Category Archives: Politics

Why economists should be banned from public life; it’s for the good of us all

June 13, 2014economic history, Economics, Philosophy, Politics, Uncategorized#austerity, #economics, #Greece, #MarkAnthony, #PontifexMaximus, #RomanSenate, #TonyBlairangrytunbridgewells

Can economists ever do good for human kind? If its contemporary economists that the question is asked of, the answer must be no. There are a few exceptions but generally speaking economists support the most inhumane of political experiments on mankind. With very few exceptions they have been the cheer leaders for the programme of austerity that has been inflicted on societies in Western Europe and the USA. Possibly there is some poetic justice in this turn of events. The leader of the IMF is always a European and the IMF has wreaked havoc on the economies of the developing world over the past decades. Whenever a developing country has turned to the IMF to finance its debts, the money has only been given on the condition that the country adopts the harshest of austerity policies. Health and education services are always the first the IMF insists on cutting, its a kind of perverse morality that believes the inhabitants of poor countries are deserving of poor health and education. Now the EU has adopted the same austerity policies to protect the debt holders (in this case German banks) who over invested in the Greek economy. The loans that saved the Greek banks from bankruptcy was only given on condition that Greece adopted the policies that turned the country into a basket case.

What I would like to suggest that governments adopt a ten year moratorium disbarring them from employing economists for that period. Society would be far better governed if politicians took responsibility for their actions instead of outsourcing the decision taking and blame to others. Perhaps if Tony Blair instead of sending his shadow cabinet on a business consultancy course but one on moral philosophy the horrors of the Iraq war may have been avoided. Infra structure products are hopelessly delayed as government invariably outsources decision making to think tanks, such as ‘The Adam Smith Institute’ or in the case the Third Heathrow Airport to an economist called Howard Davies. Stanley Baldwin when under pressure from the press barons to reverse his policy giving self governance to part of the British Empire spoke of them wanting the prerogative of power without responsibility, this is the prerogative of the harlot. The current generation of politicians want neither the power or the responsibility, just the opportunity to enjoy the trappings of power. The British government will not make the final decision on the High Speed 2 railway, that will be left to others.

There is a striking counter example which both throws light on the poor political governance of the UK and that is the Senate of Republican Rome. The Senate before it authorised any major action by the Roman State, asked the Pontifex Maximus (High Priest) to read the auspices to assess the prospects for success. This involved divining the attitude of the Gods to the enterprise by examining the entrails of a sacrificed animal. If the enterprise failed it was because the priest reading the entrails had made an error and had failed to recognise the hostility of the Gods to this enterprise. Today economists are asked to perform the a similar ritual, it is the economic report into the viability of the project. They read the auspices by examining the entrails (statistics) of the economy. While it is not hard for a minister to find a tame economist who will divine the government’s intention and predict the success of the enterprise, our system has one major flaw and that is the divining the auspices rarely delivers a single definitive reading. There are several economists who claim to perform the economic ritual better than the chosen government economist. They will deny that the government economist gave the correct reading of the economic auspices which generates confusion as to what is the correct reading and hesitancy in decision making. Their are too many high economic priests.

George Osborne the Chancellor of the Exchequer is the driving force behind proposal to build a new town at Ebbsfleet in Kent. What I can predict is that is that there will be numerous other economists claiming that the entrails were read incorrectly by the Treasury and that a new town is not needed or that Ebbsfleet is the wrong location etc. Putting a measure in the Queen’s speech does not guarantee that the town will ever built, as it depends on the agreement of that quarrelsome collective the economists to sanction it. With the government having outsourced decision making to the economists, I cannot see the new town of Ebbsfleet being built. Rather it will be a project whose merits will be debated into the indefinite future.

Despite the Roman system of decision taking appearing to depend on the whim of a supernatural deity, it was far more effective than ours. Firstly the Roman Pontifex Maximus (High Priest) was a senator and was always a powerful figure , unlike in Britain where the equivalent of the Pontifex Maximus is an outsider and is not regarded as an authoritative figure by other priests (economists). In Rome the reading of the auspices was merely confirming what the most powerful group in the Senate had decided. Murder was not an uncommon way of eliminating one’s opponents, as eliminating one’s opponents either ensured that only your supporters remained in the a Senate or it cowed the opposition into acquiescence. Mark Anthony was initially a gangster used by Caesar to intimidate his opponents in Rome. Our political leaders have rarely decided in advance what the policy will be, even if they favour one decision over another, they still outsource the decision to others. Economists the chosen group of outsiders lack the authority of the Pontifex Maximus, they all claim to be the Pontifex so there is no authoritative policy statement. What makes the Roman Senate a superior policy making body to the British Parliament was that the ritual was subordinate to art of decision making, whereas it is the reverse in the UK. The Senate unlike the British Parliament could make decisions even if they were bad ones. A similar phenomenon can be observed in the US congress which also appears incapable of decision making. One of the few policies Congress agreed on was designating the tomato sauce on pizzas as being one of an individuals five a day portions of fruit and vegetables. Congress can agree on meaningless acts but avoids difficult decisions.

Another advantage of the Roman reliance on the Gods providing supernatural policy sanctions is that such authority is far more persuasive than that conferred by economists on government policy. If the Senate wanted to oppose a particular policy, usually one that favoured the lower order the plebeians, they could claim the opposition of the Gods. Threatening natural omens would be reported such as cows with two heads all suggesting that the Gods were angry. Claiming a policy that you don’t favour will make people worse off, does not carry the same threat as a policy that angers the Gods.

It may seem strange to state that the decision making process of the Roman Senate is superior to that of the UK government, when it has access to a wealth of economic statistics and computers to aid decision taking. I argue that the Roman system was superior because the Senate’s decisions were made on qualitative grounds not quantitative. A boldness of vision comes naturally to individuals who celebrated virtue. Their moral exemplars were men such as Lars Porsena who burnt off his right hand to demonstrate Roman courage and steadfastness to the enemies of Rome, who held him captive. British politicians schooled in the world of cost and benefits are incapable of any grand vision. It breeds a kind of modesty in decision making and with it a desire to avoid big difficult decisions. There was a heroic generation of British politicians it was those who had guided us through a Great War. It was that generation that gave us a National Health system, free legal aid so the poor would be on an equal footing with the rich in court. Both of which our modest generation of pseudo economists want to end because of their supposed ‘unaffordability’ . The grandest vision any contemporary politician could envisage, is cutting the cost of a public service. In these modest time the hero is the cost cutting politician. Certainly there is not one contemporary politician who venture any project as grand as a national health service.

This is why this particular economist wants all economists banished from government and all forms of public service. I want to take away that prop politicians use to avoid making decisions, that is the economy, when everything is deferred due to economic considerations. University education is too expensive so the pseudo economists increase university fees to £9000 pa. The consequence is that a black hole develops in university funding into which the government is having to pour more and more money. Stupidity rules in Westminster/Whitehall masquerading as economic good sense, if higher education is really that unaffordable why not just cut the number of university places, instead of using the economic fudge of pretending it will be solved by increasing fees.

One further observation the contemporary Lars Porsena would not be the one who resisted the over mighty enemy, but the one who capitulated to the enemy and who facilitated their aims. Successive British governments when faced with the problem of tax evasion and avoidance by the rich and powerful, rather than taking action to end this abuse of power and offend these powerful men instead took action to make tax avoidance easier.

I am a person not a shopper

May 26, 2014Economics, Philosophy, Politics, society#babyboomers, #economics, #UKIP, culture, elites, non thinking, Tea Party, winter of discontentangrytunbridgewells

Shopping is unfortunately the prism through which the government now views the people. People have one fundamental right and that is to be consumers. What matters is not that the government should provide high quality public services, but to provide a choice of service providers. Changes in education and health are intended to present the consumer with an array of services from different providers so they can choose the service that most meets their needs. Economists are responsible for this nonsense. Having advised governments that choice and competition are the mechanisms best fitted to provide good public service, they forgot to mention that economy theory states that this market mechanism only works if consumers have perfect knowledge. When buying vegetables it is possible to judge what is the best potato but the same cannot apply purchasing medical services. How can I know what is the best possible medical care for what may be life threatening illnesses or even know what illness effects me? When given the choice of five medical providers for my eye surgery, I had no idea which to choose. I lacked the knowledge to be able to choose the best provider. What I did was ask the optician which were the best. All she could say was that a previous patient had been a doctor and he choose this one, and in my ignorance I copied the example of the doctor.

How did this become the accepted public policy? Baby boomers are blamed for many things unfairly, but the economists and politicians of this generation are to blame for this policy nonsense. As a member of this generation I can give an insight into this malaise. The sixties generation are often described incorrectly as the generation of ‘free love’, sexual and social liberation. What is less often acknowledged is that this is the generation that gave up on serious thought. It was not so much that this generation became obsessed with the new sensual delights of drugs and rock and roll, but their dropping of old difficult belief systems in favour of a new simpler techo-scientific belief system. A system that would deliver ‘real’ solutions to the problems facing the world. Unrealistic and unworldly ideologies such as socialism which never delivered on their impossible promises were replaced by a belief in a hard edged social realism. A dogmatic belief system called Neo-Liberalism, as one politician said it is the only game in town.

This hard edged belief system was one disseminated downwards from the social and intellectual elite. The intellectual elite schooled the new and up and coming political elite and the mass media disseminated it into wider society. Usually by highlighting the horrors of the old ways, ‘the winter of discontent’ and by simultaneously giving over column inches to the gurus and prophets of the new politics.

I as a student in London University witnessed the early stages of this new inhumane ideology. The economics professors were teaching that the dominant humane system of social democracy was wrong it gave people an unrealistic expectation of what the state could do. Two of our professors expounded the then shocking view that unemployment was too low and must increase if the economy was to grow. Yet they were part of the generation that lived through the Great Depression.

Unknown to us at the time was that the new theory of cost benefit analysis as taught then would prove a useful tool for destroying social democracy. It would replace the more subtle and complex ethical thinking of the past with the crude simplicities of technical analysis. All the benefits of living in a civilised society are difficult to price, because they are all too often the intangible benefits of the mind. Yet just as real as the material benefits. How can the deleterious effects of the noise nuisance caused by a third runway at Heathrow airport be priced? Only by indulging in a series of thought experiments can such harmful experiences be priced and by any reckoning such reasoning lacks any really sound underpinning in the reality of people’s lives. It is much easier to calculate the benefits in terms of increased passenger flights and cargo deliveries. They can easily be priced and the value of increased air traffic is calculated on a much sounder basis than the cash cost of noise pollution, so it is hardly a surprise that cost benefit analysis usually turns out to favour the proposed development. The benefits of a good life cannot be priced, they can only be part of a moral calculus. Fortunately for the developer cost benefit analysis avoids any such difficult problems.

What was disseminated outwards from the universities was the new culture of ‘not thinking’. Calculation would replace open debate, values were dismissed as distractions that prevented a realistic assessment of the issues. Ostrogorki would shudder to think to his study how the Conservative party of the 19th century used various tricks to manipulate the popular prejudice to win elections would lead change they nature of politics teaching. Political philosophy would be replaced by the study of the means of manipulating the popular vote. The science of calculation would replace the discussion of values. Values other than those as an embodied in an ideology to get out the vote were to be regarded as an irrelevance. Politics became nothing more than the study of the mechanics of politics. As a significant number of the dominant politicians studied PPE at an elite university, it left them ill prepared for the great debates than dominate contemporary politics.

There is a danger of over stating the influence of the ‘new intellectuals’ in shaping the nations thought. Higher education has to a large extent in the UK been part of the interlocking system of social elites that govern this country, educating the members of the new political elites. The new science of ‘realism’ suited the needs of the social elite who felt their interests had been ignored and disregarded by the social democratic settlement of the post war period. A teaching of humanities that regarded calculation as the supreme virtue suited their interests as any course such as philosophy that embodied a teaching of values would expose them as a privileged elite whose position lacked any moral justification. Isaiah Berlin the great political philosopher once wrote that there could be no such thing as a right wing philosophy. No moral virtue attaches to the abuse of power and privilege.

It was no coincidence that when this group achieved overwhelming political power with the conservative governments of the 1980’s they ordered a purge of the universities, the thinking departments were to be closed. Philosophy departments shut in many universities and the liberal arts were starved of resources so as to reinforce their new second class status. Instead the humanities were to be replaced with the new ‘non thinking’ subject, business studies. A subject in which students are to be taught to do business, not to think. It is no surprise that students are beginning to rebel against the dullness and enforcement conformity of thinking that characterises British universities.

North Korea is mocked for the peculiarities of the most authoritarian of systems that cannot tolerate even the most innocuous of dissent. Even to the extent of limiting its barbers to a few approved types of hair styles. What its leaders should instead do is copy the example of the UK, the country of ‘not thinking’. People are not forced to become model citizens of the people’s republic, but have been taught to express themselves as shoppers. A much more complex interplay of forces have made the non critical culture the popular culture. Great cultural events have now become little more than festivals of shopping.

This is demonstrated by the two so called insurgent parties in the USA and the UK, where the dissent or insurgency is more confected than real. UKIP the insurgency party is funded by a millionaire, its leader is a former investment banker, one of the new privileged elite. Its policies are those intended to protect the interests of the privileged elite. The withdrawal from Europe is really a wish to withdraw from the EU regulations that control business, such as the working hours directive. Limiting immigration is a popular policy but immigration has become less necessary for business as the organised labour has been effectively destroyed and employers can now treat the indigenous population as badly as it likes so there is less need for cheap easily exploited foreign labour. Other policy measures such as the introduction of a 10% flat rate of income tax and the privatisation of the NHS are contrary to public interest. What can demonstrate more clearly a ‘non thinking’ culture than one in which the popular party is the one that has absolutely no interest in the welfare of the people, who it claims to represent.

How a knowledge of the devil can aid in the understanding of economics and government policies.

May 8, 2014christianity, Economics, Politics, religion#devil, #economics, #fundamentalistchristians, #LyndonBainesJohnson, demons, deveoping economies, Manchester University, NGOangrytunbridgewells

Manchester University economics students are campaigning for a change in the teaching of economics at their university. They are discontented with a curriculum whose content is limited to Neo-classical economics and mathematical modelling, a curriculum that fails to adequately address the issues of the day. They have called for a broadening of the curriculum to include other subjects such as psychology and economic history so as to develop a more reality based subject. One subject not included in their list was theology, so as a theologian I am going to demonstrate how theology can contribute to economic analysis. I want to show how using what many consider an out dated concept ‘the devil’ aids our understanding of economics.

Satan or the devil does not really figure in religious iconography until the last century BCE. In the Old Testament Satan is but one of the angels. He is one of the angels that are involved in inflicting pain and suffering on Job. With the rise of the new religious beliefs and practices of the last century BCE, the new religious world view was increasingly at odds with reality. There was the problem of how to reconcile a good God, who created a good world with the cruelties and suffering of the contemporary world. A problem that became more acute with the Roman persecution of Christians in the 1BCE. How could a world ruled by cruel Roman governors who used crucifixion as the punishment for dissent be part of a world created by a good God? The answer they found was in the devil a fallen angel, a malevolent being who introduced sin into creation and worked unceasingly to corrupt God’s good world. The old Olympian Gods who were cruel, licentious and deceitful were redefined as demons. St. Augustine portrays a world in which these demons (whose bodies were made of air) circle around the earth in the atmosphere looking for opportunities to lead men astray. One of the most ruthless persecutors of Christians in the Roman Empire, the Roman a Emperor Diocletian is shown in medieval pictures in companionship with demons. The actions malevolent spirit explained why the world did not fit with the Christian world view.

Perhaps the most compelling picture of the world as imagined by the Christians of the early centuries CE, is the picture of St. Anthony in the desert being tortured and tempted by devils. Frequently a subject for medieval and renaissance artists. Despite its apparent dissimilarity the Christian obsession with the devil and contemporary economic thinking, it does provide the perfect analytical tool for understanding the latter.

Economists have created through ‘thought experiments’ the perfect economy. Yet whenever they put their precepts into practice it inevitably fails. Why does the free market economics as practised in the developed West so frequently fail? Why in this perfect world did the financial crash of 2008 happen? Their mathematical modelling of the economy showed that the free markets economic systems were those ideally best suited to maximise human welfare. If there models were correct what was going wrong in this perfectly manufactured economic system? There had to be some extraneous malevolent force interfering which made the system malfunction. Economists needed their own devil to explain the failures of their policies. Fortunately it was not hard to find this new devil, it had to be government. Neo-Liberal economists set about rewriting history to prove their case. There were sufficient horror stories from the Social Democratic era to demonstrate why the government should be excluded any management role in the economy. Perhaps the most striking of these stories of failure is that of DeLorean sports cars. DeLorean persuaded the government to fund the construction of a factory to make futuristic stainless steel sports cars in Belfast. Unfortunately there was no market for these cars and the business collapsed, losing the government millions of pounds. Now not only had economists found their devil they could demonstrate the horrors of his work to unbelievers.

There is a parallel between the preaching of early Christian missionaries and that of modern Neo-Liberal economists. Both could demonstrate the horrors of a life lived in thrall to the devil. For the first it was a life which ended in eternal torment in the fires of hell, for the second it was a life lived in the hell of social democracy as witnessed through the winter of discontent in 1979. Who would not want a life free from the horrors of the winter of discontent 1979 or the Great Society and LA riots associated with Lyndon Johnson’s occupancy of the White Hose.

Once the devil had been discovered a whole host of minor devils could be found to be working to frustrate the free market. NGO’s by campaigning for aid to help the most troubled of developing countries, were through the provision of aid undermining local economies and preventing the development of a local agricultural market that would feed the people. A profitable and thriving farming sector could only develop if they were not undermined by the distribution of free food. Saving lives now was misguided as it only laid up troubles for the future.

Just like the evangelical Christians who have to co-exist with the devil as he is part of God’s creation and economists have the accept the existence of government as it part of society, without which there could be no social order. Evangelicals rely on prayer, missionary work and political campaigns to profit abortion etc, to minimise the influence the devil has over people’s lives. Economists endlessly proselytise on the benefits of the small state on the assumption that the smaller the state the less damage it can do. Consequently there has been the constant privatisations and out sourcing of government activities to make this happen.

Free market economists are similar to fundamentalist or evangelical Christians in the horror in which they regard their own devil. One prominent Christian Republican politician advocated the killing of those who had claimed to have encountered aliens. His reasoning was that as aliens don’t exist they must have encountered devils and the only way to prevent these dupes of the devil spreading corruption in society would be to eliminate them. Grant Shapps the Conservative Party Chairman reacted with horror when the Labour Party suggested some modest regulation of the housing market. The most vile term he could come up with to describe it was ‘Venezuelan’ . For him their could be no greatest horror than living in the socialist state of Venezuela. Similarly in the US Congress a similar revulsion attaches to the word socialist.

Obviously it can be no surprise that there is an overlapping between membership of fundamentalist evangelical Christian organisations and the right wing political parties which are populated by believers in the free market. In the USA the Southern Baptists are Republicans and in the UK those Christians who oppose contemporary mores such as gay marriage are to be found disproportionately in the Conservative Party. What cannot be denied is the popularity of the belief in the devil, perhaps because its offers reassurance. In a world that seems alien or hostile too them it is easy believe that the cause is an external malevolent force, it explains everything.

What I can conclude by saying is that contemporary economists and first century CE Christians share a similar dilemma, how to explain a world that does not accord with their world view. For the Christian it was the Roman government dominated by the Satanic ethos and for the economist it is a malign government dominated by a similarly destructive ethos.

Is George Osborne the greatest economist of the 21st century

March 21, 2014Economics, politics, short term ism,, Politics, societyCharlantry, Ed Balls, Friedman, George Osborne, Keynes, UK economyangrytunbridgewells

Describing George Osborne as this century’s greatest economist, is to choose a deliberately provocative title. While it is intended to be a title that catches the eye, I do have a more serious purpose in drafting this essay. There from the perspective of this writer a certain admiration for George, he is the supreme Machiavellian politician. He can persuade others to accept that black is white, even if they know he is wrong. As Chancellor he has set the agenda for the political debate. Labour politicians have responded to his agenda, rather than trying to set out their alternative approach. There are differences but these are intended magnify the difference in the eyes of the beholder (electorate), for an economist they are but trifling differences. Last week’s political debate illustrates this all too clearly. George Osborne announced that because of budgeting restraints that all NHS staff other than receiving annual increments would not get an increase in their pay. In his eagerness to appear responsible he said that if he became Chancellor he would follow George’s lead and implement a pay freeze.

There are two types of great economist, the first are economists such as John Maynard Keynes or Milton Friedman who revolutionise economic thinking and change the way governments approach economic policy. Secondly there are those such as Mao Tse Tung who set the economic agenda and policy making through sheer force of personality. (Often accompanied by the threat or use of violence.) Both are great in the sense that they revolutionise the practice of economic decision making and policy implementation. Communist China experienced several changes in the direction of economic policy under Chairman Mao. He tend to favour a razing to the ground of the economy and to be followed by a remaking of the economy in a purer communist mode. By doing so in the Great Leap Forward in 1958 he intended to take the control of the economy out of the hands of the bureaucrats and return control of the the economy to the workers and the peasants. The policy was disastrous which according to one source caused 60 millions deaths through starvation caused by reducing agriculture to a state of chaos. This use of greatness has no moral dimension, but views greatness as the power to revolutionise and change economic policy making for decades.

George Osborne is one of the Chairman Mao type economists. While knowing little about economic policy making he has through sheer force of personality changed the way economic policy making is viewed and discharged. He has made deficit reduction the central plank,of his economic policy. Unlike previous Chancellors he has made this the priority, other targets such as reducing and ending child poverty have been scrapped as being incompatible with this end. He has sold to the nation the belief that a continued and possibly constant programme of national austerity is necessary for national well being. Ed Balls I initially opposed this policy (as having a better understanding of economics he should have known that the policy was flawed from the start), yet after a few more squeals of protest he fell into line. He has promised that he will continue the programme of national austerity if Labour is elected. Quite an achievement for a ‘no nothing’ economist to dictate the direction of economic policy for at least 10 years and possibly more.
Having called George Osborne’s thinking flawed it is necessary to demonstrate these flaws. In 2009 Paul Tucker, Deputy Governor of the Bank of England produced a highly significant but little read report. He expressed concern not about the size of the government deficit but the size of the deficit in the banking sector. Then as now the deficit in the banking sector was just over 500% of GDP, while even today the government budget deficit will peak at 80% of GDP. George has closed his eyes to the potential crisis in the banking sector, where a ‘run on the pound’ will cause a catastrophic economic crisis that has the potential to reduce the incomes of British citizens to less than that of the impoverished Greeks. Is George hoping along with the entire Parliamentary community that nobody will notice this omission in his deficit reduction programme?

There other great flaw is his belief in ‘expansionary fiscal contraction’, one of the most nonsensical phrases coined in the debate on economic policy. His argument is that if the government to fund its deficit has to borrow large sums from the banks, it deprives industry of the money it needs for investment. Therefore if government borrowing is cut it will free funds for investment and the economy will grow and all will benefit. There has been no evidence of this ever happening (except in wartime), what has reduced the flow of money for investments, is the banks preference for speculative financial activities over long term investment. Banks prefer to lend money for speculation in the commodities, financial, equities and property markets. It this speculation that reduced the money for investment in industry. In fact 80% of all bank loans are to the property market, that is why they have no money to lend to industry for investment. A problem ignored by George Osborne who has preferred to give the banks £200 bn. A programme in quantitive easing, while announcing just £1 bn. for investment in the national infra structure.

George Osborne’s success recalls to mind that other great non economist who rewrote the economics agenda and that was Ronald Regan. His rival George Bush Snr. denounced his economics as ‘voodoo’ economics, only to eagerly embrace it as Regan’s Vice President. Despite all the evidence to the contrary Ronald Regan’s economic policy was hailed as a success by politicians. He as with George Osborne preached the virtues of small government and he cut taxes and claimed to cut government expenditure. While he cut domestic spending on welfare he exponentially increased defence spending. Billions were wasted on his Star Wars programme. He funded this excessive expenditure through government borrowing and when he finally left office, the USA had its greatest budget deficit ever. George by comparison will by the time of the next election leave Britain with an ever spiralling banking deficit, leaving Britain at the mercy of predatory financiers.

However this essay is written in praise of George Osborne, so I must remain to central theme of why he is a great economist. While I could write about his Machiavellian skills in manipulating political friends and foes, there is a more interesting approach.

Economics is a subject that lends itself to charlatanry, because politicians are desperate for that one policy that will deliver success. When in conversation with economists their normal degree of scepticism is abandoned, they are so willing to believe that the proposed policy is the one that will deliver success. George Osborne must have realised early in his career that any well packaged and presented economic nonsense would sell. He would have had as a prominent politician have seen close up how the Treasury manipulated economic statistics and how whatever sleight of hand the Treasury used there would always be a coterie of economists praising the Chancellor’s policies. The reason economic charlatanry is so widespread is that economists only have the vaguest understanding of how the economy really works. To admit this as an economist would be to invite ridicule and so everybody pretends black is white even if they suspect that black really is black. Modesty is never a characteristic of any economist, bluster is the more usual characteristic. I am not suggesting that economists are ignorant of the working of the economy, so much as that they vastly overstate their understanding of the economy. If I can use an analogy into this pool of preening fish a predatory shark arrived, who realised how easy it would be to manipulate the consensus of views to suit his ambitions.

He would have found that politicians such as Ed Balls who play by the rules of the economic game were easy to manipulate. What any economist knows is that the future is uncertain, so predictions for the future have to be hedged around by ‘maybes’ and ‘perhaps’. Yet George Osborne has torn up the rule book, he knows what the future holds. He has set limits to future spending, including a welfare cap all of which Ed Balls as shadow chancellor has signed up to. If events turn out differently, George Osborne will happily abandon all his pledges giving some plausible explanation. While if Ed Balls becomes Chancellor he will be the hapless acolyte following the master, whatever happens he will stick to George Osborne’s targets.

At it’s worse economics as practiced in the UK is an invented game and those who stick to the rules in this imaginary game will always be at a disadvantage compared to those who have a complete disregard for the rules.

The Lawless Economy, more reflections from the Bad Economist

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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.