Monday 4 January 2010


At the start of each year the FT asks for predictions of economic trends for the coming year. In both 2008 and 2009 the closest prediction of house price changes was made by a fox cub in the garden of one of its commentators. (The cub selected one of a number of marked pieces of meat). Apparently he has used a different cub for 2010: now it has grown up the previous one is presumably an analyst in the city or an economist for the Government.

This story is not only remarkable but also a good reason not to make any predictions. Events will always surprise. However, even more than usual, 2010 promises to be a year a number of important issues could go either way, indicating trends for a number of years. I'm not going to make predictions ... but I will comment on the following issues, and look forward to reviewing at the end of the year what actually happened:

Should you cut Government deficits in a recession?
2010 will give us an answer, determined by how Eire recovers from the recession. The UK and Eire are both in an economic mess - it's hard to say which is worse. But the Irish Government has done something about its situation, taking radical action to adopt bad assets from banks and to cut Government spending, particularly cutting public sector pay. The UK has done nothing except try to establish dividing lines with the opposition. Indeed, by refusing to get a grip on spending while doing nothing to make banks work again, I think it has made matters worse. Eire has a real problem in that it is a member of the Euro, which restricts its flexibility and gives it an inappropriate exchange rate, so it should recover more slowly than the UK. But 2010 will show whether the strong action it took means it will in fact do better.
Evidence, by the way, suggests that growth comes from the private sector and cutting deficits in a recession can help.

Does the public sector serve us - or is it the other way round?
A couple of very good articles in the Sunday Times highlight the poor value we now get from the public sector. (Sadly, this sort of comment always now needs the rider that it doesn’t refer to the oppressed front line staff doing their best to help people: of course it doesn’t, it refers to their management and direction after twelve years of mismanagement following previous excessive centralisation).
One referred to costs: since 1997, the number of public sector workers has increased by 20%, while their productivity has fallen by 3.4%. Over the same period, private sector productivity increased by 28%. Average public sector pay is now 7% higher than the private sector although their working week is on average 2.5 hours less. And of course this is before pensions: the retirement age is much earlier and most public sector pensions cost around 20% more than private sector ones.
The second referred to quality: the fact that so many rules have been introduced with (presumably) unintended consequences of networks and society (yes, there is such a thing...) being damaged and people becoming passive. Everyone suffers, especially the voluntary sector. Read the article for examples – I’m not going to repeat them.
These problems are not new: they have taken over a decade to become engrained. Correcting them will take at least another decade. It is encouraging that having been ignored by most of the commentariat for the last decade they are now starting to be written about. 2010 could be a year where the public slowly start to take the public sector back under control. I hope so.

Is global cooling the new global warming?
The heatwave in 2003 provided a catalyst for many to accept that Carbon Dioxide emissions were causing a problem, and that global warming was occurring leading to ice melting and sea levels rising. Amongst other disasters. I am biased as my house is about 30m above sea level, and as I am writing I am looking at snow covered fields for the third week running. So I wonder: will this cold winter be a catalyst for people to start questioning the global warming industry? Many livelihoods depend on global warming being accepted as a threat – I mean the quangos, the lobbyists, the alternative technologists, not the poor who need help now – and they will be determined to stop a debate. But reporting of the falsification of data and the censoring of alternative views in scientific journals has started; the Copenhagen conference was an overblown fiasco of intolerance, although China and the US somehow managed to cobble together a useful intent to reduce emissions.
The cartoon is from The Times, December 2009, Peter Brookes. The lumberjack's jacket reads Copenhagen Climate Change Summit Pack.
As I wrote last year, I have split views on this topic: instinctively I distrust the unthinking certainty of climate change enthusiasts leading to interference in our lives, but it’s also obvious that in many ways we are wasting resources and polluting the planet. Resources are wasted because they are not properly priced: we use them as though they were free. As I wrote last year, I suspect the solution to global warming will come from new technology of which we are not yet aware so both nationally and internationally we should support pure as well as applied scientific research, paid for by properly taxing energy useage.
2010 could be a trend changing year where climate change deniers become respectable again.

Labour or Tory?
There will be a General Election this year. Although I’m not making predictions, I think the most likely scenario is a hung Parliament where the Lib Dems will support Labour. And if so the country will get what it deserves... Every Labour Government has left office with more people unemployed than when it came in, and with public finances in a mess. The corollary is that for the last 90 years every Tory Government has left office with more people in employment and with better finances than when it came in. Why? I think it’s because Labour don’t care about results, they only care about talking about results. A quote from Ed Balls’ conference speech about the choice:
Between a Conservative Party determined to preserve excellence for those who have it and a Labour government committed to open up excellence and opportunity for all.
That is so the opposite of the truth.
This cartoon from The Times, December 2009, Morton Morland, sums up Labour’s manifesto to me:

But 2010 will tell.

And internationally there’s one or two issues as well:

US Mid-Terms
The Bush administration left a real mess behind: massive deficits, a recession, an uncontrolled financial sector and a failed strategy for a war on terror which left hundreds of thousands of people dead, Afghanistan, Iraq and Somalia in ruin and a lack of credibility to deal with Israel, Palestine and Iran. And yet as Obama has slowly tried to unpick the mess and move forward he has come under sustained abuse from the right. His popularity has fallen substantially. The mid-term elections in November will be a good indication of whether or not the electorate support his charisma and calmness; this in turn will indicate the cultural direction of America for the rest of the decade.
There’s another lesson here: Government actions are long term yet they are sold as short term: electoral judgements are often therefore short term as well. It usually takes two or three years for a change of Government to have any impact – so the problems in the first two or three years of a Government are usually those of the last one.

Iran is potentially a civilised country with a great deal to offer the world: it is run by a cruel regime which can cause a great deal of harm. But there are cracks, signs of a limited insurgency. If the regime is able to reinforce their control during 2010 then it’s not a good long term sign for stability and therefore economic growth. Conversely, a new Government would be good in the long term even if there were some short term uncertainties.

“AfPak” (to use the US Government’s phrase)
I have little to say except to note the massive resources devoted by the US, the UK and others to this area, the fact that it is one of two or three cradles of terrorism, and one of the major drug producing regions, and that it is probably the most unstable holders of nuclear weapons. What happens in 2010 matters to us all. It’s hard to see a good outcome.


Sarah said...

Happy new year, John
alot to think about but I'd just like to comment on climate change. The issue is not just flagging up extreme weather conditions. Of course, every time it rains, folk can say 'climate change.' It's about the pursuit of wealth without consideration of the wider consequences; it is about caring for our water supply and being mature enough to realise once something has been manufactured, it must be disposed of when its functional; use has ended.
You mentioned the money made out of the climate change issue- are people who care about the environment not allowed to make money? Does no one else in the world have conferences? You want economic growth, it is from this section of our community and the sooner it is embraced the better. There is so much potential for making everyone, everywhere financially better off, if we can slough off our dependance on old hierarchies and habits.

John Woodman said...

Whoops - forgot to say Happy New Year.

I can't diasgree with what you say, Sarah. But I think what disgusted me about Copenhagen was the hypocrisy of those attending. Did you see the pictures? 15,000 people milling about consuming resources and without a chance of agreeing anything.

I agree people who care about the environment should be able to make money; I object to rich wind farm producers because they are building their wealth on the back of the rest of us under false pretences (at least bankers brought money into this country), but they are building businesses. My worry is the creation of an overlay of advisers/bureaucrats/carbon traders with a massive self interest to distort facts and to make money - in the same way I worry that airlines for example distort the economic reality by avoiding paying tax on fuel.

Troy said...

A Happy New Year to you John.
Some interesting thoughts and observations. I'm pleased to know that I might be a considered respectable in having serious doubts about man's effect on the climate. Waste and pollution is bad (no arguement) but the subsidies and taxes to pay for windfarms is a tragic misallocation of resources.
Fingers crossed for a decent DC majority. Only Brown, Balls and the Poison Pixie should be hung.