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?
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".
Sunday, 26 August 2007
"More Money for Bastards"
This title of this post is a quote uttered by a panellist on the BBC show "Mock the Week" This is a usually funny topical news quix interspersed with jokes and stuff. The subject came up of new Conservative policies.
One panellist mentioned the policy of cutting taxes on business. "Which means", he said "More money for bastards".
One wonders just how to respond to such unfunny and crass stupidity. It's wrong on so many levels.
In the first place, taxes on business are taxes on shareholders. Many of these are not rich, and how can anyone say how many of them are "bastards"?
The sheer prejudice encapsulated in the remark is staggering. Suppose a panellist said "More money for the unemployed - means more money for lazy bastards?" Or "Help for immigrants - more money for welfare scroungers". Or "Moslems - they're all murdering bastards." Or "Christians - they're all hypocrites".
Only shareholders and businessmen, it seems. can be slagged off by the BBC.
On another level, who does he think creates the wealth that payes the tax that goes to teh BBC and pays his appearance fee? Without business there's no wealth at all.
And also, the easy to understand principle of tax incidence applies - who actually pays a tax.
Taxes on business don't fall on the business in a vacuum. It is a cost imposed on business, so inevitably raises prices. If business taxes were cut, we might see inflation fall but the businesses would be more profitable so wages can go up.
There's always a case to cut business taxes to nothing, on the grounds that the simpler the tax system the better. See Tim Worstall for arguments better than I can put it.
One panellist mentioned the policy of cutting taxes on business. "Which means", he said "More money for bastards".
One wonders just how to respond to such unfunny and crass stupidity. It's wrong on so many levels.
In the first place, taxes on business are taxes on shareholders. Many of these are not rich, and how can anyone say how many of them are "bastards"?
The sheer prejudice encapsulated in the remark is staggering. Suppose a panellist said "More money for the unemployed - means more money for lazy bastards?" Or "Help for immigrants - more money for welfare scroungers". Or "Moslems - they're all murdering bastards." Or "Christians - they're all hypocrites".
Only shareholders and businessmen, it seems. can be slagged off by the BBC.
On another level, who does he think creates the wealth that payes the tax that goes to teh BBC and pays his appearance fee? Without business there's no wealth at all.
And also, the easy to understand principle of tax incidence applies - who actually pays a tax.
Taxes on business don't fall on the business in a vacuum. It is a cost imposed on business, so inevitably raises prices. If business taxes were cut, we might see inflation fall but the businesses would be more profitable so wages can go up.
There's always a case to cut business taxes to nothing, on the grounds that the simpler the tax system the better. See Tim Worstall for arguments better than I can put it.
Friday, 10 August 2007
Classic kibbutz moment
In 1974, I worked on a kibbutz for six months. At the end of that time, I experienced something that sums up the old kibbutz movement.
I was told that because I had been there six months, I was entitled to draw the ration of casual clothes, to keep as my own. (Work clothes were already given out, and were taken in each week for washing. You didn't get the same ones back.)
So I did as I was told and turned up to the laundry. A shipment of casual trousers and shirts had been brought in and were laid out on the tables and shelves.
All the kibbutz boys (handsome, athletic) and girls (curvy, long-haired) aged between 18 and 25 seemed to be there. They were undressing and trying on the various shirts and jeans.
I did the same, and eventually selected a dark-blue pair of jeans and a smart shirt.
I signed for them and left. No money changed hands.
So, that's everyday socialism. You get what you need, by right of residence and working.
But also, you select from the management's choice, when they choose to give you one. You don't get cash instead, to go to spend it where you want.
So that's the original kibbutz moment.
I was told that because I had been there six months, I was entitled to draw the ration of casual clothes, to keep as my own. (Work clothes were already given out, and were taken in each week for washing. You didn't get the same ones back.)
So I did as I was told and turned up to the laundry. A shipment of casual trousers and shirts had been brought in and were laid out on the tables and shelves.
All the kibbutz boys (handsome, athletic) and girls (curvy, long-haired) aged between 18 and 25 seemed to be there. They were undressing and trying on the various shirts and jeans.
I did the same, and eventually selected a dark-blue pair of jeans and a smart shirt.
I signed for them and left. No money changed hands.
So, that's everyday socialism. You get what you need, by right of residence and working.
But also, you select from the management's choice, when they choose to give you one. You don't get cash instead, to go to spend it where you want.
So that's the original kibbutz moment.
Modern kibbutz moment
I recently visited a kibbutz in israel, where I worked for a few months in 1974. Like most of the kibbutz movement, and the country itself, it is very different now.
They used to have a herd of cows, orchards, beehives, glasshouses for roses, chickens, a shoemaker's workshop. The chickens and the roses have gone, the shoemaker died and his workshop is now a fitness centre. The dairy is larger, they took over a herd of the nearby settlement.
In 1974, the system was straightforward. Strict equality, goods and services awarded according to need, all persons work where they are told to, no differentiation in gross income. Cash was used for the relatively low level of personal spending. Holidays abroad were awarded by choosing recipients by lot.
So changed now.
· The same kibbutz has gone over to cash for salaries and pensions.
· Persons doing more valuable work get higher salaries to reflect that.
· The kibbutz has declined in population by nearly a third. The empty houses are rented out. So: the modern kibbutz is a landlord.
· The kibbutz focuses on high value added activity and exports a lot. The kibbutz participates in the global market.
· The kibbutz has a factory, with a 100 staff. The kibbutz is an investor and entrepreneur. · Half the staff are members, the rest are outside workers, both Jews and Arabs. The modern kibbutz is an employer of wage labour.
· The nuclear family has re-emerged on the kibbutz. The children's houses are no longer used during the night.
· The gardens were originally open-plan, with lawns and trees. Now, the residents mark out their parts with little fences and shrubs. I even saw one mowing his lawn.
The modern kibbutz - where you cook for yourself, look after your children yourself, and mow your own lawn.
Just like a suburb anywhere . . . so that's the modern kibbutz moment.
They used to have a herd of cows, orchards, beehives, glasshouses for roses, chickens, a shoemaker's workshop. The chickens and the roses have gone, the shoemaker died and his workshop is now a fitness centre. The dairy is larger, they took over a herd of the nearby settlement.
In 1974, the system was straightforward. Strict equality, goods and services awarded according to need, all persons work where they are told to, no differentiation in gross income. Cash was used for the relatively low level of personal spending. Holidays abroad were awarded by choosing recipients by lot.
So changed now.
· The same kibbutz has gone over to cash for salaries and pensions.
· Persons doing more valuable work get higher salaries to reflect that.
· The kibbutz has declined in population by nearly a third. The empty houses are rented out. So: the modern kibbutz is a landlord.
· The kibbutz focuses on high value added activity and exports a lot. The kibbutz participates in the global market.
· The kibbutz has a factory, with a 100 staff. The kibbutz is an investor and entrepreneur. · Half the staff are members, the rest are outside workers, both Jews and Arabs. The modern kibbutz is an employer of wage labour.
· The nuclear family has re-emerged on the kibbutz. The children's houses are no longer used during the night.
· The gardens were originally open-plan, with lawns and trees. Now, the residents mark out their parts with little fences and shrubs. I even saw one mowing his lawn.
The modern kibbutz - where you cook for yourself, look after your children yourself, and mow your own lawn.
Just like a suburb anywhere . . . so that's the modern kibbutz moment.
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.
Tuesday, 5 June 2007
England forever !
There's a lot on the internet at least about the English "national identity". Especially since the government comes up with its cack-handed proposal for a "Britain Day". First they erode democracy with devolution to everone but the majority, thereby creating two classes within the country, then they want to celebrate the "things that we have in common".
A sense of fair play, for starters.
And a recognition that England is a country - perhaps start by getting Europe to put the name on its map? And to give us a vote on devolution.
We only want the rights everyone else has.
But to the point.
One can hear people denying that there is an "English national identity". After all, there are so many different cultures that make up the country, so many different national origins, they aren't really one nation, are they?
Are these commentators on another planet? Does anyone say that the Welsh are a single culture? Are the Lowland Scots the same as the Highlanders? Blue and Green Glaswegians wouldn't agree they are the same. And the Northern Irish?
The fact is - and it's a remarkable fact that this is rarely noted - that the English are what they are simply because we all live here.
There is no requirement to be of "English blood". (Unlike Germany, which still has a race-based nationality).
Just one simple question: are you born here? Makes you English.
Or, you voluntarily come to live here and to submit to our laws.
England is here, and will not go away. And don't forget that.
Years ago, I lived abroad and had to fill in official forms.
Address: easy - "United Kingdom".
Nationality: easy - British passport, so "British".
Country of birth: I often paused and wondered what to put. Neither of the above options seemed right. Eventually I settled on "England", but did wonder what the significance was.
Now I know. England is home, England is the source of our liberties and traditions and rights. England is forever.
A sense of fair play, for starters.
And a recognition that England is a country - perhaps start by getting Europe to put the name on its map? And to give us a vote on devolution.
We only want the rights everyone else has.
But to the point.
One can hear people denying that there is an "English national identity". After all, there are so many different cultures that make up the country, so many different national origins, they aren't really one nation, are they?
Are these commentators on another planet? Does anyone say that the Welsh are a single culture? Are the Lowland Scots the same as the Highlanders? Blue and Green Glaswegians wouldn't agree they are the same. And the Northern Irish?
The fact is - and it's a remarkable fact that this is rarely noted - that the English are what they are simply because we all live here.
There is no requirement to be of "English blood". (Unlike Germany, which still has a race-based nationality).
Just one simple question: are you born here? Makes you English.
Or, you voluntarily come to live here and to submit to our laws.
England is here, and will not go away. And don't forget that.
Years ago, I lived abroad and had to fill in official forms.
Address: easy - "United Kingdom".
Nationality: easy - British passport, so "British".
Country of birth: I often paused and wondered what to put. Neither of the above options seemed right. Eventually I settled on "England", but did wonder what the significance was.
Now I know. England is home, England is the source of our liberties and traditions and rights. England is forever.
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