Brexit and Conspiracy

Charlie Stross – one of our best home-grown SF writers – has brought me to restart blogging, just to keep a record of his recent posting on Brexit. I find his discourse highly credible, despite generally favouring ‘cockup’ over ‘conspiracy’ explanations for untoward events….

Here is the link.  And here it is in full, anyway:

The Pivot

By Charlie Stross

Something huge is happening in the UK right now, and I wonder where it’s going.

Brexit requires no introduction at this point. Nor, I think, do the main UK media players. With the exception of two newspapers (The Daily Mirror and The Guardian) the national papers have been uniformly pro-Brexit to the extent of attacking national institutions seen as being soft on Brexit. The BBC news programs have also broadly pushed a pro-Brexit line, from Question Time (which gave Nigel Farage a semi-permanent slot but not once invited a guest speaker from the Green Party or the SNP—both pro-Remain by policy), to the Today Program (Radio 4’s news flagship), whose John Humphrys pushes a hard Brexit line.

Although the referendum was framed as advisory and limited to leaving the European Union, it was received as a mandate by the Conservative hard right and their hard-left opposite numbers in Labour (who have their own reasons for disliking what they see as a neoliberal right-wing institution), and the current in-cabinet debate appears to be over whether to leave all European institutions immediately, or to provide an adjustment period for leaving organizations like the Customs Union (which wasn’t on the ballot in the first place).

Here in the real world the drumbeat of bad economic news continues. Jaguar Land Rover to move production of Discovery from UK to Slovakia, because of course they’re owned by Tata, most of their output is exported, and why would an Indian company want to invest in a UK beset by pre-Brexit uncertainty? UK manufacturing output is falling at its fastest rate since 2012. And the rest of the economy is doing so well that Poundworld (the equivalent of a US dollar store chain) has collapsed and is in bankruptcy administration.

Then, last week, something happened. Or several somethings. (From the outside it’s hard to be sure.)

One of those somethings was the retirement of Daily Mail editor Paul Dacre and his replacement by Mail on Sunday editor Georgie Greig, a pro-European journalist. Newspaper owner Lord Rothermere remains the same, but an unattributed source described Greig’s appointment as part of a process of “detoxifying the Daily Mail”.

Next, the Murdoch press began an extraordinary about-face on Brexit. For about a year now Carol Cadwalladr of The Guardian has been digging into Cambridge Analytica, the Leave.EU campaign, and possible links to Russian state agencies and oligarchs. These links were known to some pro-leave journalists as much as two years ago, but they’re only now coming to public view. Aaron Banks is one of the main bankers of the Brexit campaign and appears to have very cordial relations with the Russian government, not to mention half a dozen Russian gold mines; he’s been called to testify before a House of Commons committee tomorrow and last week was refusing to attend. This week he appears to be on the back foot, with The Times going after him Revealed: Brexit backer Arron Banks’s golden Kremlin connection. Indeed, The Observer reports that Arron Banks ‘met Russian embassy officials multiple times before Brexit vote’. The newspaper goes on to say, “Towards the end of last year, Banks issued a statement saying his contacts with “the Russians” consisted of “one boozy lunch” at the Russian embassy. Documents seen by the Observer, suggest a different version of events.” (Note that Banks has a net worth in the ~£100M range: you don’t print anything about him in an English newspaper without getting a legal opinion first.) Oh, and the Fair Vote Project is going after him in court in the US, following allegations that two companies owned by Banks may have illegally exported information on British voters to the USA (in violation of UK data protection rules) for purposes of data mining (Banks had negotiated with Cambridge Analytica prior to this move).

Here’s a summary of what we know so far, by way of Vice: verything you need to know about the bombshell report linking Russia to Brexit. Shorter version: Banks had extensive meetings with the Russian ambassador to the UK, who is also named on the indictment of ex-Trump campaign aide George Papadopoulos; Banks also passed contact information for Trump’s transition team to the Russians. So he’s a critical link in the Brexit/Trump/Russia connection.

He’s not the only Brexiteer in trouble in the press. Hedge fund manager and Brexiteer Crispin Odey is accused of shorting the British stock market to the tune of £500M, effectively betting that Brexit will cause the market to fall and these companies to do badly. Brexit ultra and possible Conservative party leadership challenger Jacob Rees-Mogg is under siege by the formerly-friendly Daily Mail: Mogg’s Moscow Millions: Brexiteer’s firm has poured a fortune into a string of Russian companies with links to the Kremlim but has invested next to nothing in Britain. And finally Neo-Nazi MEP Nigel Farage’s EU pension is to be held in escrow pending the completion of ongoing fraud investigations (and, as the icing on the cake, apparently the FBI have named him as a person of interest in their ongoing investigation into Russian slush money and false news).

Let me put forward a hypothesis:

In the real world (outside the pages of fiction) only two types of conspiracy generally take place: cover-up and collusion. A cover-up generally happens when several people or groups stand to lose money or be politically embarrassed if an uncomfortable truth becomes public knowledge. See, for example, the Home Office shredding of historical records relating to the Windrush scandal lest they embarrass the Prime Minister, who was the Home Office minister who brought in the hostile environment immigration policy. And collusion generally takes place when a group of individuals or organizations stand to benefit from a course of action.

Brexit was a classic example of a collusion conspiracy. Many of the named politicians and businessmen above stand to gain millions of pounds from a hard Brexit that causes the British stock market to fall. Others stand to make millions from juicy investment opportunities they were offered in Russia. We cannot know for certain what the quid pro quo for those investment deals were at this time, but I strongly suspect that support for Brexit (and more general socially-authoritarian right-wing policies) was part of it.

And now we’re seeing a rival collusion conspiracy surface. Not all billionaires stand to profit from seeing the remains of British industry sink beneath the waves, and not all of them are in the pocket of the Kremlin’s financial backers. There are a bunch of very rich, rather reclusive men (and a handful of women) who probably thought, “well, let’s sit back and see where this thing leads, for now” about 18 months ago. And now they can see it leading right over a cliff, and they are unhappy, and they have made their displeasure known on the golf course and in the smoke-filled rooms, and the quiet whispering campaign has finally turned heads at the top of the media empires.

If I’m right, then over the next four to eight weeks the wrath of the British press is going to fall on the heads of the Brexit lobby with a force and a fury we haven’t seen in a generation. There may be arrests and criminal prosecutions before this sorry tale is done: I’d be unsurprised to see money-laundering investigations, and possibly prosecutions under the Bribery Act (2010), launched within this time frame that will rumble on for years to come.

Even if the momentum behind Brexit proves un-stoppable at this point, the Remain faction—in the shape of the corporate and political power groups who stand to lose their fortunes as a result—will seek revenge.

And in the large, I think it’s no coincidence at all that this broke out in the same week as Donald Trump’s epic tantrum at the G7 summit.

Posted by Charlie Stross at 16:54 on June 11, 2018

 

Homo Deus by Yuval Noah Harari

Just finished Homo Deus – A Brief History of Tomorrow by Yuval Noah Harari.

It’s the most irritating book I have read for a very long time. Most especially, but not only, its first chapter. This is unlike his last book Sapiens, where only the last chapter was profoundly irritating.

But I strongly recommend Homo Deus it for its wonderful thought-provoking properties, if one can keep one’s temper, that is. Part of the irritating quality is due to its seemingly to have been written in a state of ‘flow’. At first I thought it might have been drug-induced but reading the acknowledgements I see he practices a form of meditation called ‘Vipassana’ which is probably to blame.  Anyhow, it is clearly very well researched – check the notes.

Among lots (and lots) of other things, he makes the profound distinction between ‘consciousness’ and ‘intelligence’ – something I have sometimes thought about when thinking about people like Donald and Boris who give every indication of lacking an ‘inner life’ (the term ‘p-zombies’ comes to mind) but is more obvious when we think of machine intelligence or AI. And there goes my appreciation for the film Her by Spike Jonze, shame that.

Amusingly, he criticises some philosophers who dispense with both ‘free will’ and ‘causation’ in one part of their thesis, and who talk still in those terms, while he sometimes does the same himself. At least cosmologist Sean Carroll had the decency to fudge the category error dilemma with the term ‘poetic naturalism’ in his book The Big Picture: On the Origins of Life, Meaning, and the Universe Itself – also well worth reading, though not quite as much fun, nor quite as irritating (…though somewhat).

Aside from all that, Homo Deus makes a bit of a mockery of my concerns about the latest ‘industrial revolution’ evidenced in some of my previous blog posts. He foresees the death of the ‘religion’ Humanism, in all its forms, good and bad, as the ‘religion’ Dataism and its algorithms takes over everything. But really everything. Curiously something like this was foreseen a few years ago by a brilliant American SF writer by the name of Linda Nagata in her novel Red – First Light and its sequels. And Charlie Stross an equally brilliant British SF writer also approached it in Rule 34 and its sequel.

But enough of that. Read the book. (And note to self – read Harari and Carroll again if you can work up the energy)

 

Mental breakdown, rage, underclass, ‘pathetic loser’, psychopathy, copycat killings or ‘Islamic Terrorism’… take your pick

The latest ‘Islamic Terrorist’ outrage in Nice may well not have been. It remains to be seen.

When a number of middle-class well-educated Arabs hijacked planes and perpetrated the 9/11 horror – that was, indeed, a clear-cut case of ‘Islamic Terrorism’: the perpetrators conspired together, motivated by a death-cult ideology associated with one of the strands of Islam. The same could be said of the UK’s 7/7 outrage though the perpetrators were of mixed social class and educational background. The major events in Paris involving a number of conspiring perpetrators – particularly at the Bataclan – were also clearly acts of Islamic Terrorism. It is the work of intelligence agencies to protect society against such events.

But ‘lone wolf’ actions (or even pairs-of-wolves) around the world are quite likely to have been copycat crimes in which the perpetrators may be classified as ‘pathetic losers’ or, more helpfully, people suffering from mental breakdown looking for an excuse to act out their suicidal-murderous rage. It is doubtful whether any intelligence agency can protect us from such activities.

In such cases protection can only come from friends, family, teachers, prisons, religious leaders, the criminal fraternity, mental health professionals and others who become aware that someone they know is talking or behaving suspiciously or erratically or dangerously. Such activities, whether allegedly Islamic-inspired or not, are no different from the murderous rampages committed from time-to-time at work, in schools, along a street, or elsewhere in any country (eg Tunisia, France, Canada, England, Tasmania, Scotland and especially the USA – to name some well-known places they have occurred) where Islam may or may not have been used as an excuse to act out murderous and suicidal rage.

For the President of France to keep using the term ‘act of terrorism’ for the Nice event is a knee-jerk response not helpful to anyone in France or elsewhere as it implies a failure of intelligence agencies had occurred, when this may well not have been the case. It could only be the case if there are grounds to believe an ideological or religious faction, group or party may have been involved in the planning or active priming of the perpetrator.

EDIT 21-07-16

Seems I was wrong. This was a planned terrorist attack, according to the French prosecutor on the case. It was planned months in advance, he says, with 5 others involved in obtaining the weapons found.

So this was a profound failure of French intelligence services or their capacity.

EDIT 24-07-16

But in the light of the latest Munich attack it occurs to me that, if they are not already doing so, intelligence services need to start employing the services of paid snitches within the criminal underworld, over the purchasing by the psychologically disturbed of the kind of weapons which can facilitate such mass-murderous attacks. Obviously no use in the USA where it’s legal to purchase these kinds of weapons. But there some kind of covert arrangement with gun salespeople might work?

Theresa May’s agenda as UK’s Prime Minister

I have no idea whether Theresa May really intends to ditch Osborneomics. George Osborne appears to have ditched it, so it seems quite likely. Hopefully she will have got the message that ‘the markets’ have capitulated over the perceived need to raise interest rates, as they are still piling into Britain’s gilts (government bonds), causing them to yield what are effectively negative rates. Which means they would be paying the government to borrow, as before, but now even more so. So now would be a really, really good time for the government to borrow to fund new infrastructure investment, as well as investment in education (including adult), health, housing, R&D, even military – anything which would be of long-term benefit to the country as well as employing people and receiving more taxes back. The kind of growth so engendered would eventually bring our Debt/GDP ratio right down again in good time.

Of course this would tend to suck in more immigrants to do the work Britons seem incapable of doing, for the moment – but that is another story, which will be somewhat difficult for her to deal with, as recently.

An article in the IMF’s Finance & Economics magazine (F&D) in June questioned the ‘Neoliberal Agenda’ with its emphasis on globalisation and particularly capital flows deregulation, indicating that the way it has actually worked has, to say the least, not been optimal. After doing some research, the authors stated:

• The benefits in terms of increased growth seem fairly difficult to establish when looking at a broad group of countries.­
• The costs in terms of increased inequality are prominent. Such costs epitomize the trade-off between the growth and equity effects of some aspects of the neoliberal agenda.
• ­Increased inequality in turn hurts the level and sustainability of growth. Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects.­

This is a conclusion reached by a large number of economists. As is noted here, by Dani Rodrik, quoting from some of the more distinguished ones:

This backlash was predictable. Some economists, including me, did warn about the consequences of pushing economic globalization beyond the boundaries of institutions that regulate, stabilize, and legitimize markets. Hyper-globalization in trade and finance, intended to create seamlessly integrated world markets, tore domestic societies apart.

The increase  in inequality is all around us in the UK with its shrinking middle-income sector, and even more so in the USA, where middle and working-class incomes have hardly risen in the past 30 years. In the meanwhile the incomes and wealth of the richest 1% of our societies have risen exponentially. This is not just an issue of ‘fairness’. The super-rich have difficulty spending their money in a way that benefits the economy broadly via growth and tax receipts, compared with the less well off who spend more of their income and therefore do pay more in tax as their income rises.

There is significant middle- and working class disgruntlement and outright anger, which is clearly visible in the popularity of Trump and Sanders in the USA and the Brexit referendum result in the UK. This inequality is causing social unrest, as is now very clear, but started to become pretty obvious here during the widespread riots in 2011. The problem will not go away unless there is a significant change of government policies.

And that is what is so interesting about Theresa May’s latest pronouncements.  She, at least, has got at least some of the message – as, perhaps, only an ex-Home Secretary can, who certainly will not want more social unrest during her stint as Prime Minister. Especially as Brexit will almost certainly make matters worse in a shrinking economy where arguments about who gets most out of the remaining ‘cake’ are likely to become even more heated, as Tim Harford has pointed out.

Chris Dillow, a Marxist blogger whose day job is on Investors Chronicle makes some very interesting points about some of the details of her future agenda:

There’s something remarkable about Theresa May’s speech yesterday: large chunks of it could have come from a Labour politician.

For example, she spoke of the “injustices” of people from poorer backgrounds having less chance of going to university or getting top jobs or even living a long life. She complained that many people in politics don’t appreciate “how hard life is for the working class”; of workers being “exploited by unscrupulous bosses”; of “irresponsible behaviour in big business” and of an “irrational, unhealthy and growing gap” between workers’ and bosses’ pay.

She went onto demand a “proper industrial strategy” to raise productivity – one that might block hostile takeovers; of the need to “give people more control of their lives”; of the need for workers on company boards; a “crack down on individual and corporate tax avoidance and evasion”; and restraints upon CEO pay.

If we add to all this her renunciation of austerity and (I presume) acceptance of rises in the national living wage, May is to the left of the position many Labour MPs had in 2015 – and perhaps still have  … It’s no surprise that her words have been welcomed by the Equality Trust.

So, maybe she is also, unlike George Osborne, listening to the views of the vast majority of UK economists. George Osborne may or may not have got the message, but I suspect she may want someone else as Chancellor of The Exchequer.

EDIT 13-07-16 Evening

George Osborne is out of the Cabinet. Philip Hammond is the new Chancellor.

UK 2017-2025? Post anaemic recovery, post Brexit, lousy post

So, at last, George Osborne has just cancelled his appointment with eliminating our deficit, ie having a budget surplus, by 2020. I’m not sure if that means he has come to believe in textbook macroeconomics, is appreciating the limitations of neoconservatism, or is just dealing with the reality of the impossibility of the task given what is likely to happen to the UK economy post-Brexit.

Some people are saying that if the UK economy really tanks as a result of Brexit there will be a need for more austerity. God help us. It’s more the case that there will be a need for really massive stimulus. But here is what George Magnus thinks will happen, somewhat mangled by me: a UK ‘demand shock’ recession will be fully evident by end 2016 and through 2017, with rising unemployment and more spending cuts but rising fiscal deficit from the ‘fiscal stabilisers’ of social services support and as the government also tries to stimulate somehow with infrastructure projects, along with the possible removal of OAPs ‘triple lock’ on their pensions, maybe even removal of the alleged ‘ring fence’ for NHS. All this will probably erupt into the open in the (new?) Chancellor’s Autumn Statement later this year.

But, more significantly, there will be a substantial ‘supply-side shock’ through 2020-25 as business investment, particularly from foreign companies (the likes of Toyota, Nissan, Siemens, etc) is diverted elsewhere, while investment spending from UK companies is reduced, along with housing starts etc. If there is lower immigration (or, indeed, movement of immigrants to their home countries or elsewhere) this would further weaken the supply-side of the UK economy. Any ‘total factor’ productivity benefits from supply chain integration with other EU countries will evaporate, making even some UK-made goods more expensive at home and reducing any benefits of a shrunken pound to our exports. The average Brit will be noticeably poorer than now.

And, by the way, any ‘money printing’ where there is a supply-side recession could well cause significant inflation, unlike with the demand-side recession we have recently encountered.  Whether any government is equipped to recognise when one type of recession melds into another type of recession is a moot point.

George Magnus is more dispassionate than I am, because he does not mention social unrest, which will likely become significant. Among other things there will likely be a further rise in active racism.

Another equally  dispassionate blog on the Triple Crisis site, while pointing out very real negative economic effects of Brexit, indicated that they will not necessarily be quite as bad as some have suggested. However, it is less sanguine about the inevitable accompanying rightward shift of Conservatives in power in the UK (more pro-austerity, more pro privatisation of NHS) and of the negative knock-on effects on the EU itself and on the euro.

What happened between 2010 and 2016. All about Austerity…

I came across something on Yves Smith’s excellent #NakedCapitalism blog, which I thought I’d share with my future self.

Before linking it, here’s my own version of the story so far…

I’ve kept banging on about the follies of #austerity ( aka ‘fiscal consolidation’) as introduced by the UK’s Chancellor George Osborne, much aided and abetted by the hapless Nick Clegg in the coalition government which came to power in 2010.

But it is important to be clear that fiscal consolidation is very appropriate under certain circumstances – namely, when an economy is judged to be growing strongly, and, for any reason you like, it is judged desirable to rein in public debt. After all, why burden your future self or future generations with debt which is unnecessary because you can easily afford to reduce it without harming your growth or harming your public services? All governments borrow by issuing debt in the form of government bonds and the UK government has nearly always been in debt. Think of it as a mortgage. No problem, as long as you can afford the interest payments. Even with a strongly growing economy a government may legitimately wish to borrow in order to raise large sums, beyond the scope of taxation, for state investment purposes – on infrastructure, hospitals, universities, schools, weapons, scientific research, and so on (war also comes to mind). But if it needs to borrow to pay for ongoing salaries, unemployment benefits, social services, road maintenance, etc., (etc.) – then clearly something is wrong. In that case it may mean taxation is just too low: as a growing economy may mainly be putting the proceeds of its growth into the pockets of a very few, with little ‘trickling down’ to the many. In which case the government’s coffers would be receiving too little tax to pay for current expenditure, because inequality is too high.

The current UK austerity policy was introduced by the Clegg-Cameron coalition shortly after the massive increase in debt incurred by the UK government of Gordon Brown: an increase which was necessitated by the bailout of the poorly-regulated financial sector (for which blame Bill Clinton and blame Blair-Brown) after the financial sector, especially the banks, brought much of the world economy to its knees. The same events occurred in the USA, where it all started, and in many other major economies.

Financial sector bailouts, the monetary policy of reducing central bank interest rates and fiscal stimulus by governments – ie extra government spending – were initially applied and sort-of saved the day. But the initial very appropriate fiscal stimulus was quickly followed by panicky fiscal retrenchment even as the previous policy was starting to work. The immediate result of the 2010 newly elected Conservative fiscal retrenchment was to immediately turn shaky recovery back into recession. In the UK George Osborne lifted his foot off the fiscal brake a little when it became obvious to the Treasury in 2011 that his austerity policy was damaging the economy, which had started to grow again in 2009-10. All the while Mr Osborne was claiming that there was no alternative to Plan A, and that he was still pursuing it. But he wasn’t. Much to the chagrin of some of the ‘Tory Press’.

However, by then the damage caused by Osborne’s ceasing all UK government investment, and his other austerity measures, had already been done; followed by knock-on (‘hysteresis’) effects on private investment as well as further state investment. Of course, the UK economy did eventually start to recover yet again – they always do…eventually. But this UK recovery, despite significant employment growth, has since been pretty anaemic and fragile in terms of GDP, with appallingly low productivity and an unsustainable ‘trade deficit’. not to be confused with the fiscal deficit, which was hardly shrinking at all, despite the cuts. Similar government behaviour elsewhere in the world produced similar results, though Britain’s productivity remains the worst among developed nations.

Of course, in the middle of all this, the euro area had its own special problems to add to the mix, largely due to irresponsible bank lending, most especially by German banks, to irresponsible  private borrowers – mainly property developers in other countries, especially Ireland and Spain. Greece was a special bad case with Greek government profligacy which was pretty obvious when it joined the euro and which should have stopped its joining, except nobody had the courage to call out the Greek govenment over its bogus data.

Basically, what was forgotten by the UK government and others, as they focused their attention on the higher than normal Debt/GDP ratio (obviously more important than the actual debt itself), was that while, if this ratio is considered too high to be sustainable, there are, on the surface, two ways to bring it down:

1. to directly cut debt by cutting the government deficit (difference between tax take and expenditure), through severely curtailing government spending, or…
2. a longer term strategy of raising GDP by means of additional government spending on capital investment and encouraging business to invest… (and there is always ‘helicopter money’ to consider, as well – giving money directly to consumers to spend)

… in most countries, especially the UK, the focus was wholly on response (1) from which the private sector bit of (2) was supposed to occur via… er…’confidence’.

The reason for choosing opton (1) was the alleged sheer urgency of ‘bringing down the debt’. This was supposed to mean the private sector would regain its confidence to spend and business, thereby, would invest more. It was hoped by the more full-blooded neocons that this would also have the benefit of shrinking the state, which, for many, was their main ideological and selfish motivation (lower taxes, y’see).

Of course it failed and continues failing, even in its anaemic form.

This is because businesspeople are not stupid and did not actually have confidence that the policy was going to work, whatever they may have been saying to the press. And so, instead, they pocketed their profits and tax cuts by proceeding to increase senior management salaries/bonuses while massaging up their share prices via buying their own shares, thus ‘justifying’ increased bonuses… etc., (etc.). British productivity, in particular, suffered from a lack of investment and cheap labour, some imported.

Neither were ‘the markets’ confident. Thus they went about increasing their purchase of government bonds in the secondary market, driving up bond prices and thereby decreasing bond yields, since the interest paid is monetarily fixed on the initial government issue price. This was, amazingly, widely reported by an ignorant press and others as ‘success’ in raising the confidence of the markets and, by inference, business generally. After all, if a country’s bond prices are high (interest rates therefore low) doesn’t that mean the country is a safe bet?

Bollocks it did.

In this case it meant that while ‘the markets’ understood that a country in charge of its own currency would have some difficulty actually going bankrupt, because if push comes to shove it can legally pay its debts in its devalued currency, government bonds were being bought instead of shares or investing in productivity-enhancing schemes because, in reality – as opposed to what was put in company reports – they had too little confidence in their sales and profitability being steadily sustained in the future. There was nowhere else really to invest with any confidence, squire.

In the euro zone, countries can easily go bankrupt, because they do not have their own currency and so debt must be repaid in euros. They are in a situation a bit like the old discredited ‘gold standard’.  This was why Britain could never ever have become ‘Greece’ despite the ignorant warnings from people who should have known better, or did know better but were just being mendacious.

Throughout, there was also the ‘monetary policy’ employed by central banks, namely reducing interst rates drastically and quantitative easing  – otherwise known as ‘unconventional’ monetary policy – employed to overcome the ‘zero lower bound’, when you cannot stimulate an economy via lower interest rates any more because they they have already been reduced to zero or near zero. That had relatively poor stimulative success – unless, maybe it worked to keep us out of recession once we had managed to get out of it. In fact, we mainly got out of it through consumer spending and increases in consumer debt, or at least consumer ‘dissaving’.

So, in the UK, here we still are, with an anaemic recovery (yes, yes, better than some, but still anaemic) which can easily be knocked off course by any old external shock – and any old self-inflicted internal shock like the Brexit vote and its rumbling longer term repercussions.

Quite early on in all this, the IMF had changed its mind about the desirability of fiscal consolidation as a way of reducing debt (murmurings and research from them in 2010 and later, as I posted in previous blogs). But the OECD seems only very recently to have come to its senses and started to call for governmental fiscal expansion policies. It says the need is urgent, urgent, I tell you! It has to be remembered that these august instutions are often run by politicians and bankers who have a major say in the official pronouncements, which may actually conflict what their economists are actually saying, until eventually the economic realities and the narrative of their economists successfuly break through.

Meanwhile, Germany is still stuck in its traumatic Weimar fear of inflation – forgetting Bruning deflation – and employs a version of macroeconomics allegedly invented by Schwaebian Housewives: debt=bad…always… and never ever print money. Their behaviour is also dictated by a belief that every country in the euro zone should be like them and export more than it imports: a logical impossibility… (except to German finance ministers, apparently).

Finally, here is the link I promised originally.

But now we are starting a new story. Post the Brexit referendum. Next blog.

 

My instinctive take on Brexit (now that it’s happening) ….

What follows is what I wrote in the immediate aftermath of the initial Brexit referendum vote back in 2016. What I didn’t discuss was the most likely reason for the way many (most?) of  the 52% who voted chose Brexit.

Quite simply it was out of anger and frustration which had very little to do with the EU and quite a lot to do with ‘them’ – ‘them’ them being any handy scapegoat. The cause of the anger and frustration was, in my opinion, the Conservative government’s ideologically driven austerity policy introduced in 2010 (when the economy was just starting to grow again after ‘the crash’). This policy largely affected the less well-off, while the better off benefited from tax-reductions. Cutting the national debt would have been far better achieved by fiscally boosting the economy – as the research arm of the IMF pointed out (but not the political branch – the nice French lady who didn’t want to anger our finance minister). Instead, the 2010 growth was stopped dead in its track

The Brexit result has been achieved through the anger of many of the British people.

1. It will be bad for the UK economy in the short-medium term. I have no idea about the long term (but in the long term we are all dead, especially the elderly)
2. Unfortunately, before the long term it is also likely to facilitate the break-up of the EU and boost the already growing fascist movements across Europe
3. In the UK this will be because the ‘promise’ of Brexit (control over our laws, regulations and, above all, immigration) will not produce the effects the mass of Brexiters will be expecting: immigrants will still come in as long as and in the numbers our economy needs them, which is what has been happening up to now
4. And if the UK economy no longer needs them, or it does need them, but is deliberately starved of immigrants by border controls, that means our economy will be shrinking
5. Which means the majority of British people will be poorer and more angry
6. Scotland may begin the process of leaving the UK… And Northern Ireland may see a renewed outbreak of civil war as many there will want to join the Republic of Ireland. Those events will add to the messiness of things, to say the least
7. Back in England and Wales, the regulations which protected UK workers rights as employees will be dismantled in the name of setting business free of its shackles (which will do bugger-all to help free enterprise boost the economy, but may put extra money into the salaries and bonuses of the most senior managers and owners of SMEs and some large corporations), thus making the poor even more angry
8. UKIP will then morph into a fully-fledged fascist party and more people will vote for it
9. While similar stuff will be happening happen all over Europe (it is already beginning in France, Holland, Poland, Hungary, Austria)
10. In the meantime, elsewhere, Trump may well be elected US president
11. It’ll be the 1930s all over again
12. Russia may take advantage of the chaos to physically join up with Kaliningrad via either an invasion of Poland or an invasion of Lithuania (probably Lithuania), which might spark a major European war
13. But a Trump-led America could well stay out of that, saying ‘not our problem’
14. Lithuania falls, because an enfeebled NATO has no chance of stopping Russia. But I don’t think this will seem very important in western Europe
15. I think the expression ‘clusterfuck’ was invented for just such a rolling scenario.

Here was The Economist‘s Kal’s take

(AFTER TRUMP GOT ELECTED…I ADDED…)

As for 1930s … Trump’s America looks likely to be going Authoritarian (Fascist? Racist?). The relationship of Trump’s USA with Putin’s Russia look like becoming very ‘interesting’ indeed. I’m obviously not the only one who thinks so. This from Frances Coppola’ s blog on the likely repercussions of the Trump administration.

She sees a major realignment of powers taking place, with chunks of eastern Europe returning to Russia’s fold and a likelihood of the return of American military action in the Middle East (and elsewhere – China, North Korea), less tentative than recently. With North African and Midddle East oil taken out of ISIS and other radical Islamist control – no accident that an ex-oil boss is now Trump’s Secretary of State – and possible Russian takeover of Iran’s Caspian oilfields.

If it gets any more ‘interesting’ we won’t have to worry so much about jobs and pensions…

On Immigration into UK. It’s (not so) complicated…

I don’t think there is much doubt that the primary emotional driver behind the Leave campaign is that of immigration. Namely, a strong feeling among many British citizens that there are just too many immigrants in Britain now and that the flow should at least be reduced substantially.

Of course there are other drivers too: about the alleged ‘undemocratic’ nature of the EU, its alleged inefficiency and financial profligacy, its alleged ‘red tape’ regulatory regime over which we Britons are alleged to have little or no control, its alleged control over our justice system. All of these could be argued. For instance, there are some sectors of the business community (particularly some SMEs and swashbuckling entrepreneurs) which just hate regulation of any sort. But I don’t wish to talk about any of this now because these issues, none of them, or in combination, provide the sheer emotional charge behind the Leave agenda.

So let’s look at immigration.

We’re in the here-and-now, so best not to rabbit on about Britain being a ‘nation of immigrants’. Rather better to start with the fact that we have an order of net immigration from outside the EU which is similar to that of the net numbers from within the EU.   Net migration from within the EU and from outside the EU were both running at around 185,000 per year in 2015. Thus, despite the EU ordained requirement that the UK accept ‘free movement of labour’ to and from the EU, we have been perfectly free to cut non-EU immigration very substantially if the UK government had wished to do so. And despite David Cameron’s stupid promise to cut immigration to the tens of thousands, his government has done absolutely nothing to start any process of restricting non-EU immigration.

The reason the promise was stupid and the reason nothing has been done about non-EU net migration into the UK is that our economy has needed the immigrants, irrespective of source. The evidence for this is that, despite the total volume of immigration, the rate of unemployment in this country continues to decline. Within this, the level of employment among UK-born citizens continues to rise. See here. Both are now at near-record levels. This fuels our economic growth, such as it is.  Why this has not led to near record growth is another matter, to do with piss-poor UK business and state investment levels.

But the evidence of the need for immigration is also clear from the sheer numbers of immigrants gainfully employed in our social services, health services, construction and commercial sectors, without whom all these sectors would be in an even more woeful state than they are currently. Their state would be woeful because the UK-born population is ageing itself into retirement and ill health and our youngsters are simply not breeding enough to make up for this.

Were it not for the immigrants there is no doubt that some sectors would have invested more significantly in IT/Robotics/Automation to replace the greying UK population – but it has proved cheaper and more convenient to avoid doing this by simply employing more human bodies, irrespective of origin. I have argued in previous posts why business investment is so low in the UK (most especially the UK), but the problem is not only business – the state sector could also have been investing more, likewise argued in previous posts.

But since we are where we are, we need the immigrants who have come and are coming to fill the job vacancies we have in the UK. Without them our economy would decline and our social and health services would be in an even worse state.

But what about the over-demand (‘pressure’) on our social-service, education and health sectors?

This is simply the increased demand we should expect from an increasing population. Provision should have been made for it.

Indeed, up to 2010, until the coalition government abolished it, there had been a poor, underfunded, Migration Impact Fund (MIF) which had been half-heartedly designed to deal with precisely this issue. But of course that would have required government investment in the housing, health, social services and educational sectors expected to be negatively impacted in demand terms by a growing population. Not that a young, healthy immigrant inflow would be making significantly greater demand on social services and health (except probably GPs). But surely they would on eduction and housing needs. We can see the dilemma the UK government is in: its policy of austerity forbids it from borrowing more or taxing more so it can spend more, even on investments that would provide significant medium- and long-term economic returns for the state.

So, when it comes to immigration and the increased pressure it puts on housing, the GP health service (less so hospitals), and education in particular, the government is fighting the Leave campaign with one hand tied behind its back.

Which is most unfortunate, as otherwise it could easily have taken the steam out of the part of the anti-immigration movement which is not wholly motivated by a dislike of foreigners.

Meanwhile, Labour has been quite hopeless in its misguided and half-hearted emphasis primarily on the protection of workers rights, etc, in its fight against Leave.

Even if the Remain campaign wins, the referendum (delightfully referred to in the FT as the ‘neverendum’) has been a wholly unnecessary, wholly disruptive and damaging event. And a cockup from beginning to end.

 

 

 

A Critique of the NeoLiberal Agenda from the IMF (well…the bit of it that doesn’t mind offending finance ministers)

A paper from three IMF economists was recently published in the IMF’s Finance & Development online magazine (F&D) which is primarily aimed at non-economists. It examines neoliberalism in terms of success and failure.The paper defines neoliberalism as follows:

The neoliberal agenda—a label used more by critics than by the architects of the policies—rests on two main planks.

• The first is increased competition—achieved through deregulation and the opening up of domestic markets, including financial markets, to foreign competition.
• The second is a smaller role for the state, achieved through privatization and limits on the ability of governments to run fiscal deficits and accumulate debt.­

It’s marvellous stuff – and quite balanced in showing that there may be some benefits. But there are also severe risks, depending on how the agenda is carried out.

Free movement of ‘capital’ across borders, in the opening up of financial markets, for example, can carry very severe risks – depending on what capital and where (as Greece and Spain can well attest):

• Some capital inflows, such as foreign direct investment—which may include a transfer of technology or human capital—do seem to boost long-term growth.
• But the impact of other flows—such as portfolio investment and banking and especially hot, or speculative, debt inflows—seem neither to boost growth nor allow the country to better share risks with its trading partners.
• This suggests that the growth and risk-sharing benefits of capital flows depend on which type of flow is being considered; it may also depend on the nature of supporting institutions and policies [My emboldening]
  

It concludes that:

• The benefits [of the neoliberal approach] in terms of increased growth seem fairly difficult to establish when looking at a broad group of countries.­
• The costs in terms of increased inequality are prominent.
• Such costs epitomize the trade-off between the growth and equity effects of some aspects of the neoliberal agenda.­
• Increased inequality in turn hurts the level and sustainability of growth.
• Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects.­ [My emboldening]
  

In sum – shrinking the state is far from an unqualified good in itself, and where it leads to increased inequality, as it usually does, this is very bad – not only ethically, but also in terms of reducing national growth. And, as for financial deregulation, it can lead to… well, we’ve seen what it can lead to.

But don’t take my word for it. Here is the complete paper…

Oh, and by the way, I’ve been banging on for ages about the need for more government spending (housing, NHS, defence, education, wotevah). And now even the OECD has called for it as a matter of urgency (urgency, I tell you…)

Actually ‘Rick’ at flipchartfairytales gives a neat summary and analysis of the OECD call for action here…

Against Brexit

David Smith writes the ‘Economic Outlook’ column in The Sunday Times Business section. I don’t much like a lot of what he writes because he’s one of those columnists who has believed (and possibly still does) that the UK’s deficit must be eliminated and our debt must be cut now-now-now. Which is what George Osborne has been trying to do since 2010 – and singularly failed. But, in the meantime, Osborne has managed to cut capital expenditure significantly, while off-loading a load of costs that used to be borne by central government onto local authorities. Not to mention the damage he and his ilk of ‘small-staters’ have done to the NHS and social services. All for want of taxing a bit more and borrowing a bit more, when ‘the markets’ are actually paying governments to borrow. Nearly all mainstream academic economists believe this has been counterproductive, as do even some working for banks and newspapers, not to mention the IMF.

But I digress.

In today’s column (29-05-2016) David Smith tackles some of the Brexiters’ economic and ‘resources’ arguments. And he does it very well indeed.

Firstly, he quotes data from HMRC showing that ‘recently arrived’ immigrants paid £2.5b more in taxes in 2013-1014 than they received in tax credits and benefits. Presumably this surplus in tax revenue over expenditure from immigrants has been going on for some time – and is likely to continue. David Smith says ‘Part of this money has been used to cut the budget deficit. But it is also as available as anybody else’s taxes to pay for public services‘.

Well, wash your mouth out. He’s not seriously suggesting that, if we have a load of new immigrants increasing pressure on our housing and public services (NHS and education especially), we should be spending tax-payers’ money to boost spending on housing and public services, is he? I do believe he might be… Though it is almost as a throwaway, as if he doesn’t want people to notice he was kind-of suggesting it.

Which brings me to his second excellent point.  He looks at the alleged ‘job transfer machine’ – the allegation that all these immigrants are taking the jobs of stout British workers. David Smith points out that the number of UK-born workers in employment (I think he’s quoting ONS, but I can’t be sure) has increased by 1.1m to 26.25m since the low of Jan-March 2010. A record apparently. And, not only that, but in the 6 years to the end of first-quarter 2016 there was an increase from 70.7% to 74.6% in the UK-born employment rate. Just wow, eh? Still believe they are taking our jobs? Unemployment has been going down (fact) since all these immigrants have been ‘swamping’ in from the EU.

So, clearly, these new immigrants are taking jobs and starting businesses which truly needed to be filled and needed to be started. They are contributing in spades to the growth of the UK economy (our growth, while lacklustre, due to – ahem – austerity, has been better than that of most developed economies) and recent immigrants, as well as boosting growth, are, as we saw, substantial net contributors to our tax revenue.

So – that all being the case, we really should stop moaning about the immigrant pressure on resources and bloody, bloody (bloody) well spend the money, even if he have to borrow some, on training more doctors, other education-resources, housing, health-resources and social services that our increased population now requires. Surely that’s not difficult to see – unless of course one is determined to cut public expenditure, no matter what, as a matter of religious belief…

I’m not sure if David Smith would agree, but he does seem to sort-of agree. Doesn’t he?

And, while we are on the subject of Brexit – here is some really great stuff from ‘Rick’ at flipchartfairytales. He has done his homework…