AN OCCASIONAL NEWSLETTER
No. 2 : December 2016
Dear Ealing Southall resident (and quite a number of others!),
Festive greetings to you all. As before you are receiving this newsletter because we were in contact during the general election, possibly through the 38 Degrees organisation, or on some other occasion. If you would like to be removed from this circulation list please let me know.
The EU Referendum
2016 has been an historic year with victory in the EU Referendum and a fabulous 40% result in favour of Leave for the London Borough of Ealing, for which I am happy to share credit with our comrades at the Bruges Group and Vote Leave as well as the sound common sense of the voters. All the more frustrating then to discover that surreptitiously the Cameron government deliberately set it up to be only advisory and discretionary. Thankfully his successor, Theresa May, has now secured a vote in Parliament which would appear to commit it to supporting the result, so the verdict of the Supreme Court could turn out to be irrelevant. We wait with baited breath.
Gerard Batten, UKIP’s Mr. Brexit and MEP for London, has put together a full briefing here. And if you haven’t already read his renowned FAQ’s on Brexit you can get them here. I have also put up some ideas on constitutional reform on our branch website here. Happy festive reading.
Project Fear has nothing on reality
One of the more significant publications during the year was a book by Mervyn King, now Lord King and formerly Governor of the Bank of England from 2003 to 2013, entitled “The End of Alchemy” in which he traces the origins of both the banking crisis and the fall in growth to the massive international trade imbalances that have developed as a result of globalisation and free trade since the early 1990s. He makes it crystal clear that we must take trade deficits far more seriously than we have done in the past and ensure we eliminate our own.
A trade deficit is rather like a gaping hole in the bottom of our economic barrel. Jobs and consumer demand are constantly flowing out of it. So far the Bank of England has been able to top up the barrel again with quantitative easing. This works by reducing interest rates and thereby persuading people to borrow their future earnings to spend today. But as Lord King points out, sooner or later tomorrow becomes today and further borrowing becomes impossible as people have to start repaying the money they borrowed yesterday. As he puts it, diminishing returns are setting in.
Rather more vividly, it surely does not require a degree in economics to see that if jobs continue to pour out through the trade deficit, and as QE becomes progressively ineffective, the result will be a massive increase in unemployment. The only solution is to eliminate our trade deficit, but the policies required to do that – devaluation, import tariffs, balanced migration and possibly even selective protectionism – are only available through Brexit. Of course I am only talking about protectionism here if it can be negotiated (after Brexit), like a sort of inverted free trade agreement (FTA), and it may not be necessary anyway, but we are in a strong position to do so.
I include balanced migration in this list not for the usual argument that it is necessary to force employers to train up our youngsters and other vulnerable groups into employment, or to encourage them to invest in modern technology, valid though those points are, but that Keynesian management of demand, which has served us reasonably well since the war, becomes impossible without tight control of our borders. Right now the economy is overheating, but with the result that we are just sucking in yet more immigrants and imports rather than reducing levels of indigenous unemployment. The presumed indicator, inflation, is submerged in wage compression and therefore ineffective. Back in the 70’s we had stagflation, where any attempt to stimulate the economy just produced inflation. Margaret Thatcher’s union reforms put an end to that. Today we have staggration, where any attempt to stimulate the economy just sucks in yet more immigrants.
Yes I know the government are claiming unemployment is at its lowest levels for years, but they deceitfully and conveniently omit under-employment, including the many thousands who have been reclassified as self-employed, those in part-time employment who want full time jobs, and those who have been sanctioned off benefits for the flimsiest of reasons as part of austerity. The number of people on zero hours contracts has increased by 20% over the past year, indicating an expanding economy with a labour market so loose that employers can employ whoever they like however they like. Intervention and legislation will only push unemployment back up again. Employers have become so used to ministers pandering like prostitutes to them that their expectations have become totally unrealistic, and still they complain about shortages of skills. It will require a tough government committed to balanced migration to address these issues effectively.
Softies are caught in a trap. If they stimulate the economy all that happens in that immigration goes up. If they restrain the economy all that happens is that unemployment goes up. Just like stagflation in the seventies, except with inflation replaced by immigration. In my last newsletter I indicated that George Osborne had brought in a budget that would mean a million more unemployed. I had assumed he and Theresa May would act to control immigration and that he would make further progress in reducing the fiscal deficit as he had forecast. I was wrong. So we are seeing a massive increase in immigration and no progress on the deficit instead.
If economic meltdown does occur then it could lead to social and political meltdown as well. Armageddon. UKIP stands as a bulwark for moderate, practical and balanced policies in the face of a possible rise in right-wing extremism. The British temperament has so far stood firm, but who is to say it will continue to do so if we don’t get a clean Brexit before 2020. Hopefully in that event we will just get a re-run of the referendum, but we must not be complacent that we can continue to hold the tide against a rise of the sort of fascist parties we now see coming to the fore on the continent. Societies under pressure polarise. Frustrated people get angry.
One point on which Remainians are right, albeit accidentally, is that economic conditions will continue to be difficult in the immediate aftermath of Brexit. We will have to absorb inflation caused by devaluation, import tariffs and wage rises in order to achieve balanced trade and balanced migration, reducing living standards a bit more and perhaps also requiring some rise in unemployment, before we can confidently put our foot back on the accelerator. I see Brexit in the same light as El Alamein, of which Churchill famously said “This not the end of the war. It is not even the beginning of the end. But it may just be the end of the beginning”. Not exactly “blood, sweat and tears”, but similarly requiring true British patience and grit to see us through. Never forget that the bulk of the establishment in 1940 wanted Halifax as Prime Minister. Halifax wanted ‘to get the best deal’ with Hitler, a sort of ‘soft’ Third Reich you could say. Thankfully we never found out how that would have played out. And no, I am not equating the EU with the Third Reich!
You can find more in my article “There is no such thing as a soft Brexit” on our branch website.
The Free Trade fanatics are out in force – on both sides!
Valuable as Lord King’s book is as an historical narrative and analysis, he comes off the rails with his prognosis in which he recommends yet more free trade. I have dealt with this issue more fully in my personal blog article entitled “Do I believe in Free Trade?” which I hope you will read.
Essentially the classical arguments in favour of free trade, which revolve around increased competition, economies of scale and specialisation, no longer hold true. The practice of offshoring has undermined them. Not only are multinational corporations now offshoring production (farewell economies of scale) but they are also offshoring know-how in the form of R&D and design (farewell specialisation). And if that weren’t bad enough they are offshoring their profits as well, leaving their host nations with nothing.
What we are seeing now is not so much the creation of new wealth but a massive transfer of existing wealth to third world countries as a result of globalisation and unbalanced free trade. Of course it is wonderful that we can now anticipate the ending of global food poverty by 2030, and that millions have been lifted out of poverty in China and elsewhere, or that global population is now expected to peak at under 11 billion before the end of the century. Anybody who predicted these things 30 years ago would have been carted off by the men in white coats. But let us not kid ourselves that most of this is not at the expense of the western working classes. The real twist of the knife though comes because the Remainian (“I’m all right, Jack”) middle-class establishment has protected itself with a widening pay gap, leaving the burden to be carried just by the lower income groups. No wonder they are now fed up with both the burden and the injustice of it.
There is no harm at all in putting in place a mirror image of the EU’s customs tariffs for ourselves. The rest of the world already pays these tariffs (to Brussels) whilst we desperately need the EU countries to start paying them to reduce our trade deficit with them. They can hardly complain when they are charging the same to us. The £25bn or so of tariff income will be a bonus.
We must also beware the queue of other countries lining up to secure trade deals with us. They will get the benefit of no longer paying these tariffs, but what do we get? The danger is that our deficit will get even bigger. Brexit first, put our own tariffs in place with it, and only then consider deals. It could be done within weeks – no more uncertainty and a much clearer negotiating position. I have nothing against free trade per se, but balance must come first.
It is interesting that Donald Trump appears to have a much better understanding of this than we do over here. But then he is a businessman. Successful businessmen know they have to be honest else their customers do not return and their suppliers become unreliable. Politicians are not subject to such discipline.
I first wrote about this under the heading “Greece, the Eurozone and World Trade” early last year. You might also like “Why the Single Market is a Bad Idea”.
The IFS contradicts itself.
On a lighter note I was delighted to see the experts have managed to get their knickers in a twist over productivity and standards of living. But have a look first at my chart which I drew up before the referendum and which is based directly on ONS figures. It shows that our average real standard of living is now 30% lower than it was at the end of the eighties.
Back in July the Institute for Fiscal Studies (IFS) published a report entitled “Living standards, poverty and inequality in the UK: 2016” which nobody took much notice of. It concluded that “median income had risen to above the previous peak reached in 2009-10, and is 2.2% above the pre-recession level in 2007-08.” But just as the Autumn Statement was being delivered last month, they published another report (not that I have been able to find it on their website – it may just have been a quote from their director Paul Johnson, and other commentators have attributed it to the IMF or the Resolution Foundation – but let’s just take it as it was reported in the press and on Question Time on 24th November) saying “This has, for sure, been the worst decade for living standards certainly since the last war and probably since the 1920s”.
Clearly one of these two reports must be wrong. No prizes for guessing which! The latter report also referred to the period since 2008, thereby implying the cause as being the banking crisis. That is wrong too. As explained above the cause is globalisation and unbalanced free trade.
There is no need for austerity
Talking of the Autumn Statement, Philip Hammond is clearly just as terrified of the fiscal deficit as George Osborne was, and has embarked on a programme of austerity to match that of his predecessor. He did not put it that way of course. He quoted the Office for Budget Responsibility’s forecasts that the deficit would reduce to £17.2bn by 2021/2, from £68.2bn now, which would represent 0.7% GDP, which he trumpeted would be the lowest in two decades. But not only did he fail to spell out exactly how this would be achieved, he also noted that the OBR itself says the forecasts involve a high degree of uncertainty, and goes on to anticipate a falling rate of economic growth. There is only one way those figures can be made consistent with each other, and that is through massive austerity.
But you know, there is no need. Here is how we can avoid it while still balancing the books.
Local Issues
My colleagues keep telling me to write more on local issues. Of course I could give you a long list of Labour’s failings in Ealing, but that would not be in the Christmas spirit. A more serious point though is that there is only a very limited amount any party can do at the local level while austerity is being imposed from Westminster. So the best news for Ealing would be a UKIP government in Westminster.
Well I hope your definition of festive will extend to all of the above!
Wishing you a Happy Christmas and Prosperous Clean Brexit,
John Poynton
UKIP Ealing (a notch or two above Lower Slaughter!?)
UKIP Ealing Southall PPC.
ukipealing.com and jepoynton.com
John Poynton 