Tag Archives: #economics

I am a person not a shopper

20140526-111442-40482965.jpg

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

20140526-111632-40592697.jpg

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

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

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

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

20140526-112059-40859861.jpg

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

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

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

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

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

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

20140508-151239.jpg

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

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

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

20140508-152311.jpg

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

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

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

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

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

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

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

A New British Industrial Renaissance or hope for the future with the demise of the banks

20140419-183409.jpg

Never have I written an optimistic piece about the UK economy, that is because I believe its immediate future prospects are not good, however there could be a better future. This I believe because there are startling similarities between contemporary Britain and that of the 18th century. It was the beginning of the industrial revolution when the British economy grew at a faster rate than at any other time. Society in the 18th century was dominated by a landed aristocracy who opposed any change that would threaten their interests. Their interests being the taking a disproportionate share of national wealth for themselves. This was possible because anybody not of their social class was excluded from parliament, senior offices in the judiciary and armed forces. Laws could be framed to protect this group’s interests and by controlling the law and judiciary they could enforce these self interested laws. Laws known such as the infamous ‘Black Acts’, whereby hundreds of offences against the propertied interest, became hanging offences. Breaking a landowner’s gate and fences, setting fire to hay ricks were for example offences punishable by hanging. Yet despite this monopoly of law making, British society was far too changeable and complex to be controlled by the law makers in Westminster and Whitehall. Not realising it these aristocrats were presiding over a century of rapid social change, which could not be stopped by laws from parliament. There was a social insurgency taking place that would revolutionise society. Wealth was increasingly being created not on the great landed estates, but in the new factories in the industrial town. This upsurge in wealth that was out of reach of the landed aristocracy undermine their political ascendancy.

In contemporary Britain there is a financial aristocracy that is as powerful as the landed aristocracy of the 18th century. Government has been subject to what is known as ‘institutional capture’, that is the financial sector that is has effectively captured the government and made it a creature of its own bidding. While there has been a shrinkage of the welfare state there has been a tremendous expansion of the welfare state for finance. When the financial crash came in 2008 the government was willing to cut national welfare to finance a bank bail out. Billions were poured into the banks coffers while billions were taken out of the welfare budget. Despite all the public debate about the need to reform the banks, the banks have been able to fight off any meaningful reforms. However it is their very attempts to create a social stasis that makes possible meaningful change. It is relatively easy to manipulate politicians to their will through political funding, but impossible to bend society to their will. Society is far too complex and changeable to be controlled by dictates from bank head offices in London. While it may appear to contemporary Britons that the financiers are in complete control there are changes taking place that will undermine their dominance. Financiers just as with their 18th century forebears cannot keep society confined within their financial straitjacket. They are vulnerable to an industrial insurgency that they cannot control.

20140419-183736.jpg

The National Westminster Bank was once Britain’s largest bank. Unsound investments in the American market forced it into financial difficulties. It was taken over by a smaller but more soundly managed bank, ‘The Royal Bank of Scotland’. However that in its turn was appalling mismanaged and is only kept afloat by vast injections of state money. Eventually its assets will have to be written down to a level that reflects its true value. Then the much diminished bank can be sold off to a much sounder bank. This will mean a large loss for the state, but it is inevitable. When politicians say that the bank will never be sold off at a loss, they are denying reality. What I am trying to say is that in twenty more years time, Barclays, HSBC, Lloyd’s and RBS will be nothing more than medium sized businesses in the UK economy of the future. Their very conservatism will mean they cannot adapt to change and they will be left behind, with a consequent decline in their assets and size. They will be dwarfs not giants of finance and their veto on change will have long been rendered insignificant.

Despite their adoption of the new technologies, the financial services sector remains part of the old economy. They remain wedded to the old ways, income is to be made from speculative investments, not in funding breaking edge technologies. The purpose of the stock exchange should be to enable companies to raise capital through the sale of shares. This purpose has long been rendered redundant by the members focus on speculation in equities as the surest way of making money. All the new developments such as super fast trading are intended to make speculative activities more profitable by spending up speculative trades. Certainly in England when a company goes public it is the death knell for enterprise and innovation in that business. Financial considerations now dominate board room discussions. All such firms acquire a property portfolio as the surest way of making money, risky but potentially high return investments in new technology are discouraged. The conservatism of the finance industries becomes the dominant ethos. It is impossible to think of one company in the top Footsie 100 companies that has a reputation for enterprise and innovation. The story of graphene illustrates this all too clearly. This was a wonder material developed at Manchester University, yet there is literally no British money being invested in developing this material, instead most of the possible applications are being developed in Japan.

20140419-184024.jpg

The new economy is represented by a company such as Apple, not just for because of its high tech products, but its financing. While the company has used the traditional means of finance, it has largely relied on the profits it has generated itself to invest in new technology. How many bank managers would have willing invested in such a high risk venture such as the IPhone? Probably none, it would have been regarded as too risky an investment. This is why Apple has a huge cash pile that it refuses to distribute to its shareholders. It needs this cash for investing in the development and production of new products. The old system of finance is broken and Apple understands this.

However companies retaining profits to fund new developments is nothing new. What is new is the sheer size of Apple’s cash holdings. There has to be a new source of funding for industrial innovation. Just as in the 19th the development of the joints stock enabled businesses to by pass the banks to raise funds by selling shares to the public, so new internet financing schemes such as ‘crowd sourcing’ will enable new businesses to avoid falling into the palsied hands of the banks, hedge funds, stock exchanges etc. There will be the development of internet exchanges to regularise this funding and these new exchanges will gradually replace the older investment banks which are rapidly approaching their sell by date.The great advantage of such internet finance is that it will be cheap and easy to access. The old investment banks will be unable to compete and will eventually be replaced by these newer rivals. Once they are established an industrial renaissance will be possible as cash will flow directly to new innovative enterprises. The insurgency in the finance sector whereby new revolutionary sources of finance replace the old conservative banks is the key factor.

Today viewing the huge monoliths that are today’s banks, it is hard imagine that they have achieved their apogee. However any industry that is dependent on huge state subsidies to survive (or the backing of implicit government guarantee, as are the banks) is not a well run industry, it is failing business waiting to be decimated by newer more efficient rivals. There is also the decimation of the industry that will occur when the next financial crash arrives, as it inevitably will. Governments and more importantly the electorate will not be willing to finance yet another massive bank bail out.

Once the old finance industry’s stranglehold has been removed from the money markets by new insurgent money exchanges there must be a new British industrial renaissance.

I apologise for writing yet again about banks, my next post will demonstrate a different reasoning for there being a better future.