Search This Blog

Friday, 31 March 2017

Day One and Brexit has Gone Crazy

President Tusk of the European Council has given a first response to the letter from the British Prime Minister notifying him that the UK is to withdraw from the Union.

The circumstances in which this response was issued are exceptional: the remaining 27 EU member countries are under huge pressure [from the eurorats in Brussels and in their own establishments] to assert that they are more united than ever before, and more firmly set on the crazy concept of 'ever-closer union'. This cannot last long. The divisions between countries on the redistribution of the wealth of the continent from the north to the south will become more absurd and intractable. Those countries which held out against 'Merkel's madness' over sharp-elbowed thugs from central Asia being admitted as 'refugees' are not going to be bullied into changing their decisions. The next release of mass migrants from Turkey into Greece will be followed by bitter conflict between the declining number of states that are willing to take any refugees and the majority of countries that will refuse to take on unsustainable burdens and significant risks. So any assumption that the Union will remain a sold bloc of the 27 remaining member-states will be proven fatuous while the two years allowed for the Brexit process inexorably tick by.

It would be insane of British ministers [or interest groups] to try to pursue a 'divide and rule' policy towards any of the 27 remaining member-states while the inevitable fissures between them widen spontaneously. The UK must seriously maintain its existing policy of dealing with the Union, as such.

Meanwhile, President Tusk has shown his utter naivete in including a resolution of the Irish border [between the Irish Republic and Northern Ireland] as one of four issues to be solved before any future-oriented talks can begin. In one of the most perceptive books on British [and Irish] history that has been written, the authors [Sellers and Yeatman] point out that for 800 years the British have never been able to solve the 'Irish Question' - though many times they have genuinely tried to do so - because 'the Irish always change the question'. The present benighted condition of Northern Ireland surely precludes any sensible outcome being achieved. There is no sign that a power-sharing executive can be re-established in Belfast. There are very clear signs that the Irish Republic has no wish to absorb Norther Ireland while it is so riven [even though the north voted narrowly to remain in the EU]. The idea that any sort of patched-up agreement on the Border could be achieved in a few months shows a profundity of ignorance in the Brussels hierarchy that will bedevil the whole two year process. If the effective determination of the future of the Irish Border remains a precondition, the talks cannot succeed.

The other three preconditions are, in effect trivial. Two of them are insulting to Britain: resting on the assumption that the UK might act like some of the other EU member states, which lied about their economic health in order to be admitted to the eurozone and evaded payments that were due under various obligations. On the issue of paying what is due, the UK has always paid what it has owed: so the computation of what Britain owes to the EU, net of what is due to come back to Britain from the EU, is a simple matter of accountancy.  Then HM Government can be trusted to pay up, according to the agreed schedule. Honest accounting and auditing are not features of the usual repertoire of the European Union, but they can be achieved in a matter of months.

Similarly, in respect of the next condition, the UK is the country where modern contractual law and arbitration were developed, and the maintenance and strengthening of financial contracts between institutions and individual states is in the business DNA of the British. The satisfaction of that precondition for negotiation should be easy.

Again, millions of people, who have tens of millions of supportive friends and relations, are spread across the EU in countries other than those to which they are 'patrial' [i.e. attached by birth]. There is a massive consensual wish to regularise existing expatriates' status and to take a sensible view of the movement of people into and out of a post-Brexit Britain. I have mentioned a couple of times already that Mrs May has a hang-up about her personal 'failure' to reduce immigration when she was Home Secretary: she should take note that the economy and society would have been weaker than they are now if those immigrants who have contributed had never been here. If the Irish issue allows the negotiation of preconditions to get to the point about 'freedom of movement' of people; a sensible compromise can be reached, probably resting on the free movement of patrial Europeans who have jobs to come to or sufficient means to live in the UK without burdening the state.

EU officials have stressed that the Brexit process will be 'difficult' and have foreshadowed serious disputation. This is big talk from small people, who are enjoying the feeling of power that comes from speaking on behalf of many millions of people who have no say in [or understanding of] the coming negotiation.

The latest British news

It is just seven-thirty [am] and the bad news has piled up.

The British military is warning that inadequate provision means that the already depleted-armed forces are to be further hollowed-out: including a major reduction of the number and effectiveness of the Royal Marines.

Care homes are increasing the 'tax' they impose on patients who have sufficient income to pay high fees, so that they can subsidise the larger number of people paid-for by local authorities. So those who have been provident [and, perhaps, lucky] pay through the nose for identical services to people funded by the state.

The NHS is going to make up a small proportion of the shortfall in Accident and Emergency departments and in the diagnosis and treatment of cancer by cutting funding [= lengthening waiting lists] for 'non-urgent' treatments, including joint replacements which relieve people from years of agony. A couple of days ago the NHS announced cuts in what the sick can get on free prescription; and calls are getting louder for extra taxes to fund the Health Service: regardless of the fact that National Insurance has been levied for that purpose [but appropriated elsewhere] since 1947.

And the National Living Wage is being increased. This means that employers must pay more per hour for labour on the statutory minimum pay; and it is expected that many firms will reduce the number of hours for which they employ people so that the total wages bill stays the same [or may even be reduced]; with extra burdens falling on the remaining workforce. It is noted that this increase in wage costs, combined with announced increases in business rates, will drive a significant number of businesses into bankruptcy.

Ministers are insisting that state funding of many activities is being increased: they know the increases are insignificant. They won't have the stamina to do this indefinitely; especially as the nation becomes bored and irritated in equal measure as the Brexit negotiations drag on towards unsatisfactory conclusions. At least, they chose to stand for parliament and accepted the Prime Minister's job offer: they deserve all that they will get!

Thursday, 30 March 2017

An Economy that Works for the Econocracy

In my obligatory reference to the Brexit movement yesterday, I reported how Mrs May stressed the need - as she sees it - to build an economic and social system for 'everybody': in this generation and the next. No democratic leader has deliberately offered economically and socially divisive programmes in the past half-century; though the consequences of many well-meaning notions have been economically disastrous and socially sub-optimal: so she is saying nothing new, though she seems to think that she is saying it in a new way.

I went on yesterday to express the view that the Brexit negotiations are from now on - at best - the second-most important issue facing the British government. The most important issue is the dire state of the economy, which gets more precarious by the day. The economy does not 'work for everybody'. The general standard of living, taken across the whole population, is still lower than it was in 2006: Britain and Greece are the only EU states of which that depressing fact is the case. The only people who benefit from the prevailing economic policy are the Economists who get a living from providing the dogmatics, the policy details and the superficial 'explanations' whenever targets are not met or policies fail.

As frequently has been mention in these pages, the government's one great claim to economic 'success' is that 'economic growth' is higher than in most other formerly-industrial countries. This is impure fantasy. The 'growth' of the British economy is calamitous, because it reports the quintessential fact that consumers - ordinary people, who have squeezed real incomes - collectively borrow more money to maintain their spending power week by week. More and more of the borrowed money each month is spent on imported goods, so it does nothing to raise industrial employment in the UK; while it increases the balance of payments deficit. To cover the deficit, Britain as a whole has to borrow from the rest of the world, and individuals and companies have to sell their assets in the UK to foreigners. The result is that foreigners own more material and financial assets in the UK than they did before.

Economists and journalists blithely write about consumer spending as the 'engine' that drives economic growth [most of the time, carefully ignoring any reference to what actually is growing]. The latest figures issued by the Bank of England showed that total borrowing by British consumers in February 2017 was 9.3% higher than the total in  February 2016. This was after a more modest increase in debt between January 2016 and January 2017, at 8.6%. The February, 1917, figure showed the highest increase in 11 years - the period since the height of the financial bubble that ended in the crash of 2007-8. Households put £600 million more on their credit-card debt in February, so that at the end of the month the total that they owed was £10 billion more than it had been in August 2014. The credit-card debt total had risen to £63.7 billion by 1 March 2017. The Bank of England's Financial Policy Committee is becoming scared by these figures, and the Bank's Prudential Regulation Authority is being set the task of checking that the banks are being rigorous in applying their own rules to avoid customers over-extending their borrowing; relative to their ability to service their debts.

Meanwhile the banks and other credit-card providers seem to be confident that they can continue the current rate of credit expansion, and are competing with each other to attract customers by offering them several months of interest-free credit if they will transfer their 'balances' to new providers; which encourages them to borrow more during the interest-free period. As the number of mortgages approved by the lenders for house purchase continues a slow decline, people show no disinclination to slow down the rate at which they stuff their wardrobes and their bellies with mostly 'unnecessary' consumer items. This can only end in catastrophe.

Wednesday, 29 March 2017

Mrs May wraps her damp squib in platitudes

Theresa May has taken the most emollient line possible for her in the presentation of Britain's Brexit notification to the European union, and in her explanation of her position to the House of Commons.

Arch-Brexiteers should take warning: the tone for the discussion has now been set, and on a first reading of her official letter it is clear that the compromising component of the government has predominated in the discussion.

In the wordy statement in the Commons, doubtless the product of a small army of speechwriters,  the Prime Minister repeatedly referred to the government's obligation to future generations; which made a 'hard Brexit' and a leap off the cliff into the unknowable territory of a future without an agreed relationship with the EU equally unlikely. The possibility of an extended 'implementation period' is scouted from the first, and will almost certainly become a reality.

One interesting aspect of the coming talks derives directly from the bloated bureaucracy of Brussels, to which the EU lead negotiator M Barnier is closely affiliated. At a date before 2020, Britain will stop paying in to the ongoing costs of the fat cats. Britain must accept obligations to pensioners and for EU debts that have been incurred with British assent in the past [and during the negotiations]. But Britain has no obligation to pay for supposed services and facilities that it will not access after the date of Brexit. So either the EU machine will have to be slimmed down by the break date or the remaining 27 members will have to pick up the tab for any wanton waste. Britain can fairly be charged a share in the redundancy costs of any eurorats who are to be 'let go', and other adjustment charges that will be incurred up to the date of the rupture.

This will be a delicate negotiation that must in the end rest on a truthfully computed set of accounts: which is something the eurorats are not used to facing. Britain must insist on it being completed, and must be willing to pay the UK's share in full. M Barnier has indicated that he will ask for more, some sort of penalty or fine on Britain for having a residual belief in democracy: any such nonsense must be exposed and resisted intransigently.

Mrs May has indicated that her approach to the EU negotiation will be fair and rational. It is therefore sad that she has linked this with a great deal of fantasising about building a fairer and better society that 'works for everybody' in the UK. Her government is doggedly continuing with the Osborne austerity proposals, which will reduce the quality of life for every man, woman and child in the country. As the Brexit negotiations drag on, social discontent about hospitals and schools and other public provisions will increase. The government will be more and more massively unpopular; and Brexit will more and more seem to be an irritating side show alongside the increasingly urgent crises that affect ordinary lives.

Brexit is important, but from today it should be seen as the second problem with which the government should be concerned. Tragically, they have no wish or capability tackle the big issue. Thus it will feature more an more prominently on this blog; from which Brexit will certainly not disappear.

'Onion Johnny', Brexit and M Barnier

One of my strong childhood memories is of men in navy-blue berets appearing in our street pushing bicycles that were laden with strings of onions. They came every year, and my grandmother said that they also used to come 'before the war'. The Second World War had prevented them coming, but by the late 'forties they were back. My father, keen on detail, explained that these men were Basques: which meant that they came from the borders of France and Spain: they were poor farmers who brought their bikes and the onions in large lorries, from which the small group of men would fan out daily to cover the streets of the small town in a couple of days. One never heard of any restriction of them coming and trading in the UK; and this was two decades before Britain applied to join the EU.

By the time the UK was admitted to the EU, Common Market policies to support agriculture had gone far enough to make the farmers' annual expedition to the mean streets of post-war Britain unnecessary. But I have a clear memory of their presence: with no recollection of any fuss about their status.

As a schoolboy, I went several times to Europe; usually by train, and ship to Calais or Ostend. Apart from the most cursory glance at the passport on which an official placed a dated stamp, there were no formalities at a frontier; nobody mentioned visas or admission criteria until one came up against the Iron Curtain.

Free movement of people within western Europe did not come as a benefit of membership of the EEC [even less as a benefit of the fantasy-world of the EU]; it predated the Treaty of Rome by a couple of centuries. There is no reason why it needs to be a monumental problem after Britain leaves the Union. Just go back to the simplicities of my childhood.

Today is the day when Mrs May's secret letter is revealed to the British people and to the European Council and Commission and Parliament. Then M Barnier will be given his brief to lead for the European institutions in the discussions on the wish of a narrow majority of the British people to leave the Union. All the huffing, puffing and speculating that have gone before this count for nothing. Today the real discussion begins: and there is no earthly reason why it should be other than civilised and sensible.

Tuesday, 28 March 2017

Britain's Battered Infrastructure

When he was Chancellor of the Exchequer, George Osborne talked big about encouraging 'investment' in the British economy, and did a lot to persuade foreign firms to buy control of utilities companies and thereafter drain the profits into their own [alien] coffers.

Today's papers report that with the transfer of the South-West Trains franchise to a foreign company, 75% of all UK railway operation will be in foreign hands. There will be minimalist requirements for the new franchisee - like all the others - to invest minimally in trains and stations, but they are free to import the components from their own preferred suppliers.

One indicator of why train travel is increasing is also in the news today, in that one-sixth of the roads for which hard-pressed local authorities are responsible is becoming so badly scarred by pot-holes and subsidence and loss of surface material that they will have to be closed in the next couple of years. They will be too unsafe to use; and local authorities can't afford to insure themselves to meet damage suffered by cars and their human contents due to the ill-maintained state of the roads.

It is also announced that as more licenses to construct and run offshore windmills to produce electric power are offered, with subsidies for their construction and operation, alien firms are expected to get most of the contracts. Thus most of the construction materials, control systems and cabling will be imported; and the UK will again be paying aliens to cash-in for years to come.

Meanwhile, today's media are presenting in-depth analysis of the fine of £42 million on BT for awful service to their corporate clients in 2012-15: for which they are required to pay £300 million in compensation [which BT has hitherto shirked from paying]. The more formal operational separation of BT from its 'wholesale' provider of services to rival telecoms companies - Open Reach - is only now going ahead [in 2017]; and is a half-cock separation because nobody wants to take the risk of separating the pension rights of Open Reach staff from those in the larger pot of BT pensions funds which have a state guarantee arising from the privatisation process. The provision of first-rate broadband connection for both retail and wholesale users is recognised to be the most important item in the nation's infrastructure that is woefully inadequate. It is vastly more essential than the white elephant HS2 railway and new nuclear power plant on which the government has preferred to place their guarantees of funding [and implicitly of future subsidy, so that alien 'investors' can be guaranteed a flow of funds to siphon off from the firms to which British users will have to pay their dues].

It is also noted today that the government and their quango for decommissioning old nuclear power plant have badly bodged a tendering process, and are now having to prepare to pay compensation for mismanaging the process to the tenderers as they also prepare to have to pay more for the replacement contracts.

The above are just five stories from one day's news: and there are more!

Interest rates have been at rock bottom throughout the tenure of the Tory-Lib coalition and of the Tories, since 2010. Billions of pounds could have been borrowed by state-guaranteed companies to update the railways, the roads, trunk telecoms, and electricity supply and distribution. Millions of council houses, housing association properties and buy-to-let homes could have been built with the mix of funding that was used by the Conservative governments in the nineteen-fifties [enabling the Housing Minister, Harold MacMillan, to assert that he had hit the target of 400,000 homes built in one year: and go on to be Prime Minister].

The claque who are rooting for President Trump to fail are rubbing their hands with glee every time he mentions massive borrowing to fund infrastructure investment. Given that he has made his pile as an investor in material construction, one could expect him to be more sure-footed in this area that he has been with immigration or health care. We can but wait and see!

Monday, 27 March 2017

What [supposedly] Grows when an Economy is reported to have 'Grown'?

Perhaps the biggest support for the delusion that the British is a healthy economy is the government's ability to claim that the 'rate of growth' is one of the highest among the formerly-advanced economies.

The same set of data are deployed [statically and comparatively] to establish the assertion that the British is the sixth-, or maybe the fifth-largest, in the world.

Similar data are deployed to derive a 'rate of inflation'. The rate of price inflation can notionally be deducted from the rate of growth of the total economy, and what remains can be asserted to be the 'real' rate of growth of transactions in the system.

These numbers are derived by making an estimate of the money-prices expended on transactions [acts of buying and selling] in the system [in this case, the British economy] in a set period. The most commonly-used periods are one month, or a three-month period, or a year.

The state statistical service announces a percentage change in the tally of turnover and in the rate of inflation in the economy in each period. These numbers are derived by comparing the data for the latest period with a preceding period: so comparisons can be made with the immediately preceding period, or with the same period [e.g. July 1 to September 30] in a previous year. The growth figure can be discounted by the rate of inflation, so that the growth is said to be 'real', "at constant prices".

If the published inflation figure is within the range that the government have decided is acceptable, they can claim 'success' in 'controlling' inflation: if not, this is seen as a problem and the press and the political opposition and government-party MPs in marginal seats all demand corrective action; even though this may have the effect of diminishing 'growth' in future periods.

If the economy can be said to be 'growing' at a rate that is comparable with those of similar countries, the government can claim that this demonstrates that their overall economic policy is successful; as George Osborne so often did during his tenure of the offices at 11, Downing Street.

There is a massive literature available on how the British government's statisticians [and those employed in a range of private think-tanks] define the activities and the data sets that they take into account, with what degree of modification and interpretation, in deriving the headline economic statistics. The statisticians make honest attempts to ensure that - as far as is possible to humans using significant analytical and computer power - the published data are 'true and fair'. The statisticians' professional bodies, The Royal Statistical Society and the Faculty and Institute of Actuaries, monitor the performance of their members and set professional standards for them to obey. The accounting standards bodies also do their poor best to ensure that the data that are issued by firms and trade associations are honestly and accurately assembled. But this huge endeavour is largely vitiated when the 'Econocracy'  then begin to apply and adapt these data into their economic models and projections.

Several generations ago, mainstream Economists moved away from observing material industry and physical trade; and focused on aggregate statistics. In the nineteen-fifties, the bowdlerising 'Keynesians' [who had no real appreciation or comprehension of Keynes's own thinking] established growth and inflation 'targets' that have been the curse of governments and of their people, especially in the most susceptible countries, ever since then. Though pseudo-Keynesian economic policies lost their credibility in the inflationary maelstrom of the nineteen-seventies, the growth and inflation data continued to be used, and to be the basis for targets that governments still use.

The validity of both data sets can easily be challenged by reference to what has actually happened in the economy in this millennium. Between the 'big bang' by which the finance sector was allowed unparalleled freedom to develop in the mid nineteen-eighties to the almost-total economic crash that the evolution of the finance sector brought on the world economy in 2007-8, the volume and value of transactions in the finance sector grew by many thousands of percentage points, whether it was measured on a daily, monthly, quarterly or annual basis. But trade in the finance sector [in options, swaps, derivatives, and a host of other 'instruments' and transactions involving such 'products', which were mostly bets] was not counted in the basic economic data: that whole universe of trade was left outside the published figures. So the many thousands of per cent by which the immaterial economy declined in 2008 was also unrecorded. The facts that underlie the recession of 2008-12, and which explain why the British people's average living standard is lower than it was in 2006, and which will not get back to the 2006 for several more years, if ever, thus remain largely unexplained; because they have not been accounted for openly or properly.

House prices are another area where the mainstream statistical output on the economy provides no real illumination. However, there has been a very recent attempt to include the lettable 'value' of housing as a factor in a new index of inflation; thus the possible benefit from that move will be evaluated in this blog in the future.

This has been a hard read [if anyone has struggled to the end] and I'll leave it there for the day.

Sunday, 26 March 2017

A Darker Morning

The annual imposition of summer time - "Lloyd George's time" as my grandmother called it - means that the mornings are darker for a couple of weeks, until the lengthening days compensate for the change in the clocks. Thus, although the London sky is virtually cloudless, this day seems to have had a dull beginning; which has been exacerbated by the notably cold night that has just passed. This could be take as a metaphor for our political situation here in the UK: what some take as a new dawn, the implementation of 'Article 50', is seen by many others [including the thousands who marched yesterday in London and Edinburgh] as the beginning of a new kind of Ice Age. I mentioned yesterday my questions about the competence of the Prime Minister to cope with the situation that she has embraced, and I will not dwell again on that today.

Instead, I refer to the gathering in Rome of the other 27 heads of state and of government who are celebrating the sixtieth anniversary of the Treaty of Rome; and trying to set aside the Pope's warning that the EU and its institutions can be seen as atrophied. For every self-congratulatory speech, there will be reservations about what is practicable for the future of the institutions that are known to be undemocratic [despite their formally democratic constitutions], irresponsible [as evidenced by the lack of any satisfactory audit of their finances] and fanciful [evidenced by the amount of lying that was accepted by other states in allowing the weaker brethren into the euro currency]. Most of the participants in the jamboree, not least those whose countries were under Communist domination when the Treaty was signed, will want to look on the bright side. But they will not be able to ignore the disparities within the organisation: and thus it is signaled that a major outcome of the gathering will be further to advance [though probably not yet finally to adopt] the idea of a multi-speed process of European integration. It is probable that the countries that are seen to be in the slow lane will continue to resist officially being classified as second-class members of the club: so another set of weasel-words will be found for the communiques.

Although Britain was not an original signatory of the Treaty, the UK did encourage the continentals to get on with the plans for an Economic Community: as did the USA, which also pressed the idea that this should metamorphose into a United States of Europe [which meant, of course, a union of the Americans' NATO allies on the continent].

Edward Heath fully accepted that concept, of a steady movement from a trading pact to a political entity. He welcomed it and wanted it to come about, citing his experiences as a soldier during the Second World War. But he knew that he would never get the British public or parliament to agree to that whole package: so he deliberately and consistently lied about the well-known and explicit intent of the continental members of the EEC to develop a Union, and thus conned the British into the EEC. The promise of a European Union was not a major factor in the referendum on EEC membership that was held under the Wilson government: it did loom large in 2016.

Remoaner extraordinary, the Lib-Dem leader, has suggested that one justification for a second referendum could be on the point that in voting against the European Union in 2016 the people had not knowingly and necessarily reversed the decision to remain in the economic community, which was the subject of the earlier referendum. That is a point I will revert to soon.

Saturday, 25 March 2017

The Dealmaker and the Politician

I was wrong in my assumption that Donald Trump would indulge the Congress in a lengthy trial of strength over Obamacare. He could not get his deal, on the due date, so he cancelled the whole reform plan. If he now sticks to his word - which is based on his business hunch - he will watch Obamacare implode [at huge cost to American individuals, American insurance companies and American healthcare providers] and then challenge Congress to have another try. Dealmaking skill depends very largely on the ability to exercise, and to execute, the threat to walk away from the whole proposition; even if the incident is costly: Trump has paid the cost many times in his career, and sees no substantial difference between a cancelled hotel deal and an abandoned Congressional bill.

Mrs May has no such experience. Her career has been in the back office of a public institution [the Bank of England], followed by non-decision-taking business experience, followed by politics and public office. While saying very little that could be taken as a binding declaration, she has given the impression that she is prepared to walk away from the post-Brexit negotiation with the European Union, leaving the country dangerously unready for true independence. Just two things are clear: her consciousness that as Home Secretary she 'failed' to reduce net immigration into the UK by amount that her leader had promised, and the simply dotty proposal that grammar schools must be promoted at a time when the overall educational budget is being painfully stretched over the existing schools system.

The economy patently needs immigrant labour; and parts of the university system will be brought more quickly to bankruptcy if the inflow of overseas students is cut off. Yet Mrs May has repeatedly stated that immigration control is a 'red line' even before negotiations begin. With a tiny parliamentary majority which is likely to evanesce as the Brexiteers and Remoaners become increasingly embittered, Mrs May's importation of a rogue element on grammar schools [which all the opposition parties oppose, either on principle or as a distraction from their main concerns] is evidence of a reckless naivete; such as is also seen in some of her remarks on the economic possibilities for Brexit.

Trump is widely seen [especially by European liberals] as an uncongenial bully: but he succeeds. Mrs May is a tabula rasa, even after her exposure as Tory Party Chairman and as a minister: and the great fear is growing that she will probably achieve nothing.

Friday, 24 March 2017

All change: or maybe not?

My webmasters are hoping to revamp the presentation of this blog as part of a new presentation of my ideas as I enter a new phase of trying to attract a wide audience to my ideas.

This is not mere egotism. I think it is important that hegemonic intellectual empires are challenged; and none deserves this sort of attack more than does Economics.

I have recently drawn attention to the bold work of the Manchester students who have produced the book on the ECONOCRACY that deserves far more attention than it has yet had. They estimate that ten thousand students every year are being required to accept and repeat dogmatic nonsense in their examinations, in order to qualify as 'economists' who are not equipped to understand the realities of the world that they live in.

Other people - including most politicians - assume that Economists are a sort of scientists, who possess valid expert understanding of the economy and thus the competence to make recommendations both for public policy and how individuals should manage their own affairs.

The whole burden of my recent book: NO CONFIDENCE: The Brexit Vote and Economics: is to show that Economists are very far away from valid scientists.

The vast majority of the Economics establishment grossly over-reached themselves in their support for 'operation fear' during the Brexit referendum campaign, but they remain arrogant and defiant. It could be a Herculean task to break their hold on their sphere of influence: or it could be that, like the Soviet Union, the Berlin wall and The Liberal Democrats in 2015, their obsolescence will be self-evident and definitive. To make a modest contribution to such an outcome is my highest ambition.

Thursday, 23 March 2017

US and British Politics: Contrasts

Today the US Administration introduces its legislation to 'reform' Obamacare. This is very soon after the US election, and it shows that the Republicans in the House and the Senate have been working on this, alongside the Trump team. There will be a massive number of amendments considered before the final shape of the legislation is clear, but as almost all Republicans share the same general objective it is to be expected that the whole package will be enacted in the first half of the year. Trump is fulfilling his promise to move quickly: and he can do so because he has the two houses of Congress with him on this matter.

Also today the UK political class is again agonising about energy prices: only thirty-odd years since privatisation of gas and electricity supply and distribution. An elaborate structure of regulation was set up with privatisation - which has been much modified subsequently - and still everybody but the regulators is unhappy with the outcome. A charade of competition between suppliers has been bedeviled by the imposition of subsidies for 'green' sources of supply [paid by the customers], the early closure of viable coal-burning power stations [built and demolished at the expense of the customers] and the elaboration of complex pricing structures [to confuse customers]. The econocrats who are employed as regulators have in their minds the synthetic ideal of consumers making free, fully-informed choices in an ideal market; and they try to impose it on the customers. Their recent actions are designed to force customers to spend time [and to tax their brains] in deciding when to 'switch' from one supplier to another, one tariff to another, one layout of bill to another. The more customers change 'supplier', the more 'competition' is claimed to be succeeding. The supply all comes from the same gas-fields and power stations, along the same national grids to the individual homes, regardless of who the 'supplier' is: the 'supplier' simply simply provides the retail interface with the customer. The cost of advertising the rival retail services of 'suppliers' can only be paid for by the customers, who also have to pay for the corporate costs of the competing suppliers, including the return to shareholders. The whole great charade provides employment for economists in the companies, in OFGEM and in the Competition and Markets Authority: who are all determined that their game should continue to be remunerative for them.Today the econocrats are lining up to shout down the government's flirtation with the concept of capping prices. I find it quite hard not to agree with the Labour left, who argue for the renationalisation of the whole sector: which has certainly proved that pretend-competition does not work.

In another area, where privatisation has not yet delivered 'competition' for 'retail' customers, Thames Water has been subjected to a massive fine for evading the observation of the regulators [in this case, OFWAT and the Environment Agency] in releasing raw sewage from their works into tributaries of the Thames repeatedly over many months. There is no proposal on the agenda of either regulator to develop competition in the sewerage system. Thames has been, and will remain, a monopolist; and this case shows how complacent a monopolist can become: even when stinking filth in the rivers killed fish and made people ill. Employees recorded occasions on which they had reported the firm's failure to comply with basic requirements, when managers had suppressed and ignored their reports. The advocates of privatisation had argued that such complacency would inevitably occur in bureaucratic state-run supply systems: as a general rule, that was not true. The people who ran public utilities had a high sense of duty to the public; which is absent from privatised firms whose objectives include circumvention of regulatory requirements where they find that cost-effective and convenient.

Privatisation has not been a panacea: it has been a complex, costly charade.

Wednesday, 22 March 2017

If it's Wednesday, this must be Scotland

Today it is a racing certainty that the Scottish Parliament will vote in favour of another referendum on independence; knowing that the UK government will declare that this is not the time for such a digression. It is likely that a referendum will be allowed eventually, on two conditions;
1. That the Brexit negotiations with the EU have reached a point of no return,
2. That there is continuing evidence that it is the wish of a majority of Scots to hold another         referendum.

The economic arguments for independence are massively worse than they were even three years ago. The annual subsidy of the Scots by the rest of the UK [which enables the Scots to enjoy free NHS prescriptions and fees-free university education] would not be replaced by EU funding, as Scotland would place itself at the back of the queue of applicants to join the Union. The First Minister talks of retaining the pound; but the EU requires new members to be ready to join the Euro.

While Mr Juncker wants to punish the UK for daring to leave the EU, there is no way he can offer rewards [at the expense of all 27 remaining states in the Union] to a new applicant.

Scotland would lose out in many ways if it separates from the UK as the UK leaves the EU. This will become increasingly clear to the electorate, the longer Mrs May can defer the referendum.

Nicola Sturgeon knows that time is against her: hence she will agitate for a referendum on independence as soon as possible; before the enlightenment of the electorate reaches the point at which the sole objective of the Scottish National Party is recognised as a disastrous proposition.

Tuesday, 21 March 2017

And so to Trump

Donald Trump has seventy years' experience of not apologising; and he is a very slow learner of new tricks. A term of four years in the White House will not be long enough for him to adapt to the politician's habit of seeming to express regret for some utterances, and blaming data sources for 'misunderstanding' non-facts. His many minions will find ways of sliding him past current embarrassments, and the sheer burdens of office on a man of his years - however super-fit he may be - will reduce the frequency of opportunities for him to bring a hornets nest of incredulous, querulous, bemused and abusive comment on his latest crass indiscretion. He will continue from time to time to sound off, displaying ineptitude and ignorance, and successive instances will diminish as excuses for journalistic hyperbole.

The most important thing that differentiates President Trump from the property billionaire who occupied his carcass before him is his conviction that he has a mandate from the US electorate that is bigger than the electorate of any state which elected a Senator, and even more vastly superior to the population of any electoral district that sent a Representative to Congress. His direct appeal to his public defines the 'Movement' to which he refers in his rally speeches. Unlike a divinely appointed Prophet [whose authority cannot be demonstrated in terrestrial terms, and is merely asserted by the preacher] Trump has the authenticated certification of the whole chain of electoral evidence from the local polling station to the declaration of Electoral College votes. He can challenge the Congress and the American public to deny the will of the people to cast away generations of free-trade dogma in order to repatriate work to the continental USA. He can refer them to the dozens of videos that show crowds ecstatically demanding the wall on the Mexican frontier. He can cite the frequency with which his audiences approved of the idea of building up the military might of the USA [cost what it may] and greeted the idea of closing the country to Muslim immigration. He has the courage of his convictions, embedded into the constitutional status of the Presidency.

He is learning in reality the lessons that he doubtless learned in his youth; consequently he will accept that he must live with the separation of powers between the executive that he controls, the courts which are autonomous, and the Congress. But he will prove to be equally determined that the members of the Congress shall accept his mandate, and the policies that he builds upon it. Those policies will eventually have to be framed in constitutionally-accessible forms by the members of his administration, but he believes that he has a compact with enough of the people to be in a position personally to insist that the measures put to Congress will conform with his will. How much of the legislative outcome he will be wholly pleased with is yet to be seen, but he will require that it past his test.

In the wider field of exercising the presidential prerogative, especially to conduct trade policy and to engage with other states, he will go his own way. He will be obliged to respect laws that he cannot repeal, and to accept the limitations applied by the judiciary to the scope of some legislation: but for the main part his foreign policy will be his to make, change and drive forward. The legendary power of Congress to deny to the President any expenditure which it thinks to be reckless or unaffordable will be mitigated in the Trump era by his appeal to his mandate. The members of both houses of Congress also know - all too well - that this President came as a total outsider to the political game. He has no obligation to any insider to the 'Washington swamp' arising from the help any of the old gang gave to a president during the long and devious political careers that are the normal route to the Oval Office.

In these ways the President stands aloof from the Congress in a way that no predecessor in the past century has done; except General Eisenhower, who came straight from a command in Europe and had to choose which party to stand for, as an independent man of integrity; after which the sleaze of party politics developed around him. Eisenhower's situation was derived principally from the emergence of the cold war; where a steady general who was used to complex command was seen to possess essential qualities that no party politician at the time could match. The other general who could match Eisenhower's experience and achievements had controversially been dismissed in the Korean war, and MacArthur rightly ruled himself out of the US political scene. This left Eisenhower is his unique situation. There was nothing comparably special about Trump's experience and personality when he emerged as the Republican front-runner. Nevertheless he has built his position, and secured his mandate: he will not willingly surrender either. He has been used to having his own way for as long as he chooses to remember: except when his property development has been stymied by alien regulations and authorities. He has castigated EU and Irish officials who stymied a golfing development in Ireland; and from such experiences his pet hates are fed.

In general, he knows that academics and theoreticians, especially the econocracy, tend to get in his way. The dogma of free trade stands against his protectionist views; as I indicated yesterday this will feed his determined protectionism. President Trump has already changed the dialogue on defence and on trade. It is highly probable that his impact on world affairs will be greater that his achievements in the much more restricted system of US politics.

Two odd men: and our destiny

Donald Trump does not tick any of the boxes that should define the characteristics of a 'suitable' candidate for the Presidency of the USA: but he is in office, and is making a big difference to the role.

Jean-Claude Juncker emerged as President of the EU Commission from a world of smoke and mirrors, and has taken upon himself a mission to punish the British people for having the temerity to indulge in an outburst of democracy that resulted in the Brexit decision. His recent statements have convinced me that the European Union is intellectually and morally bankrupt. If he is indeed determined to try to hurt the British economy so much that no other country will be tempted to follow the UK to the exit, then that destroys any case for remaining in the unaudited claque of states that continues to pursue the path to mutual destruction called 'ever-closer union'.

There is a lot that one could be scared about in leaving the European Union. Scots have good cause to assess their economic future without English subsidies, and gifted with abandoned oil wells. All of us should be scared at the decisions along the way being left to the prime minister, whose lifelong obsession with fashion makes a sorry sight in the photographs in the daily press. The real concern about her fitness for the role that she has so powerfully embraced is her lack of economic knowledge and her lack of international experience. If she looks back to her predecessors, she has some appalling precedents.

Heath led the country into the Common Market, admitting to his lickspittles that he had deliberately and consistently lied to parliament and people to the effect that the plain words of the Treaty of Rome would have no operative effect in declaring the ambition for a European Union to emerge from the EEC.

Thatcher boasted about recovering a rebate on what all the other member states recognised was an unsustainable contribution to common funds; the quietly went on to sell the country's sovereignty as the move to create the European Union.

Major broke his hold on power and undermined his surprising popularity, by agreeing to the Maastricht Treaty, branding his many principled and opportunist Conservative critics as 'bastards'.

Blair would have led the country into the disaster if the Euro, and blithely followed the EU Commission's line on most other matters.

Then Cameron caused the current chaos. He apparent thought that he would finally dish the anti-EU cohort, whom he misjudged to be trivially small. Then, disastrously, he allowed the commission and the continental powers to treat him with utter contempt in his supposed 'reform' of the Union. Then he persuaded parliament to grant a referendum: which became a chance for the nation to vote against the EU, and against loathed figures like George Osborne and Juncker; and, above all, against the despised 'political class'.

That is the inglorious position in which Mrs May finds herself. Nobody sane envies her.

Trump comes next...

Monday, 20 March 2017

G20: the first confrontation of Populism with Econoracy

Over the past weekend, the finance ministers and central bank governors who represent the countries that claim to have the twenty largest economies in the world have been holding a routine meeting in the plush German resort of Baden-Baden. Nineteen of the finance ministers were meeting the new boy, who many of them had come to know during his career as a major New York banker, US Treasury Secretary Steven Mnuchin. After the meeting he summarised the message that he had brought to his peer group: which was the direct repudiation of the rhetoric that had been the regular fare of the G20 for decades past. The G20 always expressed determination to support 'free trade' and to oppose mercantilism and protectionism [a government discriminating against imports, for example by imposing import taxes, known as tariffs]. Though individual governments did apply tariffs to some imports, as the USA under President Obama slapped heavy duties on the extremely cheap Chinese steel that had begun to flood the world market around 2010, these were usually applied to situations that could be described as exceptional. Many countries also also applied tariffs to protect 'infant industries, or to allow native producers time to adjust to changes in world supply and demand for specific products, or to conserve declining sectors of the economy until alternative employment was found for the people whose jobs would come to an end. These were all seen as special cases.

The general rule was that 'free trade' was a global ideal; an idea that was central to the dogma that was adumbrated by Adam Smith in 1776 and refined into complex absurdity by by the contemporary economics professors whom the Manchester student 'rebels' call the Econocracy [mentioned in my last bog].

In Baden-Baden, Secretary Mnuchin told the press that the oft-repeated platitudes about opposing protectionism were 'not really relevant' to the world of 2017. That whole agenda should be replaced by a focus on 'balanced trade', which can be taken to mean the same as 'fair trade' to which candidate Trump referred often as he secured a populist following sufficient to propel him to the White House. The pressure for countries generally to lower tariffs, which had been characteristic of world trade talks for two generations, would end. Thus in a single meeting the populist wave in the USA was carried to the heart of the previously-cosy global community of liberal ministers and technocratic bankers; and they rolled on their backs and accepted it. None of the other finance ministers was sure how consistently the Trump administration would carry forward their agenda, and several of them suggested that any lost ground could be recovered, perhaps even at the upcoming July meeting of the heads of government from the G20 states. I think that they delude themselves. Trump is well away from the concept of compromise; and he really believes that he has a popular mandate.

Also announced after the meeting was the intention to inaugurate a review of the measures that had been imposed by central banks on the commercial banks in each country, to restrict their behaviour in an attempt to prevent a re-run of the conditions that had produced the 2007-8 crunch in global financial markets. President Trump intends to weaken the Dodd-Frank package of laws by which the USA fell broadly in line with other countries; and he is not alone in being pressed by commercial bankers to relax the conditions under which international finance is conducted. It is likely that, led by the USA [in the person of the very distinguished banker, Mnuchin] the G20 will back-track on the prudential reforms that have been put in place worldwide. In this way a numerical minority of the US electorate is changing global economic policy, within three months of the inauguration of the candidate who had a clear plurality of Electoral College votes in the November General Election. There is no telling how far this will go; but the first steps are momentous and should so be recognised. The world was changed over the weekend.

More about the ECONOCRACY

I have spent much of the weekend completing my reading of the book by Manchester Economics postgraduates, in which they expose the dire state of the academic subject of Economics as it is presented to students. The dogmatism that is disclosed is horrifying from the student perspective, and despicable in my perception [as one who spent quarter of a century teaching aspects of Economics and of Economic History in a leading northern university; mercifully before the prevailing phase of the subject had begun to harden].

Reasonably, the students want what they have been taught by the authoritarian system to stand as a useful part of their education: within a much more pluralistic universe of economic thought than that which currently exists. They have each invested several years of their lives in qualifying; and quite reasonably can wish that their investment will not wholly be wasted. Unsurprisingly, they have not yet constructed in any detail a vision of what the suggested pluralistic subject could contain.

Broadly, they have come to the position that I recognised in the then much less dogmatic corpus of Economics in the late nineteen-sixties. Already a group had gathered around Lord Robbins of LSE and Charles Carter [Professor at Belfast then V-C of Lancaster] who determined what was 'fit' to be published in the leading British academic journal: they also [and almost exclusively] decided who was ready to be a professor. The basis for the later hegemony of the next-generation-but-one of professors was being laid. I was able to slide round the dogmatists, even serving as Dean and Pro-Vice-Chancellor, before I escaped to the City.

Over half a century I have come to the conclusion that Economics is so fundamentally flawed that the existing structure cannot be redeemed: hence I have published my  short book NO CONFIDENCE. I hope that the young people in Manchester will accept my output as an input to the pluralistic world view that they advocate.

Sunday, 19 March 2017

Philip Hammond: a Dangerous Man

The Chancellor of the Exchequer,  Philip Hammond has a first-class degree in Politics, Philosophy and Economics. Thus it can be assumed that he has at least a passing awareness of the current dogmatic presentation of Economics that is stigmatised in the recent book ECONOCRACY that was welcomed in this blog a couple of days ago. Hammond was a student sufficiently long ago to have experienced some of the 'pluralism' in past Economics teaching whose absence is deplored by young authors of Econocracy, that has effectively been squeezed out of the twenty-first century syllabus; and he has had a successful business career. Philip Hammond should know better than the dogmatic whizz-kids in the Treasury; and if he does not act accordingly he will pay the price in public contempt.

One of the areas of business in which he has become expert is housing. He must therefore be aware of the paradox of house-price inflation in relativity to wage stagnation in the contemporary British economy. In inner London homes now cost more than ten times the annual wages of median earners: approaching double the ratio in which house prices stood to wages before the crash of 2007-8. By contrast, in the lowest-priced areas of the UK house prices range around 1.5 times the annual wage of those locals who are fortunate enough to be in employment. London prices in small part reflect the higher cost of getting materials and labour on-site in London, as compared to the provinces. But the biggest cause of the difference in housebuilding costs in London is the differentially high price of land in the various areas of the capital. However, the varying cost of buying the land and building the house does not constitute the major component of the differential between house prices in London [and in the most fashionable areas of the south-east, and in hot-spots such as Cambridge and Oxford, Bath and Bakewell]: that is down to the immaterial 'advantage' perceived in the location of the property and in the local amenities to which residents have convenient access. Especially in London, there is the additional factor that people who have accumulated large cash reserves in countries with less stable regimes have queued-up over the past couple of decades to buy London property as a safe asset. In many thousands of cases these purchases have driven off financially-less-capable natives and working immigrants; only for the premises to be held unoccupied. Decisions not to let the property in which the alien owners do not live seem bizarre to homeless Londoners, especially as they are now a major cause of the shortage of housing for the people. It has been so profitable for developers to deploy their capital and their managerial resources primarily on highly priced developments that aliens find the most attractive investments, that there is little resource left to house those who keep London's streets clean, hospitals functional and buses driven.

I wrote yesterday on the relationship between Tory government policies and wages. Wages in real terms are falling, and are set to continue falling; and the quality of life for the recipients is also being driven down by the real-terms cuts to the health service, education and other public sector activities. Even if Hammond's tenure at the Treasury is short [some siren voices are calling for his dismissal already], there will be measurable decline in living standards during that time. So history will judge him harshly, as the supine follower of George Osborne [whose career I briefly reviewed yesterday]. History will also be properly critical of those who see the Chancellor as the possessor of a 'safe pair of hands'. Those who will suffer from his tighter squeeze on state spending - even beyond what Osborne 'achieved' - will have no reason to want him to be saved from the consequences of his actions.

Saturday, 18 March 2017

Gideon in Blunderland

It is not 'false news' that the politician known as George Osborne was called Gideon in his childhood and youth. Anybody who changes his name - presumably because of the awareness that some other people think the name by which they have been known is, shall one say, quaint - has to some measure a lack of self-confidence. This trait could be detected in the ministerial statements of 'George': his voice became shrill and his utterance staccato when he came under pressure, notably in the House of Commons.

Despite this, he persisted in developing and implementing the most disastrous package of policies in recent British history. His successor as Chancellor of the Exchequer has clearly accepted a consensus Treasury view that no other policy options exist for him. So, despite an increasing, ageing population whose demographics are mitigated largely by children from immigrant and ghetto families who need special instruction in English and in social norms for the UK, real-terms school budgets are being cut. The health and social care budgets are now universally understood not to be adequate. The residual local government budgets for street lighting and cleaning, the maintenance of parks and libraries and local bus services, are all being cut back. The double-edged sword of budget restrictions and rising prices are surely and steadily undermining the quality of life for the British people as a whole: but especially the poorest, with the disabled most conspicuously affected.

Osborne regularly boasted about the reported 'rate of growth' of the British economy. Yet he could not deny that this growth was not supporting rising real living standards. He accepted the Economists' mantra that the reported rate of growth did real people no good because those people had low productivity. So he read out an endless series of speeches advocating that some mystic force within the socio-economic system should stimulate 'the makers' to increase productivity and then all would be well. By contrast, his actions were to stimulate and encourage alien investors to buy and to build factories in the UK that could consume British labour - at existing or even lower wages - as an acceptable input cost. The lower the living standards of British workers could be driven, in real terms, the cheaper British labour would become on the global market. Mrs May and Mr Hammond are less-adroitly pursuing the same policy.

The other prong of his policy, that he advertised widely, was the creation of a 'northern power house'. The Thatcherite devastation of the industrial regions of the UK has barely been mitigated in the three decades since the fall of Thatcher: largely because Major, Blair, Brown and Cameron were all 'Maggie's children' ideologically. It is unclear whether Mrs May has enough knowledge of Economics, Political Economy or the real world to have such a position: or to repudiate it. In Osborne's view of the world, the midlands and the north of England can be rejuvenated by the alien purchase of existing businesses plus the implantation of some foreign firms; plus the invention of some pattern of funding for indigenous new British businesses with innovative ideas that will not strip the inventors of their firms: this last has been far beyond the reach of Osborne and the Treasury that he led. One thing that can be done by politicians, akin to moving deckchairs on the Titanic, is to change the structure of local government. This has been done, but so far the signs are that the new mega-mayors will be subject to the same financial squeeze as the whole of local government.

With this magnificent record behind him, Osborne has accepted a £600,000-plus job with an alien firm that mobilises investment around the world. He claims that he can remain MP for Tatton and serve the constituents properly. And now he is to be editor of the Evening Standard. I wonder what the wonderful Economics Editor of that paper makes of this farrago. Anthony Hilton has been a hugely well-informed, querulous commentator, whose views on the new boss will be awaited with massive interest: if he is allowed to utter them.

Commentators have assumed that Gideon has taken on this new role so that he has a platform for anti-Brexit propaganda. It is probably beyond his comprehension that his advocacy of the Remain camp, and the extremity of the forecasts of disaster that he promulgated, were significant features of the people's reaction to the referendum campaign overall. Thank goodness, editors [other than perhaps the custodian of the Guardian dreamworld] do not have significant influence over their readers: least of all if they adopt hysterical, extremist positions.

Friday, 17 March 2017


A day earlier than promised, on Wednesday, Amazon delivered to me a copy of the book: ECONOCRACY: The perils of leaving economics to the experts: by Joe Earle, Cahal Moran and Zach Ward-Perkins. These writers are among the most prominent members of the Post-Crash Economics Society that emerged in Manchester a few years after the collapse of the western banking system in 2007-8, when the students decided that they had had enough of the staff of the economics department in their university blithely carrying on with essentially the same syllabus - and the same arrogant disregard for the observable condition of the economy - as they had before the crash. Just as the Queen put the question to staff at the London School of Economics and at the Bank of England, so these students asked: 'if all those who are paid to teach us are so expert in economics, and if [as they assert] economics is the science that fully explains how to control the economy, why did they not see the crash coming? Why did they not advise the authorities on means of preventing the catastrophe that lies behind the ongoing rounds of real-terms cuts in the health service and in the schools, that are still the daily diet of the news media?

The Queen got no satisfactory answer; so it is unsurprising that a minority of the students in Manchester did not get an adequate response, either. Thus the students, who had invested years of their lives in the study of economics, created a society to articulate and develop their concerns. Students in several British and foreign universities have linked up with them, and they now have a good website, networks and conferences. This book is a new venture, and in a quaintly traditional way it sets out the position that this activist cohort within the wider group has reached. A wide range of authoritative figures have produced recommendations to the wider public - as well as to economics teachers and their students - to read the book; and the authors are their supporters are to be commended on their achievement.

They tell us that some 10,000 people each year graduate from the universities as 'economists': which means that they have almost all satisfied the requirements of a hegemonic syllabus that has been built - and is now savagely defended - by the self-styled economics profession: what the authors call the Econocracy.

They tell us that the Econocracy control an apparently scientific system that offers itself as a technology according to which all economic issues can be addressed by the application of correct solutions that economists can provide. Unfortunately for the Econocracy, their systems do not produce results that satisfy the human aspirations of the citizens of a democracy; nor do they necessarily produce results that have desirable effects, even in economic terms.

Sadly, the writers are young people who have undergone economics 'education' and who wish to optimise on what they have acquired: so they can not [as I did, in my book No Confidence] say that the subject is so deeply flawed as the be beyond redemption. Thus they argue for economists to recognise the disastrous effects of a narrowly dogmatic focus in the subject; and to open up their syllabuses to pluralistic teaching. Good luck to them, but that does not go far enough. On the other hand, their efforts deserve the highest praise: they have dared to stand up and offer themselves as guides and leaders towards reform of their subject. I will refer to this endeavour in the coming days.

Wednesday, 15 March 2017

The Ongoing Tragedy of the British Economy

Set aside the claim that the British economy is 'growing' healthily. 'Growth' simply shows the amount by which transactions in the economy increase, period by period. So as we borrow more to buy more imports and expand the balance-of-payments deficit, 'strong growth' is asserted. As we borrow more to pay more for the same old housing stock, 'growth' is recorded. As more of the productive and intellectual capital of the country is sold to foreigners, 'growth' is taking place. If Mr Osborne and Mr Hammond thinks that is a good thing [as they appear to do] this shows the profundity of their delusion.

Before Economics was invented to display the cleverness of the pseudo-scientific assertions that professors made, Political Economy taught that the success of an economy depended on the productivity and the productiveness of its activities. Productivity is the efficiency with which each pound of wages paid to the workforce is expressed in the prices at which the output can be sold: if the return per pound of wages expended is increasing, the surplus can be used to in part  to pay the employees higher wages and the investors higher dividends, and principally to expand production by paying for investment in new plant and new technologies. Productiveness is expressed by the proportion of total output that is invested in new productive potential each year.

In contemporary Britain, it is notorious that productivity is low, and there is little or no positive change year on year. Productiveness [as the term was understood in 1870] is not even in the vocabulary of contemporary economic commentators. They have no will to illustrate the desperately low level of productiveness that characterises the Osborne-Hammond economy. Where some large firms do still generate profits, by maintaining reasonable productivity, there is a tendency to pay higher dividends, buy back shares, and hoard reserves rather than to invest in new plant, new technology or areas of innovative activity. Many other firms exist in a 'zombie' state, where they owe large sums to banks that will never be repaid; but which can be held on banks' books as assets: such firms are in stasis: deterred from investing by the banks that have already lost money on them. Small firms whose owners have new ideas find it hard to raise capital for investment without putting at risk the owners' control of their intellectual property; and in all too many cases the banks demand that the owners' personal assets, including their homes, be put up as collateral for loans to the companies. The threat of losing one's home is a powerful incentive to look favourably on an offer to buy the business for a lot less than it is really worth. The buyer of such a business is likely to be an alien company.

Today, March 15 2017, three news stories emphasise the pathetic state of the real economy. The Australian pupil of the 'vampire squid' has sold its residual 26% holding of shares in Thames Water - to fellow aliens - after owning them for a decade during which the company has increased its borrowing to a total of £10.3 billion while it paid its shareholders £1,16 billion in dividends. Almost all that £1,16 billion went abroad. Nevertheless, the water company's productiveness was significant: under the direction of the regulator, OFWAT, they had to invest £11 billion: though some of this was funded by increased borrowing. There was no spontaneity in the decisions to invest in infrastructure: it was the inescapable cost [met by Thames' customers via their water bills] for the  company's license to operate.

More depressing is the news that the proposed Moorside nuclear power station in Cumbria is threatened by the fact that Toshiba, the Japanese conglomerate, may not be able to deliver on time [if at all] the inputs that make it 60% responsible for fulfillment of the project. Following a disastrous corporate merger in the USA, Toshiba is contemplating selling - or even closing - Westinghouse, the company that was to build the reactors that are at the core of the design. Westinghouse used to be partially  owned by the British state, and was essential to Britain becoming the global pioneer of peaceful nuclear activity. The Thatcher gang sold the UK interest, as part of their clever plan to ensure that the UK lost its capability in the field. Now the reduced residue of Westinghouse may not survive to contribute to the desperate pseudo-strategy that has been cobbled together supposedly to meet the British people's need for energy in the mid-twenty-first century. The mess that is power supply and pricing for power becomes more turgid by the week, and the government's inability to comprehend the immensity of the problem means that solutions seem to be generations away.

Slightly more hopeful is the suggestion by Paul Polman, the chief executive of Unilever, that the takeover code should be reviewed. His company recently sloughed off an opportunistic takeover proposal from the corporate scavenger that had desiccated Cadbury just a few years ago, Kraft-Heinz. Unilever is an Anglo-Dutch consortium with dual listings of its shares, a huge range of familiar brands and a century and a half of prudent, long-term management that has looked both to achieve  productivity and productiveness. It remains open to opportunistic and exploitative takeover, given the openness of both Netherlandish and British company law to competitive intervention in share markets. It is in the interests of Unilever and of the British and Dutch states to make it more likely that this hugely valuable company should remain robustly independent.  

Tuesday, 14 March 2017

Mrs May: Glutton?

David Cameron apparently believed that he and his hoppo, George Osborne, could persuade the nation into giving a decisive 'get lost' message to Eurosceptics. Hence he promised the 2016 Referendum in his second election manifesto, together with the hint of a promise that some of the most egregious political aspects of the 'ever-closer union' could [at least temporarily] be toned down. When it became clear, with approach of the referendum date, that this could be a close-run event he made two catastrophic decisions. He had been met with contempt when he asked other EU leaders to concede any points of significance, so the package of 'reforms to the EU' that he claimed to have 'achieved' looked as trivial as it was: but he pronounced it a success, nevertheless; which conned nobody. The even greater mistake was to mount 'Operation Fear', presenting economic data [and even the notion of a new world war] as unambiguously guaranteeing the country all kinds of disasters if there was a vote to leave the EU: this convinced far more people that the government was trying to manipulate them, than the number who may have been frightened. Forgetting his undertaking to implement the decision of the people, whichever way it went, he stood down immediately the result was announced.

Thus Theresa May emerged as the Prime Minister. Known only as the Home Secretary who had implemented Osborne's cuts to the police and the prison system, and had failed to find policies to reduce the flow of immigrants into the UK, she had few personal adherents. Just about her first act in power was to consign George Osborne to a lucrative career on the back benches. She appointed a Cabinet of competent but mostly-unknown ministers, with three of the most conspicuous characters [Johnson, Fox and Davies] clustered together to combine with the Prime Minister in 'delivering Brexit'. Since then, she has made it unambiguously clear that she expects personally to make all the key decisions about the exit process, and to have the support of a supine parliament. That will not work out to her credit.

The Liberal Democrats' fantasy that people voted in the 1975 Referendum in favour of the European Economic Community, and that the 2016 vote could be said not to have reversed the 1975 vote because the question in 2016 was about leaving the European Union, and did not mention the EEC, is pure nonsense. The EEC metamorphosed into the EU, which fully incorporated the 'common market': with the full participation of Margaret Thatcher and John Major. The Liberals will go further into LaLaLand if they try to stick with that idea.

In making herself the arbiter of all decisions on the British side of the negotiation, apparently without an adequate team of experienced negotiators, the full responsibility for everything that will go wrong falls to her. The wrangle with the Scottish Nationalists that will form a drain on the Prime Minister's attention and her energy will help to ensure that false steps and taken and mistakes make. It is difficult to foresee a good outcome for Mrs May. Straws in the wind, such as the distraction of proposing the creation of Grammar Schools while the real-terms budget for schools is declining, indicate that the limits to her credibility will become apparent before the end of this year.

Mrs May is not as stupid or dogmatic politician as was Margaret Thatcher: she will be more hurt by the slings and arrows of political dissent than her superficially formidable predecessor could ever have been. She has chosen to pile these issues onto her own plate: she will regret it.

Monday, 13 March 2017

Bringing Back POT

All over the UK there are many tens of thousands of manhole covers with the POT logo on them: which means they were placed originally when Post Office Telephones had a monopoly on the telephone system in this country.

In the nineteen-eighties the privatisation advocates rabbited on about the inherent inefficiencies that could be seen in a state monopoly, notably the delay in installing phones in premises as the demand for modern IT began to emerge; so when the Thatcher government decided to sell off the system this got massive press support, fueled by costly publicity by those who thought they could profit from battening on to the most obviously lucrative parts of the system. Post Office Telephones was privatised as BT - British Telecommunications - and a vast number of small shareholders took their allocation of shares, only to sell them on to institutions as those larger bodies became able to absorb them at inflated prices.

Then came the real IT revolution. Presaged by show-offs who brought their 'housebrick' mobile phones into their local pubs and restaurants, the advent of mobile telecommunications was quickly followed by the invention of the internet and the unprecedented range of mobile media that now exist: and are advancing daily in sophistication. Large and small companies sell phones, lease phones, adapt phones and make profits by enabling the individual to feel more empowered to have universal contact with the entire human race [subject to regulatory restraint] and with the whole of accumulated knowledge. The everyday user of a smartphone is likely to assume that the whole communications system is now based on the internet and the cloud; and not to give attention to the recent discussion about the future of wire-using telecommunications links that are accessed through manholes and overhead wires marked POT or BT or by the designation of the BT subsidiary OPENREACH.

Partly using copper wires of various ages, partly using carbon fibre 'wires', a vast and essential network exists - and is expanding - which the private telecommunication providers cannot avoid using, could not possibly afford to replace [or duplicate], and thus must depend upon. This system -the core of what was sold off when POT was sold - is indispensable to all communications providers for the indefinite future.

The ramshackle system of 'regulation' that the Thatcherites created [including OFGEM for energy, and OFWAT for water] includes OFCOM for communications - including telephones. A reputedly very bright lady with a good civil service record has been made the head of OFCOM, and she has announced that the core system - the wires, branded as Openreach - must be made more accessible to BT's competitors by being managed within a more obviously separate company from  BT.

Behind this decision is the government's fear that a complete separation of Openreach from BT would mean that past and present employees would exercise their right, granted in the privatisation legislation, to demand that their potential pensions would be topped-up with government money if any future corporate change in BT threatened the security of the staff's pensions entitlement. The cheeseparing government knows that it would open the floodgates to other claims if they acquiesced in that demand; so they cannot allow BT and Openreach to become wholly separate.

Openreach is the archetypal example of a natural monopoly, an organisation that is essential to the normal conduct of life, which is unaffordable to replicate by a competitor because the customers would prefer to deal with the monopolist than  to pay for a second system to be installed. Politicians - acting on the advice of Economists  - assert that by the intervention of a regulator they can make the monopoly behave in a 'commercial' kind of way. This is nonsense. Decades since the privatisation of Post Office Telephones we see that the essential underpinning basic technology can only be managed as a monopoly that allows fair and equal access to all legitimate users including rival telecommunications businesses. The same goes for the railways administered by Network Rail, the national grids for electric power and gas distribution, the postal system and access to ground water. While a charade of competition can be made in the management of the common infrastructure, there is no sense in that exercise. There is well-evidenced justification for allowing competition between innovative firms that offer customer-facing mechanisms for the delivery of the consumer experience that depends on the monopoly infrastructure: exemplified by Vodaphone, O2 et cetera. The clear distinction between the essentials of telecommunications that lie underground and the options that are made accessible in the consumer's hand by their preferred retailer should be replicated in the way these services are owned, taxed, funded and regulated. Pigheaded attitudes of Economists, politicians and publicists who have invested their reputations in the existing chaos will resist the commonsense revision of the system; but the Great British Public is very capable of seeing  sense an eventually it is probable that a decent and affordable outcome will be achieved.

Meanwhile, the charade of 'enhancing competition' will be played out; and Openreach will be pilloried for under-investment and inefficiency.

Sunday, 12 March 2017

Agitated Turks

In 1923 the exiled Sultan of the former Ottoman Empire [Turkey, plus extensive subject territories] decided that his country's defeat in the Great War was definitive. Most of the subject territories had been split off from Turkey by the France-British 'peacemakers' to become the current disaster states: Syria, Iraq, Lebanon [the innocent victim of others' misbehaviour] and Palestine. Thus the ex-Sultan also surrendered the title of Khalif of the 'nation of Islam'; and over the next decade Turkey became a carefully-managed, secular democratic state dominated by the most successful soldier to emerge from the war, Mustafa Kemal who took the title Ataturk [generally understood to mean 'father of the nation'].

During the nineteen-fifties and 'sixties and 'seventies and 'eighties Turkey was a crucial component of the NATO alliance, and Turks were welcomed as Guest-workers in Europe, particularly in the Federal republic of Germany. Eventually, the guest workers were enabled to become Germans; though most people in this category married other Turks: thus they remained a defined ethnic group, whose affiliation became more clear after an increasing proportion of their womenfolk took to wearing 'Islamic' hair covering. Throughout it was assumed that the great majority of Turks in Germany, and in other EU countries, accepted conformity with the norms of their hosts even though they maintained their religious identity and their Turkish roots.

Meanwhile, in Turkey politics have changed. A popular Prime Minister secured a change in the constitution that made him president: since which he has espoused populism, suppressed what many regard as a staged sham of a coup, and moved to establish himself as a dictator. To this end he is leading a campaign to change the constitution again, and he has called a referendum for this purpose. Just as French presidential candidates have held rallies to address the huge French population in London, so the Turkish president is trying to rally potential supporters in European countries. Rising right-wing populism has forced the Merkel government in Germany to restrict this process: and now the Dutch government has banned a senior Turkish minister from landing in the country and dumped another over the German boundary.

These actions have the potentiality for alarming consequences. In a few days' time, elections in the Netherlands are likely to strengthen the populist right; and riots in Rotterdam may cause newly-alarmed people to vote for the right. Meanwhile, Turkey is promising draconian retaliation: this could involve Turkish-state-supported terrorism in Europe combined with removal of Turkey's control over migration from Asia into Europe. In just a few days, crisis could become catastrophe, engulfing many of the at least five million Turks in the EU and swamping the Greek islands with sharp-elbowed young me from Iraq, Afghanistan, Iran, Pakistan and Syria.

The Netherlands, for many decades the bellwether of libertarianism in Europe, has suddenly become the leading edge of 'oppression' of a minority. The consequences will be immense.

Saturday, 11 March 2017

Early news

Even before I got out of bed on this Saturday morning, I heard on the radio two pieces of evidence of the failure of government. The Environment Agency has been so far starved of resources that incidents of river pollution are not being followed-up, to the extent that some angling societies have ceased bothering to report them. More seriously, a prison was partially destroyed overnight by action of one drunken prisoner: that prison having been condemned by inspectors as 'in crisis' two years ago.

Every day there is evidence of the deterioration of environmental, social and public services due to the continuance by the May-Hammond government of the Cameron-Osborne cuts in public spending.

The fabric of society is being unpicked; and that will be followed by deterioration in the political fabric: all because of a misinformed fetish to 'eliminate the deficit' on state spending by continual cuts.

The only way soundly to support society - and thus retain support for the political class - is to raise the productiveness of the nation. This goes way beyond improving productivity, at which successive governments have failed. There is no more important point to get over to people than this, which is why it is so frequently the theme of this blog: as it is of my book: "NO CONFIDENCE: the Brexit Vote and Economics, by David Bland, to be obtained from Amazon."

Friday, 10 March 2017

Read it in the SUN

Today's Sun newspaper carries an article by Tom Newton Dunn, derived from official statistics and government statements and papers, which warns the reader to expect that there will be no material improvement of real incomes for British people in the next fifteen years. This assumes that there will be no disastrous new development, either.

Yet the downside risks for the ordinary citizen are immense. Mrs May's apparent espousal of rabid calls for a 'hard Brexit' will be incalculably damaging. She may be holding back the full exposition of her position, and she may be open to persuasion by those - including her Foreign Secretary - who usually know when to backtrack. But she seems to have headed the ship of state for the rocks.

The immediate past-Governor of the Bank of England has repeated the dangerous mantra that the EU needs Britain's ongoing trade more than we need Europe's exports to us: that may be true just now, but for how long will it remain so? The continental powers will be placing their bets on that question, as they consider the terms for a post-Brexit trade pact. Current attempts by Donald Trump's trade envoy to get European states to discuss bilateral deals with the US will get nowhere, while they may cause the twenty-seven continuing members of the EU to stick together more firmly

The picture for Britain - as Tom Newton Dunn has pointed out - is far more grim than any politicians have spelt out: even the leader and deputy leader of the Labour Party.

And every economic journalist - even the Guardian and Financial Times remoander liberals - has made absolutely clear the danger to jobs from new technologies that are in final stages of development. The range of threat, from artificial intelligence beating spivery on Wall Street through driverless lorries to fully automated sandwich shops and fish bars, will materialise throughout the economy well within the fifteen years during which a steady-as-you-go British economy would totter on with lower living standards and more austerity for all.

At every level, the media are doing their job: telling people how dire things are, how dire the politicians are, and how desperate is the potential political economy of the UK. These crucial facts will eventually get home with enough of the public for the threadbare political establishment to realise that they are at the end of their public acceptability - and there will be nowhere for them to hide. As for the rest of us; we must just hope for new sources of salvation\\; the old gang have totally blown it,

Thursday, 9 March 2017

Budget Day: Blues and News

There was no surprise in Philip Hammond's first Budget yesterday. He followed the irrational obsession - that was planted into Tory thinking by his predecessor - that the deficit on the budget must be eradicated [by an ever-receding future date] regardless of the social cost of the devices that may be employed to effect it.

This depressing truth was foreshadowed by a brilliant cartoon by Brookes in the Times, which showed a naked Hammond playing AUSTERITY [on a Hammond Organ, obviously] on a bleak upland meadow with just a few sheep to keep him company.

The implications of that pathetic performance were pointed out in yesterday's Evening Standard by the brilliant Anthony Hilton. If the achievement of a 'high rate of growth' by the British economy is so wonderful, why are public and social services still being cut? Why are most people worse off, in real terms, than they were in 2007?

The answer is that the statistical entity that has been chosen as a criterion for the success of government policy, the 'growth' of the economy, is operationally meaningless in this day and age. 'Growth' is seen as a sign of success, while productivity is stagnant. Find Hilton's column on line.

Meanwhile, on the same day, it was announced that George Osborne - the author of the disaster - is to be paid some £600,000 a year for four days a month 'work' for a major international Fund Manager: as the old song put it "It's the rich what gets the money, and the poor that takes the blame!"

Wednesday, 8 March 2017

Brexit: Hard, Soft or Silly?

The debate in the House of Lords over the past few days has been instructive. Not only does it show the Liberal Democrats' brazen contempt for democracy; but even more apparent is the attitude of those peers who accept that a popular vote is valid, but that their superior understanding must somehow circumvent the decision that the people believed they were able to make.

It has to be assumed that people took their decision deliberately, though with a huge range of reasons  for their choice, and with different degrees of knowledge and understanding about the institutions and economic flows that were involved. The government has been right to act on this assumption. But Mrs May is well on the way to seeking an exit from Europe that will justify the fears of many of the peers that the withdrawal will be unnecessarily damaging to the welfare of the nation. The sentence "Brexit means Brexit" is sublimely meaningless. The word Grexit was coined by the press to summarise the possibility a few years ago that Greece might have to drop out of the Eurozone. It was then transposed into Brexit when David Cameron - in blatant arrogance - decided that he could scare the nation into voting to keep Britain in the European Union. He then gave the country a shameful exhibition of how the EU grandees brushed off his frail attempts to 'reform' the Union, which of itself was one of the most powerful levers for people to vote against the 'unelected' grandees of Brussels.

Cameron and his bogeyman, Osborne, were pushed aside and Mrs May filled the void: then she immediately took the lead of the arch-Brexiteers in the parliamentary Conservative party. This established a sense of negativism that can be hugely damaging: so the dissenting peers are being proved right by attitude of the government. This conflict, between the Remoaners and those pushing for a stupidly damaging form of exit, could very easily vitiate the actual democratic decision that was taken. Watch this space!

Tuesday, 7 March 2017

Perspective in Political Economy

In what we are promised will be the last spring Budget week, all sorts of data of dubious relevance are dragged into the papers. Does it matter that George Osborne's tinkering with the tax system in the six years 2010-16 led to the implementation of 'about half' of the 1,453 changes that have been imposed on Britons in the last 45 years? This gem of data has been proffered by the Chartered Institute of Management Accountants, who I am old enough to remember as the Cost and Works Accountants when their forebears did useful work in ensuring that most of Britain's massive industrial sector was productive and profitable.

It is absolutely taboo nowadays, under the hegemony of authoritarian Economics, to note that much of the success of private industry came from state subsidies, export credits, and from massive orders from the armed forces and from the nationalised electricity, railways, coalmines, ports and other state industries. The state sector built the world's first viable nuclear power plant and funded Concorde, while the demands of the cold war gave us the V-bombers, brilliant fighter aircraft, superb high-speed destroyers, the most efficient nuclear-powered submarines in the world: and the UK funded all of that while constantly improving the health service, expanding and developing a rational [though socially divisive] pattern of schools and universities and technical colleges, expanding  broadcasting into television, building the first motorways, and fostering a general feeling of success among the population at large. That is all about the UK more than 45 years ago, 45 years being the timescale against which the Management Accountants have mapped the frenetic increase in work for their profession and their sister institutes that has been derived from Chancellors tinkering with the tax system as they have have sold off or shut down the state industries, overexpanded the universities as they have driven down standards for the majority of bubble institutions so described while they have been thrown up to accommodate the otherwise-unemployable army of non-mathematical school leavers who have been deprived of positive prospects for employment in an industry of which they can feel truly proud.

1972 was 45 years ago. It can be taken as a watershed year, as in the next year the economic world was turned upside down by the decision of the oil exporting countries [OPEC] to use political means to shift the balance of power in the capitalist world. They slapped massive charges on the export of their oil, which transformed the global pattern of payments as the capitalist system in the 'free world' had become hugely dependent on petroleum. The USA and a few other leading economies were themselves major oil producers; but for Britain the public announcement of oil discoveries [already made] in the North sea was several years in the future. So the immediate impact of the oil-price hike meant that the price of almost everything that was carried in oil-fired ships, on oil-fired lorries  was necessarily increased; the prices of plastics and other materials incorporating petroleum rose, private motoring became more costly. The cumulative effect of all these sudden and unavoidable changes was rapid general price inflation; to which workers responded with wage demands. Thus it is also important that in 1972 it became unequivocally clear that wages could not be controlled by government decree. Edward Heath's conservative government came into power in 1970 with a policy to have an Industrial Relations Act [really, a Trade Union Control Act] that would enforce the decisions of an Industrial relations Court. That system was simply ignored. Before the inflation occurred, the new legislation had successfully been challenged; so when the authorities tried to enforce pay restraint, they failed.

The economic history of Britain is totally different, pre and post 1972. Of course, the problems that drove the country into the inflationary tendency and into the arms of Mrs Thatcher had been incipient long before 1972; but that really was the year in which the disaster was in preparation.

It the ICMA had chosen a different timescale for their research, or had decided not to publish it, this historical disquisition would never have been written: but they did publish it, and I blame them for this piece.

Monday, 6 March 2017

The psychology of the Budgetary process.

It is hard not to rabbit on about Trump, especially as he seems to have managed a real tantrum over the weekend; but I think it safest just to wait, and to hope that he implodes rather than explodes.

The key topic for today is the same as yesterday, and all this week: the basis on which The Chancellor of the Exchequer is building his Budget. The hints came thick and fast over the weekend - mainly from Hammond himself - indicating that he intends to continue the Osborne policy of punishing the mass of the people with higher taxes, while not meeting the screeching needs of the social and health care systems or the deficiencies in defence and in police that leave this country so vulnerable. He will nevertheless present data on the 'growth of the economy' as good news, almost certainly including raised forecasts for such growth as a justification for maintaining the existing overall policy package that he has inherited.

Tragically, these data - though not deliberately faked - are misunderstood. What is 'growing' is the guesstimated prices at which all the estimated number of transactions within the British economy are increasing; put simply the 'turnover' of all businesses and private individuals in the country, plus the public sector. Thus there is a massive amount of double-counting, as where tax is taken on sales, and that money is paid out as benefits whose recipients then buy more things. The rate at which the number of transactions is increasing, multiplied by the increase in the prices tagged onto those transactions, is the 'growth' for the year: the amount by which the last year's aggregate exceeded the aggregate for the previous year.

Year after year British people buy more imported things, making net payments to the rest of the world for imports that significantly exceed the amount we get from foreigners for exports. Also, every year, a flow of cash comes into the economy from the sale of British businesses to foreigners; often including businesses that have developed innovative technologies and products: in every future year the revenue from those firms can be taken wherever in the world the new owners choose to allocate it. This net alienation of asset ownership has been going on for several years now [foreigners owning more of our economy that we own of theirs] so more and more tribute is paid to aliens for the firms, the brands and the ideas that they bought from Brits in the past. So the distributable return passes from British control.

Twenty-first century Economists, and even Chancellors of the Exchequer, are sensitised to the need for higher productivity which means getting more out of the staff for each hour of wages paid, year on year: and they witter on about a productivity crisis which they do nothing to change. They do not even recognise the crisis of productiveness which is the extent to which industrial and commercial activity leave net profits in the hands of British controllers of British businesses, enabling them to invest to the benefit of the economic whole. The lack of investment may not seem important; especially as many businesses that still do make profits are sitting on the cash, or handing it out to shareholders, rather than investing; but in fact it is the most worrying evidence of the demoralisation the decision-takers in the economy. The government's austerity makes both consumers and investors nervous. Consumers decide to spend what they can [even if they borrow the money to buy things] in case they won't be able to enjoy the same lifestyle in future; so they buy imported goods here and now. Producers see what is happening, and share the consumers' doubts about the future, so hold back and let imports fill the supply gaps that they will not take the risk to fill.  The overall mood of demoralisation deepens. Mr Hammond can press on as his cohort of Economists urge him to.