A failed policy

Martin Weale's commentary on the economic policy framework in the last National Institute Economic Review is well worth reading. He starts by stating bluntly that, 'It is abundantly clear from the chaos of the past few weeks that [the 1997 policy framework] has failed.'

Weale is, of course, suddenly back in fashion because his Cassandra like prophecies of doom entitle him to say 'I told you so', particularly in relation to the National Institute's forecasts which are more pessimistic than those of the Treasury.

He does qualify this by saying that the monetary arm of the framework has been its most successful component. But this is now being politicised with strong hints from the Chancellor to the Bank to cut interest rates sooner rather than later. The inflation objective thus effectively disappears, whilst cutting rates will do little for demand when there is so little liquidity and the base rates and mortgage rates have increasingly become decoupled. As Weale notes, the belief that interest rate changes can play a major role in easing the current crisis is probably mistaken.

Some of his main criticisms are:
1. The regulatory framework for the financial services sector. In particular the FSA was not equipped to prevent or at least dampen asset bubbles. Regulation of the financial sector was not regarded as a macroeconomic issue, but was given an equivalent importance to the regulation of utilities or commercial television.
2. The Treasury's method for measuring the economic cycle, 'giving rise to an inevitable perception that it was subject to political manipulation' to ensure that the fiscal rule could be met.
3. The treatment of the surge in tax revenues around 2000 as a permanent increase in revenue rather than a temporary or poorly explained surge. This led to fiscal policy errors.

He forecasts a current account deficit of 3.7 per cent of GDP in 2010 with a national debt as a proportion of 55 per cent by 2010. In other words, any new government would inherit a poisoned chalice. As Weale points out, a shift to a budget surplus is needed, but explaining that to a public which has been used to deficits is going to be difficult.

Weale anticipates that the UK will be the most affected of the advanced countries by the recession as it has very high private sector debt levels and a large financial sector. However, he expects a recession similar to that of 1990-92 rather than 1920-22 or 1929-32.

John Major was able to ride that out politically, but he was a relatively new face, whilst Gordon Brown was Chancellor and hence directly involved in the policy errors that were made. Of course, everyone makes mistakes, but some have more serious consequences than others.

I will deal with Weale's remedies, which I find less convincing than his analysis, in a subsequent post.

Further warning from Bank

After a comment by the Bank's deputy governor that this was possibly the worst financial crisis for a hundred years, the Bank has delivered a gloomy half year financial report this morning: Bank

It talks of significant risks remaining for the banking system, but also of concerns about the health of insurers and hedge funds.

In the event of a further crisis, there might be calls for a Government of National Unity, but this didn't work all that well in the 1930s and partisan tensions are probably even worse now.

Drawing a line under things

All of us make mistakes and it's nice when politicians admit that they have. George Osborne was right to draw a line under the Queen K affair by doing just that. Media attention may now switch again to Mandy, fortunately in Moscow at present. Sadly, once again, he has been shown to have been economical with the actualité.

The problem for the Conservatives with this relatively minor squall was that it allowed generally sympathetic papers like the Sunday Times to dig out their old stories and photos about the Bullingdon club. Chaps from fee paying schools in white (and blue?!) tie; swilling champagne; rolling a chap down a hill in a portaloo after more champagne at 'brekkers' etc. etc. It all creates an image of the idle rich which is not helpful when many people are financially stretched.

The class obsessed inverted snobbery that John Prescott displayed on television is just as bad. The best moment came when one of three young women from Lewisham asked 'Who is Gordon Brown?' when asked for her opinion of him. All these young women, who were insistent that they should not be labelled as 'chavs' were evidently NEETs (not in employment, education or training). Which shows once again that in labour market policy, as in any other policy, implementation is everything.

Urbis et orbe

The Mais lecture is often used to signal important changes in economic policy: in 1984 Nigel Lawson used it to turn the traditional distinction between macroeconomic policy and microeconomic policy on its head.

Alastair Darling's lecture has been delayed by events but it will take place at City University on Wednesday. The intention is to try and halt the slide in sterling by emphasising that the Government is serious about slowing down public spending.

All well and good, but one can't invoke a new sainthood for Keynes as the Chancellor did last week (aided by noises off by his biographer Robert Skidlesky) and at the same time proclaim that public spending is to be brought under control. Of course, the Government is making plans for an early sale of bank shares, but the stock market will have to recover first. At the moment we have panic all round.

The question with any public expenditure cuts is 'where?' and the answer is usually 'misery all round'. Except that one can't (Philip Snowden notwithstanding) cut benefits and public sector salaries without upsetting a large bloc of voters. It is simply not a politically viable option. And it's not easy to touch primary and secondary education, health, law and order and defence.

It will be interesting to see whether the Chancellor's speech has any specifics about where falling tax revenues might be offset.

The Established Church

When the Political Studies Association was drafting its reponse to the rather flabby Green Paper on Governance produced by the Brown Government in its early days in office, I was given the task of drafting the section on the Church of England (because no one else would). Around two pages of the Green Paper were devoted to this subject, some of it on very obscure topics like the 'Royal Peculiars' (which admittedly are of special interest to head of state, Her Majesty the Queen). You can link to the document called 'Failed Politics' here: PSA

What quickly became apparent to me was that few political scientists had views on this question, but those that did have views held strong ones and I had quite a difficult task in coming up with an acceptable form of words that did not offend.

Now controversial minister Phil Woolas, having stirred up the immigration pot, has suggested that disestablishment of the state church is inevitable. His infuriated boss at the Home Office banned him from appearing on Any Questions. The last thing the Government wants is a row about disestablishment.

There are, of course, those in the Church of England that favour disestablishment. The Church itself is increasingly divided over a wide range of issues, not least those relating to gay priests and the whole Anglican Communion is splitting apart.

The Church of England has always been divided between 'bells and smells' High Church Anglicans whose only quarrel with Roman Catholics sometimes appears to be that the Pope is not English and at least two other tendencies. With the arrival of women priests, increasing numbers of the Anglo Catholics have 'gone over' to the Roman Catholic church (the English Church purports to be 'Catholic' in the sense of universal). At the other end of the spectrum are the Evangelicals who (in some versions) emphasise the literal truth of the Bible and believe in services which involve a great deal of audience participation, even 'speaking in tongues'.

This leaves a narrowing middle ground for 'broad church' Anglicans who attach importance to the nature of the Elizabethan post-Reformation settlement, particularly in relation to the doctrine of transubstantiation. Such broad church Anglicans are also often 'liberals' on women and gay priests and in their interpretations of doctrine, especially on the Resurrection.

A widely held, and understandable, view is that in a multi-faith society an Established church is at best an irrelevance and at worst an obstacle to harmonious community and inter-faith relations. On the other side, The Times produced the following arguments in favour of Establishment (which were duly attacked by a libertarian in Saturday's paper):

— The presence of a parish priest for every community [the parish church is of importance in rural communities, although many have been closed]

— The right of all, unless there is a separate legal inhibition, to be married, baptised or given a funeral at their parish church [I have a personal interest in the last offer]

— The Church’s central role in helping the nation to mark important events, such as royal weddings [of course some would see them as unimportant]

— The role of the Church as an education provider through church schools [from which I benefitted, as all my grandchildren now do - the standard of these schools is especially high and I know that it was good for my intellectual development to face complex theological questions at the age of seven/eight]

— The public enactment of church legislation. The laws of the Church are part of the laws of England – measures passed by General Synod also need to be passed by Parliament – and therefore the Church’s courts are part of the English legal system

— The role of the Sovereign as supreme governor of the Church [but the Prince of Wales would like to represent 'all the faiths' as and when he becomes monarch]

— The role of the Crown in appointing bishops and other senior clergy [but likely to change]

— The presence of bishops in the House of Lords – they are not there to protect self-interest but to represent communities in a non-party-political way [but, of course, there is pressure to reform the second chamber]

The depth of the recession

The 0.5 fall in output reported last week was more than most analysts expected and it is evident that the recession is going to be quite long (I would think at least 18 months) and relatively deep. With the fall in share prices, the problems of the banks are not entirely sorted out as they are finding it difficult to raise capital on the markets. This may be a particular problem for Barclays who understandably eschewed government aid.

As the public come to perceive the banks as 'publicly owned', they may expect government to intervene on all sorts of issues from customer service to repossessions. This is going to cause a real mess as the old model of nationalisation never worked as far as accountability was concerned and we don't have a new one. What the Government should say is that they have no responsibility for day-to-day commercial decisions, but that is politically costly as far as repossessions are concerned.

The fate of small business is becoming something of a political battleground between Labour and the Conservatives. I have a personal interest as one of my children and her husband run a small manufacturing/service business and they are in the process of moving into new premises. (See Signs ) They say that it is quieter than usual, but orders have by no means dried up and they seem to be getting more interest from abroad as the pound falls (although that will push up the cost of the out sourcing they do in China). On the subject of China, controversial columnist Will Hutton has something to say in The Observer this morning. In my view it borders on the insulting, but you can read it yourself here: Hutton

As far as small businesses are concerned, the Conservatives favour tax breaks or deferment, Labour subsidies. Tax breaks really are a form of subsidy but they are perceived differently. Tax concessions give more autonomy to the small business person to decide how to use the money, but it may end up in their pocket. Subsidies, however, may not achieve the required objective and then there is the 'additionality' problem.

This means that you are paying people to do things they would have done anyway. For example, supposing a small firm was trying to train someone up to become a manager and wanted to send them on some courses with their chamber of commerce. As I understand it, even very small firms can now get these paid (or largely paid for) under the Government's 'train to gain' scheme. In other words, taxpayers are paying for something that would have happened anyway.

What is clear is that all this borrowing and spending to boost the economy will end up with a bill which could amount to the equivalent of 2.5p on income tax for ten years. If Dave Cameron wins the next election, as still seems likely, it could be a poisoned chalice.

Sterling slump poses challenges

Sterling started falling on Tuesday night and it continued falling yesterday closing at $1.62 or 4 per cent down on the day. On Monday it was worth $1.75. In a recession, there is nothing unusual about a flight to the global reserve currency, the dollar.

However, it does pose policy dilemmas for the UK Government. Given that the pound is also low against the euro, imports will cost more and this will have an inflationary effect. This reduces the chances of inflation falling to offset the rise in unemployment in the misery index.

It is still likely that interest rates will experience another 0.5 per cent cut, but there are limits to the extent to which interest rate cuts can offset a recession as Japan found out (rates are still only 0.5 per cent there). If rates fall too much, savers - another important political constituency - will be hit hard. They may stop lending money to building societies and banks - although they are then left with the question of who to hire their money out to, given that National Savings rates have already been cut back.

No country can insulate itself from a global recession, but political reactions can differ.

The George Osborne affair

Gordon Brown is trying to up the ante on this by calling for an enquiry, but I can't see this having any great lasting impact. Clearly, though it is embarrassing for the Conservatives in terms of their ability to communicate their concern for the problems of those on relatively low incomes. It is also doesn't help Osborne's reputation much which has suffered somewhat during the financial crisis with rumours of a return for John Redwood to the front benches.

Osborne seems to have upset Mandy by breaking the code of 'omerta' which covers these occasions and Nat Rothschild is also upset. Never mess with a Rothschild.

The report in the Financial Times verges on the sensational for the pink 'un. The Russian oligarch's yacht is described as 'something straight out of a James Bond film, complete with deep-pile carpet, uniformed crew and speedboats.' Oxford University's Bullingdon Club, of which Mr Osborne and Mr Rothschild were members, along with Dave Cameron, is described as 'an elitist society whose members like to disport black tie and a condescending sneer.' It is also described as a society 'known for its drunken hellraising' which could apply to student activities at the most unfashionable of universities.

The FT speculates that Nat Rothschild was angry on behalf of his friend Oleg Deripaska over Dave Cameron's anti-Russia stance during the Georgia conflict during this summer, when the Tory leader proposed withdrawing British visas from oligarchs.

Mandy backs postal privatisation

Everyone has been talking about a new era of nationalisation, but now business secretary Peter Mandelson has indicated that he may back partial privatisation of Royal Mail. The operator's dire financial situation is producing increasing pressure for part privatisation.

Lord Mandelson said his 1998 proposal to allow private sector stakes in the state-owned postal operator would have become law if he had kept his post as trade and industry secretary. A report from the Hooper review of postal services is imminent and may give Lord Mandelson the basis he needs to act. The review is expected to express doubts about Royal Mail's ability to continue offering a 'universal' one-price-goes-everywhere service to every address in the UK, without further multi-billion pound injections of capital.

Public ownership of Royal Mail is a fundamental commitment for many unions and backbenchers. The Communication Workers' Union has threatened to cut off funding to Labour if Royal Mail does not remain in public ownership. About half the Parliamentary Labour party signed an early day motion in 2005 demanding the government continue to own all shares in the operator. Labour's 2005 manifesto declared that there were no plans for privatisation.

Tory Poll Lead Shrinks

He's smiling - for now

The latest YouGov survey for the Daily Mirror shows that Labour has narrowed the Conservative lead to eight points. This would still be more than enough for Dave Cameron to have a working majority, but it is a long time since the Conservative lead has been down to single figures. A ComRes poll for the Independent on Sunday gives a similar Labour lead of 9 per cent. During the summer the Conservative lead reached 23 points, although such a lead was unsustainable.

These figures do suggest that Labour has gained some traction during the economic crisis, although that may not persist as the recession deepens. As Gordon Brown himself said recently, one hour is a long time in politics.

Brown got a big thumbs up from the elctorate for his handling of the financial turmoil, 62 per cent saying that he had done well compared to 34 per cent who said he had done badly. Some 40 per cent backed him and Alastair Darling to handle the economy as against 28 per cent who preferred David Cameron and George Osborne.

These latest figures do present Dave Cameron with some tactical challenges. If he overdoes the attacks on the Government, it will look as if he is carping. Personally, I dislike the 'broken economy' phrase as much as the 'broken society'. An American politician would never describe his country in those terms. But perhaps the fact that British politicians can is a good thing.

Turning on the spending tap

The Treasury is trying to boost public spending, a difficult task to say the least given the UK's fiscal condition. One risk in the present situation is that the Government will start printing money, leading to an inflationary spiral.

However, the Treasury does have one trick up its sleeve which was revealed in the somewhat obscure Public Expenditure Outturn White Paper published in July. When Gordon Brown was Chancellor, rules were changed to stop the mad rush to spend any money that was left in departmental budgets at the end of the financial year. They were allowed to carry on capital spending without penalty to the following year.

This year the Treasury sliced £4bn from the amount that departments wre allowed to carry forward, particularly from the Department of Health budget. That money is now available to be pumped into the economy.

However, the latest higher than expected increase in the unemployment figures show that the recession is effectively under way. Just how high unemployment will go no one knows, but 2.5 million by the end of 2009 is not unrealistic.

Of course, not everyone suffers equally in recessions. Sales of knitting patterns at Sirdar are now running 4 per cent over budget and 6 per cent above last year as the thrifty hobby enjoys a revival. Sales of vegetable seeds are up and do-it-yourself stores might benefit as people seek to save money on home improvement projects.

Small businesses are always under threat in a downturn, but the small business run by one of my children is moving into new premises. Although things are perhaps a little bit quieter than usual, business is holding up well and enquiries are coming
in from potentially new customers.

Of course, it's the aggregate picture that matters and the Government will certainly be trying to keep house repossessions down to tolerable levels. Those who suffered personal hardship under the Major Government were, unsurprisingly, particularly likely to move their vote away from them in 1997.

'Light touch' regulation

Adair Turner, the new supremo at the Financial Services Authority, has promised that things will get better after a period when the FSA did not seem to have its eye on the ball or even know what was going on on the pitch. More staff will be hired and they will be paid more. Of course, the challenge is to pay them enough so that they don't go off and work as compliance officers for the banks which is what has happened in the past.

The regulatory state can impose high transaction costs and stifle initiative. As the originator of the term, Mick Moran, has recognised, it can pose a threat to individual liberty. Mick originally saw it as a positive, modernising tendency, but his recent work has acknowledged the downsides.

However, the case for financial services regulation is very strong. As Polanyi pointed out in 1944, money is not a normal commodity, but a fictitious one: 'the market administration of purchasing power would periodically liquidate business enterprise, for shortages and surfeits of money would provide as disastrous to business as floods and droughts in primitive society.'

Letting banks close in the United States in the 1930s rather than intervening with a properly designed policy instrument (which Milton Friedman accepted should have been done) led to a 30 per cent loss in GDP.

The world turned upside down

One reason for quoting this (British) civil war song (which was probably not played when the British surrendered to the Americans at Yorktown) is the way at which established paradigms are being replaced by discarded paradigms.

Keynes and Keynesianism is a case in point. See this piece by my former colleague Robert Skidelsky (Lord Skidelsky of Tilton):
Keynes

Of course, Keynes wrote so much that you can probably find a quote to justify anything. Robert Skidelsky's three volume biography emphasised his monetarist leanings.

He did, however, advocate a fiscal stimulus for a faltering economy and there are siren voices calling for that, presumably to be funded by borrowing more money. Lessons learned are quickly forgotten: Keynesianism ended in tears with high inflation, high unemployment and low growth: 'stagflation'. The misery index (unemployment + inflation) shot up.

Once again, we have to be careful what we wish for.

You couldn't make it up

A model for 'this bank is now managed by Royal Bank of Scotland on behalf of the people?'

It now appears that the public spending watchdog, the Audit Commission, has placed millions of pounds in Icelandic bank accounts. The story has not been confirmed, but they have refused to deny it. Today's joke in the civil service is that they should send in a 'crack taskforce' to sort out the commission which was set up to promote 'value for money' for taxpayers.

Meanwhile, the taxpayers are losing their heads as well. Maybe it was meant as a joke, but a letter in The Times yesterday said, 'Now that the UK banking system is owned by the people, perhaps it can finally serve the people ... I want a return to traditional banking standards.' A friend of me who does charitable work trying to sort out the considerable problems caused by the tax system for the elderly, pointed out that H M Revenue and Customs is owned by the people.

Some of us can remember the notice boards put up outside National Coal Board pits after nationalisation declaring that the pit was now managed by the National Coal Board on behalf of the people. The history of nationalisation in the UK was not a happy one. It's a sobering thought that Sweden still has publicly owned banks 17 years after they were nationalised in the last recession.

The government share ownership is, of course, supposed to be temporary and perhaps the shares can eventually be disposed of at a profit. For the moment no one, particularly mutual funds focused on income, wants to hold bank shares because there will be no dividends (even Barclays which remains wholly private has said that it will not pay a dividend next time round).

Anne Crossman

An interesting obituary of the widow of Cabinet minister Richard Crossman is here: Crossman

I was never a great fan of Richard Crossman, but paradoxically I am the person who has to make decisions about access to his papers, including the Crossman diaries which caused such a storm when he attempted to publish them. These were the days before freedom of information was really accepted to the still limited extent that it is today. I think that one of his greatest legacies is the posthumous contribution that he made to this debate and it was here that the determination of his widow to see the diaries published was so important.

I would like to pay tribute to the way that Anne Crossman helped us at the Modern Records Centre at Warwick with the Crossman archive. Link to the Archive collection here: Crossman

John Biffen, who was a very cerebal Conservative, contested Crossman's safe seat at Coventry at an early stage of his political career. The slogan the local Conservatives came up with was 'Vote for Biffen - not an intellectual.'

I am also told that in the early days of Warwick University Crossman as a Cabinet minister, at a time when Labour was unpopular with many students because of the Vietnam War, would come and talk in a very relaxed and informal way to students in the 'Airport Lounge.'

The Icelandic saga

Britain has been obliged to lend Iceland £100m to help it unthaw its banking system which, in the circumstances, is an appropriate step. However, local authorities continue to demand help from the Government and are threatening not to hand their business rates over.

Let's consider some simple facts:
1. I wouldn't have put my money anywhere near Iceland. All one had to do to learn about the problems was to read the Financial Times which is available in any newsagent.
2. If you don't believe the pink 'un, then read what the IMF said in July, especially the second paragraph: Iceland
3. Brighton and Hove Council saw the amber light and pulled their money out.
4. Local authorities are trying to blame their professional advisers. Perhaps they have a case against them?

The taxpayer is being asked to bail out local authorities who made bad decisions. Someone should be held to account.

The return of the government director?

As the UK Government prepares to take majority shareholdings in two banks, the question arises, will we see a return of the Government director? When the Government had a substantial shareholding in BP, there were two government directors who came from the Treasury. However, the convention was that they never contributed to meetings.

One suspects that this time round the government director will not be a civil servant and will not remain silent.

The knock on the door, part 2

We have referred before to the risk that a voter might open the door and find Harriet Harman there. More seriously, recent research does suggest that if electors are asked in person for their vote, it does affect their propensity to vote.

On Saturday lunchtime, there was a ring on our doorbell and a representative of the Conservative Party was there. Until 1997 Warwick and Leamington (Leamingtonians call Warwick 'West Leamington') was a rock solid Conservative constituency, held for a long time by 'Major' Eden as older people always referred to him. The Garden of Eden was eventually inherited by Dudley Smith, who became a junior minister, but was not perceived as the most assiduous of constituency MPs.

In 1997 former political scientist James Plaskitt won the seat for Labour. He held it with a reduced majority in 2001 and scraped home in 2005 by a few hundred votes. Until recently he was parliamentary under-secretary ('pussy') for Work and Pensions, but is now waiting to fill some mysterious new job which requires prior approval from Parliament. A complicating factor is that since then there has been some redistricting which should, all other things being equal, help Labour. However, if Dave Cameron wins a majority, he is likely to win Warwick and Leamington.

The new Conservative MP will be Chris White who was defeated in 2005. I have met him a couple of time and once had a long talk with him. For those who are cynical about politicians, it should be noted that he has made considerable career and personal sacrifices to stand for Parliament. He seems a thoughtful individual and I am sure he will be a good constituency MP like James Plaskitt has been.

The problem was, what to tell the canvasser, given that I try to steer clear of partisan politics. 'Will you support us in the general election?' he asked my wife. 'The election is too far away to decide,' was my wife's reply 'and I am sure my husband feels the same way.' This was evidently an answer he had not received before, as he seemed to be nonplussed. At least he was prepared to call.

Meltdown

The world financial system is teetering on the 'brink of systemic meltdown', Dominique Strauss-Kahn, the head of the International Monetary Fund (IMF) has warned in Washington. The usefulness of the IMF has declined in recent times, with Turkey its only major creditor, but now it is ready to lend to countries in difficulties, not least Iceland. IMF staff are rumoured to be already there, just as they came to London in the famous crisis of 1976.

Britain does seem to be making some headway in its talks with Reykjavik. The people of Iceland are not known for their ready smiles, but Icelandic civil servants looked particularly grim faced as they faced their British colleagues across the table in what looked like an understandably tense meeting.

According to a report I have just heard on Radio Scilly Iceland's prime minister intends to sue Gordon Brown over the use of anti-terrorist legislation to seize Icelandic assets in Britain. I am not a lawyer, but I think that the legislation is broadly written and could be applied in this case. As a political weapon it was one of the few that Britain had available for use against the wily Icelanders. Whether it was morally justifiable is a matter for debate.

However, it does seem that personal depositors will get their money back - eventually. In the meantime the fact that people cannot get access to their accounts is gumming up the housing market even more as Icesave accounts had been used to store deposits.

There is also a real problem for a number of charities who put money into the Northern Atlantic (they might as well have done). Prominent among these is the Cats Protection League and I have a personal interest as there my wife is a fund raiser for the local branch. One thing I have discovered at their coffee mornings is that you musn't mention dogs or the temperature will drop several degree and the word 'doggist' will be heard.

Already there have been emotional appeals on television for the 'government', i.e., the taxpayer, to bail out these charities. As far as I can tell, none of them is any immediate danger and this might be a situation where the Charities Aid Foundation could step in.

Another interesting sight was British entrepreneur Philip Green having his cover blown in Reykjavik, despite having used the discreet second airport favoured by the country's wealthy (some of whom have apparently made off to the Cayman Islands). Green is incredibly rich because he and his family own stores like Bhs privately and do not have to pay anyone a dividend. Hence, he is hoping to hoover up some of the substantial retail assets in Britain owned by Icelandic interests. If you have some money, you can really make a killing at the moment.

It's not all bad. It's been a lovely weekend weather wise. Dave Pender, whom I regard as a minor cult figure, was really rocking on Radio Scilly last night, in part because he was going to a party at 9 p.m. and promising to 'paint Hugh Town'. Apart from his classic 'Are you rocking, St.Agnes?' call (a bit doubtful as I think there are 54 people on St. Agnes and many of them elderly), he had a new cry of 'Bring it on St. Mary's.'

A trivia question: what has happened on St. Agnes that, as far as I know, is unique in British politics and which I included in a book I once wrote?

The Charities Aid Foundation is here: Charities

Dave Pender broadcasts on Radio Scilly from 6 to 8 on Saturdays, unless he has an off island disco engagement (he is reputedly king of the Five Islands disco scene). Radio Scilly has a number of excellent programmes, including Steve Watt's discussions of popular music, and you see the schedule and listen on online here:
Radio Scilly

Dave Pender's personal web site is here: Dave

The bank holiday option

Whether the G-7 declaration will be enough to halt the developing global international financial meltdown remains to be seen. There is a five point plan, which certainly identifies problem areas, but it seems a bit short on specifics and the devil is in the detail. The G-7 has a bit of a track record of delivering well-meaning platitudes and, although it has done more than that, whether it is enough is another question.

One possible option is to declare a bank holiday on Monday which would close the stock exchange. However, such a circuit breaker would only be worthwhile if the G-7 plan, or anything agreed at the IMF, did have some bite. Otherwise, one could just have a worse crash on Tuesday.

As I recall, there was an emergency bank holiday at the time of the 1967 devaluation and Harold Wilson wanted to use the option again in 1968 when sterling was under pressure, but was not able to do so.

There's a certain amount of trumphalism, to say the least, on the hard left about the crisis of capitalism. However, two notes of caution are necessary. First, the model that seems to be emerging is what might be called state venture capitalism rather than anything that looks vaguely like old-style socialism. Second, whilst the recession in the 1930s boosted the parties of the far left, many people flocked to parties of the far right.

This is even more likely when those parties have been 'sanitised' and don't march around in absurd uniforms doing silly walks. I think it was Harold Macmillan who said that the fascists in the 1930s might have been more successful if they had worn sports jackets rather than blackshirts. The message is: be careful what you wish for.

The C.O.D. wars

Austin Mitchell, the maverick MP for Grimsby (Mitchell is a New Zealander by birth and a political scientist by training) always has a good line and has described Britain's spat with Iceland as the new cod (cash on delivery) wars.

Mitchell was on the radio in his role as Icelandic apologist: he is chair of the Britain-Iceland Parliamentary Committee, a body of which I had hitherto been unaware. His line was that Britain (and Gordon Brown in particular) was bullying a small, benighted country; it wouldn't have happened if it was an African country, etc. etc.

The interviewer suggested that Brown was trying to get some credit with the electorate by playing on anti-foreigner feeling, although most people's knowledge of Iceland probably comes down to the following: all-night partying in Reykjavik; bathe among the ice in a steaming lake (not too pleasant in my experience); see the havoc of recent volanic eruptions and watch the geysers blow; beautiful blondes.

The Icelandic prime minister was not very happy that Britain had moved to seize some of his country's assets by using anti-terrorist legislation, but Iceland is a member of the OECD and it should live up to its obligations. It has now become close to being a failed state, but it is hardly a kleptocracy - or perhaps it is.

A Treasury team has now been dispatched to Iceland which is better than sending a gunboat. Relations between the two countries have had many periods of difficulty, but having shown that we can act tough, now is the time to talk. However, Iceland is a fiercely patriotic that country defends its interests tenaciously, as it has to, so don't expect too much too soon.

Indeed, if the Treasury team come back with a single krona, they will have done well, not that the Icelandic currency is worth very much any more. However, they can avail themselves of the large duty free opticians that will greet them at Reykjavik airport.

Richard Rose and Guy Peters were truly prescient many years ago when they wrote a book called Can Government Go Bankrupt? Interestingly, the last example (leaving aside kleptocracies) was another North Atlantic country, Newfoundland, in the 1930s depression. The end result was that it was absorbed in Canada. Iceland would certainly not surrender its independence.

Alastair Darling as Thunderbird puppet

Enjoy here:
Darling

At least he isn't seen as a dreary sidekick to a dreary prime minister any more.

What next?

Standing firm amid the ice

It appears that some 20 local authorities are in serious trouble because they have lent money to Icelandic banks:
Melting

What do these local authorities think they were doing? I would not have put any of my money anywhere near an Icelandic bank despite the attractively high interest rates. That in itself should have been a warning sign: if it sounds too good to be true, it probably is. It has been evident for some time that the highly leveraged economy of 300,000 former fisher folk was in deep trouble (and there have been darker rumours as well).

I once met the controversial president of Iceland, Olafur Grimsson. I was at an International Political Science Association meeting in Edinburgh and this big guy came up to me and introduced himself by saying 'I am political science in Iceland.' And he was. He was the first person in Iceland to get a PhD in political science (from Manchester).

Perhaps his nifty footwork has something to do with the Russian offer to bail out the Icelandic economy.

Since writing this post, I have learnt that Olafur is ill with heart trouble. I hope he gets well soon, as he could help to stabilise the internal situation in Iceland.

The end of an era?

'We shall look back on today as the end of an era. This is the end of the Thatcher-Blair period. Neo-liberalism has come to an end.' Thus proclaimed the business school professor.

Leaving aside the question of whether Thatcher and Blair's policies can be rolled together (and I would argue that there are some non-trivial differences), it may be a bit too soon to write off the market economy. Or at least I hope it is. Do we want to go back to the days when a visitor from the Soviet Union could ask the question, 'Who organises the bread supply for London?'

Markets have a lot of benefits as an economical way of transmitting large and complex amounts of information through the price mechanism. There are identifiable market failures, of course, but often when governments intervene to correct them, they can create government failures which are even worse.

Of course, an unregulated market economy can easily destroy itself. The trick is to have enough regulation to prevent this happening, but not so much that it strangulates the market economy so it cannot operate properly.

Politically, Gordon Brown is a beneficiary of the turmoil, as is Alastair Darling. There is a new spring in Gordon's step and apparently he was winking at the press at his press conference this morning. He was apparently more than usually effective at PMQs. Cometh the hour, cometh the man.

Bailing out the banks

The statement by the Treasury can be found here:
Banks

One point that has been overlooked is the taxpayer is getting some assets in essentially sound and profitable businesses which have taken a short-term knock from the freezing of the wholesale money markets. So the Government could actually make a profit on the transaction.

George Osborne tried to score a cheap point last night about taxpayers paying for bankers' bonuses which was surprising given that the Conservatives have been claiming to be bipartisan and responsible in the crisis.

Mandy becomes the story

The downside risk with having Peter Mandelson in your cabinet is that he becomes the story. This is what has happened today with the coverage of what he might or might not have said to George Osborne over a convivial meal in a Greek taverna (ITV appeared to have taken the trouble to locate the taverna, although I am not sure how the authenticity of the story was enhanced by rows of upturned empty glasses).

Mandelson was, of course, hounded by the media on the second occasion he was ejected from ministerial office and in retrospect it would appear that this campaign was unfairly based.

Mandelson was certainly popular with civil servants at what was then the Department of Trade and Industry, as shown by them all coming out to greet him in the foyer on Friday.

At least Gordon Brown can't be accused of dithering over this appointment. It was a bold move, but hopefully not a courageous one in the 'Yes Minister' sense. Mandy took the option of 'phoning a friend', one Tony Blair, before deciding to accept, but the former prime minister told him that it was a 'no brainer'.

The knock on the door

It's the moment every Labour supporter dreads. There is a knock on the door and Harriet Harman is standing there.

Matthew Morrow managed to hold to a safe Labour seat on Greenwich Council in the Plumstead ward. However, there was a 6.6 per cent swing to Labour on a turnout of 21.56 per cent and this was hailed as evidence of a 'Brown bounce'. Hence, the visit from Harriet.

Labour activists should be allowed to carry a card saying 'In the event of an election victory or hospitalisation, I do not wish to be visited by Harriet Harman.'

Mandy is back

Peter Mandelson will make return to the Cabinet in a major reshuffle to be unveiled by Gordon Brown later today. The European Commissioner for Trade will be made a peer and join the Government as Secretary for Business, sitting in the Lords. John Hutton, the current Business Secretary, will be promoted to Defence Secretary, taking over from Des Browne, who will leave the Cabinet.

This is a very surprising move and marks the apparent end of tensions between Mandy and Gordon, although at one time they were firm friends. Peter Mandelson was forced to resign from the Cabinet twice, but Gordon Brown may think that his undoubted political skills will be of help to him in the run-up to the general election.

In other moves, Geoff Hoon, the Chief Whip, takes over at Transport from Ruth Kelly, who announced last week that she wants to spend more time with her family. Mr Hoon will be replaced by the Brownite fixer and former Chief Whip, Nick Brown. The other Cabinet entrant is Liam Byrne, the Immigration Minister, who will become Mr Brown's enforcer as Cabinet Office minister.

Peter Mandelson will be coming to a diminished Business department as its energy functions will be transferred to a new Department of Energy and Climate Change headed by Ed Miliband. This will also acquire the climate change function from a diminished Defra which looks more like a MAFF Mark II responsible for food and rural affairs.

Margaret Beckett looks likely to return to the Cabinet - in what role is unclear, but possibly as a spokesperson for the government.