The Inadequacies of Western Politics

I am struck by the constant struggle for power of the so called ‘Left’ and ‘Right’ in western politics and have come to realise that these terms are largely meaningless, so tied up in the bias of their respective proponents that they are simply reduced to terms of abuse. ‘The Left’ has become associated with the excesses of powerful ideologues such as Stalin, Mao Zedong and Pol Pot whereas ‘The Right’ has been associated with Hitler, Mussolini and Juan and Eva Péron. These individuals, their philosophies and forms of government are more alike than they are different. They have at their root a kind of Social Darwinism and reliance on a totalitarian state. Both were reactions to the failure of Nation States to protect their populations from poverty. Both claimed to be the answer to the failures of capitalism (and serfdom ) whereas there roots lay in a struggle between the haves and the have-nots at times when hunger, poverty and want overcame the fear of the military and police used by the rich and powerful elite. Many in the west proclaimed the victory of capitalism over communism when the U.S.S.R. imploded yet this is simple propaganda, the failure of communism was due to a powerful elite oppressing the rest of society. It was not capitalism that the victor it was the failure of communism to provide for the needs and wants of its peoples.

Today we are experiencing the collapse of capitalism, it is failing to provide for the needs and wants of the majority, the powerful and rich elites that benefit from the laissez faire policies promulgated by Ronald Regan and Margaret Thatcher are still at work protecting their ill-gotten gains to the detriment of the wider public, but there is one crucial difference. The main stream media, long a supporter of the wealthy and the powerful, are losing their readership to the web; blogs, twitter and other social media tools are opening the doors to the widespread dissemination of views and values that directly challenge that of the ruling elites. Large sections of the media in the UK have been shown to be acting against the interests of the public as demonstrated by the revelations of the Leveson enquiry. At the beginning of the Arab Spring Western governments, led by the USA, lauded the developments as a democratic revolution made possible by social media and encouraged the overthrow of governments that they disapproved of. They failed to foresee the rise of extremist groups equally as dangerous as those who caused the Second World War who seem willing to exterminate, torture and imprison any who disagree with their views. Think tanks funded by the corporate elite promote policies to compliant governments, members of whom are also on the boards of those self-same corporate bodies and who benefit from investments in them.  George Monbiot points out how these think tanks operate and subvert democracy. This is not a battle between right and left, it is a battle for profits and power at the expense of the majority to the benefit of elites.

Extremism from any source must be resisted, if we have learned anything from the Second World War, it is that inflicting poverty on masses of the public leads to extremism. The human costs of that war led to the post war consensus on full employment. “There were good reasons to seek security. The British people had just emerged from a war that had shown that, regardless of how high they were on the social ladder, they could fall to the bottom in an instant. The death and destruction of war were not the only threats; a serious illness could blight a family’s prospects. People wanted to be sure that they would not be on their own if disaster struck, and they were prepared to ensure this through taxes and insurance contributions. They were, literally, “all in it together,” accepting rationing of food and fuel to guarantee that in the face of austerity, everyone had access to the essentials.” The profits from enterprise were shared out across society with the creation of the welfare state in the UK and its glowing beacon, the NHS. The post war consensus and the West fully embraced this doctrine at the Bretton Woods Conference in 1944 which largely accepted the work of John Maynard Keynes, but western governments were concerned about the ideological challenge posed to them by communism as practiced by the USSR and China (the two largest state proponents). Thus began the “cold war” a battle for not only hearts and minds but a battle for resources. It is my opinion that the west worried too much about the ideological battle, communism (as practiced by those countries, not the true form) failed because central planning was not adequate to provide for the needs and the wants of its populace. It was the people of those countries, striving for a better life and putting pressure on their political masters that caused communism to fail. The price mechanism of the market has been proven to be a much better tool to improve the lot of people and yet that has also failed us. The seeds of that failure lay in Richard Nixon’s abandonment of the fixed exchange rate between gold and the dollar. That single act caused the breakdown of the Bretton Woods Agreement and was the result of the rising costs of the Vietnam War. In effect, because the dollar was the reserve currency of the world financial system, by breaking its link from gold and printing more money, he financed the Vietnam War by exporting inflation to the rest of the western world.

The inflation caused by this act caused great pressure on the old and the working classes in the UK and caused much of the industrial strife of the 1970’s as people strived to maintain their economic wellbeing by using the only weapon available to them, the withholding of their labour. Because of near full employment and the unionised nature of industrial Britain this tool was particularly effective but we could not ignore the world events out-with our control which meant that we were losing competitiveness to other countries. Capital and investment flowed out of the country to low wage economies that became more efficient because of better tooling and lower labour costs.  The public in the UK saw this as the fault of the trade unions as the media began a concerted attack on them using the tools of the think tanks that had started to embrace the thoughts of Hayek and Milton Freidman of the Chicago School of Economics. Ronald Regan and Margaret Thatcher took the convenient parts of the academic thinking of these economists and allowed the market to let rip with a massive move towards laissez faire.

It is that move to laissez faire economics, the freeing of the market from regulation and constraints that had led us the present economic collapse. The market has been proven to be a good thing but not the FREE market. The market must be regulated to prevent its excesses. We cannot insulate ourselves from the rest of the world but we can seek to build a better society, the threat of war is real as populations around the world seek to improve their lot whilst increasing strains from the exponential rise in world population place more and more strain on the worlds resources and the capitalists who own the means of production seek to retain and increase their wealth. The evidence from history is clear; wealth must be shared equitably if strife is to be avoided. More than this there is overwhelming academic evidence that inequality is bad for all of us, the rich and the poor. The work of Richard Wilson and Kate Picket as published in The Spirit Level examines inequality in countries around the world and indisputable proves that more equal societies fair better and benefit all in society.

It is my experience that both Tory and Labour governments have abandoned the poor. Labour by abandoning the attempt at full employment and a living wage by seeking to redistribute the profits from the big banks through benefits. The Tories by removing benefits altogether from the neediest in society. It is only with the SNP that I see a drive to increase the employment opportunities available to our citizens by investing in our infrastructure which simultaneously creates assets for the future (which are more valuable than the costs incurred in creating them) and provides employment for our citizens who pay taxes, spent their wages in the community and thus create more jobs as demand increases. They seek to use our wealth of energy and natural resources to benefit the people of Scotland by investing its profits for the future growth of our economy. Both Labour and Tory governments have been proven to act against the interests of Scotland people when they buried the McCrone report. The latest incarnation of these policies is the astonishing abandonment of universal benefits by Joanne Lamont of the Labour Party.

I support the SNP because they are a truly social democratic party, it is to my regret that the Labour Party seems to be abandoning its core principles and moving to the right. I suspect that they seek power more than they seek to improve the lot of the nation’s citizens. That is the route to political oblivion and I earnestly hope that they will turn back from this course.

It is for these reasons among many more that I support the Yes campaign for an independent Scotland. I see hope in the message that we can better target our resources to benefit our people, if we have the tools to do so. We need to be in control of our own destiny to improve our lot we should not abandon that responsibility to others that do not have our best interests at heart.

Vote YES for the opportunity for a better future.

A lack of demand

When Margaret Thatcher and Ronald Regan accepted the argument of Milton Friedman that ‘The Social Responsibility of Business is to Increase its Profits’ business realised that it needed to increase demand so big business, banks and governments relaxed regulation. Banks could increase their profits by lending more, so they did. Business loved this because they were increasing their profits due to the consumer boom. Governments loved it because their tax take went up whilst reducing taxes on the rich due to increased demand and unemployment was constrained as people were employed in the retail sector in the western world whilst they could claim they were helping the third world by exporting manufacturing jobs to them and reducing world poverty. Loose monetary policy, the reduction in taxation and an inadequate policy on house building ( and a lack of a land tax allowed a boom in house prices which banks were happy to lend against the asset value of ) resulted in a feedback loop further expanding the supply of credit. The results of this can be seen in the graph below. As the asset prices of the securities held by banks collapsed, the government moved to protect the banks and prop up the economy by transferring the losses on assets to the public by borrowing against future tax receipts.

Graph Showing UK National Debt

National debt UK : ONS

Keynes anyone?

The Euro – R.I.P.

Dear Ms Merkel,
The Euro is dead because you were too greedy. You were happy to take the benefits of a currency which undervalued German goods and therefore made you the most competitive country in the eurozone and very competitive on the world stage. You were able to do this and provide social benefits to your workers which are the envy of the world. Unfortunately you and your people are not willing to redistribute those benefits around the rest of the eurozone to compensate them for joining the Euro. They gave up the advantage of a floating currency and the ability to print their own money and set their own interest rates. Now you cannot afford to bail them out because you spent all the money on benefits for yourselves.

Please give it a decent burial and leave the rest of us alone. This will not be the end of a European trading block or the European Union it is simply a recognition that it was a badly designed currency block which did not enforce fiscal unanimity at the outset and enforce fiscal transfers to balance out the inevitable divergence in competitiveness. I realise that fiscal transfers are probably politically unacceptable because the economic narrative of the past thirty years has been low taxes, low regulation and unemployment as a price worth paying. You and the Western Governments (the U.S.A. and the U.K. foremost in this endeavour) have rigged the system in favour of the rich and powerful elite which you are a member of backed by a press which sets the narrative. In fact as George Monbiot points out “The corporate newspapers are the elite’s enforcers, misrepresenting the sources of oppression.”. The ordinary working people, the young the old, the voters, are denied a voice because they are portrayed as extremists if they object to the excesses of unconstrained financial, corporate and political power. The people who stand up against oppression in Libya are portrayed as heroes when they stand up against oppression and are afforded the support of our military might in the defence of their struggle for democracy whilst peaceful protesters highlighting the excesses of the City of London and Wall Street are forcibly evicted and vilified in the press.

We need governments to return to full employment as the main objective of policy, not the narrow goals of profit for its own sake. This requires cooperation between governments, a return to the principles of the Bretton Woods System but this time with the added security of the ‘Bancor‘ as proposed by Keynes. Some will argue that Keynesian economics is discredited and leads to unconstrained borrowing. That is the argument put forward by David Cameron and the Conservative party of Great Britain the narrative being used being that in times of austerity, whilst we are in debt, the answer is not to borrow more (like borrowing on a credit card) but to cut back on spending and pay back our debts. This is a siren song based on a misguided interpretation of Keynes’ argument. The basis of Keynes argument was that in the recessionary phase of the economic cycle government should borrow to invest in a countries infrastructure thus keeping people in work and producing worthwhile assets for the country whilst in doing so also causing the multiplier effect causing growth in employment and industry when those employed in public works spend their earnings on goods produced by the private sector. The difficulties experienced by the western nations ascribed to Keynesianism were due to governments misusing the theory, the corollary of Keynes argument that governments should borrow and spend in times of recession was that governments should cut back spending and pay back debt when the economic cycle returned to growth. Something that government chose to avoid due to narrow political advantage (using the gains to reduce taxation rather that pay back debt) and proponents of the Austrian School choose to conveniently forget.

This is a time of world financial crisis caused by politicians and the proponents of laissez-faire economics in pursuit of their own narrow interests. It is to be hoped that we can overcome this by working together, I am not confident that our current political leadership in the West is up to the job however and it may take the unpleasant results of mass protest to spur them to action. My plea then is to Ms Merkel, Mr Cameron, Mr Obama and the rest of the West to get together with China, Russia and the rest of the world to sort this out before it gets any worse.

Mr Cameron does something right

I know he didn’t mean it, and he really doesn’t understand it but Mr Cameron has finally done something that will not mess our economy up ( unlike his attempts with Gideon to help our economy by embarking on its destruction due to misguided policy).

What did he do you ask?

He didn’t join in with the stupidity pact dreamed up by Merkel and Sarkosy. The reasons that he gave for not joining were that it would be against our national interest.

Specifically “Cameron demanded that any transfer of power from national regulators to an EU regulator on financial services be subject to a veto; the UK be free to place higher capital requirements on banks; that the European Banking Authority remain in London; and the European Central Bank be rebuffed in its attempts to rule that euro-denominated transactions take place within the eurozone.He also argued that non-EU institutions operating in the City but not in the eurozone, such as American banks, should be exempt from EU regulation.”

Paradoxically not by joining in may the UK financial services industry may be more damaged by Mr Cameron’s blundering attempts at protection. In fact “there is a new inner grouping within the EU that can potentially agree new financial regulations without the UK even being present”, this could force the relocation of financial services companies to a eurozone country if they wish to trade in the currency (though I suspect that the World Trade Organisation may be the place that any such move is argued out).

One of the stated objectives of Germany and France was to introduce a transaction tax on financial operations but “The UK has long been resisting calls from other EU leaders for a Europe-wide bank transactions tax which it says would hit the City of London hardest.” actually as Mehdi Hassan points out “The International Monetary Fund, the European Commission and the Gates Foundation have all released studies showing that unilateral transaction taxes are feasible and raise funds for individual countries (the Robin Hood Tax campaign says a 0.05 per cent tax on transactions could raise £20bn for just the UK alone!).”

The real reason that Mr Cameron has done us a favour is that the Euro is unsustainable. As Michael Portillo pointed out on This Week (quoting Boris Johnstone) the European countries are trying to save the cancer not the patient. In other words they are trying to save the Euro and not the European Union. The reason that Germany is such an economic powerhouse is not just fiscal responsibility ( though that has definitely helped) in Germany’s case the Euro is significantly undervalued (making fiscal responsibility a breeze and not a reason for smugness). They enjoy a currency advantage against the UK of approximately twenty percent and by entering the Euro whilst the Deutchmark was undervalued they are destroying the economies of southern Europe who’s currencies were overvalued at the time of adoption. Any attempt to save the Euro is doomed, the fundamental problem is that the weaker countries of the Euro can’t devalue and there is no chance that Germany will redistribute the fruits of its ill gotten gains. (Incidentally that is the same reason that the North of England, Wales and Scotland are at a disadvantage when compared to London and the South East) Mr Cameron has inadvertently saved the UK by keeping us out of a doomed project but may still have damaged the financial sector that he was so keen to save.

So Mr Cameron did do something right, pity he hasn’t a clue why.

Quote of the week – Zac Goldsmith, Conservative MP discussing the press “if the only way a business can stay afloat is by engaging in immoral or unethical behaviour then that business should either change its model or go out of business. No one said that Auschwitz should have been kept open because it created jobs”

References / further reading

http://www.guardian.co.uk/world/2011/dec/09/david-cameron-blocks-eu-treaty

http://www.bbc.co.uk/news/uk-politics-16086019

http://www.newstatesman.com/blogs/mehdi-hasan/2011/12/facts-benefit-figures-tax

http://robinhoodtax.org/

http://www.ft.com/cms/s/0/ba7f2868-2285-11e1-8404-00144feabdc0.html#axzz1g53CaEfI

http://www.bbc.co.uk/iplayer/episode/b0187ycp/This_Week_08_12_2011/

An Introduction

Welcome to my thought space.

I decided to start this blog because of  an interest in Economics.

Economics is a social science and in its narrowest definition can be seen as a study of ‘what is’ and ‘what has been’ (though that may be used for the purpose of forecasting and attempts to influence the future). It is a study of how we share resources, some may argue that there is no need to share, that they wish to keep what they have as it is a result of their hard labour. I would dispute this simplistic view.

Let me use Adam and Eve as an example, if God placed Adam on earth and gave him a garden to work and watch over, Adam can not claim that all that he gains is simply as a result of his hard labour after all he was given the resources of the Earth and the garden to work on. Similarly those who by accident of birth were born into families with greater than average wealth, education and status and who therefore benefit from those advantages through access to a better diet, a more enlightened view of the benefits of education, help in establishing homes and businesses and access to an exclusive network of the elite in politics, society business and the media cannot claim that they are entitled to greater remuneration or wealth simply due to their own efforts. That is not to say that those who work hard should not be better rewarded than those who do not, all other things being equal.

This is a normative argument which perhaps could be described as moral philosophy, a discipline that Adam Smith is noted for. In contrast to those who promulgate the view that Smith was a proponent of ethical egoism, Noam Chomsky has argued  that several aspects of Smith’s thought have been misrepresented and falsified by contemporary ideology, including Smith’s reasons for supporting markets and Smith’s views on corporations. Chomsky argues that Smith supported markets in the belief that they would lead to equality, and that Smith opposed wage labor and corporations. Economic historians such as Jacob Viner regard Smith as a strong advocate of free markets and limited government (what Smith called “natural liberty”) but not as a dogmatic supporter of laissez-faire.( http://en.wikipedia.org/wiki/Adam_Smith#As_a_symbol_of_free_market_economics)

The Wealth of Nations includes the following statement on the payment of taxes:

“The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.”
Moreover, in this passage Smith goes on to specify progressive, not flat, taxation:

“The rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion”

Smith even specifically named taxes that he thought should be required by the state among them luxury goods taxes and tax on rent. He believed that tax laws should be as transparent as possible and that each individual should pay a “certain amount, and not arbitrary,” in addition to paying this tax at the time “most likely to be convenient for the contributor to pay it”. Smith goes on to state that:

“Every tax, however, is, to the person who pays it, a badge, not of slavery, but of liberty.”

(http://en.wikipedia.org/wiki/Adam_Smith)

I would therefore propose that equality is a good thing, not the kind of equality used by those on the right wing to promote their own self interest at the expense of others nor the kind of equality proposed by those on the left who favour  an all powerful state (which is simply another form of inequality). My position is most accurately represented by the views of Rawls and Krugman as illuminated in Wikipedia as follows – “Philosopher John Rawls, in his A Theory of Justice (1971), developed a “second principle of justice” that economic and social inequalities can only be justified if they benefit the most disadvantaged members of society. Further, Rawls claims that all economically and socially privileged positions must be open to all people equally. Rawls argues that the inequality between a doctor’s salary and a grocery clerk’s is only acceptable if this is the only way to encourage the training of sufficient numbers of doctors, preventing an unacceptable decline in the availability of medical care (which would therefore disadvantage everyone). Analyst Paul Krugman writing in The New York Times agreed with Rawls’ position in which both equality of opportunity and equality of outcome were linked, and suggested that “we should try to create the society each of us would want if we didn’t know in advance who we’d be. “Krugman favored a society in which hard-working and talented people can get rewarded for their efforts but in which there was a “social safety net” created by taxes to help the less fortunate.” (http://krugman.blogs.nytimes.com/2011/01/11/more-thoughts-on-equality-of-opportunity/)

In fact there is good evidence that inequality is bad for everyone in society, both the rich and the poor. Evidence which is supported by the work of  Richard Wilkinson and Kate Picket in their book The Spirit Level.

I hope you enjoy these musings and gain from them whether or not you agree with them.