Ben Bernanke is caged like a hamster

...while the Japanese roam free.

The mice are taunting Clementine, our hamster. Clementine spends her whole life gripping the bars of her cage and peering out whilst waiting for the brief time she is allowed to run around in her plastic ball each day. Our free-roaming mouse invaders have taken to standing on the edge of her cage flicking two claws at her and generally behaving like they are in Newcastle on a Friday night. Their relative positions of freedom just increase Clementine’s anguish.

It’s the sort of relationship that reminds me of the caged Ben Bernanke, chair of the US Federal Reserve and the free-roaming Bank of Japan’s Haruhiko Kuroda. America has spent the last 4 years pursuing a policy of quantitative easing, essentially a support programme that involves pumping money into the economy and which has resulted in growth this year of around 2 per cent. The Japanese, by contrast, announced a QE policy in December and have already produced annualized growth of 4 per cent. The US must feel like Clementine does – mocked and helpless; 2 per cent growth seems a meagre reward given the trouble it has caused.

At a recent grilling on Capitol Hill, Bernanke was asked whether the Fed’s quantitative easing program at $3trn had gone too far. He retorted, in words to this effect, “If you think that’s big, take a look at the Japanese…” What Bernanke is talking about is that although the scale of the Japanese target, ¥270trn or $2.6trn in today’s money, is close to the Fed in absolute terms, if you put it into the context of the relative sizes of the two economies, it is truly colossal. To match the Japanese, the Americans would have to put an astonishing $7trn into the US system, which is close to 50 per cent of US nominal GDP.  It’s enough to make you spit your sushi out.

But for America the real question is about the quality of their recovery and what the next downturn looks like. America needs jobs but not any old jobs; they need to be permanent. The measure of unemployment that includes part-time workers shows that over 13 per cent of the US is under-employed because of part-time working. Compare that to unemployment and the measure of part-time work is about 7 per cent of the working population. At the same time the bonus culture that first showed up in the 1970’s is so deeply entrenched that, to this day, about 20per cent of American’s total take home pay is variable whilst the proportion that workers are taking home of company profits has dropped to below 50 per cent. Back in the late-1920’s this was 68 per cent. No wonder Jay Gatsby threw a party.

If you take these factors together then what you find is that the combination of variable pay and uncertain employment means that US growth could be subject to vicious variability. Given that about 65 per cent of the GDP in the US is consumer spending you understand that at the heart of the US economy there is now a level of uncertainty never seen before. Effectively America needs a permanent pay rise and the transfer of profits from owners to workers. But neither of these things is going to happen whilst global competition makes the west look generous on pay and people who place their capital at risk need to be rewarded. So making policy in an economy with an unstable beating heart will remain is a high-risk game.

Head of Fixed Income and Macro, Old Mutual Global Investors

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Richmond is a wake-up call for Labour's Brexit strategy

No one made Labour stand in Richmond Park. 

Oh, Labour Party. There was a way through.

No one made you stand in Richmond Park. You could have "struck a blow against the government", you could have shared the Lib Dem success. Instead, you lost both your dignity and your deposit. And to cap it all (Christian Wolmar, take a bow) you self-nominated for a Nobel Prize for Mansplaining.

It’s like the party strategist is locked in the bowels of HQ, endlessly looping in reverse Olivia Newton John’s "Making a Good Thing Better".

And no one can think that today marks the end of the party’s problems on Brexit.

But the thing is: there’s no need to Labour on. You can fix it.

Set the government some tests. Table some amendments: “The government shall negotiate having regard to…”

  • What would be good for our economy (boost investment, trade and jobs).
  • What would enhance fairness (help individuals and communities who have missed out over the last decades).
  • What would deliver sovereignty (magnify our democratic control over our destiny).
  • What would improve finances (what Brexit makes us better off, individually and collectively). 

And say that, if the government does not meet those tests, the Labour party will not support the Article 50 deal. You’ll take some pain today – but no matter, the general election is not for years. And if the tests are well crafted they will be easy to defend.

Then wait for the negotiations to conclude. If in 2019, Boris Johnson returns bearing cake for all, if the tests are achieved, Labour will, and rightly, support the government’s Brexit deal. There will be no second referendum. And MPs in Leave voting constituencies will bear no Brexit penalty at the polls.

But if he returns with thin gruel? If the economy has tanked, if inflation is rising and living standards have slumped, and the deficit has ballooned – what then? The only winners will be door manufacturers. Across the country they will be hard at work replacing those kicked down at constituency offices by voters demanding a fix. Labour will be joined in rejecting the deal from all across the floor: Labour will have shown the way.

Because the party reads the electorate today as wanting Brexit, it concludes it must deliver it. But, even for those who think a politician’s job is to channel the electorate, this thinking discloses an error in logic. The task is not to read the political dynamic of today. It is to position itself for the dynamic when it matters - at the next general election

And by setting some economic tests for a good Brexit, Labour can buy an option on that for free.

An earlier version of this argument appeared on Jolyon Maugham's blog Waiting For Tax.

Jolyon Maugham is a barrister who advised Ed Miliband on tax policy. He blogs at Waiting for Tax, and writes for the NS on tax and legal issues.