Some recent items of interest

August 4, 2017

Anthony Barnet has published a brief extract from his forthcoming book “The Lure of Greatness: England’s Brexit and America’s Trump”. Its entitled “I’m Not English. Oh, yes you are!” and is a critical reply to an article by Paul Mason entitled “As an English person, I would like to declare up front: I do not want to be English”. Barnet is wrestling with the central issue for the Left and for Labour – the question of what is England.

“Today, it is remains excruciatingly painful for many on the left who are the inheritors of the workers’ movement to abandon their special something-or-other for, well, for Englishness. Instead, in the Labour party, Britishness has been embraced with even greater resilience than on the Tory right. But Scottish nationalism has not just become an indelible part of the UK. Its political expression, the SNP, has expelled Labour from its Scottish redoubts. While Scottish Toryism was an addition to the English Tories, the Labour party was co-created by Scottish and Welsh leaders alongside English ones. From the start, ‘Labourism’ was always British; just as the island’s working class was formed by Clydeside and the Welsh valleys as much as the Black Country and the London docks. The profound grip of this experience means that even after the end of New Labour, when the SNP has clearly displaced the party in Scotland, Labour leaders such as Ed Miliband and Jeremy Corbyn – both Londoners – found the idea of Labour becoming an English party unimaginable. A visceral shudder went through them and their supporters at the thought. To become what they clearly and obviously are remains intolerable.

There are political reasons for Labour’s resistance to recognising itself as an English party. It points towards abandoning an absolute commitment to governing alone, which is built into winner-takes-all Westminster politics. Labour is very tribal and party members hate the idea of electoral alliances. There is also a cultural imaginary getting in the way. A good look in the mirror without their British make-up would tell them they are English. But they fear the perception that they will be seen as narrow, Farage-like, bigoted and altogether dreadful – “bogus” is Mason’s word – and go to the most extraordinary contortions to deny it, one being a direct leap into internationalism.”


Unpicking the surprising election result continues. “The Brexit election? The 2017 General Election in ten charts” contains lots of newly released data from the British Election Study (BES) which shows that, in the minds of voters, the 2017 election was the ‘Brexit election’ despite its absence on the campaign trail. The Tories were seen as a party of Brexit but so was the Labour Party.


Germany is running a vast trade surplus, the largest in the world, and in the process continues to be the most destabilising force in the economy of the EU and a major contributor to global imbalances. As explained here and here, in order for any nation to generate a trade surplus internal domestic consumption has to be suppressed (otherwise there would be no surplus to export). The suppression of domestic demand in Germany takes the form of suppressed wages and, perhaps more surprisingly, suppressed investment. A recent article in the FT entitled “Cracks appear in Germany’s cash-starved infrastructure” explores the decline of domestic German investment, driven by a policy obsession with preventing public deficits, and the dire impact it is having on the state of German infrastructure. German reflation, via increased wages, increased investment, deficit spending and a rise of inflation, are all key to reviving the European economy but are politically unacceptable inside Germany and thus are unlikely to happen any time soon.


In a previous article entitled “Too big to bail – how the banks crashed the eurozone” I explained the ‘doom loop’ created by the single currency that connects sovereign bonds in the Eurozone to public debt. The doom loop has been dormant recently but could (and probably will) return, and the most likely focus of a future eurozone crisis is Italy where nearly two decades of zero growth has left its banking system perilously weak. A pending Basel III reform package will eliminate the equity capital privilege for EU government bonds and in the process threatens to weaken Italian banks even further. This is explored in a recent Wolf Street article entitled “Fears of “Doom Loop” in Italy Resurface”.

Norman Ellis August 4, 2017

Hi Tony, in the article on the German surplus you say a surplus has to rely on the suppression of domestic consumption. Having read the linked articles, I am still not sure why an economy cannot do both and grow to meet domestic demand and exports assuming it’s products are in demand. Am I missing something obvious?

Tony August 4, 2017

Its all about how the global economy and trade balances and what is, and what is not, a responsible way to manage national trade.

Lets say, as a super simplified example, Germany makes 100 euros worth of goods a year. Its citizens consume 70 euros a year. That means it makes a surplus (or in a more mainstream way of saying it ‘has savings’) of 30 euros a year. Those savings can be spent on investment (both public and private). If the Germany’s economy was balanced like that then there would be nothing left over to export. Germany could still remain in balance and import say 10 euros worth of foreign made goods a year, which means 10 euros worth of its goods would be unsold domestically and therefore 10 euros worth could be exported. But Germany is not in balance, it is wildy out of balance and is running a significant surplus of exports over imports year after year (the real Germany’s surplus is about 8% of GDP at the moment) which means that by definition it is making more goods than it is consuming internally. In which case by definition either its citizens incomes or its investment (or a combination of both) are too low to buy all the goods it makes.

Of course its perfectly possible in a growing economy to run a trade surplus and still allow domestic wages to rise but the existence of a large semi permanent surplus like the one Germany has indicates that its internal demand is lower than its ability to produce wealth. It means Germany has the room to increase both domestic investment rates and domestic wage rates. The really important thing to remember is that all surpluses are matched somewhere by equal deficits. So by running a large permanent surplus, and thus importing demand from other economies, Germany is exporting unemployment.

Trade balances slip into out of surplus and deficit all the time but if large economies choose, through their internal policy preferences, to run a large long term surplus they are destabilising global trade and creating unemployment and lower economic activity somewhere else.

The German position is that they are just being prudent and efficient and that all the other economies should emulate them and develop ‘healthy’ trade surpluses. But if every country on earth ran a trade surplus where would it go? Mars?

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