Wednesday, April 14, 2010

I'll Not Vote Brown's Labour

Remember Christopher Logue's poem "I shall vote Labour" (1966)? I remember reading his verses in The New Statesman at the time:

I shall vote Labour because
God votes Labour.
I shall vote Labour to protect
the sacred institution of The Family.
I shall vote Labour because
I am a dog.
I shall vote Labour because
upper-class hoorays annoy me in expensive restaurants.
I shall vote Labour because
I am on a diet.
I shall vote Labour because if I don't
somebody else will:
I shall vote Labour because if one person
does it
everybody will be wanting to do it.
I shall vote Labour because if I do not vote Labour
my balls will drop off.
I shall vote Labour because
there are too few cars on the road.
I shall vote Labour because I am
a hopeless drug addict.
I shall vote Labour because
I failed to be a dollar millionaire aged three.
I shall vote Labour because Labour will build
more maximum security prisons.
I shall vote Labour because I want to shop
in an all-weather precinct stretching from Yeovil to Glasgow.
I shall vote Labour because
the Queen's stamp collection is the best
in the world.
I shall vote Labour because
deep in my heart
I am a Conservative.

[ 'I Shall Vote Labour' from Selected Poems by Christopher Logue published by Faber & Faber.]

Contrast and compare with the following excerpt from Tony Wood's Editorial in the latest issue of The New Left Review, "Good riddance to New Labour":

"... is there any reason to find Labour preferable? Arguments for them as the lesser evil rest on a number of false assumptions.

First, the notion that there is any principled social or political basis for loyalty to Labour: whatever such attachments used to mean, the party’s own self-transformation in pursuit of power has emptied them of any real content, turning them into little more than sub-political badges of identity. There is no reason why voters should be any more sentimental about the Labour Party than it has been about them.

Second, the idea that rejection of New Labour necessarily means voting for the Tories: abstention, a spoilt ballot, or a vote for one of the minority parties denied representation by the British parliamentary system are perfectly honourable options. Within the present morass of British parliamentarism, any consistent left should not restrict itself to one enemy, but should rather engage in combating the entire putrid edifice, the better to carve out an exit from it.

Third, those who advocate yet another term for New Labour ignore the fact that, in a system where actual political differences are minimal, no government should be allowed to continue in power indefinitely, lest its corruption go unchecked. The notion that a spell in opposition might actually do a ruling party some good, though widespread in previous decades, is rarely voiced today—itself an indication of the system’s degeneration.

But surely the clinching argument against New Labour is one of simple democratic principle. Any government with a record as appalling as this one’s deserves to be punished at the polls, if accountability to the voting public is to have any meaning. The specifics of New Labour’s record—one murderous war after another; slavish devotion to finance; promotion of rampant inequality; repeated assaults on civil liberties; fragmentation and privatization of public services; outrageous corruption—make plain that they have fully merited being turfed out of office. Good riddance; this execrable government deserves to go."

I'll not vote Brown's Labour
because my balls would drop off
if I did and, above all, because
deep in my heart
I am a Socialist.

P.S. In fairness, I will vote Labour in my local elections, where clever and competent candidates committed to improving the life of their community innocently stand, unfairly handicapped by Gordo. They might have called for his demise before the elections, but nobody should be put in a position of having to be a hero.

Monday, April 12, 2010

Inflation: Up or Down?

On 12 February the IMF published a paper by Olivier Blanchard (the IMF Chief Economist from MIT), Giovanni Dell’Ariccia and Paolo Mauro, on “Rethinking Macroeconomic Policy.” The paper re-examines the traditional macroeconomic and financial policy framework in the wake of the recent devastating crisis. It reviews the main elements of the pre-crisis consensus about macroeconomic policy, evaluates what was wrong and what still holds of that consensus and makes a first attempt at re-drawing the contours of a new macroeconomic policy framework. It makes compulsory and compelling reading. Among other points the authors note how, traditionally, central banks have adopted low inflation rates of around 2 percent (like the ECB, just to name names); they argue that such a target should be raised. Interviewed by the IMF Survey Online, on this point Olivier Blanchard explains:

“The crisis has shown that interest rates can actually hit the zero level, and when this happens it is a severe constraint on monetary policy that ties your hands during times of trouble.

As a matter of logic, higher average inflation and thus higher average nominal interest rates before the crisis would have given more room for monetary policy to be eased during the crisis and would have resulted in less deterioration of fiscal positions. What we need to think about now is whether this could justify setting a higher inflation target in the future.”

Such an enlightened argument is not universally accepted. Frankfurt Rundschau reported that a Bundesbank internal paper, on the strength of this policy recommendation by Blanchard et al., launched a devastating attack on the IMF and referred to it as the Inflation Maximising Fund ( of 9 April).

The Wall Street Journal of 9 April reports:

Trichet: Some Euro Zone Countries May Need to Accept Deflation (by Brian Blackstone)

“European Central Bank President Jean-Claude Trichet says some countries in the euro zone might have to accept a period of deflation to restore long-term economic growth prospects.

Some countries, to regain competitiveness, will have to keep inflation below the EU average,” Mr. Trichet told the Italian paper Il Sole 24 in an interview published Friday.

Asked by the paper whether this means “even accepting a period of deflation, with all the possible social consequences this might have?” Mr. Trichet replied: “Yes.”

It is normal that some regions, after growing above the EMU average for some time, and after having accumulated high national inflation, experience a correction and therefore a period of negative inflation, as it is currently happening in Ireland,” Mr. Trichet said.

The ECB contends that it has avoided deflation for the euro zone as a whole, which is supported by recent data showing annual inflation in the region at about 1.5% in March, though that was probably pushed higher by energy and food prices.”

Let us rejoice that Monsieur Jean-Claude Trichet has not demanded that all the Euro-zone countries should have a rate of inflation lower than the average …

Sunday, April 4, 2010

Wage Indexation

Twentyfive years ago Ezio Tarantelli – a professor of Labour Economics in the University of Rome La Sapienza – was assassinated by the Red Brigades shortly after giving a lecture. A distinguished economist, he was a follower of Franco Modigliani with whom he had studied and taught at MIT, and an economic advisor to CISL (the Italian Confederation of Trade Unions). He was a strong supporter of an incomes policy negotiated within a Social Pact, not just for Italy but throughout Europe as a pre-condition of the single currency, which he also strongly supported long before it materialised. But his main interest was the advocacy of curtailing Italian wage indexation (the scala mobile) which he regarded as responsible for perpetuating and accelerating the wage-price spiral that follows any inflationary shock. He successfully advocated the adoption of a pre-determined inflation target, to be agreed among social partners and the government, in place of actual recorded inflation.

Ezio Tarantelli’s proposal for cooling inflation by indexing wages to a negotiated target instead of actual inflation faced two difficulties:

First, the alternative is never whether a given nominal wage level should or should not be indexed. For a given relative negotiating strength of Trades Unions and Employers' Unions, if wages are indexed there is less need to take into account subsequent expected inflation in wage-fixing. Indeed if indexation is full (i.e. of 100% of the nominal wage with unit elasticity of the wage with respect to prices and with a short enough lag) there is no need and no case for taking into account subsequent expected inflation at all. In times of rapid inflation, especially of accelerating inflation, wage indexation defuses inflationary expectations and allows the negotiation of a lower nominal wage than would have to be fixed if there was no protection from future inflation. This is precisely why, when wage indexation was first introduced in Italy in 1947, the President of Confindustria (the Confederation of Italian Industrialists) shipowner Angelo Costa actually greeted it as a major anti-inflationary measure. Wage indexation thus has an ambivalent impact: it prolongs an inflationary process but starting from a lower wage and price level than is achievable without indexation.

Second, nominal wages are not fixed forever but are normally re-negotiated periodically. Inflation-proofing through indexation, if triggered by a shock after negotiation, will exhaust its effects completely at the next wage settlement. The new nominal wage will be determined by the relative negotiating strength of employees and employers and other fundamentals prevailing at that later time, regardless of how much the nominal wage might have risen in the intervening period thanks to wage indexation. On average, with rounds of nominal wage negotiations taking place, say, at two-year intervals, the impact of wage indexation will last for only one year, for the new nominal wage will be fixed starting from scratch, from a tabula rasa. To be more precise, it will last for one year (half the period between negotiations) minus the lag between price and wage rises (say at least three months), since the last indexed wage rise during that year will coincide with and will be taken into account at the next round of wage re-negotiation.

In conclusion, wage indexation is neither a shield against inflation nor an inflation engine, it has a positive and a negative impact on inflation, respectively defusing inflationary expectations and prolonging the impact of a shock; but both effects - partially reduced though not eliminated by Tarantelli's proposal - are operational only for a very, very short time. In all, we are talking at best of nine months partial wage protection, though on balance the impact of wage indexation on inflation may actually be beneficial. (A paper of mine in Italian developing these points, Indicizzazione e scala mobile (1994), is available on my website).