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!

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.

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.

Britain's 2017 Budget: another wasted opportunity

Britain is in the throes of pre-Budget lobbying, which is always the most intense when a new Chancellor of the Exchequer is about to make his first foray into the minefield of alternative choices. Mr Hammond knows, as all his advisers [both official and self-appointed] know, that Mrs May's Conservatives cannot possibly produce a fair and practicable programme to convert Britain into a truly dynamic economy in a rapidly changing world. So he has already made it clear that he does not feel it appropriate to indulge in any massive shift from a policy of spending cuts to one of massive borrowing and spending [such as President Trump has been suggesting for the USA]. The Chancellor has accepted the Treasury Economists' advice that 'fiscal discipline' must be maintained.

Thus the Budget will provide for worsening conditions in the health service, in a period when more expensive treatments are becoming available that could be applied to more people with serious illnesses. It will cut real-terms funding for the armed services, for the police and for local authorities, with some token of mitigation for social care. It will make this country a more unhealthy and unsafe place that it easily could be.

The Chancellor will not try to get the country out of the contract to pay insane prices for electricity from the highly problematic Hinckley Point power station, with an underpinning guarantee from the Treasury; though this will do nothing to cause the French to argue less strenuously for Britain to be punished for Brexit. He will do nothing to change the situation by which foreign investors will be given privileged terms for building and operating an unnecessary HS2 railway. He will make no substantive investment in a 'northern powerhouse' that could really begin to rectify the vandalism of Thatcherite industrial destruction. He will announce no measure seriously to protect British innovations from being captured by alien investors. He will do nothing to mitigate [or to tax] the flow of tribute from British consumers to foreign owners of privatised utilities.

Thus the social and financial deprivation of the British people will be intensified; while indirect taxes on the bulk of the population will be increased. The Economists do not see these derelictions as direct causes of 'populism', which will grow as lower real living standards generate more dissatisfaction with the 'Remoaner' elite.

It is to be expected, nevertheless, that some steps will be announced - at minimum cost, of course - to address some of the most conspicuous social failures. So, as the bus services that have enabled pensioners to get to the shops and to the doctors are cut, a few more minutes per day will be allocated to the more serious cases in need of social care. For a day or two after the presentation of the Budget, the Conservative-supporting press will present these trivia as major advances: then the mood of general gloom will intensify. The Chancellor will refer extensively to the 'underlying strength' of the economy, and to the supposedly robust 'growth' that is still being recorded year on year: the illusory nature of these claims will extensively be examined in coming blogs.

Trumping Arrow

Late in February the death was announced, at a great age, of the much-honoured Romanian-American Economist Kenneth Arrow. This death marks a significant break-point in the history of Economics. Arrow was one of the very first people to be awarded the pseudo-Nobel Prize [known as the Nobel Memorial Prize] that was funded by Scandinavian bankers to lend verisimilitude to Economics, to support the delusion that the subject could be viewed as a 'science' comparable with Physics or Medical Sciences.

With the noblest of intentions, Arrow's life's work was consistent with this ambition: to present Economics as a cogent system of theory and supporting data that should enable humanity to construct economic entities that would operate efficiently in space and time, as steam engines and spacecraft do.

From beginning to end of his career, Arrow cited and supported the pretensions of Adam Smith to be the founder of a fundamental economic science. A century before Smith produced his most-cited book in 1776, the precursors of Isaac Newton had collated their observation of stars, satellites of stars [planets], satellites of planets [moons] and other classifiable heavenly bodies with sufficient clarity for Newton's exceptional intellect to be able to provide a wholly new perception to this data by demonstrating that the universal force of gravity enabled the material universe to have coherence that humans could recognise and analyse.  

Arrow appreciated how [in his own generation] Adam Smith had recognised that most of the time most of the produce that emerges from the human economy is bought by those who have a use for it: who will consume it, save it or otherwise dispose of it according to their choice. Smith sought for an economic equivalent of gravity, and claimed to have found it in the assumed universal force of self-interest. Smith said that the butcher does not buy sheep and cattle, kill them, work on the carcasses, and hang the meat in his shop because he wants selflessly to benefit the human race: on the contrary, his self-interest has led him to learn the skills of butchery, to buy or to rent premises for his shop, to raise the money with which to buy his cleavers and knives, and to buy the animals with the intention of selling meat to make a living for himself and his family [and ideally to make sufficient profit to expand his business and improve his home].

It is demonstrably the case that over the whole economic system people are making their own selfish decisions, which reciprocally enable most of humanity most of the time to have enough to live on. Smith asserted that the natural operation of the economy would work beneficially most of the time; and two hundred years later Arrow deployed twentieth-century mathematics to try to show how that theory might work out. This contribution to the 'pure science' of Economics greatly influenced generations of Economists between 1960 and February, 2017, the time of Arrow's death: many of them worked to extend and improve the mathematical modelling that purported to bolster the theory, while other Economists worked to persuade politicians and the public that the state [national and local government] should - wherever possible - remove any interventions in trade or industry and leave market forces to control the economy.

But over the period covered by Arrow's long career, almost exactly the same period, it was becoming clear that the progressive freeing of the economy from government controls, and from behavioural constraints [as moral attitudes were relaxed], did not benefit everybody. Progressively through the nineteen seventies, eighties and nineties areas of 'deprivation' emerged in the USA and Europe. The uplands of capitalism were more fruitful and more glamorous than ever; but rustbelts and depressed areas were obvious by the time of the millennium. Finance capitalism was granted unprecedented freedom between the mid-eighties and the mid-noughties, and it created the gigantic crash of 2007-8. The state took back control of the system, and poured massive resources into it: and ten years on from the crisis, nobody has the faintest idea how to unscramble the resulting situation. The economy is now less like the system that Arrow modeled than it has been anytime since Adam Smith foreshadowed the concept.

And now we have President Trump, who came into office a month before Arrow died: promising a new era of active state involvement in most aspects of the economy and attracting a new sort of mass support from the political grassroots. The fundamental discontinuity between popular politics and perfectionist economic theory has starkly been exposed, and will increasingly inform, confuse and exacerbate the debate that is being led byTrump, the Brexiteers and the various 'populists' emergent in Europe, the Americas and Asia. We live in truly interesting times!

I have been off-air for many months, having worked on my last and definitive book on the failure of Economics.
I have banged-on about this for yonks: but now I think I can claim that a majority of the British people agree with me. The Remain campaign in the referendum last year relied heavily on the advice of Economists - who predicate disaster [with immediate effect] if the Brexit side won.

We all know what has happened.

Economists, and the politician mugs who are still conned by them, offer dire warnings about what will happen the day after tomorrow; while keeping stumm about why the worst didn't happen yesterday.

The politicians are still complacent about the overall state of the British economy, even though they now know that they have cut back the health service, the prison service, the police and most other local government-provided services to a level where they cannot function properly.

So, now I am back and will be blogging heavily.

David E Bland

Go to Amazon and look for "NO CONFIDENCE: The Brexit Vote and Economics"

Back to work!

I haven't blogged since April, as the world was so uncertain that it was impossible to set any argument in context.

We now know that the UK has a majority Conservative government, that has already amazed people by implementing its manifesto promises.

We now know that the German Finance Minister was a better game practitioner than his [now vanished] Greek opposite number was: because the Greek had the immense handicap of being an economic game theorist. In the end, the Greeks were more keen to be in on the euro - at any price, to them [and eventually to their partners] - than the Germans were to bail them out on their own terms. The terms that were agreed effectively suspended Greek sovereignty, and thus were a salutary example [and warning] the Europe.

It will now be massively more difficult for David Cameron to 'sell' his cosmetic changes in the UK's relationship with the EU as being enough to persuade the nation to stay in a position where they are vulnerable to loss of sovereignty. Interesting times!

Meanwhile, there is a possibility that the Labour Party in the UK will head into the setting sun, and oblivion, by electing Mr Corbyn as leader. The alternative, a scouser who [true to the type] finds it easier to talk than to listen, is still the front-runner: if he wins, he may succeed in decelerating the decline of "the party we love": but he will not make it electable.

And the sad rump of the Lib-Dems in parliament are now to be led by a man who put his leftish principles above the desire to share in tasting ministerial power: while most other prominent members of the party joined Cameron's coalition, he stood aloof. It is sad, therefore - for him - that his principles, like those of most honest Labour Party followers, will become increasingly irrelevant in a country led [heaven help us] by GG Osborne.

I look forward to being online regularly from now on.