Mark Steel at the People’s Assembly

There is a new “organisation” called the People’s Assembly which is, essentially, a movement against austerity. I’ve been rather lax in my reading (at least semi-political reading) and blogging recently and so don’t really know much about it. I do, however, think that austerity has been a disaster, both socially and economically, and so – if I understand the motivation behind this movement correctly – I agree with it wholeheartedly.

What I thought I would do is include, below, the speech given by Mark Steel at the People’s Assembly meeting yesterday. It’s both quite amusing and quite fiery. Something that I won’t expand on much here (but is something I may try and write about at a later stage) is why it appears that the most effective rhetoric for those on the left appears to come from comedians, while the most effective rhetoric on the right appears to come from what, I’ll politely call, firebrands. I’m don’t really understand why there is such a difference in style between the right and the left, but it is something I find of great interest. Anyway, enjoy the video.


Iceland’s president at Davos

Thanks to the Liberal Conspiracy I’ve come across the video that I’ve posted below of the Icelandic President (Olafur Ragnar Grimsson) being interviewed at Davos. He claims that Iceland’s recovery was largely due to their allowing banks to go bankrupt and by not following the standard orthodoxies of austerity, but instead providing support for the poor and unemployed. Their economy is now growing at about 3% and unemployment is low.

I’ve never heard of him before, but based on this video he seems to be a good example of what I think a politician should be. He seems to think in terms of what would be best for his country and its people, rather than simply thinking of how to protect big businesses and the wealthy. Admittedly, some of those who act to protect businesses and the wealthy believe that this will help everyone. The evidence for this is, however, slim. Anyway, I think the video is worth a watch and I wish more of our politicians were as sensible as he seems to be. Iceland is a small country with a small population, so maybe what worked for them wouldn’t work for us. However, our current policies don’t seem to be working either so trying something that has been proven to work makes more sense (to me at least) than sticking with something that is almost certainly not working.

The Moral Economy

I was wondering why we shouldn’t apply the free-market ideology to everything. The basic idea behind the free market is that the system will self-regulate and will automatically settle into some kind of state that is optimal. Why can’t we apply this to everything and simply have no laws whatsoever. Presumably everyone wouldn’t simply go out and commit all sorts of heinous crimes. The truth, however, is that some sadly would. One might expect people to drive carefully (because it’s sensible to do so) but most wouldn’t. I’m sure that a system without laws would settle into some kind of state, but possibly not the kind of state that most would be comfortable living in. Essentially, we are an intelligent species that has developed a set of morals that most would agree are reasonable and we impose laws so that our society is one that satisfies our sense of morality. Our morals wouldn’t disappear without laws, but what would you do with those who didn’t behave according to society’s norms and how would you define these norms? As soon as they’re defined, you essentially have the beginnings of regulation.

I don’t see why something similar should apply to our economies, especially as these are not technically independent of our societies. Economies don’t develop by themselves. They develop as a society tries to provide food, shelter, transport, entertainment, education, healthcare, etc. The goal of an economy is not to create a profit for investors. It’s to provide services. Investors should be rewarded for careful and useful investments, but not at the expense of the services being provided. Similarly, those who contribute most and are regarded as the more creative members of our economies should be rewarded more highly than others. However, they shouldn’t then be able to use this to then leverage extra rewards over and above what might be regarded as reasonable. I accept that it is difficult to define reasonable, but the top 25 investment bankers in the US earning 3 times more than all of the 80000 teachers in New York state seems immoral to me. Similarly, the richest 1000 people in the UK increasing their wealth by £155bn since 2008 also seems hard to justify. This would wipe out two years worth of deficit, something the government regards as so important that almost 1 million people have lost their jobs since 2008.

I accept that economies are very complicated and that some will (and should be) rewarded more than others. However, following a path of austerity in which the poorest will potentially lose all they have while the wealthiest continue getting richer seems immoral. To argue that this is the moral path (since future generations will have to pay for any extra borrowing today) seems entirely disingenuous.

We are the 99%

Today the protests that started in Wall Street, New York, have spread to many other cities in the world. The basic idea seems to be to protest in the financial sectors of these various ctities against the banking sector’s excessive salaries (at least for investment bankers) and against their excessive risk taking. Essentially, it is felt that this excessive risk taking is a prime cause of the current financial problems and yet those who are paying the highest price are the lowest earners (who are losing their jobs) while those in the banking sector are carrying on as if nothing has changed.

We were chatting about this at work a few days ago and I mentioned that I really liked that the slogan was “we are the 99%”. I said that this really encapsulates the problem that the top 1% of earners are taking a disproportionate amount of the income. In the US the top 1% take 24% of all the income while in the UK the top 10% (I couldn’t find a number for the top 1%) take 31% of all the income (up from 28% 10 years). What got a an argument going was that one of my older colleagues said that he didn’t see what difference it makes how much the top 1% (or 10%) earn as it all goes back into the economy. My immediate response was that this was essentially bollocks (although I didn’t actually use the word bollocks). The top earners are essentially extracting a large fraction of all the income every year, leaving less for the rest of us to share. Even if it goes back into the economy, it essentially goes back to them and, in fact, for the last few decades the top earners have been extracting an ever increasing fraction of the total income.

My suspicion is that this person was confusing income with wealth. It is possible that a viable economy could exist in which most of the wealth was held by a few people. If this wealth is reinvested in the economy then it would be acting to drive economic growth and would ultimately be paying our salaries. Since these few people essentially owned everything, all the money we spent would go back to them to be reinvested in the economy and the cycle would continue. I’m not suggesting that this would be a good thing, simply that in this scenario the wealth of the few would be driving the economy and my colleague’s argument would have some validity.

Income is, however, different from wealth. The more income the top earners take, the less there is for the rest of us. The question we need to ask is what is the optimal income distribution. If everyone earned the same, there would be no incentive to take risks or to work particularly hard. Similarly, if a few people took all the income how would the rest of us survive and how could an economy flourish if no one has any money to spend. My personal view is that in the US and the UK the income distribution has become so skewed (benefiting the few) as to be detrimental to the health of our economies.

It has certainly been argued that one of the reasons for the current financial crisis is that the skewing of the income distribution lead to a problem with consumer spending (most people didn’t have enough disposable income). To solve this, banks started lending money to people. The problem was that this didn’t increase these people’s incomes, it simply allowed them to spend money that wasn’t really theirs. The highest earners initially benefited in two ways. Firstly, people had money to buy products made by companies in which they had invested money. Secondly, these people had to pay interest on their loans, which again provided profit for companies which were primarily owned by the wealthiest. The problems started when people could no longer pay back their loans and many financial products (in which various debts had been bundled together and sold to other financial institutions) became worthless.

I certainly feel that there are both moral (we don’t really want children dying of poverty in the wealthiest countries in the world) and economic (a consumer economy needs people with disposable income) arguments as to why we need to have a more equal income distribution and I sincerely hope that these protest have some impact on the ideology of current government and provides an incentive to start working towards a more equal society, for the benefits of all of us.

Should we try to understand the riots?

I wasn’t going to write anything about the recent riots in England as a lot has already been said, most of which probably doesn’t really get it right. There are a huge range of different views, from the BNP’s objectionable attempt to regard these as race riots to Compass’s recent statement that equates the looting of the rioters with “looting” by the banking sector. As much as I have sympathy with Compass’s general ideology, I’m somewhat uncomfortable with their recent statement. There may be a moral equivalence between how the banking sector behaves and the behaviour of the rioters, but there is clearly no legal equivalence. The rioters were clearly breaking the law and deserve to be punished, while the banking sector has (as far as I’m aware) not broken any laws.

A recent comment on twitter did, however, capture exactly how I feel about the riots. To write in my own words (I was going to say summarise, but you can’t really summarise a tweet); nothing can excuse or justify the actions of the rioters but we can, and should, attempt to determine the reasons why such riots have occurred. What I’m finding irritating are those (Theresa May, Boris Johnson, etc.) who keep repeating that the rioting and looting is simply criminal behaviour, pure and simple. Strictly speaking they may be correct, but what precisely are they implying by such a statement. Are they suggesting that a small fraction of the people in any society are simply programmed to behave in this way. They are just waiting for an excuse and there is little we could have done to avoid it. If this is the case, why does it typically occur in socially deprived areas and why are most of those taking part from socially deprived backgrounds. Surely if it’s genetic, those involved would be equally likely to be from any background. Alternatively, they could be suggesting that there will always be people in any society (however equal or unequal) that will feel disadvantaged and every now and again will get sufficiently disgruntled to start looting and rioting. It’s possible, but I’m not sure there’s any evidence to support this.

All that I know is that there is strong evidence showing that after 60 or 70 years of the UK becoming more equal, the last 30 years has seen the UK becoming more and more unequal. The rhetoric of the coalition government has also been extremely negative. They keep talking about the need for austerity measures and the primary way that the deficit will be reduced is through cuts that will largely effect the poorest in society. I can’t claim that the rioting is a direct consequence of this but it does seem quite likely that there will be a sector of society who feel that their lives will be getting worst and that feel increasingly disenfranchised. This does not, in any way, excuse the actions of the rioters but may begin to explain why such rioting has taken place. In a sense, I hope this isn’t the case as it might suggest that more and more of these riots will take place and things will get worse before they get better.

Royal Mail strikes

So Royal Mail workers are on strike and it is likely to cause all sorts of problems. Now I don’t know if they should be striking or not or even if they are justified in striking. I must admit, though, that at some level I am quite pleased to see a group of people illustrating how important their industry is to the UK economy, although I am concerned about the damage it may do to Royal Mail itself. What I do find ironic is that yesterday the vice-chairman of Goldman Sachs suggested that if we don’t accept bankers’ enormous salaries these bankers will simply leave and take their profitable businesses overseas, while today we hear that Royal Mail workers shouldn’t strike because if they do other companies will take over Royal Mail’s business.

To a certain extent this sounds contradictory. I appreciate that there are probably fewer people capable of working in investment banks than there are capable of delivering mail, but presumably in an industry sense, the same should apply to both. If banks want to relocate, why can’t other banks simply take over what they’ve left behind. Why don’t we apply exactly the same logic to the banking sector as seems to being applied to Royal Mail. If they won’t accept a more reasonable salary scheme, then let them leave and allow other banks to take over their business. I do realise that this is probably simplistic, but it may illustrate a fundamental problem. Banks currently seem to operate in an environment in which they are given a level of protection not offered to other industries.

Arrogance personified

The Guardian has reported that the vice-chairman of Goldman Sachs, Lord Griffiths, has given a speech at St Paul’s cathedral in London about morality in the marketplace in which he argued that society (the British public) should “tolerate the inequality as a way to achieve greater prosperity for all” . Not only do I disagree with the premise that giving lots of money to a few people will make everyone else more prosperous, it also seems as though his primary argument is that if we don’t accept this, banks will relocate overseas.

I didn’t see the speech and haven’t read a transcript so don’t know if there was more to it than that suggested above, but it doesn’t seem like a particularly moral argument to me. Give us what we want or else. Personally I think we should stand up to these kind of threats. I don’t believe that there are any strong arguments in favour of the trickle-down effect. There must be some kind of conservation in the system: the more the bankers keep the less there is for the rest of us. What is more, since banks don’t really build anything or invent any new technologies, the more money they keep the less there is for industry to work with.

There’s no question that banks do provide a valuable service, but is it quite as valuable as they seem to think. I agree that at the moment individual banks may be forced to pay ridiculous salaries in order to retain good staff, but there is no real reason why we as a society cannot push for a global change such that this is no longer the norm. It seems as though banks pay much higher salaries to a much larger percentage of their staff than other comparably sized business. Although banks may well have a larger percentage of highly-trained staff than many other industries, this still doesn’t seem to justify such huge salaries. If anything, if more of these bright people were encouraged to go into other industries that may develop technologies that can change the way we live – rather than being seduced by huge salaries in the banking sector – we may all benefit.

Although I am pleased that Alistair Darling, the Chancellor, has criticised the banks for paying huge bonuses so soon after being bailed out by the government, I have to admit that I suspect that this is more for political effect than because he truly believes it is wrong.