Category Archives: politics

The Economy does not Exist

Perhaps now being in my eighth decade I can look back with some perspective on society. While I must admit that wisdom does not necessarily come with age, one’s vision and understanding does sharpen over time. What becomes increasingly evident is the follies of mankind and in particular the politicians. One often repeated folly occurs when politicians say that … must be done for the sake of the economy. To their listeners it sounds impressive, but it is just yet another must say meaningless phrase that politicians say. The economy does not exist, it is not a thing as such. It is merely a word that economists give to a series of activities that create wealth, and the means by which that wealth is distributed. The crofter the Outer Hebrides and the investment banker in London will be included by the government statistician as being part of the British economy, but the link between the two is tenuous. Rather it is better to say that the economy is lots of different things that involve wealth creation and distribution, but it is no more than that.

There is a very simple example that illustrates this point. Government ministers take policy decisions that they claim are for the benefit of the economy, but which in reality damage significant sectors of the economy. British governments have pursued policies designed to keep the exchange value of the pound high. The reasoning being that as so many of our goods are imported from abroad, if foreign currency is relatively cheap compared to the cost of the pound, imports will be comparatively cheap. As over 50% of our food comes from abroad, it makes the fruit and vegetables in the supermarket cheap to buy. However this same policy is damaging to our domestic manufacturing industry. If the pound is expensive in terms of foreign currencies, it makes British exports expensive and foreign imported manufactured goods cheap. Consequently British manufacturers are hit twice, their expensive imports are hard to sell abroad and they are increasingly undercut in the domestic market by cheap foreign imports. This is why British manufacturing industry only accounts for 10% of national output (GDP) and why of all the developed countries the U.K. has the largest trade deficit as a percentage of GDP.

What I am trying to say is that by treating the economy as one thing, rather than several things, government economic policy making is condemned to be both wrong headed and damaging. Anyone looking back over government economic policy, will see a series of constant policy errors and misjudgements.Observing this record of failure politicians came to believe that a policy of doing nothing or as little as possible was the best policy option. From this came Neo-Liberalism and free market economics. There was an equally obvious conclusion that politicians could have drawn and that was that governments had been using the wrong economic policies or applying them correctly, which they preferred to ignore. Also it was a terrible misreading of history, a recovery from the ravages of war in 1949s and 50s was only made possible by the government regulation of the economy. Money was directed towards rebuilding the economy away from consumption. Rationing of goods was very unpopular, but it made possible the post war economic recovery.

Today the only economic policy measure used is monetary policy, the government believes that by controlling the supply of money they can best manage the economy. One way they control the money supply is through varying interest rates. Their reasoning is that of interest rates are low people will be encouraged to borrow more and the increase in the amount of money in circulation will increase the demand for goods and services so increasing economic growth. What they don’t understand is that a policy of cheap money can be bad for the economy. Interest rates are the price paid to borrow money and as such the price at which money is borrowed should be high enough to discourage foolish and silly investments. Unfortunately when money costs next to nothing to borrow it encourages many foolish speculative investments. As money borrowed today can buy shares that can be sold tomorrow at a profit. If only a higher price was charged for borrowing money such speculative punts would be discouraged.

Government ministers need to realise that a booming stock market is not the economy, but only one part. The froth on the coffee. When money is made so easily by speculating, why bother with the long term investment that business desperately needs. Such investment does not deliver the quick and astronomic returns of speculation, it only delivers in the future. Why wait several years for a return on your money when a speculative will deliver a profit tomorrow or the day after. Consequently the UK’s investment in infra structure is as low as that of the European basket case, Greece.

South Korea offers an instructive comparison. After the Korean War in 1951, it was a basket case. The country’s economy had been devastated by war. Now South Korea is one of the world’s major manufacturing nations. This was a country which the government actively interfered in the economy. What it employed was sectorial economics, in which the government decided on which industrial sectors to promote and how to support them. Samsung was originally a manufacturer of agricultural machinery, who following the dictates of the government concentrated on the manufacture of electronic goods. Samsung is now one of the world’s leading manufacturer of electronic goods. Neo-Liberal Britain’s last major manufacturer of electronic goods GEC disappeared long ago, after its directors made a series of foolish acquisitions.

The only large British owned and managed manufacturing industry is in engineering, where there are two remaining industrial giants. BAE and Rolls Royce. It is no coincidence that these two companies have been in receipt of government largesse in the form of defence contracts. Sometimes politicians cannot see what is in the front of their noses.

Obviously South Korea is not without its problems, it does as does all developed countries have a severe youth unemployment problem. However in ten years time South Korea will still be a major manufacturing nation of hi-tech goods, the same cannot be said of the U.K. Quite possibly it will continue on the path of slow decline, which has been its history this century. Only if politicians stop believing that there is an economy and instead acknowledge the economic reality, they might develop policies that promoted economic growth and welfare and not the reverse.

*This essay owes a considerable debt to Markus Gabriel’s book ‘Why World does not Exist’

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Intellectual stupidity a practice common to both Economists and Politicians

Intellectual stupidity is not a concept that is to be found in book on either the subject of economics and politics. This is a concept that was created by Robert Musil. He distinguishes between two types of stupidity, natural and intellectual. The first is the one due to physiological factors, it occurs when an individual lacks the mental capacity for higher order thinking. Although he would be criticised today for his use of this offensive word, he can be justified when its contrasted with intellectual stupidity. A term Hannah Arendt had in mind when she criticised evil as personified by Adolf Eichmann as banal. This was a man who lacked intellectual curiosity, he was unable to empathise with the millions of victims of the holocaust. He thought the was a good man because he made the trains to the death camps run on time. The fact that these trains took millions to their deaths was no significance to him. Their deaths were somebody else’s responsibility. He was in his mind a good administrator not an essential player in the holocaust.

Politics and economics practitioners are blighted with a similar failing. Milton Friedman was guilty of this failing. When Milton Friedman was told that the Chilean government when introducing the free market reforms he advocated were imprisoning, torturing and killing opponents of these reforms, he said it was a price worth paying. Just as with Adolf Eichmann his vision all that mattered was the introduction the Chicago School of Economic management to human societies. Human rights was for him just a matter of secondary concern. Recent political history has been dominated by such practitioners of intellectual stupidity.

In Britain such stupidity has been demonstrated by successive governments in there implementation of the free market economy. They see there role as being facilitators of a Hayekian free market system. When ever such reforms produce failures such as the collapse of Carillon, a company to which many government sources had been outsourced; it was a consequence of poor management with the company. Never was the policy of privatisation of government services considered to be a flawed concept. The ‘Economist’ magazine while exposing the failures of Carillon’s management mounted a strong defence of the outsourcing of government services. Now two other outsourcing giants Capita and Interserve are in trouble. Yet our government remains committed to outsourcing as a policy practice. This is demonstrates intellectual stupidity, as government ministers cannot contemplate any alternative policies or thinking.

Intellectually stupid politicians are always trying to second guess their civil servants. Rather than seeing them as experienced administrators who can offer them practical and useful advice on policy matters; they are seen conspirators who are trying to obstruct their policies. The traditional civil service practice of providing the minister with a series of policy alternatives from which to choose is seen as a threat to the integrity of government policy making. Just recently a senior politician who studied history at University decided that economists at the Treasury were conspiring to undermine Brexit, by producing erroneous data on the consequences of leaving the EU. This politician who has only a brief acquaintance with the subject of economics, claimed he could see not just errors but treachery in the work of these Treasury economists. This failure to accept any alternative view of events to the individual’s own is typical of the intellectually stupid thinker.

Why is intellectual stupidity the default mode of thinking of our politicians?

Perhaps part of the explanation lies in the books they read. Friedrich Hayek’s book ‘The Road to Serfdom’ can be read in a few hours, possibly on a wet afternoon, when there is nothing else to do. In this short book he claims to offer the solution to our contemporary malaise. There is no end to these books that claim to have the answer. Another such is Ayn Rand’s ‘Atlas Unchained’, yet another writer who claims to provide the solution to our current malaise. What these books encourage in their readers is a cult like belief, that they alone have the exclusive possession of the truth. The blinkered mindset of an ‘Moonie’, Jehovah’s Witness or Scientologist, is mirrored in the thinking of so many of our leading politicians. The lack of curiosity about alternative thinking is characteristic of the intellectually stupid.

These politicians have also been to the elite universities and this has given them an intellectual arrogance. They after a short period at university just ‘know’. One exemplar of this type is the politician who is an English graduate who decided that he did not need any advice from experts in their field (educationalists and economists), as he had acquired sufficient understanding ‘to know’. He as with so many of his colleagues ‘knows’ any further knowledge would be superfluous to the task in hand. These politicians can be best described as ‘generic’ politicians, as such they believe that they have already possess all the skills and knowledge necessary for the most demanding of political positions.

This lack of intelligent curiosity is demonstrated in these three remarks made by politicians about food banks in the U.K. The first said that increase in food bank use food was because people were attracted there by the free food on offer. Another said increased food bank use was a good thing, as it had shown that his government was more effective than the former at publicising this service. The last said people go to food banks for many reasons. What none of these politicians could say that people on low incomes were reduced to such desperate straits, that they were forced to go to food banks to get the food they needed for themselves and there families. Just as Adolf Eichmann could not bring himself to admit the his trains were taking the Jews to there death, so these conservative politicians cannot admit that there policies are creating such widespread impoverishment that thousands are now forced to go to food banks in order to survive.

This callousness is not the consequence of intellectual dishonesty, but a thinking that prevents thinking of either the Jews or the less well off, as people of any consequence. They are demonised either as a threat to the well being of the German people or a threat to the well being of the British economy and society. The political philosophy of both Adolf Eichmann and contemporary conservatives treats certain groups of people as inferior beings who lack the rights accorded humanity in general. A world view best summed up by the Nazi official who called Jews vermin.

What Robert Musil writes about intellectual stupidity is very similar to the thinking of Augustine on evil. He describes evil as a not knowing of God. People who don’t know God commit what we term bad acts. Augustine as a Neo-Platonist also equated God with Good, so people who did not choose to know God could not know good. The intellectually stupid chose not to know the evil of their actions and as such are unable to know good. These intellectually stupid would be the people who Augustine’s would accuse of doing evil acts.

The Economics of the School Playground or Free Market Economics

Recently I met a group of friends who like me are nearer to seventy than sixty. What surprised me was that the ethics of the school playground still prevailed amongst us. As we had not met for several years, there was an immediate struggle within the group for supremacy. One particularly made a determined effort. First through trying to put down what he saw as the weakest member of the group, by making a slighting references to his speech impediment. Once having demonstrated his superiority to over him in his mind, he went on to list his recent achievements to demonstrate his superiority over the others. This competitive behaviour is apparently typical behaviour of men in any social situation. Once he felt that he had achieved top dog status he calmed down and returned to a more normal conversational mode. This is little more than a grown version of the  playground behaviour we indulged in as children. In my primary school it  was superiority in the traditional sports of marbles, conkers or any athletic activity that counted.  There was inevitably one boy who excelled at all things and who had the admiration of all, the alpha boy (male). What struck me was that if the behaviour and the ethics of the playground still governed the behaviour of this group of near seventy old men, surely these playground behaviours must come to the fore in all spheres of activity in which men participate.

Obviously it is possible to overstate the influence of the learnt playground behaviours on adult males; however there do seem to be striking similarities between behaviours of boys in the playground and those of adult males.  Is this not demonstrated in the male obsession with competitive sport? Men are taught from their earliest age that life is a competition in which its necessary to win or at least do well. Losers are beneath contempt, I still remember with horror the way us boys treated the designated loser in the playground. The vital social skill of co-operation is placed well below that of competitive ability. Until very recently economists were men, the Cambridge economist Joan Robinson (1903-83) being one of the exceptions. Does the dominance of men in economics with their competitive behaviours influence there understanding of the economy? The answer is a probable yes. Economists see the competitive market as the infra structure upon which the economy is grounded. All sectors of the economy are nothing more than competitive markets in one guise or another. Economic theory is a theory of winners and losers. Losers play an essential role in the economy as through their failure they remove from the market those producers that are inefficient, those that produce the wrong products and those workers that are less efficient. Unfortunately the losers suffer the penalty of unemployment, but they have a function in that they provide an incentive to those in work to try harder to avoid the penalty of unemployment.

Co-operation rarely gets a mention in economic textbooks, except in negative terms;  trade associations and trade unions are seen as nothing than barriers to the efficient working of the market. However this ignores the fact that society as a whole is largely a co-operative enterprise,in which people co-operate for the greater good. Education and healthcare in this country are  examples of collaborative enterprises. Even in the commercial market the rival traders see the benefits of collaboration. When I worked for a London insurance broker, my employers and others collaborated in the financing of the Lloyds insurance market and its management. They co-operated because they knew a regulated and well organised market would attract more business as people with place their money with businesses they trusted. Unfortunately with the deregulation of the market in the 1908s there has been a falling away of standards and trust particularly in regard to the life assurance companies.

There is one example from the playground that male economists seem to have forgotten. Rules are needed to make the games boys play work. One game that we used to play at the Scout hut was British Bulldog. There would be two teams of boys, one trying to stop the other team from  reaching the other side of the room. The easiest way to stop the members of the team trying to cross the room would have been  through extreme violence, such as a punch. To prevent this game degenerating into a fight rules were imposed which prohibited any contact apart from the grabbing and tackling of opponents. Just as British Bulldog needed rules to make the game work, so does the economy needs rules as without them bad practice thrives.

Seemingly economists have voiced their approval of the actions of the playground bully, he who but for rules would have got his pleasure from hurting others. All influential economists are of the Neo-Liberal school which sees government regulation hampering the legitimate activities of business entrepreneur (bully).  Their mantra is that business knows what is best for business. The malign impact of this abandoning of all rules is demonstrated clearly in the food market. There successive governments have since the 1980s weakened or removed much of the legislation governing food hygiene, In tandem with this they have reduced to an almost insignificant number, the number public health and food inspectors. One consequence of this has been shown in the recurrent food scandals, most recently the beef scandal in which supermarkets were found to be selling horse meat instead of beef in many of their processed meat products.  Criminal gangs have also found that lax food and healthy regulation make it possible to relabel and process food that unfit meat to the supermarkets for sale to the public. Food writers write of a food mafia that is exploiting lax food and hygiene regulations to the detriment of public health.

There is hope for change as there are now many more women becoming economists. I don’t want to make the suggestion that women are any less competitive than men, having two daughters I can testify that women can be extremely competitive. However women value co-operative behaviours more highly, they learn from an early age the value of supportive groupings. One example of this co-operative behaviour is the support that mothers offer each other with childcare. All the pre-school child care groups in my locality were organised and run by local women with or more usually without government support (funding). What I am trying to suggest is that the different life experiences of women make them value collaborative behaviours more highly than men.

Many of these new economists reject the  social darwinism of the mainstream, one economist such economist is Ann Pettifor. She has warned of the dangers of the unregulated financial markets in her book ‘The Coming First World Debt Crisis’. These unregulated market she explains are in danger of bringing about an economic crash greater than that of 2008/9. In the UK private sector indebtedness amounts to 2000% of GDP, the highest in the developed world. This level of debt is a threat to the future viability of the economy, yet the government persistently ignores their problem. Lord Oakshot described the British Treasury as the bastion of free market fundamentalism. It almost goes without saying that the senior economists at the Treasury are male and are so wedded to the idea of competitive markets, that they refuse to consider any other than the most minimal of regulation in the financial markets.

This is not to deny that some of the new women economists are of the orthodox persuasion, as a number of them work for that centre of economic orthodoxy the British Treasury. What I suspect is that a greater percentage of female economists are of the non-mainstream variety, than is true of their male colleagues. If men tend to see the world as nothing more than a series of competitive interactions, they will have a preference for those economic practices that encourage competition and they will see any regulation of the competitive market as anathema.  Unfortunately despite its public statements to the contrary, the male dominated Treasury sees little reason to do other than minimally regulate the financial markets, despite the likelihood of an unregulated financial market repeating the experience of the crash of 2008/9.

Why are our leaders so stupid?

What puzzles me is why are people such as Donald Trump and Boris Johnson so popular. The first advocates the policies of a clown and the second pretends to be a clown to achieve political success.

When I was at school in the 1950s I remember being told about Columbus’s voyage to America. The Headmistress told us that it was a particularly daring adventure, as people at the time believed the world was flat and thought that Columbus was in danger of falling off the edge of the world. The  truth was very different as I discovered later. Columbus was an experienced sailor who knew about the fishing grounds off North America that European sailors visited each year that the Atlantic Ocean was bounded by a large landmass to the West. Also it was known at this time that the earth was round. The classical Greeks had realised that the earth was round because they knew there was a horizon, beyond which the eye could not see, therefore  the earth surface must be curved.If was the geographer Eratosthenes (276BC to 195/4 BC)  who calculated with an incredible degree of accuracy the earth’s circumference. It is highly unlikely that Columbus was unaware of that the earth was round. My teacher was typical of those of the time that believed that people of the past had a childlike understanding of the world, whereas in fact the opposite was true.

We assume today that our knowledge and understanding is superior to that of the past. Yet our politicians constantly disapprove this notion. In the USA Donald Trump is likely to become the Republican Party’s candidate for the Presidency and Boris Johnson possible future Conservative Party leader What both these leading politicians have in common is an anti-intellectualism, both of them in their campaigns seek to  appeal to most primeval of voters instincts. Trump blames the Mexicans for crime and wants to erect a wall to keep them out, and Johnson believes that Obama’s part Kenyan ancestry makes him anti British, because of the injustices the British inflicted on Kenyans during the days of Empire. To say that both these politicians are intelligent men who are just using anti immigrant and anti foreigner feeling to win support and that they don’t really believe what they are saying does these two men a disservice, they believe what they are saying. They are both populists who believe in simple solutions to difficult and complex problems, both of them personify the  anti-intellectualism which is dominant in the our society. The political dialogue in both countries is dominated by the anti-intellectualism of those such as the Tea Party whose policies are moving closer to the mainstream in both countries. UKIP a party that gets much media coverage seems to be campaigning for things such as ending the smoking ban in pubs. Sam Goldwyn once  said a movie never lost money for underestimating the intelligence of the average cinema goer, now in politics the belief is that no politician ever fails for underestimating the intelligence of the average voter. There is a change in society that has made stupid politics the dominant strand. Possibility it is linked to Walter Benjamin’s insight (when writing about the cinema) that contemporary media  leaves little time or scope for reflection, as the media image is all involving leaving no opportunity for distancing necessary for reflecting on the projected image.

If I was to compare contemporary England with medieval England, I would say that the former is technically sophisticated but intellectually unsophisticated. This is not to say that there are not a community of intellectuals whose thinking is far superior to that of those of the medieval era, but these people are excluded from the public debate, which is dominated by the advocates of stupid politics. Obviously Trump and Johnson are not stupid men, they just find a politics of idiocy the most effective means of self promotion. What is most disturbing is that these men intend to pursue the policies they advocate, without regard to the damage caused to society through the introduction of their simplistic policies.

As an economist I can see the dangers of practising stupid politics. Britain has endured years of austerity because the government believes in a nonsense called ‘expansionary fiscal contraction’, that is cutting government expenditure will increase growth. Despite this policy having no economic credibility the opposition’s chief economics spokesman, a man who had a top class degree in economics from Oxbridge immediately signed up to the policy. Knowing it was fallacious economics made no difference, he did not want to appear out of step in with all the others who were practising stupid politics. Bonhoeffer said that the success of the Nazi’s was due to fact that good people did not speak up, similarly stupid politics is prevailing because the intelligent do not speak up. In England it is the noise and abuse made by the practitioners of stupid politics that scares of the intelligent when we most need them.

Intelligent women for example are put of entering the English Parliament because of the sexist behaviour in the bear pit that is the House of Commons. When female opposition MPs speak, male MPs on the government benches often  make crude sexual gestures with their hands and shout sexist abuse. Also any show of intelligence is likely to get a politician pilloried in the tabloid press as a geek, as happened to the last leader of the opposition. Anti-intellectualism is rife in the English political culture and it’s preventing intelligent government.

What really provoked me into writing this article was a tweet by the illusionist Derren Brown, in which he referenced a You Tube in which two evangelical preachers explain why it is necessary for them to own private executive jets. One says it is so he can get some quiet time in which to talk to God, as he would be unable to do that on a flight with other passengers who would disturb him. Christ when he wanted a quiet place for meditation found a quiet spot in a garden or in the countryside, surely these two men could have done the same. These two men are Christian literalists they believe that the bible is the word of God and that all should to obey the word of God as explained in the bible. These two Christian literalists are following a practice condemned as being wrong as far back s the early Middle Ages. St. Augustine in his book on Christian teaching explained that the bible should not be taken literally, the word of the bible required explanation by the Christian teacher. Following St. Augustine’s advice all medieval bibles contained commentaries on the page side by side with the biblical text. These commentaries were there for the preacher to help him explain the text to the people. What these evangelical preachers are doing is practising a type of Christianity that even the least educated of medieval priests would have recognised as wrong. If these men had been medieval clerics they would have been relegated to some obscure rural parish where they could have done little harm. Yet these men are seen as representative of true Christian belief, religion seems to mirror the practice of stupid politics.

This simplistic religious view of the world that divides the world up into good and bad guys is very influential. George Bush’s crusade against the evil of Saddam Hussein’s Iraq is representative of good versus bad guy politics. Isis and other Islamic fundamentalist groups embody the same good bad guy philosophy. A philosophy that justifies the cruel treatment of all unbelievers whether they be Christian, Yazidi or Shia Muslim, as they are already condemned by God for rejecting the true religion and as such are wordless people. One of the main targets for Islamic fundamentalists are the Sufi Muslims who practice a more sophisticated and humane religion. The simplistic belief of the fundamentalists contrasts unfavourably with the sophisticated Islam of the medieval  period as demonstrated in the poetry of the Rumi  (1207-73) or the philosophy of Averroes (1126-1198). Christian thinkers owed much to these men, Francis of Assisi’s thinking was greatly influenced by the poetry of Rumi. Depressingly anti-intellectualism is not only a feature of Western politics but also in the politics of much of the Muslim world.

There are many sophisticated and intelligent clerics today but they do not get a hearing in today, because their speech is too subtle and nuanced for a world that wants simple truths. Rowan Williams the very intellectual former Archbishop of Canterbury was pilloried in the press as a bearded weirdy. They were not interested in the message from an educated Christian, for them Christianity is that of the simple minded fundamentalists.

There is no doubt that the public appetite is for stupid thinking, there is a wanting for people offering a few simple homespun truths that they claim will solve the world’s ills. Does not the constant diet of super hero films coming out of Hollywood demonstrate that something is very wrong in our culture? Hollywood appears to have opted out of making adult films, as it has correctly judged that the audience for its films want simple child like stories. The only hope is that the world particularly the Western world will tire of simple childlike stories and politics. When politicians such as Donald Trump and Boris Johnson get chance to put into practice their childlike policy solutions and those policies prove to be a resounding failure, the pendulum will surely swing in favour of a more grown up politics.

Is Apple responsible for its own woes – a sceptical economist’s observation on falling IPhone sales

As an enthusiastic purchaser of all Apple products, my attention was caught by an article in my paper, in which it was stated that Apple was having problems selling it latest Iphone. It’s stores are apparently stockpiling unsold IPhones. Today as if in confirmation of this I received an email from Apple offering me generous terms for upgrading my IPhone 5s to the latest model. What I am going to suggest is that Apple itself is in part responsible for its own woes.
Reading this article reminded me of a story about Henry Ford. It might be apocryphal but Henry Ford was considering automating the production line at his Detroit car assembly plant. He spoke to one of his most trusted advisers, who said it is claimed, ‘that if you lay all these men off, who will buy your cars’. Henry Ford considered his friends advice and continued with his labour intensive methods of production and so the story goes sales of his cars remained high. 
Apple and all the major manufacturing companies in the US and Western Europe have done the opposite of Henry Ford. They have by outsourcing production to foreign countries where labour is cheap, impoverished many of their potential customers. When the Rover car plant was being closed in Oxford, a study was produced that showed the replacement jobs for those car workers would be in the service sector, where wages were 30% lower than in manufacturing. Similarly in those former mining areas in England, high income mining jobs have been replaced by low income jobs in call centres or warehouses. The same trend is evident in the USA where increasingly the new jobs that there are created are relatively low income jobs in the service sector. If they are in manufacturing they are again likely to be relatively low income low skill jobs. A recent study showed that incomes for men in the USA with no more than a high school diploma showed a decline in incomes since 2007. 
Checking with Amazon I note that the price of the most basic IPhone 6s is £524 in UK and the similar model in the US is over $800. In the new age of capitalism when increasing numbers of workers are in low wage economy, they are effectively priced out of the market for expensive smart phones. The wisdom of Henry Ford seemed to have been forgotten by the current generation of business leaders.
What is common to all large corporations is the tax strike, as these businesses use a variety of tax avoidance schemes to avoid to paying their taxes. Usually this involves locating the head office in a low tax location, so corporation tax due on profits on the profits earned from sales in high countries . Ireland is the low tax headquarters for Apple in Europe and Luxembourg is that for Amazon. The scale of corporate tax avoidance is subject to varying calculations, in Britain even the conservative tax authorities estimate the scale of tax avoidance at being a sum in excess of £30 billion, other sources such the sum is much higher. The consequence is that the government’s of Western Europe and have less cash than is normal for the government of a developed country. The consequence is that government’s lack tax revenues to fund those activities undertaken by government and are over dependent on borrowing to finance their activities. This has had a knock effect in that in times of financial stress governments are forced to cut their borrowings and spending, resulting in an age of austerity. This austerity further reduces the incomes of the low paid through benefit cuts and job losses. These newly poor Europeans are unlikely to be customers for new expensive IPhones. 
I believe businesses such as Apple face a problem in that by minimising their costs of production in by outsourcing production and by minimising their tax payments they maximise short term profits, at the expense of long term sales revenue. It is the latter which generates real profits for the company and actions which damage revenue streams threaten the long term viability of the business. Car manufacturers have long faced this problem and have overcome that by boosting the income of potential buyers by offering low cost loans for car purchase. Perhaps Apple to maintain sales will have to look to alternate ways of boosting their potential customers income. 
This particular economist doubts the wisdom of replacing earned income with cheap loans as an the main means of increasing household incomes. Already consumer debt in the UK is reaching 180% of GDP, a sum which becomes unviable if there is a collapse of the banks, as happened in 2008/9. Borrowed income is more volatile and less reliable than earned income and is a source of financial instability and economic meltdown.

Stupid, Stupid Economics

  

Whenever I open the paper I read yet another article that makes me despair of the competence of our politicians in managing our affairs. The latest example occurred when I read that our Chancellor of the Exchequer was going to fund the increase in spending on the National Health Service (NHS) by ending grants given to student nurses to fund their training and instead make them fund their own training by forcing them to take out loans. It does appear on the surface as a reasonable policy as it means it can transfer the £800 million pounds spent on grants to und extra health service spending. However in both parliament and the media this went unquestioned as all accepted his reasoning. However the logic of his actions was nonsensical as any enquiry would have shown.
First of all that £800 million is not going to be taken from nurses training to fund extra NHS, he is in fact increasing overall spending by a further £800 million. The money that would have gone to fund these grants will now instead be paid to the loans company to enable them to lend the money to student nurses to fund their training. Nurse training takes several years and these nurses will not start paying back these loans until some time in the future. Then when they do start to repay them, repayments will only total a small proportion of the total. Sleight of hand and some imaginative book keeping will make it appear that the Chancellor has kept within his budgetary limits on NHS spending when in fact he has done the reverse. When Disraeli said that there are ‘lies, damned lies and statistics’ he could have been speaking of the practices of contemporary Western governments as when such stupid economic practises are commonplace. 
The British media is fond of reporting on the nonsense spoken by some of the more extreme of the Republican candidates for the American Presidency but in the words of the Bible, they have pointed out the splinter in their neighbour’s eye, while ignoring the beam in their own eye. Just because British politicians speak in an educated voice, one developed in years of tutoring at elite schools and universities, it does not mean that they are not incapable of speaking nonsense equal to that spoken by Donald Trump. Their education is one of manner not intellect.
Just last Sunday I had to travel 20 miles to collect my daughter from a railway station. The train service that should have come to her home station, terminated at this distant station. When I arrived at the station there were hundreds perhaps even a thousand people queuing in the cold night waiting for a replacement bus to take them to their destination. This is no unusual occurrence as every train traveller has similar stories, in Britain we have come to accept that on Sunday’s and public holidays our railways cease to work. In this case it was said to be a signal failure, when in effect it either routine maintenance work or essential upgrading work that had gone wrong. In Britain the convention is never tell the people the truth.
Perhaps this is yet another good example of stupid economics. British railways to the user provide what at its best is an adequate service, which all too often is mediocre or occasionally awful. Yet our elected politicians see the privatised railways as a success story. What they see is increased numbers travelling by rail as demonstrating the successful of privatisation. Failing to see that this is due the flight from the cities caused by high housing costs forcing millions to live distant from their place of work. These millions then have no alternative but to use the train to get to work. No matter how many complaints about the inadequate service, such as thousands being forced to travel at peak times in conditions worse than those in which livestock are transported, all politicians know the railways are a success story. They just know that railways run by private enterprise are superior to those run by the state, now matter how bad the service appears to customers. Politicians see their role as that of the PR division of the railway companies whose role is to deflect complaints about poor service by convincing rail users that they are not receiving a poor but the best possible service. As with so many evangelical salesman they tell people that their patience and will be rewarded with a place in railway heaven. 

Why is Stupid Economics so prevalent
The question must be asked why is stupid economics so widely practised. There are several possible answers. One must be the education that our leaders received, nearly all studied philosophy at an elite university. There they would have been taught that we live in a post modern age and what were assumed to be economic truths, were only the truths of a former age, that of mass production. Truths such as those that said a universal welfare and health system can be provided out of taxation are the ephemera of another age and have no place in today’s society. Post modernism teaches that truth is relative to a particular historical period and the truths of one age have no place in another time. The truth of post modernism is Neo-Liberalism and the associated in the virtue of the free markets. It is said that this is no longer an age of great truths, whereas it is an age that no longer believes in the big or great government. It is the age of the small state, the unregulated market and unrestricted freedom. The Treasury has even rewritten economic theory to reverse one of the truths of the modern age which is that government spending increases the level of economic activity, now it is claimed to do the reverse. Post Modernism teaches that what you believe is true is true, it’s what in former times was called relativism. Therefore stupid economics must prevail there are no economic truths, there are no grounds from which to crisis erupted the practise of stupidity..

There is one other answer that comes from the education our leaders received at their elite universities. Nearly all studied politics of which a part is a study of voting behaviour. This teaches that people respond not to policies but to emotion and feeling. Therefore rational policy making is less important that engaging with people’s feelings and emotions. As they are so distant from the people that they cannot gauge what the people are thinking from the press and other intermediaries. All to often they equate the headlines in the tabloid press with popular feeling. (Such headlines may coincide with popular emotions and feelings but not necessarily so), what they are seeing in these papers are what a number of university educated journalists believe is the popular feeling. They are looking at a mirror which reflects their contempt for the people, a people incapable of thought. Such contempt is a bad foundation of which o make policy.

One other factor is the decline in the great institutions that make up the democratic state. Parliament is seen less as the great assembly in which to make one’s reputation, than as a pathway to a profitable career in consultancy or to a directorship in a newly privatised industries. 
  
What these leaders would never understand that there can be a place for nonsense as opposed to stupidity in economic policy making. The former is a practise which contributes to the well being of the country, while the latter is just stupid as does no one any good. A good example of nonsense economics comes from the Second World War. People were urged to contribute their aluminium pots and pans to the war effort to provide the material for constructing Spitfires. In fact the amounts collected could never have helped build more than one Spitfire. Government economists used this policy as a ploy to convince people that they were contributing to the war effort and helping beat the enemy. It was nothing more than a morale boosting exercise, but it was a very effective one, as it made the householder believe than by sacrificing one pan they were helping to beat Hitler. I fear this good practise of nonsense economics is beyond the wit of our contemporary leaders. They prefer to practise the dumb economics of the herd think. 

Les Miserables and the economics of revolution

  
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Towards the end of the film ‘Les Miserables’ there is a very moving scene in which the young radical students who rose in revolt against the government are shot by the police. The revolt is doomed to failure as they fail to gain the support of the wider Parisian population and the authorities are easily able to suppress this uprising. This is the popular perception of revolution, that is a futile uprising by the young against the tyranny of the old order one that is easily put down by the authorities. Any history of the 19th century consists of a long list of failed uprising, the Poles in particular participated in number of uprisings against their Russian overlords, all of which ended in its participants being imprisoned or going into exile. However this is a misunderstanding of the nature of revolution, the successful ones usually don’t involve violence and generally take place over a number of years. What I mean by revolution is the shift in people’s attitudes that can be best described as a sea change in their behaviour and attitudes. 
Revolution of the Right
Often this type of revolution is initiated by the right, as instanced by the successful revolution by the right against the welfare state. If Britain is taken as an example when the welfare state was introduced it was seen as a bulwark against the twin evils of sickness and unemployment. It was seen as an individual right that the state should provide an income for those unemployed through sickness or bad luck. The political right in Britain never really concealed their dislike of the welfare state principally because they saw it as an injustice, that the rich were expected to pay more tax than the poor to fund welfare programmes. They ceaselessly campaigned against the iniquities of the welfare state. Now they have practically succeeded, welfare payments are now seem as benefits to a group of undesirables the work shy. The emphasis now is on reducing benefits and targeting the claimants with sanctions to force them into work. Only last week the welfare minister announced to general a claim that he would target the disabled forcing more of them to take work, through making it harder to claim benefits and by reducing individual welfare payments. The assumption is that by making life progressively more difficult for them, they will take up employment to avoid the unpleasantness of life on benefit. As one who has worked with disabled people, I can only see this minister as an uncaring monster largely lacking the human traits of empathy and compassion.
Now the philosophies of such as Ayn Rand are the guides to life for the decision makers in society. While it may seem harsh to suggest that a writer who would welcome the death by starvation of hundreds of the useless poor provides the distorting ideological glass through which these people view the world, evidence suggests otherwise. Recently our rulers withdrew the Royal Navy from the task of rescuing refugees adrift in the Mediterranean, on the grounds that by making the journey across the sea safe it would encourage migrants to attempt the crossing. The unspoken assumption was that if some refugees drowned at sea it would discourage the rest from trying to enter Europe. This policy was not questioned by any of the opposition leaders, so demonstrating that the spirit of Ayn Rand flows through our the veins of all our political leaders. Now it is ‘cool’ to be uncaring, as this is regarded as hard nosed realism, as distinct from the naive sensitivity of the political left. 

Revolutions of the Left

Unlike revolutions of the right which are initiated at the top of society, revolutions of the left are initiated by those in the middle and lower orders of society. This means that they are inevitably doomed to failure as the top orders of society command the instruments of power. The legal system can be directed against the insurgents. Imprisonment being but one of the means of suppressing such people. Yet such revolutions are not futile even if they end in defeat. They can despite their repeated failures change the nature of society and ultimately achieve their desired ends. This can be demonstrated through a metaphor, these revolutionary movements are as a wave from the sea smashing against a rock, the rock at first repulses the wave leaving it to fall back into the sea, yet the constant pounding sea will eventually destroy the rock. Similarly while the revolutionary movements of the left are initially doomed to failure, they can through insurgencies change society. By revolutionary surges I don’t mean violent revolution, so much as oppositional social movements which constantly rise and fall, but which eventually undermine the existing social structure, which leads to change.

The sea metaphor has further applications. British society at present resembles a placid sea but which under the surface there are currents swirling which can change the nature of the sea. One such current which has surfaced in the insurgency which threatens the Labour party. In the current elections to find a new leader it is the outsider Jeremy Corbyn who seems to have an unassailable lead in the contest. He represents a very different politics to that of the main stream party, a politics well to the left of the current parliamentary consensus. It is quite likely if elected his term as leader will be brief, as the parliamentary party will find means of rejecting a leader they don’t want. However he is representative of a much larger social movement, a left insurgency that rejects the harsh austerity programmes endorsed by the parliamentary party. This current which is sweeping through the party will change it whatever happens in the leadership contest. There are other similar examples of insurgency in Europe such Podemos in Spain and Syriza in Greece. Whether these individual insurgencies succeed or fail, what matters is that the initial process of undermining the unequal social order has begun.  
Then there is in the USA the ‘Fast Food Forward’ campaign whose aim is to secure a national minimum wage of $15 an hour, if it succeeds it will transform US society and economy, it is yet another insurgent movement. What these movements have in common is that they form outside the political system, as that system is constructed so as to prevent change, rather than facilitate it. Change of this significance will only take place in response to change from outside the political process. The established political process is dominated by the dogmatists who believe that the existing social and economic order is the the best possible one as it is founded on the universal truth of the free market. Politicians believe their only role is to implement changes to make the market system work more effectively, keep things as they are and if necessary repress those movements campaigning for change.

The economics of change and revolution

Society comprises of competing social groups with conflicting claims on its wealth. Rather than stable social order organised around one universal organising principle  that of the free market, it is a kaleidoscope of competing different groups all wanting very different orderings of the social system and its wealth. Society at best is the ring in which these groups compete, but according to rules of the competition.  Violence for example as a means of effecting change is ruled out. However if the dominant group refuses to recognise the legitimacy of the competing groups and tries to suppress them, violence will be resorted to as the social order or the rules of co-existence have been destroyed by the dominant social group.

Economics to have any relevance must be a dynamic subject one that can accept change, not a subject that believes that it has found the holy grail of social existence in the free market. It must recognise that the society of today can be very different from that of yesterday and so should accommodate that change. Economics cannot be a subject of universal truths, but one of partial truths, it must establish which of those truths in its current content list can be used in the study of different societies. A modest subject that seeks to find truths in very different economic and social systems, rather than have a universal blue print to which all societies and economic systems must conform.