Just what we need: a well-meant effort to gum up the market in houses. This market now seems to be gumming itself up, but never mind. A new Housing Act has been passed into law, and with it the concept of sellers’ packs. Anyone who wants to sell a house will have to put one of these packs together or, more precisely, to order one. They are supposed to contain all the information that a buyer of the house might want to have, and members of the Royal Institute of Chartered Surveyors will be happy to provide them for anything up to £1,000. Who are these surveyors? Well, if you wanted to annoy them, you could describe them as estate agents with their Sunday suits on. Preparing the packs will help to keep them busy and provide a welcome boost to their incomes — for business has been slackening off, and Countrywide, which owns the biggest chain of estate agents in the country, now forecasts that in the last three months of this year it will lose money. Good news, too, for the 7,500 inspectors who will be recruited to police the scheme, and for the lawyers, who can see new scope for litigation. The packs will be with us in two years’ time, and will be compulsory all over England and Wales the year after. You might ask why willing buyers or sellers could not decide for themselves whether to ask for all this information or provide it or pay for it — but ministers and their advisers, just like estate agents, need to be kept busy. Here comes the latest instance of Sir Peter Middleton’s Law: ‘Even if you have a badly functioning economy — which in many ways we still do — it is always possible to make it worse by government initiatives.’
A clock speaks
These developments are being closely studied by the Stopped Clocks Club, of which I am chief horologue. When I founded it the Bank of England and I were the only members. We had watched with disbelief as house prices zoomed ever onwards and upwards, we were weary of forecasting that they would run out of steam, we decided to stop and wait for the facts to catch up with our forecasts. Now we find ourselves less exposed as a minority group. Christopher Smallwood of Barclays expects that house prices will fall by 8 per cent and that by the end of 2007 they may be down by as much as one fifth. When the market was running away — up hill, that is — I urged the Governor to treat it like a mule and attract its attention by hitting it over the head with a length of four-by-two planking. In the event, five sharp raps with a rising rate of interest seem to have done the trick. This is an achievement he declines to celebrate. Central bankers, he says, do not go in for celebrations — ‘in fact, our job is make sure that they don’t get out of hand’. He has certainly put a damper, and not before time, on the Great British House Party. It just goes to show that, as our club’s motto proclaims, even a stopped clock is right twice a day.
So pop goes our favourite illusion: that the way to get rich is to buy a non-productive asset with borrowed money and then live inside it. How these bubbles glisten, while they last. Richard Dale in The First Crash (Princeton, £18.95) analyses the South Sea Bubble. It had everything — ramped markets, mug punters, contagious excitement, puffs planted in friendly tip-sheets, and a Chancellor of the Exchequer who was cut in on the stock and ended up in the Tower. The Sword Blade Company, promoter of the bubble, was the (Whig) Bank of England’s (Tory) rival. A patient economist, Archibald Hutcheson, kept on explaining that South Sea stock was overpriced, and the stock kept on rising, until it sucked in such sceptical investors as Robert Walpole and Isaac Newton. A City merchant called Guy sold at the top and founded a hospital. This was, Professor Dale says, a test case for the theory that investment decisions are rational. Buying stock in the belief that the market is rising, so that somebody else will come along and pay more for it later, is known as momentum investment, or Bigger Fool Theory, and is rational while the supply of fools lasts. When the momentum builds up, the market’s prophecy can be self-fulfilling. The more you borrow, the more you can buy and the more money you can expect to make. We have been watching this trend in the market for houses and, like all trends, it goes on till it stops. It now seems to be stopping.
It is a sad day when the Blackwells, Oxford’s benevolent bookselling family, are thinking of putting the shutters up. Some or all of their shops — to my surprise, there are now 61 of them — are for sale, or may diversify into sweatshirts, branded mugs and other accessories of the modern student lifestyle. Books must play less of a part in it, now that essays are available on line in kit form, and Blackwell’s has been losing business to Internet booksellers like Amazon. The student body will live to regret this. They will find that they cannot treat Amazon, as they have been known to treat Blackwell’s, as a convenient reference library. Credit may be scarcer, too. It was said that when Blackwell’s sent you its final demand — or rather, the fifth out of six in the series — you should ask to see Sir Basil Blackwell and explain to him that you were only a poor scholar. This was probably true and might earn you a breathing space. He would not have felt the same way about sweatshirts.
Asking for less
The Conservatives were ready for the election and rightly expected to sweep back to power. In the campaign guide provided by Central Office, they claimed that when they last held office, national expenditure per head of population had been reduced — ‘which was then considered a vote-winner’, Andrew Roberts explains in his life of Lord Salisbury. No Conservative leader has been more effective in getting and holding power, and his successors might like to study his tactics in the 1895 election when preparing for the next one. Their shadow Chancellor, Oliver Letwin, is matched with the biggest spender of all, as we shall be reminded next week when he previews next year’s Budget. If the party of Salisbury hopes to appeal to the taxpaying classes, the obvious slogan presents itself: Oliver asks for less.
Christopher Fildes’s book, A City Spectator, is published by Nicholas Brealey (£12.99).Statistic? Hedonistic
I wonder how Gordon Brown rates the Post Office’s hedonics. The study of the measurement of happiness must be on his mind just now. It appears to have caught his attention when the Office for National Statistics told us that the public sector was becoming less productive — that each of the numberless pounds he was spending bought less than the pound he had spent before it. This would never do. The ONS was told to do its sums again and make the arithmetic more hedonistic. The Warden of Nuffield was asked to re-assess the output of the National Health Service, making due allowances for technical and medical advances. It would take a truly ingenious economist to show that the Post Office has been increasing its contribution to the sum of human happiness, but some ambitious professor with an underfunded department to feed would surely feel happier for trying.
Sing along with Robin
What counts with statistics is not to make them look good but to make them look better. Better than what? Better than whatever index suits your purpose. Robin Angus, the Bard of Charlotte Square, told this truth in his Rentanindex Song, applying it to investment trusts — but for official statistics, it goes double:
I’ve indices galore, and you can see the choice proliferate — By changing round the currencies (for that I charge a stiffer rate)The simplest-seeming markets can be shown in really dotty terms —Imagine, say, the Nikkei Dow expressed in Polish zloty terms...The Goddess Truth she need not blush (I haven’t quite forgotten her),Your figures may be rotten, but I’ll find an index rottener,So don’t forget this wise advice — for trust men always treasure it — It isn’t what you measure, it’s the way in which you measure it.
The Chancellor changed his chosen index of inflation, leaving out housing costs when they were rocketing, and is getting ready to put them back in. He must have been singing along with the Bard.
A paperwork offensive is now raging through the City, whose regulators insist that no firm can sell a service without demonstrating that it knows its customer. Show us your passport and your gas-bill, please, and now sit down and fill in this weighty form. Question Umpteen: ‘Please specify the original source of funds.’ A friend of mine was going through this rigmarole with a firm where he had been known for half a century. In answer to Question Umpteen, he wrote: ‘Almost entirely from 46 years of extremely hard work.’ In fact, any answer would have done, for the form will be filed and forgotten. The regulators just want it filled in.
Tell them, Peter
I could count on Sir Peter Tapsell to introduce me to the finance minister of Madagascar: ‘Do you know Sir Veerasamy Ringadoo?’ At the International Monetary Fund’s annual soirée for 3,000 bankers and ministers, he reckoned to be on familiar terms with two thirds of those present. Some of them he would have met when selling British government stock to the world on behalf of James Capel, his firm in the City. His work deserved an exporter’s award, but he will be happy to settle for The Spectator’s accolade as Parliamentarian of the Year. His economic ideas — a card-carrying Keynesian, he called for Geoffrey Howe’s resignation as Chancellor — kept him out of office in the Thatcher era, but his financial knowledge and experience brought something to the House which is becoming rarer. He harried today’s Chancellor for selling half the nation’s gold reserves at a knock-down price. Just now he is harrying Nikko for scuttling home to Japan and reneging on the pensions promised to its City staff. Public life needs vocal and well-informed septuagenarians. Keep at it, Peter.
Now, Master Stephen, that wasn’t very clever of you, was it? Writing all those rude words on the wall of your shop? When you can’t even spell them? No wonder your friends won’t come in and your sums don’t work out and there’s a hole in your pocket. What do you mean, it was only a set of initials? French Connection United Kingdom? Now go straight upstairs and wash your mouth out with soap and then we’ll think of a nice new name. How about the one you were born with, eh — Marks? That’s not a nice name in retailing, these days? Nanny knows best, dear.
Christopher Fildes’s book, A City Spectator, is published by Nicholas Brealey (£12.99).