Bamfordshire

A post by Phil Edwards on the Tory phone box posters links to Jonathan Raban’s review of Phillip Blond’s Red Tory. Blond is known to be the think-person for Cameron’s Big Society concept, of which we’ve been hearing … well, we heard about it earlier in the month, I think it was a Tuesday. Raban locates the intellectual heritage of Red Tory in the Catholic Distributist League; a 1920s movement championed by G. K. Chesterton and Hilaire Belloc. New to me, but the basic idea seems to have been more or less this: widespread property ownership is good; rural life shows the way. By all means, be a capitalist, but be a capitalist with a small shop, or a small farm; serve the needs of local folk for a fair price. And go to church.

David Cameron’s constituency is Witney, on the Oxfordshire / Gloucestershire border. This is a part of the world I have some experience of; it’s where some of my family live. I won’t name the village, but Cameron is their MP, and don’t they know it. I’ll try to describe what it’s like around there.

Just as the Distributists would have wanted, a church features centrally in every Cotswolds village; there might also be a common, or some stocks (disused, but cherished). Generally, there’ll be a clear visual hierarchy; it’ll be obvious today, as it would have been three hundred years ago, which houses are supposed to be those of the wealthiest and most dominant. There may be a tract of social housing; but it won’t be central, or in the most picturesque part.

Nothing new in any of that, you might think. But there’s more. The settlement pattern of your typical Cotswold village reflects the historical pattern of English agricultural land tenure; you find houses standing side by side along a central street, each with a strip of land out back. Once, the strips were long and were farmed; today, they are truncated into gardens where some people grow some vegetables. This allows an illusion of self-sufficiency: produce is traded locally, often on an honour payment system (someone puts a basket of tomatoes on their garden wall, and you pay for what you take). But if you did some basic agricultural economics here, you’d quickly show that if the locals tried to eat only what was truly local, and if they tried to pay for it with what they themselves made locally, they’d starve. Despite superficial appearances, they’re just not equipped or organised for that. Artisanal enterprise? There’s a silversmith in Stow-on-the-Wold who might be good for a stirrup cup, but you’ll look long and hard before you’ll find an independent maker and vendor of shoes, saddles, wicker trugs, garden trowels or whatever else it is that’s supposed to be made, sold and used in the countryside.

Even if the locals were equipped as if for the agrarian idyll, I’m not at all sure they’d enjoy it You have to look to what’s not so obvious as you stand in the middle of a Cotswold village: the machinery that makes the whole lot viable and – for some – a lot better than bearable. There are railway lines that make villages into practical commuter settlements, for instance. An older innovation, sure, but the station car parks still fill up reliably on week days. And if trains are not your thing, there’ll be four-lane roads and/or motorways within twenty minutes’ driving time. Either way, you’ll have a car. Further, the blanketing with transport infrastructure means that you won’t just get access to your ordinary high-capital, high-energy, large-scale, globally-supplied need satisfier such as Tesco Extra; interesting retakes on the shed retail concept are also reachable. Daylesford Organic, for instance: a creation of the Bamford family (as in the manufacturer J. C. Bamford). Officially it’s a ‘farm shop’ but it has too many parking spaces for that. What’s more, produce doesn’t just leave the Daylesford Organic farm shop by truck (for the other Daylesford stores, and also for the Ocado distribution centre); it arrives by truck as well: I’m thinking of the Italian olive oil and the Spanish almonds. I don’t know where they get their trugs.

I’ll save the holiday travel habits of Cotswoldians for a later post. I think it’ll be obvious what my point is. Much of what is presented as ‘small scale’ and ‘local’ in the constituency of Witney isn’t small small or local. It’s just more of your aspiration with a countryside theme. The people who buy into Witney are the type who like to patrol the parish bounds with the dogs; they’re usually English-esque – pale, clean shaven and corduroy clad in the case of the men – but they come from all over. And the people who start their lives in the village council estate and then leave; well, they go all over. Alex James, in his extraordinarily creepy 2007 puff piece about the Bamford retail operation, says that “there is not even a hint of the bad things about the world here”. But you can’t start with a visual aesthetic and end up with a social policy. If what you see around Witney is what inspires Blond-ism and hence Cameron’s Big Society, then both of those are just self-comforting fantasy.

PS: check out Tamara Drewe.

Angela Calling

Angela Merkel is a Chemist. In her doctoral thesis – entitled “Untersuchung des Mechanismus von Zerfallsreaktionen mit einfachem Bindungsbruch und Berechnung ihrer Geschwindigkeitskonstanten auf der Grundlage quantenchemischer und statistischer Methoden” – she demonstrated herself to be a thoroughgoing expert when it comes to analysing the speed of disintegration of chemical compounds once the bonds which hold them together are weakened. Unfortunately she is now having to apply all this acquired expertise and know-how in a determined attempt to avoid the break up and falling apart, not of a highly complex chemical substance, but of an even more complex economic and political one, and the bonds which are the focus of all her attention right now are not chemical, but financial and social. Continue reading

Becoming one of us

Sitting in the other day on a citizenship ceremony – a few dozen people from all round the world (Sierra Leone, Poland, Turkey, Bangladesh, Somalia, Cambodia, Nepal and the rest) becoming British citizens, with a fairly low level of ceremony. Holst on the dodgy CD player and the deputy mayor of the town.

Most of the deputy mayor’s speech involved the town’s history, in particular with regard to immigrants – off on the wrong foot with the Vikings, who pillaged, but then doing rather better with Huguenots and so we come to the present day. Very little said about Britain itself – and there would, I imagine, have been even less at a similar ceremony in Scotland or Wales.

Should there have been? I don’t want to go down the road of nos ancetres les Gaulois , let alone some sort of tea tray and Toby jug version of Britain’s history, with Dover Castle, Spitfires and the Great Reform Act all buzzing round the old ladies cycling off to drink warm beer in church. But is there, still, a place for some sort of common national myth? Is national even the right level – or would new citizens and native born ones be better off with local patriotism instead? I’d bet there are more people who are proud to be Londoners than are proud to be British. How does this compare with other countries?

I’m not even going to suggest a common European myth. The mind boggles. But people become citizens for a reason, and it’s not just because they long for the chance to sit in a British jury box – the people I saw seemed to regard their citizenship as a prize worth the gaining. Maybe the British common myth is doing fine among its newest believers, at any rate, without any encouragement.

The issue’s also been on my mind because of the introduction of points-based tests for immigration, which has attracted some criticism. (Its merger with the Tesco Clubcard loyalty scheme is probably only a matter of time.) It’s basically just a formalisation of what pretty much every country does for aspiring immigrants and to be honest I don’t have a problem with it – except that it seems fairly inflexible. How quickly will it adapt to changes in the labour market? At present it’s set up to favour high-skilled high-earners. If you want to adjust overall levels, you can change the threshold score, and a specialist committee will apparently tweak the system to react to any specific shortfalls in the labour market.

This second part is the problematic one. It’s going to be interesting to see the pressures put on this committee when they have to decide whether there aren’t enough bricklayers because a) there’s a genuine shortage so you need to allow in more immigrants or b) employers aren’t paying enough so all the British ones have gone off to work somewhere else in the EU.

Maybe there’s a market solution? Allow employers to buy additional points for their valued immigrant employees, allowing them to stay in the country (and reducing the incentive to employ cheap labour)?

You are independent of all logic Giulio Tremonti!

Italian Finance Minister Giulio Tremonti is a strange and controversial figure.The peculiar phrase in the title to this post in fact came out of the very mouth of Tremonti himself, though they were addressed to an astounded, if now world famous, US economist, Nouriel Roubini, in front of an equally amazed and bemused Davos audience. Since in these kind of matters it is normally better to watch what it is you actually say, just in case in the fullness of time your own words come back to haunt you – as the famous “If you don’t fully understand an instrument, don’t buy it” ones of Santader Bank chief Emilio Botin just did in the Madoff affair – I simply can’t resist pointing out how lacking in logic the present Italian Finance Minister is himself at times. Continue reading

The Long And Difficult Road To Wage Cuts As An Alternative To Devaluation

Well it’s pretty clear to me at least that there is now one, and only one, major and outsanding topic towering head and shoulders above all those other pressing and important problems those of us following the EU economies currently find lying in our macro-policy in-trays: the issue of wage cuts. Not since the 1930s has the possibility of such a generalised reduction in wages and living standards loomed out there before policymakers, and doubly so if we now hit – as I fear we may well for reasons to be explained at the end of this post – systematic price deflation in a number of core European economies.

The issue that has suddenly and even violently erupted onto the European macro horizon over the last week (as if we didn’t already have sufficient problems to be getting on with) is, quite simply, how, if they either don’t want to, or can’t, devalue, do politicians successfully go about the business of persuading the people who, at the end of the day, vote them into office (or don’t) to swallow a series of large and significant wage cuts? And this is no idle and abstract theoretical problem, since in the space of the last week alone the issue has raised its ugly head in at least four EU member states – Ireland, Greece, Latvia and Hungary.

In the case of the first two of these devaluation simply isn’t an option, since there is no a local currency to devalue, while in the case of the latter two the presence of prior large scale foreign currency borrowing means that authorities are nervous about anything that smacks of devaluation (since the providing banks would take large losses following the inevitable defaults, and the cooperation of these providing banks is necessary in the future if the economies in question are ever to recover). This latter view (no devaluation) prevails even though many economists, (including myself), would argue that is a highly questionable one, since wage deflation on a sufficient scale will ultimately produce those very same defaults (with the added schadenfreude, as Paul Krugman points out, that even those who have borrowed in the domestic currency are also pushed into default). Continue reading

Russia’s GDP Indicator Shows Marked Contraction

This post is partly about Russia, partly about how to follow the present economic crisis on a day to day basis and partly methodological.

So Which Are The Worst Affected Countries In The Present Crisis?

Obviously the simple answer to this question is “all of them”, and in particular all those countries who are members of the OECD. Perhaps that is the feature which best defines what is happening this time round (and which separates our present problems from, say, the Asian crisis in 1998) since this is a crisis whose focus has been, and still is, in what are often termed “the advanced industrial” economies, even though some of these are now more services than manufacturing-industry driven. But, come-on, within that ever so long list – which includes each and every member of the OECD (and a goodly number of those who aren’t) – who exactly are going to be the worst affected?

Well I don’t think I have made any secret on this blog that I think the principal focus of the present crisis is now situated in what Paul Krugman call’s Europe’s periphery – by which I would mean Central and Eastern Europe, Southern Europe, Ireland and the UK. To that list I would simply add those economies who are largely export driven, and who thus suffer most directly from the sharp contraction in global trade. In particular here Germany, Japan and China. My principal guess is that China is really going to be one of the worst case scenarious, and that consensus thinking still has some way to go in catching up with events here. Hong Kong based UOBKayHian have a Q4 estimate for year on year Chinese GDP growth of 6.3% for China (see here), and I think few people other than professional macro economists and bank analysts (and far from all of these if the truth be told) really realise what this means – it means the quarter on quarter rate of expansion was very low indeed, possibly verging on the negative. I’m guessing but it must have been somewhere in an annualised 0 to 2% range. This means we may well see quarter on quarter negative growth in 2009 in China, and that the possibility of a technical recession of two consecutive quarters of negative growth must be over 50% at this point. It wasn’t so long ago that the consensus was saying that annual GDP growth which was as high as 6% would be tantamount to a recession! Continue reading

Germany IS About To Have Its Worst Recession Since WWII

The German economy is about to suffer its deepest recession since World War II according to economics Minister Michael Glos speaking in an interview with the German newspaper Welt am Sonntag due to be published tomorrow (Sunday). Glos said growth in Europe’s largest economy is now expected to drop by as much as 2.5 percent this year (and there is still downside risk here). Earlier government estimates had been for slight positive growth (0.2 percent). This suggests that the miracle export-driven-recovery in German economic performance that so many were enthusing about in 2007 has actually been a short lived, one-off, affair, driven largely by an unsustainable lending boom in the UK, and Southern and Eastern Europe. If we take as good this year’s government estimate, it gives us average growth for the German economy over the last 10 years of 1.07%, hardly changed from the supposedly “correctional” pace attained between 1995 and 2005 (see chart below) – or is Germany’s lost decade now surreptitiously going to convert itself (like its Japanese equivalent) into the lost decade and a half?

Germany’s economy started contracting in the second quarter of 2008, and went officially into recession in third quarter. Further the Federal Statistical Office estimated this week that the economy may have shrunk quarter on quarter by as much as 2 percent in the fourth quarter (ie at an annual contraction rate of 8%), and that annual growth for 2008 may have been as low as 1.3 percent (non calendar adjusted – 1% calendar adjusted) – about half the 2007 level.

Continue reading

December’s JPMorgan Global PMI Shows Just How Far The Infection Has Spread

OK, so now here’s the chart you really need to see (below). The JPMorgan Global Manufacturing PMI hit 33.2 in December, a series record. More to the point you can get a comparison between what is happening now and the 2001 “recession lite” with only a swift glance, and, of course, the 2009 long recession is only just getting started.

Now let’s stick it alongside the one Paul Krugman put up last week of the US Great Depression:

Now, arguably, what we can see here is that the current collapse in industrial activity is starting to get near the US historic one in terms of proportions, but we still aren’t quite there yet. What we could note that JP Morgan in their monthly report suggest that the present rates of output are equivalent to an annual fall of between 12% and 15%. Really to compare with the fall in the US we need to get up into the 20% region, but remember the global index is based on an average for 26 countries, and some of these are much worse than others (Japan, Spain, possibly Russia) and will already be around the 20% annual contraction rate in December. The point is also that the situation is still deteriorating, so hang on a bit, since it is not at all excluded that we will hit a 20% annualised contraction rate for the whole aggregate 26 sometime during the first quarter.

“The second half of 2008 has been dreadful for global manufacturing and the sector enters the new year mired in its deepest recession for decades. Manufacturing will therefore continue to weigh on world GDP figures, with December PMI data consistent with a drop in global IP of around 12%-15% saar as indexes for output, new orders and employment slumped to record lows.”

“The weakest performance was registered by Japan, whose output and new orders indexes fell to levels unprecedented in the histories of any of the national manufacturing surveys included in the global manufacturing PMI.”

“Employment fell for the fifth successive month in December, and to the greatest extent in survey history. All of the national manufacturing sectors recorded a drop in staffing levels, most at series-record rates including all of the Eurozone nations, China and the UK. The sharpest falls in employment were signalled for Denmark, Spain, the US, Russia and the UK.”

And watch out for the deflation backslap:

“The Global Manufacturing Input Prices Index posted 31.3, its lowest ever reading. The rate of deflation was especially marked in the US, were purchase prices fell to the greatest extent since June 1949. Rates of decrease in costs hit series records in the Eurozone, Russia, Switzerland, the Czech Republic and Denmark.”

And for those of you who are still sceptical that any of this has any validity, here’s a PMI/GDP comparison chart for Japan – GDP rates to the left, diffusion index PMI readings to the right (click over image if you can’t view too well). Not perfect, but not a bad guide I would say, if you like your football live, that is.

So never mind the depth, what about the duration? Well that is where I think that all of this will differ from what happened back then. As you can see in the US Great Depression Chart the 20% annual decrease went on for several years. At the present time I think there is no reason to assume that this will happen, ie that we will keep getting massive year on year contractions (in some cases maybe, Latvia perhaps?????), but activity does look set to fall to quite a low level, and there is no strong reason at present for believing it will simply bounce back up again. More than likely we will simply trawl the bottom, at least for some months, and who knows, maybe a couple of years.

Well that’s it for the big picture stuff, but I have actually been pretty hard at it all day down at the individual country level, so there is plenty more detail to come. In the next post.

The Second Great Depression Wends Its Way Forward in December

And lands in China.

Well China isn’t quite in Great Depression mode yet, but manufacturing activity – which forms the core of the Chinese economy and accounts for 43% of all activity – is already very close to a technical recession, and phew, it wasn’t very long ago that the Chinese economy was registering double digit growth. So the turn around is gigantic. The “close to technical recession in manufacturing industry” call comes from the people over at CLSA Asia-Pacific Markets, who compile the China purchasing managers index, and they base their judgement on the fact that their Chinese manufacturing index has now been registering contraction for five consecutive months. Continue reading

Despite The “Sudden Stop” Kazakhstan Won’t Be Calling On The IMF For Help

“The Kazakh government is ready to step in,” Kazakhstan’s Prime Minister Karim Masimov said this morning in a telephone interview with Bloomberg “The Kazakh banking system with the support of the government and central bank will fulfill all obligations to international investors…..We have our own specific plan to survive without any external support….I don’t think we need support from the International Monetary Fund or overseas.”

Well that is good news, so at least we know that one of the CIS and CEE economies won’t be looking to the IMF for bail-out support in this crisis which is presently growing by the day. So Kazakstan, that country which is reputedly host to reserves of approximately 95% of the elements in the periodic table, with a population of around 15 million housed on a surface area greater than the whole of Western Europe, is going to be able to look after itself. But hang on a minute, just where is Kazakhstan, and just what have they been getting up to over there, and why the hell should I take Karim Masimov’s word for it, when just about all the other Iceland Look-alike show contestants seem to be saying the same? After all, didn’t those extermely bright and able young people over at RBC Capital Markets in Toronto say in a report only last week that, along with Latvia, the country’s $100 billion oil-led economy is among the most vulnerable to the present global credit crisis and the skid-row economic trajectories that go with it simply because of its excessive reliance on short-term foreign borrowing. And isn’t it the case that the cost of protecting Kazakhstan government debt against default has more than doubled this month – to over 1,000 basis points (or 10%), the level for borrowers that investors term “distressed,” according to CMA Datavision credit-default swap prices. Only Ukraine, which as we know is already seeking IMF support, is classified as being a bigger risk among European emerging-market governments. Surely all those highly dedicated, bright, and extremely able young people who are doing all that trading know what they are about, don’t they? Continue reading