I normally endorse what Ambrose Evans-Pritchard says wholeheartedly.
But then normally he confines himself to international economics.
Here he strays into two areas which are not his normal stamping
ground - home economics and home politics.
There remains a lot of common sense below but some misjudgements too.
There seems to be a consensus that VAT will be cut tomorrow.
BUT this particular Cassandra - out on her own - thinks it would be
mere window dressing. Something now costing £100 VAT included would
come down to £97.87 which I don't think would make anyone stir. It
would cost £12.9bn AND would suck in imports and thus not help jobs.
To concentrate help on the low paid by raising the tax threshhold to
£12,000 would benefit everyone but the low paid most of all and would
not cost much more. Of course in both cases what nobody can predict
is what the public will do. They may be so thoroughly scared that
they don't go out and buy with the VAT cut or that they are so scared
of the future that they sit on the tax saved on my proposal. BUT
those really strapped NEED the tax cut for living on - and will
spend it on that- rather than for buying expensive HD-TVs.
XXXXXXXXXXXXXXX CS
===========================
SUNDAY TELEGRAPH 23.11.08
1.There is really no choice: we must back Gordon Brown's blitz
The Prime Minister may be the architect of the financial mess we are
in, but he is right about the measures that must now be taken - and
the Tories are wrong to oppose them
By Ambrose Evans-Pritchard
Perhaps the catastrophic withdrawal of credit lines across North
America, Europe, and now the Far East, has yet to reach Notting Hill.
One has the unsettling impression that David Cameron and George
Osborne are not quite aware of what is happening in the world.
In any normal circumstances, the new-found Tory zeal for fiscal
restraint and small government would be splendid. But we are not in
normal circumstances.
If this crisis is botched by the major powers - as the lesser crisis
of 1930-1931 was so botched by politicians stuck in a mould - we risk
a self-reinforcing spiral into devastation. We have no responsible
choice other than backing Gordon Brown's largesse in the pre-Budget
report tomorrow, and more later no doubt. [In practice we don't have
a choice! I have reservations about what most see as the lynchpin of
the policy and I cannot support it and I think Cameron -Osborne are
right to be sceptical. But - of course - whatever Darling proposes
will happen and our support - or not - is irrelevant -cs]
Matters are getting out of hand. The American bank JP Morgan has just
told clients that the US Federal Reserve will cut interest to zero by
February. This never happened in the Great Depression. You can't cut
below zero. At that point, deflation increases the "real" burden of
debts at a compound rate. And debt is all we seem to have these days.
The Bank of Japan may beat the Fed to zero. The Bank of England has
already hit the nuclear button: within a few weeks we may see the
lowest rates since its creation in 1694.
Some cavil that this monetary adventure is not "working". True, but
nothing can work. All central banks can do is limit damage. Imagine
what would have happened if the Fed and the Old Lady had sat on their
hands as the credit lifeblood of the economy drained away.
The transmission mechanism of monetary policy has broken down even
more swiftly and violently than it did in the early 1930s. The juice
is not getting through. Or, to borrow a phrase from that erstwhile
monetarist John Maynard Keynes, central banks are pushing upwards on
a dangling string.
Hence the IMF has ditched half a century of fiscal orthodoxy and
called for a global spending blitz equal to two per cent of world
output, or $1.25 trillion. We are all Keynesians now. There are no
atheists in a foxhole, and no ideologues in a liquidity trap.
Iceland, Pakistan, Ukraine, Hungary, Belarus, Serbia and Latvia are
in the arms of the IMF, and a long list of countries are near tipping
point. Argentina has reverted to Peronist type, seizing the private
pension system.
The benign global order of the post-Cold War - what Francis Fukuyama
claimed was a triumph of liberal moderation - is fraying fast. We
have lost Russia, where the interior ministry is already mobilising
"anti-crisis units" to stem unrest, and journalists face prosecution
for reporting economic news.
In China, rioters have run amok in Longnan, torching a section of the
city in hand-to-hand street fights with the police. Yin Weimin, the
human resources minister, warns that the coming tsunami of job losses
poses a serious threat to China's social stability. Beijing is taking
no risks. It is spending a colossal 14 per cent of GDP on a fiscal
rescue plan. Japan is letting rip, too, and even Germany has woken
from its trance.
This is now official world policy, nota bene. The G20 bloc of leading
states signed off on plans for a universal fiscal boost at the
Washington summit. Quite right, too. The lesson of the 1930s is that
countries trying to reflate alone are punished by capital outflows,
forcing them to retrench.
Then, the crisis ricocheted from state to state until all were
reduced to the lowest denominator of destructive madness - at least
until they retreated into autarky (Germany) or Imperial Preference
(Britain). We all hang together or hang separately once debt
deflation has taken hold.
If you look at the world through this prism, Gordon Brown ought to be
cutting taxes (especially for the poor) and ramping up spending in
his pre-Budget report. To do otherwise would be remiss. Britain is
bound by a gentleman's agreement. [Eh? -cs] Besides, the British
economy is quite obviously in free-fall.
Heavens knows how the Cameron-Osborne team manoeuvred themselves into
a mistimed policy of belt-tightening with all this going on. They
have revealed a lack of feel for the deeper currents of world affairs.
Was Lord Mandelson wrong in rebuking George Osborne for "reckless and
irresponsible" behaviour in talking up a sterling crisis?
The fall in the pound has nothing to do with the Prime Minister's
fiscal plan. It is the result of drastic rate cuts by the Bank of
England, and the dawning reality that we are about to suffer the
mother of all slumps. In any case, a weak pound is a godsend. It
shields us against incipient deflation and serves as a pressure
valve. [Imported goods go up in price - Sony's by 33% already! -cs]
Let it never be forgotten that Gordon Brown is the architect of our
particularly British debacle. It was he who ran a budget deficit of
three per cent of GDP at the top of the economic cycle, when we
should have been in surplus like Australia, Canada, Germany, Holland
and Spain. We start this slump disarmed. Our budget deficit may soon
balloon to £120bn. This, at nine per cent of GDP, is banana-land. As
the watchdog Fitch Ratings warns, the national debt is rocketing at
the fastest pace of any major country. It will hit the Maastricht
ceiling of 60 per cent of GDP within two years.
The great roll-back of public debt under Margaret Thatcher and John
Major has been squandered. The "fiscal cost" of the bank bail-outs
will alone reach seven per cent of GDP. So we can cheer Mr Osborne
for landing some blows. "My job as shadow chancellor is to tell the
British people the truth about the British economy. The truth is that
it is the worst prepared economy in the world for recession. The
truth is that we have got the highest levels of personal debt in the
world."
Bravo, but this is not in itself a policy for a country facing 1930s
levels of economic contraction next year - whether minus two per
cent, or even minus three per cent as some fear. Would the Tories
really pursue a Neanderthal policy of deliberate job wastage, if in
office? [This completely misrepresents Tory policy. Any spending
cuts they suggest will prove neutral. Personally I cannot
understand why they do not propose cuting ID cards altogether thus
saving over a year or two £12bn alone. The joy of this is that it
does not harm jobs! -cs]
The Labour debt legacy is a mess we will have to clear up later - and
for years to come - not now. A fiscal squeeze in this crisis would be
self-defeating. [NOBODY suggests such a thing -cs] Tax revenues
would collapse. Public debt might rise almost as fast anyway.
The Tories will have to extract themselves as gracefully as they can
from their silly campaign before it is too late. [They never
suggested that in the first place so they can't! A.E-P has been
reading Labour press handouts -cs] George Osborne is an honourable,
brave and gifted man. He may prove a fine chancellor. But something
has gone badly awry in the policy kitchens of Central Office.
==================
Extracts from one of my least favourite jounalists follow. He is
very narrowly focussed on the political infighting
2. Tomorrow sees the opening battle of the next election
By Matthew d'Ancona
(- - - - - - - - - - - - - - -)
Tomorrow's pre-Budget report will be an awesome test of the
cleverness of Labour and Conservatives alike. As Alistair Darling
empties his early Christmas sackful of fiscal goodies, and George
Osborne responds with dire warnings of the price we will all pay for
the Government's reckless borrowing, the two politicians will commit
their respective parties starkly and irreversibly to the competing
narratives that will shape the next general election. Posing as
statisticians and men of finance, Darling and Osborne will, in fact,
be launching two dramatically different campaigns.
The Conservative dilemma is acute. As David Cameron's immediate
predecessors discovered, it is always hard for an Opposition to
compete with a government bonanza, however artificial. The national
minimum wage introduced by Tony Blair in 1999 was a regulation not a
gift: it was business that had to foot the bill. Yet the measure had
the aura of political munificence, as if New Labour were giving the
nation a huge present.
One senior Cameroon describes tomorrow's PBR as the "moment of
maximum difficulty", and rightly so. Mr Darling will promise spending
hikes and tax cuts, while Mr Osborne will refuse to match any
measures that would jeopardise his iron commitment to fiscal
conservatism, balanced books and "stability". He and David Cameron
know perfectly well how awkward their position will be as a Labour
Chancellor looks at them across the Despatch Box and pledges both to
increase spending and to let the voters keep more of their earnings.
Labour will posture as the party of Yuletide bounty, putting cash in
the punters' pockets on the very eve of the festive season. The
Tories will sit, grim-faced, aware that they have just become the
Official Scrooge Party: "Keynesian giveways? Bah! Humbug!"
(- - - - - - - - - - - - - - - -)
The Tory task, to borrow from Life of Brian, is to prove that Gordon
is not the messiah: he's a very naughty boy. The poster unveiled by
the party this weekend, depicting a Christmas present as a "tax
bombshell", imports the slogan that helped win the 1992 election to a
very different context, 16 years on. The message is that the
beautifully wrapped Nintendo Wii and Blu-ray Player under the tree,
labelled "Happy Christmas from Gordon and Alistair", have been paid
for using our own credit card details and that the bill will soon be
arriving in the form of unmanageable public debt and crippling tax
rises.
(- - - - - - - - - - - - - - - -)
The Cameron-Osborne strategy now depends upon their capacity to make
government recklessness and the scale of public debt no less salient
an issue for British voters than it was for their US counterparts in
1992. They must hammer home the cost of that borrowing to every
household, making the abstractions of meaninglessly huge statistics
real and comprehensible to the average voter: debt that - according
to the policy institute Reform - would wipe out more than a quarter
of families' disposable income.
(- - - - - - - - - - - - - - - -)
The Tories are rattled by the fresh round of election chatter, but
still believe, on balance, that Brown will play it long. According to
one senior Shadow Cabinet member the best Gordon could hope for by
going to the country early is to lead a minority government: "And
he'd look pretty foolish doing that in the middle of a recession."
Maybe - who, after all, wants to go to bed with Tony Blair's
parliamentary strength and wake up with Jim Callaghan's? But the more
powerful factor in Brown's reckoning will be his adamantine faith in
his own "long-term decisions" and his belief that, with time, ever
more voters will be rescued from their false consciousness and
realise that they do, in fact, love Big Brother. Why interrupt this
Great National Awakening by going to the country on (say) June 4, 2009?
The Tories, meanwhile, hope that there will be public awakening of a
different sort. Yes, tomorrow will be hard pounding for them, as
Brown and Darling roll up their sleeves and manfully pull the levers
of the Heath Robinson machine that is government. Cameron and Osborne
know that their obstinacy this week will be widely interpreted as
inaction. Their hope is that, as the huge cost and general impotence
of the Brown-Darling fiscal strategy become manifest, what is
perceived as Tory inaction will come to be seen as resolve and
consistency. Wait a year, the Cameroons say: let's see how macho and
impressive Gordon's fiscal stimuli look then.
Be in no doubt: Osborne is taking a huge gamble. (- - - - - - - - - -
- - - - - -) He has thought this through, made a decision and will
live by the consequences. To return to the construction used by the
character in David Hare's play, it may well be that, tomorrow, the
Government appears to be doing good by being clever. But every time
you read the words "giveaway", "bonanza" and "much-needed cash
injection" this week, remember that this is not the final act in this
particular political drama. Public confidence in Gordon could yet
turn to collective doubt of the sharpest sort: (- - - - - - )
--------------------------------
Matthew d'Ancona is editor of The Spectator
==================
3. LETTER TO EDITOR
From Adam Smith Institute
Darling should rectify tax injustices
The Chancellor has the opportunity tomorrow not only to give the
stimulus the economy needs in the current recession, but at the same
time to right some of the injustices of our tax system.
Real disposable incomes have declined, hitting those at the bottom
the hardest. It seems unjust that those earning half the minimum wage
should be paying income tax. We propose a viable way to rectify this:
raising the starting threshold immediately to £12,000. This would
take it to roughly the minimum wage, approaching half the average wage.
This would release huge spending power, making the average household
£100 better off per month, and making work more worthwhile and more
rewarding for the low paid.
To do this would cost (on a static model) £18.9 billion, but this can
be done through savings rather than by further borrowing. If
departments kept within existing budgets that would save £14 billion;
abolition of the ID card scheme would save £12 billion. There is no
shortage of potential saving to finance a threshold hike.
On the plus side, too, there would be less need for complex tax
credits, together with the economic growth achieved by such a boost
in spending power. A threshold increase to £12,000 would be both
effective and just. Mr Darling should seize the opportunity.
Dr Madsen Pirie, Adam Smith Institute, London SW1
========================
CONSERVATIVE HOME Blog 23.11.08
David Cameron: The only uncertainty about a VAT cut is that we'll add
£12bn to the national debt
Key messages from David Cameron's interview on Andrew Marr's Sunday
morning programme (not verbatim):
It is not true that the Conservatives are inactive in the face of
recession: We are proposing a two year freeze in council tax, a VAT
holiday for all small businesses, a 1% NI cut for very small
businesses and a £2.6bn aggressive incentive to encourage businesses
to recruit the unemployed.
Government borrowing is massive: People will be shocked when they see
that borrowing is going to be £80bn to £100bn. Labour's borrowing
bombshell will become a tax bombshell.
Brown's stimulus may not work: As the Chairman of the European
Central Bank warned, the stimulus may not work at all if people know
that tax rises are going to quickly follow temporary tax cuts.
Labour's likely VAT cut: The Conservative Party will make a decision
on how to respond when we've seen the detail of what the Government
proposes but the only uncertainty about a VAT cut is that we'll add
£12bn to the national debt.
The Tories are telling the truth: Unlike Labour there's no blather.
We are telling the British people the truth and you can't borrow
yourself out of a borrowing crisis. We are telling the people the
truth that we can't carry on with Labour's spending plans.
This is a monetary crisis needing a monetary response: Interest rates
need to be cut further and government action on fiscal policy must
not endanger the Bank of England's freedom to reduce those rates.
Bank lending to business: It's no good shouting at the banks. There's
a complacency from Peter Mandelson and the Government on this issue.
The Conservatives are open to offering insurance for new loans from
banks to businesses.
George Osborne is a very good Shadow Chancellor: And he'll make a
very good Chancellor. I meet a wide range of people. I've met all
former Tory Chancellors. They all tell me the same thing; that
Britain is over-borrowed.
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