What is the alternative to austerity?

France and Greece have voted against austerity.
This is fine and dandy.

But what is the alternative to austerity?

We're buggered if we do austerity, and buggered if we don't, because basically, mainstream economics is buggered.

It is very simple. We all know the story: the Government has huge debts, so we must cut public spending, but this puts up the unemployment benefit bill which makes the debt worse, and also the cuts in public service has an impact on the rest of the economy (e.g. firms which service the public sector), so the whole economy slows down, so tax revenue falls and the debt gets even worse.

So austerity doesn't work.

The alternative prescription is classical Keynesianism where the Government "borrows to invest" in infrastructure building which creates employment which stimulates economic activity and starts a virtual circle of recovery.

This is more promising, but is blocked by Osborne when he says that we have already borrowed too much, therefore we cannot borrow to get out of a debt problem and the Markets Will Come and Get Us If We Do.

Sadly, our commentariat is too naive, dim and weak to challenge him

This despite the fact that the IMF,  OECD, World Trade Organisation and World Bank warned against relying solely on cuts to cure the UK economy.

So we are caught between a rock of austerity and the hard place of borrowing our way out of debt.

It looks bad. But there is a solution.

The key is in the emphasised phrase above: Government borrows to invest.

Government does not have to borrow from the banks to get money.
It is irrational to say it must borrow from the banks.

Government saved the banks in 2009 by covering their stupid debts (which is the main part of the problem of the UK economy, though Labour is too thick to say so) and has since saved their sorry asses since by creating  a total  of £275,000,000,000 (£275 billion) of Quantitative Easing (QE) money.

The banks have a bipolar problem.

Pre 2009 they were manically lending money to all comers.
Debt was not a problem: it was all "Leverage". 


Post 2009 the banks are depressed. It is all too too awful.  They have no confidence to lend.
So businesses cannot get money, and the recession continues.

The answer is for Government to exercise its sovereign ability to create money through its agent, the Bank of England (BoE).
The BoE can issue new money for real economy projects like energy conservation,  renewable energy projects, housing and a Green New Deal Plus, based on the Green Wage Subsidy.

Real investment in real economic projects that save the real environment from the real problems we face.

The BoE can provide the money by spending it into circulation - providing it directly to Green New Deal contractors.

Of course, this is where all the tinfoil hat orthodox believers blow their lids and start shouting about hyperinflation.

Hyperinflation comes about if there is more money in the economy than goods and services for it to buy, and it usually comes about in extreme circumstances like civil war.

The fact is that the BoE does create money, through notes and coins, just 3% of the total.
The fact is that the BoE also creates money through QE (see above).

BUT - and here's the killer fact - the very mainstream economists who will be screaming hysterically and hyperventilating over the suggestion that the BoE could take over and create the money for the required Keynesian stimulus, these same economists believe that money is created exogenously. That is, they believe that at the end of every trading day, the high street banks go to the BoE and say "We have given out £x million in loans today. Can you create the money for us please to balance our books?"

And they believe the BoE says yes, OK, and does it. Creates the money for the banks, retrospectively. Every day.

They have to believe this, because otherwise they would have to believe in the endogenous theory, which is that the banks create money at the point they make a loan.

And if they believed that, then the Positive Money campaign, and all the other students of money who have been isolated  and ignored over the years would have been proved right.
Banks create money when they make loans.
Governments also can create money, and they should do, in the present dire economic circumstances, provided that the projects they are investing in have positive ecological value.

Related posts:
How to get rid of unemployment
Globalised economy needs a global tax framework

Government spending: some spending saves money

The Gleggeron is determined to cut Government spending. The Green Party is determined to bring about a Green New Deal, which requires significant amounts of Government spending. I have tried here to understand how to square this circle. Today I am going to deal with the difference between spending and investment.

The old saying has it, "Jesus saves, Moses invests". Money is more than figures on a bean counter's spreadsheet. It represents energy - the ability to do work. It can be wasted, or it can be used to improve the human condition.

Energy - oil, gas, coal, uranium, and the electricity we get from it, costs much money. At present we are wasting huge amounts of it, which represents a leakage of money from our pool of national wealth. If I am wasting £200 a year through heat loss, then it is a good idea to spend £600 in insulating my house, because that £600 will be repaid in 3 years, and then assuming my house stands for 100 years, the £600 investment will save £20,000. Which is enough to please both Jesus and Moses - and the Prophet Mohammed, (pbuh), I shouldn't wonder.

These figures are arbitrary, round numbers, to keep it simple so that even qualified economists  can keep up.

Of course, they will come back with the old Discount Rate ballix: "The £20,000 future saving will be slashed, because economists discount the future. We would rather have £1 in our pockets to spend on a line of coke than £100 to pay for our nursing requirements when we are 84". Seriously.

Dealing with people like that, what can you say? Only that it's ballix. And that inflation will cause the £20,000 to expand into £200,000 in terms of the money of the day.

It is very clear indeed to everyone except a professional economist that energy conservation is a no-brainer. Not only does energy and money get saved, but also the woman (or man) who fits the insulation gets good, worthwhile work to do, so her happiness level goes up, and she gets money which she can spend in the local shops, so they get to stay open. Everyone wins.

But not everyone has £600 in the bank to spend on insulation. What then? In that case, the community shall come in and fund the insulation, and the insulatee can pay back from the money saved on fuel bills.

But what if the community/state has no cash? In that case, there are 3 options:

1. We can go to the banks, who will create the money for us by writing figures into our account which we can use, and an equal figure on their account, which will be paid off, with interest, over the years. This is the debt-loan system of creating money, and is the fundamental reason for the huge black hole  of debt in the world economy.
2. Local people can get together and pool their excess savings to lend out to pay for the energy conservation.
3. The nation can create the money, and loan it out at low interest to the householder.

Shock horror! If the state creates money, we will need wheelbarrow loads of cash to buy bread, won't we?
Actually, no. Hyperinflation can happen, in specific situations, but if the money is created wisely, and put to good purpose, (as it is in the present case), and if it is withdrawn from the system if inflation passes a set limit, there is no reason that hyperinflation should occur.

Basically, money is being created all the time. In the 1990s, the money supply doubled every 10 year or so. 98% of this new money was created by the banks, and 2% by the state, in minting money.

Back in the day, all money was created by the state. over the centuries, the banks have arrogated to themselves an effectual monopoly in creating money. It is time to roll back this monopoly. The Credit Crunch showed that the banks have lost sight of reality. The reality is that we need to save energy. If the banks will not create the money to do it, then we the people, through the medium of our Government and its institutions, must do it.

If a thing is physically possible, it must be financially possible. If a thing is physically necessary, it must be made financially necessary.

In short, there is Government spending and there is Government spending. Money spent on brainless schemes such as Trident is different from money invested in saving future spending on energy.

I hope that's clear. Only I do not expect it is to everyone. Which is why next I will blog on Mozambique, malaria, unemployment, and puddles.

A lesson in economics for George Osborne: Investment

Class, settle down. Gorge Osborne, stop kicking Liam under the table.  Would the Treasury Civil Servants at the back please stop talking among themselves and LISTEN.

Today we are going to do Investment.

Investment, according to the Economist's dictionary, means:
Putting MONEY to work, in the hope of making even more money. 

Let us take an example. The UK is running out of oil, we are importing gas, and Thatcher shut down our coal mines. We have got in any case to stop using carbon based energy because it is wrecking the planet.

This means that we must invest, first in things that mean that we have to use less carbon energy, and second, in renewable energy technologies including the pan-European HVDC grid.


All clear so far? Stop fidgeting, George, and pay attention.

So money provided to create work in insulating houses and businesses up and down the country will save more money in the future because we will not have to import so much energy in the future.

The money paid to the low-skilled workers who insulate houses will save money that would be paid in unemployment benefits, and the extra money that they earn will be spent into the local economy, keeping the local community in a more healthy state, raising popular morale generally.

Yes George? You say there is no money. Quite. So what do we do if we have no money? We first try to borrow some from the bank. But right now, the banks are feeling very sorry for themselves and are not lending any money to anyone.  So we have to go to the same place the banks go when they have no money, to the Bank of England. The BoE, as we call it, can create necessary money in exactly the same way that banks create money.  That is, by creating two values that balance each other out - an asset and a liability. 

The asset is the positive side: the promise that energy will be saved, jobs created, and the economy stimulated. The liability is that people might just run off with the money and not insulate any houses. The liability is protected by checking up that the work gets done. Got it? Good.

For your homework, I want you all to find out how many jobs will be created, at what financial costs, and how much energy will be saved as a result, together with the financial value of the energy saved, taking into account the rising price of carbon energy as resources dry up, and internalising its ecological costs.

You're the bloody economists, after all, this is your job. I'm just an ill-paid primary school teacher. Now, off to PE. Liam, I saw that. See me afterwards.

What the Hell is Quantitative Easing? - in 10 easy steps

The Monetary Policy Committee is possibly thinking about considering maybe moving closer to another round of Quantitative Easing.

I know, it causes eyes to glaze over, but stay with me. I'm going to paint it by numbers.

1. Our Ponzified economic system has to grow, otherwise it collapses.
2. To grow, it needs more money, which has to be created by someone. (It doesn't grow on trees you know).
3. Normally, (for the past 50 years or so), the banks create new money out of nothing by lending money at interest.
4. This process has dried up because of bum decisions by highly paid banksters in the manic, or boom phase of the bipolar economic cycle.
5. Now we are in the depressed or bust phase of the economic cycle, banksters are sucking their thumbs and not lending money because they are afraid the economy is going to go tits up.
6. In doing so, they are ensuring that the economy will indeed go tits up.
7. In order to try to get the banks to start lending, the Bank of England is giving them lots of easy money by crediting its own account with money created out of nothing, (just as the banks themselves do), and using it to buy government bonds and other stuff from the banks.
8. The banksters then have more money, which in theory they can  lend out, but in practice they will probably continue to suck their thumbs and use the money to make their crap account sheets look a bit better, and also of course, to pay themselves those all-important bonuses.

So there we have it. SNAFU.

The Green alternative to this entirely crap economic situation is this:

1. We need to get the economy moving again, but in a green (i.e. sustainable and equitable) way.
2. We also need urgently to conserve energy, and a massive programme of renewable energy, (Green New Deal) with a pan-European HVDC grid.
3. It is perfectly legitimate for the Bank of England to create new money, in the same way that banks create new money.
4. It is useless to give money to the banks, as they are useless, see above.
5. Therefore the Government can grant, or loan out money (at low or zero interest) created by the BoE directly to enterprises that will fulfil the UK's energy needs (2 above).
6. It can also, if necessary use the money in a Green Wage Subsidy to stimulate the green sector of the economy, using the existent welfare system.

In short, if and when the Bank of England decides to inject new money into the economy, it should inject the money directly into the real, green sector of the economy, not into the banks because they are as useless as an ashtray on a motorcycle.

I am aware that this approach will seriously frighten some of the horses, and the reflex cry of "Hyperinflation!!" will go up.

Hyperinflation results from excessive production of money, usually in situations of totally crap government (e.g. Mugabe's Zimbabwe, or in conditions of civil war). At the moment we have an insufficient supply of money to the real economy. If conditions change, Government can suck excess money out of the economy to rectify the situation.

In order to fully understand what is going on we need to view this video. It keeps getting moved around, so if the link does not work, you have to Google "Money as Debt". I would appreciate it if you would look at the links in this piece, especially the video, before posting critical comments, if at all possible. Thank you.

9 Postulates on Money

I'm off to Dorchester today to discuss the economy with the local Green Party. Here are my notes (in case I leave them behind by accident):

1. The amount of money in the world is increasing year on year. The growth in the global money supply has a doubling rate of 6-12 years.
It follows from this that:
(a) the system is unsustainable
( b) money is being created somewhere

2. Since the power of Government to create money is limited to coins and notes, about 3% of the total, it follows that private loan institutions (banks &c) put 97% of the new money into the system, creating the growth in the money supply.

3. They do this by making loans (creating debt) which must be paid back with interest, and using a fractional reserve system that allows them to lend to a multiple of the amount of capital that they actually hold.

4. Governments have granted lenders the ability to provide loans which are supported only by the confidence that
- not many of their borrowers will default at the same time
- not many of their creditors will want to withdraw their money at the same time

These are not safe assumptions, as the 2007-9 financial crisis caused by the “credit crunch” has demonstrated. The privatised, interest-bearing loan method of creating money leaves the economy open to periodic crashes, which cause poverty, inequity, social tension and carry with them the risk of war. At the same time, when the system is working, the lenders’ only constraint is their judgement as to the borrowers’ credibility. They have no thought as to the benefit or harm to society and environment that the loans to which the loans will be put.

5. The necessity of paying back loans and interest is one of the drivers of economic growth, since a business that has interest and loans to pay off must produce more goods than a business that has no such obligations.

6. Economic growth is destroying the ecosphere.

7. Since all money is issued as debt, bearing compound interest, it is no wonder that the world is drownig in debt, at every level, from personal to international.

8. The derivatives have inflated this debt by “leveraging” – borrowing to buy in the hope of future profits. Minsky describes some derivatives as Ponzi schemes – pyramid selling. The total value of derivatives market is about 10x the world’s GDP. This is one reason that banks do not trust each other, and so will not lend.

9. If the banks will not lend, there is not enough money in the economy, and we go into deflation. It is absurd for the Government to borrow money from the banking system it has just rescued at huge cost to the taxpayer. In this deflationary situation, it is open for the Government to issue new money for investment purposes, creating the needed money just as banks create it (as a multiple of its reserves). This can be issued to renewable energy projects as low interest loans, zero interest loans, or grants.

Why is debt breaking the world economy?

Even the most complex problems have simplicity at their heart.

The world economy looks as if it is about to collapse under its weight of debt.

193 out of 198 countries are in debt.  (Source - CIA)
Here is the same list on Wikipedia, kindly arranged so you can play around with the list per capita and as % of GDP.

From this, we learn that the debt is not owed by one country to another (otherwise it would be 50/50, wouldn't it?). The debt is owed by 193/198 countries to the banksters.

This is all down to the way money is created. Make no mistake, money is being created. World money supply is increasing. It had a doubling time of 10 years in the last decade of the 20th century. Which means that someone is creating new money. That someone is the banks, who make the vast majority of new money. (Governments get to make a tiny amount of new money as notes and coins: in the UK that is 3% of the total).
Banks create money by issuing loans, in the following way:

1. They issue money to the borrower's account, and sets up an equal and opposite sum in their own accounts.
2. The borrower goes away and earns (in the real economy) money to pay off first the interest on her loan, and then the original capital sum. 
3. When the capital sum is finally paid off, the two accounts cancel each other out.
4. In this process, the bank has acquired an extra amount of money, the interest, which varies with the terms of the loan. For example, a straight loan of $10,000 at 5% over 10 years will earn interest of $2,728.
5. That $2,728 has gone from the real economy into the bank.
6. Either the real economy has lost $2,728 to the bank, or other people have borrowed it from banks, creating more debt. 
7. If it had been withdrawn from the economy, it would be deflating, which it isn't (generally). Therefore it is being borrowed, repeating the whole cycle.
8. Therefore all money in the economy has its origins in debt - the capital sums borrowed (which will be annihilated when repaid) and the interest, which represents other monies borrowed into existence.
9. Therefore debt increases inexorably in the system, until a critical point is reached when it is realised that debt becomes unpayable.

The whole economic system is based on debt. We are in a vicious circle, working to pay off debt. If money is growing, debt must grow. Money has grown, debt has grown, and now it is crunch time.

Clearly, this is a vast oversimplification. There are a multitude of other factors at work, but this is the logical and necessary core of the problem, despite all the obfuscation that will no doubt ensue in the comments below.

I hope that helps. 

My advice: dig up your lawn and plant vegetables. 

Darling is considering 'money printing plan'

Ananova - Darling 'mulls money printing plan': "Speculation is mounting that the Government is preparing to print billions of pounds of money to help boost the economy.

Chancellor Alistair Darling indicated during an interview that he is considering a policy of 'quantitative easing' - or printing money - to ease the impact of a recession."

"Banks provide loans, governments print money". Already the language framework puts government issue of money in a poor light.

Have a look at the "Financial" and "Solutions to the financial crisis" labels on this blog for the ramifications of this.

Basically, banks create money through interest bearing loans, which is the cause of the huge world debt problem. Their motivation is to create corporate profit, and they are careless about the ethics of the projects that the loan is used for.

Now that the banks have come cap in hand to government for billions of tax-payers money, it is now clear that Government is the ultimate monetary authority. It does issue the notes and coin anyway. It could also issue money as grants, or loans at zero- or low-interest, but it must be for sound projects that increase our social and environmental security. The chief candidate for this is the vast infrastructure of carbon-free energy that the planet needs.

So, Alistair - go for it! But do not spend the money on the Golgafrincham Arkship B economy.

That monetary reform debate

I have been debating money creation for a few years now. I find that the most adamant opponents of any suggestion that banks create money through issuing loans are accountants and bankers. This is true both within the Green Party and in the real world too.

There is a distinct tendency for them to be pretty ad hominem in the debate, pouring scorn on the idea that money is not created by the Central Bank, and implying that since accountants are happy with the way things are, there is no debate to be had, and that anyone who disagrees needs to read economics.

This is like a doctor telling a patient who asks for a second opinion that the patient needs to study medicine first. This is not the case. It is possible for a patient to get accurate knowledge of his own case without studying the whole of medicine.

The problem with reading an economics textbook is - which one? Classical? Neo-classical? Marxian? Austrian? Chicago? Keynesian? Post Keynesian?

There are so many schools of economics that it is clear that it is not an objective science. It cannot be, since human judgements and human actions are an integral part of the field.

The key argument of the defenders of the status quo seems to be that money is created by the Money Multiplier, and so everything is OK.

This is a non-argument. The money multiplier simply states that if £100 is deposited in a bank with a Fractional Reserve (or equivalent) of 20%, £814 can be lent out. The 100 has turned into 814. £714 of money in circulation has been created by bank deposits and loans.

So the core argument of the accountants is the same as the core argument of the monetary reformers. Money is created in the process of banks making loans.

The second argument is that the money is created by the Central Banks. It is true that the central banks authorise the creation of money by the banks, allowing them to do so by setting reserve requirements and capital adequacy, but I challenge any accountant to identify the cash flows that indicate Bank of England ends each the day by creating the amount of money that banks have loaned out that day.

Money Matters - Book review

This is a great little book. Great, because it reveals the mystery of money to any intelligent person that wants to understand the supreme power in charge of our planet. Little, because it is an easy read. It has no graphs, no jargon, no formulae and no incomprehensibly long sentences.

It demystifies the dismal science of economics, handing its understanding back to the ordinary person. The sub-title reads "putting the eco into economics". This is the key realisation that ecology - the study of the inter-relatedness of an organism (that's us) with its surroundings - is the bedrock of real economics. This realisation is a revolutionary insight, that is set to transform economics in the 21st century in a way comparable to the Enlightenment of the 18th century.

David Boyle is an environmental journalist, which enables him to write in a simple, unchallenging way. His chapters are typically two or three pages long. He writes a series of stories, short anecdotes of the many perverse things that money has done and is doing to people and environment - and the beneficial things that a well-designed monetary system could do.

These stories carry the central message that money is a human invention that is usually designed to serve the needs of the rich and powerful, while in the process, it usually succeeds in making life more difficult for the poor and disempowered. The most important conclusion is that things do not have to be like this, and that there are forms of money that are more fit for the purpose of benefiting regular human beings as well as for the biosphere.

There are eight sections each devoted to one aspect of money:
· metal
· information
· Measurement
· debt
· Mad
· local
· DIY
· Spiritual

Boyle understands the central truth about the present form of money: it is created by the banks out of thin air in the act of creating an interest-bearing debt. This truth is denied and obscured by accountants, financiers and their dupes as vigorously as climate change is denied by Exxon Mobil and their dupes. But it is undeniable, because the amount of money in the world has been doubling every ten years, so somebody is creating it, and it ain't the Government because they only get to create the metal and paper money, about 3% of the total. All the rest is created by the banks through loans. End of argument. Period.

The resultant unstable, towering, inverted pyramid is founded on the belief that the debts will be paid. When this belief turns out to be ill-founded, the result is a crash, such as the one which the world is currently passing through.

The book is a sustained fountain of killer facts: for instance, two thirds of new money is created as mortgage loans, and mortgages eat up one third of our working life. Pensions have been ripped off. Crime pays. A corporate takeover of the whole world is under way.

Some of the facts offered in passing beggar belief; for instance, is it truly the case that the UK is still paying to Germany the ransom money for Richard the Lionheart incurred in 1193? (p 89) I think we should be told.

Boyle's case is a detailed exposition of the Cockney song, "It's the same the whole world over, It's the poor what get the blame, It's the rich what gets the pleasure, Ain't it all a bleeding shame?" He shows how money multiplies in the hands of those who hold it, and debt multiplies for those who do not hold it. A continuous theme is the amount of human work, real, creative, life-sustaining work such as parenting and caring, that is currently done for no money.

Most importantly, he offers solutions. He gives an array of instances where money has successfully been created by local people for local needs, often at times when the internal contradictions of official money has caused it to become unfit for purpose. We may be entering one of those periods in the next few months, and this book could prove to be a handy manual for getting a new money started at local level.

Nothing is perfect. Boyle sometimes is too brief, referring to events which could do with a bit more explanation. There is no index, though there is a rich bibliography, and a page of web references, which is a first as far as I know.

In conclusion, Money Matters is an easy-to-read introduction to finance and alternative finance to anyone who finds money a mysterious business. As such, it should find a readership approaching six billion on this planet alone.

Money Matters, ISBN 978-1-906136-20-8 David Boyle, Alastair Sawday Publishing, 2009. 220pp, £7.99

WHO report on Health Inequality: economic detox needed

Prof. Sir Michael Marmot's report on poverty and health: he says that a "toxic combination of bad policies, economics and politics is in large measure responsible for the fact that a majority of people in the world do not enjoy the good health that is biologically possible".

This is not new. Marmot established this point in his seminal research on the Civil Service more than a decade ago, and he has been backed up by work of others, notably Richard Wilkinson. I know, because I dealt with it in my book, Bills of Health back in 1996.

The question is not how much more research do we have to do, but what do we do about it? How do we de-toxify the economic system?

Under the captialist system (and, no, I am not a Marxist, I am a Green*), especially the Anglo-Saxon version, the rich get richer and the poor get poorer. Why? Because new money is created by giving loans at interest. If you are rich, you can loan out, and your savings grow with interest. If you are poor, you may have to borrow, and you have to pay back the loan and the interest. So we get divergence between the fortunes of the rich and poor.

The benefit system amplifies this problem. If you are on unemployment benefits (JSA), you lose your benefit the moment you find a job. If you are unskilled and on housing benefit, this often means that getting a profitable job is impossible. To its credit, Labour has addressed this with the Working Tax Credit, but it clearly is not actually working, because divergence has increased under Labour, to their eternal shame.

Citizen's (or Basic) Income is a far better, smoother way of breaking the poverty and unemployment traps created by our dysfunctional benefit system. Or if this frightens the horses, then the Green Wage Subsidy is a way of getting there without having to win the "What about the liggers?" argument.

As for the loan interest aspect, Government used to issue the money. It was called seignorage. Now the power of issuing money has been privatised, so that lending institutions issue 97% of the new money (yes, the Bank of England still gets to issue the notes and coins, 3% of the money). The banks and lenders got greedy, and made some stupid loans, leading to the present credit crunch. Clearly there is a need to rein them in, and take back at least some of the power to issue money away from the moneylenders and give it back to the government, on behalf of the people.

This will seem all a bit radical to many, including people in the green party who should know better. Many still think that bankers are kindly old buffers who look after your money, by lending the same money out again to people who need it. This is not the case. Lending institutions CREATE money. In fact the money sloshing around in the world is doubling every 5 years. Anything that has a doubling rate of growth is unsustainable, because it is in exponential growth. If you are unfamiliar with this concept, try folding a sheet of newspaper in half, then half again, and see hoow many times you can do it. Not a lot.

We will hear more of this as the recession deepens and spreads.




*Greens advocate a mixed economic system with a guided market

Marr, Osborne, Darling, Quantitative Easing

Andrew Marr had that George Osborne in the back of his taxi today.

Osborne, it seems, would not have cut VAT (I thought they were supposed to be the tax cutting party?), would possibly re-organise the Bank of England (BoE), give it a remit to regulate the cycles of the market, increasing the Capital Adequacy in good times, regulating the amount of debt in the system, with the Governor on a single fixed term, and he might cap payments to banksters.

Osborne would not rule out Quantitative Easing (QE - always makes me think of a laxative). This is a bit of a neologism, it gives "no result" on this glossary, nor on this one, but the old Wikipedia comes up with the goods. Right wingers tend to be contemptuous of the W'pedia, but if the alternatives do not exist, then what are they moaning about?.

Every time journalists mention "Quantitative Easing" they add "Printing Money" as an explainer. This is usually followed by a picture of sheets of notes flying off a printing press. (not on radio of course, but in time they will think to put on 3 seconds of printing press noise: "Quantitative Easing" clankety-clankety-clank)

This is a nasty bit of systematic misinformation by the media, calculated to strengthen the association of QE with hyperinflation in the public mind, thereby reducing confidence in the currency. Great. Thanks.

The fact is that the BoE is always printing and minting money. That's its job. That's where cash comes from, just like babies come out of mummy's tummy.

If /when we start QE it will not be through physically printing money, but by creating it, as the banks do every day, by typing figures into someone's account. Ordinarily the banks do this: they create 97% of the new money in the economy, and the BoE gets to create the other 3%, as physical money. Now the banksters have got a fit of the vapours, and have ceased to create new money, so either we go into deflation, or the Government issues the necessary money.

QE is almost certainly going to happen.
The only question is, where is Darling going to direct his new QE money?

Will he just throw it into the bottomless, foetid maw of the diseased banking system?
Will he give it to motor manufacturers, or the next patch of Labour-voting industry that starts to tremble?
Will he give it to the military, by getting his neighbour in No 10 to start a war in Iran or somewhere?

Or will he invest it into the physical and energetic basis of the Real Economy, the clean energy sector?

Energy, along with agriculture, water, sewerage, and housing is the foundation of any and every economy. The priority in 2009 is that energy needs to be conserved and decarbonised, not only because of Global Warming, but also because of Peak Oil. The Green New Deal is the plan to create jobs and prosperity through investment into energy conservation and renewables. The Green New Deal Plus is the way to extend the GND so that it benefits more people, sadly blocked by the Green Party Handbrake Tendency, but that is no reason not to press it on Government.

Anyway, back to the Andrew Marr programme.

George Osborne was ushered out, we got to meet a luvvie, and finally, the moment we had all been waiting for - Alistair Darling was wheeled out to be Marred.

I didn't count, but gained the impression that he got interrupted more than Osborne. Darling equivocated over whether to cap banksters' bonuses, "the whole culture needs to change" (? from apple pie to blaeberry pie perhaps?), half of our mortgage lending was from foreign banks, something about SME's, Japan had QE for 10 years.

It is mentioned en passant that three Eurozone countries are close to bankruptcy, (we were not told which three, for fear that the breath of a word might be enough to knock them over). A quick Google yields nothing definitive, but, Italy, Greece and Spain crop up a bit, which is four, and then there is Ireland, so we are spoiled for choice really.

Andrew rubs Alistair's face in Sarko's remarks about VAT. Alistair retorts that Sarko has been caught stimulating the French Car industry; details were not forthcoming, leaving open the image of his rubbing their bonnets with a soft cloth.

Alistair finished by uttering sympathetic noises about savers. Thanks, Darling.

Overall, the picture is of Mr Tweedledum Darling and Mr Tweedledee Osborne putting saucepans on their heads. It is very clear that the problem is that Labour did not undo Mrs Thatcher's financial deregulation, in fact they loosened it further. It is very clear that the Tories would have done exactly the same thing as Labour, had they been in power. It is very clear that Chancellors of the Exchequer are mere temporary and disposable speakers for the RealGovernment, which is the Civil Service, who are servants of Custom, Habit, Media, Big Business, and Europe.

Conclusion:
No matter who you vote for, the government always gets in.
So vote Green. We never get in.

(This is a joke btw, in case any green party managerialisationismists think it should be pulled. Greens do in fact get in, we have about 130 LA councillors and 2 MEPs, even in this electorally benighted country, let alone all the MSPs, TDs and Continental representatives and ministers, where they have a grown-up electoral system).

Eight Financial Postulates

Ok, I have lost the blog habit. It has been supplanted with a fascinating debate on the Green Party Economics list about money and how it is created. Faced with intractable complexity (which is where this debate always leads to), the scientist in me reaches for the facts, and tries to build from there. Here's where I have got so far:

EIGHT FINANCIAL POSTULATES 1. The amount of money in the world is increasing year on year.
The growth in the money supply has a doubling rate of 6-12 years. therefore- a) the system is unsustainable- b) money is being created somewhere 2. The power of Government to create money is limited to coins and notes,
about 3% of the total, therefore private loan agencies put 97% of the new money
into the system. 4. They do this by making loans (creating debt) which must be paid back with
interest. 5. The lenders have an ability to provide loans which are supported only
by the confidence that - not all their borrowers will default at the same time- not many of their creditors will want to withdraw their money at
the same time - which are not safe assumptions, - which leaves the economy vulnerable to periodic crashes. 6. The necessity of paying back loans and interest is an important driver of
economic growth, since a business that has interest and loans to pay off must work harder and produce more than a business that has no such obligations. 7. Economic growth is destroying the ecosphere. 8. Therefore it is incumbent on the Green Party economics community to - understand this process, - to help the Party and our electorate to understand the process, and - to generate alternative policies regarding the creation of money,
including consideration of the option that the Government should
take upon itself the role of creating some or all of the new money
for the benefit of the people it represents.

SOLVING THE SEWAGE CRISIS

Introduction

Water is an absolute necessity for human life, along with food, shelter, energy and effective waste recycling, yet water management is failing badly in the UK at present. Every time it rains heavily, there is a risk of discharge of untreated sewage into streams and rivers with consequent ecological damage and risk to human health, due to the combination of surface water and sewage. 

The management of our water infrastructure must be completely restructured and modernised, to separate sewage from surface water and industrial waste.

This paper aims to provide an overview of the whole field so that we can maintain our orientation and not become lost in a maze of competing technical details.

1. Climate change
   
   Our planet’s climate is changing due to the burning of coal, oil and gas. Surface temperatures are rising, and warm air can hold about 7% more moisture for every degree Centigrade of warming, which will mean more frequent and more intense precipitation of rain, and therefore more frequent and more intense floods. Warming also means that droughts may become more frequent in some parts of the country. In the longer term, sea level rise will threaten coastal flooding. Observations recorded by the Meteorological Office confirm that our climate is becoming wetter: “UK winters for the most recent decade (2014–2023) have been 9% wetter than 1991–2020 and 24% wetter than 1961–1990, with smaller increases in summer and autumn and none in spring” .
   
   These changes are imposing stresses on our water systems, and the stresses will become more intense in coming years.
   
   To avoid increasing episodes of flooding, we must therefore:
   1.1 Plant trees on the tops of hills
   1.2 Provide fields that can be flooded (polders) in the event of heavy rainfall
   1.3 Provide flood protection for settlements vulnerable to flooding
   1.4 Abandon some settlements that cannot be protected
   1.5 Engineer some bottlenecks e.g. bridges, with flumes and other technologies
   1.6 Dredge some river channels
   1.7 Protect some estuaries with tidal barrages
   1.8 Ensure that the rainwater run-off from all new build housing and hard surfacing is unable to get in to the sewers, and is returned to the earth as close as possible to the site that it originates from.
2. Sewage
3. We are poisoning the environment by throwing away a substance that has value as a fertiliser and an energy source. Human excrement is a valuable resource when properly treated, but an ecocidal agent if released into water ways in its raw state. Proper treatment of sewage entails keeping it strictly separated from surface water running off from things like roofs and roads, and strictly separated from industrial waste.
   
   We therefore need to
   2.1 Create many new channels for surface water to run back to waterways without mixing with sewage.
   2.2 Treat sewage (uncontaminated by industrial waste) by anaerobic digestion to produce valuable soil conditioner and biogas that can be fed into the gas grid.
   2.4 Enable sewage to be recycled safely by identifying all forms of industrial and chemical waste, separate them from sewage, and find ways of managing them in a scientific way by combining them with other wastes, sometimes creating value for what was previously a waste industrial product.
   
4. Agricultural waste
   
   Slurry from cattle sheds often overflows into local ditches and streams, especially in times of heavy rainfall, just as happens with human sewage. Cattle and poultry effluents should therefore be digested to produce soil conditioner (fertiliser) and usable biogas.
   
   Inevitably, corporations that manufacture artificial fertiliser will work hard to prevent this outcome, and we must be prepared to meet all their push-back talking points.

This brief overview shows that there is a huge amount of work to be done, which will require a serious amount of money. 

Paying for Water 

Ofwat in December 2024 allowed water companies (WCs) to raise water bills by about 35% to pay for work in separating stormwater from sewage. It is very clear indeed that it is absurd to expect that water and sewage bill payers could or should pay for all the necessary work listed above which is needed to rationalise water management in the UK. 

We are talking here about a massive infrastructure operation on a par with President Franklin D. Roosevelt’s New Deal in 1933, when he created employment to meet the economic suffering caused by the Great Depression of 1929-39.

The money for reform must be raised by central government to address a crisis of water management that adversely impacts the health of both humans and our aquatic environment, a long crisis that has been created by years of neglect and complacency, to be compounded in coming decades by the effects of climate change. There is a clear need for Keynesian-style investment into this vital element of our national life. 

Neo-liberal economists and politicians (be they Tory, LibDem, or Labour) will use their influence in the legacy and social media to scream long and loud in  protest at this suggestion, because to them, money is the only reality worth considering. 

Neo-liberalism is the exceedingly questionable idea that self serving (largely) men, competing against each other for ever-increasing accumulations of monetary wealth, without any external restraint or regulation, will produce the best of all possible worlds. Ecological and human health to net-liberalists is a mere “externality” to economics. They have no concept of investment in human health or in ecology, they only think of investment in strictly financial terms. They cannot understand that investment can change a “waste” into value, or that healthy rivers, streams and oceans have value also. 

The neoliberal hysteria will be amplified by a campaign by manufacturers of artificial fertilisers against the use of sewage derived soil conditioners, as mentioned above.

This is a battle that we must be prepared to fight and win, because it is the opening battle of an ideological war between neo-liberalism and real, ecological economics of the coming century, an economics which is based on the relation between mankind and the environment that is our life-support system.

The money needed to reform the way water is managed in the UK can be raised by a combination of:

1. terminating the experiment of privatisation
2. a tax on the richest layers of British society
3. a contribution from Quantitative Easing

De-privatisation

Responsibility for water was taken from local government in 1974 and put under regional water authorities (RWAs). Investment in water services fell by 2/3rds between 1970 and 1980 because borrowing was forbidden under the Conservatives in power at the time. Margaret Thatcher privatised the RWAs in 1989, and allowed the private companies to borrow, so investment in infrastructure increased after privatisation. The debt owed by the RWAs was cancelled in order to facilitate privatisation. Debt has increased from zero in 1989 to £60.6 billion by 2022, so that a proportion of water bills (19% in the case of Wessex Water) is diverted to paying interest on the corporations’ debt.

Privatisation means that the WCs must pay dividends annually to their shareholders. In 2022-3 the companies paid out £1.4 billion in dividends to shareholders, nearly 11% of the companies’ total revenues, or 22% of capital investment. 

In other words, without privatisation, about 22% more could have been applied to preventing sewage spillages into our environment.

The public are overwhelmingly against water privatisation. A YouGov poll in 2022 showed that only 8% of people supported privatised water, whereas 63% wanted public ownership. Even of Conservative voters, 58% wanted public ownership, with only 12% supporting the privatised system. Sadly, the Conservative, LibDem and Labour parties lack the courage to start to unpick Thatcher’s toxic legacy, and only the Green Party is calling for de-privatisation of the WCs.

Privatisation need not come at a huge cost. The share value of failing companies can fall away to nothing, so the Government can easily take them over when this happens. Thames Water is near this point in 2024. A water bill strike could bring other companies to that point. 

An inventive way of de-privatisation of WCs is by punishing spillages, not by imposing fines, but by acquiring company shares instead. Directors could see power slip out of their hands every time another spillage happens. There is a petition calling for this method here: https://weownit.org.uk/act-now/take-shares-not-fines

Privatised WCs are clearly failing, and re-nationalisation or WCs will signal the beginning of the end of the doctrine of neo-liberalism, which has to be cleared away before we can address the global cluster of major social and environmental problems that we face in our time.

A tax on the rich

Households in the bottom decile (tenth) in the United Kingdom earned, on average, £18,706 per year in 2022/23, compared with the top decile which earned £185,358 pounds per year.

The richest 1% of British people hold more wealth than 70% of ordinary British people

Profs Wilkinson and Pickett have shown very clearly that such inequality of income and wealth creates a society that is less healthy, more unhappy, and more dysfunctional than a society that is more equal.

Therefore, the case for raising money from the rich for renovating our water infrastructure is very strong indeed. 

The counter-argument that will be raised is that if we raise taxes in the UK, rich people will move abroad. However, rich people tend to hold assets like land and grand houses in the UK, and these assets cannot be moved. These assets can always be taxed, and money can be raised on them.

Additionally, Britain is a regrettably backwards and conservative country; other countries  are more progressive, so there will be an international movement to tax the rich, leaving the rich with nowhere to go and nothing to do except pay their fair share of taxation.

Quantitative Easing

Most money is created by private banks in the process of granting a loan. When a person is granted a loan by a bank, two accounts are created, an asset in the books of the lender, and a liability in the account of the debtor. The debtor then, in subsequent years,  pays back first the interest and finally the capital amount, at which point the asset and liability accounts cancel each other out, and the bank is left with a profit, which represents new money in the economy. 

The State is allowed by the banks to create cash out of nothing, and may also create money by what is known as Quantitative Easing. 

Viewing the problem of water management in the UK economy, we have the following:

• A pollution problem that requires a large amount of work
• Unemployed people who could do this work, preferably using Green Wage Subsidy
• Available tools and materials to do this work
• Available skills and knowledge to carry out this work 
• A beneficial outcome in terms of healthy waters, increased biodiversity, biogas, soil conditioner, an upskilled workforce, and a more equal society

Therefore is is perfectly reasonable to create the money required to carry out this work by Quantitative Easing (QE).

The objection will be raised that QE can lead to hyper-inflation. This is true in some circumstances, where money is just injected into the economy unlinked to any productivity or project by governments in stressful circumstances such as civil war.  

It is therefore clear that the money can be raised by central government to pay for renovation of our water management. 

THE PROGRAMME

What are the practical tasks that need to be done? Like most big changes, it needs action at every level: Government, business, and householders.

Action by Government

1. Keep to Labour’s manifesto promise: Labour will put failing water companies under special measures to clean up our water. We will give regulators new powers to block the payment of bonuses to executives who pollute our waterways and bring criminal charges against persistent law breakers. We will impose automatic and severe fines for wrongdoing and ensure independent monitoring of every outlet.
2. Government will legislate on separating sewage from surface water in all new developments, with very few exceptions
3. Government will initiate pilot trials on the processing of industrial waste, reviewing discharges from selected industrial sites, building up ways of neutralising acidic wastes with alkaline wastes, flocculating substances in solution, and so on. This will result in no more mixing of industrial and domestic sewers.
4. All hard surface installation will have to pay a levy to create conduits to separate surface water from sewage
5. A timetable and plan will be laid out for achieving separation for surface water, sewage and industrial waste.
6. Review the exact duties of the various bodies with control over water, and provide clear lines of communication and responsibility.

Action by Local Government

Ditches may be provided with channels at a set height above normal water levels that will divert excess water into adjacent fields, creating mini-polders.

Action by WCs

1. Continuation of present programme of providing reservoirs to contain storm water

2. WC newsletters to carry methodical educational pages, and set up competitions for school children to answer questions showing their comprehension of the content of these pages

3. Where flooding has in the past led to sewage flowing back into houses via sewers, WCs may provide non-return valves on the property to prevent future occurrences.

4. WCs will partner with other authorities charged with managing water in creating schemes to reduce local flooding.

5. Publicise the financial advantages of having a water meter

6. Assist in provision of smart water butts that when filled, slowly release water to a soakaway, in preparation for the next downpour

Action by householders

1. Buy shares in local WCs to enable bill payers’ voices to be heard at WC AGMs.

2. Consider installing a composting toilet

3. Install water gardens and soakaways in the garden

4. Donate to FoE Middle East, in order to raise consciousness of the real value of water.

Dr Richard Lawson for Local Action 4 Water

Tuesday 14 January 2025