Banks, Balls and more Balls

Here’s another roundup to links from the last week. Two nice posts on banks first by Neil Wilson and Frances Coppola:

How banks work

Banks don’t lend out reserves. Nor deposits. And we aren’t “paying banks not to lend”

And on the Central Bank, Richard Murphy writes:

The pretense that we have an independent Bank of England should end

First installment of Balls now. For the last couple of months, there have been signs that the economy is starting to recover. Unemployment in particular has fallen much faster than expected. Despite this though, Ed Miliband has been putting David Cameron under pressure over what he calls the ‘cost of living crisis’. Under pressure from Miliband at PMQs on Wednesday, Cameron said that most people were better off now than in 2010. To back this up, on Thursday, the Treasury cobbled together some ‘evidence’ to support this. Duncan Weldon examines the evidence here:

What to make of the latest claims on living standards

Finally, some more Balls. This time, Ed Balls. He’s making a speech tomorrow about how Labour will reinstate the 50p tax, but he’ll also apparently be explaining his plans for ‘fiscal responsibility’. This is unfortunate as Neil Wilson and Richard Murphy explain:

Ed Balls promises to cause a UK recession by 2020

The incredible Ed Balls

Out-Goving Gove, IDS in Apology Shocker and Stupid Back-Bench MPs

Here’s my weekly round-up of links from the last week that caught my eye.

First up education, and the news that Labour spokesman Tristram Hunt wants to introduce licenses for teachers. Some teachers respond:

Tristram Hunt has out-Goved Gove

Iain Duncan Smith news now. It transpires that a few thousand people (IDS says 5,000, others think more like 40,000) have been made to pay the bedroom tax even though they are actually exempt. IDS has now apologised (in the most grudging way possible) and it looks like some repayments may be made. Jules Birch gives full details here:

The Hardest Word

Onwards now, and some MMT-related stuff. I bang on about the job guarantee idea a lot here but this slideshow produced by the blogger Senexx is worth linking to:

What a Job Guarantee Is

Also worth a watch is this short video on Peter Martin’s blog:

How come that nearly everyone, gets it all wrong on money and the economy?

Here’s the promised stupid backbench MP news now, with the revelation that Tory MP Philip Davies (who’s also my MP) has been watching Benefits Street and so is now an expert on the problems with the welfare system. When I tweeted this link, someone replied that he also described incapacity benefits as unnecessary after watching the film “Cocoon”:

Shipley MP Philip Davies says benefits ‘too generous’ after watching Channel 4’s Benefits Street

And while we’re talking about Benefits Street, here’s a nice post from Chris Dillow it’s probably not reasonable to expect current affairs programs to be bias-free:

How current affairs reporting is inherently biased

That’s about it for this week, but I’ll leave you with this image someone tweeted the other day which sums up how I feel about the term ‘hardworking’.

Hardworking

Labour promised fireworks but delivered another damp squib

All week I’ve been reading that Labour were planning some big policy announcements soon. Ed Miliband gave his big speech today after pre-briefing the big announcement to the media which was [drum roll] to refer the banks to the competition authorities with an eye to creating some new banks… and that was pretty much it. Miliband strikes me as a nice guy and he’s not bad at political speeches. He made some approving noises about low pay, high cost of living, housing etc, but his party have no answers to any of these issues that are significantly different to what the government are doing. So while I despise the Conservative Party, all I feel about Labour is an ever growing sense of disappointment. As Miliband is fond of saying, “Britain deserves better than this”.

So his big idea today was on the banking sector. Would more competition be a good thing? Probably. Would it transform the industry? I don’t see how. Labour’s ideas about banking are already very much in line with what people like Vince Cable are already trying to do in government. There’s nothing radical or transformative about it. There are other options though. Here’s two that sound interesting to me.

The first may be known to some people, coming as it does from the Positive Money people. They favour removing the power from private banks to create money with a “full reserve system” which I think means that every £100 they lend out must be backed by £100 of deposits. I think they also propose a system where depositors (you and me) can decide if we just want the bank to store our money, or to lend it out and in return receive some interest payments.

Instead of the banks creating money then, they propose the government should just create enough money as is required to ensure the economy runs at full speed. And instead of politicians deciding how much money is created, Positive Money want it to be decided by an unelected committee (albeit one accountable to Parliament). Radical? Yes. Democratic? Maybe not. It’s an interesting idea, but I haven’t looked into it into enough detail yet. There’s a nice video here with more details for anyone interested.

The second proposal is outlined by Neil Wilson on his 3spoken blogTaking inspiration from Minsky and elsewhere, Neil proposes that the role of banks should be significantly narrowed to the extent that their main purpose should be to underwrite loans to businesses and individuals who are going to do productive things and develop the economy. Banks would be allowed to go bust, which would happen if they don’t underwrite the loans competently. Such a system would promote competition because operators could be licensed by the state, with that license affording the operator an interest free overdraft at the central bank. So the better the underwriting, the more successful the operator. The money being created by the loans would be government money, but banks would determine how much of it is created and who it is distributed to based on demand. This system appeals because of its flexibility. As Neil writes:

“So with complete disintermediation by the central bank you can have several models – from a fully nationalised state bank with employed underwriters, through the ‘Provi Model’ where you have self-employed lenders and collectors, to the normal bank with employed bank managers.

The amount of state money injected is limited by demand – as determined by a highly distributed set of underwriters locally on the ground varying interest rates to suit local conditions and their own profitability vs the competition from fully match funded lenders.”

Narrowing the scope of banking and focusing on high quality underwriting would probably reduce the amount of credit available from recent levels, but this could be compensated for with lower taxes or higher conventional government spending. Read the whole thing as Neil raises issues of the payments system.

So both of these proposals offer a radically different way of doing things. In my view they are both well argued and warranting of wider discussion. But both are so far outside the mainstream political debate as to be almost unheard of by the wider public. So it’s worth saying again, while Labour and the Tories argue furiously over tiny differences, there are a whole range of potential options open to consideration. Options which could have an enormous impact upon the economy and which do not simply seek to tinker at the edges while maintaining the status quo.

 

High government debt doesn’t lead to high interest rates

At some point I seem to have got myself on the email distribution list for Tory Party spam, so I regularly get updates from the likes of Michael Green (Grant Shapps) and Mr Egg (Sajid Javed) about how wonderfully the current government are doing. A phrase they often include is “tackling the deficit to keep interest rates low”. This repeats the widely held belief that once government debt gets too high, the interest rate ‘the markets” demand to lend more money to the government will start to rise, at which point debt interest payments will get out of control and BAD THINGS WILL HAPPEN. Thank god for the coalition eh?

Today I came across these helpful charts presented by Paul Krugman in a recent conference paper which help us examine this assertion more closely (I found them in this post, which makes the same points I make here).

51062179debt-interest-rates-krugman-fig.1-2013-nov

In this chart, each dot is a country. The debt-GDP ratio is on the bottom access, and the interest they pay on 10-year debt is on the left-hand axis. Broadly speaking, there seems to be a clear positive relationship between higher debt and higher interest rates. The dot on the far right is Japan, which doesn’t fit the pattern, but they must be a special case right? Maybe Green/Shapps and Mr Egg are right then?

6981316debt-interest-rates-krugman-fig.2-2013-nov

Hang on though. This chart is the same, but Krugman has distinguished between Euro and Noneuro countries. The relationship between high debt and high interest rates for the Noneuro countries (like the UK) has disappeared. So what can we conclude:

1. High government debt does not lead to high interest rates if you have your own currency. Tories and Lib Dems are talking rubbish when they say “tackling the deficit to keep interest rates low”.

2. If we don’t need to fear high government debt, austerity is an even more horrendous policy

2. Don’t join the Euro. Ever. That means you too Scotland.

A random CIF commenter nails it on Tory welfare lies

Just came across this comment under this article by a commenter called “Jack Jazz”. Don’t know who they are, but thought he nailed it with his (?) comment on the real motivations for welfare changes, so thought I’d share it here. I have a slight quibble with the assertion that the rich pay for services for the poor through their taxes, but it’s true the rich want lower taxes, and these are more achievable if the government spends less. Anyway, here’s the comment:

“The ignorance that lies at the core of Tory welfare policy reform is not an ignorance of unawareness, or an absence of knowledge, but rather one of calculated disinformation. Probably the most disgusting thing about this coalition is the deliberate spreading of lies to facilitate a systematic assault upon the sick, the poor and the disabled. They have lied to and misled the public in order to promote a squalid agenda, an agenda to dismantle the welfare state.

For those who wish to destroy the welfare state, the first move is to create ‘the undeserving poor’. By constant repetition, they construct a cultural underclass via the media, with the tabloid press, much of it owned by multi-millionaires, at the forefront. Each day they fill their pages with accounts of people “living on hand-outs,” living in ‘mansions’, ‘daring to have children’, ‘laying around doing nothing’, all the while emphasising that it’s your taxes letting these scroungers live in ‘luxury.’ By this drip drip feeding, the words ‘welfare’ and ‘scrounger’ become intertwined.

The next phase is to question the idea of a universal welfare state itself. As the welfare state is dismantled, as more and more, due to ever greater reductions in funding, the quality of these services deteriorates, the middle classes begin to ask why they are paying into a system that gives them so little back. This gradual exclusion of the middle classes from the welfare state leads to the middle classes being persuaded to seek private options to deal with old age, pensions and health care, urged on by a government that tells them that it is the only solution. And of course, as private provision takes over, the cycle of dismantling can continue. Public services now become a service solely for the poor, as the middle class abandon the system.

Why dismantle the welfare state? Who benefits from this progressive degradation of the welfare state? Obviously not the lower classes. But nor do the middle classes, as the new private systems are more expensive, often of poorer quality, and invariably far more complicated than what existed previously.
No, the real reason behind the cuts is simple.

The real beneficiaries are the very rich, who no longer have to pay for services they never used anyway.

And all the cuts are ideologically driven. None of it is to save money. The welfare reform bill won’t save a penny, because the costs will just be passed onto somewhere else. It’s all about crushing the welfare state. The Tories have for years hated the fact that ‘their’ taxes should be used to help the sick and the poor. Based upon no evidence whatsoever, they truly believe there is a vast horde of scroungers out there who are living a life of luxury on benefits. The most shameful thing about the Tories, though, is that to promote this idea, they peddle downright lies as truth and feed it to the masses, who regurgitate this bullshit ad infinitum, no doubt much of which has been posted on forums like this by people like you!”

Benefits bashing, house prices and the right to protest

A lot to get through this week. A lot of stuff caught my eye, but maybe that’s just because I’ve been paying attention. Here then are a few links worth reading from the last seven days.

Starting with housing, Jules Birch put up a nice post about Help to Buy and house prices:

Appearance and reality in the 2014 housing market

And here in a blog for Inside Housing, the same author pours cold water on Tory plans to remove the right to claim housing benefit from under 25s and to exclude people earning over £60,000 a year from council housing:

Benefits baseline

On to universal credit now, and news of more IT problems at the DWP:

Government descends into inter-departmental squabbling over Universal Credit

Staying with the DWP, Jonathan Portes blogged about the results of a DWP pilot called “Help to Work”. The evaluation of the pilot was released with no fanfare on the DWP website, probably because it shows the new measures had very little impact, despite the cost:

The “Help to Work” pilots: success, failure or somewhere in between?

Benefits more generally have been in the news a lot this week after the showing on Monday of a charmingly titled documentary called “Benefits Street”. This stirred up a lot of anger on both sides, and led to more head-scratching about what to do about the welfare system. Regular readers will know I think a job guarantee would go a long way to improving the (economic and welfare) systems. I lot of objections are raised about this idea, and one of the job guarantee’s leading proponents, economist Randy Wray has helpfully produced a post responding to some of these common objections:

BOP A MOLE #2: JG WORKERS WILL DO NOTHING USEFUL, THE JG PROGRAM WILL NOT BE MANAGEABLE

Finally now, and on a different topic, some worrying news for civil rights – the Govenment’s  Antisocial Behaviour, Crime and Policing Bill. George Monbiot in the Guardian wrote that this could be used to stymie the right to peaceful protest among other this:

At last, a law to stop almost anyone from doing almost anything

Although as Mike Sivier highlights, certain parts of this bill could be blocked in the Lords:

Foiled! Lords veto Coalition bid to make being ‘annoying’ an arrestable offence

Osborne’s speech reveals his contempt for you and me

George Osborne made a speech today about the economy. Overnight, it had been trailed by briefings that he would announce plans to make government surpluses legally binding, and the need to cut another £25bn after the election. This is what I was planning to blog about, but having sought out the full text of his speech (read it here), it’s just not worth it. Instead I thought I’d just pick out a few Coalition phrases that in a sane world would be banned. Osborne’s speech is littered with them. Why not leave your own favourite in the comments below.

1. ” …the world does not owe Britain a living.”

Eh? Who is arguing it does? Meaningless. Explain yourself Mr Osborne.

2. “What is true of this company [Seetec] is true of our country.”

Really? So a government should behave exactly like a private business?

3. “The plan is working.”

This is the Tory Party’s mantra now, but “the plan” was junked a long time ago. Remember, they wanted to eliminate the deficit by 2015 and have the debt/GDP ratio falling by the election. It was stupid and counterproductive, but that was the plan.

4. Our long term economic plan has five key parts to it. The first is to go on reducing the deficit so we deal with our debts – because that’s the way to safeguard our economy for the long term and keep mortgage rates low.”

It seems to me that if there is a relationship between the government’s deficit and mortgage rates, it precisely the opposite to the one the Chancellor wants us to believe. When the deficit falls and the economy recovers, mortgage rates will go up.

5. “…Britain was borrowing more than £400 million every single day to pay for government spending.”

Was it? Or was it saving £400 million more than it was investing every day?

6. “The only way to improve people’s living standards for the long term is for Britain to earn its way in the world…”

Earn its way in the world. Like “the world does not owe Britain a living” this stupid phrase promotes the lie that exports are the only way to salvation. And yet our trade deficit remains.

7. “…people who work hard and want to get on…”

Just typing that phrase was painful.

8. “A strong economy and a fair economy go hand in hand.”

But we will get neither.

9. “We have to make sure the recovery supports those who work hard and play by the rules.”

But not you, dole scum.

10. “…benefits as a lifestyle choice.”

Millions living the life of Riley off your taxes!

11. “The long term unemployed are no longer going to get something for nothing.”

Think community service, but for people who have broken no laws.

12. “Reducing taxes for hardworking people.”

By hardworking he means “earns over £100k per year”.

Basically then, Osborne thinks we are worthless, ignorant fools who will believe any old shit while he goes about his business cutting taxes and regulation to benefit his mates. Don’t let him get away with it, but also don’t expect a Labour Government to be much better. Their rhetoric may be less harsh, but the substance is almost identical.

 

 

 

Last 7 Days Reading List 04/01/14

Much of the news this week was about either the weather or the tidal wave of new migrants from Romania and Bulgaria that would apparently been sweeping in come January 1st. On both counts the media seems to have been a bit disappointed. The weather wasn’t quite as bad as forecast, and despite camping out at airports and bus terminals, journalists – and bizarrely, Keith Vaz MP – did not observe half of Eastern Europe queuing up at the border with their applications for benefits already filled in. All a bit disappointing.

Not much caught my eye this week, but here’s a small selection of non weather/immigration stories.

Outrageous bankster news first, and Matt Taibbi of Rolling Stone reports on the fine given to HSBC for laundering drug money for Mexican cartels. No one from HSBC was prosecuted:

Outrageous HSBC Settlement Proves the Drug War is a Joke

On now to David Cameron’s flagship internet porn filters, with the news that guess what? They don’t work, blocking everything from the NSPCC to the British Library to – hilariously – Claire Perry’s website. Remember, she’s the MP who campaigned loudly for the introduction of filters even though it was clear she had no idea what she was talking about:

Cameron’s internet filter a disaster

The economy now and a nice article by William Keegan in the Observer on welfare cuts and Coalition policy:

Big society? Cutting welfare to ‘aid recovery’ is just a big lie

Finally, some housing news, and a blog by Jules Birch for Inside Housing on developments in the sector over the Christmas period. A good read:

While you were away