Category Archives: Political Decision

Economics, Moral Hazard, Political Decision, Society, Taxation

Who’s Breaking Society Now?

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David Cameron is following a long line of prime ministers claiming that British society is in moral decline and ‘broken’. The country has always been ‘going to the dogs’. Harold Macmillan suggested it all started when we stopped going to church on Sundays and so lost any regard for what he referred to as ‘Christian charity’. Three questions arise: Is it true? What is the cause? And what can be done about it?

The British system of social relationships between people, and the structure of social institutions and organisation which shape our association with others, are by and large fairly harmonious. Our daily experience of interactions with others, no matter the degree of difference between our ethnicity, gender, age, ability, or economic position, is generally based on mutual consideration and courtesy. Only among football crowds does consideration habitually give way to overt antagonism and even then it is almost invariably laced with humour. Rioting and looting is an exception, and the generous efforts of people in the clean-up operations confirmed the general rule: society is not broken. Yet.
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Bank Bonuses, Corruption, Economics, Political Decision

Looting and Rioting – Bob Diamond Again

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Over the past few days, the famine in East Africa, the US loss of its S&P triple A credit rating, the Murdoch disgrace, the Eurozone indebtedness and Greece’s odious debt, and even the World Championship Hen Races in Derbyshire, have all been driven from the front pages, at least in UK, by the looting and burning street riots. Consideration of their underlying causes and recommended solutions have dominated the media. Prime Minister Cameron, for example, expert in policing and broken societies, apparently wants to appoint a native from gun-toting America, to show British police how to do their job.

This blog’s intent is to flag up the impacts of theory on practice. The focus is mainly on the management and governance of real economy organisations, because they are what pays for our education, health and security, and they are where most of us work. The broad contention which has emerged from postings on this site, is that the theory which impacts on those organisations has had a profound, very widespread and more or less wholly negative effect. And that almost certainly includes some motivation for the looting and burning riots.
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Accounting profession, Banking, Economics, Political Decision, Ratings Agencies

Pushing the Economy with AAA Rated String

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Following the demise of Lehman Brothers almost three years ago, the then UK government, being committed free market idealists and N word phobic, pumped trillions of taxpayers’ money into the economy to keep it buoyant. But it did so by funding banks which would otherwise have collapsed, and then trying lamely to persuade them to pass it on to real economy businesses so as to maintain employment. But the banks were reluctant to pass the money on because they needed to rebuild their own balance sheets, having themselves made such a mess of them. The phrase ‘quantitative easing’ was really bank balance sheet easing, and had limited impact on real business and real jobs beyond the financial sector.

Now we are back in the same mess and the talk is again of quantitative easing for the same purpose. The insanity of persisting with the same dysfunctional strategy is the result of the apparently unshakeable belief in free trade, open markets, with minimised government, taxes and public spending. But quantitative easing won’t stimulate the economy and create jobs any more than it did the last time. The only difference between now and then is that instead of the banks being in greatest need, it is now nation states which are seen as the key problems and the focus of the credit rating agencies.
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Banking, Economics, Free Market Capitalism, Political Decision, Taxation

Tea Party Taxation

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US presidential candidate, Michele Bachmann, stands up for the ordinary people of America, the factory workers and housewives, who she says are telling her to stand strong against raising taxes and to fight to reduce government spending, as the way to America’s economic salvation. But even in the self-reliant, can-do US culture, taxes are unavoidable. They are needed to pay for national defence and security as well as those provisions of education, healthcare and social security which support the ordinary people. But, it is argued, raising taxes undermines the US economy and would even be immoral, especially taxes which resulted in the redistribution of income and wealth from one category to another.

The Tea Party approach is by no means unique to the US. Vince Cable may refer to them as ‘right wing nutters’, but the free trade, open markets, minimised government, spending and taxes, are part of the UK coalition government’s mantra of which he is part, just as they are of the GOP in the US. Successive US and UK governments have, since Reagan and Thatcher, broadly accepted these positions. But times have changed and what may have worked as recently as a decade ago, is no longer appropriate, causing harm to both ordinary people and the overall economy, quite undermining Ms Bachmann’s contention. For example, the effects of personal taxation have changed radically.
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Economics, Political Decision, Public Sector, Regulation

Big Society Public Services – the Next Government Shambles

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The Open Public Services White Paper, announced on 11th July, sneaked out under cover of the Murdoch mess, looks like being the next government created shambles. Like its approach to the NHS, it betrays a breath-taking lack of common-sense and understanding. The government claims its aim is to improve the quality and reduce the cost of all public services. This magical result is to be achieved by opening them up to provision by private and voluntary organisations, in competition with their existing public providers.

Mr Cameron has referred to five main aims in introducing his white paper: choice, diversity, accountability, decentralisation and fairness. The first three are standard shibboleths of the free-trade, open market ideology. They are quite irrelevant to the mass of people facing austerity. People don’t need choice so much as good quality, reliable provision where they can access it. The same applies to diversity. Choice and diversity may both be features of open competitive markets, but have little relevance to the provision of health and social services. Except on purely ideological grounds.
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Bank Bonuses, Corruption, Economics, Political Decision, Taxation

The Red Herring of Interesting Times

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These interesting times might take our eyes off the things that really matter. During a recent late night discussion on the BBC among the financial cognoscenti, one of the participants warned against getting drawn back into ‘the red herring of banker’s bonuses’. The real issues were the British government and police being in the pockets of the Murdochs, media plurality, the debt crises in Greece, Italy, Ireland, Portugal, etc etc and the future of the Euro, not to mention the changing world roles of the US and China as well as the developing famine in East Africa. Bankers’ bonuses were surely small beer against such giant issues.

Keynes argued that reducing taxes on the poor enabled them to immediately increase their spending which would stimulate growth in the real economy, thus reducing debt and creating jobs. Reducing taxes on the rich did not have that immediate effect, but, the argument ran in Keynes’ day, it enabled them to increase investment in the real economy thus having a long term positive impact on growth. That was then.
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Corporate Governance, Corruption, Free Market Capitalism, Moral Hazard, Political Decision

The Long Term Impact of the Murdochs’ Disgrace

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It seems impossible to ignore the Murdoch saga: the seedy old martinet, his chosen heir apparent and the family sycophants and hangers on, shades of the Duvaliers’ era in Haiti, or a dozen or more banana republic tyrants. The Murdochs are clearly prepared to be as ruthless and dishonest as it takes in pursuit of their own self-interest. Their dishonesty, now being revealed daily, was confirmed early on, for example, by Harold Evans, much respected editor of the Times, when the Murdochs took over. Assurances of continued editorial independence were made as a condition of the acquisition, but within a year ‘every guarantee had been broken’. Evans concluded that the Murdochs would ‘promise anything to gain control’. As they are doing now to gain control over BskyB.

The Murdochs’ utter ruthlessness is also being demonstrated daily by the continuing revelations of criminal activity sanctioned in their organisation, and not least by the abrupt closure of the News Of The World with the destruction of around 200 jobs, in some vain attempt to rescue vestiges of public respect for the family.
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Corporate Ownership, Economics, Free Market Capitalism, Political Decision, Public Sector

The Bombardier Fiasco

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The announcement of around 1400 job losses at the Bombardier rail works in Derby signals the beginning of the end-of-life stage for another great British manufacturing industry, resulting more or less entirely from the incompetence and stupidity of the ‘madmen in authority’. Their latest incarnation, Transport Secretary Philip Hammond, was interviewed this morning on BBC Radio 4’s Today programme to explain why it was ‘correct’ to award the £1.4 billion Thameslink contract to the German company, Siemens, rather than to Bombardier, UK’s last rail producer. His explanation was based on his belief in ‘free trade and open markets’, although, to do him credit, he had noticed that ‘the Germans award contracts for trains to German builders’, and ‘the French routinely award contracts for trains to French train builders’. He described their approach as looking ‘more strategically at the support of the domestic supply chain’. Well what does he think the British government’s role is supposed to be? Is it to be looking after strategic British interests, or to promote an outmoded ideology that has proved time and again to be disastrous, in particular, to British manufacturing? Well, he and Vince Cable have written a letter about it to the Prime Minister! Good for them!
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Banking, Corporate Governance, Economics, Free Market Capitalism, Political Decision

The Untruths Which Rule the World

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There is quite a catalogue of actual and potential man-made disasters. They include the risk of Greece defaulting on its debts, followed by Portugal, Ireland and the collapse of the Eurozone, the hollowing out of real economy firms particularly in the UK and to a slightly lesser extent the US, the explosion in inequality of wealth and income symbolised by the obscenity of financial trader’s and bankers’ bonuses, the credit crunch, hedging and short selling, the size and power of financial sectors, the failure to distinguish between investment in real economic activity and purely speculative investment, growth of structural unemployment, the explosion of ‘hatred and contempt’ among ordinary people initially in Greece and Spain, poverty in sub-Saharan Africa, ideologically based policies of the IMF, WTO and the World Bank and the whole unsustainable enterprise destroying earth’s resources and climate, and even threatening human existence.
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Bank Bonuses, Corruption, Economics, Free Market Capitalism, Political Decision

How To Spend It

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The bonuses earned by the bankers, hedgers and various fund managers arise as a result of making fast, smart decisions about price movements in currencies, commodity prices, food, energy and key resource shortages, mergers and acquisitions and the like. The quick returns from such deals ensure that mini speculative bubbles keep getting inflated, and the smarter fund managers make money when the bubbles burst as well as when they inflate. And the smartest and biggest fund managers are able to create bubbles and control their inflation and bursting, that is except the really big, conglomerate bubbles that gather once in a while. So speculative trading continues to grow and the problem of how to spend the resulting bonuses keeps on growing too. It really is quite a problem.

It’s not as though it’s a one off. And it comes on top of a basic salary which very much more than pays for living expenses at quite a generous level. You can do the Veblen thing and go for some conspicuous consumption – conspicuous waste is really not regarded as attractive today even if one was so inadequate as to find it intrinsically appealing. But conspicuous consumption is still seen as admirable. The Financial Times ‘How to Spend it’ Saturday supplement provides some ideas. For example, £81,000 for the Philip Treacy hat as worn by Princess Beatrice (??) at the royal wedding, except it looks so silly. Or £78,000 for the ex-Kate Middleton St Andrews dress. Or a wrist watch, amount spent depending mainly on the weight of gold and diamonds. But really such spends, even if one felt desperate to bolster one’s identity that way, could only provide relatively minor contributions to solving the problem.
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