Talk given by David Steven at Gresham College on risk and resilience in the UK housing market, as part of a Long Finance Roundtable meeting (March 2010)

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Among the many, many gems in Andrew Rawnsley’s gripping new book on Labour’s last two terms of office, students of resilience will especially enjoy his account of how the British government actually worked during 9/11. It emerges that:

- Tony Blair’s hurried journey back to London from Brighton, where he had been due to deliver a speech to the Trades Union Congress, was made not by helicopter or a 90 mph motorcade with armed escort - but by train. Blair’s Special Branch protection officers “created a makeshift area for the Prime Minister and his aides by sealing off part of a carriage with police ‘scene of crime’ tape”.

- Sir Richard Wilson, the Cabinet Secretary, found out about the attacks not through being alerted by Number 10 or the intelligence services, but from his driver on his way back from lunch – and then in more detail from the car radio.

- Jeremy Heywood, Blair’s Principal Private Secretary at Number 10, then rang Wilson to say: “We’ve been told that the White House is evacuating. Should we be evacuating?” Wilson’s reply: “If you evacuate, where would you evacuate to? I think it is a good rule not to evacuate unless you have an idea where you are going to evacuate to.”

- David Blunkett, then Home Secretary, learned about the attack not from MI5 or the Home Office, but from one of his sons, who rang to tell him what he’d just seen on the news.

- Although the Cabinet Office’s Civil Contingencies Secretariat had been created to deal with national emergencies after the fuel protests a year earlier, all its staff were away at a team-building session in Yorkshire.

- The entire staff of the Cabinet Office Overseas and Defence Secretariat was en route to a meeting in Herefordshire – and had taken all the keys to their offices with them.

- And to top it all, the Cabinet Office telephone system – which had been installed the previous week – then crashed altogether.

Rawnsley’s conclusion: “Had terrorists or a foreign power planned an attack on Britain, there would rarely have been a better time to strike than on 9/11.”

I’m rather fond of David Miliband’s blogging and twittering. But his initial tweet in response to the news of Michael Foot’s death hit the wrong note:

Michael Foot led a remarkable life. I remember meeting him on the Tube in the 80s; for a famous speaker he really listened.

Erm… This is doubtless an unfortunate mash-up of well-intentioned thoughts.  The Foreign Secretary’s next tweet – about Foot’s hatred for apartheid – was back on the mark.   But it’s always a good idea not to insert oneself into tributes to others…

Yesterday, I was at the wonderful Gresham College for a seminar on housing – I posted some highlights earlier. But here’s a lightly edited version of my talk.

It explores the risks posed by the UK’s partially deflated housing bubble and sets out some radical options for reform (elucidated in more detail in the Long Finance paper from the talk is drawn).

And for those of you don’t know Gresham, I recommend Michael Mainelli’s brief history…

Sir Thomas Gresham (1519 to 1579) traded cloth and linens between England and the Low Countries at a time when Cambridge and Oxford had a duopolistic hold on higher education in England. A Cambridge man himself (Caius College), if Gresham’s skippers had visited an Oxbridge College they would, at best, have had the door of a college opened to them and then been laughed at in Latin for their ignorance.

If you’re going to backstab some one properly, do it from the front. Sir Thomas died of apoplexy in 1579 bequeathing one moiety of the Royal Exchange to the Corporation of London and the other moiety to the Mercers’ Company, charging them with the nomination of seven Professors to lecture in Astronomy, Divinity, Geometry, Law, Music, Physic and Rhetoric. He required the lectures to be in Latin and, horror horribilis, English. In effect, Sir Thomas, who pursued monopolies himself, used his will of 1575 anti-monopolistically to crack the Oxbridge oligopoly by bribing seven professors to give lectures to the public, in English.

Gresham College is about ‘new learning’. Sir Thomas felt strongly that the ‘new learning’ should be available to those who worked – merchants, tradesmen and ships’ navigators – rather than solely gentlemen scholars. In the 17th century, the Royal Society was founded to explore “natural philosophy”, new learning through experimentation. So, it is no surprise that the Royal Society was founded and housed at Gresham College for half a century (1660 to 1710) and numbered among its associates Gresham Professors Petty, Boyle and Evelyn.

Just how did this ridiculous competition between right and left to pose as a victim become so tediously commonplace?

Take this pathetic drivel from Iain Martin, the Deputy Editor of the Wall Street Journal Europe, headlined Will the Left Be Generous on Passing of Thatcher?

Rightly it’s heartfelt tributes all round to Michael Foot. He was, as Michael Gove remarked on the Daily Politics, a great British patriot…

But it does make one wonder whether the left will be generous with its tributes to Margaret Thatcher when, as it must eventually, that sad day comes? You only need to ask the question to know the answer.

For a start – ‘passing’ is what you do with wind. People die. And who cares if some people are nasty about Maggie when she dies? She was the Iron Lady, not some porcelain idol. Her record – for good or ill – will speak for itself.

I gave a talk at Gresham College yesterday, drawing on my paper for the Long Finance Foundation on risk and resilience in the UK housing market.

Also on the panel was Channel 4′s Economics correspondent, Faisal Islam. He had a couple of great quotes. This from Gordon Brown’s first budget speech in 1997 (click through to admire the retro styling of the last 1990s Treasury website):

For most people the acquisition of a house is the biggest single investment they will make. Homeowners rightly expect their investment to be protected by sensible policies pursued by Government.

I am determined that as a country we never return to the instability, speculation, and negative equity that characterised the housing market in the 1980s and 1990s. Volatility is damaging both to the housing market and to the economy as a whole.

So stability will be central to our policy to help homeowners. And we must be prepared to take the action necessary to secure it. I will not allow house prices to get out of control and put at risk the sustainability of the recovery.

When Brown spoke, the average house cost £75k  - about £10k above the early 1990s nadir. A long long boom was just beginning. Prices would peak in February 2008 at an average of… £232k!!!

In other words, Brown promised not to let house prices spiral out of control and then allowed them to treble, during a period when household disposable income increased by only 30% or so.

The second quote is a more recent one – from Mervyn King, the Governor of the Bank of England. Last month, Faisal asked King whether the current re-inflation of the housing bubble was sustainable. Prices are currently only around 7% below their peak and seem overvalued by every measure.  Only cheap money – pumped into the markets by the government – and very low interest rates is keeping the market afloat.

Isn’t the market going to deflate very rapidly once government funding is withdrawn? King’s response:

No one can forecast asset prices, so I don’t think you can predict that asset prices will fall back. I don’t see why that should in and of itself lead to a change in asset prices, because we all know this problem is there and that’s already reflected in to current asset prices.

As Faisal points out, this shows confidence in the efficient market hypothesis that is breathtaking given a global financial crisis that was driven by an asset price bubble. In King’s fantasy world, buyers know that there will be much less credit available in the future – so this concern is already included in current market prices.

King’s insouciance – and Brown’s negligence – both beggar belief.

We at GD like to fret about examples of badly joined-up global governance wherever we can find them.  Climate change, security, trade… and now religion.  The latest English-language edition of Internationale Politik (which happens to contain a small rant by GD’s Korski and Gowan on crisis management) includes an enjoyable piece about how the Pope isn’t using his global leverage.  But at least, author Otto Kallscheuer points out, the pontiff formerly known as Ratzinger has global reach…

Even in today’s modern age, there is a strong argument to be made for the Holy See’s active presence in the international arena. Now that the power of the papacy has long since been reduced to a “minuscule and, as it were, symbolic temporal sovereignty,” as Pope Paul VI put it in 1965, the power politics in which earlier popes actively participated for centuries have been replaced by the papacy playing a metapolitical role. Such a presence in the emerging international public sphere could contribute to mediating religious conflicts—not only because the Vatican, in contrast to nation states, is an institution well suited to deal with the demands of globalization, but also because it possesses professional routines and knowledgeable actors trained in normative politics.

One question that must first be answered is whether there are international institutions of transnational “religious policy” other than the Catholic Church. In fact, there is nothing of the sort, in Christianity or in any other world religion. In the 1970s and 1980s, at the high point of the anti-apartheid struggle in South Africa and the peace movement in Western Europe, the Protestant World Council of Churches was able to raise hopes around the world of a “Christian” means of overcoming conflicts. But even in these years, no theological understanding emerged between the Christian West and East—between more liberal Protestantism and the traditional spirituality of Greek, Russian, and Serbian Orthodoxy. In the face of the explosive worldwide growth of Pentecostalism outside the historical established churches, the Ecumenical Council remains rather powerless, outside of the mainline historical churches or denomination.

And outside of Christianity? Is the Dalai Lama a sort of “pope for Buddhists?” As doubtful as an analogy between the many forms of Buddhism and the Christian churches may be, the combined political and religious role of the Tibetan leader creates a parallel to the 19th century Catholic political crisis, when the pope was simultaneously the sovereign of the papal state in middle-Italy and the spiritual head of a world religion. So far, however, the fourteenth Dalai Lama has not clearly decoupled the spiritual authority of the reborn Buddha from his political role as the exiled leader of a nation and culture fighting for autonomy. Should this separation of religious authority and civil power actually occur, the Dalai Lama or his successor in exile could perhaps become the apostle of a global Buddhism.

No institution comparable to the papacy—a universal monarchy with purely spiritual authority but indirect political power—is found in the Islamic world, aside from the Ismailite Shia, an extreme minority of the “party of Ali,” whose world leader is the Aga Khan. The message of Islam, like the Gospel, is geared universally toward expansion, mission, and globalization. But a billion Muslims have no international form of organization that would offer a starting point to relativize their local conflicts and rationalize their political defeats and identity crises.

Come on non-Catholics, get your multilateral cooperation act together.

When I arrived in Sierra Leone six weeks ago and encountered its friendly people, spectacular beaches, lively nightlife and mysterious traditions, I wondered why the country has so few tourists (in our six weeks we have met a total of three, with three or four other possible but unconfirmed sightings).

It didn’t take long to find out. A nation that should be eager to attract tourists seems to be making systematic efforts to keep them out. If you were trying to make it as difficult as possible for foreigners to visit your country, I could recommend the following measures, which all work brilliantly for Sierra Leone:

- Charge an exorbitant sum for visas (£50 for a month, compared to, say, £10 for three months in Turkey, a much more tourist-friendly destination)

- Make obtaining the visa more complicated than for any of your neighbours by forcing applicants to produce a letter of invitation from a Sierra Leone national

- Encourage customs officials in the airport to be as surly as possible, and fail to punish them for extracting bribes from new arrivals for performing the simplest of procedures

- Build your airport thirty miles away from the capital city, on the opposite side of a giant river mouth, forcing visitors to cross either by helicopter, which regularly crashes, or ferry, which often breaks down or sinks. Make sure, too, that the ferry departure times do not coincide with incoming flights, so that your visitors will have to wait for hours in the burning sun (you will of course already have ensured there is no shade at the dock)

- Allow dozens of hustlers to converge on new arrivals as they exit the airport, giving preference to pickpockets and con merchants

- Refuse to harness the torrential rain in the rainy season to provide water and electricity to visitors at any time of year. This will ensure they cannot take respite from the heat with the help of fans, cold drinks, air-conditioning or showers. It will also mean restaurants and food stores will be unable to refrigerate food, thereby increasing the risk that your visitor will fall sick

- In the event that he does fall sick, make sure you spend none of the billiions of pounds of aid you receive on building effective hospitals or recruiting competent doctors to treat him

- Make your public transport system as slow and uncomfortable as possible, by failing to maintain vehicles so that they break down often, waiting until they are full before departing hours behind schedule, and packing two people into seats designed for one

- Enhance the effect of the above by allowing roads paid for by foreign donors to deteriorate and then failing to fill in the hundreds of resultant potholes

- Should a tourist somehow manage to shrug off these obstacles and apply for a visa extension (you have no psychiatric hospitals to house him, of course), redouble your efforts to force him out. To do this, hire the least friendly, most corrupt people to work in your immigration department. Extort money from your visitor for a visa extension that is officially free, then smile smugly at his distress

- As a final punishment for having the cheek to visit your country despite all your efforts to stop him, charge the departing, browbeaten tourist a £50 airport tax

NB: For foreign investors, multiply your efforts tenfold.

Xavier Sala-i-Martin and Maxim Pinkovskiy today published a working paper today that drops the following bombshell (here’s a free version):

Our main conclusion is that Africa is reducing poverty, and doing it much faster than we thought. The growth from the period 1995-2006, far from benefiting only the elites, has been sufficiently widely spread that both total African inequality and African within-country inequality actually declined over this period. In particular, the speed at which Africa has reduced poverty since 1995 puts it on track to achieve the Millennium Development Goal of halving poverty relative to 1990 by 2015 on time or, at worst, a couple of years late. If Congo-Zaire converges to Africa once it is stabilized, the MDG will be achieved by 2012, three years before the target date. These results are qualitatively robust to changes in our methodology, including using different data sources and assumptions for what happens to inequality when inequality data is not available.

Not much reaction yet – but I’m intrigued to see what other economists are going to make of their work…

Update: Xavier Sala-i-Martin has a wonderfully crazy Columbia University website – he likes FC Barcelona, Salvador Dali and Beavis and Butthead.

Update II: These Economist articles from 2004 (one, two) offer useful background. The crux of the matter seems to be that Sala-i-Martin and Pinkovskiy use GDP to measure poverty (working out distribution of income from household surveys) – the World Bank’s figures are derived directly from the surveys themselves.

It’s taken as a given here in the UK that Brits wield little influence in Europe. But apparently – not. According to the Guardian, an FCO-led coup is under way:

Germany is planning to stop what it sees as a British campaign to dominate European foreign policy-making under Lady Catherine Ashton, the Guardian can disclose.

Amid growing criticism across the EU of the performance of Baroness Ashton of Upholland, the EU’s new high representative for foreign and security policy, Berlin and Paris are alarmed at the prominence of British officials in the new EU diplomatic service being formed under Ashton.

A confidential German foreign ministry document analysing the creation of the EU’s new diplomatic service, seen by the Guardian, has concluded that Britain has grabbed an “excessive” and “over-proportionate” role…

The French contend that the inexperienced Ashton is being schooled in policy-making by the Foreign Office. Diplomats and officials in Brussels also see Britain’s hand in one of Ashton’s first appointments, made last week. She named Vygaudas Ušackas, a former Lithuanian foreign minister and ambassador in London, as the EU’s special envoy to Afghanistan. He was widely seen as the UK’s favoured contender after Britain withdrew its own candidate because it secured the post of Nato envoy in Kabul.

The Germans are also increasingly unhappy at what they see as the erosion of their influence and being cut out of decision-taking.

While we’re on the subject of comings and goings on India’s climate team, worth noting that the Indian press is full of talk of an epic fallout between India’s Environment Minister, Jairam Ramesh, and Shyam Saran, the Indian PM’s Special Envoy on Climate Change – who’s just quit. So what’s the fight about? Over to the Times of India:

Indian negotiators are up in arms against minister of state for environment and forest Jairam Ramesh commissioning a study and proposing a meeting of experts that could redefine India’s fundamental principle of `per capita emissions’ norm while negotiating how the burden of reducing greenhouse gases is shared.

The per capita norm, embodied in the Kyoto protocol, has been backed by successive governments and reiterated by Prime Minister Manmohan Singh himself.  Chandrashekhar Dasgupta, the seniormost Indian negotiator and member of the PM’s council on climate change told TOI: “I am deeply concerned that the per capita equity approach, which provides the foundation for India’s position on climate change negotiations, is being questioned at the level of minister of state (Jairam Ramesh).”

The study that Ramesh is commissioning is to be undertaken by Arvind Subramanian – formerly at the IMF, now at CGD and the Peterson Institute. The reason for the consternation, according to the TOI, is that Subramanian’s published work rebuts the idea of per capita equity – and a quick web search confirms that a piece he co-authored with CGD’s director Nancy Birdsall in December last year (summary here) does indeed implicitly rebut “equality of greenhouse gas emissions per capita as a desirable long run objective”.  Instead, it argues for “industrial countries [to] drop their demand that developing countries commit now to binding emissions targets”, and focus instead on improving access to energy for the poor – although his paper does also call for sharp improvements in emerging economies’ carbon efficiency.

All this has now become a political issue in India. The opposition BJP has picked up on the issue:

On Saturday, BJP alleged that Saran had to go because of his resistance to UPA government’s bid to dilute the country’s stand in climate change negotiations, attracting allegation of irresponsibility from the Congress. The BJP attributed Saran’s departure to his reservations against environment minister Jairam Ramesh’s attempt to “weaken” India’s negotiating stance on emission cuts.

Meanwhile Ramesh is trying to cast himself as the victim in all this, as in this piece in The Hindu on Thursday:

Union Minister of State for Environment and Forests Jairam Ramesh has cast himself as a lonely crusader for the environmental cause within the government, with no support from any quarter except the Prime Minister and the UPA chairperson. In an interaction with journalists on Wednesday, hours before a meeting called by Prime Minister Manmohan Singh to iron out differences within the Cabinet over Bt brinjal, Mr. Ramesh said he had “zero” friends in the government.

“I have no friends, only the Prime Minister supports me in the Cabinet… At times I feel I am fighting a lonely battle. The odds are tremendous against anyone trying to do anything right and rational when it comes to the environment and forests,” he said, using the words ‘thankless’ and ‘friendless’ to describe his job.

So is Ramesh really ‘selling out’? (more…)

According to the FT, the German government is proud that it is keeping pay down in both the public and private sectors, and hopes this will provide an example to less prudent Eurozone economies.

But surely Greece, Italy, Spain and Ireland (and the UK as well) would prefer Germany to push wages up – putting more money in the pockets of German consumers and helping reduce Europe’s trade balances?

A small but potentially rather significant exchange in the UN Secretary-General’s spokesman’s press briefing on Thursday last week:

Question:  India has said that it’s put forward a candidate to replace Mr. [Yvo] de Boer on the UNFCCC [United Nations Framework Convention on Climate Change].  It’s named the individual, and said that it has the support of China and other BRIC nations.  I just wondered, first, can you confirm that names have been received by the Secretary-General for that post?  How many names and what’s the process for selection?

Spokesperson:  I can’t confirm whether specific names have been given or not.  Clearly, there is a process that’s under way.  This is an appointment that is indeed made by the Secretary-General in consultation with the Board of the United Nations Framework Convention on Climate Change.  There is still a way to go in that selection process, and I don’t want to get into details here

So who might India’s candidate be? Over to wire coverage a day earlier from Indo Asian News Service (which seems to have been barely noticed outside India):

Environment Minister Jairam Ramesh has written to the United Nations backing the candidature of Vijai Sharma, secretary with the ministry, for the post of executive secretary of UN Framework Convention on Climate Change (UNFCCC). The minister said here Wednesday that China has already supported the move.

‘Vijai Sharma is our official candidate for UNFCCC executive secretary. I have written to the United Nations Monday and have also written to BASIC (Brazil, South Africa, India, China) countries seeking their support. We have got support from China already for his candidature and we will get support from other BASIC countries,’ Ramesh said at an interaction at the Indian Women’s Press Corps.

Ramesh said the time has come for the post to go to a developing country. ‘The first three secretaries have all been from developed countries and Vijai Sharma has long years of experience with UNFCCC. He was chief spokesperson for G77 for Kyoto negotiations. I am pursuing it. I am not sure as European countries and the US will prefer somebody from a smaller country and India is unarguably at a different profile but I would like to see him there,’ the minister said.

Sharma – a career bureacrat - is well-respected inside the UNFCCC process as far as I can make out.  But I wonder whether India’s making a tactical error in equating “developing country” interests with those of the BASIC grouping of emerging economies. At Copenhagen, BASIC’s hardline position was conspicuously not in the interests of the least developed countries who stand most to lose from climate change.  It’ll be interesting to see whether an alternative developing country candidate comes forward – one from the ‘survival’ rather than the ‘growth’ faction of the G77.

Leaders should therefore commission an independent review of the IPCC’s integrity, auditing the executions of its mandate to provide a comprehensive, objective, open and transparent assessment of the scientific basis of the risk of human-induced climate change.

This review should not be of the state of climate science – where the IPCC has, and should retain, primacy – but rather of the quality of the IPCC’s procedures and the integrity of the research methods on which its findings rely.

- David and I in Hitting Reboot (published December 22, 2009)

The UN is to commission an independent group of top scientists to review its climate change panel, which has been under fire since it admitted a mistake over melting Himalayan glaciers.

The experts will look at the way the Intergovernmental Panel on Climate Change (IPCC) operates and will recommend where they think changes are needed. The panel will be part of a broader review of the IPCC, full details of which will be announced by the UN next week.

- The Guardian (published March 1, 2010)