Its too quiet out there

The BBC has just run an article on its Magazine pages commenting on how moderate we have all been in the face of the recession. It argues that counter to the early press speculation of widespread strikes and social break down we have all been remarkably calm and well-tempered in the face of earnings declines and the falling economy. We are apparently the "heroes" of this recession.

But the point about this recession is that for many people they have not yet really felt it. I exclude obviously the communities that have lost major employers, and the swathe of people who find themselves out of work. For some individuals it has already been a bitter experience. But - on average - employment has so far held up better in this recession than expected and for those still in paid work the world looks far less bleak.

Why?

Interest rates.

Given that housing cost is typically the largest single item in the household budget the era of extraordinarily low interest rates means that many people on a tracker mortgage have far more money in their pockets than a couple of years earlier. And those who have lost their jobs can survive in their homes for longer despite the loss of income. Hence a housing market that continues to defy gravity.

All well and good - but unless the global economy speeds up and the low pound means that we can take advantage of this (tough given the state of our manufacturing economy but it will help the business services sector) then it makes the reckoning next year potentially fearsome.

I fear that an incoming Tory Government will want to get the pain of spending cuts and tax increases out of the way as early as possible in the electoral cycle (when it can still be blamed on Labour and giving them the chance of some years of growth prior to the next Election). At the same time Quantitative Easing will have to come to an end (free money cannot last forever). And suddenly all the various tax rises already planned will kick in (the return to the old level of VAT, the new 50p income tax band) and the property market will tank. Cue panic.

I am painting a dark scenario but the point is that its far too early for the BBC to be smugly congratulating us all on our good behaviour.

Gordon gets Majored

Have to say that Gordon Brown doesn't emerge that badly from the saga of the mis-spelled commiseration letter. He has terrible eyesight, and yet still struggles to handwrite a letter to the family of every serviceman who falls in the line of duty. Ok - so he probably mispelled a name, and should be more open to admitting to having made a mistake. He might even have got some sympathy.

But he is now where Major was shortly before the end. Whatever he did turned to dust - remember the underpants outside the trousers story? Probably never happened but an unforgiving media, and sharp Labour spin-doctoring, meant that he never lived it down.

Brown is now in the same place - and it cannot be a nice place to be. I have less sympathy though than for the failing eyesight. Or for the family that has lost a son.

Keep quiet Dave

I find myself in the somewhat uncomfortable position of hoping that Dave Cameron can hold the line with his own party.

If he is forced to say anything new on a Lisbon referendum before the Election then it will only be to the bad. Both Tory troop rallying, media pleasing and - to be fair - rousing the core Tory vote will cry out for him to take a tougher line on "Europe".

However, he is smart enough, and presumably well advised enough, to realise that this will create a complete mess at a time when there will be plenty of other challenges for a new Government. He is - I hope - a pragmatist before he is a Little Englander (for all Little Englanderdom is a pragmatic approach to take if you want to run the Tories).

And it will create a complete mess for this country if we spend the next decade squabbling with our European partners. So Dave - much as a return to Tory Euro-splits would make for amusing Sunday newspaper stories - hold that line!

Good choice

The lady at the Borders check-out counter smiled: "Thats a good choice."

I was buying a copy of the latest Neal Stephenson novel: Anathem. His previous novels include Cryptonomicon, a tying together of the code-crackers of WW2 with the rise of the Internet, and The Baroque Cycle, so mighty a trilogy that it has reportedly been republished as 8 books. This thunders through his unique take on the history of the late 17th / early 18th century, thrashing together the science and banking of Isaac Newton, thoughts on the rise of the modern world (and its financial, scientific, political and social institutions) with a thumping good adventure story. A writer who educates you on great science, makes you think - and creates worlds you can drown in. Brilliant.

"Yes - he's great isn't he!" So good that I'd even bought the hardback - something I usually only do when the book is a present. And delighted to have found a fellow fan.

"Er no - I meant that". She pointed at the second item I'd added (My excuse being that it was stacked enticingly next to the till).

A Cadbury's Creme Egg.

What next?

As the world grumbles about bankers and swears "never again" the question we must answer is what next?

James Callaghan apparently said: "There are times, perhaps once every thirty years, when there is a sea-change in politics". He was referring to the coming Thatcher revolution that transformed the nature of the relationship between capitalism and the state. New Labour added a human face to the Thatcherite economic concensus.

Now, 30 years later, the events of the past few months are very clearly showing that (at least) aspects of this are not sustainable. What is not so clear is what comes next - and the current debate is not showing much in the way of breakthrough thinking.

The state running the commanding heights of the economy is not going to happen - especially as this currently simply seems to mean spending as-yet uncounted sums of taxpayer money. Under a communist system the central planning team may have been suboptimal - but at least they did not consume the 10% of GDP that UK financial services has done. The role of the two is arguably similar - deciding where to deploy resources in the economy to maximise investment returns (albeit with slightly different end ambitions).

But the UK has to answer some critical questions:

1. Should the UK attempt to reduce its dependence on financial services? Inevitably this will happen (already the City is well on the way to 30% + reduction in staffing) but what alternative economic sector does the UK really have to replace it? And does the coming wave of US regulation offer a real opportunity to strengthen London's position in the global financial system - if that system survives...
2. What alternative economic sectors can we build out? How do we grow a significant green industry (at the same time as everyone else decides to go down the same road)?
3. How we do face the coming pension and demographic crisis?
4. How will the UK's business and social fabric survive what are going to be many long years of working through paying back our debt (rather than spending on anything else).

The answers to these questions (and there are others) will define the political meme of the next thirty years. That no one yet has the answers is one of the reasons why no one yet has the next election in the bag.