26 Apr 2016

New Article on German Cities That Began to Provide Public Goods in 1500s.

This is very interesting:

Origins of growth: How state institutions forged during the Protestant Reformation drove development.

Jeremiah Dittmar, Ralf R Meisenzahl. Vox 26 April 2016.
Throughout history, most states have functioned as kleptocracies and not as providers of public goods. This column analyses the diffusion of legal institutions that established Europe’s first large-scale experiments in mass public education. These institutions originated in Germany during the Protestant Reformation due to popular political mobilisation, but only in around half of Protestant cities. Cities that formalised these institutions grew faster over the next 200 years, both by attracting and by producing more highly skilled residents.

21 Apr 2016

House Prices vs Average Earnings

"The relationship between earnings and house prices began to break down in the 1980s, after sweeping financial deregulation began in the 1970s." 

15 Apr 2016

Fuck Neoliberalism

The academic world experienced a minor stir last week with the publication of the text of a paper given at an AAG meeting in San Francisco, by Dr Simon Springer of the University of Victoria, Canada. Published on the academic website academia.edu, the paper entitled, Fuck Neoliberalism, has been viewed more than 14,000 times which has put Dr Springer in the top 0.1% of scholars using the website.

The author is a serious academic with a long history of publishing on the subject of Neoliberalism, viewing it as an inherently violent ideology. The paper is unrepentantly vernacular in tone while still being rooted in the discipline. This quote gives a flavour of the former:
"Fuck the hold that it has on our political imaginations. Fuck the violence it engenders. Fuck the inequality it extols as a virtue. Fuck the way it has ravaged the environment. Fuck the endless cycle of accumulation and the cult of growth. Fuck the Mont Pelerin society and all the think tanks that continue to prop it up and promote it. Fuck Friedrich Hayek and Milton Friedman for saddling us with their ideas. Fuck the Thatchers, the Reagans, and all the cowardly, self-interested politicians who seek only to scratch the back of avarice. Fuck the fear-mongering exclusion that sees "others" as worthy of cleaning our toilets and mopping our floors, but not as members of our communities. Fuck the ever-intensifying move towards metrics and the failure to appreciate that not everything that counts can be counted. Fuck the desire for profit over the needs of community. Fuck absolutely everything neoliberalism stands for, and fuck the Trojan horse that it rode in on!"

Dr Springer sums up, in both his words and his attitude, so much of what I think and feel about the current situation in the world. I'm grateful for his articulation of the problem in this manner. It is calculated to offend a system which routinely offends those it feeds off. Neoliberalism itself is offensive, it is violent, and ultimately Dr Springer believes that it necessary to act against it, to resist Neoliberalism:
We must start to become enactive in our politics and begin embracing a more relational sense of solidarity that recognizes that the subjugation and suffering of one is in fact indicative of the oppression of all (Shannon and Rouge 2009; Springer 2014). 

He also suggested using the hashtag #fuckneoliberalism though this has not really taken off. I'm using it however.

There is a video of the talk on YouTube. The sound quality is not very good, but it is interesting to hear the author of the paper speaking the words in this context.

14 Apr 2016

How Broken is the World's Tax System?

A recent Oxfam report, Broken at the Top: How America’s dysfunctional tax system costs billions in
corporate tax dodginguses the top 50 US companies to expose just how broken the tax systems of the world are.
"US corporate giants such as Apple, Walmart, and General Electric have stashed $1.4 trillion in tax havens... The sum, larger than the economic output of Russia, South Korea and Spain, is held in an “opaque and secretive network” of 1,608 subsidiaries based offshore." - Guardian
The $1.4 trillion held offshore contrasts with the $1 trillion paid in tax by the top 50 US firms between 2008 and 2014. However, the same companies had also enjoyed a combined $11.2 trillion in federal loans, bailouts, and loan guarantees during the same period. This meant the firms had reduced their effective tax rate from the US headline rate of 35% to an average of 26.5%.

And some of the saving was spent on lobbying the US government for great tax-payer funded handouts. The top 50 US firms spent $2.6 billion between 2008 and 2014 on lobbying the US government, and they get massive bang for their buck!
“For every $1 spent on lobbying, these 50 companies collectively received $130 in tax breaks and more than $4,000 in federal loans, loan guarantees and bailouts.”
So not only do they not pay tax on their profits, and keep vast reserves in tax havens, they get enormous handouts from the government, and have massive influence over govt policy in their own favour. A company with vast reserves of cash should not get government subsidies.

You think America is a democracy? It clearly is not a democracy, it's an oligarchy with an entertainment wing. While everyone is distracted by Trump & Co. the corporations are stealing all the money.


2 Apr 2016

Cameron Defends

David Cameron defended Britain’s decision to reject higher EU tariffs on Chinese steel on Friday as the business secretary faced the anger of Port Talbot workers whose livelihoods have been undermined by cut-price imports. - Guardian
So Cameron thinks that destroying the UK steel industry was the right thing to do. And nationalisation is the wrong thing to do.

And so we're looking at 40,000 people on the dole?

Meanwhile China slaps a 46% tariff on  ‘grain-oriented electrical steel’ produced in UK. They claim we are dumping it, while they are selling their steel in Europe at well below the cost of making it.

I think we have to say that Sajid Javid wins the prize for the best April Fools prank of the century.

1 Apr 2016

British Steal

So it turns out that the UK business secretary, Sajid Javid, knew all along about the impact of China dumping steel in Europe at below cost. Chinese steel production is heavily state subsidised. But given an opportunity to provide some relief to the UK steel industry he declined saying:
“The responsibility of government is to look at the overall impact on British industry and jobs,” the Business Secretary said. 
“If duties get disproportionate it would have an impact in Britain and elsewhere on consumers of steel. Those businesses tell us it will cost jobs and exports if duties got out of control. 
“It’s important to be led by evidence and get the right balance of duty required to correct the harm being done to the domestic market. 
“To go further might in the short term look the right way to go to protect industry but you have to remember in Britain there are also companies that consume steel as part of the production process.” - Telegraph 10 Feb 2016

Blogger Craig Murray says
On Javid’s instruction, last year the British diplomatic mission to the EU (UKREP Brussels) was lobbying the EU commission against higher punitive tariffs on Chinese steel than the 13% the UK supported – even though the Commission found that dumped Chinese steel had an effective state subsidy of up to 72%. I have this from a British diplomatic source.

And adds:

There are no steel mills in Tory constituencies.
So this collapse of the British steel industry is part of a plan by Javid and the other Tories it seems. No one is quite sure how the plan will work. We want to export more to China, hence we keep them sweet by allowing them to torpedo our steel industry and put 40,000 people out of work and then we send them all the stuff we manufacture from Chinese steel? Only the Chinese seem to benefit from this. So is Javid in the pay of the Chinese government? Or is he a moron? Or a socio-path? Or what?

31 Mar 2016

British Steel

This morning I am puzzling over the UK steel industry. Our Indian overlords, Tata, are selling up British Steel (making plans for Nigel!) because it is losing £1 million per day. That's not a viable business.

But there are many calls from the left to "save our steel industry". Petitions and so forth. How does one save an industry that is losing £1 million per day? At the very least this means spending £1 million per day.

The alternative is that about 40,000 jobs will be lost and a massive blow to manufacturing in the UK at a time when we're teetering on the verge of recession again. When the Tories came into power they were promising to rebalance the economy and create a "northern powerhouse" that would produce "export-led growth" (merchantilism 101). Now it looks like the North is going to be gutted, again. And Wales too.

The global economic slow down is not going to go away. Steel consumption will continue to be at much lower levels than the peaks of the last few years. China is not going to boom again any time soon. China subsidise steel production and sell it on the world market at below cost. It keeps Chinese steel workers in jobs.

So is this what we need to do? Basically this would be a different kind of welfare payment. Instead of paying the dole to unemployed steep workers, we subsidise a failing, unprofitable business to keep them employed. Keeping the steel industy costs about £350 million per year. Average welfare payments would be about £20,000 per year, times 40,000 = £800 million. So it would be much cheaper to keep the steel industry going - though I've plucked that figure out of the air.

And of course 40,000 people in work is probably better than 40,000 people on the dole. The spinoffs are hard to calculate. In some places whole towns would more or less cease to be economically viable if we lost these jobs.

But will EU laws allow govt to act to prevent the closure? Are we allowed to subsidise steel production? I'm not sure. Will government ideology allow them to even consider it? Loads of unknowns.

18 Jan 2016

Economics humour

Mainstream economists predicted none of the last five recessions.

Heterodox economists predicted all ten of the last five recessions.

9 Jan 2016

Economic Metaphors

This is an idea that could do with expanding on, but I've been reading Mark Johnson's book The Body in the Mind about the mechanics of metaphors and it occurred to me that economists are using a metaphor drawn from biology for the economy, i.e. homoeostatic regulation of an organism. Hence the focus on equilibria and and growth. An organism has a number of internal systems that are used to maintain our internal milieu within an optimum range: for example blood glucose, oxygen, and carbon dioxide levels, blood pressure, temperature etc.

At the moment we're hearing a lot about "external shocks" and the potential impact of them. This language is consistent with seeing the economy as a self-contained system that relates to other self-contained systems.

Heterodox economists (effectively) argue that the economy is not (metaphorically) an organism whose goal is homoeostasis, but (metaphorically) a complex inorganic system, like the climate which is subject to chaotic behaviour and has not goals. The economy must therefore be treated as though it is a large complex system like weather rather than an organism like ourselves.

Of course climate is also directly mediated by living things as well. If we had no biosphere the climate on earth would be very different. This idea has long been established by the independent chemist James Lovelock in his Gaia Hypothesis, but also in his work for NASA designing experiments to detect life on Mars. The easiest experiment according to Lovelock would be to look at the atmosphere of Mars through a telescope and use spectroscopy to determine the chemical composition of it. A sign of life would be a composition incompatible with a simple chemical equilibrium. For example mere chemical processes would not allow the earth's atmosphere to sustain its 21% oxygen content. Oxygen is highly reactive and would quickly disappear from our atmosphere if photosynthesising plants and bacteria were not constantly replenishing it. A chemical equilibrium would look very different from the biological equilibrium that we currently experience.

Free Market enthusiasts argue that markets would be self-regulating if only we left them to it. Of course markets are usually only partially free because governments interfere with their functioning. Large corporations also manipulate markets, for example by ganging up to set prices instead of competing. In fact any market participant with any power seeks to distort the market to their own benefit as a matter of course. So the Free Market is really only a superficial Newtonian view of markets. We need a relativistic view in which each player in the market distorts the local fabric of the economy proportionally according how much wealth they hold and/or create. In this view no market is free because to be a participant in a market is to distort it, in an analogous way to the distortion of spacetime by masses in Einstein's description of the universe.

As it happens we've seen a number of free market experiments, one of the most remarkable was Iraq where the post-invasion economy was set up according to pure Free Market doctrines. And Iraq is now a failed state, because all the players sought actively to distort the market from the get-go and some were dedicated to destroying it. Similar failures all around the world have yet to deter Free Market ideologues from their belief system.  Ironically the Free Market proponents in Europe and the UK are also dedicated to anti-liberal regulation of the lives of citizens and using campaigns of psychological manipulation (aka nudging) to try to change behaviour in directions they approve of. It one accepts a government handout it seems to be assumed that one gives up all claim to liberty and hands over responsibility for one's life to the government.

Heterodox economists argue that no sensible physicist would treat a system as complex as an economy as homoeostatic (my word) because nowadays they have sophisticated methods for dealing with complex inorganic systems via the mathematics of complexity and chaos. This is quite a good argument until one reflects on just how complex the average cell is. Cells are made up of millions of large molecules, including tens of thousands of different kinds of proteins, produced and distributed by a highly sophisticated logistical system, powered by little power-plants (mitochondria) which are former free-living bacteria, and all to a blue print of nuclear DNA containing complex instructions in molecules folded for space saving most of the time. And all this is capable of reproducing itself. Trillions of these cells make up our body and its various systems - 80 billion neurons in the brain, plus another 100 million in the gut for example. No physicist would treat the body as a complex inorganic system because living organisms defy the physics of complexity and maintain themselves at or around an equilibrium.

In fact a homoeostatic organism, such as ourselves, is not such a bad metaphor after all. We circulate various commodities and currencies, process imports and exports, and do everything that an economy does, all with the aim of individual homoeostasis which leads to growth and reproduction. There is an isomorphism, as Johnson puts it, between an economy and an organism that allows the metaphor to work. In this model wealth is energy, it is exchanged in the form of tokens (e.g. glucose or ADP molecules), and circulates around. Debts can be created, for example, by anaerobic metabolism, but must be repaid. And so on.

So it is really madness as economists like Steve Keen suggest to think of the economy as tending to equilibrium? After all that is exactly what our bodies do. Why not model the economy as though it were an organism?

31 Dec 2015

The Economics of Flooding

The central narrative of the recent floods in Ireland and Britain is based on the severe weather. In fact a number of changes have happened that have contributed to the failure of flood defences.

1. Failure to Dredge.

The European Water Framework Directive in 2000 has stopped virtually stopped dredging of rivers and made disposal of spoils extremely expensive by reclassifying it as hazardous waste. The blog of the right-wing think-tank, the Adam Smith Institute, discussed this problem on the 29th. They cite this:
But all this changed with the creation of the Environment Agency in 1997 and when we adopted the European Water Framework Directive in 2000. No longer were the authorities charged with a duty to prevent flooding. Instead, the emphasis shifted, in an astonishing reversal of policy, to a primary obligation to achieve ‘good ecological status’ for our national rivers. This is defined as being as close as possible to ‘undisturbed natural conditions’.
‘Heavily modified waters’, which include rivers dredged or embanked to prevent flooding, cannot, by definition, ever satisfy the terms of the directive.
So, in order to comply with the obligations imposed on us by the EU we had to stop dredging and embanking and allow rivers to ‘re-connect with their floodplains’, as the currently fashionable jargon has it.
The upshot is that rivers now hold less water because they are shallower. This drastically increases the risk of flooding. The failure to dredge is not a new issue.

2. Clearing of Watersheds

The burning and draining of grouse moors upstream from towns in Yorkshire including York and Hebden Bridge. This issue was explored by George Monbiot in the Guardian Newspaper.
In 2002 Walshaw Moor, a 6,500-acre grouse shooting estate upstream of Hebden Bridge, was bought by the retail tycoon Richard Bannister. Satellite images before and after [right] show a transformation of the land: a great intensification of burning and draining. These activities raise the number of grouse, which in turns raises the amount (running into thousands per person per day) people will pay to shoot them.
When one destroys the vegetation on the moors and at the same time improves the drainage, any rain that falls rapidly makes it's way into the major water ways. With the kind of heavy rain that we have been experiencing in the last two weeks this means flash floods as the banks of the rivers are over-topped.

It appears that the government has collaborated in this, or at least not acted to prevent it.
For several years campaigners in Hebden Bridge have been begging the government to stop the drainage and burning of the grouse moors upstream. 

3. Cuts to spending on the construction of flood defences.

Finally as left-wing commentator Owen Jones explains, also in the Guardian, that the government has cut spending on flood defences in order to contribute to "living within our means" as the Chancellor puts it.
As official documents now show, the government’s own advisory board recently pointed out that a lack of funds would leave northern communities at risk of floods. One £180m floods defence project was scrapped in Leeds, for example.
By failing to improve flood defences the government has allowed this crisis to happen. Instead of spending the money on prevention they are now spending it on mitigation. And if they can find it now, then why could they not find it before? Part of the reason is that it shifts the risk to the public sector.

Also the government gets no credit for getting it right. If flood defences work there is no news story. Disasters make the news, disasters averted do not. Thus, rather cynically, the government gets more credit for flood relief than for flood defence, and most of the costs of the disaster are born by insurance companies, whereas only the government contributes to flood defence. Unfortunately people who were flooded last year are now unable to get insurance. So who pays for the damage?

Jones segues into a more general critique of the government's response to climate change. They have cancelled subsidies for green alternatives to energy production and let the contract for building a nuclear power station to the Chinese rather than investing in local businesses.


So yes, we are having extreme weather at the moment. But the government has not taken appropriate action to prevent flooding, indeed it has been negligent and recalcitrant in taking the actions necessary to prevent exactly the kind of disasters that have wrecked this Christmas for many people in the North.

This is the problem with ideologically driven policy. It ignores reality and legislates on the basis of a fantasy world. It's important that we place the blame for the failure of flood defences where it lies - squarely with the government. The previous government are certainly complicit, but the current government have made things considerably worse.

UPDATE 3 Jan 2016

For an alternate view on the best approach to flooding see this article in today's Independent (via ). The approach of a town called Pickering, North Yorkshire adopted an approach to flooding that slowed rain's passage from surface to waterways using a series of "leaky" dams.
They built 167 leaky dams of logs and branches – which let normal flows through but restrict and slow down high ones – in the becks above the town; added 187 lesser obstructions, made of bales of heather and fulfilling the same purpose, in smaller drains and gullies; and planted 29 hectares of woodland. And, after much bureaucratic tangling, they built a bund, to store up to 120,000 cubic metres of floodwater, releasing it slowly through a culvert. 
Note however that the second point above the clearing of grouse moors is still problematic. Pickering partly alleviated their problem by planting vegetation. On the grouse moors the drains are designed to rapidly deliver rain to the larger waterways. Pickering took the opposite approach with their leaky dams, slowing the progress of water so that they avoided the flash floods than inundated other towns in Yorkshire.

What is interesting about this is that it is a much cheaper that modern flood defences which are often in the form of solid barriers, which work well up the point of failure and then fail catastrophically. The system used in Pickering could fail more graciously because less was riding on any one structure - distributing the flood defences upstream rather than focussing efforts on the flood plane itself demonstrates an important principle when it comes to defending against natural processes.

A nuanced discussion of the pros and cons and applicability on a larger scale follow. A rare case of some well researched and presented journalism.