Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
The hatred of Europe I'll grant you, but I see fear of the decline of sterling, the need to join the euro, and the end of British pretention to superiority, profiled behind this column. Charlemagne is scared.

And see Willem Buiter's blog in the FT, where he explains (with charts) the current risks to sterling:

FT.com | Willem Buiter's Maverecon | Could the UK face a sterling crisis, or are we in one already?

But in these data there is nothing that cannot be explained as a (long overdue) correction of a persistent overvaluation of sterling - a misalignment that has biased the economic playing field against industries, both exporting and import competing, that would have had a fairer crack of the whip at a more reasonable exchange rate.

One interpretation of the drivers of this persistent overvaluation would be a Dutch disease story, where the role of the natural resource sector in the standard version of the Dutch disease is taking by the UK banking sector.  In this interpretation, a long financial industry bubble in the UK has driven up the real exchange rate in the whole economy and crowded out other sectors producing internationally tradable commodities.  The recent sharp depreciation of sterling corrects this long-standing anomaly.

Clearly, this conjecture requires further thought and research.

(My bold). That's very, very close to the Anglo Disease bone, close enough to wonder about a "lift"?

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Nov 18th, 2008 at 03:29:31 AM EST
I was going to blog his last one,Reykjavik-on-Thames:

With the pound sterling dropping like a stone against most other currencies and credit default swap rates on long-term UK sovereign debt beginning to edge up, this is a good time to revisit a suggestion I made earlier on a number of occasions (e.g. here, here and here), that there is a non-trivial risk of the UK becoming the next Iceland.

The risk of a triple crisis - a banking crisis, a currency crisis and a sovereign debt default crisis - is always there for countries that are afflicted with the inconsistent quartet identified by Anne Sibert and myself in our work on Iceland: (1) a small country with (2) a large internationally exposed banking sector, (3) a currency that is not a global reserve currency and (4) limited fiscal capacity.

Non-trivial risk of the UK becoming like Iceland. Very very much like Anglo Disease, terminal stage.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Tue Nov 18th, 2008 at 04:02:27 AM EST
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Oh my, this is copyright!

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Tue Nov 18th, 2008 at 04:14:34 AM EST
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Dear Mr Buiter,

I was very interested to read your comment about the UK suffering from a new form of "Dutch Disease" as this is a theory I have been working for the past year and a hlaf, and which I have dubbed "Anglo Disease"

You can read the whole genesis of the projet at this link (http://www.eurotrib.com/story/2008/10/17/62354/121) and an attempt at a summary, in Op-Ed form, at this link (http://www.eurotrib.com/story/2008/2/3/10253/66655) - this was written last February. I have already sent that text to your colleague Martin Wolf; he finds it too ideological - disagreeing that there was an intent behind the policies that brought this situation.

Kind Regards,

Editor, European Tribune

We'll see if there is a reaction...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Nov 18th, 2008 at 04:18:24 AM EST
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by Metatone (metatone [a|t] gmail (dot) com) on Tue Nov 18th, 2008 at 05:08:24 AM EST
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My web filter at work won't let me read that website... (sigh)

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Nov 18th, 2008 at 05:17:21 AM EST
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The intro quotes some Buiter, but you've read that column, so I'll skip over it:

Tax Justice Network: British pound, Dutch Disease

Well, we've written a fair bit about the Dutch Disease in the context of tax havens. A recent blog of ours explained the essence of the problem like this:

"It is part of a wider phenomenon known as the Paradox of Plenty: more money can sometimes actually make you poorer. It goes something like this: large inflows of money (in the case of, say, Angola, it's oil money; in Jersey's case it's money owned by rich Angolan politicians and others from around the world who love Jersey's tax haven status) cause prices to rise - either through a shift in the exchange rate, or through inflation, or both. The effect is to make everything produced locally more expensive, and so these sectors -- like agriculture or tourism -- can't compete. They wither. The tourists stop coming because it's too expensive. And so on."

More research is certainly needed on this. And where better to look for the problems associated with a dominant financial industry than . . . tax havens? Last year TJN's John Christensen published a paper in the Annals of Tourism Research which explores this in more detail. Although it doesn't use the term "Dutch Disease" by name, the same analysis is involved.

Here are a few choice quotes from the report, which contains much hard data too:

"Financial capitalism appears to be able to out-compete other industries, particularly tourism, to gain dominance within the local political economy."

This is just what dominant oil industiries do in places like Nigeria and Angola. A couple of anecdotes illustrates the point: Nigeria's agriculture export sector fell by around half in just a few years during the 1970s oil boom, as the oil money started flooding in. More than 99.5% of Angola's exports are made up of oil, refined oil products, diamonds, and other minerals. There's almost nothing else - and this from a country with fabulously fertile soils and good rainfall, which in the pre-independence period was one of Africa's export powerhouses. Here are some more specific symptoms, from the article in the Annals of Tourism Research.

"The macroeconomic consequences of crowding-out in a small island economy include labour cost inflation, widening income disparity, chronic labor shortages, and severe pressure on the island's land and real estate markets."

Anyone familiar with oil-dependent nations in the developing world will recognise these symptoms immediately. TJN contains experts in both the tax haven world, and the oil-in-Africa world, and we have been astonished by the extraordinary similarities of these countries with such different backgrounds and experiences. Here is another important point from the article:

"Despite their remoteness and lack of comparative advantage, small islands exist simultaneously, and paradoxically, both at the margins of advanced captialism and at its very center."

What these secrecy jurisdictions have become is the crucibles of the deregulated global economy. And this is where they can differ a bit from the mineral-dependent nations. Because of the small scale of tax haven islands like Jersey, and the huge crowding-out that happens, they have become the most captive states of them all, in political terms. The politicians are extraordinarly vulnerable to the lobby groups. In Jersey's case we are talking about the banks, the Jersey Bankers' Association, the Society of Trust and Estate Practitioners (STEP,) a group made up largely of solicitors, who wine and dine these places' hapless politicians in the world's most expensive restaurants.

Dutch Disease effects can take many years to reverse: once you've killed off manufacturing, agriculture, tourism, and so on, it isn't easy to rebuild it, even once the exchange rate has changed again. Worrying times indeed. A full copy of the tourism research paper is here.
by Metatone (metatone [a|t] gmail (dot) com) on Tue Nov 18th, 2008 at 05:48:40 AM EST
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We should certainly post a link to the Anglo disease (ie a copy of my comment above) on their site. Can anyone do it, givne that I have no access?

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Nov 18th, 2008 at 06:05:06 AM EST
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by Metatone (metatone [a|t] gmail (dot) com) on Tue Nov 18th, 2008 at 06:57:17 AM EST
[ Parent ]
The linked paper is also interesting:

ScienceDirect - Annals of Tourism Research : Competing industries in islands a new tourism approach

Competing industries in islands a new tourism approach

Mark P. Hamptona, and John Christensenb

aUniversity of Kent, UK

bTax Justice Network, UK
Submitted 27 March 2006. Resubmitted 19 December 2006. Resubmitted 9 March 2007. Final version 18 April 2007. Accepted 26 May 2007. Refereed anonymously. Coordinating Editor: David H. Harrison.  Available online 22 September 2007.

Many islands host both tourism and offshore finance, but their coexistence has been little researched. This paper examines their relationship via a case study of the British Channel Island of Jersey. Both sectors require labor, land, and capital--all frequently scarce in small islands. The study considers the nature of the relationship and resource competition. In light of the unusual context of small polities and the political power of external actors, it also analyzes the dynamics of tourism, offshore finance, and the state in islands. The overall impact of the relationship between tourism and offshore finance is further examined, to suggest how this affects islands' economic development.

by Metatone (metatone [a|t] gmail (dot) com) on Tue Nov 18th, 2008 at 07:00:38 AM EST
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Name of the blog: Tax Justice Network

Subtitle: Why Tax Havens Cause Poverty

by Metatone (metatone [a|t] gmail (dot) com) on Tue Nov 18th, 2008 at 05:50:42 AM EST
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This effect was clearly at work in California during the Gold Rush.  Gold was relatively one of the most abundant economic "goods" and transportation was expensive, not least because ships came to be abandoned in San Francisco Bay as crews jumped ship for the gold fields.  The long term beneficiaries were individuals such as Levi Strauss, Leland Stanford, Henry Huntington and William Crocker who used the opportunity to build railroads, banks and other economic infrastructure.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Nov 18th, 2008 at 01:15:08 PM EST
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I concur.. he is scared.. it shows in a kind of inconscious way, the notions, the justifications when there is no need, the construction of some sentences.. it show he is worried in a  very peculiar way... worried that a particualr world view will not be relevant any more to expalin with its narrative what is deepemd as a fundamental fact..

These kind of worries are the definition of being scare to death.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Tue Nov 18th, 2008 at 07:15:24 AM EST
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For those who believe that "reality" just is, as opposed to being an ongoing social construction, having your world view fall apart is the same as having your world fall apart.  If one believes that "reality" is created by God, fundamental changes can be seen as evil triumphant or as being a curse inflicted by God.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Nov 18th, 2008 at 01:20:34 PM EST
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Absolutely.. Dead on.

he is scared because his world is falling apart....the belief -system of a fundamentalist is more difficult to change...since evil triumphant and curse are very powerful explaining principles.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Tue Nov 18th, 2008 at 03:28:26 PM EST
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The b*stards are reading the ET! ;-D

(Beyond us b*stards I mean.)

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Nov 18th, 2008 at 01:07:10 PM EST
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Someone please take this subthread and make a diary out of it! :-)

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Dec 12th, 2008 at 05:00:24 AM EST
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