Divine intervention won’t fix the economy

When GOD himself and Jim O’Neill, a deity from the economics firmament, interject, perhaps we all have to listen.
Gus O’Donnell, now Lord O’Donnell, used to run the country as head of the civil service, where he was known as GOD, and not just for reasons of his initials. Lord O’Neill of Gatley is the Goldman Sachs old boy who, chastened by trying to tell the Conservatives how to run the economy as a Treasury minister, now sits as a crossbencher in the upper house.
They have descended from their celestial platform — or at least their pews in the House of Lords — to tell Rachel Reeves how they think she should do things.
Via the pages of the Financial Times, they and half a dozen other worthies tell the chancellor that she really needs to boost growth by public spending on infrastructure. Because they know the Treasury hasn’t got any money, their advice is to have a good fiddle with the fiscal rules to make sure the government can spend without looking like it is loosening the budgetary straitjacket.
This may all make eminent sense, even if Reeves knows it anyway. What GOD’s gang don’t address is just how public spending of the taxpayer’s hard-earned pound will result in a better outcome than utilising private capital.
The fiasco of HS2 (way over budget, pronounced dead) and the long drawn out delivery of Hinkley Point (a lot over budget and really late) indicate a Whitehall machine wholly incapable of overseeing the public procurement of large infrastructure projects, let alone the funding of health and social care, education and the armed forces.
Telling Labour ministers to spend is probably not good practice for a bunch of politicians trying to avoid their demons and reform their ways. Instead, perhaps we could look forward to a sequel from O’Donnell and O’Neill in the Pink ’Un on how they, who after all have had their go at the apex of government, would ensure that public sector spending delivers anything like what might be called value for money.
Going bust twice in the space of five years suggests a business with underlying issues. The latest appointment of administrators to Harland & Wolff is not only a tale of mismanagement and a poorly funded business plan but the culmination of a period of hubris and misplaced faith.
Two years ago the Belfast shipyard was handed a £1.6 billion contract to build three Royal Navy support vessels. Ben Wallace, then defence secretary and a man many Conservatives thought might be the leader to prevent the party’s decline and fall, talked up the historic significance of bringing naval shipbuilding back to Northern Ireland, even if many knew the real winner in the deal was the joint venture partner Navantia, the Cadiz shipyard.
Harland & Wolff’s chief executive at the time, John Wood, talked of breaking the BAE Systems and Babcock duopoly, warship builders who he claimed had been handed work by the Ministry of Defence “on a platter”.
Since the support vessels order, ministers in a Conservative government that always insisted it didn’t pick winners knew they had backed a wrong ’un and subsequently went a long way down the road to breaking the funding rules of UK Export Finance to prop up the company. Picking a loser was something the Conservatives did not have to admit to as they passed the wreck on to the new government.
Avoiding a politically maladroit nationalisation or spending money it does not have, the Labour administration is seeking “a market solution”.
That may end up being a rescue by Babcock. That, however, is a company that has already been legged over by the MoD on the Type 31 and whose shareholders would be forgiven for abandoning ship at the very thought. Industrially, a Babcock rescue may well be the best outcome but the sweeteners it would have to be offered would be anything other than “a market solution”.
While most might properly be preoccupied by the freight train coming down the line of a second Trump presidency, market watchers and economists are distracted by what is happening in the monetary signal box.
The Federal Reserve will cut interest rates tomorrow. The only question is whether by 50 basis points or 25 points. Cut by 25bps and a central bank already behind the curve could be seen as wasting valuable time. Cut by 50bps and folk will want to know what the Fed knows about the state of the US economy that we don’t.
Capital Economics has looked for historical pointers and found that all four of the last 50bps cuts — 1990 Gulf War oil price surge, 2001 bursting of the dotcom bubble, 2007 beginning of the sub-prime crisis, 2020 advent of the pandemic — ended up in recession. Respect to that excellent work but any historian would ask: was it the 50bps cuts which led to economic dislocation or, in fact, the underlying crises?
When is an investment in the oil and gas industry not financial support for dirty old fossil fuels? When you are Apollo, the private equity giant, which insists its $1 billion acquisition of a stake in BP’s holding in the Trans Adriatic Pipeline, shipping Azerbaijani gas to Italy, should be seen rather as “a sustainability and infrastructure investment”. On the basis Apollo isn’t kidding anyone, you have to wonder whether they aren’t kidding themselves.