A seasonal budget pantomime

Tweet

 

There is something quite seasonal about the Labour-Plaid deal over the Senedd budget. It is, after all, that time of the year when pantomimes proliferate. In the case of the budget, the Finance Minister knew that he could not get a budget supported only by Labour through the Senedd, so he presented a budget with £380 million unallocated to allow him some space to bargain. He knew what he wanted to do with that money – and he also knew that his priorities just happened to largely coincide with the demands which Plaid would make. So a little bit of negotiation and some changes around the detail, and hey presto – the reserved money gets put back into a budget which ends up looking remarkably like it would probably have looked in the first place, but now supported by a majority. Labour claim a win, Plaid claim a win, and the rest can only proclaim in unison, “Oh no it isn’t”.

Like all good pantos, superficially it’s largely performative. But, again like all good pantos, there’s a serious side to the slapstick as well. In a legislature elected partly on a proportional basis – and which, from next year, will be elected on a wholly proportional basis – no party can expect to have a majority in the chamber unless they attract at least 50% of the vote and, in the currently fragmented political world, that looks vanishingly unlikely in future. Harsh reality says that negotiation and agreement should be the norm; responsible parties need to be willing to compromise in order to ensure effective government. The alternative to the agreement which has been reached was a degree of chaos and the potential loss of large sums of money to the Senedd – reaching an agreement is sound and responsible politics, even if some would quibble with some of the detail.

It's a pity, though, that it requires such dramatics to get there. Maybe, over time, as coalition / pragmatic agreement becomes ever more normal, we can get to the same place faster without cliff-hangers; maybe, if the UK ever adopts a more proportional electoral system for Westminster, Wales won’t look so different from the accepted UK ‘winner takes all’ norm and compromise will come to be more accepted. Then again, maybe not. Perhaps the driver of achieving perceived political ‘victory’ in negotiations will always be a requisite of any agreement in order to try and demonstrate the absence of any type of sellout. But concentrating criticism on whether something is or is not a sellout avoids discussion about the detail. And is wholly in line with the Tory/Reform approach to political debate.

Should we demand the abolition of the USA?

Tweet

 

Annoyed at being fined for failing to comply with EU regulations, Elon Musk has demanded that: “The EU should be abolished and sovereignty returned to individual countries”. Perhaps the EU should respond with the counter-demand that: “The US should be abolished and sovereignty returned to individual states”. Actually, Musk might even agree with that in principle, if he had any principles – but it looks as though his real beef is about any state, or co-ordinated alliance of states, being big enough and strong enough to stand up to what he regards as the natural order of things: rule by billionaire. The difference, though, is that the US federal government has already been captured by the billionaires, and doesn’t need to be broken up to facilitate their rule.

There are, and always have been, questions over how much sovereignty (and in what fields) the EU’s member states should exercise individually and how much they should share; but acting jointly on some issues and agreeing rules which all members must follow is undoubtedly advantageous in a world where some corporations and individuals wield excessive power. It’s easy to understand why monopolists would prefer to deal with a host of weaker individual states on which they can impose their power. The real issue, though, and it’s not one which the EU seems minded even to consider, let alone tackle, is about how we collectively free ourselves from the increasingly oppressive rule of kleptocrats and billionaires. There is nothing natural or inevitable about the accumulation of wealth and power into fewer and fewer hands; it happens because the laws and rules under which the economy operates have been written to allow and facilitate it. But those laws and rules are made by humans, and humans acting collectively could change them. If enough of us wanted to do so.

Keeping us safe from threats

Tweet

 

Last week, a retired general told us that the UK is 10 years away from being ready for a war with Russia, a war which the political and military leaders of the UK seem increasingly determined to fight. The general’s views were inevitably reported as though it was a bad thing to be so unready for a war which would in the best case destroy much of Europe and in the worst case end human civilization. The military mind always sees an unreadiness to fight a war as being a bad thing, but what if that unreadiness is actually a good thing?

An attempt by Russia to conquer and subdue the entire continent of Europe (which is what a pre-meditated attack on a Nato country implies) would be madness, even if Russia hadn’t already proved how incapable it is of subduing one country right on its borders. It is possible, of course, that Putin really is mad, but his actions to date appear to be due more to miscalculation than insanity. He will surely have learnt something from his misadventures in Ukraine. The only anywhere near rational reason for a decision to attack the whole of NATO would be if he became completely convinced that it was necessary to pre-empt an attack by NATO on Russia. Getting his retaliation in first, in other words.

Now I don’t actually believe that NATO countries want to start a war with Russia (which isn’t the same thing as saying that there are no individual military men or politicians who do), but I’m not sitting in the Kremlin looking at the world through Russian eyes with an intense awareness of Russian history. He might be wrong to conclude that NATO is preparing to attack his country but, listening to the generals and war-mongers, it’s not an entirely unreasonable conclusion for him to reach. So if the biggest danger for us lies in reinforcing his fears, which keeps us safer: stepping up preparedness for war or being so unready that he feels no immediate need to act?

One of the lessons of history is that militarisation and arms races almost invariably lead to war, and can even do so almost by accident. Deliberately choosing not to prepare for all-out war with Russia stands traditional policy on its head, but it also allows us to make policy choices which improve the living standards of people in the UK rather than diverting resources into essentially wasteful weapons of destruction; policy choices which the politicians tell us are impossible. The warmongers tell us that the first duty of any government is to keep its citizens safe, but they don’t encourage debate about the question of ‘safe from what?’ Cutting lives short through war is an obvious danger, but lives are also shortened by poverty, ill health, and poor education. The former is a future danger (the remoteness of which is hard to judge), the latter is happening here and now. There’s a lot more nuance to ‘keeping citizens safe’ than preparing to kill Russians.

Volatility and spooking aren't exactly the same thing

Tweet

 

Last week, just before the Budget, the Guardian published this article about the ‘power’ of the bond markets over governments. Whether it entirely supports the contention that the government must at all costs avoid ‘spooking’ the markets is another question. Indeed, one trader made it clear that “What you really crave in this industry is movement, volatility”. It’s the opposite of what the government wants, but speculative traders thrive on it. Volatility, of the sort which is described as ‘spooking’, is what helps the speculators to turn small margins on huge trades into profits for themselves. Those speculators actually want the government to surprise them, in the hope that they are better placed to react than their competitors and make a killing – stability is boring and largely unprofitable.

As with so many aspects of the financial markets, the underlying issue is that markets created to fill valid social needs have been captured by people who are driven by a culture of greed and gambling. The government takes in peoples savings in return for bonds on which it offers savers a fixed long term interest rate; large institutional investors hold those bonds as part of pension funds and life insurance funds. For all of those players, market stability is a definite plus, enabling them to plan with confidence. But the gamblers and speculators who use those markets for their own purposes want no such thing; they want the sort of volatility in which they are each trying to second guess each other and from which some make a profit and some make a loss by making multiple large trades in rapid succession. Far from being ‘spooked’, they are actually delighted by what they see as opportunity.

The question we should be asking is not about how we limit what governments can or should do to keep the markets stable, but about what we need to do to control and manage markets in a way that they serve social needs rather than constrain policy options. To date, humanity has not found a better way of matching buyers and sellers than using markets, and markets perform a useful social function. There is, though, no such thing as a ‘free’ market: all markets work under a set of rules. The issue is who sets those rules and in whose interests they operate, and to what extent those markets should be allowed to become the playthings of gamblers and speculators rather than performing the socially useful function of facilitating exchange. What Reeves and Starmer have decided – like all the other Tories in the recent past – is that they are happy for those markets to be captured by selfish interests, and for those interests then to have a veto on what government policies are, or are not, acceptable. The argument that there is no alternative is merely an excuse to justify what their ideological perspective tells them to do anyway.

Buying shares isn't the same as investing

Tweet

 

For most people, the reduction announced in the budget yesterday to the limit on cash ISA’s, from £20,000 to £12,000 per annum, is an academic question. There can’t be many on an average salary who have even £12,000 available to save, let alone £20,000. The tax-free status of interest on such accounts is effectively a subsidy to those who do have that sort of money to put aside. As ever, the taxation system in the UK works to promote the flow of money from those who have less to those who have more. Who ever said that Conservative politicians – of whatever stripe – don’t believe in redistribution? They do – just in the wrong direction.

The argument for that subsidy was always that ‘saving’ was a ‘good thing’ for people to do, and should be encouraged. Reeves has effectively being saying for some time that ‘saving’ isn’t such a good idea after all – what we really need is investment. She’s right in principle, but utterly wrong in the implementation. She is arguing that those who are in a position to put aside the full £20,000 must put the remaining £8,000 into stocks and shares, but defining that as ‘investment’ is just plain wrong. Certainly, if someone buys shares in a start-up, that is an investment: the money goes into the company and is used to pay the initial costs. In return for that, the investor owns a chunk of the company in the form of shares and can expect dividends paid out of profits if the company is a success. But when they sell those shares, even if the person buying them pays two or three times as much for them, not one penny of the payment for those second-hand shares goes into the company for further investment. That doesn’t mean that the new owner doesn’t own a chunk of the company, nor that (s)he won’t receive dividends, merely that the transaction doesn’t represent a new investment in anything. It creates no added value at all.

It might, though, lead to an inflated share price. If Reeves’ approach leads to more ISA monies being used to purchase existing stocks and shares, the price (and therefore the apparent value) of those stocks and shares will increase, in line with the basic rules of supply and demand. That in turn has two effects: firstly, it increases the disparity between the ‘value’ of the shares and the underlying value of the company and its assets, and secondly it makes it more likely that those shareholders will lose some of their apparent wealth if the shares crash. And the greater the disparity, the more likely it is that there will be a crash, or at least a ‘market correction’ at some point, probably as the result of an external shock. Reeves is not only trying to force more people to risk their capital by saving in ways where the price can go down as well as up, she’s also increasing the level of that risk. All because of a dodgy definition of investment.

She’s right, though, in saying that the UK needs more investment. But if we define investment as being the creation of new assets – for instance, new companies, new equipment, new infrastructure – there are better ways of doing it than persuading people to put their money in the hands of market speculators and gamblers. Public sector investment in infrastructure is one of those, but you wouldn’t know that from listening to the Chancellor.

What about the digestives?

Tweet

 

A Labour MP has produced a short video which has gone viral in an attempt to explain the so-called government debt crisis in terms of the ratio between bourbon biscuits (debt) and custard creams (GDP). I’m not sure whether he’s fully thought through the possibility that, for those of us (count me in) who prefer bourbons, this might make the idea of bigger debts more attractive. More worryingly, it made me wonder whether the budget to be announced by the Chancellor later today might itself be based on biscuit mathematics rather than economics, although that might help to explain the odd choices she seems determined to make. One thing that was clear, as the MP piled up his biscuits, was that there was a remarkable lack of crumbs. I suppose that might well be another accurate budget prediction.

What biscuit-based economics skates over, however, is that underlying it is the same set of assumptions as are used by government and opposition alike in their own money-based economics. Treating the amount of money which savers queue up to place on deposit with the government as though it’s a serious debt problem, pretending that the UK has a maxed-out credit card, and ignoring the fact that a goodly chunk of the interest payments being made by the government are actually paid to, er, the government itself so that that element of expenditure immediately also becomes income, are all signs of a commitment to the ridiculous household analogy for government finances. Doing the accounts in biscuits might be mildly entertaining, but it is still economic nonsense.

The number of custard creams and bourbons isn’t actually the limiting factor on what we can do. As Keynes would probably have said, if he’d decided to base his major works on biscuits, if the biscuit factory has the capacity to produce more biscuits, if the materials are available, if there are enough available workers, and if the environmental impact of making biscuits can be met, then we can make as many biscuits as we want. Although, speaking personally, I’d opt for a nice chocolate digestive.

There's nothing just about Trump's plan - or even Europe's

Tweet

 

In response to the ‘Trump’ plan for peace in Ukraine (which according to some was actually drawn up by Russia rather than Trump, although its precise provenance remains in some doubt), Keir Starmer has said it needs more work in order to turn it into a “just and lasting peace”. Fine words, but whether they’re any more meaningful than a standard Trump word salad is open to question. To be ‘lasting’, it has to provide cast iron guarantees of no future aggression against Ukraine, and the version published to date offers no more than wishy-washy words.

But the bigger issue is defining a “just” peace. If we’re seriously talking about ‘justice’, then any agreement has to include a return to the internationally-recognised boundaries prior to the seizure of parts of Donetsk, Luhansk, and Crimea, an agreement on reparations for damage caused by an illegal invasion, a system of trials for war crimes committed, and agreement that any future changes to boundaries will be negotiated, not imposed by force. Such a ‘just’ outcome, realistically, isn’t going to be on the table – it could only ever be an option if other countries were willing to use their own military forces to impose such an outcome. What Starmer is talking about is not whether the outcome is ‘just’ or not, but whether the degree of injustice is acceptable to Ukraine and to those countries providing Kyiv with armaments and other support. He's just not honest enough to say so.

The question for the UK becomes one of deciding just how much injustice it should ask Ukraine to accept in the cause of peace. A ceasefire along the current lines of control whilst negotiations on the longer term continue (but without formally recognising the occupied territories as Russian) is a big ask for Ukraine (and utterly unjust), but without external military support it’s probably as good as it gets. But given how much ground Trump has already conceded to Putin, he may already have made even that an impossible outcome. Since Putin knows (not least because Trump appears to have told him so) that Trump will support him in asking for much more than that, it’s hard to see why Putin would back down significantly on what he thinks Trump has already agreed, namely the handover of even more of Ukraine, the formal recognition of Russian sovereignty over the occupied territory, the forgiveness of all Russian war crimes and the reintegration of Russia into a US-led global kleptocracy.

Starmer is doing his best to look like some sort of global statesman from an age where the UK’s opinion counted for something, but it really doesn’t. The truth is that, if they jointly so decide, the two dictators, Trump and Putin, have the power to impose their will. I don’t like that, but me not liking something doesn’t make it untrue. The biggest obstacle to a Trump-Putin accord is not a gang of European middle-ranking powers pleading with Trump, it is that Trump doesn’t actually know what he wants from one day to the next. He certainly loves being flattered, and it’s easy to see why so many have concluded that flattery might be the best way to influence him, but how long that influence lasts after they’ve left his presence is a different matter.

Assuming that the world order will return to what was previously regarded as ‘normal’ once Trump goes is a dangerous starting point, not least because we don’t know when he will go or what will follow him. It’s an unstated assumption, though, which seems to underpin Starmer’s stance – which means that there is no planning going on for the new world in which we may be living for some time to come.

Where do you want to be shot?

Tweet

 

When ‘news’ papers have a space to fill, one common response is to report the results of some survey or other listing the world’s favourite **** (insert item of your choice here). The extent to which the findings are meaningful is an open question. Passing through Heathrow a few weeks ago, I spotted this advert urging people to vote for Heathrow as their favourite airport.

And there was a similar message (for a different airport, obviously) at the destination. Respondents are self-selecting (none of this demographic weighting stuff), and are not required to have actually visited any other airports – or, even, the one for which they are voting. And the appeal of the message is a clear one – vote for ‘your’ airport. More of a loyalty test than a scientific survey. It's a reminder that we should always be questioning the context and methods used in any survey, even professionally conducted opinion polls, before blindly accepting the headline summary.

Which brings me to a report in yesterday’s Sunday Times about a More in Common opinion poll which suggested that 67% would prefer the Chancellor’s budget this week to fill the fiscal black hole by cutting spending rather than increasing taxes on working people. It’s hardly a surprising result – as a general rule, people seem to naively believe that spending cuts somehow affect ‘other people’ whereas tax cuts impact them directly. But, in reality, it’s a bit like an assassin asking whether you’d prefer to be shot in the head or in the heart: it avoids the much more important question about whether you really want to be shot at all. The existence of Rachel Reeves’ black hole isn’t questioned, and nor is the need to fill it by balancing the budget. In effect, the reporting of a simple opinion poll (which I’m sure was conducted professionally in terms of its methodology) manages to confirm and reinforce the Overton window for debate around government finances, confining it to the assumptions made by the UK’s three right-wing parties (Tories, Reform and Labour), all of which are signed up to the ridiculous household analogy for government finances.

For all the leaks, briefings and speculation, we don’t yet know what Reeves will announce this week, but whether she opts for spending cuts, tax rises, or some combination of the two, the effect will be much the same: she will be reducing the purchasing power (and therefore the standard of living) of millions of people in pursuit of an ideological position which imposes upon her an entirely arbitrary set of rules which she herself has designed. And the post-budget debate will revolve around whether the totals she’s arrived at are correct and whether there’s a better combination to achieve the same outcome. But who will be asking whether we really want to be shot at all?

What sort of Wales?

Tweet

 

In a curiously contradictory article on Nation.Cymru yesterday, Labour MS Mike Hedges started off asserting very strongly that Wales is neither too small nor too poor to be independent before launching into a list of reasons why we can’t afford it. We're too poor and we can't afford it sound remarkably similar propositions to me. Those reasons are all based, naturally, on a set of assumptions that most independentistas would challenge, but his underlying point that those supporting independence should produce some sort of budget showing how independence would work is not entirely without merit. Working out what it actually means, though, is a lot more complex: as is usual from those making such a demand, it seems to start from an assumption that independence would happen tomorrow and people should understand the implications of that before voting.

In truth, of course, independence will not happen tomorrow. There will be no referendum on the question unless and until there is a majority in the Senedd in favour of holding one (and, as Scotland has shown, even that doesn’t guarantee one). None of the polls for next May’s Senedd election suggest such an outcome, and even if they did, the largest party in favour has, rather strangely, already ruled out holding one for at least four years. So, the earliest that a Welsh government will even start a process of trying to hold a referendum is 2030, and the earliest date for a referendum is perhaps a year or two after securing agreement – optimistically around 2032. Assuming a positive vote, there would then need to be a period during which negotiations on the details take place – not just with the government of the soon to be ex-UK, but also with international organisations. There would also need to be a period during which the organisations, institutions and processes of an independent Welsh government were created – tax collectors, for instance. Some will see this as unduly pessimistic on my part, but I can see that interim period lasting for perhaps 5 years, meaning that independence would be in or around 2037. But a vote for independence is a vote for a different future, and the reality is that change will take some time even after that. So, while Hedges has a point in saying that people voting (in say 2032) should know what they are voting for, what they need is not an independence budget for 2026, it’s a budget for an independent Wales in around 2042. And for the sake of a decent comparison of alternatives, they need to be able to compare that directly with a budget for continued participation in the UK in 2042.

The problems in providing that comparison are large and obvious; both sets of figures would be based on a huge range of assumptions, all of which would be challenged by the ‘other’ side. It is, of course, possible for any independentista to produce something of an indicative budget for a future independent Wales without specifying to which year it would apply. It would take an amount of work and would be subject to the same caveats around the assumptions made. It would not, though, be a budget for ‘independence’; it would be a budget for the sort of independence favoured by those drawing up the budget. As one obvious example, some independentistas favour continuing to use sterling; others favour a new Welsh currency. The difference between the two in terms of the implications for decisions by the Welsh government is enormous.

The point is that what makes the difference isn’t independence as such. Independence isn’t the magic bullet that some supporters would like it to be, nor is it the millstone which opponents claim it would be; it’s merely an enabler which can be used in a variety of ways. When looking at the finances of a future Wales, what matters is what sort of Wales we want to see. Instead of making impossible demands for clarity and precision from those who support independence, opponents should be setting out how the union will solve, rather than perpetuate, Wales poor economic performance. Given their abject failure to date, it’s easy to understand why they don’t do that.

Assuming honourableness isn't always wise

Tweet

 

Once upon a time, I found myself managing part of a large outsourcing contract, with a customer who turned out to be, shall we say, a little difficult. The approach to anything they didn’t like was a combination of shouting and threats, and there was a lot they didn’t like and on which the contract was either silent or vague. In an internal meeting, I asked the guy who had negotiated the contract how on earth we’d got ourselves into such a situation where there was so little clarity on the detail, and his response was along the lines of, “We thought we were dealing with honourable people”. An interesting, if less than entirely helpful response.

I wonder if the framers of the 22^nd Amendment to the US Constitution may have been suffering from a similar degree of trust in the integrity of individuals. It seems to me to be crystal-clear that Trump is ineligible to stand again, yet he repeatedly holds out the prospect of serving a third term. But what’s not clear from the amendment itself is the actual mechanism for preventing him from standing. Can the US equivalent of the Returning Officer refuse to accept his nomination? Can the Chief Justice refuse to swear him in? Or was it just assumed that making his ineligibility clear was enough in itself? The issue would probably end up before multiple judges at some point. It’s probably academic, though. I don’t think that Trump has any intention of fighting another presidential election, even if the ravages of time (he’s not a young man and is clearly deteriorating both physically and mentally) throw at least a degree of doubt on whether he will be able to. He was quite taken with what Zelensky told him some months ago about not holding elections during a period of martial law – his preference is likely to be for a third term without the bother of an election.

The framers of the 25^th Amendment may have suffered from a similarly touching degree of faith in the integrity of individuals. Whilst they wisely foresaw the possibility that a president might need to be removed from office if he was no longer able to discharge the duties, including by reason of insanity, they don’t seem to have allowed for the possibility that those given the responsibility for deciding that the president was insane might be even madder, just better at completing an occasional sentence. Those US citizens – to say nothing of the rest of the world – resting their hopes on Vance and the Cabinet eventually deciding that enough is enough should be careful what they wish for. There is absolutely no reason for anyone to believe that the removal of Trump would end the nightmare.

The whole approach of governments the world over, including Starmer in the UK, seems to be predicated on an assumption that there will be an end to Trumpism in a defined electoral timescale. They need to be preparing a Plan B.