Blog 2023 Malcolm Blair-Robinson

It is easy to mutter about the dithering MPC, but the hand of cards they hold is not easy to play.

There is a clamour from some quarters (including this Blog) to increase interest rates to combat inflation. There is an equally loud, maybe louder, cry to keep the record low bank rate on hold. The mostly Keynesian eonomists aruing for no change, declare the recovery will be put at risk if any rise is made now; the opposite view is that inflation, left unchecked, can take root and require not modest rises, but penal rates to control it.

Beneath these positions, evidence is contradictory, hence the uncertainty. Wages and house prices remain static or falling, so the traditional inflationary pressures are not there. Commodity, energy and raw material prices have risen, partly but not wholly because of sterling’s fall and VAT has gone up. The hope is that when these pressures work through the books, inflation will fall.

The problem is that inflation in the UK is now nearly double that of the EU and the US. These economies have similar pressures, which tells us that their underlying inflation is a good deal less. The issue for the UK is that with inflation at double the rate of its two main export markets, any export led recovery will soon be in trouble. This will hit manufacturing and suck in cheaper goods from overseas. That will be a disaster not only for so called recovery, but for the whole future of the economy.

At the heart of our crisis lies the fact that we do not make light bulbs, washing machines, televisions, computers, smart phones, tablets, game consoles, shoes, clothes; the list goes on and on. Keynes was a demand economist. His disciples need to wake up to the fact that when he talked of stimulating demand, he meant stimulating under producing factories in an industrial economy. Like fools we told ourselves that we had become a service economy energised by waiters and shoppers. Stimulate demand of that set up and you suck in imports, only to make matters worse. Because our balance of payments is in a record deficit as well, although too often overlooked in favour of the budget deficit. We have, in fact, a double crisis.

Both will have to be fixed to make any recovery real. This cannot be done by robbing Peter to pay Paul. The fundamentals have to be dealt with. The MPC has a busy time ahead.

There are at the heart of this military adventure a number of miscalculations. The rebels are not a competent military force. Gaddafi enjoys more support in depth among his population than the West thought. He is a wily and resourceful commander. His forces, with a backbone of mercenaries, have shown adaptability similar to the  North Vietnamese, whose tactics neutralised so much of  the superior US firepower. There is stalemate on the ground. But most important of all Gaddafi is stronger politically than when the operation began. He is by no means losing. Indeed as this Blog pointed out at the start, in a battle of wits he will most likely win.

Hague and others refer to multiple defections and declare that the Libyan government is collapsing from within. This is rubbish, based on another miscalculation. It is the supposition that the Colonel had modeled his government on conventional lines. Instead he has set himself up as a King.  A King needs two things to survive. A loyal army and a loyal family. Ministers are just window dressing and, in times of trouble, a nuisance.

To topple Gaddafi you have to get at his family and his army. If they turn on him, then it will be his end game. There is little sign of this now, not least because it is not part of the plan. Maybe it should be. But if it were, the military adventure would have to become a full scale war. Whatever resolutions may or may not be passed to invoke it, no paticipating Western government would survive long after its declaration. Washington has already calculated that Obama would lose in 2012 if the Administration is caught up in another foreign war. That would leave only London and Paris gung ho, but Sarkozy is too near an election to risk it and here the coalition would bust apart if Cameron, whose judgement is already in question, tried to go it alone.

The ideal outcome for many would be a drone strike on the Gaddafi family as they gather for evening cocktails. This is specifically against UNSC 1973, though if it happened, relief worldwide would mute the criticism. The trouble with that scenario is that the Gaddafis are more than savvy to the risk. They are rarely in one place together and the places change all the time without warning and pattern. There is a lack of good enough intelligence to guarantee a hit. A miss would involve collateral damage involving innocent civilians. That would be a disaster for NATO and a triumph for Gaddafi.

Over three weeks into this adventure without any resolution in sight, this Blog asks , once again, where is it going?