Ineptocracy - the cause of the deficit?

Ineptocracy - (in-ep-toc'-ra-cy) -
'A system of Government where the least capable to lead are elected by the least capable of producing, and where members of society least likely to sustain themselves or succeed, are rewarded with goods or services paid for by the confiscated wealth of a diminishing number of producers'.

The above definition of Ineptocacy could easily be read in two ways ... a dig at the poor and/or least able ... or a dig at the ultra-rich who misuse power and add no value, but gain wealth from ponzi ('money for nothing') schemes (eg counterfeiting money/gambling) and/or from the backs of hard working people who are actually adding all the value (but paying most of it back in tax - e.g. income tax, national insurance and 20% VAT) ... whilst the ultra-rich accumulate more wealth, more tax cuts and pay accountants to find any possible avoidance scheme so they can avoid paying any tax at all! **

The biggest problem by far is in fact the latter ... tax needs to be applied to non-productive ways of generating wealth (gambling, land, housing) as a matter of urgency ... and income tax for those adding real value reduced ... these actions together would both remove the black hole in the countries finances and reward producers who add real value!

Can this be done? ... of course e.g. by introducing a land value tax! ... However, those currently in power would never allow this to happen as it is not in their interests to do so ... as they want to be able to continue to make money from nothing ... and off of the backs of others ... and will fight tooth and nail to be able to continue to do so!   

Ignorance is not bliss ... and Poweromics is evil.

** We've started flushing out companies avoiding tax (e.g. Starbucks), but we need to expose all the individuals involved in this practice too ... starting with those with their grip on Power!

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". 

Voters reject Clegg ... and throw out electoral reform

In the referendum on electoral reform voter turn-out was less than half (60% didn't vote) and of those who bothered to vote, only 32% said they wanted to change the system. 

Nick Clegg, Liberal Democrat leader, compromised everything (e.g. the tripling of tuition fees, the scrapping of EMA, NHS reform etc) in order to secure a vote on electoral reform, but then failed to win the vote!  

And the irony of it all is ... Nick Clegg, by reneging on all of his promises and putting aside his moral compass (choosing power over principle), is the actual person who set doubt/alarm bells off in people's heads (e.g. about coalitions) and sounded the death nell for electoral reform.

Many will not have bothered to listen to the arguments, and simply wanted to deliver a protest vote against him (nb which is why the Yes campaigners tried desperately to stop him getting involved in their campaign)!

This would also explain why the Liberal Democrats suffered a rout in the Local Elections, whilst their coalition partners actually gained seats (nb even though their partners are the main party responsible for introducing the cuts)!

Nick Clegg is deliberately keeping his head down, but did say "When you have such a overwhelmingly clear answer you just have to accept it and move on. This is a bitter blow for all those people who believe in the need for political reform, but the answer is clear and the wider job of the government, and the Liberal Democrats in government will continue, to repair the economy, to restore prosperity and jobs and a sense of optimism in the country. That is the job we started and we will see it though. We will dust ourselves off and move on."

And the issue with this? ... well for many it was not a case of rejecting electoral reform at all, but the best way of voters showing they reject him (given it was Nick Clegg's key demand in coalition)! ... and to try to maintain power ... he's predictably saying the public rejected electoral reform (i.e. not him) ... and he will continue in power doing what he's been doing!  

IMHO if the Liberal Democrats could get rid of him they almost certainly would (nb calls are there already from the grass-roots), but because of the massive damage that he's done to his party, they are now in such a state they could actually potentially implode.  Looks like they are just going to try and hang on and hope for the best ... for now. 

Meanwhile, Nick Clegg will still no doubt be contemplating his lifeboat (a safe Tory seat in the next election), particularly as the Conservative vote went up! But he will sit between two stools ... wanting to please an increasingly rebellious party (by showing he's prepared to stand up for people), and wanting to please Cameron and the Conservative party (to ensure he has a free passage to one of their safe seats)!

Trust, honour, respect ... Here I do think the electorate have given their verdict on Nick Clegg. However, apathy ruled the day and ignorance helped to deliver a protest vote but not electoral reform (nb by voting for electoral reform, but not voting for the Liberal Democrats in the local elections, voters could still have delivered a protest vote!) ... so Poweromics will continue unabated.

Whilst Ignoromics prevails, Poweromics will flourish ...

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 ..."

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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!

Captain of a sinking ship ... or mutiny on the Bounty?

Nick Clegg faces potential defeat over the government's planned NHS reforms at his spring party conference, as a heavyweight group of Liberal Democrat figures tables an amendment opposing the "damaging and unjustified market-based approach".

Evan Harris, a doctor and former MP and vice-chair of the party's ruling federal policy committee, will table the amendment, supported by the former cabinet minister Lady Williams (Shirley Williams), registering their concerns that the current legislation will lead to a widening of UK health inequalities if left unchecked.

Defeat at his own conference on a central plank of the government's public service reform agenda would mean Clegg would have to choose between ignoring a vote by his grassroots and negotiating concessions from the prime minister.

The amendment complains that some of the proposed changes in the health bill "have never been Liberal Democrat policy, did not feature in our manifesto or in the coalition agreement, which instead called for an end to large-scale top-down reorganisations".

The changes sought by Harris and Williams include:

• No decision about the spending of NHS funds to be made in private and without proper consultation, as can take place by the GP consortiums proposed by Andrew Lansley, the health secretary.

• Restoration of the NHS as the preferred provider, only allowing new private providers where there is no risk of "cherry-picking" that would destabilise the existing NHS. At the moment, the legislation brings an end to the NHS as preferred provider.

• NHS commissioning retained as an entirely public function, rather than the subcontracting of commissioning to private companies. At present primary care trusts are democratically accountable and open to public scrutiny.

• Continued separation of the commissioning and provision of services to prevent conflicts of interest.

• Healthcare commissioning to be carried out by locally elected health boards or local authorities, with the ability to vary a fair local tax in order to invest in local healthcare services.

Given the fundamental conflicts of interest already raised by numerous well-respected healthcare bodies (as well as Channel 4) and the additional flaws contained within current reforms now raised by his own MP's, will Nick Clegg  decide to do a 'U turn' and fight to defend the NHS ... or will he bury his head, soldier on regardless and talk to David Cameron about securing himself a safe Converative seat to fight in the next election? Trust, honor, respect ... Nick Clegg appears to have abandoned all of these in pursuit of power ... e.g. look at tuition fees for instance, and what he wants to do with the NHS now ... with no mandate whatsoever from his party or the electorate.

IMHO the Liberal Democrats will rue the day they allowed their leader to put aside any moral values and renege upon all their elections promises, as many voters will not forget ... and they will not vote for them again! The Liberal Democrats are already getting worried about the future (e.g. in the recent by-election they were pushed into sixth place and also lost their deposit).

Interestingly, despite pushing for it, and despite the clear benefits/importance of electoral reform, one of the biggest risks to a YES vote in the referendum has been the actions of the Liberal Democrat leader himself! Since gaining office he has traded moral principles for power in an attempt to secure electoral reform. Having gained agreement for a referendum, Clegg's now hoping people will vote YES as this will give "him more power" ... however, wasn't he meant to be giving "people the power"! 

IMHO this appears to be yet another example of a 'leader' corrupted by Power and who, in their desire to gain more of it, has abandoned their moral compass as well as the people they're supposed to represent. There is no point striving to become captain of the ship (with the intention of steering it into better waters) if in the process of doing so you have to throw away your compass ... which causes the entire ship to sink!

By jumping ship, and the promise of a 'safe' Tory seat, I am sure Nick Clegg's lifeboat is at the 'ready' ... as the Liberal Democrats start to sink ...

In my humble opinion the referendum on electoral reform will be the point Nick Clegg will know whether he's going to need it or not ... as without a vote to change the electoral system (i.e. a YES vote) the Liberal Democrats are now almost certainly dead!

Monetary rewards - a recipe for success ... or failure ?

Are monetary rewards the passport to 'success' or a recipe for 'failure' ... should a company incentivize its people to innovate? 

This great 10 minute clip does a fantastic job at answering the above questions ... 

The clip successfully highlights the fundamental flaws in traditional enterprises and economies, as well as the fallacy of "incentivizing" people using monetary reward too* ...

It also goes on to explain what really motivates people ... nb the idea that money is not a motivator is well known and has been for some time (well over half a century in fact) ... as Maslow, Herzberg, Deming (and myself) have all pointed out!

So why is it not prevalent in enterprises and communities all around the world today?

Is it down to ignorance? ... well partly, for instance most mainstream business schools are still teaching flawed and outdated practices! 

Is it down to apathy? ... well partly, given many of those who know better chose not to do anything about it. 

Whilst ignorance and apathy are partly to blame, IMHO the main reason for it is that those currently in power (and who apply Poweromics) like to use monetary reward as a way to 'control people' and to get them to do what they want them to do (whether it's best for customers/company/country or not). Politicians/bankers also deliberately use debt to control people and create compliance too (see 'debt slavery')! 

So it's not hard to see why it's not prevalent yet ... it's because those abusing power like to use it to control people for their own personal gain ... despite the fact that it destroys motivation, the performance of enterprise and the long term success of the country.   

* NB the City's drive to profit from speculation and their ability to profit from the buying and selling of shares are also problematic too. For instance, city bonuses drove 'fraudulent' types of 'innovation' and the creation of 'toxic' financial 'products' (e.g. C.D.O's, C.D.S's and Self-certificated mortgages). City bankers profited heavily from gambling using these products (e.g. creating pyramid schemes using other people's money) ... and left taxpayers to pick up all the losses (resulting in massive Government debt, tax rises and cuts to public services). The City also speculates with shares and profits heavily from the process of buying and selling shares too (nb with bankers again not risking any of their own money). This speculation results in the entire share stock of most publicly traded companies being bought and sold in less than a year, and   results in most executives being incentivized by substantial cash bonuses for creating short-term profit/results too (at the expense of long term sustainable success) - just like the bankers themselves!

IMF report raises risk of civil wars ... due to the imbalance of Power

As the aftershocks of the financial crisis continue to reverberate through real economies and government budgets (particularly in the West), it is becoming increasingly clear how the gap between the extremely rich and the poor is playing a major role in the crisis. Economists from the International Monetary Fund (IMF) now acknowledge that, while dysfunctional financial markets caused the crisis in an immediate sense, its deeper cause was inequality.

Banks took on financial assets whose risk they had no real way of assessing correctly. At the heart of these assets were mortgages in the so-called 'sub-prime' market – basically high-risk mortgages made to poor people with insecure and low-paid jobs. When these people started to default on their mortgages in large numbers in 2008, the whole complex (and fraudulent) system of securitised risk unravelled very quickly and dramatically.

An underlying question is why the sub-prime market arose in the first place, and the answer in part lies in the stagnation of incomes in the bottom half of the income distribution in the US (and also in the UK) since the early 1980s. A number of factors drove this, including the introduction of new technology. New technology (e.g. IT) has nearly always been targeted at cutting costs and getting rid of manual labour (increasing unemployment and squeezing wages), instead of using it to free up staff and unleash their (untapped) potential to continuously innovate and grow.  (NB the former is a blunt application of Poweromics, whilst the latter is a good example of Leanomics ... it's also worth noting that very few enterprises, or economies, will successfully find they 'cut their way to sustainable success').  

Michael Kumhof and Romain Rancière, the authors of the report Inequality, Leverage and Crises, pick up the theme of stagnant incomes at the bottom, but link these to the huge increase in earnings at the top, which provides the other half of the story. By 2006, the top 1 per cent of taxpayers in the USA received almost one quarter of all income in the US (see chart below). 

The wealthy needed to invest their money somewhere, and in Kumhof and Rancière go on to say: 'The key mechanism is that investors use part of their increased income to purchase additional financial assets backed by loans to workers. By doing so, they allow workers to limit their drop in consumption following their loss of income, but the large and highly persistent rise of workers’ debt-to-income ratios generates financial fragility which eventually can lead to a financial crisis'.

As a consequence the size of the financial sector, as measured by the ratio of banks’ liabilities to GDP, ballooned*, with the crisis characterised by large-scale household debt defaults and an abrupt output contraction (as in the U.S.)

During the build up to the 2008 financial crisis, the worlds of the rich and the poor were connected, but through the need to lend on the one hand and the need to borrow on the other, and IMF paper argues that the extreme gap between rich and poor was an underlying cause of the crisis (with its obvious parallels to the late 1920s - when the Roaring 20's was followed by the Great Depression) - see chart of Male Annual Earnings in the US below.

The paper goes on to explain how 'the crisis is the ultimate result, after a period of decades, of a shock to the relative bargaining powers over income of two groups of households, investors who account for 5% of the population, and whose bargaining power increases, and workers who account for 95% of the population' and argues 'because crises are costly, redistribution policies that prevent excessive household indebtedness and reduce crisis-risk ex-ante can be more desirable from a macroeconomic stabilization point of view than ex-post policies such as bailouts or debt restructurings'.

The paper concludes by suggesting 'Restoration of poor and middle income households’ bargaining power can be very effective, leading to the prospect of a sustained reduction in leverage that should reduce the probability of a further crisis.' and warns of "disastrous consequences" for the world economy if workers do not regain their "bargaining power" against rentiers. 

The International Monetary Fund (IMF) also warns that "dangerous" imbalances have emerged that threaten to derail global recovery and stoke tensions that may ultimately set off civil wars in deeply unequal countries (nb we can see this already starting to play out today**). 

Despite all the rhetoric and spin, in reality the UK (and US) Government chose to bail out the banks with tax payers money (allowing the rich bankers to profit heavily from gambling once again), whilst passing the cost of the bailouts onto poor and middle income households, in the form of job losses, higher taxes and reduced services ... Indeed, worse still, in the UK we have the Tory Government trying to suggest the way out recession is to cut the top rate of income tax to the rich ... and to restrict the rights of ordinary people to strike ... both quite the opposite of what the IMF suggests in its report ... unless they're trying to promote civil war that is!

* The situation was also made worse by Fractional Reserve Banking, with bankers pushing to increase lending in order to profit from money (created out of thin air)!

** With the current unrest in Egypt, it was interesting to hear the potential hypocrisy in which the UK/US told Egypt's leaders to return the internet/mobile communications to its people, and to respect these as basic human rights ... as I understand both Governments' have similar strategies planned if they face similar levels of unrest!

A sign of things to come (2) ... ?

As Christmas draws closer and the New Year fast approaches are we starting to see the writing on the wall ... and sign of things to come ...? 

Sterling devalued 25% (e.g. even against collapsing currencies like the dollar!), inflation running way above target (e.g. with petrol now heading towards £6/gallon!), interest rates set to go up, unemployment starting to increase again (before the real cuts start to bite), VAT set to rise to 20%, and the top civil servant (Sir Gus O'Donnell, Cabinet Secretary) quietly drawing up a "Plan B" for if/when the UK falls into recession again next year ...

Yet bankers (whose self interest/greed created this crisis) are celebrating and pocketing their Christmas 'bonuses', as a result of debt slavery (e.g. Fractional Reserve Banking) and corrupt profiteering/gambling using your money (where they take all the profit and you/taxpayers take all the losses) ... nb they are not focused on helping/investing in businesses, but continuing to speculate on the stock exchange, commodities, currencies and bonds instead ... forcing countries to the brink financially (e.g. Ireland) and pushing up food prices around the world so millions of people can no longer afford to eat (nb the same bankers also want to be able to speculate/trade in fresh water in the future too)!

Whilst the European Union is trying (and failing) to fiddle around with bankers pay (restricting bonuses will only elevate their basic pay), it has done nothing to stop Fractional Reserve Banking or Casino banks (investment banks) from speculating gambling using your/taxpayers money (commercial banks) ... much of this crisis was brought on by repealing the Glass-Steagall act (which was brought in after the last Great Depression) and nothing is being done to reverse this!

The banks have stolen the future from future generations, through high levels of tax needed to service (and eventually pay off) all the bailouts/debt, through the removal of EMA and the tripling of tuition fees, doubling of youth unemployment and further debt slavery as young people try to pay for a roof over their head (nb the bankers are aided and abetted here by a few very wealthy landowners who profit heavily from restricting the use of land ... instead of being taxed for the land they own)! 

If we really want to get out of this mess, we need to i) stop the corrupt practices of banks, ii) invest in education, innovation, enterprise and business, and iii) introduce a Land Value Tax, to replace the current Property Tax and to reduce the tax on jobs (income tax/national insurance) ... 

As the toxic mixture of ignorance and apathy continues to reduce ... Poweromics will be increasing exposed and challenged.