Tag Archives: wealth

Lies told by economists 2 – the economy is always managed so as to maximise the welfare of all

One of the constantly repeated stories told by economists is that the current programme of austerity is for the good of us all. The austerity programmes adopted by Western governments are necessary to root out from the economy of the excesses of the past spendthrift governments. The austerity programme will restore the economy to health and all will benefit from a new era of economic prosperity. A story that is so untrue, as acute observers will have noticed that it is the less well off who have suffered disproportionately in this recession, while the incomes of the better off have hardly been touched. Despite the recession, London for instance is home to a record number of billionaires.

There is another story that needs to be told and that is that economies very rarely work in a way that maximises the welfare of the majority of the population. They instead maximise the welfare of those groups with the greatest market power, who use that power to gain the largest share of wealth for themselves. Only very rarely does market power reside with the majority as happened in the social democracies of Europe after the Second World War.

This is demonstrated in the current time period which its one characterised as the time of Neo-Liberalism. A misnomer as it is a period that has seen the ever increasing accumulation of market power by the owners of capital at the expense of those who depend on earned incomes. Neo Liberalism is a political doctrine that these wealth holders have cleverly exploited to aid their rise to power. This doctrine states the the greatest impediments to the free market and the maximisation of wealth are over powerful governments and power trade unions, both of which impede the workings of the free market. Strong Governments and trade unions are the two factors that place obstacles in the path of those who wish to acquire unlimited wealth.

Growing up among the serving classes in the 1960’s, I observed close up the anxieties and fears that gave rise to the putsch against the strong governments and trade unions of the social democratic state. The 1960’s were a period of relative prosperity, there was full employment, constantly rising incomes and people were well housed, yet the rich hated this period. All they could see was the threat to their social and economic status from the newly prosperous working and middle classes. It seemed to them that all the barriers that preserved their social exclusiveness were under threat. Students from the working class now attended the two bastions of educational privilege, Oxford and Cambridge. Working people could own cars and more threateningly rise up the social and occupational ladder and threaten to displace the previous incumbents.

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Tunbridge Wells and its environs where I grew up were home to exiled European aristocrats forced into exile by the communist revolutions of Europe. Travelling on local buses you would come across impoverished Eastern European aristocrats talking about their lost estates and wealth. I lived near a family of White Russians who were so worried about the possibility of a communist uprising that they were only family locally permitted to keep fire arms. It was this anxiety that fed into the paranoia of the wealthy who feared for their social position.

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One of the most frequently expressed concerns was that people no longer knew their position. Servants would talk back to their masters and mistresses. The relative prosperity of the times meant it was difficult to get servants, as who would want the demeaning job of servant when a job a sales assistant in a shop gave gave greater freedom and a better wage. It was this newly acquired power to be no longer beholden to The Lord of the Manor for employment, that empowered servants. This group looked back to the horrors of the Great Depression as a ‘golden age. Then servants were plentiful and people knew their place. On the estate in which I lived prior to World War 11, it was a dismissal offence to talk without being first addressed by old Lord ***, now the very real shortage of estate workers and servants meant at worst all that could be done was reprimand the worker. I can remember a servant at the castle being reprimanded for being cheeky to her ladyship, an offence that would have warranted instant dismissal in the 1930’s. How the rich hated the prosperous sixties, with their indolent and independent minded workers.

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Even in these social democratic times the rich had begun to regain their former powers. The setting up of trusts encouraged by a friendly judiciary enabled the aristocratic owners of the great estates, meant that these aristocrats could claim that their estates were held in perpetuity by a trust and therefore not subject to estate duties.

The determination of this group should never be underestimated, they worked constantly to weaken their two enemies over mighty governments and trade unions. Rather than going through the details of how they achieved this weakening it is sufficient to say that in their enterprise they were greatly aided by the naivety of social democratic politicians. Today the most powerful groups in society are the financial, business and landowning elites. Given the lack of restrictions on their power they are able to abuse that power to award themselves an increasingly disproportionate share of the nations wealth. In 2000 the average company directors pay in Britain’s top companies was 69 x that of the average employee and by 2009 it increased to 149x that of the average employee. This disproportionality in income take demonstrates why the British economic recovery will be good for the rich and the super rich but less good for the majority.

Economists fail because they see a society as one atomised individuals, who are best off if they can trade freely amongst themselves, as they individuals know what they want. Any intervention by a government no matter how well meaning, could not second guess the wants and wishes of individuals and they whatever they did would lead to people being more dissatisfied that satisfied. The only social group that they recognise are trade unions which they identify as malignant growth which disrupts the efficient running of the business enterprise. They never recognise that owners of capital might group together to abuse their market power to gain a disproportionate share of society’s wealth. For an economist bankers, financiers and land owners only act in a benign way for the benefit of society.

Society in reality is divided up into a number of social groups competing for power and wealth. This power and wealth is distributed disproportionately, the owners of capital compared to the owners of labour have disproportionate power. This disproportionality of power and its potential for harm was recognised in former times. Durkheim in the 19th century wrote of the essential role of the state to protect the individual from local bullies and tyrants. He knew that employers had unlimited power to abuse their workers, with their being no labour protection legislation, they could pay as little as possible, work them for long hours, subject them to unhealthy and unsafe working conditions and dismiss them if they fell sick. The state was needed to regulate conditions of employment and protect the worker against unfair exploitation by bad employers. A lesson forgotten by the current generation of economists and politicians.

I can as a child of the serving classes quote an example. A remember an old servant telling my mother of the bad country house in which she worked. The men of the house if a young pretty house maid took their fancy, they would abduct her and rape her in the cellars. Staff were powerless to intervene and the abusive males never faced any sanction. It is this story that springs to mind whenever I hear a politician or economist advocating the removal of yet more labour protections.

Today Britain is a country that is safe for the rich, but unsafe for the poor. The poor can be housed in unhealthy private rental homes for which they pay exorbitant rents and dare not complain for fear of eviction. A good government would legislate to prevent such tenants as recommended by Durkheim, instead we have a bad government, supported by bad parliamentarians of all major parties who would never countenance such a measure. In contrast the government does its best to make life comfortable for the rich by co-operating in all schemes to protect their wealth, most notably in the emasculation of the tax collecting agencies.

The Musings of a Bad Economist

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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.

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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.

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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.

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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.