Taming the markets

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It is a given that Trump’s statement about talks with Iran is a lie. Working out which part of his rant is the lie is much harder – maybe there are no talks at all; maybe there are some sort of indirect talks taking place through an intermediary; maybe (as Trump himself has hinted) the talks are taking place with someone who has no authority to hold them (and therefore to implement any agreement), and whose life is under threat if the regime currently in power find out he’s talking to Trump; perhaps he’s even talking to the late Shah’s son in the mistaken belief that he can put him back on the throne. With Trump, any or all of these are possibilities: the nearest thing to a certainty is that the statements coming from the regime in Iran are more likely to be true than anything Trump says. Only time will tell which lie he is telling.

Meanwhile, one of the apparent certainties is that the words emanating from Trump’s phone fingers can and do move markets. As a direct result of Trump’s claim about talks, conveniently issued shortly before markets opened, oil prices fell and stock market prices rose – two of the outcomes most highly valued by a man who measures the success or failure of everything in terms of increasing the wealth of himself and his billionaire friends. Superficially, it’s a puzzle as to why this happens. After all, those involved in the markets know as well as I do that the truth is a stranger to Trump’s lips, and that whatever he says now will probably be reversed in days, if not hours. What makes them place such trust in his words?

The answer to that lies not in what any of those involved in speculative buying and selling themselves believe might or might not be true, but in what they think that other speculative traders might or might not believe. If you believe that everyone else is going to be selling oil (pushing the price down) or buying stock (pushing the price up), then it becomes a race to sell or buy before everyone else does so in order to turn a quick profit. (And if you can get hold of some advance information, speculation – or even simple betting – becomes easier. It’s an obvious hazard when dealing with a ‘leader’ who sees personal and family enrichment as an entirely legitimate goal.)

That brings us to the problem with markets. As a mechanism for matching genuine sellers with genuine buyers, markets are an extremely effective process. They have, though, been largely hijacked by people who have no interest whatsoever in the ‘things’ they are buying and selling; it is the process of buying and selling in itself, with the prospect of turning a quick profit, which attracts them. Commentators describe volatile markets as a ‘problem’, but that’s only true for those genuine buyers and sellers. For speculators, volatility equals opportunity. The consequences of that volatility are felt in the ‘real’ economy by all of us, whilst a minority redirect wealth to themselves. For as long as legislatures allow this situation to continue, markets and the economy they support end up controlling us, when they should be serving society as a whole. Where are the politicians willing to tackle this scourge?

Trump can't make all the rules

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When I was a child, the kids from our street used to go into the fields at the end of the road and play commandos. Well, it was the 1950s, and ‘the war’ might not have been a memory for us, but it was still fresh to our parents’ generation. It was a game which would often dissolve into acrimony as debate raged over whether one or other of us was ‘taking his shots’; a debate in essence as to whether the imaginary bullet had hit or missed its target. Even the world’s best ballistics expert would have been unable to answer the question – tracing the trajectory of an imaginary bullet fired from an imaginary gun is no simple matter. And we didn’t have such an expert on hand anyway.

It was a childish debate, of course – but then we were children and children are allowed to be childish. But it seems to me that Trump – a man-child if ever there was one – has got to a similar stage in his war against Iran: the Iranians are just not taking their shots. He believes that he has ‘won’, but the loser is declining to oblige him by meekly accepting defeat. Six decades ago, we children learnt that no matter how determined any one of us might have been to set his or her own rules for the game, it only worked as long as the rest of us agreed to be rule-takers. It's not a lesson that everyone learns.

Trump has lived his entire life believing that he alone sets the rules, and that rules set by others can be ignored. Mostly, he’s had that stance validated by the behaviour of others, even if that behaviour has been the result of threats, bullying and aggressive law suits which many of his targets have chosen to settle rather than drag out at huge cost. And now he’s got himself into the most powerful position on the planet, with huge resources of weaponry at his disposal, and he’s encountering more push-back than he’s ever encountered before. Iran might be the bloodiest and most obvious source at present, but it’s also increasingly coming from other governments, which he sees as vassals, declining to prostrate themselves before him and do his bidding without question.

His instinctive reaction has been to fall back on the learned behaviour which has served him so well in the past – turn up the volume on the threats, insults and bullying. If – when – that doesn’t work, what will he do next? The world’s best hope is that he falls back on his other standard ploy: lie and claim victory. Repeatedly. Whether the other players will let him off the hook so easily remains to be seen. Not taking their shots can be habit-forming.

Avoiding the real issue - again

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Last week, this blog referred to the question of a falling birth rate, and the alleged ‘problems’ it creates. The Sunday times (paywall) carried an article this week about a new report from a think tank calling itself the Centre for Social Justice on the same issue. The report itself, Baby Bust, is available here. The main factor on which it alights is that it is all the fault of immature men, who are entering the adult work force later and thus deferring parenthood for men and women alike. But it was the ‘solutions’ which caught my eye.

Leaving aside the socially conservative proposals about incentivising marriage and encouraging mothers (not fathers, note) to be stay-at-home child carers, moving to ‘household’ rather than individual taxation – all massive steps backwards, particularly for the status and role of women in society – it was their proposals for education which leapt out at me:

“Reduce the school leaving age and get most young people into the workplace as early as possible”, and

“In a similar vein, we should drastically reduce the numbers of 18-year-olds going to university.”

They didn’t suggest to what age the school leaving age should be reduced. I suspect that they don’t want to go back to sending 8 or 10 years olds down the mines (or aren’t prepared to say so), but it seems clear that they want to at least reverse the increase from 16 to 18. They also want to increase the retirement age to qualify for the state pension. My interpretation of it all was that their idea of ‘social justice’ seems to mean that working class boys, and women in general, should know their place and understand their station in life, as though the 1950s was some sort of golden age. It was a depressing read, and no surprise to find the foreword written by a Tory Shadow Minister.

But, to return to last week’s post, what it’s really all about is looking for a ‘solution’ to a ‘problem’ in a way which avoids the need to look at how the economy serves society, and above all at wealth distribution within society. ‘Social Justice’ which protects the wealthiest at the expense of the rest is an Orwellian use of language, to say the least.

Davey has right diagnosis, but wrong cure

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There are few government policies that are so financially ruinous that they cannot be made more so by a determined politician. And this weekend, it was Ed Davey’s turn, for the Lib Dems. His diagnosis – that the US is no longer a dependable ally and relying on them to allow the use of missiles which are leased from the US may make them potentially unusable – is accurate enough. His cure, however – that the UK should develop a completely new set of missiles on its own – would add vast amounts of additional cost to a programme which is already hugely expensive. It would also have a lengthy timescale before it could be ready for use, and one of the known unknowns is whether the US will remain a hostile actor for the whole of that period.

Whether it would make the weapons any more usable is another open question. Their value as a deterrent has always depended on a series of assumptions. That the UK has the ability to fire them at all without US permission is certainly one of those, but there are others: that ‘the enemy’ will simultaneously be mad enough to launch a strike which will incinerate millions and make large areas of the earth (maybe even all of it) uninhabitable and sane enough to be deterred by the thought of millions of their own citizens being incinerated in return; that the orders given to the submarine commander instruct him to launch in certain circumstances and that the commander, contemplating the scale of destruction already wreaked on the planet, would follow those instructions; and that the enemy would not already have located and destroyed the submarine. That’s a whole load of caveats, without even considering whether the system would actually work anyway.

All of that matters only if the possession of nuclear weapons had anything at all to do with war, peace or deterrence. If, as many suspect, it’s actually more to do with a post-imperial mindset amongst UK politicians – Labour, Tory and Lib Dem alike – that still doesn’t accept the reduced status of the UK in the world and clings to the belief that what the UK PM thinks is of any importance, then whether they work or not is largely irrelevant; the important thing is whether the UK is accepted by other states as being what its leaders think it is. It fails, though, even on that level. One of the consequences of diverting so much resource into a single weapons system is that the UK doesn’t have the sort of forces which can actually be of use, leading to boats spending three days bobbing about in the English Channel. Some of us might think that’s a positive, of sorts – but I doubt that it’s what Davey had in mind.

Lack of money isn't the problem

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It has long been understood that the one thing that governments can always find money for is war. War is undoubtedly costly, as the US is currently finding out. It is not really, though, a financial problem. As Professor Richard Murphy points out today, the real constraint isn’t financial, it’s about the availability of bombs and missiles and the ability of even the US economy to replace them at a fast enough rate. The US will run out of Tomahawk missiles because it can’t manufacture them with sufficient speed, not because it can’t pay for them. Similar considerations apply to Iran, of course – although an economy using lower cost, easier-to-produce weaponry can to some extent compensate for its relatively smaller size.

There is another corollary to this as well. There is talk that reducing the level of sanctions enforcement on Russian oil and gas to mitigate the economic impact of the war in Iran will enable Russia to prolong its own war in Ukraine by increasing the flow of money into Moscow’s Treasury. It’s true in only one important respect: to the extent that Russia needs materials, components etc from outside its own economy, increasing its flow of foreign exchange will assist it, but to the extent that it can meet those needs internally, then, just like the US, it won’t be a lack of money which constrains it.

Russia is vast; it has a huge range of raw materials available to it. It’s also a dictatorship: switching the use of its natural and human resources from peace time activities to war time ones is a lot easier than it is in a supposed democracy. Much of the response from ‘the West’ to the war in Ukraine has been based on the assumption that economic sanctions will reduce the sums available to the Russian government to spend on armaments and eventually force it to stop its aggression. But if those sanctions only impact Putin’s ability to make purchases outside the Russian economy, and Russia can meet most of its own needs within that economy, then the assumption is invalid. Russia can never run out of money, and can continue its war as long as it has the resources to do so available within its economy.

That’s not to argue that sanctions should not be applied, even if we know that they are widely being broken by back door transactions. It does, though, suggest that merely cutting off economic contact with a country with access to such vast resources of materials and labour will not bring that country to its knees any time soon. It’s more tokenistic than effective. It’s not a new lesson – Iran, for example, has been subject to severe sanctions for decades, and is still able to produce drones not only for its own use but also for export. The mistaken belief that money (or lack thereof) is a constraint on action by sovereign governments running their own currency has a lot to answer for.

The issue of distribution isn't going to go away

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The view that a falling birth rate is a ‘problem’ which needs to be addressed might be being expressed most forcibly by the political ‘right’, but it isn’t confined to that wing, as evidenced by this article last week from Polly Toynbee in the Guardian. Whilst (justifiably) demolishing the arguments of some Reform Ltd figures, she ends up agreeing with the objective (increasing the birth rate) but giving a different rationale.

There is a fringe element amongst those who support increased birth rates which is tinged with both misogyny (men controlling the fertility rate of women) and racism (a belief that the ‘solution’ to the economic drivers of immigration is to produce more native-born workers). Given the roughly twenty-year lead time involved in producing more workers, the latter is economic nonsense, but then racism and xenophobia have never been about logic or economics.

More seriously, the economic case for increasing birth rates revolves around the fact that the ratio of ‘productive’ to ‘unproductive’ adults is changing as the population ages. In an economy built around the assumption that the product of economic activity belongs to those engaged in it rather than to society as a whole, the fact that there is a problem is undeniable. Fewer workers supporting more non-workers – with no other changes to the economic model – will clearly lead to difficulties. Rebalancing the ratio by increasing the supply of people, even if we ignore the 20-year lead time, turns it into something of a Ponzi scheme, in which any increase in life expectancy (generally a good thing) has to be balanced by an increase in population size (not such a good thing in a finite world where resources are already being exploited unsustainably). Another solution, pursued in the UK by governments of both colours, is to reduce the number of non-workers by making people work longer. That would certainly rebalance the ratio and cut the cost of maintaining retirees: fewer pensioners = lower pension costs. But it also makes retirement (and even more so, a lengthy and healthy one) increasingly a privilege for those who have good occupational pensions and are not doing physically demanding work. It’s a ‘solution’, in short, which favours the better-off at the expense of the less well-off.

There is another approach, but it involves a change in paradigm – a shift away from seeing the output of economic activity as belonging only to those actively engaged in economic activity. If, instead, we see the ‘economy’ as being something which belongs to the whole of the society in which it operates, then the question becomes one of how the output of that economic activity is used within that society. A properly functioning society (including the economy which is part of it) needs to meet the needs of all its members – old, young, sick, and disabled members as well as productive workers. The idea that we only need to worry about how big the pie is, rather than how it is shared, has validity only so long as any increase in the size of the pie is both sustainable in terms of its use of finite resources, and equitable in terms of how the extra pie is used. Falling back on ‘growth’ in the abstract – the default position of Labour, Tory, Lib Dem and Reform Ltd politicians alike – is thus no solution at all if, as is the case at present, that growth is not only not sustainable within the resources available, but also the benefits are overwhelmingly captured by a tiny proportion of the population. We cannot simply avoid indefinitely the question of distribution.

Raising money for war

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As the warmongering rhetoric of the UK’s traditional parties (Tory, Lib Dems and Labour), along with newcomer Reform Ltd, ramps up, suggestions have been floated that the UK should start issuing war bonds, a method of borrowing from the public which was used to fund both World Wars. One of those floating the idea is Lib Dem leader, Ed Davey, and the call is also being supported by an alliance of defence industry bosses. The keenness of the armaments industry for the government to raise more money to divert into their pockets is understandable – arms manufacturers are the only consistent winners from warfare. Surprise, surprise – arms manufacturers support a plan to transfer other people’s money to themselves!

Even if we assume, for the purposes of argument, that spending more on armaments is a good thing, there is a big question over whether the government actually needs to borrow money to achieve that aim. The constraint isn’t about money – the government can always create money to fund whatever it wishes – it is about real resources in the economy. Are the raw materials, labour, energy etc to produce more armaments actually available, or do they need to be redirected from other economic uses? The way in which they are financed is a separate question entirely. On the scale on which our politicians apparently wish to manufacture armaments, it is likely that diversion of resources from other activities will be required – and which economic activities are selected to suffer the effects of that diversion is a far more important question, even if not one that any of them are in any great rush to answer.

Those advocating war bonds as a means of raising finance seem to think of it as an opportunity for ordinary people to come together and loan their pennies to the government in a great patriotic outpouring, as happened in the two world wars. Except it didn’t happen; it’s a false memory of events seen through biased lenses. And that little dampener eliminates the need to even consider whether the UK’s population would suddenly be overcome by the jingoistic fervour which the proposal presupposes.

In both world wars, the bonds were overwhelmingly sold not to ordinary individuals in the street but to a small number of wealthy individuals and to companies and institutions, unsurprisingly concentrated in London and south east England. The scheme launched in the first world war was actually a spectacular failure, with the Bank of England being forced to buy many of the bonds itself (an early example of what would probably be called quantitative easing today), hide the assets in its accounts, and then lie about having done so. As the government increased the interest rate in an increasingly vain attempt to attract more money, many of the new bonds were purchased by holders of the existing bonds converting them into the new higher interest bonds instead. As might be expected by any rational observer, the motivation of capitalists was more about making money than saving the country.

That highlights one of the issues with governments issuing bonds – they benefit mostly the wealthiest in society. By treating tax and ‘borrowing’ as alternatives, the rich end up keeping their capital and earning interest on it rather than paying tax. It’s also a double whammy – when the government spends the money into the economy, it overwhelmingly flows upwards into the hands of the wealthiest, through profits and dividends. To the extent that even a small number of ordinary people respond to the call, they end up reducing their own spending power as the flow of capital increases social inequality. It's not quite the wizard wheeze as which its advocates seem to see it. Unless you're an arms manufacturer.

The ultimate unwinnable wager

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There was a report a few days ago about the possibility that there had been some insider trading on a web betting – sorry, ‘prediction’ – site where some individuals may have made a killing by correctly ‘predicting’ either the attack on Iran or the death of the Ayatollah. It may, of course, be the case that the involvement of a Trump in the company hosting the ‘prediction’ market is a complete coincidence and/or that one Trump knew nothing about what another Trump was about to do. Perhaps there should be a market in predicting whether Trumps will gain financially from US government actions.

It is, apparently, possible to put money on a ‘prediction’ of almost anything. It seems that the same company hosting the bets on those ‘predictions’ also briefly ran a market in predictions of nuclear Armageddon. That market has subsequently been pulled, apparently because some felt that an attempt to make a bit of money betting on the deaths of millions of humans might be considered a little distasteful. To a compulsive gambler – sorry, ‘predictor’ – there is nothing that’s off limits when it comes to placing a bet, but the company running the market probably considered that whatever it had by way of a reputation would probably not be helped.

I found myself wondering, though, what sort of person would bet money on such an event. If the event happens, then the chances of the gambler being alive to claim his winnings are slim, to put it mildly. The chances of the company still being in existence to take the money from the losers and pay it to the winners are even lower. And what would the winners do with the money if there was no longer a functioning economy in which to spend it? Maybe those betting on nuclear destruction believe that nuclear Armageddon would not be so bad after all. The individual might survive a nuclear war, the company might still be able to organise the pay out, and the money would still be useful. But in those circumstances, the company would be able to argue, justifiably, that what just happened wasn’t nuclear Armageddon after all; and if the event didn’t happen, then those ‘predicting’ that it would happen would neither win nor receive any payout. It’s an essentially unwinnable bet for those predicting that outcome. There were some, apparently, willing to make the bet anyway. Even if they had advance knowledge that someone intended to start the nuclear war, it’s still a pretty stupid bet. As well as being tasteless.

Judge them by thir actions, not their words

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The Home Secretary has announced that because people from certain countries who come to the UK as students are more likely than those from other countries to then apply for asylum, she will ban anyone from those countries coming to the UK on a student visa. She could just as easily – and just as truthfully – have said that students coming from a country where there is conflict are more likely to apply for asylum than those from countries where there is no conflict. Who’d have thought it? It’s almost as though people coming from places where they have genuine reasons to seek asylum might be more likely to seek asylum.

Treating people on the basis of being able to place them in a certain category rather than looking at them as individuals is always going to be problematic. I’m pretty certain that people with dark skin coming to the UK on student visas are more likely to apply for asylum than people with fair skin, although I’ll admit that I don’t have hard evidence to back that up, other than the entirely coincidental fact that it is true of all the countries she has selected. If the Home Secretary banned all those of a darker hue from applying for student visas, she would be more roundly condemned than she has been. Her announcement yesterday was not as overtly racist as that would be, even if the effect might end up indirectly discriminating on race. It is, though, much the same thing – treating people on the basis of a collective attribute rather than their individual circumstances.

It is essentially a lazy response to a complex issue. “Some of that group might apply for asylum, so we’ll ban all of them from studying here” might attract a positive headline from the right wing media, but it doesn’t reflect any sense of fairness or compassion. Insofar as I understand ‘traditional British values’, it’s also deeply un-British. But then again, I’ve long stopped trying to understand those values in terms of what people say they are – actions tell an entirely different story.

Hooray for English culture...

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‘Culture’ is hard enough to define; it’s even harder to prescribe it. Yet that, apparently, is what the Tories under Badenoch are proposing to do. If only a single, universalised form of British culture could be inculcated into young people, the British nation would be more united, resolute and generally happy than it is today. Allegedly. How this would be achieved is not entirely clear, but there would be something called an ‘integration and cohesion plan’, and schools would play a role in teaching a single ‘national story’. I’m struggling a little, though, to distinguish between what she is proposing and what Russia is doing, not only in its own territory, but also in occupied areas of Ukraine.

It is, of course, heavily Anglo-centric. Whilst the culture warriors of Britishness are generally keen on promoting Shakespeare and the benefits of Empire across the whole of the UK, they’re not usually so keen on introducing Dafydd ap Gwilym or Robert Burns to English pupils. It also takes us into the realm of those ‘great British values’ which distinguish – in their eyes – the people of these islands from everyone else in the world. Things like deference to the rule of law (except international law, obviously, given Badenoch’s complaint yesterday that Starmer was too slow in supporting Trump’s illegal war against Iran). Things like parliamentary democracy (unless ‘silly people’ in parliament might dare to vote the wrong way). Things like due process (unless that process gets in the way of the government doing whatever it wishes).

Harri Webb’s somewhat irreverent caricature of English culture (“tuneless songs and tasteless jokes and blowsy bags undressing”) was not particularly complimentary; nor was it the sort of language a serious politician would use today. Refuting it, though, requires a definition of what exactly English culture is, and that is something which sound-bite Badenoch hasn’t even attempted. We shouldn’t be surprised, though. Defining culture is hard – and it’s a moving target, because no culture stands still. That statement might, however, go to the heart of the problem with Badenoch’s proposals. It’s a good rule of thumb that any politician seeking to inculcate a particular view of the world – whether it be based on values, culture, history or whatever – is usually espousing an idealised or romanticised version of how things were in some unspecified golden age in the past. Invariably, it wasn’t even accurate then.