15 January 2013

Double Dutch

Only a few days of excited anticipation remain before the prime minister descends the chimney to deliver his carefully wrapped speech in the Netherlands. It is risky to offer a comment so close to the point when the ribbons come off and we all see what Mr C has for us. All the same, there is one point I think will be worth watching out for.

In all the build up to The Speech, it has been presented as focusing on the relationship between Britain and the EU. If that is its subject matter then I think the prime minister has already fallen into the trap of seeing the UK as external to the EU.

The alternative would be a speech on reforming the EU.  It is not just Britain who might seek a return of powers from Brussels. In the last two decades the French, the Dutch, the Irish (twice) and the Danish have all said no to some part of EU integration. Nor is the issue of a tighter eurozone group a concern only for the UK. Ten of the 27 EU member states (soon 11 of the 28) remain outside and risk losing influence if the inner core starts to dominate policymaking.

Comparisons with  the Bruges speech will be unavoidable. In that speech a previous prime minister set out an alternative vision for Europe, one in which sovereign states cooperated to their mutual benefit. In contrast the spinning of Friday's speech has prepared us for the opening bid in a Dutch auction.

Mr Cameron does not want to lead Britain out of the EU, but if his text really is as limited as we have been led to expect then exit by accident will become ever more possible.

08 January 2013

The Fabian Pledge

The Fabian Society is asking its members to propose policies which could be included in a pledge card.

It is a nice idea, however once you start to formulate a pledge it becomes quite a complex task. On the one hand the pledge needs to describe the outcome, preferably in a concrete and measurable way. On the the other hand policy advocacy is concerned to propose the actions that would lead to the outcome. So "cut unemployment by 500,000" would be an outcome, but what policies would lead to that result?

The challenge forces you to look for a symbolic policy which provides an example of a deeper idea. Given my simple Keynesian approach I want to argue for more investment, but to what concrete result? I have settled on this idea:
We will build 100,000 affordable homes, sell them and use the proceeds to build 100,000 more.
It provides an example of a simple Keynesian policy. When the private sector is unwilling to invest the government can step in and undertake the investment itself. The resulting assets can then be sold to the private sector. It has the beauty that the initial borrowing can be repaid once the economy recovers simply by selling all the assets. In my pledge example, the government would borrow £3bn to build the houses which would be sold on the open market to households or housing associations, realising £3bn+ in revenue which can be used to continue constructing housing. Once the private sector begins to build again, the government scheme can be wound up and the money repaid.

I would advocate giving a government agency the responsibility of handling this fund. I would also back up the policy by creating compulsory purchase powers to allow the agency, or local government, to acquire any brownfield site which has had planning permission for housing for more than five years without the owner developing the site.

07 January 2013

Conventional Folly

It is surprising how much of what passes for conventional wisdom is nonsense. Sometimes a quick check of the data is needed but often a moment's thought is enough to see through an idea which is taken for granted in the flow of a discourse, but is in fact not grounded in reality.

Europe's relative decline, which I wrote about recently is a good example. It should be obvious that if developing countries begin to converge economically with rich countries then Europe (or the US or the UK) will command a smaller share of global resources. Yet pundits fret about this change.

There are many other examples. On Twitter recently I encountered the familiar argument that when Britain joined the common market we were joining a trading block not the political and monetary union which the EU has become. You need to know a bit of history to refute that one, but the evidence is only a few clicks away on the internet.

Another one from Twitter was the claim that Britain's prosperity depends on the confidence of international investors. In fact the amount of foreign direct investment into Britain is a fraction of the flow of earnings into the country from British investments overseas.

It is not just in the new media free-for-all that this conventional folly is found. An opinion piece in today's FT claimed, "The eurozone countries are determined to move forward with political integration to save the euro." Everyone knows that political integration is what is needed to save the euro; but will it really and are the eurozone countries really so determined?

In each case conventional wisdom is used to support a political conclusion - in favour of a referendum on Europe, against quitting Europe, or taking a middle position on Europe. A rational debate deserves better.

I should take a bit of time on this blog to expose the folly of conventional beliefs.