I’ve now made available a three-part piece on Adam Smith. It starts by considering his credentials as an egalitarian thinker whose embrace of the ‘invisible hand’ of the free-market was less complete than his deregulating champions at the Adam Smith Institute would claim. This reappraisal is based on a recent book by Professor Iain McLean (Adam Smith – Radical and Egalitarian, Edinburgh University Press, 2006). I then go on to assess Adam Smith’s writing on money and banking in relation to crises in the 18th century and 21st century banking systems.
Well, they went for it anyway – the Lib-Dems that is. I guess they hope that an AV referendum plus a House of Lords elected by PR will pave the way for more substantive electoral reform for the Commons. (It might also lead to some interesting legitimacy issues too – that has always been the potential problem with a directly elected upper chamber.)
From the coalition policy statement that’s been produced and the attitude of David Cameron (plus the fact that William Hague has thankfully been dispatched to foreign parts) it rather seems that he (Cameron) was really a closet Lib-Dem all the time! Quite a few Conservatives must now be waking up to this fact with some horror – it may well be from the Tories right wing that the immediate threat to this coalition lies. Continue reading Coalition calculations
Interesting times in politics indeed! As anyone reading my No 10 Seminar Paper of 1998 (apparently seen by David Miliband himself – hope he read it!) would know, I am a keen supporter of electoral reform leading to genuine proportional representation. But I find myself torn on the political and possibly the moral implications of the various options. I think, however, there is an underlying reality that will guide what will happen.
Unless either the Tories or Labour offer a whipped vote on a referendum for a genuine PR system (not AV alone), there will be no PR. No PR now means no PR for the foreseeable future, and the Lib Dems might as well disband. So basically the only thing that makes sense is for them to go with the party offering this. That’s the reality, and the Lib-Dem MPs must know it.
Opponents of PR should realise that it is actually the lack of PR that is causing the problem here. For the Lib-Dems it is an existential issue of political representation and so trumps all others. If PR were already in place, the Lib-Dems and Tories could probably fairly happily reach a compromise agreement on the economy and support the Tories either on a minimum agreed programme or measure by measure for everything else.
I’ve just posted a paper I produced in 1998, which seems rather prescient. I made the point that the hidden growth of money was leading to fairly predictable changes (not for the better) in our economy and society. Here’s some excerpts from the introduction:
Although income inequality appears to be a fact of life there remains general agreement that there should be such a thing as social justice, if this is given to mean at least an approximation to equality of potential achievement. This apparent incompatibility can only be reconciled if money income is neither the only measure of human well-being and fulfilment nor the only means to achieving it. Yet it may well be that the fundamentals of the global financial and economic system are such as inevitably to both widen income inequality and also to increase the importance of money in achieving individual well-being and happiness. Continue reading Money and Inequality
Last night, here in Edinburgh, I attended a fascinating lecture by Willem Buiter, founding member of the Bank of England’s Monetary Policy Committee and author of the celebrated (in certain circles!) Maverecon blog on the Financial Times website. Sadly, the blog is discontinued as Professor Buiter is now the Chief Economist of Citigroup, the US banking and finance giant.
Despite this last fact, Prof Buiter is an interesting economist. Although coming from the mainstream tradition, he is an independent thinker and pragmatic analyst who isn’t afraid to follow his analysis to unexpected conclusions. In the course of his lecture and in conversation afterwards, it seems he isn’t too constrained by his current corporate role. I hope he will forgive me for reproducing his thoughts here as accurately as I can. Continue reading Willem Buiter on Debt and Deficits
There’s more nonsense about the UK fiscal position around – most of it emanating from the Conservatives and their manifesto. The latter document is appallingly selective with the statistics – they are really setting themselves up for a fall. Here’s an excellent dose of common sense from Kansas City.
Does professional sport as we know it have much longer to go? Clubs are bankrupt, the play is ignored in favour of endless analysis and criticism over refereeing or umpiring decisions, and the players are subject to pressure and scrutiny that while commensurate with their earnings is obviously not compatible with family life. Even the great sporting love of my life, cricket, has become enslaved by the need to maximise income with the advent of zero-subtlety twenty-twenty franchises and the dragooning into the England team of anyone with a feasibly British connection.
There is an incompatibility between the purpose of sport and running its teams as businesses in a competitive environment. So much is intuitive, but it is also the result of a considerable amount of research into the economics of sport. Recent research* suggests that competition at both the sporting and economic level must become destructive by leading to over-investment in playing talent. This propensity is likely to be exacerbated by inequality within and between domestic leagues, and by the existence of additional rewards (such as Champions’ League participation for football clubs) to those reaching the top of domestic leagues. Empirically, what is currently happening on and off the pitch in English football seems to fit pretty well with these findings. Continue reading Money and Sport Don’t Mix
At the end of January 2010, UK government debt stood at £848bn and around 60% of GDP. The European Commission says ‘additional fiscal tightening measures’ are required. The Tories warn that investors are getting anxious and that the ratings agencies (who also certified the security of mortgage-backed derivatives) are about to downgrade the UK government’s debt, with the likely consequence of increased interest rates to pacify bond-holders.
Two-thirds of Treasury bonds are held by UK citizens and institutions – mainly banks and pension funds – that rely on them as secure and predictable basic assets. This is UK government money owed to UK citizens by the UK government. It is a purely internal redistribution of claims that cannot be compared, as it sometimes is, to household debt. The one-third of Treasury bonds held by foreign investors, such as other central banks and financial institutions, is a rather different story. Clearly these bond-holders have less direct interest in the long-run health of the UK economy, and so may and sometimes do, exert pressure on governments to increase the rates of return on the new bonds they issue. Were these rates of return to exceed a reasonable expectation of the political and economic tax revenue capacity of the UK government, then there would be difficulty in continuing to fund the current level of debt in the same way. In fact this situation seems a long way off. Currently interest rates are low, UK debt is not particularly high relative to other countries, and the UK has strong social and economic assets to back its liabilities. This makes UK government debt a particularly safe form of wealth in a time of economic turbulence and one that tightening capital regulations are likely to create even more demand for. The real question about the UK’s debt is not so much whether it is sustainable, but whether it is fair. Continue reading Debt and Deficits – Sustainable but Unfair
An important step in making economic scholarship relevant to the post-crisis world may have been taken last week in Cambridge, UK. A number of economists that do not subscribe to the majority view of how the economy works met to consider what a ‘New Economics’ might look like. While new in several senses, the ‘New Economics’ does not lack deep roots. It is founded in ideas that have taken on new life in the last two years, such as those of John Maynard Keynes from the 1930s and Hyman Minsky from the 1970s. Keynes’s insight was that because the saving of individuals does not automatically translate into investment by firms, government spending may be required to make up for low private sector demand in times of recession. Minsky’s observation was that there is a tendency for firms to optimistically over-borrow in good times to the extent that they become prone to collapse when times turn bad. These insights have become current in the financial media, yet what underpins such ideas and why they must become embedded in our economic thinking, has not.
Modern economics has insisted that the economy as a whole can be studied as a stable outcome of markets that are populated by completely rational and fully-informed individuals. To the extent that this ignores what we know of human knowledge and behaviour, ignores the existence of economic institutions such as firms, banks and governments and ignores the outcomes of actually existing markets, this can be justified by the gnomic utterings of Milton Friedman. Continue reading The Reality-based Economics Community Strikes Back
Is ‘economic activity’ always a good thing? The banks hit by the bonus tax have raised the spectre of lost incomes and tax revenue if they choose to relocate away from the UK. The British Broadcasting Corporation (BBC) has recently sought to justify the licence-fee by calculating the revenues its commissioning generates for independent production companies. But it’s a deeply misleading idea that the benefit of any activity can be calculated by measuring the quantity of money that is involved in purchasing or producing it. Because money is the definition of wealth to each of us as individuals, it’s easy to forget that in itself it is pretty much worthless paper or more commonly today, an electronic pattern on digital media. For the welfare of the nation in which it is generated money represents no additional wealth whatsoever. Continue reading The banks, the BBC and ‘Economic Activity’