Why Paul Krugman is wrong

In today’s FT the economists Paul Krugman and Richard Layard (of the LSE, famous for his work on the economics of happiness) publish an article A manifesto for economic sense calling for looser fiscal policy around the world.  Being in the FT it’s behind a paywall (though I have shared the article on Facebook).  But the simplicity and clarity of their argument make it a particularly good pace to discuss the difficult issues of economic policy as the economic crisis rumbles on.

Back in 2005 I was contemplating taking an Economics degree, with little formal background in the subject.  I asked a tutor at the university (UCL) on their advice for background reading and he said “Anything by Paul Krugman”.  The Professor at Princeton, who subsequently won the Nobel Prize, was famous for the clarity of his writing on economics.  I also discovered, as I devoured anything by him I could find, that he was not a shrinking violet on the subject of US politics – passionately attacking the Republican regime of George Bush.  Now he is a crusader against “austerity” – the focus of governments on healthy finances even as recession stalks the world.  He recently visited London, and appeared on Newsnight.  I didn’t see him, but I am told he made mincemeat of his opponents – and I’m not surprised.

As I took my degree at UCL I read more of Professor Krugman’s work, now in academic papers and discussions, rather than the more accessible stuff I read read before.  The clarity remained – but he came over as a bit wild.  I remember in particular one discussion where he became obsessed with the idea that Japan needed to stoke up inflation to get its economy out of the doldrums.  His wild suggestions for doing so seemed to leave his fellow economists quite exasperated.  Ever since I have viewed his opinions as entertaining, but liable to be impractical, and in the end very unhelpful.  So it is this time.

The article (not very long) starts its main line of argument by talking about the causes of the crisis:

The causes. Many policy makers insist that the crisis was caused by irresponsible public borrowing. With very few exceptions – such as Greece – this is false. Instead, the conditions for the crisis were created by excessive private sector borrowing and lending, including by over-leveraged banks. The bursting of this bubble led to large falls in output and thus in tax revenue. Today’s government deficits are a consequence of the crisis, not a cause.

I think it is highly significant that the authors throw this in so early.  It implies, without actually saying so, that pre-crisis government expenditure in most developed economies was perfectly sustainable, if that pesky crisis hadn’t caused a dip in tax revenues.  It is perfectly true that government debt was not a major problem before the crisis, which was caused by excessive private sector debt.  The trouble is that the boom years gave us false expectations as to what the sustainable levels of tax revenues were.  A large part of the dip is permanent, not temporary.  So substantial cuts will have to be made at some point to bring government debt under control.  It isn’t just a question of waiting for the economy to bounce back (in the UK, US and southern Europe, anyway).

The authors then point out that the crisis is caused by a collapse in private demand – and that it makes sense to make up the shortfall in demand by extra government expenditure until private sector confidence returns.  A failure to act means that unemployment becomes endemic and difficult to put right later.  They point out that monetary policy cannot take up the strain.  They say that there must be a medium term plan to bring government deficits under control – but that it must not be front-loaded.  I have no disagreement with any of this.  Quite a few people think that looser monetary policy would help – but I agree with the authors on this (which I will say more on in a future post).

Where I differ is that I think what they suggest is exactly what governments are now doing, in the UK and US anyway.  In nominal terms government expenditure has not been cut.  The private sector is slowly taking up the slack.  Governments may be talking austerity, to prepare the ground for the real cuts that are absolutely necessary in the medium term, but they are not practising what they preach.

The article concludes by trying to debunk two typical counterarguments to further stimulus.  First is that financial markets would lose confidence and refuse to keep funding government debt.  They point out that there is no sign of this in the UK or the US, where government bonds are at record low yields.  They also say that there is no actual evidence that budget cuts can generate growth.  On the contrary, they suggest (though don’t quite spell out) that looser fiscal policy will help restore confidence and get the private sector moving again, which would allow the deficits to be brought under control.  The trouble, of course, with using past evidence to prove a point is that the current situation is unprecedented.  And the global financial markets are quite unstable; who is to say that UK and US bond markets aren’t in their very own bubble that could burst very suddenly.  The absolute levels of deficit, and, increasingly, overall debt are becoming so alarming that anything is possible.  And what if the private sector remained sceptical in face of government stimulus?

Finally they tackle the argument that stimulus cannot work because there are structural constraints.  In other words, the pre crisis economy was so unbalanced that there is in fact little spare capacity – so that a stimulus would run into trouble very quickly, leading to inflation or a currency crisis.  If this were so, they say, we would see more parts of the economy at full strength.  Here there may be a difference between the UK and the US.  In the UK there are indeed a few signs of trouble.  Inflation has been much more persistent than predicted, though admittedly not through wage rises.  Export businesses complain of a lack of suitably skilled staff.

Straws in the wind perhaps.  But the pre-crisis economy clearly was unbalanced, especially in the UK.  Public service employment was clearly too high, and cannot be afforded at its current strength on any realistic level of taxation.  Also too much of the economy is spent taking care of ultra-rich bankers and foreign exiles – whose numbers and wealth we cannot or should not expect to grow.  And we still need to adapt to a lower energy economy.  I can’t prove that the authors are wrong – but there is enough reason for caution.

The authors make much of not repeating the mistakes of the 1930s.  But that was a very different world for two important, and related, reasons.  First there was a ready solution at hand: the expansion of manufacturing industry with an abundance of good low skilled jobs.  It took the war to unlock this, with the manufacture of armaments and transport, but war production could be converted to civilian use with surprising ease – as there was massive untapped demand for cars, fridges and other manufactured goods.  Second we were much poorer then.  Starvation was a real problem for the unemployed and poor, and the destruction of wellbeing flowing from depression was horrific.  Now we define poverty as lack of access to television and mobile phones.  The hardship is much less – and there is less untapped demand.  Technology has put paid to the number and quality of unskilled jobs.

That bespeaks caution – something that the manifesto economic sense disregards.  There is a case for some sensible investment projects – including the right sort of housing in the UK. But temporary tax cuts would be reckless, and stopping public sector cuts irresponsible.

bollocks and the bauhaus

Last weekend we went to see the Barbican’s wonderful exhibition on the Bauhaus.  The Bauhaus was a school of artists, craftsmen and designers who operated between 1919 and 1933 in Germany, and were among the Weimar republic’s few outstanding positive legacies.  They led modernist design, and are famous for all sorts of achievements, from furniture to architecture.  As Hitler took over, they dispersed across the world, but especially to America, where their influence was profound.

1925 Catalogue cover

There were many wonderful things on show at the Barbican, but what blew me away was the Bauhaus typography and graphic design.  On a very amateur basis I have struggled with graphic design, for example for political leaflets; I know enough to know how difficult it is.  My impression of pre-modern design is that it was at best stodgy and at worst plain awful.  And yet here, pretty much fully formed in the mid 1920s came a series of designs that stand the test of time.  Classics, both elegant and highly functional.  A product catalogue was particularly impressive (a low resolution picture of the cover is reproduced here – though I was more impressed with the inside pages).  San serif fonts, block and grid organisation, sparing but effective use of colour (dictated by the limits of printing technology no doubt), double justified text, use of white space, decapitalisation, perpendicular text.  A whole series of techniques we now take for granted coming together, pretty much perfectly formed.  The designs may look a bit dated today, but they still work – so much so that there is an overwhelming temptation to copy them.  I wanted to find out more.

1925 curriculum cover

They key figure in this achievement was Herbert Bayer, but he was taking on ideas developed by the wider school and he forged them in the process of play and challenge that was the Bauhaus process.  Bayer went on to a distinguished career in America as a designer, founding his own press.

The first jarring note at the exhibition came at the shop.  A number of Bauhaus designs were offered for sale.  At massive prices.  Particularly striking was a chess set, a design of breathtaking elegance and simplicity, on offer for about £400 (not including board, another £300 or so).  One of their classic chairs, and a simple stool, were also on offer for similarly staggering sums.  Now the key point about Bauhaus designs was their simplicity and ease of manufacture.  It follows that these items did not cost very much to produce (and the furniture was produced in large quantities for their own use).  And the Bauhaus had a socialistic outlook, wanting their work to be accessible.  What the public are being asked to pay for is simply intellectual property, so that these items can be, almost literally, icons for the elite.  The Bauhaus has been appropriated in the modern world to represent exclusivity.

The next jarring experience came when I bought a book (itself inexpensive) on the bauhaus and design theory edited and largely written by a couple of American design academics, Ellen Upton and J Abbot Miller.  The jarring note here was its mediocrity, contrasting with the inspiring excellence of the Bauhaus project.  The authors look pygmies by comparison.  I’m not asking for my money back.  The book had some interesting history and ideas, and some useful pictures.  But I wasn’t left with much of an idea of what the theory behind Bauhaus graphic design was, or of its successes and failures.  Instead I got a lot of half-digested ideas about “alphabets” and “language”.  The layout and design of the book itself was incoherent and uninspiring.  It took on some of the Bauhaus design features, but not others (the main font was serif, and the text left-justified).  There were a number of playful ideas which fell flat, as did their language (quite a few nouns, like privilege and foreground, appropriated as verbs).  There was a digression into psychoanalysis, by which they seemed to mean pop-Freud (nobody else gets a mention), whose chief mission was to show us how some ideas about masculinity and femininity have not stood the test of time.  There is an afterthought on fractral geometry (as an antithesis to Bauhaus) which did not leave me much wiser as to how this might help graphic design.

The biggest problem, though, was that for some reason the editors decided to give a central role to the Bauhaus instructor Wassilly Kandinsky’s attribution of primary colours to basic geometric shapes (shown at the start of the piece).  This is not a particularly successful idea, though no doubt played a useful role on the development of Bauhaus thought.  The yellow triangle was set in opposition to the blue circle, with the red square being intermediate.  Yellow and the triangle were associated with movement and light; blue with stability and darkness.  The big problem with this is that it isn’t clear that blue should be the opposition to yellow.  In the standard colour circle the opposition to yellow is purple, the darkest of the colours.  It isn’t obvious that blue is darker than red.  Bayer did use the basic shapes in his work, but I could see no sign that Kandinsky’s colour ideas played any role.  The predominant colour in his work on display, indeed, was orange.  So why make such a meal of it?

So Bauhaus has become the focus of the idle musings of the mediocre, who hope that just by talking about the excellent that some of the excellence can rub off onto them.  I suppose such a fate awaits the excellent in any field.  Meanwhile I stay inspired, and I have bought a couple more books on graphic design to develop my understanding further.

The Greek elections – what actually happened?

The media coverage of yesterday’s critical Greek election has been truly appalling.  The BBC and newspaper websites simply tell us that New Democracy has “won” and that Greece is now on course to form a government that is more accommodating to the EU.  But New Democracy won last time, and this time Syriza did well.  So why have things changed?  Some of the websites give you the projected numbers of seats that each party has won.  But they don’t well you how they compared with last time – i.e. how many seats each party gained or lost.  The Economist, usually much better at telling you the relevant facts, is as yet saying very little.  To find out what actually happened you have to go to Wikipedia.

So what did happen?  New Democracy won an extra 21 seats.  PASOK, the other establishment party, lost 8 – so there was a net gain of 13 for the establishment.  Syriza gained 19 seats – but at the expense of a whole range of other anti-establishment parties.  Last time the two establishment parties fell just two seats short of a majority in parliament – and as no other party would give them any leeway, no government could be formed.  Now, between them, they have 162 seats in the 300 seat parliament – a majority.  What’s more the one “centrist” party – the Democratic Left, which lost 2 seats – was too frightened of Syriza to join a coalition last time, but seems happy to talk this time.  It has 17 seats, which would make up a comfortable majority, but even more importantly it would help give the government legitimacy – since the establishment majority only comes courtesy of the 50 seat bonus the Greek system gives to the leading party.  The three parties together would have a majority without this bonus, though not if the bonus had gone to Syriza.

Hope that helps.

Two sides of the Church

It has been a big week in my ongoing spiritual odyssey, as I wrestle with my agnostic contradictions.  My anti-Church  hackles were raised, all too predictably, by the Church of England’s response to the Government’s consultation on gay marriage.  But I was was  disarmed by the response of a priest to a blog on the subject.  And then I chanced into hearing an episode of Richard Holloway’s radio series Honest Doubt.

First that Church response on gay marriage.  To start with I relied on news reports, mainly from the BBC.  And these were (predictably) provocative – saying that the Church felt the issue to be one of the gravest in its 500 year history, and implying that the Church still considered marriage to be about having children.  I could not but feel this was a calculated insult to my own, childless, marriage.

But rather than sounding off in that vein, I thought I had bet read it (summary here, with link to the full response).  It was of course, much more measured.  But it also cut no ice.  Indeed it seemed to be just begging the question (in the proper sense of being circular rather than the common usage of “inviting the question”).  Two problems preoccupy the drafters: first that it changes the meaning of marriage.  To which the liberal response is, “Well spotted.  So?”  The second worry follows: it means that the Church’s definition of marriage will no longer follow the state’s.  They say that there should be no difference between “religious” and “state” marriage; there should be just marriage.  The natural response from liberals is, “Well, that’s entirely up to you.  Why should that bother us?”  The Church marriage would be fully recognised by the state; it would be a subset of state marriage.  Actually, the reason for the Church to worry about this distinction was spotted by many commentators.  It is part of that wedge with is slowly separating the Church of England from the state and may one day force its disestablishment.  But to most people the establishment status of the Church is just an ornament with nostalgic value, rather like the monarchy.  Few are against it, unless it tries to flex its muscles.  Trying to prevent overdue change to civil customs is just such a muscle flexing: and if it leads to disestablishment, so be it.

On reflection it is difficult to be angered by the Church’s position.  It is just demonstrates all the disappointment I have in it and other Christian institutions.  It just cannot reinterpret ancient principles in light of its more fundamental principles and our changing understanding of the world.  It is just heading for the dustbin of history.

Meanwhile atheistic Lib Dem blogger Mark Pack challenged the Church on the grounds of historical inconsistency.  One of his posts was entitled Could a theologian please help…?  The point at issue was divorce rather than the single sex bit – if the Bible says that marriage was to be for ever, why did they change their view on remarrying the divorced?  Typical smart Alick stuff from an outside commentator.  But it drew a long and wonderful response from a Methodist minister, Philip Wren.  He took time to start with the biblical quote from the Gospel of St Mark that defines the basis of marriage (“…what God has made let no man cast asunder.”)  But he explained it  in terms of the tension between forgiveness and sin.  It’s the sort of stuff that reminds me why I’m agnostic rather than atheist – Christianity is not about neat, cut and dried rules.  It’s about love and redemption.

This was enough to throw the Christian religion back into a more favourable light.  And then, by accident, I caught one of the BBC Radio 4 talks on “Honest Doubt” on Friday, tackling the issue of morality – if we throw out God and religion, on what basis do we found and enforce morality?  The honesty with which it confronted the question made me stop in my tracks.  I immediately went find other talks in the series from the BBC website.  Unfortunately the it isn’t available in podcast, and they apply a strict 7 day rule – so I could only backtrack a week on iPlayer, and missed the first 10 episodes (it extremely irritating when BBC do this, for no good reason that I can see).  I wasn’t disappointed as the series went through the various Victorian thinkers’ reactions as the faith was shaken to its foundations by a series of shocks.  I was particularly taken with Keats’s idea that truth comes from the process of doubt itself.

The talks are given by Richard Holloway, a former Bishop of Edinburgh and professor of theology.  I was hugely struck by the way a religious person could have the courage to confront deep questions that few dare to (amongst atheists as well as churchmen).  If they could do this, I thought, there was hope for the church yet.  I could be a member of a church that contained Richard Holloway.  As I researched Dr Holloway (my practice of using people’s titles as a mark of respect causes difficulties here – his not a bishop or a professor; I assume he is a doctor though!) I was not reassured, though.  He resigned from being a bishop, and now describes himself as an agnostic – his views taking him beyond the pale so far as the official church is concerned.  My struggle continues, but it is good to know that I am not alone.

The talks are given by

Class warfare: changing the primary school curriculum

Yesterday the Government announced proposals to change the national curriculum for primary schools in England.  No doubt there was the same sharp intake of breath in liberal circles that accompanies anything that comes forth from the Secretary of State, Michael Gove, with his appeal to traditional, conservative values.  But liberals have often failed to convince on education.

Mr Gove is a remarkable political phenomenon.  He is instinctively disliked by those of a liberal disposition, and the vast majority of people who work in the education sector, or councillors who are responsible for it.  And yet, unlike his health colleague Andrew Lansley, or Theresa May at the Home Office, the vitriolic criticism of the professionals, and lampooning by comedians, seems to make little impression on the public at large.  The government is being hurt by a lot of things at the moment, but education reform is not among them.  For once the public seem to trust the politicians more than the professionals.

So what to make of these proposals?  They amount to a much more prescriptive programme for English, Maths and Science – with proposals on modern languages on the way.  They go further than the current curriculum, and have a traditional, prep-school feel about them – English has a heavy emphasis on spelling, punctuation and reciting poetry, for example.  This is easy to dress up in old fashioned, conservative language – which Mr Gove duly does.

The first criticism to make is that the Government had promised teachers that they would get out of their way, and give them more discretion.  All the pressure in recent years has been to take things out of the National Curriculum, and not add more things in.  The more flexibility schools have, the more room for creativity there is, and the more diversity and choice there will be – something the government had seemed keen on promoting.  But evidently there are some things that Mr Gove feels are too important to be left to parental choice and diversity.  And the changes are focused on the very core subjects – not the peripheral things that politicians had proviously like to pitch in.

Behind all this lurks a topic that vexes many: class.  Now class is something that widely is misunderstood in Britain.  Class here used to be about what you were born into, and the idea that everybody should stay in their place, with all the privileges and duties that this implied.  Mobility was frowned on, but allowed to creep in gradually.  A lot of this mobility took the form of pretending that your family was better bred than it was.  I am doing a project on my family’s history at the moment.  One of the more amusing aspects is how much effort my middle class Victorian (and some later) forbears put into trying to prove the family had noble connections.

But two world wars and a relentless industrial transformation have swept away that understanding of class.  And yet to the disappointment of many, elitism and social stratification remains very much with us – and indeed many of the institutions that supported the old system are in very good health supporting the new – “public” schools, elite universities, and so on.  And although the idea of birthright might have gone, it is very much expected that you support your peer group – and do the best you can to give your children every advantage.  Social mobility, after leaping forward in the middle of the last century seems to be slowing down.  What happens here now is not the lingering of the old system, but something similar to what happens in other modern developed societies which did not have our feudal legacy – like the USA and Australia, who also have “class” problems.

Schools lie at the heart of concerns about class – and here liberals are on the defensive.  Liberals have dominated the state educational system for generations, seeing through major reforms to both structure (for example pushing selective elite grammar schools into comprehensive schools) and the way schools are run – towards what might be called “softer” values.  It hasn’t worked very well – though why remains hotly debated.

Enter Mr Gove.  His solution is to make state schools look and feel much more like their elite,private sector counterparts – and these curriculum proposals are an example.  His critics simply think this is to give middle class parents a private, elitist education at taxpayers expense, without having much impact on the rest of society.  But that is to misunderstand the thinking.  Mr Gove, and many conservative thinkers, think that social mobility is about turning working class people into middle class ones.  And that isn’t just about imparting knowledge and skills, it’s about talking and writing like middle class people too – or at least becoming “bilingual” in class ways.  The old grammar schools did this very successfully – and their abolition has not helped social mobility.

This is all very interesting.  It is easy to see difficulties.  State schools, apart from the surviving grammars, are still quite unlike their private school counterparts in that they cannot select their intake.  Will this approach exacerbate class tensions by teaching pupils to sneer at the less fortunate (as no doubt the old grammars did)?  But liberal policies of inclusiveness have not proved enough by themselves.

I’m giving Mr Gove the benefit of the doubt this time.  Too often we liberals forget the working class ideal of “bettering yourself”; celebrating diversity is good; celebrating mediocrity isn’t.

Football: after optimism fails, England fans try low expectations.

I’m not a football fan, in any of its forms.  I don’t follow a football (soccer) club.  But I do get swept into the excitement of the big international championships that take place every two years: the European Cup and the World Cup.  The European Cup for 2012 has started but there’s almost no visible excitement in this football-mad nation (England – here not the other British nations) – so there’s nothing to be swept by.  The Jubilee Union Jacks are slowly coming down – but few George Crosses are replacing them.  What is happening?

I think that what we are seeing is the playing out of two competing theories of motivation amongst pop-psychologists and sports coaches.  First: nothing succeeds like optimism.  Second: excessive expectations only bring disappointment.

The first theory has become very fashionable.  Various statistical studies, at least in the myth, have shown that high expectations improve performance.  So it helps to think that you are going to win.  This type of thinking is now deep in the popular culture – as you can see from the silly boasting by contestants in reality TV contests, replacing the formerly very British (or anyway English) modesty.  But England football fans have tested this idea to destruction – going into contests with high expectations, and much talk of how we can win.  The results (especially the 2010 World Cup) have been dismal.

So the alternative theory gains ground.  Teams can be paralysed by the weight of high expectations; they often peform better when they have less to prove.  And indeed some of the most memorable England football performances have been when the team has been written off (I still remember beating Germany 5-1 in a qualifying match a decade or so ago).  It seems that the county’s fans have taken this idea seriously; keeping mum about the side’s chances, in the hope that this will improve the performance.

Meanwhile I may well miss England’s first match tomorrow – consciousness is so low that somebody is try to arrange a meeting that conflicts with it!

Is the US economy heading for a fall?

Most of the worry about the world economy is being directed towards Europe, and the Eurozone in particular.  I am amongst a very small group of optimists on that front – but it is easy to see why people are worried.  In fact it is only through a prolonged period of crisis that Europe will find an enduring solution.  But meanwhile, should we be worried about the US too?

What prompted this thought was this article in Vanity Fair by the eminent economist Joseph Stiglitz (thanks to Marisha Ray for drawing my attention to this on Facebook).  It’s subject is inequality, and why it is corroding the US economy, and why the elite (the top 1%) should worry.  Judging by the FB comments, some readers saw this critique as applying to government thinking right across western world – the view that austerity economics is driven by an idealogical view of the role of government.  But I took it as a very specific critique to the US.

Professor Stiglitz does not spend much time justifying the statement that inequality in the US is high and increasing.  The problem is that almost all the benefits of growth are accruing to the top 1% of the population – and bypassing those on middle incomes.  In other words the problem is not an underclass that is disappearing from sight – but a substantial majority of the population being left behind, with the creation of a fabulously rich elite.  There are many ways of looking at the statistics on this, but for me one of the most important is the historically high level in national income that is taken up by business profits – the benefit of which goes overwhelmingly to the elite.  This may or may not be outrageous in its own right, but Professor Stiglitz points out a number of practical problems that arise from this:

  1. The very rich spend less of their income on consumption and save the rest.  The more wealth that concentrates in their hands, the more consumption overall will fall as a proportion of the economy.  Unless there are enough constructive channels for their savings then unemployment will result – unless alternative demand comes from somewhere.  That alternative might be an investment boom (as with high tech in the late 1990s) or with big government deficits, propping up the economy now.
  2. The rich elite use their power to protect vested interests and direct their energies to what economists call “rent-seeking”: activities that enrich the individuals themselves but not the economy as a whole.  Under his analysis the finance industry is largely based on rent-seeking.  As energies are diverted from genuine economic growth, the economy overall weakens.  What is good for the profits of existing businesses is often not good for the whole economy – which needs new businesses to come forward.
  3. The majority who are seeing their incomes stagnate, and find it more and more difficult to join the elite, get resentful, breaking down the trust that underlies all successful economies.

But there is a political puzzle at the centre of this.  Why is the Republican Party both veering to the right and retaining substantial popularity?  Surely the welling up of resentment against the elite should translate into overwhelming political pressure for a more egalitarian system?  I think the American suspicion of government is to blame.  I don’t think that the majority of American people are particularly happy with the way their living standards are being held back.  But, incredible as it may sound to European ears, many of them think it is “socialist” government policies that are to blame.  Shrink the government, cut taxes and the 99% will start to catch up with the 1%.  Of course, huge funds from the elite are available to support this view in the media – through political campaigning and biased news coverage, such as Fox News.  It hardly helps that a lot Americans seem to think they can have their cake and eat it: huge expenditure on entitlement programmes (especially Medicare) without the need for increased taxes.

If Professor Stiglitz is right then the US would be suffering from long term low economic growth, as the various toxic effects of its skewed income and wealth distribution gradually overwhelm the highly dynamic core economy.  And indeed, measured per capita (i.e. taking into account population growth), the U.S managed annual growth of only about 1.4% in the first decade of this century (compared to the UK 1.7%, or Germany (1.9%) – though France only managed under 1% – figures from Wikipedia).

Still lacklustre growth won’t cause a crash.  Italy has made an art of surviving such a challenge.  But the proximate cause of a crisis is clear enough – the government’s budget deficit of 7.6%, and the lack of any political consensus in how to handle it.  There are three ways in which this could cause a problem.  The first is if the US government should hit the Spanish problem of being unable to borrow because of a loss of market confidence.   This looks implausible.  Investors have too few choices where to put their surplus funds.  The second is expenditure cuts sucking demand out of the US economy, causing a prolonged recession.  This could happen if the Republicans take control in this year’s elections.  The third is political gridlock causing government funding to seize up, and causing technical default.  This looks all too possible if the Republicans control either or both houses of Congress, as looks probable.  Even if Mitt Romney should gain control of the presidency (and he’s doing well on fundraising), he may well run into trouble with Congress as he desperately tries to find practical answers to the deficit problem.

And what if the US survives the budget crunch in 2013?  If growth continues to be lacklustre, and the top 1% continue to hog the benefits, surely US public anger will turn on the elite, as it did briefly in the last days of President Bush?  I share the European view that a smaller government, reduced regulation and lower taxes will make the problem worse, not better.  That will be a sight to watch from a safe distance.

The Queen understands the nature of privilege

The weather may not be cooperating, but the Jubilee weekend ploughs on.  So far I have attended a Jubilee parade at the local primary school where I am Chair of Governors, and a barbecue hosted by a north London friend.  We are on our way to a damp riverside party in Docklands, where we may see some ships passing by on their way to and from the Thames pageant.  The are street parties in neighbouring streets, and the Tube lines are full.  There is a party mood about.

I have stood up to the National Anthem and toasted the Queen.  But amongst my fellow party-goers almost everybody is sceptical about the monarchy as a system, though respectful of the Queen herself.  We are definitely not a representative group, though to call us part of the “elite”, as many do of anybody who shares our liberal outlook, is a stretch.  None of us runs anything bigger than a primary school.

Meanwhile, much nonsense id being pumped out in the newspapers and on the radio (I’m avoiding the television, as usual).  The Queen has not let us down, claimed an article in the Evening Standard, unlike all those prime ministers – something that says everything about our expectations of the respective roles, and nothing about the competence and intent of those holding them.  The Queen is a human presence amongst all the stiffness and pomp that surrounds her says Matthew Parris.  Like Napoleon wearing a plain hat and coat amongst the splendour of his aides.  One of the worst features of the monarchy is pompousness and obsequiousness that it attracts.

The truth is that the Queen is something of a blank canvass, upon which we project our prejudices.  Right now these prejudices are all positive, but it has not always been so (remember Diana?).  We know very little about her – which is something of an achievement on her part, it has to be said.

What do I project onto this blank canvass?  To me the Queen represents the meaning of privilege, in all its good and some of its bad senses.  In modern usage, privilege has come to mean exclusive rights acquired purely through your status, and, implicitly, undeserved.  This one-sided meaning has taken hold in post-class society (and people who say that class is as rampant in current British society as ever have no idea what class is).  It may have originated from classless America, where Harry Truman railed against the “Republican gluttons of privilege” – which would have been back in the 1940s.

My late mother (who was the same age as the Queen to within a month) always hated this usage of the word.  She was by no means aristocratic, voted Labour at the first opportunity in 1945 and hated Toryism.  But her upbringing, as the daughter of a senior churchman and professor, and being brought up on a cathedral close, was certainly privileged.  To her privilege was a two-sided thing.  It implied responsibilities.  You would hesitate to accept it.  We have caught a sugar-coated version of this on the popular TV series Downton Abbey.  And I don’t think I am stretching my imagination too far to suggest that the Queen embodies this understanding of privilege.  She puts duty first.  She maintains a busy schedule of state commitments (somewhat in contrast to her one diamond predecessor, Victoria), and is never undiplomatic.  People I know who have glimpsed the royals in the flesh are struck with the, well, professionalism, with which they carry out their role.  And if the Queen despises some of the lesser of her subjects (which I doubt), she never, ever lets it show.  That would not be within the meaning of privilege.

The Monarchy, at least in England, will survive a long, long time provided that its incumbents remember that this is what privilege means.