Monthly Archives: July 2016

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.