War is a choice, not an inevitability

Tweet

 

One of the policies which seems to be increasingly common ground between the Tories and Reform Ltd is opposition to the target of becoming carbon neutral, or reaching net zero in terms of carbon emissions. It’s a policy platform which seems to be implicitly underpinned by two very curious beliefs.

The first is that expenditure on achieving neutrality is in some way consuming wealth whilst continued exploitation of fossil fuels is generating wealth. It is, of course, complete and utter piffle. If we measure wealth in terms of GDP (or GVA), what money is spent on is irrelevant. It is the act of spending it which adds to GDP; money spent in insulating properties adds as much to GDP as the same amount of money spent on drilling for oil – and that’s true whether the spending is in the public sector or the private sector. There might be an argument that multiplier effects mean that spending on X rather than Y ultimately generates more GDP per £ spent. I actually don’t know the answer in this specific case, but it’s interesting to note that it’s not an argument they are trying to make. I rather suspect that they are conflating two different kinds of wealth – national wealth as represented by GDP and private wealth as reflected in the bank balances of individuals and companies. I’m sure, though, that this conflation has nothing to do with the fact that both parties rely heavily on donations from established players in established sectors, such as oil and gas. Not.

The second curious belief is that if nothing gets spent on achieving net zero, the whole amount of any projected expenditure becomes a net saving, and makes money available for other things. Their favourite other things are tax cuts for the wealthy and/or channelling expenditure into donor companies, such as those in the armaments industry. Badenoch’s statement today is a classic of the genre. I suppose that, if they really believe that climate change is not happening at all, then it would be a reasonable belief, although that would be flying in the face of overwhelming scientific opinion. I’m not sure that they really do believe that, though; reading some of what they say, it seems more likely that they believe that we can and will somehow adapt to climate change. The costs of that, they simply ignore – a problem for another day.

Badenoch would clearly prefer war to addressing climate change, which I suppose puts her on the same page as Farage and Starmer. There is, though, more to the cost of war than diverting the finite resources of planet Earth into weapons of destruction. There is the obvious cost of loss of human lives (although they would probably all prefer to see that as a loss of a productive labour force). There’s also the lost opportunities which such diversion of resources would entail – the opportunity to provide a decent standard of living for all, for instance. Badenoch is making it clear that she thinks that austerity (obviously not for her section of society) is a price worth paying in order to prepare for all out war with Russia. And then there’s probably the biggest cost of all: in the event of surviving such a war, the cost of reconstruction would be enormous.

There is one point about which she is right. Governments face choices. Whether the constraint on what governments can do is the availability of money (as she, Starmer and Farage all insist that they believe) or the availability of physical resources (as economic reality dictates), governments still have to choose between options for using that money or those resources. Badenoch is making her choice clear – war. And she’s being aided and abetted by politicians and military types urging the same choice on an almost daily basis. There is an alternative, though: we really don’t have to allow them to make that choice.

Do capitalists understand capitalism?

Tweet

 

The criterion for determining whether or not a capitalist enterprise is viable or not is, in essence, very simple. To be viable, an enterprise needs to be able to sell its wares for a price which enables it to cover all the costs of production (labour, materials, etc), to pay all applicable taxes, to comply with all relevant laws and regulations, and to make a reasonable level of profit. In a rational world, the definition would be extended to add an environmental sustainability requirement, but that’s for another day. The corollary is that any enterprise which fails to meet that criterion is not viable in the market in which it is operating.

It probably shouldn’t surprise me, although it does, that so many capitalists seem not to understand the criterion at all. Some claim that taxation is a problem; others that minimum wage legislation stops them making a profit; yet others say that regulation and what they like to call ‘red tape’ prevent them making a profit. But, provided that all the rules and costs apply equally to all, a company which can’t afford to pay a living wage to its employees, or which needs exemptions from taxation, or which can only work if it doesn’t have to abide by environmental or health and safety legislation is a company which is, bluntly, not viable in the market in which it operates. If a company really can’t increase its prices when its costs increase, then one of two things must be true: either there is more supply than demand in the market at a price which makes the business viable, or else its competitors are operating more efficiently. Either way, according to strict capitalist rules, it is not viable as a business and should close.

Now, I’m not really advocating that hundreds of businesses across Wales should close down – but then, I’m not a huge fan of untrammelled capitalist markets either. I’m merely pointing out that capitalism, left to its own devices, requires that non-viable businesses fail. It’s a feature, not a bug, of the system. In the real world, there are all sorts of reasons why government authorities might want to keep some enterprises operating, using subsidies and exemptions in the process. It’s a valid role for government to perform. What we should not do, though, is pretend that the companies being thus supported are successful capitalist enterprises, let alone allow their owners to extract profits and dividends on the back of a subsidised existence. Yet, in industry after industry, that is precisely what we do. Interestingly, some of those who benefit from such government intervention are also the people bleating about the cost of benefits, pensions etc. It seems as though state largesse is only a bad thing when it goes to other people.

But what are they doing?

Tweet

 

For reasons which escape me, cutting the number of civil servants generally seems to be a popular policy. And there is no doubt that the simplistic impact of reducing the number of civil servants would be a reduction in the bill for salaries – even Reform Ltd can do simple sums like multiplying the number of people sacked by the salary they are being paid and calculating a ‘saving’. What they haven’t told us, though, is which civil servants are being sacked, and what they are actually doing at present. If they are doing nothing at all, and if they all find alternative jobs rapidly, then the projected savings are not unreasonable. Those are big ifs, though.

The reality is more complex: some of those 68,000 will join the ranks of the unemployed; that might cost less than paying them a salary, but it’s not a zero cost. Others will take their pension early, bringing forward government expenditure which might not have been expected to kick in for a few more years. Based on past experience, it would not be at all surprising if some ended up providing consultancy services to the civil service, to compensate for the lost expertise which had just been paid to walk out of the door, which would probably cost more than their salaries.

The biggest cost would be in undertaking the activities which they are currently performing. Assuming that at least some of them are actually performing a useful function, that function would still need to be performed. Maybe it would be contracted out to the private sector, enabling Farage’s mates to turn a profit. It would show as a cut in the salaries bill, but with a consequent increase in the bill for external service providers. Maybe the government would no longer provide the relevant services at all, leaving those who use them to pay private contractors directly – that would cut the government’s bills, but the end users would be worse off; instead of sharing the costs of those services across all citizens, they’d fall onto a smaller number of shoulders.

The point is that only on a very narrow view do wholesale arbitrary civil service cuts result in savings, and those savings are restricted to a single budget line. On any holistic view, those savings will be at least partly offset by increased costs elsewhere – how much and by whom they are paid is as unclear as it is indisputable. The approach seems to owe much to Elon Musk’s DOGE in the US, but the more we know about that, the more likely it is that the savings are largely imaginary, and that the exercise may even have increased costs. Cutting the number of civil servants may prove to be a popular policy with many (particularly those seduced by the false notion that only private sector activity creates wealth whilst public sector activity consumes that wealth) up to the point at which it impacts on themselves or their families. And it will. It is utterly dishonest, but then that’s only what most of us would expect from Farageists.

Is Russia the only enemy?

Tweet

 

The politicians and generals keep telling us that we must prepare for war with Russia – some are even claiming that we are already at war, in the light of Russia launching a variety of provocations including the use of drones for surveillance and cyber attacks on Western organisations. In order to justify diverting ever more resources into the profits of companies in the defence sector the purchase of armaments, some play up the danger of an actual physical attack, using armour and troops. It is, though, hard to believe that Putin doesn’t realise that such an attack would be certain to lead to a much wider war which, without resorting to nuclear weapons - in which case, everyone else also loses - he would be likely to lose.

That’s not to say that Putin doesn’t have malicious intent; just that the conquest, occupation, and Russification of countries with 500 million inhabitants by a country with only 145 million inhabitants is never going to be achievable, and Putin isn’t stupid enough to believe otherwise. He does, after all, have the experience of years of fighting over a much smaller country and all the losses Russia has incurred. It’s pretty clear, though, what his aims for any conflict would be – the breakup of NATO and the EU, regime change across Europe, replacing what pass for liberal democracies with authoritarian governments, and freedom for Russian oligarchs and kleptocrats to further enrich themselves. He doesn’t need to invade anyone to achieve that; indeed, invasion would destroy a lot of the resources which he and his pals covet. Misinformation, election interference, dirty money, cyber crime – all these are more effective weapons at his disposal. And no amount of expenditure on tanks, guns or conscription of the sort which the politicians and generals are demanding across Europe will prevent that.

By a curious coincidence, Putin isn’t the only one who seeks the destruction of the EU, wholesale European regime change, and more freedom for oligarchs and kleptocrats. The Trump administration’s new National Security Strategy, published last week, is remarkably explicit in calling for much the same thing, with direct interference in elections in favour of Trumpian policies and Trump-aligned parties now an official and public part of US strategy. Those who think that we are already at war with Russia because of Russian interference in European politics seem incapable of recognising that, applying similar criteria, the US could also be considered to be at war with us. European countries are caught in a pincer movement, with larger neighbours to both the east and the west intent on ripping out liberal, tolerant democracies (or semi-democracies, such as the UK) and replacing them with authoritarian white nationalist regimes which persecute and harass minorities and opponents and pay homage to Moscow / Washington.

That doesn’t mean to suggest that Russia and the US are in cahoots (although they may well be moving that way), merely that their rulers’ perceptions of their own geopolitical interests in Europe increasingly coincide in a way which is much broader than a mutual desire to carve up Ukraine. A response which consists of diverting ever more resources into armaments not only does nothing to address the problem (would we really get into a shooting war with either Russia or the US, let alone both of them at the same time?), it actively makes it worse by holding down living standards in a way which creates the discontent on which politicians pursuing the Putin-Trump agenda feed. Improving the welfare and living standards of the population would be a much better way of demonstrating European values and keeping the barbarians at bay, but our politicians seem keener on facilitating barbarianism than protecting values and civilisation.

A seasonal budget pantomime

Tweet

 

There is something quite seasonal about the Labour-Plaid deal over the Senedd budget. It is, after all, that time of the year when pantomimes proliferate. In the case of the budget, the Finance Minister knew that he could not get a budget supported only by Labour through the Senedd, so he presented a budget with £380 million unallocated to allow him some space to bargain. He knew what he wanted to do with that money – and he also knew that his priorities just happened to largely coincide with the demands which Plaid would make. So a little bit of negotiation and some changes around the detail, and hey presto – the reserved money gets put back into a budget which ends up looking remarkably like it would probably have looked in the first place, but now supported by a majority. Labour claim a win, Plaid claim a win, and the rest can only proclaim in unison, “Oh no it isn’t”.

Like all good pantos, superficially it’s largely performative. But, again like all good pantos, there’s a serious side to the slapstick as well. In a legislature elected partly on a proportional basis – and which, from next year, will be elected on a wholly proportional basis – no party can expect to have a majority in the chamber unless they attract at least 50% of the vote and, in the currently fragmented political world, that looks vanishingly unlikely in future. Harsh reality says that negotiation and agreement should be the norm; responsible parties need to be willing to compromise in order to ensure effective government. The alternative to the agreement which has been reached was a degree of chaos and the potential loss of large sums of money to the Senedd – reaching an agreement is sound and responsible politics, even if some would quibble with some of the detail.

It's a pity, though, that it requires such dramatics to get there. Maybe, over time, as coalition / pragmatic agreement becomes ever more normal, we can get to the same place faster without cliff-hangers; maybe, if the UK ever adopts a more proportional electoral system for Westminster, Wales won’t look so different from the accepted UK ‘winner takes all’ norm and compromise will come to be more accepted. Then again, maybe not. Perhaps the driver of achieving perceived political ‘victory’ in negotiations will always be a requisite of any agreement in order to try and demonstrate the absence of any type of sellout. But concentrating criticism on whether something is or is not a sellout avoids discussion about the detail. And is wholly in line with the Tory/Reform approach to political debate.

Should we demand the abolition of the USA?

Tweet

 

Annoyed at being fined for failing to comply with EU regulations, Elon Musk has demanded that: “The EU should be abolished and sovereignty returned to individual countries”. Perhaps the EU should respond with the counter-demand that: “The US should be abolished and sovereignty returned to individual states”. Actually, Musk might even agree with that in principle, if he had any principles – but it looks as though his real beef is about any state, or co-ordinated alliance of states, being big enough and strong enough to stand up to what he regards as the natural order of things: rule by billionaire. The difference, though, is that the US federal government has already been captured by the billionaires, and doesn’t need to be broken up to facilitate their rule.

There are, and always have been, questions over how much sovereignty (and in what fields) the EU’s member states should exercise individually and how much they should share; but acting jointly on some issues and agreeing rules which all members must follow is undoubtedly advantageous in a world where some corporations and individuals wield excessive power. It’s easy to understand why monopolists would prefer to deal with a host of weaker individual states on which they can impose their power. The real issue, though, and it’s not one which the EU seems minded even to consider, let alone tackle, is about how we collectively free ourselves from the increasingly oppressive rule of kleptocrats and billionaires. There is nothing natural or inevitable about the accumulation of wealth and power into fewer and fewer hands; it happens because the laws and rules under which the economy operates have been written to allow and facilitate it. But those laws and rules are made by humans, and humans acting collectively could change them. If enough of us wanted to do so.

Keeping us safe from threats

Tweet

 

Last week, a retired general told us that the UK is 10 years away from being ready for a war with Russia, a war which the political and military leaders of the UK seem increasingly determined to fight. The general’s views were inevitably reported as though it was a bad thing to be so unready for a war which would in the best case destroy much of Europe and in the worst case end human civilization. The military mind always sees an unreadiness to fight a war as being a bad thing, but what if that unreadiness is actually a good thing?

An attempt by Russia to conquer and subdue the entire continent of Europe (which is what a pre-meditated attack on a Nato country implies) would be madness, even if Russia hadn’t already proved how incapable it is of subduing one country right on its borders. It is possible, of course, that Putin really is mad, but his actions to date appear to be due more to miscalculation than insanity. He will surely have learnt something from his misadventures in Ukraine. The only anywhere near rational reason for a decision to attack the whole of NATO would be if he became completely convinced that it was necessary to pre-empt an attack by NATO on Russia. Getting his retaliation in first, in other words.

Now I don’t actually believe that NATO countries want to start a war with Russia (which isn’t the same thing as saying that there are no individual military men or politicians who do), but I’m not sitting in the Kremlin looking at the world through Russian eyes with an intense awareness of Russian history. He might be wrong to conclude that NATO is preparing to attack his country but, listening to the generals and war-mongers, it’s not an entirely unreasonable conclusion for him to reach. So if the biggest danger for us lies in reinforcing his fears, which keeps us safer: stepping up preparedness for war or being so unready that he feels no immediate need to act?

One of the lessons of history is that militarisation and arms races almost invariably lead to war, and can even do so almost by accident. Deliberately choosing not to prepare for all-out war with Russia stands traditional policy on its head, but it also allows us to make policy choices which improve the living standards of people in the UK rather than diverting resources into essentially wasteful weapons of destruction; policy choices which the politicians tell us are impossible. The warmongers tell us that the first duty of any government is to keep its citizens safe, but they don’t encourage debate about the question of ‘safe from what?’ Cutting lives short through war is an obvious danger, but lives are also shortened by poverty, ill health, and poor education. The former is a future danger (the remoteness of which is hard to judge), the latter is happening here and now. There’s a lot more nuance to ‘keeping citizens safe’ than preparing to kill Russians.

Volatility and spooking aren't exactly the same thing

Tweet

 

Last week, just before the Budget, the Guardian published this article about the ‘power’ of the bond markets over governments. Whether it entirely supports the contention that the government must at all costs avoid ‘spooking’ the markets is another question. Indeed, one trader made it clear that “What you really crave in this industry is movement, volatility”. It’s the opposite of what the government wants, but speculative traders thrive on it. Volatility, of the sort which is described as ‘spooking’, is what helps the speculators to turn small margins on huge trades into profits for themselves. Those speculators actually want the government to surprise them, in the hope that they are better placed to react than their competitors and make a killing – stability is boring and largely unprofitable.

As with so many aspects of the financial markets, the underlying issue is that markets created to fill valid social needs have been captured by people who are driven by a culture of greed and gambling. The government takes in peoples savings in return for bonds on which it offers savers a fixed long term interest rate; large institutional investors hold those bonds as part of pension funds and life insurance funds. For all of those players, market stability is a definite plus, enabling them to plan with confidence. But the gamblers and speculators who use those markets for their own purposes want no such thing; they want the sort of volatility in which they are each trying to second guess each other and from which some make a profit and some make a loss by making multiple large trades in rapid succession. Far from being ‘spooked’, they are actually delighted by what they see as opportunity.

The question we should be asking is not about how we limit what governments can or should do to keep the markets stable, but about what we need to do to control and manage markets in a way that they serve social needs rather than constrain policy options. To date, humanity has not found a better way of matching buyers and sellers than using markets, and markets perform a useful social function. There is, though, no such thing as a ‘free’ market: all markets work under a set of rules. The issue is who sets those rules and in whose interests they operate, and to what extent those markets should be allowed to become the playthings of gamblers and speculators rather than performing the socially useful function of facilitating exchange. What Reeves and Starmer have decided – like all the other Tories in the recent past – is that they are happy for those markets to be captured by selfish interests, and for those interests then to have a veto on what government policies are, or are not, acceptable. The argument that there is no alternative is merely an excuse to justify what their ideological perspective tells them to do anyway.

Buying shares isn't the same as investing

Tweet

 

For most people, the reduction announced in the budget yesterday to the limit on cash ISA’s, from £20,000 to £12,000 per annum, is an academic question. There can’t be many on an average salary who have even £12,000 available to save, let alone £20,000. The tax-free status of interest on such accounts is effectively a subsidy to those who do have that sort of money to put aside. As ever, the taxation system in the UK works to promote the flow of money from those who have less to those who have more. Who ever said that Conservative politicians – of whatever stripe – don’t believe in redistribution? They do – just in the wrong direction.

The argument for that subsidy was always that ‘saving’ was a ‘good thing’ for people to do, and should be encouraged. Reeves has effectively being saying for some time that ‘saving’ isn’t such a good idea after all – what we really need is investment. She’s right in principle, but utterly wrong in the implementation. She is arguing that those who are in a position to put aside the full £20,000 must put the remaining £8,000 into stocks and shares, but defining that as ‘investment’ is just plain wrong. Certainly, if someone buys shares in a start-up, that is an investment: the money goes into the company and is used to pay the initial costs. In return for that, the investor owns a chunk of the company in the form of shares and can expect dividends paid out of profits if the company is a success. But when they sell those shares, even if the person buying them pays two or three times as much for them, not one penny of the payment for those second-hand shares goes into the company for further investment. That doesn’t mean that the new owner doesn’t own a chunk of the company, nor that (s)he won’t receive dividends, merely that the transaction doesn’t represent a new investment in anything. It creates no added value at all.

It might, though, lead to an inflated share price. If Reeves’ approach leads to more ISA monies being used to purchase existing stocks and shares, the price (and therefore the apparent value) of those stocks and shares will increase, in line with the basic rules of supply and demand. That in turn has two effects: firstly, it increases the disparity between the ‘value’ of the shares and the underlying value of the company and its assets, and secondly it makes it more likely that those shareholders will lose some of their apparent wealth if the shares crash. And the greater the disparity, the more likely it is that there will be a crash, or at least a ‘market correction’ at some point, probably as the result of an external shock. Reeves is not only trying to force more people to risk their capital by saving in ways where the price can go down as well as up, she’s also increasing the level of that risk. All because of a dodgy definition of investment.

She’s right, though, in saying that the UK needs more investment. But if we define investment as being the creation of new assets – for instance, new companies, new equipment, new infrastructure – there are better ways of doing it than persuading people to put their money in the hands of market speculators and gamblers. Public sector investment in infrastructure is one of those, but you wouldn’t know that from listening to the Chancellor.

What about the digestives?

Tweet

 

A Labour MP has produced a short video which has gone viral in an attempt to explain the so-called government debt crisis in terms of the ratio between bourbon biscuits (debt) and custard creams (GDP). I’m not sure whether he’s fully thought through the possibility that, for those of us (count me in) who prefer bourbons, this might make the idea of bigger debts more attractive. More worryingly, it made me wonder whether the budget to be announced by the Chancellor later today might itself be based on biscuit mathematics rather than economics, although that might help to explain the odd choices she seems determined to make. One thing that was clear, as the MP piled up his biscuits, was that there was a remarkable lack of crumbs. I suppose that might well be another accurate budget prediction.

What biscuit-based economics skates over, however, is that underlying it is the same set of assumptions as are used by government and opposition alike in their own money-based economics. Treating the amount of money which savers queue up to place on deposit with the government as though it’s a serious debt problem, pretending that the UK has a maxed-out credit card, and ignoring the fact that a goodly chunk of the interest payments being made by the government are actually paid to, er, the government itself so that that element of expenditure immediately also becomes income, are all signs of a commitment to the ridiculous household analogy for government finances. Doing the accounts in biscuits might be mildly entertaining, but it is still economic nonsense.

The number of custard creams and bourbons isn’t actually the limiting factor on what we can do. As Keynes would probably have said, if he’d decided to base his major works on biscuits, if the biscuit factory has the capacity to produce more biscuits, if the materials are available, if there are enough available workers, and if the environmental impact of making biscuits can be met, then we can make as many biscuits as we want. Although, speaking personally, I’d opt for a nice chocolate digestive.