Economy

The time has come to talk of many things; of taxing and spending and an economic system that needs mending. 

Protest placard with a picture of the Earth in space and the slogan "One World"Photo by Markus Spiske on Unsplash

In the news, the Prime Minister tells millions of  WASPI women affected by the changes to the state pension age that he couldn’t promise to magic up the money for them despite having found lots in the magic money pot for Tory manifesto pledges; the Home Secretary, Priti Patel, whilst visiting a food bank, claims that the Tory government was not to blame for poverty in the UK and, shifting the blame onto local councils, forgets to mention that central government funding has been cut by nearly 50% since 2010/11.

After 9 years of austerity, the consequences couldn’t be starker for our public and local government services, however, it is UK citizens, families and their children who have borne the distressing costs of cuts to social security benefits, both on their health and financial well-being. It cannot be clearer that the steep cuts to tax credits, child and disability benefits, ESA and Incapacity benefit and housing along with the introduction of Universal Credit have been behind the increases in child malnutrition, food bank use, homelessness and suicide.

The IPPR this week published its report ‘Divided and Connected’ which reveals that the UK is more regionally divided than any comparable advanced economy.

In the same week, the Resolution Foundation published its report ‘The Shifting Shape of Social Security’ It notes in its analysis of the manifestos of the main parties that child poverty is set to continue rising under the Conservative Party’s social security plans, whilst Labour’s £9bn of extra spending would mean 550,000 fewer children in poverty, it would not reverse the effects of the £5bn benefits freeze and could still see more children living in poverty in 2023 than do today. It noted that major policy changes have reduced support for working-age households since 2010 resulting in overall spending in 2023-24 being around £34bn a year lower on current plans than if the 2010 benefit system had remained in place, and that the cuts in support had fallen almost entirely on low-to-middle income working age families. It also noted that the Conservatives’ 2019 manifesto makes no changes to existing policy and as a result child poverty risks reaching a 60-year high of 34%.

Although the conservatives are promising more spending on health and education, it seems clear that they intend to carry along the same policy paths they have followed since they came to power in 2010 which have involved cuts to benefits, conditionality, sanctions and welfare to work. Clearly, they have no intention either of reversing the already implemented cuts or reforms which have done so much damage and left a trail of devastation in many people’s lives. Priti Patel’s remark about who is to blame for poverty is indicative of Tory neoliberal credentials of denying governmental responsibility and passing the buck along to others, whether local government who have been firefighting for lack of funds or indeed shifting the blame onto citizens themselves. Her position has not changed much since 2015 when she said, ‘There is no robust evidence that directly links sanctions and food bank use.”

In the light of the very real consequences on people’s lives of government spending decisions and policies, it is all the more depressing to read the two analyses of the party manifestos by the Resolution Foundation and the IFS which instead of looking at the real effects of government spending policies on the lives of real people, examine them in purely financial terms and arbitrary fiscal rules which as we may now be realising bear no relationship with how money really works.

Hunkered down in household budget explanations, the IFS, rather than considering the spending promises of all three parties from the perspective of potential outcomes for the economy and its citizens, examines them in relation to the prospect of raising taxes or borrowing and the likely impact on the deficit and national debt.  As usual, the question, if not asked directly, is how will the parties pay for their spending plans? When, instead, they should be acknowledging that the real question is how will a future government manage existing resources to meet government goals? This will be the real constraint that any future government will face, however progressive that government may be. The resource balancing act will be key to maintaining spending within the productive capacity of the nation to deliver public purpose.

The Resolution Foundation summed it up depressingly in its conclusion in saying that:

‘The priority that both main parties have placed on credible fiscal frameworks in this campaign is laudable. Such rules are hugely important for the government’s overall economic priorities. In setting out new fiscal rules, it is vital that they provide a clear framework for sustainable public finances, constraining the temptation for policy makers to promise unfunded giveaways.’

Such institutions unsurprisingly have focused on the notion that it is the role of government to balance its budget rather than serving citizens and improving their economic and social well-being. It is regrettable that a recent poll has suggested that many people doubt whether such spending plans are affordable and yet given the reality of the consequences of not spending adequately how could we possibly afford not to?

The nation is now paying the price for politicians pedalling the lie of the last forty years that money is scarce, that there is no such thing as public money and that good government is about fiscal discipline. Even if changing that notion in the public consciousness will take time, in the light of the urgency of the challenges to address climate change and social inequality we need an urgent step change in economic thought on a planetary scale since it is our survival on this planet which is at stake.

This is not, however, a time to make compromises with an economic system which has already done such huge damage. The seeds of an alternative model are already being hijacked by companies cynically promoting their green credentials with one aim in mind: to create more growth to keep the profits rolling. Reducing our plastic use and buying electric cars will scarcely make a dent in the scale of the changes we need to implement. We may have a broad vision, but that now needs to be developed into concrete realities. It may be still a work in progress, but it is a vital one we must not ignore.

This is a time to reimagine the world. A fairer and more sustainable approach to replace the one of endless growth which currently defines our capitalist economic system and puts profit before people and the planet.

Progressives on the left are beginning to initiate a much-needed conversation about what we need to do to reverse the decades of social injustice and challenge the idea that we can maintain the engine of growth on a finite planet.

However, and most regrettably, politicians on the left are still trying to have that conversation stuck in old economic paradigms of how money works. When they are asked how they will pay for these vital programmes the response is always one of tax and spend or borrowing to invest. Raising corporation tax, bringing back the magic money tree from the Cayman Islands, taxing the rich until the pips squeak or borrowing on the markets because interest rates are low. Instead of talking about taxing the wealthy to redistribute wealth by removing their colossal purchasing power and ability to influence politicians, they talk about funding our public services with the proceeds.

Again, on the left some politicians are suggesting that the government is akin to a business and that renationalising transport, our utilities, mail and the NHS will allow the government to plough back the profits back into public services. Yes, we need to end the rip-off of privatisation which has not benefited citizens and has allowed public money to flow into private pockets for profit motives, but let’s not buy into the idea that the government resembles a large corporation with a profit and loss sheet. It doesn’t.

The government is the currency issuer and neither needs to tax nor borrow in order to spend and nor does it need the profits of renationalised industries for us to have public services.  It just needs the political will to deliver them.

The role of government is to create the framework for markets to exist and dictate through legislation how they will function and in whose benefit. It taxes the populace, not to fund its spending but to manage its economic policies, from the redistribution of wealth to expressing public policy and is one of the key tools it can use to manage inflationary or deflationary pressures.

Government not only has the power of the public purse to improve the lives of its citizens it also has the power to legislate to drive its political agenda. All a question of choices which are not dependent on the state of the public accounts. Indeed, not only does it have the power to spend for the public purpose, it has the power to change the rules of the game. For example, it might regulate the financial sector to ensure that when people’s savings of whatever kind are put to work it is done to shift our negative and damaging behaviours towards creating a positive impact on society and our environment instead.

Outcomes are the measure of any government’s success. With the political will it could:

  • create the framework for good quality universal public services provide a social security system which is both not punitive in its functioning but also ensures a decent standard of living for those unable to work through disability, sickness or old age,
  • pay for a just Green transition,
  • offer a Job Guarantee as standard to create price stability and act as an automatic stabiliser for the economy to give people the dignity of proper, well-paid employment when needed.

All of these things are fundamental to the good functioning of society.

What are we so afraid of? A better future for our children? A more sustainable and fairer economy for all? Indeed, a planet for us to live and breathe on? What is not to like? So, when you hear interviewers berating left-wing politicians (who have not quite made the leap into monetary realities) about how they will pay for their progressive agenda ignore those questions and remember instead that a government’s economic record will be defined by how it serves the nation’s economy as a whole, improves the lives of its citizens and how it uses the resources it has at its disposal to achieve its agenda – not whether it balanced the budget.

 

For more in-depth information about how money really works, you can find all you need on our GIMMS website.

https://gimms.org.uk/

 

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The Rise of the Right

Published by Anonymous (not verified) on Thu, 21/11/2019 - 8:30am in

GIMMS is pleased to be able to present for our MMT Long Read two chapters of the book “The Rise of the Right – English nationalism and the transformation of working-class politics” by Professors of Criminology Simon Winlow, Steve Hall and James Treadwell.

“Throughout Europe right-wing populism has grown to the extent that we can now legitimately begin to think about the very real possibility of a fascist future. The new right-wing nationalism will not be a carbon copy of 20th-century European fascism, but fascism it will be, nonetheless. For years this seemed unthinkable…We must recognise that the adoption of hippy counter-culturalism was a colossal error, and then begin to repair some of the damage it has caused. The first step is to reconnect with the working class with a renewed order of grounded universal ethics and truthful symbolism comprehensible to all cultural groups…the left can be rehabilitated. Reconnecting with the working class and persuading them to believe in its project is a very difficult task, but it can be done.”

The Rise of the Right – English nationalism and the transformation of working-class politics

The Rise of the Right cover

Originally published by Policy Press in 2017.  Permission granted by the publisher to use this content.

https://policy.bristoluniversitypress.co.uk/the-rise-of-the-right

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Democrats, Always in Touch with the Concerns of the American Voter

Published by Anonymous (not verified) on Mon, 18/11/2019 - 6:54pm in

Even if humanity slams on the brakes, stopped emitting carbon dioxide and goes back to horses and buggies, global warming will continue for at least a few more decades. So although Donald Trump and his rolling back of air pollution emissions standards are annoying, it’s probably too late anyway.

It’s not balanced budgets that will save us. It’s the power of the public purse and our human values.

Person at a demonstration holding a placard with slogan "What lessens one of us lessens all of us"Photo by Micheile Henderson on Unsplash

Charles Dickens began his novel ‘Hard Times’ thus:

“NOW, what I want is, Facts. […]. Facts alone are wanted in life. Plant nothing else and root out everything else. You can only form the minds of reasoning animals upon Facts: nothing else will ever be of any service to them. [….] Stick to Facts, sir!”

Whilst one might dispute Dicken’s character Gradgrind with his miserable vision of human existence, facts can be very useful. They can trace the human misery caused by 9 years of austerity and the last forty years of a pernicious market-oriented ideology which has led to vast disparities in wealth distribution and caused huge damage to society by encouraging the pursuit of self-interest.  And yet it has to be said as the election campaign gears up, that in terms of monetary reality, of facts there seem to be very few to be had.

As political and economic commentators, not to mention politicians on all sides, emphasise daily their claims that the government finances are like a household budget, the public has largely remained stuck in the quagmire which is presented as monetary reality and distrustful of a political system which has failed them.

Looking at newspaper front pages this week you could be forgiven for thinking that we are headed for bankruptcy if Labour were to win the election or that their spending plans would cost UK households £43,000 each. A ‘reckless spendathon’ is in the offing according to a government spokesperson in a recent BBC television interview.

Aside from such narratives being a fallacy, they are designed to put the frighteners on people who are already suffering financial hardship caused by years of austerity and ideologically driven government policies. Those with a political agenda shore up those false beliefs that borrowing too much will lead to government insolvency. They cynically and callously terrify people that they will be asked to pay for those spending programmes when they will not. This is an establishment that is running scared that their reign of power is coming to an end. The means justify the ends!

It cannot be denied that if we are to escape the worst effects of a coming global downturn, an incoming government of whatever variety will need to implement adequate spending programmes and increasingly fiscal policy is becoming the ‘mot du jour’. However, the message is reinforced daily by all sides of the political spectrum that there are still financial limits to that spending.

Last week Ed Davey, deputy leader of the LibDems said of Labour and the Tories spending plans that they are ‘writing promises on cheques that will bounce’. The very same party that joined in with Tory austerity during the Coalition and voted for public spending cuts and welfare reforms.

In the same week, the Greens promised welcome public investment of £1trillion over 10 years to fight climate change, the money for which it said would come from ‘borrowing’ and ‘tax’ changes.

Then the Chancellor of the Exchequer in a ‘give with one hand take back with another’ message promised to increase borrowing to fund billions of pounds to pay for new infrastructure but then announced three new fiscal rules to ‘control borrowing, to control debt and to control debt interest’.

Stuck in household budget la-la land he said without a hint of jest:

‘like anyone who budgets whether it’s a household, or small business or large business, I know that we must keep track of what we are spending and what we bring in…. We can’t run an overdraft forever on day to day spending, so I can confirm that our first rule will be to have a balanced current budget. What we spend cannot exceed what we bring in.

Never mind that you can build as many hospitals as you like as part of an infrastructure spending programme but if you make up foolish rules about day to day spending those hospitals will remain empty of nurses and doctors and other health professionals to staff them.  And let’s not forget the bailing out of the banks or successive wars funded without a taxpayer in sight.

The same tired old tropes abound about taking advantage of ‘historically low borrowing rates’ and ‘living within our means’ remain the context for Conservative spending plans and figure in one way or another in the language narrative of other parties too.

In a similar vein this week, the shadow chancellor reinforced that same story when he tweeted:

‘The Tories can’t invest in the public services we need because unlike Labour they won’t raise taxes on the super-rich and take on the international tax dodgers’.

The implication being here that he will bring back the magic money tree from the Cayman Islands to pay for our public and social infrastructure.

Even the Leader of the Opposition has suggested that if they don’t tax the very rich, then Labour won’t be able to pay for public services.

As Professor Bill Mitchell commented in a blog in response:

‘The British government does not need to tax the rich to pay for first-class public services. It can do that at any time it can muster the real resources to accomplish that aspiration. It issues its own currency.

It might want to tax the rich because they have too much power but that is quite separate from justifying such an action because the government needs their ‘money’.

Although without doubt the proposals on the progressive left to tackle social inequality, rebuild public infrastructure and address climate change are laudable and indeed vital, it is to be regretted that the arguments for public spending programmes are being reduced to household budget frameworks of monetary affordability, where the money will come from and economic credibility. We have become fixated by the single idea that the country’s economic ‘health’ hangs on whether or not we run a deficit.

GIMMS will say it again. In reality, the only analysis that really counts when deciding which way to vote in any election is not a judgement based on a government’s financial record or whether it balanced the public accounts but what its economic record was.

We as citizens should be examining where the money was spent and who benefited. Did that spending ensure that its citizens were in secure employment and fairly paid, had decent housing and sufficient food in their bellies? Did it create a healthy and more equitable economy in which wealth was more fairly distributed? Did it ensure that the vital public and social infrastructure such as the NHS, social care, education and local government were adequately funded to serve the public purpose and not fill the coffers of private profit? Or was that public money sucked up by the private sector in a big free for all in which the state serves the interests of the corporations rather than the interests of its citizens?

And what about government policies on health, education, welfare spending and the environment? Did they create stable lives by improving the material, financial, physical and mental health of citizens? Did they ensure adequate investment to ensure that the nation can be as productive as possible through good education and training both for present and future generations? And finally, the environment – what actions did they take to address the climate crisis?

In other words, we should be examining what the real economic outcomes were.

After nine years of telling the public that there was no alternative to austerity and cuts to public spending because the coffers were bare, it’s amazing what the prospect of an election can do to turn the spending taps on. And yet the smoke and mirrors, lies and deception about how government spends just carries on relentlessly.

But now it’s all OK (for the moment) the Conservatives have found the magic money tree, cutting the deficit has apparently given them some savings and the fiscal ‘headroom’ to spend. For those that know, this narrative is a fairy tale of epic proportions. For those that don’t, it should be enough to arouse a cynical response by a public which has been at the sharp end of those tax and spend myths which have formed the basis for its policies.

Indeed, only this week the following headlines should serve as the wakeup call for the public about Conservative economic credibility.

‘UK suffers biggest fall in jobs in four years’

‘UK avoids recession but annual growth slowest in almost a decade.’

‘Wage growth slows’

We can blame it in part on the uncertainty caused by Brexit, but the reality is that behind the faceless employment figures published by the Office of National Statistics are the lives of real people who have been affected by the government’s policies and spending decisions over the last 9 years.

To put it in basic economic terms, when a government spends it creates income for the private sector which is then spent into the economy. When it imposes spending cuts it is removing money from people’s pockets leaving them with only three options: Use their savings if they have any, take out credit or go without.

All spending, whether from government or the private sector, equals income for someone. What happens when you take that away? That’s people who lost their jobs in the public sector as local government, the NHS and schools were forced to pare down their budgets as a consequence of public spending cuts. That’s people constrained by public sector pay caps and pay cuts. That’s people who ended up working two or three jobs on low pay to keep a roof over their head and food on the table. That’s people working in precarious employment in the zero-hours or gig economy with no guaranteed decent income or sick or holiday pay. That’s people affected by the reforms to welfare and the introduction of Universal Credit, from those who are unemployed left with insufficient financial resources to make ends meet and those in work but not earning enough to keep their heads above the water to those left struggling to cope because of chronic sickness or terminal illness.

In seeking the nirvana of balanced budgets by cutting spending the Conservative government has not created a healthy economy it has done the very opposite. The statistics are the proof.  Without adequate spending, the economy suffers, and people pay the price.

And yet as political parties present their spending plans and worry about how they will demonstrate their economic credibility the elephant in the room is crashing about trying to make itself noticed. On one note it is pathetic to see the Conservative party take issue with the opposition’s spending plans calling them reckless and unaffordable whilst promoting its own as being fiscally responsible. On another, in their rush to spend, neither party seems to have considered the real resource factor and how that will be managed.

The IFS for all its neoliberal sins ‘gets’ the elephant in the room and recognises that whoever wins on December 12th their spending plans will be dependent on whether they have the right resources at their disposal to deliver.

After 9 years of insufficient spending into the economy to prepare for the future, will there be sufficient people with the right skills to meet the government’s needs? Whether that’s engineers and construction workers to design and build the proposed infrastructure or homegrown nurses and doctors already trained up to service the planned spending on the NHS? Or in these days of climate crisis we might also be talking about the resources needed to deliver the Green New Deal and ensure a just transition not just for those in the rich west but those in the global south whose countries have already been plundered of raw materials and impoverished so that we can maintain our standard of living.

For progressive parties like Labour and the Green Party who wish to deliver a left-wing agenda what they have to do is decide their key priorities, consider the availability of resources and how they could be freed up to deliver a future government’s objectives efficiently and effectively. A case in point this week is Labour’s plan for free broadband which has much to recommend it in terms of bringing communities together in an inclusive and connected society. Journalists and others predictably have asked the question where will the money come from? They have missed the point entirely and should be asking instead how many workers would we need to deliver it?

Ultimately, all sovereign currency-issuing governments don’t need to match their plans to tax revenue or determine whether the markets can lend them the money. The role of government in this respect is not to balance the budget but to balance the economy.

The public needs to understand that it isn’t the government’s ability to tax the rich but its power to run a deficit which determines the health of an economy. As the sovereign currency issuer, the UK government has the power of the public purse to fund the public works necessary to tackle social and wealth inequalities, deal with the current global economic uncertainty, and fund the Green New Deal, should it choose to do so.

However, at home, our public and social infrastructure is in a shocking state of decay caused by 9 years of cuts to public spending and lack of planning. Reversing that decline is not something that just promising to spend can solve in the short term.  There are important issues to consider for the long term which may not fit the short-termism of the political five-year framework and many politicians who have become used to serving other interests.  That is the scale of the challenges we face.

When all is said and done even though the Labour party persists with the household budget myths John McDonnell has it right in terms of what is required not just to reverse the social injustices heaped upon global populations because of pernicious ‘free’ market ideology or the threat to the human species at our own hand. As he said not only must the scale of investment match the scale of the crises we face both in ecological and social terms, but also if we don’t make these investments our future generations will never forgive us.

Let’s leave the final words to Professor Bill Mitchell who wrote a while back:

“My ideological disposition tells me that the pursuit of human values is the only sustainable way of organising and running a world. The neoliberal era has severely undermined that pursuit.

That’s what we must change and urgently if we want half a chance to save ourselves and our children’s children from disaster.

 

Note: GIMMS has a very good resource section on our website which takes you through how money works. From FAQS to resources sheets and external websites, videos and academic papers for those who want to take it further. For an introduction to how money really works follow the link here.

 

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Impoverishing economics

Published by Anonymous (not verified) on Fri, 01/11/2019 - 10:16pm in

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Economy
Unpacking the ignoble prize in economics – David Ruccio

I cringe when I listen to or watch some interviews. Here is a case in point – see https://youtu.be/jbm4tESVsRg?t=12 with the Real News Network. This interview was based on my recent blog post, “Economics of poverty, or the poverty of economics”.

I would also like to recommend a recent piece by Ingrid Harvold Kvangraven [1], who argues that “ The interventions considered by the ‘Nobel’ laureates tend to be removed from any analyses of power and wider social change. In fact, the ‘Nobel’ committee specifically gave [the most recent prize] to Banerjee, Duflo and Kremer for addressing ‘smaller, more manageable questions’, rather than big ideas. While such small interventions might generate positive results at the micro-level, they do little to challenge the systems that produce the problems.

“ For example, rather than challenging the cuts to the school systems that are forced by austerity, the focus of the randomistas directs our attention to absenteeism of teachers, the effects of school meals on performance, and the effects of the number of teachers in the classroom on learning. Meanwhile, their lack of challenge to the existing economic order is perhaps also precise- ly one of the secrets to their media and donor appeal, and ultimately also their success. “

Exactly!

It’s the revenge of neoclassical economics, as reflected in this year’s prize in economics, which focuses attention on poor people’s “bad” decisions and away from the structural causes of poverty.

As I argued the other day on Twitter, it’s like saying the climate crisis will be solved by individuals turning off lights and recycling their garbage. Not bad things to do, certainly. But, together, all those individual efforts make up only 1- 2 percent of the solution. The climate crisis cannot be solved unless and until we direct attention to the real, structural causes. Here, I’m thinking not only of the fossil fuel industry, but also the way the rest of contemporary capitalist economies are organized around the use of fossil fuels — in the production of goods and services, cars as well as digital information. Such a system generates enormous profits, which flow to a tiny group at the top, and continues to destroy the commons, where most of us live and work.

It’s that economic system that needs to be radically transformed. And as long as economists are lauded for focusing on technical issues around the margins and not on the real causes — of Third World poverty, global warming, and much else — the discipline of economics will continue to be impoverished.

Source: Real World Econ Rev, 21 Oct 2019 https://rwer.wordpress.com/2019/10/21/ impoverishing-economics/

1. https://www.opendemocracy.net/en/oureconomy/impoverished-economics-unpacking-economics-nobel-prize/

Comment: The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, commonly referred to as the ‘Nobel Prize in Economics’ was established in 1968 by a donation from Sweden’s central bank — Sveriges Riksbank – to the Nobel Foundat- ion to commemorate the 300th anniversary f the bank.

Prof David F. Ruccio is attached to the Dept. of Economics and Policy Studies at the University of Notre Dame, Indiana, USA.

The post Impoverishing economics appeared first on Economic Reform Australia.

The key to economic stability is 5,000 years old

Published by Anonymous (not verified) on Fri, 01/11/2019 - 9:17pm in

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Economy

The key to economic stability is 5,000 years old – Ellen Brown

Mesopotamia, Klaus Wagensonner (Source: Flickr cc)

We are again reaching the point in the business cycle known as “peak debt,” when debts have compounded to the point that their cumulative total cannot be paid. Student debt, credit card debt, auto loans, business debt and house- hold debt are all higher than they have been previously. As economist Michael Hudson writes in his provocative 2018 book, “…and forgive them their debts,” debts that can’t be paid won’t be paid. The relevant question, he says, is how they won’t be paid.

Mainstream economic models leave this problem to “the invisible hand of the market,” assuming that trends will self- correct over time. But while the market may indeed correct, it does so at the expense of the debtors, who become progressively poorer as the wealthy become more wealthy. Borrowers go bankrupt and banks foreclose on the collateral, dispossessing the debtors of their homes and their livelihoods. The houses are bought by the wealthy at distress prices and are rented back at inflated prices to the debtors, who are then forced into wage peonage in order to survive. When the banks themselves go bankrupt, the government bails them out. Thus the market corrects, but not without government intervention. That intervention just comes at the end of the cycle to rescue the creditors, whose ability to buy politicians gives them the upper hand. According to free-market apologists, this is a natural cycle akin to the weather, which dates all the way back to the birth of modern economics in ancient Greece and Rome.

Hudson counters that those classical societies are not actually where our financial system originated, and that capitalism did not evolve from bartering, as its ideologues assert. But rather, the financial system devolved from a more functional, sophisticated, egalitarian credit system that was sustained for two millennia in ancient Mesopotamia (now parts of Iraq, Turkey, Kuwait and Iran). Thus money, banking, accounting and modern business enterprise originated not with gold and private trade, but in the public sector of Sumer’s palaces and temples in the third millennium B.C. Because it involved credit issued by the local government rather than private loans of gold, the bad debts could be periodically forgiven rather than being allowed to compound until they took the whole system down, a critical feature that allowed for the credit system’s remarkable longevity.

The true roots of money and banking Sumer was the first civilization for which we have written records. Its notable achievements included the wheel, the lunar calendar, our numerical system, law codes, an organized hierarchy of priest-kings, copper tools and weapons, irrigation, accounting and money. It also produced the first written language, which took the form of cuneiform figures impressed on clay. These tablets were largely just accounting tools, recording the flow of food and raw materials in the temple and palace workshops, as well as IOUs (mainly to these large public institutions) that had to be preserved in writing to be enforced. This temple accounting system allowed for the coordinated flow of credit to peasant farmers from planting to harvesting, and for advances to merchants to engage in foreign trade.

In fact, it was the need to manage accounts for a large labour force under bureaucratic control that is thought to have led to the development of writing. The people willingly accepted this bureaucratic control because they viewed the gods as having decreed it. According to their cuneiform writings, humans were created to work in the fields and the mines after certain lower gods tasked with that hard labour rebelled.

The charging of interest on loans, was an accepted part of the Mesopotamian credit system. Interest rates were high and remained unchanged for two millennia. But Mesopotamian scholars were well aware of the problem of “debts that can’t be paid.” Unlike in today’s academic economic curriculum, Hudson writes:

“Babylonian scribal students were trained already around 2000 BC in the mathematics of compound interest. Their school exercises asked them to calculate how long it took a debt with interest of 1/60th per month to double. The answer is 60 months (five years). How long to quadruple? 10 years. How long to multiply 64 times? 30 years. It must’ve been obvious that no economy can grow in keeping with this rate of increase.”

Sumerian kings solved the problem of “peak debt” by periodically declaring “clean slates,” in which agrarian debts were forgiven and debtors were released from servitude to work as tenants on their own plots of land. The land was held to belong to the gods under the stewardship of the temple and the royal palace, and could not be sold. However farmers and their families maintained leaseholds to it in perpetuity by providing a share of their crops, as well as service in the military and their labour in building communal infrastructure. In this way, their homes and livelihoods were preserved, an arrangement that was mutually beneficial, since the kings needed their service.

The jewish scribes, who spent time in captivity in Babylon in the sixth century BC, adapted these laws in the year or jubilee, which Hudson argues was added to Leviticus after the Babylonian captivity. According to Leviticus 25:8- 13, a Jubilee Year was to be declared every 49 years, during which debts would be forgiven, slaves and prisoners freed and their property leaseholds restored. As in ancient Mesopotamia, property ownership remained with Yahweh and his earthly proxies. The Jubilee law effectively banned the outright sale of land, which could only be leased for up to 50 years (Leviticus 25:14-17). The Levitican Jubilee represented an advance over the Mesopotamian “clean slates,” Hudson says, in that it was codified into law rather than relying on the whim of the king. But its proclaimers lacked political power, and whether the law was ever enforced is unclear. It served as a moral rather than a legal prescription.

Ancient Greece and Rome adopted the Mesopotamian system of lending at interest, but without the safety valve of periodic “clean slates,” since the creditors were no longer the monarch or the temple, but private lenders. Unfettered usury resulted in debt bondage and forfeiture of properties, consolidation into large landholdings, a growing wedge between rich and poor, and the ultimate destruction of the Roman Empire.

As for the celebrated development of property rights and of democracy in ancient Greece and Rome, Hudson argues that they did not actually serve the poor. They served the rich, who controlled elections, just as rich donors do today. Taking power away from local governments by privatizing the once- communal lands allowed the private creditors to pass laws by which they could legally confiscate property when their debtors could not pay. Thus “Free markets” meant the freedom to accumulate massive wealth at the expense of the poor and the state.

Hudson also maintains that when Jesus preached “forgiveness of debts,” he was also talking about economic debt, not just moral transgressions. When he overturned the tables of the money changers, it was because they had turned a house of prayer into “a den of thieves.” But creditors’ rights had by then gained legal dominance, and Christian theologians lacked the power to override them. Rather than being a promise of economic redemption in this life, forgiveness of debts thus became a promise of spiritual redemption in the next.

How to have a modern debt Jubilee

Such has been the fate of debtors in modern Western economies. But in some modern non-Western economies, vestiges of the debt write-off solution remain. In modern China, for instance, nonperforming loans are often carried on the books of state-owned banks or cancelled rather than putting insolvent debtors and banks into bankruptcy. As Dinny McMahon wrote in June in an article titled “China’s Bad Data Can Be a Good Thing”:

“In China, the state stands behind the country’s banks. As long as authorities ensure those banks have sufficient liquidity to meet their obligations, they can trundle along with higher delinquency levels than would be regarded safe in a market economy.”

China’s banking system, like that of ancient Mesopotamia, is largely held within the public sector, so the state can back its banks with liquidity as needed. Interestingly, the Chinese state also preserves the ancient Near Eastern practice of retaining ownership of the land, which citizens can only lease for a period of time.

In Western economies, most banks are privately owned and heavily regulated, with high reserve and capital requirements. Bad loans mean debtors are put into foreclosure, jobs and capital infra- structure are lost, and austerity prevails. The U.S. Trump administration is now aggressively pursuing a trade war with China in an effort to level the playing field by forcing it into the same austerity regime, but a more productive and sustainable approach might be for the US to engage in periodic debt jubilees itself.

The problem with that solution today is that most debts in Western economies are owed not to the government but to private creditors, who will insist on their contractual rights to payment. We need to find a way to pay the creditors while relieving the borrowers of their debt burden.

One possibility is to nationalize insolvent banks and sell their bad loans to the central bank, which can buy them with money created on its books. The loans can then be written down or voided out. Precedent for this policy was establish- ed with “QE1,” the Fed’s first round of quantitative easing, in which it bought the unmarketable mortgage-backed securities from banks with liquidity problems.

Another possibility would be to use money generated by the central bank to bail out debtors directly. This could be done selectively, by buying up student debt or credit card debt or car loans bundled as “asset-backed securities,” then writing the debts down or off, for example. Alternatively, debts could be relieved collectively with a periodic national dividend or universal basic income paid to everyone, again drawn from the deep pocket of the central bank.

Some critics will object that such a practice would dangerously inflate the money supply and consumer prices, but that need not be the case. Today, we know that almost all money is created as bank debt, and it is extinguished when that debt is repaid. That means dividends used to pay this debt down would be extinguished, along with the debt itself, without adding to the money supply. For the overwhelming majority of U.S. citizens that now carry debt, the payment of loans from their national dividends could be made mandatory and automatic. The remaining minority of citizens who are not in debt would be likely to save or invest the funds, so this money would also contribute little to consumer price inflation; and to the extent that it did would be directed to the consumer market – it could help generate the demand that is needed to stimulate productivity and employment. (For a fuller explanation, see Ellen Brown, “Banking on the People,” 2019).

In ancient Mesopotamia, writing off all of the peoples’ debts worked brilliantly well for two millennia. As Hudson concludes:

“To insist that all debts must be paid ignores the contrast between thousands of years of successful Near Eastern clean slates and the debt bondage into which [Greco-Roman] antiquity sank. … If this policy in many cases was more successful than today’s, it is because they recognized that insisting that all debts must be paid meant foreclosures, economic polarization and impoverishment of the economy at large.”

Source: The Web of Debt blog, 30/08/2019.

https://ellenbrown.com/2019/08/30/the-key-to-a-sustainable-economy-is-5000-years-old/#more-14256

This article was first posted on Truthdig.com.

Ellen Brown chairs the Public Banking Institute and has written 13 books, including her latest, Banking on the People: Democratizing Money in the Digital Age. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at EllenBrown.com.

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Household Debt: a tale of three countries

Published by Anonymous (not verified) on Fri, 01/11/2019 - 8:27pm in

Steven Hail on how Japan has managed to avoid another financial crisis without creating a major private debt problem, while the U.S. and Australia have not.

In the year 2000 the countries Japan, USA and Australia all had about the same ratio of household debt to GDP – in each country, this figure was about 70%.

In Japan, the ratio fell gradually from 70% to the low 60%, and has remained at about 62% for a while (see Fig 1).

Admittedly Japan has maintained a current account surplus with the rest of the world on its balance of payments, while Australia and the USA have not. But the main reason the Japanese have managed to support their economy and at the same time avoid rising household debt has been a willingness to run government deficits. Over the last ten years, the Japanese fiscal deficit has averaged above 6% of GDP, but going back further, there has been a deficit ever since the Japanese financial crisis of the early 1990s (see Fig 2).

The beneficial role of the deficit, and the irrelevance of its impact on the stock of Japanese government debt, is not generally understood, even in Japan.

Debt and deficit in Japan are not a sign of economic failure – they are the hall- mark of a largely successful attempt to maintain living standards and close to full employment labour market, in an economy where private saving (and especially corporate saving) has out- stripped private investment spending.

It is very important to understand this. Many economists, commentators and credit ratings agencies still don’t under- stand this. They have been vaguely forecasting doom, or at least some kind of financial crisis, for Japan for a couple of decades now. It wasn’t in Japan that the Global Financial Crisis developed. It wasn’t in Japan that the problems of the euro emerged. It isn’t Japan that is faced with dangerous household debt now. These various commentators still do not understand the fiscal space enjoyed by monetary sovereigns like the Japanese government. They don’t understand the appropriate role for the government’s budget in such countries. They look for crises where none will occur. They miss those financial fragilities which drive those crises that do happen. They are very slow to learn. The only thing to do is to ignore them and their advice.

In the US, household debt surged as financial fragility grew, with the ratio peaking at 98% in the first quarter of 2008. Households deleveraged post GFC, and the ratio fell back to about 80%. Still way too high for another surge in private debt to be allowed to persist, but at least well below its level at the peak of the bubble. Substantial government deficits in 2009, 2010 and 2011, and an average deficit of about 5% of GDP has made this possible, while providing enough support for demand to allow for a degree of econ- omic recovery. The US fiscal deficit should have been higher for longer, and is much too low at the moment, but at least the household debt ratio has fallen somewhat.

What about Australia? Like Japan and the US, our household debt to GDP stood at about 70% at the millennium – well above the levels of previous years. It then grew and grew, mainly due to increasing mortgage debt, standing at 108% in mid-2008. Well above the level in the US when the crash happened there.

As we know, Australia missed the worst of the GFC, and propped up its housing market, and household debt just kept growing. By the end of last year it was above 123%, placing Australia very near the top of the global league table.

Bound to lead to a crash? Many would say so — Steve Keen and Philip Soos amongst them — and who am I to disagree? Unwise? On that we should all agree. And done at the urging of successive governments which have failed to run appropriate fiscal policies; with the approval, for most of this period, of the RBA; and with the acquiescence of what until recently was a relaxed APRA.

Who has the debt problem?

Not Japan. Since around 2013, the Bank of Japan began buying up govern- ment debt, to become a monopoly supplier of bank reserves, denominated in Yen.

In September 2016 it took the decision to buy unlimited amounts of Japanese government bonds at a fixed-yield, meaning it could control yields across bond maturities from a two-to-40-year output and sets them at whatever level they choose. It also implemented $80 trillion worth of quantitative and qualit- ative easing while also introducing a negative interest rate of minus 0.1% to current accounts held by financial institutions at the bank, driving the bond yield rate down. Bond market dealers queued up to get their hands on as much Japanese government debt as they could, with the promise it would mature within 40 years.

To quote Economist Bill Mitchell: “The bond markets do not have the power to set yields unless the government allows them that flexibility. The government rules, not the markets.” Moreover, Japan’s government doesn’t need to issue debt in primary markets in order to spend. Because monetary sovereign government debt is not the problem.

The graph of Japanese government gross debt (see Fig 3) can always be used to scare those who don’t under- stand monetary sovereignty, and the fact that government debt is just non- government saving, but if you under- stand the fiscal space available to governments like those of Japan, the USA and Australia, you know that government debt ratios, taken out of context, are irrelevant. There can be no government debt crisis in these countries. Government debt is better thought of as a form of money, and not debt in the conventional sense at all.

Don’t be intimidated by what appears to be the dizzy heights of government debt in Japan. It is not in itself inflationary (see Fig 4). And in itself it does not imply higher interest rates (see Fig 5). Moreover it has helped to keep Japan close to full employment, when the Japanese private sector has been saving rather than investing (see Fig 6).

And Japan has not done so badly in terms of income per head either. The economy may not have grown rapidly, but the population has been shrinking. In terms of productivity and GDP per capita, Japan has been doing pretty well, given its ageing population.

Australia too has performed relatively well in terms of GDP per capita, but has relied more on household debt and less on government debt. So despite its better demographic prospects, it is Australia which is faced with the debt problem – not Japan.

Household debt is the problem

The Australian government was running a fiscal surplus in the run-up to the Global Financial Crisis, relying on a mix of mining investment and household debt to grow its economy. Even after the crisis, the fiscal deficit was neither large enough nor maintained at a high enough level for long enough, to permit an economic recovery with falling household debt. Instead, successive governments placed their bets on an ever-inflating property market and on a household debt bubble which would never burst.

Australian governments have still not learned what a monetary sovereign government’s fiscal policy should be all about. They still don’t understand that government budget deficits are not really borrowing at all, and that monetary sovereign government debt is not really debt in the conventional sense. They behave as though the government can become insolvent, or otherwise might cause hyperinflation. They are completely wrong.

Who has the debt problem? Australia. and the USA. Because the debt of a monetary sovereign government is not the problem. Household debt is the problem.

Dr Steven Hail is a Lecturer in Economics at Adelaide University, and is an ERA member. His most recent book is Economics for Sustainable Prosperity

Source: This article was originally published in Renegade Inc.

https://renegadeinc.com/a-tale-of-three-countries/

Figure 1: Household debt as a percentage of GDP for Australia, the United States and Japan, over the timespan 2000 to 2017.
Figure 2: General government net lending /borrowing for Japan as a percentage of GDP, over the timespan 1980 to 2015.
Figure 3: General government gross debt for Japan as a percentage of GDP, over timespan 1980 to 2015.
Figure 4: Consumer price inflation for Japan as a percentage, over the timespan 1960 to 2015.

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Modern economists haven’t learnt from their own history

Published by Anonymous (not verified) on Fri, 01/11/2019 - 6:48pm in

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How economists came to ignore the natural world – Editor

The following extract from an article by Christopher Jones – The Delusion and Danger of Infinite Economic Growth [1] – appeared in a recent RWER blog [2]:

“…. One of the reasons nations fail to address climate change is their belief that we can have infinite economic growth independent of ecosystem sustainability. Extreme weather events, melting arctic ice, and species extinction expose the lie that growth can for- ever be prioritized over the planetary boundaries.

“It wasn’t always this way. The fairytale of infinite growth – which many people today accept as unquestioned fact – is relatively recent. Economists have only begun to model never-ending growth over the last 75 years. Before that, they had ignored the topic for a century. And before that, they had believed in limits. If more people saw the idea of infinite growth as a departure from the history of economics rather than a timeless law of nature, perhaps they’d be readier to reimagine the links between the environment and the economy.

“In 1950, the economics profession had surprisingly little to say about growth. In that year, the AEA (American Economic Association) asked Moses Abramovitz to write a state-of-the-field essay on economic growth. He quickly discover- ed a problem: There was no field to review.

“The founding fathers of economics shared a belief that growth was finite, and that the reason for limits lay in the natural world.

“ John Maynard Keynes had offered a theory of stagnation, demonstrating the need for government spending to stimulate an economy mired in recession, and Austrian political economist Joseph Schumpeter had studied creative destruction, highlighting the importance of entrepreneurs and innovation. And Wesley Mitchell, founder of the National Bureau of Economic Research, had looked at business cycles. And others had analyzed monetary forces. But no one had put it all together in a theory of growth. Modern work was “fragmentary” and had “remained on the periphery of economics,” Abramovitz explained to AEA members. Development economist

W. Arthur Lewis agreed, noting in 1955 that “no comprehensive treatment of [economic growth] has been published for about a century.”

“It was an interesting turn for a field originally quite interested in growth, but convinced it was bounded. The founding fathers of economics — luminaries including Adam Smith, David Ricardo, and John Stuart Mill — shared a belief” that growth was finite, and that the reason for limits lay in the natural world.

Sources:

  1. https://newrepublic.com/authors/christopher-f-jones   The Delusion and Danger of Infinite Economic Growth
  2. https://rwer.wordpress.com/2019/10/02/how-economists-came-to-ignore-the-natural-world/

Comments from John deChadenedes

The fantasy of unlimited economic growth might arise quite naturally in the minds of American thinkers, whose country was founded on the conquest, expropriation, and unfettered exploitation of what they considered “virgin territory”. For a while there, it must have seemed as if infinite growth was really possible. Attaining the status of a world power, the US moved into other parts of the hemisphere and the globe where local resistance to exploitation was insufficient to prevent the continuation of this type of growth.

Along the way, of course, the negative environmental and social effects of rapacious capitalist development were fully externalized, so activities that have proven in the end to be non-economic (fossil fuel extraction, for example) appeared amazingly profitable. No wonder then, that nobody was theoriz- ing about limits to growth until fairly recently. Nothing in the real world – nothing economists were likely to be aware of, anyway – suggested that we might run into hard limits soon.

When you factor in the deliberate and systematic corruption of economics as a theoretical endeavour (see, e.g.

Mason Gaffney’s “The Corruption of Economics”, and the suppression of any discussion of social democracy as a valid way of organizing production and distribution) then it’s really no surprise that we are where we are now.

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The transition to New Energy Vehicles

Published by Anonymous (not verified) on Fri, 01/11/2019 - 5:57pm in

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The transition to New Energy Vehicles – Editor

Electric vehicle (source: Flickr cc)

In a Facebook posting on 15 September 2019, Andreas Bimba made the following comments:

Germany

Germany’s current leaders and the German automotive industry seem to have failed to appreciate the urgency of the needed transition to New Energy Vehicles as well as the need for vastly improved public transport infrastructure and low energy transport solutions such as bicycles, walking and improved urban design.

Germany’s neoliberal corporate led governments have also imposed fiscal austerity on themselves and on all of Europe through their control of the EU bureaucracy, that has led to the neglect of important infrastructure spending throughout Europe with ongoing mass unemployment, and especially youth unemployment. The Euro common currency zone has also locked in the economic advantage of the major

existing players, such as car manufacturing centred in Germany, leading to economic decline for the South and also for much of the rest of Europe. [1]

Volkswagen is leading the EV revolution in Germany but still lags Tesla and the Japanese, Korean and Chinese manufacturers by a significant margin [2]

China

Meanwhile in China change happens at lightning speed, capital for promising areas is plentiful and government backing is strong.

The Chinese national government restricts vehicle imports and along with regional and city governments provides a comprehensive range of support measures such as subsidies, appropriate higher education, R&D support, fostering of industry clusters, quotas and regulations to develop their automotive industry which is now the world’s largest and most importantly the largest in the area of new-energy vehicles. In fact it is now Chinese national government policy to flat line conventional vehicle production and to ensure all market growth is met by new-energy vehicles. Reductions in air pollution, green-house gas emissions, and the dependence on imported oil along with huge export potential are all major drivers of this transition.

“China already leads globally in EV sales, passing the U.S. in 2015. Sales of new-energy vehicles, or NEVs (EVs, plug-in hybrids, and fuel-cell vehicles). It topped 700,000 units in 2017 and one million in 2018, said Xu Haidong, the assistant secretary-general of the China Association of Automobile Manufacturers. Almost all those cars are Chinese brands. The government has set a target of 7 million vehicles by 2025. To reach that goal, it’s doling out subsidies and tightening regulations around fossil- fuel cars.”

“From 2009 through 2015, the government spent 59.1 billion yuan (~A$12 billion) financing purchases of NEVs. For purchases in 2016 and 2017 it set aside about 83 billion yuan (~A$17 billion), figures Cui Dongshu, secretary- general of the China Passenger Car Association. To boost demand, China gives a 10 percent tax rebate to buyers of NEVs.”

The BNEF Future of Energy APAC Summit was held on November 28-29, 2017 in Shanghai, and there are some applicable conference videos [3].

Colin McKerracher of Bloomberg New Energy Finance gave a presentation in Norway [4].

Also relevant is a graph of ICE (Internal combustion engine) and NEV (New- energy vehicle) vehicle sales in China, including projections [5]:

Australia

Australia would be the worst example of a country where the foundations of a modern automotive manufacturing industry existed but were then discard- ed later (a few short years ago) by a corrupt political class dominated by the malevolent fossil-fuel-exporting kleptocracy to keep the value of the dollar low and thereby help with their profitability (IPA policy number 30 of the 75 point ‘Be Like Gough’ list). This is part of their broader desire for a minimum government and multinational-corporation- dominated Laissez-faire libertarianist nation, and world. Australia could have been a leading nation in the transition to environmental sustainability but is now on track to be one of the last, with the foreign suppliers providing nearly all of this country’s needs as it descends further into stagnation and rising poverty.

The reality is that a central-government- led policy framework is essential to make such substantial changes possible in the time frame available and to maximise the benefits and to moderate the costs.

“If we just sit back and wait then we will face major problems, and I think we are seeing the first signs of those problems today.” [6]

It is not generally known that the federal Labor Party and the Australian Greens both had the makings of a plan to transition to New Energy Vehicles and to establish a local manufacturing industry for batteries and NEV’s, during the last May 2019 federal election campaign: [7][8]

  1. https://www.youtube.com/watch?v=hcXjVxaKzv4
  2. https://www.businessinsider.com/volkswagen-credits-elon-m…//
  3. https://about.bnef.com/…/event/shanghai/shanghai-highlights/
  4. https://m.youtube.com/watch?v=JQUljH-PBi0
  5. (a) https://about.bnef.com/…/china-expects-car-sales-growth-el…/(b) https://about.bnef.com/…/beijings-electric-car-push-could-…/
  6. https://ipa.org.au/…/be-like-gough-75-radical-ideas-to-tran…
  7. https://www.facebook.com/andreas.bimba/posts/1193034797530395
  8. https://greens.org.au/sites/default/files/2019-04

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Do electric cars make climate change better or worse?

Published by Anonymous (not verified) on Fri, 01/11/2019 - 4:31pm in

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Do electric cars make climate change better or worse? – Michael Barnard

Recently there has been debate about the impact of electric vehicles on the changing climate. In response, the following item by Michael Barnard was posted on Quora (on 12 August 2019).

– – – – – – – – – – – – –

The best way to think of this is comparative harm.

Every electric vehicle (EV) displaces exactly one internal combustion engine (ICE) car. The ICE car would be burning fossil fuels its entire life, creating 20 pounds of CO2 for every gallon of gas. The EV will be mixed, based on where it is, but always well below that.

Furthermore, all grids are dicarbonizing. An EV purchased now will have lower emissions in 5 years than today. Meanwhile, ICE cars suffer normal degradation including in gas mileage. After 5 years it will likely be emitting slightly more than now.

Finally, many jurisdictions allow purchase of carbon-neutral electricity from wind or solar. Many early EV adopters did that or have solar panels on their homes. It’s possible today to have close to zero emissions per mile driven, with only the embodied CO2 from manufacturing the car in the first place.

And of course mineral extraction and processing, construction and distribution are decarbonizing too.

The world is becoming more virtuous. Too slowly, but it is. And EVs are part of that.

Note: my personal policy is to block and mute climate change deniers. Yours should be too.

Michael Barnard is a low-carbon innovation strategist

Commentary from Graham West

EVs are also far more efficient than ICE cars. ICE cars convert 17-25% of the energy in the petrol into moving the car forward, while EVs convert about 60% of the energy from the grid into moving the car forward. So if you drew electricity only at peak time and all the electricity was from coal generation then an EVE would produce between 1/3 and 1/2 of the CO2 of an ICE car. If you are charging at night (which is when a lot of charging is done), you are probably using electricity that would otherwise be wasted. Electricity generation is driven by peak demand. There is limited flexibility overall – and although hydro is very flexible, you can’t just turn on or off coal-fired of nuclear- generated electric power etc)

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