Tag Archives: bad economics

Mean spiritedness pretending to be sound economics. The ending of free fares for senior citizens.


There is a mean spiritedness in contemporary culture which masquerades as economics. One good example is the public debate over free fares on public transport for pensioner or senior citizens. Bus companies have been complaining that the revenue that they get from the government is an inadequate return for transporting all these pensioners. They claim it is the cost of transporting all these extra people for minimal return that is hitting their profits. There is at present a dispute going on between pensioners in Barnsley and the South Yorkshire Passenger Transport Executive (SYPTE). The executive wants to end free travel to the Meadowhall, (the great shopping mall) in Sheffield and impose a charge to help fund the cost of providing the service. What from a common sense point of view seems to be reasonable, is in fact poor economics. Unfortunately the UK suffers from a surfeit of poor economic decision making.

Listening to the SYPTE its seems reasonable to suggest that the pensioners from Barnsley should make a contribution to the increase in costs consequent on the large number of pensioners travelling to the Meadowhall shopping centre. However there is no extra cost imposed on the train company through having to transport large numbers of pensioners to their favoured destination. The company is already running running a regular train service from Barnsley to Meadowhall and it is not putting on any extra trains to accommodate these pensioners. The real cost of transporting these extra passengers is zero as the company is already running these trains. Only if they provided more trains would there be an additional cost. There are also no extra staff employed either to man the stations or run the trains, so no additional costs there either. In fact the subsidy paid by the central government and local authorities for transporting pensioners adds to their revenue.


What has hit companies most is the cut in government subsidies for the running of train and bus services. This has really impacted on their revenues and free travel for pensioners has little or nothing to do with this loss. Already fares on trains and buses in the UK are the highest in Europe, so the public transport companies are already doing their best to squeeze every last penny out of the travelling public. Obviously they feel frustrated that government policy exempts one group, the pensioners or senior citizens from this policy.

Any service that is free at the point of use has attracted the ire of big business. They will claim that without the discipline of price, people will wastefully use free services as it costs them nothing. Yet there is little evidence of public transport companies having to put on extra bus or train services to accommodate these free loading oldies. However it does make it more difficult for them to reduce bus and train services, as they are denied the excuse that these services are not needed as the demand for them from pensioners is high. Yet this has not stopped bus companies in Yorkshire cutting services, its only made it a little harder for them to make this decision, as their under used service excuse has been removed.


While it is impossible to obtain accurate figure for the cost of a bus, the new double decker buses bought for London will cost £300,000 each. Given that many of these buses will be purchased by central or local government and then hired out to the various bus companies, it is a great waste of tax payers money if they are under used. In London alone £180 million was spent by Transport for London on new buses. If bus companies cut services and leave these buses in the garage for increasingly long periods of time, it represents a very poor return on tax payers’ money. If the extra demand created by pensioners really did mean these buses undertook more journeys it would be much better investment of tax payers’ money.

The companies claim that if these pensioners paid the full fare their finances would be transformed. This ignores the fact that most pensioners that use public transport are on low incomes and any increase in bus fares would reduce their demand for bus travel. The rich ‘baby boomers’ who could pay the higher fares will be using their cars rather than using uncomfortable public transport. The basic state pension is £113 per week and any additional benefits pensioners get will be spent on housing or energy costs. For me to travel to the centre of Leeds on the bus costs £2.00 or £4.00 for the return journey, which is a small but significant part of the basic state pension. Looking at the off peak buses I use, I estimate that each contains between 10 and 30 pensioners, a number which would would be considerably reduced if they had to pay the full fare. Now if the number of pensioners using these buses fell to 2 or 3 there would be little financial gain for the bus company, possibly even a loss as the pension subsidy for 20 passengers would probably exceed the revenue from 2 to 3 passengers paying full fare. While I can only speculate as to the reduction in passenger numbers, it is unlikely that by ending free fares for pensioners the public transport companies would gain much in extra revenue as low income pensioners would probably cut the number of journeys they made to the detriment of the bus companies wallet. There has been no research into the real loss or gain in revenue due to providing free pensioner fares, all there has been is speculation.

If public transport companies are really losing money, there are better ways of increasing their revenues than by ending the free senior travel passes. The much more effective way would be through reforming the structure of the large dysfunctional inefficient multinational companies that run public transport services. They are structured to provide the maximise the financial return to their owners not to provide a good transport service. My example of the inefficiency of these companies is a personal one. When I came to Leeds in 1970 the bus I travelled on then is very little different from that on which I travel today as a senior citizen. Forty years in which there has been minimal technological advance demonstrates the inefficiency and technical backwardness of these companies.


The Lawless Economy, more reflections from the Bad Economist


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

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


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

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

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

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


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

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

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

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

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

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

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

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

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

The Musings of a Bad Economist


While studying economics in the 1960’s, I always had the feeling that something was missing from the subject I studied. It was not just the absence of left thinkers amongst economists, I had the nagging feeling that there was a lack of a fundamental something. In a subject that is essentially about people there seemed to be a complete absence of the people factor. I was a bad economist who failed to grasp that in essence people were just another unit of production and their humanity did not entitle them to any special privileges. Only a ‘good economist’ (of which I am not one) could understand that the free market represents the epitome of human organisation in the economic affairs. Alternative such as the mixed economy, the planned economy have all failed and it is only the free market that can maximise wealth and human happiness.


Bad economists such as myself always fail to see the bigger picture, we focus on the misery suffered by individuals as a result of economic change, failing to realise that this misery is the necessary price to be paid for changes that benefit society as a whole. We focus on the suffering caused to people by the changes that have accompanied the introduction of the deregulated and flexible labour market; ignoring the benefit to employers who now have the power to adjust the hours their staff work to fit in with the needs of business. All supermarkets now benefit from the split shift system. Formerly they had to employ staff for fixed hour shifts, so they could end up with having too many shop floor staff in slack periods. Now they can send staff home during the slack periods and recall them for a second shift during a busier part of the day. Then there is the beauty of zero hour contracts, where employers can call staff in when they need them and they can include an ‘exclusivity’ clause which means that the employee cannot take on any other work when not required by their employer, meaning they are always available for work. Being able to treat people as if they where just another resource such as a machine which can be switched on and off when needed, enables employers to maximise their profits. Good economists see the necessity of relieving the workforce of their humanity, as sick and maternity leave do little more than disrupt the productive process.

There was recently a Question Time programme on radio where an employer and ‘good economist’ lauded workers in an American factory where the workers had agreed to incremental increases in the hours they worked (without compensatory wage increases), so that in the end all staff were working ten hours a day for six days a week. They had the good sense to realise that trivialities such as the right to a family life, were merely impediments that prevented the achievement of the greater good, that is the increased profitability of the business. That in turn meant that the owners would not feel compelled to relocate their business to a country where wages were lower, accepting inhuman working conditions were a price worth paying for keeping your job.


Income inequality is a subject that I constantly fail to understood. The ‘good economist’ sees widening income inequality as an unqualified good. Today company directors pay is about 128 times greater than the average wage of their employees, whereas in the 1980’s it was a ratio of 1 to 35. An economist would explain to an ‘economic dimwit’ such as myself, that the high pay for company executives was a necessary reward for talent. They could point to the recent example of the Co-op, where business consultants decided that the going market rate for a CEO was £3.5 million per annum. If the boss of the lowly Co-op supermarket chain can command that salary, obviously the boss of a giant bank such as HBSC deserves a much higher salary. By paying astronomically high salaries we would attract the best people to run our companies. We would all gain from the high growth that these companies would experience. The fact that I as an individual don’t seem to have benefitted from this upsurge in prosperity is that I am one of the unskilled apathetic who don’t deserve a wage increase.

Perhaps the doyen of free market economists or ‘good economists’ was the Chicago economist Milton Friedman. He understood why President Pinochet’s government on seizing power had to lock up and kill many of their political opponents. It was necessary for attainment of a greater good the introduction of a free market economy. These opponents, many of whom were trade unionists, would have opposed the free market reforms that the government intended to introduce. He could see that in the greater scheme of things, the death of a few trade unionists meant little compared to the increase in wealth for all from that came the introduction of the free market economy. There are right greater than the right to life, if you are the wrong kind of person. Death was merely one way of marginalising opponents of the free market.

When the reforms failed to deliver the promised wealth for all, it was pointed out by economists that it was the fault of individuals not the system. The talented and hard working had become rich, while those lacking the true entrepreneurial spirit remained mired in poverty. It should not be expected that economy should provide for those lacking in skill or drive.

I confess to be an economic slower who would want to reserve all the changes in the labour market, that have led to Britain becoming the low wage capital of Europe. It was not so long ago that a Korean company opened a factory in Wales because wages were lower there than in Korea. To reverse these changes I would introduce tougher wage regulation imposing a minimum wage never the ‘living wage’ and ensure that it was enforced. At present it is left to the goodwill of employers to pay the minimum wage. Since its introduction there have been no prosecutions of employers who flout this law. Job insecurity which imposes untold misery on millions I would reduce by re-introducing the job protection measures removed by successive governments since 1979.

A ‘good economist’ would see this as folly, he would gently take me aside and tell me that my proposals would work to the detriment of the labour force. They would point out that Ian Duncan Smith’s reforms that have reduced many to living in poverty are in reality a good thing, it is misguided individuals such as myself that misunderstand their purpose. Before the advent of Ian Duncan Smith far too many individuals were mired in the dependency culture. They had become individuals with no purpose in life other than to collect state benefits on which to subsist. These apathetic, aimless creatures spread misery, neglecting their houses and letting them and their neighbourhoods deteriorate too such an extent that they resemble Victorian slum areas. Reducing their benefits to a level less than on which it is necessary to subsist means they will be forced to find work. Once in work they will learn the pleasures of a life independent of benefits and they will gain immeasurably in self respect. Pushing these people into a poverty enforced misery will make them change their ways, it will eventually create a race of sturdy self reliant individuals.

Such a person would tell me that I misunderstand the benefit of low wages, it gives the worker the incentive to work harder. They also would say that what is wrong with the low paid worker having to have two or three jobs to make ends meet. It teaches them that nothing comes to them unless they work for it. They are incentivised through poverty level wages to work for self improvement. We need to instil into the workforce the work ethic that would be the most effective driver for prosperity. A living wage would have the reverse effect, it would mean that the lazy and incompetent would get the same wage as hard working and clever. This would be self defeating as the costs of production would be pushed up through having to over pay poor workers, thereby increasing prices, reducing sales, followed by staff lay offs. The poor need to be motivated by fear, they are a different in nature from the talented company directors who need high pay to be incentivised to perform at their best. They are a totally different type of being that responds better to rewards than fear.


As a bad economist I have this nagging feeling, I do not see after having thirty years of the free market that it has delivered on the promises made by its advocates. Certainly a small elite group have done excessively well out of the reforms, but what of the majority. Incomes for the majority have in real terms remained stagnant since 2003. House prices are spiralling out of control to such an extent the trend to home ownership has gone into reverse. Surveys suggest that the sense of national well being peaked in the mid 1970’s, not in the free market noughties. Is it possible that the benefits of the free market economy are merely illusory? In Stalin’s Russia of the 1930’s one five year plan after another was produced, always promising that at the end of each plan the communist nirvana would be achieved. All that happened was that nirvana seemed to recede further and further into the distance, somewhat like George Osborne’s plans. He promised remove the structural deficit by 2015, now its 2018, whereas in 2017 it will be put back to 2020 and so it will continue. Can I suggest that instead that a change of direction in government policy, one that takes account of the hesitations of bad economists such as myself. Bad economists prefer to look at the world as it is, not try to make it conform to some imaginary model.