25 June 2006

My thoughts on Thatcher and Gordon's economic miracle and leadership.

This is in response to Paul Burgin's one year blogging anniversary post where he talks about Thatcher's mythical Falklands competency and Gordon Brown's mythical strong economy.

Thatcher was incompetent over the Falklands. The war needn't have happened. A cynic might even contend it was 'arranged' to distract from domestic economic meltdown (and widespread inner city riots). Thatcher was heading for electoral anihilation. I will explain further.

Thatcher ignored intelligence of the imminent Argentine invasion in 1982. Under the prevous Labour government in 1978, David Owen had acted on similar intelligence and threatened a taskforce that averted an Argentine invasion.

Thatcher's response was to show disdain for the 'cost' of the island and sanction the scrapping of the only warship down there. Also Argentine overtures to Thatcher's defence minister Nicholas Ridley about the importance of the Islands had drawn disinterested responses leaving them with the impression that the Tories wouldn't care less about an invasion. So the invasion happened and conveniently the Tories and Thatcher rode a wave of jingoism to a landslide victory from a previously impossible position.

As for Gordon Brown and the economy, sadly I suspect the economy is built on sand.

GB cleverly managed to avoid a 2000ish world recession by opening the taps on public spending just at the right time thus insulating us perfectly. But alas, boom and bust is inevitable. GB has made the same mistakes as the Lawson credit boom in the late Eighties. There are massive levels of personal debt and housing is overpriced and we can't ignore year after year of balance of payment's deficits. We are clearly living beyond our means. It can't go on for ever (although every year I amazed a recession hasn't occurred).

I have been predicting a recession every year now since 2001 and every year I have been wrong. But I know why I was wrong, the missing trigger is the US dollar. The bubble has finally burst, the dollar is in freefall, stock markets will inevitably follow, interests rates will be cranked up and unemployment will force an overvalued housing market to 're-adjust'(collapse). The longer the delay in recession the harder the fall that is coming, that is what I fear.

GB should have joined the Euro (although the political risks were massive and the housing market reliance on variable interest rates made us too interest rate sensitive so I understand their cowardice). However we can't ignore the fact that foreign direct investment has flooded away to Euroland because we didn't join. The Euro was weak and it would have been a good time for us to join in 1999 (although like in Ireland we might have experienced inflationary pressures due to lower interest rates). Now with the Euro strong, the Euro countries will power past us economically. Just you wait and see. Plus GB is boring and he will lose the next election heavily because of his dour image (I know these things shouldn't matter but we all know they do).

Labour can only save itself fromn defeat by radical change (and GB ain't up to the job in my humble opinion). I also think most Labour party members are with me on this.

Everybody thinks it's going to be a shoe-in for GB, but polls show LP members woudl prefer something more radical. I don't think GB can win the leadership election. Alan Johnson (whatever his merits) looks like the obvious candidate to defeat him.

10 comments:

  1. And remember the silly stuff about Trident now also. Read my blog for more.

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  2. Neil, as you know you posted these very comments on the comments page of my blog entry.
    My response was as follows:

    I agree that Callaghan and Owen handled the Falklands better, and the removal of HMS Endurance from South Atlantic waters was just plain wrong, but once the Argentinians invaded we were right to go in and kick them back out again.
    As for the economy! Well there may well be a recession, such is the nature of the economic beast, but hopefully that will be later rather than sooner. As it is we have had nothing like 1987's Black Monday and so long as we hold tight and don't do anything reckless or stupid we should be okay for now!

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  3. "but once the Argentinians invaded we were right to go in and kick them back out again."

    Well maybe so, but praising Thatcher for this is like starting a fire and then being given credit for calling the fire brigade.

    "so long as we hold tight and don't do anything reckless or stupid we should be okay for now!"

    I think we have to be proactive to lessen the impact of the recession that is coming. Sitting tight with our fingers crossed is not good enough.

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  4. Join the Euro!?! Over my dead body! You may as well scrap the Treasury if you are giving control of the economy to Brussels to run for the benefit of Europe.

    Italy and Germany are already struggling as the Euro interest rate is not appropriate for their domestic economies, why should it be good for the UK economy.

    Neil, it's good to see that we both agree on one thing, GB's economy is built on sand...

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  5. snafu: "Italy and Germany are already struggling as the Euro interest rate is not appropriate for their domestic economies, why should it be good for the UK economy."

    Once again, you (and the UK in general) are hoping a great European project is going to fail, rather than joining with them at the beginning. Once again we will be on our knees begging to join the Euro in a few years as it proves a huge success (which in all likelyhood it will - the risks were minimal).

    Yes, in the short term, it has been difficult for some Eurozone countries, but the corner has been turned. Most people recognise that the poor performance in some countries has little to do with the ECB rate setting or Euro itself. Germany and Italy's exports remain very strong and their growth rates are predicted to overtake ours in the next few years. Even you accept UK growth is built on consumer debt, the German and Italian economies are built on export earnings (which is a true picture of their economies unlike the false rosy picture painted of the UK economy by our debt led growth).

    Is it not the case that the Euro is becoming one of the strongest currencies in the world? More and more countries are using it as a reserve currency as the US dollar goes into freefall. We have been mad not to tie our economy to the Euro when it we could have joined at generous exchange rates in 1999.

    Now of course, maybe you are right, it might be too late to join without severe pain. Eventually of course we will have to join, as our investment drains away to Europe and even E.Europe has signed up to the Euro before us.

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  6. Neil, any regrets about the Exchange Rate Mechanism?

    "Even you accept UK growth is built on consumer debt, the German and Italian economies are built on export earnings". Italys' national debt is approximately 100% of GDP whilst Germany's is 68%!

    I have no problems with the rest of Europe being in the Euro, it is good for us as it minimises transaction costs whilst the UK retains control of it's currency.

    I frequently struggle with how you flip flop between being pro-business , ie support for the Euro and anti- business as it "exploits the poor"!

    Eastern Europe has been forced to adopt the Euro as the cost of receiving EU grants, it has not been voluntary decision.

    As the Chinese and Indian economies boom this century, their currencies will dominate international trade, the Euro will become an historic irrelevance, sterling used to be the international currency of choice one upon a time...

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  7. snafu: "I frequently struggle with how you flip flop between being pro-business , ie support for the Euro and anti- business as it "exploits the poor"!"

    It is called seeing both sides of the argument.

    Business creates wealth, without it we would all be poor. But it does need it's worst excesses regulated, both for itself and to protect the most disadvantaged. The market works best when it is properly regulated.

    The Euro is not pro or anti business, it is common sense. It is more efficient to have one currency, there are awhole host of long-term advantages (economies of scale, increased specialisation etc.) once the short term costs of implementation have been overcome. Of course the Euro brings new problems, not least the need for a more federalist political structure to oversee a more generous redistribution of wealth between richer and poorer countries to compensate for potential increased disparities and barriers to movement of labour. This can bring friction but I am an optimist that, as it is in all the countries interests, these problems will be overcome.

    "Eastern Europe has been forced to adopt the Euro as the cost of receiving EU grants, it has not been voluntary decision."

    As far as I can see, these countries are desperate to join the Euro at the earliest opportunity. If anything it is the EU they is delaying them joining.

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  8. "I have no problems with the rest of Europe being in the Euro, it is good for us as it minimises transaction costs whilst the UK retains control of it's currency."

    It also gives companies in the Eurozone a competitive advantage over our firms in terms of transaction costs.

    "Italys' national debt is approximately 100% of GDP whilst Germany's is 68%!"

    Yes, but look at our consumer debt, look at our balance of payments deficit. You are trying to have it both ways. On the one hand you are trying to say our economy is doing better than the Eurozone so you can slag off Europe while on the other you are trying to say our economy is doing crap because you want to slag off Labour. Which is it?

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  9. Neil, I'm not trying to have it both ways! I don't think we should join the Euro, not because the Euro economies are performing badly but because it leads to a loss of economic sovereignty by giving up sterling. Even if the Euro economies were powering ahead of the UK economy, I would not welcome UK membership of the Euro. That's quite different to slagging off Europe too!

    I merely agreed with you that the 'success' of the UK economy in recent years has been built on increasing levels of personal and public sector debt that will need to be repaid one day.

    If you want the UK to retain some competitive advantage over European countries, do you oppose the minimum wage!?! (I know you don't but it would give the UK a competitive advantage!)

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  10. The minimum wage is set so low it has no effect on the manufacturing jobs we are losing. This is mainly down to not joining the Euro.

    The minimum wage helps people in low paid service jobs that can't be exported like the caring industries and retail jobs.

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