Posts Tagged ‘Samuel Brittan’

Samuel Brittan on Greece and the euro

Friday, June 24th, 2011

Economic journalist Samuel Brittan’s views have not changed. He predicts that Greece will abandon the euro sooner or later, and sooner would be better than later.

A Greek debt default, however disguised, is a foregone conclusion. More interesting is the fate of the euro. On November 5 last year, I wrote that Greece should and would leave the euro, but most certainly could not give a date. Little has changed since then despite the increasing complexity of the financial packages being negotiated to save Greek membership. It is time to look at what the UK chancellor Denis Healey used to call the real economy. Greek unit labour costs have risen by 50 per cent since 2001. This compares with a eurozone average of about 25-30 per cent and a German cost increase of little more than 6 per cent. ….

Even a return of the Greek military dictatorship would be hard put to reverse this cost disadvantage with a frozen parity against Germany.

Samuel Brittan, “Greece’s euro exit can now only be a matter of time, Financial Times, 24 June 2011.

Sir Samuel Brittan (born 1933) is a columnist for the Financial Times. His columns are archived here.

the race for economic recovery

Friday, May 13th, 2011

After a nearly month-long absence, FT columnist Samuel Brittan returns with a look at the race for recovery from recession in parts of the industrial world. Brittan identifies a clear winner: the United States, which “pulled out the monetary and fiscal stops to keep the economy going”. More stimulus is needed, however, to address the problem of jobless growth.

The fall in output [in the US] was slightly less than that experienced in the eurozone, the UK or Japan and the recovery has been much more impressive. It is the only one of the four main groups where output has recovered to above the pre-recession peak. ….

The annual rise in consumer prices has rarely risen much above 3 per cent and the main inflationary threat comes from external energy and commodity prices generated outside the developed world. The dollar, like the other main currencies (except sterling), has fluctuated since 2007, with no pronounced trend. ….

The real US problem is that of jobless recovery. This is the other side of the rapid rise in productivity – another league in which the US heads the western world – and the answer to this problem is still faster growth rather than just special schemes.

Japan is the worst performer in this race, but Brittan reserves his sharpest criticism for the United Kingdom.

The worst showing on GDP performance is Japan, mainly because of the depth of its recession. But next worst is easily the UK. So far an anaemic recovery has left UK output 4 per cent below its pre-recession peak. ….

[T]he government and the Bank of England have a masochistic vested interest in marking down the growth capacity of the British economy. For the more low growth can be blamed on structural factors, the less it can be blamed on their own austerity programme, which it seems blasphemy to criticise.

As for the troubled eurozone countries – Greece, Portugal and Ireland – all would be better off without the euro. I was surprised that Brittan did not include Spain in the list.

A severe debt write-off by Greece and Portugal is a foregone conclusion; and in my view both countries would be better off without the euro. Ireland has carried out an internal devaluation with unit labour costs falling by 15 per cent since 2008, achieved at the terrible cost of a rise in unemployment to 15 per cent. The Republic can now stay with the euro if it wishes despite my personal view that it would be better off going back to sterling.

Of course, exiting a currency area has its financial complexities. But it has been done before ….

Samuel Brittan, “Who is winning in the race for recovery“, Financial Times, 13 May 2011.

Brittan’s old columns can be downloaded freely from his webpage. Today’s column will eventually join them.

the futility of Europe’s common currency

Friday, November 5th, 2010

The disintegration is likely to be a messy process and it will take time to clarify whether there will be a reversion to national currencies or whether two or three successor zones will emerge. Indeed, the insistence of the German government on impossibly severe fiscal policies makes one wonder if it really wants the euro to continue in its present form. Wolfgang Schäuble, the German finance minister, has said: “Should a eurozone member ultimately find itself unable to consolidate its budgets or restore its competitiveness, this country should as a last resort exit the monetary union while being able to remain a member of the EU.” ….

Euro-federalists will fight tooth and nail to prevent a disintegration of the eurozone. They are powerfully reinforced by banks with investments in the peripheral countries. But if something is unsustainable it will not be sustained.

Samuel Brittan, “The futile attempt to save the eurozone”, Financial Times, 5 November 2010.

The full column (ungated) will eventually be posted here.

“beggar-my-neighbour” economics

Friday, August 27th, 2010

Samuel Brittan looks at the export promotion policies of David Cameron, and does not like what he sees.

The academic name for the economic policy into which the British prime minister has stumbled is “mercantilism”. ….

But I now think the best name is “beggar-my-neighbour” economics. This was coined by the leftwing Cambridge economist Joan Robinson – no market fundamentalist she. By this she meant that because governments were unwilling or unable to promote output and employment by domestic means they had to resort to trying to promote it at the expense of other countries. ….

The current prime minister is partly following in the footsteps of Tony Blair; but while the latter’s soft protectionism was concentrated on the arms industry, Mr Cameron is trying to spread the net much wider. Do I have to add that not every country can have an export surplus?  ….

Mr Cameron is consciously or not echoing the sentiment of Calvin Coolidge, US president in the mid-1920s, that “the chief business of the American people is business”. But Coolidge also said many much wiser things, such as: “I have never been hurt by what I have not said”, and: “Four-fifths of our troubles would disappear, if we would only sit down and keep still.”

Samuel Brittan, “The return of beggar-my-neighbour policy”, Financial Times, 27 August 2010.

For those who do not subscribe to the FT, all of Brittan’s columns are eventually posted here.

the business of central banks

Friday, July 30th, 2010

[Central Bank origins] usually were remote from control of inflation or output or anything resembling modern macroeconomic policy. The Bank of England was established in 1694 by a group of City merchants lending money to finance the wars of William III. Even the US Federal Reserve, which was founded much later in 1913 in response to the bank crisis of 1907, was primarily concerned with the stability of the commercial banks. In the 19th century rough price stability was expected to result from using gold as the ultimate form of money. The role of the central bank was to ensure that, despite any paper money or other credit instruments issued by governments, the gold convertibility of the currency was maintained. In the course of the 20th century the gold link was … cut. Thus central banks were left by default with the task of maintaining the value of the currency. Even then many were just as concerned with the welfare of commercial banks and the financial system as a whole.

How have they performed in their enlarged role? At a cursory glance, none too well. So far from curbing the notorious German hyperinflation of the 1920s, the then head of the Reichsbank plaintively observed that he was printing money as fast as the machinery at his disposal allowed. At the Bank of England, governor Montagu Norman bullied Winston Churchill into returning to gold in 1925 at an overvalued parity, which helped trigger the General Strike the following year. Later he prevented the 1929-31 Labour government from embarking on public works to counter rising unemployment. Worst of all was the unwillingness or inability of the Fed to prevent a massive decline in the US money stock at the onset of the Depression.

There followed a gap of several decades in which central banks were demoted. But it can hardly be said that they have achieved distinction in more recent years.

Samuel Brittan, “Take central banks down a notch”, Financial Times, 30 July 2010.

In a few days or so, an ungated version of this column should appear here.

Samuel Brittan on Jagdish Bhagwati on financial folly

Saturday, May 8th, 2010

FT columnist Samuel Brittan now understands why Columbia University economist Jagdish Bhagwati, an outspoken proponent of free trade, has always opposed liberalisation of capital markets.

Despite the inevitable failure to implement the right kinds of intervention and the persistence of the wrong kind, there have been enormous benefits from economic liberalisation. …. The policy mistake, he [Bhagwati] argues, has been to “carry over the legitimate approbation of freer trade” and direct foreign investment “to the altogether more volatile financial sector, which represents the soft underbelly of capitalism”. He goes into detail about how this error was encouraged by the constant movement of senior figures between Wall Street and the US Treasury Department. I used to think that such statements by Prof Bhagwati represented mainly the natural frustrations of a highly regarded trade economist at all the attention being focused on financial issues. I think that no longer.

Samuel Brittan, “A credo for a revived capitalism”, Financial Times, 7 May 2010.

Samuel Brittan on inflation targeting

Saturday, March 20th, 2010

[Inflation targeting] seemed to be working during the period known as the Great Moderation, when most industrial countries managed to combine low inflation with only moderate fluctuations in economic activity. But then, from the onset of the financial crisis in 2007 and the subsequent recession, these regimes broke down in a spectacular fashion. It is important to be clear about what went wrong. The inflation targets were more or less achieved; and they are still in place. What broke down was the doctrine, spelt out in dozens of central banker speeches, that their pursuit would also bring reasonably stable economic growth and at least moderate asset-price bubbles.

It is vital that any new regime incorporates the low inflation philosophy and does not throw out the baby with the bath water. The proposal of Olivier Blanchard, the International Monetary Fund’s chief economist, to raise inflation targets [from 2] to 4 per cent is the perfect example of how not to proceed. If we can go from 2 to 4 per cent, why not from 4 to 6 per cent or from 6 to 8 per cent and so on?

Samuel Brittan, “Headroom for economic recovery”, Financial Times, 19 March 2010.

This column will be posted eventually to www.samuelbrittan.co.uk -but the site is temporarily down.

searching for a solution to the Greek crisis

Friday, February 19th, 2010

Financial Times columnist Samuel Brittan has a superb column today on exchange rates, the euro, and the Greek crisis.

I am attracted to Professor Martin Feldstein’s idea (Financial Times, February 17) of a temporary euro exit for Greece followed by re-entry at 20 or 30 per cent below the present level. But if that occurred there might not be a euro to rejoin. So it is a last resort. There is an alternative to try first, which might be called an internal devaluation. When Margaret Thatcher was struggling to wean her colleagues from pay and price controls she at one stage considered a compromise: a temporary wage freeze – in an emergency – after which normal negotiating procedures would be restored. In the case of Greece today it would have to be not just a freeze, but a negotiated reduction in nominal wages. Such a course would cut against Greece’s fiercely independent habits and traditions. But surprises can always occur.

Finally, an offbeat idea which is not an alternative to the others, but can run alongside. Countries in the Middle Ages often operated with two or more currencies: an international one such as the ducat or florin, and local currencies with more restricted use. Could not such a local currency, whether or not called the drachma, emerge in this way with or without the sanction of the Greek government? It would surely be better than being crucified by the international financiers.

Samuel Brittan, “Greek light on an over-hasty project”, Financial Times, 19 February 2010.

It is not necessary to go back to the Middle Ages to find countries with multiple currencies. Until very recently, in much of Latin America ‘strong’ currencies – usually the US dollar – circulated alongside a weak, nonconvertible domestic currency. Zimbabwe is another recent example of this phenomenon.

the savings glut and budget deficits

Friday, January 22nd, 2010

Columnist Samuel Brittan (1933-) disagrees with conventional wisdom that budget deficits are something always to be avoided. On the contrary, he argues, Western countries require deficit spending to offset the deflationary effects of a global savings glut.

[T]o most people’s surprise, Keynes’s [vision of] chronic savings surplus has come back thanks to China’s phenomenal savings rate. …. This was 49 pc of China’s own GDP and 28 pc of global savings (… at purchasing power parity). Germany also had a savings surplus, but Germany is now a much smaller part of the world economy.

The world was kept in balance by the US, which developed an abnormally low savings ratio, acting as a consumer of last resort in the company of other smaller economies …. The boost in US consumption was aided and abetted by the Federal Reserve’s low interest policy …. It was also enhanced by large budget deficits incurred by a supposedly strait-laced Republican Administration. ….

If Western countries begin slashing their deficits, as conventional opinion so loudly demands, what will supply the offset to Chinese savings? Most of the suggested answers are non-starters. It is no use lecturing the Chinese to consume more. Indeed the Chinese authorities are now reining back domestic demand for fear of inflation. It would be best to take Chinese policy as given and for the rest of us to adapt. ….

I can only reply to the masses of messages that the first priority of a new British Government should be to reduce the fiscal deficit: “I beg to differ.” As the Bank of England Governor, Mervyn King, has just reminded us, UK output, is some 10 pc below its previous trend. If the recent upturn in UK inflation turns out not to be a blip but a more lasting response to sterling devaluation, the appropriate reaction would be to edge up interest rates but let the Budget deficit run. The fact that this would be the opposite of the conventional wisdom only reinforces my belief that it would be right.

Samuel Brittan, “The Great Piggy Bank of China”, Financial Times, 22 January 2010.

Brittan’s newspaper columns and other writings are posted at www.samuelbrittan.co.uk . The site is well worth visiting. This is a writer who has become wiser with age. I hope he will be with us for many years to come.

liberals and anti-liberals

Friday, January 8th, 2010

Samuel Brittan today provides “three examples that starkly expose anti-liberal ways of thinking”. On reading them, it struck me that Americans have defined the word ‘liberal’ to mean its precise opposite –  ‘anti-liberal’.

Some people advocate compulsory national service, not necessarily military, as a way of improving the character of young people. The late James Tobin – he of the Tobin tax – favoured the US draft as an egalitarian ideal and even suggested setting soldiers’ pay well below what they could earn elsewhere so as to rule out a volunteer army. Whatever his other qualities, he was an arch anti-liberal.

Consider, too, the rigid exchange restrictions that have at times been imposed on foreign travel to conserve official holdings of foreign currency. When these were imposed by Harold Wilson’s UK Labour government for three years there was hardly a word of protest from Labour’s supposedly enlightened intellectual camp followers.

A final example is the smoking ban in public places – and I speak as lifelong non-smoker. So long as there are designated areas to ensure non-smokers are protected from smoke pollution, what is the harm in providing a room where people can smoke at their own risk? Why is this worse than making smokers stand outside in the cold?

However difficult it is to define a liberal, it is not hard to spot anti-liberals.

Samuel Brittan, “A fresh look at liberalism”, Financial Times, 8 January 2010.

Brittan uses the word ‘liberal’ as it is used everywhere except the United States, “in the classical European sense of someone who attaches especial importance to personal freedom, and therefore wishes to reduce the number of human made obstacles to the exercise of actual or potential choice”.