Uncle Vince is Still Peddling Debt as the Solution to Our Woes

 

Vince Cable LGA Oct 08 no 3
Vince Cable – let’s borrow some more! Image by Liberal Democrats via Flickr

 

Vince Cable, the Business Secretary, has another proposed quick fix to help the economy recover.

He has been looking at the 1930s and notes that private housebuilding then increased from 130,000 in 1931 to 300,000 three years later. He also notes that construction represents 20% of manufacturing output. (Note: that means it represents sod all of the whole economy.)

The lesson he draws from that is that the government should provide loan guarantees to enable an expansion of social housing provision by Housing Associations.

He also decries the difficulty in private buyers getting access to mortgages. He wants more Building Societies, noting that there were more than 1,000 in the 1930s. Apparently their “destruction” was

a great act of economic vandalism.

So let’s get this clear. Uncle Vince wants more borrowing for private house purchase. And he wants more government debt, this time to finance social housing provision. But he wants it kept off-balance-sheet by having the Housing Associations borrow the money, with government guarantees.

Housing Associations are funny beasts. They are not quite public sector, because they are not accountable to the government. They are not quite private sector either, however, because their ownership is not defined.

I remember back in the 1980s, during the big expansion of Housing Associations, a Housing Association representative came to give a talk to the local Conservative policy forum (of which I was a member back in those heady days).

I asked her who owned the Housing Association. Blank look in response. I tried again. If the Association were to be wound down, who would own its assets, principally the houses it had built? Er, she didn’t really know. Interesting question. She had never been asked it before.

The truth is that Housing Associations are quangoes. Giving them government guarantees to expand housebuilding is just a way to borrow money without it appearing on balance sheets.

Good old Uncle Vince. He still thinks the problem in our society is not enough debt!

He wants more private borrowing, to get private housebuilding going. And he wants more public sector borrowing, to get social housebuilding going.

Like Socialists everywhere, he thinks there is a mystical pot of money somewhere that the nasty capitalists are sitting on. If only we could get our hands on it, everything would be fine. Politicians like him got Greece into the mess it is in now.

The Liberal Democrats’ Lack of Relevance and the Tory Lack of Vision

 

David Cameron and Nick Clegg
Image by Cabinet Office via Flick

One Lacking in Vision, the Other Irrelevant – take Your Pick

Nick Clegg is upset that Britain will not sign the new EU Treaty:

The Deputy Prime Minister said he was “bitterly disappointed” that David Cameron has vetoed European treaty changes.

Mr Clegg said any further withdrawal from Europe could make Britain “a pygmy in the world”.

Mr Clegg does not support the decision to veto the Treaty:

Asked what his reaction had been, the Lib Dem leader said: “I said this was bad for Britain.

“I made it clear that it was untenable for me to welcome it.”

But last Friday Mr Clegg’s office was claiming he was fully involved:

On Friday, a spokesman for Mr Clegg said he had been “consulted throughout” the 10 hours of unsuccessful negotiations in Brussels.

The truth is that Mr Clegg does not support the decision to veto the Treaty – but does not want it to appear that his views are irrelevant in the Coalition.

They are irrelevant. The Liberal Democrats are now languishing in opinion polls with less than half of the support they got at the general election. UKIP are snapping at their heels to become Britain’s third party.

The Liberal Democrats have no cards to play – except the nuclear option of walking out of the Coalition, with every prospect that the Liberal Democrats could be wiped out in the ensuing general election.

Let’s just remind ourselves that the Liberal Democrats believe in full European federalism, including British membership of the Euro. Their vision for Britain’s future has completely unravelled over the last few months.

Meanwhile, Vince Cable is living in a dreamland in which the public are yearning for his party’s policies:

What the public want and the business community wants is confidence that we’re fully part of the EU on which millions of jobs depend.

Wrong in two counts, Vince. (Which is pretty good going for a single sentence!)

First, opinion polls in fact show that the majority of the public want Britain to leave the EU completely.

Second, millions of jobs do not depend on our membership of the EU. Those jobs actually depend on our trade with the EU – a very different thing. We run a persistent and large trade deficit with the EU. Therefore it is almost certain that if Britain left the EU, we would be able to negotiate a free trade agreement with it, meaning no jobs would go at all. For millions of jobs to be lost, our trade with the EU would need to cease altogether – even “Uncle Vince” surely doesn’t think that would happen.

In truth, the EU is destroying jobs in Britain. Even our net contribution to the EU budget is £17 billion a year – enough to pay for 340,000 employees at £50,000 a year each. And the job-destroying impact of EU regulations is much more.

The future is now truly bleak for the Liberal Democrats. Their defining vision, of Britain part of a United States of Europe, is now untenable. The true weakness of their position in the Coalition has been laid bare.

The Tory position is not much better though. Mr Cameron may have vetoed the new Treaty – but he has failed to outline any alternative vision for Britain’s future. He has been reduced to squabbling over whether the “Eurozone Plus” countries (i.e. the EU apart from Britain) should be allowed to use buildings that belong to the EU.

Yes, it really has come down to that. The extent of their vision is to demand that the EU finds some new offices to meet in because Britain does not want to take part.

David Cameron seems to believe that in vetoing the Treaty, he has somehow left Britain the option of carrying on as if nothing has happened. He has not. The EU (excluding Britain) will now simply press on with ever closer union. If the government fails to pursue the logic of this and take Britain out completely, then we will be left with all the disadvantages of EU membership with none of the advantages.

As many have pointed out, we will be left subject to EU rules, but with no say in the development of those rules.

Meanwhile, Labour are left mouthing platitudes about Mr Cameron’s failure to keep Britain at the European table.

There is a viable future for Britain, of course: to leave the EU completely, and open our minds and our markets to the wider world; to build our prosperity by trading freely with the EU, with the USA, with India, with all the Commonwealth countries, even with Russia and many others. That is a real vision for Britain’s place in a globalised world.

It is a vision for a prosperous and free future, and it is UKIP’s vision.

Mr Cameron would rather squabble over office space.

Like George Bush Senior before him in the USA, Mr Cameron will find that “the vision thing” really is rather important for a national leader.

Uncle Vince Puts His Foot in it Again

Vince Cable MP addressing a Liberal Democrat c...
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Vince Cable: Insulting Our Allies

Vince Cable has attacked “US right wing nutters” who are the “biggest threat to the world financial system”:

The irony of the situation at the moment, looking to markets opening tomorrow morning, is that the biggest threat to the world financial system comes from a few right-wing nutters in the American Congress rather than the eurozone.’’ Democrat President Barack Obama is desperately trying to get Republicans in Congress to agree to lift the £8.8trillion limit on US borrowing.

The background to this is that Republicans in the US Congress and the US President have been negotiating for weeks on public spending and tax. The US government will run out of money in early August unless a bill is passed increasing the limit on what the government is allowed to borrow.

The Republicans want a deal to cut public spending over the next few years before they will agree to the increase. The President prefers more tax, and fewer cuts.

Mr Cable, then, is wide of the mark in blaming Republicans for the impasse. The truth is that there is a disagreement in the US about the right way forward, and both sides have so far failed to give in. The Republicans want spending cuts; the President wants higher taxes. Mr Obama could have a deal today if he agreed to the cuts.

Mr Cable could just as easily have blamed “the left wing nutter in the White House” rather than “right wing nutters in Congress”.

It is also pretty fatuous to draw attention to this disagreement in the US, when events in Europe, including the recent huge bailout of Greece, have been destabilising the world financial system for months. Mr Cable, though, is a Liberal Democrat, and the Lib Dems are the most Euro-fanatic British political party, so for him, the EU can do no wrong and the US is a threat.

But all of this rather misses the most important point here. Mr Cable is a British Government Minister and he was talking about senior politicians in our closest and most important ally.

Mr Cable’s antics will have damaged Britain’s reputation in the US and therefore damaged British interests. They were also gross interference in the internal politics of another country. His comments were ill-judged and inappropriate.

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Uncle Vince, Our Saviour From The Big Nasty Banks

Vince Cable has asked Lord Browne to consider ...
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Damned if They Do and Taxed If They Don’t – Yes, Uncle Vince is in Charge

Uncle Vince has been championing the little man against the Big Nasty Banks again.

He has been telling those banks that if they don’t give more loans to small businesses, he will put up their taxes.

We do have the option of approaching the taxation of profits or bonuses or balance sheets in a more forceful way – that’s certainly is one of the sanctions open to government

he said. Putting them in the Naughty Room is probably the next step after that. And yet, at the same time he is also pushing them in the opposite direction by threatening other sanctions.

The government, at the behest of internationally-agreed and EU banking regulations, is requiring the banks to hold more capital and to keep more liquidity. Loans to small businesses, or indeed any businesses, do not count as “liquid assets”. Gilts (loans to the government) do. And of course the government has been doing rather a lot of gilt sales over the last couple of years.

This year, government borrowing is down a bit. But the QE programme has also ended – so almost all gilts are being bought by commercial banks rather than the Bank of England. The money they could be lending to small businesses, is being invested in government debt instead.

Basically, Uncle Vince is telling the Big Nasty Banks to lend more to small businesses, otherwise they’ll get caned by higher taxes. At the same time he is telling them not to lend so much otherwise they’ll get caned for infringing banking regulations.

And all the time the government (through the Bank of England) is also holding official interest rates down at record low levels. That increases the expectations from businesses that cheap loans will be available. It also encourages bank customers not to hold bank deposits (due to the derisory interest rates they get). And it hits banks’ profits on the loans they do make.

The government seems to think that these low interest rates are boosting economic growth by encouraging borrowing – that loans are available but people need to be encouraged to take them. Yet here is Uncle Vince telling us all that the problem is that people who want to borrow cannot get loans from the banks.

Uncle Vince is like a Nanny who tells a child to share his sweets with his friends – while at the same time beating him up if he doesn’t let her eat most of the sweets herself.

Our problem is not the Big Nasty Banks. It is our dysfunctional and incompetent rulers, of whom Uncle Vince is a prime example. Both the government and its pseudo-independent Bank of England are at the heart of the problems we are facing.

The problem is not the Big Nasty Banks. The real problem is the Big Nasty State that destroys everything it touches.

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Vince Cable’s Quantum Theory of Economics

Vince Cable MP addressing a Liberal Democrat c...
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Vince Cable, Father of Quantum Economics

Vince Cable has come up with a new branch of economics, to explain why interest rates must be kept low. The new economics are being hailed as his “Quantum Theory of Economics”, and are expected to have profound implications for policy-makers everywhere.

Inflation rose again last month to 4 percent on the CPI measure, or 5.1 percent on the RPI measure. That, of course, is double the Bank of England target rate. The conventional wisdom is that this will force the Bank of England to increase interest rates.

Mr Cable’s new theory, though, suggests that this could be a mistake.

As an outsider looking in, I take the view of the doves. Although you have inflation, it’s almost entirely imported. There’s not very much evidence of British inflation taking place. It’s virtually deflation.

In conventional economics, inflation means generally rising prices. Generally rising prices mean that there is more money that people want to spend, than goods and services available to buy with it. The way to prevent this is to increase interest rates, which reduces the money supply and holds prices down.

But in Mr Cable’s new theory, inflation consists of domestic prices and imported prices. Obviously the Bank of England needs to control “domestic price” movements. But “imported prices” don’t matter because they are not under our control.

This new theory has profound implications for economic policy, and indeed for the study of logic and metaphysics. If Mr Cable is right, then you can have prices that are rising and falling at the same time.

In Quantum Physics, a particle can be in two places at the same time. Similarly, in Mr Cable’s Quantum Economics, the price of a loaf of bread can be both lower than it was last week and higher than it was last week. (The layman will have seen examples of this effect in their local supermarket – if you stare long enough at the till receipt, eventually it starts to seem blurred and indistinct, often causing outbreaks of nausea and nostalgia for a distant past when “you could get a week’s shopping for ten shillings”.)

Quantum Economics implies that interest rates should be increased and reduced at the same time, in order to cure the simultaneous inflation and deflation being experienced by bewildered shoppers.

Mr Cable’s theory should more properly be called Cable’s Special Quantum Theory of Economics. He and other advanced economists at the Bank of England are currently rumoured to be working on a more powerful General Quantum Theory of Economics.

If you can have imported inflation and domestic inflation, then obviously you can have imported growth and domestic growth. The General Theory would combine all these measures of the economy, cancelling them all out and rendering them all meaningless.

Clearly such a Theory would allow politicians to set interest rates and public spending at any level they liked, and completely ignore the consequences.

Some economists are still sceptical of Mr Cable’s novel new approaches. They maintain that reality has a way of interrupting such rosy scenarios.

Mr Cable is having none of it. Tightening monetary policy would be “potentially very difficult”, he says.

And if his bold Quantum Theory is right, then we never will have to do anything difficult ever again.

[Update: it seems never a truer word has been spoken then in jest!]

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Well Done, Vince!

Vince Cable – Maybe Not Such a Plonker After All

That’s not a headline I write very often. In fact, this is the first time.

Vince Cable has confirmed the government is to sell off Royal Mail.

And this isn’t a watered down half sale, like Peter Mandelson wanted (and failed) to achieve under the Labour government. This is a complete sale of the whole mail delivery business.

The creaking Post Office network will be retained in public ownership. That’s a problem for another day.

The majority of Royal Mail will be sold either by a public offering or by sale to another company. A stake will be held by the workers themselves, ensuring they all have a stake in direct interest in the future of the business.

Predictably, the Unions hate the idea. Billy Hayes, the CWU General Secretary said:

It’s the failed politics of history which brought disruption to Britain’s utilities and railways and astronomical prices for consumers.

My Hayes has hit the nail precisely on the head for once. The same success and vast increases in customer service that privatisation has brought to the utilities and especially to the railways, will come to Royal Mail as well. What a shame all that passed Mr Hayes by and he still thinks we are living in the 1970s.

Mr Hayes also said:

Dangerously in this case, we fear the government may also be plotting to seize the pension assets.

which is a pretty astonishing statement given that the Post Office pension fund has a huge deficit. The government is planning to take on those pension liabilities, so this is more like Mr Hayes’ members seizing taxpayers’ assets.

The volume of letters being sent has been falling for decades, and faster since the advent of the internet. But the number of parcels being sent is rising, and will continue to rise, as online retailing continues to grow. Therefore there is a potentially highly profitable business in Royal Mail. The problems are problems of transition.

Royal Mail is actually extremely well-placed to take advantage of these changes. Its network of local delivery offices are far more extensive than anyone else’s. Anyone who has bought something over the net and been out when it was delivered knows that the journey to collect the item is likely to be a great deal shorter if the deliverer is Royal Mail.

The network of places where letters and parcels can be posted is also on a different scale from that of any of its competitors.

I’m also astonished that with its massive scale, Royal Mail has been losing mass mail delivery business to its competitors. That scale should be able to deliver efficiencies that its competitors cannot match.

The truth is that the story of Royal Mail under government ownership has been one of mismanagement and unnecessary failure. The employees will be far better off under private ownership, and we will all be far better off with a private company delivering those services. Expect lots of investment, better services, better customer service and even perhaps lower prices.

The people who should really be worried by this are the competitors of Royal Mail. In a few years’ time, they will be facing a huge and aggressive new competitor, with the scale to eat them for breakfast.