Britannia Radio

11 June 2011 11:55 PM

Britain's economic future: there will be trouble ahead

'It is later than you think'

- WH Auden; Consider; 1930

THIS is just a short PS to my column in today's edition of The Mail on Sunday, in which I suggest that the major economic problems of the next ten years are barely on the public's radar, yet are very much with us already.

Thus what is keeping them from general view is a sleepy consensus that they do not much matter.

I mention inflation (which is, apparently, always down to temporary factors), tax (we seem to be paying Scandinavian levels of tax for American standards of public services) and the booming red-tape industry, among others.

But perhaps the biggest problem is...us. 'Our people are our greatest asset,' proclaims many a dreary company mission statement. Ministers round the world say much the same thing about their country's populations. But suppose, in Britain's case, our people - us - are our greatest liability?

It is not that Britain's workforce is, from the kick-off, necessarily worse than that of any other country. But if its members are encouraged to believe that their academic qualifications are as good as they appear, to view their 'work-life balance' as of primary importance and to believe, in general, that it is the employer's job to arrange his affairs round the needs of the employee, rather than the other way about, then you have to wonder who is going to want to take anybody on.

'Employers must employ', ran a particularly fatuous trade-union slogan in the early Seventies. No, they mustn't, actually. Not if they don't wish to. At least not in Britain.

We have allowed our real economic weaknesses to pile up for too long. Time for action is running out.

Thanks for reading and enjoy the rest of the weekend.

The Gods that Failed: How the financial elite have gambled away our future, by Larry Elliott and Dan Atkinson, is published by Vintage (£7.99)

04 June 2011 11:00 PM

The silent default: don't round up the usual suspects

'How to broach this subject?' Renault waved his cigarette in the air. 'Rick, has it ever occurred to you to question any aspect of Laszlo's story?'

'Many times,' answered Rick. 'Ilsa's, too.'

Michael Walsh; As Time Goes By; Warner Books; 1998

TO start where my column in today's edition of The Mail on Sunday ended, where have all the cynics gone?

I was referring to those legendarily un-kiddable, seen-it-all-before operators in the City and beyond who (supposedly) subject the motives and statements of all counterparties in the marketplace to the most searching - nay, scorching - scrutiny.

Especially when those counterparties are governments or government agencies.

Such tough mindedness is in short supply just now, I suggested. The evidence? Here it is.

British inflation has been above target since December 2009 and shows no sign of coming back anywhere near target in the near future. When the occasional surviving cynic suggests this may be a deliberate policy on the part of the authorities to float away a lot of the Government's staggering debts on a gentle wave of inflation, said cynic is told that, were markets even to suspect this to be the case, punishment would be swift.

There would be a big sell-off in the gilt market and sterling would plunge.

Right. Um, so...why no suspicions? Ah, you will be told. The fact that gilt yields are so low and sterling so (reasonably) stable is proof positive that no-one does harbour any such suspicions, thus there cannot be any good reason for any such suspicion, thus everything is fine.

Sounds a somewhat circular argument to me, a new version of that efficient-market theory that got us into so much trouble during the long countdown to August 2007.

Similarly, we hear that there can be few suspicions regarding the £200 billion money-creation programme, quantitative easing, being run by the Bank of England. Theoretically, of course, the authorities could be printing vast amounts of money and then buying government bonds with said cash. Indeed, that is what they are in fact doing.

But it is not, we are told, a question of getting the government's bonds away on a tide of funny-money. No, no. Two reasons are given why this is so.

First, the Bank does not buy new gilts directly from the Treasury. It buys existing ones from private-sector holders. Mm. So if you take old gilts off the market you don't create any demand for new ones, is that the theory? And if private holders know the Bank will take new gilts off their hands five minutes after purchase, that in no way pumps up the demand for gilts? Right.

Second, were there to be the faintest suspicion in the markets that any such funny business was going on...see above for the 'fact' that the omniscient market knows all is well.

I am not saying the basest motives should always be assumed of the authorities. But a little suspicion would not go amiss. By citing their lack of suspicion as evidence that there is no need to be suspicious, the City types are, when you think about it, being remarkably arrogant.

So some things haven't changed.

Thanks for reading and enjoy the rest of the weekend.

The Gods that failed: How the financial elite have gambled away our future, by Larry Elliott and Dan Atkinson, is published by Vintage (£7.99)