Category Archives: Economics

The Insurgent Economy

May 5, 2014economic history, Economics#economy, #insurgent, #insurgenteconomy, #john, #johnwilkinson, #wilkinson, 1812, dominant economy, economic growth, josiah wedgewood, napoleonic warsangrytunbridgewells

What we call the economy the economy is but a shifting powerhouse of competing and conflicting forces. The two most significant being the dominant and the insurgent economies. The former consists of the most powerful social groups in society, while they are have the power to distort and bend the economy to service their needs, they also through the exercise of power provide those services that hold the wider society together. While the 7% of wealthy public school educated men may hold the most powerful positions in society and abuse their power to serve their own interests, they do give society its system of governance. A system of governance that at its most basic consists of public administration, law and order and defence. No matter how exploitative their behaviour they hold society together. The Mongol warlord’s Genghis Khan and Timur the Lame were cruel abusive tyrants. Timur the lame making mountains of skulls out of his slaughtered enemies . Yet they provided a superb system of administration that held together an empire that stretched from Europe to the shores of the China Sea. However as both empires were over dependent on the the skills of the individual at the centre of government, they fell apart on the death of these men. Or to put it a different way the subject people’s were unwilling to pay a disproportionate share of their incomes to governors who could not provide an effective system of governance.

While the social group that controls the dominant economy in the UK are less brutal that the Tatar Emperors, they also use their control of the services essential the maintenance of good society to exact an onerous return for their services. In the 18th century the landed aristocracy effectively controlled the governance of Britain and in return this service they exacted from society huge sums of money with which to build the great country houses such as Blenheim Palace and Chatsworth House. While the landed aristocracy lived in grand houses the impoverished majority lived in hovels of mud and straw, few of which survive until today. When the landed aristocracy of France offered increasing little in return for the disproportionate share of national income that they rewarded themselves, they were overthrown in bloody revolution.

There is opposed to the dominant economy an insurgent economy peopled by those people excluded from the dominant economy. They threaten to take control of the economy from the dominant social grouping. In the 18th century this was the non-conformists, people from outside the dominant Anglican landed hegemony. People such as Josiah Wedgewood and James Watt, industrialists whose rapidly growing factories and the wealth they created enabled them to challenge the landed aristocracy for power.

The one way the members of the dominate economy can control the threat to their position was by denying or limiting resources available to members of the insurgent economy. In a largely agrarian economy of the 17th and 18th century Britain where most wealth was invested in land they were able to minimise this threat as they owned most of the nation’s land and were not willing to allow the control to pass into other hands. However this landed aristocracy while on the one hand tried retaining control of the nation’s wealth through a corrupt political system and by excluding people of dissenting views through from public office or the universities, did through their incessant wars with the French aid the rise of the insurgent economy. The suppliers of war material were the very people they wished to exclude from power. Men such as John ‘iron mad’ Wilkinson, who made the machinery that bored cannon barrels from blocks of iron. These manufacturers were so successful that even the French army that invaded Russia in 1812 wore British made great coats and uniforms. These industrialists benefitted from government largesse put their way. Such a large transfer of wealth inevitably affected the distribution of power in society and in the nineteenth century these industrialists effectively gained their merited share of power.

Not all the members of the insurgent economy gained their wealth from government funding. Entrepreneurs such as Josiah Wedgewood created a new market for high class porcelain through developing new technologies and imaginative marketing. He displayed in London for several months the dining service he made for the Tsar of Russia. This public display of his wares won him customers from the middle classes who wished to emulate the nobility. The threat they posed was recognised by the landed aristocracy. Joseph Priestly scientist and friend of Joseph Wedgewod was driven out of his home by a mob (whipped up to a frenzy by the local nobility) who regarded him as a dangerous radical.

What I wanted to demonstrate by my foray into economic history was to give an indication of how the tension between the insurgent and dominant economy affects economic development and growth. Today this tension is demonstrated through the bid by the American pharmaceutical giant for the British pharmaceuticals company Astra Zeneca. It is a deal that will inevitably go through as it will have the support of the City of London. Predatory financiers will buy shares in Astra Zeneca and when they believe the market has reached its peak, they will through manipulation of their dominant shareholding force a sale. In the meantime they would have bought and sold the shares many times to make a profit of millions or for the City as a whole billions.

There can be no doubt that the dominant economy today is that focused on the City of London. Parliament is but a creature of the City, as demonstrated by George Osborne’s opposition to the proposed Tobin Tax from the EU on financial transactions. A position given tacit support by Labour’s silence on the issue. The takeover of Astra Zeneca demonstrates the dominance of the ethos of the financial sector in the economy. Investment in research into new drugs is expensive and the results uncertain, a far more certain way to make profits is to takeover a rival company and realise (sell) its assets. Already there has been talk of the new merged company needed to rationalise research and development by cutting down on duplicate research facilities. Astra Zeneca holds plentiful real estate which could be sold to generate profits for Pfizer. Then there is the cash rich pension fund. Pfizer by cutting back on pension liabilities (reducing pensions or increasing retirement ages) gives Pfizer access to funds that could be used profitably to boost the value of shares through a buy back scheme. There are numerous ways Pfizer could use the assets of Astra Zeneca to increase its profits. All the talk of creating a new mega pharmaceutical company which will use its funds to develop lots of exciting new drugs is just PR guff, needed for the politicians to justify their acquiescence to the purchase by yet another British company by a foreign buyer, who sees the acquisition of a British company a increase profits by selling off its assets.

What matters is the balance between the dominant and the insurgent economy. If the dominant economy is over powerful it can deny resources to the insurgent economy and as the insurgent economy is the generator of economic growth it can diminish, if not destroy the prospects for growth. The members of the dominant economy must be willing as with political parties in a democracy be prepared to see the other side win, not destroy any possibility of that happening. Members of the financial elite must be prepared to cede or share power, as did the landed elite of the 19th century, when they shared power with the industrialists. Cadbury’s, Astra Zeneca are all witness the dominance of government by the financial elite. The hedge funds, investment banks that have financed the Conservative party will not be wiling to let government veto the opportunity to make vast profits on the proposed Astra Zeneca deal. It is no coincidence that the decline of manufacturing industry has coincided with rise to dominance of the financial elite. Perhaps the clearest example of this the closure of Rootes Hillman factory at Linwood and the car making machinery sold to Teheran. It was a standard joke that if you wanted to buy a Hillman Imp, the place to go was Teheran. There must be hundreds of factories using machinery formerly used in British factories worldwide having been sold at knock down prices by the city. Former manufacturing giants such as Dunlop (tyres) and Pilkington (glass) have been sold by the city to foreign owners.

The old manufacturing industries in UK would probably have declined but the actions of the city accelerated their decline. Unfortunately the dominant ethos of the financial sector is for short term speculative gain. Possibly this is why 80% of all bank loans are made to the property sector. This means the growth of the new rising insurgent industries have been choked off. Briefly Britain made computers but the only large scale manufacturer of them ICL was sold to the Japanese firm Fujitsu. The city having no interest in long term uncertain investments. This is why in the UK development in the new technologies has been confined to small software companies mainly based in the Thames valley area. Businesses that don’t require large scale city funding. There is hope that these new industries are beginning to make sufficient funds to finance expansion through reinvesting their own profits. Something that the iron masters and mill owners of the 18/19th century were forced to do, as all the traditional sources of finance went into land investment or the colonies.

A successful economy maintains a creative tension between the dominant and insurgent economies. The dominant economy is committed to social stasis to preserve the wealth of its members but in so doing it provides the social stability necessary for social order. Without that social order the insurgent economy would find it hard to develop. While the dominant economy is committed to no change, the contrary is true of the insurgent economy. Within the dominant social order there must be scope for the development of the insurgent economy, as that it the mechanism for future growth. This means the members of the dominant economy must be prepared to accept change and the loss of power. Not as in the UK where the city has systematically destroyed any threat to its power by disposing of new technology companies to foreign rivals.

There is hope in the new internet funding schemes which by-pass the banks. Crowding funding on the internet may hopefully develop as did 19th century joint stock company as a way getting funding for new businesses which are denied funds from the traditional sources.

A New British Industrial Renaissance or hope for the future with the demise of the banks

April 19, 2014Economics#18thcenturyBritain, #BlackActs, #economics, #endofbanksangrytunbridgewells

Never have I written an optimistic piece about the UK economy, that is because I believe its immediate future prospects are not good, however there could be a better future. This I believe because there are startling similarities between contemporary Britain and that of the 18th century. It was the beginning of the industrial revolution when the British economy grew at a faster rate than at any other time. Society in the 18th century was dominated by a landed aristocracy who opposed any change that would threaten their interests. Their interests being the taking a disproportionate share of national wealth for themselves. This was possible because anybody not of their social class was excluded from parliament, senior offices in the judiciary and armed forces. Laws could be framed to protect this group’s interests and by controlling the law and judiciary they could enforce these self interested laws. Laws known such as the infamous ‘Black Acts’, whereby hundreds of offences against the propertied interest, became hanging offences. Breaking a landowner’s gate and fences, setting fire to hay ricks were for example offences punishable by hanging. Yet despite this monopoly of law making, British society was far too changeable and complex to be controlled by the law makers in Westminster and Whitehall. Not realising it these aristocrats were presiding over a century of rapid social change, which could not be stopped by laws from parliament. There was a social insurgency taking place that would revolutionise society. Wealth was increasingly being created not on the great landed estates, but in the new factories in the industrial town. This upsurge in wealth that was out of reach of the landed aristocracy undermine their political ascendancy.

In contemporary Britain there is a financial aristocracy that is as powerful as the landed aristocracy of the 18th century. Government has been subject to what is known as ‘institutional capture’, that is the financial sector that is has effectively captured the government and made it a creature of its own bidding. While there has been a shrinkage of the welfare state there has been a tremendous expansion of the welfare state for finance. When the financial crash came in 2008 the government was willing to cut national welfare to finance a bank bail out. Billions were poured into the banks coffers while billions were taken out of the welfare budget. Despite all the public debate about the need to reform the banks, the banks have been able to fight off any meaningful reforms. However it is their very attempts to create a social stasis that makes possible meaningful change. It is relatively easy to manipulate politicians to their will through political funding, but impossible to bend society to their will. Society is far too complex and changeable to be controlled by dictates from bank head offices in London. While it may appear to contemporary Britons that the financiers are in complete control there are changes taking place that will undermine their dominance. Financiers just as with their 18th century forebears cannot keep society confined within their financial straitjacket. They are vulnerable to an industrial insurgency that they cannot control.

The National Westminster Bank was once Britain’s largest bank. Unsound investments in the American market forced it into financial difficulties. It was taken over by a smaller but more soundly managed bank, ‘The Royal Bank of Scotland’. However that in its turn was appalling mismanaged and is only kept afloat by vast injections of state money. Eventually its assets will have to be written down to a level that reflects its true value. Then the much diminished bank can be sold off to a much sounder bank. This will mean a large loss for the state, but it is inevitable. When politicians say that the bank will never be sold off at a loss, they are denying reality. What I am trying to say is that in twenty more years time, Barclays, HSBC, Lloyd’s and RBS will be nothing more than medium sized businesses in the UK economy of the future. Their very conservatism will mean they cannot adapt to change and they will be left behind, with a consequent decline in their assets and size. They will be dwarfs not giants of finance and their veto on change will have long been rendered insignificant.

Despite their adoption of the new technologies, the financial services sector remains part of the old economy. They remain wedded to the old ways, income is to be made from speculative investments, not in funding breaking edge technologies. The purpose of the stock exchange should be to enable companies to raise capital through the sale of shares. This purpose has long been rendered redundant by the members focus on speculation in equities as the surest way of making money. All the new developments such as super fast trading are intended to make speculative activities more profitable by spending up speculative trades. Certainly in England when a company goes public it is the death knell for enterprise and innovation in that business. Financial considerations now dominate board room discussions. All such firms acquire a property portfolio as the surest way of making money, risky but potentially high return investments in new technology are discouraged. The conservatism of the finance industries becomes the dominant ethos. It is impossible to think of one company in the top Footsie 100 companies that has a reputation for enterprise and innovation. The story of graphene illustrates this all too clearly. This was a wonder material developed at Manchester University, yet there is literally no British money being invested in developing this material, instead most of the possible applications are being developed in Japan.

The new economy is represented by a company such as Apple, not just for because of its high tech products, but its financing. While the company has used the traditional means of finance, it has largely relied on the profits it has generated itself to invest in new technology. How many bank managers would have willing invested in such a high risk venture such as the IPhone? Probably none, it would have been regarded as too risky an investment. This is why Apple has a huge cash pile that it refuses to distribute to its shareholders. It needs this cash for investing in the development and production of new products. The old system of finance is broken and Apple understands this.

However companies retaining profits to fund new developments is nothing new. What is new is the sheer size of Apple’s cash holdings. There has to be a new source of funding for industrial innovation. Just as in the 19th the development of the joints stock enabled businesses to by pass the banks to raise funds by selling shares to the public, so new internet financing schemes such as ‘crowd sourcing’ will enable new businesses to avoid falling into the palsied hands of the banks, hedge funds, stock exchanges etc. There will be the development of internet exchanges to regularise this funding and these new exchanges will gradually replace the older investment banks which are rapidly approaching their sell by date.The great advantage of such internet finance is that it will be cheap and easy to access. The old investment banks will be unable to compete and will eventually be replaced by these newer rivals. Once they are established an industrial renaissance will be possible as cash will flow directly to new innovative enterprises. The insurgency in the finance sector whereby new revolutionary sources of finance replace the old conservative banks is the key factor.

Today viewing the huge monoliths that are today’s banks, it is hard imagine that they have achieved their apogee. However any industry that is dependent on huge state subsidies to survive (or the backing of implicit government guarantee, as are the banks) is not a well run industry, it is failing business waiting to be decimated by newer more efficient rivals. There is also the decimation of the industry that will occur when the next financial crash arrives, as it inevitably will. Governments and more importantly the electorate will not be willing to finance yet another massive bank bail out.

Once the old finance industry’s stranglehold has been removed from the money markets by new insurgent money exchanges there must be a new British industrial renaissance.

I apologise for writing yet again about banks, my next post will demonstrate a different reasoning for there being a better future.

The Great Desolation or the ruin of England’s countryside. Oliver Goldsmith’s deserted village revisited.

April 11, 2014economic history, Economics, society#agricbusiness, #destructionofruralwayoflife, #impoverishmentofthecountryside, #OliverGoldsmithangrytunbridgewells

Whenever I write about economics; I like many writers look to my own experience to comprehend the changes that have taken place in our society. Frequently I look back to my childhood for inspiration partly for reasons of nostalgia, but also because I mourn a way of life that has passed. The rural economy of my childhood has been replaced by the corporate business farms of today. British television with series such as ‘Downton Abbey’ and ‘Heartbeat’ refer back to an England of my childhood. I’m not a hundred years plus but the rural society pictured in Downton Abbey survived well into the 1950’s and ’60’s. However these programmes never make reference to the ‘Great Desolation’ that began then and continued until the population that depended on the rural economy had been largely removed from the land to the towns.

Our rural community was broken up following the decision of the landowner to become a tax exile and pass the land unto his son. His son was one of the new generation aristocrats in whom the tradition of ‘noblesse oblige’ had been replaced by the much harsher one of profit maximisation. In business terms the estate was under performing and his his first priority was to get the costs under control and increase its revenue. As the main cost was wages, this meant the mass dismissal of estate workers. All the forestry workers were given immediate notice. They were to be replaced by contractors who could be used as and when needed. Game keeping staff were reduced from five to two. Pheasant shooting would be restricted to those parts of the estate that could produce the greatest number of pheasants. Rather than the shoot being for friends and family that is the the old nobility, the new guests would be paying guests. These paying guests would expect to get a return on their money, so all that mattered was maximising the number of birds to be shot on shooting days. Consequently there became a curious case of over production with so many pheasants being killed, that many had to be buried on the estate grounds because no market could be found for them. The only group exempt from the staff cull were the gardeners who could maintain the estate gardens, which could be open to the public at a price.

Having got rid of large numbers of workers, their houses were now freed up for sale or rent. The mock Tudor dairy from were I collected the family milk was converted into up market bijou residences for wealthy ‘out of villagers’. The working poor were dismissed from the countryside and forced to give up their attractive country cottages for houses on the council estate in the nearby town. Out of sight out of mind. When our family moved to this estate my father said he choose the job because the owners had a reputation for treating their staff well. There were even a row of modern day alms houses for retired workers. However welfare is cash expensive and in contemporary Britain employers only recognise that their obligations go only as far as providing a wage for their workers, welfare is the responsibility of the estate.

There was one further problem, the numerous small family farm tenancies did not earn a sufficient return on their land. Bringing a land agency who were notorious for their ability to get recalcitrant tenant farmers off their land was the solution. Immediately they enforced a rent review on the tenant farmers and the new high rents forced many out of their tenancies. They used even tougher tactics on the few that remained. One such tenant farmer suddenly found that his farm had two owners. Contacting these two new owners was difficult and getting them to agree on any developments on the farm was impossible. The tenant was forced to capitulate and give up his tenancy. This freed up one of the most beautiful farm houses on the estate for sale. Who bought it I don’t know but they paid an extortionate price for a part of one of the most desirable parts of the English countryside.

Strangely enough this new brutal landowner gained a reputation as a local beneficiary. Probably because he was always distant from the cruelties inflicted in his name. He gave money to the local community but this was not sufficient recompense for the devastation he wrought on the estate community which I remember with great affection.

Inevitably the justification for this cruelty was technology. The old high cost labour intensive methods had to go and be replaced by the new low cost technology. Large scale industrial factory type farms have replaced the small family farms of the past. Far more milk is now produced in the new dairy factories than was ever produced in the old milking parlours. There is as a consequence a problem of over supply of milk. This over supply has enabled the super market chains to drive a hard bargain with the farmers who are desperate to sell their milk. It is likely that only the huge low cost agri-business dairies will survive with the few remaining small milk producers being forced out of business. These huge dairy farms impose huge social costs on the community. To keep alive a huge herd of cows that contain many sickly animals requires the abuse of antibiotics. This user use has contributed to the problem of the development of drug resistant bacteria. There is also the attendant pollution problem, there is I believe nothing more unpleasant than a slurry pond.

To keep costs down these cows are kept in large numbers and fed drugs to increase their milk yields. Physically maltreated cows kept in overcrowded unhealthy conditions are a reservoir of disease, it is no surprise that TB is endemic in the British dairy herd. TB as always been a problem for dairy farmers, but it was a manageable problem in the past with small dairy herds of grass fed healthy cows.

What is never questioned in the agricultural community is the real efficiency of the new capital intensive farms. When the EU rewards farmers with a output based subsidy it rewards those farmers with the highest output regardless of the economic costs. Evidence shows that a disproportionate share of EU subsidies go to a relatively small number of agri-business farms, the corn barons of East Anglia are but one example. Without the EU subsidy they would go out of business as they would be revealed as uneconomic businesses over dependent on EU subsidies. Farming is all too often organised to maximise EU subsidies, rather than meet the needs of consumers.

There is also as a consequence of the change in agriculture support industries, that is the demise of the manufacturers of agricultural machinery. Fordson, Massey Ferguson and David Brown produced tractors and equipment ideally suited to the small British farm. When British farming switched to industrial scale production it opened up the market to foreign predators who specialised in making machinery for the new industrial farms. Relatively small in scale all the manufacturers of British farm machinery have since disappeared from the scene.

The drive to exploit all resources whether they be labour, livestock or land has led to abuse of that most precious of resources the English countryside. Fields are overgrazed through the excessive concentration of livestock on individual farms. Rapid growth and replacement of grass is only secured by the repeat applications of fertilisers, this can have the unfortunate effect of poisoning the grass making it unpalatable to cows. Herbicides to destroy non grass plants leads to the destruction of biodiversity and this impacts on the fertility of the soil. Heavy machinery compacts the soil meaning that rain runs off the soil rather than being absorbed by it, contributing to the heavy flooding of the last winter. Unfortunately the mass production of food stocks through the use of industrial farming methods leads to the degradation of the soil storing up problems for the future.

This essay on modern farming has a wider purpose, what I want to highlight is what happens when that most precious of resources, humankind is abused and degraded. The degradation of the English countryside is but one example of the devaluation of humanity in the productive process. It is not a coincidence that British workers work the longest hours, are paid the least and are the least skilled in Northern Europe. It is a consequence of the Anglo-Saxon management practice that regards people a things, just another commodity, a thing to be used in the productive process as cheaply as possible.

Oliver Goldsmith’s poem ‘The Deserted Village’ could be updated to today, I find his words as true as ever.

Where wealth accumulates, and men decay:
Princes and lords may flourish, or may fade;
A breath can make them, as a breath has made;
But a bold peasantry, their country’s pride,
When once destroyed, can never be supplied.

Although unlike Goldsmith’s village, the village of my childhood is not deserted, but populated by well off refugees from the great urban conurbations.

When I pass through one of the landscapes so beloved of ‘The Campaign for the Preservation of Rural England’, I wonder where are the people that should be working this land. The beauty of the landscape is protected at the price of excluding the rural working classes. They are not fit to muddy the view, instead they are to be banished to the impoverished housing estates in the cities exiled from their rural home.

Silly and childish economics, the perspective of a Christian sceptic

April 3, 2014christianity, Economics, societyChristian, Leibinz, Panglossian, Samuelson, Scepticism, Social Darwinism, The New Testamentangrytunbridgewells

Perhaps it is less so now, but when I was a first year economics student there was the inevitable lectures and seminars on the nature of economics. What we students were supposed to understand was that economics was a value free subject, a subject whose analyses were not skewed by individual value judgements. The techniques employed by economists offered an objective means for finding solutions to problems not influenced by ideology. In theory economists can offer objective impartial advice to both right of centre and left of centre politicians. Their arguments for example, against legislation to protect workers incomes is not part of a centre right ideology but based on sound economic analysis economists would state. Governments that set artificially high wages are more likely to cause distress by creating unemployment which adds to the misery of the working classes. Most famously demonstrated in Samuelson’s case of the New York tailors who secured legislation to guarantee high wages only to see their jobs disappear to the low wage tailors in Puerto Rico. This can be demonstrated by through the use of marginal revenue product analysis, which is a rational non ideological truth.

However this claim to value neutrality is fallacious as a very strange value laden ideology has been smuggled in through the back door. Underpinning much economic analysis is a simplistic social Darwinism. Darwin states only the fittest survive in the evolutionary struggle and in economics theory only the strongest business best adapted to the market survive. The theory of ‘creative destruction’ whereby only the strongest businesses survive after a period of intense struggle in the competitive market is nothing other than social Darwinism. The pain and suffering caused to humanity by pursuit social Darwinism theories are irrelevant; they are of one mind with the eugenicists such as Chamberlain, who saw the pain of eliminating the undesirable human elements as a price worth paying to save the human race. Yet coexisting with this social Darwinism is a strange Panglossian optimism, which believes that the free market economics and society is the most perfect of all possible societies. These advocates of free market economics believe that like some latter day Leibinz (who believes a good God was incapable of creating a less than perfect world), the market economy is incapable of delivering nothing less than the perfect world

When stated in its barest and simplest form the fundamentals of economics seem just plain silly. Yet as critical thinking is absent in the study of economics, as most economics faculties operate like some latter day religious cult. They reveal step by step the received truths of economics and students become acolytes who preach the received truths to unbelievers. To prevent being swallowed up in this nonsense it is necessary to achieve some distancing from the subject; another perspective that enables you to separate the economic ‘wheat’ from the economic ‘chaff’. What economists need is an ethical standpoint that enabling them to distance themselves from the subject, taking a more objective standpoint.

Christianity has enabled me to distance myself from the subject. It has imbued me with a healthy scepticism towards the follies of trending intellectuals. However my Christianity is not of the usual form. Fortunately the Anglican Church has a tradition of tolerating heretics such as myself.

The starting point for my personal philosophy is two fold. A childhood immersed in the Anglican theology, I was a choirboy at St. Peter’s church and a study of theology at York St. John when I was made redundant in my fifties. This has I think given me two perspectives on Christianity, the child like vision of God as a loving father of his children and a more reflective understanding of a sixty year old negative theologian. I think that despite my sophisticated theological training in times of crisis I tend to revert to my child like faith for consolation. It was perhaps my child like faith that enabled me to hang on to my sense of there being a truth, even though scepticism dominated my philosophy classes a scepticism which repeatedly demonstrated how fallacious were my most cherished longest beliefs.

There is a trite phrase that states something along the lines that each generation creates their own Christianity to suit their own beliefs. This is the belief of the traditionalists who regard many of the contemporary religious practices and beliefs as a passing fancy and that The Old Testament truths such as the condemnation homosexuality are one of the eternal truths to which the church will return once the current fads in religious belief have passed away. They cannot recognise that religion evolves into a progressively more sophisticated forms along with advance of other forms of human knowledge. They would accept that science and medicine have evolved into a more advanced understanding of disease, yet they cannot accept that religion must evolve in the same way. It cannot be locked within the beliefs and practices of the early Christian fathers.

Any starting point for a new Christian interpretation must accept that much of ‘The New Testament’ is nothing more than a series of forgeries. The four gospels were written not by the apostles Matthew, Mark, Luke and John, but by writers writing after the fall of Jerusalem in AD 70.; when it is highly unlikely that any of the apostles were still alive. Probably this is why the four gospels do not agree on the life of Jesus in particular with the details of the crucifixion. Matthew for instance makes only reference to the crucifixion but not the resurrection. The bible we read today is the creation of the Christian Fathers who selected which religious texts to include in the bible. Rather than dismissing the bible as a simple work of fiction, it should instead be recognised as the way of expressing the truths of religion in the language of its times.

The myths that populate ‘The New Testament’ must be seen as Karl Jaspers explains as the only possible way of expressing difficult religious truths. God is essentially unknowable, yet we must have some means of expressing our knowledge of God.

The supernatural should not be taken to mean that there is some religious super being who has powers beyond human comprehension; but simply a being who exists beyond or outside the natural world of human understanding. I accept the truth of Jesus’s miracles not as true stories, but as a person of the 1st century AD struggling to explain the concept ‘Godness’. We all know what the word God means, but struggle to explain it. The religious myths of The New Testament give expression to our sense of what God is and what it means to be God. Christ did not walk on water but he was unique and different from other men. How else could a religious writer explain this difference from other men except by granting Christ miraculous powers?

Negative theologians can be mocked for worshipping an unknown God. Bertrand Russell long ago mocked Christians for believing in an unknowable, invisible God, as he in his experience was unlikely ever to come across such an being. However our answer is that God makes his presence felt amongst us, he pushes himself into our existence and it is this presence that we can know, so this unknowable God can be known.

This I can express through my understanding of the concept good. Everybody knows what good means yet they cannot explain it except through describing good actions. Visiting and comforting an ill house bound neighbour is good, we can describe the good action, but not the essence of goodness. God for me is the essence of what we understand by good, Good is God’s presence within society. A presence which gives the meaning to our moral actions. I am what is more correctly termed a Neo-Platonist; yet I believe than people such as me are part of the Christian consensus.

What is needed is a new set of myths for a contemporary Christianity. How can an ethical language forged in the early centuries AD combat the contemporary social Darwinism of the new economics? A language that is completely at odds with the culture of our times. Even the simplest and dumbest of parliamentarians can understand the simple truths of Neo-Liberal economics. What is needed is a new set of contemporary myths that can counter this ideology, yet simple enough for even the least bright MP to understand.

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Liars or fools? A pessimistic view of today’s politicians

March 25, 2014Economics, Economics, politics, short term ism,, society, UncategorizedEd Balls, George Osborne, london's housing crisis, political liars and fools, Samuel Johnson, welfare capangrytunbridgewells

Sometimes I am puzzled, are the intelligent people on my television screen lying or are they really much less clever than I think? Last week two politicians with good degrees from elite universities both made a nonsensical statements about welfare spending, which either they knew to be untrue and in which they both displayed an incredible degree of cynicism and contempt for the electorate. Or more incredible still they believed in what they were saying.

George Osborne stated that he will impose a financial cap on welfare spending. Later Ed Balls for the opposition intimated that Labour would support the proposal. Whatever both really thought, it is impossible to guess. It is difficult to believe that either could think that they could predict welfare spending with any certainty in the future. A more sensible approach would be to commit to limiting welfare spending to reasonable levels, without committing to a fixed cash sum. Unfortunately a reasonable rational approach to political decision making makes bad headlines.

If both politicians believe that they can limit welfare spending to a particular figure; they are assuming that little will change in Britain in the five years following the election. They both must be claiming to know what demands there will be on the welfare system in the years 2015 – 20, which is impossible. There are a number of possible events that could occur which would make it impossible to keep within the cap.

There is some evidence that the British economy is running into one of its periodic periods of decline. The most obvious manifestation of this is the growing disparity between earned incomes and housing costs, either rent or purchase price. A recent article I read suggested that a young nurse who lived in Central London would have to pay 75% of their income in rent. Even Islington the former desired choice of home for metropolitan professionals is now being rapidly divested of them as they seek more affordable tenancies in other areas. House purchase in London now prices average £600,000 must be impossible to all but a privileged minority. The UK housing crisis is one of the lack of affordable housing, either for the young, median income families, the disabled, or increasingly the new elderly suffering from draconian cuts to their pensions. Whatever the government does it cannot avoid a spiralling housing benefit bill from the increasing large numbers of people unable to afford the costs of even modest housing.

The government has succeeded in selling a cap on housing benefit, (together with the bedroom tax) as a means of limiting the costs of housing benefit to the nation and eliminating the dependency culture prevalent amongst the work shy. However the line cannot be held as increasing numbers particularly in the South East and London will need help with housing costs, who will obviously not the the work shy inhabitants of the dependency culture. At present an inhumane policy toward benefit claimants has worked, by depicting them as several varieties of scrounger. There will be a time when the hostility towards these claimants abates. It is not inconceivable that this will happen when in the near future the majority of families in London will be claiming help with housing costs. Then it will be no longer an option to put families on the street, as these will be the ‘hard working families’ so beloved of the government. Even the most hard hearted of politicians will be forced to make concessions in face of the popular reaction against the mean spirited housing policy of today.

There is an alternative, governments in the past took action to control house price and rents. However that occurred in the despised 1960’s and none of the current generation of politicians would wish to go back to the time of social democracy.

What could be an endless list of events that could break the welfare cap will be limited to one more, climate change. This year the Thames barrier has had to be raised a record number of times preventing the carrying out of essential maintenance, making a possible failure of the barrier in future likely. The welfare costs of a flood that devastated London would be huge. While the government could afford to be complacent about flooding in the far away North or Somerset. The hysterical reaction of the media and politicians when it was possible that flooding in the Thames valley, threatened both their homes and constituencies demonstrates that there would be no limit to the welfare spending to help distressed Londoners.

One writer whose name I forget (probably Samuel Johnson) said that ‘all politicians are either fools or rogues’ understood all to well the nature of politicians. They either cynically propose solutions which that they know that of no relevance to the numerous crises at hand but which suit their political agenda or seem unable to comprehend their seriousness of these crisis’s and go along with any plausible solution made by their leaders or the media. How many of the political opponents of climate change are paid advocates of the energy industry, who will do anything for money and who are really flat earth proponents it is hard to know. All one can say is that as never before the political classes are overwhelmingly made up of cynical liars and the fools.

The Lawless Economy, more reflections from the Bad Economist

March 17, 2014Economics, irony, Politics, societybad economics, criminal mafias, financial mafias, political economy, the lawless economyangrytunbridgewells

Economics has been called mockingly the ‘dismal science’ because economists are always predicting a dire future for humanity. It remains a dismal subject; but I take exception to the use of the word science. In trying to establish it as a science economists have created an abstract world of economics distant from reality. The language in which economics is written often hides through its over complex technical jargon insights that are lacking in originality and often of little value. A bad economist such as myself eschews the use of the technical language of economics and uses a simpler language to arrive at different insights to my contemporaries.

One of the objectives desired by economists is the a attainment of a free market. A market that is free from any artificial constraints imposed on it by government (e.g. laws regulating the labour market or price controls) will maximise human welfare by maximising the output of goods and services at the lowest possible price. The market knows best and the government should not try to second guess it. Rather than go into a more detailed explanation, I shall assume that everybody is familiar with government propaganda extolling the benefits of a free and competitive market. Can I as an economist point out one unique feature of the free market; it is unlike any other part of society in that it is practically free of rules and regulations. As a civilised society we recognise that our community is best governed by regulations (laws), which ensure that society is run to the benefit of us all. Recent governments have produced a proliferation of laws regulating our conduct, except in the market where on the contrary it is trying to reduce them to a minimum. The government would never reduce criminal law to a minimum as it knows there are certain individuals who would exploit a law free society by using that freedom to harm others. Yet naively the government assumes that people who would behave badly in any other context, will behave well when working in the economy.

What I am suggesting is that from a common sense point of view, the free market should be called the law free market or more appropriately the ‘lawless market’. Viewing the market from this perspective gives a completely different understanding of the free market. I would suggest that the free market is more akin to those lawless states governed by criminal mafias, such as Mexico or Russia. What I shall attempt to demonstrate is that by applying the concepts used to explain the mafia states, it is possible to develop a new and more valid understanding of the free market.

In lawless societies it is the strongest and best organised gangs that predominate. In Mexico they are the drug cartels and in Russia it is the Bratva (the organised collective of crime elements). These criminal elements rob and despoil their host communities, using both violence and bribery to attain their ends. It is no coincidence that the richest people in both these countries are linked to these mafias. Also in both countries they have corrupted the political process and the forces of law and order so successfully that they now work to protect the interests of the various mafias. Russia has been called the ‘mafia state’ as the criminal elements in that society are reputed to be closely allied with the government of President Putin.

A similar analysis can be applied to the relatively law free economies within British society. The difference being one of degree rather than kind. Bankers and the City of London have long argued for a ending of any legal restraints on the trade in money and savings. With the so called ‘Big Bang’ in 1986 (that is the deregulation of financial services) they have achieved their aim. Now gangs of bankers and financial traders as the strongest and best organised gangs are the best placed to exploit the lawless money markets.

With the introduction of large bonuses, City traders were encouraged to use clients money not to benefit them, but in a way best suited to maximise the traders’ bonuses. It could mean ‘naked short trading’, whereby traders borrow shares to sell, so as to force down their price. A practice which enables them to now buy shares at the new lower price, having already contracted to sell the same shares at the old higher price in a previous deal. The difference in the buying and selling price represents the trader’s profit but a loss to those funds who now find their holdings of shares have been reduced in value. Their are many types of financial scams (charges) that City traders, fund managers use to divert their clients money to their own accounts.

This is the reason that an individual who invests in a private pension is likely (once inflation has been taken into account) only get back what they have invested. The profit earned from investing those funds as gone to others. In the more regulated financial market in the Netherlands, the average return on private pensions is 50% higher.

The City of London has as with the Russian mafia captured the government to such an extent that it can change policies to suit its interests. One example occurred at the start of the reign of ‘New Labour’. The Corporation of the City of London wanted to do something unique in a democracy, it wanted to enfranchise city businesses, so they could have a vote (size of vote determined by their number of employees) enabling them to outvote the residents of the City of London. Thereby there would be a Corporation that worked exclusively in the interests of the financiers. The government duly obliged. Obviously Gordon Brown’s infamous ‘light touch’ regulation maintained the relatively law free zone in the financial market brought about by the deregulation of the 1980’s. The result no restarting on the irresponsible behaviour of the financial community that brought about the crash of 2008/9. After the crash the government turned to the very people who caused the crash for a solution. The solution was to throw billions at the financial markets so no financiers suffered a real loss and the only losers were the non financier majority who provided the bail out money.

The corruption of the government and the law and order agencies is almost complete. The HMRC that is supposed to be a tax collecting agency, now actively works with large financial and industrial conglomerates to help them find ways of easing their tax burdens. The most infamous was the Vodaphone case when a tax bill of £6 billion was reduced through negotiation to a much smaller sum that only made a minimal dent in Vodaphone’s profits.

One of the most effective ways of bending governments to the City’s will is to fund them. The majority of the Conservative parties funds come from this source. With the successful media campaign to deny the Labour Party finance from the trade unions, it will become more dependent on friendly city financiers for cash.

While having focused on the financial sector I must not neglect the industrial and commercial sectors. Company law has been revised little, other than to favour business interests, since it was introduced in the 19th century. It is hopelessly out of date and is unfit for purpose, it provides no effective restraints on irresponsible company directors. There no no sanction that prevents gangs of company directors from raiding their company’s funds to pay themselves exorbitant salaries. Shareholder democracy is a myth. The thousands of individual shareholders have no means holding the directors to account. There is no way they can prevent irresponsible directors rewarding themselves handsomely, while running their company into the ground.

There are some governmental bodies intended to regulate business for the benefit of the wider community, but as with the old Department of Trade and Industry they have been shrunk into insignificance. Or as with the Serious Fraud Office so seriously under funded or so hampered by fraudster friendly laws that they are relatively ineffective.

Politicians such as Keith Joseph, Margaret Thatcher, Nigel Lawson, Tony Blair and Gordon Brown did not initiate a new era of prosperity through their free market market reforms, but instead introduced a new law free economy in which criminal like behaviours could thrive. Sharp or fraudulent practice is more widespread then ever in the ‘new economy’. Only if we stop regarding the economy as somehow distinct from the rest of society in that it must be ‘law free’ or ‘lawless’, can the economy be set of the path to sustainable recovery.

While I am bitterly critical of the new City of London, my criticisms are laced with regret. I worked in the old City of London in the 1960’s. A city in which different standards of conduct prevailed, a City in which the financial sector was well regulated and policed by government. Nostalgia may prompt me to over state the probity of conduct of the financiers of that time; but there has been a marked decline in the standards of conduct since then.

Finally I must state that I am reviving in this essay an old way of thinking about the economy, political economy. However I prefer to call it bad economics as it suggests an economics completely out of line with current thinking.

The Musings of a Bad Economist

March 11, 2014Economics, societybad economics, good economics, inequality, milton friedman, poverty, wealthangrytunbridgewells

While studying economics in the 1960’s, I always had the feeling that something was missing from the subject I studied. It was not just the absence of left thinkers amongst economists, I had the nagging feeling that there was a lack of a fundamental something. In a subject that is essentially about people there seemed to be a complete absence of the people factor. I was a bad economist who failed to grasp that in essence people were just another unit of production and their humanity did not entitle them to any special privileges. Only a ‘good economist’ (of which I am not one) could understand that the free market represents the epitome of human organisation in the economic affairs. Alternative such as the mixed economy, the planned economy have all failed and it is only the free market that can maximise wealth and human happiness.

Bad economists such as myself always fail to see the bigger picture, we focus on the misery suffered by individuals as a result of economic change, failing to realise that this misery is the necessary price to be paid for changes that benefit society as a whole. We focus on the suffering caused to people by the changes that have accompanied the introduction of the deregulated and flexible labour market; ignoring the benefit to employers who now have the power to adjust the hours their staff work to fit in with the needs of business. All supermarkets now benefit from the split shift system. Formerly they had to employ staff for fixed hour shifts, so they could end up with having too many shop floor staff in slack periods. Now they can send staff home during the slack periods and recall them for a second shift during a busier part of the day. Then there is the beauty of zero hour contracts, where employers can call staff in when they need them and they can include an ‘exclusivity’ clause which means that the employee cannot take on any other work when not required by their employer, meaning they are always available for work. Being able to treat people as if they where just another resource such as a machine which can be switched on and off when needed, enables employers to maximise their profits. Good economists see the necessity of relieving the workforce of their humanity, as sick and maternity leave do little more than disrupt the productive process.

There was recently a Question Time programme on radio where an employer and ‘good economist’ lauded workers in an American factory where the workers had agreed to incremental increases in the hours they worked (without compensatory wage increases), so that in the end all staff were working ten hours a day for six days a week. They had the good sense to realise that trivialities such as the right to a family life, were merely impediments that prevented the achievement of the greater good, that is the increased profitability of the business. That in turn meant that the owners would not feel compelled to relocate their business to a country where wages were lower, accepting inhuman working conditions were a price worth paying for keeping your job.

Income inequality is a subject that I constantly fail to understood. The ‘good economist’ sees widening income inequality as an unqualified good. Today company directors pay is about 128 times greater than the average wage of their employees, whereas in the 1980’s it was a ratio of 1 to 35. An economist would explain to an ‘economic dimwit’ such as myself, that the high pay for company executives was a necessary reward for talent. They could point to the recent example of the Co-op, where business consultants decided that the going market rate for a CEO was £3.5 million per annum. If the boss of the lowly Co-op supermarket chain can command that salary, obviously the boss of a giant bank such as HBSC deserves a much higher salary. By paying astronomically high salaries we would attract the best people to run our companies. We would all gain from the high growth that these companies would experience. The fact that I as an individual don’t seem to have benefitted from this upsurge in prosperity is that I am one of the unskilled apathetic who don’t deserve a wage increase.

Perhaps the doyen of free market economists or ‘good economists’ was the Chicago economist Milton Friedman. He understood why President Pinochet’s government on seizing power had to lock up and kill many of their political opponents. It was necessary for attainment of a greater good the introduction of a free market economy. These opponents, many of whom were trade unionists, would have opposed the free market reforms that the government intended to introduce. He could see that in the greater scheme of things, the death of a few trade unionists meant little compared to the increase in wealth for all from that came the introduction of the free market economy. There are right greater than the right to life, if you are the wrong kind of person. Death was merely one way of marginalising opponents of the free market.

When the reforms failed to deliver the promised wealth for all, it was pointed out by economists that it was the fault of individuals not the system. The talented and hard working had become rich, while those lacking the true entrepreneurial spirit remained mired in poverty. It should not be expected that economy should provide for those lacking in skill or drive.

I confess to be an economic slower who would want to reserve all the changes in the labour market, that have led to Britain becoming the low wage capital of Europe. It was not so long ago that a Korean company opened a factory in Wales because wages were lower there than in Korea. To reverse these changes I would introduce tougher wage regulation imposing a minimum wage never the ‘living wage’ and ensure that it was enforced. At present it is left to the goodwill of employers to pay the minimum wage. Since its introduction there have been no prosecutions of employers who flout this law. Job insecurity which imposes untold misery on millions I would reduce by re-introducing the job protection measures removed by successive governments since 1979.

A ‘good economist’ would see this as folly, he would gently take me aside and tell me that my proposals would work to the detriment of the labour force. They would point out that Ian Duncan Smith’s reforms that have reduced many to living in poverty are in reality a good thing, it is misguided individuals such as myself that misunderstand their purpose. Before the advent of Ian Duncan Smith far too many individuals were mired in the dependency culture. They had become individuals with no purpose in life other than to collect state benefits on which to subsist. These apathetic, aimless creatures spread misery, neglecting their houses and letting them and their neighbourhoods deteriorate too such an extent that they resemble Victorian slum areas. Reducing their benefits to a level less than on which it is necessary to subsist means they will be forced to find work. Once in work they will learn the pleasures of a life independent of benefits and they will gain immeasurably in self respect. Pushing these people into a poverty enforced misery will make them change their ways, it will eventually create a race of sturdy self reliant individuals.

Such a person would tell me that I misunderstand the benefit of low wages, it gives the worker the incentive to work harder. They also would say that what is wrong with the low paid worker having to have two or three jobs to make ends meet. It teaches them that nothing comes to them unless they work for it. They are incentivised through poverty level wages to work for self improvement. We need to instil into the workforce the work ethic that would be the most effective driver for prosperity. A living wage would have the reverse effect, it would mean that the lazy and incompetent would get the same wage as hard working and clever. This would be self defeating as the costs of production would be pushed up through having to over pay poor workers, thereby increasing prices, reducing sales, followed by staff lay offs. The poor need to be motivated by fear, they are a different in nature from the talented company directors who need high pay to be incentivised to perform at their best. They are a totally different type of being that responds better to rewards than fear.

As a bad economist I have this nagging feeling, I do not see after having thirty years of the free market that it has delivered on the promises made by its advocates. Certainly a small elite group have done excessively well out of the reforms, but what of the majority. Incomes for the majority have in real terms remained stagnant since 2003. House prices are spiralling out of control to such an extent the trend to home ownership has gone into reverse. Surveys suggest that the sense of national well being peaked in the mid 1970’s, not in the free market noughties. Is it possible that the benefits of the free market economy are merely illusory? In Stalin’s Russia of the 1930’s one five year plan after another was produced, always promising that at the end of each plan the communist nirvana would be achieved. All that happened was that nirvana seemed to recede further and further into the distance, somewhat like George Osborne’s plans. He promised remove the structural deficit by 2015, now its 2018, whereas in 2017 it will be put back to 2020 and so it will continue. Can I suggest that instead that a change of direction in government policy, one that takes account of the hesitations of bad economists such as myself. Bad economists prefer to look at the world as it is, not try to make it conform to some imaginary model.

London’s dire housing situation, are the banks also to blame for this?

February 26, 2014economic history, Economics, Politics, societybankers, CDO, control of the money supply, debasing the currency, Henry VIII, Lehman Brothers, London's private rental market, speculation, The City of Londonangrytunbridgewells

Reading a blog by Holly and Rhiannon on the New Statesman’s website prompted this post. In their blog they described the appalling conditions in which many young people live in London. Conditions reminiscent of those prevailing in the poorest parts of Victorian London. While the obvious villains are the new breed of landlord exploiting a dysfunctional housing market, these people are merely the catspaw in a highly dysfunctional inegalitarian society. Who are the real villains. One group are the third of MP’s who are buy-to-let landlords, who put their chance to earn a profit above the needs of the poorly housed young. What really is happening is a structural change in the economy that disadvantages the young and the poor, who are often the same. There is at the heart of this change a familiar villain the bankers and the City of London.

How the bankers can in large part be blamed for the poor living conditions of the young in private rental accommodation can be explained by the structural change in the British economy engineered by the banking community. This explanation starts with how a business makes a profit. There are two ways either that business develops and new product or service that people want or it acquires the right to sell an existing service or product and is able to increase the price at which it sells the product or service by exploiting the market. Apple with their successful IPhone would be an example of the first and Centrica and the other energy companies that make up the dominant cartel of energy companies would be the other. Bankers in part have made their money in part through the second route. The banking market is dominated by the big four who can exploit the market for money handling services by collaborating informally. Credit card charges are exorbitantly high and yet no bank undercuts the others by offering a low interest rate credit card. Any deals offered are merely incentives to change card companies. The £80 billion of bonus payments to be paid to the bankers this year is merely another example of increasing the charges for money transaction services made by the banks, its the exploitation of a captive market.

However there is a way of profit making unique to the banks. To understand this other way it is necessary to go back to Tudor times and Henry VIII. Henry was constantly overspending building and furnishing palaces fit for a Renaissance Prince. There were also the almost constant wars against France and the need to build a modern navy to defend the UK against aggressors. When faced with the inability to pay his bills Henry resorted to debasing the currency, that is reducing the quantity of precious metals in the currency. This enabled him to produce many more coins with his limited stock of gold and silver. The losers in this situation were Henry’s creditors who received payment in the new debased currency. The pound in their pocket was now worth much less. Debasing the currency was a common practice for insolvent monarchs who wished to reduce their debts to manageable proportions. Unfortunately this new debased coinage had the effect of impoverishing the less well off as it was inflationary and increased food prices. When the less well off were the majority it had a very negative impact on national well being. Contemporary bankers like Henry VIII have similarly debased the pound sterling to benefit themselves at the expense of the rest of the nation.

What is little understood is that in contemporary Britain it is the banks that are responsible for the supply of money in the form of bank deposits. Only 2% of money in circulation is notes and coins. It is banks through the process of credit creation that create most of the money in circulation. Realising the significance of this power governments in the Social Democratic era, but since 1971 all limits on the power of banks to create money have been removed by successive governments. The only limit of the amount of money the bank create is what the bank decides its reasonable to create. Perhaps leaving the bankers to decide how much money to create is not the best of economic policies. When Lehman Brothers collapsed it shocked many observers to discover that the banks deposits (bank money) was 50 times greater than its reserves. Later it was discovered that this was general practice and in fact many banks exceeded that ratio.
EU regulations require that banks equity total 1.5% by value of a banks deposits, which means European Banks are entitled to create bank money (deposits) that are 66 times the size of their reserves. The UK banks are marginally sounder as the ratio for them is 1:50. However their opposition to this limit and pleas for delay in its implementation suggest that even that ratio is exceeded in practice by our banks.

The power to issue money gives the banks incredible power. In 2010 the UK’s GDP(National Income) was £1.46 trillion, while bank deposits I estimate as totalling £7.3 trillion. Anybody glancing at these figures will realise that it gives the banks the power to dictate the direction of the economy. It is a power the banks don’t hesitate to use, most notably in 2009/10 when they succeeding in persuading (!) the government to save the banks by adopting a policy of national austerity.

This control of the nation’s money supply gives the banks the ability to direct the nation’s spending policies. If these excessive bank funds had been directed into developing the nation’s infra structure or long term industrial development their effects would have been less pernicious. It is no coincidence that this period of exponential growth in bank money was the period in which the number of new build homes declined catastrophically. To build a new housing estate meant money would be tied up for a long time in a construction project, which was unattractive when quick returns where available in other sectors in the housing industry. With a febrile housing market money lent on mortgages offered a quick return as there was always a large turnover in housing stock. Money was always being repaid from the sale of houses by customers wanting to move up in the housing market. Not only that but mortgage loans could be bundled up and be sold on as as part of a Collaterized Debt Obligation to other banks providing yet another source of ready cash.

The superior purchasing power of the banks enabled them to redirect activity in the housing market away from new build houses to the sale and resale of ‘second hand’ houses. There was a collapse in effective demand for new build houses, as all the money was going elsewhere to more profitable forms of speculation. Simultaneously the rise in prices of traded houses pushed up the prices of starter homes, reducing the purchasing power of the incomes of the first time buyer. Now the average house price is 5 times the average income, whereas most of recent history it was 3 times. Banks had effectively debased the domestic currency by reducing its purchasing power in terms of what really mattered, securing a home.

This change was effectively masked by a decline in interest rates, which reduced the cost of mortgages. In an economy in which people increased derived an income from property speculation it did not seem to matter.

Speculation in the various financial markets further increased the incomes of bankers and traders in the City of London. Bonuses of £1 million were becoming common place for traders in the City of London. It comes as no surprise to discover that this year England has become the largest market for Ferrari. What must be understood that the vast profits derived from this trading was money profits not real profits. It did not add to national wealth so much as become a charge on national wealth. Given that the bankers etc. now had control of a disproportionate share of the nation’s money they could outbid the rest of the population for the most desirable goods and services. Chelsea and Knightsbridge became the home of bankers, poorer residents were pushed out into other areas. Even less expensive areas in London such as Islington have become no go areas for professionals other than those who work in the financial trades.

Inflation figures whether shown in the Consumer Price Index or the Retail Price Index fail to show the extent of the true devaluation of the domestic currency. Since housing is one of the most significant items purchased in an individual’s lifetime it should be shown in a separate index and that would indicate the true decline in the value of the domestic currency. Giving bankers control of the money supply has resulted in them debasing the domestic currency as effectively as Henry VIII. Instead of reducing the value of the content of the currency, they reduce the value of the currency by increasing its supply of money, making each domestic pound worth less. Further by gaining a stranglehold over government economic policy they have been able to limit the incomes (money held) by the majority through persuading the government to adopt supply side economics and domestic austerity, which have kept incomes for the majority in real terms at 2003 levels, which means the bankers and the super rich can through their spending increasingly determine what is produced in the UK. The shrunken purchasing power of the majority means they have less say over what is produced, therefore less affordable housing.

UK government through surrendering control of the money supply to the banks have been able to remake the economy so that increasingly not just bankers but increasingly large parts of the population to look too making income through speculative activities, rather from gainful employment. It is a population with little optimism for the future that is attracted to the gambling websites, as they see it as the only chance of making money. A speculative economy in which the financial elite make fortunes through speculation in currency, commodities and equities is an unfair society as most are denied that opportunity. One such speculative activity is the buy-to-let property market in London, with prices increasing at a rate of 11% a year, the buyer cannot fail to make money. Since all too often its a short term speculative investment there is no desire to make the purchased property habitable.

Bankers I believe share a disproportionate part of the blame for the housing crises in the UK. Only by taking control of the money supply away from the banks can a fair and equitable society be created. There are lots of policies that could achieve this, one of the best is increasing the banks to hold a larger ratio of share equity (reserves) to bank deposits. A gradual increase of the amount of equity to deposit ratio to 1:10 would end many of the evils of the current system.

The Dog’s Opinion or the Received Wisdom of Westminster

February 17, 2014Economics, Politics, societyBoulton Paul Defiant, consensus, David Cameron, dog's opinion, Ed Milliband, kierkegaard, received opinion, strong pound, Westminsterangrytunbridgewells

Kierkegaard has a wonderful phrase which he uses when referring to public opinion, he calls it the ‘dog’s opinion’, in that it contributes as much to public debate and has as much truth value as the barking sounds made by his neighbour’s dog. It is worthless, I put a similar value on the consensus of opinion that passes for the received wisdom of the Palace of Westminster. This consensus of opinion at present has determined that the priority of any government is to reduce the public sector deficit. Only policies that contribute to reducing that deficit are judged to be worthwhile. Trying to make new policy commitments that don’t involve spending any extra money are next to impossible and lead to nonsensical policy statements by our leading politicians.

David Cameron was the first to make a meaningless sound bite on the flooding problem. He said money would be no object in tackling this problem. Afterwards it was quickly established what he really mean was not what he appeared to be saying. There was to be no extra government money, other than a few small sums to spent on diverting troops to flood control, he was addressing others. What I think he meant was that the insurance industry should not hold back on compensating homeowners for their losses. Not to be out done the leader of the opposition had to produce his own nonsensical policy pronouncement. Ed Milliband said he would commit much more money to resolving the problem than the current government. He then made the statement completely meaningless by saying that the money would not come from extra government spending but through reordering its priorities. However given that most government spending has already been committed to a variety of projects only a small sum of money is available to be redirected to compensating flood victims or spending on flood defences. What he is really trying not to say is that his policy is exactly the same as David Cameron’s.

One really popular but nonsensical policy pronouncement that comes from all parties in parliament, is that they will improve public services not by spending more money on them, but by reforming them to make them more efficient. What these reforms are and how much each reform will save is never spelt out, neither is how it will really lead to an improvement in service. Fortunately it has never to be spelt out, it is ‘responsible politics’, that it is not wasting public money. Any such announcement of reforms in the public sector, will be met with a warm response in the house, as the received opinion is that this is the correct approach to public service. Any minister that announced extra spending to improve public services would be met with howls of derision in the House, as ALL MP’S know that is exactly how not to improve public services. It’s a waste of money, as only reform will improve services.

Never having considered in any but the vaguest terms what reform means, it always in practice means the following. Cuts in staff numbers, worsening of terms of employment and cutting wages of the remaining staff. The crudest cost cutting possible, which generally results in a poorer service provision. Since the quality of such service provision is impossible to measure, it’s always possible to produce statistics to prove that contrary to what service users experience, that the service has improved.

HMRC into which the Inland Revenue has been subsumed demonstrates this clearly. Prior to the era of the great civil service reforms, which started in 1979, it was possible to ring up and speak to a tax inspector to get valuable and informed advice on tax matters. Now after the great cost cutting years of Thatcher, Major, Blair and Wilson, the same quality of advice is no longer available. What the relatively unskilled, demotivated but cost efficient service offer is a much poorer service. Advice offered is often poor or incomplete, errors are made in tax collection. Tax avoidance has grown exponentially because an underpaid, unskilled inspectorate is no match for the army of well paid tax accountants advising on tax avoidance schemes. When Gordon Brown announced that he was cutting the tax inspectorate by 10,000, he was cheered to the rafters. Those MP’s did not need facts or figures, they knew he was right.

What really provoked my ire was the triumvirate of George Osborne, Danny Alexander and Ed Balls pronouncing on the impossibility of an independent Scotland keeping the pound sterling as their national currency. It was if that if these three great men agreed on something, any opposition is but folly. They claim that if Scotland wanted to keep the pound sterling it had to submit to a currency union with the UK. Ignoring any inconsistencies in their reasoning, they knew they were right. I would want to ask them why this reasoning did not apply to the ‘treasure islands’ of Jersey, Guernsey, The Isle of Man and Gibraltar. Although small in total population, the banks of these ‘countries’ handle many times the quantity of currency handled by Scottish banks, yet their tax policies are contrary to those of the UK. They are in contravention of them as tax havens, yet this does not stop these countries using the pound sterling as their national currency. In fact the inhabitants of the Westminster Palace encourage them to pursue such policies.

What these politicians display is an ignorance anything outside the approved group think of Westminster. Any cursory knowledge of economic history would demonstrate to them that all kinds of currency unions are possible. The sterling area existed for over a hundred years and countries that wished to use sterling as a trading currency only had to deposit their reserves in the Bank of England. Their currencies were tied to the pound sterling in a fixed exchange rate and they were free to use sterling as they wished. There is no reason why a Scottish pound could not exist in parallel with sterling, but such options are closed off to Westminster consensus.

Another aspect of this group think is a commitment to the ‘purity’ of the pound sterling. The foolish notion disproved throughout history is that if the currency is right all will be right with the economy. While it is necessary for the national currency to have a certain degree of soundness, it is overdone in Westminster’s worship of the pound. Nobody in Westminster seems to know that in the 19th century when the USA experienced phenomenal rates of growth, the dollar was one of the weakest of international currencies. Some of the slowest growth in Britain occurred in the 1920’s when the government put a strong pound at the heart of its economic policy. This strong pound through overpricing British goods wreaked havoc on the export industries.

Words that I dread coming out of politicians mouths are reform and modernise as they always herald the introduction of some new and ill thought out policy measure.

‘Collective unwisdom’ is not a feature peculiar to this parliament, there have been several times in history when parliament has been equally poor. The British population in the 1930’s had a similarly low opinion of Parliament. This is the period in which the Boulton Paul Defiant was built, a fighter plane that I think embodies best the follies of our politicians. After 1938 the British government decided it had to build fighter planes quickly to counter the threat from Germany. One plane they choose was the Boulton Paul Defiant, whose only virtue was that it was cheap to build. This plane had two faults it was in terms of speed about 100 miles per hour slower than its German rival the Messerschmidt 109 and its guns were positioned in the rear of the plane. This slow moving plane was a death trap, as to get the best shot at its German rival it had to turn around so the gun turret faced the German fighter. In the process of turning around it was defenceless and this is when the German fighter shot it down. Hundreds of RAF pilots were killed in these planes without them shooting down one Messerschmidt. It is my wish that one of these planes should be positioned outside Westminster so as to constantly remind them of the limitations of the wisdom of conventional Parliamentary thinking.

Misconceptions about economics, how the obsessive search for profit can damage a nation’s well being

February 14, 2014Economics, Politics, societyBarclays, graphene, profit, real profit, transfer incomesangrytunbridgewells

Now that the end of the tax year is approaching it is the time for banker’s bonuses, that is the unbelievable large amounts of cash given to senior bankers at the end of the year. Barclays are to pay out £1.8 billion in bonuses and Lloyd’s £1.7 billion. The heads of these banks claim that it is necessary to pay out these bonuses as they need to retain the best staff in a highly competitive international market. They will point to the large profits earned by their investment bankers, often the most profitable division of the bank as justification for these large payments. However this reasoning is fallacious as these executives fail to understand the real nature of these profits.

What these bank traders in the investment banks earn is what economists describe as a transfer income. They don’t so much add to the stock of national wealth as transfer some of that stock of wealth from the wider society to themselves. These profits are best described as money or fantasy profits as they are of no gain to anybody but themselves. This they do by moving money around in such a way that they increase their stock of money by the end of the day. A trader will promise to sell to another euros at the end of the day at less than the going price, the other trader will accept expecting to make a profit as he is buying euros at less than their current price. The current exchange rate is £1=1.2205€, so the first trader may offer to sell at £1=1.2201, but he is hoping that others in the market share his opinion and that the price of the euro will fall to £1=1.2110. If that happens he can make a profit of 0.009€ on the deal, which does not sound much until you realise he is making a profit of €90,000 as he is buying and selling 10 million euros. Obviously it is a calculated gamble and it can go wrong and the bank will lose money instead of making a profit.

Unfortunately they are losers in this scenario, many British companies that export to Europe price their goods in euros. If the price of the euro falls they will get less in return for the products they sell. Part of the money that they should have earned has been through sleight of hand been transferred to the bank trader. Its nothing more that a transfer of cash from an exporting company to the bank. (British exporters price their goods in terms of euros because it is an international currency and by using euros the companies reduce the expensive transaction charges the bank makes for transferring cash).

Even worse the banks may advance money to traders or companies for speculation in either equities or commodities. RBS financed the buyout of Cadbury’s by Kraft, the losers were the workers in Cadbury’s as the costs of the deal were financed in part through cutting the wages bill, that is lost jobs. There will be a time when Kraft’s needs to realise its assets further to finance the deal or to boost its profits. The best way of doing that is too sell off its British factories. Cadbury’s in Britain factories are relatively high cost compared to those in Eastern Europe. All Kraft has to do is to sell its British factories and transfer production to Eastern Europe. The losers are the British as they have lost jobs and potential investment in the economy, while the only winners are RBS and Kraft.

Complacent government ministers who oversaw this deal failed to realise the implications. RBS and its traders have increased their money income but with no compensatory increase in national production. If the traders spent the money in Britain they could only purchase from amongst a limited supply of goods; which as they could outbid anybody else for houses, it could only result in house price inflation. Bankers love to own Ferrari’s, but in buying Italian cars they are adding to the import bill, while in return adding nothing to the UK National Income. The OECD estimates that proportionately Britain has the highest foreign trade deficit amongst all the developed nations.

Politicians are incapable of seeing the devastation the bankers have wrought on the British economy. They cannot see how this small minority of the country’s population commanding a disproportionate share of the nations wealth are spending it in a way that wreaks harm on the national economy.

It is no coincidence that the one country in Europe that has a huge foreign trade surplus is Germany, whose people have a very different understanding of the concept profit. Real profit as opposed to money profit is when a profit is earned in a way that increases national wealth,as the example of Germany demonstrates. German banks invest in long term industrial projects and consequently have a successful and growing industrial base (Volkswagen is now the world’s largest car manufacturer) unlike the shrinking British one. There is one depressing piece of evidence that illustrates this problem. Graphene a substance discovered by British scientists, a substance which has the potential to revolutionise the telecommunications industry is in research laboratory’s everywhere being put into commercial applications apart from the UK. (The government has advanced a small sum to the university to discover its commercial applications, but the sum is minuscule compared to other countries.)

An Unusual Economist

After the crash of financial 2008/9, it was obvious that the current model of economic analysis was broken. I want to develop a new approach to economic analysis.