Accounting for Libya

So now we are in a sort of endgame in the Libyan war.  It is not over, but Gaddafi’s government has been decisively beaten.  This outcome arises despite a constant stream of scepticism amongst experts and commentators, right from the start, and from a broad political spectrum.  I was not one of these sceptics, and I must admit to being annoyed by the patronising tone of much of it, assuming that politicians and supporters were muddled naifs who had failed to learn from history.  While these sceptics rapidly move on to point out the considerable difficulties that will arise in rebuilding the country, I feel that some accounting is called for.

As I said at the time, Libya’s situation was unique.  It’s geography is such as to make air power particularly effective.  Gaddafi’s rampant egotism had made him diplomatically isolated, tolerated by his allies and not liked.  In spite of claims by many that there was no clear strategy for the intervention, the strategy was clear all along.  Use air power to protect the existing rebel strongholds and then strangle the Gaddafi regime.  After this it would basically collapse from within.  This was mainly about momentum and morale.  Apart from a core of die-hard loyalists, who had much to lose from regime change, the regime’s power depended on two sources of support: loyal tribes and mercenary soldiers.  These would only be effective as long they thought the regime was going to win.

And so it has transpired.  The fall of Tripoli was remarkable.  Yes the core loyalists fought hard, and they are still there – but there were not enough of them, and they seemed to lack organisation.  The mercenaries had melted away into thin air.  The sympathetic tribes just looked on.  The turning point seems to have been the cutting off of the capital from succour coming in via the Tunisian and Algerian borders.

None of this is hindsight – seem my post last March.  What annoys me about the many critics is their inability to look beyond the generalities to the specific facts of the case.  To them, it was this way in Iraq, so it will be this way in Libya.  I am afraid that this kind of unthinking generalisation is a general disease right across modern society, and especially amongst people counted as experts.  From medicine to economic policy.  People don’t bother to analyse the particulars of the case, simply spouting forth the general rules with confidence.

It is too much to hope this will change.  But we fight on.


Seeing with the eye of faith

A little while ago I blogged on the subject of Islam and the modern world, following the BBC series on Mohammed.  This included some rather dismissive comments about Christianity, which I contrasted with Islam in some rather unfavourable ways, at least with regard to consistency.  Unsurprisingly this annoyed a (Catholic) Christian reader, and we subsequently engaged in a prolonged Twitter conversation, mainly about the crusades.  Twitter isn’t a good medium to explain ideas, and I feel strangely compelled to explain myself properly, even though I am not going to persuade anybody to change their views.  My point is this: I hold my views on Christianity not through ignorance but through a lack of faith.  This has led me to rather a long post, taking me through my own Christian journey.

Faith is an important part of any religion – and any relationship in fact.  To be a Christian you have to subscribe to a whole series of beliefs which you take on trust.  It’s your membership subscription, or, more aptly, the club rules.  You believe these things because you are a Christian; you not a Christian because you believe in them.  Or mostly, anyway.  People will be drawn to the faith because they come to believe, through reflection or experience, in some critical parts of Christian gospel; they then take the rest on trust.  For me I was drawn to the faith in the first place because I believed in my church community and wanted to be part of it; subsequently I was overwhelmed by the truth and beauty of the message of love, forgiveness and redemption that came through in the Gospels and the early Epistles of St Paul.  I lapsed mainly because the burden of faith became too much to bear – the accumulated superstructure of doctrine.  In my heart of hearts I could not believe that God is a person who intervenes in the world beyond the workings of immutable natural laws; neither can I believe in any meaningful afterlife, certainly in the sense of heaven, hell, judgement and so forth.  But I am a secular agnostic, not an atheist.  I am sometimes moved to take Communion in a C of E church service, on the rare occasions that I attend.  It is not inconceivable that I will come back to the faith one day, provided I’m not pushed too hard on the infrastructure of beliefs.

I was brought up as a Church of England Christian.  Both my parents had a strong faith, and took a philosophical interest in it and we talked about Christianity a lot as a family.  My mother’s father was a canon and professor of divinity (at Oxford), though he died long before I came into the world.  Our house was full of religious books, and my mother, who had a degree in Philosophy, studied theology and comparative religion as a mature student.  Our church was rather High, in the jargon of the C of E, meaning that it liked a lot of traditional, catholic rituals.  The biggest controversy at the time (it was the 1970s) was whether women could be ordained to the priesthood – my parents strongly beleived they could, but some of our clergy did not.  At university (Cambridge) I fell in with a much more “Low” group in the Christian Union, associating with Methodists and Baptists.   Here the issues were mainly about how to interpret the Bible, with a strong fundamentalist faction.  I had something of an intense religious experience while meditating in a retreat, as the message of love seemed to explode out of the New Testament in a burst of light.  That experience remains with me still, but I started to lapse pretty much as soon as I began to live on my own in London.

Two experiences in particular stand out in as I passed over the invisible line between faith and agnosticism.  I attended one my local churches (St Mary’s Islington), and the preacher considered at length whether dancing was to be allowed under scriptural rules.  Although he came to the right answer so far as I was concerned (yes), I was appalled by the idea that talking about these sorts of rules was an important part of church life.  In a second instance I visited a packed evangelical service in Nottingham with a couple of university friends.  The preacher there was developing the theme that the Apocalypse was near.  One his arguments: “The price of gold has trebled in just a year [or some such statistic]: that means that the value of money has fallen by two thirds!” – to a chorus of approval.  This dates the story to about 1980, the last time the price of gold shot through the roof.  To me then, as now, this is utter drivel.  Ever since I have had a visceral hatred of the use of gold as a substitute for money.  But more the point I thought to myself: “Why do I have to put up with all this nonsense?”

And so my views of on Christianity became very detached, as I was liberated from the eye of faith.  I have come to see it as a very interesting human phenomenon, and not a process of divine intervention.  It is an outgrowth from the Jewish faith, promulgated by a few years of radical and inspring preaching by Jesus Christ.  Something strange happened on Jesus’s death; his followers became inspired to accept Jesus himself as divine, and to spread the religion further.  There were several strands to this outgrowth, but the most important to us in the west was that of St Paul, who took the message to the Gentiles.  The faith was the right idea at the right time and its popularity exploded.  It survived persecution, with its adherents apparently welcoming martyrdom.

But then it was adopted as a state religion by the Roman empire.  This was a major challenge.  Christianity was at heart a revolutionary creed, with some burning beliefs but with a certain lack of coherence.  Some of its beliefs, especially a very strong strand of pacificism, were inimical to running a state.  Gradually it had to be knocked into shape, and a series of doctrines were established to create an orthodoxy compatible with a state religion, starting with that of the Trinity.  In due course the great thinkers of St Augustine of Hippo and St Thomas Aquinas added to this process to create a coherent framework of doctrine.  This has subsequently been added to and taken away from both by the orthodox branches and various breakaways – the latter often trying to recapture the early Christian magic from the dead hand of the orthodox (that is Catholic and Orthodox) institutions.

These doctrinal systems may or may not be quite tidy, but they really do need the eye of faith to make them work, and the more so as time passes.  They are simply part of a process of divine revelation.  But without faith they just look awkward.  This awkwardness has two roots.  The first are the compromises required to get the cat back into the bag.  Monotheism is one of the most conspicuous casualties here.  The divinity of Christ was an early theological problem, and the Holy Spirit crept in too.  To this pantheon has been added the Blessed Virgin Mary and countless saints, to whom many Christians pray.  Of course Christian theologians offer a reconciliation of this pantheon to monotheism, but these sound very similar to any other defence of polytheism.  The contrast with Judaism and especially Islam is quite striking – though some Islamic sects (notably Shias) have blurred the difference by consecrating saints.

A further difficulty is that the doctrinal view is increasingly at odds with modern beliefs about the universe.  On my kitchen wall hangs a facsimile of the Mappa Mundi, the early medieval map in Hereford Cathedral.  The world is a flat disc, with Britain at the edge and Jerusalem at the centre.  Such a world view was quite compatible with the idea of God being a person, a bit like us, inhabiting a nearby world, and intervening in our affairs.  We can begin, perhaps, to understand the idea of Atonement, that “God so loved the World that he gave his only Son to be a living sacrifice”, which comes through from the very earliest Christian writings.  But now we understand the universe as being vast, which leaves this idea with a problem: either God is much bigger and more powerful than we thought in which case the idea of the son of god, and sacrifice, and indeed the whole concept of God as a person is impossible to get a handle on.  Or else God is much smaller than that, like The Authority in Philip Pullman’s His Dark Materials, in which case it becomes impossible to offer him the respect the religion demands.

And the Crusades?  I am rather shocked that any modern Christians seek to defend them.  The intent, apparently was to protect and liberate Christians in Jerusalem (and elsewhere, for that matter).  This might be argued as an extension of self-defence.  But they have become associated with the slaughter of infidels, and many other crimes (such as the sack of perfectly Christian Constantinople).  These may or may not have been part of the intent, but it is quite futile to separate the “justifiable” bits from the crimes.  Christians do not do that sort of thing now – and Christian communities remain under attack in many parts of the world.  Violence begets violence; early Christians turned the other cheek.  It has allowed Muslims to convince themselves Christianity is something that it is not.  If you’re in a hole, stop digging.  Best to put it all down to a horrible mistake, based on values that we have long left behind.

Compared to Islam, Christianity is a chaotic muddle of a religion.  But in that muddle there remains a burning light, which the muddle, paradoxically, seems to magnify rather than diminish – that light burns more brightly for me than any equivalent understanding in the faith of Islam.



Letting the dust settle

Now, in London, is not good moment to be a thinking liberal.  The recent riots consume everybody’s attention, but there is too much anger and panic around to say anything sensible.  But nobody will listen if you want to talk about something else.

The anger is not in itself unhealthy, or bad – indifference would be much worse.  It may well have helped to stop the violence, which has thankfully calmed very rapidly.  But little of lasting value comes from it.  Mostly we get calls for extra punishment, police powers and so on.  There is a lot of harking back to mythical earlier times when people had stronger moral values beaten into them, and so on.  And we get the usual tripe about too much human rights favouring criminals rather than victims.  Unfortunately our Prime Minister seems to share many of these beliefs.

But as the anger settles we will be left to confront a number of questions, which do not have ready answers.  Why did so many people think it was OK to go rampaging like this?  How could they be so heedless of the consequences of their actions?  Is this new?  Is it getting better or worse?  How do we promote responsibility?  More facts will help us answer these questions – and we have little more than an accumulation of anecdotes at the moment.

The most rational debate for now is about policing.  The police weren’t ready for the trouble and did not handle it well.  And they are facing significant cuts in funding.  Personally I suspect the problem is weak police management, especially in the Met.  I think this has been evident for a long time.  They adopt inflexible tactical methods which they seem unable to adapt to the needs of the moment; common sense gets lost.  Their solution is always more men, more money and more powers.  Unfortunately they will be unable to deliver cuts without reducing operational effectiveness, even if there are opportunities to make them much more efficient – and it would be very surprising if such opportunities did not exist.

Another aspect of this episode has been a massive closing of ranks by the majority of society.  Here in Battersea (scene of the Clapham Junction riots, not, incidentally in Clapham itself, as almost universally mis-reported) masses of people turned up to help the clean-up – and the hoardings on the shops are covered in supportive graffiti (where these are bare wood; where painted they are left properly pristine!).

Supportive graffiti at TK Maxx in Clapham Junction, Battersea

This reaction seems to bridge class, race and age group.

Who can say where all this will lead?


When confidence is lost

A scary day.  Here in London people are appalled by the looting and burning, and angry and panicked.  Something analogous is going on in the world’s financial markets.  At times like this we realise how much of a modern society is built on trust and confidence in strangers.

On the streets we hope that our well-ordered and safe lives are built on more solid foundations: law and the agencies that enforce it.  But in fact it depends on almost everybody imposing voluntary boundaries on their behaviour.  Even a tiny minority can create havoc.  If it truly is a tiny minority then we can contain it, but at the cost of deadening society around us and reducing the level that different communities mix.  It’s impossible to know where we will end up, but our town centres may never recover and the divisions in our society may simply grow.

The financial markets are likewise built on trust.  We also like to think that it has more solid foundations, on decisions taken based on solid information, with effective regulation and security.  Alas no.  Decisions are taken in an instant, and often by computer algorithms with a limited digital input.  A lot has to be taken for granted, so when confidence diminishes panic is likely to follow.  One of the more irritating aspects of these markets is the way people jump to quick explanations as to why a market has moved in a particular direction.  This week there was a lot of talk about the downgrading of US debt.  But the causes are unknowable, the sum of many decisions based on partial information and individual circumstances.

The downgrading of US debt simply cannot be a rational explanation.  It was based on no new knowledge; it directly affects investors only at the margins.  US debt actually rose in price, while share markets tumbled.  Share prices had in fact mostly lost touch with reality anyway, so a sharp fall in value should hardly have been a surprise.  The ability of professional investors to accept clear nonsense as a basis for valuing shares is one of the remarkable features of modern finance.

The panic will subside.  Life must go on.  But the difficult times will continue, both in the economy and civic cohesion.



Islam and the modern world

We’ve just finished watching Rageh Omaar’s Life of Muhammad, although the BBC series finished a couple of weeks ago – the joys of the PVR.  In spite of a snarky piece in Private Eye, I really enjoyed it.  I probably know more about Islam than the vast majority in Britain, but this programme revealed how little I actually know.  And while being appropriately respectful, the programme did not shrink from posing many of the challenges made by people today.

Of course, the benchmark I measure Islam against is Christianity, about which I do know something.  Islam is clearly from the same family of religions, and like it sprang from nowhere to become one of the world’s great religions.  Unfortunately, since the programme focused on the life of Mohammed himself, we did not get much insight into how it took the world by storm, merely its eventual success in Arabia.

Islam clearly has many strengths against Christianity.  Its core narrative and doctrine is much better worked out.  Christianity is an accidental religion bursting forth from the teachings of Jesus over a very short period.  So there’s a lot of muddle at the heart, the doctrine of the trinity, the incarnation, virgin birth, and the idea of the Atonement, and so on.  Compared to this Islam is a model of clarity, with the overwhelming dominance of the one God at its heart.

Still, I had not appreciated that the Koran, the revelations of God’s word that came to Mohammed, built up over a period of quite a few years as the prophet struggled from crisis to crisis before his eventual triumph.  This leaves it with a certain amount of ambiguity, which is clearly a problem today.  What makes it worse is the idea that the Koran, as the direct word of God, is sacrosanct and incapable of being wrong.  This is an even harder doctrine than than the popular Christian one of absolute faith in their Book.

Two examples were discussed at some length in the programme.  First there was women’s dress, and the popular idea that Islam means that women should be veiled in public.  Several modern scholars popped up to say that this was not what Koran teaches, with the offending verses being both vague and explainable in context.  Set this against the absolute confidence of a fully veiled woman who believed that the more modestly she dressed, the more pleasing it was to God.  No number of urbane scholars were going to convince her otherwise.

Likewise the jihad doctrine behind terrorist movements like Al-Qaeda.  An even wider range of scholars was on hand to say that this was a misinterpretation of the idea of jihad, and that the killing of innocent bystanders was absolutely forbidden.  Again this had to be set against the conviction of a pair of young men that jihad exactly meant war against the infidel, supported by a blood-curdling looking verse from the Koran itself (which the programme flashed across the screen without reading out); they also had difficulty in accepting that there was such a thing as an innocent bystander.

This kind of irresolvable dispute is all too familiar in Christianity – consider the issues of homosexuality and women priests.   No amount of scholarship will help here, since the believers on either side feel the truth deeply in their hearts.  There is enough in the writings and doctrines of Islam to give terrorists and oppressors of women’s freedoms what they need.  But at the same time these are far from necessary implications of the faith.  In fact Islam is remarkably similar to Christianity in being a basis for all manner of good works and liberal ideas.

My understanding of Christianity is that it has a stronger pacifist element than Islam, though pacifism was not absent from Mohammed’s message.  It will, of course, be very difficult to persuade Muslims of that, given the wanton violence committed in the religion’s very name in the Crusades, and by many Christians since.  Indeed, it only recent political correctness that is taking the positive connotations away from the word “crusade” in the West.

Islamic scholars and imams clearly have a job on their hands in adapting their religion to the needs of the world around them.  But this is not an impossible task, as this wonderful religion, and the life of the great man its prophet, has all the required raw material.  We westerners should respect it more; the basics of Islam should be taught in all our schools, along with those of Christianity.  It is above all the sense of threat that drives so many followers of Islam into an extremist path.  We must reduce that feeling of threat, while standing up for women’s rights and peaceful coexistence.


Why we should celebrate the 200th anniversary of Waterloo

This isn’t exactly a new story, but, hey, time works in mysterious ways on the blogosphere.  I have just caught up with this Daily Mail article a month old suggesting the this country will downplay the 200th anniversary of Waterloo on 18th June 2015.  I picked up on it from the monthly Civitas update – they provided one of the rent-a-quotes.  This article appears to be a classic piece of Mail journalism, trying create a shock story from thin air.  But it does raise the very interesting question of the status of this battle in British history.

Waterloo is very important in British history.  But why?  The obvious answer is that it was the battle that finally did for Napoleon.  This is true, but it is undermined by two further observations.  Napoleon’s strategic position was hopeless, and if he had won at Waterloo it is certain that he would have been crushed later on in the year, most likely by an Austrian-led army.  The second point was that it wasn’t a particularly British battle.  Wellington’s army was mostly Dutch, Belgian and various shades of German, and he was combining with Blucher’s Prussian army, whose intervention was decisive.

In fact from the point of view of showcasing Wellington’s undoubted military skills, this battle wasn’t the man’s finest hour.  He was caught napping by Napoleon, needed the Prussians to slow him down at the Battle of Ligny, and had to accept huge casualties to the British contingent at Waterloo and its prequel, Quatre Bras.  His gamble at Waterloo nearly didn’t pay off as the Prussians were much slower than he expected to arrive.  British generals were supposed to keep British casualties down.  In 1811 an equally desperate, but much smaller, battle in Spain, Albuera, led to a remarkable British/allied victory thanks to some absolutely herioc fighting by British units (and some Spanish ones).  But British casualties were so high that this is often regarded at a bit of a defeat – and that was certainly the reaction of the British commander, Marshal Beresford.  It would not have been so bloody if Wellington had been there, the soldiers muttered.

But, of course, if you pay such a high price in blood you have to build the battle up to be of huge importance to justify it to folks back at home; and that is what British politicians did, with the army and a string of British historians acting as willing accomplices.  On top of that, it was a particularly dramatic battle, that has held a fascination for more than just the British.  One of the best modern histories is written by an Italian and translated into several languages.

So is it all overdone?  There is in fact something very important about this battle, that symbolises something of importance today.  It is an example of Britain acting as a fully paid-up European power, paying blood to make the whole continent a safer place alongside European allies.  A precursor to the great struggles of the 20th century: acting against the wrong sort of European unity.  In this it contrasts with Nelson’s victory at Trafalgar, which was a victory of Britain against Europe, resulting in British domination of the sea that was to last for over a century.

Waterloo was a European victory in which Britain a very full part.  A good reason to celebrate in these Eurosceptic times.


A brief guide to Keynesianism and the economic crisis

Hardly a day goes by without the dead British economist John Maynard Keynes being invoked, such as this article from this morning’s Independent.  Generally it is the critics of austerity that use his name, although this article is more nuanced, blaming George Bush and Gordon Brown for getting us into this mess by ignoring Keynes’s prescriptions.  And many more economists, including big names like Paul Krugman, use ideas that most people understand as “Keynesianism” even if they do not evoke the great man directly, rightly thinking it is better to appeal to logic and evidence rather than dead men, however great.  Inevitably a lot get taken for granted in these arguments.  For the benefit of amateur economists like me, in this long posting I want to explain and re-examine Keynesianism, in order to assess its relevance to the current crisis, especially here in the UK.

What do we mean by “Keynesianism”?  It is the idea that government fiscal policy, public expenditure and taxes, should be used to counteract a deficiency in demand in the total economy.   It originated with the insights of the great economist, and his reflections on the Great Depression of the 1930s.  Its starting point is that a whole economy does not work like a household budget.  It may be very sensible for a household to choose to spend less than it earns, but a whole economy cannot do this.  Supply must equal demand; you cannot store more than a trivial amount of production from one period to the next.  If across a whole economy more people want to spend less than they earn, in other words to save, then there isn’t enough demand to meet supply and the economy must shrink; people are put out of jobs and so on.

Not so fast.  Things balance out of the net saving can be channelled into investment.  Investment, in economics, refers to production for future benefit.  This usually refers to business investment (machines to make future production more efficient) but can also refer things like building houses which are “consumed” over a long time period .  But if savings are not matched by investment there is trouble.

The possibility of trading with another economy complicates the picture, of course.  Net saving can be balanced out by net exports.  But net exports across the world economy are zero, so this option isn’t available to everybody.

In classical economics there is no lasting mismatch between savings and investment, because markets balance the two out.  If there is too much saving, then this stimulates the supply of investment opportunities, for example by reducing the rate of interest.  Keynes’s great insight was to see that often this market mechanism doesn’t function properly, leading to prolonged unemployment.  And unemployment is a waste; production lost forever.  Much better to use this surplus labour inefficiently than not at all.

Extra spice is added to this logic by the idea of the multiplier effect.  If, for example, you stimulated the economy by paying extra benefits, then the recipients of the benefit would go out and spend them, and the people receiving this spending will spend more in turn, creating further demand and so creating more work.  The same logic applies in reverse; austerity tends to multiply itself too.  This effect is probably what students remember best about Keynesianism.  It gives the idea of Keynesian stimulus gravity defying properties – so that government spending on stimulus can pay for itself in extra taxes generated by multiplied demand (and the reverse, of course, with cuts being self-defeating).

Keynesians point to the Great Depression as an example of how things can go wrong, where excessive austerity turned a setback into a disaster, only rescued by the War (and what could be more wasteful than fighting a war?).  Critics of this view, incidentally, point out that the primitive state of the world’s banking systems had a lot to with this disaster, and so you can’t really compare it to now.

After the war, demand management by governments using fiscal policy became pretty much the orthodoxy.  But this went wrong in the 1970s, when a Keynesian response to the oil crisis simply led to rampant inflation, rather than reduced unemployment.  What are the problems?

First of all, Keynesian stimulus can’t push an economy beyond the limits of its economic infrastructure. To do so simply creates inflation.  After the oil crisis disaster, economists modified their ideas to take account of this, bringing in such ideas a as a “natural” level of unemployment, and giving a major role to monetary policy alongside fiscal policy.  This set of ideas became “neo-Keynesianism” and the orthodoxy of the 2000s.  It was what I was taught in my macro-economics course in 2005-08 at UCL.

A more subtle criticism is that fiscal stimulus is undermined by human behaviour.  If people respond to extra money in their pockets by saving more, the stimulus effect evaporates.  An idea of “Ricardian equivalence” has been developed to postulate that extra government spending would always be offset by extra saving, because people know it would lead to more tax, for which they must save.  Responding to this, proponents tend to suggest stimulus to areas where this is less of a risk.  For example, benefits to the hard up, rather than tax-breaks for the rich.

Another idea, in floating exchange rate economies like Britain’s, is known as the Mundell-Fleming effect, which predicts that fiscal stimulus simply causes the exchange rate to appreciate and crowds out exports (or is lost in imports).  This idea is quite difficult to get a grip on, and anything to do with predicting exchange rates turns out to be impossible to prove.  But it does offer an explanation of why the pound appreciated after British government’s stimulus programme following 2001.  And the basic idea that fixed exchange rates undermine monetary policy while floating ones undermine fiscal policy has the undoubted merit of symmetry.  So British austerity should be offset by a lower pound which stimulates exports.  The first part of this prediction seems to be working, but the second is slow to come about, not least because so many of our usual trading partners are in crisis too.

But the strongest objections to Keynesians come from the so-called “Austrian” school, because its more famous advocates (Schumpeter and Hayek in particular) were born in Austria.  This sees unemployment as a essential to a process of creative destruction, as inefficient and unwanted businesses go to the wall, to be replaced by better ones.  Keynesian stimulus interferes with this process, in particular by leading to wasteful investment; any temporary relief is offset by longer term problems.

From within the neo-Keynesian camp there are also those who advocate the use of monetary policy to manage the business cycle, as being much more efficient and effective that fiscal policy.  These seem to include the British Chancellor of the Exchequer, George Osborne.

So how to apply to the current economic crisis, and in particular to Britain?  The first point is that the pre-crisis economy was built on false premises, with unsustainable borrowing and a property boom.  It cannot be recreated by applying stimulus.  Not everybody accepts this, but almost everybody without a political axe to grind does.  The serious Keynesian argument is not about stimulus, but about the effects of austerity.  Austerity policies are reducing demand, setting up a multiplier effect and causing pointless unemployment before the replacement jobs can be created.

It helps the Keynesians that there does not seem to be a big risk of inflation – or not wage inflation, anyway, which is the critical issue.  This seems to be held in check by strong market forces, in the developed world at least.  High price inflation in Britain is not matched by pay inflation, and it is much more about forcing Britons to accept a lower standard of living as a result of a lower pound and shortages of key raw materials.

Advocates of monetary policy are also in a weak position.  It simply does not seem to be all that effective.  Interest rates are rock bottom, and all quantitative easing seems to do is to keep asset prices at unrealistic levels.

Would extra saving undermine a looser fiscal policy?  Britons are heavily indebted, after the borrowing binge.  That might encourage them to save any stimulus money – but it also suggests that they can’t respond to lower income by borrowing more.  Since we are talking about simply slowing a downward trajectory, the latter is the more relevant argument.

For me the most persuasive case for some kind of Keynesian influence on policy is made by the Financial Times’s Martin Wolf (behind the FT paywall).  This goes back to first principles.  Consumers are over indebted and need to spend more than they consume.  Business confidence is low, which means that it is difficult to persuade businesses to invest.  The potential for more exports (or less imports) is certainly there, but is limited because to many other economies are trying to play the same game.  So we are exactly in danger of the doom loop of excess saving that Keynes worried about.  The government’s massive deficit offsets these problems to a great extent, but reducing it too fast could well lead to excess unemployment.

But we don’t know.  Austerity policies are stronger in rhetoric than practice.  We can’t avoid major cuts to government services, so there is something to be said for getting them over with as quickly as practical.  But there is also something to be said for having a “plan B” should unemployment start to escalate.  But if the government had one, they wouldn’t tell us.

Cutting VAT is one idea, advocated by Labour Shadow Chancellor Ed Balls, since it is quite likely that it will stimulate some extra expenditure – though it is very unclear by how much.  That is probably too much of a humiliating U-turn for the government.  But it is a better idea than cutting the top rate of tax, advocated by some Conservatives, since that is unlikely to have much immediate effect on demand, even if it does have longer term benefits.  Another idea is to ramp up investment projects – but it is very difficult to do this efficiently in the sort of quantities that would have a major impact on the overall economy.  Personally I would favour a go-slow on benefit reform, which is where a lot of the cuts are focused, since mostly benefits get spent.  Given how tricky this programme is already, it might happen anyway.

It would not be surprising if the government missed its deficit reduction target over the five year term.  What will not be clear is whether this happens because Keynesian policies were applied (i.e. by slowing the pace of austerity) or because they weren’t (i.e. austerity strangling the economy at large).  That won’t stop people being firmly on one side of the argument or the other.


Sometimes things just don’t make sense

It is one of the most enduring human characteristics to try and see patterns in the world around us.  We don’t like the idea of random events.  People even pore over lottery numbers.

After the awful events in Norway last week, it is only natural that people try to make sense of them.  The most common is that it is part of the rise in right-wing hate politics – for example Timothy Egan in the New York Times or Matthew Feldman in the Independent.  A more original alternative, from Joan Smith, also in the Independent, is that it is part of frustrated male pride, with parallels in the British 7/7 bombers.

But I don’t think any of this helps.  Of course people who think we should do more about the extreme right will use this event to bolster their case.  And the extremists themselves may also do so, on the grounds that this act shows just how desperate things are getting.  Frustrated macho pride was clearly part of the toxic mix, but this afflicts most of the male population.  The more I find out about Anders Behring Brehvik, the more I think his lawyer is closer to the mark by describing him as “mad”.

I am no psychologist, but I don’t think Brehvik fits the normal description of insanity.  But he does seem to have something that the professionals call a “personality disorder”.  He seems to have real difficulty in socialising.  He acted alone, almost certainly, when most terrorist acts are collaborations, like the 7/7 bombings, with people encouraging each other on.  He read widely, and took inspiration from a lot of different sources, but he doesn’t seem to have tried harden his ideas through proper discussion and argument with anybody else.  They are a very flaky agglomeration of fantasies.  The idea of a cultural war between the West and Islam has many followers, but allying with mumbo-jumbo of the Knights Templar?  Describing himself as Christian without any reference to what that actually means?

It is nonsense.  If he hadn’t picked up on these ideas, something else might have done.  Anarchism, perhaps.  The closest parallel is the US Unabomber, another unconnected loner.  We can try too hard to find patterns.  Sometimes the only way to understand something is to say that it is senseless.  The random act of a madman.


Economic growth and the media circus

Today the ONS released their first estimates for economic growth for the second quarter.  These quarterly figures have become the centre of a media frenzy; the papers and the BBC have been speculating about them and their implications for days.  Some commentators have worked themselves up into a real state, saying these numbers will be critical to the government’s future (see this comment on one which gives quite a good idea of the general coverage before the figures have even been released). This is getting very silly.

The first problem is that these numbers aren’t very accurate; the second is that they don’t mean very much to ordinary people anyway.  GDP, and the growth figures based on them, have become very interesting to economists, especially in making comparisons between countries, and looking at trends over a period of time, and compiling all manner of ratios.  But they are obscure aggregates that mean very little to us day to day.  The economic statistics that matter are those on unemployment, pay rates and consumer prices.  Taken together these figures give you a much better idea of what life is like for real people.  Further light is thrown by various other measures, like trade figures, retail sales and so on, though these are bit too volatile for single month’s figures to mean very much.

These statistics are painting a clear enough picture of the British economy.  Unemployment is high, especially amongst the young, though not as bad as in previous downturns.  It remains steady, with employment overall growing.  Inflation remains persistently high, largely thanks to higher import costs and taxes.  Remarkably, average pay is not keeping up with inflation, so we know that people are being squeezed.  The fact that so much of the squeeze is being spread across the working population, rather than concentrated in rising unemployment, is the truly remarkable thing about the economy right now.  This is surely a better way for the country to adjust to the new reality.  But it does mean that gloom is spread far and wide.

The government should really start to worry if one of two things start to happen.  First that unemployment starts increasing again.  Second if pay inflation creeps up beyond about 3% (it is now about 2%), since this means that an inflationary spiral might be on hand, so interest rates have to go up.  Likewise they should start to feel relief if and when unemployment gets significantly lower, and when inflation falls below 2%.  The betting is that the economy will keep bumping on somewhere in between the good and the bad news for some time to come.

Meanwhile there is a very unedifyng argument about the economy going on, with people talking at each other without any serious attempt at improving their understanding.  Consider this little discussion on Lib Dem Voice to which I made a couple of contributions.  I think the founders of economics as a social science hoped that it would improve people’s understanding of the world around them, but so often economic arguments are just used as ammunition to support prejudices.  And you can use them to argue just about anything.

All the more reason to ignore the media coverage of the quarterly growth figures.


Could the hacking scandal threaten David Cameron?

Am I being too sanguine?  I asked this of myself a week ago after posting on the Euro crisis.  Now I’m asking myslf the same thing over my recent posting on the hacking crisis.  Could there be a lot more trouble than I was predicting for David Cameron and the Police?

Consider this article in Lib Dem Voice on Cameron.  This develops the idea that there was a lot of railroading of the rules when the PM hired Andy Coulson as his Downing Street (i.e. Civil Service) press adviser.  The pressure building up on this story could prove intolerable.  Of course the public at large won’t take a great deal of interest in this, but it’s sort of thing that can obsess people in the  Westminster bubble.  And this bubble, to switch metaphors in midstream, is the pond in which Mr Cameron swims; he can’t survive if it becomes poisonous, even if the world outside is fine.

I also bought Private Eye for the first time in years this week.  This is thick with innuendo about actual police bribery, using travellers’ cheques, which goes against my suggestion that this is quite rare in the modern force.  And lots of innuendo about the closeness of the Murdoch empire to both the Police and government.

The problem is that I share a characteristic with Mr Cameron – my first reaction to trouble tends to be to play it down.  This can be be very useful; it tends to calm people down, buy you time for a more considered view, and stop time-wasting.  Too many people have the opposite tendency to panic at everything.  But it can leave you flat-footed on those occasions when trouble is both real and unexpected.  I remember being most senior person in our Moorgate office when the 7/7 bombs went off; for the first few hours I was behind the curve.  To compensate what you need is to have some good advisers close to you who can challenge your assessment.  Ironically this was one of the things that Mr Coulson did for Mr Cameron, and did very well, as far as I can make out.  In fact it’s because he was so effective in the job he was employed for that Mr Cameron has difficulty in understanding that the fuss amounts to much.  But if Mr Coulson used his privileged position to improperly advance the interests of the Murdoch empire, then there’s real trouble.

Still, I may have been right on the Euro crisis.  The can has been kicked down the road again.  There was a lot of relief after last week’s summit of the Euro leaders; no doubt as the detail comes to light people will be less reassured.  In one sense it gets more and more difficult to kick the can each time – but it is equally clear that the Eurozone’s leaders have the political will to do the necessary.  Gradually a new architecture for managing the Euro zone is emerging.  It is one that condemns the UK to the sidelines, but that’s another story for another day.