The Immigration Fallacy

22/05/2013 1 Comment

Immigration has been a hot topic recently. UKIP, (who are essentially founded on the principal that British people are the best), did extremely well at the recent local elections. The Conservatives then decided that UKIP’s popularity showed that they must, in turn, become more right-wing.

Ed Miliband, being as always one headline behind everyone else, proposed a government subsidy for the living wage.

I don’t think that last policy has much going for it but that’s not the subject of this blog. Today I’d like to talk about immigration – or more specifically the main arguments against it. They seem to fall into two categories:

  • Immigrants steal our jobs!
  • Immigrants just live on benefits and don’t contribute to the economy!

I’ll take each in turn…

Immigrants steal our jobs!

The arguments goes something like this.

In the UK we have net immigration – that is, we have more people arriving to live here than we have people leaving the UK to live elsewhere. The people who arrive from overseas take jobs away from those who were born here.

It’s understandable how you would draw that conclusion. Imagine a country who has a working-age population of 20 million people of whom 1 million are unemployed. Over the next five years the working age population increases by 500,000 due to immigration. At the end of the five years there will be 1.5 million unemployed people and because people move into and out of work during this time, lots of the immigrants will have jobs and those jobs will have come at the expense of a lot of the people who had jobs before those immigrants arrived.

Simple enough, right?

Wrong. Things are not that simple. It is, in fact, perfectly possible to add people to the working-age population without increasing unemployment. How? Trickery? Sleight of hand? Government statistics? No.

During the 20th Century, the UK population increased by about 21m people*. We have, in fact been adding more people without increasing unemployment for a very long time. When we add more people to the economy, more goods are made and more services are provided and this leads to economic growth and to the creation of more jobs. It is easy to think of the economy as having a finite number of jobs and employment as a “one-in, one-out” market but that is not the case.

A much more useful way of looking at it would be this:

For every 100 people I add to the population, by how much does unemployment change?

Or to move the argument back to immigration:

For every 100 immigrants I add to the population, by how much does unemployment change?

It’s an intriguing question. Fortunately, NIESR has done the analysis and guess what they found out?

(UKIP, Tories, Daily Mail – you might want to look away now.)

The results show a very small negative and generally insignificant correlation between the migrant inflow rate and the change in the claimant count rate. A hypothetical example can help give a sense of how small this coefficient really is. A 2 percentage point increase in the migrant inflow rate, akin in magnitude to the large and sudden inflow of A8 migrants in the years 2004-2006, would, according to these estimates, be associated with a fall in the claimant count rate in the order of only 0.02 percentage points.

I don’t think I am doing them a disservice here if I summarise that if we are worried about unemployment, we can quickly exclude immigration as a significant factor.

(UKIP, Tories, Daily Mail – you can look again now, it’s gone.)

Let’s look at the second argument.

Immigrants just live on benefits and don’t contribute to the economy!

Well that would account for the fact that immigrants don’t increase unemployment. Perhaps they just turn up, don’t attempt to get a job and just claim benefits?

You might believe that if you base your beliefs on what you read in certain newspapers but the reality is clearly going to be more complicated. A better way of looking at this question would be:

Is the overall contribution of immigrants to the economy positive or negative?

Fortunately the Centre for Research and Analysis of Migration have done a comprehensive study that answers this question.

(UKIP, Tories, Daily Mail – you might want to look away now.)

Yes. It’s positive. They found that immigrants on average paid 30% more into the economy via taxes than they took out through public services. But not only was it positive – the analysis found that on average, migrants contributed more and took away less that the rest of the working-age population. Jonathan Portes discusses it very well here.

Conclusion

So what can we conclude? Firstly, we have very good data that shows that not only does immigration not increase unemployment but also that immigration does boost the UK economy. Although the UK economy is doing badly at the moment it isn’t the fault of immigrants – we would actually be doing even worse if it weren’t for them.

Given this, it’s bizarre that these days we always seem to find ourselves surrounded by politicians wanting to show how “tough” they are on immigration. Given the facts it’s hard to understand – but when were politicians ever concerned by those?

The UK economy is in the longest depression in living memory, longer by far than The Great Depression of the 1930s and throughout it, unemployment has remained stubbornly high.

When such a situation occurs people naturally want to look around for someone to blame and, shameful as it is, politicians have done their upmost to redirect that rage onto immigrants. But why would they do that, given that such a campaign is completely contradicted by the facts?

Well that one’s easy – this depression was created by the politicians themselves.

RedEaredRabbit

*I thought I’d add that the 21m increase in population was not due to immigration. During the 20th century the UK had a net emigration.

Filed under Economics, Politics Tagged with , ,

A Problem of Politics

11/05/2013 1 Comment

I don’t have children. I’ll be honest – I don’t like them very much. Many of my friends however, hold the opposing view and over the past four or five years, I have seen many of them pair off and then unfortunately, find out what happens when they combine their DNA with one another.

Before Christmas, I was out with a few such couples and their resultant chimera and at some point during the meal, two of the latter had a minor disagreement over toy-ownership and proceeded to attack one another. Their parents quickly broke up the melee and each offspring was separately told that if they behaved in such a way, Father Christmas would not bring them any presents. The threat had the desired effect and good behaviour was quickly restored.

Sometimes I wonder how future generations will look back on how we dealt with the current economic crisis. As I have mentioned on here before, I don’t think we are now dealing with an economic problem – the economics to engineer a recovery are well understood – what we are dealing with now is purely a political problem.

At the moment we have a right-wing government whose political ideals are to seek a smaller government sector. In certain economic circumstances that kind of ideal is easier to achieve than it is in others. At the moment, as we have seen, achieving it is very difficult. When the economy has high unemployment, low demand and interest rates at the zero lower bound, cuts to public spending are not offset by increases in private spending. That is, if the government makes a bunch of civil servants redundant, the private sector won’t just expand and give them jobs.

As I’ve mentioned more than a few times in the past, cutting government spending under such circumstances is nothing other than negligent but if the economics says one thing, how can the government continually get away with doing the opposite? It’s not an easy question but I think I have an answer. My answer is simply the difference between economics and politics:

  • Economics is a discipline that helps us to understand the best policies to pursue in order to improve the economy
  • Politics is a discipline that helps its proponents win the next general election

But surely they would align themselves? Surely the easiest way to get elected at the next election would be to fix the economy? Right?

Wrong.

Let’s take ourselves back to the story with which I started this post. My friends could have dealt with it by explaining to each of their spawn, the importance of sharing and two individuals working together to achieve the best overall outcome for both parties. Or they could just say that Father Christmas wouldn’t turn up.

The former is a harder message to convey. The latter was much less effort to explain and much less effort for their audience to understand.

It’s the same with the economy. Explaining to people why cutting spending leads to more debt is a hard sell because it involves giving the public a basic understanding of macroeconomics and while it is only a basic one they need, it is still far easier to do this:

  • The previous government went on a spending binge that caused all of this!
  • Our country is just like an indebted household!
  • We need to immediately pay off our debts in order to recover!

And that’s an easy sell. None of those things are actually true but the truth is harder for people to understand.

Democracy has a lot going for it but never for a moment believe it’s perfect. Look at the range of subjects over which a voter has to preside. The economy, education, foreign policy, immigration, the environment, health, crime. The list goes on and on. These are not simple things to understand and yet we are all asked to decide on them every time we vote.

Politicians could spend lots of time explaining these things to people and honestly giving the pros and cons of a particular policy but it’s much easier to just go ahead and do what they want and then give us a few simple, misleading soundbites as to why it is right. When you look at it in these terms it isn’t hard to understand why politics continually fails us so badly.

It’s not just the government though. A big part of UKIP’s recent successes is because they understand this and do it better than anyone else. They say that climate change is all made up. That’s much easier than explaining that driving an SUV burns a lot of petrol and that when petrol is burnt one of the consequences is releasing carbon-dioxide into the atmosphere and that carbon dioxide in the atmosphere causes a reduction in the amount of the sun’s energy that is reflected away from the Earth and that such a reduction causes the temperature of the planet to increase. And even if you got that far, you haven’t even started on the consequences of that temperature increase.

Immigration is another example. An easy sell is telling the electorate that the economy is broken because there are hoards of foreigners arriving on our shores every day and stealing our jobs or sitting around claiming benefits. Although that isn’t true, it is much harder to educate the public on all of the very real economic benefits of immigration and so the xenophobic soundbites win and such policies become popular and everyone loses out because of them.

Our politicians owe us more than this. They should appreciate the weaknesses in the democratic system and make it their absolute duty to clearly explain the realities of the situations that we face. They should not, as they do currently, exploit the weaknesses in the democratic system for their own gains.

So anyway, what then became of my friends’ recently-created miscreants? Well they took onboard the threat, behaved as they were told and got their Christmas presents (none from me, I might add). That said, three years after the country chose to go along with the current government’s economic plan, our Christmas presents still haven’t shown up.

And when we look at what politicians are all about, should we really be surprised?

RedEaredRabbit

Filed under Economics, Politics Tagged with , , ,

The Things We Used to Know

29/04/2013 1 Comment

Last weekend when discussing the Reinhart-Rogoff mess I wrote this:

We never needed “new cutting edge research” to solve this problem. The problem we have and the solutions to it are all covered in the first year of an undergrad economics degree.

On the following Tuesday (Economics Nobel Laureate) Paul Krugman, on the same subject, wrote this:

Econ 101 macroeconomics, as I often point out, has worked pretty well…The point is that radical new theories haven’t been needed at all; off-the-shelf economics, tools we already had, provided plenty of guidance.

He probably reads my blog.

So what are those things that first-year economics students know that should have stopped the depression happening? Before we look at those, let’s step back in history and remember how we got here:

The Financial Crisis

  • Banks borrowed lots of money and then lent it out, a lot of it to risky borrowers
  • Banks also encouraged individuals to build up debt through cheap loans and credit cards
  • This not only led to a huge increase in private debt, it helped fuel a housing bubble in much of the developed world
  • The banks had no plan-B if the housing bubble burst
  • The housing bubble burst
  • Oops

When people couldn’t make their debt repayments the banks suddenly became insolvent. Governments borrowed huge sums of money to bail them out and prevented a full collapse of the global banking system but were left with weak economies and high debt. Due to high levels of personal debt, rising unemployment and an all round lack of confidence in the economy, people switched very quickly from spending to paying off debt and saving. In the economy, my spending is your income and your spending is my income. Spending disappeared and a severe recession resulted.

Turning a Recession into a Depression

Governments initially responded by cutting interest rates. Low interest rates make saving less attractive and spending more attractive and in a normal recession this is enough to engineer a recovery. This was not an ordinary recession though and governments found that even with interest rates at almost zero, people continued to save and pay down debt rather than go back to spending. Low interest rates were not enough to fix the economy.

As any first-year economics student can tell you though, monetary policy is not the only tool a government has to boost growth. If the people don’t want to spend, the government can increase spending and fill the gap. Many governments, either through incompetence or the blind pursuit of their political ideals did the opposite and cut spending, which had the predictable effect of exacerbating the problem.

Governments likened their situation to that of an indebted household who must pay off their debt as fast as possible but the analogy, although easy for the public to understand, was disingenuous. In the economy spending and income are two sides of the same coin and in an economy suffering from a lack of demand from the private sector, cutting government spending was only ever going to lead to one thing.

A recession, which we had all of the knowledge and tools to turn into a recovery, turned instead into a depression. Here’s what happened in the UK when the current government took over and slashed public spending. The green diamond shows the point when they were elected:

UK Depression

UK Depression

The amazing thing is that this is all basic, textbook macroeconomics. It is hard to comprehend how the government could try the opposite of what this stuff said they should do and then, when the economy entered depression, just sit around scratching their heads wondering why things didn’t work out.

But anyway – the damage is done now and the government would commit political suicide if they ever admitted that their policies, far from creating a recovery, had in fact caused a wholly unnecessary economic depression. I’ve come to terms with that now but I really hope we could all at least agree on this:

In 20, 30, or 40 years time when then next big recession happens, could we all take a look back on this period in history when our politicians, with their poo-pooing of basic economics, failed us so badly? Could we all take a look back on this period in history and say that we will never again make mistakes such as these? Let’s instead choose those basic economic rules that have, during this depression, continually got things right.

Let’s remember the things we used to know.

RedEaredRabbit

Filed under Economics, Politics

How Not to Tackle a Deficit

28/04/2013 Leave a comment

As you might have noticed, George Osborne and Ed Balls have had a lot of exchanges in recent months as to whether UK borrowing is going up or down. This is an important point politically because of the government’s headline pledge to eliminate the deficit (originally within this parliament, then delayed to 2017-2018 in last year’s autumn statement.)

And so for the last few months, Ed has been desperately hoping that borrowing would be higher in 2012-2013 than it was in 2011-2012 so he could say, “The deficit is going up!” and George has been desperately trying every trick he can think of to get borrowing lower than it was in 2011-2012 so he can say, “The deficit is going down!”

This week the ONS released the figures and George was all happy and Ed was all sad because the deficit dropped from £120.9bn in 2011-2012 to £120.6bn in 2012-2013.

While the deficit being slightly higher or slightly lower might be important politically, economically it was all fairly irrelevant. What has been clear for a while was that the deficit this year was always looking to be pretty much the same as it was last year. Whether it was a tiny bit more or a tiny bit less was of interest only to George and Ed.

Although George is now patting himself on the back, remember that his pledge is to eliminate the deficit and if he wants to do that any time soon he is going to need it to come down a lot quicker than £300m per year. At that rate the current deficit of £120.6bn would be eliminated in the year 2415. Remember though, the deficit is just the amount by which the national debt increases each year. By 2415 when we had stopped adding to the debt it would stand at around £25.4 trillion. For a government whose main priority is taking “tough decisions” to tackle the national debt that looks like a fairly massive disaster.

So why is the deficit not coming down? Well there are a couple of reasons for that. The government’s public position is that the deficit was caused by reckless spending of the previous Labour government. This graph shows how deficit has changed since 2007-2008 (the year running up to the financial crisis).

UK Net Public Borrowing (£bn)

UK Net Public Borrowing (£bn)

So a few things we can take from the above graph:

  • The previous government had a deficit of about £40bn in the run-up to the financial crisis
  • The deficit then increased dramatically after the financial crisis hit
  • The deficit then came down a bit but its reduction has stalled in the past year

On the first point, as I’ve said before, I don’t think the government should have been running a deficit during the good years. Yes, it wasn’t that big but still, given the economy was doing well, they shouldn’t have done it.

Let’s look at the second point though. When the financial crisis hit and unemployment shot up and everyone stopped spending money, the deficit increased to four times what it had been in the year before the crisis. This is an important point because when we see it we can understand the real the cause of the high deficit. It also helps to explain the third point – why has the deficit reduction stalled?

The government started off by making severe cuts in spending, which initially reduced the deficit. But in the economy, spending and income are two sides of the same coin. A depressed private sector was not ready to expand to fill the gap left by the government cuts and the government therefore caused an overall decrease in spending and the economy could not recover.

If you understand the reason for the big increase in the deficit, it’s fairly obvious that the solution to reducing it is not to cut government spending but to restore the economy back to health as quickly as possible. Cutting government spending in a depressed economy has the opposite effect though, and it has come as no surprise that the government’s flagship pledge to eliminate the deficit during this parliament has failed abysmally.

A far more sensible policy would have been to focus on fixing the economy and once it was fixed, when everyone had jobs, the government could then look at whether government spending was too high. They didn’t though and so rather than a recovery we got this:

Depression Tracker

Depression Tracker

If you want to see what a recovery looks like then look at the blue line showing The Great Depression from the 1930s. No sign of that in the red line showing our current plight.

The strange thing in all of this was that we always knew why the deficit became so high – a severely weakened economy. The government’s grand idea that it was caused simply by overspending of the previous government was not  just wrong, it caused them to pursue the opposite policy to what was really needed.

So what are we left with? Economic stagnation and a deficit that refuses to come down.

The most astonishing thing though, is that the government seem to be the only people who can’t work out why.

RedEaredRabbit

Filed under Economics, Politics Tagged with , , , , ,

Excel Mistakes are the Least of our Worries

20/04/2013 Leave a comment

If you follow economics outside of this blog you will no doubt have seen this week’s big hoo-har about Reinhart-Rogoff (R-R). In case you haven’t I’ll explain what happened.

About three years ago, two Harvard Economists published a paper that concluded that when a country’s debt to GDP ratio exceed 90% it caused the country to experience significantly lower economic growth (actually on average a recession). Paul Krugman describes the subsequent events here but essentially there were two immediate problems with the paper:

Correlation and Causation

A very common problem in statistics is confusing correlation and causation. Correlation between two factors means that as one changes the other does too. Causation between two factors means that as one changes it causes the other to change. This might seem like a small difference but it isn’t. It is very important.

This is more easily explained with an example. If you were to plot on a map of Great Britain the location of every mobile phone mast and then were to plot the locations that children were conceived, you would get a striking correlation. This does not mean that mobile phone masts cause conception and it doesn’t mean that conception causes mobile phone masts. What is actually going on is that both conceptions and mobile phone masts are more likely to occur in areas of high population density. However, if you didn’t know the difference between correlation and causation you could easily, (and wrongly) conclude from your research that mobile phone masts increased fertility.

There is another problem in implying causation from correlation. Even if there is a causal relationship it could run either way. Do mobile phone masts cause increased birth rates or do increase birth rates cause mobile phone masts? In the case of the R-R paper, not only did they decide there was a causal relationship in the correlation, they decided that it was high debt that caused low growth without entertaining the possibility that low growth might cause higher debt.

This was problem number one.

Peer Review

Problem number two was that with the same set of data, no one else could reproduce the result showing some special tipping point at 90%. Lots of people tried it but no matter what they did, they couldn’t reach the same conclusion that R-R managed and because R-R had not published their workings no one knew how they’d reached that conclusion.

This was problem number two.

So move on three years to the current day and what has happened? Well in the interim, pretty much every austerity advocate had used this paper as proof of why austerity must be pursued at all costs. But this week after many requests, Reinhart and Rogoff released the Excel spreadsheet they’d made and on which they had based their findings. Oops.

In addition to the previous problems there were three more very obvious problems with their workings.

Cherry-Picked Data

The analysis that R-R did was not over all of the available data. Oddly they had chosen to exclude specific countries’ performance in specific years with no explanation as to why they had done it. Worse still, if you included them the magic 90% threshold disappeared.

Bizarre Weighting

In coming to their overall conclusion, R-R weighted certain results higher than other results using a method behind which no one can quite understand the motivation. Weight the results using any conventional means and guess what? The magic 90% threshold disappears.

Excel Error

Most embarrassing of all was that there was a basic Excel error in the spreadsheet – they’d averaged over a column of numbers and got the range wrong so missed a bunch of the numbers out of the average. Guess what happens if you correct it? Yep.

As Paul Krugman concludes in his article on all of this:

So will toppling Reinhart-Rogoff from its pedestal change anything? I’d like to think so. But I predict that the usual suspects will just find another dubious piece of economic analysis to canonize, and the depression will go on and on.

And this is really the important point. The R-R paper only ever became as famous as it did because it told the “usual suspects” what they wanted to hear. It gave them some kind of economic credibility on which to base the policies that they wanted to implement anyway. R & R shouldn’t be blamed for all of the ways in which their paper was used – politicians and the media should take some of that, especially when there were so many question marks over it from the start.

But the real thing I conclude from the whole debacle is simply this. When the crisis struck, governments had the option to follow the economic lessons we had learnt from the past. Lessons which had solved previous crises like The Great Depression of the 1930s.

But they chose not to.

They chose instead to pursue the things they wanted to do anyway and then cherry-pick any bit of research they could find to support it, irrespective of how many glaring problems it might have hanging over it. In all of this, until this week, the R-R paper was really their most coveted prize.

So what have we seen in the intervening days since the paper’s public demolition? We have seen the stimulus crowd publicly claiming a massive victory over the austerity crowd and while that might well be the case, I again worry we might miss the important point here. What we’re doing here is arguing over one piddly little paper that gained fame because it formed a new economic theory that supported the policies of austerity. But that paper really should never ever have become as big as it did.

We never needed “new cutting edge research” to solve this problem. The problem we have and the solutions to it are all covered in the first year of an undergrad economics degree. Yes, if a couple of Harvard economists come up with a new idea we should have a look at it but when it clearly had such big, unexplained problems from the outset, how could governments (ours included) end up basing their fiscal policy on it?

I mean – would it really be so ridiculous to go with the things we actually know?

RedEaredRabbit

Filed under Economics, Politics

Why Trade Makes Us All Better Off

12/04/2013 Leave a comment

When I was just a small rabbit, I received a computer game as a Christmas present from my parents. It was good – I played it for six months or so and pretty much played it to death. Another boy in my class had also received a game for Christmas and just like me he had also played his to death.

Seeing an opportunity, I suggested we trade them. Computer games are expensive and neither of us, with our limited supply of pocket money, could simply buy all the ones we’d like so a trade would benefit both of us. We would each lose a game in which we had little remaining interest but we would each gain a new game that we hadn’t played before. We each valued the other’s game more than our own and so we agreed to trade.

On returning home from school with a new computer game, my mum was immediately suspicious.

“Where did you get that?”

“From Malcolm.” *

“He lent it to you?”

“No, I traded it for the game you bought me for Christmas.”

My mum was not happy. It was a Christmas present, she said. I shouldn’t be trading presents that people had given me. She was cross. After Mrs Rabbit, my mum is the greatest person I’ve ever met but (also like Mrs Rabbit) making her angry is a bad idea. Oh well, lesson learnt.

Only the lesson hadn’t been learnt. In hindsight, this was a rare occasion when my mum got it wrong. After the trade, Malcolm* and I were both better off. We each had a new game to play and we each got another six months of enjoyment from playing them that we would otherwise have not had. I can understand the concern if there had been some emotional attachment such as if we’d traded family heirlooms or swapped cats but the computer games had no emotional investment from anyone other than ourselves.

(On a side note, I wish I had swapped our cat. It was a complete wanker.)

The other day I wrote a post about George Osborne’s recent speech on the need to cut benefits. One of the parts I took issue with said this:

We’re facing more and more competition from vast new economies like China and India. There are quite literally billions of people who are joining the world economy. That’s human progress. If we’re not careful, Britain risks being out-worked, out-competed and out-smarted by those hungry for a better life.

And the reason I took issue with it is that it suggests that the better that other countries do the worse we’ll do. Like there is a limited amount of “economy” to go around and if the Chinese get a bit more they’ll be taking that bit away from us!

It really does not work like this and George actually acknowledges this when it suits him. Ask him why our economy is weak and it’s all the fault of our European neighbours. The idea that Britain would be better off if all other countries were unsuccessful could not be further from the truth.

There’s a wonderful economics experiment a primary school teacher can do with her class that demonstrates this and it works as follows:

1. You get a bunch of children’s books (you need one per child).

2. You say that after this lesson there will be a special reading time where the children will each get to read a new book.

3. You distribute the books at random so each child has a book.

4. You ask them to each rate out of 10 how much they want to read the book they have during the special reading time.

5. You note down the results.

6. You give them 5 minutes in which they are allowed to swap books with one another if they wish to do so. It is important to point out that

a) they don’t have to swap if they don’t want to

b) swaps should only take place when both parties agree

c) they can swap as many times as they like within the time limit

7. After the swaps are done you again ask them to each rate out of 10 how much they want to read the book they now have.

What you will find is that the average score out of 10 is significantly higher the second time around. Why is that? Because the kids will only do a trade if there is a  gain for both of them. Supposing Child A has “The Gruffalo” and Child B has “The Mole Who Knew It Was None Of His Business.” Child A thinks poo is funny and Child B doesn’t (idiot). So before the trade Child A rates his book as a 7 out of 10 and Child B rates her book as a 3 out of 10. After the trade Child A rates his book as a 10 and Child B rates hers as a 6.

Note that Child B doesn’t think her book is the best in the world but she’d rather read it than read about a mole who spends the entire story wandering around with a (spoilers) dog poo on his head.

Anyway, the important thing is that both children are better off and the trade would not have happened unless both of them would have been better off.

It’s a brilliant exercise because it demonstrates why trade in the real world is so important. Take a look at Abu Dhabi for example. Abu Dhabi has lots of oil. Without trade, Abu Dhabi would be a poor country but with trade they are very rich. Lots of other countries want to use more oil than they can produce themselves and Abu Dhabi can produce lots more oil than they want to use themselves.

On the other hand Abu Dhabi isn’t very good at making the machinery and vehicles needed to get the oil out of the ground and to its destination. Luckily there are other countries who are good at that so rather than having to try to build all that themselves they can get it through trade with other countries.

Anyway, what I’m saying is that when one of our overseas friends gains economic growth it is not something we should fear. Instead we should see a marvellous opportunity for us to increase our trade with them and make both of us better off.

Sadly it seems that all George sees is another reason to cut benefits for poor people.

RedEaredRabbit

* His name wasn’t really Malcolm. I’ve never actually met anyone called Malcolm. He looked like a “Malcolm” though.

Filed under Economics, Politics Tagged with

Could the Real Opposition Please Stand Up?

11/04/2013 1 Comment

It seems to me that the Labour Party are having a bit of trouble getting their message across, whatever it is. We know they don’t like the government’s policies but in most instances it’s very hard to get clarity on exactly what they would do instead.

The government is clearly polling badly but I fear that much of that is more that the public think they’re rubbish rather than the alternative is especially good. I know it is the opposition’s role to oppose but I would like to think they would also be offering specific and clear alternative policies to those of the government. I know for example they believe that the government has cut too far and too fast but I’m not sure exactly what they would do instead.

On Tuesday, Ed Miliband launched the Labour Party’s local election campaign with a speech that would give him the perfect platform to give us some details. As you probably noticed, Ed managed to coincide his speech with the death of Margaret Thatcher. For a party leader who has severe trouble getting his message across this was fantastically unfortunate. What was surely destined to be the top story on the evening news was reduced to a couple of minutes at the end. As Margaret’s spirit descended from this world to the next, I’m sure that last achievement put a smile on her face.

But anyway, Maggie aside, was the speech actually any good? I don’t really think it was. He did an ok job of criticising some of the government’s failures on the economy, their income tax for rich people and their linking of the Philpott case to the need for welfare reform but again, their was precious little about specifically what policies Labour would implement instead.

We were given one new policy – the power for councils to ban new pay-day lender shops from opening in their areas:

One of the fastest growing businesses on the high street are the payday lenders. In hard times, it is no wonder people turn to them. But often they just engulf people in debts that they cannot pay. Interest rates of over 1000 per cent. Of course we need national action to cap the cost of credit. But we also need local action too. Currently if a bank branch closes down, a payday loan shop can move in and open up in the same place. Even if there’s already a payday lender just down the street. And there’s nothing the local council can do. That can’t be right.

This policy is little more than a band-aid though. The deep-rooted economic and social problems that have, in recent years, caused people to turn more and more often to payday lenders are not addressed simply by preventing payday lenders opening new shops. Problems such as:

  • How can we return to a healthy economy so that real wages are not going down?
  • How can we make banks start lending again so that people actually have the option of more affordable borrowing?
  • How can we address poverty and inequality in our society?
  • How can we better educate the public in personal finance so that they don’t take loans that they cannot afford to maintain?

This is a complex problem requiring a non-simplistic solution. Simply preventing payday loan companies opening shops does not address any of the real issues and if people want a payday loan without a local shop, I doubt they will struggle to find it on the internet anyway.

At the next election I want an option to vote for a party who will have thought these things through properly and give me some sensible policies for which I can vote. Not a couple of “quick-fixes” that miss the very serious underlying issues that cause a problem like this.

This policy is just an example of a wider concern I have with the Labour party. The current government is truly abysmal and for any kind of well-organised alternative, they are there for the taking. If however, the alternative is a party who is not prepared to commit to specific policies that address the true problems I can’t see myself being motivated to get off my arse for them on election day.

Yes, that’s still two years away but the clock is ticking.

So, before it’s too late – could the real opposition please stand up?

RedEaredRabbit

Filed under Politics

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