Off to the seaside
Now that Parliament has at long last packed its bags and departed for the seaside we can relax. Mr Paul Volcker has revealed — to the amazement and relief of one and all — that he has nothing very nasty in his medicine bag (for the moment, at any rate), and the loose talk about an im- minent collapse of Opec has been happily dismissed as the product of overheated Imaginations, so the rest of us can cheer- fully follow the example of our legislators.
Or so they tell us. But...when every pundit worth his salt concurs that rumours of an oil price collapse are silly season stuff, the hairs at the back of the neck begin to tingle. Two years ago any oil buff prepared to speculate about the chances of a $15 barrel was assured of a City lunchtime au- dience. Eighteen months ago, when Opec met in London, the air was thick with pre- dictions of imminent collapse. Since then the smart talk has been all the other way, with calculations of the likely impact of a closure of the Straits of Hormuz. Yet while a zooming dollar has meant rising earnings for the oilmakers' cabal (including HMG), production has continued bumping against or through the Opec ceiling. Boeing has flogged a few-unconsidered jumbos to the Saudis in return for oil which the enterpri- sing US aircraft manufacturer is now dum- ping on the spot market: and where Boding goes can Airbus Industrie be far behind? And now the Russians — no sluggards at identifying a trend — are bargain basement sellers. Opec has kept its act together through good times and bad, and the odds must be that it will survive the latest pres- sures like the rest. Still, it might be just as well to give a passing thought to what might happen if things did get out of hand.
Fortunately, while all major jolts to the price of key variables, whether currencies or commodities, are bound to be destabili- sing, this is a jolt we should be able to live With. The long-term effects of a sharp drop in oil prices would be inflationary, just as the long-term effects of the two previous 'oil shocks' were deflationary; but the short-term impact would be helpful to price stability, just as the 'oil shocks' were the reverse. Sterling would take it on the nose (indeed is already doing so in antici- pation); but again, while it is fashionable nowadays to lament the way in which the Treasury in 1979-80 pushed up interest rates and to hell with the exchange rate, that insouciance was correct then, and Would be correct with the pressures moving in the opposite direction today. What the Government and the North Sea oil compa- nies lost through cheaper dollar prices they would largely recoup through cheaper Pounds; and while we might be denied the.
bonus of lower sterling import prices, the knock-on effect of cheaper sterling on in- flation expectations would be muted. Countries like Nigeria and Mexico wouold be in dead trouble. But the clubs of commercial and central bankers should be relied upon to keep them more or less afloat (whether they pay lip service to IMF advice or flout it), and the current favou- rite for debt default, Brazil, would be al- most sitting pretty. In short while the second-round effects of a collapse of oil prices would most likely be unhelpful, the immediate impacts should be containable.
Much the same could be said of Mr Vol- cker. His message — that in due course America will awake with a very nasty han- gover, but that little point would be served by dishing out the Fernet Branca for the moment — looks like a fairly blinding glimpse of the obvious, for all the aston- ished relief on Wall Street. With low US inflation, a record-breaking dollar, and a queue of teetering debtors stretching south beyond the Rio Grande (not to mention the presidential election three months away), the Federal Reserve has better things to do than hark to Dr Kaufman.
What all this adds up to in our own backyard is that sterling could be in for further turbulence. If corrective action has to be taken, the logical response would involve some modest tightening of the fis- cal stance — in other words an extra so- mething on indirect taxation — rather than a further rise in interest rates or 'cuts' in public spending (as opposed to action to restrain the growth in next year's public spending within the limits laid down in this year's Budget). But predictions that last month's jump in interest rates will soon be self-correcting are looking pretty optimis- tic, particularly with Mr Scargill's stor- mtroopers heading for collision with the courts.
Notwithstanding this unsettled outlook the OECD — not normally ranked among the members of our Prime Minister's fan club — is predicting in its latest forecast out this week that we shall be one of only three countries in western Europe with a shrin- king dole queue over the next 18 months. Could we speed things up by introducing minimum wage legislation: or, on the contrary, by scrapping the wages councils and widening the differentials between the earnings of juveniles and adults? In the past few days battle has been joined between the Low Pay Unit and Mr Henry
Neuburger, late of the Treasury and now of Mr .Kinnock's kitchen cabinet, in one corner, and the Institute of Economic Af- fairs in the other.
The LEA fields Dr David Forrest to de- monstrate, by reference to American expe- rience, that the champions of minimum wage legislation are trade unions, lobbyists for regions suffering contraction, and em- ployers (seeking to repel boarders), while the victims are the young and the black priced out of work; and Professor Denni- son, rich in experience of the running of our own home grown wages councils, to tear into Mr Neuburger (Low Pay or No Pay, Institute of Economic Affairs, £2.50). Mr Neuburger assures us that his simula- tions have been fed through the Treasury model, and produced an insignificant dele- terious effect on employment — even so, hardly an impressive commendation, sure- ly? — to which Professor Dennison res- ponds that between 1969 and 1977, when juveniles' earnings as a proportion of those of adults rose steeply, unemployment among juveniles rose from around the na- tional average to three times the national average.
For my part I was struck by the latest news from the equal pay front. This shows that the ladies have lifted their earnings from 63 per cent of what we males were paid in 1970 to 74 per cent today. What it doesn't show is that female unemployment has grown even more dramatically, from 14 per cent of total unemployment to 30 per cent. But then that was exactly what Jack Jones and his cronies had in mind when they dreamed up the whole idea in the first place: putting the ladies in their place.
These are topical issues, for next year, when our signature on the international convention which underpins the wages councils lapses, we were promised the changes, and now all the signs are that the Government is getting cold, cold feet. Mr Tom King should read Professor Denni- son. There is nothing like a sinner that repenteth for the persuasive advocacy of virtue.