Economics

The UK is not just suffering shit-life syndrome. We’re also suffering shit-politician syndrome.

Published by Anonymous (not verified) on Sun, 19/08/2018 - 7:11pm in

Will Hutton has an article in the Guardian in which he argues that the recent decline in the growth of life expectancy in the UK (and its decline in some parts) is down to what he describes as 'shit-life syndrome'. This is the state where life is reduced to an exercise in mere survival as a result of the economic and social oppression lined up against those suffering the condition. And, as he points out, those suffering are not just those on the economic and social margins of society. In the UK, as in the US, the syndrome is spreading.

The reasons for this can be debated. I engaged in such argument in my book The Courageous State. In that book I argued that we live in a world where those with power do now, when they identify a problem, run as far as they might from it and say the market will find a solution. The market won't do that. It is designed not to do so. Those suffering shit-life syndrome have, by default, little impact on the market. That's one of the reasons why they are suffering the syndrome in the first place. That is why so much of current politics has turned a blind eye to this issue.

And they get away with it. That's because the world of make belief advertising which drives the myths that underpin the media, and in turn out politics, simply pretends such a syndrome does not exist whilst at the same time perpetually reinforcing the sense of dissatisfaction that is at its core.

What cures shit-life syndrome? Let's not beat about the peripheries on this. The time for that has gone.

Decent homes would help beat shit-life syndrome.

The security of knowing you can eat would help as well.

As would knowing that there's a chance that income will cover outgoings.

The availability of affordable credit at a time of crisis would be of value.

Meaningful work would be transformational.

Access to society - which can simply mean transport and the means to partake - is also key.

Knowing the planet might survive would be of value.

Believing in a future is key.

These things are not unreasonable expectations. But we are failing to organise our society to deliver them.

That is a choice.

It's the wrong choice.

We need to transform our choices. Thes needs have to be met. Not to extend life. But to make life worth living. It's unacceptable that it is not. And the evidence that it is not for too many is now all too clear.

And whilst this goes on our politicians argue about Brexit which they know will make things worse.

We don't just suffer shit life syndrome. We're also suffering shit politician syndrome. And both are crippling.

The rational expectations hoax

Published by Anonymous (not verified) on Sun, 19/08/2018 - 12:29am in

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Economics

A lot of mainstream economists still stick with ‘rational expectations’ since they think it has not yet been disconfirmed. They are, of course, entitled to have whatever views they like — after all, it is, to say the least, difficult to empirically disconfirm the non-existence of Gods … But for the rest of us, let’s see […]

“I never learned maths, so I had to think”

Published by Anonymous (not verified) on Sat, 18/08/2018 - 4:54am in

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Economics

Professors may find themselves ill-prepared for the macro classroom. To become academics they had to answer erudite questions posed by more senior members of the discipline. To become good teachers of introductory macro, they have to give clear answers to muddled students. That requires an intuitive feel for the subject. It is not enough to […]

Jumpin’ Jack Flash, the Aretha way

Published by Anonymous (not verified) on Fri, 17/08/2018 - 7:35pm in

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Economics

And now for something completely different:

RIP

The economic battlefront has been drawn: let the battle commence

Published by Anonymous (not verified) on Fri, 17/08/2018 - 7:27pm in

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Economics

Carl Bildt is the co-chair of the  European Council on Foreign Relations. He posted this on Twitter just now:

There is an element of truth to what Bildt says. The EU  does not direct how a government may spend their funds. Nor does it set a limit on public spending.  What it does set is a limit on deficit spending. But then, Bildt makes that point too, and in a  most uncomfortable fashion. What he says is that there is no democratic control, per se, over what governments might spend because that is set by markets who go 'bananas'  if they want to borrow to do so.

The far-rights exploitation of the Genoese bridge disaster is unacceptable. So too,  I have to add is Carl Bildt's.

The constraint on infrastructure spending within an economy is not the money markets' to prescribe. The constraint is the ability of that economy to find the physical and human resources required to undertake that spending. If that physical and human capacity to undertake the work exists then it is not just reckless, but it is grossly irresponsible, not to undertake infrastructure projects that secure the future well-being of a country.

A company that said it wanted to invest to provide secure future income streams would be the darling of the market, money would pour its way. Apparently, however,  when a government wishes to do the same thing it is grossly irresponsible under market censure it.

The truth is that this is absurd. Governments are the best bet when it comes to investment security that there is. And if you want to imagine how good the economy is going to be when the road system has fallen apart, dream on.

So, markets should not be a constraint.

And if the physical capacity to make infrastructure that is for the benefit of society exists - and I think it does because all the standard macroeconomic assumptions on the levels of unemployment the both really exist, and which create inflation in the economy, are being proved wrong, almost daily -  then either  markets have to get their heads around the fact that this is a good thing, and so governments are going to do it, or governments have to get their heads around the fact that markets are a bad thing, and they are going to have to ignore them by using what I  originally called green infrastructure quantitative easing  and which Jeremy Corbyn called People's QE.

This is a battlefront. Let's make no mistake about it. The spivs (I use the word with care)  in the financial markets whose only concern is with short-term gain  maybe wholly indifferent to the creation of long-term viability within our economies, which  will require the replacement of large quantities of  existing infrastructure with newer, safer, greener and more sustainable assets,  but the rest of us have to take this need seriously. There may well be a time when we have to realise that doing so might require us to substitute current consumption for the investment activity that this will require: so be it. But again, the constraint is not money: the constraint is the physical allocation of resources. And we cannot let the belief that markets can dictate prevent us from having the future that we need if our economies, our environment, and our children's world are to be viable.

Let battle commence.

And let Carl Bildt be the loser.

Some fundamental accounting might do no harm

Published by Anonymous (not verified) on Fri, 17/08/2018 - 5:49pm in

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Economics

I suggested yesterday that the failures in auditing at PWC might be systemic, even though (inevitably) the Financial Reporting Council did not test that hypothesis.

Today I want to go a little further and suggest that the failure in accounting is systemic. My suggestion is that accountancy has been complicit in the valuation of things that simply do not exist.

One of the accusations against PWC was that they had signed off accounts which stated assets to have worth which was simply not in existence. So, an investment was stated to be worth more than £200 million when in fact it was worth, at most, £1. There were other examples. But the issue is not specific to BHS and the companies associated with it. The problem is systemic.

Accountancy is riddled with intangible assets. And arbitrary valuations. I’m not seeking to get too technical here. What I am referring to are four basic categories of assets. Being more specific does not help the argument.

The first such asset is goodwill. This is the excess value paid when acquiring a business over the sum that can be attributed to tangible, physical assets that can be valued in their own right.

The second group of assets are legally constructed property rights. These are things like patents and copyrights that only have value by presuming there is a future income stream.

The third are those supposedly marketable assets that apparently generate an income but for which there is no current market and to which a value is attributed on a ‘mark to market’ basis using models that might be as accurate as a forecast that it will snow in the UK today.

And finally are assets created intra-group. These are investments, loans and liabilities created in an intense web of transactions that are in themselves likely to be largely commercially meaningless but which leave a trail of interdependencies that render the accounts that include them largely incomprehensible in themselves, but which are nonetheless declared to be true and fair.

You can argue there are more or fewer such groupings. You can discuss which is more or less esoteric. I have problems with them whichever way you address the issue. The problems are, essentially, twofold.

The first is  that these assets may simply not exist. Indeed, in isolation, they do not. So, goodwill is not independent of the underlying entity; intra-group debt is only of worth if the whole group might be, but not even then necessarily, and copyright only has worth as long as the property it relates to is still seen, heard or read. So the fact that someone once paid for these things is proof of nothing more than potential misjudgement at some time in the past. Too often that is now proving to be true. Not always, I stress. But too often. Which suggests that unquestioning acceptance of valuations based on pure history or models is failing accountancy.

And second? The problem is in the income statement. We recognise income from these assets in many cases (intra-group debt often excepted). But when we do we do not apparently think it appropriate to recognise that in most cases we bought that income. In other words, goodwill simply represents a purchased income stream. And an acquired copyright had a cost to buying the future income. And I think it should be mandatory that the cost in question be written off against the income. In fact, it should be written off even when there is no or little income. But accountancy is far too lax on this now, albeit it once was not.

Accounts are riddled, in my opinion, with assets that do not exist because they are at best nothing more than purchased income streams whose cost should have been written off against that revenue. Or the assets are simply manufactured.

I am not suggesting there is never a reason to recognise these assets. There may be, albeit with an over-riding requirement of prudent valuation that is now entirely absent from accounting. But, and this is key, investors need to be vastly more aware of their existence so that they can appraise the risk in an entity. So too do auditors need to do that because, simple souls that they seem to be, they are apparently quite unable to appraise this risk at present even when it hits them in the face.

The need is for a test of resilience. That is, a measure of the durability of the company when all these assets are stripped from consideration. That’s a second balance sheet in effect. The directors would, of course, be wholly at liberty to say why they thought this misrepresented the position of the company: I would have no difficulty with that, as long as they were personally liable for their claims. And then the investor can decide. Do they want the accounting hubris, or not? Some fundamental accounting might do no harm.

Is China showing us the way to go green?

Published by Anonymous (not verified) on Thu, 16/08/2018 - 6:02pm in

Larry Elliott is the Guardian’s economics editor. He is beming ever more strident on the need for reform to tackle climate change. This morning he says:

Winning the race against time [to combat climate change] requires political leadership. It means acknowledging that the Chinese model of managed and directed capitalism might be more appropriate than the Anglo-Saxon model. A massive scaling up of investment in clean technology is needed, because the $300bn spent on decarbonisation worldwide last year merely matched the cost of the losses in the US from climate and weather-related events. It also means scaling up the lending of the World Bank and the regional development banks to help poorer countries build wind and solar capacity. And a global carbon tax set high enough so that fossil fuels remain in the ground must be implemented.

And, more than anything, it means accepting that the world needs to wage war against climate change. Powerful vested interests will say there is plenty of time to act, and they are aided by climate-change deniers who say there is nothing to worry about. These people need to be called out. They are not deniers, they are climate-change appeasers. And they are just as dangerously misguided as fascism’s appeasers in the 1930s.

It is only fair to add that Larry and I are both members of the Green New Deal group, but this, as far as I know, has no influence on what he is writing here.

What he is saying is pretty fundamental. It's not just that the model of capitalism we have is bust. We all know that. But he is suggesting there is a compelling reason for changing it.

People can, and do, live with bust relationships for years. We are with Anglo Saxon capitalism. People do that because they cannot think of anything better. So they live with least worst.

But Larry is saying there may be something better. I am not wholly convinced China has all the answers. I very much doubt Larry does either. But the point is that there has to be something a lot better than what we have now. And climate change gives us every reason to change.

I suggest we get on with it.

Preview: The economy of permanent war

Published by Anonymous (not verified) on Thu, 16/08/2018 - 3:09pm in

War is not an anomaly, nor an exception to the rule, but a prerequisite of free trade, or so says Dr Ali Kadri, Senior Fellow at the National University of Singapore.

“Value has no race or colour,” he says. “Production is always global. The world is a single factory.

When you make war, you cheapen humans, you lesson their value. War is an important proxy for depopulation policies, as an adjacent and concomitant force.”

Dr Kadri specialises in the economics of accumulation through destruction, the production of waste and militarism, particularly in the Middle East.

He is a former visiting fellow at the Department of International Development at the London School of Economics and the principal author of several United Nations reports addressing the right to development in Western Asia.

To continue reading, subscribe to my Patreon for as little as $3 a month.

What are taxes actually for?

Published by Anonymous (not verified) on Thu, 16/08/2018 - 3:06pm in

We need to talk about taxation. I do not think it means what you think it means.

(This piece was originally published on Patreon)

While some of us are pretty conscious of the importance of using the correct terminology when it comes to issues of social justice, race, gender and sexuality, when it comes to addressing inequality, we are still using language straight out of the neoliberal handbook.

We need to be honest about how the tax system works and what it is for. To do so isn’t radical, or even progressive. It is simply the economics of reality.

What are taxes for?

In countries whose governments issue their own currencies, taxes do not pay for federal services.

Governments like those of the US, UK, China, Australia, Canada, etc run spend & tax economies, not tax and spend. They do not need your taxes to pay for anything. You might be angered to know that, actually, your taxes are not used for anything after you pay it. Not at a federal level. Your taxes are essentially destroyed upon receipt. Taxation is the act of taking currency out of the economy. Using your taxes to pay for public services would keep that money in circulation, thus serving the very opposite of its purpose.

There are some exceptions here which are important to underline: Taxes pay for services at state and local levels, but that is only because they are themselves inadequately funded by federal governments and therefore raising taxes becomes necessary to make up the revenue shortfall. Taxes also nominally pay for spending in countries whose governments adopt foreign currencies (most EU member states, for example), or peg their gold to a foreign currency.

So why pay tax at all?

Taxes are important. Just not for the reasons that are often talked about.

Taxes exist for a number of reasons:

- To maintain the value of the currency.

- To stabilise aggregate demand.

- To manage growth and distribute wealth. and, depending on what you think government is for and who it exists to serve, ensure prosperity and equality of opportunity for their constituents.

- To discourage bad behaviours (taxation on cigarettes, for example, are designed to discourage smoking and reduce the burden on health systems) & encourage good behaviours, (like promoting sustainability through a tax on carbon and investment in renewable energy).

- It also exists to accurately cost public spending requirements: infrastructure, education, health, public safety: police, fire, ambulance, defence, intelligence etc.

As economist, Professor Randall Wray recently pointed out: Governments do not need a single dime from the wealthy to address inequality. That is not how taxes operate, or what they are for.

“Taxes on the rich might take ‘resources’ from people who have too much — in that their demand deposit account is debited,” he writes for Naked Capitalism. “But taxation does not ‘give resources’ to people who have too little.”

“Rather, government spending directed to those who ‘have too little’ is what gives the poor access to resources. (They can use their demand deposit credits to buy food, clothing and shelter, etc). They are functionally two separate entities.

“Government can spend to help the poor without taxing the rich or anyone else.”

Buying into the myth

Nonetheless, the idea that taxes pay for government spending persists as an inaccurate bipartisan consensus, one of the greatest collective myths of modern capitalism.

When you hear politicians or pundits squawking about workers’ hard-earned tax dollars paying for this or that, you can almost certainly guarantee they have no idea about how taxes work either.

Our acceptance of this lie is, to quote anthropologist David Graeber, “collectively acquiescing to our own enslavement.”

The continuation of the status-quo depends upon the public’s ignorance or blind consensus as to the true nature of banking, finance, government spending, job creation and the nature of work itself.

The very myth that the vast majority of us have settled on is the very thing preventing full and gainful employment, and guarantees a future (and a present) where the only way to buy our way out of public squalor is through rising private debt.

In his recent book, Bullshit Jobs, Graeber describes modern day capitalism as a system of ‘Managerial Feudalism’, a form of social and political control achieved through corporate bureaucracy: the proliferation of middle-managers, supervisors, administrators all employed to ‘appropriate labor through usury’, stealing wealth, resources, opportunity and power from the working and middle class and transferring ownership to the political and elite classes and the idle rich.

“Marx appears to have been right when he argued that ‘a reserve army of unemployed’ has to exist in order for capitalism to work the way it’s supposed to,” he writes.

“…we are identifying with our rulers when, in fact, we’re the one’s being ruled.”

To truly address inequality and abolish austerity politics, we must start being honest about how taxation works and what it is for.

Language is important. You can be as woke as you like about gender and racial politics, but using the wrong terminology for taxation is kryptonite for social justice. We cannot subvert the neoliberal playbook while continuing to use the very same language invented to ensure a permanent economy of inequality and austerity.

Thank you for reading. I couldn’t afford to continue my research, or write this book, were it not for the support of my generous sponsors. Support independent journalism, sponsor me on Patreon, starting at $3 a month, or throw some money at my PayPal.

Saudi Arabia and Iran reignite the oil price war

Published by Anonymous (not verified) on Thu, 16/08/2018 - 7:19am in

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Economics

The rivalry between Saudi Arabia and Iran is becoming increasingly evident in the oil pricing policies of the two large Middle Eastern producers.

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