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...

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.

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.

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.

Econocracy

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.

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.