Saturday, May 23, 2020

Communitarian conservatives? 1832 Reform Act follow on? Universal Basic Income, obviously.

The Spectator published this letter recently as the groundswell for an universal, unconditional Basic Income grows ever stronger.   Maybe Basic Income a.k.a: Citizen's Income/Citizen's Royalty will be introduced as the Covid-19 economic outcomes  bite really fiercely. When millions of citizens find themselves having fallen outside the safety net of the patchy monetary and fiscal support schemes. It would start to address the contrasts of income, wealth and ways of life that the current crisis  is starkly showing up. 

Letter 2 May 2020:  
The leading article ( The case for trust,25 April) tells that The Spectator was fighting for the extension of the franchise prior to the 1832 Reform Act. Is it open to a modern battle at an opportune time to empower many more? Universal Basic Income is surely an idea whose time has come. Under Covid-19, the  government on the one hand is pouring patchy financial support into some businesses through a hotchpotch of measures, while Universal Credit has been shown that it is an inadequate personal welfare idea even in high employment time. In certain ways, UBI would address both these issues rather better by giving  financial backstop to every individual in the new unknown post Covid-19 'normal'.

James Forsyth ( The communitarian Conservatives', 18 April) quotes Rishi Sunak : 'the simple idea that we depend on each other'. The Citizen's Income Trust has done much research and has careful proposals to make UBI affordable and workable. In the times of high unemployment likely to be ahead, Conservatives could catch trending communitarianism by helping individuals and families directly. The time is ripe for a new empowering of citizens.
Charles Bazlinton. 

Empowering individuals and families the  way of Basic Income was mooted by labour at the last election. For the Tory- leaning Spectator to publish a letter on the  subject is interesting. Bi-partisan support?

The Basic Income idea is a theme of  the book : The Free Lunch - Fairness with Freedom. But safeguards are needed in its implementation. 
Posted by Charles Bazlinton.
Author The Free Lunch - Fairness with Freedom. Buy the book: £3 post free.    

Wednesday, March 18, 2020

Another Tory policy? Basic Income (without Government Debt)

Shock! Horror! The Tories have stolen Labour's public spending policies. Chancellor Rishi Sunak has started to undo the austerity that his own party imposed for a decade which, as Headley Stone  wrote (FT letter 15 Feb) 'has brought the UK's public services to its knees' . 

Commenting on the budget in the FT on 11 March,  Martin Wolf wrote: 'It makes sense for the government to borrow to spend, especially on investment. I have been arguing this for a decade. The decision to cut investment right after the financial crisis was a classic bit of Treasury idiocy. Now ...with employment high longer the ideal time....But it is still a risk worth running provided the money is well spent which one has to doubt, given the hurry.' 

What is it about our party politics that had George Osborne, a Tory chancellor imposing harsh measures for a long time to the detriment of the common good and now has a successor from the very same party determined to undo it?  Left-leaning polices have now become the centre ground but have been cleverly captured by the politicians of the old right. At long last, new enabling fiscal policy that for so long has been proscribed, will be relaxed, but if Mr Wolf is right not with the best timing.  Incidentally the investment will benefit bankers and large funds as the money will be borrowed from them. It need not be that way, as sovereign governments can create money debt free.      

The huge impact of Covid-19 on the economy and on households will surely need 'helicopter money' for every citizen and the news is that President Trump is planning to 'send out cheques to every American within two weeks' to achieve a boost. There are people calling for such a measure in the UK. A UK petition is running with an ambitious plan to set a basic income at £1000 per month, sign here: Basic Income .   This: QE for the People  explains how it would work without raising new government debt.  

What may well be started as an emergency measure to plug depleting household budgets by a free handout, needs to become a standard fact of life for every citizen. Everyone needs sheltering from the whirlwind caused by Covid-19 and the usual rollercoaster of flip-flopping politicians who play with our livelihoods through shortsighted policies.     

Posted by Charles Bazlinton author The Free Lunch - Fairness with Freedom £3   

Monday, January 27, 2020

Brexit is done. Get Fairness Started

The boring and brilliant 'Get Brexit Done' tag did it for the Tories with Brexit voters gifting the election to the Tories with an extraordinary 80 seat majority for Boris Johnson as Prime Minister. Labour's diligently crafted policies were ignored in the face of the big issue that triggered the winning votes.  Some long established Labour constituencies switched to the Tories. Is this a sea-change or a one-off blip? In five years time will Labour voters revert? Or will Labour fade away as a major party?  For the new Tory administration pressure must be on to do whatever will retain the old Labour seats in an election by 2024. 

Young people voted heavily for Labour in 2017, and also this time; with Remain not being a big enough issue for enough of them to abandon ship for the pro-EU Lib-Dems or Greens. Of these,  full-time students voted massively for Labour with x3 times as many as voted for Conservative. Their manifesto pledge to abolish tuition fees and bring back maintenance grants obviously did it for Labour. The Tories would be advised to do something similar and neutralise the appeal of Labour for students. After all there will be added students next time and some older Tory votes may just not be - both trends will endanger the Tories. How about a lifetime grant for education with created money as proposed by Prof Richard Werner? 

Home renters tended to vote Labour, and owners Conservative. This aligns with the age bias generally, with older people voting Tory. The disparity of home ownership between age groups continues to grow for all income groups. This despite the Conservative Help-to-Buy schemes which become Help-to-Bonuses for house developers . If a carefully designed land value tax scheme gradually replaced income tax, property prices would adjust and affordability of ownership return for the younger, lower earners, and even homeowners might see the fairness of getting their family on the housing ladder as they did for themselves decades ago See this blog Jan 30, 2018.  Does it matter that the home-owning dream is dying in the UK? Are Conservatives still the party of the home owning democracy?  Does this growing unfairness bother them?

The new government is being given advice about spending £billions on infrastructure in the midlands where their new ex-Labour voters live.  The lead time for these is many years and is not a particularly personal vote winner - so why not borrow a Labour proposal and pilot a Universal Basic Income scheme to tackle enduring poverty? What better and fairly quick way to capture and keep voters voting for you? Fairness, particularly for young, poor voters. Use UBI as a basis for Universal Credit reform. 

Incidentally, if spending £billions on infrastructure the Bank of England agrees that it is possible to create money for public spending interest-free and debt-free (no tax cost) and George Osborne (remember him?) agreed too but didn't bother, or dare, to use this monetary tool for the common good.     

And what about promoting local banks to supply credit where needed - locally? Labour were going to do so based on the Post Office network. Dr Plamen Ivanov, a leading proponent of economic benefit through local banks, argues the local case from a new study of the origin of the Bank of England. 

Is the Tory victory to be compared with Benjamin Disraeli stealing Gladstone's Liberal policy of extending the voting franchise in 1867? Not quite in the same way. Brexit as an issue will fade, bringing other election issues. If the Tories come up with 'borrowed,' policies Boris may do a full Disraeli, next time. But don't forget that in 1868 the Tories lost the next election even after 'Dishing the Whigs' having added new voters.             

Posted by Charles Bazlinton:  Author of The Free Lunch - Fairness with Freedom. Also: Promoter of Local Community Banks.  

Monday, December 02, 2019

Election 2019. Debt-free public funding: broadband, water, energy. Public debt mountains not needed....

The Labour party has said it will bring utility companies into public ownership:
         We will bring rail, mail, water and energy into public ownership to end the great privatisation  rip-off and save you money on your fares and bills. We will deliver full-fibre broadband free to everybody in every home in our country...
See: Labour Manifesto p7 . Subsequent reported statements say that they will issue government bonds to do so - that is: borrow money and pay interest on the new debt.  

Lord Vallance of Tummel (ex-BT Chair) writes in The Times 19 Nov 2019 that the reason BT was privatised was to access sufficient capital for technological transition to digital. He states that telecoms ranked lower than the NHS, police, defence etc. in the annual  spending round and says there is no reason to believe that these priorities would change if BT came back to public ownership. He clearly does not realise what a government of a sovereign state with its own independent currency can do, to provide tax-free, debt-free funds.  Free money can be issued for non-inflationary productive investment such as developing broadband, railways, etc. No borrowing from banks is needed at all, Lord Vallance. No queues. No begging bowls. Just careful management of how the money is handled. 

As Prof Richard Werner wrote back in 2010, specifically on broadband investment:
Government Money
        One principle in monetary economics is that money creation used for productive purposes is not  inflationary. It is therefore possible to finance the Broadband Initiative with the creation of government money, without anyone incurring any costs or debts, and without any interest burden. From an economics perspective this is indeed the most efficient way to fund such productive government expenditure  

George Osborne, Chancellor of the Exchequer, concurred with that same view through a Treasury briefing document in 2013 (see para: 3.34), that money creation can be carried out to finance fiscal deficits, thus:

      ' It is theoretically possible for monetary authorities to finance fiscal deficits through the creation of money. This would allow governments to increase spending or reduce  taxation without raising corresponding finance from the private sector.'  

All the main parties are into spending much more government money than in the austerity days. But none of them mention money creation as a tool for financing public needs. Instead there are scare stories about public debt mountains and more tax. But if pension funds had their utility assets bought up through debt-free funding (no debt mountain-building) they could invest the cash in productive industry and commerce - Hey! there's a new capitalist idea for financial wizards to think on. A resurgence of new and newly capitalised businesses to fund our pensions? 

To prevent a property market boom through the cash released from re-nationalisations, the Labour idea of land value tax on commercial property would be a wise move. (Labour Manifesto p50).     

Posted by Charles Bazlinton. Author: The Free Lunch - Fairness with Freedom   

Tuesday, August 06, 2019

Plamen Ivanov reveals the strange origin of the Bank of England.

At the pinnacle of our capitalist system is perched the Bank of England which Dr Plamen Ivanov calls 'this key capitalist firm'. An apt phrase given that the Bank has seemed unquestionably authoritative and essential to the economic working of the UK for over 300 years. However, inequality under this system grows despite political efforts to the contrary, so given the premier role of the Bank can it be that it is a cause of the inequality? Or is it just a neutral, disinterested player in a democratic system run by others? Dr Ivanov reveals hidden and barely understood facts around the Bank's origins that befog the truth about the mechanism working our money system even today, and which he does blame for the disparities. He shows that what started in 1694 continues to this day, powerfully unabated through all banks which operate under what amounts to a marketing franchise which originated with the Bank and is regulated by it. The know-how and procedures of banks follow the model, with the result that the loans issued by them brings enrichment to their top managers and shareholders, even today, just as happened for the Bank itself after its formation in 1694 and for 250 years after. But Ivanov is hopeful that all is not lost for fairness, as there are benign banking ownership models for us to follow.   

Dr Ivanov's doctoral paper that explores these themes is The Bank of England: A Socio-Economic Inquiry into Private Money Creation, Public Debt Financing and the Long Run Implications for Inequality in Britain and beyond (Oct 2018) and he acknowledges the insights of Prof. Richard Werner's key credit creation work in the writing of it. It is about how the Bank made waging a long war more possible for the government of the day and facilitated that by taxing ordinary citizens to the huge financial benefit of a small group of Bank directors and shareholders. But he shows how national wealth creation might be made more sustainable and be better spread through logical and proven reforms. Whilst public (government) debt with its constant demand for interest payments is used to this day by politicians as a tactic to impose austerity for citizens, Ivanov questions the need for the national debt at all.

With the takeover of the throne of England by Prince William of Orange of The Netherlands in 1688 a new era of state finance began. For centuries the ancient 'dual policy purpose of a monetary and fiscal tool' - the tally stick system - was a: 'public credit system [which] allowed state bureaucrats to spend beyond the annual tax revenue by obtaining credit from the public via the issuance of receipts of future taxes paid' (p143). The earlier rulers had resorted, apart from this tally stick system, to funding by means including borrowing from goldsmiths, customs levies, other duties and land tax, all of which, contemporary sources acknowledged, had been sufficient to pay for wars. But the new Bank of England introduced a method for government funding through the new national debt specifically secured against new taxation. This relieved the king of money worries in a novel way, and bound the taxpaying people to the enrichment of the Bank's shareholders forever, especially if long wars ensued.

The pressing political scenario preceding Prince William and Mary's English adventure was that Louis XIV of France had been empire-building on the continent of Europe for over two decades. Due to murderous religious intolerance he had caused a mass exodus of Huguenot protestants in 1685 and many fled to The Netherlands and England. As Louis' campaigns grew, unfortunately the Dutch people themselves were losing the inclination to resist and might possibly withdraw from the conflict. William was in danger of becoming isolated from his people in this and engineered to unite his domain with the English so that opposition to Louis would be strengthened with the added clout of another nation in the fight. As it happened  the protestant English were becoming restive about King James II's catholic preferences. So William (conveniently married to his own cousin Mary who was also the current King James II's daughter) saw his chance and invaded Devon with a fleet four times larger than the Spanish Armada - this was to be a campaign for certain victory.  William was rapidly accepted and arrived in London within  a few weeks. James tried to retain his throne but gave up two years later after the Battle of the Boyne (1690). For William the regime change was now complete and within a few months of his arrival in November 1688 as King William had joined an anti-French Grand Alliance of nations on continental Europe that endured as the Nine Years War. England was now locked into the continental conflict.

Ivanov shows how the Bank of England was founded through the influence of the Huguenots behind a marketing frontman, William Paterson. The Houblon family were well established citizens and prime movers with other fellow church people who met in the French Church in Threadneedle Street (the same street as the existing B of E). Their anti-catholic feeling was such that radicals there had been calling for Charles I's head in a sermon in the church four years before the execution. They had been prominent in bringing William across as king, and now, using banking know-how from Amsterdam, they devised the new Bank for the purpose of creating a new national debt for the English to fight the war whilst also bringing benefit to themselves through their personal (merchant) interests: 
         'the state unilaterally appropriates part of the income and production of ordinary taxpaying citizens and reallocates such monetary gains to national debt creditors in order to satisfy interest payments on legal, contractually-binding debt contracts . More precisely, the religious cabal of the French Church at Threadneedle Street, led by the Houblon dynasty, managed to create suitable field characteristics for the erection of a privately-owned banking enterprise to underwrite national debt with the aim of self-enrichment.' p31   

So William secured his new throne, and within a few years, the funds to wage a long war with confidence; the populace were expected to support the idea that the war was a defence of their protestantism; taxpaying citizens paid the interest on the war debt through new taxes; and the Bank shareholders and associated city merchants grew exceedingly rich.  The national debt grew by the end of the Nine Years War to £17m, with taxation guaranteeing the Bank a very profitable future. In 1832 Sir Henry Parnell reported that the then £28m a year in dividends is: 'a transfer of so much money from the pockets of one part of the public into the pockets of another part of it' p107. At that time the interest on the national debt was above 50% of total government expenditure and had averaged nearly 40% since 1700.   Parnell observed the impoverishment of the populace through taxes coincident with the new debt (chart p116) just as Dr Ivanov is showing now. 

Another chart (p133) shows how 'infrequent wars' in centuries prior the late 17th century changed following the start of the Bank. King William's desire to tie England into his continental war adventures and the Bank as a means of funding it, faciliated an increasing numbers of wars since.   

A practice discovered by Ivanov 'this surprising revelation' p72 concerns: a) the amount of the shareholder funds and b) the amount of the loan to the government. Did they match up? The shareholders were to raise £1,200,000 which was to be paid over as a loan of £1,200,000. What Ivanov has discovered is that only 60% of the shareholder's funds were actually subscribed but the full loan was paid over, with the bank issuing banknotes to represent  the entire loan (p31,p72). Ivanov points out this was an act of private creation of credit at will, and out of nothing, authorised by the Crown through Parliament, with the Bank having its monopolistic status made unassailable through a Royal Charter in return for the loan. This monopoly endured for the Bank itself until nationalisation in 1946 and endures to this day for the remainder of the banking industry which grew out of it into the UK and across the globe. 

So part of the loan to the government was 'invented'; there was insufficient gold or silver or whatever stood for acceptable value deposited 
by shareholders in the Bank to back it entirely; so it was a pretence to the government that it was there. The Bank issued banknotes and did whatever was needed for foreign transfers for the war payments abroad, and the paper money was spent among merchants - some being shareholders of the Bank. Money circulated into general circulation buying food and supplies, guns, gunpowder, horses, bridles, etc, to fight the French. 

Dr Ivanov champions two reforms to start to correct the imbalances of wealth and income that have grown up as the national debt pile has been renewed and grown over 300 years. Prof. Michael Hudson is the leading authority on ancient debt forgiveness in Babylonia which has been shown to have been practised when a new king came to the throne. This was to free indebted peasants from crop debts and maintain a free citizenry for public duties attached to their land holdings.  The rulers recognised that debts needed periodically to be cancelled or perpetual debt-slavery would ensue. Moses stipulated debt cancellation every 7 years and a return to ancestral land every 50 years - the Jubilee, Leviticus 25. 
Ivanov quotes Michael Hudson: 
              'Indeed, what turns out to be ironic in studying the history of Near Eastern legal practices is that precisely those parts of the Biblical narratives that hitherto have been most in doubt – the laws of cancelling debts, freeing debt servants and redistributing the land to its traditional users – turn out to be the most clearly documented Bronze Age legacy.' p156

Ivanov says we must somehow eliminate the debt.  As  'two thirds of the national debt is now owned by commercial banks and firms.' p136 to achieve the ancient feature of debt forgiveness, he advocates:   
             'governments may issue usury-free money to repay those layers of national debt owed to banking concerns without the need to resort to a great public sacrifice.' p157.  
The other proposal from his paper is the formation of many local community-owned banks as have been existing in Germany for more than 150 years. 
           'all of these cooperatives strictly followed three fundamental principles: they were self-help institutions, relied on solidarity, and were self-administering small financial intermediaries … These cooperatives, which adopted the common name Volksbanken (people’s banks), mainly operated in urban areas’. p160
         'Since ...the 1970, no savings bank has ever been liquidated and no creditor has ever suffered lossess. Rioural and Dawson-Kropf, 2012 p162
Dr Ivanov credits local banks with the success of the Industrial Revolution in the UK:
           'The increasing number of local banks in this Industrial Revolution period were drawing on their knowledge of local customers and their creditworthiness, financing the expansion of entrepreneurial activities and as a result national output (Cottrell 1980). This decentralised industrial planning through the lending policies of the growing number of countryside bank concerns was lost with the commenced centralisation of banking in London-based headquarters towards the latter end of the 19th century. This process gave rise to the domineering transactional lending approach which still troubles the British trade performance' p167
The community bank model does not involve the nationalisation of banks - which introduces the dead hand of central decision making - but moving ownership to new local, community-profiting banks which would manage themselves independently, and create money to finance local businesses and needs.     

This paper is key to the understanding and resolving of economic problems as the wealth and income gap widens. Dr Ivanov's narrative style and his detailed research, convinces. The fundamental rip-off through taxing the people to finance the national debt which was owned by wealthy people (who even invented the money lent out), is almost past belief. Even at the time alternative ownership was proposed by William Paterson who wanted the debt to benefit orphans. But Dr Ivanov gives reasons for hope for us in our day that the slate can be wiped clean and money creation transformed into benign ways. 

The Bank of England at its birth and for centuries was efficient at financing war, so surely its managers can now inspire us all and enlighten the government to direct finance to make a fairer society? They have immense power to create money for the common  good.  

Do not withhold good from those to whom it is due, when it is in your power to act. Proverbs 3.27   

Posted by Charles Bazlinton. Author, The Free Lunch - Fairness with Freedom.
Charles Bazlinton is a director of Local First CIC which promotes local banks 

Sunday, May 05, 2019

Richard Werner is doing better than Benjamin Franklin

Do you like the idea of the prosperous life which the politicians promise? Last week in Leicester an economist showed an improved way of releasing prosperity. Point by point he showed that the 10 conditions generally deemed necessary for sustainable growth are misleading. He also showed that whilst  this conventional, western, economic set of rules has been  hopelessly unsuccessful, an alternative has been running for a long time and has proved a stunning success. 

Prof Dana Brown, Founding Principal and Dean of the Business School at De Montfort University Leicester introduced Richard Werner, Professor of Banking for his inaugural lecture. DMU supports the United Nations Sustainable  Development Goals, in particular  - G16 Justice and Strong Institutions. The economics and banking aspects of this is what Werner delivered as he took us comprehensively through basic economics and banking principles. 

His argument firstly demolished the assumption that in order to develop sound, sustainable economies governments must follow the 10 policies of the Washington Consensus. These include: austerity, fiscal deficit reduction, privatisation, the opening up of currency flows, free markets (deregulation, e.g. sell your assets to foreign buyers at knock-down prices) and several other items of accepted 'wisdom'. These ideas for promoting structural changes within developing countries in particular are repeated like religious mantras by chancellors of the exchequer, secretaries of the treasury, the IMF, the World Bank and the like. The terms were conditional to IMF 'help' to developing countries in 159 cases from 1973-1994. Werner exposed these conditions as unhelpful to good economic outcomes, and showing that the actual outcomes can include the transfer of power, advantage and control to external entities. His purpose was to show how the most spectacularly successful economy on the planet for the last 30 years tried quite different methods. The title of his lecture was:

Paradigm Shift. How to get sustainable, stable, equitable and high growth. Is everything wrong they ever told us about how economics works and did Deng Xiaoping get it right?  

The bedrock of his talk was how banking works by creating credit (money) out of nothing i.e. how they make the loans.  They don't wait for depositors to bring their money in and then lend it out, they just create the money themselves when asked for a loan and then lend it. As Werner has discovered in studies of Japan and now China, as long as general central direction is given that the loans should go into the productive economy (making things, invention, product improvement, et al) this is not inflationary, and the economy then runs sustainably for as long as the overall policy is followed. 

On the contrary what typically happens in western countries is that banks prefer to lend for speculative investment such as for land and built property (real estate), shares and other financial assets, all of which are outside the Gross Domestic Product (GDP) part of the economy. As he explained the power in such non-GDP lending lies with those who hold assets where there is a shortage; thus with more borrowed money funnelled into a market, prices rise, governed by the fundamental  principle: higher demand & short supply brings price rises. Thus for deals involving land assets (e.g.  existing houses) the land value component rises raising overall house prices; assets such as shares are in limited supply and again, prices rise.  This brings the familiar price boom and bust cycle of western economies - caused by unregulated credit creation for assets in short supply. Eventually the speculative side of the boom gets out of hand and then early speculators sell up and banks find they have too many non-performing loans as the asset prices ease and a crash develops, which brings recession and job losses.

However if investment into the productive side of the economy were encouraged GDP would grow, bringing jobs. Careful management of the financial side of the economy is needed or  inflation can occur as consumers raise easy credit. The sudden demand for limited goods and an inadequate supply can bring price rises. The typical western unrestricted, free-for-all method of the Washington Consensus does not bring sustainable economies, as we all know.       

Werner spoke of his findings on interest-rate-setting by central banks. With a colleague Kang-Soek Lee, he has proved that the western central bank assumption: that  interest rates cause growth is wrong. What happens is that growth drives interest rates, thus high growth brings high interest rates and low growth the reverse.  Thus whilst central bank committees  deliberate for hours over interest rate setting, thinking they will coax the economy into life or damp it down, what they should seek out is what really drives the economy - the  causes and not the effects. Will they heed what Deng Ziaoping  set in train in 1978 when he said China would 'seek truth from facts'. Deng was a pragmatist and gave a new direction to his  country and was prepared to try whatever worked. Werner said what is called in the west 'the Chinese Miracle' is a misnomer, it is nothing of the sort. What China has achieved is sustained growth through clear repeatable policies and actions. A miracle has no naturally observable cause.

Recessions can be ended quickly by central banks. Ben Bernanke actually did this correctly after the credit crisis of 2007/8 as the US FED bought up US banks' non-performing loans at face value (not written down value)  and cleaned up their balance sheets, enabling them to lend.  This happened very rapidly as seen from a chart of the US Federal Reserve's balance sheet , with GDP growing within a year.
He examined the idea of equilibrium in markets. Assumptions are made: that markets being perfect, prices adjust instantly, and that markets clear automatically; that there is perfect competition; that all players are rational; that perfect information is available. These are all impossible and it is quite wrong to base policies on them. The Chinese way has been to accept the truth that markets never clear, rationing always taking place, so their government intervention is not a 'distortion', as believed in the west, but an essentially good thing to do, so that bad market outcomes are addressed. Markets are in pervasive disequilibrium Werner stated. He said that believers in equilibrium in markets (he listed 8 'features') were outdoing the Red Queen in the Alice in Wonderland fantasy novel, who sometimes believed '6 impossible things before breakfast'.

He challenged Washington Consensus believers to examine the outcomes of their conditions for sustainable growth. There is not a good track record compared with the Chinese case. One fundamental failing of western economics is the absence of textbook studies on money and clear statements that the creation of virtually a country's entire money supply, is through private banks, out-of-nothing. Until he carried out an empirical study no one had ever checked this money creation out-of-nothing theory. The result can be read here and became a most downloaded paper from Elsevier.    

A hopeful thing is that bank credit creation is a game changer for any country. With their own currency and banking system they have no need to borrow foreign currency. Their own local banks can create the credit needed in their own currency and lend it locally. Indeed, Werner demonstrated that even incoming 'foreign loans' remain in the jurisdiction of the issuing bank's country, and are merely matched by an accounting procedure in a local bank. When gold was shipped around the world in earlier times there were capital flows, but not now. All that flows is the control of the borrower's assets to the lender.  

China has thousand of local small banks so that credit is made available where the new jobs are going to arise, as the central policy of productive investment is encouraged. By contrast the UK has only 4 or 5 huge centralised banks which leaves a hopeless mismatch of the credit supply needed for the thousands of small businesses scattered over the country that will produce the new jobs needed for a sustainable economy. Werner said big banks naturally want big deals, small business need small loans which are proportionately too much trouble for big banks to bother with.   

Japan in 1945 followed the above methods and, hoping for a doubling in national income within 10 years after war, achieved that in 4 years and enjoyed  15% year-on-year growth for decades following. China adopted principles from Japan, of investment directed towards production in the late 1970s and had over 7% growth in GDP in most years for decades. By contrast Soviet Russia tried centralised direction of the economy but having only one main bank it failed to achieve a thriving economy at all.

Werner ended his lecture with a Q & A session and appealing for a local community bank in Leicester patterned on Hampshire Community Bank which is near to achieving its license.  No staff bonuses - just reasonable salaries, a charity is the ultimate owner giving towards local good causes. Such banks should follow the German local bank models which for more than 100 years: 

  • have never needed public money to bail them out
  • have never failed paying out customer deposits 
  • have under 3% non-performing-loans 
  • and provide 90% of SME loans in Germany.  

Local community-type banks have a great public appeal as they are based on relationships and trust - as was experienced in earlier times in UK banks. Werner showed that the prospect for new style local high street banks for the UK is good.

So, how do we consider startlingly different ideas that come from another culture such as  the economic success story of China? We are not fussed about buying their  goods, so why would a different way of doing economics from China be any different? UK politics is drifting to the left as Labour advocates more state intervention and as their poll ratings gain, perhaps the time is coming when economic lessons from Japan and China are becoming acceptable. Richard Werner wrote Princes of The Yen which details his findings as to how Japan ran its economy.      

A somewhat parallel story to this from 250 years ago is in The Times on 2nd May Paul Simons: 'Weather Eye.  American sailors discovered the powerful North Atlantic Gulf Stream flowing from America to England. British mail ships faced this as a counter-current on the journey to the America which slowed them. American ships found their voyages to Europe were up to two weeks shorter as they took advantage of the current. Benjamin Franklin, co-founder of the later American Constitution tried to publicise this navigation scenario.  Despite plotting the current on charts and delivering them to the Admiralty in London he was ignored. Franklin's cousin, a whaler who used the current, told him that the captains of the mail ships ''were too wise to be counselled by simple American fishermen''. It is thought that this blindspot disadvantaged the Brits in the following American War of Independence through delays to supplies and communications. The Brits lost that war. 

Werner's audience listened spellbound as his iconoclastic intellectual tornado swept through. Dean Dana Brown seemed impressed. But will there be a Bank of England governor and a Chancellor of the Exchequer who will grasp this economics nettle to reshape the economy with its banking system for the general good? Deng Xiaoping got something right about economics and decentralised banking.  With one community local bank nearly ready for the UK the hope of a more stable and sustainable prosperity might be coming, especially if the wider message from China is heeded. 
Posted by Charles Bazlinton. Author The Free Lunch - Fairness with Freedom
Director of Local First CIC - Promoting Local Banks.       

Tuesday, April 30, 2019

Richard Werner Inaugural Lecture 1st May 2019 6pm. De Montfort Leicester

NOTE: see following blogpost for report
Professor Richard Werner is to deliver an Inaugural Lecture at De Montfort University Leicester on Wednesday 1st May.

Title: Paradigm Shift - From how we do economics, to our understanding of how money and banking work, to global development policy and achieving sustainable growth.

Venue:Hugh Aston Building, postcode LE2 7DP .
Time: Doors open 5.30pm for 6pm start with drinks reception following from 7pm.
LINK to book your place: De Montfort Leicester and find 'booking form'

We will be exhorted to rescue Alice from Wonderland economics and get her to face reality. For at least 50 years in the West we have been told economics works in a particular way but meanwhile The East Asian High Growth Economic Model has been showing that sustainable green growth is possible without inflationary effects. The economic world is changing its centre of gravity to a new China, Russian, Indian, African bloc. People with openable minds are invited to attend the lecture.

posted by Charles Bazlinton. Author The Free Lunch - Fairness with Freedom       

Friday, March 22, 2019

May election, Mrs May. Let the people have their say.

The House of Commons has not yet been allowed a free vote on variations of Brexit in order to achieve a consensus. Whether that would enable a Brexit deal that would satisfy the EU is a moot point, but it is to the shame of government that such an attempt has not been allowed. The current circumstance of a hung parliament would be expected to weaken the government but in not allowing a free vote on variations of Brexit it is actually displaying strength - maybe (final/last gasp?), stubborn strength - but it is having its way. It is ruling. 

What we are going through is an aspect of our elective dictatorship that Lord Hailsham in the 1970's pointed out is the nature of  much UK government.  Usually the phrase demonstrates that with a large majority a government can do what it wants given the party whipping system. In the current Brexit crisis the executive - i.e. PM Teresa May plus a few helpers - is very much in charge of negotiations despite not being able to achieve the outcome desired. Obviously it looks to be a 'skin of your teeth' hold on power now, but the years since the EU referendum has shown the domination of the negotiations by a very small core of the executive controlling the important issue. Parliament has not been able to challenge the negotiations, or find out what direction it has been going in to redirect  it before it reached the pass we are now in. Much time has been wasted and with it negotiating advantage possibly irretrievable lost.

An ideal way to test the latest opinion about the EU is for the Brexit dealings to be paused or stopped  and for the UK to join in the EU elections on May 23rd. This would reveal  public opinion through as many ways as the number of candidates standing.  There are 73 UK seats in the European Parliament and there would be a wide choice of manifestos available and preferences would show up in the proportional representation voting system. It would provide the latest snapshot of UK opinion and give detailed insights as to the shape the final Brexit deal should be - if Brexit is what the UK still wanted afterwards. It would get over the need for a second referendum which would take many more months to organise beyond May and brings its own problems such as: which question would it ask?

In the EU 2014 election turnout for the UK was 35.6%. For a UK 2019 EU election turnout would surely rocket.  The May EU election is a very convenient junction in the long Brexit road which would allow the government to stand back and let the people have their say. A clear, new UK mandate about the EU is within reach. 
Posted by Charles Bazlinton. Author The Free Lunch - Fairness with Freedom. 

Saturday, February 16, 2019

Ed Conway, unusually has blinkers on. About Basic Income.

Horses are sometimes given blinkers around their eyes to prevent them from being spooked by their surroundings. Ed Conway in a recent Times article  (Feb 15 2019) Shiny new toys are beginning to look tarnished investigates recent researches on universal basic income (aka; citizen's income; citizen's royalty) which he says is growing in appeal 'a darling of both the hard left and libertarian Silicon Valleys types'. But he comes out against the idea for poverty alleviation, quoting the International Monetary Fund and following their assumption of UBI 'Bolted on top of the current [welfare benefits] set-up'.  Apart from this simplistic reform he does not investigate how UBI might work along with other changes.

But Ed Conway can get quite far-seeing. Recently he suggested land value tax in place of business rates and a negative income tax to make work pay.  Times Oct 26 2018: Here's the radical bucket-list budget we need. So why the blinkers now? Try looking at land value tax / income tax reform along with UBI?   It is easy to put down UBI as John Kay did some time ago, see this blog , if you choose a narrow focus and don't allow your mind to wander. But isn't this what we need our commentators to do? A deeper look is needed at why the wealth of our society is getting out of balance over the generations. A more holistic solution is needed than picking off individual reforms as unworkable alone. 

See this 2 minute video for more information from the Citizen's Income Trust.  
posted by Charles Bazlinton. Author: The Free Lunch- Fairness with Freedom. An investigation into citizen's income and other reforms to empower people. 

Sunday, December 23, 2018

After the long Brexit eve, a brighter post-Brexit dawn for citizen empowerment?

The eve of Brexit extends now to two years, but how long yet? Since the referendum we have  been in a state of flummox. The bewildering closeness of the pro-Brexit vote in 2016 is now no more decisive, as a perplexed House of Commons tries to decide on the merits of Mrs May's EU leaving deal. Admittedly such a complex thing as a divorce after 40 years between a largish nation and a larger conglomeration of 27 more is bound to be protracted, and any deal bringing a 'satisfactory' outcome for both sides will get brinkmanship added to the bewilderment. So not much hope for a smooth and speedy deal.

Meanwhile urgent matters outside the all-absorbing black hole that is Brexit are neglected. The Universal Credit rollout continues to falter, and volunteer food banks (e.g.The Trussell Trust) get busier relieving the poverty arising from government failure to think the UC project through. Deaths of street beggars have increased with the average age of death of people in their early forties. These are shocking facts. As Bishop David Walker stated on BBC Radio 4 today  (appx. 3 minutes in): The reason so many are increasingly on the streets is they are 'simply there because they are poor'. They are falling through the holes in the welfare safety net, and clearly UC is not helping. The long eve of Brexit is being characterised to ordinary people by such as a parliament fossilising into a prolonged talking shop on only one subject and steadily rising deaths of beggars on our streets - a symptom of a failing welfare system. If such things happen in a relatively benign economic scenario imagine the challenges when a downturn comes. If over 600 MPs and their staff cannot sort out such fundamentally vital human problems is not our democratic system under question? A government with a large majority can choose what it will do, our government has no majority so why can't MP's combine cross-party on non-Brexit essentials?  

The shelving by government of new drone regulations in early 2018 has brought us this last week to the closure of Gatwick airport apparently through one nuisance drone. This bizarre aggravation just adds another notch to the failure tally of a government refusing to, or incapable of, focus on anything outside Brexit. UK people are being extraordinarily patient.

David Walker: The reason so many are increasingly on the streets is they 
are 'simply there because they are poor' 

The Conservative government is running scared of Labour waiting in the wings to take over and tries to frighten everyone of the possibility. Mrs May, having declared her, albeit deferred, resignation as party leader is now a self-wounded warrior leaving no obvious candidate to lead into the next election whatever Brexit deal triumph she may be able to surprise us with.

It seems Labour is aligning with issues the public feel need sorting:
  • affordable housing to bring a lost generation of renters into home ownership 
  • re-nationalisation of railways and water to stop the gravy train of top management and shareholder rip-offs at the expense of consumers
  • the scrapping of universal credit to set in place a fairer system 
Let's hope what they are planning are long-term solutions. Look no further than this blog for:
Will there be a brighter post-Brexit dawn? If Conservatives can't get the vision and leadership for citizen empowerment maybe Labour will. Something must be done. 

The Free Lunch - Fairness with Freedom  UK £3 (post free). 

Wednesday, August 08, 2018

Alan Greenspan cold shouldered Richard Werner and set back economic progress for decades

Central bankers speak in very measured ways as they pronounce on important things such as the likely track of the national or global economy, Brexit or reading the runes about future interest rates, but what are they really up to? Are they truly working for the best interest of each of us? The Bank of England set its base rate at 0.5% in 2009 which lasted for years until a Brexit dip to 0.25% in 2016/17, and last week it went up to 0.75%. Well paid officials and back up teams deliberated over this inactivity for nearly a decade. But you might say democracy is expensive. But is it democracy? Are central banks answerable to us or anybody? Is there an agenda in central banking that we don't understand? 

Professor Richard Werner who revealed the hidden workings of the Bank of Japan in his best selling book Princes of the Yen published in 2001 in Japan, has just re-published the book in a new English edition which includes a chapter that was missing from the 2003 US, English language edition. Before that US publication he became aware of a problem over one chapter in the original Japanese language edition. It related an interesting story about the US Federal Reserve's then chairman Alan Greenspan. 

Werner is renowned for his clarity on banking and he explains these for the non-expert - and for the uninformed expert - in a series of short videos.  A key banking fact is that ordinary banks create by themselves most of the money we use in society, out of nothing. They don't wait for deposits to arrive before being able to lend. They create the money, lend it to their customers then it goes into general circulation - a new deposit arises in the borrower's account at the point of loan creation so everything balances. In the UK, only notes and coins come from the Bank of England itself the rest of the money is from private banks. It has taken a lot of Werner's career so far to get acknowledgement of this money creation fact officially stated and it is only belatedly, in 2014, that a UK chancellor of the exchequer George Osborne admitted it.    

The offending chapter was that Alan Greenspan had discovered the bad effects promoted by the Fed central bank in the 1920s, which had encouraged excessive and unwise credit creation by ordinary banks. He published his findings in a 1967 paper: 'Gold and economic freedom'. And this is just what Werner discovered about Japan in the 1990s! Werner relates how Greenspan in his paper, had shown how the US Fed both allowed the 1920s bubble to arise though unwise bank lending; and then failed to prevent the Great Recession of the 1930s 'the lost decade' when it could have kept banks solvent and encouraged the flow of money into the economy. What happened then was that the political understanding grew that the banking system was powerless (wrong, it was just malfunctional) and that the government needed to take more control to get the economy moving (only needed because the banking system wasn't working benignly). This led to new federal taxes and the growth of centralised control through the New Deal the effects of which endure.      

Werner relates about his personal dealings with Fed officials and a brief encounter with Alan Greenspan when Greenspan fully acknowledged Werner's precise findings which he had studied for himself. He then embarrassingly blanked him and moved away from further conversation. 'I received the cold shoulder. I began to realise that central bankers did not like my work. I was spilling the beans on their actions'.

Werner considers Greenspan's embarrassment arose because since the 1960s he had been captured by the same power at the heart of central banking he had observed in Japan and recounts so tellingly in Princes of The Yen. For, in his time as Fed chairman 1987-2006 Greenspan behaved as the 1920s Fed had done earlier. He frequently majored on interest rates, which as Werner says are not the determinant for economic growth whilst the quantity of productive credit creation is. Soon after he retired the world economy suffered the financial crisis of 2007/08  'triggered by Greenspan's policies'  (see Foreword in Princes of the Yen). 

Werner has much to show in the new Foreword and in the missing chapter about how central banks should operate and also how they should not operate. One of his key ideas is that many local banks should be encouraged to form and supply credit to local businesses and local institutions. Central banks should encourage the growth of lending to productive businesses and employment and discourage lending to the speculative buying of assets.

See my and other reviews of Princes of the Yen, the book is very readable and insightful. Every politician bothered enough to want to bring a better life for their voters should absorb this story which needs to affect future economic policies.       

Greenspan knew what went wrong in central banking in the US in the 1920s and 1930s and failed to practice his insights when he was able to do so. Nearly 100 years of less than optimal economic and financial policy with crashes have ensued from those times. Are central banks democratic? Do they work for the interests of all? 

Posted by Charles Bazlinton. Author: The Free Lunch - Fairness with Freedom. Director, Local First CIC , Promoting Local Banks