Monday, March 26, 2018

Digital subscriber royalty: Facebook & Amazon. A Basic Income resource for the people

John D Rockefeller, through controlling oil supply, and Andrew Carnegie through steel supply, created hugely successful enterprises that grew on technological advances and expanding markets.  In largely controlling the market (i.e. monopoly), they were able to amass vast fortunes through the control of prices.     

The Free Lunch - Fairness with Freedom explains how such unfair situations can be resolved beyond anti-trust and fair competition laws - (which Rockefeller manipulated in his favour) and beyond the heavy taxation of profits (which accountants can conceal).  The book shows how to deal with natural and commercial monopolies which arise when people want a share of the good things of life which are held by a minority. Including such things as land, bank money creation, minerals, technological advances such as radio spectrum, etc.   

Hardened champions of capitalism might allege that the 'the market' must have free rein to bring the good life for all and thereby solve the socio-economic problems of poverty along with a fairer distribution of wealth achieved through tax. The last 20-30 years at least shows that they are misled and mislead. Some markets have a basic fairness about them with fluid supply matching flexible demand and steady or openly adjusting prices - the ideal world. But a free market will never bring fair distribution and  reasonable prices in a monopoly situation. 

In the case of land for instance, where everyone has a desire to have a home; due to our highly developed cities where high values relate to high demand, not many people can be satisfied. The way to tackle the land monopoly is to tax the value of land each year everywhere, use it for public goods and services and, or, distribute the proceeds in the form of a regular basic income. The tax, a type of rent paid by the freeholder (to the state that guarantees the owner's title), would resist the monopoly forces which now deprive many people of reasonably priced places to live. It would induce a greater supply by lowering prices, whereas schemes such as Help to Buy only add to demand by pumping in more money - with prices maintained or rising. 

The book examines several monopoly situations that could be addressed in a similar way.  To the list can now be added what is happening as the internet giants of the past 20 years are coming of age and clearly paying very little tax. Philip Aldrick writes about this in The Times   'In the era of digital monopolies we are being taken for suckers' . He examines the way our personal data is being harvested free and sold on, bringing huge profits for such as Google, Amazon, Facebook, etc. 

According to the principles outlined in The Free Lunch for monopolies there could be a case of the state charging these near-monopoly digital firms relating to their national user numbers and distributing it in the form of a basic income to all citizens.  The value of the product they are handling, our data, has arisen purely through our initial action of signing up so it is a fair deal for us to be given a share of the profit we are the origin of. 

It might also make the data privacy issue clearer so that if I were to take an annual fee for signing up with Facebook I would also sign up to allow Facebook to crunch my data for sale to others.  Facebook makes $16bn net annual income of which say a 33% fee (appx $5bn) divided by an estimated 2bn users worldwide would give subscribers $2.5 dollars pa. Not a lot, but given the total income of the digital giants is around $100bn the aggregate fee for most people could be over $12 pa, merely considering the new digital firms.  But digital marketing information capture started with digitally-read plastic loyalty cards, so clearly any firm or organisation attracting subscribers can exploit customer data for profit and should acknowledge that potential with a annual royalty to the subscriber.  Thus to be fair to the digital giants (they are not a special case) any profit-oriented organisation or even non-profit wanting to sell on personal data should give a royalty to the subscriber.     

Our society is now dependent on the digital way of business - Amazon, Facebook, banks, utilities, retailers, etc, etc,  - so it would be invidious to merely select their own subscribers for the basic income payback. What is needed is for governments to receive the income stream, from a digital subscriber levy or royalty on every listed subscriber and to pass it on as a part of a national basic income scheme (a.k.a. Citizen's Income; Citizen's Royalty). 

To quote the book, The Free Lunch, wealth sources arise:
  'a successful society generates them...are usually limited in supply... are vital to modern living, they are in high demand and are valuable'. 
This new digital wealth source arising entirely from us as individuals and from our actions is waiting to be appropriately redirected back to us via a basic income.  Taxation justice for digital monopolies would start be addressed. Such is a way to a fairer society. 

The book is at a new special price of £3 inc p&p UK      

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

Tuesday, January 30, 2018

What John Kay & Citizen's Income Trust agree on about basic income

Professor Kay thinks basic income for all (not means-tested / tax-free / regular) is unaffordable. His article  (Intereconomics 2017/2) carefully analyses several international proposals, but it does not take full account of the work of the UK's leading advocate for basic income the Citizen's Income Trust. CIT is confident that their revenue-neutral scheme would make a positive start on the road to a larger regular income than their initial scheme allows for. As they say in their critique of John Kay's investigation: 'What matters is the direction of travel'. CIT's scheme retains many existing welfare benefits - essential due the the low level of basic income needed to be revenue-neutral, but it is only a start. John Kay seems to assume a full 'living wage' basic income must be affordable immediately or he won't consider it relevant: 'basic income is a distraction from sensible, feasible and necessary reforms'. Both he and CIT acknowledge there could be sources of revenue yet untapped for a full basic income, but whereas Kay shies away from the political difficulties of that, CIT sees the start of an evolutionary reform away from the complexities of current welfare and its disincentives to work         
One effect of a citizen's income is that some will use it to pay for better housing with rents and house prices likely to be pushed up. It is fairly clear that the incentives given out by recent governments to first-time buyers are a factor in rising house prices. A new source of income from a regular basic income would enable buyers to afford larger mortgages thus adding to the price hike. For every new £100 per month available at 2% interest another £20,000 of mortgage is freed up, driving straight through to rising prices and rents.

This blog has always advocated an holistic approach to citizens income to prevent bad side effects. After all if the housing market is encouraged to let rip even more through a basic income aimed to alleviate poverty, what help is that to the poor?

This is not the state planning for citizens
but citizens planning for themselves, 
empowered through a basic income.

To block that perverse effect of such a benign thing as basic income, what is needed is the levying of land value tax. This to be charged annually on the underlying land value of the building + land plot. It would have a braking effect on house prices as property owners who could not afford the levy would sell. Mortgage providers whilst assessing the added basic income would have to consider the expense of a regular land tax levy and this would reduce the potential of greater credit, which would lead to price restraint, and not, like the government help-to-buy schemes, a price bubble. 

The levying of LVT would raise a fresh source of government revenue concentrated at the higher property value end (see below). It would address the acknowledgement by both John Kay and the CIT that more revenue is needed to make a basic income more effective against poverty. The national pot to run a comprehensive welfare system founded mostly on basic income is currently limited. But the time is approaching when the the huge shift of younger people excluded from property ownership through unaffordability, will translate into a ballot box revolt in their favour. If we are to continue to believe in a fair society, the haves - the larger property owners - sitting on the accumulating nest-egg gains in their land values, will eventually have to release some of these sooner than at their demise through estate duties.

Land values, as clearly spelt out in The Free Lunch - Fairness with Freedom arise from the efforts of us all and are a common resource to be shared. A good start to implementing LVT would be to make a regular charge on a percentage (say 25% representing the land) of the property's value. For political acceptability the overall charge per household would need to be cost neutral for the bulk of hometypes: thus whatever was paid in LVT would be an allowance against a homeowner's income tax. Those in high priced properties having lower earnings would need to consider selling up which would bring a downward pressure on the market and help alleviate the housing shortage. The net LVT raised would go towards increasing the basic income for all. As well as estate duty, transaction taxes such as Stamp Duty could also be abolished and bring a new liquidity to the housing market to the benefit of those needing larger accommodation but prevented by the existence of many under-occupied homes. The Annual Tax on Enveloped Dwellings owned by companies is legislation that taxes total property value and would need modifying to catch land value only, to adapt it for LVT purposes.   

For the hard case of property-rich / income-poor homeowners with a liability for LVT greater than their income tax liability a deferment scheme should be allowed so that the accumulated  LVT would be a registered charge against the property, payable on the next sale.  

Whilst we must be grateful to John Kay for crunching the numbers, the philosophical and moral case should be addressed. The Free Lunch - Fairness with Freedom  makes the case for putting the citizen at the focus of politics. This implies the acknowledgement of particular rights for people and the expectation of particular responsibilities from them.  A basic income is essential if this concept of  a new 'citizen focus' is to have real meaning. This is not the state planning for citizens but citizens planning for themselves, empowered through a basic income. It is a combination of increased fairness and increased freedom for everyone.
Posted by Charles Bazlinton. Author: The Free Lunch - Fairness with Freedom  

Friday, December 15, 2017

Re-nationalisation at Zero Cost - No Debt, No Interest

For years the owners of Thames Water were able to skim off annual returns above 15% and eventually sell up leaving a £2bn debt with Thames Water. Nationally the private owners of the UK's water companies have taken £18bn in dividends and left consumers with debt of £42bn.  The Spectator article about this comments that this situation is of monopolies 'working as conspiracies against the public interest' (definition by Adam Smith).


So why not take them back into public ownership? At least we would have elected officials responsible to prevent more spilt sewage into the rivers and the mending of wasteful water systems. But add to public debt through a buy-back? No need at all.  As a top official at the Bank of England confirmed to me, the Bank of England could create debt-free, repayment-free money to buy up private utility firms such as these, with QE-type money creation at zero cost to the public purse. Price to be paid hopefully adjusted to take account of the huge profit rake-off of recent years. 

The lesson of QE money creation* is as follows... 

QE money definition:

  • Money created out-of-nothing-with-no-debt-to-pay-or-interest-to-pay-back 


Use of QE money over the last decade:
  • To buy assets such as Government debt held by pension funds, etc.

Proposed use of QE type money:

  • To buy assets such as the shares of water companies, railway companies, etc. 

We assume that the government is not ignorant of its powers to arrange for QE money for the above purchases. Thus we can only assume that they wish to protect the monopoly rights of banks to create money as debt. Every time a loan is created it is manufactured out of thin air by a bank. This means that the banking industry will continue to thrive, whilst burdening the taxpayer with decades of debt repayment. Will the idea of common good uses of money creation ever see the light of day?  
*George Osborne admitted the above knowledge in 2013.
    
Posted by Charles Bazlinton. Author The Free Lunch - Fairness with Freedom

Tuesday, October 17, 2017

Richard Werner and Kang-Soek Lee. Groundbreaking findings for new economic policy

Central bankers are openly struggling to understand why their low interest rate regime of the past decade has not brought vigorous renewed growth to their economies. This new paper 
Reconsidering Monetary Policy: An Empirical Examination of the Relationship Between Interest Rates and Nominal GDP Growth in the U.S., U.K., Germany and Japan   should give food for what rational thought might exist in the high monetary echelons of power.   After all, if there is a startling mismatch between the practical outcomes of your policies derived from your theories then maybe, just maybe, you are relying on baseless assumptions?

Werner and Lee have taken great pains to examine the received classical economics wisdom that 'lower [interest] rates stimulate growth and vice versa' . 

They say there is a paucity of empirical evidence to back up this belief in the level of interest rates determining economic growth.  After examining half a century of data across four major economies involving 'varieties of capitalism' they conclude that the theory that low interest rates cause economic growth is rejected in 6 out of 8 cases and rejected in 8 out of 8 cases when  2 years of leads and lags were considered. However the alternative hypothesis that economic growth determines interest rates, is supported in 8 out of 8 cases.  '..long-term and short-term interest rates follow the trend of nominal GDP, in the same direction, in all countries examined'.

This has huge implications for public policy. The authors suggest that the policy makers drop the theory of price of money (interest rates) and that it be replaced by the quantity of money theory. Thus:

  • the quantity of credit (the source of the money supply) should be the key driver 
  • the raising of short term rates, to encourage banks to lend due to future higher rate expectations    
  • the large scale central bank purchases of bonds should stop - they should be sold  instead (which would raise interest rates)
  • the bank sector be structured to deliver credit creation for productive purposes
  • the backing of fiscal policy with monetary policy by ceasing the issue of government bonds but instead, borrowing from banks
  • that 'green quantitative credit guidance ' becomes a policy to ensure that sustainable projects are encouraged through central bank 'window guidance'  or through a decentralised local banking system
The paper concludes by reaching ahead to the idea of examining the possibility that the existence of interest itself imposes pressure on economies to grow unnecessarily thus depleting natural resources.     

The question is: How such a radical and necessary change Werner and Lee propose could begin to be managed? To take one obvious point: millions have low interest mortgages and the raising of interest rates would threaten the financial stability of many households. Additionally with increasing costs of mortgages reducing available funding, dropping house prices would leave many lenders uncovered by the equity in the property. Safeguards would be needed. There would probably have to be a mandatory fixing of interest rates for existing mortgages for some years. But as central bankers have created this particular property boom with the low interest rate policy they should get along with government and work together to solve it, given the new insights of this paper.

The paper shakes one part of the house of cards that is our economy. As The Free Lunch - Fairness with Freedom points out, our society is built on unfairness. Our treatment of land, houses, banking and monopoly powers have embedded poverty for many and wealth for a few.  Werner and Lee have painstakingly delivered truth as it is and not as it is taught in countless economics schools and universities. Who from the world economics establishment will grasp the implications? Which wise politicians could unite us all - losers and winners - to take a fairer course in the future and redirect us all  towards the common good?
posted by Charles Bazlinton. Author The Free Lunch - Fairness with Freedom

Thursday, September 07, 2017

Welby's Wish List for fairness. A new mandate from the IPPR rooted in the common good.

The IPPR (Institute for Public Policy Research) has published its interim report 'Time for Change: A New Vision for the British Economy'. Archbishop Justin Welby is leading the publicity with an FT article 'What sort of British economy do we want for our children?' [Digital title: British society deserves an economy rooted in the common good']. He continues the May/Corbyn themes (our last blogpost):
Theresa May, PM: 'We will make Britain a country that works not for a privileged few but for every one of us.'
Jeremy Corbyn, Opposition Leader: 'For the many, not the few'.

Welby calls for comprehensive economic justice - socially, regionally, generationally, environmentally - and from the IPPR report highlights his priorities: the need for reform of the education system; a fairer tax system; decarbonisation; improvements in public and private pay and the expansion of the housing stock. He believes most people want a system working in the service of human flourishing and the common good and asks why are we hearing 'Why are so many people so poor when others are so rich?' and 'Why are young people going to be poorer than their parents? 


An interesting aspect of the report is its criticism of recent economic policy.

We have experimented with bold monetary policy, but are constrained by pre-Keynesian fiscal orthodoxy. It points out the significant cuts in public spending due to government austerity programmes and says that austerity has not worked well. It suggests that monetary policy has been majored upon but helpful fiscal policy has been neglected. It wants government-initiated investment for growth and monetary policy to be coordinated to redress this, with the Bank of England advising on the integration of monetary and fiscal policy. Personal note: Ask a high official at the Bank (as I have done) if it would be possible to  invest in an industry by creating money in the QE manner - at no interest and no repayment - and they will affirm that it can be done. The IPPR obviously thinks so too and wants a change. It wants the hands of the Bank untied so that it can join in to help the economy in new ways. 

Most items on the Welby Wish List could benefit from ideas promoted on this blog over the years. Some of these are indeed mentioned in the report, which is a strong vindication of the views of book The Free Lunch- Fairness with Freedom. Such as: Education reform using monetary policy to fund education grants (Prof. Richard Werner); improving pay by  universal basic income ; a fairer taxation system which also helps the expansion of the housing stock through the incentive for development through a new land value tax .

Under the final heading (IPPR p81-83) 'Inequality and public purpose'  the report challenges the way we have measured success over the last 50 years and includes: 
'..inequality is largely a result of the ability of economically powerful groups in society to extract ‘rents’ or incomes beyond those earned by their economic contribution'. 
This gets to the heart of the matter in the way of the principles of The Free Lunch. In the vital matter of banking  (IPPR p80):
 'new insights into how the banking system creates money in modern economies, and therefore the role and limits of government or central bank monetary policy'.
The IPPR needs to look further into Richard Werner's New Paradigm in Macroeconomics who is arguably the first modern economist to have this insight. 

A banking problem from the report shows how only 5% of UK bank lending goes for businesses (15% in the Eurozone) with most going to land and property lending:
'The bulk of real estate loans and mortgages do not increase the productive capacity of the economy or contribute to growth; instead their primary effect is to drive up asset prices'.

To redress the bank lending imbalance the IPPR wants regional banks with 'geographically bounded  mandates to support the local economy' . 
It is happening already! The Hampshire Community Bank is likely to be the UK's first such regional bank and it is designed to that pattern. Additionally, being owned by a charitable foundation it will use its profits for the common good in its area and not for the high staff salaries and bonuses so roundly criticised in the IPPR report and by Archbishop Welby. Hampshire Community Bank in its whole ethos, aims to change banking for the better. Banking for the common good.  The bank, whilst not open for business yet, is currently in its licence application stage under the Bank of England's PRA. Such distinctive banks are needed across the UK. These new banks will play one part in a greater fairness for all.

With political parties broadly united over the fairness theme, and with the IPPR's excellent report spelling out some telling home truths over broad areas of economic life, the prospects that something serious for fairness will be done, are good.

Posted  by Charles Bazlinton. Author : The Free Lunch - Fairness with Freedom.  Director: Local First CIC which is promoting Hampshire Community Bank.

Friday, July 14, 2017

Magnificent words from both Corbyn and May

As half expected, (see the late May blog: 'Election Surprises?' ) we got an eye-opener of a result on June 8th. Teresa May had made an unexpected election decision on 18th April to grasp an apparently unassailable majority given the Tory's stonking poll lead of 17%. It melted away over the campaign to 4%. Her main campaign thrust was to belittle the Labour leader in comparison with the (look at me) - 'strong and stable leadership' mantra. This had the reverse effect and Labour steadily eroded the poll lead with Jeremy Corbyn, the unexpected election star, running a campaign theme: 'For the many, not the few'. Throughout he was refreshingly policy-oriented and non-personal. May actually won - in a very weakened state - and she could remain the leader for some time given the further damage that a self-indulgent Tory leadership challenge could bring to the party.

The 2010 election gave us the Tory/Lib-Dem coalition but an outcome of that alliance was the trashing of the Lib-Dems by the Tories in the 2015 election. A factor is likely to have been their breaking of a pledge not to increase student university fees. The Labour 2017 manifesto included the promise to abolish the fees and is believed to have been one factor in the Labour resurgence. 

It is strange that the Tories who deem themselves to be the UK's natural ruling party have been so deaf as to where political activity is now coming from. The extraordinary Labour party membership rise from 201,000 in 2015 to 517,000 in 2017 is a startling indicator and should have warned. The Lib-Dem's figures rose from 61,000 to 82,000. The last Tory numbers are for 2013 (150,000) and if they are getting better why aren't we told? For a insight of how the Tory's see themselves see Prospect magazine one month prior to the election . Written by Geoffrey Wheatcroft with the expectation that June 8th would bring the Tory party  'its greatest modern triumph', the result is a caution against such hubris. Best leave such comments until after the event.

Austerity is not the only policy
'Austerity' was strangely absent from the election hustings. Perhaps the electorate finally understood that, as this blog has been saying for some years, austerity as preached by George Osborne was mainly a stick to beat Labour with and counterprodutive for the country, as it inhibited investment in infrastructure investment and, anyway did not prevent government debt growing.   As Nicholas Macpherson (FT17 June 2017) has it: 'Osborne's great trick was to talk tough while implementing a pragmatic programme'. The lost time for productive investment means that the UK is lagging in economic performance. Paying for the expenditure could be by government borrowing; or, by creating the money without creating debt and without interest as explained in the Bank of England paper issued by George Osborne in 2013 - CM 8588  ,  see paras 3.34 & 3.35.  The Coalition Government knew that this beneficial monetary tool was available and didn't use it. What sort of blindness is that?

Student fees - one solution
Paul Johnson in The Times (10 July 2017) A birthday present that could solve the university tuition fees dilemma suggests that every young person reaching age 21 receives a gift of £10,000 which would help anyone, student or not. There is sharp divide in opportunities and wealth between young and old and this idea would address some of that unfairness. An idea aligned with Free Lunch principles. See this for a similar suggestion from Prof Richard Werner - a lifetime education grant funded by monetary finance.

When Mrs May became Prime Minister she uttered some 'Magnificent Words' (Blog 6 Aug 2016) :
 ...We will make Britain a country that works not for a privileged few but for every one of us'

Jeremy Corbyn's Labour Manifesto for 2017 is titled almost identically:
'For the many, not the few'  

With such an aim in common, we ought to expect plenty of agreement.... 

With electoral opinion finely balanced resulting in a precariously balanced parliament there is a great opportunity for MPs to work cooperatively at the problems of our day. It will improve their image if they look like ordinary, reasonable people. Will they? 

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

Saturday, May 27, 2017

8 June 2017 Election Surprises?

Party manifestos, according to Free Lunch principles, should tackle the monopolistic tendencies arising in society.  The moral basis for this is from common threads found in biblical, enlightenment and liberal values and concern human rights, equality and freedom. As the political parties ply for our votes in June how do they measure up to the implied 'fairness with freedom' ? 

The core aim of The Free Lunch - Fairness with Freedom is the common good. The book suggests ways to move towards a society where each citizen is a beneficiary of the resources of nature and those arising from community-inspired schemes. The book is anti-monopoly and what is termed rent-seeking: meaning the hunt for gain sought by monopolists. Extreme disparities of wealth and poverty are the outcome in a society where control of monopolies is lax. Enlightened politics will reduce rent-seeking outcomes. 
  • How are the current political parties matching up with the aims of reformers who desire the sharing of monopoly resources via a universal income for all?  
  • What do they prescribe to redress the unfairness of the land monopoly: For example what about the land value gains of home owners compared with none for renters?
  • What about the resource of further education now being charged for through student fees when it used to be provided free as a common provision from the public purse?
  • What about the huge credit-creating monopoly of banking which neglects small business loans as too small and unprofitable to bother with? 
  • What about the ability of government to create its own money to fund public expenses for public services, safely and without inflation?
  • What about extending the voting franchise to younger people?

It is natural to want monopoly rights. It makes for an easy life. Owners of homes share in the land monopoly through the valuable nest-egg that builds up over the decades associated with the underlying land value of their home.  Fred Harrison points out that:

'... owners of high-value homes are able to recoup what they pay in taxes through rising property prices. ...enjoy tax-free use of schools and hospitals... Low income earners and families that rent their homes...carry the cost of the infrastructure investments and public services that enhance the value of the homes of the rich.' 

How fair is that? What do our political gurus recommend about this particular inequality which creates a constant welfare burden?  

Universal Basic Income (Citizen's Income / Citizen's Royalty)
  • The only party wanting to introduce this is the Green Party.  They would create a pilot to test the idea. 
The land monopoly: home owning or renting
  • Labour and the Liberal Democrats both mention land value tax as a tax reform measure. This would retrieve the gains accruing to the land values in property prices for the public purse and allow lower taxes on income and goods or as a substitute for council tax.  
  • The Greens and Labour would introduce rent controls. This would be a protection for renters as a useful half-way measure until a full land value taxation scheme was implemented payable by landlords.
  • The Tory manifesto policy for care in later life was to be paid from a home sale without limit above a £100k house value. The enforced U-turn, in days, shows the political danger of taking land value gains. Whilst not having the universality of land value tax for all land, the idea that property gains should fund the care is a reasonable quid pro quo, but to have to individually account for each care package and each property is probably a bureaucratic path best not travelled, besides introducing a variable charge/cost (aka 'taxation') for every case.      
  • Bedroom tax aboliton (now a liablity of council house renters)  is proposed by the Greens, Labour, the Lib-Dems and UKIP.
Student tuition fees  
  • The Greens, Labour and UKIP plan to abolish student tuition fees and would introduce maintenance grants (UKIP for poor students). 
  • The Lib-Dems, the original champions of the abolition of tuition fees who reneged to their great downfall after being in coalition, propose bursaries for nurses and grants for poor students.
  • The Tory proposal is: forgive loan repayments for teachers; provide access to grants for technology students & 'financial support that offers value for money'. This one looks 'interesting' with the news that student debt interest rates will rise from 4.6% to 6.1% this year. Andrew Greenwood (FT letter 19 April) wonders why the Swedish model is not followed with the cost of student loans as per the cost of government borrowing at 0.34%?     
Voting age to 16 
  • The Green Party, Labour, the Lib-Dems and UKIP all want this. 
Local Banks 
  • Labour will get the Post Office to establish a Post Bank with full banking services in every community. They also propose regional development banks. 
  • The Lib-Dems will 'Require the major banks to fund the creation of a local banking sector dedicated to meeting the needs of local SMEs'. 
  • The Tories propose British Business Bank branches in several major cities for SME lending needs.
Monetary reform  No parties make any suggestion about using government money creation powers to fund some public expenses. Instead the arguments are about balancing the books for borrowing, taxing and spending. Labour suggests borrowing for extra infrastructure investment because interest rates are so low - it is bound to pay off. But no one makes the case for creating the money as an extension of the QE creation process to pay for such expense without debt or interest to repay to banks. 

Lord Turner is an exponent of this e.g. deficit financing (Book: Between Debt and The Devil) as is Prof Richard Werner e.g. broadband investment.  There is no reason why just as quantitative easing is used to create money to buy back government debt or to buy commercial bonds, that it could not be used to nationalise the water companies (a Labour Party idea but bought through bonds) or to fund general government spending. The Monetary Policy Committee of the Bank of England would need to take note of any money supply implications and outcomes and act as necessary to prevent adverse economic effects - as they do now with QE. Student education could be a modern case for debt free, interest free government money creation. No more student tuition fees.  This would be a monetary reform which only hurt the big banks.  Where are the far sighted politicians to start controlling this monopoly power? 

With the early solid Tory lead appearing to slip the contest may be more open than we ever thought. World wide electors surprise us. Will June 2017 UK be yet another one? 

Posted by Charles Bazlinton author The Free Lunch - Fairness with Freedom. Director of Local First CIC 'Promoting Local Banks' 

Sunday, May 14, 2017

Conway & Giles: Election Boldness & Challenge...and so say all of us.

The 2015 election was dominated by the scare stories about the irresponsible plans of Labour against the wisdom of austerity-promotion by the Tories. Electioneering half truths, as usual.  This time the 'leader competence' issue (May vs Corben) is the main Tory theme so far.  Labour is proposing £60bn extra spending for the NHS, education and scrapping university tuition fees. The Tories are using 'nonsensical'  as a favourite word to describe Labour policies and so far Labour poll figures are inching up (but still low), but there are 3 weeks to go. The Lib-Dems are also planning to spend more on health and education. Fuller manifestos are yet to appear.

The ways of financing more spending may not give the Conservatives so much traction as earlier. We have Donald Trump promising mega-spending and US ideas may travel to the UK. The old austerity scare seems to have changed and may be ineffective with voters. Labour is promising to spend to invest.  They say they will establish a national investment bank to release extra funding - different to the British Business Bank?  But also,why not, for the benefit of local economic growth at minimal cost, encourage the establishment of  local community banks See this new venture. 

Ed Conway (Times May 12, 2017) 'Wanted: Some bold ideas to fix the economy' calls for radical action such as: replacing council tax with a proper land value tax; repeal of the Town and Country Planning Act - that 'simply gold plates nimbyism'; giving the Bank of England a mandate to 'target national economic output instead of inflation'. Conway thinks that the opposition should promote such radical ideas and - even if they lose the election as the polls suggest - at least they could introduce some fresh ideas into UK politics to our general relief. Let's have a proper debate over quite different issues. Please. Conway mentions that the monetary system has failed to kick-start the economy, but doesn't mention trying Government deficit financing (see Lord Adair Turner: Monetary Reform ) - maybe Labour's spending plans will incorporate something of this?  Then the Tories may surprise us with radical thinking as per the rumours of talks with Lord Glasman ('Blue Labour').    

Chris Giles (FT 12 May 2017) 'A challenge for May: reward effort over inheritance' taunts the May appeal for the 'ordinary working British families' . The Tories have borrowed from Labour the idea of capping energy bills - i.e. don't let free markets run on. Very UnTory. Giles highlights the roaring house prices of several years  (much boosted by Tory government help) and says that something must be done by a government aiming to benefit ordinary working families to make homes more affordable.  Will they do such an UnTory thing as to knock house prices?  He quotes Prof David Miles that there is no upper limit to house prices relative to incomes especially given the inheritance benefit of the current tax situation, and given that building is artificially constrained by lack of new land. Conway says that to counter the growing wealth disparity arising from favouring comfortably situated home owners for years, Mrs May needs to build on the green belt and raise more inheritance tax on property. This would really be UnTory if it happened. How reforming is Mrs May to be?

Or will Labour and the Lib-Dems demonstrate they care more about the growing minority of left-outs? There are a growing number of home renters who despair of home ownership and students who face large university debt to pay off before ever hoping to save for a house deposit. This is a radical change happening now in the UK and politicians need to tell us what is needed to bring us back to earlier fairness.  Prof Richard Werner in New Paradigm in Macroeconomics (p340-1) promotes the idea of government credit creation of $100,000 for each child born to spend on such productive things as education. Why are not for such ideas as his and Lord Turner's to be seriously proposed by opposition parties with 'nothing to lose'? They might actually gain traction. Three more weeks of dreary party bashing? Can't someone raise the intellectual game?

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

Friday, April 14, 2017

Mark Wadsworth exposes Margaret Thatcher's Great British Property Brake Off

The need for wider media coverage on a drastically fairer tax system grows. The start of this was Henry George's seminal work on how to fund the services needed by the community using the community's self-generated land values.  It would involve charging freeholders/landowners an annual levy (LVTax) on land value only, quite apart from the value of a building built on the land. (* 'Annual Ground Rent'). Modern developments of his ideas involve making counterbalancing reductions in income tax and other such counterproductive burdens on creative work. 

Mark Wadsworth has written a short and comprehensive article on UK property market history which shows how political moves over the last 30-40 years have warped the market in favour of those Baby-Boomers who were fortunate enough to have been buying their homes since about 1970. Before then several regulations kept the lid on wild property booms.

In an unfettered property market the location value of a building plot rises to what Wadsworth calls 'unregulated' high values. A monthly or yearly manifestation of land value is rent. Now rent controls imposed since 1918 meant that rents were kept lower than otherwise for decades. The knock-on effect was that freehold prices were also kept lower enabling potential home-owners to compete with private landlords, leading  to owner-occupation rising from 30% to 60%  (1945-1980s). Also governments, pre-1970s, by building were adding to the affordable rent social housing supply which meant less call on the taxpayer through little need of the rent subsidy known as housing benefit.   Mortgage restrictions on borrowers (loan/income ratios) were about half current levels so there was reduced ability for buyers to bid up prices. Higher value homes were taxed though Schedule A taxation (to 1964) and Domestic Rates (to 1989).  

But these benign conditions did not last. The regulatory brakes started being let off the property market when Mrs Thatcher and Messrs Blair and Brown dismantled the above restraining forces and property prices rose high and higher to their unregulated values. Low earners, even mid-earners, are excluded from buying for themselves and this has reversed the decline in private renting - down from 50% to 9% (1945-1990) up now to 18% (2014).  Wadsworth does not mention the additional London effect of more recent years whereby new foreign/company freeholders have increasingly been bidding up property to park their wealth in a safe haven - then to add insult to the priced-out ordinary Londoners leaving many such properties unoccupied for long periods.  

Wadsworth's article is a succinct summary of historical politico/real estate wisdom, and the recent meddling. The meddling has had an expensive effect on everyone's taxes as welfare support is needed by people who are being priced out of affordable housing by the 'Baby Boomers...[who] genuinely believe that they are somehow morally superior because they 'rolled up their sleeves and paid off their mortgage' '. This is a huge social issue. It is coming home to roost for the growing number of renters who may need tax funded housing benefit to survive - despite themselves having to roll up their sleeves but still unable to pay the rent. Maybe the tide is turning with prices of London properties declining - partly due to specific property tax charges by Chancellors desperately needing funds to counteract the hugely expensive welfare effects flowing from the flawed housing system. 

But the property market bandwagon will continue to career dangerously on unless we adopt Henry George's insight of taxing land values. The need for an affordable home for everyone is too important to be tied up with the inevitable involuntary land speculation that every home owner is party to when they start to purchase.  For the sake of a more equitable society, everyone needs to feel the effects of some or all of these: rent controls; land value tax with lower income tax; property lending restrictions and increased house building. Whether the effects will be seen as benign or not will depend on how favoured we already are.    

*Annual Ground Rent  
Fred Harrison and Mason Gaffney have written a book Beyond Brexit: The Blueprint  which uses the term Annual Ground Rent to describe land value tax. AGR neatly describes LVT as the regular charge morally due from all landowners/homeowners to contribute to public services.  The book has been enthusiastically reviewed by The Georgist Journal ( March 2017 print copy) which also contains Mark Wadsworth's article.  
POSTED BY Charles Bazlinton. Author THE FREE LUNCH - Fairness with Freedom

Monday, February 13, 2017

A Citizen's Income for all would fairly address immigration too

The Occupy movement of 2011: ''we are the 99%'', fingered the top 1% in terms of income and wealth (25%/40%). Economist Joseph Stiglitz had published a paper in May saying these 1% are typical of the wealthy though history who whilst taking to themselves the best of education, doctors, houses and lifestyles, do not realise until too late that their fate is tied up with how the other 99% live.

Slow forward to 2017. Are lessons being learnt? Not if the Prospect magazine February 2017 article 'Voting out' by Tom Clark is a guide. Clark reviews a couple of books Against Elections (David Van Reybrouck) and Against Democracy (Jason Brennan). Apparently in the future we may need to be either a liberal or a democrat: 'The educated bourgeoise will put its own liberty ahead of other people votes'. Already in the US it seems that these trends have form, witness the deliberate disenfranchisement of black voters taking place. In late 2016 a court struck down laws having  'discriminatory intent'. Onerous regulations around voting can prevent or dissuade electors to enter their vote. Beware. Clark quotes a Daily Telegraph article by Ian Cowie who in 2011 proposed limiting the vote to those who pay tax. The recent Brexit and Trump votes may bring more such ideas aimed at those who didn't get the vote 'right'. The time is ripe for the issue of 'citizenisation' to be taken seriously - a central issue of the book The Free Lunch - Fairness with Freedom.

If the powerful really are so concerned about loss of their economic status quo that they will resist popular moves to level the playing field a little, what should we do? Justin Welby Archbishop of Canterbury  in The Times (11 Feb) when launching his book Dethroning Mammon, says that the trickle down effect of letting the rich make wealth in the hope that some gets to poor, has been shown not to work and thus the rich should pay more tax. Fair enough as far as it goes but how do you get permanent poverty alleviation?

One part of the solution is a Basic Income for all   (also known as Citizen's Income or Citizen's Royalty). This involves a regular, non-means-tested payment for everyone. The New Statesman quotes a scheme for the UK having an age-graded payment from £56 to £142 per week to all, even children, (leaving in place housing benefit and disability allowance). This payment would be instead of child benefit, income support, jobseeker's allowance, national insurance and state pensions.  It would be nearly revenue and cost neutral and would massivley cut bureaucracy. Most importantly it would remove the current disincentive to work for those on benefits currently who face swingeing losses through tax should they get a job. An additional benefit from this, with immigration being a worldwide issue, the payment of a basic income to all citizens - having a valid national identity - should allay fears of  'welfare immigration' at least.

However, whilst this is the obvious and simple solution to poverty, an adverse effect would be that in giving cash to all, some of those who receive it as an addition to an already sufficient income may use it in the housing market. A basic income for many such will enable them to do a property upgrade and thus fuel house price rises. Law of unintended consequences: those people who now rent and are just below the property buying level will find their hope of having their own roof over their heads rather than a rented one, pulled away from them.  And the irony would be this was caused by a measure that set out to help the poorest who are overwhelmingly renters of their homes!  We are increasingly a divided nation of home owners and home renters.    

The answer to this to levy land value tax on all freeholds. This would cover the land value of the plot and not the building value - a tax on say 30% of the 'house price' seen on property websites. There could be a basic tax free 'homestead allowance' allowance before tax is due to cover houses below the average value. The next step is to set the land value tax liability against any income tax paid so that the net, after-tax, income of most individuals and households would be unaffected. For property rich / income poor people the payment could be deferred until eventual property sale. Inheritance tax might be reformed at the same time. It should be possible for the general mass of taxpayers to be relatively unaffected. Taxing land would also bring land forward for building homes which would solve another problem.

As the Archbishop says the richest should indeed cover the bulk of the cost. A problem in making a real difference to poverty and maintaining freedom for all is, of course, human selfishness. If I am to be stung with just a little extra tax because I am fortunate enough to own a freehold property, should I vote for that as one of the 99%? Archbishop - what would you advise?

For a discussion of basic income, land value tax, and general issues of citizenisation, see The Free Lunch - Fairness and  Freedom.  A basic income is currently being tested in Finland.







Friday, December 16, 2016

ECOBATE 2016 Plamen Ivanov & David Ricardo's banking wisdom for the 21st century

Plamen Ivanov's Ecobate 2016 paper (University of Southampton) David Ricardo and Modern Monetary Reform Propositions: A critical Analysis reveals what one of the founders of modern economics thought about banking and banking sytems. Ricardo writing in 1824 understood that banks create the money supply, but until very recently this has not been at all widely acknowledged in academia. Imagine that such a fact, fundamental to all things economic has been hidden in plain sight for nearly 200 years! In the UK it was only in 2015 that the Bank of England acknowledged this openly in its May 2015 Working Paper No. 529: Banks are not intermediaries of loanablefunds — and why this matters  Authors:  Zoltan Jakab and Michael Kumhof .

Up to that point the function of banks has been overwhelming assumed by the ordinary person (and by many who should have been financially more knowledgeable?) that bank lending was merely the passing on of previously deposited money. The function of the creation of money by ordinary banks has not been given its due recognition in economics textbooks. Ivanov cited Werner (Dec 2014): Can banks individually create money out of nothing? - The theories and the empirical evidence, who set out to show in real time how a bank branch created a loan of  200,000 for him in 2013 which, to prove it was real money, he deposited in another bank  He also proved that a fractional reserve amount representing  his loan at the central bank, was not involved (thus showing fractional reserve banking is obsolete, or at least only a half-truth) and that no already existing money at the bank was involved in making up the loan amount.  

Ricardo wanted a National Bank to be set up by the government to be run by 5 salaried Commissioners. The then existing Bank of England charter would expire and its premises might be purchased and staff transferred to the Commissioners. The Commissioners were to be independent of the government; they should create the money needed to redeem government debt to the Bank of England; they would create the money needed by the national financial system but should not create it for the government to borrow. Government needs were to be met by taxation or borrowing from privately owned banks. Ricardo wanted a full reserve system of banking, as championed by Positive Money . See also Martin Wolf.  

Ivanov thinks we have moved beyond the safeguards which Ricardo expected of full reserve banking. People would find ways to game the system and perform money creation outside the official constraints, and how do you handle new phenomenon such as digital currency e.g. bitcoins? Full reserve banking is likely to be costly and impractical, and it might cause the economy to contract. But we do need a safeguard to keep the economic system safe and Ivanov adopts Ricardo's idea of a nation's banking system divided into districts, where stability arises from many small independent parts rather than a few large players.  With many small banks the failure of one or two, through unwise money creation for their lending, will not wreck the whole system as was the danger in the 2007/8 crisis in the UK, when a very few large banks dominated. But our economic system is still in thrall to its top-heavy banks. However local independent banks of the German Sparkassen type with distinct areas of operation are a practical and realistic safeguard. Plamen Ivanov is involved in the establishment of a local community bank of that type. His paper was a ready made answer to Prof David Llewellyn's Ecobate keynote speech 'Are banks over-regulated today?' with its theme that more types of banking model are needed for safety. 

From the Ecobate 2016 Conference and with additional information.  Posted by Charles Bazlinton Director of Local First CIC which is promoting local banks.    

Saturday, November 12, 2016

ECOBATE 2016 Best Paper Awards

ECOBATE 2016 was held in two Winchester locations this year. The academic papers were presented at the University of Winchester Business School in Romsey Road and from mid-afternoon the public session was back in its usual place down at the Guildhall. In a new development for ECOBATE, the morning's academic input of nearly 70 papers was recognised through Best Paper Awards which Sir Vince Cable presented as follows:

1. Category - Banks vs Financial Institutions 
Robert Unger,  Deutsche Bundesbank. 
BEST BANKING PAPER
Traditional banks, shadow banks and the US credit boom - credit origination versus financing  
  
2. Category - Global vs local banking
Sefika Betul Esen, Prof Yener Altunbas, Prof John Thornton, Bangor.
BEST REGIONAL GROWTH PAPER
The effect of banks on regional economic development 

3. Category - Monetary policy 1 
Giorgio Caselli, Catarina, Figueira, Joseph G. Nellis, Cranfield. 
BEST MONETARY PAPER
Monetary policy, ownership structure and bank risk taking: Evidence from Europe 

4. Category - Financial Development
Martin Eihak, Davide S Mare, Martin Melecky. Edinburgh. 
BEST INTERNATIONAL FINANCIAL INCLUSION PAPER
The nexus of financial inclusion and financial stability

5. Category - Financial history 
Konstantin Kiesel, Felix Noth. Halle
MOST INVENTIVE PAPER
When debt spells sin: Does religiosity guard against over-indebtedness?

6. Category - Commodities, Gold & FX
Shubasis Dey. IIMK/Kerala
BEST HISTORY PAPER
Historical events and the gold price 

7. Category - Banking and Risk
Ariel J Sun, Jorge A Chan-Lau. Cass Business School
BEST APPLIED NETWORKS PAPER
Financial networks and interconnectedness risk in an advanced emerging market economy 

8. Money Creation & Eurosystem 
Alexey PonomarenkoCentral Bank of Russia
BEST INTERNATIONAL CREDIT CREATION PAPER
The note on money creation in emerging market economies 

ECOBATE 2016 was organised by ARBE which was founded by Prof Richard Werner (Chair International Banking, University of Southampton). ARBE (Association for Research on Banking and the Economy) is also holding the Oxford Seminars at 15.30 hrs on the next four Fridays 18, 25 Nov; 2, 9 Dec. at Linacre College, St.Cross Rd, Oxford OX1 3JA

Sunday, October 16, 2016

ECOBATE 2016 Prof David Llewellyn. More banking models needed for safer UK banking.

Professor David Llewellyn recommends more competition in banking to reduce the social cost of banking crises such as that which affects us still since 2007. He sees the best way to do this is through different banking models. The model that is prevalent in the UK is that of shareholder value banks and a mix is needed so that stakeholder value banks are not only encouraged but increased in number. The historical de-mutualisation of building societies in the UK was at a great cost to the stability of the banking system when these stakeholder banks were privatised, morphing into shareholding banks. The benefits of competition through more models of banks will be far greater than just adding more banks of the same shareholding kind. Typical of this genre will be community banks, savings banks, mutuals and cooperatives. These do not seek to maximise the capital return as shareholder banks do and they are likely to be less hazardous and risky. Some being locally based will encourage accountability through better relationships with customers, which will bring trust and confidence.

'Culture determines behaviour'. The bad behaviour of an individual can be dealt with (say a rogue trader), but the bad behaviour coming from underlying bad culture is very difficult to address. He wants culture to be a regulatory issue. In acknowledging Prof Richard Werner's point that in the USA small banks have a different regulator to large banks, he said that 'economists like competition' and thus competition between different regulators is to be encouraged.  

His overview of where we are now used a pendulum image. Whilst pre-crisis there was great faith in markets now we have swung to great faith in regulations. His 'series of reflections' at ECOBATE 2016 in Winchester under the general heading ' Are Banks Over-Regulated Today?' gave us a fascinating view from this ex-Chair of the EU's European Banking Authority's consulting and advisory body: the Banking Stakeholder Group (BSG). He said he would not have been able to give his talk a few month's ago when he was Chair of BSG as he would have been gagged. Now his views, as he delivered them, were his own. He is Professor of Money and Banking at Loughborough
University. He was co-author of the Bankers Oath.

The challenges for a safe banking system are firstly reducing likely failure of individual banks and secondly reducing social costs of failure if that happens. A perfectly safe banking system could be arrived at through measures such as 60% capital ratios; 50% liquidity ratios; 40% of that liquidity in German Govt Bonds, but it would be useless banking system! The problem, given that the failure rate can be reduced somewhat, is: How can we reduce the social costs arising when banks do fail? He was not for pressing for every bank to be a stakeholder bank at the expense of losing all shareholder banks. He wants a far better mix of both.  

A problem with regulation is that there is a symbiotic relationship between the regulations and banking behaviour. Both respond to each other. Banks will arbitrage the regulations ('game' them) and regulators are tempted to respond with tighter rules. But there are limits to the resulting escalation. If regulation is seen as a free good then the public will always want more of it. In fact regulation has a cost and the price of this must be taken into account. There has to be a trade off between: complexity/safety and simplicity/risk. He said that whilst individual regulations might be reasonable under a cost/benefit analysis, the totality of the regulations might not be. Excessively complex regulation might encourage unthinking 'box ticking'. Current 'one size fits all' regulations don't differentiate between what is needed for a large international bank and a small bank.  He indicated by hand the height of the stack of paperwork of all EU bank regulations - it was at about one metre off the floor.      
  
Why is culture important? Banking culture deteriorated in the years before the crisis and now trust and confidence in the banking system is as low as it has ever been. Underlying culture sets standards and influences employee attitudes which determines behaviour. He is working on a paper to cover what he outlined at ECOBATE as above, on the 'post crisis banking regulatory regime' arising out of his work with BSG.

His lecture was the Keynote Plenary held at the academic part of ECOBATE 2016 which for the first time was held at Winchester University's Business School, West Downs Campus, Romsey Road on 12th October. ECOBATE 2016 was organised by ARBE.

Saturday, October 08, 2016

Michael Hudson reviews James Galbraith's: 'Welcome to the Poisoned Chalice'

Michael Hudson in a review of James Galbraith’s new book: 'Welcome to the Poisoned Chalice’ says of current solutions to the post-financial crisis world that: 
financial interests override sovereign  self-determination  and national referendums on economic and social policy…[and] impose austerity and force privatisation selloffs that are basically foreclosures on indebted economies. Galbraith rightly calls this financial colonialism.’
Real-world economics review issue 76 carries the review.

It points out that resolutions to the current situation have been available since the 1920s. The book covers the economic traumas that the Greek nation is going through.  The prospect is that similar measures across the Eurozone will turn it into a dead zone along the lines of Latvia’s... 
‘disastrous ‘’success’’ story involving drastic emigration and declining after-tax wages’.

The solutions imposed through bond holders involve widening fiscal deficits, with countries being forced to sell off their land and mineral rights, public buildings, electric utilities, phone and communications systems, et al, at distress prices.


The problem is that the EU’S central bank (ECB) does not finance deficit spending to revive employment and economic growth. Additionally the German constitution imposes austerity by blocking funding of other countries budget deficits (except for quantitative easing to save bankers).  The 2010 bailout by banks is likened to the unpayably high German reparations imposed in the 1920s. The hope of the lenders is that deep austerity and privatisation will enable the repayments, when what is really needed is bad debt writeoffs and an expansionary fiscal policy.  

Lord Turner back at ECOBATE 2011 spoke on 'managing credit creation to deliver social optimality' See this Blog link.  
And (same blog) Chris Giles of the FT in 2013 has: 'Turner defends permanent printing of money'.

In the You-Tube film 'Debt-Free and Interest-Free money' Richard Werner exposes the false notion that debt alone is the only solution for government expenditure:  'The government can spend money into circulation, money it has issued'.

Galbraith's book highlights the rule in Europe by the dictats of finance and banking favouring right wing governments, along with opposition to any left wing alternatives to austerity. They won in Greece.

The UK has a different Conservative government from 3 months ago that looks to be setting policy ideals derived from left, right and centre. How radical will its economic changes prove to be? Chancellor Philip Hammond is soon to make an Autumn Statement on the economy. Does he realise the powers he has to invest for the common good without increasing debt?