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Wednesday, 21 November 2012

Another Ordinary Life

Today I will spend in my native Lancashire, attending the funeral [and the associated socialisation] for my Aunt Ada, who has died aged 102. Such an event causes reflection; both on the person and on her times. She grew up on the rural fringe of Preston, where my grandfather was a guard on the Lancashire and Yorkshire Railway, based at Lostock Hall Station which is only 200 yards from the church where the funeral will take place.

She married a farmer in the 'thirties, when almost all the motive power on the farm was derived from horses. Despite being a large-framed, fit young man he died of TB; leaving my aunt widowed, with a baby son, shortly before the second world war began. In the middle of the war she married a friend of my father - Ronnie Ashworth - who was serving in the navy. He never returned from his next voyage, leaving her pregnant with a daughter who was born four months later.

She moved into my grandmother's house where she brought up her children and took the lion's share of care for my grandmother who died at a great age. She remained in that house, and died there last week: thus her occupancy lasted for over sixty years. She got a job that she greatly enjoyed, as PA to the general manager of the Preston Co-op, which was then a major institution in the town. Throughout her long retirement she was active, with beautiful writing. She remained a churchgoer. On her hundredth birthday she was in excellent form; surrounded by the extended family. One of my cousins commented that this was the first time we had all been together in that room since our grandmother's seventy-fifth birthday. My cousin, Ada's son, quietly told me that afternoon that he had been diagnosed with melanoma: he was scared; and he was dead in six months. Thus my aunt's decline over the past two years is easily explicable; and it is fair to say that her death was a release, especially for her daughter Eileen and her close family.

Superficially, Ada Ashworth had a very ordinary, routine life: but that is untrue. She was a person of great resilience, deep understanding and the highest principles. She lived through hugely changing times, from infancy in the reign of Edward VII for more than a decade into this century. Long may she be remembered!

Monday, 19 November 2012

Ash to Ashes

The British are the most recent European nations to be made aware of an impending change in the landscape. Millions of Ash trees are fated to die, as a disease that has already decimated Scandinavian woodlands creeps over the United Kingdom. Eventually the dead trees, and the associated litter, will be burned; but the spores will remain in the soil and will fly on the wind. A tiny minority - perhaps 5% - of the trees have been found to be resistant, and a new strain of Ash may be identified; but it will never be possible to replicate the historic landscape.

Ash, like Oak, has had magical and mystical attributes attached to its by various cults, apparently throughout the history of humans in Europe. Richard Wagner captured this in the epic librettos for his operas, where the Ash has a specific role. Inevitably, today's doom-sayers have found scraps of Druidic and Nordic myth which associate the death of the Ash with the end of the world. Set alongside the heavily propagated fact that a Mayan carved calendar comes to an end on Friday December 21, 2012, the doomsters have a good field on which to express the view that our current economic and political problems are immaterial: merely minor signs of a complete catastrophe.

Next January we will have to face the economic and political dilemmas of a new year, accommodating in our thinking the added costs of addressing the Ash die-back disease. The soothsayers will quickly find another transcendent myth which will excuse them from taking any responsibility to address the urgent problems of the real world. The extent to which such myths gain attention from the public is a measure of the extent to which they despair of their own competence and of the politicians and bureaucrats in whom they have scant confidence. The time-scale for the Ash die-back disease to wreak destruction is indefinite: the Mayan myth is fixed on a single date. From December 22, the Ash myth will grow in popularity.

Tuesday, 13 November 2012

Striking Europe

Today will demonstrate how many people who still have jobs will join millions who do not have jobs, in the first almost-EU-wide strikes and demonstrations against the policy to protect the euro [and with it the objective of a bureaucratic European Union, freed from democracy] at the expense of people's living standards.

Divided Germany and the then-communist EU states fostered no delusion about political and economic reality in the 'sixties,'seventies and 'eighties of the last century: hence their economic policy subsequent to the credit crunch has been - and still is - dramatically different from the countries in western and southern Europe where the real economy in the 'sixties, 'seventies, 'eighties, 'nineties and 'noughties' was starved of investment [to different degrees in different countries] in order to create the fantasy-world of welfare freed from the individual personal obligation to work.

The present austerity, which is the more intense from one country to another according to the extent in which the welfare delusion previously prevailed there, is doing absolutely nothing to restore investment in actual output; the squeeze is barely sufficient to reduce the rate at which national indebtedness is being increased to pay for imports of manufactured goods from emergent countries and Japan and South Korea and the North America.

Today's mass demonstration of discontent at present policy will merely be a harbinger of what is to come; unless a wholly new and convincing pattern of policy is offered to the people by credible leaders. At present the leaders have not emerged: and no experienced individual has a scrap of expectation that the 'economics profession' or half-baked think-tanks will produce an intellectual basis for new policy. Still the right questions are not even being discerned by those who claim to have a popular mandate. The scene is bleak indeed!

Friday, 2 November 2012

Simple Truth

The debate on the EU Budget, and more specifically about how much the UK should properly pay into it over each of the next seven years, is becoming heated. Since a majority of the 27 member states are net recipients of funds from the EU it is to be expected that a simple majority will be in favour of the biggest possible increase in the budget. The relatively few states that are major contributors to the budget will claim added weight to their arguments: but in the final decision each country has one vote and can exercise only one veto. The exercise of the veto by any country does not cancel the budget, but  holds it at the previous year's level until the next annual debate. Whatever the outcome of the forthcoming meeting may be, it will have only a small impact on the formation of individual member governments' views in preparation for the next round of discussions about the future of the Union in the Council of Ministers.

One forthcoming issue that is being heavily signalled in London as a crunch point is the deliberation on proposals that the EU Parliament has already approved for the tightening of regulation, and the unification of regulation, over the 'financial services' sector of the economy. There is a huge amount of debate about the definition of the sector. The crisis of 2007 is generally ascribed to misconduct by 'the banks': but in fact a great deal of the reckless financing was done by firms that were not registered or regulated as banks. The main continental European businesses that wandered into the risky business, which was centred on London and New York, were registered and regulated in their home territory as banks. So it seems obvious to Europeans that the new regulatory regime must focus on preventing the things the continental banks got wrong when they ventured into anglophone markets in the noughties. During 2008-9 Britain and the US responded to the crisis by making the enfeebled non-bank institutions that survived [after Bear Stearns and Lehmans had gone under] merge into banks and thereby get a measure of protection from the banks' balance sheets; which could then be supported by cash injections from government and central banks. This created an unprecedented situation where it was not technically wrong to refer to the casino segments of the markets as segments of 'banking' or of 'the banks'.

Only one company that was known as an insurer - AIG - was ruined in the crisis: and that only because a tiny London-based offshoot was so utterly idiotic as to 'insure' the financial institutions through so-called credit default swaps. The rest of the massive insurance world was completely resilient to the crisis. Yet insurance is being subjected to heavy-handed retrospective requirements that will massively disadvantage the industry. In this the EU is behaving as stupidly as did the mavericks in AIG. There has been a little give by the purblind politicos, but the international leadership of the London Insurance Market - which has been unchallenged since 1700 and remains just as robust today - remains at threat. Thus dis-aggregation of insurance from the present EU regulatory proposals is essential.

Even more important - and further from the comprehension of the eurorats as they luxuriate tax-free in their favoured Brussels restaurants - is the necessary differentiation of the functions of the casino from any sort of banking. Proposals for a 'Financial Transactions Tax', whether it is to be a fraction of one per cent or several percentage points, presumes a commonality between 'real' banking, casino 'banking', insurance, and other 'financial services' such as shipbroking and arbitration. Derivatives, swaps, spread bets and most futures are simply gambling slips: they have some legitimate uses in offsetting perceived business and social risks for real world trade and industry; but they are based on the purchase of a ticket which is priced according to an assessment of future probabilities and such calculations are therefore wholly speculative - as all bets are. Such contracts should not be counted or taxed as a sub-category of banking transactions.

A price is paid by the entity that considers that it is mitigating perceived risk through a gambling contract, and there might in the future be a payment to the gambler if the predicted eventuality occurs; but no twist of the imagination could set the contract in accord with payments under normal regulated banking contracts. The subject matter of the contract is a bet: so its legal status should be defined in accord with betting laws, the conduct of market participants should be regulated by a gambling commission, and the transactions should all be subject to gambling tax.

 Three distinct regulatory regimes are needed: for insurance, for gambling and for banking. No elaborate differentiation between 'retail' banking and [non-casino] 'investment' banking, as perceived by the British Vickers Commission, is necessary. The EU proposals for financial services as a whole, as they stand, are likely to be significantly more detrimental to business growth over all sectors of the economy, seen from this perspective, than they are recognised to be by those who think that they are defending the London Market. The learning curve that London's defenders must climb should be even steeper than that they realise if they are to present the real issue to the European authorities; and one doubts that they will have the capability even to recognise the point that is made above.


Thursday, 1 November 2012

Leaving Politicians To It

A Greek journalist faces arrest and imprisonment for publicising a list of reputed avoiders of foreign-exchange regulations, with the imputation that many of these people were corrupt and/or tax evaders. Successive Greek governments have held, and apparently ignored, the list. A new super-tough budget has been laid before the parliament which will further impoverish the residue of the middle-income groups and increase unemployment throughout the age spectrum. Yet the challenges to the government come as ritualistic strikes and occasional riots, rather than as any movement with the potential to bring down the government. The so-called 'technocrats' [some of whom are classic eurorats] will continue to perform the charade of compliance with German demands for austerity that does not affect their own caste.

The British parliament last evening voted to demand that the Prime Minister should use his entire power and influence to bring about a real-term reduction in the European Union budget. A significant minority of the Conservative Members of Parliament voted for the motion; which nobody expects will have any effect other than to deepen ancient fissures within the tory party. Earlier in the day the government had orally accepted and institutionally shelved a Report by Lord Heseltine that proposed a reversal of forty [or more] years of centralising bureaucracy which was dedicated to the systematic destruction of industry around the country. Some parts of the former deputy prime minister's Report will receive some lip service: the Prime Minister may attend one or two meetings of a National Growth Council before it is handed down to Clegg and allowed to run into the sand; and there may be announcements - vitiated in the event - about the manner in which flows of funds already announced to support 'investment' will be publicised so that they can appear to be responding to the Heseltine proposals. As usual, the politicians will ignore the best advice and steer a course that avoids obvious day-by-day responsibility for company failures and the increasing dependency of the economy on imported manufactures. The process that Harold Macmillan condemned as "selling the family silver" back in the nineteen eighties continues, as beloved brands [most recently Branston Pickle] follow the utilities into alien ownership so that an outflow of revenue to brand-owners augments the flood of payments for imports.

Britain desperately needs a growth policy: but even more it needs a capitalist policy. The term capitalist is massively misunderstood. One of the most capitalist regimes in world history was that run by Stalin; in that no regime has comparably sacrificed human living standards, human rights and human lives in the interests of investing in the growth of industrial production. Since the invention of Economics, with its atomistic obsession with transactions and its determination to submit transactions to 'free market' conditions, 'capitalism' has been retained only as a term of political abuse. One needs to go back to the Political Economy that pre-dated Economics, as exemplified in the school textbook by Millicent Fawcett that featured in my last blog, to get an  understanding of why the concept of capitalism is a good and necessary central feature of economic thinking.

Heseltine's plan, even if it were to be adopted, would be useless without a monitoring organisation to ensure that all the investments that it supports are capitalistic. Heseltine comes close to recognising that it is essential to rebuild and consolidate the nation's capital; its capacity-to-produce material things. To do that the system needs to deliver the services [appropriate education, excellent workplace training, access to applicable research, real-world banking, positive and powerful trade unions, supportive planning rules and flexible trade regulations] that conduce to making things. In one of the last textbooks of sensible political economy Mrs Fawcett emphasised that a country will fail unless its economy maintains and develops - continually - enough capital to provide all that people demand [and can pay for]: either by producing the required commodities and services within the country or by selling exports that directly pay for the things and services that are imported. It will be a hugely difficult and prolonged task, to compensate for half a century of borrowing [both within the economy and from foreigners] and asset sales to pay for imports. It has seemed comfortable to generations of politicians to observe reports of a growth of transactions - which have increasingly represented statistics of material imports and of contracts that simply churned debts - and accept a delusion that the economy was growing. In a world where 'capitalism' and 'capitalist' have been terms of abuse, a concern with material reality became an irrelevance.

 In future bank lending, government investment, and investment by the few valid pension funds that survive, and all other flows of investment should be steered towards investments that really do strengthen the nation's capital. That requires not merely a radical shift of policy but also an intellectual revolution. The renewal of the economy cannot be entrusted to machine politicians. British politics will go the way of Greek, unless the inexorable decline into poverty is halted. Capitalism is the only way out of the crisis.