A disgrace in 1931, and now

Formation of a national government would be an attack on democracy and give succour to fascism
Comments (10)

Tony Benn
The Guardian, Thursday December 11 2008
Article history
The argument that we might have to consider a national government to deal with the economic crisis, as put in these pages on Monday by Frank Field, is the clearest indication that capitalism and democracy are incompatible. It is of course not a new argument – Ramsay MacDonald, then Labour prime minister, followed that course in 1931, joining with the Tories and the Liberals and calling an election in which only 51 Labour MPs survived. That national government continued until 1940 and was directly responsible for the appalling suffering during the slump that followed, with mass unemployment and destitution for the many thrown out of work.
Oswald Mosley, once a Labour MP and minister, responded by setting up the New party, which developed into the British Union of Fascists; he used the Jews as scapegoats in much the same way as some MPs today seem ready to blame immigrants. Stanley Baldwin, who succeeded MacDonald, then followed a policy of appeasement towards Hitler and it was only when Churchill came to power in 1940 and Labour entered into the wartime coalition that this period ended.
In 1931 MacDonald described the party he had helped to found as “Bolshevism gone mad”. He swept to power while many of his old colleagues, including my father, who had been in MacDonald’s cabinet, were defeated.
A national government in peacetime amounts to a declaration that democracy cannot be maintained if market demands are so strong that no party can expect to challenge them and survive.
During the 1930s Labour did survive, increasing its seats by 100 in the 1935 election. When the manifesto was drafted for the postwar election in 1945, it contained a very clear statement about the causes of that prewar crisis: “The sure and certain result of the concentration of too much economic power in the hands of too few men.” This manifesto won an overwhelming majority and gave the party the support it needed to establish the welfare state and the NHS, and public ownership of gas, electricity, water and transport.
This formed the basis of a broad political consensus, until the election of Margaret Thatcher in 1979. She launched a counter-revolution against democracy, to break the power of trade unionism, strangle local government, and launch a programme of privatisation – all designed to put the market back in charge. Tony Blair’s New Labour project was based on his belief that the only way to win an election was to adopt those policies, and it should be no surprise that Thatcher described New Labour as “her greatest achievement”.
In this sense the present economic crisis is actually a crisis of democracy as the market has taken from parliament the power to shape the policy of the nation. Elected leaders, such as George Bush and the prime minister, have been left the role of commentators on the crisis and suppliers of endless cash in an attempt to save a system that failed us.
If a national government is formed, it will constitute a direct attack on democracy. Electors will be denied any choice in government policies, and it will be no surprise if the BNP seeks to benefit from the crisis, as Mosley did, by finding its own scapegoat. The Labour movement will be in opposition, and the various sectarian left groups that waste so much time fighting each other might realise that they have to work with that movement to provide relevant alternatives.
We should therefore all be grateful to Frank Field for speaking up in favour of a national government. If it happens, we shall be ready to reassert the importance of democracy and what it can offer us.
• Tony Benn is a former Labour MP and cabinet minister

Competition

Competition in the market puts people under great pressure to break the ordinary rules of decent conduct and then to produce good reasons for doing so. It is these rationalizations – the endless self-deception necessary to meet the bottom line and still feel okay about it – that corrode moral character. But this isn’t in itself an argument against the free market. Think about the ways that democratic politics also corrodes moral character. Competition for political power puts people under great pressure – to shout lies at public meetings, to make promises they can’t keep, to take money from shady characters, to compromise principles that shouldn’t be compromised. All this has to be defended somehow, and moral character doesn’t survive the defense – at least, it doesn’t survive intact. But these obvious flaws don’t constitute an argument against democracy.To be sure, economic and political competition also produce cooperative projects of many different sorts – partnerships, companies, parties, unions. Within these projects, empathy, mutual respect, friendship, and solidarity are developed and reinforced. People learn the give-and-take of collective deliberation. They stake out positions, take risks, and forge alliances. All these processes build character. But because the stakes are so high, participants in these activities also learn to watch and distrust one another, to conceal their plans, to betray their friends, and – we know the rest, from Watergate to Enron. They become “characters” in familiar stories of corporate corruption, political scandal, defrauded stockholders, and deceived voters. Let the buyer beware! Let the voter beware!Is there a way of making political and economic competition safe for moral men and women? It certainly can’t be made entirely safe. Free markets and free elections are inherently dangerous for all participants, not only because the wrong people, products, and policies may win out, but also because the cost of winning for the right people, products, and policies may be too high. We don’t, however, treat the dangers of markets and elections in the same way. We work hard to set limits on political competition and to open politics to the participation of more or less moral mortals. Politicians aren’t widely recognized as moral exemplars these days, in part because they live so much in the media eye, and every sin, every foible, is broadcast to the world.Nevertheless, constitutional democracies have succeeded in stopping the worst forms of political corruption. We are free from the whims of tyrants, from aristocratic arrogance, from repression, arbitrary arrest, censorship, fixed courtrooms, and show trials – not so free that we don’t need vigilantly to defend our freedom, but free enough to organize the defense. Politicians who lie too often or break too many promises tend to lose elections. No, the worst corruptions of our public life come not from politics but from the economy, and they come because we don’t have similar constitutional limits on market behavior.Perhaps the most important achievement of constitutional democracy has been to take the desperation out of politics. Losing power doesn’t mean getting shot. Supporters of the losing side are not enslaved or exiled. The stakes in the power struggle are lower than they used to be, which greatly improves the options for moral conduct. The modern welfare state is supposed to do the same thing for the economy: it constitutionalizes the market by setting limits on what can be lost. But in fact, in the United States at least, we don’t have much in the way of market constitutionalism. For too many people, the competitive struggle is pretty close to desperate. What is at risk is the survival of a family, healthcare for the children, a decent education, dignity in old age. And risks like those don’t leave a lot of room for morality. Decent people will act decently, and most people are decent when they can be. Still, the effects of the struggle are steadily corrosive.Another achievement of constitutionalism has been to set limits on the political power of the most powerful men and women. They must live with countervailing powers, opposition parties and movements,periodic elections, a free and sometimes critical press. The primary point of these restraints is to minimize the harm that already corroded characters can do. But some of our politicians actually internalize the restraints, and that is an important character-building process.Market constitutionalism would set similar limits on the economic power of the wealthiest men and women. But again, obviously, we don’t have much of a market constitution. Restraints on economic power are very weak; the countervailing power of labor unions has been greatly reduced; the tax system is increasingly regressive; the regulation of banking, investment, pricing policies, and pension funds is virtually nonexistent. The arrogance of the economic elite these last few decades has been astonishing. And it stems from a clear-eyed view that they can do just about anything they want to do. That kind of power, as Lord Acton wrote years ago, is deeply corrupting. The corruption extends to politics, where the influence of money, earned without restraint in an unrestrained market, undermines the political constitution. You need money, let’s say, to run a political campaign (for a good candidate or a good cause), and here is someone – a banker, a corporate giant – who has a lot of money and is offering it for a price, for policies or legislation that will improve his market position. The other side is taking money like that, as much as it can get. Whose character will resist corrosion now?Some might argue: isn’t this the way character is tested? If market constitutionalism limits the power of wealth and the welfare state reduces the fear of poverty, don’t we make virtue too easy? Easier, maybe, but never very easy. Consider again the political analogy: do we make virtue too easy when we deny Presidents tyrannical power and when we protect the powerless from persecution? The corrosive pressures of electoral competition don’t go away. We set limits on those pressures out of respect for human frailty. And if we need to do that with regard to governments, we surely need to do it with regard to markets.
Michael Walzer is professor emeritus in the School of Social Science at the Institute for Advanced Study in Princeton, New Jersey. He is a contributing editor of the New Republic, co-editor of Dissent, and the author, most recently, of Thinking Politically.

Critics rightfully grasp that the free market undermines the traditional, local arrangements that people depend on to teach and sustain morality. Consider especially the experience of children. They first learn morality from their families, with whom they are most emotionally bonded. Love attaches children to moral conventions and arouses essential moral emotions like sympathy and guilt. In a preindustrial society, these moral habits are further reinforced by the tribe or the village, as well as by religious institutions and folk tales. The developing child is surrounded by a kind of conspiracy of moral teachers, demonstrating lessons of character by word and (less reliably) by deed.Market economies weaken this cultural conspiracy in three powerful ways. First, they introduce novelty, which challenges established cultural habits and moral verities. Second, they stir up individual desire in ways that can easily weaken the self-discipline and moral obligations that make free markets flourish. (As the sociologist Daniel Bell famously argued, markets can end up cannibalizing their own moral infrastructure.) And third, as they advance, market economies become more likely to treat the yet-to-be-socialized child as an autonomous, adult-like actor rather than as an immature dependent. They often turn the pliant student of moral obligations into a skeptical, even resistant peer.Two of the most influential new products of the 20th century, the automobile and the television, perfectly illustrate the market’s potential to dilute moral consensus and personal loyalties. By exporting insiders and importing outsiders, the car reduced the sway of the local community and its moral requirements. By taking fathers to jobs far from home, it accelerated the separation of work from family life. Indeed, market evolution was the direct cause of the “separate spheres” that placed mothers at the helm of domestic life and fathers at a distant workplace.The car also scattered family members (uncles and aunts to California, grandparents to Florida) who previously might have buttressed the child’s developing moral sense. It increased opportunities for anonymity, which made it easier to escape shame and embarrassment over violations of moral behavior, and allowed individuals, especially teenagers, to avoid the judgmental eyes of adults. In the early 20th century, a juvenile court judge, noting the unexpected use to which young people were putting the new invention, grumbled that the horseless carriage was nothing more than a “brothel on wheels.”The cultural disruption wrought by television, and particularly by advertising, has been even more troubling than that of the car. Before the advent of the small screen, families could expect to do most of their moralizing work safe from commercial intrusions. Family life could be imagined as a “haven in a heartless world,” in the words of the sociologist Christopher Lasch. Salesmen may have come to River City, but they had to knock on doors and ply their band uniforms and instruments to domestic gatekeepers, usually mothers. Television allowed the salesmen to push past parents and sit down right next to the unmoralized child, tempting him with pleasures against which he had few defenses. More generally, television uses fantasies of revenge, violent mayhem, sexual license, and material excess to lure viewers, young and old.Of course, today the Internet is usurping television’s long-held status as the chief sponsor of hedonism, materialism, and anarchic egotism. If broadcast television had censors who clumsily expressed a cultural consensus about acceptable public speech, the World Wide Web knows no bounds. Moreover, just as the automobile gave provincial people new opportunities for anonymity, the Internet allows children to escape the limitations of their status. Nothing better symbolizes the market’s penchant for turning the child into a pseudo-adult, for undermining parental authority, and for fostering shame-escaping anonymity, than the 13-year-old girl arranging a rendezvous with a 40-year-old man on an Internet chat room while her parents assume she is doing her homework.But all the news is not bad. Even though the market has undermined the power of community norms and loaded sole responsibility for moral teaching onto the shoulders of individual parents, all the while bombarding kids with the likes of Grand Theft Auto and Paris Hilton, it has yet to bring us Gomorrah. In the United States, indicators of juvenile moral health, like rates of violence and promiscuity and rebellious attitudes toward adults, have declined in recent decades even as the electronic media have increased the market’s reach.Why? One reason is that middle-class parents have reacted to the market’s siren calls by intensifying their watchfulness. Their efforts have sometimes been ridiculed, and for good reason. But hyper-parenting is an understandable response to the dislocations that come with free-market innovation and actually attests to the resilience, at least among the middle class, of the bourgeois family, which evolved in response to capitalism. In communities where mothers have gone to work, extended families have moved away, and strangers and cars roam, parents continue to supervise their children through the use of cell phones, extracurricular programs, surrogates like tutors and coaches, and, alas, Internet spying programs and even GPS devices.The relative moral health of the young has also been bolstered, it must be said, by the free market’s relentless encouragement of self-discipline. To succeed in today’s knowledge economy, young people understand that they must excel at school. Despite the temptations of consumerism, middle-class and aspiring immigrant children grow up knowing that education is crucial to maintaining or improving their status and that competition in the knowledge economy is keen. In an earlier day, children imbued with the Protestant ethic did their chores and minded their p’s and q’s. Today’s kids go to cram schools and carry 40-pound backpacks.So does this mean that critics of the market have been proved wrong? Not exactly. The free market’s celebration of hedonism and autonomy has had its predicted effect on those with less cultural capital – the poor and, more recently, the working class. In low-income communities, the assault on norms of self-restraint and fidelity in personal relations has undermined both the extended and the nuclear family. In many such communities, divorce and out-of-wedlock births are becoming the norm. The work of moralizing the next generation in an advanced market economy is difficult under the best conditions. For single mothers in low-income communities, where schools are chaotic and responsible males are few and far between, it may be close to impossible.

Kay S. Hymowitz is the William E. Simon Fellow at the Manhattan Institute and a contributing editor at City Journal. Her most recent book is Marriage and Caste in America: Separate and Unequal Families in a Post-Marital Age.Read more Download PDF Back to top Email
Critics rightfully grasp that the free market undermines the traditional, local arrangements that people depend on to teach and sustain morality. Consider especially the experience of children. They first learn morality from their families, with whom they are most emotionally bonded. Love attaches children to moral conventions and arouses essential moral emotions like sympathy and guilt. In a preindustrial society, these moral habits are further reinforced by the tribe or the village, as well as by religious institutions and folk tales. The developing child is surrounded by a kind of conspiracy of moral teachers, demonstrating lessons of character by word and (less reliably) by deed.Market economies weaken this cultural conspiracy in three powerful ways. First, they introduce novelty, which challenges established cultural habits and moral verities. Second, they stir up individual desire in ways that can easily weaken the self-discipline and moral obligations that make free markets flourish. (As the sociologist Daniel Bell famously argued, markets can end up cannibalizing their own moral infrastructure.) And third, as they advance, market economies become more likely to treat the yet-to-be-socialized child as an autonomous, adult-like actor rather than as an immature dependent. They often turn the pliant student of moral obligations into a skeptical, even resistant peer.Two of the most influential new products of the 20th century, the automobile and the television, perfectly illustrate the market’s potential to dilute moral consensus and personal loyalties. By exporting insiders and importing outsiders, the car reduced the sway of the local community and its moral requirements. By taking fathers to jobs far from home, it accelerated the separation of work from family life. Indeed, market evolution was the direct cause of the “separate spheres” that placed mothers at the helm of domestic life and fathers at a distant workplace.The car also scattered family members (uncles and aunts to California, grandparents to Florida) who previously might have buttressed the child’s developing moral sense. It increased opportunities for anonymity, which made it easier to escape shame and embarrassment over violations of moral behavior, and allowed individuals, especially teenagers, to avoid the judgmental eyes of adults. In the early 20th century, a juvenile court judge, noting the unexpected use to which young people were putting the new invention, grumbled that the horseless carriage was nothing more than a “brothel on wheels.”The cultural disruption wrought by television, and particularly by advertising, has been even more troubling than that of the car. Before the advent of the small screen, families could expect to do most of their moralizing work safe from commercial intrusions. Family life could be imagined as a “haven in a heartless world,” in the words of the sociologist Christopher Lasch. Salesmen may have come to River City, but they had to knock on doors and ply their band uniforms and instruments to domestic gatekeepers, usually mothers. Television allowed the salesmen to push past parents and sit down right next to the unmoralized child, tempting him with pleasures against which he had few defenses. More generally, television uses fantasies of revenge, violent mayhem, sexual license, and material excess to lure viewers, young and old.Of course, today the Internet is usurping television’s long-held status as the chief sponsor of hedonism, materialism, and anarchic egotism. If broadcast television had censors who clumsily expressed a cultural consensus about acceptable public speech, the World Wide Web knows no bounds. Moreover, just as the automobile gave provincial people new opportunities for anonymity, the Internet allows children to escape the limitations of their status. Nothing better symbolizes the market’s penchant for turning the child into a pseudo-adult, for undermining parental authority, and for fostering shame-escaping anonymity, than the 13-year-old girl arranging a rendezvous with a 40-year-old man on an Internet chat room while her parents assume she is doing her homework.But all the news is not bad. Even though the market has undermined the power of community norms and loaded sole responsibility for moral teaching onto the shoulders of individual parents, all the while bombarding kids with the likes of Grand Theft Auto and Paris Hilton, it has yet to bring us Gomorrah. In the United States, indicators of juvenile moral health, like rates of violence and promiscuity and rebellious attitudes toward adults, have declined in recent decades even as the electronic media have increased the market’s reach.Why? One reason is that middle-class parents have reacted to the market’s siren calls by intensifying their watchfulness. Their efforts have sometimes been ridiculed, and for good reason. But hyper-parenting is an understandable response to the dislocations that come with free-market innovation and actually attests to the resilience, at least among the middle class, of the bourgeois family, which evolved in response to capitalism. In communities where mothers have gone to work, extended families have moved away, and strangers and cars roam, parents continue to supervise their children through the use of cell phones, extracurricular programs, surrogates like tutors and coaches, and, alas, Internet spying programs and even GPS devices.The relative moral health of the young has also been bolstered, it must be said, by the free market’s relentless encouragement of self-discipline. To succeed in today’s knowledge economy, young people understand that they must excel at school. Despite the temptations of consumerism, middle-class and aspiring immigrant children grow up knowing that education is crucial to maintaining or improving their status and that competition in the knowledge economy is keen. In an earlier day, children imbued with the Protestant ethic did their chores and minded their p’s and q’s. Today’s kids go to cram schools and carry 40-pound backpacks.So does this mean that critics of the market have been proved wrong? Not exactly. The free market’s celebration of hedonism and autonomy has had its predicted effect on those with less cultural capital – the poor and, more recently, the working class. In low-income communities, the assault on norms of self-restraint and fidelity in personal relations has undermined both the extended and the nuclear family. In many such communities, divorce and out-of-wedlock births are becoming the norm. The work of moralizing the next generation in an advanced market economy is difficult under the best conditions. For single mothers in low-income communities, where schools are chaotic and responsible males are few and far between, it may be close to impossible.

Jean Charles De Menezes coroner rules out unlawful killing verdict–what a stitch up!

Sean O’Neill, Crime Editor

The jury hearing the inquest of Jean Charles de Menezes were barred from finding that he was illegally killed by the Metropolitan Police, in a surprise order that prompted members of his family to walk out of court.

Sir Michael Wright, QC, ruled yesterday that jurors would not be allowed to consider a verdict of unlawful killing. In the closing stages of the 11-week inquest, which has involved 100 witnesses and is estimated to have cost £3 million, Sir Michael said that the evidence did not justify such a conclusion.
Mr de Menezes, 27, an electrician, was shot seven times in the head by armed police who mistook him for a suicide bomber on a London Underground train in July 2005.
The coroner said that no individual – not the firearms officers who shot Mr de Menezes, nor their Scotland Yard commanders – could be held liable in criminal or civil law for his death.
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Sir Michael, a retired High Court judge, told the eleven jurors that they could only consider two outcomes: either that Mr de Menezes was lawfully killed or an open verdict.
Referring to Mr de Menezes’s mother, Maria Otone de Menezes, who sat through most of the inquest, he said: “I know that your heart will go out to her. But these are emotional reactions, ladies and gentlemen, and you are charged with returning a verdict based on evidence. Put aside any emotions – put them to one side.”
The inquest, held in the John Major Room at the Oval cricket ground in South London, has heard conflicting and controversial evidence.
Jurors were told that police surveillance officers, given the task of finding one of the four bombers who tried to detonate suicide devices in London on July 21 2005, were sent out the following morning without a picture of the man they were looking for. Although Mr de Menezes was never positively identified as the terrorist suspect, specialist firearms officers ran on to a Tube train at Stockwell and shot him dead.
One of the armed officers, “Charlie 12”, claimed that he had shouted “armed police” and opened fire only after Mr de Menezes had stood up and advanced towards him. None of the passengers on the carriage recalled hearing a warning shouted or seeing Mr de Menezes stand up before he was held down in his seat and shot. One woman said that she thought that the police officers were “out of control”.
Deputy Assistant Commissioner Cressida Dick, the Gold Commander on the operation, said in her evidence that no officer had done anything wrong or unreasonable.
Sir Michael said that his decision to disallow an unlawful killing verdict was a reflection that the evidence did not point to any individual being responsible for the death. He said: “All interested persons agree that a verdict of unlawful killing could only be left to you if you could be sure that a specific officer had committed a very serious crime – murder or manslaughter.”
Sir Michael warned jurors that they must not attach criminal or civil fault to any individuals. But the jury were not barred from concluding that the police had made mistakes. He added: “In directing you that you cannot return a verdict of unlawful killing, I am not saying that nothing went wrong on a police operation which resulted in the killing of an innocent man.”
Last year, an Old Bailey jury found the Met guilty of breaches of health and safety law in the operation. The force was fined £175,000.
Sir Michael said that he wanted the jury to consider whether the officer had shouted a warning before opening fire, whether there had been communication failures between Scotland Yard and officers on the ground and why Mr de Menezes was not stopped before boarding public transport.

The coroner continues his summing-up today.
Michael Mansfield President of NCLG represents the de Menezes family
more later with Michael’s reaction

A passive approach to bank stakes is inadequate

By John Kay
Published: November 25 2008 19:32 Last updated: November 25 2008 19:32
Governments of the world are becoming major shareholders in their financial institutions. The British government owns two mortgage lenders – Bradford & Bingley and Northern Rock – is likely soon to hold a majority of the capital of the Royal Bank of Scotland, and to be much the largest shareholder in the combined HBOS/Lloyds TSB. The US government has a dominant holding in AIG, one of the world’s largest insurers, and will soon hold a similar position in Citigroup, making it the biggest financial institution of all. Fortis and ABN Amro are owned by Benelux governments. And so on.
Early socialists must be chuckling in their graves. But this government control of the commanding heights does not represent the triumph of socialism over capitalism, but the necessity of pragmatism in the face of failures of capitalism. Governments do not want to own these stakes, and are not quite sure what to do with them.
Nationalised financial institutions have often been badly run businesses which served neither their owners nor their customers well. But recent experience has shown that privately owned financial institutions have often been badly run businesses which served neither their owners nor their customers well. One might argue that the private businesses served their customers better than their owners; while the state-owned ones served their owners better than their customers. Such are the inherent contradictions of capitalism, as Marx would have put it.
The British government has perhaps the clearest strategy. It has set up an organisation called UK Financial Investments. The intention is that UKFI should act as a relatively passive shareholder in these businesses with a view to a quick realisation. UKFI is modelled on the Shareholder Executive established five years ago to hold government stakes in other companies. The reports of the Shareholder Executive read rather like the updates a private equity house might prepare for investors.
But this answer is not adequate. The problems are evident in these reports from the Shareholder Executive. The government owns businesses such as Royal Mail and the Nuclear Decommissioning Authority for a reason. The rationale of public ownership is that there is a strong public interest, not just in the financial returns from these activities, but in what these businesses do and how they operate. The government does not, cannot and should not have the same kind of relationship with the companies it owns as a private equity owner.
That does not mean that the Shareholder Executive is a bad idea. Officials in government departments are often ignorant and naïve when faced with issues that are the day-to-day concern of private equity professionals and investment bankers; their expertise needed reinforcement. But while the government has an interest as investor, that cannot be its only interest: if it were the only interest, then government should not be an investor at all.
So with banks. The government will not recapitalise Woolworths because it matters little to the wider economy whether or not Woolworths stays in business. The government does recapitalise banks because there is a vital public interest in the continued operation of the payment system and the availability of finance to small- and medium-size businesses. So the primary purpose of the investment is not to ensure that the taxpayer gets its money back – although that issue should certainly not be neglected – but to ensure that these ordinary banking functions operate well.
But no one who talks to small business owners today can believe that that objective is being met. If it was much too easy to get loans in the salad days, it is much too difficult to get them in the locust years. The consequences of the loan restrictions are plunging the non-financial economy into depression. If there are concerns over the availability of mortgage finance – and there should be – then it is absurd to run down the very efficient mortgage administration activities of the two mortgage banks the British government owns. We taxpayers have rescued these financial institutions for a specific purpose, and we should use our stakes in them to insist that this purpose is fulfilled.
Darling’s Christmas present conceals a debt trap
By Simon Ward
Published: November 25 2008 20:02 Last updated: November 25 2008 20:02
Alistair Darling’s emergency Budget is pregnant with dangers. It will not achieve his objectives of shortening the recession and hastening recovery while the borrowing the UK will have to undertake will impose major costs on future taxpayers, endangering the long-term health of the economy.
On the face of it, Mr Darling is delivering a significant economic stimulus in 2009-10 through his temporary VAT cut and other measures. The Treasury reckons cyclically adjusted net borrowing will rise by 1.9 percentage points of gross domestic product, the largest increase since 1992-93. This will contribute to record headline borrowing of £118bn in 2009-10 or 8 per cent of GDP.
The form of the package and its temporary nature, however, imply a much smaller impact on demand. Most consumers base their spending on long-term income expectations. Current income is a key factor only for families with no savings or credit. A temporary tax cut applied across all families paid for by higher future taxes may not have a significant impact on consumption. Measures targeted at savings-short, credit-constrained people would have a greater chance of success, but the rise in spending would be partly offset by cutbacks by others anticipating lower future post-tax incomes.
Fiscal actions financed by higher borrowing can deliver a short-term stimulus. Policies must, however, be designed to enhance the economy’s long-term supply potential, thereby raising long-term income expectations. Examples include marginal tax rate cuts, which stimulate entrepreneurship and effort, and public investment in projects promising high returns such as transport infrastructure.
A temporary VAT cut is not targeted at people more likely to spend any gains and has no positive impact on the economy’s long-term supply potential. Consumption will rise in the months before the lower rate is withdrawn but fall by roughly the same extent afterwards. The temporarily higher demand will be met either from imports or a rundown of stocks, with no impact on domestic production.
Higher borrowing can have monetary effects; a rising deficit financed by bank borrowing rather than bond sales would boost the money supply, representing a “net injection of cash to the economy”. The same positive monetary impact, however, could be achieved simply by “underfunding” the existing deficit, without further fiscal largesse. The authorities appear to have rejected underfunding as an option.
Regardless of whether the effect of Darling’s package is large or small, it will be fully reversed in 2010-11 and beyond as the VAT cut is reversed and higher national insurance and income taxes kick in. Cyclically adjusted net borrowing is projected to fall by a combined 2.9 percentage points of GDP in 2010-11 and 2011-12. This could undercut the Treasury’s hopes of GDP growth of 2 per cent and 3 per cent respectively in these two years.
So it is possible that by 2011 the economy will be no stronger than in the absence of Mr Darling’s measures yet the public finances will be worse, with the net debt/GDP ratio on the Treasury’s own optimistic projections reaching 53 per cent by March 2011, even excluding the impact of recent financial sector rescues.
Servicing this debt will eat significantly into the nation’s resources. The Treasury projects a rise in debt interest from 1.7 percentage points of GDP in 2008-09 to 2.4 percentage points by 2013-14. This increase is the equivalent of £10bn in today’s prices. Put another way, the increased cost equals a 2.5p rise in basic rate income tax.
Even this could be too optimistic. The Treasury assumes the interest rate paid on debt averages 0.9 percentage points less than the annual GDP growth rate in nominal terms between 2010-11 and 2013-14. Investors may, however, demand higher yields to induce them to hold more gilts. If the average interest rate were to equal nominal GDP growth, debt interest would soar to more than 3 per cent of GDP by 2013-14.
The danger is of a debt trap – a vicious circle in which the debt/GDP ratio explodes as rising debt interest causes ever widening budget deficits. A debt trap develops if two conditions are fulfilled – the primary budget balance, which excludes debt interest, is in deficit, and the debt interest rate is greater than money GDP growth. The Treasury’s forecasts show an average primary deficit of 3.3 per cent of GDP over the next five fiscal years. Even a modest rise in gilt yields would cause the debt/GDP ratio to explode.
The writer is New Star Asset Management’s economist and strategist
Copyright The Financial Times Limited 2008

Taji Mustafa debates with Tory MP

Taji Mustafa debates with Tory MP – whose leader calls for a ban on Hizb ut-Tahrir
London, UK, November 24 2008 – Conservative MP Philip Davies shared a debating platform with Taji Mustafa of Hizb ut-Tahrir Britain in Bradford last Saturday (23/11/08) despite David Cameron’s slanderous populist calls for a ban on Hizb ut-Tahrir and Cameron’s refusal to take their challenge to an open debate. It is clear that he cannot even convince his own MPs on this issue as Mr Davies preferred to argue and debate ideas – ignoring Cameron’s hysterical scaremongering – in a lively community debate entitled ‘Has freedom gone too far?’.
The debate questioned the effects of liberal values in western societies – as exemplified by the recent Russell Brand/Jonathon Ross insults fiasco. They also discussed the Iraq war and the killing of over a million Iraqis in the name of bringing ‘freeedom’ and democracy to the Middle East, as well as the torture, rendition and 28 day pre-charge detention practised by western governments who preach ‘freedoms’.
During the debate, Philip Davies made it clear that he is opposed to the liberal interventionist export of democracy and liberal values by the gun, as supported by some in the West including David Cameron who supported the invasion of Iraq. Taji Mustafa highlighted growing questions in the West about the effects of liberal values and why people in the Muslim world increasingly support the re-establishment of the Caliphate state so they can once again live by the Islamic values of accountability and responsibility as opposed to the moral-relativism which has lead some in the West to support lewd insults to a 78-year-old man as ‘edgy comedy’.”
After the debate Taji Mustafa, media representative of Hizb ut-Tahrir Britain, said, “David Cameron spreads lies about Hizb ut-Tahrir – hiding behind parliamentary privilege. However, his colleague Philip Davies MP was willing to share a platform with a member of Hizb ut-Tahrir, for the second time, and debate issues.”
“Cameron, it seems, believes in the kind of ‘freedom’ that calls for the banning of Islamic political organisations and shutting down debate, but cannot convince his own backbenchers to accept this. One wonders if he will now promote the same kind of ‘freedom’ within his own party and ban his backbenchers from speaking? We will see.”
“For our part, Hizb ut-Tahrir is happy to debate with both moderate and extremist Conservative MPs, because we believe in debate, the strength of our ideas and our vision of a Caliphate for the Muslim world”.

Brown’s licence to print money – letters

George Monbiot misses the central point about the build up of surpluses and deficits that Keynes’s plan would have prevented: they are a consequence of a refusal to share wealth in both the surplus and deficit states (Keynes is innocent, November 18). For example, the growing wealth in China and oil-rich Arab states was not redistributed to their own citizens, but was used to buy assets in places such as the US and the UK, that were intensely relaxed about people getting filthy rich. Many people in the US and the UK were not really better off, but sustained the illusion by borrowing all that money that was flowing in. Their debt got parcelled up and parcelled on – until the music stopped.
We must make sure it’s not the poor who pay the piper. The national economic council that Gordon Brown has set up has government departments and businesses and Oxbridge advisers on it. What chance the pre-budget report will be pro-poor and start to fix the problem?
Katherine Duffy
European Anti-Poverty Network
I am surprised at the naivety of the government, the opposition and most of your columnists. A crisis in capitalism serves an essential purpose. It wipes out the least healthy companies allowing the most healthy to thrive. The government should have allowed HBOS and RBS to go to the wall, allowing Lloyds, Barclays and HSBC to thrive. In the early 80s Mrs Thatcher faced a very unhealthy UK capitalism and had the right strategy. She accelerated the destruction of the weak and changed the UK from the weak man of Europe to one of the strongest.
Of course, unemployment will grow, but as long as we can provide new jobs and housing we will end up stronger.
It is equally absurd to reduce interest rates to 1%. Interest should be kept at a reasonable level, otherwise you are punishing the savers. This would also strengthen sterling and allow us to borrow on the international money market.
It is equally batty for the government to demand that banks lend to businesses and people at the end of their financial tether. Surely they can understand that banks are profit-making companies operating in a competitive market?
If the Conservative opposition had the vision of Thatcher, they could do us all a service by following her lead.
Ian Grigg-Spall
Canterbury, Kent
David Cameron would fail Economics 1. (A borrowing binge, November 18). The deficit caused by the current anti-recessional fiscal policy will be largely financed by monetisation of debt: in effect by “printing money”. This mechanism is at the heart of Keynesian policy. It can, of course, be abused, and cause inflation if excessive, but in recession-threatened times it is the right thing to do. Borrowing to finance the deficit would raise interest rates, which would dampen the expansionary effect. It is only initially that a deficit appears: once expansion occurs, the deficit will fall.
John Levi
Abingdon, Oxfordshire
OK, so this recession story (Brown claims Tories are alone in opposing tax cuts, November 18) has now got three chapters. 1) Banks can’t lend so Brown et al gave them tanker-loads of money. 2) Banks still can’t manage it, so the Bank of England cuts interest rates. 3) Still not enough credit coming from banks so Brown et al will cut taxes, to be paid for by … bank lending. Didn’t Lewis Carroll write books about this sort of thing?
Bryn Jones
Bath
I was one of the people who lost out as a result of the abolition of the 10p tax rate. As I am now unemployed, I will also miss out on any compensating tax cuts. However, these tax cuts will have to be paid for by increases in the medium term – presumably when I am in work again, so I will have to pay for compensation I never received.
Chris Foreman
Alton, Hampshire
Your leader on the pre-budget report (November 21) rightly highlighted the economic benefits of retrofitting houses to make them more energy efficient.
The government must seize the opportunity to simultaneously tackle economic and environmental challenges by announcing measures to develop safe, clean sources of renewable power and improve efficiency in transport, manufacturing and buildings. This would create new business opportunities, thousands of jobs, tackle fuel poverty and reduce dependency on fossil fuels.
Dr Tim Jenkins
Head of economics,
Friends of the Earth
Over the last year energy companies have increased gas prices by over 50% and electricity costs by nearly 30%, causing many consumers to fall into fuel poverty. Because of this, there is likely to be an increase in winter deaths. We are calling on all the energy supply companies to give vulnerable consumers some peace of mind by knowing that winter fuel bills will be reduced. A failure to do so is likely to cost lives.
Lesley DaviesChair,
National Right to Fuel Campaign
Research, I believe by the Joseph Rowntree Foundation, focused on asking recipients of disability benefits what they would do with the extra money should their benefits be increased. All respondents mentioned services to enable them to live fuller lives, such as taxis, gardeners, hairdressers and home help. This seems a very efficient way of increasing employment while helping those most in need.
Jennie Millie
Ditchingham, Suffolk
My partner is an accountant. Last week we had a fiscal squeeze and this week it was fiscal stimulus. Should I now be looking forward to endogenous growth or is deflation inevitable?
Judy Debenham
London

US economy: Three steps to havoc

Larry Elliott analyses the three stages that have led to the economic challenge facing Barack Obama
Comments (7)

Larry Elliott, economics editor
guardian.co.uk, Friday November 21 2008 18.40 GMT
Article history
Not since Roosevelt in 1933 has an incoming US president had a tougher economic challenge to face than Barack Obama.
He is still piecing together his Treasury team but he doesn’t need a pointy-headed academic to tell him the economy has hit the wall. The housing market is still crashing, unemployment is rising sharply, Wall Street is traumatised and it appears the life expectancy of another big bank, Citigroup, can be measured in days rather than weeks.
This is a crisis long in the making. And three big structural changes help explain the mess the US now finds itself in.
The first is that a profound shift in the balance of power between labour and capital over the past three decades has resulted in nugatory increases in real earnings for most people but massive rewards for those at the top.
The second is that the US is living beyond its means at every level. In recent years, it has spent $106 (£71) for every $100 it has earned.
The third is that Wall Street has grown in size and importance as more of America’s manufacturing capacity has been exported overseas.
America, as the world’s can-do society, found a way of making this work for a time. More women worked, which disguised the fact that male incomes were under pressure. Couples worked longer to maintain their spending. When both those avenues were exhausted, they took on more debt.
Borrowing was a readily available option because the shifting of production from North America to east Asia created big trade surpluses, particularly for China. Beijing had to do something with its export earnings and it parked a large chunk of them on Wall Street.
This influx of capital helped push down borrowing costs, while the cheap goods from Asia kept the lid on inflation and allowed the Federal Reserve to keep interest rates low.
Cheap money drove up house prices, so consumers used their homes as cash machines. House prices only continue rising if there is a flow of first-time buyers, and these were found by offering mortgages to those who would normally have been disqualified. These were risky loans which Wall Street disguised by putting them into a blender with good-quality mortgages and selling them on to anybody who would buy them. Many investors, including UK banks, did.
Inevitably, the housing bubble burst. The banks found they were sitting on huge, unquantifiable losses and by refusing to lend to each other set off a prolonged domino effect that has now reached deep into the heart of the American economy.
Policymakers have throw the kitchen sink at the issue. The Fed has cut rates to 1% and there was a $150bn (£100bn) tax cut in the summer. Banks have been nationalised and recapitalised. So far none of it has worked. The scarring economic memory of the US remains the Great Depression; as things stand the sub-prime crisis will run it a close second.

Lobby of Parliament – ‘Justice for Palestinians’

Lobby of Parliament – ‘Justice for Palestinians’

2-6pm on Wednesday 19 November 2008

Followed by a public meeting ‘Time for Government Action’ 7pm, Committee Room 10 in the House of Commons.

A lobby of parliament is being organised by the Palestine Solidarity Campaign, the Council for Arab-British Understanding and Jews for Justice for Palestinians on Wednesday 19 November to mark the UN international day of solidarity with the Palestinian people. Previous lobbies of parliament have attracted a significant level of support from solidarity organisations, faith groups, trade unions and other groups. This broad support is very important in demonstrating to MPs and the British government the wide range of organisations calling for peace and justice.

This year the lobby theme will be ‘Justice for Palestinians’, and will take place from 2-6pm on Wednesday 19 November.

DOWNLOAD A BRIEFING PACK (PDF)

The lobby of parliament will call on the British government to implement international law and press for:
• an end to the blockade on Gaza.
• Israel to end its occupation.
• the dismantling of Israeli settlements in the Occupied Palestinian Territories.
• respect for Palestinian sovereignty.
• the suspension of the EU-Israel trade agreement.

Ensure that your MP hears your views – please contact them straight away and ask to meet them on the afternoon of 19 November.

If you don’t know who your MP is, please go to www.theyworkforyou.com

Make sure to let us know at the PSC office when you have made an appointment

Please help publicise this lobby as widely as possible. New leaflets are being printed – please contact the office for copies..

If you require any further information please don’t hesitate to contact info@palestinecampaign.org or wattg@caabu.org.

The Lobby of Parliament is organised by:
CAABU – JFJFP – PSC

The Lobby of Parliament is supported by:
The following Trade Unions: ASLEF, BECTU, CWU, FBU, GMB, PCS, RMT, UNISON, UNITE and Action Palestine, Amos Trust, Association of the Palestinian Community in the UK, Britain Palestine Twinning Network, British Committee for Universities in Palestine, Christian Peacemaker Teams UK, Friends of Al-Aqsa, Friends of Birzeit University, Friends of Sabeel UK, The Green Party, Israeli Committee Against House Demolitions UK, Midlands Palestinian Community Association, Muslim Council of Britain, National Association of British Arabs, Palestinian Forum in Britain, Palestinian Return Centre, Pax Christi, Stop the War Coalition, War on Want.

Protect the people of the DRC

We’re sure you have been watching with apprehension the unfolding humanitarian catastrophe in eastern DRC. Amnesty is receiving reports of serious human rights abuses, including unlawful killings of civilians, rape, and the recruitment of child soliders. And we would like to ask you to take action for the DRC.

The conflict in Democratic Republic of Congo (DRC) is one of the deadliest in African history. Since it began in August 1998, it is estimated that the fighting and its aftermath (poverty, disease, and malnutrition) have claimed over five million lives. In recent weeks, fighting has displaced at least 250,000 civilians, most of them women and children. These people are in a desperate situation, without sufficient food, water, medical supplies or shelter. Amnesty is calling for urgent reinforcement of the UN’s peacekeeping force, MONUC, to protect civilians and to ensure people have access to humanitarian assistance. Please take action by visiting our website and calling on the UK government to ensure that the UN Security Council takes decisive action and pledges support to protect civilians in eastern DRC.
For all the latest information check here . We will update you on how you can take action but as the situation in DRC is fast moving we may need to ask you to take action at short notice.
Sincerely,
Amnesty International UK
Protect The Human

Academics are not immigration officials

guardian.co.uk, Monday November 10 2008 00.01 GMT
The Guardian, Monday November 10 2008
Article history

The new immigration rules for overseas students to be introduced in March 2009 by the Border Agency are very worrying (New points system, November 5). These rules would require universities to report any absences by overseas students from lectures, seminars or tutorials, or any failure to submit any assessment on time. In other words, the university is being asked to act as an immigration officer and set up a surveillance unit over these students. This goes far beyond the present monitoring of student progress systems in universities, which has as its basic purpose assisting students to reach their full potential.In our view it is hard to justify such detailed monitoring of overseas students, even for immigration control purposes. Surely the Border Agency just needs to know students have registered and are at the university? It does not need to have this constant monitoring. This police-like surveillance is not the function of universities, and alters the educational relationship between students and their teachers in a very harmful manner. University staff are there to help the students develop intellectually and not to be a means of sanctioning these students. The proposals are discriminatory as they apply only to overseas students and not EU students. They represent a possible breach of article 8 (right to a private life) and article 3 (degrading treatment) of the European convention on human rights and the Human Rights Act 1998. We would urge universities, MPs and others to join us in opposing these rules and calling for the government to withdraw them.
Ian Grigg-Spall Academic chair, National Critical Lawyers Group Sally Hunt University and College Union Tony BennProfessor Bill Bowring Birkbeck School of Law, London University Liz Davies Chair, Haldane Society of Socialist Lawyers
Academics balk at ‘spying’ on students to nail migrant scams
Polly Curtis, education editor
guardian.co.uk, Monday November 10 2008 00.01 GMT
The Guardian, Monday November 10 2008
Article history
Universities are being asked to set up surveillance units to monitor the movements of international students in a government-led crackdown on bogus student immigration scams, academics say. New rules to force universities to report overseas students who miss too many lectures to immigration officers will harm the academic-student relationship because lecturers are being asked to act in a “police-like” manner, according to a group of 200 academics and activists opposing the moves.
A letter to the Guardian, organised by Ian Grigg-Spall, academic chair of the National Critical Lawyers Group and signed by leading academic lawyers, the head of the lecturers’ union and Tony Benn, claims that the rules could breach the European convention on human rights, which guarantees the individual’s right to privacy. “This police-like surveillance is not the function of universities and alters the educational relationship between students and their teachers in a very harmful manner,” it says. “University staff are there to help the students develop intellectually and not to be a means of sanctioning these students.”
The rules will require all universities to obtain a licence to admit students from outside the EU. They will then have to sponsor students, who will be required to have their fingerprints taken and be issued with ID cards. Lecturers will have to report any student who misses 10 or more lectures or seminars. Students will also have to prove they have funds to cover fees plus £800 a month for the duration of their courses. Universities have separately raised concerns that the system of registering overseas students, which is planned to take place at six centres around the country, will struggle to cope.
About 350,000 overseas students attend British universities every year. Universities are heavily dependent on the £2.5bn a year they pay in fees.
Almost 300 bogus colleges have been uncovered in the past three years, many involved in immigration scams.
Sally Hunt, general secretary of the University and College Union, said: “We have grave concerns that new rules on monitoring foreign students have been pulled together without any consultation with the people who would implement them. We do not believe it is appropriate or effective to task colleges and universities with the policing of immigration.”
A Home Office spokesman said: “Those who come to Britain must play by the rules and benefit the country. This new route for students will ensure we know exactly who is coming here to study and stamp out bogus colleges who facilitate the lawbreakers.
“International students contribute £2.5bn to the UK economy in tuition fees alone. The student tier of the points system means Britain can continue to recruit good students from outside Europe.”