Election time looms and once again our intelligence is insulted by the level of debate from the three main parties. Everyone is talking about trifling differences in spending plans; when to remove the fiscal stimulus, when to increase interest rates etc. This completely ignores the elephant in the room.
Official statistics state that Government debt at the end of 2008 was £848bn. This is a hefty number; approximately 60% of GDP and its much higher than it was 13 years ago when New Labour inherited the stewardship of the country.
What’s not included in this figure is any provision for future pension obligations, which are to the surprise of many, funded from annual revenues and not from some ‘ring-fenced’ pension pot. The deficit is estimated to be in excess of £500bn and this figure will only rise as the balance between tax-payers and pensioners shift to the detriment of the Exchequer’s coffers.
To not include any provision for future pension figures is at best naive; at worst downright deceptive. It’s a deception that is perpetrated by all of the main political parties, for a very simple reason: long-term planning will not win any election, especially where this requires fiscal prudence.
Calculation of our national debt must include provision for future liabilities. In this way, the government should be forced to use accounting rules applicable to companies. It’s only when the true extent of our position is known by the public and proposals for long-term planning can be reviewed that we will be able to make informed decisions about which party offers the best course for our country.
Maybe if we can bring this issue out into the open we can have a debate about whether we want to extend the current plans into the future. It could be that we decide that our debts are out of control under the current regime and we need to change course. This could include something as radical, at least in today’s political arena, as curtailing rights to pensions and healthcare for all.
This debate cannot happen unless the powers-that-be change the way they report on debt, or at the very least acknowledge the truth. The decision made in 2006 not to change the basis for reporting debt would indicate that political will to remain in power trumps the will to run the country in the best interests of its population.
Without meaningful change we remain on course for the inevitable debt and currency crisis. Do the politicians really care? Or are they happy to kick the can down the street, hoping that someone else will clear up?
Monday, 15 March 2010
Tuesday, 22 December 2009
When "not illegal" is not the same as "legal"
Like thousands of others, I had put in a claim for repayment of bank charges on the grounds that they were unfair. This case was taken up by the Office of Fair Trading, albeit on a very narrow point of law and went to court.
The Supreme Court, previously known as the Law Lords, ruled in favour of the banks contesting the test case. The ruling was, in a nutshell, that the Office of Fair Trading had no jurisdication to challenge the fairness or otherwise of unauthorised overdraft charges, on a specific narrow point of a specific Act Of Parliament. In his ruling, one of the judges specifically highlighted the fact that this did not preclude further action being taken by the OFT or individual consumers on other points of law.
Driving to work this morning I heard that the OFT had decided not to follow further lines of attack against these charges. They have decided instead to try to persuade the banks to play fair with more transparency etc. In essence, this is a cop-out: the banks have rolled out the big guns and steam-rollered the little people once again. The cynic in me wonders what deal has been done between the banks and the suits at the OFT.
What really annoyed me was the way that this reported on BBC Radio 4: they said that the Supreme Court had ruled that the "charges were legal". This was not what happened. The court case was contested on a particular point of law. On this point, the courts agreed with the banks. But that's it! They didn't say that on all other points the charges were lawful: these points were not included in the court case. The BBC should know better.
My bank has written to me and quoted the same line, basically that they won the court case and the charges are legal. This will no doubt deter 90+% of all claimants. I'm pretty sure it won't deter me.
I wonder if the banks will contest my claim in court if raised on another point of law. I suspect that they will not, for the same reason that they didn't to many of the original claims made many moons ago: they will not want to have the claim heard and thus create a legal precedent.
All I need now is to find another point of law on which to challenge these unfair charges.
The Supreme Court, previously known as the Law Lords, ruled in favour of the banks contesting the test case. The ruling was, in a nutshell, that the Office of Fair Trading had no jurisdication to challenge the fairness or otherwise of unauthorised overdraft charges, on a specific narrow point of a specific Act Of Parliament. In his ruling, one of the judges specifically highlighted the fact that this did not preclude further action being taken by the OFT or individual consumers on other points of law.
Driving to work this morning I heard that the OFT had decided not to follow further lines of attack against these charges. They have decided instead to try to persuade the banks to play fair with more transparency etc. In essence, this is a cop-out: the banks have rolled out the big guns and steam-rollered the little people once again. The cynic in me wonders what deal has been done between the banks and the suits at the OFT.
What really annoyed me was the way that this reported on BBC Radio 4: they said that the Supreme Court had ruled that the "charges were legal". This was not what happened. The court case was contested on a particular point of law. On this point, the courts agreed with the banks. But that's it! They didn't say that on all other points the charges were lawful: these points were not included in the court case. The BBC should know better.
My bank has written to me and quoted the same line, basically that they won the court case and the charges are legal. This will no doubt deter 90+% of all claimants. I'm pretty sure it won't deter me.
I wonder if the banks will contest my claim in court if raised on another point of law. I suspect that they will not, for the same reason that they didn't to many of the original claims made many moons ago: they will not want to have the claim heard and thus create a legal precedent.
All I need now is to find another point of law on which to challenge these unfair charges.
Tuesday, 15 December 2009
Printing money.....
..... or, as its euphemistically termed by those in high finance "Quantitative Easing", has been in the news a lot lately but so many people are blissfully unaware of what this is.
In essence it is stealing money from those people who have money. Because monetary control is misunderstood by 99% of the population and its effects generally go un-noticed its a theft that has been perpetrated in one form or another for centuries.
The enemy is described as inflation, or rising prices, when the real enemy is the increase in the supply of money.
Currency itself has no inherent value. It can be used as means of exchange as long as people value it as such. As the supply of money goes up, so its relative value goes down. This can be demonstrated with a simple example.
Imagine an island of 100 people where gold coins are the recognised currency; a means of exchange used in the trading of goods and services. If everyone has 1,000 coins each then those coins are farely scarce and so 10 coins could buy a significant amount of goods or services.
Next, imagine that somebody on the island finds 100,000 coins, thus doubling the supply of coins on the island. If the finder keeps this find to himself, he will now own 50% of the currency and will be substantially richer than everyone else. However, its only as this extra currency comes into circulation, by the purchase of goods or services, that it becomes apparent that the coins are worth less. Assuming the availability of goods and services remains the same, the prices should rise. At this point, the other islanders will have noticed some erosion in the purchasing power of their money.
Assuming constant supply, a rising price will result from increase in demand for an item, but if the money supply remains fixed prices of other goods should fall. Prices in general will only rise if the money supply increases.
It should be obvious that the main effect of increasing the money supply creates a shift in value from previous owners of money in favour of the owners of the new money.
The printing of money that's been going on recently has in effect been lent to various banks, so that they can make investments, be it through loans to businesses, trades on stocks and shares or any other items, presumably with a view to making more money for themselves. The hope is that most of this trickles down into the economy although its not clear whether this is happening or not. It looks like it's just pumping up prices on the stock market.
The bottom line is that the Bank Of England is taxing all owners of currency by devaluing it, but most people are too unaware to be outraged.
In essence it is stealing money from those people who have money. Because monetary control is misunderstood by 99% of the population and its effects generally go un-noticed its a theft that has been perpetrated in one form or another for centuries.
The enemy is described as inflation, or rising prices, when the real enemy is the increase in the supply of money.
Currency itself has no inherent value. It can be used as means of exchange as long as people value it as such. As the supply of money goes up, so its relative value goes down. This can be demonstrated with a simple example.
Imagine an island of 100 people where gold coins are the recognised currency; a means of exchange used in the trading of goods and services. If everyone has 1,000 coins each then those coins are farely scarce and so 10 coins could buy a significant amount of goods or services.
Next, imagine that somebody on the island finds 100,000 coins, thus doubling the supply of coins on the island. If the finder keeps this find to himself, he will now own 50% of the currency and will be substantially richer than everyone else. However, its only as this extra currency comes into circulation, by the purchase of goods or services, that it becomes apparent that the coins are worth less. Assuming the availability of goods and services remains the same, the prices should rise. At this point, the other islanders will have noticed some erosion in the purchasing power of their money.
Assuming constant supply, a rising price will result from increase in demand for an item, but if the money supply remains fixed prices of other goods should fall. Prices in general will only rise if the money supply increases.
It should be obvious that the main effect of increasing the money supply creates a shift in value from previous owners of money in favour of the owners of the new money.
The printing of money that's been going on recently has in effect been lent to various banks, so that they can make investments, be it through loans to businesses, trades on stocks and shares or any other items, presumably with a view to making more money for themselves. The hope is that most of this trickles down into the economy although its not clear whether this is happening or not. It looks like it's just pumping up prices on the stock market.
The bottom line is that the Bank Of England is taxing all owners of currency by devaluing it, but most people are too unaware to be outraged.
Wednesday, 9 December 2009
Tinker or radical change?
Today its widely expected that the Chancellor of the Exchequer will announce some sort of a tax on banker's bonuses. This is yet another futile gesture that will have no real impact on the future of the economy. It is largely a political move aimed at appeasing the electorate: punishing the bankers for the mess they are perceived to have caused.
I say ‘perceived’ because the bankers have behaved over the years in a way that has been allowed to happen by the structure of incentives created by the tax system in this country. As I see it there are a number of problems that need to be addressed.
1.We have no taxes on wealth.
2.No distinction is made between earned and unearned income.
Many economic commentators, including the esteemed BBC Business Editor Robin Peston, describe the banks as ‘wealth creators.’ While it’s true that they generate income for themselves this is not the same thing. Much of their profits come from speculation in one form or another, some from taking a slice of transactions brokered by them and a small part from providing services to consumers.
The banking industry generates a lot of income, but this income is largely ‘unearned.’ So what’s the problem with unearned income?
Well, for one thing it reduces wealth creation. If you have enough wealth to generate sufficient income without working and adding value to society, then why work? People have an incentive to save and invest to make unearned income, so consumption is at the very least deferred. Lower consumption means economic activity is reduced and society becomes worse off in total, although this is largely hidden by inequality.
I’ve been reading up on Islamic Banking and at first the law prohibiting interest seemed a good one. The Qur’an classes money as a means of exchange and not an asset in its own right. As such, we should not benefit from lending money. On further reflection, I would take this argument and expand it. If money is a means of exchange, and profiting from lending money is wrong, then surely profiting from lending any asset is wrong too, as any asset can be exchanged for money. The Qur’an should really outlaw all income from wealth.
I don’t agree that profiting from lending an asset is wrong, but I think we need to reduce the incentives so that we can redress the imbalance in our economy between unearned and earned income.
Tax policy must be changed radically, and tinkering with bankers’ bonuses is not going to have any impact at all. We need a structural change that taxes excess wealth and taxes income from that wealth at a rate that incentivises the creation of wealth rather than the hoarding of assets.
I say ‘perceived’ because the bankers have behaved over the years in a way that has been allowed to happen by the structure of incentives created by the tax system in this country. As I see it there are a number of problems that need to be addressed.
1.We have no taxes on wealth.
2.No distinction is made between earned and unearned income.
Many economic commentators, including the esteemed BBC Business Editor Robin Peston, describe the banks as ‘wealth creators.’ While it’s true that they generate income for themselves this is not the same thing. Much of their profits come from speculation in one form or another, some from taking a slice of transactions brokered by them and a small part from providing services to consumers.
The banking industry generates a lot of income, but this income is largely ‘unearned.’ So what’s the problem with unearned income?
Well, for one thing it reduces wealth creation. If you have enough wealth to generate sufficient income without working and adding value to society, then why work? People have an incentive to save and invest to make unearned income, so consumption is at the very least deferred. Lower consumption means economic activity is reduced and society becomes worse off in total, although this is largely hidden by inequality.
I’ve been reading up on Islamic Banking and at first the law prohibiting interest seemed a good one. The Qur’an classes money as a means of exchange and not an asset in its own right. As such, we should not benefit from lending money. On further reflection, I would take this argument and expand it. If money is a means of exchange, and profiting from lending money is wrong, then surely profiting from lending any asset is wrong too, as any asset can be exchanged for money. The Qur’an should really outlaw all income from wealth.
I don’t agree that profiting from lending an asset is wrong, but I think we need to reduce the incentives so that we can redress the imbalance in our economy between unearned and earned income.
Tax policy must be changed radically, and tinkering with bankers’ bonuses is not going to have any impact at all. We need a structural change that taxes excess wealth and taxes income from that wealth at a rate that incentivises the creation of wealth rather than the hoarding of assets.
Monday, 7 December 2009
The Prophet Of Doom? Yes and no.
About a year and a half ago a Labour Minister, who I believe was the Transport Secretary at the time, wrote in his blog that we should all stop being so miserable and should be thankful that we are as well off as we are. This was a subject of debate on the Victoria Derbyshire phone-in on Radio Five Live: some people agreed but most were of the opinion that we had every right to be gloomy about our future prospects.
I was a caller on that show and I said in not so few words that we were at the mercy of the banks. They had created a bubble in the housing market that meant that more and more of our income was being spent on housing, creating more and more profits for the banks.
Within six months it started to come crashing down with the collapse of Lehman Bros. Even one year on from massive government bailouts, guarantees etc there's no light at the end of the tunnel.
The only industries that have been significant success stories in the last ten years have been financial services and banking. Now, the common man is too worried to go near these with a barge-pole. The export gravy train has largely dried up as there are no investments being made in emerging markets, nor do we have any other resources to sell to the world. Obviously the manufacturing industries that we had are much less significant than they were. We're going to be stuck with a weakening currency and we'll be significantly worse off financially. It looks as though the only thing that is going to push up GDP in the next few years will be inflation.
It all sounds really bad, but is there a silver lining?
The long answer is really quite long, but the short answer is this: yes, if we realise that economic growth and GDP per capita are not good goals at which to aim.
We use them as targets largely because we don't know better. Also, they are measurable. Governments like to set targets and then go to the electorate and say "Look. We set this target and we achieved it. Vote us in again and we can all live happily ever after!"
But it's not going to work like that, because they're the wrong targets. We need to move the goalposts; start shooting at different targets.
First target: HAPPINESS- if you're not happy you might as well not be here.
Second target: HEALTH - if you are happy, let's keep it going as long as possible.
I was a caller on that show and I said in not so few words that we were at the mercy of the banks. They had created a bubble in the housing market that meant that more and more of our income was being spent on housing, creating more and more profits for the banks.
Within six months it started to come crashing down with the collapse of Lehman Bros. Even one year on from massive government bailouts, guarantees etc there's no light at the end of the tunnel.
The only industries that have been significant success stories in the last ten years have been financial services and banking. Now, the common man is too worried to go near these with a barge-pole. The export gravy train has largely dried up as there are no investments being made in emerging markets, nor do we have any other resources to sell to the world. Obviously the manufacturing industries that we had are much less significant than they were. We're going to be stuck with a weakening currency and we'll be significantly worse off financially. It looks as though the only thing that is going to push up GDP in the next few years will be inflation.
It all sounds really bad, but is there a silver lining?
The long answer is really quite long, but the short answer is this: yes, if we realise that economic growth and GDP per capita are not good goals at which to aim.
We use them as targets largely because we don't know better. Also, they are measurable. Governments like to set targets and then go to the electorate and say "Look. We set this target and we achieved it. Vote us in again and we can all live happily ever after!"
But it's not going to work like that, because they're the wrong targets. We need to move the goalposts; start shooting at different targets.
First target: HAPPINESS- if you're not happy you might as well not be here.
Second target: HEALTH - if you are happy, let's keep it going as long as possible.
New blog
Having written a poker blog for quite a while I have decided to start blogging again, this time about a subject that I was very interested in about 20 years ago: ECONOMICS.
I will try to post regularly on whatever is in the news or whatever springs to mind.
It would be nice if any readers would like to share their comments and maybe get a debate going. I will try to be civil at all times and hopefully my sarcastic tendencies will come across as witty in some small way.
I will try to post regularly on whatever is in the news or whatever springs to mind.
It would be nice if any readers would like to share their comments and maybe get a debate going. I will try to be civil at all times and hopefully my sarcastic tendencies will come across as witty in some small way.
Subscribe to:
Posts (Atom)