The Fear Factor: Chloe Smith’s debacle was far from the most significant thing on Newsnight

Chloe Smith’s spectacular ‘crash & burn’ on Newsnight this week was striking, and certainly afforded a certain satisfaction to the many opponents of the coalition government. It demonstrated eloquently just how shambolic this ‘government’ is, and even more so George Osborne’s incompetence and essential cowardice and callousness in sending a young, junior minister to be roasted by the impressive Paxman rather than face the music himself like someone with a spine would have.

However, in the understandable furore surrounding the spectacle, everyone seems to have missed an item in the same show that, while far less entertaining, was in fact far more significant than the hapless Chloe, George’s latest u-turn or even than the impact of the deferred increase in petrol duty.

In the segment of the show on youtube, if you watch from the 4 min 42 second point, you’ll see Fraser Nelson, editor of the right-wing ‘Spectator’ magazine, being interviewed about the u-turn. What he says is striking, and not only because it’s a Tory speaking and it still has truth and significance in it! He says:

Right now, George Osborne’s credibility is a very precious commodity. Literally billions upon billions of pounds are riding upon the fact that we have a Chancellor who says what he means and means what he says‘.

No, of course it’s not a fact that Osborne’s credibility is a precious commodity, or that he says what he means and means what he says. Plainly, his credibility is non-existent, so it isn’t even a resource, and even Nelson goes on to clarify that Gideon doesn’t say what he means or mean what he says at all.

The truth in the statement is that the credibility and competence of the UK chancellor makes a difference of many, many billions of pounds to the UK’s economy. Think about that for a minute, because the significance of the fact is massive, and the consequences go deep.

This significance goes way beyond the lightweight, froth-and-no-substance nature of Osborne, Cameron and co. It shows us that we have allowed our economy, over the last few decades, to shift from being based on real value and real product – to being built on the shifting vapours of the ‘market economy’, on the moods and whims of the ‘confidence fairy’.

When Margaret Thatcher came to power in 1979, she quickly set about deregulating the financial markets. This was trumpeted at the time, and many times since, as a visionary master-stroke that allowed our economy to grow far faster than it had previously. However, all it really did was turn the basis of our economy from something solid into something that could be blown up like a balloon. No longer did companies and countries need to actually produce more or better of anything in order to ‘grow’. Rather, increasing ‘market confidence’ inflated the nominal ‘value’ of companies etc. This allowed a small number of people to get very rich, very quickly. But balloons burst or deflate – and people whose livelihoods depend on them staying inflated tend to get very anxious about them, very quickly. In her supposed ‘master stroke’, Thatcher put our economy – or at least our perception of it – at the mercy of ‘the markets’.

A couple of weeks ago, as the results of the latest Greek election were becoming public, I was listening to John Pienaar’s ‘Pienaar’s Politics’ show. I like John P very much. I’ve even been on his show. But I was literally banging my head on the table when, within seconds of the result being announced, the discussion turned to ‘what will the markets make of it?’ And JP is anything but an exception. Several times per hour on BBC and other news channels, and daily or more in the print and online media, someone will be talking at length about the markets, how they’ll respond, what they’ll think, whether they’ll approve of the latest measure or speech. But it’s all ‘the Emperor’s new clothes’ – so much vapour, and about as meaningful in reality. Except that by swallowing the concept that it’s crucial, we make it so.

On the news, on business programmes and on politics shows, it’s constantly implied, and sometimes said explicitly, that somehow the health of the economy is linked to the happiness, confidence and performance of ‘the markets’. But in reality, ‘strong’ markets don’t mean strong economies. In fact, if there’s any correlation, it’s the opposite – strong economies and weak markets usually go together, and vice versa. But if you listen to the pundits, you’d never guess it.

You may never have had much to do with the stock market. But basically, it’s like a big betting shop. Well, betting shops are better regulated, so it’s probably more like an unlicenced cockfight or dog race. It’s a forum for gambling – only instead of betting 50 quid, the bets can be in the billions. And people can make money whether the markets go up or go down. Betting on the share value of a company to go down is perfectly legal – it’s called ‘short-selling’. Or you can buy shares hoping that they value goes up so you can sell them at a profit. If you guess right, you make a lot of money. If you guess wrong, you lose a lot of money. And because most of these transactions are computerised, very often shares are held for only a fraction of a second before being sold again, as a way of minimising the risk of a big loss. It’s a high-speed maelstrom of constant volatility. Especially because the outcome – the going up or falling down of value – in the markets isn’t based on what is actually happening. No, the outcome is decided by confidence – if people expect it to go up, it generally will. If they all panic and expect it to fall, it’s a self-fulfilling prophecy. One nervy dealer can cause a mass stampede.

Now I’ve nothing against gambling per se. If someone wants to put a few quid on a horse race, football match or other sporting event, all fine and well. But if you win, you win – and if you lose, tough. You knew the risks when you placed your bet.

Similarly, there’s nothing wrong per se with the stock market – if people want to gamble on the performance of a share, fine. What’s wrong is basing your perception of economic reality on how it reacts, and allowing yourself to be held hostage by those bankers so that you have to keep them happy, or refund their money if they bet badly and lose. You wouldn’t use, as the foundation of your economy, a bet on whether a coin lands heads or tails. You wouldn’t base it on someone’s confidence in their bet one way or the other, either. And you certainly wouldn’t base policy on trying to stop them suddenly panicking that their confidence in a particular outcome might have been misplaced.

No. Because using that kind of situation as the foundation for your economy would be like trying to build and maintain a house of cards on the back of a particularly nervous, skittish sheep. You’ll spend all your time trying to calm the sheep and neglecting important stuff – and then the sheep will panic anyway and everything will fall down.

If you were in a room with a bunch of nervy people betting on things, with a tendency to stampede in panic one way or the other based on rumour and speculation, you wouldn’t start giving them your best china and your most precious and fragile possessions to hold and to gamble with.

No, you’d quietly close the door on them, let them get on with it, and find a different, less volatile setting for what you wanted to do.

But, for decades now, we’ve set up home in the madhouse, and we’ve been told so persistently that it has to be that way and can’t be any other, and that our health, wealth and happiness depend on keeping the gamblers happy and confident, that we’ve come to believe it – and we’ve handed our own treasure to them for ‘safekeeping’.

It’s insanity. If the market value of a company falls, the real value of that company’s products and services hasn’t changed. If a ratings agency downgrades a country’s credit rating, that country isn’t any better or worse than it was the day before – and the companies doing the rating have a record of bad judgment, self-interest and political bias anyway!

As David Mitchell so brilliantly put it in his rant against ‘wanker bankers’ and their games with non-existent money, ‘it isn’t as if all the pigs in South America suddenly died of blight‘. Nothing real has changed – the skittish sheep just bolted temporarily.

That’s why Fraser Nelson’s statement about the amounts hanging on how George Osborne is perceived is so significant. We – or our governments on our behalf – have allowed the whole dynamic of our economy to become dependent on that skittish sheep, to the extent that the collective opinion of an unnamed mass of people, about one really rather unimpressive individual, can wipe hundreds of billions of pounds off the perceived value of our country, our companies, our economy.

The common ‘wisdom’ is that it has to be this way, that companies and countries can only finance their activities by relying on the volatile, skittish, often irrational markets. I disagree. Surely, at last, we’re sick of the status quo and ready for change – we’ve seen that the ‘market’ Emperor is really naked, we’re able to see the damage that calling his ‘clothing’ sumptuous and enviable has done, and we realise that even if we keep him happy for a time, sooner or later he’s going to trip us up again. It may seem like we need to think incredibly big, be incredibly bold, to dare to make this change. But in fact, it’s nothing more or less than common sense and self-preservation. We’ve allowed ourselves to be beaten over the head for too long and told it’s good for us – it’s time to make it stop.

It’s time. Time for leaders with vision, will and imagination to step up – and to find new and better ways to define and to finance our economies and state activities. Ways that allow the sheep to run around to his heart’s content – in an enclosed field miles away from anything valuable and where he can’t hold us to ransom if his bets don’t come off. Ways that will allow steady growth, not boom, bubble and bust – and that will improve the lives of all, not just an ‘elite’ few.

Let’s see if such leaders are there, and ready, and bold enough – and then elect them and hold them to account for seeing it through. And then, let’s begin. Whatever happens, it can’t be any worse than being on the back of that sheep…


  1. I wouldn’t describe anything Fraser Nelson says as significant. He’s basically a sixth-form contrarian who’s never had to grow up. He’ll also never suffer any ill-effects personally if what he says about politics or economics turns out to be nonsense.

Leave a Reply

%d bloggers like this: