Tag Archives: R&D

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.

Secular Stagnation … I Think

I’m not totally sure what secular stagnation means – other than growth is low and difficult to jump-start, and that is the new normal.

But I do know that large companies are not investing significantly, preferring to sit on cash-piles and pay their most senior executives enormous salaries and bonuses instead. This is because large corporations are oligopolies – pretty close to monopolies. So they have near complete control of their pricing and profit levels, which are hardly reined in at all by either the competition nor by adequate regulation. If a competitor does break rank, that competitor may well be bought out. So the large corporations are in an excellent position to milk their customers, their existing products and their productive methods for all they can. They have little or no incentive to invest in better products or services or better means of producing them. Why do that when they can give their senior executives bigger salaries and bigger bonuses instead. And it’s not even as if shareholders get a raise in dividends either, because fund managers who hold most of the shares have no real incentive to perform better – and, if they do protest at meagre dividends , they can safely be ignored: after all share prices can be kept high by the simple method of buying more of their own shares to distribute to employees, especially the most senior ones. The ‘light touch’ low regulation situation was initiated by Mrs Thatcher in the UK and Ronald Reagan in the USA. And then continued by Messrs Blair/Brown and Mr Clinton.

Free enterprise is easily corrupted into monopolies/oligopolies without adequate regulation. This kind of corporate behaviour illustrates the difference between short-term greed and long-term self-interest, because if the corporations were to be investing economies would grow more and everyone would live happier, healthier and longer lives, assuming reasonable wealth distribution, natch. (But the inequitable wealth distribution we currently have also started in the 1980s and is a linked phenomenon). Better growth and better wealth distribution would benefit the corporate execs’ descendants. But I suppose said execs are holding to the view that in the long term we are all dead, and in the short term ‘mine’s bigger than yours’ competition among the top 0.1% must be a very difficult mental habit to shake.

It is largely because of all this that productivity is so low – most especially in the UK, where it is now in a particularly abysmal state even compared with other major (G7) economies where it is none too healthy. And, of course, low productivity leads to low growth, which further inhibits investment because of lack of confidence. A viscious circle, indeed.  Employment of cheap labour from a cowed and nervous workforce has been kept up for a while, as cheaper than new plant, etc. But it now looks as if even that may be slipping, too.

Attempts to boost economies via central bank quantitative easing have not been particularly successful, as we are constantly reminded (it was well known to be a gamble from the beginning – likened to ‘pushing on a string’).

So now central banks are toying with the idea of negative interest rates – and some, including the ECB, are actually implementing it. This is also likely to prove ineffectual in its aim to boost investment and consumer spending. So some (wishful thinkers) are predicting ‘helicopter money’ as a last resort (just distributing cash to consumers to spend).

In an economy your spending is my income and my spending is your income. That’s why an economy is not like a household or a firm. So ‘Schwabian Housewife’ economics (we-must-all-live-within-our-means-and-debt-is-inherently-bad) is such total rot. It is based on a fallacy of composition (the whole is exactly like its parts: national economy=firm=household=individual), and takes no account of the ‘paradox of thrift‘ where if everyone saves and no-one spends, we are all impoverished.

The simple answer in a case like this is through what is called fiscal expansion by governments. Governments need to spend, even if it means borrowing to do so. But because of Schwabian Housewife economics this has become politically unfeasible. Most Western governments don’t even want to spend on infrastructure investment, let alone welfare, health, the military, research into carbon dioxide capture and storage, etc (etc). In the UK if the hapless Mr Osborne were to be seen contemplating anything more than a short tactical about-turn from austerity, as he did in 2011 and is now doing after his latest budget fiasco … well he couldn’t because the press would not let him. Plus, of course, the theology of shrinking the state in order to ‘unshackle’ so-called free enterprise remains a convincing-sounding argument to many like Mr Osborne, despite the fact that we have seen what unshackling free enterprise has led to so far. Obviously free enterprise has not been unshackled enough…? Ayn Rand stuff, anybody? That’s an argument like proper communism has never really been tried? Both obviously bullshit.

Of course what would really lead to fiscal expansion would be a good war. But that really would not be the kind of rescue from North Korea or Mr Putin that I would be hoping for.




It’s All Ecology Really…?

Saw this NYT headline “A Warming Planet Struggles to Feed Itself” Food Supply Under Strain on a Warming Planet – NYTimes.com …And a comment that “As global warming puts stresses on farmers feeding a growing world population, financing to develop new crop varieties and new techniques has been slow to materialize.”. But it occurred to me that it’s possible that within the finance/investment milieu – if more money can be made by speculating in food crops than can be made through investing in research and development – then money for research and development aimed at increasing crop yields in a warmer global environment is going to be diverted into speculation instead of the necessary R&D. So it won’t happen unless governments force it to happen. And that’s not going to happen until the widespread ‘small government’ ideology changes. This doesn’t bode at all well?