm hardly a tax expert. And there are some wonks, readers and journalists who really are. These people frequently offer interesting takes on these issues, of which I am an avid consumer.

But the number of people who are outraged by these tax deductions, and think they should end, is in my experience clearly much larger than the number of people who have even the most minimal grasp of principles of tax accounting, or a theory of when and how the code should recognize a taxable event, much less a glancing familiarity with the provisions of the tax code to which they are quite indignantly opposed.

The whole thing is well worth a read.

Tuesday, October 18, 2011

Heir to Blair - ish

I'm not sure that Steve Richards is right here. His basic argument is that the power of lobbyists is over-estimated because the power of ministers is also over-estimated. None of them stay in post long enough to become truly effective, and true executive power is centred in a very few individuals. By illustration, we have had seven Defence Secretaries in the past ten years (one of them on a job-share) and nine Transport Secretaries. If people aren't even in the job for more than a year at a time, how on earth are they going to be able to have any influence over policy?

This is true, as far as it goes, but what it really represents is a damning indictment of the management of Government by Tony Blair and Gordon Brown. David Cameron long ago announced himself (recanting in public, though I suspect re-affirming in private) as the 'heir to Blair'. Yet it has always been the case that the Cameroons have sought to learn at least as much from Blair's weaknesses as from his strengths. Blair always regretted what he saw as his wasted first term in office, when public support was at its peak. Accordingly the Coalition have raced out of the blocks - possibly tripping over the feet as they've done so.

Equally perhaps the one thing that Blair was worst at was Cabinet management. He reshuffled his front bench frequently, and apparently at random. Things were often botched - most spectacularly when the post of Lord Chancellor was abolished for an hour or two. The wilfull failure of communications between PM and Chancellor also saw ministers sacked and then re-instated, or promised positions that never appeared. Cameron (and Osborne, whose power in the party grows by the day - a rare example of a Chancellor growing in political strength as the economic climate worsens) seem to have taken this lesson to heart. Ministers have been told to expect to occupy their positions for the entire first term at least. Reshuffles are out.

Steve Richards makes two predictions: that Phillip Hammond will not be Defence Secretary for more than a year, and Justine Greening won't be Transport Secretary 'for long'. On the contrary, I wouldn't be surprised, barring a Rumsfeldian unknown unknown, if they were both in post at the time of the next election. Cameron seems to prize the value of stability within Government to the temporary blaze of attention that comes with a reshuffle. I hope so at least - it's one of the most encouraging things about this Government.

They also serve...

As I have mentioned before, I have a great deal of time for Alex Massie - of all political commentators about at the moment, perhaps only Matthew Parris more regularly articulates precisely what I think about a subject. Even so, I'm not sure he's quite right about the implications of Phillip Hammond's appointment as Defence Secretary:

How important is the Ministry of Defence? Not, according to Fraser, important enough to this government to appoint a Secretary of State who has any great interest in Defence issues. This is fairly remarkable. You might have thought - and the MoD's particular problems might have persuaded you - that defence would be an issue demanding a specialist but that reckons without the managerial habits of modern politics.

Much as I would love to see the mighty Nicholas Soames (late of the 11th Hussars) returned to the Defence Office I'm not sure that military experience is a pre-requisite for the role. Obviously, post-war British politics was awash with military experience. Conscription and a World War will do that. But prior to that, arguably the two most influential Secretaries of State for War (none of that namby-pamby 'Defence' in those days) were entirely without military experience or even apparent interest in the military.

Edward Cardwell is probably forgotten now, but it was his Army Reforms that formed the foundation stone of the modern British Army, doing away with the purchasing of commissions and establishing a modern system of recruitment (incidentally, ignore the FOAK's claim that Cardwell was 'a former soldier' - he was a relentlessly civilian barrister and career politician).

Equally far-reaching changes were instituted at the beginning of the 20th century by Liberal politician, philosopher and lawyer Richard Haldane. An Expeditionary Force was established, the Territorial Army was founded, a separate General Staff was created for the first time and the entire system of training and tactics was overhauled.

Neither of these men had a military background. Would Alex suggest that the Duke of Cambridge - far more experienced and interested in the military than Cardwell - would have been a better Secretary of State than Cardwell, or that Field Marshall Kitchener was better than Haldane?

After all, Peter Tapsell was in the army - should we dust him off and give him the gig?

Monday, October 17, 2011

Boilerplate lizardry

It's a shame really. I liked Charlie Brooker when he wrote about gaming and television - he was reasonably witty, moderately original and tolerably fluent. It's unfortunate that none of this has made it across to what I suppose we have to call his political columns. Because they word that most reliably describes these is lazy. Lazy in thought, lazy in language and lazy in execution.

Fine, he's a Guardian columnist, and originality of thought is evidently pretty strongly discouraged. But, and this week's effort is a pretty perfect illustration of this, what a waste of talent. To recap, briefly. In one of Brooker's hilarious columns, he was criticising the BBC. Obviously, since the BBC occupy one of the two great secular thrones in the Guardian's pantheon (the NHS sitting in the other), he had to bookend his incredibly mild critique of Auntie with some boilerplate anti-Conservatism (because, you know, Guardian). And so he thought about it for maybe a second or two and came up with the idea that David Cameron is a lizard who becomes sexually aroused by the pain of baby animals. I know, hilarious right?

Graeme Archer, who has either read a lot less of this sort of thing than I have or an awful lot more, made the point that:

People who look at other human beings, but see lizards hiding behind masks, are the sort of people from whom one normally backs away, carefully, trying to avoid stumbling over the chairs behind one’s legs.

And went on to say that, generally, the modern left's style of debate is to assume that all Conservatives are not just mistaken, but malign; Tories don't just disagree, they are a force of barely human evil. Maybe it's just a perspective thing, but I don't think this is a terribly controversial point to make. Even mainstream left wing journalists - the Toynbees and YABs of this world - seem to start from the conviction that the Conservatives are setting out deliberately to hurt the poorest and most vulnerable in society. Descend into the comment threads in the left-wing blogosphere and it's rather starker - Tories are Nazis. Simple as that.

To an extent, of course, this is a game that can be played by both sides. In the old pre-bowdlerised days the invective at the Devil's Kitchen was pretty unprintable, and the left certainly see the Daily Mail as a constant drip of hate (though I admit I haven't seen anything from them as unpleasant as the Brooker article). On this theme, Brooker used his Guardian column to write a response to Archer's piece, which he started by trying to prove that Archer was a hypocrite:

Archer has a point. It isn't fair to imply someone is "less than human". It would be unfair, for instance, to describe Geoff Hoon as "an overfed, self-satisfied cat, oozing smugness" or to describe Labour MPs en masse as a "legion of dead-eyed Brown spawn", as Archer did in his Conservative Home blog, presumably as part of some strange unconscious typing accident.

First of all, we should at least give some credit for the research involved here - both the pieces quoted date back to 2007. The google-fu is strong with this one. Of course, the actual merit of the argument is less impressive. Archer was saying that Geoff Hoon, did not receive his just deserts for his failings as Defence Secretary (we are reaching back into the Mesozoic Era for this one) but instead,

He was quietly refashioned and now sits as “Leader” of the House of Commons, like some overfed, self-satisfied cat, oozing smugness, ready to lecture us sternly about the importance of upholding democracy.

You know, a simile. Unfortunately, the effort required to miss the point of a couple of blogs written four years ago (so long ago that Charlie Brooker was still funny) appears to have been an exhausting one. Luckily he was able to outsource the rest of the column to his equally amusing Twitter followers. Nice work if you can get it I suppose.

Archer's main point still stands though. Weighting your arguments on the basis that your opponents are wicked sub-human scum is intellectually sterile. Why bother assessing the actual merits of anything? We are right because we are good; you are wrong because you are bad. It's a standard of political analysis that would shame a three year old. Worse than that, it's a line of argument with seriously dodgy antecedents. Maybe Charlie should take a little look at the sort of people that label their political opponents cockroaches or rats and consider whether he thinks this is the sort of thing he's proud of doing.