All posts by Gordon Pearson

Economic Management Isn’t Just Applied Theory: It’s Much More Important Than That

Moral philosopher Adam Smith’s inquiry into the nature and causes of the wealth of nations started with observation of a pin making workshop, noting the tremendous cost savings that could be made by people specialising in different production tasks, collaborating in the overall manufacturing process.

The practical processes of production, as in pin making, were repeatedly adopted, with remarkable success by those involved in the first industrial revolution and in manufacturing and all real economic processes ever since. Understanding how those organisational systems work is the key to understanding the economy and how it might best be governed for a sustainable and prospering population. But it hasn’t been taught as an academic subject area.

Smith also conjectured about the labour theory of value – the value of anything being dependent on the amount of labour involved in its production. Those thoughts were were picked up by Riccardo, Say and others leading to the development of classical economics as an academic subject.

Its dubious theoretical foundations led economists to try to develop it as a ‘science’ in the form of mathematically based neoclassical economics. Its abstruse theories, hypotheses, models and unrealistic assumptions have all been falsified many times, but they’ve remained in place as a widely taught subject with increasing influence over those who rule.

Ruskin likened it to ‘alchemy, astrology, witchcraft and other such popular creeds’. All it lacked was ‘applicability’.

Almost every facet of it is wrong. For example, markets free from regulation, tend naturally to mutate from being competitive towards cartel and monopoly, being controlled for the benefit of the monopolist rather than the customer. That tendency was recognised in the US in the age of the so called ‘robber barons’ and regulated by the passing of anti-trust legislation such as the Sherman Act, and post the 1929 relearning experience by further regulation such as the Glass-Steagall Act limiting the power of would be banking monopolists, which Roosevelt referred to as ‘organised money’, Government by which was ‘just as dangerous as Government by organised mob.’
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Brexit Again

Now the repercussions of leaving the EU are more apparent, a second Brexit referendum seems the only democratic way forward. And if the vote went for Remain, then we must endeavour to make changes within the EU that might go some way to satisfying all UK voters.

EU originated out of determination that Europeans should not start a third world war. Political union was part of the motivation right from the beginning. But by the time UK joined in 1973, that idea had seemed to be more on the back burner, the main gain being recognised as economic. That was what the UK joined for. Having a European parliament was never of huge interest to UK.

We should have vetoed creation of the European parliament in 1979. But as new members we failed to do so and it was duly established as a debating and rubber stamping chamber. It lacked the power to initiate legislation, its role being to approve and debate decisions made by the European Council and the European Commission. Enthusiasm for it, measured as voter turnout, has declined in every election since its formation. At the last election, turnout was less than 43%. Next year’s turnout will be interesting.

Enthusiastic Brexiteer, Daniel Hannon, described his experience when he first reported to Brussels as a newly elected MEP. He was given 1st class travel expenses from UK to Brussels irrespective of costs incurred which would enable him to trouser £1000 a week tax free. He was also given €14,000/month to pay staff who might include members of his own family, plus €4,000/month to cover general expenses. He was also provided with free and fully equipped office accommodation in both Brussels and Strasburg.

Given that there are 751 MEPs, it is not surprising that annual costs total over €1.8 billion. A political vanity project which adds little to the realities of EU functioning.

If a second Brexit vote were to go for Remain, then the UK should opt out of the European Parliament and invite other EU members not determined on full political union, to do the same. That strategy should be an essential part of the Remain offering in a second referendum.

Limiting the Tyranny of Organised Money

50 years ago, outdoor advertisers, Mills & Allen Ltd, was taken over by Barclay Securities Ltd, stripped of readily saleable assets, and a proportion of employees were declared redundant. Barclay was a financialised associate of arch asset stripper Slater Walker. It was headed up by one John Bentley, who became a media star, proclaiming ‘the theory of what we are doing is to release half the cash, half the assets and half the number of people employed’. That was how he rapidly became a multi-millionaire.

That was 50 years ago – so what’s new today? Well, technologies have changed and everything happens much faster now. Today, the equivalent of Barclay Securities would measure time in nanoseconds.

And it’s over 80 years since F D Roosevelt proclaimed that ‘government by organised money is just as dangerous as Government by organised mob’. By organised money he specified ‘business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism (and) war profiteering.’

So what’s new today?
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Twin Track Europe: The Solution to Brexit

The British people have spoken. Three times. In 1975 to confirm whether to remain as a member of the common market, or more precisely the European Communities (Iron and Steel, Economic and Atomic Energy), that we had joined 2 years previously – 67% voted to stay in. The 2011 referendum was to decide whether to change the electoral system to the alternative vote system. Genuine proportional representation was not on offer, presumably because it might have been accepted. 68% voted against change. The 2016 Brexit referendum whether to remain or leave the EU resulted in 52% for leave, around 37% of the electorate. The British people had spoken, but not with any very clear message.

At least one sample post referendum survey (albeit non-scientifically sampled) suggested that over 11% of the leave voters did so because they were ‘so fed up with David Cameron, George Osborne and Nick Clegg’. There was no mention of Boris Johnson, Michael Gove, David Davis, Ian Duncan-Smith and the rather well spoken Jacob Rees-Mogg, though the 11%, all Labour supporters, would no doubt have included them as also influencing their vote.

That narrow vote to leave was muddied by the simple fact that, since no negotiations had taken place, it was not possible to define what leaving the EU would entail. The validity of the leave majority was further undermined by the revelation that the Brexit campaign was fraudulent, not just by its aggressive promotion of fake news and claims that leaving the EU, would help make Britain great again (to borrow a Trumpism). It was also guilty of targeting voters online with fakery as confirmed in evidence to the all-party digital media, culture and sport (DCMS) committee by former Cambridge Analytica employee, Christopher Wylie. The Vote Leave campaign has also been fined £61,000 and has been referred to police after the Electoral Commission found it had broken electoral law, exceeding its £7m spending limit, passing £675,315 through the pro Brexit youth group, BeLeave, whose founder, Darren Grimes, was also fined and referred to police for further investigation.
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Interesting Times

We live in interesting times. The First Industrial Revolution used water and steam power to mechanize production establishing the factory system supported by new transportation systems (canals and railways) for people and freight, which was the source of unprecedented economic and population growth and a newly contested way in which its gains might be distributed.

The Second Industrial Revolution used electric power and the internal combustion engine to create mass production and new forms of transportation, multiplying the effects of the First. It also included some democratic progression in contesting how economic gains should be shared among the people. It also saw the revolutionary creation of socialist states aimed at returning power to the people.

The Third used electronics and information technology to automate production and computerise calculation, accelerating the speed of change in areas such as molecular and genetic engineering and enabling the coordination of physical, digital and biological developments to produce exciting new products and processes, demand for which now appears to be maturing. That revolution coincided with the collapse of the socialist experiment which had mutated into totalitarian communism. It also signalled the takeover of the world by the neoliberal witchcraft and institutional truths – the lies people are persuaded to buy into in order to prosper in their chosen careers.
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Threats to Democracy

President Trump appears contemptuous of the great American contribution to democratic government: Lincoln’s ‘government of the people, by the people, for the people’.

It is an ideal which is never easy to achieve and maintain. That is because ‘the people’ is not a coherent whole, but the summation of a lot of disparate entities. The stated intent was that all people should be treated equally without differentiating between sub-groups of the population, defined by race, religion or any other classification. Should a sub-group be excluded from such equality they should have access to remedy. Should a sub-group be enabled to circumvent those principles and in so doing, exploit the rest, it would be a clear democratic malfunction in need of correction.
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The Simple Truth about Progressive Taxation

We live in an interdependent world, both within and between nation states. We all need clean air and water, safety, security and defence, the rule of law and justice for all, plus public highways (free from pot-holes), plus, in a civilized society, health and social care, education, and access to the commons such as libraries, museums, art galleries, parks, rivers and the seaside, all free at the point of delivery. But they all have to be paid for.

In the past it was thought ‘not very unreasonable’, as Adam Smith put it, ‘that the rich should contribute to the public expense, not only in proportion, but something more than in that proportion.’ Such progressive taxation seemed to be regarded as simply a matter of fairness. But the mainstream economic belief system which now rules, has effectively outlawed the very idea of progressive taxation. Today it is rarely ever mentioned. A low single flat rate of income tax is regarded as the ideal.

The world is run by what Roosevelt referred to as organised money, which comprised the leaders of the finance sector, financialised business, the media and relevant strands of academia and politics, all lubricated by the revolving doors, enabling migration between all these sectors and government itself.
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