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Economists and the recession – no more magic maths

He called for economists to stop pretending they are businessmen, to take note of the real world; to advise politicians before, not after, policy decisions are made, influencing rather than simply justifying their actions. But getting economist and political commentator Liam Halligan – best known for his acerbic column in the weekend Telegraph and his award-winning work for Channel 4 – to clarify what he would do if he were chancellor is trickier.

In March, nearly 100 finance directors from all sectors of UK business gathered at a special event hosted by Financial Director and COA Solutions to hear Halligan’s views on the day after what most believe was Alistair Darling’s last Budget.

“If there were more people close to the politicians who knew some economic history and were prepared to wield their knowledge, then we wouldn’t be in this business,” Halligan told the audience.

“If you print money and then buy your own debt… there aren’t many countries
in the world that have done that. Apart from Zimbabwe.”

Turning his attention to the revelation in the Budget that, rather than borrowing the forecasted £178bn in 2010, the government said it will “only” borrow £167bn, Halligan slated economically illiterate politicians. But he praised Darling for having gone from being a glove puppet chancellor to “having a mind of his own”, refusing to succumb to pressures from Number 10 to spend more.

“A lot of politics is about learning to avoid utter stupidity,” Halligan told the audience. “Darling managed to do that.”

Avoiding an insular mindset is of equal importance for a possible future Conservative government. Despite the lowering of its standing in the global financial community, Halligan added that UK business still has a lot to offer other countries in terms of talent, even if it has work to do on the reputation of its financial services industry.

“Look at how dependent we are on the financial services sector and housing market – which are now on their knees,” he said. “The UK falls down because it keeps likening itself to the fundamentally different US, which has a financial services industry accounting for five percent of its GDP; the UK is much more heavily reliant on the sector at between 20-25 percent of GDP.”

Halligan slated the attitude of politicians towards the electorate on how much information they should be given about policy decisions. “Politicians underestimate what people can take in terms of complexity,” he said. “You can still watch EastEnders and have a view on sterling.”

While the UK has the language, the timezone, critical mass and expertise, Halligan warned that the perfect storm won’t last forever. Equally educated, ambitious nations in Europe and elsewhere, raised better-run economies whose big reserves and trade surplus add to the threat to the UK’s future under a profligate leadership.

Having spent time in emerging markets, from formative years as a journalist in Russia and today as chief economist for Prosperity Capital Management, a London-based asset manager focused on Russia, Halligan is adamant that UK businesses aren’t capitalising on a strong global legacy.

“In Moscow, businesses from other European countries are setting up franchises and building up a services industry. But outside oil and gas, there isn’t a British presence. Our pools of capital are run by unimaginative people,” he told the audience.

Responding to a question on whether things would change with a different government, Halligan simply said that he hopes so.

And he is qualified to talk about the Conservative machine, having spent time with various Tory lieutenants including David Cameron: he thinks them clever, but run by their PR people.

“The Tories still confuse saying things that they think will make them popular and saying things that will actually make the electorate want to vote for them,” he quipped.

Pressed again by the audience on what he would do as chancellor, Halligan pointed to two big sacrifices required to show any government is serious about cutting the deficit: the Trident nuclear deterrent programme and public sector pensions.

“People [in the public sector] are retiring at 45 on 40k a year and are expected to live for another 45 years,” he points out. “And every time Labour or the Tories have attacked them, they’ve bottled it.”

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