Political Economy

Surprisingly this is one of the questions that divides those who want a Parliament for England. And yet, as a look at the arithmetic od representation shows, the answer is very simple and one on which all sides of this question can agree.

The key here are the number of elected representatives associated with national government rather than local government.  The situation will be as follows after the next election. The House of Commons will have 650 seats.

England            533 seats    82%

Scotland             59 seats       9%

Wales                 40 seats       6%

N.I.                      18 seats      3%

If we are to continue to have an Upper Chamber then the House of Lords will have to go, to be replaced by an elected chamber. A government can then choose its cabinet, ministers and so on from both elected chambers.

The task then is to decide how many MPs will be needed to carry out the much reduced level of government expenditure that will result from devolving much of the work to the English Parliament.

Wading through the statistics of government expenditure is not much fun, nor very easy but it seems safe to make the assumption that about half of the expenditure of the government is associated with devolved matters. Another requirement is that currently a governing party has to be able to provide between 140 and 150 Secretaries of States, Ministers and so on to run the business of government.  To give a reasonable choice, since not all elected MPs will be suitable, the governing party currently needs around 300 members. If this is just sufficient for a majority then there needs to be around 600 members in the House. Around half of these posts will move with devolved matters to the English Parliament. These numbers indicate that the House of Commons can reduce to half its size or 300 – 325 without causing problems. In the USA Congress and the Senate have, in total,  535 members for a voting population of around 216 million. Compare this to the 45 million voters in the UK. This would equate to a House of Commons and Upper Chamber of 112, a vastly smaller number.

It seems then that if we had a harder working Parliament we would need no more than 300 members split 200 MPs to the House of Commons and 100 Senators to the elected Upper Chamber.

How big would the English Parliament have to be? There are around 38 million voters in England. The largest constituency has around 110,000 voters. Bearing in mind that English voters would have representation through their MP and Senator it seems that an English Parliament constituency could be sized between 100,00 up to  150,000 in size. This would indicate that there could be as many as 380 constituencies or as few as 250. Given that to provide the 70 or so Ministers and parliamentary secretaries required by an English Government the majority party would need around 140 MEPs (Member of the English Parliament, sorry but the other lot wil have to rename themselves, MEuPs perhaps!)  The English Parliament would have to be at least 280 in size. On this basis a total of 300 constituencies seems generous.

The question of where these various bodies would sit is now clear. They could continue to sit at Westminster. One debating chamber could be allocated to the English Parliament whilst the other would be shared by the Commons and Senate. Since much of the work of PArliament is done in committees there is no reason why, when one house is using the committee rooms the other cannot be using the debating chamber.

Such a proposal would show a savings of 100% of the current direct costs (members expenses, staff and other costs) of  the House of Lords of around £50 million. In addition with a total of 600 MEPs, MPs and Senators there would be the saving of the current direct costs of 50 MPs and some savings of salaries if MEPs are going to be paid less than an MP as are MSP at the moment. Say a saving of another £10 million or £60 million in total. Finally the House of Lords overflow offices at 1, Millbank will no longer be required. This building could be rented, sold or converted into accommodation for members. The same conversion could be done to part of one or other of the buildings currently also used for office space, Portcullis House and the Norman Shaw Buildings

We started with 650 elected MPs and over 700 members of the House of Lords, of whom, on average, around 400 attend daily. We have ended up with 600 elected reresentatives, with more than enough space to do their work and a not unreasonable level of cost savings.

Imagine that you are getting to the end of a not very good meal at your local restaurant. The dessert menu has arrived and you see that only ice cream is still available. Worse still there are only three flavours, vanilla, chocolate and strawberry. You have tried all of them before and found some fault with each. However you are still hungry so you decide to choose, somewhat peversily,  your least favourite flavour, strawberry, in the hope that this time it might be more appealing.

As your ice cream arrives you notice that another table of three is getting quite different flavours, passion fruit and mango, mint chocolate chip and rum and raisin. You complain to the waiter who tells you that he has decided to offer only the three largest sellers as this makes his job easier. To get the others you have to know to ask.

You would quite rightly be upset and probably make a complaint. But this sort of thing is happening all the time at election hustings up and down the country. Only the three largest parties are allowed on the panel and the smaller parties have to make do with submitting their responses in written form for later publication in the hope that some voters may read them.

The silly thing is that with the planned televised debates you are going to hear what these three main parties think. Even worse is the fact that these are the parties who have run parliament for decades and are the primary architects of the mess we are in.  Limiting the panel in this way ensures that the innovative solutions that the smaller parties are espousing may not see the light of day. It is also constraining the democratic process in a way that will increase the likelihood of an adverse outcome for the country.

People are likely to vote for what they hear, or not vote at all. Worse still if there is a hung parliament it will consist of the three larger parties fighting it out to get their old fashioned and out of date ideas accepted. Any negotiation is likely to be along the lines of “You accept this stale policy of ours and we will accept one of your stale policies”. Melding one stale idea with another has little chance of creating one new idea. Or to put it another way. If you have one thousand monkeys typing stale ideas out for a million years the chance they will create one new idea is small.

It will be as though you complained to the waiter and all he could offer as compensation was Neapolitan ice cream with layers of  vanilla-chocolate-strawberry. The fact that you like not one of the flavours makes no difference.

Now you might remark that as the English Democrats Prospective Parliamentary Candidate for Stevenage that I would say all of that wouldn’t I? But the fact remains that the English Democrats party does have an important contribution to make.  First we are an English nationalist party in the same way that the SNP are a Scottish nationalist party or Plaid Cymru are a Welsh nationalist party. We will put England first just as the SNP puts Scotland first and Plaid puts Wales first. The English Democrats are the only party that is committed to putting England first. English voters might welcome such voting option as election day approaches and the demands for yet more money by the SNP and Plaid become yet more strident.

Secondly we are the only party with a well thought through but radical alternative to the current constitutional settlement. Our plans have matured over the last eight years and are not a knee-jerk reaction to current problems. So have the rest of the policies in our Manifesto

Thirdly we are not that small anyway. In the 2009 European elections over 280,000 people in England voted for the English Democrats – compare this to around 321,000 for the SNP and 127,000 for Plaid. We will soon be the largest nationalist party in the UK. We plan to field over 100 candidates in the Parliamentary election, much more than the SNP or Plaid. The Alliance for Democracy, of which the English Democrats are a founding member, plans to field 300 or more candidates.

We are in a critical election period. A recent survey said that 38% of the population wanted a hung parliament. It is quite possible that as the election date gets closer this proportion will increase. But do voters know what they wish for? A hung parliament of the three main parties plus the nationalist parties of Scotland and Wales will lead to an unprincipled grab for yet more English taxpayers money for the already over-paid Scots and Welsh.  The three main parties will eagerly connive in this, driven as they are by ego and bombast rather than a true love of country. They have already shown themselves  happy to sell the English down the road in order to get an opportunity to implement their already degraded ideas. They will not stop at this. For the English it will be a bit like a vanilla-chocolate-strawberry Neapolitan ice cream with an added extra – a layer of strong mustard!

The results of this will not be pretty. A severe reaction by the English leading to civil unrest, riots and mayhem by a nation that has already signalled that it has had enough is an almost certain outcome of this scenario.

And all for the want of not allowing the voter to see the full range of ideas and parties open to them. How sad can you get?

The recent snow and cold weather in the Four Nations has, in some minds, shown that global warming is an evil plan, concocted by mad scientists, to enslave us. One of the reasons behind this belief is a confusion between weather and climate.

Weather is what happens on a day to day basis. It is notoriously variable. Even in the last ice age there would have been very hot summers from time to time. To distinguish between the two one needs to have regard to:

1. Long-term trends in the averages of such variables as temperature and precipitation. By long term I mean over hundreds of years. By average I mean that the data is averaged over a period of ten or more years.
2. Changes to the weather caused by events such as vulcanism.
3. Short-term cyclical factors of the order of up to 25 years such as El Nino or the sunspot cycle.
4. Longer term factors such as changes in the orbital characteristics of the earth or on earth factors such as the cessation or diminution of the North Atlantic Oscillation. The NAO is the current that flows from the Caribbean to Northern Europe, then up to Green land and back down the eastern seaboard of the USA to the Caribbean.

Taking these factors into account is not simple. Look for example at the sunspot cycle. Sunspots are dark areas that appear on the sun. The number of sunspots increases to a maximum and then declines to zero and then start to increase, so repeating the cycle. The key fact here is that the sun is hotter when there are sunspots, increasing as the number of sunspots increases, than when there are none. So in theory the earth should get, alternately, slightly warmer and then slightly colder. If the earth is warming then this will tend to amplify the warm maximum and minimise the effect of the cold minimum.

Detecting this change is difficult for a number of reasons. Firstly the cycles are not all the same length, neither is the cold minimum period always the same length nor  does the hot maximum always reach the same intensity. For example the current minimum is one of the longest in recent times and has only just started to turn.  To complicate matters every second cycle or in other words every 22 years, the suns poles change over. What was the north pole becomes the south and the old south pole becomes the north pole.

On earth as well things change. The earth might be in the grip of an El Nino event or there may have been a recent major volcanic eruption or the weather patterns may just be going through an extended ‘random’ change. As a result of all these factors it would be unreasonable to expect a clear cut effect.

If you go to http://solarscience.msfc.nasa.gov/images/Zurich_Color_Small.jpg you can see a chart of the sunspot cycle since 1750.

Sun Spot Cycles

We are currently in the 24th minimum. The peak sunspot number varies between 68 and 250 or in other words by a factor of nearly four!. If you print out the graph and use a ruler you can measure a number of things. First whilst the average length of a cycle from one minimum to the next minimum is around 11.2 years it can vary from 8 years to nearly 15.5 -a range of nearly two times!. If you count the low (cold?) period as starting when the sunspot number decreases to 25 on the way down and to 25 again on the way up it appears that the length of this low time varies between 2.5 and 8 years – a range of over three times – with an average of 4 years! What is more it looks as though the current low time which has already been going 4 years could be 6 or 8 years in length. The peak sunspot number has exceeded 205 only three times in the last 260 years whilst it has been lower than 113 on five occasions. On the other 16 times it has been between the two.

Interesting though this may be what is the effect, if any, on the weather? Between around 1807 and 1827 the two low periods lasted five and eight years respectively whilst none of the peaks around  1805, 1816 and 1830 exceeded 113. This was an exceptionally cold period called the  Dalton minimum. Charles Dickens was a child in this period and it is thanks to the cold winters he experienced then that we owe his later writing about winters and Christmas. The previous minimum was over a 100 years long lasting the  whole of the 17th century and gave rise to the delightful paintings of winter by the Dutch master painters.

In more recent times it is not clear that the weather is linked to the cycles. The last cold period in Hertfordshire where we live was in the late 1970’s to the late 1980s during which time the sunspot cycle was either increasing to a maximum or decreasing from it. If you go back 22 years to around 1962 we get to a cold period once again. The winter of 1962 – 1963 was one of the coldest on record and it coincided with a minimum. Go back another 22 years to 1940. The winter of 1939 – 1940 was severe and in January there were frequent frosts and heavy falls of snow. Go back 22 years to 1918 and you get a year with millions dying from flu. Whilst the winter was only average it was preceded and followed by snowy winters. Go back another 22 years to 1896 and you read in the Stepney diary http://website.lineone.net/~fight/Stepney/weather.htm that the Thames froze over in 1895-6 although the other winters appear to have been relatively benign.

The winter of 1940 came just before a low period, that of 1917-8 coincided with a maximum as did that of 1895. So it is difficult, unequivocally  to link the winter weather fluctuations with the low period in the sunspot cycle, principally I think because there are so many other factors that can upset the relationship.

This has not of course stopped some scientists form abusing the data. A recent paper purported to show that sunspot cycles were the cause of current global warming. Hopefully the reader can see that the variability and confounding factors are so great that such a conclusion has to be nonsense, at best. It is, at best, poor science, done by poor scientists. At least they did not attempt to use the data to show the world was cooling. We still have that claim to look forward to!

If you wish to see images of the sun and sun spots go to http://sohowww.nascom.nasa.gov/sunspots/

It isn’t just David Cameron schmoozing this idea. Now POWER2010 http://www.power2010.org.uk have jumped on the bandwagon whilst engaging in a very worthwhile exercise in deliberative democracy. That deliberative democracy is not the solution to our current woes, that it is not without its problems, one being the narrow basis on which policies are selected – a scientifically chosen sample of 130 individuals (my emphasis) – is clear from my rant below. However do not let this dissuade you from going to their site and voting on what you think are the most important issues for democracy today.

One question I would like to know the answer to is who was allowed to vote on this issue. If it was just the  “scientifically’ chosen English amongst the 130 then that is one matter. However if it was everyone then the vote is invalidated straight away – The English have never been allowed to vote on devolution in Wales, Scotland or N. Ireland!

How Power 2010 could have failed to select an English Parliament as one of their issues I do not know. Over 50% of voters in England regularly support the idea in opinion polls. They do so because an English Parliament gives the people of England  a government of the English, by the English, for the English, just as the Scots, Welsh and N. Irish have for themselves.

Having a glorified Commons Committee, subject to the other nations simply because it is a committee of the House, does not provide a government of the English, by the English for the English. And what will happen after the Commons? Will the bill go through to the Lords to be adjudicated on by the Scots, Welsh, and N. Irish?

Does this proposal require that Cabinet Ministers for devolved matters (Health, Education, Transport, Justice and so on) only come from English constituencies? And will these and only these Cabinet Ministers make decisions in Cabinet about English matters, sitting on the English, yet again, sub-committee?

A clearer example of confused thinking and poorly thought out logic is difficult to find.

Currently three, 75%,  out of the four nations, having 16% of the population, have their own government. In round terms 20% of the people have 80% of the democracy! This is a clear and absolute nonsense and no clearer example of Pareto’s Principle need be given http://en.wikipedia.org/wiki/Pareto%27s_principle.

When Jack Straw (Lord Chancellor and Secretary of State for Justice in the Westminster government, that most racist of governments!) claims that the English cannot have a Parliament because they constitute 84% of the population he is not showing his ignorance of Pareto. Misquoting Pareto is a ‘cunning plan’ based on a clear assumption that the electorate are a bunch of ignorant idiots who will not recognise his statement as a misquote, but rather treat it as a clever analysis of the issue, which it is not.

Do not vote for this committee approach. It is disrespectful to the English, it makes the English less equal than the other nations, it is extremely unfair to the English and worst of all it will not work!  Better by far to have a Parliament for the English, an elected House of Lords and a House of Commons with, in total, no more elected representatives than currently are elected or debate matters. No extra cost and much greater democracy!

I suppose Power2010 will come up with the usual excuses for putting forward this idea, along the lines of “It wasn’t us gov.”, or “I was only following the rules” or “The committee we appointed made these decisions” -  (whine, whine, whinge, whinge). Shame on you! This is a disgrace!

David Cameron’s motive for putting the idea forward is clearer. He has already said that he does not want to be “Prime Minster of England”, conveniently forgetting, or perhaps never understanding, that the devolved governments are led by a First Minster and not a Prime Minster – not much respect for the English there, then. The real reason he made the remark is of course about Power. It is correct that most of the work of government occurs in the matters that are devolved; Justice, Health, Education and so on. This means that most of the key levers for getting re-elected or gaining the confidence of the electorate are in devolved matters. Given that 84% of the votes are in the 84% of the devolved English matters you can see how Cameron, Clegg and Brown (and Straw) want to keep these matters within reach of their sticky fingers, close to their greedy hearts and out of Control of the English for ever.

It might be of course that Cameron just wishes to distance himself from Bonar-Law an earlier Conservative Prime Minister, a Scot, born in 1858 in New Brunswick (the Canadian Confederation did not occur until 1867) but raised in Scotland, who referred to himself as the Prime Mister of England [The Making of the English National Identity by K. Kumar, ISBN 0521777364]. Bonar-Law became leader of the Conservative Party  after Aurthur Balfour (also a Scot) and became Prime Minister in 1922 but sadly had to resign in 1923 due to throat cancer. His was the shortest Prime Ministership of the twentieth century and he is known as the Unknown Prime Minister. A name Cameron will not want!

I initially planned to post this in November. However the economic outlook was confused at the time, typical of a turn in the economy, and since I wanted to encourage readers to make their own decision I decided to wait a couple of months.

The Bank of England helpfully provide a pamphlet to explain Quantitative Easing (Q.E.) http://www.bankofengland.co.uk/monetarypolicy/assetpurchases.htm#

In this the Bank explains that its approach to Q.E. is to purchase assets from private sector institutions, banks, pension funds, insurance companies and non-financial firms, for example. They do this to ensure that the risk of banks holding on to the money is ameliorated. If the Bank buys gilts from a commercial bank the money will end up as reserves of that bank and is capable of being lent on, subject to the bank’s desired reserve ratio. If the Bank buys its gilts from a non-financial firm or a pension fund the money will eventually end up in a deposit account in a bank, where it is available for lending on, subject to the bank’s required reserve ratio. The money supply effect will therefore be similar.

In its pamphlet the Bank describes it monitoring process. It will monitor

1. The terms and conditions offered on loans?
2. Are corporate debt markets easier for companies to borrow in?
3. What is happening to asset prices (such as shares and house prices)?
4. Are banks lending again?
5. What is happening to the supply of money?
6. Is household spending increasing?
7. Is company expenditure increasing?
8. What is trend in inflation?

Whilst the Central Bank is buying government securities and lowering the interest rate, the government, struggling to deal with reduced tax revenue as a result of the recession, will be selling government securities and finding it is helped by the central bank buying them in. This is called ‘monetizing’ the government’s debt.

In effect the government is printing money to buy its own debt. There is a risk that the government will become addicted to monetizing its debt, pimping its central bank to buy more and more. The classic case is, of course, Zimbabwe where things went so far that in the end the currency had to be junked. In truth many Central Banks are up to it.

But this is not the only economic stimulation in the UK. There is the matter of the governments deficit budget spending. Currently in excess of £175 bn in the current financial year this provides a huge stimulus. Moreover Prime Minister Gorden Brown is driven not by financial prudence, but by a constant concern for his image and by his reckless desire for reelection  at any cost, to anyone. As a result we are told that this stimulation will go on for years. This season should remind us that after the gifts of the kings there followed the slaughter of the innocents!

This gives the chancellor and the Bank three choices. The first is to stop or reverse Q.E. whilst continuing with the budgetary stimulus. The second is to continue or stop Q.E. whilst reducing the budget deficit by a material amount. The third is a mixture of the two. For example this could mean stopping Q.E. whilst making some adjustment to the deficit by increasing taxes generally or cutting government expenditure. A start on the latter has been made by the recent increase in VAT back to its original 17.5%.

If Q.E. is not reversed there are two key risks. The first is that there will be a large stock of bonds in the Bank’s hands “overhanging” the market. This is likely to lead to higher volatility and possibly higher interest rates as a result. The second risk is inflation, possibly severe inflation, and a return to a credit boom. The risk of cutting budgetary expenditure is increased unemployment and reduced demand in the economy.  It seems that you are dammed if you do and dammed if you don’t!

So, let us get back to basics and see what is happening to the eight indicators of the Bank of England.

1. Loan terms. A recent report in the International Financial Review was entitled “From Famine to Feast – a review of the corporate bond market”. The bond markets were open for the entire investment grade spread
2. In Europe certainly corporate borrowing appears easier.
3. Asset prices are increasing
4. Banks are lending but the government has had to increase its support for SMEs
5. The liquidity preference of corporations and individuals is still high
6. We have seen record retail spending this Christmas
7. The trend of company expenditure is not yet clear.
8. Inflation is increasing.

So, what should the Bank of England do? Is it time to reverse Q.E. or are the hints of the Chancellor, that there will be budget cuts, sufficient to dissuade them from this action?

Why not make your own choice and take part in the polls on the sidebar?

Next post will be on climate and weather and how the government and local authorities could have made better forecasts of the chance of cold weather than they appear to have done. There really is no place for the string of excuses we have been treated to!

Quantitative Easing (QE). Now there’s a phrase to ruminate about. It was created by Dr Richard Werner, Professor of International Banking at the School of Management, University of Southampton. He used this phrase in order to propose a new form of monetary stimulation policy by the central bank that did not rely rely on traditional methods of stimulating the economy which appeared to have failed in Japan.

When you make a deposit into the bank, the bank will lend out that fraction of the deposit that will leave it with its desired or regulated reserve ratio. So if the reserve ratio is 10% the bank will lend out up to 90% or £90 out of every £100 you deposit.

The bank into which the £90 loan is deposited will in turn lend out 90% or £81 of this deposit. The money merrygoround continues until the banks have lent out £1000. Your £100 represents the 10% reserve ratio. This represents an increase in the money supply since all depositors can access the £1000. But if there are many hundreds of thousands of depositors the chance of this happening at the same time is very low, unless there is a run on the banks. Banks therefore depend on the average of all deposits and withdrawals  in a day netting out to almost zero.

This simple analysis is, in fact, not quite correct. If the £100 you deposit has been withdrawn from another UK bank then that bank will have had to reduce its loans setting up a merrygoround in the opposite direction. So in this case there will be no net change in deposits. For this reason it is possible to treat all UK banks as one when doing this sort of analysis.

The Money that comes from central banks, however, is new money. When it is deposited in a commercial bank it can be lent out and start the money merrygoround without any corresponding opposite reaction.

When a crisis hits the banks they have a problem of knowing which of the loans or investments they have made are sound. Because of this they will all decide to hold more cash, perhaps 30% more, so that their desired reserve ratio is now 40%. If the banks had £1000 of loans and £100 of cash they will now wish to call in any loans they can, like overdrafts, so that they now have £250 in loans and £100 in cash in order to meet their, new, desired reserve ratio. This 75% reduction in loans would, if allowed to happen, cause havoc in the economy.

The solution is to give the commercial banks sufficient money to stop this happening. In this case deposits would have to increase by £300 to have the desired effect. Now with £400 a loan base of £1000 can be supported.

To do this the Central Bank buys government securities and perhaps high grade corporate bonds from the banks using new money created for the purpose. This gives the banks more money, so allowing them to increase their deposits to the desired £400 required to stop the loan recalls.

Buying in the government securities from the banks causes their price to increase and this means that, happily, interest rates drop. Just what you want in a crisis!

If you now do nothing the crisis will abate and banks will now increase lending so as to get back to their 10% ratio. But they now hold £400 to act as reserves. This means that deposits, and hence money supply, will increase to £4000 compared to the original £1000. So much money going into the economy so quickly will lead to massive inflation. What can be done?

Well the central bank will now try to sell the securities and bonds back to the banks in return for the excess cash. The bankers will protest. After all they are lending to companies and people just as the government wanted them to. But, eventually, they will sell the securities back, not of course at the high price the central bank originally paid, but at a much lower price. This will give the banks a(nother) good profit and interest rates will as a result of the lower price go up, so helping to choke of any incipient inflation.

Of course the Central Bank must commence selling the securities back to the banks at the correct moment. Too early and any recession is extended, too late and rapid inflation occurs.

What could possibly go wrong? Next week the grizzly story!