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.

The Tories as New Puritans

I dipped into Michel Foucault's essay, The Political Technology of Individuals again recently. In this essay reinforces the idea that moderns have indirectly defined themselves in terms of exclusion of some other, particular criminals and the mad.

Tories have emphasised another defining/dividing line in their current term in office: work. Cameron and his cronies have repeated "hard working families" time and again. They identify with those who "work hard". Never mind that those who work for a living have seen a steady decline in their wages over the course of the Tory-coalition parliament. Never mind that at the same time capitalists have continued to become more wealthy, and their captains--the CEOs--have seen massive pay rises and record bonuses.

Taxes are the way that the people pay for things collectively. We use taxes to see to the defence of the nation; to the education of our young people; to the care of the sick and elderly; and to the provision of national infrastructure which benefits everyone, such as roads, railways, utilities. Neoliberalism has seen these tax-payer funded resources privatised and sold off to the highest bidder. In some cases this has been very successful, for example the phone system has improved greatly, and in other cases less so, the rail system is beset with problems of capacity and high fares.

Still the government have proposed to build new rail infrastructure with tax money because it has another purpose - money that the government spends on large projects is an investment. The money that it spends comes back as taxes and non tax income such as rail fares. Neoliberalism has tended to try to drastically limit how much non-tax income the government can make, because it believes on ideological terms that government is always inefficient at managing wealth and resources on behalf of the people.

Tax avoidance means that there is less money available to spend on the public good. It is effectively stealing from the pot that pays for education, health, retirement, defence, and infrastructure.


Work/Non-Work.

One of the distinctions we see is that if a non-working person defrauds the government of tens of thousands of pounds (which happens a few times a year) that is seen as a heinous crime. They are pilloried in the media, often their name and photograph (if not their address) is published. They are usually fined heavily and often sent to prison. And yet when a business-man defrauds the government of millions of pounds of taxes this is viewed with tolerance and even complacency. A bank that manipulates world interest rates is given a fine, but no actual people are held to be responsible for what we know was a premeditated and calculated scheme to rob the whole world.

The distinction here is between non-productive and productive members of society. The Tories have made it clear that they consider non-working members of society to be morally evil. Those claiming support on the basis of an inability to work have been subjected to mental torture through a system of interrogation that defies many human rights: one is compelled to undergo physical examination by strangers and a level of intrusive scrutiny that well people find shocking. It all done with the threat that failure to comply for any reason will result in the withdrawal of support. The purpose of scrutiny is to trick the sick person into revealing a hidden capacity for work. The assumption is that even severe and crippling illness ought not keep a person from working. Many people have died soon after being assessed fit for work. The propaganda that accompanied the introduction of this draconian system trumpeted that two-thirds of people on benefits were fit for work. In reality the figure was more like 20% of people signed off were found fit. And the stories of the unfairness of the system even made it into the mainstream media despite their broad support for the system. Whether those 20% ever got jobs is not recorded, but they are paid a lot less and are under much greater threat of sanction than they were.

All this has been implemented during the worst recession in modern times, comparable only to the Great Depression which was characterised not by harassing the unemployed, but by job creation schemes. Something has fundamentally shifted in the intervening years.


Merchantilism.

However some of the themes have not changed. The attitude to poor people is centuries old. Feudal Lords who wanted to make peasants work hard, made it much harder for them to make a living than it needed to be. It was thought undesirable for peasants to have leisure time. So wages were held at subsistence level and peasants had to work all the hours of the day to make ends meet. This attitude carried over into the Merchantilism, the philosophical background to the British Empire. It was partly informed by Protestantism which saw idleness as a sin and hard work as a virtue. Puritans sought to embody these Protestant virtues, and when they tried to impose their views on others we called them puritanical.

Formalised in philosophy the values of the merchant class in Britain became Utilitarianism - the idea that anything only has value to the extent that we can derive utility from it, i.e. we can use it to our benefit. This applies as much to people as to things. So the value of a member of the public to the nation is only to the extent that the person provides utility through their labour. From this it is easy to rationalise, for example, the withdrawal of labour as evil and put measures in place to prevent it from happening by breaking up the power of labour unions and dividing workers through contracts that disempower them. The present government frequently sought to argue that votes were not representative because not enough of the potential voters to make a quorum. Meanwhile local government election participation fell to record lows with turnouts as small as 15% and no one challenged these results.

If the value of a member of society is limited to the work they do then by not working they show themselves to be worthless. Retirement is only justified on the basis of a lifetime of work. Meanwhile people who get rich by exploiting inequalities in Britain continue to retire earlier and earlier.


New Puritans

The Tories, with their emphasis on commerce, on hard work, and the punitive attitudes to the poor and the unproductive are very much like the Puritans. Cameron has sought to portray himself as a moral leader on a number of occasions. He is a evangelical Puritan in a mercantile habit. And the Tory government has been puritanical in it's approach to work and welfare. On the other hand they have a Laissez-faire attitude to business people and their criminal activities. Tax dodging is not something the government has put much effort or resources into. The amount of tax money the government has allowed itself to be robbed of is staggering: hundreds of millions of pounds every year. But the people with wealth are by definition good in this newly Puritanical milieu, so why would we punish the good. It is far more important to punish the unproductive than the productive, even if the impact of the former is many orders of magnitude less than the latter. The logic is deeply flawed, because the actions are based on the Neoliberal version of the Merchantilist ideology.

The modern worldview is often called Neoliberalism. It is based on the idea that absolute liberalism ought to be extended to the abstract market - the freer the market the fairer the society. Liberalism aimed at freeing human beings from unnecessary intervention in their lives by the powerful. It enacted laws giving basic rights and protections to all people. It aimed to give every child a basic education and so on. The new liberalism is in fact socially conservative. It has coincided with erosion of personal liberty, and an increase in invasive surveillance by the state - all electronic communications are routinely intercepted as we know because a few brave whistle blowers spoke out. At the same time education beyond secondary level has become a commodity. We are now seeing the universities being commodified at a much deeper level, with casualised teaching staff employed by a third party organisation (at Warwick University).

Alongside this anti-liberal tendency in Neoliberalism at a social level we have to put the fact that every experiment in freeing up markets has been an abject failure. If the global financial collapse has taught us nothing else, it is that unregulated finance is a disaster. Businesses without rules and effective oversight will work to the detriment of society and the enrichment of a very few businessmen who make comparatively little contribution to society since their wealth is held in tax havens. Centuries of general philanthropy amongst the wealthy seem to be at a end as a new spirit of greed comes over them. But where the World Bank and IMF have had a free reign they have impoverished and virtually enslaved nations through imposing massive government debts on them. Often the oversight is so minimal that government officials steal the loan money leaving peasants to pay back loans, facing generations of poverty as a result.

12 Apr 2015

Tweet

From @AnnPettifor




And this today

1. When people save in the form of a real commodity (eg corn) decision to save is a fully personal matter

2. In a monetary economy, saving is an act that reflects on others in the form of a financial claim

3. This means when we discuss financial savings we are also discussing debt: every penny saved is someone else's liability

4. In a monetary (as opposed to s non-monetary) economy each penny saved must correspond to a debt of equal size

5. In a monetary economy savings do not fund: they need to be funded

 - Andrea Terzi.

8 Apr 2015

Profit From Misery

The Jubilee Debt Campaign website has a timely reminder that IMF loans are not handouts and that banks are not welfare institutions.
"Ahead of the payment of €462 million by Greece to the IMF on Thursday 9 April, figures released by the Jubilee Debt Campaign show that the IMF has made €2.5 billion of profit out of its loans to Greece since 2010."
This is why banks list loans as assets. They charge rent on the money that they lend out. And remember that the money lent is not someone's real asset or savings. That money did not exist before it was loaned to Greece.

Also the interest payments on the loan are now sucking the life out of the Greek economy. The previous Greek government committed to give their future earnings for decades to come to the IMF in exchange for this loan. They have mined their future to the extent where they hardly have one. And they were effectively bullied into this by the Europeans and the IMF. This is the biggest sub-prime mortgage scam in the world.

What's more the IMF is generating massive profits through this method. The same source says "Out of its lending to all countries in debt crisis between 2010 and 2014 the IMF has made a total profit of €8.4 billion". All those billions are coming from the poorest countries in the world. And how much do they get in aid every year? We cripple these countries and then make them dependent on aid. It's horrific.

Jubilee Debt Campaign point out that the interest rate being charged to Greece is 3.6% which is outrageous. IMF costs would be covered by just 0.9% interest.

3 Apr 2015

Deleveraging is over

Anyone familiar with heterodox economics knows that, outside the mainstream, private sector debt is one of the biggest concerns. Inside the mainstream it's never talked about. Today's ONS figures on household debt make salutary reading:


For the six years of the recession households were paying down debts and increasing their debt to income ratios (deleveraging) which can not have been easy since incomes were falling with respect to prices. But in 2014 this turned around. We can see from the blue line that the debt to income ration climbed from 1998-2010 from ca. 110% to about 170%. Then for six years it dropped back to about 145%. Now the blue line is rising again, not by a huge amount, but rising.

No doubt rising housing costs have had something to do with this. The government's strategy for prosperity has been to inflate asset prices (particularly housing). CPI inflation is currently 0% while house price inflation is currently over 8%.

The problem with rising debt, which is ignored in the mainstream, is that the repayments soak up disposable income. When disposable income is no longer disposable the demand for commodities slows. Growth fuelled by rising debt is bad for the reason that we saw in 2008.

On the other hand, if the mainstream politicians want us to believe that the nation's finances should be run like a household and spending beyond our means is a disaster, then this is problematic by that criteria as well. Household debt/income is currently double government debt/GDP. The mainstream argument is that at 80% debt/GDP we need to cut spending and "live within our means" then why is the message so different for households? How can the rise in debt, caused by inflating house-prices, be a good thing if it creates an increasing household balance of payment deficit?

From whatever angle we look at it the level of household debt is extremely worrying.

1 Apr 2015

Tying the Hands of Europe's Politicians.

The IDEA Economics website just tweeted Steve Keen's summary analysis of the Maastricht Treaty which covers what's wrong with the Euro-zone. It's an extreme free-market economic experiment that has gone wrong. According to Steve, the Maastricht Treaty did three things:

  1. It eliminated the possibility of having an exchange rate policy, by having one currency across the entire continent.
  2. It eliminated monetary policy, by handing it over to the European Central Bank, which was as inflation-obsessive as the Bundesbank used to be
  3. And it eliminated fiscal policy, by saying that you couldn't have a deficit larger than 3% of GDP.
"And they thought that would end up in the best of all possible worlds because government could no longer do anything to affect the market economy. The market economy would operate perfectly. We would have continuous equilibrium and harmony in the future." - Steve Keen.
In other words the Maastricht Treaty tied the hands of all European governments, taking economic policy out of the hands of elected representatives and placing it in the hands of the hypothetical market.  Except that we know that business people are rampantly manipulating the market for their own ends, using the advantage they gain by excluding government from the discussion about how commerce operates to encourage increasing wealth inequality. It's Kafkaesque. 

How many more failed experiments do we need for mainstream economists & politicians to admit that free-market policies simply do not lead to stable, prosperous economies? 

23 Mar 2015

Party Time

The 2015 UK elections are approaching and people are trying to decide who they'll vote for. One way to find out which party represents our ideas is to do a quiz. One which looks quite comprehensive is The Political Compass. The Political Compass profile of the various political parties (in several countries now) gives us a pretty good idea of where they stand.

Their research confirms my intuitions of what's happened in the UK over the last few decades. The whole country had drifted to the right and towards authoritarianism. Indeed the major parties in the last election all contested the same political-economic quadrant as this diagram of the 2010 Election shows:

For the 2015 election they show the parties present positions as these:


The LibDems have drifted back into their original lower-right quadrant. Tories are towards the right of their usual territory (probably influenced by UKIP who are the most right party - note the comparison with the BNP who are centrist-authoritarian).

The author of this blog is to the left of and on the same vertical level as the Greens. Take the Political Compass test.

21 Mar 2015

Whatever Happened to the Long Boom?

Back in 1997, hip culture-tech magazine Wired (5.07) wrote an editorial piece "The Long Boom: A History of the Future, 1980 - 2020". The strapline was "We're facing 25 years of prosperity, freedom, and a better environment for the whole world. You got a problem with that?"

The article repeated the usual Neolibertarian bullshit, a lot of which can be traced back to former Goldman Sachs exec and then Secretary of the Treasury Alan Greenspan. As bullshit goes it was very persuasive and taken up and spread around by most mainstream politicians and economists.

Just 10 years later Lehman Bros collapsed because their debtors were defaulting at such a rate that their cash flow was insufficient to pay their own debt commitments. This initiated a cascade of events that led to the worst economic recession in history (arguably) which we now call the Global Financial Collapse. A few prescient economists pointed out that the high levels of personal and business debt, and the rate at which that indebtedness was increasing, would inevitably lead to disaster. But no one listened to them then and hardly anyone listens now.

If you keep borrowing, there comes a point when paying off debts soaks up all of your disposable income. And if you have a sudden need, or there is an interest rate fluctuation, or you lose your income, then you can no longer service your debts and go bankrupt. When you income is rent paid on borrowed money, as it is for all banks, and many debtors default on payments at once, then this can cause serious problems. When you over-lend to thousands of people who cannot afford to service their debts, then disaster is inevitable.

When we borrow heavily (as on average people and businesses did and are doing) then the future becomes impoverished. As individuals we can only stave off that impoverished future by tightening our belts or borrowing more, but more borrowing only undermines the future more and eventually it must collapse. Businesses can borrow and invest in growth and trade their way out of trouble as long as there is sufficient demand. But when the consumers have maxed-out their credit cards and their disposable income is paying off the interest, then cannot spend to create demand for products. This was the fatal flaw in the thinking of the Wired editorial and of all mainstream thinking about economics in the 1990s and 2000s. This still is the fatal flaw of the idea of the Long Boom - the length of it was determined by how much we could undermine our own future and have not collapse on us.  The mainstream has yet to really admit that this is what went wrong.

Governments on the other hand operate differently. Our UK government has convinced more or less everyone that the government is like an individual household, that investing is not an option and that belt tightening is the only way to balance the budget. And that balancing the budget is the only way to prosperity. Spending increases are only for the purposes of buying votes in elections (as we have seen this week). But every £ the government spends is an investment - it returns a dividend to the government in taxes (presuming the government is competent and willing to collect them). The government that builds a house provides jobs for builders (better employment figures), who spend money in shops (better retail figures) and shops buy from wholesalers and manufacturers (better manufacturing figures) and tax is extracted from each transaction. The house is sold (another wodge of tax) or rented (generating taxable income over the long term) and people living their pay for utilities. But they are also comfortably housed and create relationships with neighbours - an indefinable good. The returns for the government and by extension for society, are long term and positive. And a government can borrow the money to build the house at 0% interest over a very long term, and thus both pay off the debt and make a profit in a way that no business can do.

Our present government is systematically misrepresenting the nature of a national economy to hide ideological commitment to minimal government in the service of promoting unlimited profit making. As we have seen quite clearly in the last five years, only the wealthy benefit from this.

Looking back to the 1990s and before we were all seduced by the idea that debt was a good thing. The story of that seduction has yet, I think, to be told. My parents generation grew up knowing that debt was a bad thing. One borrowed for a house, and perhaps to invest in growing a business, but one would never borrow money for consumer goods. One saved up or went without. And this is both rational and sensible and we need to get back to this as a personal ethos. On the other hand it is madness for a government to operate this way and they need to get back to judicious investment in the economy when the private sector is unable to. The Long Boom was a Big Lie. The boom was created on the back of personal indebtedness and collapsed as the weight of debt broke our backs.

Our present government is still encouraging, still relying on, citizens to undermine their own future by borrowing to spend, in order to further enrich the wealthy. And yet, without any sense of irony, they mock the Labour Party as the party of borrow and spend. Of all the many reasons to mock the Labour Party (and there are many) it is ironic that the Tories should harp on this one.




7 Mar 2015

Debt is methamphetamine. 

Banks are cooks. 

Governments are "Better call Saul".

Debt is like Meth

Debt is like methamphetamine. We can spend a lot more than we normally would, but after days of not sleeping we have to crash. Debt allows us to mine the future for wealth, to spend what we have yet to earn. Just like amphetamine allows us to continue to burn energy long after we would normally need to rest. But at some point the debt repayments soak up all of our disposable income  - either because we have too much debt or because the interest rates go up. The latter is one of the reasons that central banks around the first world are holding their interest rates at or near zero. A rise now, when households are once again accumulating debt, could precipitate another recession as people diverted spending into debt repayment. As we are accumulating debt again we'll reach this stage in any case.

Ironically governments are far better equipped for this - they borrow at very low interest rates and can print money. The government is in a reciprocal relationship with the rest of the economy. If the government tries to run a budget surplus then the rest of the economy must run a deficit to pay for it (in excess taxes). Whatever the theory, the facts is that this is how the economy works.

Debt is methamphetamine. Banks are cooks. Governments are "Better call Saul".
In this scenario the banks are drug dealers. They make money from interest payments. And as we see without external limits they will just keep on pushing debt onto anyone and everyone with no thought for the consequences. They will lie and cheat in order to keep making more money. The banks have broken bad and started cooking meth.

Banks and governments are run by the same people. The secretary of the US treasury is almost inevitably a former big finance executive (often from Goldman Sachs) and treasury execs end up working in finance where their connections make it easy for them to lobby. So the legislators and the beneficiaries of the legislation are the same execs. This means that the regulatory branch of government is hobbled. Despite massive malfeasance in the subprime mortgage scam, something that came out in the Senate investigations, the Goldman employees had magically not broken any laws. Similarly here in the UK the major banks had been manipulating world interest rates for profit for years and no one was held accountable - the firms were fined, but the people who engineered this fraud were not.

Successive governments from both left and right had removed constraints and oversight from the debt pushers to allow them to make profits unfettered. The idea was that it would make everyone wealthier. But what happens is that the top layer take their cut and don't pay any tax, and they ensure below inflation pay rises for the lower layers. So only the top layers benefit. Government ministers present and former are very much part of this layer.