Archive for the ‘RSA’ Category

Alan Johnson @ The RSA

November 11, 2010

My current period of unemployment has a number of benefits one of which is that it allows me to participate more fully in the intellectual and political life of the country, something which I really enjoy. Still small scale stuff but something I didn’t manage when I was working 60 hours a week.

So today I went to the RSA for 2 talks one by a politician and one by a journalist. The Journalist was Daniel Hind who was giving a talk about his book ‘The Return of the Public’ this was the second of the talks and I didn’t fully follow the argument however he was basically arguing that the media fails the public and in order to sort that out we need to take control of some of it (click the link for a better summary). Some of it went in though, especially that ‘opinion is cheap but research is expensive’ he also felt citizen journalism wasn’t the whole answer to the problems he highlighted. I am going to do some anyway to find out about the speech made by the first speaker.

The first talk of the day was by Alan Johnson the new Shadow Chancellor it went under the catchy title ‘Beyond Fiscal Fables and Greek Myths – the honest debate about our economic future’ don’t let this fool you though it was an impressive display. Johnson has an engaging style and kept away from powerpoint, he weaved a good story about what the coalition has got wrong and where he believes they are distorting the record of the last Labour Government.

He put forward the following as clear areas where the current Government is a least being disingenuous if not actually lying about why it is doing what it was doing:

  1. We have to cut quickly and deeply because of the debt left by Labour
  2. Debt which was brought about by a decade of reckless spending

Johnson believes that the Government are using these arguments, which they presents as facts, to allow them to achieve their ideological aim of a smaller state.  I have some sympathy with this argument and certainly  believe there are  alternatives which is the opposite to what George Osborne is telling us.  Johnson then explained why the Government are wrong about Labours record, below I have extracted some  key quotes:

In 2007/8 as the crisis hit, we had the second lowest debt level in the G7 reduced by 14% in the 10 years we’d been in office.

The year before the crisis hit we were borrowing 2.4% of GDP compared to the 3.4% we inherited from Ken Clarke.

UK spending on education as a proportion of GDP was 5.8% in 2007- almost identical to the OECD average of 5.7%.

The year after, spending on the NHS was 7.2% of GDP compared to 8.7% in Germany and 8.1% in France.

The answer to the question “was our expenditure on schools and hospitals excessive given the size of our economy” – has to be a very clear “no”. There was no binge.

So very straightforward then, Labour can be trusted with the economy and the current Government is lying to us. As a Labour member I could leave it there but…..

Thought I might do some of that expensive research, a quick trundle around the internet uncovers a rebuttal from the Spectator Johnson’s deceptions and out-of-date figures in which they cite references which back the claim about the G7 but argue that the Institute for Fiscal Studies report where this comes from shows this isn’t good enough. There are also some comparisons to OECD countries in 1997 and 2007. There is evidence that other Countries paid down debt, and especially structural debt, more than the UK in that decade.  However, we ended the decade of what Osborne called recklessness and debt with a lower structural deficit, as a % of GDP (The Public Finances 1997 to 2010) table 2.1, than Labour inherited.

So what did that research show? Well I think it showed the difference between data and information. Easy to find data and hard to turn it into information and even harder to turn it into meaningful analysis. But I am quite pleased to link the two talks again.

A bit more research led me to sources for the statements about education spending and health spending in comparison with other countries,

So what have I learnt from this.

The UK structural deficit was not lowered as much the majority of the OECD countries up to 2007. But Labour who are being branded as irresponsible and out of control brought the % down compared to the legacy from the Tories.

The current Government has stated that levels of spending were irresponsible, but it seems some of the key indicators show we were at or below OECD averages. Also if it was that irresponsible why are they sticking to the levels in Health spending?

Having been disappointed with Labour’s response to the CSR I was impressed with Alan Johnson’s performance and they way he has mastered his brief. If he carries on like this I am hopeful that he can be an effective opposition to Osborne and Alexander.

Finally I am beginning to support Daniel Hind’s ideas about public commissioning of journalism more because this is hard work……

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The Fundamental Value of ‘The Long and the Short of It’

January 24, 2009

First trip to the RSA of 2009 was to see John Kay talk about his new book ‘The Long and the short of It’ I went with Mike who I met though fleshisgrass and who coincidentally joined the RSA at roughly the same time as me, so after a somewhat prolonged absence this has galvanised me to write another post.  Things that tipped the balance included the fact that the economy has got to be worth thinking about, Stephanie Flanders has returned to work and I can’t wade through the 100’s of comments on Robert Peston’s blog to make any sense of what is going on.

The main room at the RSA was packed to the rafters with people who as I found out may have been been there expecting advice rather than education and debate.  Because it seems John Kay has written a self help book for people with money to invest (is this still a large enough target audience?  I wonder sometimes when you read some of the worst predictions about the economy).  Mr Kay believes that the time has come for us to stop relying on the professionals and take responsibility for what happens to our own money.  Difficult to argue with the principle of this but the wilful ignorance that a lot of people have when it comes to finance makes me doubt this will take off in a big way.  However this didn’t stop the event being both educational, interesting and at times amusing.

A slight diversion here to talk about the chair for the evening Peter Jay who is a marvellously posh and well connected chap who must be fairly unique in having a career that spans the Royal Navy, HM Treasury, Journalism, Rupert Maxwell and being UK Ambassador to the United States.  Since 2003 he has been a non-exec at the Bank of England, none of this stopped both Mike and I remarking that he reminded us of the recently departed John Mortimer.  All of this meant that any thoughts about the links between his background and career trajectory were swiftly forgotten about.

Anyway returning to the main business of the evening.  The lecture was structured around explanations of what has caused the current financial crisis, what the Government (or Governments) could do about it and what we can do about it ourselves.

The explanation of how we have got into this mess was one of the clearest I have seen put forward.  We learned the difference between investors who are interested in fundamental value and those who are interested in the current and short term value of assets.  Basically if you invest based on Fundamental Value then it’s a long term game where you are interested in the income stream that asset will bring you over it’s life.  If you are more short  term then you will be into Mark to Market which is the value that people will pay for the asset on the current open market.  To  illustrate the differences in this approach Mr Kay talked about Warren Buffett as the archetypal fundamentalist and George Soros the marked market man.

Whilst these 2 different approaches aren’t necessarily right or wrong – if you want to measure success in financial terms Buffett and Soros have been just as successful as each other – they will deliver different outcomes over different timescales.  And when you start to think about it like that you can see how having complicated financial assets, so complicated nobody understood them, the value of which is based on what people are prepared to pay can very quickly lead to big problems.  Problems that quickly get out of control and seem to bear no relation in scale to the event that triggers them.  This actually has a link to structural engineering where various previous failures, most famously in this country Ronan Point flats in East London,  mean that buildings are now design to avoid disproportionate or progressive collapse.  This means damage to a a small part of the structure should not lead to collapse of all or even a large part of the building.  Now obviously there are limits to this otherwise we would all live and work in concrete bunkers but there are other precautions taken to further protect vulnerable buildings which are exposed to greater levels of risk than normal.  It seems to me that the we could do with something like this type of approach when designing the new regulatory system for the financial sector, the regulation of structural design has not stopped innovation but has provided clear boundaries and guidance on what is acceptable.

The vulnerability of complex financial markets to disproportionate collapse is one thing but John Kay offered an impressive degree of clarity on the main cause of the failure .  Which as with most things in life wasn’t that complicated when all was said and done, a bit like Bill Clinton’s rallying cry ‘it’s the economy stupid’  Mr Kay repeated several times the cause of failure was the banks investment in the international money markets.  A lot of which went spectacularly wrong.  I think this where my point above comes in whilst it was the massive securatisation of debt that is now being acknowledged as the route cause of the problem, what is need now is regulation that prevents  financial structures so vulnerable to progressive collapse following failure of one or two elements – in this case the American sub-prime mortgage market.

Because this post is getting quite long and because he didn’t talk about it very much I won’t be dealing with John Kay’s second point which dealt with what Government or society should do to prevent similar occurrences in the future, although it is probably clear from the statements above that I think there needs to be afundamentally different approach to regulation, governance and oversight.  However, one anecdote did stick with me which was about how when John Varley from Barclay’s complained on the Today Show about poor regulation Mr  Kay felt it was a bit like burglars blaming the police for not stopping them stealing from houses.

The final part of the talk concentrated on what seems like (I say seems because I haven’t read the book yet) the aspect which is most like a self help manual.  This is advice about how we might invest on our own behalf as we are the only ones we can really trust.  I hope Mr Kay didn’t mean this as if I can only trust myself life is going to be quite disappointing.  However, he seemed like a reasonable and sensible chap so I will assume we don’t have to take this too literally.  The real meat of this sections was about how the average member of the audience (of member of the public? as discussion for another time would be comparing the RSA audience to the general public) could manage their investments better than the professionals.  If this sounds interesting I suggest you buy the book where it will be explained much better than I will here.  To my mind however it would have been better to get views on whether there are some more radical options for the future of the financial system.  The worst of the predictions about the state of the economy would mean that a completely different model is required rather than more active engagement from ordinary investors.

During the Q/A Mr Kay managed to avaoid his self imposed rules (don’t make predictions or offer investment advice) for the most part but he did also avoid explanning why the owners of shares would want to lend them to traders who want to short sell them.  The questioner pointed out that by lending your shares to a short seller you are encouraging the destruction of the fundamental value.

I seemed to have ended more critically than intended because this was an informative and interesting talk by the end of which I found myself agreeing with Peter Jay that John Kay is a highly intelligent chap who can explain complex ideas in a engaging, clear and straightforward fashion.  Also I have the topic for another post which will be finding out why owners lend their shares to short sellers.