Thursday, 27 November 2014

Floating free from Germany

Mario Drahgi has called for more integration and “sweeping powers” for the ECB to control fiscal policies and efforts to reform the Eurozone's economy. Is this “joined-up” thinking is a throw-back to the darkest days of the Euro crisis, when it became obvious that there was lack of cohesion between member states?  Or is this a power grab by the ECB, using the interminable recession, as an excuse to take control of a “fiscal and economic union”.  Currently the ECB owns interest rates and sets budget targets (roundly ignored by all but Germany), in this new and enlightened world the EBC would like set tax rates and drive to through supply side reforms to drive productivity and competiveness.

Drahgi believes in the “importance of each country sticking to its commitments under the stability and growth pact “and that this should now be beyond debate”.  He would like to go further by saying that in matter economic “sovereignty should be exercised jointly” – what a great line!!  What are the things that could do with harmonisation?

1. Actual interest rates
2. Rates of business taxation
3. Minimum wages and hours of work
4. Actual spending limits (properly enforced)

Living in Harmony

Friday, 21 November 2014

Winning the productivity race

Seven years on from the start of the Great Recession the slump looks set to go on and on.  Even David Cameron who seldom mentions the economy was stirred this week to reinforce the message that - the worst may not be over.

Certainly, in the UK we have had some growth but we still have high levels of government debt and a crippling trade deficit and our main trading partner is in real trouble.  It is now certain that the major economies in the developed world will never recover the lost demand that has opened up between actual GDP and the trend line established over the last 20 years.  This puts us in new territory, as in every other recent recession the global economy has always been able to close gap in “temporary” lost demand during the expansion phase of the economic cycle.  In real terms, people in virtually every developed country will be poorer at the end of this economic cycle than in 2007!  This is a pretty stunning revelation – we have forgotten how to grow!

Friday, 7 November 2014

What a hedgehog knows

When, in 1948, Mikhail Naimy  wrote “The more elaborate his labyrinths, the further from the Sun his face” he was already living in a world that was being over-run by complexity.  Most of the greatest insights in art and science since the end of the Second World War have been conceived in a dense soup of analysis.  There will no more be simple insights that change the world – mastering the complexity is everything.  The keen amateur who is able to think freely and creatively is no longer taken seriously;  the potting shed had been replaced by the data centre such is the explosion of data and variables required to understand the problems we face. We are living in the age of the Fox (who knows many small things).
This up-tick in complexity is obvious in the world of macro-economics as the simple relationships between money, prices, capacity and rates of interest no longer seem to work.  Also old certainties about productivity and wealth have been debunked – this is an uncomfortable world for the Hedgehog – (who only knows one big thing).  Obvious problems create resolutions that can be faced with bravery, although tactics may vary we can unite behind a shared vision or oppose it full on.   If the problem is too complex to articulate then there will be no solution only a vacuum.

Where are the hedgehogs

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