Category Archives: Finance
Britain: an oligarchy in which power is concentrated in the hands of an elite, elected or otherwise – 2
Theresa May’s one-time adviser Nick Timothy, startles in the Telegraph with an article Britain’s cosy establishment is the product of a dysfunctional political system: Recent allegations of sleaze and corruption reflect far deeper issues within our political culture
He refers to allegations which have swirled and rows which have lingered about so-called “cash for favours” appointments to the House of Lords, and the hiring and firing of senior civil servants, commenting, “While there is no doubt that we can and should scrutinise specific decisions, we are in danger of missing the bigger issue”:
Our problem is not really about individual politicians, nor even political parties. The problem is our political system and culture
After summarising the Richard Desmond’s alleged gain from a planning decision relating to the redevelopment of Westferry Printworks in east London, he asks, “Why are government ministers (e.g. Robert Kenrick) put in positions – as a matter of routine – that allow powerful people such as Desmond to lobby them, directly and inappropriately?
Nick Timothy observes that the Desmond controversy is closely related to the laws that govern the financing of political parties, which push party fundraisers to beg and borrow from wealthy individuals and organisations: “For the Conservatives, the donors are almost always from big business and the City. For Labour, the money comes mostly from the trade unions, but they take significant donations from business leaders, too”.
One of 13 transgressions listed by the Government’s chief whip, Lord Taylor
He continues: “The Lords is undeniably a deeply corrupting influence in public life”
Many donors end up with peerages in the House of Lords. In the days of hereditary peerages, Lloyd George lampooned the upper chamber for consisting of “500 ordinary men, chosen accidentally from among the unemployed”. But, asks Timothy, is it any better to have 800 men and women chosen on the basis of friendship, financial support and blind political loyalty?
He describes the British establishment as having a deep complacency and a self-serving nature:
“Senior officials retire from unelected and unaccountable executive power, only to gain unelected and unaccountable legislating power. Senior business figures mark one another’s homework thanks to slack corporate governance. Some take the shilling of foreign businesses whose interests they must know clash with those of our country. Some manage to buy political access and influence, and even titles and political positions of their own. And some politicians succumb to pressure and temptation while reassuring themselves that they are serving a higher purpose”.
Another feature not mentioned by Nick Timothy, in a blog post last March, came from Boris Johnson’s adviser, Dominic Cummings, who described the military procurement process as a “farce”.
He accused the military of having “continued to squander billions of pounds, enriching some of the worst corporate looters and corrupting public life via the revolving door of officials/lobbyists”.
Nick Timothy ends, “We should not be surprised that members of this privileged class scratch one another’s backs, but that does not mean we should meekly and passively accept it. The cosiness of our establishment is related to the state of our state, with its informality and amateurishness. For reasons of probity as much as efficiency, it all needs to change”.
A Hockley Agro UK article asked if lockdown has permanently changed attitudes to British farming. It pointed out that when demand soars in a crisis and global supply chains are frustrated, having food available locally is of paramount importance. Locally grown food creates important economic opportunities, provides health benefits and helps to reduce environmental impact. Eating what is produced here in the UK is key to reducing food miles and avoiding unnecessary packaging. It ends:
“Producing food within our shores is vital to support the economy, help maintain high levels of animal welfare, control sustainability and assist in improving soil heath. To suggest an end to agriculture as an industry would mean an end to large agricultural employers and local family farms alike”.
Camilla Hodgson reports that the National Farmers’ Union (NFU) has warned the UK would run out of food in just seven months if it relied solely on homegrown produce. Self-sufficiency in food has stagnated with government figures showing that Britain produced only 61% of its own food in 2017, a rate in long-term decline.
“The statistics show a concerning long-term decline in the UK’s self-sufficiency in food and there is a lot of potential for this to be reversed. And while we recognise the need for importing food which can only be produced in different climates, if we maximise on the food that we can produce well in the UK then that will deliver a whole host of economic, social and environmental benefits to the country. Home-grown food production must have the unwavering support of Government if we are to achieve this post-Brexit.”
Richard Harvey Owston, Rutland who founded Manor Farm Feeds in 1986, asks if the UK really wants to become totally dependent on imported food at a time when we are witnessing a worldwide trade war led by the power-hungry leaders of the major nations.
He fears that, although our politicians are paying lip service to the future support of food production, ‘the small print indicates otherwise’.
This fear, expressed today by the FT’s editorial, will not be shared by some, who see globalisation as ”another version of colonialism or imperialism – with Amazons, Facebooks and Googles, Nikes and the garment industry in many aspects of their conduct as more acceptable looking British or Dutch East India companies” (reader’s comment).
Manila port ‘bursting at the seams’ in the Philippines on Tuesday, March 31, 2020. Read more here.
Following an FT report of drops in rail freight and containerised exports from the UK of as much as 50 to 60% while imports are also declining, its editorial points out that supply chain disruptions and struggles to obtain medical supplies, have accelerated calls for countries and trading blocs to ensure they have sufficient capacity at home — prioritising resilience over producing goods where it is cheapest.
The US trade representative, last week hailed the end of “reflexive offshoring” (NY Times, log in) and in the EU Thierry Breton, the EU’s internal market commissioner, wants government grants, loans and direct intervention to build up European supply capacity.
The FT editorial points out that, in shifting manufacturing jobs out of rich countries and into poorer ones, globalisation reduced poverty in the developing world and prices in the rich ones.
But those working in these sweatshops (a small section of a sweatshop in Karnataka is shown above) still live in poverty and cramped conditions, working far from home in unhealthier conditions than the subsistence agriculture (Karnataka below) which was formerly their lot.
The low prices for their products in rich countries have encouraged a wasteful throwaway culture there, which has added to the waste mountains
The editorial also admits that millions in the ‘rich countries’ lost their jobs in the process, and lost the sense of pride and ownership people felt in their once thriving communities.
But the FT asserts that global supply chains and co-operation are a source of resilience, allowing countries to focus on their strengths and share expertise.
“Spreading people and factories around the world allows companies to guard against risks by diversifying”:
But it has also broken family circles and communities, increased deforestation and reduced the amount of land available for food production
“There will be higher prices and lost export markets”
But higher prices (due to higher wages) will mean a greater market for local goods and better tax revenues. A reduction in exports will lead to a great reduction in transport-related greenhouse gases.
“The direct cost to the taxpayer of subsidising domestic production . . . will make (economies) more fragile, not less”
But huge subsidies are currently given by government to foreign water, energy and transport utilities (including nuclear projects and fossil fuel producers) working in this country, to arms manufacturers and other exporters. That money could be redirected to domestic production which would reduce welfare payments and transport-related pollution.
It can be argued that a knockout blow is long overdue and that purposeful employment created by import substitution and Green New Deal projects might, in time, bring about an environmentally aware, low-crime, harmonious and employment-rich society.
In the Financial Times an economist and a financial historian debate the long-term viability of the Covid-19 rescue packages – an issue which is concerning many thoughtful members of the public.
Stephanie Kelton is professor of economics and public policy at the State University of New York and a former chief economist on the US Senate Budget Committee. Last year she was on Bloomberg’s list of the 50 people most influential on global markets. Her forthcoming book is “The Deficit Myth”.
“Yes” says Professor Kelton: “While public debt can create problems in certain circumstances, it poses no inherent danger to currency-issuing governments, such as the US, Japan, or the UK. This is not, as some argue, because these countries can currently borrow at very low cost, or because a strong recovery will allow them to grow their way out of debt”. She gives three reasons:
- First, a currency-issuing government never needs to borrow its own currency.
- Second, it can always determine the interest rate on bonds it chooses to sell.
- Third, government bonds help to shore up the private sector’s finances.
“No” says Edward Chancellor, a financial historian, journalist and investment strategist. In 2008, he joined Grantham, Mayo, Van Otterloo’s asset allocation team. He is the author of a forthcoming history of interest.
He believes that governments can print money to cover their costs only as long as the public retains confidence in a currency. When the crisis passes, the excess money must be mopped up, but politicians are unlikely to raise taxes in time to nip inflation in the bud. Though bonds can be issued to withdraw money from circulation, once inflation is under way, bondholders demand higher coupons (the amount of annual interest paid by the bond’s issuer to the bondholder).
Others would argue that, as new money is created at the stroke of bankers’ pens – or the click of a computer key, when they approve loans (see Bank of England Quarterly Bulletin) money can be deleted in the same way.
“The usual objection to printing money to pay for government spending is that it will unleash inflation. That would be true if the spending being financed were increasing the overall level of demand in the economy, and if markets expected the government to resort to monetary financing as a matter of course. Neither of these conditions holds true today”.
Martin Wolf (below) was a senior World Bank economist and Director of Studies at the Trade Policy Research Centre, in London. He joined the Financial Times in 1987, where he is associate editor and chief economics commentator. He agrees with Professor Kelton on this subject, writing in the FT:
“Our financial system is so unstable because the state first allowed it to create almost all the money in the economy and was then forced to insure it when performing that function . . .
“A maximum response would be to give the state a monopoly on money creation. A 2012 study by International Monetary Fund staff suggests this plan could work well. Banks could offer investment accounts, which would provide loans. But they could only loan money actually invested by customers. They would be stopped from creating such accounts out of thin air and so would become the intermediaries that many wrongly believe they now are”.
Wolf talks about the issue (from 8.37mins) in a very interesting videoed interview on Indian television which focusses on the global economic impact of the coronavirus.
International Workers’ Day – bank holiday concert in Rome, 2019
Some points from Jeremy Corbyn’s May Day message:
“May Day is international workers’ day, but also a day of peace. Let us heed the words of UN secretary-general Antonio Guterres in calling for a global ceasefire in conflicts. Pouring weapons into Saudi Arabia makes the humanitarian disaster of Yemen even worse.”
The years of austerity have left our NHS working at 94% capacity, our care homes, mostly privately run, virtually full and over one million people waiting for social care of some sort. Our local authorities, whose budgets have been slashed by the austerity doctrine, were expected to cope as the crucial local element in dealing with an emergency.
From testing, to supplies of personal protective equipment to support for companies to survive or workers to survive be they self-employed or employed by others – the government has been found wanting. Failure to procure test equipment and ventilators at the time of the WHO warning has cost time, and lives.
Inequality in Britain, poor air quality in working-class communities, the work of black and minority ethnic communities in our care and health services and the disproportionate death rate are all exposed by this crisis. Being told to work at home if you have reasonable house and garden is one thing. Being told to try and work at home in a tiny flat with a large family is very different. Being told to stay at home when you are rough-sleeping homeless is obviously a nonsense.
NHS and care workers, delivery and postal workers and those that keep our communities clean and safe. Let us never hear another Home Secretary describe migrant care workers and cleaners as unskilled: they are the ones who keep us alive, not hedge-fund managers.
Our demands are for no return to austerity, for proper investment and support for jobs and a green revolution so that the clean air and city birdsong of the lockdown don’t just become a memory, but our normal life in future.
Some points from Len McCluskey’s May Day message:
With millions facing unemployment and an economy on the brink of ruin, Conservative government ministers have ‘engaged seriously’ with trade union representatives for the first time since Margaret Thatcher ‘effectively banned contact’.
They recognised they were in serious trouble and intense daily meetings between unions, ministers and civil servants in BEIS, the Treasury, the Cabinet Office and No 10, have taken place from which the job retention scheme and other pay protection agreements emerged. Our work with government led to securing the furlough scheme and persuading a reluctant Treasury to extend it.
We used our relationships with leading manufacturers and industry bodies:
- helping to establish the Ventilator Challenge
- working with firms the length and breadth of the country to co-ordinate the mass manufacturing drive needed to provide the safety kit our front-line staff must have to stay safe
- demanding the appointment of a minister for PPE to address the chronic shortages of the vital safety materials urgently needed by NHS and social care workers
- working with industry bodies and companies to find safe and secure ways back to work in certain industries, including automotive and construction and
- ‘calling out’ employers putting their workers and the public at risk, or who are using coronavirus as an excuse to lay people off.
May Day is a celebration of workers and also strong trade unions, which have demonstrated during this crisis, perhaps as never before, why they are so needed. A start for paying back our workers with more than admiration and gratitude would be to ensure decent pay and secure, safe work – and make May Day in Britain a public holiday, as it is elsewhere.
Trade unions and working people in Britain have endured over 40 years of relentless attacks. We cannot allow this government to return to business as usual — that’s what got us here. It should not take a pandemic for government to value working people or to recognise the need for investment in our NHS and other public services. “The “new normal” must mean the labour movement keeps our seat at the table with a real plan for changing our economy for the good and for a long-term New Deal for Workers — the campaign we launched with the CWU, GMB and other sister unions”.
The pandemic surely demonstrates, too, the importance of a new normal in international economic co-operation and health planning. A virus anywhere is a virus everywhere. Countries like Austria, Denmark, Finland, Germany, Italy or Sweden demonstrate that it is possible to negotiate solutions that are acceptable for workers and employers. Comprehensive economic recovery plans will clearly be needed to reboot the economy and allow industrial activities to re-emerge.
Jeremy Corbyn’s recommendation: “Those workers who are now being treated as expendable need union support, the self-employed need to be unionised and our movement must recognise the nature of the economy that austerity and neoliberal economics has brought us”.
The COVID pandemic has revived the debate on helicopter money. This post presents some of the points made by Professor Joseph Huber (right) in his recent paper, ‘Monetary Financing of Helicopter Money’ which may be read here.
In the aftermath of the 2008/12 crisis Adair Turner, last chairman of the UK Financial Services Authority relaunched the idea of direct monetary financing.
The central-bank money thus issued for government spending was soon dubbed ‘helicopter money’, a derogatory metaphor used by economist Milton Friedman in 1969; he thought that helicopter money would simply raise price levels, not productivity and wealth.
But in a severe recession or crisis, extra government spending to prop up the economy has been a policy tool for decades, even if not openly funded by the central bank.
In contrast to what is generally assumed, monetary financing is not unheard-of. In a way it was common practice at all times, but in the latter half of the 19th century, the central banks underwent a role change. They turned from ‘bank of the state’ to ‘bank of the banks’, primarily or even exclusively supplying the banks with notes and account balances. This role change was advanced under the influence of neoliberalism in banking and finance and monetary financing became taboo.
A core doctrine of neoliberalism, which became ultraliberalism since around 1980, was: ‘Restrict or prohibit money creation by the government as well as money creation by the central bank for the government. Money shall primarily be created by the private banking sector. The role of the central banks is to refinance the banks, not financing government expenditure which must be funded by taxes and sovereign debt’.
However, contrary to what is claimed, ‘money printing’ continued to be practised more extensively than ever. In place of the treasuries it was the banking sector which made reckless use of the ‘printing press’ in the form of creating bankmoney on account.
Sovereign debt became an important profitable investment opportunity for banks, investment trusts, wealth funds and insurers. The treasuries issued bonds, the central banks bought them on the open market from banks and other financial institutions.
This kind of monetary and financial system has now definitely manoeuvred itself into a dead end. A better balanced and functionally more sensible role needs to be developed regarding the sovereign control of the currency and money creation and the division of powers between monetary competences, budgetary-fiscal responsibilities and financial-market functions.
In a crisis such as the subprime and debt crises of 2008/12 and the current covid-19 crisis, temporary and limited helicopter money is an effective measure. Monetary financing of QE for the real economy is certainly preferable to the previous policies of QE just for finance which flooded the banks with unprecedented amounts of central-bank reserves.
The sensible way to get the money out into general economic circulation, is by issuing the money in the form of central bank digital currency (CBDC) to be used by everyone. This is now on the agenda. The special type of money in which CBDC will be issued is not definite yet (deposit money or crypto tokens or mobile-phone tokens; accessed directly or indirectly), but issuance of CBDC is only a matter of time and of the particular design principles of implementing CBDC in coexistence with bankmoney.
In the UK the law does not prevent the Bank of England (BoE) from monetary financing. After long years of hesitation, the covid-19 pandemic has now prompted the BoE to raise the ways-and-means facility for the government from 0.37 to 20 billion pounds and to act as a primary dealer of newly issued British gilts if need be. adding to the money supply according to well-defined monetary-policy criteria, giving to the state what is of the state
Finally, CBDC can and ought to be created free of debt. A plan devised to that end was conceived of by David Ricardo in his 1824 Plan for the Establishment of a National Bank. Ricardo was the most prominent representative of the Currency School, opposing the Banking School of the time. According to his concept, the Bank of England was subdivided into an issue department, responsible for the note issue, and a banking department, concerned with the central bank’s banking operations. The separation of the note issue from the banking operations exists to the present day, although it never gained too much importance because of its inconsistent implementation, notably, leaving the notes of the country banks and, more importantly, bank deposit money untouched outside the arrangement.
The approach can be implemented in an up-to-date way by separating a money-creating currency register from the balance sheet of a central bank’s operational banking activities. The currency register would create the additions to sovereign money (solid cash as long as it exists, reserves or CBDC, the latter possibly of not just one type). The register would issue the money either into the central-bank balance sheet as a non interest-bearing but callable assignment for financial uses, or transferred to the treasury as genuine seigniorage.
* * *
The three issues addressed in this paper – CBDC, genuine seigniorage (omitted in this summary), money tokens beyond debt – are likely to be too much to handle all at once. They do not necessarily include one another, but build well on each other. They would make monetary financing of helicopter money, which today appears to be an extraordinary thing, an ordinary integral part of the money system.
This opens up the perspective of a change in the current crisis-ridden bankmoney regime towards a money system eventually dominated by sovereign money. This too would certainly not be heaven on earth, but, if run competently, it would be free from the kind of monetary non-safety and financial instability we know today.