European Parliamentary Party expects Lib Dem activists to listen and learn

What an organiser writes bout the event they are organising says a lot about them and how they view their audiance.

Consider the break-out session at tomorrow’s One Day Policy Conference being run by the Liberal Democrat European Parliamentary Party entitled The European Dimension. Unlike the other five sessions, which set out the broad parameters of the issue they would seek to discuss and then propose some questions, the description of The European Dimension consists of a very long paragraph extolling the virtues of the European Union. This seems to be a case of preaching to the converted at a Lib Dem conference, but may be designed to deter any doubters from attending.

There follows a paragraph in which we are told that “Three of our MEPs will speak about their work and that of the ALDE Group in the European Parliament… This workshop will tell you why and how Europe matters to Liberal Democrats” (emphasis added).

Note who is doing the talking here, and who is expected to listen and learn. Pity the naive activist who thought that policy conferences were an opportunity for the grass roots to influence policy.


Fortunately, the rest of the sessions appear to have been organised by more concensual bodies. From taxing women to the Home Affairs team on drugs, it looks like being an interesting day.

Taxpayer loans to people who want new cars: Labour's latest bail-out wheeze

When I find myself in agreement with both Friends of the Earth and the Church of England I know that something truly bizarre is happening.

And bizarre is the nicest word I can find for the Government’s plan to lend taxpayers money to private citizens so that they can buy new cars.

Apparently, the British borrow a staggering £20 billion a year to finance the purchase of new cars. And with credit drying up and sales down 36.8% on the previous year, motorcar manufacturers have been left with thousands of unsold (some might say “unwanted”) cars.

Step forward Lord Mandleson, scourge of savers and friend of the spendthrift.

The Times reports that car-buyers are to receive loans from the taxpayer: finance companies linked to the auto industry will be given access to the Bank of England’s special liquidity scheme so that they can continue to offer loans.

It is bad enough that the government intends to underwrite mortgages at a time when the assets underpinning them are falling in value. At least a house will continue to have some value; few houses will not cover the majority of a person’s mortgage. Cars, by comparison, are not assets but consumption goods, and lose value from the moment they roll off the forecourt. What is more, the collapse in new car sales has been shadowed by a parallel collapse in the sale of second hand cars that has pushed down the price of used cars and so will hasten the depreciation of the value of new cars.

Where is this madness to end?! Will the government soon be offering interest free credit at Dixons? How long before one can sign up for an HM Treasury credit card (26.5% APR and balance transfers of up to the sum of your mortgage, interest free until the next financial year).

The fact that Britons were borrowing £20 billion a year to finance the purchase of new cars is not an admirable state of affairs to which we should be aspiring, but a symptom of the extent to which the UK had become a buy-now-pay-later culture. As the government held down interest rates so as to stoke an unsustainable boom, saving became unattractive while borrowing was made all-too-easy. The result was that economic growth and personal consumption were based on unsound foundations. The dangerous credit bubble that was created has now burst, throwing millions out of work and causing the economy to shrink by over 2% in just six months, and we cannot avoid these tragic consequences by trying to recreate the failed system.

The solution to the current crisis, and the way to avoid returning to boom and bust, is not to pour millions of pounds worth of taxpayers’ money into the hands of people who want to buy a new car. That the car manufacturers mistook inflationary demand for real demand is a tragedy, and reality will hit shareholders and employees hard. But restoring the credit flow will only push them back into fantasy, while depriving the taxpayers of the money that they would otherwise spend on other things, saving or creating other jobs. If the only way to maintain a car industry at the size it operated in 2007 is for consumers to borrow £20 billion a year, then the car industry will have to contract.

There is a recession on. People are right not to buy new cars. If the need to replace their cars, the second hand showrooms are full of good cars at great prices. If they really must buy new, they should be willing to pay the market rate of interest – which in these uncertain times is suitably high. For the government to deny this is unbelievably stupid. But then, what did I expect?

Making the civil service more businesslike

This is all the more amusing for having been written in the 1930s!

Officialdom classifies activity according to the capacity for undertaking it formally acquired by means of examinations and a certain period of service. 'Training' and 'length of service' are the only things which the official brings to the 'job'. If the work of a body of officials appears unsatisfactory, there can be only one explanation: the officials have not had the right training, and future appointments must be made differently. It is therefore proposed that a different training should be required of future candidates. If only the officials of the communal undertaking came with a business training, the undertaking would be more business-like. But for the official who cannot enter into the spirit of capitalist industry this means nothing more than certain external manifestations of business technique: prompter replies to inquiries, the adoption of certain technical office appliances, which have not yet been sufficiently introduced into the departments…, the reduction of unnecessary duplication, and other things. In this way 'the business spirit' penetrates into the offices of communal enterprise. And people are greatly surprised when these men trained on these lines also fail, fail even worse than the much-maligned civil servants, who in fact show themselves superior at least in formal schooling.

It is not difficult to expose the fallacies inherent in such notions. The attributes of the business man cannot be divorced from the position of the entrepreneur in the capitalist order. 'Business' is not in itself a quality innate in a person; only the qualities of mind and character essential to a business man can be inborn. Still less is it an accomplishment which can be acquired by study.... A man does not become a business man by passing some years in commercial training or in a commercial institute, nor by a knowledge of book-keeping and the jargon of commerce...

When these obvious truths became clear in the end the experiment was tried of making entrepreneurs, who had worked successfully for many years, the managers of public enterprises. The result was lamentable. They did no better than the others; furthermore they lacked the sense for formal routine which distinguishes the life-long official. The reason was obvious. An entrepreneur deprived of his characteristic role in economic life ceases to be a business man. However much experience and routine he may bring to his new task he will still only be an official in it. It is just as useless to attempt to solve the problem by new methods of remuneration. It is thought that if the managers of public enterprises were better paid, competition for these posts would arise and make it possible to select the best men. Many go even further and believe that the difficulties will be overcome by granting the managers a share in the profits… But the problem is not nearly so much the question of the manager's share in the profit, as of his share in the losses… To make a man materially interested in profits and hardly concerned in losses simply encourages a lack of seriousness…

(Ludwig von Mises, Socialism, pp215-7.)

Peter Riddell slams Labour and Tory “peripheral initiatives” on economy

Peter Riddell is the doyen of Times columnists and his insights into politics are usually pretty spot-on. It was therefore gratifying to see him arguing in yesterday’s column that the “irrelevant initiatives and hectic trips around the country” of Gordon Brown and David Cameron are merely a substitute for action, and that their many and varied proposals are economically flawed and designed to buy-off political constituencies rather than achieve macro-economic recovery.

Brown's pledge to create 100,000 jobs and Mr Cameron's new savings package do not address the cause of the deepening recession: the lack of credit. Everything else is secondary… [T]he job and savings initiatives are distractions. They address symptoms not causes…

Both the Brown and Cameron initiatives are about political positioning: to demonstrate their concern about the recession and to show they are doing something. The most damaging charge now is of inaction. The plans are also aimed at potential supporters, with Mr Cameron generating a positive response from Tory websites and activists seeking tax cuts, even though he has been criticised by independent commentators.”

Riddell is entirely correct. The only way this recession will end is if the equilibrium between borrowing and lending is established, and preferably at a level that sees interest rates reflecting real time preferences, rather than being massaged down by governments in an effort to stimulate short-lived but vote-winning “booms” (today rebadged as “soft-landings” and even “recoveries”).

I am not entirely sure I agree with his thrust that this should be achieved by the Government pumping vast sums of extra money in to the banking sector: today’s Times headline brings tears to the eye. Excess credit expansion is what brought us to this sorry state and further credit expansion is only going to bring us her again in the future (‘If you are in a hole, the first thing to do is stop digging’). However, whether one accepts that the economy needs to go through a period of readjustment or you believe that masses of liquidity needs to be pumped into the banking sector to stop an outright collapse, the fact remains that bail-outs for car companies, government make-work schemes and financial gestures are not only going to fail in their objectives, but will in the process make the situation a lot worse.

Riddell is not nearly firm enough in this, however, and occasionally lapses into Keynesian fantasy. “Bringing forward capital projects makes sense,” he claims, before admitting that it “is unlikely to have more than a marginal impact.” Similarly, he thinks that “There is a case for boosting saving in the long term, but not in the short term when the need is to raise spending,” ignoring the fact that money saved equals money spent: banks can’t hang onto money for long, and sooner or later it has to be invested in businesses or – as the result of more misguided government intervention – used to buy government bonds, which means that either way it ends up in the “real economy”. One man’s saving is another man’s (or company’s) borrowing and spending.

He also gives his blessing to the idea of extended state guarantee for loans that has been proposed by both the government and the Tories. But this is an extremely dangerous proposal for two reasons. Firstly, businesses are currently going bust because lenders are not willing to extend credit to them for fear that they will go bust anyway and thus default. If government guarantees these loans, banks will have no reason to exercise one of their primary roles – as arbiters of who is credit-worthy and who is not – and will be inclined to loan money to all and sundry, knowing that the bank is shielded from loss. The result will be that the government will end up with huge numbers of loan defaults to cover.

And that creates the second problem, which is the moral hazard facing the government as a result of these loans. According to Riddell, “The answer is not unconditional bailouts, as in the 1970s, but some way of breaking the credit logjam”. But once a firm that has outstanding loans backed by government guarantee is faced with bankruptcy, it will have a far more powerful hold over government when it seeks a bail-out. The argument that a subsidy of a few million will avert a collapse and default that saddles the taxpayer with a debt of tens of millions will be hard for government to resist. Conversely, the flood-gates of industrial policy will be open as government will expect influence in return for its largesse: as Riddell himself admits, “the larger that government guarantees become - and they could be enormous - the greater the demand for specific commitments in return.”

Haven't I already said all this?

This all sounds very familiar!



In the words of Ludwig von Mises, "a government can spend or invest only what it takes away from its citizens... Its additional spending and investment curtails the citizens' spending and investment to the full extent of its quantity."

A few words from Gordon Brown

"Under this Government, Britain will not return to the boom and bust of the past."
Pre-Budget Report, 9th November 1999

"Britain does not want a return to boom and bust."
Budget Statement, 21 March 2000

"Mr Deputy Speaker, we will not return to boom and bust."
Budget Statement, 7 March 2001

"As I have said before Mr Deputy Speaker: No return to boom and bust."
Budget Statement, 22 March 2006

"And we will never return to the old boom and bust."
Budget Statement, 21 March 2007


Hat-tip to Eamon Butler for pulling all these together. I'm sure that there were more!

Che: the prequal?

It might be worth watching this before indulging in any two-part encomiums for Che Guevara.



Not sure about the diversion into Mao, but the theme song's pretty funny, too.