Following the story over the weekend, and fascinated by the sight of a traditional "run on the bank", I also saw, as expected, the government and the Bank of England team up to guarantee the bank's savings deposits. The Bank offers a line of credit, and the government essentially underwrites as much as is found to be necessary. The government's support is underwritten by the taxpayers.
All perfectly normal, good practice. One thing did occur to me though. I am not sure that such a co-operation to protect a bank could happen in the euro-zone.
As I understand it, the European Central Bank is different in that it is not linked to a government with tax-raising power. Uniquely, it is entirely independent and while it holds the currency reserves of the dozen or so central banks in the zone, the implicit or explicit support of the taxpayers of Europe is not extended to supporting the ECB.
Now, I may be wrong in this. Perhaps the central banks retain the power to issue credit without limit to a bank in trouble. Perhaps the ECB has power to do this anyway. But I am sure that this is what I read years ago when the euro was getting off the ground. It was seen (perhaps by Bernard Connolly) as a fantastic, grotesque gamble with the savings of most Europeans. The politicians were gambling that they could get a constitution in place before a financial crisis (such as had happened with the American S & Ls a few years before) came along and wiped out savings.
Anyone correct me on this?
Showing posts with label General. Show all posts
Showing posts with label General. Show all posts
Tuesday, 18 September 2007
Thursday, 30 August 2007
Someone's mad at Adminajad
There's an old saying that when the gods wish to destroy someone, they first drive him mad.
The President of Iran has sacked his central bank chief, as well as replacing the finance minister. He apparently wants to get more control over the economy. Like recently when he ordered banks to lend money cheaply as a means to fight inflation.
One can't help feeling that government intervention is more likely to be the cause of the problem, not the solution.
40% annual inflation, soaring unemployment, an oil-rich country needing to import petrol - sounds more like mismanagement.
Managing a modern economy needs modern methods, not those of the middle ages. Trying to do it during a vast arms build up and useless investment in nuclear armaments - well, that takes some doing at the best of times, and not least a little humility is needed.
Unless he's supposing that all problems can be overcome if you want it enough, in a modern "Triumph of the Will".
The President of Iran has sacked his central bank chief, as well as replacing the finance minister. He apparently wants to get more control over the economy. Like recently when he ordered banks to lend money cheaply as a means to fight inflation.
One can't help feeling that government intervention is more likely to be the cause of the problem, not the solution.
40% annual inflation, soaring unemployment, an oil-rich country needing to import petrol - sounds more like mismanagement.
Managing a modern economy needs modern methods, not those of the middle ages. Trying to do it during a vast arms build up and useless investment in nuclear armaments - well, that takes some doing at the best of times, and not least a little humility is needed.
Unless he's supposing that all problems can be overcome if you want it enough, in a modern "Triumph of the Will".
Thursday, 7 June 2007
The Bible and productivity
I remembered a Bible text recently and it set me thinking. It turned out to be quite profound. No doubt this view is not original, but still . . . . it's mine.
The text is Leviticus 19, v 9 - 10.
Extract (KJV): "And when ye reap the harvest of your land, thou shalt not wholly reap the corners of thy field, neither shalt thou gather the gleanings of thy harvest . . . . thou shalt leave them for the poor and the stranger."
The first thing that comes to mind is this: the Bible is telling us that we should not drive for maximum productivity and profit margin, but that we should consider the position of the poor and needy.
The context makes it clear that it isn't about giving alms to the poor, or paying taxes to support them. It's about the actual production process; we are ordered, by the Lord, no less, that the poor should be involved in gathering some sustenance at least from the productive capacity of the counry and region they live in.
Of course, not many live by gleaning nowadays (if ever). But there are numerous ways in which this Biblical injunction is still kept, quite unconsciously. It is kept, in short, whenever compassion for a person's circumstances leads managers and owners of businesses to be less than totally ruthless in getting value from labour.
For example:
The woman in the back of the office who makes mistakes but her workmates cover for her because she's going through an awkward divorce.
The old man who is kept busy doing work that a machine could do, but the foreman likes having someone he can call on for odd jobs.
The manager who allows the local scrap dealer to take away surplus metal but doesn't charge very much because it's good policy to buy services locally.
We can all think of similar examples. They are the little ways in which humanity takes the edge off the tough commercial world.
On the wider scale, it's always better for a society to allow the poor to work and contribute in some measure to the society, than to have them live off the latter day version of alms, the social welfare, which in the old English phrase is "as cold as charity".
The "Anglo-Saxon model", as it is called, maximises employment and then tops up earnings with welfare. The "Continental model" - such as France and Germany - attempts to help the poor by telling business to pay them the minimum wage. The result is unemployment and a ruthless drive for productivity which replaces men with machines at the lower end of the job market.
We shall see, eventually, which one will survive the longest.
Update: I had an e-mail from Germany querying the opposition to the minimum wage, and recommending a citizen's basic income.
Oddly enough, I support the idea in pinciple, though I wonder about the practicality. (Also a bit worrying - "You're a citizen, you get a basic income. You're not, so buzz off and starve.")
Leaving aside that, I wonder if there isn't a simple error creeping into the debate.
The distinction between "wage" and "income" isn't always clear. Guaranteeing a minimum wage per hour is nto the same as guaranteeing a minimum income over the year.
Furthermore, the concept of "income" ought to include the benefits provided in kind, in goods and services funded from taxation or national insurance.
And the traditional socialist argument that the "social wage" (roads, waste disposal, clean water, etc.,) must be taken into account in assessing welfare should be dusted off for a re-think.
Regarding the minimum wage: suppose there are three people doing a basic job in a factory. They are doing the same work, same output per hour. The work is simple so the wage is low.
But the workers are not identical in their needs. One may be a student taking a year off before going to university, and still living at home. One may be a person nearly retired, with no mortgage to pay and working to pay for a nice holiday. One may be a single mother with two children.
Their needs are different. If the wage is raised artificially to help the needy one (the third) then the others say "Thanks very much, more beer money for us".
(There's anecdotal evidence that the main beneficiaries of minimum wage legislation are young single people in rich areas who have easy holiday jobs).
And we should not assume that the employer is necessarily making a profit from the lowwages - that may be the case, but it might not be.
So the employer may decide to invest in a machine to do the job - he won't make anyone redundant, but the one will retire and student will go to univeristy and there are two fewer jobs for the next student.
If, however, the wage is set at the market level, then the employer still provides the jobs, and more people are involved in work.
The student will still get his subsidised training, the mother will still get help with rent and child benefit, the retired person can work to retirement.
Targetting benefits to need works just as well in a market-wage society as in a minimum-wage one. And it maximises contributions to society through work.
"From each according to his ability, to each according to his needs".
And before anyone says it: yes, some employers are making money out of paying low-wages for valuable work. Certainly unfree labour is an evil, and factory inspectors can shut down unhealthy workplaces. But the best weapon against such employers is free-trade. Other employers will offer better wages and still make a profit - if they are allowed to set up in that market. Barriers to entry have to be low.
The text is Leviticus 19, v 9 - 10.
Extract (KJV): "And when ye reap the harvest of your land, thou shalt not wholly reap the corners of thy field, neither shalt thou gather the gleanings of thy harvest . . . . thou shalt leave them for the poor and the stranger."
The first thing that comes to mind is this: the Bible is telling us that we should not drive for maximum productivity and profit margin, but that we should consider the position of the poor and needy.
The context makes it clear that it isn't about giving alms to the poor, or paying taxes to support them. It's about the actual production process; we are ordered, by the Lord, no less, that the poor should be involved in gathering some sustenance at least from the productive capacity of the counry and region they live in.
Of course, not many live by gleaning nowadays (if ever). But there are numerous ways in which this Biblical injunction is still kept, quite unconsciously. It is kept, in short, whenever compassion for a person's circumstances leads managers and owners of businesses to be less than totally ruthless in getting value from labour.
For example:
The woman in the back of the office who makes mistakes but her workmates cover for her because she's going through an awkward divorce.
The old man who is kept busy doing work that a machine could do, but the foreman likes having someone he can call on for odd jobs.
The manager who allows the local scrap dealer to take away surplus metal but doesn't charge very much because it's good policy to buy services locally.
We can all think of similar examples. They are the little ways in which humanity takes the edge off the tough commercial world.
On the wider scale, it's always better for a society to allow the poor to work and contribute in some measure to the society, than to have them live off the latter day version of alms, the social welfare, which in the old English phrase is "as cold as charity".
The "Anglo-Saxon model", as it is called, maximises employment and then tops up earnings with welfare. The "Continental model" - such as France and Germany - attempts to help the poor by telling business to pay them the minimum wage. The result is unemployment and a ruthless drive for productivity which replaces men with machines at the lower end of the job market.
We shall see, eventually, which one will survive the longest.
Update: I had an e-mail from Germany querying the opposition to the minimum wage, and recommending a citizen's basic income.
Oddly enough, I support the idea in pinciple, though I wonder about the practicality. (Also a bit worrying - "You're a citizen, you get a basic income. You're not, so buzz off and starve.")
Leaving aside that, I wonder if there isn't a simple error creeping into the debate.
The distinction between "wage" and "income" isn't always clear. Guaranteeing a minimum wage per hour is nto the same as guaranteeing a minimum income over the year.
Furthermore, the concept of "income" ought to include the benefits provided in kind, in goods and services funded from taxation or national insurance.
And the traditional socialist argument that the "social wage" (roads, waste disposal, clean water, etc.,) must be taken into account in assessing welfare should be dusted off for a re-think.
Regarding the minimum wage: suppose there are three people doing a basic job in a factory. They are doing the same work, same output per hour. The work is simple so the wage is low.
But the workers are not identical in their needs. One may be a student taking a year off before going to university, and still living at home. One may be a person nearly retired, with no mortgage to pay and working to pay for a nice holiday. One may be a single mother with two children.
Their needs are different. If the wage is raised artificially to help the needy one (the third) then the others say "Thanks very much, more beer money for us".
(There's anecdotal evidence that the main beneficiaries of minimum wage legislation are young single people in rich areas who have easy holiday jobs).
And we should not assume that the employer is necessarily making a profit from the lowwages - that may be the case, but it might not be.
So the employer may decide to invest in a machine to do the job - he won't make anyone redundant, but the one will retire and student will go to univeristy and there are two fewer jobs for the next student.
If, however, the wage is set at the market level, then the employer still provides the jobs, and more people are involved in work.
The student will still get his subsidised training, the mother will still get help with rent and child benefit, the retired person can work to retirement.
Targetting benefits to need works just as well in a market-wage society as in a minimum-wage one. And it maximises contributions to society through work.
"From each according to his ability, to each according to his needs".
And before anyone says it: yes, some employers are making money out of paying low-wages for valuable work. Certainly unfree labour is an evil, and factory inspectors can shut down unhealthy workplaces. But the best weapon against such employers is free-trade. Other employers will offer better wages and still make a profit - if they are allowed to set up in that market. Barriers to entry have to be low.
Monday, 28 May 2007
Unintended consequences
There is yet another new scheme to help us be more what the government would like us to be: a nation of sober people. The drinks companies (most of them) have agreed to put the number of alcohol units on drinks bottles. So we'll check the content and drink less.
Hmmm. Well, apart from the obnoxious assumption that the government can legislate to make us good, this is likely to create some results not quite intended by the do-gooders who come up with these schemes. It stems from the psychology of youngsters going to pubs.
When I was a teenager, we went to the local bar and consumed Watneys Starlight beer. By the gallon. All night long.
Eventually we cottoned on to the fact that it was actually very low in alcohol content, so low it could legally be sold to children (so it was said.) We moved on to Guinness and proper beer, with a taste.
We guessed that the Starlight beer had been developed to enable teenagers to drink large quantities.
And it so happened that our idea was correct. 30 years later I happened to speak to a marketing man (not in the drinks trade) and he mentioned that he had worked on the advertising campaign for Starlight. It had, indeed, been designed as a "session drink", to be consumed in a a large quantity over a period.
The last thing Watneys would have wanted was for teenagers to realise the low alcohol content, They would have switched immediately to something stronger.
Advertising the units of alcohol in a drink won't put people off at all. It will become a badge of honour (cor, guess what I drank last night?!!)
We are indeed ruled by morons.
Hmmm. Well, apart from the obnoxious assumption that the government can legislate to make us good, this is likely to create some results not quite intended by the do-gooders who come up with these schemes. It stems from the psychology of youngsters going to pubs.
When I was a teenager, we went to the local bar and consumed Watneys Starlight beer. By the gallon. All night long.
Eventually we cottoned on to the fact that it was actually very low in alcohol content, so low it could legally be sold to children (so it was said.) We moved on to Guinness and proper beer, with a taste.
We guessed that the Starlight beer had been developed to enable teenagers to drink large quantities.
And it so happened that our idea was correct. 30 years later I happened to speak to a marketing man (not in the drinks trade) and he mentioned that he had worked on the advertising campaign for Starlight. It had, indeed, been designed as a "session drink", to be consumed in a a large quantity over a period.
The last thing Watneys would have wanted was for teenagers to realise the low alcohol content, They would have switched immediately to something stronger.
Advertising the units of alcohol in a drink won't put people off at all. It will become a badge of honour (cor, guess what I drank last night?!!)
We are indeed ruled by morons.
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