Monthly Archives: May 2013

The news that Dave Hartnett, formerly the tax panjandrum of Her Majesty’s Revenue & Customs, has been taken on as a consultant by Deloitte has provoked outrage to the left of him and outrage to the right.

Comparisons with the US and France have been drawn. In the former, the revolving door between the administration and lobbying and consulting firms has become especially controversial in recent months. Academic studies have shown a link between the access of ex-public servants to former colleagues and their remuneration, in what has become a multibillion-dollar industry. In the latter, we are reminded that a tight elite from a small number of universities runs the country, moving seamlessly between government, banks and industrial companies.
 

President Barack Obama’s speech last week on counterterrorism may have proposed the end of one open-ended war for the US but it also signalled the start of a new war – albeit more restrictive and contained. The use of drones in the first got out of hand, but there is no guarantee yet that they will not do so in the new one.

The fallacy and danger of the use of drones is not that they kill terrorists covertly. It is a good thing, after all, that they have decimated al-Qaeda. It is that, rather than being just one tactic in a wider US counterterrorism strategy, drones have become the strategy itself. 

The transmission mechanism of the euro area monetary policy is not working properly, as interest rates charged by the banking system vary widely across countries. This hurts small businesses in particular, as they have to rely on bank credit much more than large companies which can issue debt in the capital market. As a result, countries which are implementing fiscal restriction cannot fully benefit from the monetary policy easing implemented by the ECB. Under these conditions the adjustment risks being self-defeating. 

In the past few days, we have seen groundbreaking news out of Syria that has not so much transformed the nature of the crisis as confirmed it. It is clearer than ever that the Syrian war will be a long and protracted fight with neither side capable of toppling the other. With Hizbollah and Russia publicly doubling down on supporting President Bashar al-Assad – and Israel reacting with equal and opposite statements – the battle lines are bolder in what is becoming a full-fledged proxy war. 

Latin America’s giant economy urgently needs someone like Facebook’s founder and chairman. Not to disrupt business models but to disrupt its immigration policies – like Mark Zuckerberg is now doing in the US.

The Facebook chief executive has launched an organisation called FWD.US whose aim is to lobby in favour of comprehensive immigration reform. This lobbying effort is not completely disinterested: one of the group’s goals is to make it easier for the companies supporting it to employ foreigners in the US. 

No one can be strong when China is weak. That, at least, appeared to be the message from the economic data this week. New data suggest lacklustre growth in China – sparking nervous sell-offs in other countries. A one-day decline of over 7 per cent in the Nikkei stock market index might seem like an overreaction but, last year, China was Japan’s most important export destination, accounting for more than 18 per cent of its goods exports. China now accounts for one-quarter of South Korea’s exports. China is also the third-largest destination for US exports, after Mexico and Canada. 

There is no better topic than gold to polarise an investment discussion. So the recent sharp drop in the metal’s price has pushed to fever pitch the debate between two camps with deeply held convictions: those who view gold as overvalued and lacking both income and capital appreciation attributes; and those who feel it is only a matter of time before others appreciate again gold’s unique role as an antidote for virtually any economic ill that could hit a diversified investment portfolio.

As interesting as this debate is, it understates the potential significance of what has taken place. The recent volatility speaks to a dynamic that has played out elsewhere and, more importantly, underpins the gradually widening phenomenon of western market-based systems that have been operating with artificial pricing for an unusually prolonged period. 

Washington’s need for periodic scandal is almost biological. For legislators, it is the opportunity to strut on the national stage. For the party out of power, it is politics by other means. For the press, it is an escape from the boredom of a second term. Scandal means a break in the routine, a thrilling emergency. How else to explain the excitement with which two events – an attack on a US consulate in Libya and tax audits of conservative institutions – have been elevated into scandals? At some level, the political class loves it. 

Markets have not been enthused by the numbers coming out of China in recent months. Typical headlines are “China’s production indicators disappoint” or “analysts are worried that rapid expansion is faltering”. Estimates of China’s economic growth this year are slipping from more than 8 per cent to something closer to 7.5 per cent. Those concerned about the country’s longer-term growth challenges, however, tend to be more relaxed about near-term outcomes but preoccupied with the new leadership’s commitment to reforms.

Is there a trade-off between reviving the economy and establishing a sustainable basis for longer-term growth? Unfortunately there is. Beijing has run out of good options to further stimulate the economy as a strategy to buy time until western economies rebound. 

I have enormous respect for Martin Wolf, as he knows, and never miss a single one of his brilliant and indispensable columns. Indeed, I appreciate his responding, as did Paul Krugman and Joe Wiesenthal, to my recent FT article on the origins of recent eurozone austerity programs.

In further responding, let me emphasize that my argument is not pro-austerity or anti-austerity. Not at all. Rather, the main point which I tried to make is that financial markets originally pushed austerity onto the weaker nations, not politicians. A careful review of the timeline in this eurozone financial crisis bears this out. 

Even by the country’s dismal standards of rigged elections, military dictatorships and incompetent civilian governments, the polarisation, murder and mayhem on the streets is unprecedented. Coupled with the gross opportunism of all political leaders in ignoring issues on which the nation’s survival depends, this is causing immense international and public concern. The future after the elections will continue to look bleak unless the politicians can agree to work together on these crucial issues.  

Criticism of austerity has reached ferocious levels in Europe. Increasingly, it carries a moral tone, portraying the stronger north, especially Germany, as forcing harsh policies on to weaker nations. Opponents of austerity argue that the north is demanding fiscal tightening and labour market reforms from these stricken states in exchange for vital lending from entities such as the European Central Bank. They see it as kicking economies when they’re down. 

Carmen felt both exhausted and thrilled. Exhausted because her 78 years made the 15-hour bus ride too long. And thrilled because she had voted in the presidential election. To do so, she had to travel from Miami to New Orleans. The journey was caused by President Hugo Chávez’ decision to close his country’s consulate in Miami. So the 20,000 Venezuelans who live there (most of whom are not Chávez supporters) had to choose between not voting or going to New Orleans… 

In the west, discussion of the country’s prospects is focused on whether the change to date irreversible or whether the military could come roaring back to power. This preoccupation misses the point. The real question about is not whether it will go back but, rather, how it will go forward. There are already a few hints about what to expect. 

To give Germany the assurance it will need to agree to permanent burden-sharing, France needs to press on with reforms, and to do so boldly and visibly. It needs to reduce the size of the state, lower labour costs and so improve competitiveness and boost medium term growth prospects. Put bluntly, France needs to make its economy more German, and it needs to do so as quickly as possible. 

In September 2014, Scottish voters will decide whether to leave the UK and become an independent state. It will be a straightforward Yes-No referendum, but each person’s vote will be based on a mixture of rational and emotional considerations. The currency question touches both, and therefore it could be the deciding factor in this historic decision.