Self employment, money and post-crash economics

My weekly list of links returns. This week, blogs on economics, food banks housing and self-employment. First up, here’s Flipchart Rick with a blog on the remarkable increase in self-employment over the last 12 months:

Self-employed – the nouveau pauvre

On food banks now, and following the Mail on Sunday’s ‘expose’ of food banks, a couple of weeks ago, here, the manager of a food bank responds:

“We will always err on the side of compassion”

There’s been a real trend over the past year of TV docs focusing on poverty and aspects of the social security system. The latest is called “How to Get a Council House” as Jules Birch explains here:

Adjust your set

Here’s a couple of blogs on the DWP. The first details problems surrounding the new Help to Work scheme which aims to bully people into work, and the second is an interview with a Jobcentre Plus advisor:

Chaos at the DWP as bungled Help to Work scheme attempts to launch

Jobcentre Plus advisor: “The reforms have been designed to hide the numbers of unemployed”

Economics now, and there’s a couple of interesting (to me) debates going on in economics at the moment that are getting a bit of attention in the blogosphere. The first is over the nature of money and the role of banks in our society. This blog at Positive Money is quite a good summary of the debate (although I take the other side to them):

The debate on money reform goes mainstream

Another debate in economics has been kicked off following the publishing of a book called Capital in the Twenty-First Century by French economist Thomas Picketty. Larry Elliot in the Guardian explains the hype here, and this book does seem to have single handedly put the issue of inequality back on the table. This could potentially be quite significant as it gives academic respectability to any politician wishing to do something about inequality.

Finally, a third significant event in economics was the publishing of a report by some students at Manchester University into the state of economics teaching at their university. A lot of it chimes with my experience of studying economics (although reading the report, I think my course was probably a lot better). The response from academics has been interesting, mostly denying there is a problem, or playing down the issue. Here’s a good blog suggesting an alternative approach and discusses the response from mainstream economists:

Post-crash economics clashes with ‘econ tribe’



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.