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Friday, 21 July 2017

The Tories' Dilemma: 'Hard Brexit' or Continued Austerity

Mrs May appeared to think that she could do three impossible things on becoming Prime Minister: now she has come to realise that not only is each of them unfeasible in itself, but that they are mutually exclusive.

First, she did not even consider an alternative to the continuance of the Cameron-Clegg-Osborne austerity, so that had to be maintained, as near intact as possible.

Second, although she had been an unconvinced remainer, she was prepared to embrace the idea of a 'hard' Brexit: though she had no idea what this might mean, so she appointed not one, not two, but three Brexiteer Secretaries of State to come up with the policies that would be needed.

And thirdly, she wanted to be a 'compassionate conservative': at zero cost [because finding any 'new money' would, by definition, breach austerity].

Then she called an election in which she thought that she could defeat Labour purely on the grounds of the intellectual and moral deficiencies of the party's leader. Because he had decades of experience of not being a conformist or conventional politician, Corbyn almost won: and Mrs May had to clear out her inept kitchen cabinet and begin to respect ministers who she was reported to have wanted to dispense with.

Meanwhile Philip Hammond as Chancellor of the Exchequer was becoming buried in 'The Treasury View', a centuries-old tradition which insists that any new expenditure is unnecessary and any unnecessary expenditure must be opposed; regardless of the social and moral benefits that the expenditure is predicted to deliver to taxpayers. Thus he learned that stopping the free movement of people from the EU into the UK, and movement the other way, would cost billions of poundsworth of new expenditure in frontier police recruitment, training and salaries, and in the construction of immigration and emigration control points and the IT backup that would be needed to make such controls achievable at all. Add to that the cost of building modern port controls that could prevent smuggling and validate the contents, provenance, ownership, insurance and compliance with health-and-safety requirements [et cetera] of every item in every cargo and every private piece of luggage - and staffing them with men and women as tough as eighteenth-century revenue officers, in sufficient numbers, adequately well-trained and remunerated and backed up by the most advanced IT - that would be more billions.

A 'hard Brexit' would not only interrupt much trade with Europe, and permanently end more - it would thereby cause massive unemployment and demands for billions more in social payments. Most firms that trade significantly with Europe would experience catastrophic falls in sales, which would force some to cull their workforces and many to declare bankruptcy and their inability to pay their debts and their taxes. The government's income would plummet as the demands of a desperate population became clamorous. Not only would austerity have to be abandoned: government would become untenable in the context of democracy.

Thus minsters have been running around, meeting groups of representatives - particularly from the business communities - whom the May team had ignored in their first year in office. Now the government is indicating that Brexit will be 'soft', and nobody or no firm will find themselves at a 'cliff edge'. There will be a 'transition period' as long as Mr Barnier will be allowed to concede; followed by a shoddy compromise which lets the Treasury maintain at least the skeleton of austerity in place. On that basis of squalid surrender to the ghosts of Clegg and Osborne, a sort of exit from the EU Commission and Parliament, and a limitation of the powers of the European Court 'of Justice' [sic] will be found; and Britain will remain within the EU otherwise. Any alternative is unaffordable in the context of Treasury thinking: and The Treasury Rules: OK?

Thursday, 20 July 2017

BBC Salaries and the 'Paradox of Value'

The media - not least, the BBC itself - has had a field-day taking apart the data that the BBC has been required to publish on the salaries paid to people who appear on television; if they are paid more than the prime minister. These are only partial data, because [as has been pointed out in all the reports that I have seen] those presenters who sell their services through production companies are not paid salaries as such, so do not appear in the list. Those like Graham Norton, who are part salaried and part freelance only display the salary portion of their earnings: for this, and myriad other reasons, the data are of no effective use. But that has not presented any obstacle to the pontificators who have taken politically correct positions and argued that it is 'scandalous' that men are paid more than women, and that no person from an ethnic minority is among the highest-paid.

It would be possible for the BBC to award salaries [and refuse to employ non-salaried presenters] according to a popularity poll conducted by the Guardian, which was recently shown to the overwhelmingly the Corporation's favoured 'newspaper'; but it is most unlikely that the vast mass of the population would agree with that ranking. I am constantly astonished at the vulgarity of much of the output on all channels that appears to be highly popular.

Adam Smith, the founding father of the Econocracy, wrote about a so-called 'paradox of value'. Items that are absolute necessity for the continued survival of human beings, like bread and cheese, are cheap, while essentially 'useless' objects like gem diamonds are massively expensive. Human society is paradoxical: what people are prepared to strive and compete to get seems quite irrational to other people. Once a man or a woman has enough food to eat, a place to shelter and clothing that seems to them adequate, the preferences that they display thereafter if they are able to widen the pattern of their consumption seem utterly silly to other people. There are no natural laws to direct people's choices. Various religious guidance is offered; but more often than not that steers wealth towards the religion and those who lead it, and offers no valid guidance to individuals on how to manage their own disbursement of their incomes.

The medical professions have become vocal in expressing their view as to what consumption and behaviour is healthy and what is not, and sometimes there is sufficient evidence to convince people that the advice is basically sound. Politicians are presented with speeches to read out, in attempts to steer public behaviour in directions that are seen as affordable and socially desirable; but everyone views such utterances with cynicism.

Ultimately there is no valid system for valuation of anything or anybody's action. Some things, like poisons and poisoners, can generally be condemned; but they are at the extremes of consumer behaviour and they are threatening to the majority of consumers: so collective action against them is self-defence by the majority. There will never be a definition of 'value': so there is no 'true' way of differentiating Graham Norton from Fiona Bruce. They and their agents are left to haggle; and that is the only way it can be.

Wednesday, 19 July 2017

The Tragic Triumph of the Econocracy

'The Bank', with a capital letter, means the Central Bank in any country or community: in our case, the Bank of England; and 'the banks', as a collective, means all the other firms and partnerships that the Bank recognises as legitimate banks and thus it is authorised to give them instructions and to trade with them. Specifically, it will sell them bonds and other debt certificates [from a list of approved categories] and lend them money at a publicly announced rate of interest called 'base rate'. A large proportion of the Econocracy [the prevailing rat-pack of professors of Economics] argue that if the management of the banks by the Bank is perfectly calibrated the economy can operate perfectly. If the money-managing institutions work perfectly, the whole economy can achieve 'equilibrium': a state where all the resources available to the human race are allocated to their optimum uses.

This is a model of perfection. The realities of human existence make it a total nonsense: but the Econocracy currently has control of the channels of advice to governments, and most of the economic commentators in the media, in banks and investing institutions are required to parrot the prevailing orthodoxy: though there have always been some brave spirits who have the wit and the integrity to deny the validity of the whole structure.

So-called Monetarism, a package of ideas formulated by Econocrats in terms that could be explained to politicians and to students, was introduced in the USA in the later nineteen sixties, when the flaws in the attempt at practical neo-Keynesianism had generated a disastrous wage-price spiral as trade unions demanded pay increases to match price increases [as reported on official indexes of 'inflation']. In the early nineteen seventies the major oil-exporting countries tripled the royalties that they charged for access to their oil and natural gas; and this sent up the prices of all goods and services because of the universal impact of the costs of fuel for vehicles to deliver goods and people to where they were wanted, and the price of fuel for the provision of energy to heat homes and schools and to power factories. Additionally, petroleum was a vital ingredient in many plastics and polymers. So all prices were rising, hence wage demands took on a new stridency: and governments tried to stop the 'spiral' going out of control.

The Monetarists argued that if real control was given to the Bank and the government backed up the Bank in issuing stringent instructions to banks as to when and on when terms they could lend money to whom, that would strangle the spiral of rising wages and prices. Employers would not be able to borrow from their banks on affordable terms: so instead of borrowing to pay workers inflated wages, they would have to tell them "take what is on offer, or we'll have to close down and sack you all". Similarly, consumers would be told that they could only stay in the homes on which they were servicing mortgages provided they paid penal interest rates which went as high as 15%: which left them with little to spend on other things. So if they kept the house and the car, paying high mortgage interest and high interest on their car loans and the loans against which they had bought their fridges and TV sets, they had to reduce consumption of everything else.

The Thatcher government adopted their own version of this policy straight after their election in 1979, and by 1992 they were well on the way to implementing it. Economic growth slowed dramatically; and wage growth slowed even more. Then the government itself stopped creating money with which to maintain activity in the coal mines and the shipyards. They compensated for the loss of income that they suffered as the real economy declined from the tax revenue that they received on North Sea oil and by the sale of the privatised industries. They cut back heavily on government spending on defence and in support of industries that had previously been considered essential for national survival: steel, shipbuilding, aerospace and coal. The economy was dramatically changed, as the 'real' material productive sectors were decimated and the financial services - notably 'investment banking' - began to predominate: and that sector of the economy was supposedly susceptible to refined control by the Bank.

Thus, by 2005 the 'real' - the material - economy on which human animals depend for their continued existence and comfort was utterly denigrated and largely despoiled; and the finance sector was put in a position to undermine the entire economy through its greedy overindulgence in speculative deals that the Bank did not even understand. This is the achievement of the Econocracy. The real incomes [money wages adjusted so that their current purchasing-power can be computed] of the mass of the British population have been static for a decade. Over those years, 2007-2017, plenty of jobs have been created; almost all of them in activities that do not result in any substantive increment to the real economy. There has been a spectacular degree of material stagnation which, set alongside the government's obsession with 'austerity' [in which they have been mentored by the same Econocrats] leaves almost everyone with an awareness that the economy is not "working for me". That is because the economy is being driven in obedience to an abstract model. The fundamental reality, that the economy should be the mechanism that serves material, living, aspirational individuals, has no place in contemporary Economics. That is why Economics must be brought down from its high place in academic temples, and opened up for radical restructuring.

Tuesday, 18 July 2017

Brexit: Hard, Soft or Stupid?

Yesterday, David Davis began his 'negotiation' with the agents of the EU Commission about the terms on which Britain will carry through its invocation of the relevant provisions of the Lisbon Treaty, for the cessation of Britain's membership. It was emphasised on all the visual media, that the EU side of the table had extensive piles of briefing material while the British had none.

The British people has no idea whatsoever their government is seeking in this vital negotiation. All inquiries are referred to Mrs May's 'Lancaster House Speech'; which is uninformative and no longer relevant. It is uninformative because it has no specifics; it is irrelevant because since she made that speech she has tried, and disastrously failed, to establish a strong political base in the Commons for herself. On becoming the prime minister, she made the spectacularly stupid remark: "Brexit means Brexit". Brexit means nothing: it was dreamed up as a code-word for the process that no-one understood - how to interpret and implement the intentions of the narrow majority in the 2016 Referendum - and it copied the term Grexit which had been coined in the previous year to cover a potential Greek withdrawal from the Eurozone.

I voted for leaving the EU as part of the mass protest against the political class - even more the continental version than the British - and, more specifically, against the idiotic scare stories that were being promoted by George Osborne and David Cameron. I expected the remainers to win, but I hoped that their majority would be so small that it would serve as a warning to the class [right across the Union] that they were pushing the mass of the people too hard in a direction of austerity and integration that the people deeply resented.

It was obvious that the political class would still be in power on the day after the referendum; and my hope was that they would be sufficiently chastened for their europhilism to be modified. Instead, the class leadership crumpled. Cameron ran away early on the morning the result was announced; and in quick time a mild remainer, Mrs May, became a prime minister who was totally unprepared to address the situation. Inevitably, she rid her government of Osborne; then, at her own discretion she appointed three 'Brexiteers' to lead the negotiations and thus to shape the path that that the UK should take in implementation of the referendum vote. Boris Johnson has developed his role as an insubstantial buffoon and a pretty ineffectual Foreign Secretary. The important role of planning the way through 'Brexit' [whatever that might mean] was divided between Davis as lead negotiator with the EU and Fox as the man who would - apparently - make trade deals with the rest of the world that would substitute worldwide markets for what Britain might loose in a Europe that was closed against British goods and services. So far as one can tell, these are two dafter buffoons than Boris, who have been given licenses separately and in their own ways to ruin the country.

It is essential that Britain remains within the European Economic Area: news items every day show that supply chains from toffee factories to radiotherapy suites depend unconditionally upon that precondition; and the UK must be prepared to pay whatever has to be paid, immediately and for the indefinite future, to get out of the EU political institutions [Commission and Parliament, in particular] and to remain within the economic union. There must be a massive national uprising if and when it becomes clear that the 'hard Brexiteers' are trying to produce any other result. As I pointed out a few days ago, India, China and USA - in particular - are notorious for overriding trade agreements whenever point protectionism is needed to protect one of their industries or service activities. It is the height of folly for any responsible adult to pretend that a series of one-to-one trade agreements - even if they could be effected - would be validated by events.

Allegedly, some members of the Cabinet, unable to halt the buffoons, are arguing for a long adjustment period, during which more rational thinking should be allowed some space. Against such 'slow Brexiteers' there are those who argue that the national referendum result was binding, that it must be implemented in the most ruinous way, and that it must be done quickly to give effect to the 'will of the people'; who will be free to repent of their votes at leisure. Mrs May has no authority to adjudicate on this contest.

Mercifully, Corbyn has shown himself to be completely out of his depth on the matter: otherwise, the Labour opposition could be extremely difficult at this time. The Labour party will not provide the focus for the national revolt: so we all may have to fall back on Vince Cable to be the nation's lightening conductor. Let us hope that, if it comes to that, he has the necessary stamina. At least, he got his doctorate in Economics before the Econocracy had gained their mastery of the field.

Monday, 17 July 2017

High-Speed Idiocy: and Some Sense

Today will see another series of announcements on the scheme to build a completely new high-speed railway between London and Birmingham, with branches to Manchester and Leeds.

I am one of the many who deplores the London to Birmingham venture. The existing line from Euston takes only 70 minutes, non-stop. The need on that route is for more capacity to take stopping trains that can bring commuters more effectively into London from towns and cities on the route, and on feeder routes to that line. The environmental damage that it will inflict is immense, and the cost will be added to the effective national debt [from Britain to aliens, largely Chinese state-owned enterprises] even though it is to be wrapped up as corporate lending. That borrowing will have to be paid for: so if British people decide they cannot afford the prices that will be slapped onto tickets to travel on HS2, the cost of the daft first-stage enterprise will either be offloaded onto the prices of rail tickets nationwide, or onto taxes.

The so-say second stage: or, at least, investment in the improvement of main rail routes for travel across the north midlands and the south of northern England, is absolutely essential. Direct trains from Sheffield to London have been improved, and thus times on the route via Chesterfield, Derby and Leicester, with a sideline to Nottingham, are acceptable. The fast trains on the west-coast mainline that bypass Birmingham on the way to Edinburgh and Glasgow do not serve any major city in northern England: and they are slowed down by stopping at some selection from the list of Crewe, Warrington, Wigan, Preston, Lancaster and Carlisle. The history of railway company formation, and the consequential construction of lines, means that there are various cities and towns to be served in Yorkshire, causing there to be barely-adequate services to York, Leeds, Bradford, Wakefield, Halifax, Huddersfield and Hull from the metropolis: only after Northallerton is there a clear principal route via Darlington, Durham, Newcastle and the north: and this all leaves Sunderland and Middlesborough at the edges of the map. Huge expenditure is needed on that infrastructure to bring it up to the level that is common on the European continent. Half a century has been spent closing railways and parts of routes and despoiling the railways of the land that could have been sold to provide the cash to fund updating of the system. While the Osbornian HS2N plan may not be feasible, the investment is necessary: and it should come from a state-led infrastructure pool to which crowd-funding from the British people should be added. It is not necessary to add to the public external debt of the nation to improve this infrastructure: the state should lead, the people can follow, and the spending that will be generated by the construction work and then the operation of the lines will help to revive the economy. It is necessary to build not just 'strategic' main lines, but the ensure that all the 'bypassed' towns - even Darwen and Accrington - are effectively linked in to the new system.

Before one gets too depressed at the present state of the British railways, one should look at the home of capitalism, the United States of America: and at its financial capital, New York. There the railways are in a state of extreme dereliction: with collapsing bridges, five-mile-an-hour speed limits, frequent derailments at the major stations and [literally] century-old wiring providing power to some routes. President Trump trumpeted his intention to change all this, with massive investment in infrastructure, including in his home city: but so far he has cut down on the Obama-era commitment of federal investment.

Thought must be given to the effects of economic thinking, both in the neo-Keynesian era and in the more recent period when 'rational markets' theory has predominated, on the real structure and infrastructure of human life in the urban environment. It is Economics that got us down into this mess: economic dogma will not help us out of it.

 

Sunday, 16 July 2017

Economics - Again

A few days ago, I had a brief discussion with a student of History about my views on Economics and the Econocracy, referring him to the website of the Post Crash Economics Society where I first saw the very apposite term, Econocracy. On our next encounter [in the pub where he earns a crust as a part-time barman] he told me that he had mentioned my stance to a friend who is studying Economics; and the friend had vehemently disagreed with me. Perhaps we will be able to have a face-to-face discussion some time. In the mean time, I will post here today the briefest summary of my views.

I had the great good luck to go up to university when classes were small - my year in Politics and Economics comprised just 12 students - but teachers were good and libraries well resourced. The era of electronic access to data had not yet arisen, so we had to read: and we read voraciously.

At that time what we now call neo-Keyesianism was in the ascendancy, and models of the entire economy had been constructed in the National Institute for Economic and Social Research [NIESR], in the Treasury and in various universities. Given the state of development of computers at that time the models were crude and simplistic, and they could only be manipulated laboriously. Nevertheless, estimates could be made of the impact on the modeled economy of the policy options that were available to governments. These options came in two categories, monetary policy and fiscal policy. Monetary policy involved the creation of money; implicitly by the Bank of England on behalf of and with the authority of the government that owned the Bank. Banning the creation of money was a means of limiting the rate of growth of the economy; and encouraging the Bank to create money to lend to the trading institutions in the economy was a way of stimulating the growth of the money supply more generally. It was taken as a sign to the commercial banks that they could risk making more loans of their own money [deposited by their customers] whenever the Bank of England was stimulating the money supply; thus the amount by which spending could increase was very much greater than the amount by which the Bank increased the supply. Any commercial bank could borrow money from the Bank of England at a 'bank rate' [later called the 'base rate'] which was publicly announced; and lending by commercial banks was made at rates higher than the bank rate. The banks charged their customers rates of interest that varied according to the perceived riskiness of the loan. When the Bank of England had the nod from the government, it lowered bank rate; which was a clear indication to all the banks that they could drop the rates they charged to their customers, and perhaps risk extending the range. Thus a drop in bank rate, accompanied by an increase in the Bank of England's willingness to lend, signaled that banks and their customers should invest to expand the economy; thus expanding trade generally and stimulating economic growth and job opportunities in many sectors of the system could be increased.

However, at that time there were major constraints on the expansion of credit extended by banks. Their customers were required to pay cash deposits on durable consumer goods, and were only allowed to borrow a set percentage of the purchase price. Thus the spread of TV sets, washing machines and other desirable consumer goods was slowed down by the legal requirement for would-be buyers to save up for the deposit before they could enter into a hire-purchase agreement under which [having paid the deposit] they could pay off their borrowing while they had the use of the device. The firms that made the television sets were protected from foreign competition by import tariffs and controls on the amount of foreign currency that businesses could buy: so the system of monetary policy operated within a physically controlled system of protection. The present situation, where consumers can borrow huge amounts of credit and thus create the 'consumer demand' that 'drives' the economy was unthinkable. The world in which neo-Keynesiansim appeared to thrive was utterly different from the world in which we live now; and over the next few days I will outline how that change happened.

I try to keep my blogs at a modest length, and hope that anyone who becomes interested in my ideas will word-search through the archive.

Saturday, 15 July 2017

Water off the Donald's Back

The pictures of yesterday's ceremonies in Paris feature two utterly bizarre couples. Wearing an almost-pristine Dior A-line dress of 1953, Melania Trump looked about the right age [but, certainly, not the right temperament] to be Mme Macron. Dressed for today, the real Mme Macron obviously made no positive impression on her near-contemporary, Donald Trump.

President Trump lapped up the limelight - it helped to correct the hassle he has been having at home - but it will be hard to find any evidence in the coming months that he actually feels any strong fellowship with a younger man who is trying to be monarchical while scrambling to assemble a sustainable government. Macron went home feeling that the day had been a success for French diplomacy: by the time Trump was in Air Force One the flattery had gone where the water goes off a duck's back. The net impact of the event was nil: except to reinforce the reflection in British minds that the French will never forgive the UK for saving them twice in the twentieth century. The French were thanking the US for entering the First World War in 1917, by which time hundreds of thousands of young Brits had been killed and wounded at the battle front in France.

Donald Trump is so used to apparent adulation from his TV audience, his minions in his patchily successful businesses, and the recent audiences at his campaigning rallies that he takes all such responses in the same way. He welcomes them, as reptiles welcome the warmth of the sun, because he needs them: but the impact of each day's intake is trivial in context of of the extent his previous experience. It has become apparent that he bridles - and twitters - at any critical comment that gets onto his radar; and this trait, too, seems now to have become ineradicable.

The progenitor of modern political campaigning in the United Kingdom, Benjamin Disraeli, was a magnet for criticism, much of it vitriolic. Some was easily turned aside as ignorantly antisemitic. For the more substantial venom of his many enemies [including much from his own party as he rose through the ranks] he had a well-studied display of contempt. He knew that success came to an outsider like himself by using his verbal facility and quick wit to pour flattery on those who could be useful to him. Once, when he was commended on this attribute, he responded on the lines of: "Everyone likes flattery; and with royalty I lay it on with a trowel". He showed the virtues of resilience and intelligence that have yet to be displayed by Macron, and which are apparently completely alien to Trump.

Another politician who combines indefeasible egocentricity with insensitivity to other people's opinions of him is Tony Blair. He has now imagined what shall happen to keep Britain in a 'reformed European Union'; or, perhaps, just within a European Economic Area where the continentals will surrender their 'red line' insistence on the free movement of peoples. It is sad that any newspaper would pay him for such tosh.

Politicians do almost nothing to deny to their fellow citizens the right to despise them.