SIR— Your article, “On the trail of the mutant inflation monster” (October 4th), fails in its conclusion that the ability of central bankers to dampen speculative excesses is more constrained than their ability to set them off in the first place.
From a unique position of strength, Mr Greenspan should have continued tightening monetary policy and made clear why he was doing so, thereby sending an unambiguous message to the stock-markets. Instead, he turned tail once his (correct) diagnosis of “irrational exuberance” had failed to impress and kept on wobbling beyond what was probably the point of no return. Started early, a gradual and moderate tightening would have curbed speculation without triggering a meltdown.
Stock-markets at their present levels are out of touch with economic reality, propelled solely by record low interest rates in most of the developed world. Once “real” inflation starts picking up—which it inevitably will—the prospect of a sustained rise in interest rates will send markets south.
Perhaps Mr Greenspan speculates that a stock-market crash will rid him of the problem of global over-liquidity. But in believing he will be able to manage the resulting shake-out, he is taking a dangerous gamble. There is not much leeway left for easing monetary policy still further, and a sudden constraint on global money supply may well be the shortest route to recession and ailing stock-markets for years.
SIR—A global warming policy (“Global warming meets the prodigal eagle”, October 11th) would aim at an array of measures that would both reduce emissions and mitigate the rise in carbon-dioxide levels. Governments should encourage the building of nuclear power plants, phasing out the coal-fired types. New laws should encourage development of hybrid gas-electric auto engines, which will use gasoline engines of greatly reduced size to charge onboard batteries, and nations should promote the planting of trees.
We also should face up to the fact that predictions on the consequences of warming have an amazing resemblance to the exaggerated fears of environmentalists, who have been peddling their views for decades. We should ask very plainly: what is wrong with a warmer world? If we truly understand what is in store, we may find that global warming is something to welcome, not to oppose.
Fountain Valley, California
SIR—You say, “Most of America's leading scientists agree that urgent action is needed to check global warming . . .” You do not, however, report the expected effectiveness of action recommended to counter the estimated 97% of greenhouse gases caused naturally.
How are we to ameliorate the impact of solar activity, belching volcanoes, breathing humans and farting cattle as reported in eminent publications, against the effects of temperature increases recorded mostly in the first half of this century?
SIR—Perhaps the reason Colombia's right-wing paramilitary groups are “relatively uncondemned” (“No peace”, October 11th) is because left-wing guerrillas have been active there for nearly six decades. Right-wing paramilitaries are the product of a complex but comparatively recent situation that was generated mainly by the arrival of the drug business.
Over the past 60 years, a lot of people, rich and poor, have been displaced from an otherwise immensely rich and varied countryside by the violence of left-wing guerrillas. This has prevented any modernisation of agriculture, and concentrated all creation of wealth around urban centres—the logical result when private landowners are discouraged from investing in rural areas by threats of kidnapping and extortion.
Abandonment has permitted coca and poppy crops to flourish, in the midst of lawless groups—left and right—who have taken control of agricultural land. Talks have been held in the past with insurgent groups with mixed results. It is misleading to place so much hope in them. What Colombia needs is a stable, healthy government and the rule of law unequivocally enforced by its institutions.
SIR—Assessing how alternative electoral systems would work in British conditions is clearly an important topic, now that the British government has promised voters a referendum on the issue (“Electoral reform: Everyone wins”, September 20th). However, the simulation which you report on how the 1997 election would have turned out under alternative systems, diverges significantly from those which we have made in a detailed six-month study.
Whereas your reported projection relied on a single poll question about people's second preferences, our method was to interview 8,400 people across 18 different regions of Britain immediately after the May 1st general election. Actual ballot papers were completed for Alternative Vote (AV) and Single Transferable Vote (STV), using real candidate names and so on. We looked at all their preferences and simulated results for each constituency in the country under AV, and for 141 five-member constituencies for STV.
According to your figures, the AV would produce a split of MPs, with the Tories beaten into third place:
Conservatives ................ 88
Lib Dems........................ 90
But our study shows:
Lib Dems......................... 84
Turning to the STV, the differences are equally stark. Your account gives party MPs as:
Liberal Democrats ............87
Our study shows:
Liberal Democrats ...........131
London School of Economics
SIR—Your comments on our paper “French unemployment: a transatlantic perspective” argue that it is “wishful thinking” to believe that wage rigidity is not one of the main causes of French unemployment (“Labouring the point”, October 11th). You also dismiss the finding that high firing costs may be the crucial explanation.
However, our paper shows that the idea that French unemployed workers find it difficult to find a job because they resist (by comparison with workers in the United States) taking a wage cut is simply wrong.
In the latest annual report of the French statistical agency, INSEE, it was shown that one-third of French workers accepted a nominal decline of their wages in 1996. And France has become the OECD country where the share of wages in value added is the lowest. Turning to French business, one would hear the same story: that the problem is not so much wages as the lack of flexibility regarding firing.
A recent poll published by Le Monde showed that 70% of French workers were ready to take a wage cut to create jobs, but did not want to hear about raising job turnover. The idea that wage inflexibility is the core of the matter misses the point.
SIR—You claim (Economics focus, September 27th) that it is not enough for critics to argue that speculation in foreign-exchange markets can cause substantial and permanent injury to industry and whole economies (argued not only by Mahathir Mohamad, Malaysia's prime minister, but also James Tobin, a Nobel laureate). They “must also suggest a better alternative” to free, flexible exchange rates.
You then quote Mr Tobin's recommendations: to “throw sand in the wheels of international finance” via a tax on foreign-exchange transactions. Mr Tobin claims that such a tax would discourage short-term speculation without having any significant impact on long-term cross-border investment. But the Tobin tax can discourage long-term investment as well as short-term speculation—a point I argue in May 1997's Economic Journal.
You give the impression that, apart from the Tobin tax, there are no other “better alternatives” to the existing system. Yet there are at least three: purchasing-power-parity exchange-rates, advocated by Ronald McKinnon at Stanford University; the fundamental equilibrium exchange rate, proposed by John Williamson at the Institute for International Economics; and my proposal, which develops a system that puts the onus of resolving current-account deficits on countries in surplus.
You owe it to your readers not simply to perpetuate the classical economic myths that markets can do no wrong.
University of Tennessee
SIR—In support of your plea for selective education (“A hard choice for Mr Blair”, October 18th) you say that four out of five 11-year-olds in Islington cannot pass a basic reading test. Is it your contention that selection by academic ability should be applied in primary as well as secondary schools, or that private prepara-tory schools should be subsidised?
It is not surprising that a large proportion of parents would educate their children privately if they could afford to. Who would not choose smaller classes and more expensively equipped laboratories, language centres and information technology facilities?
In your enthusiasm for the return of selection you overlook the disadvantages suffered by children living in poor social conditions. In boroughs such as Richmond, where a high percentage of parents are graduates, both the primary schools and the comprehensive secondary schools produce test results above the national average despite the existence of a number of very successful independent schools in the neighbourhood.
Hampton Wick, Surrey
SIR—In the 1960s The Economist was a keen advocate of comprehensive schools because they would provide a grammar-school education for everybody. Now you say that scrapping grammar schools and replacing them with comprehensive schools was a “disastrous decision”. Well done!
SIR—“The jumbo stumbles”, (October 11th) tells of the current production difficulties of Boeing, the blame for which, according to the manufacturer, lies with the company's suppliers. Airbus Industrie, which uses, in the main, the same suppliers, knows no such difficulties and will deliver 185 aircraft on time to its customers this year, compared with 126 in 1996.
Referring to the successful ramp-up of our production rates I find your use of the adverb “curiously”...curious. Why should it be “curious” that we anticipated an upturn in the market earlier than our competitor did? Why should it be “curious” that we took steps then to increase production by 50% in 1997 and by a further 30% in 1998? We owe it to our customers to deliver their aircraft on time and we organise ourselves accordingly. We engineer our success and have been doing so for the past 20 years.
SIR—Your article “Europe's Single Currency” (October 11th) is hard to quarrel with, though you might have said more about the dimension of a federal European political union, whose absence is one of the factors threatening the venture's success. For some, it is a desirable objective towards which the single currency might be a first step and therefore justified in spite of all the problems you set out, while for others it is a nightmare made more likely by the single currency, which is for that reason to be rejected. Where do you sit on that fence?
But your leader “Ready or not” in the same issue surely mis-evaluates Britain's options. First, you assume that the chances of EMU succeeding are the same whether Britain joins or not. This seems wrong.
An EMU in which Britain's 50m-odd relatively well-educated people, with their international financial skills, their strong democratic tradition and their strong centre-right government are working positively for it on the inside will be much better placed to succeed than one where these factors are negatively employed. And since a failed EMU will be costly for Britain whether it is in or out, there is a case for reducing the probability of failure by opting for the insider role from the beginning.
Second, it is wrong to assume that the club you decline to join when it needs you will accept you when you deign to apply.
Peacekeeping in Africa
SIR—“An African answer to African wars” (October 18th) suggests the need for an African peace intervention force. Given civil wars in at least ten African countries, and continuing serious conflict in Burundi, African solutions are better than the outside crisis-response initiatives, whether European or American.
Peace in Africa, and the end of the intra-state battles, will come only when Africans invent a series of diplomatic and military methods of keeping it. President Nelson Mandela's leadership will prove critical. The roles of Washington, London, Paris and Oslo must be secondary, but supportive and responsive in terms of funding, command/control and logistical support, airlift support, and training. Africans must take the lead, no matter how dire the consequences of inaction.
SIR—Each regional dialect or class dialect ( Johnson, September 27th) must surely have its distinctive crop of ideal speakers, individuals who follow its rules well.
Since all dialects cannot be studied with equal care, although each is “as good as any other”, it is sad that only dialects enjoying a greater social prestige and exposure will allow us to recognise an ideal speaker.
We are ready to perceive good diction of the standard British English variety, the standard New York or the standard Boston variety, but cannot, for example, be equally unambiguous about good diction in an ideal speaker of Yorkshire dialect.