Economy

There have been precious few people able to make sense of the crash. The main commentators didn’t see it coming — and so have focused their energies stressing how no man born of woman could have predicted it. But Nassim Taleb did. He has been a voice of sense, originality and common sense throughout, and David Cameron has been listening. The respect is mutual: Taleb even described Cameron as ‘the best hope we have left on this planet’ because he understood the dangers of deficits. If CoffeeHousers haven’t come across Taleb’s books, such as Fooled by Randomness and Black Swan, I can’t recommend them enough. I met him recently, and published the interview in this week’s magazine.

More evidence this morning that the government won't be dropping the 50p rate any time soon, in the form of an interview with Danny Alexander. ‘This is not the time to be looking to reduce the tax burden on the wealthy,’ he says to the Daily Telegraph's James Kirkup and Robert Winnett. This is a line that other ministers have deployed recently, and not just Lib Dems. And it suggests that the coalition is confident that HMRC's forthcoming review of the rate will say that it does indeed raise revenue. But the matter won't end there. The IFS recently said of the HMRC review that, ‘tax records for just one year after the introduction of the 50p rate are unlikely to provide a robust estimate of how much revenue the 50p rate will raise’.

George Osborne’s speech to the Federation of Small Businesses tonight tries to offer some reassurance that the coalition isn’t caving into the anti-business zeitgeist. Referring to the recent rows over executive pay, he deplores rewards for failure before saying ‘a strong, free market economy must be built on rewards for success. There are those who are trying to create an anti-business culture in Britain – and we have to stop them.’ How reassuring business leaders will find this remains to be seen. As Robert Peston reported yesterday there’s a lot of grumbling from them about the government’s handling of the Hester bonus and other matters.

Today’s White Paper on defence procurement makes disappointing reading for the UK defence industry — and for anyone who believes that one of the lessons of the last few years is that we need a more active industrial policy. IPPR set out the case in a recent report on globalisation, arguing for sustained support for industries, like defence, which have high potential for growth, for exports, and for high-skill manufacturing jobs. We need robust safeguards on the sale of defence equipment to repressive regimes, as well as greater transparency on government lobbying to avoid a return to the bad old days of the Pergau Dam — or minor embarrassments like David Cameron’s attempt to rebadge an export drive in the Gulf as a tour of the Arab Spring.

The removal of Fred Goodwin’s knighthood serves the coalition’s political purposes. It shows them being tough on a bad banker and reminds everyone that these problems happened on the last government’s watch and that Alex Salmond was cheering on RBS’s bid for ABN Amro. There are even some in government who are up for a fight over clawing back part of his pension or past bonuses believing it would put both Goodwin and the human rights act in the dock. This is not to say that the removal of his knighthood was not merited. Goodwin didn’t do much of a service to banking, after all. There’s another lesson in this: honours shouldn’t be awarded to people when it is too early to know what they have actually achieved.

One of the flaws of Tory modernisation was that it was never interested enough in pounds and pence. Social issues, the environment and public service reform were what the modernisers specialised in, not economics. But tonight’s Macmillan lecture by Nick Boles, one of the most intellectually influential modernisers, is devoted to the subject of how Britain’s global competiveness in the global economy can be improved. His argument is that: ‘What really threatens the general wellbeing of the British people is the stalling of productivity growth and the certainty that the next 20 years will expose them to competition that is vastly more intense than anything we have ever seen.

First there was Fred Goodwin, now there's Stephen Hester. The chief executive of RBS is fast becoming the bête noire of the British banking system, thanks to his roughly £1 million share bonus which, we learn in the Sunday Times (£) this morning, may be topped up with an extra £8 million over the next few years. Little wonder that Iain Duncan Smith admitted on the Marr show earlier that there may be a severe public backlash, and that the government could suffer from it. He suggested that it would be better, for all concerned, were Hester just to forego the million. It's one of those debates where it's easy to see and understand both sides of the argument.

Faisal Islam has a very interesting report from Davos on how at least one bank no longer believes that a euro from Ireland, say, is worth the same as one from Holland or Germany. He writes that: ‘A leading European bank has begun to account for euros differentially, by nation state. That is to say, they are differentiating a risk to euros that originate in a potentially defaulting country from that of a euro-cert. They, in effect, have invented the concept of a German, Greek and Irish euro. Now we accept that government debts from these nations are different. The idea that a bank treats cash differentially, is an incredible development.