Archive for category Economics
Amol Rajan, whom I have had cause to praise previously, wrote last week about Coca-Cola’s self-serving ‘anti-obesity campaign’. While much of what he writes is refreshingly scathing, I would take issue with the following statement:
[Coke] is a massive corporation that exists to make huge profits. This is fine by me, because I like big corporations: they create wealth, tax revenues and jobs.
3Z9KAQSQT4NC Clearly the first part is mostly true. Mostly in the sense that a company also exists to expand the empires, wealth and reputations of its executives – which is generally also tied up with making ‘huge profits’. The problem I have is with the idea that big corporations necessarily ‘create wealth, tax revenues and jobs.’ Whether they create real wealth is often doubtful.
In the case of Coca-Cola what it mostly creates is sweet fizzy drinks and the additional pleasure that comes from drinking their drinks rather than those of any competing suppliers. If we wanted to monetise that real ‘wealth’ it would be in terms of the additional price we are willing to pay for Coca-Cola products over other similar drinks. Note that we have to pay that surplus freely – if we are forced to pay it because of local monopolies or persuaded by misleading advertising than it represents not a social gain but a loss. Read the rest of this entry »
As Kawan Patel suggested on LabourList a few days ago, New Labour was founded on the idea that while Margaret Thatcher might not have ‘saved the nation’ as her Conservative supporters claim, there were things she ‘got right’. I believe that this focus on the specifics of the Thatcherite legacy, such as privatisation and reductions in union power, is wrong. It is what was entirely responsible for New Labour’s failure to reverse inequality and for allowing a massive financial bubble to replace a sustainable industrial infrastructure in Britain. We must learn this lesson.
For a start, the image of 1970s Labour government in hapless thrall to left-wing union leaders leading their unwilling rank-and-file members to destroy the British economy is almost entirely a creation of the press and Conservative myth-makers. The root cause of the industrial unrest of the 1970s that culminated in the ‘Winter of Discontent’ of 1978-79 was consistent annual inflation in double digits. This was mainly as a consequence of massive hikes in the price of oil. Firms showed no restraint in allowing their prices to rise to maintain their profits; for workers to maintain their standards of living required credible threats to withdraw labour. In doing this they were, on average, successful – but no more than that. In relation to labour productivity, hourly wages were at exactly the same point in 1979 as they had been in 1972. Read the rest of this entry »
There’s a funny little Panglossian piece by Tory peer and former minister Michael Bates on ConservativeHome. If it’s any indication of the thinking going on among ministers at present, however, it’s deeply worrying. The ex-Paymaster General displays an extraordinary lack of understanding of basic economic accounting and logic.
His main idea is that despite the current GDP figures, ‘the economic recovery is underway’. Now, while it’s true that GDP is in many senses a flawed measure of annual additional national wealth since it ignores (and may count as positive) environmental and human costs, it is the best available measure of what’s really going on in the economy. Contrary to the Tory peer’s claim, use of this measure is not ‘a bit like judging the health of a private corporation by its turnover alone’. The calculation of GDP specifically cancels out all the in-between costs in exactly the same way as a business cancels out turnover and costs to arrive at a profit figure. As a result GDP measures only those payments that are made in exchange for ‘final goods and services’ that are actually used, whether by the purchases of ordinary citizens, in the provision of public services or the investment of companies. Read the rest of this entry »
Tim Worstall v. PositiveMoney
I note an interesting little discussion between Tim Worstall and Ralph Musgrave on money creation in the context of the Northern Rock bank crisis of 2007. Essentially Tim was claiming, against the PositiveMoney view, that the failure of the bank was evidence that it was not possible for banks to create money. Ralph’s point was that it is possible for banks to create money if they move ‘in step’, but since Northern Rock was creating money (by lending) faster than other banks this led to its problems.
In fact both Tim and Ralph are ignoring the role a crucial player here: the Central Bank – in this context the Bank of England (BofE).
The basis of our monetary system is money created by the BofE in the form of notes, coins and accounts held by commercial banks with the Bank of England. Let’s imagine a single commercial bank operating in the UK that holds a certain amount of this BofE money. This bank could certainly create additional money by lending up to the point that it could still cope with demands of depositors for banknotes and coin, or to pay taxes etc. to the government. Most transactions, however, would be between account-holders. All the bank need do for these is adjust its deposit records; no reserves would be required.
“Budget Hero” – Public Media’s Most Despicable Financial Propaganda is the title of a great anti-austerity piece by William K. Black on the New Economic Perspectives site. It appears that some very strange and economically ignorant people have designed an on-line game to demonstrate their destructive view of how the economy works.
Bill Black is an expert on regulatory policy and fraud prevention and is the author of The Best Way to Rob a Bank is to Own One.
The ‘Budget Hero’ game is basically rigged to show that only major public expenditure cuts can avoid budget blow-up, irrespective of what the real impacts of those cuts might be. As Black points out, this rules out the sort of negative impacts of austerity we have seen in the UK and Europe. It’s evidently not even possible to adopt a policy of offsetting tax increases.
As I have pointed out before, and this confirms, only dishonesty can defend this type of policy.
Banking as Fraud
I’ve got involved with one or two on-line debates recently in which the issue of money in commercial banking is seen as a fraudulent process by which value is stolen from citizens. Usually the central bank is seen as the government’s enabler in this process, and so to blame for the resultant misallocation of credit or ‘malinvestment’. This is a view to be found among adherents of the ‘Austrian’ school of economics, and ties in nicely with their extreme views of the efficacy of markets and the villainy of governments. Even if they do not believe the only money used should be gold, they believe that its value should be tied to gold and that central banks consistently devalue the currency by setting too low the interest rates at which commercial banks borrow from them.
While the Austrians’ views are so dogmatic as to be fairly easily ignored, there has also been a recent tendency among some campaigners, such as Positive Money or GolemXIV, to blame the current discrepancy between rewards to the rich and punishment for nearly everyone else on the banking’s ability to ‘create money out of thin air’. According to this view the banks then profit from this costless activity by lending it to us at interest, either directly or indirectly via government. Read the rest of this entry »
A version of this post appeared on LabourList on 1st August 2012.
The charge sheet against Messrs Cameron and Osborne as the architects of the coalition’s economic strategy is growing, and it may not be long before they, like their buddies Andy Coulson and Rebekah Brooks, find themselves in the dock.Not perhaps the dock of the Old Bailey, but the dock of public disgust at their approach to the economy.
It is forgivable to get economic strategy wrong – for those who have understood Keynes’s real message, uncertainty is the prime feature of economics. What is unforgivable is to propagate clear untruths about the recession that is threatening the livelihoods and incomes of so many. Read the rest of this entry »
Yet it’s still Keynes from whom we have most to learn. Not Keynes the economic engineer, who is invoked by his disciples today. But Keynes the sceptic, who understood that markets are as prone to fits of madness as any other human institution and who tried to envisage a more intelligent variety of capitalism. John Gray, BBC News Magazine, 22/7/2012.
Seeing this reminded me that I had forgotten to put up this piece that went on LabourList on 14th August last year.
In his thoughtful analysis on LabourList of our current economic predicament, Anthony Painter quoted Nobel Prize-winning economist Paul Krugman’s view of the eclipse of Keynesian economics. I think Anthony is slightly off the mark to see Krugman’s point as being that ‘it’s difficult to find people to fund debt and deficits on the scale that’s required’. In fact, public spending is limited less by the need to find funding, than by the ability of that spending to properly utilise resources (particularly labour) that the private sector does not. The failure of most of his fellow-economists and almost all policymakers to understand this is the real essence of Krugman’s lament. Read the rest of this entry »