The issue over care should be about how it is delivered, not how it is funded

Tweet

 

The UK’s new PM talked a lot last week about care, and there’s no doubt that identifying what care is needed and how it is to be provided are significant issues facing us, particularly as the population ages. Sadly, though, the debate rapidly turned into one about how care is to be paid for, which is a completely different issue – and in some ways, irrelevant. The need for care is based on the aggregation of the needs of millions of individuals – whilst the level of provision might vary according to how much money is available or what budget is set, the need doesn’t change in response to the funding.

If we start from first principles rather than ideological views about money and the size of the state, the nature of the problem changes. One of the problems with neoliberal economic thinking is that it values only two things: labour and capital. The economy is seen as belonging only to those who supply either their labour or their capital – with a huge bias in favour of the latter. Everything and everyone else is then seen as a ‘burden’ on the productive economic activity of those groups, often with the implicit assumption that the living standards / purchasing power of those non-productive groups should be limited to the basics. But if we instead see the economy as a social construct, with the objective of serving all members of the society in which it operates, the picture changes completely. A successful economy needs to be able to provide a decent standard of living (leaving aside, for the purposes of the current argument, who decides what that is, and on what basis) for all its members – young, old, sick, and disabled. And, however defined, that ‘decent standard’ includes things like education, health – and care.

If ‘the economy’ is to serve all of us rather than only those supplying labour or capital, the question ceases to be about how much we tax to pay for x, y, or z, and instead becomes one of how we ensure that the level of economic activity is high enough to provide that decent standard of living – and what mechanism we use to share the benefits of that economic activity. Economic growth is important, of course, but once we accept the obvious truth that growth cannot be infinite in a world where resources are finite, we cannot use that growth – however much the politicians try to do so – as an excuse to avoid discussing the issue of distribution. But avoiding that issue, ultimately, is why the supporters of the current neoliberal capitalism reduce everything to a question of ‘how will you pay for it?’. Better – from their perspective – to turn people against each other over a question of taxation than to get to grips with the question of how wealth and income are distributed. All the debate around how care is to be funded - like the debate about the welfare bill, or the pensions triple lock – is about diverting attention away from the key question, which is about the distribution of wealth and income within society. And whose interests are served by that?

May was a near record month for UK saving

Tweet

 

The UK Government accepted a record level of deposits from savers during the month of May, the second highest total on record for the month of May. Savers (mostly pension and life insurance funds as well as some wealthy individuals) clearly recognised that saving with the UK government is one of the safest places for their money, because the UK government’s ability to create extra money as and when required means that they can never lose their capital. That’s one way of presenting the figures, but it’s not the way that most of the media chose to present the same information. Instead, the near-universal response (here’s one example) was to treat it as a disastrous increase in government borrowing.

The disparity serves to underline the simple and unavoidable fact that what looks like a debt to one party will always look like an asset to the other. It also underlines the way in which those who want to deliberately constrain or reduce UK government expenditure will choose to interpret the facts in the way which they believe boosts their perception – to say nothing of boosting their own financial interests. The willingness to deposit such large sums with the government suggests that the savers aren’t really against what they describe as ‘government borrowing’ at all – why would they be, when they’re the main beneficiaries? It’s more that they’re against the government spending money on services instead of cutting taxes. And – surprise, surprise – those who benefit most from interest payments on government ‘borrowing’ would also have the most to gain from tax cuts.

For the rest of us, the problem isn’t government borrowing per se, it’s the way in which paying for that borrowing ends up funnelling money into fewer and fewer hands, concentrating wealth rather than spreading it. Any meaningful attempt to decrease inequality must inevitably mean that we have to look at the way in which wealth and income are distributed within the economy. Understanding that one person’s debt is another person’s asset is one small step towards that.

Identifying the right problem

Tweet

 

There was a report of an opinion poll in the i paper a few days ago on the issue of paying benefits to young people who are not in employment, education or training. The article itself is behind a paywall, but the data is available in Table 53 in this report. The headline figure was that 56% of those questioned believed that all benefits should be stopped for such people. As one might expect, the numbers vary between supporters of different parties, with those supporting parties of ‘the right’ most likely to support the proposition. Asked in isolation, it’s easy to see why so many might support that (why, the implication is, should anyone not seen to be ‘contributing’ expect to be supported?), but I wonder whether the implications have been thought through by those responding to the survey.

For people in that ‘NEET’ category, benefits are likely to be their only direct source of income; removing it implies that those 56% of respondents are quite happy for the young people to go without food, clothing or shelter. In reality, of course, many (but by no means all) in that category will be living with their parents, who would presumably be expected to continue paying the living costs for their adult offspring. The key economic fact to note, though, is that the withdrawal of benefits from anyone means that someone, somewhere, has their own spending power reduced. Maybe it’s the individuals directly affected, maybe it’s their parents who are obliged to divert money from their own discretionary expenditure. In economic terms, it matters little to the basic conclusion: somebody’s spending power would be reduced, with a consequent reduction in overall demand. In fact, there’s a more general point which this underlines – if a government cuts spending or increases taxation in pursuit of the alleged nirvana of a balanced budget, someone, somewhere must always have their spending power reduced.

The political question is that the ‘who’ and the ‘where’ are ultimately choices being made by politicians. The claims that ‘benefits’ or ‘pensions’ are unaffordable are not the result of some iron-clad law of economics; they are the direct result of political choices as to who should pay for the entirely arbitrary need to pursue a balanced budget. Worse, they are framed in such a way as to encourage us to believe that governments have no choice but to act to reduce such expenditure, and that the impact of doing so will be felt by ‘someone else’. But if we ask a rather different question, it’s easy enough to expose the lie. That question is, in simple terms, ‘are there enough resources in the UK to provide every citizen with a decent standard of living?’ The answer, unquestionably, is ‘yes, of course there are’. That we ‘choose’ not to use those resources to achieve that aim is down to ideology, not economics.

None of that, of course, provides an answer to the problem of so-called NEETs – but then neither does simply cutting their benefits. The only ‘problem’ that that solves is how we continue to ensure that resources are concentrated in fewer and fewer hands. But that concentration of wealth is the much bigger economic problem.

Vigilantes are the problem, not the solution

Tweet

 

It must have been sometime in the 1950s that I used to watch Mr Pastry on the television, and I’m sure that I remember one episode in which he wanted to be a ‘village auntie’; but my memory also told me that Mr Pastry was Clive Dunn rather than Richard Hearne, so maybe it was a different programme. Anyway, the plot line was that our hero had completely failed to understand what a vigilante was. The media and commentators seem to be suffering from a similar lack of understanding every time that they refer to the dreaded ‘bond vigilantes’ who are apparently forcing interest rates up because they’re worried that the Labour government might in any way deviate from the Tory financial straightjacket rectitude to which they’ve been stupid enough to commit themselves.

It’s not true; the participants in the bond markets really don’t give a damn about what government policy is, and are not trying (as true vigilantes would) to exercise extra-judicial powers over perceived miscreants. They care only about extracting maximum benefit for themselves, and see the widespread belief that a change in government policy might make UK bonds a riskier prospect as an opportunity to line their own pockets. It’s a form of self-fulfilling prophecy. Those paying the interest might well want a stable low level, but that isn't necessarily true of those receiving it.

That doesn’t mean that paying higher interest rates on government ‘debt’ isn’t a potential problem for the public finances. The extent of that problem is somewhat exaggerated though: part of the ‘debt’ is held by the government-owned Bank of England, so the government is paying interest to itself in an exercise which is more about book-keeping than debt management, and the higher interest rates only apply to new ‘debt’, not to the money which has been ‘borrowed’ previously. It’s also true that around 30% of the 'debt' is owed to banks, financial institutions and governments outside the UK, but that is offset by the fact that governments outside the UK also owe large amounts (almost £900 billion in the case of the US alone) to UK banks and financial institutions, and to the UK government itself, and interest comes into the UK as well as flowing out.

The bigger problem with the conventional analysis is that it looks at only one side of the equation, to wit the financial impact on government finances. But we need to look at the other side of the equation – after all, if one body is paying interest, someone else is receiving it, and those recipients are the holders of those bonds, and they are mostly based in the UK. They include a small number of wealthy individuals who directly buy bonds and a much larger number of indirect holders, mostly current and future pensioners. And since the benefit received through interest payments is proportional to the amount of bonds held, the benefits will flow disproportionately to the most well-off. In short, government bonds are a mechanism by which wealth is transferred from the many to the few (Richard Murphy has a fuller explanation of that here), and it is the few (or their representatives) who are manipulating the markets to maximise that flow.

Bowing to the perceived pressure from ‘the markets’ is outsourcing financial policy to those to whom wealth is being transferred. Understanding that is a key first step to debating alternatives – but not one that the political representatives of the few, whether Tory, Labour, Reform UK or whatever, are keen on promoting.

Divide and conquer is working as well as ever

Tweet

 

During his 2016 election campaign, Trump famously claimed that he could stand in the middle of 5th Avenue in New York and shoot someone and it would not affect his poll numbers. Whether it was true or not at the time is open to debate, but he certainly seemed to believe it, and all the indications are that he still does. At times, it even seems as though he is trying to test the claim empirically, even if it isn’t himself who actually pulls the trigger. The insouciance and lies with which he dismisses any criticism of the armed gangs of masked men which he has sent out to seize people off the street, or at their place of work, or even in schools and colleges, isn’t really surprising. It is entirely consistent with his character.

What is rather more depressing is the ease with which armed government employees have fallen into a culture where they regularly exceed any lawful authority and are willing to shoot first and ask questions later. And that applies as much to the individual soldiers and airmen involved in sinking boats as it does to the ICE teams roaming the streets of major cities. We know that ‘following orders’ is no defence, and that individual officers have a legal duty to question patently illegal orders rather than follow them, but some of what has been happening goes beyond mere obedience to superiors and into the realm of ‘using their own initiative’, secure in the knowledge that, even if they weren’t specifically ordered to do something, it’s what the head honcho wanted them to do. And if you can be persuaded that the Reich, or the Trumpate, will last a thousand years, the possibility of being held accountable will always look low.

We shouldn’t really be surprised: history tells us that it has happened before and contains plenty of examples of people who do what they think their bosses want them to do. It goes back at least as far as Henry II and his turbulent priest. With the greater availability of alternative (rather than solely official) news sources, it might have been hoped that a more aware population would be more resistant, but some reports suggest that the US is, probably deliberately, recruiting people who are barely literate to carry out their programme of detention and deportation. For any tyrant or despot, a poorly-educated populace always has advantages (and lest we think that we in the UK might be immune from such attitudes, think about those politicians railing against the number of people educated to degree level who they consider to be ‘over-qualified’ for their allotted station in life).

Looked at rationally, in an economy run by and for billionaires it ought to be strange that so many people who have little or nothing to gain by facilitating a kleptocracy in which wealth trickles ever more quickly upwards are so willing to act as agents of the kleptocrats. But sowing hatred and division and blaming ‘others’ for all the problems has shown itself to have extraordinary staying power as a means of cementing authority and wealth in the hands of the few. There's no sign of its power waning.

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.

Accumulating wealth isn't the same thing as creating it

Tweet

 

‘Wealth’ is a strange thing. Most of us know whether we’ve got it or not, but that’s not the same as knowing what it is, or where it comes from. And that’s important when it comes to the question of taxing it, a question which has gained a lot of prominence recently. Partly because identifying what it is isn’t exactly a straightforward task, it’s far from easy to tax it; it is a great deal easier to tax income arising from it, as discussed in a previous post. There’s also a lot of confusion between being wealthy and creating wealth, as some of the reports suggesting that millionaires and wealth creators will leave the UK if they are taxed at a higher rate illustrate.

For most of us, our ‘wealth’ is almost entirely a result of home ownership: take away the ‘value’ of our homes and we have very little left. That property-based wealth certainly seems to be growing, but who is actually ‘creating’ that extra wealth? It’s not home owners – they do nothing except buy a house and watch the monetary value increase over time. Another form in which much of the UK’s private ‘wealth’ is held is stocks and shares. But those who buy shares aren’t investing in the companies – the companies don’t see a penny of the value of share sales. Most business investment comes from commercial loans, not share issues. The value of those stocks and shares might increase over time, adding to the total stock of wealth, but who is ‘creating’ that extra wealth? It certainly isn’t the shareholders, yet they are the ones benefitting from that increase in value. Most of those who can be described as millionaires in the UK are actually wealth accumulators, not wealth creators.

It means that we need to examine rather more carefully the bleating of those who claim that taxes on wealth (or the income derived from wealth) will drive wealth creators to leave the country. Most of them aren’t even wealth creators in any meaningful sense in the first place. There’s also a question about the extent to which they can really take their wealth with them. They can certainly sell their homes and their shares and take the monetary value with them – but the assets won’t have moved. It’s obvious in the case of bricks and mortar that the homes will stay in the same place under new ownership, but so, in general terms, will the real assets underpinning share values. Even in the case of a successful business built up by a successful entrepreneur (which might be a genuine case of wealth creation) who decides to emigrate and take his wealth with him, the way to realise the best value for his assets is to sell them to a new owner, not to destroy them. And the extent to which people can continue to own assets whilst domiciled elsewhere and avoid UK taxes in consequence is a matter of UK taxation policy, not an automatic result.

There are some good arguments against trying to assess and tax wealth. There are even some not-quite-so-good arguments against doing more to tax income arising from wealth. Fear that a few whingeing millionaires will emigrate just isn’t one of them.

Taxes and violins

Tweet

 

In its reporting (paywall) on the publication of the annual ‘Rich List’, the Sunday Times told us that some ‘business leaders’ are unhappy with the Chancellor’s proposals to impose tax on the transfer of shares in ‘family businesses’ to the next generation. Apparently, some family businesses don’t have the cash available to pay such a tax, which means that the individuals might need to sell some or all of the business to someone else in order to pay it. It would be cruel, but wholly true, to point out that exactly the same is true of anyone inheriting anything from a large estate: if the estate does not include enough cash to pay the tax, then assets would need to be sold. Whether the shares are in a ‘family firm’ or merely shares in a random company doesn’t look to be an entirely relevant distinction: the fact is that assets are being inherited and that tax falls due on an estate.

Those impacted are arguing that ‘family firms’ provide a lot of employment and contribute to the UK’s economy. It’s true, of course, but it fails to explain why that would not continue to be true if the company were no longer to be owned and run by the same family, and that the damage would be such that giving family members an effective subsidy to continue their ownership delivers more benefit to the economy. No-one has yet identified a genetic basis on which the descendants of the founder are somehow better equipped to run a company than anyone else. Experience shows that whilst such a company often continues working as well (or as poorly) under the next generation, sometimes a member of the next generation proves him or herself to be highly successful and turns a sleepy company into a giant, and sometimes those of the next generation taking over prove to be utterly inadequate at the job and end up destroying the company. None of those outcomes is pre-determined by breeding or genetics; inheritance does not presuppose merit. In short, there is nothing about inheriting a family company which distinguishes its future prospects from those of a company which is bought by an outsider.

What inheritance does do, however, is ensure that wealth created by one generation passes to the next generation and is kept within the family. Meritocracy it ain’t; and tax concessions are a direct subsidy which enables families to hold on to wealth amassed by their ancestors, regardless of any talent or ability that they themselves might possess. There are those who argue against the whole principle of an inheritance tax. There is a coherent argument to be made for such a proposition, although it’s not one with which I would agree. But there is no rational economic basis for distinguishing between wealth held in a company which some ancestor founded and wealth invested in a publicly quoted company. The sympathetic violins for the poor hard-done by descendants can be safely stood down.

How real is paper wealth?

Tweet

 

‘The markets’ have reacted fairly predictably to Trump’s puerile attempt at a conjuring trick by registering some dramatic drops. The analysts tell us that this reflects their pessimism about inflation, interest rates, and economic growth, all of which are likely to be adversely affected by the trade war which Trump has kicked off. Whilst I don’t doubt that economists (most of them, anyway – there are always some who’ll take a different view) do indeed see Trump’s actions as a threat to economic prosperity, I wonder if that’s what ‘the markets’ are really reacting to. It probably would be the case if markets were doing what classical economics says that they do, which is matching capital with investment opportunities in expectation of future profits. But if those same markets are actually more about gambling and speculation, which is probably the reality behind most trading, then what really drives them is an attempt to second guess what other players will do in response to tariffs in the hope of turning a profit by making a better guess than those other players.

It underlines that share prices an extremely poor indicator of economic value; they often bear little relation to the value of the underlying economic assets which they nominally represent. And their volatility makes them a poor measure of the wealth of their owners. To take just one simple but current example, the share price of Tesla has plummeted since Musk got involved with Trump’s administration. He’s still a very wealthy man, on paper, but his total wealth is apparently a lot less now than it was a few months ago. In his case, the scale of things means that it makes little practical difference, but the question is whether ‘paper wealth’ is a sound basis for assessing anything.

That’s relevant in the context of the increasingly strident calls for a wealth tax here in the UK. Whilst the idea appeals to many of us, assessing the amount of wealth owned by an individual is not a simple or straightforward task, especially if the value of a significant component of that wealth can vary from day to day – or even hour to hour. And non-paper wealth – property, land etc. – is not easily realisable or assessable without being realised. What is easier to assess, albeit still difficult when the tax system is complicated and people can afford to pay expensive advisers (although both of those obstacles could be overcome by a government intent on fairness), is the income generated by that wealth including, of course, any increase in value from the date of acquisition to the date of disposal of any asset. We certainly should do more to tax the wealthy, but taxing the wealthy isn’t necessarily the same thing as taxing their wealth. Their income is a lot easier to get at.

What does Putin really want?

Tweet

 

The Secretary General of NATO has warned Europeans that the alternative to spending more on defence is to learn Russian or migrate to New Zealand. The assumption behind it is that, without a huge increase in spending on armaments, Russia will simply over-run the whole of Europe and turn us all into subjects of its empire. There are a number of problems with that as an idea, not the least of which is revealed by a little simple mathematics.

I’m not sure how practical it is to arrange a mass migration to New Zealand, but I can’t see the New Zealanders (population around 5.25 million) being ecstatic about welcoming around 560 million Europeans to their shores, which throws most of us back on the alternative of learning Russian. It is immediately obvious that the pool of available Russian teachers is never going to be up to the task. A country of 143 million is never going to be able to impose its language on another 560 million in the twenty first century. The English government, with a population of almost twenty times that of Wales has taken 500 years to partially impose its language on us, and there is still resistance. And the numbers aren’t only problematic in terms of language teaching. I don’t know how many occupation troops would be necessary to control an additional population of 560 million, but the chances that a country of only 143 million could find enough are vanishingly small.

It would, of course, be a simple enough task for a Russian Trump; just invent some new numbers for the respective populations and claim that the problem has been solved. But if we assume that Putin might just possibly be a little more numerate than Trump (a not wholly unreasonable proposition), it follows that he would realise that military domination of the whole continent is not an achievable outcome, even if we believe that he really desires it. It is dangerous to assume that he is entirely rational, but probably less so than assuming the complete opposite, which is where most European politicians seem to be at present. Perhaps the safest assumption is that he is mostly rational most of the time, which leads naturally to the question ‘what does he really want?’.

Personal kudos and recognition – very probably. There’s no reason to assume that narcissism should be restricted to the US. He knows that he won’t be around forever, and he’d probably like to be remembered favourably by Russian historians. Personal wealth – possibly. But he already has a great deal of that, and statistics suggest he won’t be around for long enough to enjoy what he has, let alone much more. On the other hand, that is not a consideration which has ever prevented others from accumulating ever greater wealth. Land and resources – maybe, maybe not. His distorted view of history and Russia’s place in it suggests a desire to emulate the Russian empire at its height, but his experience so far in Ukraine will have taught even only a partially rational person something about the cost of that. Security – almost certainly. It is far from irrational for him to suppose that ‘the west’ really might be out to do Russia (and Putin) down. It’s not a fear which requires its sufferer to be diagnosably paranoid. The desire for security guarantees isn’t limited to Ukraine.

The bigger question is about what ‘the west’ is doing to ascertain what he truly wants and whether actions taken are likely to reduce or increase the insecurity he feels. It really doesn’t matter whether his insecurity is based on an accurate assessment of others’ intentions or not – the effect on his actions is the same either way. I cannot believe that an accommodation cannot be reached which involves reassurance and disarmament rather than threat and rearmament. Unless, that is, it’s not something which ‘the west’ actually desires.

Economic migration is neither new nor unique

Tweet

 

For generation after generation, Wales has lost people, particularly young people, who have left to seek a better future elsewhere. The immediate cause is well-understood: a lack of opportunity here, coupled with greater opportunity elsewhere. Within the UK, it’s not a phenomenon unique to Wales of course; Scotland and much of England outside the south-east corner have suffered the same fate. The wider reasons for that economic imbalance are well-understood as well: a centralised state which concentrates power, wealth and talent in the centre by sucking it in from the peripheries. The extractive and exploitative nature of the Welsh economy is easily seen by looking at transport links – the best ones overwhelmingly run from west to east rather than north to south, historically facilitating the extraction of mineral and other wealth.

The fact that Wales has not been an independent country during that time, and the consequent lack of a recognised international border obscures the basic fact: most of those who left Wales were (and are) what are today called, usually pejoratively, economic migrants. People who live in an area denuded of much of its wealth by far-away rulers migrate in search of a share of what was originally theirs anyway. We’re not good at recognising it, but it is the same imperative which drives many of the migrants reaching these shores currently. Coming from countries which were systematically exploited and robbed by their colonialists, they travel to where the wealth now resides in search of opportunity. And it should be no surprise that the country of choice for many of them will be the one which colonised them, and whose language was imposed upon them. So, for example, Algerians tend to favour France and those from the former British Empire tend to favour the UK.

If anyone should be able to understand and empathise with economic migrants, it is us here in Wales. But by and large, many amongst us don’t. Perhaps it’s due to a lack of understanding of our own history, coupled with an acceptance of the version of history with which we are fed. But the bottom line is that, whilst many in Wales blame the exploiters for the loss of those who leave, they blame the individuals for the new arrivals. In truth, our interests have more in common. If it’s an unfair distribution of wealth which drives economic migration, it is a fairer distribution which will reduce it. It’s no accident that, in the UK as in the US, anti-immigrant sentiment is being driven and funded by some of the richest political donors. We only have to ask ourselves who might feel most threatened by any suggestion of a fairer distribution of wealth, whether within a state or more globally, to understand why.

Creating wealth: who benefits?

Tweet

 

Two of the many points of agreement between Labour and the Tories are that both economic growth and wealth creation are generally good things to encourage. On that, at least, they’re more or less right, although they often seem to miss out the important caveat that both things must happen within such limits of resource usage as are necessary to ensure that resources remain available for future generations, and that the ability of the planet to sustain life is not impaired (and that caveat is more far-reaching than it might appear). They even seem to agree, in general terms, that the route to achieving those things has to do with freeing wealth creators to do their thing by minimizing government intervention or control, and that government spending is some sort of drain on wealth – and on those points, they’re both completely misguided. I wonder if they even understand what ‘national’ wealth, as opposed to private wealth, actually is.

For sure, Starmer knows a wealthy man when he sees one (as did his predecessor but two, on a grand scale). But becoming wealthy isn’t the same as creating wealth, and nor is creating wealth the same thing as becoming wealthy. It’s perfectly possible for someone to redirect wealth in his or her own direction without adding to the total wealth of the country; and equally possible for a wealth creator to add to the sum total of wealth in the UK whilst ending up bankrupt. Becoming wealthy can simply be the result of redistributing existing wealth, something which a ‘trickle-up’ economy like the UK tends to facilitate. Creating wealth isn’t the same thing as making a profit either: it’s perfectly possible to turn a decent profit by simply redistributing existing wealth. There’s another myth as well – that somehow the public sector uses or even destroys wealth rather than creating it. But building a new hospital or school, for instance, adds to the country’s stock of capital, and thus wealth. And not all wealth can be measured in cash terms anyway, even though that’s what politicians seem to want to do. A healthy population also adds to the ‘wealth’ of a country, as well as increasing the potential for future wealth creation.

The real issue is not about the creation of wealth, but its use and distribution. An increase in total wealth which flows into the same few hands might look like a positive result at the macro level, but it won’t feel like one at the level of those struggling to get by. The argument that growing the size of the pie means there’s more for everyone without needing to take any away from the owners of the biggest slices only works if everybody’s slice gets bigger in practice, rather than merely in theory. If all the extra merely makes the biggest slices even bigger, then the ‘growth’ about which the government keeps banging on merely increases inequality.

Confusing total ‘national’ wealth with private wealth looks to be deliberate; and it’s no surprise given that the ‘wealthy’ have a disproportionate influence on government and opposition politicians alike. Even if there’s no direct or obvious quid pro quo, does anyone really believe that the generosity of wealthy donors is completely unrelated to their desire to continue to apply that adjective to themselves? People may not need to create wealth to become wealthy, but neither do they stay wealthy by donating part of their wealth to governments which might want to redistribute part of the remainder. But if increased wealth isn’t put to use for the benefit of the population as a whole, what is the point of it? It’s a question to which the government doesn’t seem to have an answer.

Does Starmer understand how privileged he is?

Tweet

 

In his attempt to make his use of a millionaire’s apartment for four weeks, at an estimated value of £20,000, appear reasonable, Starmer has appealed to the sense which any parent would feel of wanting to do the best for his children. Superficially, it’s an entirely reasonable argument. Having a hoard of reporters virtually camped in the street outside someone’s house is clearly disruptive, and any caring parent would want to avoid disruption to study in the approach to a set of key examinations.

There is a problem, though. Whilst a throng of reporters might be a problem more-or-less unique to the leader of the opposition, it isn’t the only form of disruption which can occur. What, for example, of the child trying to study whilst extensive roadworks are taking place in the road outside?  (Or perhaps the building of a new housing estate, a new prison, or a line of pylons; all things which Starmer has told us people must simply put up with.) Is that somehow less disruptive? Perhaps the parents of that child should just have a word with their friend the multi-millionaire and borrow his pad for a month. Except that most of us don’t know any millionaires, let alone the ‘multi-’ variety.

We know that children born to well-educated, wealthy (or at least comparatively so) parents consistently perform better in school, including in examinations, than poorer children. They start life with a whole range of advantages not available to others. In his attempt to portray himself as just a normal, caring parent wanting to do the best for his children, what Starmer has done is to highlight another of those advantages: knowing the right people. He has also managed to show just how different his idea of 'normal' is from the reality facing most parents.

Equality and equity are not the same thing

Tweet

 

This week’s speech by Plaid leader Rhun ap Iorwerth has been presented by some as a move “…away from the emphasis on future independence that became predominant during the leadership of his predecessor”. Maybe; at first reading the words certainly give the impression of a leader and a party determined to improve the position of Wales within current structures rather than one committed to changing those structures. However, given that two of the five points in the plan ('Scrap the Barnett formula and enshrine into law an Economic Fairness (Wales) Bill to rebalance the wealth of the UK'; and 'Give Wales the ability to set its own tax bands and rates') depend completely on legislation at Westminster which Plaid acting alone has no hope whatsoever of delivering, and which neither potential future UK government shows any inclination to deliver, it sounds like a way of emphasising the weakness of devolution as much as working within its constraints. And what is that, if not an argument for independence?

Whatever, there was nothing with which I could disagree in four of the five points. However, the fourth point of the five point plan concerned me rather more. “Bring forward legislation that ensures an equal share of public spending across Wales” is entirely within the powers of the Senedd (at least, insofar as it relates to Welsh Government expenditure – UK expenditure is, again, outside of that remit), but is potentially something of a double-edged sword. There is – in the speech as reported at least – a certain lack of detail. Is this to be based on spending per head (in which case, the lion’s share will inevitably continue to go to the south east)? Over what time period would it apply – per annum, per decade? If it’s tied to annual spending, that’s a major obstacle to large localised projects.

And what about the entirely valid critique of the Barnett formula (that it doesn’t take account of need): isn’t there a danger here of replicating that approach within Wales? Perhaps the intention is to talk about an ‘equitable’ share of spending rather than an ‘equal’ share. It’s a harder concept to explain, and it isn’t such a simple sound bite, but it is what Wales actually needs. Given the historic under-investment in parts of the country, any attempt at ‘levelling up’ necessarily requires a deliberately unequal pattern of spending if cash is to be directed at the areas of lowest GDP per head, for instance. It is, of course, precisely that requirement (to redirect spending from the wealthiest areas to the poorest) which has been the rock on which the Tory government’s commitment to ‘levelling up’ has foundered. It might have gone down well in the so-called ‘red wall’, but it went down badly in Tunbridge Wells. In Welsh terms, diverting resources to Gwynedd might go down well in the north and maybe not so well in Cardiff, but that's not a good enough reason not to do it.

It is not enough to talk – as Labour in England are doing, for instance – about ‘growth’ as the magic ingredient which resolves the problem. A rising tide, as the saying goes, does indeed lift all boats, but it doesn’t change the relative size of those boats. An uneven distribution of wealth and opportunity is never going to be solved by increasing the levels of wealth and opportunity for everyone; that requires a redistributive element as well. There is plenty of scope within the other four points of the plan for there to be a plan for redistribution across Wales; but a target of ‘equalising’ spending will undermine that. We need equity, not equality.

Labour austerity looks inevitable

Tweet

 

It’s impossible to disagree with Labour leader Sir Keir Starmer when he says that Margaret Thatcher was responsible for significant and long term changes in the way that the UK economy works, or that she entered government with some clear ideas about what she wanted to do. Whether the changes were a good thing or not is much more arguable, to say the least; and the idea that those changes released entrepreneurialism in the UK has been succinctly rebutted by Prof. Richard Murphy. Perhaps Starmer merely wished to praise the determination and attitude she showed rather than what she actually did, but it didn’t sound that way when he said it, and not for the first time he seems to be struggling to ‘correct’ his words retrospectively. And whether it was politically wise even to go that far is another question entirely – why on earth raise a comparison to Thatcher when you’re staring at an open goal left by Sunak?

There is a fundamental belief at the core of Conservative ideology that the private sector and the public sector are in competition, and that the private sector creates wealth whilst the public sector consumes it. It’s clear from their statements that better public services depend on private sector economic growth that Starmer and Reeves also believe it. They’re not alone: it’s one of those things that is so ‘obvious’ that many people across the political spectrum believe it. It’s also absolute tosh. It may be based on a confusion between two different meanings of the word ‘wealth’. There is the wealth which all the individuals in a country own, measured by bank balances and assets held, and there is the wealth of the country as a whole, measured by GDP. The ‘growth’ that Starmer is referring to is an increase in GDP, but an increase in spending by the public sector leads to the same amount of GDP growth as the same amount of increased spending in the private sector. Given the way that GDP is calculated, it cannot mathematically be otherwise. Certainly, some people became extremely wealthy under Thatcher, but much of that was a redistribution of wealth from the poor to the rich, and the ever-increasing gap between the richest and poorest in society is the most pernicious long-term effect of Thatcherism. The accumulation of private wealth in an ever-smaller number of hands is not the same as an increase in national wealth.

There are, of course, arguments to be had about whether it is ‘better’ for investment to come from the private sector or the public sector – and the public sector’s record in managing some projects and investments leaves a lot to be desired. Whether that is inevitable or a result of structural or procedural problems is a debate for another time, but the idea that only one of those approaches should count in measuring growth is just ideological bias. When the private sector invests, the money comes from a combination of borrowing and income raised from customers; when the public sector invests, it comes from a combination of borrowing and taxes raised from the population as a whole. In GDP terms, whether we pay for something out of tax or as part of the price of the goods and services we buy is irrelevant – we’re still paying either way. It’s just that tax deducted from salary is more obvious. And in either case, 'borrowing' is a simplistic way of describing a complicated process whereby the government - or the banks operating under government licence - create and destroy money at the press of a few keys, as well as borrowing directly from people who see their loans as investments.

The debate which we should be having – and which a Labour Party worthy of the name would be leading rather than suppressing – is about which things we want to purchase collectively through the state, which we want to leave to the profit-driven market place, and how we decide between the two. It’s a point which ideologically-driven fiscal conservatives like Starmer can’t even begin to understand. And that lack of understanding leads inevitably to Labour austerity.

Watching the clock

Tweet

 

Tonight, most of us will turn the clocks back by one hour; some will inevitably forget. Those who live their lives according to what the hands of the clock say will feel obliged to stay in bed an extra hour, whilst those who follow their body clocks will just get up an hour early. In the dark. Most will just be slightly confused for a day or two.

Living our lives according to the hands of the clock brings me to the PM’s father-in-law. He has argued this week that young Indians should be demanding to work 70 hour weeks in order to boost the wealth of Indian billionaires like Mr Murty the Indian economy. His call revolves around the need for an increase in productivity.

‘Productivity’ is an interesting concept, and there is more than one way of measuring it. At its simplest, it’s just output divided by input: a widget-maker who produces 15 widgets per hour is more productive than one who only produces 10 per hour. But whilst increasing the number of hours worked will increase the total number of widgets produced, it does not in itself increase the productivity of the widget-maker. Someone who produces 70 in a seven hour day may well produce 100 in a ten hour day, but he’s still only producing 10 per hour; output divided by input is unchanged. In monetary terms, though, things might look rather different. If someone is willing to work 10 hours a day for the same pay as he previously received for working 7 hours a day, then the owner of the widget factory has 30 extra widgets to sell at no extra labour cost to himself. On that measure of productivity (number of widgets per £ of labour cost), it has obviously increased. And extra wealth flows to the owner of the widget-making machine as a consequence.

That in turn goes to the heart of why capitalists have always opposed reductions in working hours: they make most profit by keeping people chained to their machines (or their desks for many of us in the modern age). It’s the same attitude behind SirJake’s demand to see civil servants back at their desks, or Gove’s instructions to English local authorities to drop any thought of a four-day week. It should be obvious to them that what matters is output, not input, but their thought processes haven’t really advanced much since the days of the mill owners of the eighteenth century. Billionaires who have a great deal of agency over what they do, where, and when, and who see a direct financial return for their efforts, may well see 70 hour weeks as normal (although some of the activities which they class as ‘work’ may not look very much like work to the man or woman pulling the lever on the widget machine) but it is a demand which, in essence, sees working people as a resource to be exploited, as people who should only ever expect to live for their work rather than work to enjoy life.

There’s no doubt that Sunak’s household would benefit directly if Indian workers were to accede to the exhortations of their capitalist masters. That wouldn’t make Sunak the first PM to benefit from overseas slavery or something akin thereto, but that’s not much of an excuse. It wasn’t that, though, so much as the impact of the corollary (all economic dictums seem to have corollaries of some sort) on Sunak which struck me. If increasing the hours spent on producing things means that more things are produced, then decreasing the time spent on destroying things means that fewer things are destroyed. I don’t doubt that Sunak ‘works’ a large number of hours, but much of his work seems to be about enriching the few by impoverishing the many. Reducing the length of his working week would therefore have some clear advantages for the many in UK society. Preferably reducing his hours to zero. He should heed the unintended lesson of his father-in-law.

The anti-Robin Hood

Tweet

 

In very general terms, when an individual’s earnings rise faster than prices, he or she feels better off, but when prices rise faster than earnings, he or she will feel worse off. At its core, the pensions triple lock was designed to ensure that people wholly dependent on the state pension would never suffer from the latter situation, because the annual increase is tied to the higher of earnings and prices, with a minimum increase of 2.5%. Over time, it is a system which guarantees that pensioners will never feel worse off, and should generally feel better off. And, with a few caveats, it’s worked; it's one of the few 'successes' of the last thirteen years of Tory government but instead of boasting about it, they seem determined to run away from it. It has lifted significant numbers of pensioners out of the poverty into which they were driven by the Thatcher government’s decision to break the link between earnings and pensions.

The argument for ‘reform’ seems to be driven by at least two different ideas: firstly, that it is wrong that pensioners should uniquely be protected from the government policy of driving down living standards; and secondly, that it is in some way ‘unaffordable’ to ensure that pensioners are protected from falling living standards. In principle, the argument that falling living standards should apply to all is not without some validity (although, as I’ve noted previously, there is a big unanswered question about what the relationship should be between the level of pension and the level of average earnings, an issue which politicians seem keen to avoid since it exposes the relatively low level of UK pensions to scrutiny) but it’s a diversion from the real question, which is why we accept a situation where the government of the day sets out, entirely deliberately, to reduce people’s living standards. Encouraging working families to look enviously at the level of pensions increases is a neat bit of ‘divide and conquer’ politics which diverts attention from the question of why people should have to accept reduced living standards in the first place. (Not all people, of course – blaming pensions for the plight of the many is also a diversionary tactic to draw attention away from the way in which wealth is increasingly concentrated in fewer and fewer hands.)

‘Affordability’ is another piece of diversionary sleight of hand: those arguing the case are doing so because they want to cut taxes (in ways which just happen to benefit the most well-off) and have convinced themselves that they need to cut pensions costs in order to do so. (There are alternatives available, even within that artificial straitjacket which ties government spending to tax income.) They see pensions only as a ‘cost’ and not as a means of ensuring a decent life for the oldest members of society, a viewpoint which translates into seeing pensioners themselves as a cost rather than full citizens. It’s worth noting that those so keen to restrict the level of pensions are never going to be wholly dependent on the state pension themselves. MPs enjoy a generous pension scheme of their own and the state pension will represent only a minority portion of their retirement income. The same is true for many others of us, of course; but when dealing with the minimum level of pension, the starting point should always be to look at the position of those who are totally dependent on that income. If the result of that is that the full state pension is also paid to some who, it could be argued, do not ‘need’ that income, then a properly progressive tax regime can and would reclaim a proportion by taxing their other income more. That would, however, involve taking money from those most able to afford it – the demand for changing the triple lock is about ensuring that money is taken, instead, from those least able to afford it, in order to reduce taxes on those who can.

It's a reverse form of the English folk hero, Robin Hood – instead of taking from the rich to give to the poor, they want to take from the poor and give to the rich. It’s depressing that the self-styled party of working people, Labour, is so unable and unwilling to put the argument for fairness, preferring to echo the Tory arguments about sustainability which encourage ordinary people to see each other as the enemy.

Ideology hasn't gone away

Tweet

 

Something that this blog has touched on from time to time is the idea that ideology is no longer relevant, or that we live in some sort of ‘post-ideological’ world, as I’ve seen some politicians describe it. It isn’t true. Different ideological perspectives haven’t gone away at all; they are just not represented in the main political parties, and don’t form part of mainstream political debate. The two main UK parties have both bought in to the same ideology, and argument between them is more about whether, and to what extent, the effects of their common ideology should be mitigated than about whether the underlying tenets of that ideology should be challenged and debated. This article on Nation.Cymru a couple of days ago referred to the same issue, albeit that it wasn’t always clear about the distinction between principles and ideas on the one hand and underlying ideology on the other.

It isn’t easy to try and sum up an ideology in a few words for the purposes of a short blog post, but if I had to pick out some of the key elements of the capitalist ideology which constrains mainstream political debate in the UK, I would pick the following four points:

1.    Competition (between individuals, organisations, and states) is generally to be preferred over co-operation,

2.    The objective of the economy is the generation and accumulation of wealth, and the purpose of the state is to facilitate that aim,

3.    Success, whether for an individual, an organisation, or a state, is measured in terms of the amount of wealth accumulated, and

4.    The role of citizens is to serve the economy and the state in the generation and accumulation of wealth.

The difference between Labour and Tory isn’t about any of those underlying beliefs, it is about the detail of policy resulting from them – Labour want to make the distribution of the accumulated wealth a little less unfair, and want to help the least privileged to be better able to compete with others and to fulfil their allotted role in the economy. These may be worthy aims, but they don’t represent an ideological difference. They might argue that small, gradual, and incremental changes are all that’s possible in current circumstances, and making small improvements to people’s lives is worthwhile in itself. I don’t totally disagree with that: for the disadvantaged, even a small improvement is better than nothing. There is, though, no reframing of how things could be; no great vision for a better world. The difference is between sects within an ideology rather than between different ideological perspectives.

One alternative ideological perspective would be to re-write points 1 to 4 above as follows:

1.    Co-operation (between individuals, organisations, and states) is generally to be preferred over competition,

2.    The objective of the economy is to secure the fulfilment and happiness of the population, and the purpose of the state is to facilitate that aim,

3.    Success, whether for an individual, an organisation, or a state, is measured in terms of the extent to which people are happy and able to lead fulfilled lives,

4.    The role of the economy and the state is to serve citizens in the achievement of the above.

It would be silly, of course, to ignore the role of ‘wealth’ in its widest sense in enabling the alternative view. Money may not buy happiness, but its absence is a sure-fire way of making people unhappy. But the policy differences stemming from the second perspective are much more significant than a little bit of redistribution here, and a bit of extra help there. An education system aimed at developing people’s potential, and at having a well-educated population as a goal in itself, rather than a population only trained to do the work required is one. An understanding that ‘wealth’ ultimately boils down to ‘access to resources’, and that a resource-constrained world needs to agree on how to share those resources fairly for the benefit of all is another.

I’m not naïve enough to believe that we can get from where we are to where we could be overnight, although we certainly won’t get there by not trying. But the alternative vision isn’t even being presented; those for whom ‘there is no alternative’, to coin a phrase, have successfully closed the Overton window to a narrow interdenominational debate with the constraints of their own ideology. It doesn’t have to be that way.

The wrong type of growth

Tweet

 

Yesterday, the government floated the idea that the EU-imposed cap on bankers’ bonuses might be lifted. It was well-timed; with most of the Labour Party observing an entirely unnecessary self-imposed ordinance not to indulge in politics, and most of the media dedicated to broadcasting live images, almost 24/7, of a crowd which is barely moving filing past a coffin which is not moving at all, it’s a good time for the government to carry on as normal, just with less criticism. They haven’t managed to avoid the criticism altogether, but they’ve had a lot less than the proposal deserves.

Much of the criticism which has been voiced has concentrated on the apparent injustice of allowing huge increases in the remuneration of bankers whilst everyone else’s pay is held down because of fears of inflation. It’s fair criticism, and it’s true that allowing the fattest cats to get fatter will look like appalling politics to many. It misses the point, though. There are two far bigger concerns than how much bankers get paid.

The first of those is about what they do to earn those bonuses. The reason for imposing the cap in the first place was because large bonuses were incentivising reckless and short term patterns of behaviour, which ultimately caused a major meltdown of the banking sector. I see no indications from a government that also wants to reduce regulatory control over banks that the implicit dangers of that have been understood. Hatred of EU rules and a desire to steal business and jobs which might otherwise be located in the EU seem to have trumped caution.

But the even bigger problem is the notion that they’ve got into their heads that this is somehow going to address the problem of the UK’s low economic growth. There’s no doubt that, as a result of the way GDP is calculated, an increase in banking activity in the City of London will lead to an increase in GDP, and the statistics will mechanistically report that as economic growth. The problem with headline figures for growth is that the detail is ignored; but in this case, that detail matters. Only a tiny minority in a very small corner of the UK will benefit from any growth which follows from uncapped bankers’ bonuses, and it won’t feel much like economic growth in the left-behind areas, such as Wales. What the UK needs is the sort of economic growth which spreads prosperity rather than concentrating it – we could give it a fancy name, such as, I don’t know, how about something like “levelling up”?

The ideology driving the current government claims that higher wages and lower taxes for the already well-off benefit the entire populace rather than only those whose pockets are directly filled. There is, however, absolutely no empirical evidence to justify such an assertion; such studies as have been performed all tell us that the result of putting more money in the hands of those who already have most simply leads to the rich getting richer and inequality increasing. It turns out that simple common sense predicts the outcome of giving more money to the richest better than any ideologically-driven economic theory. Who’d have thought it?

It's not a care plan at all

Tweet

 

According to one analysis of the so-called ‘Social Care Plan’ unveiled by Boris Johnson last week, around 70,000 people will die waiting for social care before the lifetime cap on costs of £86,000 comes into force. It’s a headline figure which the Labour Party have seized on to attack the plans, but it seems to be missing the point. It’s not at all clear how introducing the cap earlier would make any difference at all to the numbers waiting for or receiving care – if the cap were to be introduced tomorrow, for instance, instead of waiting until 2023, would any of those 70,000 somehow magically start to receive the care they need?

The real criticism of Johnson’s ‘plan’ is that it isn’t a plan for social care at all. It seems to propose no changes to the way social care is provided or to the quality of that care, merely to the way it is funded. It is a ‘plan’, in short, to raise more revenue for the government and to protect inheritances, especially of the wealthiest, but it does nothing to increase or improve the provision of care, let alone fill the huge gap in the number of carers, a gap which the government’s core policy, Brexit, has served only to widen.

The Labour Party are right to draw attention to the fact that even the financing changes are effectively postponed for years whilst the extra cash is poured into the NHS, but they seem to have allowed themselves to fall into the trap of debating primarily the financing of care rather than how provision is to be improved or increased. An opposition which was prepared for the announcement (and, after all, Johnson has been saying for two years that he had a plan ready; opposition parties have no excuse) would have been ready with some sort of response around how they would deal with the real issues which face many families seeking care for family members. For sure, making quality care affordable for all is part of that, but it’s far from being the totality of it. Treating it, first and foremost, as simply a funding issue is handling the issue on Tory terms, where everything is about money rather than people.