How central banks create money

Published by Anonymous (not verified) on Mon, 12/02/2018 - 9:10pm in



Have you ever asked yourself how central banks create money? BBC Radio gives the answer.

The bond vigilantes saddle up their Shetland ponies – apparently

Published by Anonymous (not verified) on Mon, 12/02/2018 - 1:43pm in

Last week (February 8, 2018), we witnessed the US Senate spectacle with Rand Paul embarrassing himself with his lack of economic knowledge but also embarrassing both major parties – the Republicans for their gross hypocrisy and the Democrats for their gross idiocy. The – Congressional Record – of Paul’s speech (starting S817) is a classic. Also, last week, the stables were stirring apparently, as the ‘bond vigilantes’ were strapping on their saddles and getting ready to make the US government suffer for its so-called fiscal ‘ill discipline’. These characters apparently emerge out of the darkness of fiscal profligacy to defend our interests and force the government to run surpluses. Fantasy stuff all round. In fact, Rand Paul should resign and get a job he is more suited for (which would be?) and the bond vigilantes should make sure their Shetland ponies are not to wild for them. These bond traders play this elaborate game of bluff and pretend they have the power over the government. In fact, they are mendicants queuing up for their daily dollop of corporate welfare and the government could play them out of the game anytime it chose to. The problem is that the bluff works because governments are captive to the neoliberal nonsense that my professsion preaches.

Before addressing the vigilantes, consider the ravings of Rand Paul, which allow us to articulate key Modern Monetary Theory (MMT) principles.

1. Paul said among other things:

The reason I am here tonight is to put people on the spot. I want people to feel uncomfortable. I want them to have to answer people at home who ask: How come you were against President Obama’s deficits, and then how come you are for Republican deficits? Isn’t that the very definition of intellectual dishonesty? If you were against President Obama’s deficits and now you are for the Republican deficits, isn’t that the very definition of hypocrisy?

Answer to both questions: YES.

That was quick. No discussion is required.

2. Then he said:

Don’t you remember when Republicans howled to high heaven that President Obama was spending us into the gutter, spending us into oblivion? Now the Republicans are doing the same thing.

No, they are not. Obama’s stimulus saved jobs as well as lined the pockets of the rich. The current stimulus is just lining the pockets of the rich.

Gutter? Which gutter was that? I thought the US economy grew out of the GFC on the back of the stimulus.

Oblivion? Which oblivion is that?

3. Channelling George W. Bush, Paul said:

… we have doubled the amount of money we have spent on the military since 9/11 of 2001 … In fact, do you know what I would do? I would bring them all home from Afghanistan. The war is won. People are talking about having a parade. Declare victory in Afghanistan; bring them home; have a parade; and give them all a raise.

Reality check: informed opinion suggests that the Afghan government would fall within weeks and the Taliban would swarm back into power if the troops left.

This Australian Broadcasting Commission report (February 7, 2018) – 16 years on there’s still no end in sight in Afghanistan — and Trump and Turnbull should be concerned – notes that:

Whatever is said — and agreed — about that conflict, neither the Americans nor the Australians have much cause for satisfaction over progress in efforts to stabilise that country …

Taliban “presence and influence are likely at their highest levels since the group lost power in 2001” …

In short, a war that started 16 years ago will continue indefinitely with no victory in sight, because from Washington’s perspective there is simply no viable alternative.

To say the “war is won” is as stupid as President Bush’s ridiculous show on the aircraft carrier USS Abraham Lincoln on May 1, 2003, where he delivered his Mission Accomplished Speech.

All a bit premature one might say.

4. Paul again:

We had something passed back in 2010 that was called the PAYGO Act … You can only pay as you go. It was sort of like a family would think about it. If you spend some more money, you have to raise your income or you have to save some money.

There is no meaningful experience that can be drawn from the finances of the family, which is revenue constrained in its spending and the policy choices available to the US government, which issues its own currency and has no intrinsic financial constraints on its spending.

The PAYGO Act was just a voluntary constraint that the politicians imposed on themselves to restrict their capacity to use government capacity to serve the interests of the people at large.

These constraints are rarely binding when the top-end-of-town line up for their regular (on-going) dose of corporate welfare.

5. Paul then said:

We are in a terrible state, and $20 trillion in debt is bigger than our entire economy. Do you wonder why the stock market is jittery? One of the reasons is that we do not have the capacity to continue to fund the government like this. We have been funding it with phony interest rates that are concocted and given to us by the Federal Reserve, but they aren’t real.

The recent share market gyrations have nothing to do with the current fiscal deficit in the US.

The Federal Reserve Bank’s policy rate are always “concocted” if by that we mean they are the jurisdiction of the central bank to set as they see fit.

Policy settings are always “concocted”. But they are also binding, which makes them a reality.

Further, the low rates have nothing to do with ‘funding’ the government. Their chief outcome has been to reduce investment rates for the private domestic sector and reduce the income paid by governments to that sector on outstanding public liabilities (although that statement also involves the other arm of monetary policy – QE).

6. Predicting catastrophe, Paul said:

Do you know what happens to the Government when the interest rates go to 5 and they have to borrow for Social Security and Medicare and all the other stuff we have to do? There will be a catastrophe in this country.

At least Rand Paul is acknowledging that the US government is responsible for “Social Security and Medicare”. In that light, he should be advocating that the Government fulfills its responsibilities more effectively.

And, I recall that the US economy and government ticked along nicely in the past when interest rates (and bond yields) were higher.

The shift to catastrophe typically followed attempts by the US government to run continuous fiscal surpluses.

Further, higher bond yields mean that income flows to bond holders will rise. They do not indicate a reduced capacity to spend on behalf of the US government.

As long as there are real resources for sale in US dollars, the US government will always be able to purchase them – including all idle labour.

7. Paul then talks about funding the flood disasters in Florida and Texas:

Instead of just plunking $90 billion down or, actually, printing it over at the Federal Reserve or borrowing it – instead of just doing that — why don’t we take the $90 billion from somewhere in the budget that it shouldn’t be?

First, note he admits that the US government does not have to borrow in order to spend “$90 billion” or any sum. He erroneously confuses the Federal Reserve Bank crediting bank accounts on behalf of the US government with some “printing” machine, but we will let that ignorance pass.

Second, it might be appropriate to “take the $90 billion from somewhere in the budget that it shouldn’t be” if the US economy is subject to full employment and accelerating inflation and political choices deem it is better to rebuild the flooded houses than use the real resources in the “somewhere” else area of the economy.

In that case, expanding the fiscal deficit would not be sensible and would just exacerbate the inflationary pressures.

But as a general principle, PAYGO was nonsensical.

8. Paul then thinks that the “somewhere” else might include funding projects abroad, he mentions Pakistan. It incenses him that the US funds projects in “countries that burn our flag and chant ‘Death to America’?”

He said:

Instead of nation-building abroad, why don’t we build our country here at home? Why don’t we do some nation- building here at home?

Well the short answer is that if the overseas aid is properly allocated, it not only makes peoples’ lives better in places where circumstances are not as favourable as, say, for many in the US, but it also, probably, stops militants hijacking planes and flying them into US towers and/or stealing trucks and driving them down the streets of New York.

9. And then returning to his ‘Seer mode’, Paul said:

The money will be added to the debt, and there will be a day of reckoning. What is the day of reckoning? The day of reckoning may well be the collapse of the stock market. The day of reckoning may be the collapse of the dollar.

When it comes I can’t tell you exactly, but I can tell you that it has happened repeatedly in history when countries ruin their currency, when countries become profligate spenders, when countries begin to believe that debt does not matter.

Here are the major US stock market crashes prior to the GFC, for which I have reliable data:

(a) Wall Street crash 1929 – US government running fiscal surplus in 1929 and 1930 ($0.9 billion in each year) (Historical Statistics of the United States: Colonial Times to 1970 Part 1).

(b) Recession of 1937-38 – brought on by the cuts in net spending as the Conservatives attacked Franklin D. Roosevelt’s New Deal policy.

(c) Kennedy Slide of 1962 (May 28, 1962) – was an adjustment to a long period of strong growth.

Further, the US government hiked taxes and cut spending in 1960 under conservatives pressure to record a fiscal surplus (0.1 per cent of GDP) in 1960.

(d) Black Monday (October 19, 1987) – a global crash in share prices precipitated by “program trading, overvaluation, illiquidity and market psychology”.

In the US, the Government was reducing the fiscal deficit from 1985 by expenditure cuts. But the crash had nothing much to do with the state of fiscal balances.

(e) Friday the 13th mini-crash (October 13, 1989) – Black Friday was precipitated by press reports that the sale of United Airlines had fallen through due to industrial disagreements over the terms.

Nothing to do with the fiscal state of affairs.

(f) Early 1990s recession (July 1990) – was a global event which followed oil price hikes (after Iraq invasion of Kuwait) and nothing to do with US fiscal balances.

(g) Dot-com bubble (March 10, 2000) – overzealousness about technology lead to “excessive speculation”.

The Clinton surpluses began in 1998 and continued for the next 4 fiscal years, including the period of the Dot-com collapse.

Conclusion: none of these events are associated with rising fiscal deficits or the level of outstanding US government debt. Where fiscal positions are implicated the events occur during or just after the US government has tried to or has been running fiscal surpluses.

Rand Paul doesn’t know his history!

10. Finally, on this Paul was on the right track:

When the Democrats are in power, Republicans appear to be the conservative party, but when Republicans are in power, it seems that there is no conservative party …

The hypocrisy hangs in the air and chokes anyone with a sense of decency or intellectual honesty.

The bluff bullies

Which brings me to the bond vigilantes – the bluff bullies.

There was an extraordinary report in CNBC US Markets briefing last week (February 9, 2018) – ‘Bond vigilantes’ are saddled up and ready to push rates higher, says economist who coined the term.

It seems that Australian financial journalists have been reading the Internet over the weekend.

The Australian Financial Review (AFR) report today (February 12, 2018) – Bond market vigilantes smell blood as US budget deficit blows out – attempts to run the same line with some Downunder warnings to boot.

These guys should get a real job!

In the CNBC report, we read that these “bond vigilantes” are “are no longer under ‘lock and key’ and are free to push yields higher”.

The comments are attributed to a “Wall Street veteran” one “Ed Yardeni”, who apparently introduced the term “Bond vigilante” to the nomenclature that financial journalists love to use to make something appear important that is not.

The article even came replete with a picture of three wild west types on horses, with guns drawn, presumably attacking some stagecoach or something, with evil intent obvious.

Shaking in our boots we are!


… the term “bond vigilantes” in the 1980s to refer to investors who sell their holdings in an effort to enforce fiscal discipline. Having fewer buyers drives prices down — and drives yields up — in the fixed-income market. That, in turn, makes it more expensive for the government to borrow and spend.

Gosh, where to start with that pot pourri?

It is obvious that when the demand for a Treasury bond rises, the returns (yields) fall and vice versa.

Bond prices and yields are thus inverse. A person who buys a fixed-income bond for $100 with a coupon (return) of 10 per cent will expect $10 per year while they hold the bond. If demand rises for this bond in secondary markets and pushes the price up to say $120, then the fixed coupon (10 per cent on $100 = $10) delivers a lower yield.

If the demand for bonds decline (as confidence in other assets rise, for example) then yields will rise.

So the income flow on new issues will be larger than before.

That has no bearing on the capacity of governments to spend in their own currency.

It does “make it more expensive for the government to … spend”.

Mr Yardeni is quoted as saying that the bond vigilantes have:

… been sort of put under lock and key by the central banks. The Fed had lowered interest rates down to zero in terms of short-term rates and that pushed bond yields down. And then they bought up a lot of these bond yields …

Now the Fed is slowly raising interest rates and starting to unwind its balance sheet. On top of that, new tax cuts were passed and a massive spending deal was just signed into law.

Which means that other interest-bearing assets might become more attractive, which, in turn, means that ‘investors’ shift their portfolio away from Treasury bonds and into these other assets.

Of course yields will rise under those circumstances.

And, so what?

Nothing. As noted above – only that the income flow on new issues will be larger than before.

Yardeni gets ahead of himself quickly it seems and claims:

They’ve saddled up, and they’re riding high. The posse is getting ready. They’re getting the message out.

Oh dear, the posse!

I wouldn’t want to rely on that lot to track down any bandits.

A posse has to have intrinsic power.

Bond investors only have the capacity to set yields if the government allows them too.

Yardeni claims the:

Bond vigilantes last made their mark during the Clinton administration, when a bond market sell-off forced President Bill Clinton to tone down his spending agenda.

This point is also made by the AFR article:

Between October 1993 and November 1994, the US 10-year Treasury yield spiked from 5.3 per cent to about 8 per cent as investors sold government debt in the so-called “Great Bond Massacre” …

The yield dropped to about 4 per cent by 1998, as the White House and Congress contained spending.

The AFR journalist doesn’t add that there was a further large spike in 10-year Treasury bond yields in 1998, and by then the US government was already running surpluses.

The following graph shows the US Federal fiscal deficit (as % of GDP) from 1990 to 2017 (top panel) and the daily 10-year Treasury yields from early 1990 to last week.

If you can pick a pattern between the size of the deficit and the bond yields then you are better than me.

The point is that Clinton was not forced to do anything by the bond markets. He passively allowed them to dictate terms.

Let us be absolutely clear:

1. The private bond markets have no power to stop a currency-issuing government spending.

2. The private bond markets have no power to stop a currency-issuing government running deficits.

3. The private bond markets have no power to set interest rates (yields) if the central bank chooses otherwise.

4. AAA credit ratings are meaningless for a sovereign government – they can never run out of money and can set whatever terms they want if they choose to issue bonds.

4. Sovereign governments always rule over bond markets – full stop.

Nothing a student learns in a mainstream macroeconomics course at university (at any level – and the deception becomes worse the in later years as the student enters graduate school) about the relative powers of governments and bond markets is true.

First, at any time, the central bank can negate the desires of the private bond markets and set bond yields itself.

I have written extensively about this in the past – for example:

1. More fun in Japanese bond markets (February 7, 2017).

2. US Bond Markets cannot bring down Trump (March 9, 2017).

3. Bank of Japan is in charge not the bond markets (November 21, 2016).

4. There is no need to issue public debt (September 3, 2015).

5. Better off studying the mating habits of frogs (September 14, 2011).

6. Who is in charge? (February 8, 2010).

A central bank can buy up government debt at its leisure because it can add bank reserves denominated in the currency of issue anytime it chooses and up to whatever amount it chooses – without constraint.

So the government can then just set a yield and if bond markets don’t like it then the central bank can buy the debt.

There is no question about that.

Further, the inflationary risk would be unchanged as I explain in this blog post – Building bank reserves is not inflationary.

The inflation risk comes from the impact of the net spending on aggregate demand. There is nothing intrinsically inflationary about the government spending without bond issuance.

It also clearly takes the bond markets out of the equation and would serve to disabuse us of notions such as the sovereign government has “run out of money”; or will “go bankrupt”; or “will not be able to afford future health care”; and all the related claims that flow from the flawed intuition that initially is advanced and exploited by mainstream macroeconomics.

Of-course, this approach would change the conduct of monetary policy – either a zero rate policy such as Japan has run for years or paying a positive return on excess reserves (as many governments have done in the crisis) would be required.

The overwhelming conclusion is that far from being dangerous vigilantes, the bond traders are simpering mendicants.

We would see that clearly if there was no debt issuance.

At any time, a currency-issuing government can simply decide to end the system of corporate welfare and stop issuing debt at all

And what would happen if the government stopped pumping billions of dollars of debt into the corporate welfare market (aka bond market)?

Well, then you get a 2001 Australian situation.

Basically, the Federal government was running surpluses and not issuing new debt. As a result, the government bond markets became very thin (drying up supply).

As a result, the Federal government was pressured by the big financial market institutions (particularly the Sydney Futures Exchange) to continue issuing public debt despite the increasing surpluses. At the time, the contradiction involved in this position was not evident in the debate.

We were continually told that the federal government was financially constrained and had to issue debt to “finance” itself. But with surpluses clearly according to this logic the debt-issuance should have stopped.

The Treasury bowed to pressure from the large financial institutions and in December 2002, Review to consider “the issues raised by the significant reduction in Commonwealth general government net debt for the viability of the Commonwealth Government Securities (CGS) market”.

I made a Submission (written with my friend and sometime co-author Warren Mosler) to that Review.

The Treasury’s (2002) Review Of The Commonwealth Government Securities Market, Discussion Paper claimed that purported CGS benefits include:

… assisting the pricing and referencing of financial products; facilitating management of financial risk; providing a long-term investment vehicle; assisting the implementation of monetary policy; providing a safe haven in times of financial instability; attracting foreign capital inflow; and promoting Australia as a global financial centre.

So a liquid and risk-free government bond market allows speculators to find a safe haven. Which means that the public bonds play a welfare role to the rich speculators.

The Sydney Futures Exchange Submission to the 2002 Inquiry considered these functions to be equivalent to public goods.

Please read my blog post – Living in the Land of Smoke and Mirrors – aka La-La-Land – for more discussion on this point.

So we would watch the banksters (the ‘bond vigilantes’) beg for debt issuance should the US government (or any currency-issuing government) adopt the sensible position and stop issuing debt to match (not fund) its net spending.

Further reading:

1. Currency-issuing governments never have to worry about bond markets (April 3, 2017).

2. Better off studying the mating habits of frogs (September 14, 2011)

3. Who is in charge? (February 8, 2010).


So next time you hear an economist or a politician talk tough about how bond markets have to be satisfied and they use that as a justification for hacking into public spending (and driving up unemployment and poverty rates) you know they are lying and are frauds.

The bond traders never have to be satisfied. They can be forced to live on crumbs by the government if it so chooses.

I advise the would be vigilantes to get back on their Shetland ponies. Well perhaps even those little animals are a little to wild for the vigilantes.

MMT University Logo competition

I am launching a competition among budding graphical designers out there to design a logo and branding for the MMT University, which we hope will start offering courses in October 2018.

The prize for the best logo will be personal status only and the knowledge that you are helping a worthwhile (not-for-profit) endeavour.

The conditions are simple.

Submit your design to me via E-mail.

A small group of unnamed panelists will select the preferred logo. We might not select any of those submitted.

It should be predominantly blue in colour scheme. It should include a stand-alone logo and a banner to head the WWW presence.

By submitting it you forgo any commercial rights to the logo and branding. In turn, we will only use the work for the MMT University initiative. It will be a truly open source contribution.

The contest closes at the end of March 2018.

That is enough for today!

(c) Copyright 2018 William Mitchell. All Rights Reserved.

The Times’ campaign against Oxfam is really about defending inequality

Published by Anonymous (not verified) on Sun, 11/02/2018 - 9:44pm in

Rod Liddle, writing in the Sunday Times this morning, makes clear what that papers supposed expose of a story that Oxfam press released in 2011 is all about. The email headline is:

And the article (behind a paywall, so I reproduce this part in the public interest) says:

At last we get an honest comment on what this is all about. Liddle, who vies with Toby Young for being one of the nastiest commentators in British politics, does at least have the decency (or maybe the stupidity) to make clear what this is all about.

What The Times is really angry about is the fact that the world, rightly, believed Oxfam when they said that capitalism distributes the rewards of market activity inequitably and that the world's wealthiest people did not actually earn their fortunes but extracted them from others. And so, in an attempt to discredit this message The Times is dedicated to raking Oxfam's muck. And it found some.

Of course it did. No organisation the size of Oxfam has no muck. Real, fallible, people work for it. They do not advertise for saints because there are none. The C of E and RC churches have proved that. But so does casting around humanity itself do so. In a world of flawed people the question is how organisations deal with the crises those flawed people create.

So the only relevant questions here are a) is The Times justified to argue that capitalism is a global panacea to inequality (to which the World Bank, IMF and OECD, all of them hotbeds of socialism, suggest the answer is 'no') and b) did Oxfam appropriately deal with this problem when it found it? The answer here is not an unambiguous 'yes'.

It could have, perhaps, cooperated more fully with the Haitian authorities. But as far as I can see Oxfam say they found no convincing evidence of illegality. If that is true what were they meant to report? I can see no way an employer can report an employee for action that clearly breaches its internal safeguarding procedures that does not breach the law. Maybe others can: if so I am wrong, but that would look like time wasting to me.

And they could have been clearer with DfID and the Charity Commission, maybe. But did they do a cover up? Hardly: they did report it. Which means they did have systems in place. And they did work. Maybe not perfectly, but as it is the outcome here is much better than I suspect would happen in many organisations faced with similar wholly unacceptable conduct

So, we come back to the point that Liddle reveals: this is really about The Times' fury at Oxfam for making clear that capitalism as it functions at present does not help the world's poorest people because inequality is deeply harmful to them. And the fact is that The Times are calling this one badly wrong as a result. They're so frightened that Oxfam is right they are resorting to desperate measures to discredit the charity. The cost will be to the victims of the next world disaster that requires humanitarian intervention.

May’s Speech to Rich Tory Donors: This Is What the Lollards Warned You About

Sunday is the Christian holy day, so I thought I’d include here a particularly relevant piece of radical Christian polemic against the rich and powerful and their neglect and oppression of the poor from the 15th century.

A few days ago Mike put up a piece reporting Theresa May’s speech at a fundraising banquet for rich Tory donors. To get in, you had to pay £15,000 for a ticket. The long reign of Thatcherite neoliberalism in this country has led to a massive transfer of wealth from the poorer sections of society – the working and lower middle classes – upwards to the extremely rich. Thatcher, and her fanboys and -girls – have cut and privatised benefits and services to the poor, with the specific intention of making the bloated rich even richer, though tax cuts, massive subsidies, and exploiting the very state industries, that they have privatised and sold to them.

The Lollards were a proto-Protestant sect of the late fourteenth and early fifteenth century, who followed the teachings of the Yorkshire priest and reformer, John Wycliffe. Wycliffe was disgusted by the corruption of the church and society in his day. He advocated the Bible in English, holy scripture as the only source for religious authority, clerical marriage and proper concern for the poor. And he and his followers were bitterly critical of the friars, as they were generally perceived to have neglected their vocation of teaching and preaching Christianity to focus on serving the rich for their own material gain.

The text here is ‘The Perversion of the Works of Mercy’, which inveighs against the way Christ’s commandment to feed, give drink, and clothe poor people, and visit those in prison, as well as other holy works, have been so corrupted so that those, who feign moral rectitude and Christian charity now spend their time doing this for the rich and powerful instead. Here’s an extract. You should be able to understand the late medieval spelling and vocabulary.

Hou Sathanas [Satan] and his children turnen werkis of mercy upsodoun and discyven men therinne and in here five wyttis.

First Crist comaundith men of power to fede hungry pore men. The fiend and his techen to make costy festis and waste many goodis on lordis and riche men and so suffer pore men sterve and perishe for hunger and other myschevys. Ye, men that feynen hem [them] ful of charite and religion gadren proper goodis to hemselven and festen dlicatly lordis and laides and riche men and suffer here pore brethren begge for meschef and fare ful harde.

Crist comaundith to yeve drynk to thrusty [thirsty] [men] and wymmen. The fiend and his techen to puveye high wyn and spised ale and strong for riche men and lordis to make hem drunken and chide and fighte and foryete God and his lawe, and to suffer pore, that han nought of hore owene and may not labore for febilnesse or sikenesse and blyndenesse drynke water and falle in feveris or ellis perische.

Crist comaundith to clothe nakyd men and wymmen whanne thei han noght of here owene. Thereto the fend and his techen to yeve costly clothis and manye to riche men and mynstralis and shavaldours {Northern slang for robbers] for worldly name and suffer pore men have nakid sidis and schakynge lippis and hondis for cold that woo is hemwith the lif. Ye, prelatis and men singular religion, that taken the charge to ben procuratouris and dispenderis of pore mennus liflode, clothen fatte horsis with gaie sadlies and bridles and mytris and croceris with gold and silver and precious stonys, and suffren pore men and children perische for cold. And yit these prelatis and newe religious comen in staat of Cristis povert and his apostlis, and techen and crien that whatever thei han is pore mennus goode. Yit riche men closen dede stockis and stonys with precious clothis, with gold and silver and perlis and gaynesse to the world, and suffren pore men goo sore acold and at moche meschefe.

Crist trechith to herberwe [harbour, accommodate] pore men that han non houses ne penby to peye for here innys [inns, lodging]. The fend and his techen to herberwe riche men and lordis with grete cost and deyitte for worldly worschipe and suffer pore men wander in stormys and slepe with the swyn and many tymes suffer not hem come withinne here yatis, and so to fynde many excusacions and coloure this doynge, Ye, ypocritis of privat religion maken grete houses and costy and gaily peyntid more than kyngis and lordis bi sotil beggynge and confessions and trentalise and mayntenynge of synne, and herberwe lordis and riche men, and namely ladies, and suffer more men lie withouten or geten houslewth at pore men or ellis perische for wedris and cold.

Crist techeth to visite sike men and counforte hem and helpe hem of sustenaunce. The fend and his techen to visiten riche me, lordis and ladies in here prosperite and lykynge to be holden kynde [high born] and curteis, and to comforte eche other in synne and to have lustis of glottonye, lecherie and other schrewidnessis; but of pore men that ben beddrede and couchen in muk or dust is litel thought on or noght. Yit ypocritis of feyned religion vistien not fadirles children and modirles [motherless] and widewise in here tribulacion, and kepe not hemself unbleckid fro this world as Seynt James techith; but visite off riche men and wymmen and namely riche widewis [widows] for to gete world muk by false deceitis and carien it home to Caymes’ {Cain’s] castelis and Anticristis covent [convents] and Sathanas children and marteris [martyrs] of glotonye.

Crist techith to visit men in prison and helpe to delyvere hem in good manere and counforte hem bi almes-yevinge. The fend and his prresonen pore men for dette whanne thi ben not at power to paie and traveil night and day and liven ful harde and toylen with trewthe and susteynen wif and children…

From Middle English Religious Prose, edited by N.F. Blake (London: Edward Arnold 1972) pp. 239-41.

Clearly, this is a piece of sectarian polemic, and isn’t entirely fair. Historians have pointed out that the church was suffering serious poverty and neglect the time, which affected many of the lower clergy and monastic institutions, so that they simply weren’t in any position to perform their Christian duties of aiding the poor themselves.

And my point here is not to attack the Roman Catholic church, as I know many ordinary Catholics and Roman Catholic clergy are deeply involved in caring for the poor. But simply to make the point that the issues the Lollards inveighed against are still present and embodied in the Tory party and people like Tweezer. In the Middle Ages, it was the church that had the function of providing whatever welfare services there were to the poor, as well as the personal charity of great lords. But since Thatcher, public institutions and the welfare state – the modern, secular equivalents of these religious institutions, have been run down for the profit of the rich.

And there’s also a distinct religious parallel here too, though it’s with the evangelical Christian Right and their prosperity gospel. Tweezer is a vicar’s daughter, who claims that when she was a child she was a ‘goody two-shoes’. Lobster has pointed out just how many right-wing Christians gathered around IDS and now Damian Greene in the DWP. The evangelical Right in America believe that God doesn’t want you to be poor, for whom they have nothing but contempt. One particularly self-righteous Republican politico – it might have been Ted Cruz – even declared that the poor should be taxed more. ‘Because it’s what Christ would have wanted’. No, and this moron should read the Gospels before opening his mouth.

And I’m still furious at the way a large number of right-wing pastors made it clear that they didn’t care if one Republican candidate was guilty of molesting underage girls. He stood for their values, which were for the rich, and against the poor. And, of course, gays. Which shows how selective their concern over changes and violation of traditional sexual morality is.

These hypocrites have done as much harm to Christianity as Dawkins and the militant atheists. Many of the atheist polemicists are socially conscious people, whose rejection of religion is partly based on the way the religious don’t live up to their ideals. And as history has shown, and these pratts continue to show, all too often the atheists have been right in this criticism.

And in there moral condemnation of the fawning over the rich at the expense of the poor, the Lollards were right. And this text from six hundred years ago shows up the Tory party and its hypocritical supporters in the Christian religious right as it is today.

New Classical macroeconomists — people having their heads fuddled with nonsense

Published by Anonymous (not verified) on Sun, 11/02/2018 - 9:10pm in



McNees documented the radical break between the 1960s and 1970s. The question is: what are the possible responses that economists and economics can make to those events? One possible response is that of Professors Lucas and Sargent. They describe what happened in the 1970s in a very strong way with a polemical vocabulary reminiscent of […]

Lobster 75 Is Up With My Book Review on British Pro-Nazis and Nazis during World War II

I put up a post this morning about a book I’ve reviewed for Lobster, the conspiracy/parapolitics magazine, of Richard Griffiths ‘What Did You Do in the War?’ on the activities of the British Fascist and pro-Nazi right from 1940 to 1945. This has been rather late being posted, as the webmaster is very busy with work. I am very pleased to say that it has now gone up, along with the first parts of Lobster 75, the new issue of the magazine for summer 2018. The magazine comes out twice yearly.

Apart from my article, there is editor Robin Ramsay’s own column and roundup of news of interest to parapolitics watchers, ‘The View from the Bridge’, Garrick Alder on how Richard Nixon also tried to steal documents covering his lies and crimes in Vietnam, and his sabotage of the 1968 peace talks years before the Watergate scandal. Part II of Nick Must’s article on using the UK Foia. There is also a review of Jeffrey M. Bale’s book The Darkest Parts of Politics, which is an extensive examination of corruption, violence, terror committed by governments and political organisations around the world; And John Newsinger’s devastating review of Gordon Brown’s My Life, Our Times. Brown’s book is intended to present him as some kind of lefty, but Newsinger shows that instead Brown was a consistent supporter of Blair’s neoliberalism, who had no qualms about sucking up to Rupert Murdoch and Paul Dacre, with whom he is still friends. He also wanted to impose a graduate tax following Blair’s imposition of student fees. He also argues that Brown’s protestations of innocence about the claims that Saddam Hussein had weapons of mass destruction is similarly unconvincing. Brown claimed that MI6 lied to them. Newsinger argues instead that either Brown’s very naïve, or he’s also lying. And he shows how the humiliation the British army has suffered in Basra in Iraq and Afghanistan was due to cuts imposed by New Labour. Oh yes, and Brown’s also a close friend of Benjamin Netanyahu, the right-wing maniac now running the Israeli government and ethnically cleansing the Palestinians.

He also argues that if Brown had won the 2010 election, austerity would now be imposed by a New Labour government, there would be a state visit arranged for Donald Trump – Brown recently went over there to give a very sycophantic speech to Congress, as well as more privatisation, more cuts to welfare services, and the graduate tax.

Lobster 75 is at

Please read, if you’re interested in knowing what’s really going on behind the lies of the lamestream press.

The British Press’ Glowing Reviews of Second World War Pro-Nazi Book

Richard Griffiths, What Did You Do During the War? The Last Throes of the British pro-Nazi Right, 1940-45 (London: Routledge 2017).

I recently sent a review of the above book to the conspiracy/parapolitics website and magazine, Lobster. It’s been proofread and corrected, and hopefully will go up on the site before too long. The webmaster’s been very busy with work recently, hence the delay.

Richard Griffiths is an Emeritus Professor of King’s College London, and the author of several books on the British and European extreme Right. These include a biography of Marshal Petain (1970), the head of the collaborationist Vichy government during the Second World War, Fellow Travellers of the Right (1980), Patriotism Perverted (1998) and An Intelligent Person’s Guide to Fascism (2000).

The book is a study of how British Nazis and Nazi sympathisers reacted to the outbreak of the Second World War and internment. Some gave up their activities entirely, others carried on underground. A number also carried on as before. And some angrily denied that they had been Nazis, and blamed and attacked instead their former comrades. Another tactic was to infiltrate genuine, non-political pacifist groups, like the Peace Pledge Union, in order to influence British politics to avoid a war with Nazi Germany.

Oswald Mosley’s Lies about Not Collaborating

One chapter gives the British Fascist leader, Oswald Mosley, another well deserved kicking. Mosley claimed that when war was declared, he ordered his goose-stepping squadristi to cooperate with the authorities and obey their orders. This was in the text of a speech published in Action, the British Union of Fascists newsletter. In fact, Mosley advised only those members of squalid organisation, who were members of the armed forces, to obey orders and cooperate. In the original speech he made it clear that he expected the rest of the thugs to carry on their activities and pro-Nazi propaganda as normal. The speech was then carefully edited, published in Action to make it appear that Mosley had issued orders for comprehensive cooperation with the authorities. This was then taken up uncritically by his biographers.

This is another piece to add to the mountain of scholarship demolishing the sympathetic picture of Mosley created by Skidelsky’s biography in the 1970s. This was comprehensively refuted by Stephen Dorril in his biography of Mosley, Blackshirt, which came out a few years ago. Among other things, Dorril disproved Mosley’s claim that if the Nazis had invaded, he would never collaborate with them and serve in government ‘as another Quisling’, referring to the head of the puppet Norwegian government. In fact, he was quite prepared to do so.

Bryant’s Nazi Apologia, Unfinished Victory

But one of the most unsettling studies in the book is chapter 2, ‘The Reception of Bryant’s Unfinished Victory ‘, subtitled ‘The myth of public unanimity against Nazi Germany in early 1940’. Arthur Bryant was a writer of popular histories, such as English Saga (1940), The Years of Ednurance 1793-1802 (1942) and The Years of Victory 1802-1812 (1942). In the ’30s he had written academically respected biographies of Charles II and Samuel Pepys.

Bryant was a committed Conservative, and one of that party’s functionaries. In 1929 he became educational advisor to the Bonar Law Conservative College at Ashridge. His first book was The Spirit of Conservatism. Shortly after its publication he became editor of the college magazine, Asbbridge Journal. In 1937 he was made general editor of the National Book Association, the Tories’ answer to Gollancz’s Left Book Club. He was not only strongly in favour of appeasement, but also a supporter of Hitler and the Nazi regime. In 1934 he described Hitler as a mystic, who had enabled Germany ‘to find her soul’. From the late 30s he included in his columns in the Ashbridge Journal and The Illustrated News diatribes attacking what he saw as the libels and slanders put out by the ‘warmongers’ who were leading the country into conflict with the Nazis. In 1939 he was asked by Horace Wilson to write an article on the British point of view for the German press. This was never published, though it did form the basis for much of Unfinished Victory, and was approved by Chamberlain. In July 1939 he was unofficially authorised by Chamberlain to go to Germany to speak to a number of Nazi leaders, and Chamberlain later offered to pay his expenses from Secret Service funds.

The book’s introduction began by asserting that now we at war, Britain would fight with a unity of resolve and purpose. But it then qualified this with arguments for peace with the Nazi regime. And much of this was explicitly anti-Semitic, following Nazi propaganda. He described how Hitler’s seizure of power was greeted with joy by the German people as the new revolution.

He then went on to blame the Jews for the abortive Communist Revolution, claiming that it was led by the ‘Jew, Kurt Eisner’, and the Russian ambassador, the ‘Hebrew, Joffe’. Joffe had indeed been involved in promoting the Communist revolution, but Eisner was the leader of the workers’ soldiers and peasants’ council in Bavaria. I think he was a radical Socialist, rather than Communist, who believed that the Councils should form an addition to parliamentary government, not their replacement. It’s an attitude very different to Lenin’s idea of a bureaucratic state controlled by the Communist Party.

He then went on to accuse the Jews of exploiting the property market in the First World War, so that by 1939 after by five years of anti-Semitic legislation and persecution they still owned a third of real property in Germany. He stated that the Jews had exploited the 1929 Crash and the consequent inflation to make themselves increasingly dominant in politics, business and the learned professions. A quarter of the Social Democrat politicians in the Reichstag in 1924 were Jews, and they controlled the banks, the publishing industry, cinema and theatre, and a large part of the press ‘all the normal means in fact, by which public opinion in a civilised country was formed’.

He then claimed that there was a Jewish campaign to remove gentiles completely from politics and the privileged occupations. He wrote

Every year it became harder for a Gentile to gain or keep a foothold in any privileged occupation. At this time it was not the Aryans who exercised racial discrimination […]. By the third decade of the century it was the native Germans who were now confronted with a problem – that of rescuing their indigenous culture from an alien hand and restoring it to their own race.

Press Reaction Largely Positive

This is vile, murderous nonsense supporting a regime bent on persecuting the Jews to their deaths, even before the launch of Hitler’s infamous ‘Final Solution’. So how did the British press react to this nasty, mendacious piece of Nazi propaganda? In general, they loved it. The book received glowing praise from the Times Literary Supplement, the New English Weekly, the Fortnightly Review, the Church of England Newspaper, Peace Focus, and very many provincial newspapers, like the Sheffield Star, the Aberdeen Press and Journal, the East Anglian Daily Times, and the Cardiff newspaper, Western Mail.

There were critical reviews, however, in the Spectator, which was strongly anti-appeasement, the Jewish Chronical, the Manchester Guardian, New Statesman and other newspapers of that type. Two female critics of the Nazi regime submitted highly critical reviews in the journal Time and Tide. One of these was Emily Lorimer, the author of What Hitler Wants, who stated

“All the best and biggest Nazi lies are here, presented with a garnish of scholarship and erudition […] Please God, your clever book has come too late to take any readers in. “

Rebecca West writing in the same magazine declared that the book was
“a paean to Hitler so glowing, so infatuate, that it might be have been entitled ‘Kiss Me, Corporal’.”

The great historian, A.J.P. Taylor called the book and its author what they were in the Guardian in the very title of his review ‘A Nazi Apologist’ and made the point that much of the book was based on Hitler’s speeches. And Richard Crossman in the Staggers pointed to Bryant’s connection to the Conservatives and the appeasement camp.

Bryant himself started a series of correspondence defending himself with the Spectator and the Jewish Chronicle. His publishers at MacMillan, initially enthusiastic, became progressively cool towards it, trying to find reasons to refuse publication. Bryant was still promoting and defending his book as late as May 1940. What changed his attitude was the accession of Winston Churchill as PM, and the disappearance of pro-Nazi groups like Information and Policy. Later in the month Lovat Dickinson of MacMillan’s asked Hugh Trevor-Roper to inquire whether Bryant should be interned as a Fascist. Trevor-Roper advised against this on the grounds that views change with the times. And Bryant ended up writing pieces in the Ashridge Journal describing Hitler as ‘a terrible calamity’ and referring to the ‘terrible and evil things we are fighting’.

The Myth of British anti-Nazism and Concern for the Jews

One of the great myths about the Second World War was that it was fought to defend the Jews. In fact, as the Tory journalist and polemicist, Peter Hitchens points out, Britain entered the war to honour the defence treaties we had made with France and Poland. And the historian Martin Pugh has also said that Churchill’s reasons for promoting war with Germany were hardly altruistic. They were entirely geopolitical. Churchill was afraid that German domination of the North Sea and Baltic would threaten British naval supremacy. And although in private he described Mussolini as ‘a perfect swine’, he had made trips to Fascist Italy and was an admirer of General Franco. And a friend of mine pointed out that in none of Churchill’s speeches does he ever condemn Fascism. He attacks Nazism and the Axis, but says nothing about the wider political ideology to which they belonged.

Griffiths points out that the book’s enthusiastic reception by the majority of the British press shows that large numbers of the British population were indifferent to the sufferings of the Jews. He argues that the idea that the war was fought to destroy a brutal regime was a later war aim. Most Brits at the time believed that Nazi aggression had to be countered, but there was more interest in understanding Nazi Germany than condemning the internal structure of Hitler’s vile dictatorship.

He also argues that while there was little of the visceral anti-Jewish Hatred in Britain like that, which had propelled the Nazis to power, there was considerable ‘social anti-Semitism’ in popular culture. Jews were excluded from certain social groups, jokes based on anti-Semitic caricatures, such as their supposed greed for money, ignorance of British social conventions, as well as the suspicion in popular literature that they were the leaders of subversive groups, and were cowards and profiteers in war. Griffiths writes

Though, in contrast to rabid anti-Semitism social anti-Semitism may have appeared comparatively innocuous,, its depiction of the Jew as ‘other’ could lead to apathy and lack of concern when faced with examples of racial intolerance and persecution. On the one hand, as Dan Stone has pointed out, the British public could manifest a ‘casual anti-Semitism’ which fell into the trap of accepting the ‘reasons’ for the German dislike of the Jews. […] on the other hand, while Nazi measures could shock people of all views, may people found it possible to ignore the problem altogether, while speaking only of the matters, in relation to Germany, that they believed to be ‘important’.

The Importance of Maintaining Auschwitz and Educating People about the Holocaust

This attitude clearly changed after the War when the Allies investigated and condemned its monstrous crimes against humanity, prosecuting and hanging the Nazi leaders at the Nuremberg War Crimes trials. And an important part of this change was the revelations about the Holocaust. Which is why Holocaust Memorial Day, the preservation of Auschwitz as a museum and memorial to the innocents butchered there and the various Holocaust memorials and museum across the world are important. Its why the real Nazis, unlike Mike, are keen to minimise the Holocaust and deny it ever occurred.

Hypocrisy of British and Libels against Mike and the Left

But this also shows up the hypocrisy of the various papers, which last week published the gross libel against Mike, accusing him of being a Holocaust denier when he is certainly no such thing. Much has been published on the Net and elsewhere about the Daily Mail’s murky, pro-Nazi past, including how the father of editor Paul Dacre was a fanboy of Adolf. And the scum are still doing it. Mike has put up an article this morning about a vile piece in the Torygraph repeating the anti-Semitic tropes of the American Right about the Jewish financier and multi-millionaire, George Soros, accusing him of covertly funding anti-Brexit groups. This part of the American Right’s suspicion that Soros is responsible for all manner of anti-democratic, subversive political groups. It’s part of the anti-Semitic trope of the Jew as leader and instigator of subversion. Perhaps they’d like to go a bit further and claim that he’s also trying to enslave the White race and bring about its destruction through race mixing?

Soros against Zionists Because of Collaboration with Nazis in the Murder of Hungarian Jews

Of course, this is just more politically motivated smears. The Israel lobby also hates Soros, because, as Mike points out, he is bitterly critical of Israel’s persecution and ethnic cleansing of the Palestinians. Soros himself is of Hungarian descent, and he despises Zionism because of the way they sold out Hungarian Jews to the Nazis. Kasztner, the leader of the Zionists in Hungary, tried to make an agreement with the Nazi authorities to allow several thousand Jews to be deported to their deaths, so long as the Nazis spared some by sending them to Israel. it’s another example of the way Zionists would collaborate with real Nazis and murderous anti-Semites to promote their own cause, even if it meant the mass murder of Jewish men, women and children.

The Hypocrisy, Smears and Anti-Semitic Tropes of the Israel Lobby, the Blairites and the Lamestream Press

This shows just how selective and hypocritical the British press’ attitude to anti-Semitism is, as well as that of the groups promoting the smears – the Campaign Against Anti-Semitism, the Jewish Labour Movement, the Tories and the Blairites in Labour. These smears are used exclusively to isolate and marginalise the Left as a political threat to the cosy neoliberal politics and support for the racist, persecutory regime in Israel. But when it serves their purpose, they will use the same anti-Semitic tropes against those Jews, who also threaten them.

What is full employment?

Published by Anonymous (not verified) on Sat, 10/02/2018 - 6:11pm in



Andy Crow has become a regular commentator on this blog over the last year or so. Overnight he offered this comment on my post on MMT. It is written in his style but because it raises some really quite fundamental questions I think it worth sharing it more widely as discussion on what full employment now means and how we might achieve it seems to be central to modern economic thinking and the political discussion on the issue is at present locked in a time far ago:

“In that case more responsible measures have to be adopted as the goals for economic policy. MMT suggests that full employment is the alternative goal.”

Here I think, we get to the nub of the issue. Assuming we are intent upon taking this forward.

Let us ignore what precise figure we will accept as ‘full employment’. The number is not arbitrary, but by for example, raising the pension age, or the school leaving age it can be shifted substantially at a stroke. Also there will always inevitably be a degree of churn at any given time and that is not only inevitable, but necessary.

In terms of developing policy it is pointless to speak of ‘full employment’ without considering what we are going to accept as ’employment’ and how its ‘fullness’ might be achieved.

There are important issues here. And policy choices to make. I’m going to take it as a given that pointless digging and filling of holes is off the agenda.

There are two, not necessarily mutually exclusive, routes to full employment. One is to allow the free market to get us there. (Stop laughing at the back ! )

We know how that works out. We’re still waiting to see how it might be achieved without going all out for war: the only strategy, so far proven, to get even close.

Or we can have government job creation schemes, and I’ve been there and it was a piss-poor show (unless you were one of the civil servants employed to set up and administer schemes and don’t mind being bored rigid and wasting your life.) The schemes I was involved with (forty years ago) assumed there was only one type of employment viz that which was ‘traditionally’ accepted as ‘work’. That model assumed that half the population (the female half) should be at home working for nothing whilst doing (often badly and with bad grace) the most important work of raising the next generation, managing the social infrastructure or skivvying.

Emasculation of heavy industry has produced an economy in which (still, iniquitously, underpaid) women have shite jobs which barely cover the expense of paying for, even worse paid, inadequately educated, but maybe well meaning, young women (girls) to look after their children. We have made no progress whatsoever in addressing this nonsensical policy. (Because it IS policy. It may be a default policy but it’s policy) We have, under this policy regime, created no role for ‘manly’ activity which is not criminal, and incidentally not actually manly. There is nowt ‘manly’ about criminality, be it in dealing drugs with menaces, or stealing money through fraudulent insurance and investment devices.

The alternatives which are obvious are to institute a Universal Basic Income, or a Job Guarantee.

If there are other options, I’d seriously like to know what they are. I do not regard the status quo as an option. It stinks.

Social and economic conservatives (with a small or large ‘c’) reject outright the need for change because we allow them to live in blissful ignorance of the condition of the lives of anything up to a third of their fellow citizens, and they have the effrontery to blame the very people whose lives they are sucking dry.

UBI requires for its success, education of people to the standard and mindset where they can become genuinely entrepreneurial and create opportunities which don’t currently exist, to employ themselves (much more difficult and time consuming than it sounds) and create opportunities for employment of others without that level of self determination and ‘drive’. (I’ve spent most of my working life in default self employment. I don’t do ‘business’. I can do all sorts of things, but making money doing it is not where I’m at. It’s a mystery to me.)

UBI has to be pitched at a level which provides a subsistence income, or it fails by definition and isn’t worthy of consideration. There is no point whatsoever in setting a UBI at a transitional level which does not support life unless it is in addition to existing social welfare benefits (many of which are already woefully inadequate and getting worse.) In effect UBI is a free market solution. It reprices labour. And not before time.

A Job Guarantee strategy is difficult to imagine and absolutely requires considerable state input. Once you get beyond the screamingly obvious need for hospital and other health care staff, and for more teachers and classroom assistants to make Eton-sized classes a reality in the state sector you rapidly run out of state sector employment opportunities because everything else has been sold off. (OK, I exaggerate, but not by much. I expect there are civil service vacancies by the tens of thousands to deal with Brexit, but I was considering useful work (!) and there a re probably a couple of extra bodies needed at HMRC)

Elderly care is a massive social requirement, but needs levels of training, supervision and administration that requires expertise which we don’t seem to have. (Though there’s plenty of individuals who have been forced to learn the hard way by looking after their kith and kinfolk) The private sector does this expensively and badly (with criminal brutality in some cases). That will not be rectified quickly. I see the Job Guarantee as a difficult strategy to transition into and one which cannot possibly be done without restructuring the local governance that would make it possible. (I think it would be worth it, but not easily achieved)

We need ‘conversations’ about this.

MMT looks after the money, but that really isn’t the core problem. The real challenge is how to structure a society that functions. And functions for everybody. Even the finance sector, because they do have a useful and important role to play.

It's a Long Way to the Top (ii)

Published by Anonymous (not verified) on Sat, 10/02/2018 - 8:15am in


Economics, Fun, maths

Welcome to the second part of my "It's a Long Way to the Top" series: an absolute beginner's guide to optimisation … by an absolute beginner to optimisation. :-)

In the first installment we went through an intuitive exposition of the logic of optimisation. Now it's time to put that in a slightly more formal language. Here is an intuitive explanation of what a function and its derivative are and how to find its maximum. It's not meant to be complete and readers interested are advised to consult a text (you can try here, but it's up to you).

Mathematically one represents Fateful Mountain (from our previous post) like so

y = f(x).

One reads that as "y is a function of x". x is called the independent variable (the set of all xs is called the function's domain); y is the dependent variable (the set of all ys is called its range). In the mountain example, x is the horizontal distance between a given point and an arbitrary origin (0). y is the height relative to the origin.

One can think of a function in other ways. One is as a black box which, for a given input produces one and only one output, like so

Examples of functions:

  1. A multiple-choice quiz. In the sheet you were given, you select what you think are the answers to the questions posed; the teacher evaluates your answers and returns your mark. Your answers are the independent variable (x), your mark is the dependent variable (y). The teacher is the black box, the function (f).
  2. Spreadsheet functions. Open your trusty spreadsheet application. Enter 0.012 in cell A1 and "=sin(A1)" (without the quotation marks) in cell B1. A1 is x; B1 shows y (see below). Try entering any values you like (and exploring other spreadsheet functions).
  3. A vending machine. You introduce coins for the amount required for the product you want and press the key combination corresponding to it (both things are x); the machine gives you what you want (y). The machine is the function.

The examples show many things (you should give them some thought and think examples of your own). Something important is that for one input, if the black box outputs something, one and only one output is produced: if you and Ben gave the same answers to the same questions, then you both must get the same mark, makes sense?

A black box that does not fulfill this requirement is not a function: sin(0.012) expressed with 8 decimals must always be 0.01199971; it cannot at times be 0.01199971 and at other times other values.

There are other requirements. For the kind of optimisation commonly used in economics, inputs and outputs must be numerical (the mountain: x and y are distances; example 2 is also numerical). Often functions need more than one input (example 3).

Functions with non-numerical inputs (examples 1 and 3) are not further considered here.

Dealing now with numerical functions only. Two additional things are required to use the kind of optimisation involved in the Fateful Mountain example:

  1. whatever inputs and outputs measure, they must admit decimals (again, the mountain and example 2). In fact, they generally must be real numbers, often non-negative (unlike example 2).
  2. as already mentioned, functions must be "smooth" (more on this at the end).

One can define a maximum of a numerical function: if the unique output corresponding to x* [i.e. f(x*)] is maximum, then f(x*) >= f(x) for all x different from x*. The inequality becomes strict for a single maximum: f(x*) > f(x).

Just to make sure this all makes sense: only one of the representations below is a function. Which one? What kind of maximum applies to it? Why the two others are not functions? (Hint: think of the quiz example and your and Ben's marks). Imagine again you are a termite. Could you apply the procedure described if you found a vertical wall, like Yellow?

Back to the Fateful Mountain. The table below (another useful conceptualisation) shows the heights and horizontal positions of a series of points over Fateful Mountain (leave the arrows for later):

(It's no coincidence if this reminds you of the explanation usually given to decreasing marginal products in microeconomics textbook).

At this point, you might want to quickly re-read the previous post.

Imagine you are at point A (see table above) and you move over the mountain to B. In effect, you moved upwards and eastwards at the same time. One can, however, think of that single movement as formed by two separate components: one horizontal and one vertical.

The vertical component is:
height of point B [i.e. yB = f(xB)] minus height of point A [i.e. yA = f(xA)]:
f(xB) - f(xA) = 0.0025-0.0009 = 0.0016

The horizontal component is:
horizontal position of B (xB) minus horizontal position of A (xA):
xB - xA =-3 - (-4) = +1
(note well: positive and equal to 1 for all points in the table above).

If you climb up the west face of the mountain, you are always moving eastwards: the distance to successive horizontal positions always increases. The horizontal component is always strictly positive and given how the points are spaced, constant and equal to +1. We call this quantity Delta.

The vertical component, though, varies. It can be strictly positive, strictly negative or nil: it will be positive when you are climbing up the mountain (When will it be negative? What happens when it's nil?)

The quotient of the vertical and horizontal components is the Slope (from the previous post):

        f(x ) – f(x )   f(x ) – f(x )
           B       A       B       A    0.0016
Slope = ------------- = ------------- = ------ 
          x  – x            Delta          1
           A    B

That's what the third column in that table indicates. Arithmetically, the first value in that column (0.0016) is the result (to four decimals) of (vertical component) divided by (horizontal component) or (0.0025-0.0009)/[-3-(-4)].

The vertical component gives the sign of the slope. In the table the sign of the slope changes, yes? Well, what does that mean?

With that one can locate the summit: it's somewhere between 2 and 4. To find the location more precisely one needs intermediate values of x (see why decimals are important?): instead of unit increments (3-2 = 4-3 = 1), smaller increments (say, 0.5, 0.1, 0.01, etc). Let's call Delta those increments:

x  – x  = 1 = Delta => x  = x  + Delta
 B    A                 B    A

The table below does some more calculations, using Delta = 0.1:

The logic is the same and there's no point repeating it. You iterate the same process for ever smaller Delta (a mathematical word for iterative process is algorithm). You are doing what the termite did: once you roughly found the summit, you go back and forth, giving smaller steps, to make sure you are as precise and accurate as possible.

One could perform similar calculations with more decimals. (Given the formula I used to draw that chart, the peak of Fateful Mountain is located 2.653 units east from the origin and its height is 0.385).

Remember all the talk about "smoothness"? This is what it boils down to. When one calculates the Slope using infinitesimally small Delta, the Slope gets a special name: first derivative of f(x), or just derivative, for short. There are different notations for the derivative of a function f, but a convenient one here is f'(x). To find the global maximum of f(x) where f is continuous, has a single maximum and is continuously differentiable over all its domain we just find x* such that f'(x*) = 0. To assume the curve is "smooth" means one can calculate its first derivative over all the set of x.

That's what the figure below shows.

We did that the hard way, by following a numerical solution algorithm. The beauty of this is that if we know the formula operating inside the black box (and it fulfills the requirements), we don't need to use a numerical algorithm. We can actually do that by algebraic manipulation.

Cool, huh?


Fabian Authors on the Tories’ Inability to Understand the NHS

Published by Anonymous (not verified) on Fri, 09/02/2018 - 7:52pm in

I found the following passage in an old Fabian pamphlet from 1989, Does Society Exist? The Case for Socialism, by Brian Barry. It discusses the psychological reasons why the Tories hate the NHS, and why they are so keen to wreck and burden it by introducing market forces and private enterprise. They simply don’t understand how any public institution, which isn’t run as a private enterprise, works. And they despise the NHS because it is, and does. Barry writes

I can best illustrate what is at stake here by showing the two ides at work in analysing a particular institution – the National Health Service, which I take it to be (in its general principles if not its detailed operation) an exemplary socialist institution in that it replaces profit with service as the rationale of its activities.

No doubt that is enough to make the NHS highly distasteful to Mrs Thatcher and her more ideologically-driven colleagues. But it would be too simple to suppose that the only explanation for the Government’s proposed revamping of the NHS is the desire to destroy a stronghold of values alien to those of the market. A complementary explanation is that the denizens of the think-tanks whose advice the Government listens to really cannot imagine that an organisation can possibly work effectively unless incentives are rigged so that decision makers find it in their interest to do whatever they ought to do. They are so besotted by the rational-choice paradigm in this form that they just deduce from first principles what a health service driven by self-interest would be like and put that forward without feeling any necessity for looking in detail at the strengths and weaknesses of the existing system.

This seems to be precisely the case. The Tories and their think-tanks really don’t understand anything that works outside market forces and the profit motive. We’ve seen that in the various pronouncements they’ve made over the years about how public services run as state industries are inefficient, because they’re not run as private firms. And when Thatcher and Major began to reform the NHS along the lines of private industry by introducing the disastrous internal market, they did so arguing that making the NHS more like a private firm would improve performance and make it more efficient.

In fact none of this is remotely true. The internal market was a disaster, and repealed by New Labour. Blair, however, was a true-Blue Thatcherite, and continued Thatcher’s programme of privatising the NHS piecemeal. But the privatisation of public services has only made them more expensive and inefficient. It’s been estimated that we’re paying 10 to 20 per cent more for our electricity now than we would be if the electricity grid had remained in the hands of the state. The railway network is similarly falling apart. We’re paying far more in subsidies now to the private firms that run the railways than we did when it was British Rail. And the service is worse. The ‘I; reported in its business pages that Grayling was under pressure to renationalise the East Coast line, one of the latest of the train companies to fail. The NHS is failing precisely because the market reforms and privatisation of services introduced by Thatcher, Major, Blair, Cameron and Tweezer eat up the funding for it. Private hospitals and healthcare providers spend less of their money on actual healthcare than the NHS, and more on administration. Quite apart from the fact that the Tories are privatising the Health Service anyway to give it to their friends and donors in private industry.

Thatcherism is a complete failure. The only solution is to get the failed market out of the utility industries and renationalise the NHS, the electricity companies and the railways.