Why has the FT got it in for ETFs?

Published by Anonymous (not verified) on Mon, 05/02/2018 - 9:17pm in



Anyone would think that the FT is running a co-ordinated campaign against ETFs (Exchange Traded Funds) this morning, based on this part of a mail they have sent:

I too have major reservations about ETFs, their stock lending, the ethics of this behaviour, their corporate governnance in general and their impact on markets, where they can become a bastion of inaction permitting perpetuation of management driven market abuse at cost to society at large.

I suspect though that the FT is really just worried that passive investors don't buy the FT. Or is that too cynical of me?

The feral economy

Published by Anonymous (not verified) on Mon, 05/02/2018 - 6:06pm in



I, by chance, revisited a piece I wrote wrote in 2011 over the weekend. It started on this blog and was republished by the Guardian. This is in extract::

As I'm explaining in my forthcoming book – The Courageous State – there is a two-part economy in this world. There's the real one – the one where you and I live and meet our needs, make and sell things (if only words on screens) and which is the measure of real well-being.

Then there's the other one – the feral one, if you like (feral as in wild and out of control) – existing way beyond the limits of the real economy and only loosely related to it, made up of the enormous financial balances denominated in cash of various sorts, existing only as entries in computer ledgers. Some of these cash balances are backed up by supposed assets, which are at best legal claims on property which may or may not realise real worth, such as shares (whose value usually have almost no direct bearing to the companies that lend them their names), property (which has been priced as a consequence beyond the reach of the real economy) and more obscure derivative products, which few understand and which even fewer trade in ever larger amounts.

This feral economy represents the wealth quite deliberately extracted from the real economy by those who have exploited it over the last thirty years of neoliberal domination by ensuring that the share of real wages in GDP has fallen from about 58% in 1980 to about 53% now (see diagram 1 here for detail) – with the cash they have extracted being stashed as unproductive wealth (often offshore). That unproductive wealth, whether held as cash or placed in assets that have near liquidity such as shares, property, derivatives, hedge fund and other portfolios, has had enormous consequences. There are many; let me just note two.

The first is that the refusal of the owners of this wealth to engage it constructively in the economy has been a contributory factor to underinvestment, stagnant real wages, and the rise in what has effectively been enforced borrowing by far too many households struggling to make ends meet – who have become increasingly indebted to the agents of the feral elite in the process (see diagram 3, here), reinforcing the whole vicious cycle as a consequence and withdrawing yet more and more funds from the real economy and into the free-floating world of feral finance. The relationship of feral finance with the real economy has, therefore, been wholly negative here.

Second, the use of those feral financial balances to undermine currencies in pursuit of short-term gain and maximum income returns has brought the whole edifice to the point of breaking. Breaking the real economy does nothing to the feral economy – downsides can be traded as much as upsides in the feral world of finance: gain is to be had in this world whatever happens in the real one. But the relationship of the feral economy with the real economy is again wholly destructive: those feral deals – done beyond regulation, assisted by the world of secrecy that tax havens provide, are bringing destitution, unemployment, real failure and fear to real lives.

I revisited the piece because I now think that this duality within the macro economy, where there is a ‘real’ economy meeting actual need and a ‘feral’ economy that seeks to extract unearned reward from that process, is exactly matched in multinational corporations.

In those companies there is, of course, an element of ‘real’ economic activity. Carillion, for example, really did build things. But the truth is that laid over this operational reality that may be profit driven, there is a second, almost contiguous, operation that seeks to extract reward from it by gaming contracts, finance, tax and accounting to secure unearned rewards largely paid out to a select few within the company who partake in these rent seeking activities.

It is as if the modern corporation has a split identity. There is a part that is seen on the High Street, or wherever it meets real need, and another part that acts like a parasite sucking the life blood of that real activity by transforming its surpluses into rent for a few.

What Carillion (and others) show is that this parasitical operation can function for a while. And then it kills the host.

That process of death by rent extraction does not happen overnight, but I suspect the outcome is inevitable. If so, no wonder the current form of captilism - which I rightly called ‘feral’ - is dying.

The type of deficit matters

Published by Anonymous (not verified) on Sun, 04/02/2018 - 9:12pm in



I wrote a post on the likelihood of a Trump induced recession on Friday and then disappeared for the day into a series of long meetings and discussions on research work from which I did not really emerge until early evening. In the meantime more than twenty comments had arrived suggesting that the conventional narrative of failure that I had portrayed were just wrong in an MMT environment.

There are a number of lessons for me in this. One is not to blog in haste. The other is to remember that I have elders on this blog, not all of whom will immediately follow my train of thought. Let me explain, before developing the real issue of consequence.

I actually based two posts on one FT article on Friday morning whilst rushing to work. One was pure MMT (modern monetary theory). The other  (to which I am referring) was not. It was meant to explain why the Trump deficit can deliver a crisis because of conventional thinking on deficits, employment, interest rates, inflation and much else. I got the tone of that one wrong. I worked through the logical consequences of this forecast and the likely reactions to it for my own purposes without spelling out the caveats and explaining my purpose adequately. I sometimes forget that their is greater purpose to this blog than me working out ‘what next?’ for my own benefit. That was a mistake: please accept my apologies.

But some of the comments that were made on that piece were interesting and I want to take issue with them. I am not addressing those on whether the US has full employment or not: just as in the UK, I accept that official data does in no way reflect the true state of capacity in the US labour market. Instead I am concerned about those who suggested I should be indifferent to deficits because MMT says they do not matter. That, in my view, is a seriously incorrect view of the world. In fact, it’s dangerous and lazy thinking. In my opinion it’s the type of deficit that matters.

This is an extension of my thinking on tax. There I have suggested that there are six reasons to tax:

1. Reclaiming the money the government has spent into the economy.

2. Ratifying the value of money.

3. Reorganising the economy.

4. Redistribution of income and wealth.

5. Repricing goods and services.

6. Raising representation in a democracy.

The essence of this argument - which is explored in The Joy of Tax - is that given that tax exists to cancel and simultaneously give value to government money created through public spending (purposes 1 and 2) then it is vital that it becomes an extension of government social and economic policy (purposes 3 to 6) in the process of doing so.

Let's be clear that MMT can suggest that purposes 1 and 2 are enough. At a pure economic level that might be true. But in my opinion what matters is political economy, not just economic theory. As a result one of my issues with MMT has always been that it has generally said 'we need tax to cancel money creation' but has not emphasised sufficiently the fact that there are better and worse taxes that might achieve that goal.

Regressive taxes do not achieve the goals I set for tax.

Nor are ones that promote useless or harmful social activity.

And which fail to correct market failure.

Or which undermine the relationship between individuals and the state.

And I would explicitly extend this logic to the matter of deficits. Deficits created by austerity - or the failure to spend when doing so would generate a fiscal multiplier effect - are not good.

Nor are deficits created by tax cuts the redistribute wealth to the already wealthy beneficial.

And, come to that, nor are deficits created by military spending intended to destabilise the world.

These are what Trump is planning to deliver, in the main. These concerns cannot be dismissed because he says he might do a bit of infrastructure spending as well, some of which is a Mexican wall. To pretend that any such spend makes the rest of his plans acceptable is to suspend political judgement and I do not think that has any part in modern monetary theory. Otherwise we're back to the logic that digging holes and filling them in again is useful economic activity and worth doing. It isn't.

MMT does, I very firmly believe, require that we continue to exercise sound political judgements. There are good and bad reasons for running deficits. To accept all deficits as being worthwhile when the economy needs a stimulus is simply wrong. The Trump deficit will meet almost no social criteria for usefulness. Indeed, the fact that the stimulus will be saved and so there will be a deficit is in itself some proof of that because it shows that the gains will go to those who have no reason for their wealth to be increased.

Might a make a gentle plea to those who think all deficits might be good to think again? That's simply not true. The world is much more complicated than that.

Fabian Pamphlet From the 1980s: What Women Want are Left-Wing Policies

For a very brief period in the 1980s I was a member of the Fabian Society. The other day I managed to dig out of my collection of old Fabian pamphlets one by Patricia Hewitt and Deborah Mattinson, entitled Women’s Votes: the Key to Winning, published in 1989.

I haven’t read it yet, but the first page, in the introduction, astonished me by completely challenging the received wisdom about women’s voting preferences. As Hewitt and Mattinson point out, women have been considered far more Conservative politically than men. But at the last general election (1987), they supported the Labour party and left-wing policies just as much as men. The Introduction runs

The Labour Party needs women’s votes in order to win the next election. The evidence suggests that these votes can be won but the Party must persuade women that it will not only stand by it values but also carry out its policies when in government.

Until quite recently, it was accepted political wisdom tht women were more conservative than men. Within the labour movement, women voters were widely blamed for electing Mrs Thatcher and it was believed that a future Labour victory would depend more on men than on women.

Before the 1987 general election, the Conservatives generally did better amongst women than amongst men. The reverse was true for Labour. There was a ‘gender gap’, and it worked in the Tories’ favour.

That has now changed. In 1987 Labour closed the gender gap for the first time. There is good evidence for believing that, in future, Labour will do better amongst women voters than amongst men.

We start by looking at the 1987 and 1983 voting patterns to analyse Labour’s relative strength amongst women and men, and amongst different groups of women. We then look in more detail at women’s and men’s values and attitudes, drawing on recent opinion polling and qualitative research, including a series of small discussion groups undertaken especially for the Fabian Society and reported in this pamphlet.

Next we examine attitudes to issues and suggest the policy areas on which Labour should concentrate, before turning to proposals for how Labour can become more representative of women. Finally, we briefly consider unplublished and published material from Australia and the USA, where the Australian Labor Party and the American Democrats are reaching similar conclusions to our own.

The evidence strongly suggests that women voters are more likely to share and respond to Labour’s values than men. They are more likely to vote for an ‘enabling’ state which intervenes to protect the environment, regulate business and industry, redistribute income and wealth, provide a high level of social and welfare services, and promote greater equality between women and men. Increasingly, women are Labour’s natural constituency. (Emphasis mine.)

This bears out the ideology behind much of the right-wing, Conservative, and Libertarian misogyny in the US. The Libertarians, right-wing Republicans like Anne Coulter, and the Fascists in the Alt-Right, would like to deprive women of the vote partly because they see them as more left-wing than men, and more willing to expand the power of the state. Which challenges their notion of freedom under classical liberal economics, in which the ideal state is that of the mid-19th century.

It also shows why millions of women did not vote for Killary. For all Clinton’s promotion of herself as a feminist representing women, she signally did not. She was a bog-standard, corporatist politician and foreign policy hawk. Her gender made absolutely no difference whatsoever to the policies she promoted and espoused. She was far too right-wing for many American women, who voted with their feet. And they did so not because they were told to by their husbands and boyfriends, as Killary later claimed, or because of misogyny by nonexistent ‘Bernie Bros’.

The same goes for the female Blairites in the Labour party. They’re simply a continuation of Blair’s pro-corporate, neoliberal programme, which was basically just reheated Thatcherism with sickly grin. The comments by some of these female faux ‘moderates’ that they will be even harder on the unemployed than the Tories is not going to impress ordinary working women, already doing the worst paid jobs and, like working men, suffering from precarious unemployment conditions.

And this shows how desperate and threadbare the corporate, mainstream media has been in pushing the narrative that the Labour party under Corbyn, and Bernie Sanders’ supporters in the Democrats in America, are misogynists. Because they aren’t, and the neoliberal entryists know it. Hence too the portrayal by some of these corporatist women to draw a difference between themselves, representing the glorious middle-class, pro-woman future, and male-dominated, working class Old Labour.

The truth is, women seem to be more left-wing than corporatist, neoliberal shills like Hillary Clinton, Angela Eagle and the rest of the post-Blair faction in the Labour party. And its frightening them, and the rest of the Right-wing establishment. And so we’re left with stupid lies about misogyny and intimidation from them and the corporate media.

The BBC’s Magic Money Tree

Published by Anonymous (not verified) on Sun, 04/02/2018 - 2:21am in



I mentioned that there was to be a BBC Radio 4 programme with the  title ‘Shaking the Magic Money Tree’ about a week ago. I have finally caught up enough with my week to listen to the programme, made by journalist Michael Robinson with whom I have made television and radio programmes over the years.

The programme is disappointing in not explaining how money is made out of thin air: that is a big weakness. But, much of it is good and it’s certainly worth the 28 minutes listening time.

Available here.

And there is a write up, here.

Why local authorities can go bust and the UK’s central government never can

Published by Anonymous (not verified) on Sat, 03/02/2018 - 10:24pm in



As I have noted this morning, Northamptonshire county council has effectively declared itself on the brink of bankruptcy. This raises an important issues. Councils can go bust. A national government with its own currency and central bank cannot. This requires brief explanation.

The essence is simple. Central governments with their own currencies and central banks do not have to tax to spend. I explained this fact in detail recently here, so I will not repeat it. Suffice to say that it is a fact that all central government  spending in this situation is new money created for the government by the central bank and tax cancels the money that is created as a consequence to prevent excessive inflation. For central government in this scenario spend always precedes tax. Indeed it has to: unless the government had spent the money that it requires be used to pay the tax owing into existence in the first place then it follows that no tax could be paid.

The exact opposite is true for local authorities.  They cannot create money. That is forbidden in law. So they can only spend what they can collect and what is allocated to them by central government. For them money receipt has to precede payment. The result is that if there is demand in excess of their capacity to collect funds or grant funding and they have no borrowing capacity they can go bust, which is exactly the risk is Northamptonshire. In essence, local councils do behave like households and businesses because they cannot create their own money.

Central government on the other hand works in the exact opposite way.

What must not be thought is that because Northamptonshire can go bust it is possible that central government might. That is completely untrue, but right now that will have to be said loud and often because the austerity brigade will milk this situation for all it is worth.

It’s not just Northamptonshire that’s bust: the whole of public service supply has been bankrupted

Published by Anonymous (not verified) on Sat, 03/02/2018 - 7:24pm in



The Guardian has reported:

A Conservative-run county council has signalled it is close to effective bankruptcy after admitting that “severe financial challenges” mean it is unable to meet its financial obligations in the current year.

I forecast  that local authorities might face this situation not long ago, but remain surprised that the government has let it happen in a shire county with so little time to elapse before deeply sensitive council elections. Whilst I am not pretending to know all the details of this case, the fact is that if a council can do this (and it is the first for twenty years, apparently, to do so) then what it suggests are three things.

The first, very obvious, fact is that the squeeze from austerity is not only bringing down the companies delivering public services; it’s bringing down the public sector suppliers of public services as well. I think it very likely that the issues are related: pressure on cost reduction has reached the point where there is nothing left to give in either case and the system just breaks. Of course there are detail differences but the similarities are apparent: you cannot do something for next to nothing forever and get away with it. The austerity model is simply out of road.

Second, the perennial Westminster politician excuse that the problem is in everyone else’s inefficiency  is also life expired. The excuse always has the same tone, suggesting that ‘if only local authorities / schools / the NHS / the police / unions / etc, got their act together then the problems in service supply could be solved and the government’s best intentions would be fulfilled’. But that’s also not seen to be true now. No amount of supply side reform will ever overcome the fact that real people have to live and work in systems sufficiently flexible to cope with the unpredictable (which requires that there be margins for error that have now usually long since disappeared) and still have enough to take home as pay at the end of the day to repeat that trick in their domestic lives.

Third, this says local democracy has been allowed to whither to the point that it simply is no longer credible. Northamptonshire has no choices left. People will suffer as a result. And such is the structure of local authority financing that central government will now no doubt impose that hardship as a deliberate penal regime  to punish the profligacy of the council and those Tory shire voters who had the temerity to elect it. This though is wholly unjust. Councils have little control over their revenues, have been made more vulnerable in many cases on that issue by the removal of central funding and have been subject to increasing statutory demands that have removed choice in what must be supplied. The results are Haringey’s appalling housing schemes and the imposition of hardship in Northamptonshire whilst choice is denied as a result  of central government imposition.

So what have we got? An unholy mess created by the deliberate choice of George Osborne and perpetuated by his willing and foolish Tory colleagues in parliament, with the LibDems also taking  some blame.

And what do the electors of Northamptonshire do now? That’s the hard one to answer. Will they realise it’s time for change? Let’s see.

Taking a Stroll Down Memory Lane.

Published by Anonymous (not verified) on Sat, 03/02/2018 - 6:45am in


Economics, history

It doesn’t take a sharp observer to realise things of late are going pear-shaped for capitalism, one needs only to follow the news: globalisation gone mad, financialisation, private debt growth, housing bubble burst, GFC, bailouts, repos, recession, unemployment, inequality in all shapes and colours, wage stagnation, the bloody aftermath to the Arab Spring, terrorism, rise of the surveillance state and the far right, Europe, US, South America. And that’s without mentioning climate change, ocean acidification, mass extinction, the risk of global pandemics, and now the growing likelihood of Cold War 2 or even a nuclear war.

Don’t believe me? Even as I wrote this, our reptilian plutocratic overlords were performing their ultimately inconsequential but newsworthy Davos annual hand-wringing ceremonies.


Things didn’t seem so bad twenty years ago, yes?

1999 Seattle WTO protests [A]
Well, yes and no.

Yes: Those were the days of the late Clinton Administration and early Tony Blair. In Oz we were transitioning from Bob Hawke/Paul Keating (Labor) to John Howard (Coalition). History had just ended, Francis Fukuyama had said a little earlier. It was a happy ending, too (Fukuyama never said anything about masseuses, btw).

No: Contra Fukuyama, the seeds of today’s troubles had been sown and some had noticed. A concrete example: 1999 Seattle WTO protests. Things weren’t all hunky-dory, matey.

But that was just the rabble, right?

Well, no. Not really.

To their credit, even some among the least likely were having second thoughts: for example, Paul Krugman, Joseph E. Stiglitz and Dani Rodrik (here’s Mark Thoma’s very comprehensive report on the Rodrik vs pretty much everybody else debate on globalisation; read with particular attention the Rodrik-Mankiw exchange, keeping Marx in mind).

The anti-neoclassic economics protest movement among economics students also dates from those seemingly long-ago days (Do you remember when Deirdre McCloskey (PDF) was playing the Princess Leia to the rebels, sorry, students? Well, since then she turned to the Dark Side).


Image Credits:
[A] "WTO protests in Seattle, November 30, 1999 Pepper spray is applied to the crowd". Nov. 30, 1999. Author: Steve Kaiser from Seattle, US. Source: Wikimedia. File licensed under the Creative Commons Attribution-Share Alike 2.0 Generic license. My usage of the file does not indicate its author endorsement of me or said usage. 

Growth is Good?

Published by Anonymous (not verified) on Sat, 03/02/2018 - 4:41am in



Whenever the topic of economic growth is broached, there is a common and understandable reaction along the lines that growth is ecologically unsustainable or socially harmful. Since one of the preoccupations of this blog is demand-led growth, it is perhaps worth pausing to reflect on the appropriateness of the topic. This can be broken down into two parts. Why consider growth as such? And why emphasize the possibility that growth is demand led?

Growth as Such

Economic growth entails an ongoing expansion of output. Output, when defined in terms of National Accounting conventions, is a monetary measure. This is true whether the figure for Gross Domestic Product (or related measures) is reported in nominal terms (at market prices) or in so-called ‘real’ (meaning constant-price) terms. Growth of output, when output is defined in this way, can occur with or without environmental risk and social harm. In this sense, growth is neither inherently good nor bad.

Clearly, the desirability and sustainability of growth depends on the nature of that growth. In principle, if our measure of output is sufficiently broad, an economy geared toward learning (through education, research and development, science and technology, the arts and humanities), restoration and regeneration of the natural environment, provision of first-rate health and care services, construction of quality infrastructure, development of socially harmonious institutions and processes, as well as the fostering of creativity and play, can grow just as well as an economy geared toward military adventurism, plunder of natural resources and the proliferation of social and psychological maladies. When an economy produces more knowledge, for example, with the same expenditure on education, science and research, that should really be counted as an addition to ‘real’ output, appropriately conceived, though of course difficulties can arise in evaluation and measurement.

A key implication of Modern Monetary Theory is the capacity we have, if served by a suitably empowered and accountable currency-issuing government, to select sustainable activities and development paths.

Even so, the question might still be asked, why the need or desire to grow? Why not just satisfy ourselves with a stationary economy, or perhaps even shrink things a little?

Well, strictly speaking, nothing in a consideration of economic growth necessarily requires that we prioritize high or even positive rates of growth. Especially if we are thinking in terms of a future society with a job guarantee, full employment could be maintained with or without positive rates of growth. We can attempt to understand characteristics of an economy’s growth behavior, whether that growth is quantitatively positive or negative. But, having said that, it seems likely that most people will consider growth to be a positive, provided it is the right kind of growth. Ultimately, growth can and should be about the sustainable development of humans and other species in the fullest sense. Such growth might become less and less about the production of widgets and more and more about the attainment of knowledge, peace and understanding, social cohesion, an expanded scope for individual expression and creativity, and so on.

Demand-Led Growth

A motive for considering the possibility that growth is demand led is the implication that this would carry for macroeconomics in general. The central idea of demand-led growth lends credence to a key assumption underlying the Kaleckian or Keynesian view of output determination. In this view, a change in demand is assumed to induce variations in the level of production (real output) more or less independently of changes in (some index of) the price level. A critical assumption underlying this position is that there is spare capacity and spare reserves of labor-power and other resources making it possible for output to adjust to demand in the suggested way.

Demand-led growth theory makes sense of the idea that spare capacity is not merely a short-run assumption but one that is normally valid over any time frame. Arguably, it is even more applicable to the long run than to the short run. The reason – as demand-led growth theory highlights – is that output can respond to demand not only through a fuller utilization of existing capacity but, via investment, an expansion of capacity itself. Modern economies are almost always operating far below the physical maximum capacity. Average utilization rates of somewhere between 80 to 85 percent seem to be typical. In the US, for instance, the rate of utilization has fluctuated between about 67 and 90 percent since records began to be published in 1967.

How is this possible?

It is possible because long before full capacity is reached, firms will find themselves operating beyond the rates of utilization that they consider ‘normal’ – meaning beyond the utilization rates that they consider appropriate to the levels of demand that they expect to face on average – and this entices them to undertake further capacity-expanding investment.

Why do firms want to operate below full capacity?

They want to do this mostly because of uncertainty over what levels of demand they, in fact, will confront at any given time. Planned margins of spare capacity give them leeway, enabling them to respond to fluctuations in demand with variations in output rather than risk losing customers to rivals. In short, spare capacity gives flexibility.

It is not critical to this view of demand-led growth that prices be assumed constant. It is only necessary that real output respond to demand in the suggested way. In the short run, a strengthening of demand may well give rise to temporary price effects in those sectors that are operating nearer to full capacity than others. These price pressures may persist until new capacity has been installed, whether by new firms or through existing firms expanding their operations. As long as, in aggregate, the level of production responds to demand in the supposed way, there is no difficulty for demand-led growth theory, since its focus is on the behavior of real output. At the same time, the possibility of temporary price effects actually makes a working assumption of independence between the price level and output more plausible in the long run than in the short run, because the longer time frame allows for investment to have its full effects on capacity.

Surplus reserves of labor-power are also a normal feature of the system. Partly this is because expansion of capacity is achieved not only through an extension of scale at given technical efficiency but through technical progress that enables the same level of output to be produced with less labor. In addition, it is partly because capitalists can and do exploit previously untapped sources of labor-power located in non-capitalist spheres of the global economy (whether these individuals reside in so-called developed or developing economies). There is also a tendency for the size of the labor force to expand in periods of strong demand due to individual labor-supply decisions. Some individuals who become discouraged in their job search during periods of stagnation re-enter the labor force when prospects improve. As with plant and equipment, which will typically be utilized at different rates in different sectors on the basis of unbalanced growth, the supply of some types of labor-power can dry up before other types. Here, too, there can be price effects in affected sectors. As with spare capacity, the assumption of excess labor-power is actually more plausible rather than less over longer time frames. In the long run, there is time to train up new workers or innovate to reduce the need for certain types of labor-power.

The most pressing constraint is the environmental one. As already stressed, remaining inside the limits set by natural resources requires being cognizant of the type of growth and kinds of activities we prioritize. Here, currency-issuing governments have the capacity to encourage or undertake the right kinds of activity and discourage or proscribe ecologically harmful production.


Modern economics — confusing models with reality

Published by Anonymous (not verified) on Sat, 03/02/2018 - 2:51am in



What does concern me about my discipline … is that its current core — by which I mainly mean the so-called dynamic stochastic general equilibrium approach — has become so mesmerized with its own internal logic that it has begun to confuse the precision it has achieved about its own world with the precision that […]