Category Archives: society

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.)

Charles Dickens’s was a far better economist than either Nick Clegg, George Osborne or Ed Balls

February 11, 2014Economics, Politics, societyCharles Dickens, Ed Balls, Food Banks, George Osborne, Martin Chuzzlewit, Nick Clegg, Pecksniffery, ponzi scheme, supply side economicsangrytunbridgewells

If I wanted to understand the nature of our current economics problems I would be better turning to the novels of Charles Dickens’s than by reading articles on economics by the current generation of politicians. Rooted at the heart of the political consensus is a misunderstanding of the current economic crisis. Any politician if asked will say that its a crisis brought on by government overspending, which can only be resolved by a prolonged period of austerity which will reduce the deficit that is at the heart of the problem. This week this misunderstanding has been put into words by Ed Balls, George Osborne and Nick Clegg. They have all stated that the priority of government should be to reduce or eliminate the government deficit. All claim ‘responsibility’ as their guiding principle, all must suffer because of the foolishness of past governments. They all assume a highly principled stance of statesmen making the painful but necessary decisions to secure the nations future.

The cleverest of them must know that they are spouting nonsense, but go along with it as they it’s what everybody or so they believe, in the gilded circles of power believe. (The speculative frenzy that resulted in the crash that bought society to its knees in 2008/9 is never mentioned.) Lying was never a barrier to a successful political career. What we most need now is a Charles Dickens’s to expose the charlantry, hypocrisy and foolishness than passes as informed political debate.

Nick Clegg Deputy Prime Minister, a millionaire owner of luxurious homes on the continent preaches the need for self restraint on an impoverished people, as do the fellow members of a cabinet of millionaires. The country cannot afford to pay the living wage to workers on part time contracts but instead pays the minimum wage or less if agency workers; but it can afford to allow Barclay’s Bank to pay bonus’s of £1.8 billion to its staff. (most of which will go to top executives and highly paid traders). I read somewhere that City bonuses this year could top £80 billion. A word has been coined to characterise such behaviour ‘Pecksniffery’. Seth Pecksniff was a character in one of Dickens’s novels, an unpleasant hypocrite who affected benevolence and high moral principles. Best illustrated by the Conservative Minister who characterised the large numbers going to food banks as going there because the food was free. Those who would rather depend on charity than work for a living. Conveniently ignoring the fact that free food is only given to those in possession of vouchers given by a charity to certify real need, many of whom were the working poor.

Self deception and hypocrisy should be regarded as two of the principles that inform economic policy making. These two attitudes are embodied it what is called supply side economics. It states that people are unemployed because of regulation and restrictive practices in the labour market. Trade unions, regulations on hours worked and on conditions in which people are employed only serve to push up the cost of labour, meaning that fewer workers are employed that might otherwise be the case. If trade unions are emasculated or abolished, labour protection laws removed the cost of employing labour will fall (wages) and many more people will be employed. All benefit because more are employed and the economy becomes more productive. This increased productivity will push down prices, so wages become worth in terms of what they can buy. Actually this has elements of a fairy tale in it. In the 1960’s when wages were relatively high compared to the other costs of production unemployment averaged 2%, today when wages are relatively low as a cost of production unemployment is 7%. If the unemployment measure used in the 1960’s was used, unemployment would probably be about 10%. Many of those now employed struggle to make ends meet.

There is one beneficiary from this change, the better off upper middle classes. Mark Harper the recently resigned immigration minister was able get as a cleaner for four hours a week at the cost of £22. This woman was an illegal immigrant who was probably desperate for the money. One consequence of the change in the labour market is that people are now cheap to buy. The Mark Harpers and Nick Clegg’s of this world can now benefit from a plethora of cheap services provided by people on poverty wages. I imagine there is much less concern about the servant problem today. In the sixties I lived on a country estate and my social betters were concerned about two things, the high cost of servants today and the insolence and less than respectful manner of those servants. Lack of respect deriving from the fact that servants would have no difficulty finding another job, so they were unwilling to adopt the demeaning behaviour expected of them. They as human beings had rights and exercised them to the perceived detriment of their betters.

Charles Dickens’s would have understood the behaviours of our governing classes and predicted that their economic policies would be designed to benefit the better off no matter in what guise they appear. Nick Clegg, George Osborne, Ed Balls etc. are all blinded by hypocrisy, unable to recognise that they govern in their own interests and that of their friends and not the nation. One image from ‘David Copperfield’ characterises today’s society for me. While David Copperfield and the other orphans sup on thin gruel, Bumble the Beadle and his friends enjoy sumptuous meals funded by money intended for the orphans. What better image to capture the nature of today’s society.

How an Economist would stop the trade in illegal drugs.

February 5, 2014Economics, Politics, societycorruption, ending drugs trade, illegal drugs trade, mafia, robert mckenzieangrytunbridgewells

Philosophers, sociologists, criminologists are asked to advice on crime, in fact everybody but economists. I want to right this imbalance, because as an economist I have a unique take on this problem not considered by others. Others may for instance study the effects of drugs legislation, but none of them will look at the gangs as business organisations, to whom the usual economic analysis applies.

What I observe is the the drug laws have had the unintentional effect of creating large profitable monopolistic businesses making vast profits. It is these profits that are the key to their success, as these profits give them the resources to finance their trade and in particular the money to corrupt the law enforcement agencies that are supposed to stop the trade in illegal drugs. There are innumerable stories in the world’s media about police forces being corrupted by drugs money. In Mexico the phrase ‘mafia government’ has been used with some justification. As an economist my first effort would be directed to reducing these monopoly profits and which would reduce the significance of these gangs.

Anti-drug laws rather than stopping the trade in illegal drugs, have eliminated the unsuccessful players from the scene leaving the control of the supply in the hands of the most skilful and ruthless players in the game. The jails are full of minor drug dealers who lack the skill to evade capture, while the members of the largest and most successful gangs usually evade capture. Even if a major gang is broken up it is soon replaced by another. However they are rarely caught. If the money was taken away from these gangs they would lose their power. The most obvious way to do this is to legalise the sale of drugs. This would cause a flood of small time dealers into the market forcing the price of drugs to drop.

Obviously the major gangs would resort to violence to eliminate rivals and maintain their monopoly. However the flood of drugs onto the market would be impossible to stop and prices would inevitably fall. Those major gangs that remained in the drug trade would inevitably shrink in size and become minor players in the criminal world.

My favoured approach would be to return to the system that prevailed in Britain in the 1960’s. Then drugs were available to drug users from doctors licensed to prescribe drugs. Obviously there would still be a criminal trade in drugs, as a number of users would not want to register as users. However the criminal drugs trade would be much reduced.

This would also ensure the purity of the drugs taken and avoid the personal tragedies that result from the use of impure drugs. If drug usage was seen as a medical problem it would remove the glamour from drug taking and reduce the demand for them. It would also give the medical authorities to engage with users and educate them in the harmful effects of drugs such as ketamine and reduce their use.

I should explain that as a student in the sixties I was one of a large number who developed a distaste for drug use, but the genie is out of the bottle and cannot be put back in. The relevant question for me is how do we live with drug use and minimise its harmful effects.

There is another player responsible for the success of the drug gangs and that is the bankers. Unfortunately wherever there is evil you will find a banker facilitating it. Governments have in the UK for the past thirty years favoured ‘light touch’ regulation and encouraged rich corporations and the super rich to use tax avoidance schemes. This they justify by claiming that these policies attract multinational companies to locate in Britain. One unfortunate consequence is that he schemes used by bankers to help the rich avoid tax, can also be used by criminals to hide their money from the law enforcement agencies. Several years ago the British government set up a special unit to recover money from the drug gangs. It has managed to recover practically nothing. It lacks the resources and wit to recover this money.

It was not so long ago that the London bankers successfully opposed plans by the EU to introduce stronger anti money laundering laws. While it is hard to judge the complicity of the banks in illegal money laundering, what is known that a British Bank, Standard Chartered (part of the HSBC group) was convicted of money laundering for the Mexican drug cartels. One suspects their crime as viewed in banking circles was to be so careless as to get caught. Without the banks being willing to move around large sums of money for these gangs, they would not be able to finance their large scale criminality.

Then there are the drug cartels in the countries that produce these drugs. If it was not for the international banking community, they would remain large fish in a small pool. There is a limit to how much farm land a drug baron can buy in Columbia, they want the personal jet, the yacht etc. items that are to be acquired from the rich countries of the developed world. It is impossible to be a cash buyer for such expensive items. There is the difficulty in carrying such large sums in cash and the law enforcement agencies etc. would make such a transaction impossible. Fortunately the drug baron in Columbia can take advantage of the tax havens in the West Indies. Their drug money can be deposited in one of the many offshore accounts in the banks which are effectively branches in all but names of the major US and British banks. This ‘clean’ money now deposited in banks in Miami or London can now be used for a variety of transactions, either purchasing luxury items or using the money to ‘oil the wheels’ to facilitate major drug trades.
What the law enforcement agencies fail to recognise is that these international drug gangs are more akin to international companies such as Shell or Ford, than the old criminal gangs. Their use of violence disguises their true nature. Just as multinational companies are embedded in the governance of countries so are the multi national drug gangs. Therefore a completely different approach is required to tackle these gangs. They just as with any other business depend on a constant cash flow to function and if this cash flow can be stopped, they will cease to exist.

The means in the form of computer technology exists to make this possible to interrupt this cash flow, but there is a reluctance of governments to go this far. Low level criminality is embedded within the banking system, banks have for many years worked with their clients to frustrate the government tax collectors. Tax avoidance and the concealment of the the origin of the money deposited with them has become standard practice within the banking community. Too tackle this culture of secrecy and it’s associated criminality will require a reversal in government policy towards the banks. Also tax avoidance has become the norm amongst the rich and multinational companies and there would be much opposition to such changes from these quarters. This is an opposition not to be under estimated, it would be organised by the City of London to whom the government is used to acquiescing to its desires.

A representative of the City of London sits behind the Speaker’s Chair when Parliament is in session and is able to represent the City’s interests to government ministers on issues that might affect the City. What is in effect a veto on government policy must be removed.

At present the City and the Banks are ‘self policing’ on matters of money laundering. It is up to them to ensure that they comply with the government’s legislation on this subject. Given that the handling of such money is very profitable the controls are very lax and most laundered money passes through the system unnoticed. The only real threat is the New York District Attorney’s Office or the American SEC. There is no real threat in the UK to such misbehaviour in the banking community. When prosecutions are made usually the initiative comes from the USA.

What I believe is essential to control the trade in drugs is proper regulation of the banking system. Government audits of the banks to check for money laundering are necessary and the sanctions must be effective when abuses are discovered, not just fines but jail sentences for offenders. It would be very easy to design the computer software to check on the origin of accounts above a certain value. If the US and Israeli government can develop computer viruses to infect the computers of a security conscious Iran and if the Chinese government is able almost at will to hack into the computers of British companies and government, designing software to check on the origin of accounts will pose no great problems. The only freedoms that would be infringed are those of wealthy tax evaders and avoiders and the large criminal organisations. The rest of us would never hold the amounts of cash likely to attract the attention of the financial police.

Obviously the banks would try to frustrate such government activity and they may well have some success, but the activities of the international drug cartels would seriously be impeded.

In Italy Pope Francis has pledged to clean up the Vatican Bank. A bank sometimes unkindly referred to as the ‘Mafia’s Bank’. The Mafia certainly recognise this as a serious threat to their activities. It was reported recently that the Mafia may make an attempt on the Pope’s life to preempt this threat to their very profitable activities. The attitude of the Italian mafia to their bank merely confirms my view of the relationship between banking and organised crime.

Economists such as myself can’t change human behaviour, but we can suggest means to mitigate the harmful effects of criminal behaviour.

There is however one caveat I must make. When a student I attended lectures given by Robert McKenzie. He told us of a conversation he had with a senior Italian politician. He was discussing the impact of US government policy on Italian politics. He said we know who are bribed by the CIA in Italy, who are they bribing in Britain? Robert McKenzie left it as an unanswered question. Similarly we know who the mafia have corrupted in Italy, the Christian Democrats and the Socialist Party, but we have no idea of who they have corrupted in the UK and it is these ‘hidden’ politicians who would try to frustrate any attempt to check the trade in illegal drugs.

Misplaced Scepticism – Public Choice Theory

January 22, 2014Economics, Politics, societyCharles Murray, Libertarian, Political Parties, Public Choice theory, Scepticismangrytunbridgewells

Today when reading my paper my eye was caught by the headline for an article on the ‘Benefit Culture’. The journalist is a self proclaimed sceptic and his articles exposing the follies of the great and powerful make good reading. Scepticism is the necessary tool of the journalist, only the journalist has the licence to speak the truth to the powerful. This scepticism has permeated upwards from the journalists to the politicians in contemporary Britain. Disappointingly the scepticism in its upward trajectory has morphed into a shallow scepticism, a scepticism of the type that ‘everyone knows’, known as ‘public choice theory’ it is one that sees public servants as only interested in feathering their own nests. A scepticism derived from the stories circulating amongst the great and good. They know for instance that NHS consultants don’t operate on Friday afternoons, as they want an early exit so they can get a round of golf in before tea. If they are making an early exit so it is more likely to being doing so to attend to their profitable private practice to service the needs of the great and the good.

Public choice theory states that it is mistaken to put more money into a public service to improve the quality of service, as that money will be spent on public servants on increasing their salaries, recruiting more staff so as to push the existing members up to higher levels of management to manage all the new staff, anything except improving the service. The solution is to introduce the free market into the public service, if public servants had to work for a private corporation they would be motivated to provide a better service. If service users become customers they will have a choice of service providers. Those that provide a poor service they won’t be used, so they will lose business and income putting so salaries and jobs will be put at risk. Only the discipline of the market can ensure a good quality service for users say its proponents. This is why the UK government has put most of its services out to tender. Security is no longer provided by the public services but is increasing replaced by private contractors, mercenaries instead of soldiers contractors provide security on dangerous overseas missions. Mercenaries instead of the army provide security on merchant vessels under threat from piracy.

Public choice theory is a foreign import, imported from the USA. Where it’s most vocal exponent is Charles Murray, a libertarian who has written ceaselessly on the evils of the state provision of public services. Know doubt his books are required reading for government ministers, along with Hayek and Friedman.

Kierkegaard devised a classic phrase to describe the thinking of the type ‘everyone knows …’ or what passes as public opinion. It is the ‘dog’s opinion’, that is equally meaningless as the noises that emanate from my dog’s mouth.

Being imbued with the spirit of scepticism the government is paralysed by a crisis of indecision. If it wants to undertake a large scale infra structure project, such as the construction as the high speed rail link between London and Birmingham, it can’t trust the project to civil servants. Civil servants would spend a large proportion of the cash on themselves on either self promotion to higher grades or spending it on new departments to take on the responsibility for the project. All of which would make the project far more expensive than if undertaken by a private construction company. To avoid this problem, the government employs for-profit private consultants. At present a £1/4 billion has been spent on HS2 largely on consultant fees. To this outsider it does not seem to be the cheaper option.

Entrusting private sector companies to project manage and construct government infra structure projects can lead to all sorts of problems. When the Labour government decided to upgrade the London Underground system, they awarded most of the work to a consortium of construction companies, who would project manage the project and also undertake the construction work . They awarded the contracts to themselves at very generous prices, with the result that the money long ran out before the project was completed.

Public choice theorists in government believe that the civil servants can’t be trusted, as they are only interested in feathering their own nests. To reduce the scope for the abuse of public funds, as few as possible of them should employed. Conservative and Labour governments have made it a priority to get rid of as many state employees as they can. This can have unfortunate consequences, the HMRC has been slimmed down so much that it tax collecting powers have been severely diminished. Now as a consequence the UK comes increasingly to resemble Greece, where large numbers of individuals and businesses avoid paying tax. Three of the multi national giants (Google, Microsoft and Starbucks), while earning vast revenues in the UK pay little or no tax on their incomes.

There is a solution to the crisis in government and that is a return to the mixed economy or Social Democracy. In the Social Democratic state it is recognised that it is the role of the government to provide those services which the free market cannot provide effectively, such as universal health care and education. This however will not happen while the current generation are in power. Conservatives, Labour and the Liberal Democrats are all wedded to the ideas of Neo-Liberal and ardent practitioners of public choice theory. Only when the next financial crises comes is there any chance of change. Hopefully after that the three main Neo-Liberal parties will be decimated at the polls and replaced by a new generation of politicians with very different ideas.

Economic Primitivism, a doctrine for the 21st century

January 17, 2014Economics, Politics, societyeconomic moderniser, economic primitivism, George Osborne, Gin Street, Hogarth, socially regressiveangrytunbridgewells

George Osborne (British Chancellor of the Exchequer) words on the EU prompted me to write this essay. He said that unless the EU modernised it would decline. What struck me was his understanding of the verb to ‘modernise’, what he meant by this was the freeing of the labour market and society from those regulations that hamper business. He wants the end of employment protection laws, those that limit the ability of firms to hire and fire workers as they please and that those keep wages unnecessarily high, the elimination from the workplace of all organisations such as trade unions which limit the freedom of the employer to innovate (particularly in employment conditions, insisting on minimum and maximum hours of work as opposed to the flexible British practice called ‘zero hours’ contracts.) There was a recent example of what George Osborne means by ‘modernising’ in Scotland. Jim Ratcliffe the owner of Ineos a petro-chemical plant in Grangemouth, Scotland, wanted a change in working conditions that would benefit the company but of little benefit to the employees, he wanted the ending ‘final salary pension schemes’, a no strike deal etc. To get the workers to comply, he shut down the plant, threatening unemployment for all the staff employed there. Added to this was pressure from both the UK and Scottish government’s on the employee’s union to agree terms which included government ministers supporting the company in media appearances. Obviously the unions and workers gave into to the employers demands. It was a good example of that effectiveness new phenomenon, the employer’s strike. Ineos now has a modern flexible labour force, willingly adopting modern work practices which enable Ineos to extract the maximum profit from each worker. It is this new barbarism of contemporary labour relations that I find unacceptable.

Society must also be modernised to achieve a good fit with modern industrial society. One enemy of the modern economy is the settled community. The British Treasury has long complained that the pattern of housing tenure limited labour mobility. Security of tenure, either long term tenure in social housing or as home ownership, stopped workers from moving from areas of high unemployment and low wages to areas of low unemployment and high wages, because they did not want to give up their good homes for less desirable ones in the areas of high growth. The Treasury achieved its aim through changes in government policy; now increasing numbers are living in private rental accommodation with little security of tenure. This means such housing can be put to its most productive use. When the Olympics came to East London, hundreds of tenants could be evicted to make room for higher paying Olympic visitors. Modernism in society means the breaking or dismantling up of any community organisation that might threaten ‘economic progress’. Perhaps the best example is the remorseless attack by all governments on local authorities, all changes in legislation have prioritised the needs of the business corporation over the local community. The powers that local authorities have to control unwelcome planning developments have been constantly diminished by government after government. Even if the council rejects an application from a ‘fracking’ company on the grounds that it was environmentally damaging, all the firm has to do is appeal to the government minister. It is extremely unlikely their appeal would be rejected.

From what I have written I cannot be called an economic moderniser; I need to find a term to describe myself. Reflecting on this I remembered a city trader who described the restrictions imposed on some dubious trading practice as Neanderthal and that made me realise that I am an economic primitive. As a believer in the regulation of the market place, I must be a believer in economic primitivism, or better put as economically regressive and socially progressive. I am amused by the screams of protest that echo round the board rooms, when it is suggested that their should be quotas for women on their boards. Obviously these men don’t recognise women as fully functioning human beings, capable of making the decisions necessary to run a successful company. Not much has changed in the City of London since I worked there in the 1960’s, when one senior member of the company explained his opposition to equalities legislation by saying ‘women are for the night’. What economic progressives such as George Osborne want is an end to all that regulation that has modernised society that is incompatible with business profitability. Gay marriage is fine but legislation that improves the conditions for women, ethnic minorities and disabled people in the workplace is wrong because it places burdens on business. All that most of us believe that makes modern society the good society he wants removed. What is his demonisation of the sick and disabled other than socially regressive. This is the same attitude as that of the Parliamentarians in the nineteenth century who opposed regulation to protect children in the workplace on the grounds that it would place an intolerable cost burden on employers. The economic moderniser is the one who opposes any social improvement that could possibly adversely affect the profits of any business.

Legislation to reduce the harmful effects of excessive alcohol consumption are vigorous opposed by the economic moderniser. They employ the strange argument that a minimum price for alcohol would penalise the poorer sensible drinker; ignoring the fact that the whole purpose of increasing the price of alcohol is to reduce consumption by making it more expensive. Also alcohol includes a toxin, ethyl alcohol and it can be damaging at even low levels of consumption. In fact the modernisers in government are very supportive of the drinks industry, ensuring that local authorities lack the power to regulate this industry in their own city. Both modernisers and the drinks industry think there is nothing wrong in recreating the conditions that gave rise to Hogarth’s 18th century painting ‘gin street’. A policy that looks to the 18th century for its inspiration is retrograde.

Unlike the members of the political class I don’t want Europe to be ‘modernised’, the modernity experiment has gone far enough. A good society cannot be one in which the average income is insufficient to pay for good housing. Does George Osborne really believe the modernisation of Greece, Italy and Spain has brought any real benefit to the people of those countries? Yet he wants the modernity experiment to continue.

If George Osborne is right, there is at choice between being an economic moderniser and a social regressive or being an economic regressive and social moderniser. There for me is no choice, GB business must accept some cut in its paper profits and some ‘regressive’ social legislation to bring about the good society. Paraphrasing George Osborne, if there has to be a choice between the ‘good economy’ and the ‘good society’, I would always choose the latter.

When Nonsense masquerades as Economics

January 13, 2014Economics, Politics, societyDavid Cameron, Good National Debt, National Debt, Nonsense posing as economicsangrytunbridgewells

Perhaps the most most abused subject by the practitioners of politics is economics. As an observer I frequently get the impression that politicians make economic policy according to their own personal preferences or prejudices. Professional economists usually follow the trend dictated by their leaders. One such nonsense is the claim by our political leaders that it is necessary to get down the government debts to produce a healthy growing economy. It seems to have escaped the notice of our leaders that the reverse has happened. This has been the feeblest recovery ever from an economic downturn, Britain’s GDP still has not returned to the levels of 2008/9. That is the pre crash GDP. This insistence on cutting government expenditure to cut the deficit, has ruined the economies of Spain, Italy, Greece and Ireland and done little more than spread the misery to the rest of they EU.

Economics has become deformed by the simplistic morality of the right. Government indebtedness has become one of the great moral wrongs. David Cameron was explaining this week that over half the money borrowed by the government was accounted for by payments to debt holders. This figure is an over simplification, but any story will do to fool the voters. What is so noticeable is that debt is only wrong if its government debt, debt is fine if its private debt. The debt fuelled housing bubble in London is fine. This government sees nothing wrong with the accumulation of large debts in the private sector. The latest figure shows that private sector debt totals 123% of GDP, even the massaged figures for bank indebtedness shows that bank debt is equal to 150% of GDP. Bank indebtedness according the Bank of England’s deputy government was almost equal to 600% of GDP. Given that the banks have not mended their ways it is unbelievable that government statisticians can claim that bank debt has fallen rapidly to only 150% of GDP. Of all these debts, government debt is the smallest, rising even after years of austerity to about 86% of GDP. To be a politician requires a certain blindness to economic reality, a myopia shared by all the leaders at Westminster.

Prior to the crash and the EU forced austerity, Italy had government debts of about 100% of GDP, yet the same time had a successful economy. There was a trade deficit with Germany, but their deficit was small compared to the debt addicted UK. The public sector debt was not a problem because it was funded debt, the majority of the debt was owed to Italians. That debt would only have been a problem if it had been owed largely by foreigners, as is the case in much of the developing world. There unlike Italy debt is a major drain on the countries resources, particularly as vulture funds frequently buy up this debt and enforce repayment terms that effectively bankrupt the country. Italy was not in the same situation of say, the Republic of the Congo, it was in no danger of being pushed to the edge by foreign creditors. The same applies to the UK.

There is an amnesia about the past in political circles about the past. UK public sector debt in the 1950’s and 60’s was for much of the time well in excess of 100%, probably fair to say it averaged 150% over this period. Yet this was also the time that the UK recorded the highest levels of economic growth in the twentieth century. Similarly the national debt for the period of the wars with France 1786-1815, national debt was in excess of 100% of GDP. Yet again this was a period of exceptionally high growth. What matters is not the size of the debt but whether it is funded and to what use it is put. Part of the high levels of national debt were due to the huge American loan (Marshall Aid) used to help finance the reconstruction of the UK economy.

Politicians accept that it is a good that people borrow to buy a house, that business borrows to fund investment, yet its bad if the government borrows to invest in the national infra structure. The consequences can be of this belief can be seen all too clearly in the USA. Republic President’s Regan and Bush took action to cut government spending on the domestic economy in the USA so as to reduce government debt. The result was the inter state highway was neglected and only recently a road bridge collapsed through lack of maintenance. One government report there stated that a large number of road bridges were in varying states of disrepair, but not I think could be classed as unsafe, they were just on the right side of the safe/unsafe boundaries. California one the richest states in the USA has cut funding to such an extent it is unlikely that they could cope with an emergency caused by an earthquake. It would be a repeat of the New Orleans scenario, where neglect of the flood defences led to catastrophic funding. Fortunately in Britain we have not had as yet to cope with such a major emergency. Could our emergency services cope with a major disaster given the cuts to such services? How much was the failure of the police to respond in sufficient numbers to the riots in London due to financial considerations?

What the Right and the current generation don’t understand is that there is good and bad public sector debt. Borrowing to build the national infra structure is good, borrowing to finance foreign wars of conquest is bad. Borrowing to cover shortfalls in tax revenue is good as it enables the government to continue with its activities and avoids any disruption to the economy.

The 1950’s provides a good example of good government borrowing. Billions of dollars were borrowed from the USA in then form to Marshall Aid. The money was used to rebuild an industrial infra structure damaged by war.

There is one problem caused by this government myopia. When the government of 1980/81 took drastic action to cut the deficit, the resulting recession wiped out 20% of our industrial capacity. A problem that still bedevils the British economy. The current recovery in the housing market is threatened by a shortage of bricks, due a reduction in capacity in the brick making industry. If there had not been North Sea oil, the 1980’s would have witnessed a series of economic crises brought on by the UK’s ever increasing trade deficits. The austerity programme of the current government has had the same effect, investment in British manufacturing has sunk to very low levels. When the recovery starts it will be cut short by a trade crisis, the recovery will suck in imports of goods that a decimated UK manufacturing will be unable to provide. Already at our current low levels of growth, the UK is predicted to have the highest trade deficit of any developed country. A debt fuelled consumer boom can only make that situation worse.

How can the naivety of our current leaders be explained. Our government is one of the best educated in history, almost all have been educated at our elite universities. The same applies to Parliament, it’s full of Oxbridge graduates. Yet the level of debate on matters of economic policy is abysmal. The yah-booing of Prime Ministers Question is a true measure of the lack of sophistication in the political debate. Possibly this contempt for reality and preference for the imagined world of the Neo-Liberal, is due to the simplicity of the Neo-Liberal story. Hayek’s ‘The Road to Serfdom can be read in the brief span of a wet afternoon. It over simplifies the economic reality, providing a few simple phrases that even the dimmest of MP’s can grasp. In the jargon of today it is not intellectually challenging. It is the illusory promise that Neo-Liberalism makes of easy but decisive policy measures that will change the world, that makes it appealing. It offers simple ( if wrong solutions) to complex economic problems. Given the concentration of political minds on the mechanics winning political points in the context of the Westminster debate, any intellectually lite discipline is welcome, as it economic decision making will require little effort and time freeing the politicians time to concentrate on the real business of politics, the machination of intra and inter party politics.

Perhaps another reason is the loss of confidence within our political class. In the 1960’s a confident USA boasted that the space race cost less than the USA spent on cosmetics. Today the space race is too expensive. The US and Britain seem to be opting out of the grown up world, the governments of both being unable to make decisions. British leaders at present present a pitiful spectre, travelling the world begging it to invest in the renewal of Britain’s infra structure.

The Uncommon Man or the Right to a Better Life

January 8, 2014Economics, Politics, societyCharles Dickens, Hodge, Little Nell, The Common Man, The Great Reform Actangrytunbridgewells

What I want is the right to be the uncommon man, the right to a life lived on my own terms, not a life lived in conformity to somebody else’s expectations of me. The English used to value individualism, as key feature of their national character. Whether it was the English eccentric or the stubborn figure of Hodge. The first is reflected in Noel Coward’s song, in the line ‘that only Mad dogs and Englishmen go out in the midday sun’, a reference to the behaviour of the English in colonial India. Hodge was very different he was the backbone of England, the man that formed the core of the regiments of the line, that won many a battle for England. He was a country either a farmer or farm labourer, who had the following English characteristics. Fashion left him unmoved, he was always a little behind the times. Personal characteristics included stubbornness, stoicism and a strong sense of personal rights. A person with a strong sense of individualism. Hodge is now a forgotten figure, now replaced the ‘reality TV star’, a hollow figure of all show and no heart. A confection created by the media industry lacking any real identity or sense of self.

I would like to rehabilitate Hodge as a national icon. In these current times there is a need for an iconic figure that personifies liberty and the best human values to oppose the Stakhanovite model of man urged upon us by the ‘new’ employer. The employer who believes that the best way to get a task done is to give it to a busy man. The man whose business embodies the philosophy of overwork. For whom the good employee is the one who uncomplainingly will work many ours of overtime. Recently a young intern died at one of our city banks from an epileptic attack brought on by working excessive hours. This young man was the ‘good employee’. Faust is a story that could not be written today, because every man has already sold his soul to the company.

Hodge in the form of ‘Ned Ludd’ and ‘Captain Swing’ made his opposition to the inhuman values of the new Industrial Age in machine breaking and rick burning. At the beginning of the 19th century there was widespread and violent opposition to replacement of human labour by machines. Although the authorities suppressed this violence, it was partly the fear of this violence that made the authorities agree to political and social reform. The Great Reform Act of 1832 which extended the suffrage, was passed in part due to the rumours of armies of the disenfranchised gathering in the Midlands and other industrial areas, which were planning to march on London.

What I want to celebrate is the creative Hodge. Growing up in a rural village I had the privilege of taking part in a mumming play featuring St. George the perennial English hero. Hodge being a seasonal worker had unlike the contemporary worker an ‘off season’, post harvest in which there was little to do on the farm. This left time for creative activities, all which were embodied in what is called the folk tradition. There was time for dance and music. It is from this rural community that our great heritage of folk music comes. Unfortunately much of the drama of the time has been lost, mumming plays are now a rarity in village communities. The significance of has now been largely lost.

What is forgotten is that Hodge’s opposition to the machine age was not the hard work entailed by factory work. Hard work was common to all farming communities it was the loss of liberty. Men now worked to the rhythm of the machine. There was no longer a season off for the worker to enjoy. It was no coincidence that much of our traditional culture disappeared in the 19th century. People no longer had the time and liberty for play.

Hodge’s successors in the new industrial towns worked to bring back the liberties of the past. The new trade unions and socialist parties had by the middle of the 20th century brought about some amelioration of working conditions. Hours of work were limited and the weekend became an agreed period of rest. Shop workers had one day a week was early closing, in which they had a free afternoon in lieu of the hours worked at weekends. The weekends were the time people used as they pleased whether it was gardening, DIY or sport. The Right saw this social regulation as non work time that damaged the nations productivity and they campaigned ceaselessly against it, as they believed all these restrictions contributed to the relatively low productivity of the British worker. They were able to take advantage of the periodic crisis that befall any society to sell to the political classes the idea that all problems of the 1970’s where due to social democracy. All the gains of over a hundred years of struggle disappeared as politicians eagerly adopted the cruel philosophy of Neo-Liberalism.

II
In Britain and much of the West the poverty, insecurity and inequality of the Victorian times is being recreated. Social commentators such as Charles Dicken’s can teach us a lot about contemporary society as they were all too familiar with a world of insecurity and poverty. How often does a Dicken’s story feature a family reduced to poverty. There is a scene in ‘ The Old Curiosity Shop’, where a group of school girls and their teacher come across the impoverished Nell sitting at the side of the road. Seeing Nell the teacher asks the girls what the role of a poor girl should be in life. Dissatisfied with the answers of the girls, the teacher answers her own question, ‘it is to be as busy as a bee’. Obviously the teacher regards the poor as little better than an insect. Poverty has removed from Nell the chance to choose her own life. Instead it has given somebody else the right to choose their life for them.

In contemporary Britain decreasing wages, increased hours of work and increased job insecurity deny many the right to have any real control over their lives. Poverty or relative impoverishment gives power to the employing classes, people are so desperate to boost their income that have to give the power on how to live their lives to their employers. In Britain job centres could compel a young person to work in the sex and porn industries, if it was the only suitable vacancy available to them, as a refusal could result in loss of benefit. Not as yet as sex workers, but in a host of ancillary roles, such as receptionist or bar staff. More usually the use of zero hours contracts reduces many workers to serf like status. Coffee shops may guarantee 20 hours employment a week, but staff must be on all for 15 hours a day. In this new serfdom it is the employers who dictate what life their employers must live, a life of servitude.

There is a solution to this current malaise, and that is ‘Hodgism’ so named after the sturdy yeoman of Britain’s past. ‘Hodgism’ is nothing new in 1885 Joseph Chamberlain campaigned for the right of every rural worker to ‘own three acres and a cow’. This has been scoffed at for its naivety by politicians and historians, yet that is based on a misunderstanding. I don’t know how literally Joseph Chamberlain meant it, but this was a time of great misery for agricultural workers. What he was really proposing was to give farm workers to the means to achieve some independence by giving them the means of subsistence. They will still have to work for the farmers for part of their income, but they would have sufficient independence to be able to bargain effectively with the farmer. (Farm then was casual and workers were hired for the year at fairs at the beginning of the year. This new found independence would mean they could turn their back on the cruelest of employers who paid the least and imposed the worst working conditions.

I prefer to use the word ‘Hodgism’ to either socialism or Marxism. The latter is discredited through its association with the utopian communist state and the former is too easily misunderstood as meaning absolute inequality of income which can easily be discredited. There is just too much ideological baggage attached to socialism. If any politician campaigned for socialism there campaign would be lost within a stale debate from the past. What I propose is a more realistic alternative.

‘Hodgism’ to me means giving everybody sufficient independence to live their life on their own terms. Insecurity is the bane of our time, people lack security of employment and tenure. Life lived in fear of losing your job or home is destructive of the human personality. There is a photograph from the Victorian era of a young woman in her twenties, but the harshness of her life makes her look like a woman in her sixties. Current trends might make such women a feature of our society in future. What I want is the independence for all to live a life on your own terms which will come from the regulation of work and housing, neither of which will be granted easily by employers or landlords. Income and the cost of living need to be addressed. Regulation could ensure that people received the living wage and rents were kept under control.

Today in Parliament at Prime Ministers Question Time, David Cameron rejected the idea of extending the minimum wage to agency workers. He claimed that this would lead to increased unemployment as firms would no longer be able to afford to employ these workers. Wages in the UK are at the lowest level historically as a share of national income, yet unemployment remains stubbornly high. Apprentices from the job centre can be paid as little as £2.50 an hour yet youth unemployment stubbornly remains at 20%. If wages were higher employers would have to treat their employees better as they would become too valuable a source. Society has forgotten that in the 1950/60’s when labour benefitted from labour protection laws, when trade unions or wage councils ensured that all received a reasonable income, many lived in low cost social housing, unemployment was below1% all items that feature in the economists nightmare, economic growth was far higher than it is now.

Karl Polyani is a forgotten figure, yet what he wrote in his seminal text, ‘The Great Transformation’ is still true today. The free or unfettered market is destructive of the good society. What our governing classes should not be the imagined or illusory Neo-Liberal paradise, but the best possible achievable society. The Britain of the 1960’s is a good place to start.

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.