Irradicating the "Economics of Exploitation"

A great blog from the Renegade Economist ... which makes the case for a new economics ...

"While unearned wealth is both a symptom and a driver of economic injustice, the objective of transformative social change is not to soak the rich, but to create an environment in which economic opportunities are more widely distributed among the population ...

The recent riots and looting in London and other English cities are symptomatic of deep economic dysfunction. The social fabric is straining under the weight of an economics unable to offer any possibility of a different, better future.  The social contract is under greater pressure than at any time since the 1930s. But there is a crucial difference between the world then and the world today: a transformation in our collective moral aspirations that offers a spark of hope for the future, the kind of spark that in the dark days of the mid-20th century it took a world war, and the horrors of the holocaust, to ignite.

A just economy will not emerge from the tired debate between left and right, or endless arguments over whether free markets or state control of the economy deliver the best outcome. Justice requires that we transcend these stale and failed dialectics. Neither the contemporary vision of a free-market economy, nor a state-socialist or Keynes-inspired social democratic model can deliver a just economy; each is too riven by conflicts and compromises to get anywhere close.

Nothing short of fundamental reforms to the three pivotal institutions of the modern economy will do. Without substantial changes to the tax system; the financial system and the monetary system, a just economy will remain beyond reach.

Foundations of a New Social Contract

While a smaller, less expensive, state is perfectly achievable once everyone is permitted a viable stake in the economy, the state will still have an important function for which it will need to raise revenue through taxation. But it should tax the use of land and natural resources, things that are limited supply, rather than wages and profits. Taxing the output of economic activity discourages entrepreneurship and penalises hard work.

Financial markets must be reformed so that their sole purpose becomes the channelling of investment capital to the real, productive economy; activities that create the goods, services and experiences that people need to live decent lives, and the extras that promise the possibility of fulfilment and happiness.

Alongside these changes we need a new system of money creation; one that ensures stability in the money supply and that sufficient credit is available to fund every viable new business start up, or sustainable plan for expansion. Money should no longer be created as debt, as this places an unnecessary and counterproductive burden on both business and the economy as a whole.

Economic Renaissance for the Majority

These measures would curtail the minority enjoyment of unearned wealth and bring the benefits of a dynamic, opportunity-rich economy within reach of many more people. It’s perhaps not easy to imagine such a future economy, and it’s probably impossible to model the precise impact of these changes in terms that conventional economics demands, but such modelling is not necessary. These reforms would have to be implemented gradually so they can be fine-tuned as their impact becomes evident. And a great deal more research is required, especially into the impact that changes in each of these spheres will have on the other two: the mechanisms of the tax, financial and monetary systems are complex and interdependent.

If such changes are to be successfully implemented, they will have to be coordinated internationally. This may seem an impossible goal, but it’s not so very different in scale or complexity to the changes unleashed by the process of economic globalisation over the last thirty or so years; it’s just better motivated.

Over to You…

But none of this can happen without the commitment of a critical mass of people. Where that tipping point lies is impossible to know but it is out there. What we need now is the most successful marketing campaign in history. Central to that campaign should be the message that transformative change to economic structures and institutions is possible, and if such change were achieved, the life experience of the vast majority of human beings would be dramatically improved.

Next week, in the final article in this series, I shall look at the prospects for this campaign, and at the importance of established democratic structures in the process of revolutionary economic change"

"Nothing in the world... not all the armies... is as powerful as an idea whose time has come." Victor Hugo 

... This is a great article. IMHO the current form of 'economics' is a mixture of Poweromics (the 'economics' of exploitation, self interest and greed) and little will change until Ignoromics reduces (as suggested in the last paragraph ... 'over to you').

For instance over the last few days the banks have made a conserted and co-ordinated effort (with the CBI - the "Voice of Banks" - not the "Voice of Business" - as they are most bankrolled by the Banks) to strike fear in the public and threaten the Government not to split retail banking away from investment banking (nb which is being brought in to stop taxpayers having to bailout reckless bankers again). Creating fear is a common tactic used by those in Power (remember the Iraq war and those 'weapons of mass destruction'?) ... and the banks are using the 'destruction of the economy' as their 'weapon of choice' (even though it is they that destroyed the economy in the first place)! 

The Liberal Democrats say the want to press ahead with reform, but David Cameron and George Osborne are taking the opportunity (i.e. comments about the threats to the economy) to say they would like to 'park the reforms in the long grass' until the economy is stronger (anything to do with the 'backhanders', lobbying and their ultra-rich friends perhaps?) Just have a guess where these guys are likely to go after they leave Politics ... and I am sure it will be, just like Tony Blair before them, to lucrative jobs in the City!

The problem with the current economics is that it is not just the financial system that is corrupt, but it is all the other essential pillars of society too ... such as Government, the Media (remember Murdoch and the News of the World) and the Judiciary.

The move away from taxing jobs/profit to taxing unearned income/wealth (e.g. land values, gambling, financial transactions etc) is IMHO a 'no brainer' ... as is taxing the extraction of limited natural resources ... and making illegal the electronic counterfeiting of money (which the legal system allows the banks to do every day - i.e. creating money out of thin air, loaning it out and charging interest on it!) as well as the reckless and deliberate destabilising activities of banks (e.g. shorting, and the creation of 'toxic products' such as credit default swaps).

Current economics is unfortunately proving itself to be more about the movement of money/resources to wherever Governments allow them to exploit/profit from people the most ... a form of 'economics' contrary to 'growth' and 'well-being' ... and more about the "Economics of Exploitation". 

Apathy ... a 'sign' of things to come?

Contrary to popular belief "Ignorance" is not bliss ... and levels of "Apathy" will determine the future ...

Levels of voter apathy in the forthcoming elections (local elections and the referendum on electoral reform) will signal to those currently in power, and misusing power (i.e. applying Poweromics), how much more than can get away with before people finally take notice and decide to do something about it!

Ignoromics is what allows Poweromics to flourish, and it's made up of two types - Ignorance (Type 1) and Apathy (Type 2). Why not take a look and see which type of Ignoromics those around you suffer from !

Whilst Ignoromics prevails, Poweromics will flourish ...

Removing corrupt monetary and economic systems

Extracts from an excellent article by James Roberston, which uncovers the corrosive effects of current (immoral) monetary systems and some of the 21st century (ethical) alternatives available ...     

"More and more we are starting to see the corrosive effects of current monetary systems. They are being increasingly blamed for: 

• Systematically transferring wealth from poor people and countries to rich ones,
• The money-must-grow imperative that compels people to make money in socially and environmentally damaging ways,
• The diversion of economic effort and enterprise towards making money from money and from the rising values of existing assets, instead of from providing valuable goods and services,
• Systematic bias in favour of people, organisations and nations who should be managing the system efficiently and fairly on behalf of all,
• Eroding the credibility of political democracy, and
• Fuelling opposition to globalisation in its present form, thereby threatening world peace and security.  

Such insights all point to the fact that the workings of the money system now need to be changed ...

The starting point is to note that at the national level a government's principal operational functions include i) control of how the money supply is created and managed, ii) control of how public revenue is raised by taxing and charging and borrowing, and iii) control of how that public revenue is spent.  

Given the above, in a democratic society one might expect that all the money created as additions to the national money supply backed by the state would be created by an agency of the state, that it would be spent into circulation on public purposes, and that it would be created debt-free.  

What actually happens, however, is quite different. In the UK, for example, less than 5% of today's national money supply is created debt-free by the Bank of England and the Royal Mint as banknotes and coins - over 95% is created by commercial banks writing it electronically into their customers' bank accounts out of thin air as profit-making loans.  

It has been estimated that UK commercial banks make over £20 billion a year in interest from creating this electronic bank-account money, whereas the issue of banknotes and coins brings in public revenue of less than £3bn a year.  It has also been estimated that additional public revenue of about £45bn a year would result from a reform that i) prohibited commercial banks from creating bank account money, as they are prohibited from creating banknotes and coin, and ii) gave the Bank of England the task of creating it and passing it as debt-free public revenue to the government to spend into circulation.  

The following are further arguments for a reform along these lines. 

(1) The official-currency money supply is a public resource. The value of creating it should be a source of public revenue. To allow it to be captured as private profit is both economically damaging and unfair to particular sections of society. 

(2) Creating money as interest-bearing debt is systematically inflationary.  A debt-based money supply means that more money than has been created is always needed to pay back the debt involved in its creation - not only the "principal" (the sum borrowed) but also the interest payments on it while it is outstanding.  That is why the main objective of monetary policy now has to be a target level of inflation - within a bracket of, say, 2% - 3% a year. 

(3) Creating money as debt is pro-cyclical.  It tends to amplify the volatility of the business cycle instead of damping it, because banks want to lend more and bank customers want to borrow more when the economy is booming, and less when it is depressed. It thus contradicts the anticyclical aim of monetary policy. 

(4) If the great majority of new money entering circulation is channelled into the investment and spending priorities of commercial banks and their customers, it creates economic distortion in favour of speculative investment in the value of existing assets, and against productive investment to produce new goods and services.  For example it encourages speculative investment in land - one reason for the spectacular rise in house prices compared with other prices and wages and salaries in many countries in recent years.  

(5) One inevitable feature of an economy in which money is almost entirely created as debt is greater total indebtedness - higher levels of debt for citizens, companies and government which causes; i) Social damage and injustice as it artificially widens the gap between poor and  rich.  It increases the flows of money from poor to rich, since the poor have greater need to borrow money and the rich are better placed to lend it; and ii) Environmental damage and destruction.  When the money needed for all transactions has to include a sum to pay the interest arising from the way it was created, organisations and individuals are compelled to convert natural resources into money more rapidly than they might otherwise need to.  

(6) Allowing commercial banks the privilege of creating, free out of thin air, the main resource they need as input to their business gives them a subsidy enjoyed by virtually no other industry.  It protects the big, established commercial banks from competition from smaller, more enterprising, efficient and customer-friendly potential new entrants to their various lines of business, including the country's main system for making and receiving payments.  This reduces the economic efficiency both of the wider financial services industry and of the economy as a whole.  

(7) How money is now created and what the effects of that are, should not remain veiled in mystery. Widespread failure to understand how the monetary and financial system now works is a serious impediment to its improvement.

Fractional Reserve Banking - 'Creating money out of thin air'

The Bank of England can currently only influence how much new money the commercial banks create, by regulating interest rates, thus the price of borrowing, thus bank customers' demand for loans, and thus the amount of new money the banks create.  It is time now for the obvious next step - to make the Bank clearly responsible on behalf of the state for actually creating the required amounts of state-backed electronic bank-account money, just as state agencies create new banknotes and coins. 

As far as public revenue is concerned, existing taxes are also becoming less viable.  For example: 

• National economies in a competitive global economy have to reduce taxes on incomes, profits and capital to attract investment capital and highly qualified people - both being increasingly mobile. 

• Ageing societies will be unable to support growing numbers of "economically inactive" people by taxing the work and enterprise of fewer people of working age.  

• Internet trading is making it more difficult for governments to collect customs duties, value added tax and other taxes and levies on sales, and easier for companies and rich individuals to shift earnings and profits to low-tax regimes and tax havens.

• Tax avoidance by big corporations and rich individuals is reaching crisis proportions. Estimates are that tax havens cost £255bn annually to governments worldwide, and hold assets of $11.5 trillion ($11,500bn), causing serious distortion of economic priorities and supporting criminal money laundering.

Shifting a large part of the tax burden on to the value of land and other common resources which cannot be moved abroad will probably be national governments' most effective response to these problems. 


As well as becoming less viable, existing patterns of taxation are now positively perverse: 

• By heavily taxing employment and rewards for work and enterprise and lightly taxing the use of common resources, they systematically encourage inefficiency in all kinds of resource use - under-use and under-development of human resources, and over-use of natural resources (including energy and the environment's capacity to absorb pollution, including carbon emissions); and  

• By taxing the value added by most people's positive contributions to society (VAT), and failing to tax value subtracted by those who make most profit from common resources, they systematically skew the overall burden of tax in favour of a rich minority. 

These facts argue, on both economic and ethical grounds, for a "tax shift" on to the use of, or profits from, the value of common resources.   

Common resources are resources whose value is due to nature and to the activities and demands of society as a whole, and not to the efforts or skill of individual people or organisations.   The site value of land is the most obvious example. The value of a particular land-site, excluding the value of what has been built on it, is almost wholly due to the activities and plans of society around it.  For example, in the UK when the route of the London Underground Jubilee Line was published, properties along the route jumped in value.  Access to them was going to be much improved. A public policy decision and subsequent investment of public money, gave owners of those properties a £13bn windfall financial gain.  They had done nothing for it; they had paid nothing for it; they had been given a very large free lunch. By contrast, the UK Treasury raised £22.5bn for UK taxpayers in 2000 by auctioning twenty-year licences to use the radio spectrum for the third generation of mobile phones.  The governments of other European countries also raised significant sums that way. 

Local government in the UK, including the Greater London Authority, has been exploring whether rail and road transport developments could be financed out of the increases in property values which they generate.  In 2004, the  Vice Chair of Transport for London summarised some of the arguments for land value taxation:  

"With income from LVT … the government could provide new public transport infrastructure; abolish economically damaging property taxes such as council tax, business rates and stamp duty; raise personal allowances so that millions of lower-paid workers pay no income tax at all; and reduce VAT rates to help consumers and businesses. The tax would improve earned incomes; cut the cost of tax collection; provide affordable homes; reduce urban sprawl; avoid property-led business booms and slumps; and minimise the need for constant changes in interest rates to control land prices"

Pressures for a shift to environmental taxation have recently risen along with awareness of global warming and other threats too - including world shortages of energy, food and drinkable water, and worsening pollution of the oceans. 

In addition to land-sites, the electro-magnetic spectrum, the national money supply, and the environment's capacity to absorb pollution and wastes, important common resources include: the value of unextracted energy; limited space available for road traffic, airport landing slots, etc; and water for extraction, for fishing and for waterborne transport. The annual value of these and other common resources is very great, and rises along with the world's economic growth.  

The overall structure of public spending programmes needs more searching scrutiny by politicians, the media and the public than it now gets.  Two examples illustrate this. First, $1.5 to $2 trillion a year is estimated to be spent worldwide on perverse subsidies which encourage economically, socially and environmentally damaging activities (Myers, 1998).  These include the subsidies from rich-country governments to their farming and agricultural sectors, which - combined with tariffs against imported food - devastate those sectors in poorer countries and expose the hypocrisy of rich-country support for free trade.  But there are many other examples of perverse subsidies. Sustained national and international determination is needed to reduce them year by year.  

Second, support for a basic income (or Citizen’s Income) continues to grow, especially in Europe but elsewhere too. It would be paid to all citizens as of right, out of public revenue. It would include state pensions and child allowances, it would replace many other existing social benefits, and it would eliminate almost all tax allowances, tax reliefs and tax credits.  It would recognise that, in a society of responsible citizens, some of the public revenue arising from the value of common resources should be shared directly among them.  Politicians and government officials now channel huge sums in contracts and subsidies to private-sector business and finance, as well as to governmental organisations, to provide citizens with public services.  Much of that public money could be given directly to citizens to spend for themselves in a market economy made more responsive to their needs by the other reforms proposed.  It would especially help poor people who would not benefit from reductions in income tax but would have pay the new environmental taxes. 

The state should carry out its three main operational monetary and financial responsibilities in ways that will distribute the value of common resources among all citizens and reduce or even abolish taxes on earnings and profits from providing useful goods and services.  This will create a new framework of prices which reward the market economy for delivering outcomes which combine economic efficiency with social justice and environmental care.  The state will then be able to let the market economy operate more freely, with less intervention, than now.  

Business people and everyone else too, as citizens, will experience greater freedom at the personal level. A Citizen's Income will allow them, if they wish to do so, to reduce the amount of money they must earn by working as employees.  Then, with more time and energy to supply themselves and their families with some of the goods and services they now have to buy, they will be able to further reduce their need to spend money if they want to. As consumers, employees and savers they will be in a stronger position to influence - and choose between - the people they have to deal with in those capacities.  

Overall, attention will shift to creating well-being for people and the Earth; to enabling people to develop their capability, rather than reinforcing their dependency; and to conserving the Earth, rather than transforming its resources as rapidly as possible into money. The fairer sharing of the value of common resources will help to decentralise power and wealth - both by giving a fairer deal to people in their own places and by requiring rich and powerful people and corporations and nations to bear their full share of the environmental and social costs of centralisation. The new framework of monetary and financial incentives will automatically harness self-interest to common interest within and between nations. 

Together such reforms offer the prospect of  the democratic state performing its monetary and financial functions more purposefully and effectively, thereby being able to allow the market economy to operate more freely.  They will also make it financially easier for people to reduce their present degree of dependence on goods and services and jobs provided by big corporations and the state, and for both people and organisations to act in ways that conserve, not squander, natural resources ..."

-----

Robertson's excellent article goes on to look at this on an international level too (and I would recommend reading it in its entirety). Expanding upon this we clearly need to look at the barriers to such reforms ... including the vested interests and misuse of Power by the small minority in Power and quietly wielding Power (i.e. 'the Invisible Hand'). 

The current 'economic system' is designed to ensure the small minority in power 'profiteer' heavily from it, whilst adding no value themselves and at the expense of everyone else (i.e. Poweromics) ... and they will wield all of their power to resist any changes to this. 

For instance Governments (including the UK) are in the 'hands' of these people, either through infiltration (i.e. they are also part of this small 'elite' group), conspiracy (nb the current Conservative party gets the majority of its funding from this group), or by way of threat (e.g. due to indebtedness and/or by threats by this small group to move their accumulated wealth/ support elsewhere).

However Ignorance and Apathy are also to blame ... as those misusing Power will continue to do so for their own self-interest and gain ... until more and more people realise what's going on and start to demand change! ... and it is at this point people will start to see how the media, political and judicial systems are also designed to support this small minority too!

If you think education is expensive ... try ignorance

One picture is worth ten thousand words ...

and given Nick Clegg (and the Liberal Democrats) pledged before the election not to raise tuition fees, but on entering power is overseeing the process of tripling them ... it is no surprise he regrets such actions, but which ones ... pledging not to raise them ... or for tripling them ...?

This one decision, by yet another rich millionaire (made from banking/property just like David Cameron), could result in the demise of the Liberal Democrats, and casts further doubt that anyone in the corridors of Power really has the future of this country, and hard-working people's best interests, at heart ... 

Students wanted to protest outside Liberal Democrat headquarters today but were stopped from doing so ... and why was this ... what has happened to free speech?

Ignoromics (Type 1 is Ignorance, Type 2 is Apathy) is what allows Poweromics to flourish ... and denies a better future for everyone ... which IMHO makes the placard held by the student above so poignant ... 

to be continued ...

How 'Good' is Britain?

Quoting Aristotle, and following on from my last post, the following question is now partially answered ...

Aristotle said ...  "The trade of the petty usurer is hated with most reason: it makes a profit from currency itself, instead of making it from the process which currency was meant to serve. Their common characteristic is obviously their sordid avarice*"

And this week Robert Peston, one of the few in the BBC bold enough to question what is going on, this week highlighted the "Valueless Banking Boom", following figures released by the Bank of International Settlement, which show global foreign exchange turnover rose 20% to $4trn per day on average (yes, that's each single day) in April 2010 compared with April 2007.

"A sum equivalent to the entire output of the global economy is traded around once a fortnight on currency markets ... and what's more, London's portion of this business has increased even faster, by 25%, so UK based banks' share of forex business is a market-leading 37%.

As for over-the-counter interest rate derivatives (transactions that are largely bets on the direction of interest rates), these rose 24% globally to $2.1 trn ... and Britain's share of these trades was a striking 46%, up from 44% in 2007.

Many might well dispute that the great banking meltdown of 2008 happened because of this explosive growth in financial trading - but the trading certainly didn't prevent the crash.  It is clear that bankers are being allowed to continue to gamble unabated, without the fundamental problem being addressed (i.e. bankers' gambling being separated completely from ordinary citizens' savings).

And there is a massive disconnect between a global economy that has less than doubled in size over 12 years and - on the other hand - OTC derivative transactions that have increased eight fold while foreign exchange transactions have almost trebled in value. What's more, as I've pointed out before, the global economy was growing quite as fast in the 1960s when much of this financial business barely existed.  

So those (like me) who can't see the point of all these financial trades may have a point - unless, that is, you believe the enrichment of financial traders and hedge fund managers is a social good in itself.

Which is why, some would say, it's slightly odd that when no less an authority than the chairman of the Financial Services Authority, Lord Turner, questions the social utility of much activity in financial markets, and also suggests that it might be no bad thing to levy a tiny Tobin tax on all this frenetic trading in electrons, well it's curious that the chancellor of the exchequer (who could use a bob or two) doesn't lick his chops and demand a bit of that."

Well it's clear that immorality/corruption runs deep, and at present with whatever 'colour' of Government is in Power (n.b. ironically the last Government arguably lead the way to this path of immorality - 'led' by politicians who hid behind supposed religious beliefs), and none of them are going to challenge anything that serves their own vested interests ... even when it's clearly at the expense of everyone elses'. 

From a society (and moral point) of view, separating gambling from traditional banking is a 'no-brainer', but current leaders continue to choose not to do this.  From a society and moral point of view, restricting (and taxing) trading/gambling, and investing resources into activities that add real value (the reason for currency) is also paramount, but current leaders choose not to do this either.  Clearly the hidden hand of 'power' exerts major influence on those seen to be in 'power' (e.g. Politicians) and only truly honorable, respectful, courageous and strong 'leaders' will resist this and do what is right ... and the current set of Politicians are rapidly proving they have none of these qualities (particularly the first, and arguably the most important, two).

My previous reference to the article below explains/expands on this point ...

"Introducing tighter regulations for bankers or politicians does not raise their level of maturity, morality or their ethics, it just limits what they can get away with. No, it is the type of people, the Ethnocentrics themselves, that have to go. Worldcentric people by definition and by their nature would not have abused the old regulations, let alone need new ones. Anyone below Worldcentric on the “chart” should not be selected or elected into positions of leadership in politics or big corporations, not just banks. Fewer people would fit the bill and that would limit our choice, and so it should.

The second of the two issues was the failure of commentators to seriously question the capitalist economic system that has proved to be so fragile and unjust. It has brought wealth to half the world while the rest starve; it thrives on excess consumption and the inevitable emissions, and it seriously retards the evolutionary development of individuals and cultures. Bankers and politicians alike strive to prop up the old failing system which they abused, because they know no better.

However there is also a groundswell of more conscious or ‘worldcentric’ people who will no longer tolerate the old order and they will become ever more vociferous until the ethnocentric majority of politicians are discredited, ousted and replaced. Some commentators will reread if not resurrect Karl Marx, but the way is forward not backwards. A new economic order is essential, one that puts people and planet before profit".

To answer the question we need to go back to Aristotle ... noting we are recognised as the nation leading the way in profiteering from currency, instead of making it from the process which currency was meant to serve. 

The immorality of such action is clear, and those who conspire to allow this to happen are not 'Good People' and need to be challenged ... and it will take 'Good People' to join together to do this**

... so "How Good is Britain?" ... well the evidence suggests not good I'm afraid ... and in the future ... well we shall see (i.e. will "Good" people do nothing, and be complicit in evil). 

And as I also referred to in my last post, Aristotle referred to the 'Evil of Ignorance' ... IMHO Apathy (i.e. Type 2 Ignoromics***) can be referred to as 'evil' (as it is both complicit with and an accessory to evil), but Ignorance (Type 1 Ignoromics***) is arguably less so (as it is neither complicit with nor an accessory to).

* Avarice - Extreme greed for wealth or material gain.

** 'For evil to flourish, all it needs is for good men to do nothing' [Edmund Burke 1729 - 1797]

*** Ignoromics = People are either effectively ignorant of the situation (Type 1 - Ignorance) or not prepared to take responsibility to make sure it changes for the better (Type 2 - Apathy).

Aristotle: The 'evil of ignorance'

For some time the wise and learned have reflected on the use, and misuse of power, and the purpose and values within our society ...

For instance here's just a few of the things Aristotle had to say ...

"Democracy is when the indigent, and not the men of property, are the rulers"

"In a democracy the poor will have more power than the rich, because there are more of them, and the will of the majority is supreme"

"The trade of the petty usurer is hated with most reason: it makes a profit from currency itself, instead of making it from the process which currency was meant to serve. Their common characteristic is obviously their sordid avarice*"

"Poverty is the parent of revolution and crime"

"No notice is taken of a little evil, but when it increases it strikes the eye"

"It is the mark of an educated mind to be able to entertain a thought without accepting it"

"All persons ought to endeavor to follow what is right, and not what is established"

"The only good is knowledge and the only evil is ignorance"

"You will never do anything in this world without courage. It is the greatest quality of the mind next to honor"

Insights (and challenges) arguably just as, if not more, relevant today ... which capture in simple words the type of Poweromics we still face today, as well as the "evil of ignorance" (or more specifically Ignoromics**) that allows it to continue.

* Avarice - Extreme greed for wealth or material gain.

** Ignoromics - People who are either effectively ignorant of the situation (e.g. the overall environment) or not prepared to take responsibility to make sure it changes for the better.

Watch out for the deflecting of blame ...

Following my last post, it was interesting to observe the comments made on Flanders' blog (which resulted in me adding a few myself).  For me the key point arising is the risk of tarring particular generations with the same brush ... and starting to blame one another ... both of which are wrong.

One blogger (Boilerbill) commented ... 

"It is curious how an article pointing out that a certain sector of society has done relatively well, turns into 'the selfish generation'. Being selfish implies that there was something deliberate about what has happened - for the most part there wasn't. If there are villains, they are those who built the economic models - the economists and politicians.

I receive a public sector pension and for most of the time more was being taken in, than was being paid out - in fact we were subsidising general taxation. As early as the mid 70s those who had taken the responsibility for predicting our economic future should have seen that it was a Ponzi scheme and change it to a funded pension. People were complaining about paying too much - that would have been politically and economically right time to introduce a change which would have avoided part of the pensions crisis. In those days people trusted with handling money - especially savings - were held in high regard. Anything to do with pensions was regarded as boring but safe. People bought pensions wanting not be a burden on their children. They were not economic modellers.

This is just one example of where there may have been unease about what was happening and the economic modellers got it wrong. Like any person, you take what is on offer. You may question its viability, but when the experts tell you that it is OK, you go on and take it. The politicians are supposed to tell you how it is. In the past we were told that everything is going to be all right, but a bit too complicated for you to ever understand. It seemed all right so we re-elected them. Now we are told the future is bleak. Politically that is a good message to make - blaming it on Gordon won the election, but blaming it on a declining generation may win future elections.

There is a problem and the government is being over generous to some sections. The balance needs to be changed. The economic model which we were told would work has failed. But ask any of those born between '45 and '60 and they will tell you they were trying to build a future for their children. The fact that it didn't work out may be their fault for failing to understand the limits of the economic model, but there was little intentionality, so to label them as selfish says more about the accusers than about that generation" 

I had to agree, and commented ... 

"I agree. IMHO the key point with this article (and post 229) is that the small minority in power who practice Poweromics* (e.g. Politicians, Bankers) are able to do so (and successfully line their own pockets & flourish) without being challenged in a world surrounded by Ignoromics**. If you want to challenge Poweromics ... you have to reduce Ignoromics (as they are partners in crime).

IMHO there will be no new 'leaders' emerging whilst there are so few people wanting someone new to 'lead' ... and I'm afraid Ignoromics still prevails at this time hence it hasn't happened yet ... IMHO this won't be the case forever ... but things will unfortunately probably have to get much worse before it does ... unless people can find a way to fast-track the removal of Ignoromics, whilst those in power practicing Poweromics (and preparing for this) throw everything they can at them to stop them.

David Clift

'For evil to flourish, all it needs is for good men to do nothing' [Edmund Burke]

* Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed.

** Ignoromics = People are either effectively ignorant of the situation (e.g. the overall environment) or not prepared to take responsibility to make sure it changes for the better (i.e. Type 1 = Ignorance, Type 2 = Apathy).

and followed this up further by saying ...

IMHO the issue is less to age/generation and more to do with type of people we currently have in positions of power (e.g. Government, media, corporations, banks) ... i.e. Egocentric & Ethnocentric instead of more Worldcentric people (for definitions go to http://renegadeeconomist.com/blog/big-questions-hot-handle.html) ... e.g. take a look at a small extract from this link below:

"Introducing tighter regulations for bankers or politicians does not raise their level of maturity, morality or their ethics, it just limits what they can get away with. No, it is the type of people, the Ethnocentrics themselves, that have to go. Worldcentric people by definition and by their nature would not have abused the old regulations, let alone need new ones. Anyone below Worldcentric on the “chart” should not be selected or elected into positions of leadership in politics or big corporations, not just banks. Fewer people would fit the bill and that would limit our choice, and so it should.

The second of the two issues was the failure of commentators to seriously question the capitalist economic system that has proved to be so fragile and unjust. It has brought wealth to half the world while the rest starve; it thrives on excess consumption and the inevitable emissions, and it seriously retards the evolutionary development of individuals and cultures. Bankers and politicians alike strive to prop up the old failing system which they abused, because they know no better.

It did not occur to them that this was a golden opportunity to start to create a viable, sustainable economic system in line with the requirements of emerging Worldcentric human consciousness stage. Putting off the inevitable only makes the next economic crisis bigger and sooner. Worldcentric observers are amazed, distraught by the primitive ethnocentric thinking of our politicians and bankers, but they are up against the power that they still exercise. 

However there is also a groundswell of more conscious or ‘worldcentric’ people who will no longer tolerate the old order and they will become ever more vociferous until the ethnocentric majority of politicians are discredited, ousted and replaced. Some commentators will reread if not resurrect Karl Marx, but the way is forward not backwards. A new economic order is essential, one that puts people and planet before profit".

Moving forward I think we need to careful not to allow a deflection of blame to occur ... e.g. onto all the older generation, when the 'real people' 'stealing everyone's lunch' (breakfast, dinner, tea and future) are a few egocentric and ethnocentric people who currently have power (and misuse power).  However the issue that can probably be raised at most people's door is either Type 1 or Type 2 Ignoromics, which is the very thing that has allowed (and still allows) the egocentric/ethnocentric leaders currently in power to misuse power (and apply Poweromics).

Burdening future generations ... is this right, is it fair, will it work?

This is a key question we need to ask of ourselves ... as Stephanie Flanders has done today ...

In the national argument over Budget cuts, some voices are louder than others. This week there have been warning voices coming from the public sector unions - you can guarantee that they will turn up the volume in the months to come.

Ministers may not respond, but their voices will certainly be heard. It's usually a lot harder for politicians to hear the voices of people who don't vote. And of course, people who are aren't born yet can't say anything at all.

If you care about fairness between generations - that is a big problem. It suggests that the demands of older people will always attract more money and attention than the demands of the young.

It also means that future generations are likely to get squeezed. The wrangling over spending cuts this summer will greatly affect them too. But so far I haven't heard many people fighting their corner.

In his book The Pinch, the Conservative David Willetts describes in forensic detail how the baby boom generation has prospered from the core trends in Britain's economy and society over the last few decades, usually at future generations' expense.

To take just a few examples: high inflation helped them pay off their mortgages quickly in the 70s and early 80s - then price stability helped them preserve their wealth, just as rocketing house prices gave them another massive windfall.

They also prospered from an influx of cheap foreign labour from the mid 1990s onwards, just when Generations X and Y were coming on to the labour market, and a shrinking labour force might have helped push wages up.

Now David Willetts is in government - presumably defending the rights of tomorrow's workers as minister for universities. We've also got the youngest chancellor sitting at No 11 since 1986. You'd think it was a pretty good time to even the score between the generations.

But when it comes to generational equity, so far his plans for the public finances and the economy get maybe a low B plus.

For the purposes of this discussion I want you to forget about the distribution of Budget cuts by income, or region, or gender (see yesterday's post). Just focus on what it means for different generations.

Then look at the "tough choices" that chancellor made in his Budget - and the ones he ducked. It's not a black and white picture, but more often than not, the tough choices involve cutting services or benefits for young and youngish people, whereas the red lines tend to protect areas that are especially important for older groups.

Consider those benefit cuts: tax credits for families with dependent children are being withdrawn, with supplements for the youngest children removed and child benefit frozen for three years. A number of grants for pregnant women have also been abolished, and so has the Child Trust Fund. Lone parent benefits are also being cut.

By my reckoning, around £3bn of the £11bn in welfare cuts by 2014-15 that Mr Osborne announced in June will directly hit households with young children.

The rest of the benefit cuts come from changing the indexation of benefits from RPI to CPI (to save £5.8bn) and cutting the housing benefit bill by £1.8bn. Those cuts will affect people of all ages, but they are likely to affect older people rather less.

Why? Because the basic state pension was the only benefit to be increased in future years (alone among benefits, from 2012 it will go up in line with earnings, prices, or 2.5%, whichever is highest.)

Also, more than two thirds of people who claim housing benefit are of working age. Indeed, one of the arguments the government uses to justify using the CPI to uprate public sector pensions is that CPI doesn't include housing costs, which account for a much smaller share of pensioners' expenses.

Even more telling is the list of universal benefits that weren't cut. In line with the Conservatives' manifesto commitments, the winter fuel payment, free bus passes and free TV licenses for older people have all been protected, even though most of the £4.2bn a year spent on them goes to people who aren't poor.

The chancellor has said he's in the market for further benefit cuts which could make things easier for departmental spending. As one senior Conservatives said to me shortly after the Budget: "It's almost as if he's daring the cabinet to push to abolish the winter fuel payment."

So yes, this is a work in progress. But on the spending side, too, you'd have to say that older generations were being protected. The school building programme is being axed, and public investment generally is set to fall by half (a decision by the old government which Mr Osborne has not reversed).

By releasing local councils of their obligation to meet housebuilding targets, many experts say the government will help to prop up the value of the baby boomers' houses as well.

Times will be tough for the NHS, but it is the only major department whose Budget will continue to go up in real terms over this Parliament of pain. The figures on this are patchy and out of date, but in 2003/4 nearly 45% of total health spending in England and Wales went to the 16% of the population over 65.

At this point you may think I've completely lost the plot. Of course, you'll say, we protect the elderly, and the NHS. And of course most of its Budget gets spent on people at the very end of their lives. But that's what the welfare state is all about - not one generation stealing from another, but one generation doing for their elders what they hope their children will do for them.

All that is true. But, as Mr Willetts describes, the baby boomers have done rather more than that. They've fixed the system so that they get more money out than they are ever going to put in. He reckons the average member of this lucky generation will get 118% more in public benefits and services over the course of their lives than they have paid in taxes.

The key point is that a lot of the goodies that have been promised to the baby boomers (and the smaller postwar generation before them) will not be around for the generations that come after. So those young people are going to be paying more into the system than they take out. The longer that politicians wait to even the score, the greater the relative burden on the young.

The rise in house prices has tipped the balance even further the baby boomers' way - letting them consume more than other generations during their working lives and after they retire as well. To cap it all, they've presided over many years of government borrowing as well.

As Ray Barrell and Martin Weale from the NIESR point out in a fascinating article for the Oxford Review of Economic Policy, this imposes a double burden on future generations: not only do they have to repay all that debt from their own income (future) income, but that income may itself be lower because by borrowing for current spending, the government used up national savings that could otherwise have been invested.

This isn't about the rights and wrongs or running a deficit in a recession - or when and how quickly to bring it down. It's a much longer term question: whether this government, or any future government, is going to begin to take up the cause of younger generations, many of whom could face a much bleaker future than the generation now starting to retire.

Future generations don't care if we have a bad few years. As long as the Mr Osborne isn't derailed by a weak economy and actually follows through on those deficit plans, they'll give him a B plus for borrowing less than Labour planned.

But for today's under-40s and those to come, you'd have to say the coalition government could do better. 

To answer the initial questions raised ...

Is this right - yes it is. 

Is it fair - no it is not.  

Will it work - for a while it will ... but not for long.  


One needs to remember that the younger generations also have a choice ... i.e. they can choose where they want to live and work ... nb as one blogger immediately commented ... "I'm emigrating at the end of the month ... and to all the young I say, pack your bags, and leave tonight".


With no/fewer young people working there is no prosperous future, and anyone within the UK can move within the EU without restriction now ... with the floodgates now open, we are likely to see more and more hard-working people flood OUT.