Ignorance is the New Black (or the stupid things journalists say about the economy)

September 6, 2016Economics, Politics, United KingdomBank of England, BBC Radio 4, Brexit, Financial crash 2008/9, House of Cards economy, Inflation, Michael Gove, Northern Rock, Precariat, Unstable economies, USA sub prime financial crisis, Wyn Lewis economistangrytunbridgewells

While listening this morning to an early morning radio programme I was struck by one of the comments made by the broadcaster. This comment was made during a discussion of the economic consequences of Brexit. She said will it matter if the UK falls from being the seventh largest to the eight largest economy in the world? This is an example of the typical remarks made by a member of the economically illiterate media.

Nobody with any understanding of economics wants a modest downturn in economic activity, because that modest downturn can easily turn into a catastrophic downturn. What journalists and politicians never seem to understand is that the economy is inherently unstable and decisions should never made that threaten the stability of the economic order. There are times when the economy resembles a house of cards and the slightest puff of the economic wind can send it tumbling down. Yet there are other times when the economy seems to be as a house built out of granite and is impervious to any economic storm. The problem is that it is difficult to tell before an event whether the current economy is structured like a house of cards or a house of granite. Only a fool would start an economic downturn, as history all too often shows that minor downturns become major ones. Unfortunately for the British people the political and media classes seem to filled with these economically illiterate people. Typified in the figure of the politician Michael Gove who during the Brexit debate said people where fed up of experts (economists) and did not need to heed their advice.

Politicians and journalists have forgotten that the collapse of the 2008 started when a minor bank Northern Rock collapsed. This collapse exposed the fault lines in the financial markets which led to the catastrophic collapse of the banking sector. It would have been more accurate to use an example from the USA but my knowledge of which minor bank there presaged the collapse of the banking system there is lacking. However what I wrote about the UK economy is true of the USA. The collapse of these minor banks would have had minimal impact on an economy that was sound, but as the economy was of a rotten construction it brought the house down.

The first fact to establish is that the British economy is far from being strong, it is in a fragile and perilous state. The Bank of England has recently reduced interest rates to a new low of 0.25% to offset fears generated by Brexit which threatened to destabilise the economy. Prior to that the Bank of England has had to keep rates at 0.5% for several years. In a healthy economy interest rates of 5% or more would not destabilise the economy, whereas in a weak one a rise from the previous low of 0.5% to 1% would threaten to tip the economy into depression. The merest hint of a rate rise in America caused a minor financial panic.

The decision to leave the European Union (EU) is one such destabilising factor. After the initial vote there was some panic in the financial market and the pound fell to record low levels against the dollar and the Euro. If one major Japanese car manufacturer now located in Britain were to announce the cancellation of a major investment project, this would negatively impact on business confidence and could lead to copycat cutbacks in investment projects which would could lead to a recession. Nobody really knows which lever will be pressed which would start a major economic downturn in the UK, what can be said is the uncertainty generated by Brexit has revealed many potential vulnerabilities in the UK economy each of which could lead to a major downturn.

When an economy is on its knees, what should not be done if the economy is get back on its feet, is give it a metaphorical kick in the teeth. This is exactly what the ‘vote leave’ politicians and their supporters in the media have done.

What this journalist had in mind was probably the modest falls in national income predicted by economists when accounting for the expected increase in inflation caused by the fall in the value of the pound. The expected fall in income will be between 3% and 7% (Wyn Lewis ‘Mainly Macro” blog) for somebody on an income of £100,000 it’s a loss of £3000 a year. An unwanted cut but quite affordable. If it was an income of £60,000 it would be a loss of £1,800, again affordable but unwelcome. However for a person on the median income of £27,600 a cut of £828 will mean some bills go unpaid. Those on lowest income bracket who at present are just about able to pay their bills out of their limited income will find a cut of 3% catastrophic. Even with such a small cut in their incomes they would be unable to pay many of their bills. Any greater fall in income would push thousands if not millions into a life of despair and utter misery.

The previous paragraph makes the assumption that the fall in the incomes of all would be between 3% and 7%, but in an economy in which wealth and power are unequally distributed, the powerful (the upper middle classes) will be able to minimise their income loss and ensure that the less powerful take the greatest hit to their incomes. Broadcast journalists at least those who are national broadcasters on a BBC radio programme can bargain for increased incomes to offset any cut in their income due to rising inflation. The BBC would not want to lose a well known voice or face, as they know these well paid journalists could easily find employment elsewhere. This years pay cut (inflation imposed) of £3,000 can be next years pay rise of £3,000.

The position for a person in the precariat, such as self employed delivery drivers or care workers on zero hour contracts will be dire. They are in weak bargaining position and will have to accept in full the cut 3% cut in their real wage. Demanding a pay rise to offset the fall in their real income caused will likely lead to the individual being unemployed, as the employer can find alternative workers willing work for the now reduced income. The government in response to falling tax revenues caused by the falling national income will cut in work welfare benefits such as working tax credits. Resulting in a further fall in income for these workers. The businesses who employ such workers will be experiencing falling sales and to maintain the income they derive from profits will make further cuts in wages. Whatever happens to this much larger group the sheer volume of their numbers mean that the cuts to their income will substantially reduce the national income, leaving scope for above average pay increases for the lucky few.

To conclude ignorance is the new black, when speaking about the economy as Michael Gove said you don’t need to be an expert. Whatever is the received opinion at the dinner parties in Notting Hill or whoever the well-off congregate for social events, is the truth about all matters economic. People can without any sense of shame boast that they are terrible at maths, people ignorant of economics don’t even feel that minimal shame. The billionaire who approached David Cameron at a social event who said that the solution to the UK’s unemployment problem was to abolish the minimum wage represents the sophistication of the level of thinking in this group.

The Economics of the Titanic or a comment on Larry Elliot’s article on Brexit economics

August 21, 2016economic history, Economics, PoliticsBrexit, British indebtedness, European Central Bank, Greek Austerity, International Monetary Fund, J.K.Galbraith, Larry Elliot, NHS, Speculative booms and crashs, The Great Crash, The Guardian Newspaper, The Titanicangrytunbridgewells

When reading today’s Guardian I was struck by an article written by Larry Elliot. It was mocking all the doomsayers who predicted dire economic consequences if Britain left the EU. He quite rightly wrote that since the vote to leave the EU, the economy has been doing quite well. Unemployment is down, economic growth is higher than expected and sales in the retail sector are as buoyant as ever. There seems to be no evidence of the economic disasters that would occur if Britain left the EU, as claimed by the Remain campaigners. However, he does in his thoughtful article explain that there are still unresolved problems that threaten future prospects of the UK economy, such as the appalling low productivity levels of British workers and the large trade deficit. He does suggest that these problems do have solutions and that the shock of exit will force the government into tackling these problems in the economy that have been ignored by politicians for decades, as they wish to minimise the negative effects of EU exit.

There are just one or two caveats that I would wish to make. He as did I would have read J.K.Galbraith’s “The Great Crash”* when a student studying economics. He would have read that one of the prime factors in causing the great crash was an unsustainable boom in asset prices. One these prices moved downward all the flaws in a weak financial sector were exposed and a panic would set in forcing a crash sale in assets such as shares with the consequent bankruptcy of many business enterprises. There is plenty of evidence of there being a speculative and unsustainable boom in asset prices within the UK economy at present. Despite a few blips property prices have reached new highs. While it is not clear when the downward in the property market will occur it is likely to be sooner than later. Given the natural turn of events financial downturns occur every nine years, 1990, 1999 and 2008, which means that if this cycle continues there will be a crash in 2017. Leaving the EU has created an aura of uncertainty which not only undermines market confidence making a financial downturn more likely but means when it does occur it will be worse that otherwise would be expected.

If I could use a metaphor to describe the foolish actions of our political leaders, I would see it in the actions of the captain of the Titanic. The captain of this ship overestimated the soundness of the construction of this liner. He believed that if the ship collided with an iceberg, the nature of its construction would mean that any collision will result in minimal damage to the ship. As a consequence he sailed too far north, to close to the area of the Atlantic in which the icebergs where situated and the resultant collision with an iceberg sunk the unsinkable ship. The attitude of the politicians who campaigned for Brexit mirrors that of the Titanic captain. They vastly overestimated the soundness of the UK economy and its ability to withstand economic shocks. Instead of there being a small hole below the economic waterline, caused by exiting the EU which can soon be fixed, there is a much larger one that is capable of sinking the UK economy.

One of the flaws never mentioned by Larry Elliot and the Brexiters is the massive over indebtedness of the British economy. Consumer indebtedness is moving rapidly towards a total of 200% of GDP and the debts of our banks are far in excess of 400% of GDP. Much of this debt, particularly that of the banks is owed to overseas investors. Even in normal times this represents a problem for the UK economy, but in a time of uncertainty it becomes a far more serious one. The value of the pound sterling has fallen since Brexit, this has meant that the holdings of British currency in British banks by overseas investors has decreased in value. At the moment the fall in the price of sterling has stabilised and there has been no rush by overseas investors to withdraw their money. They judge that the advantages of investing money in Britain outweigh the disadvantages. However in a time of uncertainty there is a possibility that the value of sterling will fall further, which will probably occur when the exit negotiations hit some difficulties. Then these foreigner depositors will not be willing to see their cash deposits shrink further in value and so will begin to withdraw their funds from the UK. This can easily develop into a panic and the consequence will be a run on sterling. The UK government would have to apply to the International Monetary Fund for emergency funding to tide it over the crisis. Quite possibly the European Central Bank would be involved as many large European banks are located in London. In this event the price for these loans would be the imposition of a Greece like austerity programme. Such a programme of austerity would devastate the British economy as massive cuts in public spending would be required. One casualty would be the National Health Service as one of the first casualties, as the Greek experience shows that any national system of healthcare is regarded as a luxury that an indebted nation cannot afford.

If Larry Elliot’s memory had served him better he would have remember that Galbraith wrote that there was a relatively long lead in to the crash in 1929. The signs of the impending disaster were visible long before the crash occurred. Then it was the evidence of the foolish speculative spending made by investors, they would invest in anything in the hope of making a profit. One story sticks in my mind and that is the one property developer marketed Florida swamp land as a desirable housing investment. This obvious fraudulent nature of this development mattered little to investors as they believed what they bought for $1 in the morning they could sell for $2 at the end of the day to some sap. Obviously this could not continue and it would end in heartbreak for many. A minority of investors got out early recognising that there would be a stock market crash, investors such as Joseph Kennedy. The soon to be multi millionaire father of JFK. Similarly in Britain there are signs of problems ahead. There has been a marked fall in business investment as manufacturers are unwilling to commit to a future which is so uncertain. A collapse in business investment is as any economist knows is the mechanism which starts a downturn in economic activity and possibly a recession. There was also the short panic that occurred just after the Brexit vote when a number of property investment funds had to temporarily stop withdrawals as they had not the funds available to met the demands for cash withdrawals made by panicky investors. The omens for the future are not good, despite current appearances to the contrary.

Whatever happens in the coming years all that can be said it that they will be years of difficulty for the British people. Years of difficulty brought about by the foolish actions of our political leaders who demonstrate a flawed understanding of the UK economy.

* J.K.Galbraith ‘The Great Crash’ an account of the Great Depression which started in 1929

Economics of the precipice

July 25, 2016Economics, Economics, politics, short term ism,, PoliticsBlack Wednesday, consumer debt, Economic Cliff, Leeming like politicians, Run of the pound, trade deficits, UK economy indebtednessangrytunbridgewells

There seems to be a lemming like instinct among politicians, in that if the economy is in trouble they seem to do exactly the thing that is designed to push it off the economic cliff. A behaviour that mirrors that of the lemmings who are popularly supposed to commit mass suicide by jumping off a cliff into the sea.The current situation in the United Kingdom (UK) provides a good example of this lemming instinct within the political classes.

The economic auguries are not good for the UK. One obvious problem is the record trade deficit, the highest for any country in the developed world. Then there are the record levels of consumer debt again some of the highest in the developed world. Finally there is the combined deficits of the banking sector which are in excess of 400% of GDP. There are also a host of other problems such as some of the lowest levels of productivity in Europe and the continuing decline of the manufacturing sector make for a troubled economy. The decline in the manufacturing skills base is is so marked that the Ministry of Defence can no longer find within the British economy sufficient native engineers to design and build our warships. In desperation the Ministry of Defence had to borrow warship designers and engineers from the USA for this task. In such a situation what is least needed is a political shock that could send the UK economy into a dangerous downward spiral. Yet our political classes did just that with Brexit.

One of the leading campaigners even said that the warnings of economists should be ignored as there could always be found self interested experts to support any political campaign. Ignoring the facts is the criteria of all lemming politicians.

To be fair the vote leave politicians they did recognise that there might be an economic downturn, in the event of a vote to leave the EU. However they assumed that it would be a small and temporary economic downturn one from which the economy would bounce back. History shows that when politicians plan what they think will be a temporary economic downturn, it proves to be anything but, as these downturns can easily spiral out of control.

The greatest threat to the UK prosperity is its massive private sector indebtedness. The level of debt is so great that it vies with Japan for the unwanted title most indebted of developed nations. Unfortunately it is in a much weaker position than Japan in that much of that debt is debt owned by foreigners. This foreign owned debt consists largely of money lent at short notice (that is the debt that the owners can demand repayment of immediately or within a very short time period), which is then lent long to property companies etc. Meaning that in the event of a large withdrawal of funds the banks will have trouble meeting the demand for cash. Only if the banks and the Bank of England have sufficient reserves of foreign currency can they meet the demand.

This is a very volatile situation as demonstrated by the fact that soon after the Brexit decision, many property funds had to stop customers withdrawing funds as they did not have sufficient funds to meet the demand for cash. This proved to be only a temporary crisis as the Brexit panic was short lived and the funds could return to normal operating practices, when the panic ended. However what is forgotten is that on Black Wednesday speculators forced the Bank of England a state of near bankruptcy, when it ran out of foreign currency reserves to meet the demand for foreign currency. Whatever might happen in the future, the UK remains as vulnerable as it was in 1992 to an adverse movement in the foreign exchange markets. Only the most foolish of politicians would want to create a scenario in which that becomes more likely.

What every politician should know is that to deliberately provoke an economic crisis or downturn no matter how small to achieve some political end, is the most foolish of all actions as such downturns always prove hard to control. All too often a small economic crisis turns into a major crisis that has difficult and unforeseen consequences. Politicians need to learn that they cannot turn the economy on and off as they please.

The Faustian Bargain that is the British Housing Market

July 10, 2016economic history, Economics, Politics, United KingdomBalance of Paymnts Crisis, Faustian Deal, George Osborne, Gordon Brown, International Finance, London's private rental market, Mephistopheles, Neo-Liberalismangrytunbridgewells

When economic issues are discussed in parliament they are rarely those that matter. Issues that really matter are also almost absent from the media. There are economic issues that are not spoken of in polite society or parliament, One such problem that is continually swept under the carpet is the horrendous balance of payments deficit, the largest of any developed economy. This debt is subject to constant revision so it is hard to give accurate figures, but the for last quarter of this year it reached 7% of GDP. A figure a third of that caused a financial panic in 1967, whereas today far worse figures provoke no reaction.

Gordon Brown when questioned about this problem, said the world had changed and it was no longer a problem. What he meant was the government of the time could fund the enormous trade deficit from the large inflows of cash coming into the UK from abroad. To put it simply we were using the money invested in the UK to pay our debts to the rest of the world. This particular economist thinks that it is very poor policy to remain the perennial debtor nation that relying on the goodwill of others for the means to pay its debts.

The government has to take extraordinary measures to ensure that this money keeps flowing into the country. This is achieved by introducing policy measures to ensure that property prices keep on increasing so making commercial and more particularly residential property prices continue to rise. Falling property prices the week as a result of Brexit caused a panic in government. Action was taken immediately to slow or halt the fall in property prices. The government increased the amount of money banks would have available to lend to the property market. Simply by ensuring that there is plenty of cheap money around to buy property will tempt buyers into the market hoping to pick up bargains, which in turn keeps up property prices

However the government has made what is a Faustian deal with the property market. The deal is quite simple, the government will sacrifice the rights of the young, the low paid and those resident in London to accommodation in return for the massive inflow of cash from foreign investors into the property market. All these investors want is ever rising prices and the government is prepared to acquiesce even if it means denying the young, Londoners access to adequate housing. If large parts of London are subject to significant depopulation due to rising house costs that is acceptable to the government, as the alternative is much worse. The much worst alternative is admitting to the horrendous trade deficit and reducing the import bill through imposing strident cuts in the standard of living for the nation’s people, better to lie and fantasise about the strength of the economy than admit to some painful truths.

One of the most effective ways of pushing up house prices is to reduce the supply of housing relative to demand. This is perhaps the most objectionable part of the Faustian deal, that is deliberately pursuing a policy that will leave millions living in substandard accommodation. Governments no longer build social housing, the once thriving council house building programme has ceased. The consequence is house building has fallen to the low levels ever seen in modern Britain. House building is now left to private developers and the underfunded housing associations. The various right to buy schemes have resulted in the large scale transfer of local authority housing to private landlords. Consequently market power no resides with the private landlord they can constantly increase rents, often charging higher and higher rents for what is increasingly inadequate accommodation. This increasingly profitable private rental sector attracts foreign investors, the people whose money is needed to finance the balance of payments deficit.

Various denial of truth strategies are used by politicians to excuse their inaction in what is an increasingly worsening housing crisis. One of the worse is that if the government intervenes in the private sector it will worsen the crisis. They claim that if the government intervenes by increasing security of tenure or controlling rents, private landlords will leave the market in droves reducing the amount of accommodation available and making many more homeless. This is nonsense as too many landlords have invested too much money to withdraw from the market. Legislation could be introduced to ensure that existing landlords did not withdraw from the market, through the compulsory registration of landlords.

What our political classes are unaware is that Faustus had to pay a high price for the help of Mephistopheles, he had to surrender his soul. Similarly the new Mephistopheles in the guise of international finance requires a high price for its support, the surrender of the integrity of the political classes. To keep the cash following into our economy this new Mephistopheles demands that policy be structured meet to its needs. What it requires are two things the first is constantly rising property prices and the second that in the event of a price crash the government takes measures to stabilise prices, so ensuring that the investors do not suffer too big a hit. The governor of the Bank of England in fulfilling this promise, this week announced a whole series of policy measures to stabilise the property market. The fact that these measures would also protect the house owner from the threat of increased mortgage costs and possible repossession was only of secondary importance. Even George Osborne (Chancellor) admitted that his new policy to support new house buyers was a measure whose primary importance was to keep up house prices.

This is not the way to manage an economy

June 28, 2016economic history, Economics, Politicsconsumer debt, Cost Push Inflation, Demise of the British owned car industry, EU Referendum, Financial crash 2008/9, Inflation, Leasing Cars, The Great Depression, The Vietnam Warangrytunbridgewells

Sometimes I think economic policy making can be best explained through stories, with ogres, giants and other mythical figures from folk tales wreaking havoc on the economy. Contemporary policy makers are obsessed with the ogre of inflation, although that particular ogre was slain years ago.

The events of the 1970s traumatised the political classes in the West. There are two explanations of the inflation of the 1970s, one is that the world economic system became increasingly dysfunctional in response to political crises such as the Vietnam war and the actions of OPEC in raising oil prices to cripplingly high levels. However that explanation became disregarded and instead policy makers focused on what they termed cost push inflation. Workers by pushing for above inflation pay increases were causing inflation to spiral out of control. This inflationary spiral was given further impetus by excessive government spending, this spending increased faster than the capacity of the economy to increase output of goods and services and in consequence prices rose (demand pull inflation).

Rather than accepting the inflation of the 1970s was due to a series of one off events, they believed that the cause was a malfunctioning economic system. Inflation had to be squeezed out of the system through controlling wages and reducing government spending. This caused in Britain the recession of 1981 in which it lost 20% of it’s manufacturing capacity and a massive increase in unemployment. This policy was counted a success as inflation was reduced to historically low levels. The policy of limiting the increase in incomes has been so successful that in the USA the incomes of the majority have remained unchanged since 2003 and in Britain since 2008.

However the economic is a dynamic creature and cannot be constrained within policy straight jacket. Businesses that have successfully limited the incomes of their employees to keep down costs are now faced a new problem. People on low or stagnant incomes don’t buy lots of goods and there was a danger than stocks on unsaid manufacturing goods would build up. Mountains of unsold goods would diminish the profitability of these businesses.This certainly seemed to be true of the motor industry, where for year on year output of cars exceeded demand for them. There was some reduction in capacity, the closure of much British owned car manufacturing. However a dynamic economy will soon go into reverse if demand for goods is not maintained.

If rising demand could not be financed from ever increasing incomes, an alternative had to be found. The alternative was to be consumer credit. At first the credit came from the ever increasing use of credit cards and from loans raised on the security of ever increasing house prices. Growth was driven by the ever greater use of credit. Banks cooperated by making increasing amounts of money available on ever more generous terms to finance house purchases. All this extra money in the housing market pushed up house prices, which in term increased the value of assets (houses) on which loans could be raised. Any economy whose growth is dependent on ever increasing levels of consumer debt is inherently unstable. Debt financed trade is particularly vulnerable to adverse changes in the economy. A rise in interest rates can lead to a crash in demand as people can no longer afford to borrow at the new higher rates. This happened in 1990, 1999 and 2008.

The unvirtuous circle

When economic growth is dependent on ever increasing levels of consumer credit, extraordinary steps have to be taken to keep consumer credit growing. In the years immediately preceding 2008 banks and other financial providers took increasingly less prudential steps to keep the level of consumer credit growing. Applicants for mortgages if self employed could self certify their income, mortgages were increased to 125% of the value of a property and to make possible the purchase of increasingly expensive properties the time over which a mortgage could be repaid was extended from twenty five to forty years. The whole financial sector was gambling that house prices would increase at an ever increasing into for the indefinite future. This could not continue forever and inevitably the whole system came tumbling down in 2008, resulting in the greatest recession since the great recession of the 1930s.

Rather than taking the difficult step of rebuilding the economy on sounder lines, the government took extraordinary steps to stoke up the credit bubble. Interest rates were reduced to record lows, so people could continue in their risky habits of funding expenditure from credit. The government poured record amounts of money into the banking sector to keep rates low and to ensure that the banks had plenty of cash to lend for the various speculative activities that would fund the demand for goods and services that would keep economic growth going. Strangely enough they were abetted in this by the employers who would keep wages low as possible, but who would instead give those same employees whose income they froze, access to the most generous of terms for credit. Since the crash there has been a rapid growth in what is called shadow banking, a system where the manufacturers rather than the banks provide credit. One such example is the credit hire or leasing system for the purchase of cars. A system whereby the buyer leases a car for a period of say three years and then returns the car to the dealer and then takes out another car on a lease. While car leasing is not unsound, it becomes unsound when it becomes part of an ever increasing credit bubl. Leasing as with another system of credit is particularly vulnerable to any adverse change in the economy.

One such event was last Friday when the result of the referendum was announced. A debt driven economy will be easily upset by such an event. There has been since Friday a rapid collapse in the share prices of banks and other financial institutions, as any adverse change in the economy makes it more likely that there will be an increase in the rate of default and the profits of the banks will be particularly badly hit.

The great mystery is why conservative businessmen who will use any method to keep down or reduce the wages of their employee’s down and yet will throw increasing amounts of cash to enable the same employees and those of other businesses to buy goods on credit. To this particular economist this is the riskiest of economic strategies, yet governments encourage such practices. The only conclusion that I can arrive at is that rather than these businessmen being the great leaders they are lemmings that follow the worst instincts of the herd.

Is a Christian economics either desirable or possible?

June 13, 2016christianity, Economics, PhilosophyAristotle, Christianity, Jesus Christ, John Milbank, Karl Barth, Liberal Theology, pentecostalism, Radical Orthodoxy, Says Law, St Francis, St.Dominicangrytunbridgewells

A recent survey demonstrated that the majority of the UK population are now atheists. However there is another change which goes against the trend to a more secular society. Liberal theologians such as myself are seen increasingly as being in error and the new movement in theology is a return to what can only be termed pre-modern Christianity. A Christianity in which the Bible is seen as the last word, the ultimate expression of God’s will. A rejection of theologists such as Bultman who described the New Testament as a mythical expression of the essential Christian truths. This new movement in the protestant church is associated with the theologian Karl Barth. Within the church system this return to Christian roots is mirrored in the growth of the pentecostal church movement, which is led by its members and dispenses with guidance of intellectual theologians. In fact I was taken aback when one Christian philosopher described Liberal theologians such as myself as being misled by demons.

Now this movement to return to the Christian roots is increasingly taking over the churches, if it becomes more successful it could result in a radical rethink of the approach to the all the sciences that deal with humanity. In England the Christian philosophers and theologians who advocate this approach believe that Christian philosophy should be at the centre of all thinking or as one philosopher said, ‘theology is about everything and philosophy is about one thing’. Philosophers such as John Milbank believe that God’s creation of universe was not just a physical creation but a creation of everything. One part of creation is the spiritual and all the truths about human existence and the nature of the universe are part of this spiritual creation. Truth is not found through rational enquiry but it recovered from the spiritual world created by God. The people best placed to discover these truths are the theologians, as those who seek a knowledge of God are best able to uncover God’s created truths. This philosophy is as John Milbank writes is a reversion to pre-modern Christianity, that is Christianity as it was before the renaissance.

John Milbank and his fellow radical orthodox Christians don’t want the abandonment of all the post renaissance disciplines such as economics, sociology and Cartesian philosophy, but rather a redrafting of them. The practices of these subjects should be informed by an understanding of God’s truths. This can be achieved in two ways, either economists, philosophers undergo an initial training in the truths of Christianity as discovered the theologians or Christian truths become part of the warp and woof of the subject. Universities in the 19th century were overwhelmingly Christian institutions and the economists of the period can be said to have been practising the first method of inclusion. The second would involve a radical redrafting of subjects such as economics if the practice of economics was to include Christian concepts and understandings.

Although the universities of Oxford and Cambridge were in the 19th century Anglican Christian institutions the practice of Christianity was limited to a knowledge and understanding of the ‘Thirty Nine Articles’ which were considered the essentials of the Anglican faith. If the student could recite them it was considered sufficient to warrant membership of the two universities. However if the radical orthodox Christians had control of the curriculum all students of economics would have go undergo a course of study in Christian doctrine. Economics would become a subsidiary of the department of theology. Once considered to be sufficiently imbued with Christian doctrine students would be allowed to study economics. Possibly if the radical orthodox christians had there way, the Philosophy, Politics and Economic degree (PPE) would become Theology, Politics and Economics (TPE).

However there is the warning from Aristotle when he writes at the beginning of ‘The Ethics’ that although he knows the meaning of the word good, that does not prevent him from doing bad actions. What he recommends is the instillation of virtue through habit, so good actions become habitual. In 2000 years of history Christianity has a very mixed record. There is for every compassionate and loving St. Francis, a St. Dominic, who use power and violence (in this example through the threat of and use of burning at the stake against heretics) to prevent error. George Bush’s war in Iraq was in part a Christian Crusade against the barbaric muslim regime of Saddam Hussein. In all probably compelling all economists to undergo a training in theology would at best have very mixed result, there would be a few St. Francis’s but many St.Dominic’s. Misunderstood and misguided Christian zealotry could cause as much distress as the misguided and malign doctrine of Neo-Liberalism.

A more fruitful approach would be to incorporate the key concepts of Christianity into economic practice. An economics which incorporated Christian ethics would make it if not impossible, make it less likely that an economics such as Neo-Liberalism with its disregard for human life and dignity would ever become the dominant economic philosophy. In the gospels Christ says that the supreme commandment is to ‘love the lord God’; a moral injunction which the theologian Caputo states is best demonstrated by loving your fellow man. What he advocates is agapé the disinterested love of our fellow men, or in the words of the Old Testament, ‘love your neighbour as yourself’. If agape was accepted as the ‘summum bonum’ of economics, practices such as Says Law would be removed from the subject. What Says states is that in the time of a recession any legislation that seeks to prevent incomes being cut is self defeating as it only creates more unemployment as employers lay off expensive workers. The same goes for the actions of trade unions as who try to protect workers wages in a recession. What for Says is the correct remedy is to let wages fall until they become so low that the struggling businesses can now afford to take on the newly cheapened workers. These newly employed workers will spend their incomes and generate increased demand which will kickstart the economy into a recovery. Although no politician or economist would ever say that they are a follower of Says, they do put his ideas into practice. The response of all governments to the crisis of 2008/9 was to cut incomes. In Britain this was achieved by freezing the pay of all public sector workers and by transferring many workers from permanent employment to lower paid self employment. The starkest example of this cruel policy is the austerity policy forced on Greece which saw pay reduced to levels that reduced many workers to poverty.

What so many politicians forget is that the practice of economics should aim at maximising the welfare of the people. (There is a section in economics textbook entitled ‘welfare economics’ , a section conveniently ignored by most practising economists.) Today so many economic policies do the reverse, they aim to minimise the welfare of the many so as to maximise the welfare of the privileged few. Policies such as increasing government expenditure in the times of recession (to offset the fall in demand and incomes caused by the recession) would be prioritised over those which recommend the cutting of the coat to fit the cloth. The problem of austerity policies is that the suffering they cause the great majority is rarely justified. Only in exceptional circumstances should the harsh austerity policies of today be applied, in such circumstances occurred at the end of World War II, when the government needed to direct the nations income into rebuilding a war damaged economy.

What economists most need is an ethical code built into their subject. Economists as with all people will only act in the best interests of mankind, if constrained to by the rules. Without such constraints they will not be inhibited from selfish policy recommendations that benefit them and their sponsors. Far too many economists are employed by consultancies (funded by wealthy individuals) or work for financial organisations that want to see economic policies drafted to promote their own selfish interests. When for example the government increased income tax for the wealthiest to 50%, there was a howl of protest from the economists who work for these self interested organisations. They all claimed that the increase in tax would be a disincentive to enterprise. Only the writing of a strict set of ethical rules into the subject would prevent its abuse at the hands of self interested individuals. At present the very lax approach of economists to ethics leaves it open to abuse, disinterested economic analysis all to often means disregarding the normal ethical rules that govern human conduct.

What skills does a good economist need?

May 23, 2016economic history, Economics, Neo-Liberal economics, Philosophy, Politics, Uncategorized#MiltonFriedman, Ancient Rome, General Pinochet, George Osborne, J.S.Mill, Keynes, Mikhail Bulgakov, Mrs Thatcher, Neo-Liberalism, Nigel Lawson, Slavery, The Brothers Karamazov, The Great Depression, The White Guard, Winston Churchillangrytunbridgewells

Humility and the willingness to change their minds

Winston Churchill when speaking of Maynard Keynes (the greatest British economist of the 20th century) said that when four economists are gathered together you will get five opinions and two of them will be from Keynes. What this illustrates is that what the good economist recognises is that economics is dogged by uncertainty. The economy and its host society is so complex that any unexpected change can result in the policy measures undertaken producing contrary results. When Nigel Lawson in his budgets in the 1980s cut taxes he overstimulated a rapidly growing economy. All that extra money from the tax cuts had no outlet except in for investment in the property market, causing a housing boom that ended in a crash in 1990. Policy recommendations should be made in the spirit of cautious optimism. With the recognition that policies might need to be changed if circumstances change, as there is no certainty in the practice of economics.

When Mrs Thatcher said, ‘that the lady is not for turning’, she made a terrible mistake. Her policy of using high interest rates to squeeze inflation out of the economy through depressing demand had the unfortunate consequence of driving the exchange rate. This high exchange rate made large sections of British manufacturing industry uncompetitive. The consequence of this was that British manufacturing industry lost 20% of its capacity, which had the long term consequence of Britain developing the largest trade deficit in the developed world. A problem that still persists today.

A capacity for scepticism

There is no ‘economic cure all’ that can solve all problems, although many economists and politicians foolishly believe that there is such a policy. The latest ‘economic cure all’ is Neo-Liberal economics. In the 1970s the post war economic settlement seemed to be falling apart. In 1976 inflation hit the unheard of high of 27% in Britain. A group of economists the Chicago School claimed to have the answer, they diagnosed the problem as being one of excessive government borrowing to finance its spending programmes. This borrowing increased demand to a level beyond that which the economy could meet and as supply could not be increased prices rose, as consumers entered into bidding war to get these relatively scarce goods and the consequence was rising inflation. This problem was made worse they said by all the restrictions on the market which prevented industry responding to change by increasing supply to meet increased demand. These restrictions were such as the managed exchange rates, trade unions, employment protection laws and health and safety legislation. If government spending was cut and the restrictions to the market were removed, inflation would fall and the economy would grow ending what was a period of ‘stagflation’. What these economists ignored was the massive increase for the world’s oil etc caused by the American participation in the Vietnam war. There was such a massive expenditure of material in this war that it seriously distorted the world economy. More bombs were dropped in this short war than during the whole of World War II. When Nixon negotiated an end to the Vietnam War that decision did more than any economic policy measure to end the malfunctioning of the world economy.

Whether its called the monetarist or the Neo-Liberal economic school of economics, it has failed.There have been three world wide recessions since 1990 each one worse than the previous one. Growth remains minimal, the growth in incomes has stalled yet economists (the majority in the universities and those employed by government and international institutions) and politicians refuse to change their policies. They have invested too much prestige in the Neo-Liberal revolution to abandon it now. A little scepticism about the policies of the present would not come amiss. There are plenty of alternative policies that can be used, it’s only stubbornness and ignorance which prevents them being used.

When politicians and economists state ‘that things have changed’ and that we are in a new economic paradigm, it a sign things are going badly. It’s a weak defence offered for a policy that is failing and for which no better defence can be thought of. It is the wisdom of parrots as politicians repeat this mantra endlessly without understanding that these phrases are completely meaningless.

A good economist will be well versed in literature, in fact English literature should be an essential part of the course of study undertaken by a trainee economist.

Economics has the potential to be the dullest of subjects. I remember that in the second year of my university course all the second year students had to attend a series of lectures given by one of the world’s greatest monetary economists. They were so boring that students did all kinds of things to distract them from the tedium of the lecture. One particular incident sticks in my mind and that was when a group of bored students launched a giant paper plane from the balcony which soared over the lecture hall.

Literature should be an essential part of the course, because a great novel can better than anything else explain the impact of economic and social change on a people. One of my favourite novels is “The White Guard” by Mikhail Bulgakov. This novel details the impact on one Ukrainian family of the Russian civil war. The play on which the novel was based was Stalin’s favourite play, even although he was on the opposite side of the conflict. The reading of such novels will hopefully lead to the development of some sensitivity towards the human condition in the trainee economist and hopefully led them when qualified and employed by government to hesitate before recommending policies that cause unnecessary economic and social hardship. One cannot impose a test on economists for the possession of those essential qualities that go to make a wel rounded human being, but hopefully immersion in a course of literature will be a good substitute.

Milton Friedman the Chicago economist provides an example of the extreme insensitivity of which economists are capable. General Pinochet launched a coup to overthrow the socialist government of President Allende. The aftermath of the coup involved the torture and killing of many of those people opposed to the coup. Milton Friedman lauded the actions of Pinochet as necessary for the greater good of society, as the imprisonment and killing of these socialists made possible the introduction to Chile of the free market economy. Only a person of extreme insensitivty would applaud the killing of people as the best means to achieve some ultimate end. I tend to agree with Ivan who at the end of the novel “The Brothers Karamazov” asks God why does he permit the death of a child. (when being shipped of the Labour camps of Siberia he witnesses the pain and a suffering of a woman holding her dead baby). Any economist should ask does my policy proposal cause unnecessary suffering and is there a better alternative that will minimise human suffering. Killing may be necessary in fighting a war but never in imposing economic change on a society.

It may also hopefully prevent economics students suffering from too many dull and boring lectures, as the lecturer will have a better grasp of the English language and human nature than would otherwise be the case.

A good economist will be schooled in philosophy

Any economist must recognise that any policy proposal will be flawed or wrong in some measure. J.S.Mill in the 19th century stated that there could be no science of the humanities because human society was so complex. There were so many possible causes of a particular social or economic event and so many possible unintended effects of a policy measure that the one essential requirement of a science could not be fulfilled and it was impossible to have a science it which it was impossible to demonstrate cause and effect. Mills’ words seem to have been forgotten in the twenty-first century. It is believed that computers that can overcome this problem, as they can make calculations involving thousands if not millions of variables. However what politicians and economists at the world’s Treasuries fail to recognise is that the output of the computer findings are only valid if the calculations on which the predictions are based are valid. What politicians fail to recognise and economist ignore, is that the model of the economy used in the computer does not work, there is something missing. Treasury economists have to insert an ‘x’ factor into the calculations, a reality factor to enable the computer to deliver a realistic prediction. This x factor is little more than an informed guess. This is why the Treasury computer can only make a correct prediction about economic growth after the event when the necessary corrections can be made to the computer model.

Any student of philosophy learns the limits of human knowledge in the first year of their course. It was a shock to this particular student that philosophy provided few of the answers to the questions that he wanted answering. One such question is what is good, Plato tried to answer this question in this question in his book ‘The Republic’ written in 380 BC and it is a question which philosophers ever since have struggled to answer. Now analytic philosophers tend to think it is an unanswerable question and not one contemporary philosophers should waste time on answering. Instead the quests of past philosophers to understand the nature of the good are to be seen to provide a good schooling in the techniques of philosophy but little else. Students such as myself had instead to look to theology to provide some answers. The point that I am trying to make is that philosophers understand the frailty of human nature and its limitations. A true philosopher can only laugh at the claims of Neo-Liberal economists who claim to understand the workings of the economy, as the evidence from philosophy demonstrates the continued failure of man to have a complete and full knowledge of human nature let alone human society. The problem with so many economists today is that although they have studied PPE, they compartmentalise the philosophy they learn and think that its findings do not apply to economics.

Diogenes Laertes in his history of the philosophers recalls how visitors to Democritus frequently found him laughing in his garden. A thing he frequently did when considering the follies of mankind. If the effects of the wrong economic policies were not so disastrous, I would join Democritus in his laughter.

A good economist is aware of the past and does not think today’s events are unique and without parallel in the past and is prepared to recognise the similarities between today’s events and those of the past.

One extreme example springs to mind, both the governments of the Roman Empire and contemporary Britain regard the provision of cheap food for the people as a priority. Rome was able to supply cheap bread to its people through conquering the countries that were the bread baskets of the Mediterranean and then by supplying low cost labour for the farms in the form of slaves. Contemporary Britain by contrast encourages the production of cheap food through the provision of subsidies to farmers, one estimate is that now 50% of farmers incomes now comes from EU subsidies. Most of this money goes to towards subsidising what is termed industrial farming, which produces large quantities of food at low cost, but in an environmentally damaging manner. Unfortunately there is evidence that British food suppliers are adopting some of the practices of the Romans. Some of migrant workers on Uk farms adopted in work in slave like conditions.

What the government could learn from Rome is that using low cost labour methods of production discourages investment and innovation in industry. If there are endless supplies of cheap labour employers see no compellilng reason to invest in expensive machinery, if there are endless supplies of cheap labour. Studies of slave labour have demonstrated how slave labour acted as a deterrent to industrial innovation. A government and business class that believes the only solution to problems in the economy is to make labour as cheap as possible have a lot to learn from the slave economies of the past.

While the one lessons that can be learnt from Rome’s history are negative, much that is positive can be learnt from the actions of the government in the 1930s. This government tried to stimulate an economic recovery after the devastating crash that was the Great Depression. The government then recognised the importance of getting new investment into manufacturing industry so as to kickstart a recovery. Recognising that the banks were unwilling to do this, it set up an industrial investment bank which would lend money to manufacturing industry. Today one of the issues that is delaying the recovery is the comparative lack of investment in industry and manufacturing industry in particular. A recent study showed that only 15% of bank loans went to investment in industry most when into speculative trading in property etc. There is nothing to be lost and much to be gained by setting up a new industrial investment bank and it could be financed through a levy on commercial banks, as happened in the 1930s.

This list of criteria for judging what is a good economist is not intended to be exhaustive but suggestive.

History has it wrong the Soviet Union won the cold war (at least in Britain)

May 18, 2016irony, Neo-Liberal economics, Politics, Uncategorized, United KingdomChinese Education System, Communism, Conservatives, Gulags, Neo-Liberalism, Pisa Tables, Re-education programmes, Shanghai, Socialism, South Vietnam, Soviet Unionangrytunbridgewells

One of the commonplaces of history is that the communists and in particular the Soviet Union lost the Cold War. This victory was exemplified in the pulling down of the Berlin Wall in 1990. However this is a misreading of history. There are two ways of winning a war, one the most obvious is the conquest of the enemies territory, the other less obvious is when the loser takes on the ideas and practices of the winner. A more subtle form of conquest but just as real. Recent history demonstrates in Britain at least there is an enthusiasm for the ideas and practices of the former Soviet Union. As a teacher I always spent at least one lesson teaching communist economic practice, as I found it fascinating and I thought that the students would benefit from the knowledge of an alternative economic system. Imagine my fascination when recent events recorded in the media demonstrated that he practices of the Soviet Union had been adopted wholeheartedly by the department of education.

The leaders of the communist state realised that they had taken over a country steeped in capitalist values and their major task would be to re-educate the people in the values of communism. In the early years of the Soviet regime trains carried artists and other propagandists from town to town to teach the people communist values and practice. Without this programme of re-education the communist state would fail as the capitalist enemy from within would undermine all the efforts of the communist state at reform. There had to be in tandem with this programme of re-education active policing to root and destroy those enemies of communism. Just last week the latest schools minister just like any good communist politician he was claiming that saboteurs were seeking to wreck his programme of educational reforms. In this case it was a small group of rogue examiners and teachers, all of whom he was determined to root out of education system.

The Soviet State believed that schools would play a key role in re-educating the population into the correct mores of the communist state. Not only school students but those at university were expected to study the thoughts of the communist leaders. In addition they to follow courses of the approved and correct ideological content. Marxist studies were a key element of both the school and university curriculum. There was a certain paranoia in the thinking of the Soviet leaders as they saw themselves as the enlightened minority constantly threatened by the actions of the mass of unbelievers; it was the same attitude that prevailed in the Conservative government elected in the 1980s. They saw a failing nation corrupted by the anti capitalist values of social democracy and socialism. Just as their communist predecessors had, they employed the law and aggressive policing to destroy the power of the enemy within, that is the trade union movement. They also realised that the success of their conservative counter revolution depended on the re-education of the populace into the right ways of thinking. Obviously the start was be made with the easiest to re-educate the young that is those at school. This would be achieved by changing the curriculum and by re-educating the teachers.

I was one of the first teachers to be put on the programme of re-education. It was obvious to the government that we were imbued with the wrong thinking and one of the best ways of eradicating this was to introduce teachers to the right way of thinking. When a communist state wanted to re-educate the population they were sent to the camps in their thousands for re-education. When the South Vietnamese State fell to the communists all the army officers and government functionaries were sent to the camps for re-education in the values and ways of communism. In Britain the government made a half hearted attempt at re-eduction, was rendered ineffective hampered by their commitment to spending to cutting government spending so their was only a minimal amount of money to be spent on re-education. I as one of the selected few for re-education attended on training session given by a manager from the private sector in the values of business and free enterprise. Then I had to follow in my own time a modular course of re-education and produce a portfolio to demonstrate my commitment and willingness to teach the new ideas. I guess like many in the old Soviet system I was very sceptical about its value of this programme but I completed the it because it was the only way of saving my job. This made me less than an ideal ideologue for the cause.

Rather than continue with this programme of ineffective re-education the government resorted the negative tactic of weeding out unsuitable teachers. They created a new inspectorate who role was to ensure that school worked in conformity with the new rules and values. This body weeded out many staff who were resistant to the new ideas. Many creative and talented teachers left the profession, rather than be forced to teach the new orthodoxy with it series of box ticking exercises. A flight similar too but much smaller in numbers than the flight of intellectuals from Russia in 1920s. Now as in much of the old Soviet State promotion is gained by adherence to the values and practices espoused by a series of government ministers. Promotion now is largely dependent on a display of the toadying factor.

Teachers are still regarded as potentially the enemy within and are subject to a series of punishing controls, usually in the form of inordinate amounts of paper work. Just as a worker under the Soviet system was expected to attend regular party meetings to demonstrate their commitment to the system, so a teacher is expected to produce mountains of paper work to demonstrate their commitment to best new system.

What as an economist struck me was the similarity of the economic models they employed. In the old Soviet Union Gosplan Moscow decided on the targets for all Soviet Enterprises and there were a series of Gosplans at different levels of government that added more and more detail to the plan to ensure that the central directives were met. Not only that but there were Gosfinance and Gosresources, that decided the money and resources to be allocated to the education sector. Since there were at least three separate bodies in Moscow deciding upon targets, finance and resources it was inevitably that these directives issued by these three bodies were often in conflict. Also it must be added that these detailed central plans always specified quantitive targets to be met to demonstrate that the planned targets were being met. Managers of local public enterprises struggled to meet these targets set by these different bodies so they often resorted to all kinds of practices in an effort to appear to be meeting these targets. Since it was easier for a shoe factory to meet the target to make by making only shoes of one type, a factory would often turn out only right or left handed shoes.

The similarities with the education system in Britain today are striking. The department of education set targets for schools to achieve. These targets are always expressed in quantitive terms, as they are easier to measure and check. Quantitive targets such as a setting numbers to pass tests in English and Maths. However the Education Minister and his planner set the targets independent of the Treasury which controls funding and resource allocation. The consequence is targets being set that are impossible to achieve with the funding and resources available. This has led to the development of a new profession the private consultants who teach how to achieve the impossible targets.

Just as in the old Soviet Union the performance of individual schools is measured against a set of targets set by the central government. This means the emphasis in schools must now be on achieving government targets and so teaching practice is changed to enable the school to score as high as possible in tests, as high scores earn score additional scarce funding and resources. In the Soviet Union factories made only left handed shoes, so schools similarly turn out students with only the left handed education. Right handed education that is creative thinking cannot be measured so it is increasingly left out of the curriculum. Creative subjects such as art and music are downgraded within the system so the most able are encouraged to do the book ticking knowledge based subjects. In the Soviet Union what mattered was the quantity not the quality, the same is true of British education. What matters is the attainment of government targets not the quality of the educational students receive. Many of the targets are of have little real educational value but what matters is appearance, these statistics that can produced to show how successful is the minister of education and his latest reform programme.

What demonstrates most clearly the success of the Communist model is that Britain is eager to emulate the methods of teaching used in the schools of Communist China. Britain invariably lags behind China in the PISA tests. These are supposed to be impartial means of assessment by which the performance of a nation’s school students are judged. Everybody outside the Government and the Department of Education knows that Chinese score highly in such tests because only students at the best selective schools in Shanghai are entered for the Pisa them. What matters to the Chinese is prestige and they would never think of entering students from those schools whose relatively poor performance who would drag down the nations scores. Given that in a Soviet type education system all that matters is the appearance of doing well, rather than the more difficult task of actually doing well, in Britain the government is now importing Chinese teachers to help remodel our schools to be more like those of the Chinese.

Note. Despite their claimed difference between the Communism of the former Soviet Union and the Neo-Liberalism of the West are vastly overstated. They both claim to be ideologies of freedom but are in fact authoritarian ideologies that intend impose their limited understanding of freedom on their host societies. Under Neo-Liberalism we should all have the freedom to buy and sell without hinderance. One hinderance is what are regarded as the bedrock of democratic society, the freedom of association. Political movements that intend to enact a reform of society, will according to the Neo-Liberals hinder the workings of the free market. They wish to impose restrictions and costs on business that will increase costs and reduce the supply of goods available to consumers. Therefore such movements should be discouraged or prohibited as they interfere with the workings of the free market to the detriment of all. It is the increasingly authoritarian nature of the British Neo-Liberal model of society that means that British society increasingly resembles that of the Soviet Union.

The Economics of the School Playground or Free Market Economics

May 5, 2016economic history, Economics, Feminism, irony, Neo-Liberal economics, politics, UncategorizedAnn Pettifor, Competitive behaviours, Financial crash 2008/9, free market economics, Joan Robinson, Lloyds Insurance Market, Male behaviours, Neo-Liberalism, Play and playgrounds, Private Sector Debt, Social Darwinism, The Food Mafiaangrytunbridgewells

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

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

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

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

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

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

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

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

Why are our leaders so stupid?

April 26, 2016christianity, economic history, Economics, irony, Philosophy, politics, religion, Uncategorized#austerity, #classical greece, #economics, #Isis, #St.Augustine, #UKIP, Avveroes, Bonhoeffer, Boris Johnson, Brexit, Columbus, Derren Brown, Donald Trump, expansionary fiscal contraction, George Osborne, Muslim Fundamentalism, Protestant Evangelical Preachers, Rumi, St Francis, Tea Party, Walter Benjaminangrytunbridgewells

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

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

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

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

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

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

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

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

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

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

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.