economics

QE 2020

Goodness, here’s the Bank’s page on Quantitative Easing. The last tranche is £645bn. It’s a shit load of money and I find this an important quote,

Suppose we buy £1 million of government bonds from a pension fund. In place of the bonds, the pension fund now has £1 million in money. Rather than hold on to this money, it might invest it in financial assets, such as shares, that give it a higher return. And when demand for financial assets is high, with more people wanting to buy them, the value of these assets increases. This makes businesses and households holding shares wealthier – making them more likely to spend more, boosting economic activity.

The italics and underlining are mine. This is not a plan, it’s a dream. More likely!

If this is designed to boost aggregate demand, then it does so through the lending market and is mitigated by peoples expectations and animal spirits. Poor people spend more of what comes in and are also more debt adverse or will be excluded from borrowing [more] and there’s more of them. If it’s defending aggregate demand that’s needed then we should be pumping this money out through the benefit system nc. the in-work benefit payments; SSP and Redundancy should be state paid/underwritten benefits, not paid by employers nor underwritten by loans. If it’s about protecting the poor inc. the in work poor and vulnerable, then doubly so.

See below/overleaf for a chart showing its size compared with both the fiscal deficit and balance of trade deficit. …

It’s cold outside

Carlotta Perez argues that Kondratiev Long Waves have an internal shape. One of the trends is the rollout of the driving technology from the core to the periphery and this takes place in the maturity phase as profitability of the once new technology declines. Another important event is the next eruption and where that takes place. Between the Steel & Oil phases, the world’s core moved from England, the economic and political epicentre of the British Empire to the USA and we should remember that this role was contended for by both Germany and the Soviet Union. It’s moved once, it can move again but it’s most unlikely to come back to England. I wonder what being part of the periphery will be like. I suppose it depends upon where the core is. Will it remain in the USA or move, to China or even the EU. The key will be the dynamism of the innovation economy; it looks like, due to Brexit, the UK’s Universities will decline and that much of aerospace and biosciences will leave the UK. Otherwise the UK & US industries may be defended by the ubiquity of English, but the EU has had 40 years of using it as their language of commerce and to a great extent the language of government.

I can’t see it clearly, but the corruption and financialisation of the anglosphere economies are stymieing innovation and inhibiting “creative destruction”; there is opportunity for other national economies to do better. It would also seem that Perez’s predicted regulatory correction is nostalgic this time, looking back to times when things seemed better, or defending old out dated business models. We cannot recreate the industries of the steel revolution.

It’s unlikely to be pleasant, especially if the UK moves from being a 2^nd tier economy to peripheral one. …

More from Meadway

I went to one of the local labour political education workshops at which James Meadway was speaking. Odd, since I had been reading of his views, in particular with respect to his contention with MMT; I wrote them up on this blog. but it was good to hear him in person.

I have written about MMT and its contention with the Labour front bench a couple of times and summarised my understanding of the MMT position on International Trade. A couple of years ago I wrote on their views on Monetary vs. Fiscal policy, this latter article also summarises and links to articles critical of MMT.

Meadway emphasised two things, “Not all Currencies are equal”, the dollar is still the international trade denominator. The second point is that making debt default the policy tool to deal with private sector foreign exchange debt is not wise as the biggest FX debt holders are probably HSBC and Barclays. While the UK public sector FX debt is tiny, this private sector debt is not and it’s questionable if we could bail the banks out a second time which since the ring fencing of retail and investment banks is mired in the swamp would jeopardise the people’s savings.

He also emphasised the importance of ownership, investment and universal services as socialist agenda items and thus the creation of an irreversible shift in power; not so sure my memories of Thatcher selling off the Mutuals is evidence that this will work but it will be a powerful manifesto. …

The politics of MMT

I was prompted to remember some of my recent Macroeconomic reading as someone was asking about Modern Monetary Theory (MMT). I read Reclaiming the State (Gibson & Faizi) last year, and I picked it up again to re-read the section on International Trade. I have not yet finished it, but I remember thinking that while public finance may not be a constraint on the economy, the long term balance of trade may well be, even for a monetary sovereign.

Meanwhile this article “Brexit the slippery slope of left sovereigntism from modern monetary theory to spiked” at https://tendancecoatesy.wordpress.com explores the political inertia that MMT’s exponents may be riding. Much of it is based on an interview with James Meadway, once John McDonnell’s economics adviser which is available, at the link below/overleaf. For Coatsey’s regular readers they will be unsurprised at his pugnacious attacks on Faizi’s endorsement of the Full Brexit and Spiked. Meadway’s musing are interesting in that he emphasises that MMT, like Keynesianism says nothing about inequality and ownership of the means of production. The interview also addresses the moderation in Labour’s 2017 Manifesto. Below/Overleaf are links and excerpts for further reading of Meadway’s views … …

Ships, Steel & Gas

I have worked as a London (or Thames Valley) white collar worker for all my working life but the GMB is strong in manufacturing and energy. We had several debates of special interest to Shipbuilding, Steel, and Energy, especially the Gas industry and there was also a motion on fracking. For more see below/overleaf.

Ships

The shipbuilding motions refer to public procurement policy and reference concepts echoed in the “Just Transition” movements, about not leaving communities nor workers behind. While looking for a picture to decorate this article, I came across an article, entitled, “Another RN supplier goes under – the closure of Appledore shipyard”, which documents the impact on the community but critiques Babcock’s commercial strategy. In reading the article, it makes clear that Appledore was part of the Aircraft Carrier supply-chain and so their commissioning prolonged the life of the shipyard. GMB Congress also highlighted the failure of the Government to “Buy British” for the latest generation of Fleet auxiliary ships. I have written several articles mirroring arguments about what I consider to be the mistakes of renewing Trident and the building of the new Fleet Carriers. I think the Union needs to engage in these arguments i.e. what do we need and can they be built in multiple sites. It’s not just about how many hospitals could have been funded; what defence assets are we missing to fund the subs & carriers. The country needs to also address retraining and skills reuse. Labour’s promise of a National Education Service, with free, life-long learning available to all is an important part of keeping the UK’s skills relevant and renewing them. The debate can be found on youtube.

Steel

The fate of what remains of British Steel was also debated, and I reflected on this earlier this month on this blog. A motion had been submitted to Congress over the winter, again calling for a “Buy British First” policy and this was supplemented by an Emergency Motion calling for the Scunthorpe Steel Works to remain open. [Video of the moving, in several ways, speech]

Nothing was mentioned about the Government’s handling of tariffs. (A mistake I would have thought).

Gas

The future of the Gas industry was debated via Composite 15.

While in entering the debate, I assumed that I’d have a problem with the GMB position as too often Unions take a no change position, the composite is well argued and highlights certain critical facts, although not others. (Electricity cannot be stored at scale, Gas can, electricity leaks over the grid. Hydrogen is not a fossil fuel.) The science of innovation with respect to the use of Hydrogen has not been documented either by the GMB branches nor by Friends of the Earth. (I am trying to chase it down; I have written to SGN who had a stand in the exhibition space.) There’s no question that if Momentum and Friends of the Earth get their motion to Labour Conference, the Just Transition Unions will vote it down, unless they compromise on Gas & Nuclear. The GMB motions states that there is scientific consensus that gas heating in the home is part of a transition to a carbon neutral economy.

I think we need a better understanding of the science.

I read a lot about this in order to write this report, and my notes are on my wiki.

Fracking

A motion on Fracking, basically opposing it, in the light of recently discovered facts and regulatory changes was withdrawn at the request of the CEC.

ooOOOoo

The words of the Gas and Fracking motions are posted on my notes are on my wiki. …

British Steel

Our minds have been distracted or mine has anyway, but British Steel became insolvent last week. Of course a huge blame game is started. Have the Chinese been ‘dumping’ steel on the rest of the world? Could the Govt. or the EU have protected it? Did the single market aid rules stop the Govt doing so?

Is China dumping? This article at the Conversation says “Yes”, big time!

This article at fullfact.org, “Is the UK calling for EU duties for Chinese steel?” deals with next three questions. The EU have raised duties but for many years the UK Government has been resisting more; they wished to avoid retaliation and for ideological reasons. There’s probably some “don’t give a shit” there too. It would seem that this is another policy area where New Labour failed to support its natural people.

The calls for renationalisation are now, rightly growing …

Trade & Brexit

A friend posted a link to Larry Elliot’s article, “Ignore the free-trade evangelists. Brexit can create a fairer economy“, suggesting its critique of international trade implied some sunny upland in a post Brexit world. The article is sub titled “Free market economics created a world fit for multinationals. But we need less frictionless trade and more local control”., using a global context argument and yet diminishing the regulatory power which we share with the rest of the EU. The EU have sanctioned Microsoft, Intel, Apple & Google. The EU killed the ACTA & TTIP trade agreements. (Although not CETA, the Canadian version of TTIP). That is local control.

In no post-Brexit world, where we will take years to join the WTO and make new agreements with the 92 countries whose agreements we will have voided, will there be a vibrant British or Sterling economy, Elliot, and his fans are with Prof Minford in permitting if not encouraging the so-called legacy manufacturing industry to off-shore.

We should note that our Balance of Payments has been in deficit for, well forever really but is current running at £100bn p.a. about the same size as the crisis debt/deficit level that the Tories, supported by both the LibDems and rump New Labour used to justify austerity.

The UK will be poorer, and this misery will not be shared evenly and people will get angry. Anyone, with their hand dirty will be blamed. …

Fiscal credibility, ptui!

Yesterday, I went to a meeting on Brexit, Free-movement and immigration; conversation in the bar afterwards segued from, “why did a Corbyn led PLP argue to abstain on the Tories Immigration Act?” via a post match analysis of Lewisham Deptford’s Brexit/Anti-Brexit meeting to consider the radicalism of Labour’s 2017 Manifesto and the development of macro economic policy since then; it doesn’t do so well when compared with the Corbynomics of 2015. One of the key developments since then has been the development of Labour’s Fiscal Credibility Rule, which promises to only borrow to invest.

To those who think this is smart, I ask why so-called current account spending on education is not seen as “investing” in Human Capital, but this is not it’s main problem.

However, I awoke this morning to see one of Richard Murphy’s tweets where he is contending with Jonathan Portes & Simon Wren Lewis, the rule’s author’s it would seem. It got a little testy. Anyway, here’s Richard, detoxifying, or not the twitter spat, and making the point that the Fiscal Credibility Rule is not based on Modern Monetary Theory. because it acknowledges the monetary constraint, and not the real world one. Murphy refers to his earlier piece, A challenge to Simon Wren-Lewis on modern monetary theory and Labour’s fiscal credibility rule in which he critiques the Fiscal Credibility Rule. My precis of his position is that the rule is based on a neo-classical approach, fundamentally legitimises austerity and fetishises debt reduction. I had a look for the Portes/Wren Lewis original position and assume that “Issues in the design of fiscal policy rules” is it.

My research took me to this, which Bill Mitchell claims to be his last words on the Fiscal Credibility Rule, the article contains the following powerful line,

The problem is that this reinforces the narrative that deficits and public debt are in some way ‘bad’ and as I note below this will not turn out well.

One of the problem’s exposed by Bill Mitchell’s article is that it suggests that the Fiscal Credibility Rule is a bit like Lord Buckethead’s nuclear deterrent policy, it only works if the secret is kept, in this case that Labour does not believe that the Fiscal Credibility Rule is a necessary macro-economic constraint even if the economists that wrote it do so.

ooOOOoo

To some extent, this article is just a reading list, there’s not so much of me in it., but I have promised myself a precis of Chapter 7/8 of Fazi and Mitchell’s Reclaiming the State, which is a relatively simple and short exposition of MMT. …

Positive balance

The BBC are very proud of their contribution to the balance of payments through the licensing of their content. I decided today to see if they do, in fact, contribute once the rights payments to 3rd party companies is taken into account. I have asked the DDCMS but the BBC is subject to FOI questions. I need to think about how I phrase the question, but Heather Brook’s book, should help, if I can find it. …

Another look at free software

I read this, “‘Software is meant to be free …” at Hackernoon and found it disappointingly lightweight. It talks of Stallman, thus the four freedoms and the GNU project and mentions Eric Raymond in passing as the man who coined the phrase Open Source rather than the author of the Cathedral & the Bazaar and Homesteading the Noosphere. He doesn’t mention Stallman’s attack on the concept/phrase of Open Source since he considered it a diminishing of the four freedoms. It’s weak on the evolution of copyleft; it doesn’t mention for instance, Laurence Lessig and the Creative Commons. Clary also fails to mention Torvalds, the man most associated with Linux, the prime example of Open Source Software, although the EU Commission discovered that the largest contributor to the open source code base was Sun Microsystems.

It is particularly weak in its view of how and why the proprietary software behemoths adopted Open Source. They did so primarily in areas where they were weak in market share and profitability and where their competitors were the inverse. IBM’s massive investment in Linux, much of it through its OEM agreement with Red Hat was designed to kill Sun MIcrosystem’s Solaris; it is arguable that they succeeded, although both I and Eric Raymond think it’s more complex than that, as provoked by him, I argue here.

Our understanding of the economics and sociology has moved on since then. Anne Barron in her 2013 paper, Free Software Production as Critical Social Practice which I should really re-read looks at both and earlier in the previous decade Simon Phipps articulated new sources of value and new contexts for open source software, both how free software created scarce markets, and that open source governance models equally created and constrained the value of its free product. I was lucky to be able to present his theories once or twice and I reported on one such presentation on this blog 10 years ago.

These papers and theories are somewhat aged certainly when one considers the speed of technology development but its possible that even older theories such as Marx’s Fragment on the Machine and more recent developments in conceiving of immaterial labour, and the enigma of software’s role in the means of production are all part of the questions that need to be answered to understand the economic role and governance of software.

It’s not that software wants to be free … it’s just looking like no matter what theories of price you adhere to, free is the right price.

ooOOOoo

See also Free, the right price for software and maybe Monopoly and prices, both by me on this blog, written in 2009 exploring the micro/meso-economic classical welfare theories as to why software should be free. …

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