Tag Archives: supply side economics

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

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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 Immorality of Current Economic Practice

Economics, Philosophy, Politics, , , , , , , , ,

Jeremy Bentham one of the more influential figures in 19th century economics was also one of the founders of the philosophy of utilitarianism. The foundational principle of utilitarian philosophy is that good actions are those that give the greatest pleasure to the greatest number. Those of an older generation of economists such as myself, will remember how utilitarian principles were used in the construction of market theory and in particular the laws of supply and demand. I think that utilitarian principles still influence economic theory and practice, although they have been modified with time. Welfare economics is still an accepted part of economic theory, a theory that tries to explain how the optimum levels of production can be attained in a particular economy. However the practice of economics has led to a very modified form of utilitarian theory, economic practice still aims at maximising the pleasure and happiness of people, but it is not always the maximising of pleasure of the majority, all to often economic practice can be directed at maximising the happiness of a privileged group.

Economic utilitarianism can now rewritten as follows,

‘happiness can only be maximised for the few through the pain and suffering of the majority’,

A recent example from business demonstrates this principle. Sir Phillip Green was only able to buy his third super yacht at the expense of his staff at BHS. There is  a rough equivalence between the money that he took out of the retail chain BHS and that which he paid for his new yacht. His yacht cost the jobs of 11,000 BHS workers. It can be argued that this one example of bad business practice is not representative of the theory of economics. However the most popular of current economic theories is supply side economics, which has been practised by both government and business over the past thirty years. This teaches that the major obstacle to maximising economic welfare are restrictions that the limit the supply of the factors of production, the principle factor being labour, that is people. Governments have since the 1980’s have successively removed employment protection legislation, so that today there are very few restrictions on how employers can use their workers. Given the removal of these protections Sir Phillip Green had few obligations towards his workers and could pass on his near bankrupt company to another knowing that he could avoid having to make redundancy payments and having to honour the pensions payments promised to BHS staff. This is not a unique example but just the latest in a long line of business owners of refusing to take any responsibility for their staff. If it had not been for the adverse publicity in the media and the hostile reaction of some MPs, his actions could have been put down to yet another failure of a UK business that failed to adapt to the times.

The name Ayn Rand is little known outside political circles, the media and the profession of economics.Yet this novelist cum prophet is the inspiration for much of current government policy.  What she preached was a crude social darwinism. The poor did not deserve to survive in society to which they contributed little. The poor through their low incomes and poverty demonstrate their unfitness to survive ,as they cannot even provide for themselves. In her novel ‘Atlas Unchained’ she sees the death of so many of the worthless people as a necessary means of social cleansing. The heroes of her books are the billionaires and the money men, those who through their own efforts have made millions. Any restriction on their activities such as  taxes on their incomes only makes society the loser, as it limits the creative and wealth making activities of these individuals.

‘Randian’ philosophy is applied to welfare policy. Those who claim benefits are part of the dependency class. These people who have come to depend on the state for their income and who in consequence have lost the incentive or will to provide for themselves. The harshest of sanctions are required to get this class of people into work, any suffering of benefit claimants is justified, as it the stick required to make this class of people work. This why the government can be indifferent to the suffering of those deprived of benefit for a number of weeks for a minor infraction of the rules. They don’t mind if these hungry and desperate claimants have to resort to food banks to survive, as they provide a useful example to others.  Hunger is the best spur for making people work.

Even in the benign 1960’s this malign philosophy was active within economics. At that time unemployment was around 1% of the workforce, it hovered around 100,000. People thought that the full employment of the post war period was a success. I believed that myself and was shocked to discover at university that there were economists advocating an increase in unemployment. They wanted the government to take action to increase unemployment to about 3% of the workforce. This they claimed would reduce the pressure of prices and cut inflation. Yet this was a time when the majority of people remembered the horrors of the Great Depression of the 1930’s. They found little support at first in government, because there was no desire to return to the 1930s and the misery of that period. Then for these economists the utilitarian maxim would have been

‘the happiness of the majority can only be achieved through the suffering of a minority’, now with ‘Randian’ philosophy dominating government it can be rewritten, as ‘the happiness of the minority can only be achieved through the suffering of the majority’.

This may seem an overly pessimistic assessment of government economic policy, when the majority of people are well fed, well housed and living well. The misery seems to be confined to the precariat, that is those in insecure low paid employment such as cleaners and shop workers. However the impoverishment is slowly seeping upwards. Large numbers of whom would have been the future well off middle classes, university graduates of whom large numbers are looking forward to an insecure future of low pay and insecure work. The government is actively working to reduce the privileges and protections enjoyed by the professional middle classes in their employ. Teachers and doctors are just two groups that are expressing discontent with the negative impact of government policy on there working lives.

There is no reason why economics should be directed by such a malign philosophy. Economic policy in the 1950s had the aim to maximising growth, employment and the welfare of the people. Apart from a small minority economists shared these goals. Only bad economics as practised today aims to immiserate the many and enrich the few.

The Gig economy and the rediscovery of the bad employment practices of the 19th century

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There has been a lot of excitement in the media about the gig economy, which ‘whatis.com’ defines as ‘ an environment in which temporary positions are common and organisations and organisations  contract with independent workers for short-term engagements’. One study estimates that by 2020 40% of American workers will be free-lancers employed on a temporary basis. In the media there have been positive accounts are given of this development, in fact one journalist Deborah Orr explained how gig work was much superior to a boring job for life, as the individual worker was no longer stuck in the same job for all there working life, but they were now free to change from one job to another once the first became to “samey’. The gig economy for her was a liberation from the 9 to 5 five day a week job.

In fact there is nothing new to the gig economy, as its a reversion to a much older and more traditional form of employment. There is in Thomas Hardy’s book ‘The Mayor of Casterbridge” an account of how farm labourers attended the fair hoping to attract the attention of farmers who would offer them employment for the coming year. Employment on a temporary basis in that come the winter the farmer could dismiss the labourers for who he had no  use. Those left unemployed at the end of the fair had to ‘go on the parish’, that is with no means of support they had to look for to the parish for support. This meant going to the workhouse, an option so bad that families would rather go without and risk starvation than go to the workhouse. More recently such employment was known as the lump in the building trade. A practice whereby workers would be paid daily (if there was work) and work under an assumed name for an agency to avoid tax and national insurance payments. This work was so poorly regarded that most building workers strived to go on the lump. Given this history of the gig economy it is puzzling while it is greeted with such enthusiasm. 

Those who either were victims of the gig economy or knew its workings wanted it abolished. The 19th century and the early twentieth century witnessed action by trade unions and enlightened politicians to provide security of employment for all. In the 1970’s the last major example of gig economy was ended, with the Dock Labour Registration Scheme. Prior to that dockers turned up each day for work, hoping to be taken on for that day to work unloading a ship.

The only area of employment in which the gig economy remained was in the media world. one such example were actors who were employed only for the period in which a play lasted or which a film or television programme was made. This was considered acceptable as actors had the possibility, if successful, of earning substantial sums.

Today there are over 900,000 workers on zero hour contracts. It is claimed that this is made inevitable, because of technological change. New technology it is claimed is ushering in a world in which the nature of work will change, as most new jobs will be on of a temporary nature as the economy is subject to constant change. However while it is true that in some industries such as printing technological change has made many jobs redundant, many of these workers on zero hour contracts are in jobs which have been little affected by technological change. Care assistants in nursing homes or those attending the housebound have had little experience of technology affecting their work. Baristas, waiters, chefs, hotel cleaners are doing more or less the same job that they would have done 50 years ago. The cleaning of hotel rooms is still  largely a ‘hands on job’ that has to be done by a human being. The machinery they use has remained largely unaltered, that is the vacuum cleaner. Yet these thousands of people are all on zero hours contracts and part of the gig economy.

All new technology has achieved is to make the gig economy work for employers. The mobile phone means employers as employees are  constantly on call and can be called in at a moment’s notice. Making something possible does not make it inevitable.

There is another example I can give. Teaching is largely labour intensive and there does seem to be a limit on the numbers that teachers can teach effectively it is  about 30 students in a class. This has always seem a bugbear to right wing economists and politicians, as they see teaching as a prime example of a profession using wasteful labour practices. During the 1990’s there was great excitement in political circles about new technology making it possible for a teachaer to teach classes of a 100 or more. What they envisaged is remote teaching, whereby a teacher in a distant studio using computer technology would teach several classes at once in different schools.  This would have greatly increased the productivity of teachers and reduced the education budget, as many thousands of teachers could be let go. However anybody who knows children realises that they cannot be left to themselves, being remotely directed by a teacher hundreds of miles away. If such a system was introduced these  classes would require human assistants or guards to ensure that the misbehaviour of the few would not disrupt the class. However these children would have questions that could not be answered by the remote teacher, because there would be so many requests for help that this remote teacher would be unable to cope. A qualified teacher or teachers would have to be on hand to help the children with the work. This can be translated into economics by stating that the optimum economic unit of teaching is 1 teacher to 30, any substantial increase above that number will lead to diseconomies of scale.

Despite this it remains the holy grail of the ministry of education to develop that education technology that will reduce the need to employ expensive qualified teachers and so cutting the cost of education. Schools have been flooded with new technology aimed at achieving this end but so far none has succeeded.

There are areas of employment that have been revolutionised by the introduction of new technology. When I started work in an insurance office it included a typing pool, which contained 20  typists who produced typed copy from the hand written copy provided by the clerks. These typists have long since gone replaced by the word processor as have the messengers who have been replaced by email. The same applies for manufacturing industry where millions of production workers have been displaced by computers and computerised manufacturing. The argument is that this process is continuing and we all will have to be prepared to have several jobs in our lifetime, the old job for life has disappeared.

I am not convinced that this obsolesce of jobs will continue. Many of the jobs that can be done by the new technology have disappeared already and there does no seem likely that this technological change will continue at the same rate. The rate of innovation in the new technology is slowing, the RAM memory of my computer is that which was achieved a number of years ago. What my one year old computer has gained over its predecessors is portability, computers have shrunk in size.  This new miniaturised technology is set to revolutionise delivery services, greater control over delivery times is now possible making delivery services more efficient. Employers now can employ drivers for the time that they need them only. Delivery drivers are now self employed often owning their own van. Computer technology means that delivery companies need only employ drivers when they need them, getting them when needed from the pool of waiting drivers. This reduces costs and makes delivery services profitable.

However the possibilities of huge profits have caused many businesses to set up as delivery companies, so many that there are too many companies in the business. The opportunity for making profits is so reduced that for many businesses it can be achieved by reducing the costs of employing drivers. Incomes are driven down to the bare minimum and drivers conditions of employment are worsened so the companies can maximise the productivity of these drivers.

What makes the gig economy so necessary for the delivery trade is the low level of profits in the delivery trade. Without the benefit of casualised working practices and low driver incomes many of the delivery companies would be forced into bankruptcy. It is not so much new technology, as the weak financial position of many delivery companies that make the bad working practices necessary.

There is an alternative scenario if delivery drivers were paid higher wages and given better working conditions, the delivery business would not seem to be the goldmine that it appears to be at present. If that was the case fewer businesses would be attracted into the delivery business and these fewer businesses would gaina larger market share and the much greater certainty of being profitable.  In such circumstances the worst abuses of the gig economy would not  be needed to make the businesses profitable.

While it cannot be doubted that technological change will continue to change the employment market, it cannot be predicted how employment practices will change. Inevitably in some industries there will be the need for the working practices known as the ‘gig economy’ but a great deal of scepticism is required, as much of the changes that have brought about the adoption of the gig economy have little to do with technology but more to do with changes in business practice. All governments of the Western world have been in thrall to  the philosophy of Neo-Liberalism for the past three decades which teaches that the supply of goods and service is best done by the private sector and that the government is best kept out of the market for goods and services. One key element of Neo-Liberalism is what called ‘supply side economics’ and the key element is reform of the labour markets. What these economists teach is that the greatest threat to economic well being are the restrictions imposed on the labour market by trade unions and government. Employers are prevented by these restrictions from using labour in the most productive manner and so these restrictions need to be eradicated. Politicians have introduced laws to emasculate trade unions and removed much employment legislation, so much so that there are almost no restrictions on employers to prevent them from using the most abusive of the practices of the gig economy go maximise worker productivity and their profits.

Some of the very worst practices of the gig economy at be laid at the door of government, whether it be centre right or centre left, conservative or labour, Republican or Democrat, Christian Democrat or Social Democratic. As believers is Neo-Liberalism they believe that wherever possible government service provision should be transferred to the private sector, as private sector providers are more efficient that those of the state. The worst effect of this practice is shown in the care services in Britain. Care for the sick , the elderly, the house bound has been transferred to for profit service providers. Transferring care provision to the private sector has reduced the cost of care. However rather than it being due to efficiency it is due to hypocrisy. The government can squeeze the private sector care providers by paying less for their services. This squeeze on their incomes means that they have to cut costs and the biggest cost is that of labour. These companies adopt a variety of exploitative practices to keep costs down, such as the use of zero hour contracts and were ever possible reducing the income paid to care workers. Those workers that provide care for the housebound are not paid for the time travelling between housebound clients, only the time they spend with each client. This means that the bad publicity that goes with treating care workers so badly attaches to the private companies and not the government. The dirty secret of both the Labour and Conservative governments of the recent past is that they and not the private care providers are responsible for care workers being subjected to some of the most exploitative of working practices. Governments of both parties have refused to end the practice of zero hour contracts and the various abuses of care workers, because to do so would mean that they would have to increase by a substantial sum the money they spend on care services. Unfortunately these guilty politicians are unwilling to do anything to improve the conditions of care workers as any improvement in there working conditions would mean having to find more money for these workers out of taxation, which they believe would be unpopular with the electorate.

A good lie told well, the secret of managing the economy

Economics, Politics, , , , , , ,

  

Image courtesy of randalrauser.com

What every economics student used to learn at university was how difficult it was for leaders to make policy decisions on the economy. The effectiveness of policy measures were uncertain and the time lag in implementing these measures meant that when they came into effect they were often  addressing yesterday’s issues. What we learnt was how difficult it was to understand and manage that highly complex human institution, which is the economy. In one of our seminars it was decided that there were no economics was not a science comparable with physics and that economic  theory was at best a good guess as to how the economy worked. Consequently economics  for the student in the 1960’s was very much a work in progress. It was Churchill who said that if you asked four economists for a solution to a particular pressing economic problem you would get five answers and two of these answers would be from Keynes. (Keynes was the outstanding British economist of his  generation. This humility did no fit well with the demands from politicians for policy solutions, as exemplified in the words of Margaret Thatcher who said she wanted answers not problems. There was a group of economists responded eagerly to such requests and began to supply answers that were not hedged about with caveats about what might possibly make the policy ineffective. 
Economists had to know and there was a school of economists that knew. These new economists where named variously as the Chicago School of Economists, Monetary Economists, Free Market Economists or Neo-Liberal Economists. They took inspiration from the economist Milton Friedman the doyen of the Chicago School, who in turn was inspired by the economist Friedrich Hayek. What this group offered was a solution to the one problem that dogged the Western economies of the 1970 and that was inflation. They offered two solutions to the problem of inflation, they said that inflation could be controlled by controlling the money supply and by supply side economics.  
Monetary economists could supply answers to for example that of inflation, which reached 27% pa in 1976. Politicians could understands that if the money supply increased faster than the supply of goods, more money would be chasing relatively fewer goods and so prices would be pushed up. If money supply was cut inflation would fall and the economy would continue to grow on a smoother trajectory. What they did not want to know was as any non monetarist economist could tell them demonstrated a relationship between increased money supply and inflation is not the same as demonstrating a cause. 
However once politicians began to follow the policies advocated by these new economists, it became obvious that these new economists did not know. Britain was one of the first countries to practice monetary economics as suggested by Milton Friedman. In doing so one huge problem was discovered no Treasury economist was able to define what made up the money in circulation and what was the total money supply. The government came up with five possible measures and from this they selected one as their preferred measure which they called M3. M3 was chosen which was the total of currency in circulation plus bank deposits. They chose this one because it was the easiest to measure, after all the banks regularly published accounts showing their total bank deposits. They then made one huge assumption that all other measures of money supply would change in the same way as their preferred measure. However there was no evidence that all the other possible measures of money supplies the bank identified, would change in the same way as M3. It was a hope that all the unmeasured changes in money supply would follow M3, but the evidence for this was lacking. 
In desperation the Treasury and Bank of England gave up trying to account for changes in money supply and instead adopted a new practice. Admitting they could not count the money in circulation they opened for controlling the demand for money by changing interest rates. They believed that the supply of money was determined by the demand for money, therefore by controlling the latter they would control the first. Ever since the 1980’s changes in interest rates have been the main instrument for controlling the economy. Nobody today every mentions that the central plank of government economic policy is based on a theory for which evidence is lacking, simply because they cannot identify or correctly measure the key determinant, money supply.
Something very similar happened after the great financial crash of 2008/9. There were three deficits that could make recovery difficult the government or public sector debt, the private sector debt and the banking sector debt. The smallest was the government debt amounting in 2009 to about 60% of GDP and the largest was the banking sector deficit of 540% of GDP(as identified in a report by Paul Tucker, Deputy Governor of the Bank of England.) It is obvious that the debt that is in most urgent need of attention was that of the banking sector, yet the government of the day and succeeding ones chose to ignore it and focus instead on the government debt. The latter is the easiest to reduce as all the government had to do was cut its own spending, whereas the more serious bank debt was much harder to tackle. The government would have to take on the big banks and the City of London, very powerful opponents of whose power the government is in awe. Also if the government was serious about reducing bank debt it would negatively impact on the property market, as cutting the debt would be achieved by reducing the loans the banks could make in total. If there was less money available for house purchases, prices would fall. It is a truism of British politics that the easiest way to achieve electoral unpopularity is to preside over a fall in house prices. Consequently Britain remains with Japan one of the most indebted of the developed nations.
While these facts are known amongst the community of economists there is a conspiracy of silence in parliament about the true nature of Britain’s debt problems. There is no leading political figure that wants to be responsible for the painful economic adjustment that would result from putting the bankers house in order. Instead they focus on how they will reduce the least significant of the three debts and the noise of the debate on government debt crowds out any possible alternative debate on the real nature of the debt problem. 
The economic debate as understood by politicians is what matters, as they determine economic policy. The fact that the economic debate is founded on on misinformation and lies is irrelevant. What matters is that the economic lie is the one that every one accepts. In consequence the economic debate is about the wrong debt and the government has pursued the unnecessary austerity programe that impoverishe  an increasing number of people, while turning a blind eye to the excesses of the financial industry. Lies matter because they can be based on simple easily understandable untruths, whereas the truth about the problems of the economy is complex and hard to understand. To admit to truth would deny the politicians the opportunity to offer simple policy solutions that they could sell to the electorate. As the political debate of today is conducted in the simplistic language of the tabloid newspapers the truth about the real nature of Britain’s economic problems will remain concealed. Concealed that is until some major economic crisis forces the political and media classes to recognise the true nature of the problems facing the British economy.

Charles Dickens’s was a far better economist than either Nick Clegg, George Osborne or Ed Balls

Economics, Politics, society, , , , , , , ,

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If I wanted to understand the nature of our current economics problems I would be better turning to the novels of Charles Dickens’s than by reading articles on economics by the current generation of politicians. Rooted at the heart of the political consensus is a misunderstanding of the current economic crisis. Any politician if asked will say that its a crisis brought on by government overspending, which can only be resolved by a prolonged period of austerity which will reduce the deficit that is at the heart of the problem. This week this misunderstanding has been put into words by Ed Balls, George Osborne and Nick Clegg. They have all stated that the priority of government should be to reduce or eliminate the government deficit. All claim ‘responsibility’ as their guiding principle, all must suffer because of the foolishness of past governments. They all assume a highly principled stance of statesmen making the painful but necessary decisions to secure the nations future.

The cleverest of them must know that they are spouting nonsense, but go along with it as they it’s what everybody or so they believe, in the gilded circles of power believe. (The speculative frenzy that resulted in the crash that bought society to its knees in 2008/9 is never mentioned.) Lying was never a barrier to a successful political career. What we most need now is a Charles Dickens’s to expose the charlantry, hypocrisy and foolishness than passes as informed political debate.

Nick Clegg Deputy Prime Minister, a millionaire owner of luxurious homes on the continent preaches the need for self restraint on an impoverished people, as do the fellow members of a cabinet of millionaires. The country cannot afford to pay the living wage to workers on part time contracts but instead pays the minimum wage or less if agency workers; but it can afford to allow Barclay’s Bank to pay bonus’s of £1.8 billion to its staff. (most of which will go to top executives and highly paid traders). I read somewhere that City bonuses this year could top £80 billion. A word has been coined to characterise such behaviour ‘Pecksniffery’. Seth Pecksniff was a character in one of Dickens’s novels, an unpleasant hypocrite who affected benevolence and high moral principles. Best illustrated by the Conservative Minister who characterised the large numbers going to food banks as going there because the food was free. Those who would rather depend on charity than work for a living. Conveniently ignoring the fact that free food is only given to those in possession of vouchers given by a charity to certify real need, many of whom were the working poor.

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Self deception and hypocrisy should be regarded as two of the principles that inform economic policy making. These two attitudes are embodied it what is called supply side economics. It states that people are unemployed because of regulation and restrictive practices in the labour market. Trade unions, regulations on hours worked and on conditions in which people are employed only serve to push up the cost of labour, meaning that fewer workers are employed that might otherwise be the case. If trade unions are emasculated or abolished, labour protection laws removed the cost of employing labour will fall (wages) and many more people will be employed. All benefit because more are employed and the economy becomes more productive. This increased productivity will push down prices, so wages become worth in terms of what they can buy. Actually this has elements of a fairy tale in it. In the 1960’s when wages were relatively high compared to the other costs of production unemployment averaged 2%, today when wages are relatively low as a cost of production unemployment is 7%. If the unemployment measure used in the 1960’s was used, unemployment would probably be about 10%. Many of those now employed struggle to make ends meet.

There is one beneficiary from this change, the better off upper middle classes. Mark Harper the recently resigned immigration minister was able get as a cleaner for four hours a week at the cost of £22. This woman was an illegal immigrant who was probably desperate for the money. One consequence of the change in the labour market is that people are now cheap to buy. The Mark Harpers and Nick Clegg’s of this world can now benefit from a plethora of cheap services provided by people on poverty wages. I imagine there is much less concern about the servant problem today. In the sixties I lived on a country estate and my social betters were concerned about two things, the high cost of servants today and the insolence and less than respectful manner of those servants. Lack of respect deriving from the fact that servants would have no difficulty finding another job, so they were unwilling to adopt the demeaning behaviour expected of them. They as human beings had rights and exercised them to the perceived detriment of their betters.

Charles Dickens’s would have understood the behaviours of our governing classes and predicted that their economic policies would be designed to benefit the better off no matter in what guise they appear. Nick Clegg, George Osborne, Ed Balls etc. are all blinded by hypocrisy, unable to recognise that they govern in their own interests and that of their friends and not the nation. One image from ‘David Copperfield’ characterises today’s society for me. While David Copperfield and the other orphans sup on thin gruel, Bumble the Beadle and his friends enjoy sumptuous meals funded by money intended for the orphans. What better image to capture the nature of today’s society.

Why Ed Milliband will continue to disappoint

Economics, Politics, society, , , , , ,

Why Ed Milliband will continue to disappoint

This week at theTUC conference Ed Milliband promised to take action to end the blight of zero hours contracts which cruelly impact so many people’s lives. It was a speech of good intent which revealed little of specifics of any future policy. How did Ed propose who was going to end this problem? No specific details, just another promise left floating in the air not anchored in the firm ground of policy detail. The problem being for Ed is that he is part of that broad Parliamentary consensus that seeks to combine right of centre economic policy with a left of centre social policy, a tendency that can be identified as starting with John Major.

These politicians believed supply side economics, or what is more popularly called Neo-Liberalism, was necessary if Britain’s moribund economy was to be revived. He recognised that by adopting such a brutal free market economy there would be losers, but in order to create a flexible labour market the protections that secured fair wages and security of employment would have to be removed. This would mean that there would be a large part of the work force that would experience a combination of job insecurity and low wages, combined with a future of low wage employment punctuated by periods of unemployment. Essentially low cost workers who would be willing to work for whatever wages the employer was willing to offer. However he did recognise that there must be a social policy in place to pick up the pieces, that is a welfare state. A state that would offer unemployment and housing benefit for the losers in the labour market. It is this policy that made zero hours contracts possible.

A policy of ‘tough love’ was adopted to ensure that the low paid or unemployed would be willing to take whatever work was available. Benefits were to be so low as to make any work attractive and sanctions were introduced to make people work. This policy has been adopted with enthusiasm by Ian Duncan’s Smith Department of Work and Pensions. Recently it has been suggested by them, that the low paid will be penalised by further benefits cuts if they don’t make sufficient effort to secure a higher wage.

As if to add insult to injury, when elected New Labour promised to continue the policies of the consolidators but with more efficiency and fairness. One of the first acts of the Labour government was to introduce working tax credits, to top up the wages of the low paid. This wage subsidy enabled companies to keep costs low by continuing to pay wages that were so low as would otherwise have left workers in poverty. They also believed in the ‘stick’, they introduced welfare reform by setting up an assessment scheme run by Atos whose main purpose was to reduce the numbers on benefit by defining many of the formerly disabled as fit for work.

This unforgiving social policy is Ed Milliband’s heritage, the inheritance of an inhumane economic and social policy whose sole aim was to keep large numbers of people in poverty and living lives of misery. While he seems genuinely appalled at the misery and despair government policy creates, he realises that there is little he can do about it. He has inherited the belief that the British economy needs to be regenerated through free market reforms which will create millions of losers and few winners; so there is little he can do about ending the misery of zero hour contracts. While Andy Burnham has said that he will end the use of zero hour contracts in the NHS. There has been no such promise from Ed Milliband, he remains trapped within the cruel brutal Neo-Liberal ideology that allows him to make no more than gestures to improving the lot of the great mass of the British population. Yesterday’s debate in Parliament demonstrates this when he failed at Prime Minister’s Question Time to quiz David Cameron on the very critical report made by the UN Rapporteur on the impact of the ‘bedroom tax’, as Observers commented because he did not want to make a commitment to repealing it. While Ed Milliband remains committed to supply side economics and all the indifference to human suffering that implies, he will do little more than offer some amelioration of zero hours contracts. Whatever he might say, little will change.