24 Aug 2015

Treating the Economy Like a Household Budget

Funny, we have exactly the same problem in the UK...

10 Jul 2015

Why Do The Poor Not Revolt?

The question of why the poor don't do something about rising inequality in the UK came up on Twitter today. To my mind the comedian Simon Evans got to the heart of the matter when he responded to Russell Brand's call to revolution. So I've been posting this clip. Many a true word was said in jest.

8 Jul 2015

How Money is Created

One of the things that seems to be very difficult for people to grasp is the idea of how money is created. So I noted that we see a lot of German people complaining that their tax euros have been lent to Greece. But that money lent to Greece does not come from tax dollars, or savings, or Germany's wealth. The loans create entirely new money. And when the loan is repaid that money ceases to exist.

The Bank of England was one of the first central banks to create money in this way - from the time it was created in the 17th century. Staff from the  Bank’s Monetary Analysis Directorate have prepared a paper explaining this form of money creation. They note:
"Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money."
 It is vitally important that we understand this. Part of the problem in 2007 was that banks had made too many loans and created too much money. When the sub-prime mortgage scam erupted what happened was that many people defaulted on their loans at once. It was not capital that was wiped out in this situation, it was the revenue stream of the rent that people were paying for the loan. We call this "interest" but it is a form of rent, especially in relation to the other products of the factors of production: wages from labour; and profit from capital. Rent is what is paid for use of a resource. And banks certainly see the loans they make as assets. So some companies, such as Lehman's brothers found their revenue stream curtailed. This meant that although Lehman's had many assets (loans) they did not have enough money coming in (rent) in order to pay their own creditors. So they went bankrupt. But that meant that rent the bank was paying also suddenly stopped.

The other reason it's important to understand the creation of money is that it is the rationale behind the idea of the Debt Jubilee. If the money of a bank loan was simply created out of nothing, and will return to nothing when it's paid off, then forgiving such a debt costs nobody anything. Except that the revenue stream gets cut off or reduced. Since a default amounts to the same thing, but creates all kind of illwill and political tension it is better to get ahead of it and arrange debt relief. This has happened many times in Europe.

You would think that any creditor with half a brain would be happier with some repayment than none. So a deal to repay less or slower would be preferable to a default in which there is no repayment. But this is not what we are seeing happening in Greece. The ECB and EU are demanding all or nothing. And if nothing they plan to force Greece out of the Eurozone (which as far as I can tell is illegal, because there is no provision for it in the treaty establishing the EZ).

But this view of money creation helps to explain why Greece's creditors don't have much to lose any more. They have been using the last five years to ensure that their income stream from rents on imaginary money is securely coming from elsewhere. So that when Greece defaults it won't cause a contagion of the kind that happened in the USA in 2007. Had they been concerned about the loss of revenue from Greece any more they would be more willing to negotiate. They literally have nothing to lose. And they also know that if they renegotiate the repayment schedule with Greece other nations, where their revenue streams come from, might also want to renegotiate. And there are a lot of countries overburdened with debt and implementing austerity programs that were the condition for the loans.

Understanding how money is created is a basic piece of information for intelligent participation in civil life. Lack of understanding is currently being preyed upon by Neoliberal governments to create narratives that promote their interests over the interests of the citizenry. We're being lied to on a regular basis.

5 Jul 2015


The Greek people voted resoundingly against the imposition of yet more austerity today. A great day for democracy.

Neoliberal governments are creating and exploiting systematic misrepresentations of the economics to gain leverage over citizens. For example. A lot of people keep talking about German tax payers bailing out Greece as though their taxes are being sent to Greece. They are not. The German taxpayers have not spent a single cent on Greece. Indeed they have profited from the crisis through interest payments on the outrageous loans foisted on Greece. The money going to keep Greece afloat has been printed by the ECB. It was created especially for this purpose. And in fact 90% of the money loaned to Greece so far has gone directly to French and German banks. So what is happening is that the ECB is using Greece as a proxy to bail out it's own banks. And blaming the Greeks for being lazy or recalcitrant. Not only a lie, but a mendacious conspiracy to deceive and defraud.

All of last week the ECB and the head of the IMF were illegally campaigning for the removal of the rebelling but honest government, in the hope that they could get the dishonest but compliant government back.

But Syriza have turned this around and the new IMF report backs them up. I am gladdened to see Neoliberalism lose a major battle (since they don't seem to acknowledge things like global economic meltdown as a problem). A victory for the people.

Now bring on debt relief for Greece. And for the poor everywhere!

Greece vs the Neoliberals.

The struggle over the economy of Greece, with the elected government on one hand, and the powerful unelected Neoliberal organisations, the European Central Bank, the International Monetary Fund on the other, along with the quasi democratic European Commission, is gripping stuff. I so want to see the Greeks take back control - even though this will not provide a miracle cure. I so want to see the tide of Neoliberalism turn!

Greece's finance minister at  London Conference of 1953
signing a treaty agreeing to cancel 50% of Germany's debt 

There have been some excellent articles on Greece and Europe recently. Amongst my favs are
  • Frances Coppola. (3.7.2015) The Road To Grexit. Forbes.
  • Frances Coppola. (29.6.2015) The Day The Euro Died. Forbes.
  • Alex Andreou JUNE 30, 2015. Where is My European Union? Sturdy Blog
  • Alex Andreou. (03 July 2015) How Europe Played Greece. Byline

3 Jul 2015

The Alternative To Neoliberalism

Steve Keen on the problems of Neoliberalism and some ideas that the political left need to adopt to counteract the standard Neoliberal economic narratives. 

2 Jul 2015

The Ten Commandments of Neoliberalism

  1. liberalize trade; 
  2. privatize public services; 
  3. deregulate business and finance; 
  4. shrink big government; 
  5. reduce taxes on business; 
  6. encourage foreign investment; 
  7. constrain unions; 
  8. expand exports; 
  9. minimize inflation; 
  10. enforce property rights. 

It replaces "love they neighbour" as the Golden Rule, with "See yourself as an enterprise and your neighbour as the competition."

Derived from What is Neoliberalism?

21 Apr 2015

More Lies...

Tory HQ are tweeting like mad in the run up to the election. I don't subscribe, but the economists I do read often retweet with succinct rebuttals. The main theme of the tweets seems to be that Labour mismanaged the economy. I've never really understood why Labour were unable to counter this with the obvious truth that the Tories are in denial about: that in 2008 the world underwent a Global Financial Crisis that saw banks going bust and many institutions, like my local city council, losing their savings. Labour seem incapable of using their handling of the GFC as a contextualising event for their economic decisions.

By most accounts Brown managed the crisis well. Of course had the UK had proper regulation and oversight of the financial sector this crisis might not have affected us so badly - since other countries were doing much the same I doubt we could have avoided it completely.

Today the Tories tweeted that we should remember that unemployment was rising when they took office. The simple answer to this is to show the ONS figures on unemployment.

And this gives the lie to the Tory claim. Under Labour unemployment rose because of the GDC and then stabilised as recovery began. It rose after the coalition govt came into power and began to cut spending and stalled the recovery. It began to fall only after they eased up on austerity and much of the change is a result of zero-hours contracts and other measures that have seen the working poor reliant on food banks in many places (they were already dependent on Housing Benefit to pay rent in a grossly over-inflated housing market after successive governments have refused to build affordable housing). Another example of how austerity negatively impacted the economy and slowed recovery. There are plenty of examples of this happening.

Why are Labour unable to capitalise on simple lies like this? Why do they continue to allow the Tories to keep them on the economic ropes? Why do they feel compelled to opt for Neoliberal-lite instead of a proper alternative? Why is it only the SNP that are actively against this ideologically drive austerity?

At the moment we can only hope that the SNP do indeed end up holding the balance of power in the UK. They are the only party within reach of power that is offering a credible alternative.

13 Apr 2015

It's a lie...

The Times published/tweeted this today - as a teaser to entice new people to buy a subscription to their website

The comments on the Tweet prove that most people have an extremely skewed view of the recent history of the economy. Most seem to have bought the Tory propaganda and parrot it.

And this is perhaps why the Labour party economic policy has been dictated by the Tories rather than by Labour voters.