Ethics

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The Bank of England does not have a duty to push people into poverty

Published by Anonymous (not verified) on Mon, 02/05/2022 - 6:09pm in

I cannot have been alone and being appalled at comments made by former Bank of England employee and Monetary Policy Committee member Adam Posen, who said over the weekend in advance of the Bank of England's decision on interest rate changes to be made this week:

The central bank has no choice but to cause a recession when a broad range of prices are rising at such a strong pace.

He added:

It is duty bound to bring inflation down after more than a year when it has been more than 2 percentage points above its 2% target level during a period of full employment.

Not only is this typical of the callous indifference of most of those making these decisions - which will have no impact on their own wellbeing unless by improving it as wealth flows upwards and in their own direction - but it is also wrong.

Posen argues the UK is short of labour. There is little evidence of that. People have simply left the workforce. That is something quite different.

He also seems to think it is wages driving inflation. No data shows that. Energy price profiteering; supply chain profiteering and simple supply chain shortages all suggest otherwise, as do interest rate rises, all of which are reflected in new excess profits being reported by those involved. But wages are falling well behind, especially for most on low pay. So Posen is offering a reason for inflation he must either know to be untrue or because he probably knows no other, and has not been taught to look for it.

And what he proposes is that wages must be crushed to reduce demand when demand is already being crushed, as all available evidence shows. Energy and other price increases are already doing that. Increasing interest rates will only make poverty much worse than it is already going to be.

But, although this should be glaringly obvious Posen argues the Bank has a moral duty to eliminate inflation by creating recession, pushing down real incomes and destroying jobs when that will not solve any of the inflationary problems created by energy price profiteering; supply chain profiteering and simple supply chain shortages. It will only add another cause of inflationary pressure by increasing the price of money.

Posen does not seem to get that. Nor does he see anything immoral in making children starve, old people die of cold or in forcing people from their homes, all because of his inability to understand inflation, appraise data, and work out an appropriate economic response.

What is that appropriate response? Danny Blanchflower and I have already outlined it:

1) Admit there is a problem;

2) Correctly diagnose the cause;

3) Cut taxes on consumption on essential items now;

4) Cut taxes for those on low pay, but increase them significantly on those with high pay and wealth where the inflationary pressure exists and is significant;

5) Do a windfall tax;

6) Invest in job creation now as many jobs are already at risk;

7) Align rules with the EU to reduce inflation pressure there;

8) Be prepared to use QE and changes to tax rules on saving to fund new programmes of investment.

Doing this is the moral imperative. Posen’s morality comes from the 1840 approach to Ireland so indifferent to suffering is it, and so wrong in its analysis is it also.

I fear though that the likes of Posen will get their way on interest rates this week. We are in for torrid times. And like Martin Lewis, I fail to see how civil unrest will not follow, so inappropriate and harsh are the prescriptions of the likes of Posen.

Could it be that lax company accounting rules suit the agenda of this government and its friends just a little too well? 

Published by Anonymous (not verified) on Fri, 29/04/2022 - 5:19pm in

According to the FT:

Accounting and investor groups on Thursday hit out at the government’s move to ditch a bill from its next legislative programme that would have implemented long-delayed reform of audit and corporate governance.

A draft bill to underpin the reform, including the creation of a new regulator of audit firms, has been dropped from the Queen’s Speech scheduled for May 10, according to government officials.

I share this concern.

In 2018 Carillion collapsed months after KPMG signed off its audit report without providing any indication that there were any causes for concern in its accounts, which astute observers had seen for some time.

Almost immediately the UK audit regulator, the Financial Reporting Council, was declared unfit for purpose, a conclusion with which I agreed.

After three enquires  and a massive consultation process that ended early last year we have been waiting for next steps, during which period I was having regular discussions with BEIS, until they petered out early this year.

Now reform looks as though it is going to be dropped. And accounting, which is in a worse state than auditing, is not being reformed either.  The Financial Reporting Council limps on. The government is apparently happy about this.

As many blog readers will know I have written extensively on this issue, including in a series of audit briefings on the way in which audit reform should develop. It seems, however, that we are going nowhere. Could it be that lax company accounting rules suit the agenda of this government and its friends just a little too well?

We need a windfall tax on energy companies but no one should pretend this will solve the economic crisis we are facing

Published by Anonymous (not verified) on Thu, 28/04/2022 - 5:24pm in

Rumour has it that Rishi Sunak is planning a windfall tax on energy companies to supposedly address the so-called cost of living crisis, after all. Perhaps pressure from Labour has worked.

I would entirely agree that a windfall tax on the excess profits that energy companies will make is required. As a matter of fact a war should not be exploited to profit some in society at cost to most, including at the risk of destitution for many.

However, let’s be clear, unless the tax was capable of being clinically targeted on the precise excess profits earned and be at the rate of 100% on those excess profits a windfall tax cannot be used as the basis for the redistribution of those gains back to those who will suffer from rising energy costs. Since clinically identifying precise profits arising is impossible, and I have a feeling this additional tax will be at a rate well below 100% I think we can safely conclude two things. One is that companies and their shareholders will get away with this. Income in society will be redistributed upwards as a result. And second, if the government says this tax will fund a compensation fund the money made available will be hopelessly inadequate for that task.

In addition, this tax will take considerable time to enact and implement. Recovery will take even longer. So whilst I approve of seeking to reprice oil and gas using this mechanism it is not (as is always the case) a tax to fund anything. It is merely a tool to reduce market failure by repricing.

In that case this is not an answer to the problem facing many UK households, and it will not fund doing so. We need a blunt recognition that only turning on the government’s ability to create money can solve the crisis we face. And Labour is in the same boat as the Tories (yet again) in refusing to do this. The result is that millions will suffer because our leading political parties are all dedicated to balancing government’s books rather than ensuring that people are warm, fed and housed.

It’s hard not to despair on occasion.

Fascism is advancing, rapidly

Published by Anonymous (not verified) on Thu, 28/04/2022 - 4:52pm in

That we face a risk of fascism taking hold in the UK, with democracy failing as a consequence, is something I have recognised as a very real risk for longer than most when writing this blog.

The risk has come from a Tory party determined to hold power in the interest of the narrow clientele it serves, which it rewards handsomely, and is in turn rewarded by.

It has been assisted by supine opposition from Labour, more keen to rid itself of the left than uphold democracy, and the SNP, more keen to exit the Union than to worry about what might happen if it fails to do so.

Last night saw fascism make big advances in the UK. Because, it would seem, Labour could not be bothered to call in all its working peers to vote in the Lords, the Tories won a whole series of victories on Bills where the Lords had previously inflicted defeat on them.

As a result the government now has control of the Electoral Commission. In other words, there is now no independent agency required to uphold electoral law and democracy in the UK. Instead, the government can now decide what is fair, and no one can object.

Second, laws on voter registration went through. Supposedly dealing with the almost unknown crime of fraudulent voting, the reality is that these laws are intended to effectively remove the right to vote from those who do not need and so do not have forms of photographic ID. They, of course, are almost invariably the least well off, who are least likely to vote Tory. In effect, a property requirement has now been reintroduced into the right to vote in the UK, pushing us back more than a century and representing the first reverse on this issue since the expansion of the franchise began in 1832.

Third, our right to protest about this was removed. We can now only protest if we do not cause offence to anyone when doing so, which is the whole point of protest. We must now, quite literally, be silent.

These are not laws any party or government committed to democracy would promote. They are fascist in their intent. They will be fascist in their consequences.

And Labour, which had defeated the government on all these issues previously, rolled over and let the government win last night, which makes them a partner in this, in my opinion.

The path towards fascism is proceeding apace in this country. And now, apparently, the Opposition are on side with it.

This is deeply worrying.

Is Musk owning Twitter a problem?

Published by Anonymous (not verified) on Tue, 26/04/2022 - 5:07pm in

In my discussion on the Social Consensus, published here recently, I suggested  that any government should:

provide for freedom of speech unless it promotes harm towards or hatred of another person.

Now Elon Musk has bought Twitter for $44 billion, saying that economics does not come into his consideration for doing so, but free speech does.

He has famously crossed that platform before now.

It is also thought that he will allow Trump and his followers back.

In other words, the right to promote harm towards others and hatred of another person might be permitted again, because that is what Trump did.

Where do regulators stand on this? And should they?

I think they should. I think Musk has proven himself unable to accept the responsibility of running a public interest entity, as evidenced by his approach to good governance at Tesla, where announcements that do not respect market rules have been a problem. In that case why should he be allowed to control a platform like Twitter?

Seeking to overthrow the government is what political opposition is all about

Published by Anonymous (not verified) on Tue, 26/04/2022 - 4:32pm in

Tags 

Ethics, Politics

The FT provides a clear indication of the way in which populist thinking is moving this morning. As they report:

An Istanbul court has sentenced a prominent Turkish businessman and philanthropist to life in jail without parole in a landmark case — a verdict campaigners described as an “outrageous” blow to human rights.

Osman Kavala, whose prosecution has become a litmus test of the rule of law in Turkey, was found guilty of having sought to overthrow the government despite years of objections to his treatment by western officials, human rights groups and one of Europe’s top courts.

Extensive research by many groups and go0vermemtns has shown Kavala is nothing more than political opposition.

I give due notice that on this basis I have been seeking to overthrow this government for years because it has failed the people of the UK and because it has served its own self-interest and that of its clients very well.

Those of us who have done so should take due note. Is this where the populists will want to go next? It would not surprise me.

It’s time for a new path on the economic crisis that we face

Published by Anonymous (not verified) on Sat, 23/04/2022 - 6:40pm in

As I mentioned a couple of days ago, Danny Blanchflower and I have written a feature for The Mirror on how to get out of the economic crisis we are in. It is out this morning:

If you click on the image and then click again you get a much larger version.

I especially like The Mirror's explanation of the multiplier on the left-hand side.

What do we say? In seven parts, it's this:

  1. Admit we have a crisis. Face up to the reality of this in other words, and stop saying this is just a cost-of-living issue but call it what it is: a full-blown economic meltdown.
  2.  Cut bank interest rates. The Bank of England needs to reverse its disastrous policy now. They are making things much worse than they need be.
  3. Cut taxes - especially those on the lowest paid. NI should be cut more. Income tax for the lowest paid could be cut (the rate, and not the allowance) and VAT cuts are required.
  4. Raise benefits - and not just universal credit, but all in line with current inflation.
  5. Create jobs - which is where green issues come into play as they are easy to create and the payback is high. We are going to need those jobs very urgently soon unless action is taken now.
  6. Align UK rules on goods with the single market to save business money and to stop the excessive costs that are fuelling inflation. Poverty is a price not worth paying for rule non-alignment and the chaos they are causing.
  7. Pay for this with tax increases on the best off and especially on capital where inflation is a real issue and where nothing else can work; by changing tax rules to redirect savings to investment; by using QE which has never so far created inflation, and by letting the deficit grow, because having a deficit is vastly better than having people in need.

As we argue, all of this is possible. But is there the political will? Time will tell.

The world market in food is about to fail large parts of the world’s population. Are the free-marketeers going to let these people live, or not in that case? That is the question to which an answer is now needed. 

Published by Anonymous (not verified) on Thu, 21/04/2022 - 5:47pm in

As the BBC has reported:

The world is facing a "human catastrophe" from a food crisis arising from Russia's invasion of Ukraine, according to the President of the World Bank, David Malpass.

In an interview with BBC economics editor Faisal Islam, Mr Malpass, who leads the institution charged with global alleviation of poverty, warned that record rises in food prices would push hundreds of millions people into poverty and lower nutrition, if the crisis continues.

As it reports him, saying

"It's a human catastrophe, meaning nutrition goes down. But then it also becomes a political challenge for governments who can't do anything about it, they didn't cause it and they see the prices going up," he said on the sidelines of the IMF-World Bank meetings in Washington.

The World Bank calculates there could be a "huge" 37% increase in food prices, which is "magnified for [the] poor", who will "eat less and have less money for anything else such as schooling. And so that means that it's really an unfair kind of crisis. It hits the poorest the hardest. That was true also of Covid".

They added:

The price rises are broad and deep, he said: "it's affecting food of all different kinds oils, grains, and then it gets into other crops, corn crops, because they go up when wheat goes up".

Vitally, though he noted:

There [is] enough food in the world to feed everybody, he said, and global stockpiles are large by historical standards, but there will have to be a sharing or sales process to get the food to where it is needed.

So what can be done? The BBC note that Mr Malpass is discouraging countries from subsidising production or capping prices. Instead, he said, the focus needed to be on increasing supplies across the world of fertilisers and food, alongside targeted assistance for the very poorest people.

The World Bank is, of course, worried about the international dimensions of this issue, and I agree that they should: that is their job. I agree with them too that the issue is not about availability, but is instead about price, which will be unaffordable for many. That is the vital point that needs to be noted.

It is, however, also the point domestically. There is no one who needs to go hungry in the UK in the coming year, and no one who need to suffer from the cold either. The issue is not the availability of food or energy here either: the issue will be price and fair distribution.

The simple fact is that in the coming months markets will fail many millions of people in the UK and billions of people around the world. There is no market solution to that market failure. There is only a state-driven one, and a state-driven one that suspends any belief in balanced budgets when the priority is keeping people alive.

The challenge in this is enormous. In a world economy where most in power have been taught that only markets can offer solutions we have to face the reality that this is not true, and that the operation of markets must be suspended if lives are to be saved.

Are the free-marketeers going to let these people live, or not? That is the question to which an answer is now needed.

The Social Consensus – second edition

Published by Anonymous (not verified) on Thu, 21/04/2022 - 5:22pm in

I wrote recently about the Social Consensus, as I call it, setting out the high-level principles that should, in my opinion, guide the operation of the style of government that we actually have, rather than the fantasy one that almost all politicians on the right and some on the left think we should have instead.

My proposal attracted a lot of comments on and offline and I have considered them all. The structure of what follows looks similar to the first version, but there have been many small tweaks to, I hope, improve the suggestion and address the concerns raised, most of which I did in some way take into account.

Please remember when commenting that these are meant to be principles and not policy proposals.

Further comments are still welcome.

The Social Consensus

Proposition one

The state shall recognise each individual within it as having equal rights. This includes the right to choose a government that fairly reflect the views of all within its jurisdiction, in whose individual and collective best interests any government shall be tasked to act, seeking to reconcile these claims as best it is able.

Proposition two

The state will create law to reflect the ethics of the society within its jurisdiction as determined by its properly elected government.

In pursuit of this goal the state will:

- require that any government within its jurisdiction and those who act on its instructions shall abide by these principles;

- provide mechanisms to hold a government to account if it does not adhere to these principles, including by the operation of an independent judicial system capable of demanding remedy for failure to do so;

- provide for freedom of speech unless it promotes harm towards or hatred of another person;

- secure the availability of diverse news media that reflects the range of opinion within its jurisdiction.

Proposition three

The state will uphold the rule of law and provide access to all citizens who wish to seek remedy under that law, whatever their means.

Proposition four

The state will maintain peace within its jurisdiction and seek to secure peace internationally.

Proposition five

The state will uphold the right to own and trade property, whilst ensuring that its own property rights are respected and upheld.

Proposition six

The state will eliminate poverty, whatever its cause, and ensure a fair allocation of resources so that all might participate fully within society.

In pursuit of this goal a state will seek to provide appropriately rewarded work for all who want it and education throughout life to all who might wish for it and can benefit from it.

Proposition seven

The state will protect each person from harm whether that be from:

- Physical risk;

- Discrimination;

- Preventable disease or illness.

Proposition eight

The state shall secure those resources that it needs to fulfil its obligations, in pursuit of which it shall:

- manage the macroeconomy of its jurisdiction, including its currency, currency creation, taxation and deposit taking to provide sufficient economic stability to achieve this goal;

- limit the power of those who seek to exploit corporations or positions reflecting artificial competitive advantage including through the exercise of monopoly power within marketplaces;

- regulate terms of exchange, trade and sharing to promote fairness;

- encourage the free movement of people and ideas within and beyond its jurisdiction.

Proposition nine

The state shall recognise the limitations that the availability of natural resources imposes upon it, managing its affairs to ensure that future generations enjoy the opportunities available to those currently alive.

Proposition ten

These propositions shall be interpreted within the framework of the UN Declaration of Human Rights.

Coming soon – the Mile End Road Economists’ prescription for getting out of the recession that’s coming out way

Published by Anonymous (not verified) on Thu, 21/04/2022 - 5:13pm in

Tags 

Economics, Ethics

Having announced one publishing venture this morning, I also note that Danny Blanchflower has spilled the beans on another.

Danny and I describe ourselves as the Mile End Road economists because the Mile End Road is the road out of the City of London towards the East - to the point where the Peasant's Revolt reached its climax. Our view is from beyond the City walls, seeking to promote economic policies for the well-being of those who do not enjoy the privileges of those within them.

Fed up with the fact that all major political parties still seem to think it more important that they balance the government's books instead of worrying about the well-being of people in this country, we suggested to The Mirror that they might like to publish an article suggesting that there was an alternative agenda that could be pursued.

It's now been accepted by the editor - and we expect it to be out soon.

The aim is simple: we want to change the terms of debate and put people and not balancing government finance at the heart of the political economy.

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