I was given my Labour Party long service award to recognise 50 years of membership, I was able to make a speech of thanks, and I have posted my notes overleaf/below. …
50 years hard labour
Liberation Day
Today, or Yesterday depending on where you are the US announced a series of tariff increases around the world.
The FT explains how they calculated the tariffs; they engineered a number from the balance of trade deficit between the US and their trading partners. This has been a big surprise to most international trade economists. This is written in an amusing style asking questions on economics and supply chains, since the calculation method penalises, those countries supplying goods that the US cannot fulfil domestically, such as bananas and coffee.
In an article called, the stupidest chart you’ll see today, which I cannot understand, but they observe that a floor value of 10% has also been set, and comment,
One last thing not widely mentioned yet — there is also a baseline 10 per cent minimum tariff. Without this minimum, the UK would be treated with a negative tariff. So much for special treatment.
The original article points at the book Trade wars are class wars, where on its hosting page, they say,
…Trade disputes are usually understood as conflicts between countries with competing national interests, but as Matthew C. Klein and Michael Pettis show, they are often the unexpected result of domestic political choices to serve the interests of the rich at the expense of workers and ordinary retirees. Klein and Pettis trace the origins of today’s trade wars to decisions made by politicians and business leaders in China, Europe, and the United States over the past thirty years. Across the world, the rich have prospered while workers can no longer afford to buy what they produce, have lost their jobs, or have been forced into higher levels of debt. In this thought‑provoking challenge to mainstream views, the authors provide a cohesive narrative that shows how the class wars of rising inequality are a threat to the global economy and international peace—and what we can do about it.
The Newsagents on Trump, Trade and Debt
In this podcast at the newsgents, the presenters talk about Trump’s tariffs and his liberation day and the impact on the UK’s public finances. This article is a reply.
The guardian reports US Department of State, channelling JD Vance, has raised the issue of “freedom of speech” in the current trade negotiations and are ‘concerned’ about the possible sanctions against an anti-abortion demonstrator who has been convicted of demonstrating too close to a clinic. The identification of ‘free speech’ as a trade issue is not just caprice. It was raised dramatically by JD Vance at the Munich security conference earlier this year. It is part of their pro-oligarch agenda; they are frightened of European regulators and the massive fines levied on the US high tech firms and now that Musk has bought twitter, the social media companies and their ‘freedom of speech’ is a tool by which they seek to maintain their power.
I was curious that they identified the fact that Trump respects those that strike back and yet spoke favourably of Starmer’s weak response, particularly when compared with both the EU’s and the US’s neighbours.
While they spoke of the short term economic results as a possible constraint on Trump’s behaviour, I suggest that the only constraint that concerns him is his popularity which since he can’t run again is of limited use to him. Curiously, I read an article by Lawrence Lessig today suggesting the founding fathers deliberately excluded term limits on the grounds that a desire for re-election would act as a moderator on behaviour. They were particularly concerned about kleptocracy, although Hamilton used the word plunder.
In the second part of the interview, they speak to Andy Haldane, once Chief Economist of the Bank of England. He argues that the trade war will blow Reeves’ plan off course as it lacks what he and others call fiscal head room. He argues that higher taxes will need to be raised but that the bond markets will live with a plan that works i.e. delivers growth, which he argues needs to be based on defence industries.
Itr was always unlikely that Haldane would argue that since the purpose of the golden rules and even the growth strategy is to reduce the national debt, what needs to change are the rules, the independence of the Bank of England and Office of Budget Responsibility (OBR). The progressive inventors of the fiscal golden rules argued that that their purpose was to protect investment. The purpose of Reeves’ iteration of the rules is to pay off the debt.
One justification against borrowing to fund investment, is the interest costs but Google reports that “As of 2023, Japan’s government debt to GDP ratio was 255.20%, while the UK’s was around 98.5%.” How can Japan fund their debt while the UK cannot?
I also question the efficacy of the government’s proposed industrial strategy; historically private sector capital has not invested in UK innovation which has been funded by retained profits.
It is frustrating that commentators like Haldane can’t or won’t mention easing trade barriers with Europe as a means of stimulating export led growth and that no digital liberty campaigners are arguing to rejoin the single market in order to implement the Digital Services Act which the US social media companies rightly fear.
Reeves’ rules are aimed at the wrong policy outcome, and her capitulation of judgement to the OBR is a democratic mistake which merely constrains her room for manoeuvre. In my view its time to review the independence of the Bank of England and the existance of the OBR. Economic policy should be the outcome of a democratic process, not a technocratic black box built by the dead.
I say more at this article on my blog, and on industrial policy at Chartist Magazine. …
Win/Lose vs Win/Win & Trump
I was pointed at this,and was advised, that, “Everybody I know should read this accurate and enlightening piece…”.
The best, most cogent and elegantly simple explanation into the inexplicably destructive negotiating processes of the President, by Prof. David Honig of Indiana University.
“I’m going to get a little wonky and write about Donald Trump and negotiations. For those who don’t know, I’m an adjunct professor at Indiana University – Robert H. McKinney School of Law and I teach negotiations. Okay, here goes.
Trump, as most of us know, is the credited author of “The Art of the Deal,” a book that was actually ghost written by a man named Tony Schwartz, who was given access to Trump and wrote based upon his observations. If you’ve read The Art of the Deal, or if you’ve followed Trump lately, you’ll know, even if you didn’t know the label, that he sees all dealmaking as what we call “distributive bargaining.”
Distributive bargaining always has a winner and a loser. It happens when there is a fixed quantity of something and two sides are fighting over how it gets distributed. Think of it as a pie and you’re fighting over who gets how many pieces. In Trump’s world, the bargaining was for a building, or for construction work, or subcontractors. He perceives a successful bargain as one in which there is a winner and a loser, so if he pays less than the seller wants, he wins. The more he saves the more he wins.
The other type of bargaining is called integrative bargaining. In integrative bargaining the two sides don’t have a complete conflict of interest, and it is possible to reach mutually beneficial agreements. Think of it, not a single pie to be divided by two hungry people, but as a baker and a caterer negotiating over how many pies will be baked at what prices, and the nature of their ongoing relationship after this one gig is over.
The problem with Trump is that he sees only distributive bargaining in an international world that requires integrative bargaining. He can raise tariffs, but so can other countries. He can’t demand they not respond. There is no defined end to the negotiation and there is no simple winner and loser. There are always more pies to be baked. Further, negotiations aren’t binary. China’s choices aren’t (a) buy soybeans from US farmers, or (b) don’t buy soybeans. They can also (c) buy soybeans from Russia, or Argentina, or Brazil, or Canada, etc. That completely strips the distributive bargainer of his power to win or lose, to control the negotiation.
One of the risks of distributive bargaining is bad will. In a one-time distributive bargain, e.g. negotiating with the cabinet maker in your casino about whether you’re going to pay his whole bill or demand a discount, you don’t have to worry about your ongoing credibility or the next deal. If you do that to the cabinet maker, you can bet he won’t agree to do the cabinets in your next casino, and you’re going to have to find another cabinet maker.
There isn’t another Canada.
So when you approach international negotiation, in a world as complex as ours, with integrated economies and multiple buyers and sellers, you simply must approach them through integrative bargaining. If you attempt distributive bargaining, success is impossible. And we see that already.
Trump has raised tariffs on China. China responded, in addition to raising tariffs on US goods, by dropping all its soybean orders from the US and buying them from Russia. The effect is not only to cause tremendous harm to US farmers, but also to increase Russian revenue, making Russia less susceptible to sanctions and boycotts, increasing its economic and political power in the world, and reducing ours. Trump saw steel and aluminum and thought it would be an easy win, BECAUSE HE SAW ONLY STEEL AND ALUMINUM – HE SEES EVERY NEGOTIATION AS DISTRIBUTIVE. China saw it as integrative, and integrated Russia and its soybean purchase orders into a far more complex negotiation ecosystem.
Trump has the same weakness politically. For every winner there must be a loser. And that’s just not how politics works, not over the long run.
For people who study negotiations, this is incredibly basic stuff, negotiations 101, definitions you learn before you even start talking about styles and tactics. And here’s another huge problem for us.
Trump is utterly convinced that his experience in a closely held real estate company has prepared him to run a nation, and therefore he rejects the advice of people who spent entire careers studying the nuances of international negotiations and diplomacy. But the leaders on the other side of the table have not eschewed expertise, they have embraced it. And that means they look at Trump and, given his very limited tool chest and his blindly distributive understanding of negotiation, they know exactly what he is going to do and exactly how to respond to it.
From a professional negotiation point of view, Trump isn’t even bringing checkers to a chess match. He’s bringing a quarter that he insists of flipping for heads or tails, while everybody else is studying the chess board to decide whether its better to open with Najdorf or Grünfeld.”
— David Honig
From https://www.facebook.com/geoffrey.m.arnold/posts/10160302885212273, also at threads https://www.threads.net/@beingliberal/post/DFhUZedxEIT?hl=en
Not having studied negotiation, I can see that this ignorance is being applied to the original Brexit negotiations and to Starmer’s attempts to “reset” the election. …
The Draghi report on European competitiveness.
I have been trying to get on top of whether the Draghi Report on European economic competitiveness is really a game changer. Without study it seems to be a call for more EU (as opposed to member state debt. I am of the view that within the UK, there needs to be transfer union i.e. that borrowing and wealth from London needs to be shared with other parts of the country.
I found this article from the FT, which is headlined, “Europe can learn fiscal lessons from the UK on how to achieve its goals”, and subtitled, “ A co-ordinated reform agenda is crucial if the EU is serious about becoming a climate leader and geopolitical player”, written by Draghi. On diigo, I highlighted the following lines,
The UK government has chosen to significantly raise public investment over the next five years and has adopted precise rules to ensure that borrowing is used only to fund this investment. … Moreover, in order to ensure the quality of spending, transactions will be validated by independent authorities.
To which I reply, “Of course Draghi would argue for independence. The near cultish following with which his recent comments have been greeted is based on the desire by politicians and capitalists to ensure the macroeconomic policy and regulation is outsourced to non-democratic agencies. Central bankers underestimate the ability of democracies to present a wisdom of crowds, even on investment decisions. An example of this is the EU’s horizon investment valuation process, which ranks proposals and select winners from a competition. The technocrats and democrats, particularly representative politicians also underestimate the value that citizens assemblies may bring to these decisions.
Draghi continues,
“A more efficient use of Europe’s high private savings rates requires integrating its capital markets. To redirect private investment from mature industries to more advanced sectors will hinge on completing the single market. … innovative firms in fast-growing sectors such as digital services will not be able to scale up and attract capital. And, as a result, investment will remain locked in old technologies.”
Is this true? Perez, whose theories I summarise on my blog, argues that the declining profit of now legacy industries will ensure that investment goes to new innovative industries. Also, like most Draghi is betting on digital services as the driver; Perez’s theories suggest that IT is now reaching its stagnation stage and will be replaced although we maybe in a stage where the political power of legacy capitalism is too powerful to be overcome. This is why corporate lobbying power is so destructive to human progress. …
A budget that “needs improvement” &“exceeds expectations”
The budget headline is a £127bn deficit and current account stabilisation where the Tories had planned further reductions in expenditure. I am on the side of those who say, it’s not too bad and could have been worse. It, in the words of most performance management systems, “Exceeds expectations”, although most of those were set by themselves. There remain some unsolved problems and some risk but I think this response from Jeremy Corbyn and the Green Party misses the mark, it is not austerity light. There's much more, overleaf ...
Are there any public sector efficiencies to find?
In order to prop up the markets, Kier Starmer wrote an article in the FT, once again extolling the need for public sector reform. His article covers more than that, it seeks to address innovation & growth, and public sector reform, yet misses the implications on industrial policy, university investment and local authority services. I explore these themes in more detail overleaf ...
Growth, institutions and Brexit
Several commentators on the UK budget, including the OBR, have suggested but there’s insufficient growth stimulus planed. The OBR predict that the economy will grow slightly less than under previous plans; I don’t know how this can be when the proposed deficit is £89bn. They also however predict that the effect of Brexit his -4% of GDP and yet no one in parliament, except for Ed Davey has mentioned this as a growth opportunity.
The OBR and the Bank of England are both institutions designed to protect economic policy from democratic control. Time to abolish one and reform the other. …
Labour’s “thick” red lines!
Why have the Labour Government trapped themselves with so many Red Lines? We have Reeves’ on the economy and now it seems Starmer and Cooper on the EU’s youth mobility proposals, although more accurately, they are red lines on the issue of the EU. It would seem that Reeves is looking for an escape route, although whether they’ll u-turn on the winter fuel allowance and 2-child benefit cap is another matter, but, on the EU, it seems that despite the obvious loop-hole of redefining students as non-migrants, Cooper and Starmer are not prepared to compromise on a youth mobility scheme with the EU despite having similar agreements with 15 countries already. The rest of this blog looks at Rosie Duffield's excoriating resignation letter, and I hark back to a New Statesman article, and quote it, "I can give you a whole cadre of these people who weren’t the Oxbridge elite, the special advisers and all of the rest of it,” one former MP told me, “but they were politicians and they did have a sense of what voters wanted and they had a way of communicating with voters that these guys [the young MPs and special advisers] never did. Just never did. And as a result, it was a profound misunderstanding of what democratic politics was about. It’s not a seminar.” For the whole article, read more ...
More on growth & debt
The problem with the Truss mini-budget was not that they had an ‘unfunded’ deficit but that there was no mechanism between the deficit and investment. Rich people tend to save and for the deficit to do any social good, the banks would have to lend to investors i.e. entities looking to buy or make capital goods; which they have never done. Private sector domestic investment has usually been funded by retained earnings!
The lesson here is that the markets were not frightened of the deficit, just its purpose.
See also Growth vs public debt management on this blog. …