The term ‘invisible hand’ describes the theoretical self-righting mechanism that the original political economists thought to be a characteristic of genuinely competitive markets. But the one thing that can surely now be seen is that this hypothetical hand has been more than usually invisible in recent years or else, of course, we do not have properly competitive markets.
In fact both of these things are true in my view. Hidden hands are not only invisible but also insubstantial and in fact totally incredible. Many so-called ‘markets’ in these benighted days of globalisation are rigged and operate as cartels comprising companies owing no loyalties save to themselves and mammon.
These outfits and their rich owners profit excessively from ordinary people by taking advantage both of them and of their timid and credulous governments and politicians who witter on, textbooks in hand, about the equally non-existent ‘level playing fields’ (about as likely to exist as the Elysian Fields) for international competition.
All this and the obsession with so-called ‘free’ trade and it’s claimed virtues - while some other countries are allowed to get away with cheating 365 / 24 / 7 with, amongst many other things, blatant trade restrictions, industrial espionage and fiddled exchange rates, plundering our once proud industries as they go. What fools we were to allow self-interested corporate management to hand over our assets to them, what fools some of our leaders still continue to be and what fools we are to keep returning them to power.
The only ‘invisible hands’ in evidence have been digging deep into the public purse and less than invisible tills fishing out quantities of the nation’s money that would make a spectre blanche. This along with the disgraceful and shameless industrial-strength tax avoidance widely practised by international companies.
What we need of course are very visible hands, not only bringing the discipline of regulation (and a sizeable stick) and perhaps some genuine competition but the helping hand of direct intervention in the real economy resourced by taxes that are actually paid by corporations and wealthy individuals. We either save what industry we’ve still got left or we shall lose that as well.
I have argued in other postings on this site for the adoption of pro-active Keynesian policies including taking advantage of the balanced budget multiplier effect and focusing on the economic benefits from direct investment in physical assets.
These measures should be taken by the Government as soon as possible but we are unlikely to detect much trace of these in the Chancellor’s upcoming Autumn statement. Alongside these measures should be the establishment of ‘exemplar’ companies - such as municipal banks - in co-operative or public ownership and management. Complaints that such organisations would ‘disrupt the market’ miss the point - that is exactly what they need to do.
There is no ‘invisible hand’ and one thing at least is abundantly clear, either we take our future into our own hands with pro-active public involvement or we will have very little that is visible to hand on to future generations.
Thursday, 15 November 2012
Tuesday, 13 November 2012
Balance and Recovery
While the Bank of England’s recent caution in respect of a further expansion of ‘quantitative easing’ is understandable - indeed welcome - this does not mean that all sensible options are closed.
Much more needs to be done to secure economic recovery in the context of the global financial crisis that is corroding the real economy and which, along with the state of the public finances, remains in very poor shape. This is partly, of course, as a result of dismal, depressing and continuing ill-advised government policies. The Government’s likely juggling with the apparent proceeds from earlier quantitative easing will not disguise the underlying harsh realities.
But even within the timid and self-deluding mindset of the austerity brigade there are things that could be done. If I can return to my Keynesian position I would draw attention once more to the concept of a balanced budget multiplier. This is where in a broadly neutral budget, spending power is moved towards those with a higher propensity to consume. In other words smaller deductions from the pay packets of lower income earners and somewhat higher taxes for the rich - and I mean rich, not the middle classes picking up the bills again.
One way to achieve this would be to smooth out individual National Insurance contributions, making them a flat percentage of earnings with no limit on the range so that the rich contribute more and the less well off have lower reductions. Also, to balance over a longer period, the top rate of tax should go back up to 50% from the entirely unjustified and partisan proposed 45% due next year. Alongside this, the rashly abolished 10p rate should be reinstated.
If the flat rate of National Insurance contributions were set at a level that brought in a greater total sum this would free resources for increased support for manufacturing industry and public works projects. In the latter respect there will not be a Local Authority in the country that does not have ready to go engineering schemes that have been thwarted by budget cuts and the ever-increasing demands on the social care front.
Speed of action is important too; with the glacial progress of assistance to manufacturers and the essential root and branch reform of banking as dismal examples of the dilatory implementation of official policy – such as it is. And action needs to be taken to deal with massive corporate tax avoidance. There’s a double whammy here since many of the rich recipients of the untaxed profits will be tax dodgers too. It’s not just the economy that needs to be re-balanced but the taxation system too.
And there are other fiscally neutral measures that can be taken both at local and national level. Here I refer to procurement of goods and services. The Government must ensure that as much of its purchasing goes to domestic producers - from major defence or construction projects right down to the cars provided for ministers. There are ways of framing conditions for bids that do not contravene Euro legislation that can help domestic producers. You can be sure that certain other European countries already do this - and much besides.
The same goes for contracts from Local Authorities. There is a multiplier of around four so that when a contract for say £500k is awarded to a business there is a total benefit of no less than £2m to the area (as that firm and its employees spend and the beneficiaries of that spend also spend too.)
So there is considerable policy latitude remaining even if the Government is afraid to take radical action. Perhaps it is a forlorn hope, but maybe an element or two of this kind of traditional Keynesian thinking will filter through – in the fullness of time of course.
Much more needs to be done to secure economic recovery in the context of the global financial crisis that is corroding the real economy and which, along with the state of the public finances, remains in very poor shape. This is partly, of course, as a result of dismal, depressing and continuing ill-advised government policies. The Government’s likely juggling with the apparent proceeds from earlier quantitative easing will not disguise the underlying harsh realities.
But even within the timid and self-deluding mindset of the austerity brigade there are things that could be done. If I can return to my Keynesian position I would draw attention once more to the concept of a balanced budget multiplier. This is where in a broadly neutral budget, spending power is moved towards those with a higher propensity to consume. In other words smaller deductions from the pay packets of lower income earners and somewhat higher taxes for the rich - and I mean rich, not the middle classes picking up the bills again.
One way to achieve this would be to smooth out individual National Insurance contributions, making them a flat percentage of earnings with no limit on the range so that the rich contribute more and the less well off have lower reductions. Also, to balance over a longer period, the top rate of tax should go back up to 50% from the entirely unjustified and partisan proposed 45% due next year. Alongside this, the rashly abolished 10p rate should be reinstated.
If the flat rate of National Insurance contributions were set at a level that brought in a greater total sum this would free resources for increased support for manufacturing industry and public works projects. In the latter respect there will not be a Local Authority in the country that does not have ready to go engineering schemes that have been thwarted by budget cuts and the ever-increasing demands on the social care front.
Speed of action is important too; with the glacial progress of assistance to manufacturers and the essential root and branch reform of banking as dismal examples of the dilatory implementation of official policy – such as it is. And action needs to be taken to deal with massive corporate tax avoidance. There’s a double whammy here since many of the rich recipients of the untaxed profits will be tax dodgers too. It’s not just the economy that needs to be re-balanced but the taxation system too.
And there are other fiscally neutral measures that can be taken both at local and national level. Here I refer to procurement of goods and services. The Government must ensure that as much of its purchasing goes to domestic producers - from major defence or construction projects right down to the cars provided for ministers. There are ways of framing conditions for bids that do not contravene Euro legislation that can help domestic producers. You can be sure that certain other European countries already do this - and much besides.
The same goes for contracts from Local Authorities. There is a multiplier of around four so that when a contract for say £500k is awarded to a business there is a total benefit of no less than £2m to the area (as that firm and its employees spend and the beneficiaries of that spend also spend too.)
So there is considerable policy latitude remaining even if the Government is afraid to take radical action. Perhaps it is a forlorn hope, but maybe an element or two of this kind of traditional Keynesian thinking will filter through – in the fullness of time of course.
Thursday, 8 November 2012
Keynesians of the World Unite!
The country needs a revolution, we need change that puts the common good and the national interest in front of corporate profiteering and austerity for all but the rich. Western governments and significant others need to rediscover – and be quick about it - the merits of the positive and proven economics of John Maynard Keynes in which public investments are made and effective stimuli are provided to depressed, damaged or heretofore forsaken economies. As an ‘unreformed’ Keynesian myself I naturally see this idea as preferable to doses of depressing, divisive and failed austerity. Keynesian economic policies would bring an end to the recession and stop the economic ‘bumping-along-the-bottom’ for good.
Major countries - particularly the United States and ourselves – lived for years in a fantasy world of non-existent ‘wealth’ that was ‘created’ by bankers and believed by gullible political accomplices. Creative industry - and by this I mean manufacturing since nothing is more ‘creative’ than making things - has been hollowed out since the disastrous years of the early eighties. I recall Mrs Thatcher’s chief economic adviser asking (privately but not in public) ‘why does the country need manufacturing?’ I was flabbergasted and outraged at that time and have been so ever since as successive governments acted as if they’d been reading the same too-clever-by-half monetarist textbooks. We can co-exist with Monetarists in good times but when the going gets tough it’s time to send for Uncle Maynard.
We need a new industrial revolution, increasing the number of things that we make and mine and have a thriving agriculture. This is not just because self-sufficiency means that the country is less exposed to the consequences of get-rich-quick or manipulative behaviour elsewhere, but because the nation’s self-respect demands it. And ownership does matter - again because of national pride but also because being a ‘branch plant economy’ leaves industry and employment more exposed to closures made by foreign owners. The lack of control over industry represents a failure of the private sector, laissez faire economics and compliant and timid government.
There’s a Dorian Gray feeling about an economy that has relied so much on money lending, taking in washing (sorry, providing services) and wheel clamping (for many years one of the strongest growth sectors). With industries eviscerated and household name British firms falling under foreign control and exporting jobs by the thousand each month, what exactly was it that those in control supposed to have been growing all those years?
Casino capitalism creates nothing, it is a zero sum game - the amount won equals the amount lost. Real capitalists - our Victorian forebears - would be horrified to be bracketed with today’s fly-boys pretending to be beacons of free enterprise. These old-fashioned entrepreneurs had many faults not least their relentless exploitation (now also exported to China) but they had two other qualities - a sense that what they were doing was important for the nation and that the national interest counted as well as their own profits, and the basic money-morality that meant that you didn’t set out to lie and cheat your way to riches.
The other downside of an industry shrivelled in the shadow of globalisation is that some Keynesian remedies do not work quite as easily these days because more of any stimulus leaks out through being spent on imports. In the old days we would have been making the goods on which people spent their extra money, thus creating more wealth which in turn was spent on domestic goods leading to the Keynesian ‘multiplier’ where an original pound of expenditure generates several pounds worth of economic recovery. Investment in infrastructure is preferable to tax cuts and it is important to construct the stimulus to minimise leakage.
So more should be spent on expanding public works (in which more of the good stays at home) and helping to rebuild industry and create jobs directly. What is more, a Keynesian solution does not require huge budget deficits. There is the long-neglected concept of the balanced budget multiplier where higher tax rates are applied to those who spend smaller proportions of their income (the rich) with lower taxes on those who spend greater proportions of income (the rest). But since the adoption of the convenient nonsense of ‘trickle down’ arguments, the idea of taxing people who can afford it has been swept off the table with the crumbs.
I’m tired of hearing that there’s nothing that can be done about globalisation. I for one will never ‘embrace’ it. Eisenhower spoke of the ‘military / industrial complex’. Globalisation has involved a ‘corporate / political complex’ where the actions of rootless corporations are tacitly supported by politicians seeing a short run gain in wealth and needing their campaign coffers filled. But the chickens have come home to roost in droves and the first step would be to break this failed alignment working with like minded nations and getting a grip.
I’m also sick to death of hearing about the ‘vital importance’ of free trade - whatever is meant by that - and hearing chancellors urging the creation of ‘level playing fields’ when what they should have been doing all along is applying the same degree of tilt as the others have been doing for years. I say ‘whatever is meant by that’ because no (legal) trade is completely free in the sense of having a complete absence of regulations and standards. It is a question of how much regulation is needed and how it is enforced when not voluntarily observed.
Just how dreadful do working conditions have to be in China or India before you admit that this isn’t legitimate competition but exploitative cheating? Just how much pollution is it alright to belch out in China? In fact we have been exporting pollution along with our jobs. Production under domestic conditions would have caused less pollution. So globalisation (even without the additional transport emissions) has made global warming worse along, as we now realise, with ecological damage and the spread of disease.
In this context there’s also a lot of dangerous talk about so-called ‘comparative advantage’ where countries to the East make products cheaper for some reason. These ‘reasons’ always including low pay, dire working conditions and serious environmental damage and in certain cases use of child labour, currency manipulation, export subsidies, copyright violations and industrial espionage. After apparent short-term gains in the quantity of electronic gadgets and household bric-a-brac in our homes, this theory leads ultimately to ruin for us too. It is often alleged that we surely have a comparative advantage in being ‘smart’ doing designs and selling services - as if the competitors to whom we have handed our manufacturing and engineering work are stupid and that these ‘smart’ things are not already on their list.
So do I favour so called ‘protectionism’, whatever is meant by that, as opposed to ‘free’ trade? It seems that you can use the word ‘protect’ positively when you insure or take other precautions to secure the future of your home and family but to apply ‘protect’ to the economy on which all this depends has been given utterly negative connotations. The descriptions of ‘fair or ‘loyal’ trade give a flavour but we really need a new word in the mercantile lexicon. But it is not a binary choice. Nothing is ever totally free or totally protected. We need fair and balanced trade and patriotic producers.
I favour a trading environment where our industry, independence, national pride and environment are conserved and where we as a country display the extent of self-interest that other nations do. I favour repatriated production and a context where business leaders rediscover loyalty (bankers need more than this – their very own cultural revolution with a few years spreading muck in the fields to see if they can turn this into brass) and act to enhance the common good. And where consumers preferentially buy English and local and where government, national and local (if any of this is left after the savage cuts) facilitates the rebuilding of productive industry so long dismissed and derided by service economy smart alecs and quick fixers.
Can’t be done? Of course it can – come the revolution! There needs to be the will, robustness in international terms and a genuinely long run vision for the national future. Quite a lot to ask for these days I suspect. In the meantime we should apply the approach advised by John Maynard Keynes to our national infrastructure in all its aspects and not be averse to a fairer system of taxation that would make this an affordable reality. If other countries in Europe adopt a similar approach the effect will be that much greater. Keynesians of the World Unite!
Major countries - particularly the United States and ourselves – lived for years in a fantasy world of non-existent ‘wealth’ that was ‘created’ by bankers and believed by gullible political accomplices. Creative industry - and by this I mean manufacturing since nothing is more ‘creative’ than making things - has been hollowed out since the disastrous years of the early eighties. I recall Mrs Thatcher’s chief economic adviser asking (privately but not in public) ‘why does the country need manufacturing?’ I was flabbergasted and outraged at that time and have been so ever since as successive governments acted as if they’d been reading the same too-clever-by-half monetarist textbooks. We can co-exist with Monetarists in good times but when the going gets tough it’s time to send for Uncle Maynard.
We need a new industrial revolution, increasing the number of things that we make and mine and have a thriving agriculture. This is not just because self-sufficiency means that the country is less exposed to the consequences of get-rich-quick or manipulative behaviour elsewhere, but because the nation’s self-respect demands it. And ownership does matter - again because of national pride but also because being a ‘branch plant economy’ leaves industry and employment more exposed to closures made by foreign owners. The lack of control over industry represents a failure of the private sector, laissez faire economics and compliant and timid government.
There’s a Dorian Gray feeling about an economy that has relied so much on money lending, taking in washing (sorry, providing services) and wheel clamping (for many years one of the strongest growth sectors). With industries eviscerated and household name British firms falling under foreign control and exporting jobs by the thousand each month, what exactly was it that those in control supposed to have been growing all those years?
Casino capitalism creates nothing, it is a zero sum game - the amount won equals the amount lost. Real capitalists - our Victorian forebears - would be horrified to be bracketed with today’s fly-boys pretending to be beacons of free enterprise. These old-fashioned entrepreneurs had many faults not least their relentless exploitation (now also exported to China) but they had two other qualities - a sense that what they were doing was important for the nation and that the national interest counted as well as their own profits, and the basic money-morality that meant that you didn’t set out to lie and cheat your way to riches.
The other downside of an industry shrivelled in the shadow of globalisation is that some Keynesian remedies do not work quite as easily these days because more of any stimulus leaks out through being spent on imports. In the old days we would have been making the goods on which people spent their extra money, thus creating more wealth which in turn was spent on domestic goods leading to the Keynesian ‘multiplier’ where an original pound of expenditure generates several pounds worth of economic recovery. Investment in infrastructure is preferable to tax cuts and it is important to construct the stimulus to minimise leakage.
So more should be spent on expanding public works (in which more of the good stays at home) and helping to rebuild industry and create jobs directly. What is more, a Keynesian solution does not require huge budget deficits. There is the long-neglected concept of the balanced budget multiplier where higher tax rates are applied to those who spend smaller proportions of their income (the rich) with lower taxes on those who spend greater proportions of income (the rest). But since the adoption of the convenient nonsense of ‘trickle down’ arguments, the idea of taxing people who can afford it has been swept off the table with the crumbs.
I’m tired of hearing that there’s nothing that can be done about globalisation. I for one will never ‘embrace’ it. Eisenhower spoke of the ‘military / industrial complex’. Globalisation has involved a ‘corporate / political complex’ where the actions of rootless corporations are tacitly supported by politicians seeing a short run gain in wealth and needing their campaign coffers filled. But the chickens have come home to roost in droves and the first step would be to break this failed alignment working with like minded nations and getting a grip.
I’m also sick to death of hearing about the ‘vital importance’ of free trade - whatever is meant by that - and hearing chancellors urging the creation of ‘level playing fields’ when what they should have been doing all along is applying the same degree of tilt as the others have been doing for years. I say ‘whatever is meant by that’ because no (legal) trade is completely free in the sense of having a complete absence of regulations and standards. It is a question of how much regulation is needed and how it is enforced when not voluntarily observed.
Just how dreadful do working conditions have to be in China or India before you admit that this isn’t legitimate competition but exploitative cheating? Just how much pollution is it alright to belch out in China? In fact we have been exporting pollution along with our jobs. Production under domestic conditions would have caused less pollution. So globalisation (even without the additional transport emissions) has made global warming worse along, as we now realise, with ecological damage and the spread of disease.
In this context there’s also a lot of dangerous talk about so-called ‘comparative advantage’ where countries to the East make products cheaper for some reason. These ‘reasons’ always including low pay, dire working conditions and serious environmental damage and in certain cases use of child labour, currency manipulation, export subsidies, copyright violations and industrial espionage. After apparent short-term gains in the quantity of electronic gadgets and household bric-a-brac in our homes, this theory leads ultimately to ruin for us too. It is often alleged that we surely have a comparative advantage in being ‘smart’ doing designs and selling services - as if the competitors to whom we have handed our manufacturing and engineering work are stupid and that these ‘smart’ things are not already on their list.
So do I favour so called ‘protectionism’, whatever is meant by that, as opposed to ‘free’ trade? It seems that you can use the word ‘protect’ positively when you insure or take other precautions to secure the future of your home and family but to apply ‘protect’ to the economy on which all this depends has been given utterly negative connotations. The descriptions of ‘fair or ‘loyal’ trade give a flavour but we really need a new word in the mercantile lexicon. But it is not a binary choice. Nothing is ever totally free or totally protected. We need fair and balanced trade and patriotic producers.
I favour a trading environment where our industry, independence, national pride and environment are conserved and where we as a country display the extent of self-interest that other nations do. I favour repatriated production and a context where business leaders rediscover loyalty (bankers need more than this – their very own cultural revolution with a few years spreading muck in the fields to see if they can turn this into brass) and act to enhance the common good. And where consumers preferentially buy English and local and where government, national and local (if any of this is left after the savage cuts) facilitates the rebuilding of productive industry so long dismissed and derided by service economy smart alecs and quick fixers.
Can’t be done? Of course it can – come the revolution! There needs to be the will, robustness in international terms and a genuinely long run vision for the national future. Quite a lot to ask for these days I suspect. In the meantime we should apply the approach advised by John Maynard Keynes to our national infrastructure in all its aspects and not be averse to a fairer system of taxation that would make this an affordable reality. If other countries in Europe adopt a similar approach the effect will be that much greater. Keynesians of the World Unite!
Wednesday, 7 November 2012
Four More Years!
I was delighted to see the result of the United States presidential election with the return of a Democratic president for four more years. While Democrats retained control of the Senate, today’s Tea party dominated Republicans will keep control of the House of Representatives. It’s probably a vain hope that the obstructionism of the House will moderate given the overall result.
The Founding Fathers when framing the constitution never envisaged the doctrinaire and irrational Tea Party intransigence that has crippled government and which must dismay genuine one-nation Republicans and which makes the US system of government dysfunctional. And if the problem of the ‘fiscal cliff’ approaching in January is not resolved the consequences will be bad for the until now steadily recovering US economy and the rest of us too. It’s said that politics is the art of the possible – and it is the art of skilful compromise too.
Let’s hope that reason rather than doctrine prevails.
The Founding Fathers when framing the constitution never envisaged the doctrinaire and irrational Tea Party intransigence that has crippled government and which must dismay genuine one-nation Republicans and which makes the US system of government dysfunctional. And if the problem of the ‘fiscal cliff’ approaching in January is not resolved the consequences will be bad for the until now steadily recovering US economy and the rest of us too. It’s said that politics is the art of the possible – and it is the art of skilful compromise too.
Let’s hope that reason rather than doctrine prevails.
Saturday, 3 November 2012
A Keynesian Dynamic Still Essential
There is no doubt that the country was badly placed to withstand the immense damage caused by the financial sector when it first hit the economy and it is not in a lot better shape today. Badly placed indeed, due an unbalanced economy that had become far too reliant on casino capitalism rather than the productive sectors and of course, on an epic scale, due to the abandonment of prudence, wisdom, decency, diligence, respect and even plain common sense in the banking and financial sector and the absence of effective financial regulation.
Added to this has been the destruction of social and industrial foundations caused by globalisation on manufacturing and engineering in particular, with much production closed down by disloyal and herd-driven management and greedy ‘stakeholders’ and many jobs already exported.
The evisceration of our industries of substance has left the country less able to benefit from the lower value of the pound by producing for export - where external demand has not been destroyed by external banks and ill-advised economic policies particularly in Europe. The commercial banks added to the damage caused by their own greed and incompetence by effectively forcing viable producers out of business with severely tightened conditions or recalled loans. I sometimes think that banks, in their behaviour towards industry and individuals alike, are little better than a fifth column. As a result of this and government policies of austerity there is little prospect of anything much better than the economy continuing to bump along the bottom and there is still a real and present danger of approaching a 1930s situation.
How is this dire predicament to be remedied? Certainly not without a cost - folly always has a steep price. But how do we ensure that such a deep recession, where productive output recedes and where spending and incomes are well below normal, does not worsen further into sustained depression where there are further falls and the loss of GDP approaches double digits? And how do we ensure that a sustainable economic recovery begins as soon as possible?
Those in power, or aspiring to power, must develop effective recovery strategies. It is clear that these do not exist in Government and the opposition continues to be excessively timid and fearful of offering a constructive alternative to the depressing consequences of continuing and deepening austerity. If output, income and employment are to sustain an upward trend, then there must be extra spending, preferably in the form of investment in public utilities and infrastructure. In this connection parts of Michael Heseltine’s recent recommendations are welcome and long overdue although few will find their way into government policy. The rational debate - and there is plenty of scope for discussion of which measures will prove to be most effective - is about how a Keynesian solution is to be implemented, and which quarters can be persuaded and enabled to spend more.
Entirely predictably, precious little benefit has come from exports due to the demand suppressing austerity obsessed policies of European governments promoted and pushed by Germany. If the death grip of the banks can be loosened, and companies can be encouraged to increase their investment spending, then that would be of great benefit. But, to justify such investment, companies need to see demand for their products, which of course is precisely what isn’t there. To add to this situation by further cutting makes no sense at all.
In terms of expanding aggregate demand, you could try to create that extra consumption with tax cuts. But cutting taxes for the rich is precisely not the way to do it – as all concerned know. It is true that continuance with low interest rates cause borrowers to have more at their disposal. But interest rates are a double-edged sword whereby those who rely on savings for income are made worse off and so spend less. We know only too well that, courtesy of the banks, savers are hit early and in full and borrowers benefit later and less. Additionally, experience in Japan in the 1990s found that in the face of interest rate cuts some people may save harder to preserve their future security and incomes.
Important though they are, there has been too much concentration on interest rates and taxation (though not enough about helping those who save) and the related adoption of risky monetary policies such as quantitative easing. Though these policies have a role to some extent, there has been not nearly enough focus on public works projects, support for manufacturing industry and pressing companies to repatriate production in the national interest - and indeed their own.
With infrastructure work - and goodness knows that after decades of under-investment we need it in energy, transport, public and heritage buildings and right across the board - we generate business to firms and encourage them to invest, create or save jobs, keep more of the money at home and provide a better quality infrastructure and the much needed energy security along with stable prices in the future if cartel behaviour can be regulated or re-nationalised away. To my mind that’s a whole lot better and wiser than, in effect, saying: ‘Here’s £100, dash down the shopping centre and spend it on imports’.
What about Government waste? All too much of this is gone for good, but no-one in their senses would object to cutting current waste and improving efficiency - it’s important to do this. But it is also important to divert the bulk of such savings to public works projects - and then to add to this total. It is imperative that the total be increased. Also, if too much of the savings from waste reduction are passed on in the form of tax cuts then, entirely rationally in individual terms, people will use much of it to repair their domestic balance sheets - rather like the banks and with the same lack of benefit to the economy as a whole.
Economic recessions are about a serious and sustained shortage of aggregate demand - and it matters what makes up that demand. The less expenditure that is frittered away on fashionable gadgets and bric-a-brac and which leaks out on imports, and the more of it that is invested in improvements in the nation’s infrastructure and the environment, securing productive jobs and supporting manufacturing, the better. And in the longer term, a restored and re-balanced economy, achieved by these Keynesian means described, will provide the firmest foundation for the restoration of future public finances and the resumption of prudent and sustainable ways of living.
Added to this has been the destruction of social and industrial foundations caused by globalisation on manufacturing and engineering in particular, with much production closed down by disloyal and herd-driven management and greedy ‘stakeholders’ and many jobs already exported.
The evisceration of our industries of substance has left the country less able to benefit from the lower value of the pound by producing for export - where external demand has not been destroyed by external banks and ill-advised economic policies particularly in Europe. The commercial banks added to the damage caused by their own greed and incompetence by effectively forcing viable producers out of business with severely tightened conditions or recalled loans. I sometimes think that banks, in their behaviour towards industry and individuals alike, are little better than a fifth column. As a result of this and government policies of austerity there is little prospect of anything much better than the economy continuing to bump along the bottom and there is still a real and present danger of approaching a 1930s situation.
How is this dire predicament to be remedied? Certainly not without a cost - folly always has a steep price. But how do we ensure that such a deep recession, where productive output recedes and where spending and incomes are well below normal, does not worsen further into sustained depression where there are further falls and the loss of GDP approaches double digits? And how do we ensure that a sustainable economic recovery begins as soon as possible?
Those in power, or aspiring to power, must develop effective recovery strategies. It is clear that these do not exist in Government and the opposition continues to be excessively timid and fearful of offering a constructive alternative to the depressing consequences of continuing and deepening austerity. If output, income and employment are to sustain an upward trend, then there must be extra spending, preferably in the form of investment in public utilities and infrastructure. In this connection parts of Michael Heseltine’s recent recommendations are welcome and long overdue although few will find their way into government policy. The rational debate - and there is plenty of scope for discussion of which measures will prove to be most effective - is about how a Keynesian solution is to be implemented, and which quarters can be persuaded and enabled to spend more.
Entirely predictably, precious little benefit has come from exports due to the demand suppressing austerity obsessed policies of European governments promoted and pushed by Germany. If the death grip of the banks can be loosened, and companies can be encouraged to increase their investment spending, then that would be of great benefit. But, to justify such investment, companies need to see demand for their products, which of course is precisely what isn’t there. To add to this situation by further cutting makes no sense at all.
In terms of expanding aggregate demand, you could try to create that extra consumption with tax cuts. But cutting taxes for the rich is precisely not the way to do it – as all concerned know. It is true that continuance with low interest rates cause borrowers to have more at their disposal. But interest rates are a double-edged sword whereby those who rely on savings for income are made worse off and so spend less. We know only too well that, courtesy of the banks, savers are hit early and in full and borrowers benefit later and less. Additionally, experience in Japan in the 1990s found that in the face of interest rate cuts some people may save harder to preserve their future security and incomes.
Important though they are, there has been too much concentration on interest rates and taxation (though not enough about helping those who save) and the related adoption of risky monetary policies such as quantitative easing. Though these policies have a role to some extent, there has been not nearly enough focus on public works projects, support for manufacturing industry and pressing companies to repatriate production in the national interest - and indeed their own.
With infrastructure work - and goodness knows that after decades of under-investment we need it in energy, transport, public and heritage buildings and right across the board - we generate business to firms and encourage them to invest, create or save jobs, keep more of the money at home and provide a better quality infrastructure and the much needed energy security along with stable prices in the future if cartel behaviour can be regulated or re-nationalised away. To my mind that’s a whole lot better and wiser than, in effect, saying: ‘Here’s £100, dash down the shopping centre and spend it on imports’.
What about Government waste? All too much of this is gone for good, but no-one in their senses would object to cutting current waste and improving efficiency - it’s important to do this. But it is also important to divert the bulk of such savings to public works projects - and then to add to this total. It is imperative that the total be increased. Also, if too much of the savings from waste reduction are passed on in the form of tax cuts then, entirely rationally in individual terms, people will use much of it to repair their domestic balance sheets - rather like the banks and with the same lack of benefit to the economy as a whole.
Economic recessions are about a serious and sustained shortage of aggregate demand - and it matters what makes up that demand. The less expenditure that is frittered away on fashionable gadgets and bric-a-brac and which leaks out on imports, and the more of it that is invested in improvements in the nation’s infrastructure and the environment, securing productive jobs and supporting manufacturing, the better. And in the longer term, a restored and re-balanced economy, achieved by these Keynesian means described, will provide the firmest foundation for the restoration of future public finances and the resumption of prudent and sustainable ways of living.
Wednesday, 31 October 2012
What's still wrong with our economy?
The source of much of the damage to our economy and well-being is of course the banks – still largely unreformed – and also globalisation driven by the avarice of individuals high up the corporate ladders and in hedge funds operating in a patriotism-free zone allied to their political placemen. There is a perverse competitive force at work that belongs more to Catastrophe Theory than the ‘dismal science’ - the sadly apt nickname for economics – and the Lemming-like mentality of "the other lot have made a fast buck out of shutdown-and-offshore so we will too".
Thus it was that real industry, especially manufacturing and engineering, was eviscerated and other productive sectors such as agriculture have had their standing reduced. We sometimes hear talk of a ‘post industrial society’. You can certainly have post-industrial societies in Europe and the US. Indeed we may yet get to find out what one is like. What you cannot have in a country larger than the Cayman Islands is a post-industrial economy.
I have said for many years that when the US Government came to see that the globalisation trumpeted by self interested executives was not working for the country they would stop singing along with the shrill brass. There is evidence that this is now the case in Democratic circles – but not of course in those associated with the likes of Bain Capital.
‘Free trade’ is a hypothetical concept never realised in reality. It might work to the mutual benefit of sections of societies when practised by responsible agents between countries with similar values. Here I’m not talking in terms of ill-defined concepts of ‘capitalism’ or ‘socialism’. I refer to moral stances in relation to fundamental concerns such as the use of child labour, pre-Victorian working conditions and befouled environments. And on the positive side the concept of the Common Good.
‘Free trade’ - is neither inherently good nor inherently bad. Its merit depends on the conditions and principles under which it operates. A bit like America’s constitutional right to bear arms - one thing in the birth of a nation phase, quite another today. What can produce great benefit in one set of conditions can be malignant in another.
And trade is not the only thing that should be ‘free’. The people producing the goods to be traded should be free too. Unless they are, you do not know that the export / import imbalance in their societies is what they would choose. And national currencies should be free to find their own relative levels. These conditions do not exist in many major participants in global trade.
There is another critical factor - the distribution of power and choice in overseas countries and regions used - I choose this term deliberately - by globalised corporations to make their products. Used and then ignored in the ruthless quest for ever greater ‘shareholder value’ and executive bonuses.
The domestic consequence has been the demise of great swathes of the Midlands and North of England and the Midwest of the United States. The production of industrial wastelands and ruined communities at home is as corrosive a by-product of global profiteering as is the effluent discharged in countries to which jobs and production have been taken.
An essential context for free trade to work properly is morality and social conscience. We’ve seen the lack of principle (which resulted in the lack of principal) in the banking sector and the disregard for the fate of communities shown by those entrusted with the power to manufacture.
Executives should not be free to act regardless of scruple (nor should they want to - a change essential for a long run solution) any more than they should be free to ignore chemical pollution. Corporations should be trusts, not in the sense of being monopolies (although they are often effectively these anyway) but in the sense of holding the livelihoods of individuals, the life of communities and the self respect of nations in their hands. We need due diligence here too.
The timescale required for such changes could be a generation. We’ve seen the resistance to social pressure to reform disgusting bonus cultures and the continuation of contempt for people seen as ‘punters’ in banks and other ‘services’. There needs to be a comprehensive re-education of our corporate and political leadership. And to get the policy right, the funding of political parties needs to be freed up from the unseemly and unseen influence of big donors. In fact we need our own cultural revolution.
The original name for economics was ‘political economy’. What is needed now is ‘moral economy’ where concern for the human consequences of decisions is embedded in the mindset of the captains of industry - as should be a sense of responsibility to the society that gave them the opportunities that they so frequently abuse.
Genuine competition might not be a bad idea too, rather than the spurious competition (such as in banking, communications, power and fuel supply and a good chunk of retailing) that is informal cartelisation designed to exploit consumers. Included too should be the politicians who have so often seen their primary role as the reinforcers of, and apologisers for, this dire mis-managerial capitalism.
Internationally, future trade round discussions, if any, should have an infusion of social and moral as well as environmental responsibility.
At home governments constantly tamper with educational syllabi. As part of the much needed moral restructuring of society there should be moral economics as well as ‘bog standard’ economics on the syllabus.
All this is a tall, but the time to start is now. And it is a journey we need to make since the current crisis is ethical as much as economic. Failure to get a grip on the greed and disloyalty of globalisation, the culture of cheating and deceiving, the disregard for sustainable limits to growth and the lack of morality that produced these and other undesirables will result in a post-industrial wilderness in the West.
Thus it was that real industry, especially manufacturing and engineering, was eviscerated and other productive sectors such as agriculture have had their standing reduced. We sometimes hear talk of a ‘post industrial society’. You can certainly have post-industrial societies in Europe and the US. Indeed we may yet get to find out what one is like. What you cannot have in a country larger than the Cayman Islands is a post-industrial economy.
I have said for many years that when the US Government came to see that the globalisation trumpeted by self interested executives was not working for the country they would stop singing along with the shrill brass. There is evidence that this is now the case in Democratic circles – but not of course in those associated with the likes of Bain Capital.
‘Free trade’ is a hypothetical concept never realised in reality. It might work to the mutual benefit of sections of societies when practised by responsible agents between countries with similar values. Here I’m not talking in terms of ill-defined concepts of ‘capitalism’ or ‘socialism’. I refer to moral stances in relation to fundamental concerns such as the use of child labour, pre-Victorian working conditions and befouled environments. And on the positive side the concept of the Common Good.
‘Free trade’ - is neither inherently good nor inherently bad. Its merit depends on the conditions and principles under which it operates. A bit like America’s constitutional right to bear arms - one thing in the birth of a nation phase, quite another today. What can produce great benefit in one set of conditions can be malignant in another.
And trade is not the only thing that should be ‘free’. The people producing the goods to be traded should be free too. Unless they are, you do not know that the export / import imbalance in their societies is what they would choose. And national currencies should be free to find their own relative levels. These conditions do not exist in many major participants in global trade.
There is another critical factor - the distribution of power and choice in overseas countries and regions used - I choose this term deliberately - by globalised corporations to make their products. Used and then ignored in the ruthless quest for ever greater ‘shareholder value’ and executive bonuses.
The domestic consequence has been the demise of great swathes of the Midlands and North of England and the Midwest of the United States. The production of industrial wastelands and ruined communities at home is as corrosive a by-product of global profiteering as is the effluent discharged in countries to which jobs and production have been taken.
An essential context for free trade to work properly is morality and social conscience. We’ve seen the lack of principle (which resulted in the lack of principal) in the banking sector and the disregard for the fate of communities shown by those entrusted with the power to manufacture.
Executives should not be free to act regardless of scruple (nor should they want to - a change essential for a long run solution) any more than they should be free to ignore chemical pollution. Corporations should be trusts, not in the sense of being monopolies (although they are often effectively these anyway) but in the sense of holding the livelihoods of individuals, the life of communities and the self respect of nations in their hands. We need due diligence here too.
The timescale required for such changes could be a generation. We’ve seen the resistance to social pressure to reform disgusting bonus cultures and the continuation of contempt for people seen as ‘punters’ in banks and other ‘services’. There needs to be a comprehensive re-education of our corporate and political leadership. And to get the policy right, the funding of political parties needs to be freed up from the unseemly and unseen influence of big donors. In fact we need our own cultural revolution.
The original name for economics was ‘political economy’. What is needed now is ‘moral economy’ where concern for the human consequences of decisions is embedded in the mindset of the captains of industry - as should be a sense of responsibility to the society that gave them the opportunities that they so frequently abuse.
Genuine competition might not be a bad idea too, rather than the spurious competition (such as in banking, communications, power and fuel supply and a good chunk of retailing) that is informal cartelisation designed to exploit consumers. Included too should be the politicians who have so often seen their primary role as the reinforcers of, and apologisers for, this dire mis-managerial capitalism.
Internationally, future trade round discussions, if any, should have an infusion of social and moral as well as environmental responsibility.
At home governments constantly tamper with educational syllabi. As part of the much needed moral restructuring of society there should be moral economics as well as ‘bog standard’ economics on the syllabus.
All this is a tall, but the time to start is now. And it is a journey we need to make since the current crisis is ethical as much as economic. Failure to get a grip on the greed and disloyalty of globalisation, the culture of cheating and deceiving, the disregard for sustainable limits to growth and the lack of morality that produced these and other undesirables will result in a post-industrial wilderness in the West.
Saturday, 27 October 2012
Lighten Up!
Here I’m not referring to the advice I often receive but to the question of Summer (Daylight Saving) Time. The clocks go back this evening and each year at the end of October marking the start of the ‘dark nights’. This is always a bit depressing and in my opinion we should have the clocks set two hours rather than one hour ahead of Greenwich Mean Time in the summer and one hour ahead of GMT in the winter months.
It is an established fact that this would save lives in traffic accidents. This arrangement would also be better for evening sport and outdoor activity in general. It would also reduce the impact of Seasonal Affective Disorder (SAD) as people, on the whole, would experience significantly more daylight. And, as is also well known, it would save energy too.
So why isn’t this apparently good idea brought in? It is reported that some people in very high places don’t like getting up in the dark, but I find it hard to take this seriously. Our farmers may grumble - and indeed they’ve much to complain about as undervalued contributors to the productive part of our economy - but I imagine that livestock go by other perceptions of time rather than how we choose to set the nominal dials on our timepieces.
I believe that most people in England (three out of four according to a recent survey) support such a measure - and have done so for a long time. But I understand that Scotland wants to keep the present system so that’s apparently that. In my view they should be told to keep their own time and go their own way in this as in other matters.
All in all we do need more illumination at home - not to mention in our national affairs and I suspect few people would disagree with that! The Government recently let a private members bill fizzle out and there’s little chance that the Government will see the light anytime soon. So no change there then!
It is an established fact that this would save lives in traffic accidents. This arrangement would also be better for evening sport and outdoor activity in general. It would also reduce the impact of Seasonal Affective Disorder (SAD) as people, on the whole, would experience significantly more daylight. And, as is also well known, it would save energy too.
So why isn’t this apparently good idea brought in? It is reported that some people in very high places don’t like getting up in the dark, but I find it hard to take this seriously. Our farmers may grumble - and indeed they’ve much to complain about as undervalued contributors to the productive part of our economy - but I imagine that livestock go by other perceptions of time rather than how we choose to set the nominal dials on our timepieces.
I believe that most people in England (three out of four according to a recent survey) support such a measure - and have done so for a long time. But I understand that Scotland wants to keep the present system so that’s apparently that. In my view they should be told to keep their own time and go their own way in this as in other matters.
All in all we do need more illumination at home - not to mention in our national affairs and I suspect few people would disagree with that! The Government recently let a private members bill fizzle out and there’s little chance that the Government will see the light anytime soon. So no change there then!
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