Politicians, markets and the Which? magazine strata

Supply and demand graphThe way politicians talk about markets is odd. This is not, I’ll admit, a novel observation. Indeed, very likely it’s not the first time I’ve made it on this blog. But it hit me again reading Heather Stewart’s interview with Chris Leslie in today’s Observer.

It is partly about reification and deification. The market is – or perhaps more accurately “the markets” are – a capricious god that cannot be tamed and must be appeased. At the same time, the market is the repository of all that is dynamic and innovative in society.

But it is also about the simplistic and uncritical way in which the issue is approached. [Read more…]

The disconnected housing debate

There is something of an oddity in the debate over the nature of the problems facing the UK housing system, and therefore by implication where the focus of policy attention is best directed. I’ve remarked on it before but it struck me forcefully this week when reading Christian Hilber’s new briefing, prepared with the aim of informing the election debate, UK housing and planning policies: the evidence from economic research. This was reinforced by Andrew Lilico’s contrarian post at CapX yesterday, which argues that there is no housing crisis and never was one. I don’t agree with Lilico’s overarching argument, but in the course of his discussion he makes a very important point. [Read more…]

Stress testing society

8020758086_fc194a9c87_nIn today’s Observer Sir Hugh Orde argues that the cuts to police funding being proposed by the Conservatives for after the election, layered on top of the cuts that have already happened, put the ability of the police to fulfil their basic functions at risk. He argues that the police force is near a ‘tipping point’.

No doubt someone somewhere in the bowels of Conservative HQ is crafting a rebuttal that will argue this is special pleading from a high profile representative of an interest group, seeking to make a splash on his way out. Or something like that. The rebuttal may have been launched already.

But Sir Hugh’s comments do raise an interesting and important analytical question. Where is the tipping point? And what happens when we pass it?

We know that the Conservatives are proposing to continue savage cuts to non-protected services for several years to come. And the plans of the other parties, even if a little less savage, are not much more generous. The focus of the argument is on shirking the state and what might be the most sensible timescale for aiming to achieve a budget surplus.

But the whole strategy only makes sense if you assume one of two premises. Either it is assumed that you can keep cutting budgets without affecting services in ways that are materially significant – public services can take advantage of effectively infinite efficiency gains. Or it is assumed that the public services were doing lots of things that are of no social value and so stopping doing them will make no difference to anything.

There is also, it would appear, relatively little consideration of whether cuts to some parts of the public services are of greater significance than others – or whether all are equally required to swallow unpleasant medicine in order to ensure that pensioners can continue to be bribed to vote Conservative.

But all of this seems to fly in the face of even rudimentary thinking about society and the institutions that are necessary to underpin it. [Read more…]

King speaks

Mervyn King’s stint on the Today programme yesterday was curious. It was much anticipated in some quarters. The reality then proved to be less revelatory than some might have hoped. I’m not sure what people were expecting – after years of buttoned-up discretion it was unlikely he was suddenly going to let all hang out. But some of the interpretation of King’s comments has been intriguingly partisan.

We are now only too familiar with the Coalition’s inclination to pin the blame for the financial crisis of 2007-08 on the last Labour government.  But asked directly yesterday whether he thought Labour were to blame he stated:

I am not going to talk about individual parties’ culpability because I think the real problem was a shared intellectual view right across the entire political spectrum and shared across the financial markets that things were going pretty well.

There were imbalances – we knew things were unsustainable – but it was not entirely obvious where it would come unstuck – and I think that is something everyone shared, and the right thing is to make it better for the future.

This has been interpreted in some quarters – notable by the Guardian – as King shifting his position and exonerating Labour. [Read more…]

Speaking money

HowtospeakmoneyYesterday evening the Festival of Economics 2014 kicked off with the author John Lanchester in conversation with Izabella Kaminska of the FT. Lanchester, who is promoting his book How to speak money, had some very interesting and important things to say about the language of finance.

His key point was that the fact most people don’t understand or engage with the language and practices of finance has consequences. It means that bankers and economists are able to get away with obfuscation and mystification in order to hide their own ignorance or render opaque activities of very questionable social value. Because most people don’t really understand what is going on in finance they do not appreciate the risks that are being run or the ethics of some dubious practices. This lack of knowledge reduces public demands for greater regulation of the financial system, to the great benefit of the financiers.

But it is not simply the bankers and the public who are in the dark. Lanchester noted that last month the US bond market witnessed a seven sigma event – in terms of the volatility of short term interest rate movements. This is something which, if the models commonly used to analyze financial markets are right, is near impossible. The most obvious conclusion to draw, therefore, is that the models are wrong. So the analysts are in the dark as well. [Read more…]

A bit of substance on housing to end the season?

House being builtWe’re most of the way through the Party Conference season, with only the Liberal Democrats left to play. So far it’s been a bit underwhelming on the housing policy front.

Labour offered a number of proposals. Some of them had been announced previously. Many of them were rather vague and aspirational.  Some of them looked kind of familiar – the Mansion Tax proposal most specifically. However, the proposal that many were hoping for – the big prize – relaxing the fiscal rules so that local authorities were allowed greater freedom to borrow for new development – was squashed by Ed Balls. Labour housing colleagues are now looking towards the Lyons Review – which is alleged to be emerging soon – to add a bit of ballast to the policy position.

The Conservative conference was rather short on specific housing policy announcements. Most of the announcements relevant to housing were focused on curtailing benefits to various groups deemed undeserving. I imagine one or two social landlord CEOs will be having sleepless nights worrying about their cashflows should the Conservatives be elected to govern alone come May 2015.

The eye catching announcement at the Conservative conference was the proposal to deliver 100,000 homes to first time buyers under the age of 40 at a 20% discount, with the homes to be cheaper because they’re built on brownfield industrial land. [Read more…]

Tax off for good behaviour

Over the weekend the CIH and the Resolution Foundation released a useful briefing called More than a roof. The focus is largely on the way in which financial incentives could be used to improve standards in the private rented sector.

The briefing provides a brief overview of the rapid growth of the private rented sector over the last few years. It then provides a decent summary of the key problems facing the sector, particularly the bottom end of the market where unscrupulous landlords lurk.

When the briefing moves on to policy it reviews what is currently being doing about standards under four headings – statutory obligations, licensing schemes, accreditation schemes, encouraging competition – before going on to look at what more could be done. Here there is an argument that modest and targeted increases in regulation are justified – in particular there is seen to be a strong case for creating greater transparency and uniformity in the standards that form the basis for licensing/accreditation schemes, more effective enforcement targeted at the worst landlords, and the greater regulation of letting agents.

However, despite noting the growth of direct regulatory intervention – notably in the devolved administrations and some London boroughs – the general tone of the report is rather sceptical. Greater regulatory intervention is not seen as the key to solving the problem. [Read more…]

Inclusive capitalism

Mark Carney’s speech yesterday to an Inclusive Capitalism conference has attracted plenty of press coverage. And rightly so.

It is a fascinating speech. But it is not necessarily fascinating for the arguments it sets out. The arguments are familiar. It is fascinating because it is Carney who is making the arguments. Markets erode social capital; inequality undermines the legitimacy of capitalism; more robust regulatory structures are insufficient on their own to deliver a safe and socially useful financial system; banking should be viewed as a support to broader, more important social objectives rather than an end in itself; we need to rediscover a focus on the long-term and the systemic.

These arguments have had currency among the critics of the established financial order for many years. And they have achieved much greater profile and urgency among those outside the citadel since the global financial crisis.  The need for the financial system to undergo an ethical overhaul becomes ever more compelling as each new area of fraudulent market-rigging becomes exposed.

Now the arguments are more clearly registering with insiders. [Read more…]

Forward guidance and managing the housing market

6775556163_ea02f6c4c0_nMark Carney’s importation of the forward guidance approach has been all over the mainstream and social media. But how significant is the announcement that the Bank of England is planning on keeping nominal interest rates as they are until after the next General Election? The comment it has attracted has covered the spectrum: positive, negative, and a bit meh. Commentators have picked up on a number of more specific issues, such as Frances Coppola’s post yesterday on the prospects for savers and Jules Birch rightly pointing out that the commitment to keeping interest rates low, combined with the Government’s Funding for Lending scheme, is going to give the revival of Buy to Let further momentum.

It is the housing dimension that, you might be surprised to discover, I wanted to comment on further.

Carney’s intervention comes shortly after several other housing–related snippets of news. [Read more…]

Zero-hours contracts – normalisation and back

storage roomZero hours contracts are not new. But that doesn’t mean they’re not news.

Today the BBC reports on a study by CIPD that suggests there are four times as many workers on zero-hours contracts than previously thought – a million rather than 250,000. Perhaps as important as the absolute number is the speed at which the use of such contracts appears to be growing. They have been around for a long time and are prevalent in particular industries – such as domiciliary care – where demand for services has always fluctuated substantially and unpredictably. But it appears that they are becoming normalised.

Many of those on the employer side of the labour market see the development of zero-hours as positive. It’s a positive indicator of the flexibility of the UK labour market. So it’s good for UK plc.

But it may be that flexibility needs to go further. At least one Tory MP was on Twitter yesterday arguing – rather incredibly – that zero-hours contracts are a product of the unnecessarily restrictive regulation of the UK labour market. If only more of the regulatory burden were lifted from employers then they would be willing to offer more regular, more secure employment. That is, of course, despite the country already having one of the least regulated labour markets in the world. [Read more…]