Unemployment

Ten proposals from the 2018 Alternative Federal Budget

I’ve written a blog post about this year’s Alternative Federal Budget (AFB).

Points raised in the blog post include the following:

-This year’s AFB would create 470,000 (full-time equivalent) jobs in its first year alone. By year 2 of the plan, 600,000 new (full-time equivalent) jobs will exist.

-This year’s AFB will also bring in universal pharmacare, address involuntary part-time employment among women, eliminate tuition fees for all post-secondary students in Canada, speed up implementation of the federal carbon tax, and increase the corporate tax rate from 15% to 21%.

-I’m particularly intrigued by the AFB’s poverty reduction measures, which include a sizeable top-up to the GST rebate, a $4 billion annual transfer to the provinces and territories, increases to seniors’ benefits, and $3.5B in new spending for housing.

The full blog post can be found here.

Ten proposals from the 2018 Alternative Federal Budget

I’ve written a blog post about this year’s Alternative Federal Budget (AFB).

Points raised in the blog post include the following:

-This year’s AFB would create 470,000 (full-time equivalent) jobs in its first year alone. By year 2 of the plan, 600,000 new (full-time equivalent) jobs will exist.

-This year’s AFB will also bring in universal pharmacare, address involuntary part-time employment among women, eliminate tuition fees for all post-secondary students in Canada, speed up implementation of the federal carbon tax, and increase the corporate tax rate from 15% to 21%.

-I’m particularly intrigued by the AFB’s poverty reduction measures, which include a sizeable top-up to the GST rebate, a $4 billion annual transfer to the provinces and territories, increases to seniors’ benefits, and $3.5B in new spending for housing.

The full blog post can be found here.

Understanding Macro: The Great Depression (1/3)

Published by Anonymous (not verified) on Thu, 22/02/2018 - 8:35pm in

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Unemployment

Preliminary Remarks: “The trouble is not so much that macroeconomists say things that are inconsistent with the facts. The real trouble is that other economists do not care that the macroeconomists do not care about the facts. An indifferent tolerance of obvious error is even more corrosive to science than committed advocacy of error.” From The Trouble with Macroeconomics (Paul Romer)

I do not understand why indifference to error is worse than committed advocacy. Tor an illustration of committed advocacy of error, see postscript below on 70 years of economists’ committment to a fallacious theory. Furthermore, the problem is not confined to macro. Microeconomists are also dogmatically committed to utility maximization, when in fact this hypothesis about consumer behavior is solidly rejected by empirical evidence; see: The Empirical Evidence Against Neoclassical Utility Maximization: A Survey of the Literature

Understanding Macro: The Great Depression

Published in The Express Tribune, February 21st, 2018.

Due to frequent headlines, there is a substantial public awareness of core macroeconomic issues like unemployment, trade agreements, exchange rates, deficit, taxes, interest rates, etc. However, even professionals are often ignorant of the intellectual battles which have shaped modern macroeconomics, since this is not taught in typical PhD programmes in economics. This article attempts to provide the history of ideas which led to the emergence of macroeconomics, since this is an essential background required for informed analysis of these issues.

Lord John Maynard Keynes invented the entire field of macroeconomics in response to the Great Depression in 1929, which could not be understood according to economic theories dominant until then. According to the classical economic theory, forces of supply and demand in the labour market would ensure full employment. Keynes starts his magnum opus, The General Theory of Employment, Interest, and Money, with the observation that the economic theory cannot explain the long, persistent and deep unemployment that was observed following the Great Depression. Keynes set himself the goal of creating a theory which could explain wide fluctuations in levels of employment that he observed. He discovered that creating such a theory involved rejecting deeply held convictions, central to economic theory.

The first of these new ideas is the failure of supply and demand theory in the labour market. According to conventional economics, unemployment represents an excess supply of labour. When there is excess supply, the price of labour, or the wage, will go down. This will encourage firms to hire more labour and also discourage people from working, increasing demand and decreasing supply, until the two are equalised at equilibrium. The Great Depression made it obvious that this theory did not work. Keynesian economics was created to explain this failure of supply and demand. Unlike conventional economists, who address such problems by doing mental gymnastics using mathematical models, Keynes looked at the economic conditions in the real world around him to find the answers to this puzzle. He observed that there was a huge strike by coal miners in England against a proposal to cut their wages. But there were no strikes against high inflation, which also reduces the real wages of the workers. Economic theory says that the two — decline in nominal wage, or an increase in prices of consumer goods — will have exactly the same effect on the labour supply. Keynes was able to see, unlike economists who hold their theories to be sacred, that his economic theory must be wrong. The supply of labour does not respond to real wages, but only to nominal wages in the short run.

After pondering as to why this might be the case, Keynes realised that it was because the real wage was determined by factors outside the control of firms and workers, due to the complex structure of the economy. Even if both firms and workers agreed to reduce nominal wages, this could lead to a decline in prices such that the real wage would not go down, preventing the mechanism which brings supply and demand into equilibrium from operating. This realisation led Keynes to two other major insights. If firms and workers negotiate in terms of money wages, rather than real wages, then the amount of money in the economy is extremely important. This contradicts the famous Quantity Theory of Money, according to which the amount of money is just a veil, which has no bearing on the real economy. Furthermore, Keynes argued the firms’ decisions about investment, and hire of workers, depended crucially on their expectations about the future. These expectations were not anchored by any real factors and could fluctuate greatly in response to many different types of stimuli. In particular, he argued that investments were governed more by the type of gambling involved in day-trading, and less by reasoned calculation of long-term yields. This suggests that wise long-term future investments require government interventions, contrary to free-market dogma.ns created by classical economic theories, he could not succeed in making his fellow economists see the light. He complained that “professional economists… were… unmoved by the lack of correspondence between the results of their theory and the facts of observation.” Hicks and Samuelson cobbled together an uneasy compromise between classical theories and Keynesian ideas, which became known as Keynesian economics, even though it rejected nearly all of the central insights of Keynes. It was in response to this massive misinterpretation that Keynes said that “I am not a Keynesian.” Only one Keynesian insight survived the Hicks-Samuelson misunderstanding of Keynes: the government must take active steps to eliminate unemployment, since the forces of supply and demand will not do so. But even this little piece of Keynesian theory was enough to change the world dramatically.

Keynesian macroeconomics uses two tools to eliminate unemployment. Fiscal policy involves the government directly investing in public works to create employment, while monetary policy involves printing more money to stimulate creation of demand by the private sector. Keynesian policies advocate deficit spending and expansionary monetary policy. This runs counter to widely accepted and commonly held beliefs that governments should practise ‘austerity’ in recessions. Strangely enough, this ideological battle continues today, where the IMF continues to recommend austerity to the poor countries, while the rich countries combat recessions with expansionary Keynesian policies. These theoretical conflicts cannot be understood until we dig beneath surface appearances and ask which social groups benefit from which type of policy.

It should be immediately obvious that active government involvement in creating full employment helps the bottom 90%. It is slightly less obvious that monetary expansion, which may create inflation, is also helpful to the poorer segment of society. This is because the poor are generally borrowers of money, so the value of their debt in real terms becomes reduced. Similarly, easy money makes it easier for them to borrow. At the same time, Keynesian policies hurt the top 1%. This is because government guarantees of full employment makes the position of labour strong vis-à-vis the corporations, increasing the share of profits going to labour, and reducing business profits. Also, the wealthy make money by lending, so easy money lowers their profits from extending loans. It is this underlying power struggle, the eternal battle between the rich and powerful against the poor masses, which is hidden beneath the surface of the mathematical complexities of modern macroeconomics.

(To be continued) 

POSTSCRIPT: Amazingly, exactly the same conflicts that Keynes encountered between the economic theory and reality continue today, with economists stubbornly sticking to theories solidly refuted by facts. One of the leading textbooks in Labor Economics by George Borjas presents exactly the same model of supply and demand equilibrium, thoroughly refuted by empirical evidence. He makes no mention of the fact that Keynesian theory rejects the idea that supply and demand lead to equilibrium in the labor market; there are no references to Keynes in the entire book, justifying the Keynes quote that economists are unmoved by the lack of correspondence between their theories and the facts. Borjas does mention, with obvious reluctance, the strong evidence against S&D in labor market presented by Card & Krueger in Myth and Measurement. Then he goes on to the following, amazing, dismissal of facts in favor of theory:

We do not yet fully understand why the recent evidence differs so sharply … , and why the implications of our simple-and sensible supply and demand framework seem to be so soundly rejected by the data. One plausible reason is that  … (large number of implausible waffles, which have been rejected by Card & Krueger in later articles defending themselves from these critiques). (p 143, 3rd Edition)

Borjas follows standard axiomatic economic methodology, in which there is no room for the possiblity that observation of facts to the contrary may lead to revision of theory. As Keynes observed: “The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight as the only remedy for the unfortunate collisions which are occurring.”

For more on this topic, see my lecture L08 of Advanced Micro II on”70 Years of Economists’ Failure to Understand the Labor Market.” This webpage provides slides, summary, and transcript of the lecture. A 90m YouTube Video-Recording of the lecture is also linked below:

 

Dick Coughlan on the Rise and Fall of Katie Hopkins

Published by Anonymous (not verified) on Thu, 22/02/2018 - 6:30am in

This is a long piece posted on YouTube from Dick Coughlan’s ‘Left-Wing Propaganda’ podcast, where the comedian and vlogger against racism, sexism and anti-gay prejudice comments on Katie Hopkin’s final departure from mainstream British media.

Hopkins was the loser on British version of The Apprentice, who then went on to make a career out of being a right-wing, racist, corporate loudmouth. This is the woman who said she wanted helicopter gunships to shoot down the immigrants crossing the Med in boats, and who sneered at the father of the little boy, whose body was washed ashore in Turkey after one of them went down. She’s a prize, nasty piece of work. But one no longer welcome in British media. She lost her job with the Daily Mail the other day, and has now gone off to join Rebel Media. They’re another far right outfit with a nice line in racist, anti-immigrant politics. They’re Canadian, and if she moves to that country, it’ll be highly ironic, as she’ll be an immigrant. And way back in the 19th or early 20th century, the descendants of the original European settlers in Canada were campaigning against the influx of large numbers of new immigrants from Britain. But all this will be forgotten, as the new breed of extreme nationalists in Europe and America simply hate non-Whites.

Coughlan goes through the various newspapers and organisations that I have picked her up and then sacked her, or released her, because her views were just too toxic even for them. The Heil is simply the latest. She’s also been given the heave-ho by LBC and the Scum amongst others. He also talks about some of the monstrous comments she’s made, and her foot-in-mouth appearance on Philip Schofield’s show on ITV. This was in a piece about children’s names. Hopkins stated that she wouldn’t want her child going to school with children named after places, because it gave the messages that the parents were low-class and uneducated. Or words to that effect. Schofield then pointed out that she’d called her daughter India. To which Hopkins replied that ‘India is not a place.’ Really? That must surprised the nearly 1 1/4 billion people, who live there, as well as all the people of Indian descent over here!

As for being sacked from the Scum and the Heil, how right-wing do you have to be? The Heil is the newspaper, which ran the headline ‘Hurrah for the Blackshirts’ praising Mosley and the BUF to the skies, when they were goose-stepping around in the 1930s, and in whose pages the father of the current editor, Paul Dacre, ranted about how wonderful Adolf Hitler was. The Mail has been consistently anti-immigrant, with a vicious hatred of the unemployed, the poor and disabled people on benefit, as well as unmarried mothers and anybody else they think is a threat to Tory values.

As for the Scum, that paper’s notorious for its racism. Always has been. Way back in the first years of this century, Private Eye published a piece stating that the Scum had been judged guilty of racism on 19 occasions by the Press Complaints Commission, as was. It comes to something indeed when Hopkins is far too toxic even for them.

Anyway, she out of British media. At least for the time being.

Panel discussion at federal NDP policy convention

Yesterday I spoke on a panel discussion on economic inequality, along with Andrew Jackson and Armine Yalnizyan. We were guests at the federal NDP’s policy convention in Ottawa. The panel was moderated by Guy Caron.

Topics covered included the minimum wage, basic income, affordable housing, the future of jobs, gender budgeting, poverty among seniors, Canadian fiscal policy in historical perspective, and Canadian fiscal policy in comparison with other OECD countries.

The discussion was 30 minutes long. You can watch it here.

Panel discussion at federal NDP policy convention

Yesterday I spoke on a panel discussion on economic inequality, along with Andrew Jackson and Armine Yalnizyan. We were guests at the federal NDP’s policy convention in Ottawa. The panel was moderated by Guy Caron.

Topics covered included the minimum wage, basic income, affordable housing, the future of jobs, gender budgeting, poverty among seniors, Canadian fiscal policy in historical perspective, and Canadian fiscal policy in comparison with other OECD countries.

The discussion was 30 minutes long. You can watch it here.

John Wycliff’s Arguments for Pacifism

Published by Anonymous (not verified) on Sun, 18/02/2018 - 8:25pm in

Last Sunday I put up a piece about the Lollard sermon, The Perversion of the Works of Mercy. The Lollards were the late fourteenth-early fifteenth century followers of the English theologian and reformer, John Wycliffe. Wycliffe was a kind of proto-Protestant, who denounced the corruption of the church, rejected the papacy and maintained that the Bible should be the sole authority for Christian doctrine. The Perversion of the Works of Mercy attacks the way people have turned away from performing their Christian obligations to feed, clothe, give drink to the poor, visit and care for the sick and prisoners, and instead do this all for the rich and powerful. It’s a powerful message for today, when the Tories’ official policy is to increase the tax burden of the poor, in order to give massive tax cuts to the rich. The Tories are also cutting benefits to the poor, unemployed, sick and disabled as part of this programme of making the rich even richer, while at the same time claiming that the destruction of the welfare state is all for the benefit of the poor themselves. It’s saving them from ‘welfare dependency’, and is encouraging them, in the notorious words of Norman Tebbit, to get on their bikes and look for work. It’s all part of the Tory and Thatcherite embrace of the Victorian attitude of ‘less eligibility’, which stated that conditions of state aid should be as harsh as possible in order to deter people from taking it up, and encourage them to take any job, no matter how low paid or exploitative.

Wycliffe was also a pacifist. I also blogged a month or so ago about a book I found on his pacifism in the Oxbow Bargain Book Catalogue. Wycliffe’s pacifism is also discussed by Basil Cottle in his The Triumph of English 1350-1400 (London: Blandford Press 1969). Here’s the passage where he discusses Wycliffe’s rejection of war, quoting the medieval theologian himself:

In each particular, Wyclif’s views are revolutionary, and his treatment of of war is typical of this: those who go to war cannot with justice say the Lord’s Prayer. ‘And before the seven axingis that Crist techith in the Pater Noster meneth … algatis to axe in charite, and thefore men that liven in werre ben unable to have their axinge; but thei axen ther owne dampnynge in the fifte peticioun, for ther thei axen that God for3yve hem ther dettis that thei owen to Hym, ri3t as thei for3yven men that ben dettours unto hem.’ [And for this reason the seven askings that Christ teaches in the Lord’s Prayer mean… at all events to ask in charity, and therefore men that live in war are unable to have what they ask; but they ask for their own damnation in the fifth petition, because there they ask that God may forgive them their debts that they owe to Him, even as the forgive men that are debtors to them.] But what was the situation in which the divided Church now found herself?-the Pope offering indulgences t6o those who would fight against the antipope (a subject extensively treated in a sermon on Martyrs) , and Bishop Despenser of Norwich leading his beastly and futile ‘crusade’ of 1383 against Flanders: ‘now men seyen that thei shulden, bi lore of ther feith, werre upon Cristen men, and turnen hem to the Pope, and slee ther persones, ther wyves, and ther children, and reve hem ther goodis, and thus chastise hem. But certis this came nevere of chastyment of Crist, sith Crist seith He cam not to lese lyves bu save hem. And hefore this is chastyment of the fiend, and never chastyment of Crist, that uside pacience and myraclis.’ [Now men say that they should, by the teaching of their faith, war upon Christian men, and win them over to the Pope, and kill their persons, their wivs, and their children, and rob them of their goods, and thus punish them. But certainly this kinid of punishment never came from Christ, since Christ says He came not to destroy llives to save them. And for this reason this is a punishment from the dreadful fiend, and never a punishment from Christ, who used patience and miracles.] Yet ‘blynde heretikes wanten witt as ydiotis, whan thei seien that Petre synnede not in smytynge of Malcus ere, but 3af ensaumple to preestis to fi3t’ [blind heretics lack understanding, like idiots, when they say that Peter did not sin in striking off Maclhus’s ear, but set an example for priests to fight]-though Christ prevented him from fighting further. ‘Lord, where this Pope Urbane hadde Goddis charite dwelling in him, whan he stired men to fi3te and slee many thousaund men, to venge him on the tother People and of men that holden with him?’ [Lord, did this Pope Urban have ~God’s charity dwelling in him, when he incited men to fight and kill many thousand men, to avenge himself on the other Pope and on men who belong to his side?] The friars, says Wyclif, preach to a bellicose text- that the English must get in first with their attacks on their enemies in other countries, for fear they do the same and sin be increased on both sides; a hideous doctrine of sinning so as to good.)

Cottle goes on to observe that ‘This new pacifism may have distasteful to readers who still enjoyed the memory of Crecy and Poitiers and to the old soldiers who must have figure among the 1381 malcontents’ (the Peasant’s Revolt). (pp. 235-6).

This hatred of war was shared by Sir John Clanvowe, soldier, diplomat, courtier, poet, crusader, and the author of the Boke of Cupide. This was so similar to Chaucer’s works, that for a time it was accepted as that great poet’s own composition. Clanvowe himself died in a village near Constantinople. Clanvowe wrote

‘The world holt hem worshipful that been greet werryours and fi3teres, and that distroyen and wynnen manye londis, and waasten and 3even muche good to hem that haan ynou3, and that dispenden oultrageously in mete, in drynke, in clothing, in building, and in lyuyng in eese, slouthe, and many oothere synnes.’ [The world considers them honourable who are great warriors and fighters and destroy and conquer many lands, and waste and give much property to them that have plenty, and spend outrageously on food, drink, clothing, building, and living in ease, sloth, and many other sins.] (Cottle, op. cit., p. 253).

Cottle himself says of this passage that ‘the attack here is almost on rank, and Clanvowe is disgusted that it is of these proud and vengeful people that ‘men maken books and soonges, and reeden and singen of hem for to hoolde the mynde of here deedes the lengere here vpon erth’. [Men make books and songs, and recite and sing of them so as to keep the memor of their deeds the longer here on earth.] (p. 254).

As I said with my earlier post about the Perversion of the Works of Mercy, I’m not putting this up to attack Roman Catholicism. I despise religious intolerance and don’t want to provoke any more sectarian religious hatred. I’m also deeply impressed with the various Roman Catholic organisations, clergy and lay people that genuinely work for the poor and those in the needy, and radical groups like Doris Day’s Catholic Workers. My point here is to show merely that religious radicals, like Wycliffe and Clanvowe, despised the way the poor were ignored and treated by the rich, and condemned war as fundamentally unchristian.

This is an attitude that attacks and refutes the vicious opinions of the religious right, with their prosperity gospel – that Christ wants everyone to be rich, and if you’re poor, it’s your fault – and is solidly behind the wars in the Middle East and elsewhere. These wars aren’t being fought to protect America, Israel or anyone else. They’re fought purely for the profit of immensely rich multinational corporations, who hope to profit from the theft of these nations’ state industries and oil reserves. As the above texts show, they would have been thoroughly condemned by Wycliffe and Clanvowe.

Tony Linford on Toby Young, Eugenics, and Disabled People’s Right to Life

This is a piece I found on YouTube by the disabled vlogger, Tony Linford, commenting on Toby Young’s attendance at a eugenics conference at University College London. The video was posted on the 11th January 2018, so it’s somewhat old news now. But I wanted to put it up, as it gives the perspective of a disabled person on Young and his grotty views.

Linford makes the point that the Nazis considered the congenitally disabled ‘lebensunwertigen’ – ‘unworthy of life’, and that they were murdered by the SS as part of the Nazis’ eugenics programme. He goes on to stoutly defend the right of all disabled people to life, and movingly talks about his experience meeting one severely disabled youngster being cared. The lad was in a wheelchair, and was mentally challenged, in the polite way of talking about it. Nevertheless, the lad was full of life and energy, and bubbling with ideas. Linford states that he learned a lot from him. He sadly reflects that the lad’s probably dead by now, but as disabled as he was, he was certainly not ‘lebensunwertigen’.

And discussing Young and his vile opinions on selective breeding, he also wonders how many others in the Tory party also hold the same disgusting views.

My guess is that there’s quite a few, but they keep very, very quiet about it because their leaders know full well the storm of outrage they’ll cause if they ever make their beliefs public. Maggie’s mentor, Keith Joseph, provoked such indignation with his comment in the 1970s that unmarried mothers were ‘a threat to our stock’. Young clearly thought he could get away with such views. Looking at some of the videos on YouTube, it appears that the Spectator had published a piece ‘The Return of Eugenics’, which was plastered all over its front cover. It looks like that after this piece was published, and didn’t seem to have people rioting in the streets, Young thought he would be safe. I am glad that he was profoundly mistaken.

Young and the other Tory eugenics snobs, Ben Bradley, who wanted the unemployed sterilised and the police to play ‘splat the chav’ with watercannon during the London riots six years ago, and his defender James Cleverly, hold thoroughly disgusting views. It’s the same attitude Darwin’s cousin, Francis Galton, the founder of eugenics, had, who was terrified that the biologically unfit poor would outbreed respectable, biologically superior middle and upper class people. It’s the views of privileged public schoolboys, who see themselves as innately biologically superior to everyone else, and have nothing but contempt for their social inferiors.

Cleverly tried defending Bradley’s comments about sterilising the unemployed by bleating something about it being at heart, a ‘reasonable’ statement about personal responsibility. Er, no. If the argument was about personal responsibility, then it would have been about encouraging those, who can’t afford children to use contraception. That would be about personal responsibility, as the choice would still be that of the unemployed whether or not they wanted to bring another life into the world.

Bradley’s comment was about denying the unemployed any personal responsibility, by taking away their personal freedom and forcibly sterilising them. It was a moralistic, punitive attitude by someone, who clearly has nothing but a Daily Mail-type rage against the poorest members of society.

And it isn’t just proles and the lumpenproletariat, who become unemployed. It also strikes respectable middle class people. I can remember hearing Tim Waterstone, the founder of the chain of booksellers that bears his name, speaking on the radio one day about how he spent a period unemployed. He described his feelings of absolute humiliation at the experience. Waterstone was lucky, in that I think he went on from this to start up his chain of stores. But others aren’t. They are laid off, or their businesses fail. And the lifestyle they found easy to support on their previously high salaries suddenly become a heavy burden. What happens to these people, if they have large families that they may find difficulty providing for if and when they are made unemployed? In Ben Bradley’s ideal eugenics Britain, would they be sterilised? Or do they get a pass, because they’re nice and middle class? Given the way the Tory party does everything it can to give extra money to the rich, while denying the poor the financial and medical support they need, my guess is that if this happened to a large number of middle class people, Bradley would be loudly screaming about how disgraceful it all was and demanding government support for them. His attitudes show the class snobbery that runs through Tory politics, and particularly through May’s government of privileged toffs.

The Nazis used eugenics not just to murder the disabled, but as part of their attempted extermination of the Jews during the Holocaust. The German historian Martin Broszat, in his The Hitler State, points out that the Nazi murder of the disabled served as a trial run for the mass slaughter of the Jews, including the use of poison gas. And there were Nazis and Nazi-sympathisers over here, who shared the same horrendous views.

One of these was Lord Lymington, an aristocrat, who wished to recreate the rural, agrarian and feudal society he idealised over modern capitalist, industrial society. Lymington was also a fan of eugenics, and in his 1943 book, Alternative to Death: The Relationship between Soil, Family and Community, discussed ‘the dangers of losing our own character from alien influence and blood’ in which he ranted about the threat to British racial purity from ‘the marketer, the unscrupulous trader, the slick haggler, the seditious natural underdog’, who was a type of immigrant ‘too often conditioned to the mental slum and the bazaar’. (See Richard Griffiths, What Did You Do During the War? The Last Throes of the British Pro-Nazi Right (Routledge, 2017) 240-1.) All of which is coded way of playing on anti-Semitic prejudice, without actually spelling it out in so many words. The quote graphically demonstrates why so many people found Young and his belief in eugenics so repulsive, that he ended up resigning from his position on the universities’ regulatory board. And why so many people this week have been extremely unimpressed with Bradley and Cleverly, and their stupid, bigoted, dangerous and contemptible comments.

No, Tweezer! It’s Not Labour that’s Attacking Investment, but Tory Privatisation

Published by Anonymous (not verified) on Sat, 20/01/2018 - 10:57pm in

More lies from Theresa May, the lying head of a mendacious, corrupt, odious party. Mike put up another piece earlier this week commenting on a foam-flecked rant by Tweezer against the Labour party. She began this tirade by claiming that Labour had turned its back on investment. This was presumably out of fear of Labour’s very popular policies about renationalising the Health Service, the electricity industry and the railways.

But Labour hasn’t turned its back on investment. Far from it. Labour has proposed an investment bank for Britain – something that is recognised by many economists as being badly needed. It was one of Neil Kinnock’s policies in 1987, before he lost the election and decided that becoming ‘Tory lite’ was the winning electoral strategy.

The Korean economist, Ha-Joon Chang, who teaches at Cambridge, has pointed out that privatisation doesn’t work. Most of the British privatised industries were snapped up by foreign companies. And these companies, as he points out, aren’t interested in investing. We are there competitors. They are interested in acquiring our industries purely to make a profit for their countries, not ours. Mike pointed this out in his blog piece on the matter, stating that 10 of the 25 railway companies were owned by foreign interests, many of them nationalised. So nationalised industry is all right, according to Tweezer, so long as we don’t have it.

The same point is made by Stewart Lansley and Joanna Mack in their book, Breadline Britain: the Rise of Mass Poverty (Oneworld 2015). They write

The privatisation, from the 1980s, of the former publicly owned utilities is another example of the extractive process at work, and one that hs brought a huge bonanza for corporate and financial executives at the expense of staff, taxpayers and consumers. Seventy-two state-own enterprises we4re sold between 1983 and 1991 alone, with the political promise that the public-to-private transfer would raise efficiency, productivity and investment in the to the benefit of all. Yet such gains have proved elusive. With most of those who landed shares on privatisation selling up swiftly, the promised shareholding democracy failed to materialise. In the most comprehensive study of the British privatisation process, the Italian academic Massimo Florio, in his book The Great Divistiture, has concluded that privatisation failed to boost efficiency and has led to a ‘substantial regressive effect on the distribution of incomes and wealth in the United Kingdom’. Despite delivering little in the way of unproved performance, privatisation has brought great hikes in managerial pay, profits and shareholder returns paid for by staff lay-offs, the erosion of pay and security, taxpayer losses and higher prices.
(P. 195).

They then go on to discuss how privatisation has led to rising prices, especially in the electricity and water industries.

In most instances, privatisation has led to steady rises in bills, such as for energy and water. Electricity prices are estimated to be between ten and twenty per cent higher than they would have been without privatisation, contributing to the rise in fuel poverty of several years. Between 2002 and 2011, energy and water bills rose forty-five and twenty-one percent respectively in real terms, while median incomes stagnated and those of the poorest tenth fell by eleven percent. The winners have been largely a mix of executives and wealth investors, whole most of the costs – in job security, pay among the least well-skilled, and rising utility bills – have been borne by the poorest half of the population. ‘In this sense, privatisation was an integral part of a series of policies that created a social rift unequalled anywhere else in Europe’, Florio concluded.
(pp. 156-7)

They then go on to discuss the particular instance of the water industry.

Ten of the twenty-three privatised local and region water companies are now foreign owned with a further eight bought by private equity groups. In 2007 Thames Water was taken over by a private consortium of investors, mostly from overseas. Since then, as revealed in a study by John Allen and Michael Pryke at the Open University, the consortium has engineered the company’s finances to ensure that dividends to investors have exceeded net profits paid for by borrowing, a practice now common across the industry. By offsetting interest charges on the loan, the company will pay no corporation tax for the next five to six years. As the academics concluded: ‘A mound of leveraged debt has been used to benefit investors at the expense of households and their rising water bills.’
(P. 157).

They also point out that Britain’s pro-privatisation policy is in market contrast to that of other nations in the EU and America.

It is a similar story across other privatised sectors from the railways to care homes. The fixation with private ownership tis also now increasingly out of step with other countries, which have been unwinding their own privatisation programmes in response to the way the utilities have been exploited for private gain. Eighty-six cities – throughout the US and across Europe – have taken water back into a form of public ownership.
(Pp. 157-8)

Even in America, where foreign investors are not allowed to take over utility companies, privatisation has not brought greater investment into these companies, and particularly the electricity industry, as the American author of Zombie Economics points out.

Lansley and Mack then go on to discuss the noxious case of the Private Equity Firms, which bought up care homes as a nice little investment. Their debt manipulation shenanigans caused many of these to collapse.

So when Tweezer went off on her rant against Labour the other day, this is what she was really defending: the exploitation of British consumers and taxpayers by foreign investors; management and shareholders boosting their pay and dividends by raising prices, and squeezing their workers as much as possible, while dodging tax.

Privatisation isn’t working. Let’s go back to Atlee and nationalise the utilities. And kick out Theresa, the Tories and their lies.

Nationalisation Is Better: Bail-Out of South East Trains Shows Privatisation Doesn’t Work

Published by Anonymous (not verified) on Wed, 17/01/2018 - 9:48pm in

South East Trains was in trouble again last week, and had to be bailed out by the government. The Labour Party made a statement that this showed the precarious state of the entire privatised rail network, as many of the other train companies could also claim they are in serious financial trouble, and pull out of the contracts.

This isn’t the first time aa privatised rail company has had to be bailed out by the government, or an alternative company found after one of them collapsed. And it shows very clearly that private railways don’t work.

Remember the old arguments for privatisation? State industries didn’t work. Instead, the state was subsidising inefficiency and these companies were a burden to taxpayers. They should be privatised, which would then make them more efficient, because they would have to respond to Maggie’s sacred ‘market forces’. If they couldn’t compete, they should be allowed to collapse. As happened with the mining industry.

Except that it hasn’t worked like that. We are now paying more in subsidies to the rail companies than we did when they were nationalised as British rail. And the service is actually worse than in the last days of the beleaguered nationalised rail network, when it was operating under the Operating For Quality programme.

Privatisation doesn’t work. Nationalisation of essential utilities, like railways, does.

But you won’t find this view promoted in the press, because the billionaires and magnates in charge of it consistently promote the idea that private industry is better, even when it is absolutely obvious that it isn’t. This is because, as businessmen, they see the rail network in terms of its money value to them. The corporate capitalism created by Maggie Thatcher and the Tories means that taxpayers are always bailing out inefficient and failing private firms, while punishing the poor, the unemployed and the disabled. It’s all about giving more money to the rich, regardless of whether the services they provide is any good. Capitalism has to be supported and promoted regardless. And if anyone says anything, then the Tories automatically rant on about the inefficiencies of the state sector in the 1970s, and how wonderful it was when Thatcher sold everything off.

But the failure of South East Trains, and the parlous state the other rail companies are in, show that this argument doesn’t work. It’s time to call end to the private ownership of the railways. They need to be renationalised, and a proper, public service given to the people of the Britain.

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