21 Apr 2015

More Lies...

Tory HQ are tweeting like mad in the run up to the election. I don't subscribe, but the economists I do read often retweet with succinct rebuttals. The main theme of the tweets seems to be that Labour mismanaged the economy. I've never really understood why Labour were unable to counter this with the obvious truth that the Tories are in denial about: that in 2008 the world underwent a Global Financial Crisis that saw banks going bust and many institutions, like my local city council, losing their savings. Labour seem incapable of using their handling of the GFC as a contextualising event for their economic decisions.

By most accounts Brown managed the crisis well. Of course had the UK had proper regulation and oversight of the financial sector this crisis might not have affected us so badly - since other countries were doing much the same I doubt we could have avoided it completely.

Today the Tories tweeted that we should remember that unemployment was rising when they took office. The simple answer to this is to show the ONS figures on unemployment.

And this gives the lie to the Tory claim. Under Labour unemployment rose because of the GFC and then stabilised as recovery began. It rose after the coalition govt came into power and began to cut spending and stalled the recovery. It began to fall only after they eased up on austerity and much of the change is a result of zero-hours contracts and other measures that have seen the working poor reliant on food banks in many places (they were already dependent on Housing Benefit to pay rent in a grossly over-inflated housing market after successive governments have refused to build affordable housing). Another example of how austerity negatively impacted the economy and slowed recovery. There are plenty of examples of this happening.

Why are Labour unable to capitalise on simple lies like this? Why do they continue to allow the Tories to keep them on the economic ropes? Why do they feel compelled to opt for Neoliberal-lite instead of a proper alternative? Why is it only the SNP that are actively against this ideologically drive austerity?

At the moment we can only hope that the SNP do indeed end up holding the balance of power in the UK. They are the only party within reach of power that is offering a credible alternative.

13 Apr 2015

It's a lie...

The Times published/tweeted this today - as a teaser to entice new people to buy a subscription to their website

The comments on the Tweet prove that most people have an extremely skewed view of the recent history of the economy. Most seem to have bought the Tory propaganda and parrot it.

And this is perhaps why the Labour party economic policy has been dictated by the Tories rather than by Labour voters.

The Tories as New Puritans

I dipped into Michel Foucault's essay, The Political Technology of Individuals again recently. In this essay reinforces the idea that moderns have indirectly defined themselves in terms of exclusion of some other, particular criminals and the mad.

Tories have emphasised another defining/dividing line in their current term in office: work. Cameron and his cronies have repeated "hard working families" time and again. They identify with those who "work hard". Never mind that those who work for a living have seen a steady decline in their wages over the course of the Tory-coalition parliament. Never mind that at the same time capitalists have continued to become more wealthy, and their captains--the CEOs--have seen massive pay rises and record bonuses.

Taxes are the way that the people pay for things collectively. We use taxes to see to the defence of the nation; to the education of our young people; to the care of the sick and elderly; and to the provision of national infrastructure which benefits everyone, such as roads, railways, utilities. Neoliberalism has seen these tax-payer funded resources privatised and sold off to the highest bidder. In some cases this has been very successful, for example the phone system has improved greatly, and in other cases less so, the rail system is beset with problems of capacity and high fares.

Still the government have proposed to build new rail infrastructure with tax money because it has another purpose - money that the government spends on large projects is an investment. The money that it spends comes back as taxes and non tax income such as rail fares. Neoliberalism has tended to try to drastically limit how much non-tax income the government can make, because it believes on ideological terms that government is always inefficient at managing wealth and resources on behalf of the people.

Tax avoidance means that there is less money available to spend on the public good. It is effectively stealing from the pot that pays for education, health, retirement, defence, and infrastructure.


One of the distinctions we see is that if a non-working person defrauds the government of tens of thousands of pounds (which happens a few times a year) that is seen as a heinous crime. They are pilloried in the media, often their name and photograph (if not their address) is published. They are usually fined heavily and often sent to prison. And yet when a business-man defrauds the government of millions of pounds of taxes this is viewed with tolerance and even complacency. A bank that manipulates world interest rates is given a fine, but no actual people are held to be responsible for what we know was a premeditated and calculated scheme to rob the whole world.

The distinction here is between non-productive and productive members of society. The Tories have made it clear that they consider non-working members of society to be morally evil. Those claiming support on the basis of an inability to work have been subjected to mental torture through a system of interrogation that defies many human rights: one is compelled to undergo physical examination by strangers and a level of intrusive scrutiny that well people find shocking. It all done with the threat that failure to comply for any reason will result in the withdrawal of support. The purpose of scrutiny is to trick the sick person into revealing a hidden capacity for work. The assumption is that even severe and crippling illness ought not keep a person from working. Many people have died soon after being assessed fit for work. The propaganda that accompanied the introduction of this draconian system trumpeted that two-thirds of people on benefits were fit for work. In reality the figure was more like 20% of people signed off were found fit. And the stories of the unfairness of the system even made it into the mainstream media despite their broad support for the system. Whether those 20% ever got jobs is not recorded, but they are paid a lot less and are under much greater threat of sanction than they were.

All this has been implemented during the worst recession in modern times, comparable only to the Great Depression which was characterised not by harassing the unemployed, but by job creation schemes. Something has fundamentally shifted in the intervening years.


However some of the themes have not changed. The attitude to poor people is centuries old. Feudal Lords who wanted to make peasants work hard, made it much harder for them to make a living than it needed to be. It was thought undesirable for peasants to have leisure time. So wages were held at subsistence level and peasants had to work all the hours of the day to make ends meet. This attitude carried over into the Merchantilism, the philosophical background to the British Empire. It was partly informed by Protestantism which saw idleness as a sin and hard work as a virtue. Puritans sought to embody these Protestant virtues, and when they tried to impose their views on others we called them puritanical.

Formalised in philosophy the values of the merchant class in Britain became Utilitarianism - the idea that anything only has value to the extent that we can derive utility from it, i.e. we can use it to our benefit. This applies as much to people as to things. So the value of a member of the public to the nation is only to the extent that the person provides utility through their labour. From this it is easy to rationalise, for example, the withdrawal of labour as evil and put measures in place to prevent it from happening by breaking up the power of labour unions and dividing workers through contracts that disempower them. The present government frequently sought to argue that votes were not representative because not enough of the potential voters to make a quorum. Meanwhile local government election participation fell to record lows with turnouts as small as 15% and no one challenged these results.

If the value of a member of society is limited to the work they do then by not working they show themselves to be worthless. Retirement is only justified on the basis of a lifetime of work. Meanwhile people who get rich by exploiting inequalities in Britain continue to retire earlier and earlier.

New Puritans

The Tories, with their emphasis on commerce, on hard work, and the punitive attitudes to the poor and the unproductive are very much like the Puritans. Cameron has sought to portray himself as a moral leader on a number of occasions. He is a evangelical Puritan in a mercantile habit. And the Tory government has been puritanical in it's approach to work and welfare. On the other hand they have a Laissez-faire attitude to business people and their criminal activities. Tax dodging is not something the government has put much effort or resources into. The amount of tax money the government has allowed itself to be robbed of is staggering: hundreds of millions of pounds every year. But the people with wealth are by definition good in this newly Puritanical milieu, so why would we punish the good. It is far more important to punish the unproductive than the productive, even if the impact of the former is many orders of magnitude less than the latter. The logic is deeply flawed, because the actions are based on the Neoliberal version of the Merchantilist ideology.

The modern worldview is often called Neoliberalism. It is based on the idea that absolute liberalism ought to be extended to the abstract market - the freer the market the fairer the society. Liberalism aimed at freeing human beings from unnecessary intervention in their lives by the powerful. It enacted laws giving basic rights and protections to all people. It aimed to give every child a basic education and so on. The new liberalism is in fact socially conservative. It has coincided with erosion of personal liberty, and an increase in invasive surveillance by the state - all electronic communications are routinely intercepted as we know because a few brave whistle blowers spoke out. At the same time education beyond secondary level has become a commodity. We are now seeing the universities being commodified at a much deeper level, with casualised teaching staff employed by a third party organisation (at Warwick University).

Alongside this anti-liberal tendency in Neoliberalism at a social level we have to put the fact that every experiment in freeing up markets has been an abject failure. If the global financial collapse has taught us nothing else, it is that unregulated finance is a disaster. Businesses without rules and effective oversight will work to the detriment of society and the enrichment of a very few businessmen who make comparatively little contribution to society since their wealth is held in tax havens. Centuries of general philanthropy amongst the wealthy seem to be at a end as a new spirit of greed comes over them. But where the World Bank and IMF have had a free reign they have impoverished and virtually enslaved nations through imposing massive government debts on them. Often the oversight is so minimal that government officials steal the loan money leaving peasants to pay back loans, facing generations of poverty as a result.

12 Apr 2015


From @AnnPettifor

And this today

1. When people save in the form of a real commodity (eg corn) decision to save is a fully personal matter

2. In a monetary economy, saving is an act that reflects on others in the form of a financial claim

3. This means when we discuss financial savings we are also discussing debt: every penny saved is someone else's liability

4. In a monetary (as opposed to s non-monetary) economy each penny saved must correspond to a debt of equal size

5. In a monetary economy savings do not fund: they need to be funded

 - Andrea Terzi.

8 Apr 2015

Profit From Misery

The Jubilee Debt Campaign website has a timely reminder that IMF loans are not handouts and that banks are not welfare institutions.
"Ahead of the payment of €462 million by Greece to the IMF on Thursday 9 April, figures released by the Jubilee Debt Campaign show that the IMF has made €2.5 billion of profit out of its loans to Greece since 2010."
This is why banks list loans as assets. They charge rent on the money that they lend out. And remember that the money lent is not someone's real asset or savings. That money did not exist before it was loaned to Greece.

Also the interest payments on the loan are now sucking the life out of the Greek economy. The previous Greek government committed to give their future earnings for decades to come to the IMF in exchange for this loan. They have mined their future to the extent where they hardly have one. And they were effectively bullied into this by the Europeans and the IMF. This is the biggest sub-prime mortgage scam in the world.

What's more the IMF is generating massive profits through this method. The same source says "Out of its lending to all countries in debt crisis between 2010 and 2014 the IMF has made a total profit of €8.4 billion". All those billions are coming from the poorest countries in the world. And how much do they get in aid every year? We cripple these countries and then make them dependent on aid. It's horrific.

Jubilee Debt Campaign point out that the interest rate being charged to Greece is 3.6% which is outrageous. IMF costs would be covered by just 0.9% interest.

3 Apr 2015

Deleveraging is over

Anyone familiar with heterodox economics knows that, outside the mainstream, private sector debt is one of the biggest concerns. Inside the mainstream it's never talked about. Today's ONS figures on household debt make salutary reading:

For the six years of the recession households were paying down debts and increasing their debt to income ratios (deleveraging) which can not have been easy since incomes were falling with respect to prices. But in 2014 this turned around. We can see from the blue line that the debt to income ration climbed from 1998-2010 from ca. 110% to about 170%. Then for six years it dropped back to about 145%. Now the blue line is rising again, not by a huge amount, but rising.

No doubt rising housing costs have had something to do with this. The government's strategy for prosperity has been to inflate asset prices (particularly housing). CPI inflation is currently 0% while house price inflation is currently over 8%.

The problem with rising debt, which is ignored in the mainstream, is that the repayments soak up disposable income. When disposable income is no longer disposable the demand for commodities slows. Growth fuelled by rising debt is bad for the reason that we saw in 2008.

On the other hand, if the mainstream politicians want us to believe that the nation's finances should be run like a household and spending beyond our means is a disaster, then this is problematic by that criteria as well. Household debt/income is currently double government debt/GDP. The mainstream argument is that at 80% debt/GDP we need to cut spending and "live within our means" then why is the message so different for households? How can the rise in debt, caused by inflating house-prices, be a good thing if it creates an increasing household balance of payment deficit?

From whatever angle we look at it the level of household debt is extremely worrying.

1 Apr 2015

Tying the Hands of Europe's Politicians.

The IDEA Economics website just tweeted Steve Keen's summary analysis of the Maastricht Treaty which covers what's wrong with the Euro-zone. It's an extreme free-market economic experiment that has gone wrong. According to Steve, the Maastricht Treaty did three things:

  1. It eliminated the possibility of having an exchange rate policy, by having one currency across the entire continent.
  2. It eliminated monetary policy, by handing it over to the European Central Bank, which was as inflation-obsessive as the Bundesbank used to be
  3. And it eliminated fiscal policy, by saying that you couldn't have a deficit larger than 3% of GDP.
"And they thought that would end up in the best of all possible worlds because government could no longer do anything to affect the market economy. The market economy would operate perfectly. We would have continuous equilibrium and harmony in the future." - Steve Keen.
In other words the Maastricht Treaty tied the hands of all European governments, taking economic policy out of the hands of elected representatives and placing it in the hands of the hypothetical market.  Except that we know that business people are rampantly manipulating the market for their own ends, using the advantage they gain by excluding government from the discussion about how commerce operates to encourage increasing wealth inequality. It's Kafkaesque. 

How many more failed experiments do we need for mainstream economists & politicians to admit that free-market policies simply do not lead to stable, prosperous economies?