Category Archives: Economics

The hypocrites that used to be our government

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So Alun Milburn may be joining the Coalition government. I’m not really surprised by the reaction of some of his former colleagues. Instead of seeing this as a PR opportunity to crow that only Labour could represent the poor and disadvantaged, these selfish individuals, who actually could not care less about the poor and disadvantaged, are screaming that he is a class traitor. A “collaborator” says John “Two Jags” Prescott, who would doubtless be overjoyed if the poor and disadvantaged suffered even more. Milburn’s critics, remember, are the people who imposed extra taxes on the poor while cutting them for the super-rich.

Frankly, I am dismayed at his appointment. I am convinced a true believer in free markets and the enterprise economy would have a more significant and longer lasting impact than he possibly could. But I don’t doubt that his heart’s in the right place, I’m just once again reminded of one reason why the last Labour government were a disaster for this country, rich and poor alike.

When all you have is a hammer, every problem looks like a nail

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Problem: Smoking is bad for your health.
Solution: Put a tax on it.

Problem: We need to increase availability of broadband.
Solution: Put a tax on it.

“Government plans for a 50p-a-month tax on households to fund super-fast broadband across the country have been criticised by an influential group of MPs,” says a report on Sky News, and quite right too.

The instinct of this government is to tax, however clumsy or counter-productive it might be. If the government wants to encourage virtuous activity, they should give businesses an incentive to do it.

Follow-Up

I have to edit this and add the latest piece of insanity from this government. With a recession still ongoing and jobs, you would think, being a top priority, this government wants to increase the tax on jobs that is National Insurance. Not only will workers take home less pay, but employers will pay more too. So:

Problem: Low employment
Solution: Increase the tax on jobs

The Robin Hood Tax

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Everyone knows the Sheriff of Nottingham is the bad guy. But he’s not just any old bad guy, he’s cunning with it too. He’s conceived of this great new wheeze to extract yet more taxes from us, and he’s got everyone squealing, “Tax me! Tax me!” by the simple expedient of calling it the Robin Hood Tax and pretending it applies to someone else. All across the land, people are casting their vote on a pretty web site calling for this new tax to be introduced. At a stroke, it is claimed, it will combat poverty, tackle global warming and guarantee another season of “Big Brother”. Sheer genius.

Robin Hood’s not best pleased about his name being hijacked in this way and he’s got a few questions he’d like to see answered. I’ll do my best to oblige.

Who is going to pay this tax? Us, the poor peasantry. It is claimed this is a tax on cash-rich irresponsible bankers, the ones we all hate anyway, so this is made out to be a particularly delicious tax. Except, the tax is on transactions of our money; when we pay a bill, or use a credit card abroad, or our pension fund makes an investment, a small tax will be added to the transaction charges. But it is not a small amount, it adds up to billions. £250 billion a year, the web site claims. How else could it achieve any of the stated aims unless it was a substantial amount of money? Does anyone serious believe that tax will not be passed on to us?

Who is going to collect it? The Sheriff of Nottingham. You won’t see his face while the money is being taken from you, but it will all end up in his coffers nonetheless.

Who is going to spend the money? The Sheriff of Nottingham. Think about this for a moment. What is the track record of any government in tackling poverty? Or global warming? Or any of the lofty objectives the Robin Hood Tax proponents put forward? If government had a good track record in any of these areas they wouldn’t be problems in the first place. Giving them more money will lead directly to more inefficiency and waste. Little will end up being applied to the purposes for which it is being collected.

Who will decide what the money is to be spent on? The Sheriff of Nottingham. It will be he who allocates funds according to his own political objectives, as they change with time, and as he sees the need to boost his own popularity.

Who thinks any of it will end up being used for the reasons claimed? Only those poor deluded peasants who are acting as his cheer leaders. And Gordon Brown.

Do you know the funniest aspect of all of this?

Every penny of the Tax will be passed on to us, of course, but because the banks will certainly add their own charges on top:-

– The banks will actually make money out of this.

More bonuses for the bankers!

Fantasy Government and Fantasy Finance

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We have elected an incompetent government that has presided over an ever growing culture of lies and greed. They have allowed lobbyists and special interests to influence policies for the price of an agreeable lunch and a few favourable headlines. Spin and deceit have replaced honesty and open government. And without giving it any serious thought, people are saying capitalism has failed. This has nothing to do with capitalism. It has no more to do with capitalism than the USSR had anything to do with socialism. The same people also say these financial institutions are the wealth creating sector of the economy. No they aren’t. The real wealth creators are the factories and the people who make things, and those who distribute and supply them.

By what twisted logic does it make economic sense to close profitable factories which give gainful employment to thousands, send those jobs overseas, knock down the factories and build houses in their place to sell at inflated prices to the now unemployed workers? If ever there was a formula for creating a sub-prime mortgage crisis, that has to be it. And that, in essence, and on a colossal scale, is what has been going on for years with the complicity of the government and all its regulators. Now, the institutions responsible for this merry-go-round of economic madness are clamouring for taxpayer aid from the government and blaming everyone but themselves for the mess. We have for too long rewarded failure, now we will pay the price.

More than two decades ago ICL, Britain’s last major computer manufacturer, had trucks ferrying unsold computers from one depot to another in a desperate attempt to give the impression of activity and mask how close they were to collapse. It didn’t work, but it’s uncannily similar to how some financial institutions have behaved in recent years. Smoke and mirrors; sleight of hand; cryptically-named financial products. Banks everywhere competed with each other to build the biggest market share in worthless investments, often having no idea what they were buying. Why did they do it? Because they paid themselves huge bonuses for doing so. Lehman Brothers, for example, paid out a staggering $9.5 billion in “bonuses” only nine months ago.

It’s hard to accept the term “bonus” as a fair description of the money they have looted, especially as in the case of Lehman Brothers it must have been crystal clear to those at the top the payments were entirely unwarranted and potentially fatal to the business. But such was their greed, they went ahead anyway. This is nothing to do with capitalism, or free market economics, it is the inevitable consequence of a corrupted financial system, plain and simple. President Nixon once famously declared, “I am not a crook.” I would like to see the leaders of the remaining great financial institutions say the same thing. And I want them to prove it because frankly I have no confidence in the regulators to investigate and prosecute wrong doing.

Who set the framework in which the institutions and the regulators operate? Step forward Gordon Brown, he was at the helm at the Treasury for a decade, making all the rules. Of course, he didn’t do it alone, thanks to “revolving doors” he had City people come and work at the Treasury where they shaped government policy before returning to the City to exploit the newly relaxed standards they helped bring about. Now as Prime Minister it is evident for all to see how completely incapable Brown is of leadership. Yet to listen to the government, their track record would seem to be above reproach. But the fact is, this government lives by deceit. It spins, it lies, and it has no shame because it lives in a fantasy world where it makes its own reality.

We need to go back before the second Gulf War for a measure of how venal this government is. Britain and America went to the court of world opinion and lied on oath. There were no weapons of mass destruction, there was no connection between Saddam and al Q’aeda. The phials of biological weapons, the drawings of mobile chemical labs, the intelligence documents reporting shipments of Yellow Cake from north Africa, they were all fake and Bush and Blair knew it. So instead of confronting the real terrorists, we have spent billions of dollars and pounds and laid down thousands of lives fighting the wrong war in the wrong place. However, it has been to the personal enrichment of many of those best connected with both governments.

Simply put, democracy has failed. This is not the failure of capitalism or of free market economics. It is our collective failure as voters to hold to account governments that lie and deceive, that allow lobbyists and special interests to overrule our interests. What goes on in Washington and Downing Street is a travesty for government. What goes on in Wall Street or the City of London is a travesty for an economy. Both should be working for the common good, not self-preservation and self-enrichment. We need change. We cannot be apathetic the next time we have an opportunity to vote, we must seize that opportunity and put an end to the politics of spin and the economics of greed. We must have honesty and open government.

Sir Alan, You’re Fired

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I would truly like to know how the latest series of “The Apprentice” managed to get such adulatory coverage right across the media. The winner seems to be getting more attention than Prince Harry did for going to Afghanistan, the only thing missing was The Drudge leaking the result before it was officially announced. And this for a tired programme that over the years has turned itself into a send-up of “Wacky Races” with Sir Alan Sugar himself becoming a cartoon character of a businessman. If that’s how he treats people who work for him I certainly wouldn’t set foot inside his boardroom for a paltry £100,000.

When I started watching the first series it was in the hope of seeing bright young people showing ingenuity and business acumen, a showcase for British entrepreneurial talent. Instead, we see Dick Dastardly, Muttley the Dog, Penelope Pitstop and a whole cast of others compete in a series of wacky challenges with ever more emphasis given to celebrating failure. I appreciate that the exercises are little more than scenarios to let a group of people work together to see how they perform. They are just like team-building exercises where you have to cross an imaginary river with a piece of rope, a plank that’s too short and a lot of shouting at each other. Success, therefore, is not whether you get across or not, but how well you work together and how well one of you leads the team.

What we end up with is a “boardroom” meeting where skill at passing the buck is what gets you through to the next round. It doesn’t matter how useless you were during that week’s challenge as long as there was someone else you could make look more useless than you. The formula could have been used to accentuate the positive and in the early series that’s the way I tried to view it, open minded and optimistic. But the producers, as is so common today, have felt the need to go down-market for audience share, to compete with “Big Brother” on it’s own territory, to show us contestants disintegrating before our very eyes. It has not been a happy spectacle.

So Sir Alan, I’m sorry but, “You’re fired.”

An economy run by Arts graduates?

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Sam Leith writes an excellent piece in the Telegraph today essentially saying that Arts Graduates know nothing about how the economy works because it is unknowable. That’s a good point. On that basis, the present sorry government must be Arts Graduates of the highest calibre because the Prime Minister and his Chancellor demonstrate how much they don’t know about the economy on a daily basis. Leith gives credit to those who work in the City and assumes they must be great experts in the economy. There I must disagree. The mistake, which I think a lot of people make, is to confuse what drives the City with what drives the economy. There couldn’t be a greater gulf between the two even though the City has a great impact on the economy as a whole.

Those who succeed in the City, and many do in spectacular style, do so not because they know how the economy works, but because they know how the City works. That should not be a subtle distinction. The reputation of the City has taken a pounding recently, and probably deservedly so, because everything to do with the economy is causing great concern to ordinary people whose daily lives are blighted by miscalculations, misjudgment, or just plain mischief.

That concern was enough to give the Labour government its worst electoral defeat in living memory. The Crewe bye-election will be another opportunity to give them another black-eye. Over in America, things are hardly any better. They have a presidential election taking place right now which provides an insight into some of their concerns. One such is the NAFTA trade agreement which came under fire recently as the cause of American jobs being ‘exported’ to Mexico. We have a similar problem here, but does anyone seriously believe that jobs are going to India or China because wage rates in the third world are so much lower than they are here? Only an Arts Graduate could believe that. The reason jobs are being exported is because City bosses earn huge bonuses from exporting them. If they didn’t earn such bonuses, those jobs would not be exported. Of course I use the word ‘earn’ in the loosest possible sense, in the sense of an athlete who ‘earns’ a gold medal by taking steroids or a mugger who ‘earns’ money by waving a knife in someone’s face. They are merely working the system.

And that’s the root of the problem. It is a system. A system of rules and regulations, of treaties and trade agreements that provide endless opportunities for smart operators to work it to their personal advantage. In what possible way, for example, can it be good for the American economy that an investor can buy into Yahoo! after it had turned down a takeover bid from Microsoft, and then sue the board for rejecting it? He had no involvement in the business beforehand, no concern for the nature of the business, or the interests of its customers or suppliers, but now he can hope to have the bid reopened and see his share-holding soar in value as a consequence. All perfectly legal and proper so far as Wall Street is concerned, of course, but absurd that a market can be manipulated in this way. Plainly Wall Street, and the City, do not facilitate the economy, they distort it. Likewise NAFTA and all the myriad of similar treaties do not create free trade, they interfere with it.

Someone who did know about the economy, and knew it very well, was Adam Smith. When he extolled the virtues of a ‘free market’ he wasn’t writing about a market that was closely regulated to somehow make it ‘free’, he wasn’t writing about states that had treaties to ensure ‘free’ trade between them. ‘Free’ to him meant free from all such interferences in the first place. It would be the invisible hand of self-interest that would drive free trade and ensure it stayed free. He would be astounded by an economy that barred imports that competed with local produce, intervened to buy up surplus stocks to maintain an artificially high price, dumped that surplus stock on third world countries, and in consequence ruined those markets for their local farmers and producers. Such is the EU vision of an economy. He would be equally astounded by an economy that enabled exotic fruit and vegetables to be flown half way around the world, at significant cost to the environment, to be sold at rock-bottom prices, while at the same time fuel prices are soaring and motorists are penalised to reduce their so-called carbon foot-print. This is not an economy that is capable of being understood.

We need reform. In Arts Graduate terms, economics has become like the Turner Prize, devoid of all social worth and intellectual merit. It is ripe for those with no understanding of the real world to exploit and manipulate to their own ends, the people who should matter are shut out. So we need reform across the board, from the City to farming as well as manufacturing, but most of all, we need reform of our government. Capitalism, for that is what is at stake, is as unworkable now as communism was, and look what became of that.

Joined-up thinking by Labour and the Conservatives

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Two relatively minor news items today offer an insight into the approach of the two main parties.

Labour have announced they want to give every woman a £120 cash bonus for getting pregnant. How will that help deal with the problem of unwanted pregnancies? Now we’re going to pay them to have babies? The fact that the cash is intended to be used to buy fresh fruit is risible and shows complete ignorance of the demands of modern life. £120 will buy a very nice iPod, thank you.

The Conservatives, on the other hand, want to impose car parking charges at out-of-town supermarkets. They claim this will allow councils to subsidise local bus services. But as with the young mothers, once they have their hands on the money who knows what the councils will choose to spend it on. It certainly won’t be on subsidised bus services.

Labour has always wanted to hand out taxpayers’ money, and the Tories always used to want to reduce taxation. Now they are keen to impose a tax on parking at supermarkets, something that will hit almost every voter in the pocket, and something that will not go unnoticed by those voters.

The irony is, these two policies would effectively cancel each other out. With many hospitals already charging for parking, a pregnant woman could easily spend £120 in parking fees in just six months with supermarket parking charges on top. That would leave nothing for the fresh fruit, if that was what she was wanted to spend it on in the first place. Did the two parties collude over this?

Rural house price madness

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The Halifax Bank has reported the average price for a house in the country is now almost £250,000, and that it is £30,000 more than the average price for a town house. Factoring-in the disparity in earnings between those living in the country and those in towns, the disparity is a double-whammy. The worst-affected part of the country is Cornwall where average prices exceed average earnings by a factor of ten to one. There are half as many first-time buyers in the country as in towns and cities. This is really not sustainable, but how and when will the adjustment come? Will it be another round of house price crashes? Is the bubble about to burst?

Part of the problem, I believe, is the buy-to-let market where investors have been able to out-bid first-time buyers and soak up a lot of the available property. The losers in that bidding war then become their unwilling tenants thus ensuring the investment was a sound one. Every first-time buyer who fails to buy a home is a prospective tenant to the one who bought it.

A second part of the problem is the level of city bonuses which drive up prices in London and cause outward migration to neighbouring cities, where the incomers in turn drive up prices. They drive out owners who buy property in the surrounding countryside, driving up prices there. Because more people living in the countryside are people working in the towns and cities, the law of unintended consequences comes into play. Those people are obviously mobile and routinely shop in the same towns or cities where they work, so rural businesses suffer.

Everyone at the bottom end of this heap ends up with fewer job prospects and find they can only afford to live in city slums. Wealth is not trickling-down, it’s being sucked-up.