Posts about British economy and social issues

Household debt in Britain on the rise – lessons not learned

Economic debate in Britain in the last year or so has been dominated by the Brexit issue. Both sides of the debate have swamped the public with claims and counterclaims that mostly just seek to confuse. My position was clear – if I was a British voter I would have been voted to Leave. Some 9 months or more later my opinion has not changed. The EU is a right-wing corporatist failure which deliberately impoverishes its citizens and should be dismantled as soon as possible. The Brexit debate, whatever your view, has, however, clouded other trends in Britain that are clearly, and immediately, more damaging that anything that might happen when Britain finally regains its independence from the thugs in Brussels. The latest data relating to household debt in Britain confirms what we have known all along and first raised in 2011. British growth is reliant on the private domestic growth in credit and indebtedness, which was the growth drivers that were present before the GFC. Which means one thing: the current growth will not be sustainable unless there are significant changes in the composition of final expenditure in the UK. With private income growth lagging well behind consumption growth and the external sector draining growth, the solution is for the government to abandon its austerity obsession and increase the fiscal deficit. That would support private income growth and provide space for some private balance sheet restructuring which is so sorely needed. Lessons do not seem to have been learned.

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When progressives become neo-liberals and create a Trump

When you have a madman sounding, well “presidential” (according to the obsequious US press) what would you expect a Democrat politician to say in response? Yes I am talking about the Democratic response to the speech given by the US President on February 28, 2017 to the joint session of the United States Congress. The last thing I would want is for the response to begin with a report card on how the responder was fiscally responsible because he had achieved fiscal surpluses during the GFC. But then this is the Democratic Party circa 2016 we are talking about. The Party that lost an unlosable election to a showman who is sparing of the truth. This is the Democratic Party that having just lost an election because its candidate was seen as part of the neo-liberal establishment that has brought grief on millions of Americans, decides to replace its administrative head with another neo-liberal corporatist. But this problem is not uniquely American, although Americans do like to think they are unique. All around the world, political parties who should be defending workers and the poor have morphed into right-wing look-a-likes preaching fiscal rectitude (they would do it fairer) and cuts to public services and all the rest of it. They have so let down their natural constituents that real right-wingers preaching hate against immigrants and refugees and the like have seized the political initiative and taking votes from them. Trump is a sort of hybrid of that. Until the Left abandons its notions that fiscal responsibility does not mean running fiscal surpluses as a matter of course, it will continue to lose ground. And, we will all be worse off as a consequence.

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There is hope – neo-liberalism is an historical aberration

Another lesson from history coming up. People of my generation studied the great books by Charles Dickens, which apart from their literary form, left an indelible impression of life in England during the period covered by the 1834 Poor Law. We also read George Orwell’s account of working class life in Northern England in the pre-World War 2 period. These impressions meant that we heralded in the creation of comprehensive welfare states in the Post World War 2 period as evolutionary innovations made possible by increasing national prosperity. We formed a common belief that this prosperity allowed us to escape the sort of conditions that Dickens was describing in early industrial England. And if prosperity fell, we would have to rein in some of the generosity that the welfare state systems provide. How many times have you read or heard some politician or corporate lobbyist claim that advanced nations, with fiat currencies, can no longer ‘afford’ to fund comprehensive welfare states that protect the poorest citizens in their societies. Many of these speeches are made at glittering functions where business types enjoy sumptuous lunches with plenty of wine and fine food and listen to politicians talk about running out of money and the need to pull our belts in. The arguments are used to attack the comprehensive welfare systems that emerged in the post World War 2 period as governments took responsibility for improving the plight of the poor. But, an understanding of history allows us to appreciate that the modern welfare state was nothing particularly new. There had been a comprehensive welfare support system in place in Britain for 300 years before the 1834 Poor Laws ended that system. This should give us hope – 1601 Poor Law (comprehensive welfare system) -> 1834 Poor Law Amendment (demolished it and blamed the poor for their plight) -> Modern Post World War 2 welfare states (comprehensive welfare system recognising systemic failure rather than individual blame) -> neo-liberalism (back to the 1834 mentality) -> ???? – hopefully another progressive reaction to the greed driving the current system.

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The (neo-liberal) Third Way infestation continues

“Fresh thinking delivered to your inbox – Subscribe”. That is the message on the homepage of Third Way an American think tank (aka conservative propaganda machine) masquerading in the public space as a “centrist think tank”. The problem is that this particular ‘think tank’ does not seem to do much fresh thinking, if thinking at all. According to the Politico article (January 17, 2017) – Democratic Party rethink gets $20 million injection – largely aimed to reestablish the narrative that allowed Bill Clinton and then Barack Obama to be elected as President. In part, this initiative is to head off the likes of Bernie Sanders and Elizabeth Warren (neither who are mounting what I call a fully progressive agenda anyway) and claw back the voters who abandoned the unelectable (my judgement) Hillary Clinton in favour of the (shouldn’t have ever been elected) Donald Trump. The narrative that the Third Way organisation has been engaged in for years is hardly fresh. They attack fiscal deficits and call for retrenchments of pension entitlements and public health care funding, they oppose single payer health care and, thus, favour pumping billions of public funds into private insurance companies who offer inferior services, and are strong advocates of the deeply flawed Trans-Pacific Partnership. There is nothing progressive about this group nor fresh. They are mainstream central and the fact they are spearheading a Democratic Party initiative to win back political support tells me that the Party has learned next to nothing from last November’s Presidential election.

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Executive pay bears no relationship to company performance

On December 27, 2016, the British CFA Society (an organisation representing Chartered Financial Analysts) released an interesting report that they had commissioned from academic researchers at the Lancaster University Management School. The Report – An Analysis of CEO Pay Arrangements and Value Creation for FTSE-350 Companies – explodes another mainstream economics myth that pay is in accordance with contribution to production adjusted for so-called compensating differentials (danger, risk etc). The Report confirms many other research publications over the years that there is little or no relationship between the pay that the top CEOs receive and the performance of the companies they manage. In fact, executive pay seems to grow even when their companies go backwards and their workers are shown the door (lose their jobs). It is just another one of those scams that we have been lulled into accepted in this neo-liberal era. It is one of the scams that a progressive agenda has to attack and develop policies to reverse. There should be legal frameworks in place as part of company law to force boards to scale pay to performance as a first step. The results of the research also allow us to see through some of the central arguments in favour of privatisation – viz, that public enterprises are wasteful because there are no shareholders to discipline the management. Well, the research discussed below shows that shareholders have very little sway on management and the boards that hand out massive and unjustifiable executive salaries.

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Policy changes needed to arrest decline in fortunes for low-pay British workers

Its hard to keep track of the variety of ways that this neo-liberal era has screwed workers. The latest report from the UK Institute of Fiscal Studies (January 13, 2017) – Two decades of income inequality in Britain: the role of wages, household earnings and redistribution. I read that report after I had studied the latest income distribution figures from the British Office of National Statistics (January 10, 2017) – Household disposable income and inequality in the UK: financial year ending 2016. The latter suggests that income inequality has decreased in Britain since . The former revealed that in the last two decades there has been a “four-fold increase” in the prime-age males (25-55 years) working part-time on low wages. But closer scrutiny of the figures reveals that they are not inconsistent because the falling inequality is not the result of low-wage workers improving their position. Anyway, this is another legacy of New Labour – screw the workers you claim to represent. It is just another part of the scam of Blairism exposed.

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The Left lacks courage and is riddled with inferiority complexes

When the British people voted to leave the dysfunctional European Union on June 23, 2016, I saw it as a massive opportunity for progressive forces to shed the neo-liberal chains that they have become enslaved by and narrate a new, inclusive manifesto for the future. The Brexit referendum was really a fork in the road for progressives – they could go one way and stay irrelevant and cede legitimacy to the rabid Right, or, go the other route, and reinvent themselves as the force of the future. The signs are they have opted to remain irrelevant. In doing so they have essentially conflated financial responsibility and competence with neo-liberal principles relating to the conduct of fiscal surpluses and the role of government in mediating the conflict between workers and capital. In the former sense, they have bought into the myths such as the need to run fiscal surpluses etc. In doing so, in relation to the latter, they have supported policy environments that are heavily biased in favour of capital and undermine the prospects for workers. And when the workers revolt, and, for example, use the Brexit referendum as a voice amidst their powerlessness, the progressives have turned on them accusing them of being ignorant and racist. The reality is that the lack of leadership within the political Left and their deep sense of inferiority (in the face the so-called mainstream economics experts who they mimic to sound smart) has left the door open for the Right to harness the working class anxiety and steer it in a very retrogressive direction.

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Austerity is the problem for Britain not Brexit

Regular readers will know that I firmly supported the LEAVE vote in the British referendum in June 2016 even though that was somewhat gratuitous given I am neither a British citizen or live there. It was one of those academic exercises where we wax lyrical with little personal at stake. But that aside, if I had have been a British citizen then I would have voted to leave without doubt. The Internet links us more closely these days and in before the Referendum vote I received heaps of antagonist E-mails informing me that I was bereft of all credibility in taking that position. After the vote, when I dared to point out that the official (Bank of England, Treasury, IMF, OECD) and non-official predictions (the investment bankers etc – remember Credit Suisse sending out a Mayday alert of an impending recession which would wipe out 500,000 jobs!) were over the top to say the least (given the post-vote data), I was called delusional and worse. And these personal attacks came mostly from those who claim to be on the progressive side of the debate. Spare the thought! Subsequent data has indeed pointed out that none of the predictions of doom have so far turned out to be true. I know there might be longer term issues when they get onto working out the detail but I stand by my view – Brexit – if handled correctly by the British government will be a net benefit to the nation and its democracy. If not it could offer no real gains. But in this smokescreen of misinformation, a serious study from Cambridge University researchers – The macro-economic impact of Brexit – has concluded, that while there might be some short-run losses in GDP per capita, they soon recover as the British economy adjusts to its break from the dysfunctional European Union. There is no disaster scenario forthcoming! To the de

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Our affect is driving us back to a need for continuous fiscal deficits

The field of psychology is usually ignored by mainstream economists, which, in its typically arrogant and closed practice, adopts a series of a priori assumptions about human behaviour – the so-called Homo economicus – where were are always rational and self-interested and, as a result, always make choices that maximise our present and future well-being based on available market signals. Real world forces that condition actual human behaviour, such as cognitive biases and irrationality, in general, as well as cooperative and collective behaviour is ignored by mainstream neo-classical (free market) economic theory, because admitting its dominance in human decision-making would void the entire edifice of that theory and scuttle the authority that is given to the on-going narratives about deregulation, small government, privatisation, pernicious cutting of income support, and the rest of the economic policies that have defined this dysfunctional neo-liberal era. But humans do not behave in the way economists suggest. We are a complex mass of irrationality, custom, habit, and affect. We certainly use cognitive processes in our decision making but often we take shortcuts based on affect. These tendencies are pushing our behaviour back to what was normal before the credit binge that led to the GFC. This shift in our behaviour is associated with stagnation and entrenched mass unemployment. But the reason for these parlous outcomes is not that we have returned to more normal spending behaviour but, rather, because governments have not realised that they had to return to more normal behaviour as well. Instead of promoting the benefits of austerity (in the face of all evidence to the contrary), governments should have been promoting the benefits of continuous fiscal deficits to support non-government saving desires and maintain better employment outcomes and stronger income growth. The malaise advanced nations are stuck in at present is directly the result of ideologically-motivated choices made by governments to use to use fiscal policy properly. Neo-liberal ideology remains dominant but citizens are rebelling and something has to give.

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I, Daniel Blake – essential viewing

So Italy has now gone the way of the UK and the US in its referendum vote – rejecting the establishment but not sure on what to do instead. It seems that the US voters have been duped by a conman (noting he beat a conwoman). Now Renzi is to go and we will see what happens next. But the trends around the world are unmistakable. Ordinary folk are in rebellion and for good reason. Last night I saw the latest Ken Loach film – I, Daniel Blake, which is a grinding, shocking statement of how society has been so compromised by the neo-liberalism that these voting patterns are rebelling against. I would say that as an Australian the film was a little less shocking than it might have been because our stupid nation led the way in introducing the tyrannical administrative processes that accompany income support systems in this neo-liberal era. Britain (under Tony Blair – never let it be forgotten – he did more than lie about Iraq) followed Australia’s lead in this respect. So, Australians have seen this dystopia for more than 18 years now – and while I hope we have not become inured to it – normalised it – it has been part of our awareness for a long time. Nonetheless, the film is shocking in what it says about the societal compromise and the rise and normalisation of sociopathic relationships between state and citizen.

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