Saving the Economy

While it is ever more apparent that effective measures need to be taken to stimulate the flagging economy – and others throughout Europe - careful consideration must be given to the form that such measures take and the effects that the actions have on different groups of people. In my opinion we need to do more on behalf of the saving community.
There has been far too much reliance on keeping both short and long-term interest rates low. There should be a much greater emphasis on public works such as transport infrastructure, power generation and increasing the nation’s limited fuel storage capacity.
In the present circumstances interest rate cuts have only a very limited positive impact on the economy, mediated as they are through the banks, as we continue bumping along the bottom in the worst recession since the 1930s.
Moreover, reductions in interest rates adversely impact on savers immediately and are only partly passed on (in some cases loan charges were actually put up by banks) to borrowers. And the exorbitant rates that continue to be charged on credit cards, not to mention usurious payday loans, are a disgrace.
Savings are the bedrock on which long term investment should be built. Not only this, but savers, particularly older people in or near retirement, are having their incomes severely reduced by interest rates held for years at derisory levels on savings accounts even at banks that it might be thought had retained some shred of respectability.
Ways must be found to moderate this highly adverse impact on highly responsible people who have paid their taxes and who are trying to live within their means and provide for themselves. Whenever it is pointed out that state pensions are protected (so far) it is rarely mentioned that pensioners who have savings have lost hundreds or thousands of pounds of income by the slashing of interest rates.
Furthermore, the economic effect of interest rate cuts can even be the opposite of that intended. The substantial income reductions for savers mean that they have less money available to spend. Twenty years ago in Japan the experience was that as interest rates were progressively pared back people reduced consumption and saved harder to make up the lost income. Annuities for those coming up to retirement have also fallen and financial institutions already cream off huge chunks of people’s private pension savings.
As we see all to frequently, it is no use relying on the banks to be reasonable about interest rates to savers. There needs to be action by the Government. This it could take through National Savings and Investments (which used to be called the National Savings Bank). We certainly need a bank that is operated in the people’s interest and which provides secure and reasonable returns to savers. If the Government won’t provide such a bank then local authorities should be re-empowered to step in to act in the public interest.
These practical measures I admit are vain hopes in the atmosphere of austerity that the Government and its friends in the right wing press has persuaded people is unavoidable. This is not so and if a principled stand was taken against this negativity there would be more cause for optimism than there is now.

Star Wars

I’ve now started a long overdue personal boycott of Starbucks. As if this outfit’s long history of UK tax dodging wasn't bad enough, their wretched managers are now trying to claw back any future tax bill from their low paid staff by, amongst other things, stopping paying them in their (half hour) lunch break. This was the last straw for me and no amount of sugar in the coffee could sweeten this!
It’s yet another example of less well off people being made to pay the price for greed, bungling and rank disloyalty by overpaid executives. And of course it is the approach taken by this equally wretched government with the scrapping of Remploy at the same time as promising a nice tax reduction for the rich one of the most appalling examples of its true values.
Tax dodging companies - of whom there are many - and individuals should have been made to cough up long ago. They are freeloaders on society and if they want to go elsewhere we should see if we could struggle along without them.
Payment of taxes should not be voluntary and it remains to be seen how much Starbucks and others (such as Amazon and Google) actually pay in the future. The years of austerity brought on by avaricious banks and incompetent and misguided government would be easier to endure if we really were ‘all in it together’. Perhaps we could then meet up for a coffee fairly traded at home and abroad!

The Tolkien Connection

The upcoming release of the first of Peter Jackson’s films based on The Hobbit gives an opportunity to emphasize, once again, how fortunate Birmingham is to have such a close association with its world-renowned author and how we should make more of this connection.
J.R.R. Tolkien saw himself as a Midlander. This is how he thought of Birmingham: “My father’s and my mother’s family were Birmingham people. I was born far away but came home in 1895, and have remained a Birmingham man ever since. The West Midlands are the best part of England”. Tolkien lived as a child in what was then the hamlet of Sarehole (now part of Birmingham) between 1896 and 1900 and elsewhere in Birmingham until 1911.
Looking back in old age, he described the four years at Sarehole as ‘the longest seeming and most formative part of my life”. The house in which he lived with his mother and younger brother is still there (now number 264 Wake Green Road) just across the road from Sarehole Mill. The Mill was the inspiration for the mill in Hobbiton and is now a most interesting museum in The Shire Country Park.
In one of his letters Tolkien writes: “As for knowing Sarehole Mill, it dominated my childhood.” In another he writes, “…I.. lived for my early years in ‘The Shire’ in a pre-mechanical age.” His own description of his surroundings in Sarehole is that it was “…a kind of lost paradise…there was an old mill that really did grind corn with two millers, a great big pond with swans on it, a sandpit, a wonderful dell with flowers, a few old-fashioned village houses and, further away, a stream with another mill…I took the idea of the hobbits from the village people and children”.
The Shire is based on the area around Sarehole Mill, The Dell, The Dingles and Moseley Bog where Tolkien and his brother Hilary often played as children. It is fortunate that a good deal of the original landscape which Tolkien saw still exists - which is why The Shire Country Park was established to conserve and interpret this unique historic area. In addition to the park’s links with Tolkien, there are Bronze Age burnt mounds in Moseley Bog and Sarehole Mill was also once owned by the famous industrialist Matthew Boulton.
In 1900 the Tolkien family moved to Moseley and then to Kings Heath to be closer to the tram route for him to attend King Edward’s School, at that time located in the City Centre in New Street. In 1902 they moved again to be near to the Oratory Church in Edgbaston, an area which includes the ‘Two Towers’ of Perrott’s Folly and the Italianate Waterworks chimney. The towers are strikingly aligned to the eye when leaving the old St Philip’s School (which Tolkien also attended) into Plough and Harrow Road and many people are convinced that they contributed in Tolkien’s imagination to the Towers of Middle-earth.
Hall Green’s annual atmospheric Middle-earth Weekend takes place in May and attracts over 10,000 visitors each year – proof, if it was needed, of the vitality of Tolkien’s legacy and how it is embedded in the community. Shire Productions gives unique dramatised extracts from The Hobbit and The Lord of The Rings with the next event on 8th and 9th December as detailed in the previous posting.

There and Back Again

My wife Vivienne recently made the following post on her popular blog, Stuck in the Mud  www.stickinginthemud.blogspot.co.uk
about an interesting forthcoming Tolkien related event in Birmingham associated with the release of the first Hobbit film. She posted:
“I write, not just as a volunteer gardener at Sarehole Mill, but donning my other hat, as a founder member of Shire Productions, a theatre group who have long been associated with the Middle-earth Weekend held annually at Sarehole Mill  www.middleearthweekend.org.uk  
We are very pleased the group are associated with this pre-Christmas and pre-'Hobbit' film event at Sarehole Mill.  Come with us on an unusual journey.
‘There and back again’.
Readings, poetry and songs by J.R.R. Tolkien in Moseley Bog starting from Sarehole Mill, Cole Bank Road, Hall Green, Birmingham B13.
2.00 - 4.00 p.m.  Saturday 8th and Sunday 9th December 2012 
Join a winter afternoon walk to Moseley Bog and feel the magic of 'the Old Forest' that inspired J.R.R. Tolkien. Members of theatre group Shire Productions will join you on the walk from the Mill to the bog and lighten your travels with songs and anecdotes.
Once there, surrounded by ancient trees, you might meet Thorin, Bilbo, Lord Elrond and other characters from The Hobbit.
Tolkien’s stories and songs will come alive through his readings, poetry and songs and on the way back again, magic lanterns will light the path for you.
On your return at the Mill it will be time for a well-earned 5th breakfast of hot drinks and sweet cakes.
Start at 2pm from bridge at the mill car park. Please dress appropriately for a winter afternoon in December. The cost is £6 (including 5th breakfast), children under 16 free.
Booking is essential, as numbers are limited.   Tickets are available from the on-line box office  www.bmag.org.uk  or phone 0121-303 1966.
Come in costume if you wish.”
Since the posting, tickets have been going fast and there are only a few remaining for the Saturday event. Once again Birmingham leads the way in community led Tolkien related activities.

Usury still Rules

In the credit crisis – it is notable that it is called this and not the savings crisis - we hear a lot about rates of interest. You’d think that official interest rates were the be-all and end-all of people’s woes or wealth. But there’s much more to effective economic management than the manipulation – legitimate or otherwise - of certain rates of interest as any unreformed Keynesian such as myself will tell you!
Interest - the price charged for the use of money over time - remains a contentious subject. The Medieval Christian Church saw banking as usurious regardless of the rate of interest applied. The Old Testament (Deuteronomy, 23) allowed interest charges only to foreigners! Islamic opinion is that overt charges for the use of money are sinful.
We hear about sporadic action against loan sharks. This is good of course and Birmingham has led the way in this. But as ever the law is weak and stupendous rates of interest can be charged quite legally. Governments refuse to set a legal limit. This allows vulnerable people to become victims of usury – exploited and trapped in perpetual debt.
A survey carried out in Birmingham twenty years ago (and it is still highly relevant today) showed that equivalent annual rates of over 100% for money lending to be common. At a 100% rate debt will double yearly if capital is not repaid.
In fact this little publicised survey found loans with annual rates of over 1000% - in which case debt can increase tenfold in a year. All this points up the importance to small borrowers of joining a Credit Union and avoiding this appalling usury.
There was even one case of loans charged at an annual equivalent rate of 4,822%! To illustrate the financial enslavement consequent upon this unimaginable usury, at this astronomical rate the liability from borrowing £1 would, in the absence of capital repayment, in eight years exceed the entire UK Gross National Product!
And outrageous annual equivalent rates around these levels are still in operation today, being applied by the mushrooming payday loans ‘industry’ with over 200 outfits in operation. For example the Wonga AER is 4,214%. But appalling as this is, it is exceeded by the AER for unauthorised overdrafts charged by some commercial banks!
It is no use wittering on about regulation or private enterprise. The first doesn’t work and the second generates private cash from vulnerable sections of the public.
‘Self regulation’ is a contradiction in terms and official regulation doesn’t work - as we’ve seen no end of times in the areas of finance, domestic fuel prices, petroleum pricing etc. The problems are too deep seated (tax dodging by corporations and rich individuals is another) and represents a character flaw in both individuals and industries.
This is why there is a need to establish publicly owned exemplar institutions, such as municipal banks, that will operate on fair, reasonable and moral bases and draw off some of the captive business from the grasping and cheating sections of the private sector. Until that is done, usury and exploitation will still rule.

A Bank You Could Trust

No, this is not a contradiction in terms! As regular visitors to this blog will know, I am a strong supporter of the re-establishment of the Birmingham Municipal Bank – and similar publicly owned banks elsewhere - as a safe and trustworthy haven for the savings, small and large, of the people of the city and nearby areas.
The fundamental values of the Municipal Bank would exclude pressurising of customers and needless chopping and changing of frivolous and misleading financial ‘products’, slippery small print, hidden charges and other devices of the trickster.
In such a bank, the simple principle of constancy would prevail. And in my view people throughout the country should be pressing for the re-introduction of Municipal Banks for their areas too. There is opportunity amidst the present crisis - there is a clear gap in the ‘market’ for plain, honest, straightforward savings banks.
Sometimes there’s a value in being unsophisticated - a remark originally attributed to RBS. There most certainly is, and bankers should know this better than anyone. But I suspect that reform for them will be well nigh impossible - their deeply ingrained habits are very hard to drop altogether. Incidentally, an old meaning of the word ‘sophisticated’ is ‘corrupt’ - which I think serves to underline the point.
Constancy and confidence were the values on which most of the true wealth of this country, much of it, alas, now cast to the winds, was built and which other institutions, such as the Municipal Banks and National Savings, sought to complement and support.
Is it too much to suppose that these fundamental principles might be worth rediscovering and implementing again today? They have not been lost by the majority of our population, but are hard if not impossible to find in the financial sector.
When the Birmingham Municipal Bank was first established in the early part of the last century, it faced significant opposition from the commercial banks – no surprise there. We are beset with austerity but the need is as pressing as ever. One tactic today from the various quarters opposed to the idea, is to frighten the horses by waving around large numbers, which are claimed to represent costs.
It is also suggested that commercial banks can provide any required service. The very same banks that, as one developer told me, had pulled out of financing over 90% of their viable projects and put at risk the jobs that would have been created. And these are the very same banks that have taken the Queen’s shilling - or rather billions - are effectively owned by the public, but who are refusing to do their bit for the economy and the country that has sustained them.
They are not to be trusted, and I still hope that a way will be found to once more offer ‘Security with Interest’ (the motto of the former Birmingham Municipal Bank) and attract the trust of the citizens of Birmingham. Such a service is widely desired amongst ordinary, respectable people.
Perhaps if a lead is given by Birmingham, there could be Local Authority led banks throughout the country. Having such ‘exemplars’ might force a change in the behaviour of commercial banks for the many years needed to bring in a new generation of ‘unsophisticated’ bankers who will not need enforcement to conduct their business in the public interest.

The ‘Invisible Hand’

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.