Notes on IDS, Osborne and Labour

He’s gone. Jumped. Before he was pushed? Perhaps. Were there more reasons than he is letting on? Certainly. Of course this is partly about Europe; from now until June, everything that happens in the Conservative Party is. Still, resignations don’t just happen out of the blue, even if that may be the way we see them. Whatever reason he had for resigning, the language IDS employed in doing so was quite remarkable, and he made official a few open secrets along the way.

He could have said something like “I want to take a more active role in Leave and feel that the British people deserve a fully-focused cabinet minister” or some similar guff, but he didn’t. Instead, he labelled austerity as a political choice and went fully after the Cameron style of governance. Many people have been saying this for years, and one would be naive to think him 100% sincere, but this choice of language doesn’t come from a vacuum – it echoes what a lot of left-wing economists, and others, have been saying for a while. What effect this will have long-term it’s hard to say, but it certainly legitimises the position, I think. It’s hard to use the usual trick of painting someone as a “raving lefty” if a former Conservative Party leader and former minister of that government has been saying the same thing.

He confirmed George Osborne’s policy of going directly after non-Tory voters. This policy was never that much of a secret. When pensioners, the NHS and the education system were protected, but the working-age jobless and working poor were not protected, it was pretty clear what was happening. Spending that’s used by Tory voters is protected, spending for non-Tory voters is not. It has been the same story with council funding – protection for Tory councils, none for Labour councils. This, again, sounds a lot more convincing coming from an ex-colleague than it does coming from Labour party sources.

It clarifies also the suspicision that the government has been run on a largely ad-hoc basis, focused on the news cycle over the long-term effects of policy – taking a leaf out of the New Labour book. A continuation of the politics of cynicism that we became all too accustomed to – the politics of cynicism that virtually everyone in the country despises. Jeremy Corbyn’s election to Labour leader was in large part a refutation of this style of politics, though sadly most of his party seem not to have picked up on this. Once again, this type of criticism sounds a little “well you would say that” if a Labour source says it, but from an insider it’s much more damning.

Leftists should not be tricked into thinking that just because IDS was the frontman for some ghastly cuts, he was fully in favour of all of them. At the end of the New Labour era, there was a significant group of benefit recipients for whom work would not pay – a moderate amount of work on a low wage would disqualify people from a large number of benefits, leaving them worse off overall. Having the structure of the benefits system actually discourage some people from work clearly suits nobody.

The move to universal credit could have smoothed this out, with a seamless transition from out-of-work to in-work benefits that meant nobody was made worse off by work. The problem for IDS has been that Osborne saw benefits as a pool of money into which he could dip every time the numbers didn’t add up. His budgets were tightly controlled surprises so that he could get the most political coverage from them with the least scrutiny – a bit like an Apple product launch. What could have been a productive reworking was transformed into a cack-handed attempt to cut benefits without anyone noticing.

Just because IDS is a Conservative doesn’t mean he can’t be appalled at a style of governance that is so nakedly partisan and news-cycle focused. Yes, IDS has selfish reasons for resigning. He probably wouldn’t have lasted long after the referendum. He might just be being petty. One could ask why was the straw that broke the camel’s back – if he cared about welfare recipients, why not have done this before? He may have felt that he could do more from within than outside. He may have relied on the Lib Dems to shield him from the Osborne axe. Only he truly knows.

Still, his resignation is big news. For the first time since the financial crisis, it looks like Labour have had some success framing the economic narrative. That IDS chose to mirror it so closely is significant – he would not have chosen those words if he didn’t think they were either good for him or bad for Osborne. A majority of twelve now looks like basically nothing, and in other news, Labour lead a poll for the first time during Corbyn’s leadership.

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My unfounded theory on Martin Shkreli

Everyone’s favourite price-gouging, Wu Tang-baiting pharma bro is back in the news. Martin Shkreli is an odd figure. Brazen, but with a hint of desperation that suggests that his characteristic self-confidence might not be all there is to him. This week, he was called to testify before Congress, and remained uncharacteristically silent.

Why, though, was he called to testify before Congress? Hasn’t he just been plying the game, like all the rest of Wall Street? Well no, not really, he’s only been playing half the game. Shkreli is undoubtedly new money – the child of immigrants who worked as janitors. He is brazen, and doesn’t try to hide what he’s doing. That, really, is what he’s been called to testify for (he’s also under investigation for securities fraud, but that is a separate matter).

He’s been called to testify because if all of the wealthy were as brutally, publicly honest and unapologetic as him, people would fairly soon get pretty angry. He’s simply not doing it right. People as rich as Shkreli are supposed to gush about how much they contribute to society, to wear nice clothes and patronisingly explain that it simply has to be this way. They aren’t meant to openly admit that they are getting filthy rich off the backs of others.

What Shkreli did – buy up a life-saving drug and raise its price – is not exactly uncommon. He works in a multi-billion pound pharmaceutical industry devoted to doing pretty much exactly the same thing as he’s done – acquire some monopoly power and sell it for as much as you can. In reality, this quest for monopoly power underpins much of capitalism.

The intersection of the pharmaceutical and finance industries just happens to be about as blatant, direct and transparent as this process gets. Patents – the granting of a temporary legal monopoly – can be resold and then exploited as by Shkreli. This is pretty offensive, yes, but functionally very similar to practices in many, many industries, from fashion, to food, to carmaking. Every company wants monopoly power, and many spend a great deal trying to get it.

What are the chances that the most motor-mouthed of hedge fund CEOs happened to also be the worst, and most deserving of a congressional investigation? Fairly low, especially when you consider that basically nothing happened over the financial crisis. His brashness threatens to undermine the legitimacy of the system. Shkreli isn’t being investigated for his crimes against the American people, he’s being investigated for crimes against his fellow financiers – many of whom will have donated generously to those investigating him.

 

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Silly cartoon on government economic policy

Asset bubble

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January 20, 2016 · 1:23 am

Sanders and Clinton

The other day, I thought I’d check out how Hillary Clinton and Bernie Sanders compared when Americans were asked to choose between them and a prospective Republican candidate. The results surprised me – in a head-to-head against any one of Trump, Cruz, Rubio or Bush 3.0, Sanders out-performs Clinton.

According to Real Clear Politics, a right-wing news site that, among other things, averages American polls, Hillary would beat Trump or Bush, while losing to Cruz or Rubio. Against Trump and Bush, Sanders scores bigger victories, albeit marginally in the case of Bush. A defeat for Clinton against Cruz is turned into a healthy Sanders victory, while a comfortable victory for Rubio against Clinton is turned into a very narrow one against Sanders.

HCvBS

As I said earlier, this is pretty much the opposite of what I’d expected, though perhaps a few caveats are in order. These polls aren’t being conducted that often, and tend to vary wildly. The Republicans have also been attacking Hillary for going on a decade now, while they haven’t felt the need to go after Sanders. If they did, perhaps those numbers would change.

 

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Are we headed for another subprime crisis?

Before we started pretending that government deficit caused the global financial crisis, it was widely recognised that it was caused by irresponsible bank lending. Rocketing house prices fuelled a lending bubble that was, in effect, little more than a legitimised Ponzi scheme. Banks could afford to lend to people who couldn’t really afford mortgages, because the rapidly increasing price of the house was enough to cover their losses in the event that the borrower couldn’t repay. Everyone needs shelter, and so for as long as prices went up, and banks could attract new customers, the gravy train could go on.

Like any Ponzi scheme, however, it all came down eventually. While economists and traders had been egging each other on, convincing themselves that sub-prime mortgages were safe as (excuse the pun) houses, the system quietly mounted in size. Banks plunged themselves further into debt to be able to lend even more money for buying houses, blind to the possibility of failure. A little wobble in the US housing market suddenly turned everything sour, as the entire financial sector suddenly remembered that prices could go down as well as up.

The rest is history, though that history has since been revised. As house prices plunged, and the government felt compelled to rescue the financial sector, economic uncertainty (as well as a healthy dose of reality) depressed demand, shrinking the economy. Since then, we’ve gone through some largely unnecessary cuts to a depressingly partisan range of government services. The economy has “rebounded” largely on the back of free-flowing credit from the once-again-booming London housing market.

There have been several recent changes to housing in the UK. Two in particular almost seem designed to repeat the mistakes of 2007-08. The first is the extension of right-to-buy, the second is the ending of secure tenancies. Together, these funnel people into home ownership, whether they can afford it or not. As secure tenancies end and the private housing market continues to hurtle away from reality at startling pace, council tenants are confronted with a choice: scrape together the cash to buy the place, or submit to the insecure, overpriced world of private renting.

This is incredibly expensive, given that public money is subsidising each purchase, and doesn’t benefit those most in need of support with housing. Tellingly, however, it does benefit mortgage lenders. Lots of nice, insecure borrowers who can be charged high rates of interest and then have their more-valuable home sold on in the case that they do default. Lots of low-income borrowers funnelled towards home ownership during a period of booming house prices; something sounds familiar.

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The Perez paradox

Rafa out, Zidane in. It seems strange that Benitez was allowed to limp on for a few weeks after the mauling at the hands of Barcelona. Perhaps he was meant to get the sack immediately, but Zizou wasn’t quite ready to take the reins. He probably still isn’t; it’s easy to point to Pep as evidence that a club legend managing the B can come through, with little experience, and achieve success. It’s probably a bad comparison, though. Pep is a remarkable individual, a supremely talented manager who should be considered an extreme case, not the norm.

Perhaps – as former Real President Ramon Calderon insists – Florentino Perez had tried to appoint others, but nobody particularly wanted to sip from his poisoned chalice. After Perez’s ill treatment of the popular and talented Ancelotti, sacking him a year on from a Champion’s League win for essentially no reason beyond “we’re Real”, it’s clear that no manager will have any notion of job security.

On top of that, they clearly don’t have much control over the transfer kitty and it seems that Perez leans heavily on the managers in terms of team selection. In short, a manager faces this situation: they have 12 months from starting to win the Champion’s League, and must do so with a fundamentally unbalanced squad while also favouring Perez’s vanity signings when it comes to team selection and then follow that up with a La Liga or CL title the next year too.

Additionally, in order to control the rampant egos of Madrid – looking at you Ronaldo – and pacify the unrelentingly demanding fans, they have to be a big enough name to command respect. In short, this sets up what I call the Perez paradox: any manager talented enough to succeed in this situation will be clever enough to avoid it like the plague.

Pelligrini, the first manager of Perez’s current tenure, put it this way: “I didn’t have a voice or a vote at Madrid. They sign the best players, but not the best players needed in a certain position. It’s no good having an orchestra with the 10 best guitarists if I don’t have a pianist. Real Madrid have the best guitarists, but if I ask them to play the piano they won’t be able to do it so well. He [Pérez] sold players that I considered important. We didn’t win the Champions League because we didn’t have a squad properly structured to be able to win it.” Pretty damning.

With a situation like that in place, it’s not hard to see why the best managers aren’t available to such a huge club. With the best managers off the table, Rafa Benitez stepped into the breach. On paper, he has an excellent CV, but the two stellar achievements – his duopoly-breaking Valencia and CL-winning Liverpool – were over a decade ago. It’s hard to imagine that Madrid faced off fierce competition from Europe’s top sides for his signature. With no recent success, Benitez lacked authority and with his aloof style he couldn’t inspire loyalty. Combine that with the Perez straitjacket of an unbalanced squad, and the failure was predictable.

Now we come to the Zidane appointment, and with the Perez paradox in mind, the appointment makes more sense. After the 0-4 rout, Perez called around. Mourinho picked up, and shouted something about referees, physios and the end of days. Pellegrini rejected his call three times. Ancelotti picked up and told him a polite “no”, Pep picked up and just laughed. No manager “big enough” for Madrid considered this job a career step-up, and Perez was increasingly desperate.

In steps Zizou – a unique solution to the Perez paradox. He has no managerial career that can be wrecked by a disastrous spell with Madrid, yet his obvious ability as a player and footballing intelligence will ensure that the players at least listen to him. He’s familiar with the squad already, and the fans love him enough that they won’t mind him getting the job. The appointment could turn out with Guardiola-like results, but it doesn’t need that to be considered a success. Right now, Madrid need some discipline and stability. Zidane – the legend more than the man – might just be the one to bring it.

In the long term, however, this is not a viable solution to the Perez paradox. Unless Zidane can start a dynasty, the same problem will occur, but this time there won’t be a club legend waiting in the wings to pick up the pieces. Even if Zidane does remarkably well, a dynasty would be hard to set up – eventually Florentino will grow angry at Zidane’s refusal to reply to his daily email extolling the benefits of the 2-0-8 formation, and sack him. In the long term, getting rid of Perez is the only Real option.

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The Beginning of the End for Galacticos 2.0?

Madrid 0 – 4 Barcelona

After Madrid’s humiliating 0-4 defeat at home to Barcelona, Benitez has been given the “full support” of Madrid president Florentino Perez – never a good sign for a football manager. Even without Messi, Barcelona had already beaten Madrid comfortably with Suarez and Neymar running riot, and Andres Iniesta majestic behind them.

Benitez opted for surprise with his formation – an attacking line-up featuring Modric and Kroos as the deep-lying midfielders, with an attacking diamond ahead of them consisting of James Rodriguez, Gareth Bale, Cristiano Ronaldo and Karim Benzema. Even his own players were surprised, allegedly learning of the line-up just hours before kick-off. Casemiro, a young defensive midfielder who might have expected to start his first Clasico, was forced to look on from the bench.

After each goal, the cameras cut to an increasingly distraught Ronaldo, as Barcelona’s attackers overran an unbalanced Madrid team time and time again. It’s difficult to escape the conclusion that those 6 players are simply not meant to play together, that the need to incorporate the president’s star signings is perhaps eclipsing the need to put out a balanced, competitive side. As the match drew to its conclusion, Madrid’s fans called for the president to go.

Makelele and the Galacticos

Galacticos 1.0 had Claude Makelele for that balance. With Roberto Carlos bombing down the wing past him and a truly disgusting amount of attacking talent ahead of him in Zidane, Figo, Raul, Ronaldo and Morientes, Makelele was the glue that held the giant, gold-plated behemoth together. That behemoth was the brainchild of Perez.

He arrived in 2000 and for 4 years in a row, Madrid had made headlines with blockbuster transfers. Madrid bought Figo in 2000 for a then-world record £42 million, Zidane in 2001 for £51 million, Ronaldo in 2002 for £32 million and Beckham in 2003 for £26 million. In the 3 years in which Madrid bought Zidane, Ronaldo and Beckham, they did not sign a single other player.

2003 was the summer that bought the team to a grinding halt. Fernando Hierro – one of the finest centre backs of his generation – was entering his twilight years and left at the end of his contract. Makelele was sold to new kids on the block Chelsea after a contract dispute with Perez. A supremely intelligent player, Makelele didn’t possess glittering technique, strength or athleticism.

His game relied quietly being right in the space opposition players wanted to run into, making sure the centre backs don’t get dragged out of position, covering attacking full backs, making interceptions and playing simple balls out. Perez wouldn’t budge, and Makelele went on to help Chelsea win back-to-back titles during Mourinho’s first spell at the club.

Deja vu

Fast forward 12 years, from 2003 to 2015, and not much has changed for Madrid. They are several years into a Perez presidency, who left in 2006 only to return in 2009 to implement his vision once more. They have the world’s two most expensive players in their squad. They have a wealth of other attacking talents which they struggle to fit into a cohesive team.

In 2003 Luis Figo played centrally to accommodate Beckham, this time around they have simply forgone a defensive midfielder to accommodate James. They lack a proven defensive midfielder, yet lost one the summer before over a pay dispute, after failing to agree terms with Khedira as they did Makelele. In Casemiro, also, they have a promising talent in that position, just as they did with a young Esteban Cambiasso in 2003, who left on a free just a year later.

That defensive midfield position is essential to the modern game. Without the cover of a defensive player, the attacking talents of the fullbacks are suppressed, as they can’t roam forward at will. For Madrid, Marcelo, possibly the best attacking left back in the world over the last few years, and Danilo, this year’s blockbuster signing, are shackled. The lack of a true defensive midfield player forces both central players – Kroos and Modric – back a bit to cover.

Against weaker opposition this is a strength – Madrid expect to be called upon to break down an opponent, meaning that having two high-calibre distributors in the centre helps them. The sheer quality of Madrid’s attack overwhelms defences, with the fullbacks sucked into the game by deep defending, allowing them to show their talents. Against world class opposition, it is no strength at all. Required to defend much more, not only do their defensive limitations show, but their attacking talents are wasted.

Most importantly, having both central midfielders and both fullbacks pinned back creates a huge gulf of space between them and the attacking quartet, making it extremely difficult to move the ball up the field efficiently. When Madrid are barely defending and teams are sitting back, the problem of bringing the ball out of defence is reduced – they don’t have to do it so much, and teams essentially let them bring it up to the halfway line. Against high pressing teams like Barcelona, the defence is forced backwards, creating an even bigger gap between the attacking quartet and the rest.

The contrast with Barcelona could not be starker. For years, Sergio Busquets has quietly filled that defensive midfield role, giving the attacking talent around him the freedom to shine. Ahead of him, Rakitic and Iniesta have the freedom to move forward at will, and beside him Alba and Alves do the same. Those 4 players are then free to unleash possibly the best frontline ever seen, but without Busquets, none of it could happen.

Benitez and the future

That Rafa’s team is struggling shouldn’t really be a surprise – he hardly has a 5-star CV. The one standout achievement – that Champion’s League win – came with a team largely built by another manager, and relied on many a moment of magic from Gerrard, while Liverpool were generally disappointing in the league under Benitez, never truly threatening the title race. Gerrard’s penchant for the spectacular could win a cup tie, but over 38 games he needed more help.

Benitez went on to have forgettable time at Inter; a few months after taking over a treble winning side, he demanded money for transfers and in response was dismissed before he even reached his first window. Then there was a caretaker gig at Chelsea, where he lead them to an unspectacular but solid 3rd place, followed by a fairly ordinary 2 years at Napoli, where he failed to mount a title challenge despite a strong squad featuring the likes of Higuain and Hamsik, the club captain and talisman who was woefully mismanaged by the Spaniard.

His appointment was certainly not ambitious – he is neither an exciting young coach nor one with a stellar track record a la Louis van Gaal. It seems more as though Benitez has been picked as a safe pair of hands to implement the will of the president, than as a coach valued for his own ideas, while Perez waits for the man he really wants. It all leaves Benitez looking a bit like a supply teacher, unable to control pupils who know they aren’t going to have to deal with him next week.

This is why the protests are against Perez, more than Benitez. Perez was the man who fired Ancelotti, the manager who had delivered a Champion’s League win not 12 months earlier. Perez is perceived to be the one who wants to crowbar all manner of attacking riches into a single line-up, and the one who hired a coach who would perhaps let him do that. As dissatisfaction builds, all that can reduce it now is results – and they don’t look like coming. Could this be the end for Galacticos 2.0?

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