Inflation

Inflation

The Bank of England was made ‘independent’ of the Treasury in 1997, although not really, so that it could take the blame for any decisions to increase interest rates, such as those taken earlier this week (£) when the Bank increased bank rate to fight inflation.

How does that work? Inflation is believed to have one of two causes, one is that there is too much demand, chasing too few goods and consumers bid up prices. The other is that import prices are rising and thus have an impact on the domestic price level. These are known as demand-pull, or cost push. The current inflation would seem to be caused by the increase in the cost of imports especially primary energy products, exacerbated by a fall in the exchange rate.

The monetarist theory is that there is a real world and money view of the economy.

i.e.

Prices x Product = Money Supply x Velocity of Money

PQ = Mv

This equation is derived via definitions and algebra and thus there is no proof of causality. Monetarists say that reducing the money supply will reduce prices. This assumes that in the short term both the velocity of money and the amount of product are static. Recent econometric studies suggest that the velocity is not constant, and there has always been a problem of defining what money supply is as it must include some credit and so is very difficult to constrain. We should note that consumer credit can be increased very rapidly so can no longer be consider static.

There can be no doubt from studying economic history, that increasing interest rates to reduce the money supply causes a recession, unemployment and poverty. It’s also highly likely that unionised workers will demand higher wages to defend their living standards. In a world where business is internationally mobile, business will defend its profits by increasing prices and/or off shoring the work; this is the wage-price spiral where an economy has high inflation, both cost push and demand pull and low growth.

The drivers of growth and/or the floor to a recession are investment, exports or government expenditure, especially benefits. Increasing interest rates makes investment and the national debt more expensive. It makes exports cheaper in their foreign markets but of course the big factor in the export price uplift is Brexit. Higher interest rates increases the income on savings and the expense on business and domestic borrowing. A squeeze on profits will cause capital to go overseas, especially if the exchange rate is high although this may be ameliorate by the increasing yield in bonds. The other cause of the economic malaise is the poor investment rates by both the private and public sector in the UK.

There can be no doubt that increasing interest rates will cause unemployment. This is how it reduces demand.

The other option to monetary policy is product supply, direct investment such as the EU’s Horizon Europe programme or price regulation to cause a profit squeeze, tax the energy companies and banks, build more houses, control profits, transfer income from the wealthy to  the poor because the poor spend more of their income and of course rejoining the EU’s single market to reduce both import and export frictional costs.

High interest rates are a choice, a choice of theory and a choice of policy. The inconvenient truth is no-one knows if it works.

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I conclude with some links to key commentators, professional economists. David Blanchflower, writes in the New Statesman, “The Bank of England is recklessly driving the UK into a deep recession”, he warns of the threat of unemployment, elsewhere on his twitter feed he is highly critical of the Bank and its Governor, Andrew Bailey, He is also quoted in a video clip by C4 on twitter, stating that unemployment hurts people more than inflation, which can be seen to be a declining threat. Anne Petifor exposes the role of the global capital markets in ‘managing’ food and energy costs, Richard Murphy provides a modern monetary critique of the theories. I particularly like his calling out of the role of import prices and speculators,

There is a third reason why the BoE policy will not work. It’s not just the assumption that people have too much to spend that the BoE get wrong. They have actually totally failed to identify the proper cause of this inflation.

The inflation we’re suffering is the result of shortages of oil, gas, fertiliser and food, in the main. Some of these are real (food, in particular). Others are being stoked by speculators who are profiting from them, which is why oil companies are declaring such big profits now

Richard Murphy – On Twitter

The featured image has been taken from Blanchflower’s New Statesman article where he asserts its a BoE MPC authored chart. This I assume can e used under the OGL license.  …

Crime and Punishment (in the Labour Party)

Crime and Punishment (in the Labour Party)

I have not studied all the new rules as passed at 2021 conference, but this is a note on proscribed acts and prohibited acts and how they are dealt with.

The existence and role of the Independent Review Board and Independent Complaints Panel are defined across multiple clauses and chapters of the rule book. I think it was designed such that all complaints about discrimination would be dealt with by the new independent review process; certainly this is how it was sold, I think it is two stage. i.e. one bunch of mates of David Evans finds you guilty and you can appeal to …… you get the idea although I should read that part of the rules more thoroughly and write a commentary. It’s certainly designed to be hard to read having cross references across three chapters and delegates at conference were given hours to read them. There is still a role for the NCC but I think it’s easy enough for the bureaucracy to avoid it both within the rules and by bureaucratic manipulation.

On top of this, there are proscribed and prohibited acts. Proscribed acts is supporting other parties in elections, or starting a vexatious legal case against the Party. The duty to offer the accused the rights of natural justice and the right to be fairly treated are excluded from the process of dealing with proscribed acts, but not prohibited acts.

Prohibited acts include supporting another party, physical abusing, threatening or harassing staff, but not other members, failing to pay cost awards against the party, being found guilty by a court of a serious offence, or being the subject of a safeguarding concern. The definition of supporting another party other than at elections is down to the NEC and for each of the organisations proscribed, they have a different list of activities.  These powers are defined in this rule,

Possessing membership of, providing financial assistance to, sitting on the ruling body of or otherwise supporting (as may be defined by the NEC) any political organisation that the NEC in its absolute discretion shall declare to be inimical with the aims and values of the Party.

Labour’s Rule Book

An NEC panel makes the decision which may be appealed to the NCC, on a series of limited grounds, but including,

B. The findings of the NEC are flawed or tainted by bias or unsupported by the evidence;

Labour’s Rule Book

The member is expelled at the point of the decision of the NEC.

The Forde Report says,

Whilst we recognise and applaud many aspects of the Party’s recent reforms of disciplinary procedures, we do have concerns that there appear to be no published procedures governing the use of administrative suspensions and that these appear to be operating without clear criteria for their use being widely available. We are also concerned that the provisions which allow for individuals to have membership removed or denied on the grounds they have committed prohibited acts could be exploited for factional purposes.

The Forde Report – Forward page 7

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Some thoughts on IS programme management

I wrote a note on information systems programme evaluation and management on my linkedin blog. It considers business value vs reliance and observes that this technique permits the management of software products to have different governance policies, that measuring competitive advantage is hard, that IT strategy must be aware of business strategy which will drive the build vs. buy decision together with other project management decisions. Importantly it decries the practice of buying and adapting a software package. These ideas were first taught to me by Dan Remenyi. …

Labour’s macro-economics, “Back to the Future”

Labour’s macro-economics, “Back to the Future”

Starmer made another speech on economics on Monday 25th July. It is reported in the Guardian.

Starmer has been trying to pitch Labour as the party of fiscal prudence and will say: “With me and with Rachel Reeves [the shadow chancellor], you will always get sound finances; careful spending; strong, secure and fair growth. There will be no magic-money-tree economics with us.”

From the Guardian,

The limits of growth & debt

This takes a lot of unpacking, firstly, whether the questions of what we make (or do), how we make (or do) it and who gets what we make (or do) are no longer the crucial systemic questions that economic systems need to answer. Questions of funding old age and care, and combatting climate change are now central to good economic system design; the days when capitalism was progressive are over. While he doesn’t frame the same question, Will Wardley points out that fiscal discipline is incompatible with a Green New Deal although Starner denies the dichotomy.

Starmer recognises the vitriolic anger that hard work doesn’t pay enough and while we recognise that this is a system caused by 12 years of Tory misrule, he won’t support strikers who seek to rectify this state of affairs.

Rachel Reeves made a speech earlier in the month, as part of the launch of the Resolution Foundation’s 2030 economic review called “Stagnation Nation”. The words of the speech were  posted to the Labour press site and she sought to clarify Labour’s position on the debt and deficit,  I quote her later in the article but Starmer states,  

So we will not announce a single penny of day-to-day spending without saying how we would pay for it. We will only borrow to invest to meet the challenges of the future – that’s what our Climate Investment Pledge is all about. And we will set a target to reduce debt as an overall share of our economy.

Sir Kier Starmer

Richard Murphy in a thread on the speeches, points out that for some economists,  growth and fiscal policy are orthogonal, i.e. a nation can afford what we make and do, fiscal policy has nothing to do with it. It helps remind us that economic theory is just that, there is no proof that the theories one adopts are right. Most economists agree that you can’t have growth and Government surpluses, no left wing or progressive politician should be promising this or even suggesting it’s possible. Only growth ensures a reduction of the debt ratio.

Somewhere in the middle of this there might be a recognition that full employment & investment led growth will lead to a high wage, high skills, exporting economy. But he and Reeves choose to anchor themselves to austerity with a promise to reduce debt and ensure that day-to-day government funding is financed by tax revenue. Like the unmentioned Brexit, they say one thing about the direction and policy but have chosen to leave two dirty great anchors in the bed rock.

Starmer acknowledges the need for a fair taxation and says this is “why we will scrap business rates and replace them with a system that levels the playing field”. Business rates are one of the few business taxes that cannot be avoided but fiddling around with them does nothing to ease the tax burden carried by workers and pensioners and this is another opportunity missed to talk about student loan recovery. Also unmentioned is our universal VAT of 20%, surely the first giveaway even a social democratic government would consider is reducing the VAT rates, maybe abolishing them on energy.

Another important idea, glossed over with a managerial approach is regional inequality, levelling up and the need to harness our communities; while asking Gordon Brown to investigate ideas on economic devolution is fine, any programme needs long term guarantees to local authorities, effecting a transfer union just as Scotland has, so the public sector investors know they are getting money next year as well as this year and the transfer mechanism needs to be based on need. This is the opposite of what the Tories are doing and yet despite multiple calls by Labour Conference to restore local government expenditure cuts, nothing is said, whereas what is needed is a long-term guarantee of project finance, as was available from the EU regional & R&D investment programmes. It should be noted that New Labour’s regional policy programmes were blighted by their attachment to workfare and to regional assemblies, although we now have sub regional mayor led authorities, so the latter may not be a problem but everyone will remain suspicious of the former failing with Rachel Reeves as Chancellor.

Nationalisation

Rachel Reeves in her speech, and consequent interview , reported in the Independent, stokes up the row over nationalisation of rail and energy, for some reason, by saying,

“I’ve set out fiscal rules that say all day-to-day spending will be funded by day-to-day tax revenues,” she told BBC Radio 4’s Today programme. “Within our fiscal rules, to be spending billions of pounds on nationalising things, that just doesn’t stack up against our fiscal rules.”

RacheL REeVES

But nationalising something is not a day-to-day expense!!! It’s a capital transaction, as is forgiving and abolishing student debt and abolishing tuition fees which would be an investment in Human Capital. We should note that if claiming to be followers of Janet Yelland’s modern supply side economics, Yelland argues for increased subsidy to child care expenses to ease mothers’ entry into the labour market and subsidies for skills acquisition i.e. University. Others see modern supply side economics as political prestidigitation merely seeking to avoid the label of Keynesianism,

“‘Modern supply-side economics’ strikes me as a new label for Keynesian economics with an emphasis on government spending on investment in labor supply,” said Peter Hooper, global head of economic research for Deutsche Bank ag and a former senior Federal Reserve economist. “There are some good arguments there, but I don’t see it as a totally new economic paradigm.” Bloomberg News

Peter Hooper

Labours social democrats need to say how they’ll control energy and rail prices and profitability if they don’t plan to nationalise.  The step away from common ownership is reinforced and criticised by Andrew Fisher who makes the point about subsidy, prices and profits and calls Sam Tarry & Ed Miliband and even Kier Starmer’s 10 pledges in support of his argument.

Seeing much of this coming, Rebecca Long Bailey, Starmer’s rival for Labour Leader, made a speech, again reported in the Guardian, which says, “The former Labour leadership contender Rebecca Long-Bailey has called for Labour to drop its cautious approach to the economy and fight the next election on a radical manifesto including state ownership and a living standards contract between government and public.” While she argues for a cabinet member in the Treasury to supervise and champion the new social contract, these ideas may not be opposed by Reeves as shown by her speech to GMB Congress 22, obviously not over the nationalisations, which again the Unions in those industries support and even the TUC do so too.

Certainly, the reporting of the two speeches, suggests this is a return to pre-Blair strategies albeit with an Osborne veneer: grow the economy, tax the rich, rebuild the public services presumably with school marm Reeves’s contempt and punishment of the so called undeserving poor! Yet again offering more to the needs for a story of economic credibility than required, following in the track of Jenkins, Smith and Brown. For today’s leadership there is no mention on profits, dividends or redistribution. This return to the economics of the 60’s is harnessed with a political strategy from the nineties; fight the party to show you’re a safe pair of hands. The economics is wrong and unambitious, and politics has changed. The Labour front bench needs to do better, and it could start from the Conference authored Party Programme.

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UK general government deficit (or net borrowing) was £187.4 billion in 2021, equivalent to 8.1% of GDP; this was 0.3 percentage points lower than the average deficit of the G7 member states.  https://www.ons.gov.uk/

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More consequences of Labour’s cyberbreach

More consequences of Labour’s cyberbreach

The Labour Party can’t issue the ballots for their internal elections; they claim it’s a consequence of the cyber-breach last October.

The Party seems to have attempted to create a replacement membership database by updating its mail manager system and presumably adjusting the feeds although much of the functionality previously offered is no longer available and the feed from the financial system is now days or weeks out of date. We should note that the membership self administration tool is also now not available. The mail manager is obviously from observation slowly dying. It is known to be inaccurate; there are errors in terms of who it considers to be a member, their addresses, and their payment status.

The Party plans to replace this recovered system with an off the shelf package[1] from Microsoft. At the moment we are advised that it is unlikely that local party role holders will get access to this until next year.

Until then we have to use a known to be inaccurate database. From observing, presumably NEC authorised actions, it seems to be considered accurate enough to select councillor candidates and run trigger ballots. Procedure Secretaries have been told that they may not override the membership system even when variances are well known and provable. I question that this is legal in it breaches the duty to be accurate and not to automatically profile people.

What seems to be forgotten that is data protection rests on seven principles, Lawfulness, fairness and transparency · Purpose limitation · Data minimisation · Accuracy · Storage limitation · Integrity and confidentiality. Often too much or too little attention is paid to integrity and confidentiality and issues such as lawfulness, fairness, transparency and accuracy are forgotten.

They are running selections and triggers on data known to be inaccurate. This isn’t right.

This has taken 9 months to get here. While culpability for the breach may be questionable, not having a recovery plan and or not funding it is the fault of the Labour Party and thus its NEC. CEO’s have been fired for less.

Why was there no recovery plan? Did they do vendor due diligence on the member centre hosting provider, did they keep it up to date? Is there a risk register? Has the NEC or the risk committee approved the mitigations? In fact, what is the NEC doing about IT Risk? Is there a DPIA on reusing the mail system? Is there a DPIA on reusing the SAR Tool? Is there a DPIA on using the social media scanners they use? When will we get a data protection capability that protects members data from bad actors rather than from themselves?

Nine months failing to recover is shameful and unprofessional. NEC members should be asking why it has come to this and determine if they, through their inaction, are in fact culpable.


[1] This I consider to be wise, although they will need additional software modules to support Labour’s unique processes, such as donation monitoring. Although it seems they plan to customise the UI 🙁 …

A noble individual

A noble individual

Over the last 24 hours, possibly longer after I actually publish this piece, Sean Jones QC, has published two longish twitter threads on Labour and Brexit. He was inspired or provoked by an interview on Cambell & Stewart’s “The Rest is Politics” of Kier Starmer.

Jones’s 1st thread asks how ‘leaning into’ the Tories Hard Brexit can possibly be a policy success when it’s clear that it’s failed and asks how it can be an electoral success given that so many Remainers have not changed their mind. There are few, if any words wasted in the thread, so have a look yourself, but I am particularly taken with this tweet,

How does backing a hard Brexit heal the division? There is literally nothing on offer to those who backed Remain. This is just as doomed a strategy for him as it has been Johnson because it is not materially different.

Sean Jones QC – Twitter

And this, in a reply to a comment on the thread,

There are compromise options that fall short of rejoining. He has ruled those out too. The problem is it [not] that he’s failing to commit to rejoining, the problem is that he is committing to a Hard Brexit with some tinkering.

Sean Jones QC

I retweeted it, saying,

This is possibly the crux of the problem with Starmer’s speech on #failedbrexit. It is part of a tremendous thread examining the politics and traps of agreeing to the #ToryHardBrexit at the very time the country is beginning to reject it.

Dave Levy – Twitter

The 2nd thread, addresses the pro-Starmer argument that this is a long game. Jones argues that Starmer’s Brexit line is a foolish thing to say because it fails to differentiate him and Labour from the Tories, Starmer’s assuming that remainers/rejoiners who seem to be growing in number will put up with it. Starmer’s policy needs to be effective politically before the election and the basis for effective policy after. The first proposition is questionable, and the second wrong.

On the electoral dimension,

First, the policy is disappointing a very large proportion of his party membership and base. Telling them, in effect, to suck it up is dangerous particularly given the rationale of the plan.

The rationale is, “I need the Red Wall votes, so I have to give them what I think they want”. So the pellucidly clear message is, if you want a different Brexit policy you will have to show him that he will lose your votes. He is literally telling you how to change his mind.

Sean JOnes QC

Starmer should note that the Greens, Lib Dems, Plaid Cymru and the SNP are all going to have, in my eyes, better positions on relationships with the EU and the means of achieving it. On Starmer’s proposition’s utility as a policy guideline, Sean writes on this, but I think this is the best quote,

So if you believe that he is sucking up Hard Brexit in order to get a chance to do the things he really wants to, the bad news is that Hard Brexit makes doing those things much more difficult.

Sean Jones QC

Much of the rest of what Jones says is that Brexit cannot be made to work, saying it can means that all its failures will be down to Starmer, and it is an obstacle to what he really says he wants to do. In the podcast, Starmer talks about his talks with Oscar Scholtz, the German premier, talks about improving trade when that trade failure, the decline in exports and imports are exclusively down to Brexit trade barriers and we haven’t even introduced the customs checks we require y the treaties, yet Starmer claims he can have conversations about trade without talking about the EU.

The problem for the ‘long gamers’ when talking to Labour’s remainers/rejoiners, is that the electoral offer is based on another lie, which together with Starmer’s 10 pledges, and his promise to ‘end factionalism’ are an unfortunate conjunction. The charge that he lies, although not as much as Johnson, has significant evidence.

I’ll finish with a quote from Rory Stewart from the podcast, they were talking about the loss of trust that people have with politicians, and Stewart argues, that it’s not about virtue.

“…  [parliament is full of people who are] most of the time more interested in campaigning and sticking it to the opposition then they are in thinking critically and governing well and we can’t change that by hoping we are going to have noble individuals.”

Rory Stewart – The Rest is Politics

This off course, together with Starmer’s record as a politician, raises the question as to whether Starmer really is a ‘noble individual’. …

Labour, me and the Forde Report I

Labour, me and the Forde Report I

The Forde Report commissioned by Labour’s NEC has been published. I have not read it all yet but have discovered the first quote, on the dangers of continued factionalism as it related to the new proscription rules and had the second on the need to conform to A6 of the ECHR pointed out to me.

§A We are also concerned that the provisions which allow for individuals to have membership removed or denied on the grounds they have committed prohibited acts could be exploited for factional purposes.

§F 3.1 We note the new arrangements, approved by the Party at its Conference in 2021, which make provision for various reforms, including the establishment of an IRB in cases involving accusations of discrimination. The Party will need to be vigilant that those new procedures, when combined with the further reforms we recommend in this report, deliver a system which, as far as is practicable, enshrines the core principles of Article 6 of the European Convention on Human Rights, ….

The Forde Report

Three things: I’d have preferred a stronger mandate than concern and a need for vigilance, and for me A6 is so last year. I have moved on to A7 “No punishment without law”, which states “ No one shall be held guilty of any criminal offence on account of any act or omission which did not constitute a criminal offence under national or international law at the time when it was committed.” Obviously, the scope needs to be changed to be prohibited under rule or law, but the principal is obvious and the NEC is in flagrant breach of this principle.

Finally, the report seems exclusively focused on discriminatory behaviour, it seems to fail to address bullying and cover-ups whether undertaken by staff or senior role holders. …

Can ‘boring’ win elections and deliver good policy?

Can ‘boring’ win elections and deliver good policy?

I am provoked by Chris Grey’s article, “Making Brexit Boring”; it’s long and covers a number of dimensions of the consequences of Starmer’s speech on Labour’s new approach to the EU. Much of his Brexit blog I agree with and find informative, but I have a couple of things to say on this article.

He writes,

Yet that answer [i.e. Labour’s differences with the Government]  is a disappointing one, and in some key respects an ambiguous one. It could hardly have given less to erstwhile remainers without being indistinguishable from the government’s policy. It offered the bare minimum of an alternative, and no one could call it an inspiring vision for Britain’s future. But it wasn’t altogether empty, and its critics should be careful not to fall into the age-old political trap of ‘making the perfect the enemy of the good’.

Chris Grey – Brexit & Beyond

This I feel summarises what Grey thinks of Labour’s position but I hope I don’t fall into the trap he identifies. He also disagrees with those who describe Starmer’s position as cakeism,

It’s also misguided to suggest, as some claimed following the speech, that Starmer’s proposals are ‘cakeist’ (i.e. calling for the benefits of EU membership without belonging).

Chris Grey – Brexit & Beyond

I had not realised that Peston had described the trade barrier proposals as cakeism and I comment on his article below. I believe that arguing for enhanced business visas, mutual recognition of professional qualifications while rejecting free movement of presumably unqualified labour is ‘cakeist’ , unlikely to be agreed by the EU and fails to recognise the UK economy’s labour shortage crisis. It’s pandering to the racism inherent in the objection to free movement and the only way to put this right is to agree to the EU’s freedom of labour and reverse the hostile environment. Many of those who’ve left the UK have done so because they feel unwelcome due to the racism enabled and encouraged by the referendum result.

While Grey welcomes Starmer’s embrace of a Security deal, both he and Stramer fail to recognise that this will entail agreeing to CJEU supervision/jurisdiction of wide areas of our administration of justice. While I have no problem with this, if he is prepared to have the CJEU rule on civil liberties, what’s the problem with having them adjudicate trade issues. Starmer’s line on security co-operation is thus also arguably ‘cakeist’, although the number of people on top of this seems very limited. Although yesterday, the government published its plans for the Data Reform Bill which ORG describes as gutting the GDPR and if so may jeopardise the UK’s ‘adequacy agreement which was another point in Starmer’s plan to retain regulatory alignment with he EU on data and financial services.

Peston in his article also accuses Starmer of cakeism, albeit before I did. His article focuses on the trade aspects of Starmer’s five point plan, I take the alleviation of trade friction as a given in any policy, although I am less sanguine that easing trade friction between NI and Great Britain will have any benefit in calming the political friction in Northern Ireland and Starmer’s plan focuses on that specific trade flow and not cross-channel trade.

Peston avoids looking at how Labour’s remainers/rejoiners will react to the brutal policy outlined by Starmer and Lammy. As I note elsewhere, the tide is flowing against them. …