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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.
Continue reading The Simple Truth about Progressive Taxation

More Damage by Organised Money

The sell off of UK’s manufacturing continues with the £8.1bn hostile bid for GKN from so called ‘turnaround specialist’ Melrose, turnaround being defined as asset strip, break up and sell off. According to GKN CEO, Anne Stevens, shareholders such as hedge funds ‘could not give a crap’ about the engineering firm’s future. Melrose is part of the predatory, financialised sector, beloved of free market ideologues such as Philip Hammond, which is destroying the real economy and its component firms such as GKN.

The logic of such deals is based on a ridiculously out-dated economic ideology going back a hundred years and more which can be summarised in three simple statements from cold war days.
Continue reading More Damage by Organised Money

In Praise of Free Markets

UK is covered in evidence of free markets. Almost every town has a market place or square, where local producers have for centuries brought their crops and wares on market day to sell to local people. If any producer of potatoes, for example, tried to charge a higher price than the going rate, they would probably have to take their unsold produce back home with them. Unless, that is, there was some unique and desirable characteristic about their particular potato variety. The market was competitive and the market price would emerge as a result of that competition. That was how the free market, Smith’s ‘invisible hand’, worked for the great benefit of customers.

The neoliberal conception of the free market is not quite like that. It conflates the market with international trade. The mercantilist system Adam Smith confronted was one of government imposed tariffs to protect home markets from imports and the provision of subsidies to encourage exports. In so doing it interfered with international competition, keeping prices on the home market artificially high, clearly against customer interests. Such protectionism limited the overall size of markets and therefore the economic gains that might be made by the division of labour. That provides perfectly reasonable grounds for the crusade against protectionist government interference in markets, though other globalisation issues are also relevant.

A market that is free from government tariffs and subsidies is not necessarily free in any other sense. In fact, most markets which are free from government interference, tend to become uncompetitive, if not monopolistic, and so not working for the benefit of customers. That is the result of the perfectly natural process of the most successful competitors increasing their market share, a process which continues till monopoly, or some monopoly inhibiting cartel, has been established. Such monopolisation proceeds unless arrested by government imposed regulation to protect competition. That lesson was learned in the 1930s, but has long since been disregarded and most regulatory protections set aside.

The neoliberal doctrine multiplies the destructive effects of monopolistic markets by asserting the dominance of shareholder interests above all others. The monopolist, or cartel member, is therefore taught it is their duty to ‘make as much money as possible for stockholders’ and adopt a default strategy of market plunder.

That is where we are now as revealed by the many markets dominated by ‘the big four’ or ‘big six’ which include the recipients of public sector privatisations that now mercilessly exploit their market power. Something of the extent of criminal exploitation by the self perpetuating organised money establishment has been revealed in the Panama Papers and more recently the Paradise Papers, even tarnishing the reputations of H M the Queen & Son.

Genuinely free markets, where producers and providers compete for custom, are not just the best means of delivering value where it is most needed, but also the nudge for further innovation and development, such as an even more desirable variety of potato.
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The World’s Greatest Crimes?

As an academically qualified neoliberal economist and management ‘scientist’ employed as a corporate executive with strategic management responsibilities – ie what Milton Friedman referred to as a corporate official – J Brigham (forgive this degree of anonymity) is presented with all sorts of exciting decision opportunities. They include possibly fraudulent dealing that could be tremendously beneficial for shareholders. The whole purpose of her job is ‘to make as much money for stockholders as possible’ to quote Friedman again. So how should those decisions be made?

The analysis for such decisions aims to calculate the net present value resulting from proceeding with a deal, compared with the calculation of not proceeding. Typically, Brigham admits, the more the net gain, the greater its apparent illegality. But such decisions need to be assessed clinically, without clouding its measurement with qualitative adjustments such as ethical values or what Brigham refers to as ‘religious considerations’.

If the deal could be shown to be fraudulent, then the company would risk being fined, but only if the fraud is uncovered. So the calculation of net present value of going ahead needs to be adjusted by a calculation of the anticipated fines, reduced by the probability of discovery, as well as taking into account the considerable number of years between gaining the benefit and paying the fines. Having carried out all those due calculations, decisions to go ahead would, according to Brigham, almost invariably be persuasive.

But what if she were to be held personally responsible for the fraud and punished accordingly? Would that change her decision? ‘Well, of course it would, but the decision was actually taken and implemented by the company, which is a legal person in its own right. It’s the company that must pay.’

That argument is worth consideration. Continue reading The World’s Greatest Crimes?

“It’s the economy, stupid!” Let’s try systems economics instead.

Mainstream economic ideology guides government decisions which determine the direction in which we are headed as individuals, as a nation and as a species, as well as deciding the fate of planet earth itself. Right now, none of that is looking good.

The result is exploding inequalities of wealth and income, within and between economies, loss of social cohesion resulting from those inequalities, corruption and fraud by the financialised sector, waste of earth’s finite resources; pollution of oceans and atmosphere; a looming mass species extinction; and the avoidable inevitability of global warming.

That mainstream ideology, Friedman’s variation on traditional neoclassical economics, seems utterly discredited, but continues to be supported and promoted by its beneficiaries and accepted by most others.

In support of its pretence to being a science, neoclassical economics relies on abstruse and irrelevant mathematical models and hypotheses that have been repeatedly shown to be absolutely wrong. The study of economics will inevitably return to its original focus on how systems actually work in reality. It will be an economic paradigm shift and will take some time, but it seems bound to happen.

The systems approach is based on analysis and understanding how the real world works. It is what led Adam Smith to report remarkable productivity gains from the specialisation of work in the pin factory. That was hardly new: Plato had reported gains from specialisation in Ancient Greece. Specialisation is a fundamental concept of systems economics.
Continue reading “It’s the economy, stupid!” Let’s try systems economics instead.

Democratic Values Trashed by Economic ‘Science’

Democracy’s basic commitments were simply expressed in Lincoln’s 1862 Gettysburg address at the culmination of the American Civil War over slavery. It contained two principles. Firstly, dedication to “the proposition that all men are created equal’, and, secondly, to ‘government of the people, by the people, for the people’. These principles had been previously set out in the American Declaration of Independence which had asserted man’s ‘unalienable Rights’ to ‘Life, Liberty and the pursuit of Happiness’. If government failed to uphold those rights then ‘it is the Right of the People to alter or to abolish it, and to institute new Government’.

The stated intent was that all humanity would at last be treated as a whole, rather than differentiating between competing sub-groups of the population, defined by race, religion or any other classification. Should a sub-group be excluded from such processes 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.

All ‘men’ may have been created equal, and in terms of innate potential, that certainly appears to be the case. However, not all people have been permitted lives where their equality has been allowed fulfillment. That is not unique to the US, but an aspect of the human condition in most societies. Moreover, it is a widespread, if not universal, experience that a single sub-group of populations is permitted to manipulate systems for their own benefit, no matter the harm that might be done to others.

The United Nations Charter of 1945 declared its members’ determination “to reaffirm faith in fundamental human rights, in the dignity and worth of the human person.” That declaration was subsequently adopted by the UN General Assembly and later incorporated in the European Convention on Human Rights, agreed by member states of the Council of Europe, with its acceptance being a condition of entry for any nations wishing to join, enacted also by the UK Human Rights Act 1998.

The fundamental message of this internationally agreed legislation, is that individuals should all enjoy the same rights to life, freedom and the pursuit of happiness, so long as it doesn’t interfere with the same fundamental rights of others.

The most basic human right is that of a minimum living standard available to all. That is the foundation on which the pursuit of happiness rests. Its delivery is the first responsibility of democratic government. The 1942 Beveridge Report identified freedoms from what were referred to as the five giant evils in society: squalor, ignorance, want, idleness, and disease. Post second world war, UK democracy addressed the five giant evils through the provision of public housing, improved state education, basic welfare payments for the poor, disabled and elderly, the provision of unemployment benefits and acceptance of government responsibility to maintain full employment as far as possible, and the establishment of the National Health Service.

By the 21st century, discriminating against anyone on the grounds of their ethnicity had become illegal in most countries. And most advanced nations also upheld laws which proscribe discrimination against any individual because of their gender, religion or belief, age, disability, sexual orientation or gender reassignment. Discrimination against anyone on any of these grounds is now illegal in most situations.
Continue reading Democratic Values Trashed by Economic ‘Science’