Knowing and Making

This slightly sordid but predictable story about the collapse of an airline covers the alleged overspending of the chief executive, the financing of yesterday's bills from today's revenue, and the likely explanation: ultimately, this company collapsed as a knock-on effect from some other airlines, which failed while owing it  money. It's unfortunate for the creditors and those who had bought tickets, but these things happen. The first comment on the BBC story? There has to be something inherently wrong and deficient about Gordon Brown's handling of the UK's financial landscape. "Prudence"???? ...I don't suppose the Company bought tables at Labour Party dinners - or did it? "Prudence" or "Darling Pridence" - Would you trust them to look after a bag of sweeties? The guy just can't get a break.

Most economists agree that some of the effect of fiscal (and monetary) expansion arises from expectations. There are arguments about how strong the effect is, but expectations of future policy almost certainly have some effect on current decisions on both investment and consumption. I believe that a hyperbolic discounting effect occurs here, and thus expectations of the next couple of years are disproportionately more powerful than expectations of the years following. This is one reason why the theory of Ricardian equivalence does not work. Mostly the supposed future tax increases are far enough in the future - and also uncertain enough - that they are almost completely discounted by most decision makers. So it's interesting to see the competition that Stephanie Flanders highlights between Gordon Brown, Andrew Lansley and the NHS Confederation. Lansley is at pains to stress that the Tories will cut spending, while Brown is keen to point out that Labour will not. Of course as Steph...

Nick Robinson has just written a fascinating post revealing lots of interesting detail about what's happening in the Democratic Renewal Council, which I mentioned on Saturday . It seems that both Lords reform and electoral reform are on the cards for quick action - though the electoral system being most seriously considered is not PR but Alternative Vote (interestingly, I had an informed response by email to Saturday's article which hinted at this). Nick explains the difference in his article linked above. I'm not sure if AV is more likely to favour Labour electorally than PR, but no doubt we will hear further analysis soon. Needless to say I think this bold and swift action is exactly the right political move for the government to take, and if followed up with consistently bold announcements from the other two cabinet Councils, will help to show that Labour does have a vision for the future of government. I'm not sure which should report first, but probably domestic p...

Hidden amongst the noise and disruption of an astonishing day in British government are a couple of fascinating stories which have the potential to form the political landscape for years to come. But there's almost no time to act: the government must take steps within 48 hours to avoid being overtaken by events. The first story is the reshaping of the Cabinet into three new "councils". These are: National Economic Council: Economics and enterprise Democratic Renewal Council: Constitutional and political reform Domestic Policy Council: Public services These three new groupings provide a structuring framework for most of the Cabinet, with the exception of foreign, defence, European and international development policy - which may be a candidate for a future fourth council. The second story is Brown's appointment of more people from outside the House of Commons as ministers - Alan Sugar being the most visible - and his statement in today's press conference that we ca...

Robert Peston is in a bad mood this morning . He claims that the National Audit Office's report on Northern Rock shows that Brown and Darling "didn't make adequate preparations for the possible collapse of banks", "didn't expect a recession" and "had a hopelessly naive view" about the Rock's 100% loans. It makes a nice story. The problem is, it isn't really true. I've read the NAO's summary of the report. Here's a notable phrase from it: This report does not consider: the causes of Northern Rock’s problems Indeed, all that the report does consider is the response of the Treasury to the problems that arose in late 2007, and whether it made the right choices and managed things in the right way. And on those counts, it mostly gives its seal of approval. Some exceptions are: The Treasury's worst case scenario planning was not quite bad enough. Instead of a base case loss of £270 million, Northern Rock lost £585 million last...

Looks like the UK is just as bad as the US at protectionism. Energy workers are on strike demanding that Total not be allowed to hire Italian workers at one of its plants. Never mind that Total is a French company investing in the UK; never mind that free movement of labour is guaranteed in the EU; never mind that twice as many British people work in the rest of Europe than vice versa. Apparently we are supposed to kick out a supplier with whom Total has freely contracted. Unfortunately this seems to be an example of rational ignorance in the political market. It requires a certain effort to educate oneself about an issue and make sufficient political fuss about it to influence anyone. The typical protectionist policy creates worthwhile benefits for a small consituency (let's say steelworkers) while the costs are spread among a far larger population. It's worth it for the steelworkers to run a campaign (or pay their unions to do so) to grab their $20,000 each; but too much tr...