It’s a fitting end to the British general election.

We have had thirty years of entrenched majorities – as a dominant party defined the terms of the debate, and the media made sure the opposition never caught a break. In 1997, the swing from Conservative to Labour dominance was sudden and decisive.

Now we have an utterly unpredictable polling day. Tiny shifts in the share of vote between parties and, especially, its geographical distribution could have a disproportionate impact on the political landscape that emerges on Friday.

If it’s close, it will all come down to spur-of-the-moment decisions by three very tired men. Constitutionally, Brown remains Prime Minister until someone else can command ‘the confidence of the House.’

As incumbent, he also should get first dibs on forming a new government, though it is widely expected that Cameron will declare victory early, and use the media to establish his right to govern.

As Alex has warned, there’s also a possibility that the bond markets will push the pace, as they open at 1 a.m. tomorrow morning to react to election news. Yields on UK 10-year bonds have spiked this morning, but are still lower than they have been for much of the year.

If Cameron gets the most votes and the most seats, he’ll surely go on to form a government. If not, a period of Florida-style uncertainty seems more than possible. What, one wonders, will be the UK’s equivalent of the hanging chad?

Either way, we can expect some exceptionally close Commons votes, perhaps a referendum on electoral reform, and  – surely – a Parliament that won’t last for a full term. That means more elections for parties that have bankrupted themselves during this one.

This unaccustomed volatility in the electoral system seems curiously appropriate. As the past few years have shown, we now live in an era where the UK is far from being in control of its own destiny.

Look forward and we can expect the following forces to frame the government’s strategic choices.

First, global risks will continue to drive domestic policy. Voters will not actively call for a more effective foreign policy, but they will notice and bemoan its absence.

Global forces will continue to have considerable impact on their lives, with the main sources of strategic surprise coming from beyond the UK’s borders.

Over the next ten years, moreover, most risks will be on the downside. We have lived, as I have argued, through a volatile decade. There is every reason to expect risks to continue to proliferate.

Each new crisis will create political aftershocks with demands for governments to clear up the mess, matched by inquiries into why they failed to prevent the problem in the first place.

Finally, the government will find that, in most cases, it does not have the levers to manage risks as effectively as it would like to.

Whatever the next Prime Minister wants to do, he is going to find that global volatility, a lack of money, and government mechanisms that are equipped for the problems of another age, constrain his scope for action.

On top of that, he’ll only be able to solve problems if he can rustle up a coalition of other countries, all of whom will be beset by the same problems.

If – and it’s a big if – there is to be a new dominant paradigm in British politics, replacing those established by Thatcher and New Labour, then it will be because a leader emerges who has the skill to govern well in an age of global uncertainty.

I can’t imagine a more exciting time to pitch up in Downing Street, but it’s going to be a bumpy ride.

[Read the rest of our After the Vote series.]

If the BBC leaders’ debate tonight devotes more time to bigotgate than to housing, I am going to dedicate the rest of my days to working for the Corporation’s demise.

Britain’s unsustainable housing market is at the root of many of the country’s problems and could wreak appalling damage on voters during the next parliament. It must feature in the debate.

Someone should start by reminding Gordon Brown of a promise he made in his first budget speech in 1997:

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.

As I argued recently:

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.

2007 saw what is often called a housing price crash, but as this graph shows, it was really only a blip.

As the government pumped money into the economy and pushed interest rates to unprecedented low levels, the bubble started to inflate again. House prices are now back to the levels of June 2007.

Second guessing the housing market is a mug’s game, surely this is unsustainable. British houses are overvalued by nearly a third, according to one measure. Worse is the amount of mortgage debt outstanding – $1.238 trillion. By comparison, government debt is ‘only’ £950 billion.

Low interest rates and buoyant employment (relative to the economy’s woeful performance) have kept householder’s head above water – but the highly-indebted remain highly vulnerable to any increase in interest rates or to further job losses.

My best case for the housing market is a long period of stagnation (we desperately need lower prices). Worst case would be a sudden, vicious and self-fulfilling collapse. I believe this is currently the most serious economic risk facing the British people (one which is, of course, interrelated to Europe’s sovereign debt problems).

So what do the major parties have to say about this in their manifestos?

• Labour wants to expand home ownership and exempt all houses under £250k from stamp duty (likely to push house prices up). It says it will build 110k houses over two years (likely to push prices down).
• The Conservatives promise to exempt first time buyers from stamp duty if their house costs less than £250k. It wants to put communities in charge of planning, which is highly likely to reduce the number of houses built.
• The Lib Dems plan to use loans and grants to bring 250k empty houses back into use.

Pretty weak beer, all told. No party questions the shibboleth that Britain needs more homeowners. None is prepared to explain how they will manage risks that have been increased by the response to the financial crisis.

Far less do they have policies to fulfil Brown’s promise from 1997 – to end boom and bust in the housing market radical proposals (see my Long Finance paper) to prevent the mortgage market from screwing borrowers every twenty years or so.

So here’s my question for tonight’s debate:

In 1997, Gordon Brown promised he’d never let house prices get out of control again, but then presided over a housing bubble that has left British householders owing £1.2 trillion on their mortgages. In government, what will you do to stop the housing dream from becoming a housing nightmare?

Yesterday, I warned that governments were losing control of the Eyjafjallajökull crisis:

In the UK, it doesn’t help that there’s an election on. But Lord Adonis, the Secretary of State for Transport, is not running for office. It would be good to see greater signs that he – or someone else – is being much more decisive about taking charge.

Apparently, there are more than a million British citizens still stranded abroad and the MET Office has said there will be no flights on Monday 18 April (no confirmation from NATS on that as yet).  Both the media and airlines are clearly getting restless. A new narrative is crystallizing: that the threat from the ash cloud has been substantially exaggerated.

Albeit belatedly, British ministers have finally shown they are now more fully engaged with events, with five lining up in Downing Street for a press conference. COBRA will meet tomorrow morning.

In my opinion, however, the Foreign and Commonwealth Office should be much more specific about what its consular staff are doing. I’m talking about concrete and detailed briefing for the media.

How is it using its consular surge capacity (the Rapid Deployment Team)? How many extra staff have been deployed? In which airports does it have staff dealing directly with passengers and airlines? How, practically, are these staff managing to assist people?

The generalities on the FCO website are not nearly enough… [Relatedly: KLM masters social media. Air France fails.]

Update [19/04 9.30 am]: A few other thoughts. The UK government social media response has – so far – been distinctively unimpressive, despite the fact that many government departments, the FCO included, have very good social media team. (Good this morning, though, to see the gov Twitter feeds finally starting to use the Twitter #ashtag and #ashcloud tags)

In contrast, Eurocontrol – which oversees European airspace – has emerged as a model of best practice. Whoever it behind its Twitter feed is doing a stellar job – detailed factual updates, numerous responses to people’s questions, and all in an identifiably human voice.

Also, the pressure is clearly building on governments to downgrade the threat, based on test flights. But, say, a plane had a 1/1000 risk of getting into trouble (e.g. hitting a slightly thicker patch of ash during its flight), then you could run a dozen or so tests and have a very slim chance of hitting trouble. So you open Heathrow, which has 1300 flights every day…

Once again, the complex risk calculations at the heart of this crisis are making Anthony Giddens’s 1999 Reith lecture look very prescient:

There is a new moral climate of politics, marked by a push-and-pull between accusations of scaremongering on the one hand, and of cover-ups on the other. If anyone – government official, scientific expert or researcher – takes a given risk seriously, he or she must proclaim it. It must be widely publicised because people must be persuaded that the risk is real – a fuss must be made about it. Yet if a fuss is indeed created and the risk turns out to be minimal, those involved will be accused of scaremongering.

Suppose, on the other hand, that the authorities initially decide that the risk is not very great, as the British government did in the case of contaminated beef. In this instance, the government first of all said: we’ve got the backing of scientists here; there isn’t a significant risk, we can continue eating beef without any worries. In such situations, if events turn out otherwise – as in fact they did – the authorities will be accused of a cover-up – as indeed they were.

Things are even more complex than these examples suggest. Paradoxically, scaremongering may be necessary to reduce risks we face – yet if it is successful, it appears as just that, scaremongering. The case of AIDS is an example. Governments and experts made great public play with the risks associated with unsafe sex, to get people to change their sexual behaviour. Partly as a consequence, in the developed countries, AIDS did not spread as much as was originally predicted. Then the response was: why were you scaring everyone like that? Yet as we know from its continuing global spread – they were – and are – entirely right to do so.

This sort of paradox becomes routine in contemporary society, but there is no easily available way of dealing with it. For as I mentioned earlier, in most situations of manufactured risk, even whether there are risks at all is likely to be disputed. We cannot know beforehand when we are actually scaremongering and when we are not.

When dealing with risk, governments are almost always going to emerge at least somewhat discredited. The question is how badly

Update II [19/04 16.30]: The FCO website is still maddeningly unspecific. For example:

Meanwhile, here’s Marcus Fairs with some information that’s (i) much more specific and helpful; (ii) directly covers what named FCO consular staff are up to.

Also, it is increasingly clear that NATS – the UK’s air traffic control organisation – is floundering. No Twitter feed. A website that is still in emergency mode. And, worst of all, official updates on their site, but leaks to other news organisations with different information. Not good.

Update III [20/04 14.30]: Finally:

Introductory remarks by David Steven at a Brookings Institution seminar on risk and resilience in the global system (March 2010)

Download Speech

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.

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.

Shock news that Hector Sants, chief executive of the FSA, has resigned. Though, I am sure the two events are not causally related – let me again plug my paper, published last week by the Long Finance Foundation, on risk in the UK mortgage market, which was was highly critical of the FSA’s response to the housing bubble.

In the New York Times, think tanker, James Jay Carafano (areas of expertise: homeland security, defense, military affairs, affairs, post-conflict operations, and counterrorism) gets hot under the collar about “news stories [that] play fast and loose with terms like ‘outbreak,’ ‘epidemic,’ and ‘pandemic.’”

His advice: “We should all just wash our hands and go to the doctor if we have flu symptoms.” Er, wrong. According to the Centers for Disease Control and Prevention (area of expertise: public health):

If you get sick with influenza, CDC recommends that you stay home from work or school and limit contact with others to keep from infecting them.

CDC is happy for people to contact their doctor if they need advice, but it only recommends adults seek emergency medical treatment if they have: (i) Difficulty breathing or shortness of breath; (ii) Pain or pressure in the chest or abdomen; (iii) Sudden dizziness; (iv) Confusion; (v) Severe or persistent vomiting. (The advice for children is similar – the list of warning symptoms different.)

In the UK, health authorities are even more explicit about the fact they don’t want people with flu sitting around in doctor’s waiting rooms. “If you have flu-like symptoms and have recently travelled to Mexico or been in contact with someone who has, stay at home and contact either your GP or NHS Direct on 0845 4647,” advises the NHS. Treating people without requiring face-to-face contact with healthcare professionals is at the heart of of the UK’s pandemic flu plan.

Carafano’s sins are minor compared with this preposterous Guardian article by Simon Jenkins (core expertise: frothing at the mouth).  According to Jenkins, swine flu is “a panic stoked in order to posture and spend” – with the public too moronic to resist having the wool pulled over its eyes:

We appear to have lost all ability to judge risk. The cause may lie in the national curriculum, the decline of “news” or the rise of blogs and concomitant, unmediated hysteria, but people seem helpless in navigating the gulf that separates public information from their daily round.

The government was “barking mad” to convene its emergency planning committee, Jenkins argues, while the World Health Organization is not really worried – it’s just making a pathetic bid to shore up its funding. Attention-whore doctors, health and safety hysterics, and rapacious drugs companies are all in on the plot, while ‘professional expertise’ (presumably from shrinking violent newspaper columnists) is being completely ignored.

BSE, SARs and avian flu, meanwhile, provide cast iron assurance that no pandemic is on the way. (more…)