What is required today is a return to the economics practised in 1968

The storm clouds are gathering over the economy, yet our political leaders seem oblivious to the approaching storm. These are some of the gathering clouds, inward investment has fallen 80% since 2016, the investment in national infra structure is at levels similar to Greece and in consequence economic growth fell to 0.1% in the last quarter. As a nation our trade deficit is the highest, as a proportion of GDP in the developed world. A trade deficit of 5.9% of GDP is only reduced to 2.2% through the contribution of financial services. A situation in which the U.K. is over dependent on recycling foreign cash invested in the U.K. to pay for imports. This gives an incentive to government to ensure that the City of London remains the largest money laundering financial centre in the world. Dirty money is as acceptable as clean money for paying our debts. This situation cannot continue indefinitely, if politicians cannot take action to resolve some of these problems, they will resolve themselves. This resolution will come in the form of an economic crash which will make us all much poorer.

A useful comparison can be made with the 1960s and 1970s a period of frequent balance of payment crises. In the 1960s the trade deficit never exceeded 0.6% of GDP and in the crisis year of 1976 it rose to 1% of GDP. These deficits always called for remedial action such as devaluation and economic policy measures to reduce the demand for imports. Now this ever rising import bill is never considered a problem for the U.K. Its role as one of the world’s financial centres ensures that it always has ample reserves of foreign currency to finance its debts. What never troubles the world’s governments is that one of the world’s largest financial centres lacks the strong economy to sustain it in that role. In the 19th century Britain’s strong economy enabled it to fulfil its role as the world’s banker. Now with a significantly diminished role in the world’s economy it still tries to be the world’s banker. This mismatch cannot continue, we as a country are unfortunately heading for a crash that could wreak havoc with the world’s financial system. The catalyst could well be Brexit when Britain begins to lose its role as the EU’s banker and uncertainty develops about the UK’s future this could precipitate a flight from sterling similar to that which happened on Black Wednesday. This time there will be no easy strategy for quickly resolving the situation. There is no ERM to leave and no easy currency devaluation to make. The pound will crash and the only remedy will be a large IMF loan and the imposition of a Greek like austerity programme.

Whatever criticisms the politicians of the 60s and 70s deserved, they were at least pragmatists. Unlike today’s ideologues they can recognise that there was a reality that existed beyond the world as seen from Westminster. The Labour government of 1976 could embark on an incomes policy that would alienate its supporters, knowing that this was necessary to restore the economy to health. This programme of income cuts was the only way that the government could reduce the high level of inflation and reduce the trade deficit. This programme was so successful that by 1979 the trade deficit had been converted into a surplus. These politicians were pragmatists who listened to the advice of outsiders and adopted an economic programme that was contrary to their political instincts.

Unfortunately this government of pragmatists lost the election to a party led by radical minded ideologues. They advocated a policy of Neo-Liberalism, which included as part of its policy manifesto the recommendation to adopt supply side economics. This meant freeing up resources from the less productive parts of the economy by closing them down. Capital and labour would them be freed from being shackled to old inefficient industries and be freed to be used by the new dynamic industries that would replace them. This it was they claimed would boost economic growth. What was talked about was the so called ‘weightless economy’ an economy largely devoid of manufacturing industry instead one based on the finance and industries such as the entertainment industry. These new industries would replace the jobs lost caused by the closure of the old manufacturing industries. The economy never developed in a way that these new economic prophets claimed.

At the beginning of their period in government these Neo-Liberals were warned by economists that there policies would lead to depression and the damage British manufacturing industry. Yet they were ignored by the new radicals, who knew this was outmoded thinking. The British manufacturing sector lost 20% of its capacity, with the consequent widening of the trade deficit. A deficit temporarily covered up by the wealth generated from the exploitation of North Sea oil. The old manufacturing centres declined, there was no rush of new money to so called new industries to compensate for the lost output from the old manufacturing industry.

What was damaging to the country’s economic prospects was new understanding in politics that the economy no longer mattered. Free marketers in government believed that economy was a largely self regulating mechanism that could be largely left to itself. All that was required was the occasional light touch on the tiller in the form of interest rate changes. What was once a major department in government, that of Trade and Industry now became a mere sideshow. Now industry could be left to run itself, no longer would government try to pick winners.

What these politicians had forgotten was the words of Maynard Keynes, there would be times when the government would be needed to save capitalism from itself. That happened in 2008/9 when the world financial system was only saved from the consequences of the financial crash by timely action of governments. Politicians learnt little from this crisis and continued the policy of non intervention. When I was a child one popular ornament was the China or brass three monkeys who epitomised the motto ‘hear no evil, see no evil, speak no evil’. This is the government’s current approach to all matters economic. No matter what wrong doing is practised by managers and directors, as in the example of Carillon, they do nothing. Even if individuals can do wrong, the belief is that the market as a whole can do no wrong.

In the now much discredited 60s and 70s there was a belief amongst politicians that the welfare of the nation was dependent on the well being of the economy. Whatever the political conviction of the politicians, they believed an interventionist economic policy was necessary to maintain the well being of the economy. When the economy was in danger of over heating it for example imposed restrictions on demand to prevent that happening. Perhaps the most famous is Selwyn Lloyd’s 1961 credit squeeze. Unlike today’s politicians they did not see inflation in the housing market as a good thing. This contrasts markedly with all governments of the past twenty years who regarded house price inflation as a good.

One consequence of this is the unfortunate lending programme of the banks. Today only about 6% of bank lending goes to manufacturing industry. In 2008 almost 80% of bank lending went to the property market, a figure which it is approaching today. The U.K. remains an economy in which the main driver of economic growth remains property speculation, while manufacturing industry the real creator of the wealth that matters is neglected.

Whatever experts might say or write contemporary politicians remain impervious to economic realities. Nothing of what I have written impinges on their consciousness. They now seem to inhabit a hermetically sealed world into which no outside thought intrudes. The leadership of the main parties are locked into an increasingly complex debate in which each of them strives to deliver the most authentic Brexit. That the Brexit promised by each of the leaderships is a fantasy, that fails to acknowledge any economic reality is of no concern to these politicians. In the words of one leading Brexiteer, the people are tired of experts and don’t what to hear what economists such as myself say. All that matters is the authentic voice of the people as interpreted by the Brexit politicians no matter how fantastic that interpretation.

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The Real Robin Hood

Unlike most people I have met Robin Hood. Not the figment of the medieval imagination, but the real flesh and blood Robin Hood. When I met him he was a man in his fifties. A tall distinguished looking man with greying hair, with a ruddy complexion typical of many countrymen and whose eyes betrayed an obvious intelligence. Rather than being a romantic hero, he was more like the real medieval Robin, a villainous man who was hung for theft. He earned his name because he stole from the rich and gave to the poor. However the poor he gave to was principally himself. It was said by those that knew him that he did not need to drive his car to the pub and the route from his house was so well worn that the ruts in the road would direct the car there.

I should explain how he earned the name Robin Hood. He was the gamekeeper on a large estate not far from my home. The estate was owned by a man who had been a war hero, a man who had founded one of the elite special units in the British army. However I doubt many elements of the wartime exploits of this man, as if he was so clever why was he constantly outsmarted by our local Robin Hood. When I read that this man was captured by the Germans on his first mission behind enemy lines, my suspicions were confirmed.

To understand how Robin Hood earned his name and reputation, I must first explain the nature of the gamekeeper’s job. The pheasant the preferred target for aristocracy on their organised shoots was not a native of Britain. I should one of the reasons for the pheasant being the preferred target, was not so much its flesh, as it’s poor flying skills. When alarmed the pheasant preferred to run away, so many times the unaware pheasant was caught by a pursuing fox. When the pheasant flew it choose a relatively low trajectory and flew in a straight line. Unlike other game birds it did not adopt that difficult trajectory that would make them hard to hit. The poor pheasant was a relatively easy target.

This bird not being a native of this country was relatively ill adapted to life here. If those pheasants that had been originally imported from the East were left to become naturalised, because of the ill adaptation to the natural environment there numbers would have remained small. Consequently keepers were employed to breed these birds in their thousands, so that the landed gentry would have plenty to shoot. The mortality rate for these birds was so high that even if a thousand poults were released into the woodland, only a few hundred would survive until the shooting season.

Therefore in spring the gamekeepers would trap the remaining birds and use them as breeding stock. What my father and other keepers did was catching these birds and was to put one cock pheasant into each breeding pen with a number of females and then collect the eggs these birds laid. Then when sufficient eggs had been laid, they would be put beneath a hen to hatch. The female pheasant was so ill adapted to a life in captivity that they made poor mothers. This was a slow a relatively inefficient way of breeding pheasants, so the hens were replaced by incubators. These incubators could accommodate a hundreds of eggs. When these pheasant chicks were born they were so ill equipped for a life in the wild, that they had at first to be placed in a warm pen heated by infra red lights to protect them from the cold. When they had matured sufficiently usually after four or five weeks, they were taken to a protective pen in the woods. This pen was surrounded by a high wire fence that would keep predators such the fox away from the vulnerable chicks. These chicks were so lacking in the skills for survival that they would actively court disaster. Sometimes when a fox prowled around the pen they would stick their heads out to see what was happening. What happened next was inevitable the poor chick would lose its head to the fox.

What the keeper feared most was rain. These chicks that were newly released into the wild would lack the feathers necessary to keep that warm in adverse conditions. Shelters were built within the pen to protect them from rain, yet lacking any natural instincts, they would fail to seek shelter when they first encountered rain. If it rained just after they had been released into the wild, many of these foolish birds would get a chill and die of the cold. Eventually these birds learnt survival instincts and could be released from the pen into the wild. However even when they had mattered some would be reluctant to leave the sheltered pen for the wild and had to be driven out of there find a home elsewhere.

There are to my knowledge no statistics available on the likelihood of artificially reared pheasant chicks on reaching adult hood. It was this situation that gave Robin Hood the opportunity to rob the rich and give to the poor. He first came to my notice when I heard distressing tales from my father about this unfortunate man. Regularly he lost pheasant chicks to floods, theft or natural predators. Every year this unlucky keeper would contact men such as my father to enquire if they had any surplus chicks he could buy. Working on such a large estate he always needed to purchase thousands of chicks to replace those lost. A demand my father and other keepers could not meet. He would then reluctantly contact one of the large commercial breeders of pheasant chicks for replacement birds. Buying chicks at such a late date meant that he had to pay over the odds for these birds.

What later we came to learn that these unfortunate chicks were not lost to flood, rain or natural predators, but were sold to one of the many large pheasant breeding companies. Given the vulnerability of pheasant chicks to any number of natural hazards, it never occurred to any of the managers on the estate that they were being hoodwinked. The money he got for these chicks he spent in the local pub, were he was a popular figure. What was surprising was all the pub regulars and most of the local villagers knew what he was doing, but none ever informed on him! He was a popular local figure, as he was never found wanting when it came to his turn to buy his round.

Not standing your round was the one act that would have made you unpopular. I can remember a story printed in our local newspaper of a man being barred from a pub, because he never bought sufficient drinks. He was notorious for not wanting to pay for his drinks. He would try to persuade others to buy him a drink with the promise that he would buy one in return, which he never did. One of the regulars justified his banning on the grounds that he was a queer bird on account of his being a vicar’s son.

This story should be put into context. The money Robin Hood made from his illicit sales was never that great. While young pheasant chicks fetched a good price, the money from their sale would never have made a man rich. The wages paid to their staff by country landowners was never generous. Throughout my childhood there was the Agricultural Wages Board, that ensured that such people paid their workers a fair wage. When an employee such as Robin Hood put one over on his employers rather than earning censure, he was accorded the respect of his fellow workers and the villagers. In fact who was the real villain, I would suggest it was the large pheasant chick breeders who knowingly bought these illicit chicks for less than the market price.

Robin Hood was a man of real charm, which is perhaps why he got away with his nefarious activities. One journalist was so impressed with him that he featured him two articles on country life in his newspaper. Probably he used to same charm to mislead his employers. If I remember correctly there was even a short feature on him on a television programme.

What I have described in this essay could never happen today. Estates are now commercial concerns and gamekeeping is now one of the profit making activities that contribute to the estate’s profits. Several thousand pounds can be charged to a guest for a day’s shooting on a popular estate. In consequence every aspect of the estate is subject to close supervision and a contemporary Robin Hood would soon be found out.

One last comment. Poachers if they were local were never of great concern to my father, as they only took rabbit or pheasant to feed their family. What were of concern were the encroachment of organised criminal gangs from the city on the poaching trade. One of my father friends unfortunately died at the hands of these people, as one said he was hit one too many times over the head. The killer was from the city and was never caught.

Fools Gold or the Economic Follies of Phillip Hammond and like minded Conservative Politicians.

Our current Chancellor is nicknamed spreadsheet Phil, a name intended to reflect his prowess in managing the country’s finances. His proud claim was to have achieved what most Chancellors had failed to achieve, that is a balancing of the books. He announced that the government daily revenues exceeded its spending. To use economic jargonese current revenue exceeded spending, that is tax revenues exceeded spending on hospitals etc. This was for him a cause for celebration and he was feted in the financial columns in the print media. However much like iron pyrites* all that blisters is not gold.

Chancellors of a Conservative mind have always sought to achieve the holy grail of sound money. A non existent myth much like that of the holy grail. As students we were given the example of Winston Churchill who as Chancellor who returned the pound sterling to the gold standard in 1925. He choose a rate that valued the pound at $4.84, its pre war value. He said that he wanted to look the dollar in the eye. A political move as the ravages of the First World War had diminished the relative value of the U.K. economy and its currency and had confirmed the USA as the world’s leading economy. Consequently the dollar was now the world’s strongest currency. Churchill wanted to put the pound on a par with the dollar. It was economic folly, as the expensive pound priced U.K. exports out of foreign markets. In consequence the U.K. had a trade deficit, which could only be kept within reasonable bounds by depressing the level of income activity. This cut the level of overall demand in the economy and so reduced the import bill. Much of the misery experienced by the people of the 1920s was a consequence of this policy.

Phillip Hammond just as did his predecessor, does not understand that a weak or unsound economy makes any sound money policy fallacious. Simply because such a weak economy is likely to experience sudden and unexpected downturns, which in the eyes of the financial community can render the sound pound and chancellors reputation unsound over night.

Our current Chancellor has continued with the austerity policies of his predecessor and has fulfilled his predecessors aim of ensuing that government revenues exceed its spending. What they both want is the respect of the financial community. If the financial community believe that the government is pursuing a policy of sound money, they both believe many benefits accrue. One is that this community will allow them to borrow at low rates of interest. However this is of little practical benefit when the government chooses not to invest. Currently investment in infra structure projects is the same as in Greece one of the most impoverished of all EU member states.

However the plaudits of the financial community soon become worthless in a financial crisis, as then that community is forced to confront stark economic realities, that they would prefer to ignore. At present the current benign economic climate allows the financial community to overlook the very obvious weakness in the economy. When forced to confront them they will turn on the government. Greece provides the obvious example of what happens in these circumstances.

Phillip Hammond is astute enough to realise that the U.K. is subject to regular periodic economic crisis.* When that occurs he might need to find the funds to tide the U.K. economy over that crisis. He believes that if he builds up a war chest of money by continually spending less than he receives, that money can be used to avert any run in the pound as occurred on Black Wednesday. What the Chancellor fails to understand is that this cash reserve will rapidly diminish in value as the pound falls in value during a crisis so in consequence making that reserve of cash too small to be of any real value. One of the characters says in a Stendhal novel, that what takes ten years to build can be destroyed in ten minutes of warfare. The same applies to Chancellor reputations. In any major financial crisis the government and the Chancellor rapidly lose all credibility, so all the years spent creating a reputation for soundness are rendered meaningless.

What should be the aim of any Chancellor is a sound economy not a sound money policy. While there are many fundamental weaknesses in the U.K., two stand out. The first is the persistent trade deficits. At 6% of GDP it is the highest of any developed country. This debt is financed in part from money invested in the U.K. by foreigners. As a country we are paying Germany, the USA and our many other creditors by recycling the money that there nationals invest in this country. A situation that cannot continue indefinitely. One day the financial community will decide that the emperor has no clothes.

Secondly as a nation the U.K. borrows short and lends long. The U.K. is one of the world’s leading financial centres and as a consequence many foreign nationals invest there savings in London. These moneys are usually invested in accounts with a short term notice of withdrawal and pay a relatively modest interest rate. British banks to finance these accounts lend long for which they receive a relatively high rate of interest. This arrangement works fine when the investors have confidence in the country concerned. In the event of a crisis these investors want their money back. If the amount invested is relatively small compared to the size of the country’s wealth (GDP), that country will have no problem in averting a temporary ‘country run’. When those sums are relatively large when compared to a nations GDP as in the case of the U.K., the county’s reserves of foreign currency will be too small to avert a ‘country run’. As Black Wednesday demonstrated when the country was bankrupted in one afternoon due to the activities of foreign currency speculators. Unfortunately spreadsheet Phil appears to be ignorant of this fact.

Britain’s chancellors should have been working to remedy all the flaws the financial crisis of 1992 and 2008/9 revealed. Instead there has been a papering over the cracks, with the so called sound money policy. This is not a folly practiced not by just Conservative Chancellors of the Exchequer. When Gordon Brown was Chancellor in a Labour government he also pursued a sound money policy, instead of implementing the necessary structural reforms necessary for strengthening a weak economy. Although the crisis of 2008/9 was a financial one caused by the foolish speculative activity of financial speculators, the fact that he and none of his successors failed to make any attempt to create a sound economy, meant that the economy has failed to make the expected recovery from the last crisis. The majority of the population have experienced either falling, stable or small increases in income since 2009, a mark of a failing economy.

It is a perverse rule of thumb that when the financial columnists particularly of the right wing media laud a Chancellor for the soundness of his economic policy making, usually that Chancellor is making a hash of things.

* Iron pyrites or fools gold were the staple of many stories in the cowboy magazines of the 1950s.

* He is aware that just such a crisis might occur when the negative consequences of Brexit become obvious to all.

A Country Ghost, the Devil’s Chair and Other Stories

What has been lost from the countryside is the art of spinning a yarn or the telling of tall tales. I grew up in a time prior to the modern media age and the entertainment we valued most was story telling. We children loved it when my father had a friend call who was an adept story teller. Although there was some truth in these stories they were considerably embellished through constant repetition and could contain fantastical elements. Country folk used to love story telling, particularly when the audience included some credulous outsiders.

This credulity could be exploited for profit. A friend of my father’s was a farmer. He had been contacted by a television company who wished to film on his lands some scenes for a television programme on Jorrocks, the nineteenth century huntsman. When they had set up the jumps for the horsemen, they were interrupted by a shout of that’s all wrong after the first jump. This very helpful farmer told the producer and assembled cast that Jorrocks would never jump in the manner they had done. After several jumps with the guidance of the helpful farmer they began to jump in the manner of the Victorian huntsman. Once they had achieved that, the very helpful farmer noticed that the costumes and tackle they were not those that would be used in the nineteenth century. He gave them his help in securing the correct tackle for the horses and the right costumes for the huntsmen. What had intended to be one days shooting, became for the farmer a profitable three days of filming. What the television producer never realised was that this farmer knew less about the historical Jorrocks that they did.

After this diversion I want to get back to my intended story, that of country ghosts. The estate on which I lived was owned by a very wealthy American family, who had become British over the generations. When the first American owner bought the estate, he invested part of his wealth in improving the estate. He added a maze to the grounds, topiary chessman and an Italian garden. The grounds around the castle were turned into a pleasure garden. One such added feature were the walks and one such walk was Anne Boleyn’s walk.

The castle had once been owned by Anne Boleyn’s father. It was doubtful that she had spent anytime there with her lover Henry VIII; yet the thought that she might have appealed to the new owner. The walk was a long walk between rhododendrons and other scrubs. In early summer it must have been a delightful to walk between the flowering shrubs. When I knew the walk it had largely fallen into disuse and looked rather neglected. It had a markedly gloomy and spooky appearance which is perhaps it was why it gave rise to a local ghost story.

Stories circulated amongst the castle staff that the unfortunate Anne Boleyn could be seen at night walking there with her head in her hand. The fact that the castle staff at night attended the pub situated at the edge of the castle grounds, I think aided the development of the stories about this ghostly apparition. According to local legend an Italian valet was employed at the castle. This man was easily persuaded of the existence of this ghost. One night he was persuaded to walk along Anne Boleyn’s walk to see the ghost. Another of the servants had dressed in a sheet to look like a ghost. I don’t know what he used for a head, but he certainly had one under his arm. Then when the valet was walking along this path, this ghost jumped out from between the bushes. The scared valet ran away and gave his notice the next day.

I say local legend because staff would play such tricks on one another, but I doubt that even the most naive of Italian valets would be fooled by the disguise. What made the story believable was that it was a trick played on an incredulous outsider. Everybody in the village knew that only an outsider would be taken in by such a trick. However from such beer talk the legend grew. Certainly when I was a child the story of Anne Boleyn walking the grounds was widely known and of course disbelieved. It became something of a local custom, that some locals when fortified fortified by the consumption of beer would do the walk to see if they could see the ghost. Only after a number of these beers would these people think it worth their time to look for what they really knew was a non existent ghost when they were sober. All the estate was sceptical about Anne Boleyn’s ghost, but it was an amusing story to relate to credulous visitors.

Now the myth of Anne Boleyn walking the estate is widely accepted. I suspect mainly to encourage visitors to come to the estate. Since my childhood the walk has been transformed and now looks like it did in its heyday. Yet many thousands have now walked along that path to share in the vicarious pleasure of walking the same path as Anne Boleyn’s ghost.

There was also the story of the devil’s chair. At a nearby village there was a chair in which the devil had been reputed to have sat. Any unfortunate that sat in the chair would be certain to die the next day. Whatever the source of the story it was one popular with locals. However I can express some credulity about the story, as after a few drinks the locals would forget which was the devil’s chair and somebody would mistakenly sit in it. None of them can I recall ever died from doing so. After a nights drinking nobody was quite sure which of the chairs the devil sat in and I’m sure the devils chair was a different one each night. If fact I know that none of the local adults took the story seriously. However it was a story the landlord promoted to encourage trade.

What I think was the true source of the story was this. A landlord wanted to devise a way to stop children coming into the pub, because he only wanted adult drinkers in the bar, as children distracted the men from the serious and profitable activity of drinking. He came up with the story of the devil’s chair to scare away the children. It certainly worked because all of us children were too scared to enter the pub. From that simple ruse it developed into what became a well known local legend.

As a former countryman proud of his roots, I prefer to believe all such rural ghost stories had a practical origin. If outsiders from the town took them seriously, so much the better. Much pleasure was derived from duping our sophisticated urban cousins. The man who appeared to be an ignorant country yokel was all to often one of the village wide boys testing the credulity of an outsider with an increasingly series of incredible stories.

The Economy does not Exist

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

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

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

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

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

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

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

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

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

The Dead Economist’s Society*

Politicians have constantly complaining about economists, usually for not giving them the answers they want. Only recently Michael Gove a leading Brexit campaigner complained that the people were fed up with experts. What he was complaining about was the fact that economists who had previously supported the government weren’t making the upbeat predictions about Brexit that he expected. The loss of these expert cheer leaders must have been galling.

Michael Gove is typical of many politicians in their misunderstanding of economics. While throughout the course of his political career economists tended to speak with one voice, that of the Neo-Liberal free marketers. Free market economists of the Chicago school dominated the universities and the professions and maverick economists were marginalised or silenced. Economics Journals now refused to print articles that did not fit in with the mainstream view. Only by exposing free market economics could academics hope for preferment in their profession. However that did not mean that economics had completely lost their integrity, all economists still believe that their subject is an evidenced based one. Surprising to the Brexiteers these economists could not agree that leaving the largest and most prosperous free market in the world was a good idea. Only the most ideological and extreme of economists could believe in the Brexit fantasy.

What economics has lost is it’s robustness. Although economists have as a profession tended to be of the right and free marketers, they have in the past accepted that there is a space in their subject for alternative voices. Unfortunately in the 1980s these alternative voices were suppressed. Their books disappeared from the university curriculum. Now these alternative voices are needed as the government seems to have emptied the basket of free market policy measures and needs an alternative approach to policy making. If only government ministers and their civil servants were familiar with the writings of the non free market minority of economists of the past they would not be short of policy alternatives.

One such past economist is Michael Polanyi. Michael Polanyi argued that the unregulated free market was the worst possible of economic systems. What he suggested was that the state could be better at second guessing what people wanted, than did the market. In a free market the rich and powerful have undue influence over how the goods and services that the economy produces are distributed amongst the people. Not only could they claim the lions share of the wealth, but they could also deny the majority a fair share of the nations wealth. The health care system in the USA provides an example of his thinking. There the well off can have access to the best health care in the world, but also deny access to adequate health care for the less well off majority. Health care in the USA is run by for profit health care providers. The poor have the most health problems but they are the least able to pay for treatment. Since the provision of health care to the less well off is a loss making service, it is not provided. The poor and less well off instead have to rely upon the health care provided by those hospitals run by charitable institutions. These institutions are poorly funded and cannot provide the best of care. Michael Polanyi would argue that health care is a universal good, as all have a right to good health care only a state run health care service can provide health care for all.

When only one voice is heard the result is bad policy making. Michael Polanyi has long since been forgotten and the government only gets policy advice from free marketers of the school of Friedrich Hayek and Milton Friedman. (However today’s politicians are ignorant of the latter’s seminal work ‘Monetary theory and the Trade Cycle’. A book which if they read, they would realise that he would regard their current policy of quantitive easing and low interest rates as wrong headed.) Now all too often government policy has been that of trying to fit square pegs into round holes. Every government embarks on a new policy to make health care more market efficient, each reform costs billions, yet is considered as necessary by each new government. Never does any health minister ever stop to think that their policy might be wrong and that there are alternatives to remaking the NHS into a faux free market, by continually dividing and re-dividing health service care providers into competing groups of buyers and sellers. Never do they consider that each new bureaucratic structure they impose on the NHS, is yet another costly diversion of resources away from front line services.

What economists know but politicians do not is that evidence demonstrates that a health service run by health care professionals is more cost efficient that its for profit alternative. For example health care professionals might adopt some wasteful practices such as the over ordering of medicines, but this is less costly than its alternative. If this over ordering is to be eliminated a new and expensive bureaucracy of stock controllers, accountants and financial controllers is required to take over the purchasing and distribution of medicines. The cost of these bureaucrats far exceeds the cost of any over ordering of medicines. In the well managed private hospitals of the USA administrative costs account for 40% of the costs of running the business. Unfortunately in the U.K. the government with its various reforms is trying to divert an increasing share of the health care budget to these financial controllers in the name of cost efficiency.

Although Michael Polanyi was once was a well known economist, he is now virtually unknown. Contemporary economists are overwhelming free market economists and little is published that is contrary to their consensus view. What is now needed is a ‘Dead Economists’ society. A society that will popularise the policy prescriptions of these long dead and forgotten economists. There are a number that I can recall such as Michael Polanyi, J.K.Galbraith, Piero Staffa and John Maynard Keynes. If politicians were familiar with Friedrich Hayek’s work other than his short populist text, ‘The Return to Serfdom’, they would realise that he would have been critical of much their ill thought out policy making. There are numerous economists who have written about solutions to many of the now problems of facing the U.K. economy, but ignorance of them means they are never considered. What politicians want are the simple easy to under policies of the type offered by the free marketers, they have little patience with good economic practice, as it can be difficult to understand and ones that do not provide the simple answers that make good headlines in the popular press. Donald Trump is not a maverick politician contrary to the mainstream, but rather the exemplar of a mainstream politician that has little time for the different reality that is the real economy.

What adds urgency to my writing is an article published by the Institute for Public Policy Research that the Bank of England which states that the government is ill prepared for the next recession. They have exhausted all the possibilities that can derived from expanding the money supply, through a policy of quantitive easing and low interest rates. What they state is that the government’s policy cupboard is bare and they now lack the anti recessionary policies to deal with any future economic downturn.

* I don’t wish to claim originality for my title. It is one that I have borrowed and adapted from Larry Ridener’s website, Dead Sociologists Society, one which I used to good effect during my teaching career.

Why it matters that politicians lie

Why are people so tolerant of lying politicians? It no longer seems to matter that politicians are exposed as liars, in fact some politicians have made a career out of being known as audacious liars. When one senior British politician is caught yet again in manufacturing falsehood, it is said that its only X behaving as X does. His lying makes him bit of a card. Nobody seems to mind that lies are increasingly becoming the common mode of the political dialogue. Politicians have always lied to protect their careers or to advance party interest; what has changed now is that the political lie is now seen as noblest of the political arts, being exposed as a compulsive liar no longer disqualifies a politician from the highest office, rather it is seen as a necessary qualification for high office. This terrible corruption of public behaviours is destroying the integrity of the political process. Democratic politics can only function if there is a certain degree of integrity, that is the political players must respect the rules of the game, when they show a contempt for these rules they discredit the whole system of governance.

There is a terrible warning from history that our politicians ignore at their peril. When in the fourth century BCE, Athenian democracy was threatened by the Persian kings, the whole population was united in resisting the invaders. Then when in the first century BCE the Romans invaded Greece, the population of Athens offered no resistance to the Romans when occupied their city. Once reason for this lack of resistance was that the political leaders of Athens had by their behaviours so discredited Athenian democracy that few felt it worth preserving. These politicians were masters in the art of fake news. They would use informers infiltrate their rival’s households and these informers would then claim to have evidence of salacious misbehaviour or wrong doing by their rivals. Personal vilification became the main mode of political debate, the practice of politics was largely reduced to the art of personal assassination. Although there is some difference in political practice today, politics tin its essentials increasingly resembles that of first century BCE Athens. Fake news, deception and dissembling are the most practiced of the political arts.

One obvious example of this practice is the attacks directed at the Leader of the Opposition. Whenever a government minister speaks of him, phrases such as a ‘friend of terrorists’ are always inserted into the conversation. Just as did the Athenian politicians ours practice the art of personal vilification. Not so long ago the government discovered a report by a former Czechoslovakian agent in which this agent claimed that the now leader of the opposition had sold state secrets to him. When these secrets had been supposedly sold to the agent, this leader was then an obscure backbench MP with no access to any state secrets. The fact that the story was totally implausible and easily discredited did not matter as it was an opportunity to smear the man. It’s political mud throwing it does not matter what is thrown as some will stick.

However the real problem of lying being elevated to the principle political art is that politicians never have the need to confront the truth. When evasiveness and dissembling characterise the art of politics, difficult and uncomfortable truths can be avoided. Particularly if confronting those truths would mean taking actions that would make the politician or government minister unpopular. Apart from a few dissidents, scientists are united in the view that the global climate is warming and this poses a serious threat to mankind. When for example the sea level rises as a consequence of global warming, many of the great cities of the world will become uninhabitable because of flooding. If the politicians took action to avert this impending catastrophe, it would be action that would make them unpopular with the voters. Averting this catastrophe is only possible if there is significant reduction in the production of the main green house gas carbon dioxide, this can only be achieved if there is a significant reduction in energy consumption. Such a reduction could only be achieved if the people, particularly those in the richest countries who use the most energy would accept a cut in their standard of living. Cutting energy means producing less of the goods and services that people desire. Making people poorer if only temporarily is a very unpopular policy option.

There is a good example of this dilemma in Britain’s recent political past. A city council in Scotland wanted to introduce a congestion charge to reduce the number of cars using its roads, as a means of reducing pollution in that city. Unfortunately it is common understanding amongst politicians that denying people the right to use their cars when and how they please is electoral suicide. Although this city council was controlled by the party in government, that government collaborated with the objectors to the scheme to prevent it being introduced.

Our political culture of lying and obfuscation provides a convenient escape clause for those politicians who don’t want to take unpopular action to halt climate change. There is an influential group of climate change deniers, funded and supported by the fossil fuel industries. Politicians can claim that the evidence for climate change is not yet conclusive, they can point to the research conducted by climate change deniers as proof of this. What matters least is this research is of little scientific validity, what matters most is that it exists. Claiming uncertainty as an excuse means that politicians can postpone or avoid taking those unpopular measures that are required to prevent global warming.

Perhaps it is the American Congress that provides one of the best examples of truth avoidance and evasion. There was from medical experts a demand that government to improve the nations health should persuade people to eat five portions of vegetables or fruit a day. Any such measure would mean that Congressmen would be going against the interests of the powerful processed food industry. As they would be promoting the same of fresh fruit and vegetables, which would have been at the expense of processed food. What Congress did instead was contrary to the recommendations of scientists, they decide that the tomato topping used on pizzas should be included as one of the five a day foods.

What the Athenian citizen witnessed in the First Century BCE, we are witnessing today. The slow decay of democracy. Democracy has always had its enemies, either foreign powers or powerful individuals and business corporations who hate the idea of being subject to the people. However just as with Athens the greatest threat comes from within the democratic system, that is from it’s leading practitioners. The practice of lying is corrosive of the human personality, such people no longer recognise or value truth. Truth is something quite alien to them. A list of all the ignored inconvenient truths about the threats to the health and viability is lengthy. When a senior official at the Bank of England said he could not understand how the Governor of the Bank of England could sleep at night, given the threat posed to the economy by the enormous debts of the banking system, he was ignored. All his concern rated was a short article in the little business columns of the newspapers.

When its leaders no longer value the norms and conventions that make democracy possible, its future is bleak. People who lie, cheat and are adept in all forms of malpractice, don’t make good guardians of our democratic system. A corrupt and dysfunctional Westminster or Washington no is incapable of serving the people. The people become disenchanted and see contemporary politicians as venal and corrupt. Such politicians have lost the respect of the people. Unfortunately the yearning of the people for good governance makes them susceptible to the charms of right wing populist leaders. Leaders who promise to clean up politics and make government once again the government of and for the people. In the 1930s when Washington and Westminster seemed helpless in the face of the Great Depression and did nothing to ameliorate the suffering of the people, right wing fascist leaders such as Huey Long in the USA and Oswald Moseley in the UK became immensely popular. If circumstances had been more favourable to each they could both have brought to an end the liberal democratic experiment. Whatever Donald Trump might be he is no Huey Long, American democracy will survive Donald Trump. The real threat lies in the future, when the continued failure of the American Congress and the British Parliament fail to deliver for the people will discredit Anglo Saxon democracy. Then the people will welcome a strong leader to deliver from the self serving and venal politicians that currently govern them. What will destroy democracy is the worms at the centre of the democratic apple that cause it to decay and become rotten.

What I am writing now would be familiar to the people of the U.K. and the USA, who in the 1930s despaired of there governments taking effective action to solve the problems caused by the Great Depression. Only when democratic leaders such as Franklin D. Roosevelt took measures to reinvigorate the democratic system to ensure that it delivered for the people, was it able to survive. However if Huey Long had no been killed in 1935 it is likely that he would have become President in 1936 and replaced Roosevelt. He as President would have brought an end to liberal democracy in the USA. Surveying the contemporary political scene it seems that there seems to be a paucity of Franklin Roosevelt’s who could save liberal democracy from itself.