Osborne's shattered economic plan put in context

Above is George Osborne's economic plan. On the left, in brown colour, is the projection he made in 2010, with the deficit - the difference between Government expenditure and income - falling year by year until it is gone in 2016-17. In red, we see what actually happened, with the deficit way above his projection. In pink, we have his present projection, from last Thursday. Again, as in 2010, he projects a falling away to nothing in the next 5 years.

Are we to believe him? Only the Tory press and their dupes believe him.

The UK economy is rarely not in deficit. Here is the trend since 1980:

Note that the yellow bit on the right is Osborne's 2010 projection, the brown in the top figure. Note the rarity that it crosses the line into surplus. Note that Labour under Gordon Brown inherited a surplus and held the deficit down until 2008, when he got generous with education and the NHS, and then the spike in 2009, when the idiot/criminal banksters blew the whole thing apart. 

Let's look further back, to 1948. Here we can see a definite trend towards greater deficit. 

Osborne was able to browbeat the UK voters on the necessity of austerity on the basis of big deficit figures, but only because the media, in the main, colluded with him, either out of stupidity or because they share his ideological belief that all state spending is bad.

One factor in the increase in the deficit is that most money is created out of debt. The more money is in circulation, the more debt in existence.  Here is a post on why debt is breaking the world economy.

The real answer to deficit is not to shrink the state, which is what Osborne wants to do,  despite the horrendous effect it will have on the UK, but to take back the monopoly of creating money from the banks.

Voters are not stupid. They dismiss Osborne's plan by a margin of 2:1

source: http://t.co/eWsI7kzb3m

This is all a good reason to vote Green in  May 2015, since the Green Party is the only party that wants to do this.

Meanwhile, we have to grit our teeth while the papers and the BBC parrot Osborne's lies.

More on this blog: Four Tory lies and myths about the economy

Small state, low taxation - will it make us happy?

Green Wage Subsidy: understanding the mental block

Random Sheep

We had an illuminating debate at my local North Somerset Green Party meeting last night. I reported back on Conference, and presented the plan that we should set up a pilot for the Green Wage 
Subsidy (GWS) in a ward in Weston. An interesting debate followed.

One respected and hard working member believed that the Trades Unions would and should oppose the scheme. She was opposed to any wage subsidy in any form. She opposed Working Tax Credit.  The employers should pay a decent living wage in the first place, and not need to have a wage subsidy of any kind.

The scales fell from my eyes. I have encountered this objection before, but just thought it was a trivial petty prejudice against employers. I now realise that it goes deep, deep into the pit of thousands of bitter wrangles between bosses and workers. It explains why the GWS has been met with impenetrable silence within Green Left, and why perhaps the Work Foundation has failed to respond to my paper on GWS.

Rejection of, or rather, non-engagement with, GWS is founded, at least in part, on an atavistic oppositional emotion against The Bosses. The animus is understandable, given the long and bitter history of conflict between bosses and labourers, but in the present context it is totally counterproductive.
It is a case of  perfection being the enemy of the good, of an ideal blocking a pragmatic reform..

Ironically, it is also a mirror of why Free Market Fundamentalists would oppose GWS, as an unwarranted interference in the market. They love unemployment, because it drives wages down, as starving wretches crawl at the feet of employers begging for work.

Given the real situation in the UK with 1-2 million unemployed or underemployed, kept in poverty and enforced idleness by an unfit-for-purpose, inefficient benefit system, GWS offers full employment and a greening of the economy, but it gets to be opposed because it means that employers do not have to pay a full wage out of their own pockets. Instead, the state ensures that the employees get a decent living wage, and at the same time, the employers' wage bill goes down, so they can take on more labour.

Because of their principles, that employers must pay all the wage, high wages with no help from the state, the unionist is committed to supporting the present system to the bitter end, until it collapses under the weight of its own contradictions, and is superseded by the revolution where perfection reigns everywhere, and, er, the state pays all wages. Hmmm.

At least, that seems to be the argument as far as I can make out. The debate was a bit cramped by lack of time, because the North Somerset Green Party meeting was remarkable for having not just this, but another major political discussion, the second being the dire situation of  Local Government finances thanks to Eric Pickles' enthusiasm for crushing them with his mighty weight.

Anyway, I have learned a lot. I have to meet up with the Trades Unions and persuade them that GWS is not a cunning plot to line the pockets of the bosses, but a pragmatic plan to  make Britain a green and fully employed land. Wish me luck.

PS The sheep photo is just an attempt to brighten up this blog. It in no way implies that people follow their group without thinking things through rigorously. I have full respect for my unionist friend, and am very grateful that she has helped me to understand peoples' problem with GWS.

Impassioned plea to economists to get their act together.

Over on the admirable Unlearning Economics blog there is a discussion on finding a new unifying Principle for Economics. I put in my 2p worth a few days ago, and it got a kindly pat on the head, but now they have started talking about Freud and Marx, and I commented:


I am a (retired) psychiatrist, and I know a little about Freud. He had some valid ideas, chiefly on ego defence mechanisms such as denial, projection &c. He also had a "unifying theory" about the psyche which would nowadays be classified in psychiatric terms as an over valued idea. His therapeutic approach, psychoanalysis, has more in common with literary criticism or religion than science.

So it depresses me somewhat to hear economists talking about being a Freudian or a Marxian. These are concepts derived from theology and philosophy rather than from science. Any one scholarly wo/man may contribute both insights and misconceptions to the system under study. No single individual deserves to be "followed". Individuals may (or may not) merit study, but it is the system, the factors and their interactions, that is the correct object of study, not the people who have written about the system, no matter how clever or influential they were.

Just as if you came to me with PTSD, you would want to know what I can do in order to relieve you of it, and would not want to listen to an hour of waffle about Oedipus Rex, so I as an outsider want to know what you economists are going to advise in order to bring about an economic transition to sustainability and equality. I do not want to know whether or not you believe Freud would beat Marx in a fist fight.

Sorry if this sounds blunt, I respect you all really, but time is short. We have an insane Government here in the UK carrying out a chainsaw attack on the national economy in the name of dealing with the deficit caused by an insane system of creating money, money is haemorrhaging out of nation states into tax havens, the rich are getting ever richer while the poor are getting ever poorer, there are empty houses alongside  homeless families, food banks alongside obesity, a million unemployed while there are a million constructive jobs left undone. These are economic problems. Please address them, and in doing so you may well find your unifying principle.

Ecological Economics

The excellent Unlearning Economics site raises the question of the need for a new unifying principle for economics. My two pennyworth:

Economics, the ordering of our living space, should be founded on ecology, the study of our living space, because we cannot order a thing without understanding it.

This insight has a massive impact on economics, because it brings with it three axioms: it is impossible to expand forever into a finite space, it is impossible to take forever from a finite resource, and everything in the biosphere tends to be interrelated. These axioms in turn have a revolutionary impact on economics, not least by blowing the economics of growth out of the water. The steady state economy becomes the destination. Work becomes re-evaluated in terms of its ability to restore order into our world http://www.greenhealth.org.uk/PhilosWork.htm. The overarching need to stabilise our being-in-the-world transcends the anthropocentric quarrel as to whether the collective or the individual should have primacy.

Ecology has a lot going for it as a principle that can unify economics.

More here.

Costing the Green Wage Subsidy

COSTING THE GREEN WAGE SUBSIDY

The motion on GWS to the Green Party Conference had a note attached to it by Policy Comittee to the effect that it was uncosted. It was referred back. I was not advised that motions should be costed, but no matter, I have done some very rough costings here, and they are interesting. 
Bottom line: if only half successful, GWS could add something like another £10,000,000,000 (£10 billion) to the annual income of UK plc. 

The Green Wage Subsidy (GWS) aims to move towards full employment and stimulate the Green Sector of the economy by transforming existing benefits (primarily unemployment benefits, termed “JSA” at the time of writing 2013, but any other benefits may also be involved) into a wage subsidy by allowing them to behave as though they were Citizen’s Income.

Executive Summary
Conservative cost-benefit estimates of the effects of a GWS working to 50% of full capacity suggest that for an outlay of £34.5million pa, the nation as a whole could benefit to the tune of some £10 billion per annum, possibly more.


Tribunal Costs

Tribunals will be set up in the  346 Local Authorities (LAs) in England and Wales to adjudge the economic groups that will qualify for GWS.

Tribunal: 3 officers at £30k pa each, total £90K pa, add office costs (can be lodged in council buildings) say £100K per tribunal, so total is £34.6million pa.

In doing this we have created about 30,000 admin jobs already – but there will be job losses from administration in other areas, since there will be less pointless activity in  Job Centres chivvying and chasing claimants, putting them through training for jobs that don't exist. But we can let that pass.

Note that the activity of the tribunals will be intense in the first few years of GWS, and will fall to maintenance levels as time passes, so these costs may fall.


Health savings

The NHS will not have to treat as many cases of anxiety, depression, heart attacks, domestic violence, smoking related illness, obesity and alcohol abuse as a result of higher employment levels. In 1996 Bills of Health calculated the health costs of unemployment to the NHS at £17 million. Let us round that up to £20 million now.
The NHS should not have to pay this money back to the Treasury, but in that waiting times will fall, there will be a net benefit accruing to the general economy since people will be off work for a shorter time waiting to be treated, so it is not unfair to set the £20 million off against the admin costs.

So we only £14.6 million to go until we break even on the tribunals’ outlay.


Increased tax revenues

Let us make a conservative estimate, and assume that only 1million extra jobs are created in the early years of the GWS scheme.
National Insurance Contributions (NIC) will be paid by the employer. Say £80 per week times 50 weeks a year times a million = £4 billion.
Then there is the extra tax take from the increased output and profitability of green SME's. This is impossible to quantify, but they would probably be in the region of the NIC take, but let's be conservative, say £1 billion.


Legal Costs Foregone

Monies saved in police, court, prison probation and social service costs are difficult to estimate.
Bills of Health shows that unemployment is related to minor crime such as car theft.
It is reasonable to assume that many unemployed people must supplement their meagre income with fraud and drug dealing. Workless youths will also inevitably be drawn into street gangs.
Let us be really conservative and put these costs foregone at £14.6 million, in order to eliminate the irritating remnant of the admin costs.


National Morale

There is an the effect on general morale which will lift as litter disappears, gardens are planted, the street furniture is brightened up and the neighbourhood starts to buzz. Business confidence will increase.
That must be worth 0.001% on GDP. Another £6 billion. Say five, to be conservative.

Obviously there is more detailed work to be done here, but at this stage I make it we're about £10 billion per annum better off as a result of GWS, working at 50% of maximum (1million jobs created, not the full 2 million).

Medium and Long Term costs

Of course, if the economy picks up, the claimant bill will remain high instead of falling as people go back into conventional work.

But in fact the JSA is a fairly trivial part of Govt spending, so we can argue that point with Tories when (if?) we get to escape from recession.

If the GWS continues, natural unemployment churn will mean that gradually the proportion of people on working on GWS in the green sector of the economy will grow, so that the system will be taking on the characteristics of a full Citizen’s Income. At that stage, public perception of CI will have changed radically, and instead of being seen as an outlandish Hippy’s Charter, CI will be seen as the sensible and efficient measure that it is.


Conclusion

I fully accept that these calculations lack the rigour that a paid firm of consultant accountants would bring to the task, but I would draw to the attention of the Policy Committee the costs that such an consultancy would bring to the Green Party, and I would argue that the margins suggested by this broad brush estimations are large enough to contain any but the most absolutely oppositional criticisms.

Piloting the Green Wage Subsidy scheme

One of the positive aspects of the Green Wage Subsidy proposal is that it is not just an abstract piece of policy, but is also a potential campaign focus for local Green Parties everywhere.

I have asked to speak to our local North Somerset party at our next meeting to present the idea of running a GWS pilot in a local hot-spot of unemployment in Weston.

If there is an unemployment hot-spot in your area, and your local Green Party would be interested in looking at what would be involved in trying to set up a pilot scheme I would be more than happy to come and explain what would be involved.

A pilot would be a lot of work:

• we would start by engaging with the local chamber of trade, with green businesses, with the Local Authority and above all, with the people.
• once we have some support from the business community, and the local authority is at least aware of the idea, a public meeting of unemployed people would be called.
• such a meeting would be interesting, but very empowering for them.
• once we have support from the local community, we go on to lobby the local MP, to get her/him to take it to the Department of Work and Pensions.

All a lot of work, but the great thing is that it would almost certainly be of interest to the local press, so it would generate interest in the local Green Party as a party that cares about local people and local economic conditions, and also attempts to do practical thing to help the situation.


This will offset the perpetual problem that we face in being perceived as "good on the environment, and weak on economics". So even if one pilot fails to get DWP approval, it is good for the Green Party.

The more requests the DWP gets, and the more public pressure grows, the greater the likelihood of ultimate success.

It is a pity that the national Green Party is not yet behind us, but I am pretty confident that we can get it passed at the next Conference in Brighton this autumn, and it will take about 6 months to get the preliminary ground work done in any case, so the referral back it is not an unmitigated disaster.

Costing the GWS

EU Bonus Row: How many Sir Fred Goodwins will we lose?

The EU votes to cap bankers bonuses. Cameron, who can be relied upon to whine and whinge every time bonuses are doled out, puts on his Angry Face and whines about the temerity of the EU to actually do something about it.

In the comments under the Guardian piece, @dirtybanker says it will push our bankers abroad.

Like many others, I am terrified at the dreadful prospect of people of the calibre of Sir Fred Goodwin leaving our shores.

So I ask @dirtybanker:

Can we have some data please? How do City bonuses compare at present with those in other non-European financial centres? How will that change? Bonus league tables must exist, because in a free market the Sir Freds will be scanning the lists every day to see if they could do better in Singapore or somewhere. 

I have had a little search but I found no list of bonuses by country, and anyway I am sure they are probably behind a pay wall. 

So help us ignorati please, and tell us how many Goodwins we stand to lose. Is it the end of the world as we know it, or just a bit of a City shuffle?

Green Wage Subsidy Motion for Green Party Conference

Great! I've just heard from Standing Orders Committee, and the Green Wage Subsidy motion to next Green Party Conference got enough seconders, and is down on the agenda. Thanks guys!

Next item will be to give it loads of prioritisation votes so that it gets debated. Please if you are a Green Party member, keep an eye on the prioritisation ballot, and give the GWS motion a boost. 

If you are going to conference, please be prepared to speak in favour of the motion, in case there is a move to talk it down from any quarters.

Here is the amended motion  as it stands now:

Green Wage Subsidy Motion

Synopsis

We find ourselves in a situation of high unemployment, whichcauses illness, poverty and may lead to disaffection, which can play into thehands of political extremists. Rightly handled, the present crisis may end ofthe present quasi-free-market system, and out of the ruins we can create agreen economy.

The Motion:

Green Wage Subsidy

Add in the PFSS after EC733:

EC734 One of the weaknesses of free-market capitalism is itstendency to undergo periodic downswings, recessions and depressions, whichcause widespread hardship through unemployment and poverty, together with therisks of political instability and war. In a recession – as indeed in anormally functioning economy - we must ensure that the economy is restarted ina green way.  We can create a healthyand beneficial demand in the economy by addressing ecological needs (that is,the needs of environment and society) meaningfully, and at the same timeprepare the ground for the introduction of Citizen’s Income by turningunemployment benefits into a Green Wage Subsidy (GWS) as set out below.

 EC735 Every  local authority will be required to set up aTribunal empowered to judge, systematically according to set criteria, whetherthe processes and product of public services or private enterprise who comebefore them are of net benefit to society and/or environment.

Applicants would typically be operating in the followingfields:

1. energy conservation
2. renewable energy technologies
3. energy efficient goods manufacture
4. pollution control technology
5. waste minimisation
6. repair
7. recycling
8. water management
9. sustainable agriculture
10. forestry and timber use
11. countryside management
12. housing - new building and refurbishment
13. improvements to visual environment
14. public transport
15. education and training
16. counselling, caring and healing
17. community work
18. leisure and tourism
19. innovation, research and development
20. in some high unemployment areas, any ethical business which passes a certain threshold in its environmental audit.

EC736. Businesses and public enterprises who think they might qualify may go to the Tribunals seeking "Green Accreditation”. Any economic grouping may apply: public services including local authorities, co-operatives, and private enterprises. The sole criterion for acceptance is that the outcome of their work is to the benefit of society and environment. If successful, they may take on new workers (i.e. in addition to their present establishment) from Job Centres. New workers taken on under this scheme will be allowed to keep their unemployment benefit in their new job. This can be seen as an extension of the present “Earnings Disregard”. In this way, the present “Job Seekers’ Allowance” and other forms of unemployment benefit change from being a “dead dole” into a Green Wage Subsidy (GWS) which stimulates the green sector of the local economy.


An appeal process will be provided to check on the decisions of the Tribunals when necessary.

EC737 The employer would bring the remuneration of the GWSworker up to the appropriate normal rate of pay for the job, taking account ofminimum wage and the Living Wage. The result is that the worker has employmentand a better income as a result of taking on work, while the employer has abigger workforce for a smaller outlay than would normally be the case. There isno time limit for this arrangement, so that in this regard it behaves in thesame way as a Citizen’s Income (CI).

EC738 It will be illegal for employers to replace previousestablishment with GWS workers, and if workers believe that they have been soreplaced they can make a complaint to the Tribunals, who would have powers toreinstate the worker or, in the case of repeated offences, to revoke theoffending company’s accreditation. Participation in the scheme will be entirelyvoluntary on the part of employees and employers. The scheme will stand outsideof any existent rules which provide sanctions for claimants who refuse work,and in the event of a claimant refusing work offered by accredited employers,there will not be any withdrawal of benefit.

EC739 In order to avoid unfair competition betweenestablished companies and putative start-up companies, those companies applyingfor accreditation must have been in existence for at least five years. Inspecial local circumstances, this rule may be adjusted by the Tribunal. 

EC740 The GWS money would otherwise have been given tounemployed people on condition that they do nothing apart from being obliged toprepare themselves for generally non-existent work. This is the present statusof Unemployment Benefit, and is the cause of the present notorious unemploymentand poverty traps. Therefore, in the short term GWS would present no cost topublic sector finances, since the money would have been paid out in any case.Some of the GWS money would come back to Government in the form of increasedtax revenues from firms which have benefited, and yet more would come back tosociety in qualitative improvements such as improved services, diminishedinequality and improved morals.  Becausethe GWS is permanent (as opposed to being time limited, which is the case withsimilar benefits at present) there would be a long term cost analogous to thatof CI. These costs are consonant with Keynesian doctrine of the statestimulating work in times of economic depression.

Proposed by: Richard Lawson

North Somerset GP

Outcome:
Referred back after a travesty of a debate
Costing the GWS
Piloting the GWS

Is a Carbon Tax the end of civilisation as we know it?

Source https://www.facebook.com/media/set/?set=a.10151289622949744.537613.47496679743&type=1

Most climate change contrarians will not accept the scientific view of climate because to increase the price of fossil fuels, and to subsidise the emerging renewable energy industry, would mean intervention in the market, and this is the equivalent of asking the Pope to use condoms.

In between their nit- and cherry-picking over the science (and despite their being unable to substantiate their own hypothesis) contrarians occasionally post hyperventilating pieces about the catastrophic effect that carbon taxation and higher energy prices will have on the world economy.

Their angst about the world economy mirrors the angst of us who are concerned about the effects that warming is going to have on the planet, only with less of an evidence base.

First, we need to be clear that carbon taxes or other interventions in the carbon market are not just predicated on global warming. Fossil fuel reduction also ameliorates the following problems:

1. Ocean acidification
2. Peak oil (which still exists, despite the increasingly desperate forays into Extreme Energy)
3. Acid rain (which is still a problem)
4. Air pollution, which still has major health effects
5. Energy security - our dependence on imports of energy, which also has an impact on:
6. Balance of payments (a major problem in the UK)
7. Fuel poverty, which will be ameliorated by conservation efforts, reducing fuel bills
8. Unemployment and recession (jobs will be created in the energy conservation and renewables sectors)

Eight problems, nine if we count the original one - all addressed by reduction in fossil fuel use.

So Carbon Tax does not spell out the end of world, but the beginning of a new chapter of world history. It is a way of turning 9 crises into an opportunity.

The CBI (no less) has this infographic backing the green economy, and the Green Alliance has a mass of stuff on green economics, as does the nef.
Stop Climate Chaos had a demo outside the Treasury yesterday drawing attention to 1,000,000 green jobs already created despite the Government's slovenly, whiny, foot dragging approach to greening the economy. The demonstration was covered by only one newspaper, the Guardian - further evidence of the worrying 3:1 right-wing imbalance in UK news outlets.

Energy conservation is a winner for all, since everyone knows that it saves money and energy. Most of the cost is in labour, but this could be mitigated by the Green Wage Subsidy approach.

Of course, renewable energy does have a cost. New technology always has a cost, and it is entirely reasonable, given its strategic importance, that the government should subsidy renewables. It is regrettable that the Government has chosen to impose these costs onto the energy bills, rather than taking the subsidies out of general taxation (covered by closing tax loopholes). It is regrettable also, that it has all come so late. E F Schumacher pointed out decades ago that if one is using a finite fuel, one should use the wealth it creates to become independent of the finite resource. Words of wisdom which were ignored by politicians.

Carbon taxes are much better accepted if they are hypothecated to the alternative. For instance, fuel taxes put costs to the motorist cost up, but if they are used to bring the costs of public transport down, they are better accepted.

The extra costs of renewables will fall as the technologies and markets settle down. In fact, photovoltaic electricity is already very close to grid parity (when its price equals other sources) in Italy and Spain.

The stimulus benefit of green energy measures to an economy struggling to emerge from recession is obvious to everyone except the lobotomised sea cucumbers who are running the Treasury.

In short, there is an overwhelmingly strong economic, political, moral, and social case to be made for greening the economy, and the hysterical screams of the fossil lobby can safely be ignored.

Stock Market responds to a fake tweet of Assad's death

Stock Market response to a fake tweet

Browsing Twitter a couple of hours ago, I picked up a tweet from V. Kolokoltsev, which is indeed the name of the Russian Ministry of the Interior.
It said:

 ‏@MiniInterRussia

ATTENTION. RUSSIAN AMBASSADOR IN DAMASCUS REPORTS THAT PRESIDENT OF ARAB REPUBLIC OF SYRIA BASHAR AL ASSAD HAS BEEN KILLED OR INJURED.

I was cautious, had a look at his account, who he was following - a load of news agencies. 

He had 7 tweets showing. 

Wanting to believe it was true, I tweeted:

If @MiniInterRussia's tweets are to be believed, Bashar al Assad is dead. Let's hope for peace, justice and democracy in #Syria.

Then I looked closer at his account, and clicked on his Favstar page. Favstar records which of your tweets were retweeted and favourited. 

Here it is: 

http://favstar.fm/users/MiniInterRussia

It shows many more than 7 tweets: a series of fake death announcements, including those  Gabriel Garcia Marquez, Nelson Mandela and Mikhail Gorbachev.

His latest tweet reads:

This account is an hoax created by italian journalist Tomasso De Benedetti

Tomasso has form. Here's a Guardian account from March 30th this year when he was up to the same thing. He says he does it to show how weak the media is. Fair enough.

What is really interesting, however, is how he really got the Stock Market.

The image at the top of this post shows the spike caused by rumour of Assad's death caused by the fake tweets.  Now I was nearly taken in, but the stock market WTI should have some checks and balances. There was a nice discussion on Twitter about the reaction:

David Child ‏@davidchild

Seeing reports that Assad has been killed. Any truth in it?

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2hThe Buddha Smiled ‏@TheBuddhaSmiled

@davidchild really?!

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2hDavid Child ‏@davidchild

@TheBuddhaSmiled apparently. Some Russian minister has tweeted something.

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1hThe Buddha Smiled ‏@TheBuddhaSmiled

@davidchild hmm. According to @zerohedge they're fake. But hit oil prices today. http://www.zerohedge.com/news/supposedly-fake-tweets-about-syrian-president-assads-death-cause-all-too-real-spike-crude-and-s

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1hDavid Child ‏@davidchild

@TheBuddhaSmiled @zerohedge fuckssake. Traders are really the stupidest people alive. I mean, really. Thankfully they don't earn that much.

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1hThe Buddha Smiled ‏@TheBuddhaSmiled

@davidchild @zerohedge yes; one would hate to think what would happen if such impulsive people were remunerated well for acting on gut.

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1hDavid Child ‏@davidchild

@TheBuddhaSmiled @zerohedge indeed. Global economic catastrophe might ensue, for example.

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1hThe Buddha Smiled ‏@TheBuddhaSmiled

@davidchild @zerohedge heaven forbid if such calamitous events were to come to pass.

So. There we have it. Always check your sources. Unless, of course you are a stock broker.

How could income inequality cause bank crashes?

This is dynamite:

David A. Moss, an economic and policy historian at the Harvard Business School, has spent years studying income inequality. While he has long believed that the growing disparity between the rich and poor was harmful to the people on the bottom, he says he hadn’t seen the risks to the world of finance, where many of the richest earn their great fortunes. 

Look at his graph. Sorry I cannot open it here, but it is worth the click.

It relates income inequality measured as share of income held by the top 10% of the pile compared to bank failures going back to 1917. There is a very clear correlation between income inequality and bank failures. It is strong backing evidence for the position of the Equality Trust -  that greater equality is better for social cohesion.

Now correlation is not causation, though causation must always be accompanied by correlation.

Naturally the Free Market Fundamentalists (="neo-liberals") will wish in to deny causation, because it negates their assumptions.

They have an easy task, because it is impossible to "prove" causation.

The Scottish empirical philosopher David Hume (1711–76), "An Enquiry Concerning Human Understanding" said "The falling of a pebble may, for aught we know, extinguish the sun; or the wish of a man control the planets in their orbits. It is only experience, which teaches us the nature and bounds of cause and effect, and enables us to infer the existence of one object from that of another ".

Causation is not a matter of irrefutable positive logical deduction, but rather a matter of inference, of pattern recognition. This recognition is very much related to our basic assumptions, as well as a mounting body of evidence. Neo-liberals will be far slower to recognise causation in David Moss' observation than someone who understand the scientific truth that man is a social animal.

One of the elements of recognising causation is that of finding a plausible mechanism to relate cause and effect. So the question is, how could income inequality cause bank crashes?

I am going to dip into psychiatry to advance a possible mechanism.
I do not claim to be a scientist or a scholar, but I do know about bipolar (manic-depressive) conditions.

In bipolar illness, the moods of an affected individual swing between the extremes of happiness and unhappiness, euphoria and dysphoria. Now, it is a common feature that in the upswing ("high" or hypomanic phase), the individuals will believe themselves to be rich. It is common for them to spend absurd amounts of money and wreck their bank accounts in an upswing. Conversely, in the depressive phase, they will feel poor. Even very rich people suffering from depression will feel poverty-stricken.

As an interesting aside, in the other main form of psychosis, schizophrenia, the sufferer is more likely to regard money as meaningless. They may regard love or some other abstract value as a more meaningful entity, and give money away.

Now there is a very clear parallel between individual bipolar illness and the behaviour of the markets. Boom is high, bust is low. Bull markets are euphoric, bear markets dysphoric. Is this just an intriguing, fortuitous comparison, or could there be a common mechanism in play?

It is agreed the "Market" is the summation of a multiplicity of individual actions of buying and selling. Human actions are influenced by many factors, from absolute needs such as eating, to emotional factors such as how the trader is feeling that day. In a bull market, when share prices are going up, and most traders leave work significantly wealthier than they were at the beginning of trading, they are going to feel good. That feelgood factor will influence their actions on the trading floor the next day, and the summation of the euphoria of the individual traders will affect the judgments and guesses of all the market traders. There is a also a group consciousness going on; if we find ourselves among an excited crowd, we are going to pick up on the excitement.

There is a positive feedback factor; feel good, buy in the expectation of more profit, get profit, feel good. The market as a whole is bouyant; nothing could go wrong. Buy, buy! And so it goes on, activity spiralling upward, until the whole system parts company with reality* (exactly as occurs in the course of an individual's manic phase), and the rake handle of Reality connects with the nose of the Market, which goes into free fall, wiping out whole fortunes.

Whereupon the market goes into a decline, just as the hypomanic sufferer suddenly realises that they have blown their bank balance, and made a fool out of themselves, and plunges into depression. The market goes into recession, which if it lasts long enough will be called a depression. The choice of words endorses the parallel between the individual, psychiatric state, and the collective, financial/economic state.

Depression  is just as much capable of generating false beliefs as mania. This is very relevant to our present economic situation, where Osborne is about to slit the nation's economic wrists in the belief that if he does not do so, the Market will come and take away our AAA rating.

In this view of things, Osborne's economicidal cuts, in the face of double dip recession, can be seen as a delusion of poverty, the mirror image of Gordon Brown's hubristic "we have abolished boom and bust".

The UK is certainly up financial shit creek, but at least we still have a paddle - a functioning economy. Unfortunately Osborne is trying to saw it into bits and sell it for firewood.

To summarise: the Market is composed of the summation of individual trading actions, and those traders are also influenced by emotions. There is a positive feedback loop between trading success and market euphoria, which drives those who are profiting from a rising market to make ever more euphoric guesses and judgments until contact with more basic economic realities bring about a deflation. In the boom phase, the profits accruing to bankers (who are in the top 10% of the economy) will expand, which is a plausible mechanism to explain Moss' observation that growing inequality precedes a market crash.

____________________________

*Even more than it already is. The financial market is commonly distinguished from the "real economy" of manufacturing and production, and the whole orthodox dys-economy itself is divorced from the basic reality of ecological economics.

This is an edit of a post from 2010

Will Hutton stimulates renewed effort to work on Green Wage Subsidy

Having listened to, and exchanged a couple of words with, the excellent Will Hutton at his Bristol Festival of Ideas Observer lecture in Bristol on Tuesday, I am again fired up about the central importance of creating good work for our fellow citizens, especially in this damned recession.

Will mentioned something to the effect of the "State being the employer of last resort", which is in step with my proposal for a Green Wage Subsidy .

I may be missing some highly important point which totally invalidates the GWS, but in many discussions over the years, nobody has come up with it. The main problem is that it is an unfamiliar concept.

To me, the fact that JSA &c are granted on conditon that the recipient does no work is clearly a source of inefficiency. (Efficiency, n : the ability to work well and produce good results by using the available time, money, supplies, etc. in the most effective way

).

GWS aims to convert benefit into a wage subsidy that will stimulate the green sector of the economy. In 1996 I estimated that it could produce between 1 and 2 million jobs - coincidentally, exactly the same as estimates of unemployment at that time.

The key point in its favour in the present economic situation is that it comes at no extra cost in the short term. It is cost free, because the benefits would have to be paid in any case. 

In addition to costing nothing (did I mention that already?) it has the effect of greening the economy, that is, stimulating the green sector of the economy - a sector that is, and will be, growing strongly in any case, and in reality, should be co-extensive with a real, valid economy. 

So I have written to the Work Foundation in the hope of getting some kind of dialogue. 
I will write to Compass and Ed Miliband too. No reason why not.

The "moral" argument for Coalition's chainsaw attack on British nation

Last week, Nick Clegg rolled out the "moral" argument for the Coalition's chainsaw attack on the British nation:

"..we have a moral duty to the next generation, to our children and our grandchildren, to wipe the slate clean for them. We set out a plan, it lasts for about six or seven years, to wipe the slate clean. To rid people of that sort of dead weight of debt that has been built up over time... We owe it to the youngsters of today to lift that dead weight of debt off their shoulders".

Well, apart from the fact that even the Spectator can tell that he is lying, the debt issue is a little more complex than either Nick Clegg or my esteemed debating opponent, Mark Littlewood, would have it.

The thing is that Osborne, Clegg and free marketeers operate by frightening people with large numbers in isolation. This is not to deny that the UK national debt is a very large number, but any mathematician will tell you that no number exists in isolation; all numbers exist in relationship with other numbers, and economic numbers even more so.

So: the UK national debt. what is its full scope in historical perspective? Here is the graph:

 Hm. Not too bad. We are in a fairly average position really, at present.



The figure shows how totally fatuous it is for Nick Clegg to claim that he is going to "wipe the slate clean" in seven years, that is to undo 300 years of overspending in seven.


Here is another, more recent view of national debt, as an absolute figure this time. It looks worse, because the banks foolishness is included:




Here's another useful view. Look how the debt builds up every time there is a war. Someone should tell George Osborne, so that he silences any idiot that starts talking about having a war.

Next, let us put the debt into context as a percentage of GDP. Here we go:

As you see, it shot up to 2x GDP for WWI, and 2.5x GDP in WWII.

In 2009, it was very modest in comparison to war and post war levels. Sure, it is bad for peace-time, but we have to remember that idiot bankers had to be bailed out to the tune of £163 billion or so.

Our debt stands at 66% of GDP.

If the banks bailout is included, it rockets up to 143% of GDP.

In comparison with other countries, the 66% figure puts us 23rd out of 132 countries (that is, 23rd from bottom) on this list. On that list though, the 143% figure would put us 6th from bottom.

Other ways of looking at debt include private debt, and here we come out badly, but this is because of our preference for having mortgages, whereas on the continent, it is more conventional to rent.

Getting depressed? Try this one to cheer you up:

I have lost track of what the x-axis represents, but clearly, we are not doing as badly as some.

What we learn from this is that one figure serves only to frighten, not enlighten. To understand our economic position, we need to put all figures in context.

Debt is bad, and needs to be brought down. But Clegg is simply lying when he says he is going to wipe the slate clean in 7 years. He is not. Only 9 counties are not in debt. They deserve study. Cuba, libya and North Korea are among them.

The reason we are in debt? Because debt is how money is made. Banks make money by lending money to people who have to borrow money. Sure, debt has got out of hand, with vast amounts of national wealth flowing into bank vaults. The rational response to this unacceptable situation is to stop the haemorrhage of money into tax havens, and readjust the money creation system so that it is divided 50:50 between commercial banks and central banks, instead of 97:3 as things now stand.

I'm not an economist, thank all the gods. But I can see when politicians and ideologues are pulling the wool over the eyes of gullible journalists, and through them, over the eyes of the people, so that small state ideologues can use the financial crisis as a cover to dismember the common wealth of the British people.