James Robertson

James Robertson the pioneer of alternative economics has died (Obit. The Times 18 Jan.    Guardian 6 Dec 2023 ).  Through his writing and lobbying he drew together several strands of pioneering reform such as government reform, environment issues, money creation, land value taxation, citizen's dividend, et al., which are now generally known as New Economics or Green Economics.  

From 'Creating New Money' (NEF 2000) with Joseph Huber, to his later broader-based 'Future Money - Breakdown or Breakthrough?' (Green Books 2012) he provided indispensable research for anyone lobbying for change from the flawed entrenched economics of the 20th century to a system more based on the common good. His life's work is accessed on his website which is an excellent resource for research into these and many other issues.

He shows how the wealth intrinsic to common resources generated by, or available for the use of society as a whole, such as money creation and the natural resources of the earth including land value, are captured by special groups of people for their private use. Meanwhile people whose ordinary work, enterprise and proportionately high taxation add to the wealth flowing from those resources  but often have little or no share in that wealth.

As an example of how he helped those who were promoting the same issues I recall a Land Value Tax conference in 2006. An academic speaker had explained LVT but was perplexed as to how it might be made politically acceptable. In the lunch break I spoke to James who arrived to address the conference later and said that no one has mentioned citizen's income (or C.Dividend) as a means of making LVT more acceptable. When he spoke later he kept referring to CI and ..'I will bring more detail later...' and ended by giving a comprehensive view of how the new economics might be achieved with CI. It was the first time I had heard CI and LVT mentioned at a public event. Since that time the issue has become international with CI experiments being conducted. Progress is being made.    

Posted by Charles Bazlinton author: The Free Lunch - Fairness with Freedom. The book covers many aspects of the New Economics.

Budget alternatives: Richard Werner on Digital Currencies & A New Financial System

UK Chancellor Jeremy Hunt is set to announce 12 regional growth projects with low tax and other investment incentives (ex-PM Liz Truss wanted 200 zones).  The decentralisation idea is a good one to spread new economic growth beyond the south-east into the regions but it misses a key factor in economic decentralisation - that of the money supply.  The ultimate is to have local banks which create money where everyone needs it - where they live in their local area. 

Professor Richard Werner in this new YouTube video discussion 'Why we need a New Financial System'  in discussion with Oliver Studd and George McNee,  says that digital currencies have been around for decades and ordinary licensed banks have been creating digital currency as they create bank loans for their customers.  He also adds to the current debate that central banks should create digital currencies for their monetary system (this starts at 15min on the video). He says that this would be a dangerous development which in giving everyone a current banking account with the Bank of England leads to a possibility of centralised surveillance  and control of their spending.  Do we trust that good central bank governance would always prevent such a move? In setting a centralised bank system for every citizen the normal banking system would be fundamentally changed for ever says Werner.  Such a strong pull towards centralised banking for all would weaken the normal business model of  current banks who need the deposits and relationships of their customers. The  banking currency produced by them was always digital as they did not print bank notes for the loan: Bank Digital Currency - BDC.  The only change now is to add Central to the acronym - CBDC and herein lies a danger.   

Werner says that in earlier times in Germany, monasteries would act as bankers until they were secularised and farmers, for instance, would have difficulty with their credit needs. What happened to remedy this  was the creation of local community banks designed to operate in specified localities. Now, nearly 200 years later the widespread Sparkhassen banks, the co-operative banking system and a sound locally-originating economy is a testimony to the practicality of the solution of locally created money. Britain was also a pioneer of local savings banks around the same time.  

But small local banks grow and are bought up by larger banks who tend to like to deal in large loans for large customers, leaving smaller business customers overlooked. There is a need for many small banks to be created. These preferably will have a common-good profit motive and protected through a majority charity ownership holding which distributes bank profits to local good causes and needs. This ownership model locks in  the common-good theme preventing private predatory takeovers of small successful profitable banks.

Decentralisation is needed more and more and the fundamental way to do it is to encourage the creation of local banks. Growth for special regional zones  is a start but why not target support to enable the decentralisation of the money supply to every 'local zone' by encouraging lots of tiny local community bank start-ups where the small and micro business are? Everyone knows that such businesses create the jobs and wealth. What's not to like Mr Hunt?  

    

Sunak vs Truss: Debt, Inflation and Levelling Up

The Conservative leadership contenders ask:  When does the Covid-induced public debt start to get paid off? What about inflation if we reduce taxes to ease household finances? How do you achieve levelling up?

A FT letter writer Mark Hofman in August 2020  said that in the example of Japan which has had huge public debt levels for a long time:

     'government bonds held on the balance sheet of the Bank of Japan are effectively the Japanese government owing the bond debt to itself...so why not put a line through those entries on each side of the balance sheet? The level of debt would be reduced without the        taxpayer having to pay anybody anything, and with nobody being poorer.' 

If there is a possibility of inflation due to this he says it can be resolved by raising the reserve requirements of commercial banks at the central bank (in the UK's case - the Bank of England). He asks: Why consider the conventional way of paying off this debt with taxes for generations, when there is a better way?

Beware of suggestions that governments are like households and must not spend beyond their income.  Householders are not like that as they cannot create their own money whereas sovereign govenments, with careful monetary control can do so safely, as Hofman describes. 

On levelling up:  Change how tax is raised by levying a small annual charge on the value of all land, including the value of the land footprint of all homes. At the same time any tax raised in this way would be allowed against a personal income tax liability. For many homeowers the total charge would not change. 

Benefits would accrue:

• House price rises - now with a land value levy - would slow or fall and homes become gradually more affordable since speculation would be damped down and a steadier market would encourage first time buyers. 
• Homes would become less attractive for pure investment rather than for living in personally. Recent governments just subsidise new buyers which raises the price of homes and brings developers more profit. The crazy price boom continues.
  
• More homes would be built as development would be encouraged - for example a house with a large plot would be built on to share the land value levy over new, extra homes. Or an extension to create a separate rentable flat. New homes would be built to low carbon standards. Countryside would be preserved.
• Renters would be helped as the land charge would be on the landlord. Landlords would be anxious to have their property occupied at lower rents rather than keep homes empty waiting for increased rent.
  

Levelling up at a stroke, for many. Those who are land rich and income poor, thus short of cash, would be allowed to defer payment until they sell the home. 

The young would be able to consider buying and homeownership would increase. Older people in large homes would be nudged into downsizing. The increasing wealth divide between homeowners and renters would ease.

For the common good we need such monetary and taxation policies. Which candiate, or party, will grasp these choice fruits?  

Posted by THE FREE LUNCH - FAIRNESS WITH FREEDOM Charles Bazlinton

             

Jubilee - A very suitable word?

Great words get borrowed and highjacked for quite different purposes.  'Jubilee' was originally 'a year of emancipation and restoration'  (OED) in ancient Jewish history when people who had lost their family land through debt and poverty went back to it with all debts wiped out. It was a time of  great rejoicing and was unmistakably introduced by people going through the land blowing ram's horn trumpets announcing 'Proclaim Freedom'. It was the ultimate levelling of wealth from the time of the previous Jubilee after which some people had prospered whilst others fell into poverty. See the Bible: Leviticus 25:8-10. The purpose of Jubilee was to reset the economic  imbalances and was pointedly political. It restored control to the people. 

There were not to be kings to accumulate wealth to themselves and their court, and the repetition of cycles of Jubilees would guard against permanent accumulations of land control and enable the poorest to become self-sufficient again. You were not able to purchase land ownership rights, only the harvest rights for limited years. The system guarded against anyone assuming kingly status through wealth which would endanger freedom and the common good. 

Amazing enlightened times! The entire Jubilee year was to be a holiday. Our recent Jubilee celebrations, whilst fairly acknowledging that our Queen as Head of State has been a benign and gracious holder of the office, achieves nothing in the spirit of the original Jubilee for ordinary people. Apart from one day's holiday. 

Maybe news from Ukraine will point the way to a revival  of a people-centred Jubilee ideal? Alexander Rodnyansky, a Cambridge Professor, is now Economic Adviser to  Volodymyr Zelensky, President of Ukraine and The Spectator 4 June 2022 reports: 

    'he says he is interested in establishing  universal basic income throughout Ukraine: a fixed cash payment for residents rather than a network of welfare benefits which leads to inefficiencies in the system...We could be the first.'  

Jubilee years have been celebrated - quite bizarrely given the origin - for some centuries to note anniversaries of rule by monarchs. Why not a people's Jubilee in the spirit  of the common good?  We are not able to re-apportion land ownership in our day but land values are identifiable and could contribute to a universal basic income. See elsewhere on this Blog as to how it could be done. Recapturing the 'Proclaim Freedom' spirit of the original idea with a Peoples' Jubilee by  establishing a Universal Basic Income (also know as Citizen's Income) is needed.  

posted by Charles Bazlinton, 4 June 2022   Author: The Free Lunch - Fairness with Freedom.    

Merryn Somserset Webb favours land value tax

In a philosophical article in Saturday's FT (4 December 2021) Merryn Somerset Webb writes that she 'favours land value tax'  as she explores aspects of ownership and capitalism.  She refers to land wealth as communal wealth.  The article is about  how selfish we allow our society to be.

Owners of land are gaining as 'house prices' keep booming everywhere. People and firms are putting their wealth increasingly into property and prices are responding - upwards. Just take note that every building deteriorates so the gain is in the underlying land value. Lloyds Bank's new chief Charlie Nunn is hoping to quadruple 'the budget for its private home rental market'  (FT 6 December 2021) which is great for landlord rents and the bank gains the security of the underlying land value gain but not the renters. 

Value in land is largely dependent on location, which is about the ease with which work can be found nearby, such as rail links, good roads, business employment, etc. These things are nothing to do with the land owner's skill - but rather utility providers' provision of good services and such things as planning permission. The land owner can make a desirable valuable house which takes cost and ingenuity but the land value is quite outside their ability to make any individual difference to, land value is a gift from society, the community around. It's just that owners get the gain but renters don't.

This quite unfair situation has another facet for end of life social care. The current plans (see Kings Fund) are for there to be an £86,000 cap on care charges. The scare is that homes may need to be sold to pay for care at some point.  Will a home be safeguarded?      

A much fairer method of paying for care is to tax land value. Almost every piece of land with or without a house or building on it has  value and a small percentage tax charged every year would go to providing end of life care for all. Those with the higher priced property would pay more which would be proportional to the gain in value that society has created on their land.  In the setting of land value tax a allowance below which no land value tax would be payable would be set, so that many poorer homeowners would be land tax exempt. Renters who will never have any prospect of land value gain and thus no land tax, would gain the universal state-provided care but not be charged at any time. Home owners would be paying over some of their lifetime property gains for their later life care as they pay the tax. 

These ideas should be seen in the context of wider tax reforms where income tax paid would be allowable against a liability for land value tax. A gradual tax shift from tax on wealth gained through work onto community inspireded wealth would happen. 

Fairness comes through using community inspired wealth to pay for community needs.

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

Hartlepool levelling up: Was that it?

What did 'levelling up' mean in the Hartlepool swing to the Tories?  The Hartlepool constituency, returned a Tory MP Jill Mortimer, 'farmer and business woman', after a 50 year run for Labour. That day was also the vote for the Tees Valley mayor and Ben Houchen won a resounding victory. Perhaps the Mayor Houchen factor was at work. Perhaps it was that in  Hartlepool with the Labour candidate still an EU fan who wants a second referendum, and with Hartlepool  very strongly Leave, maybe that prompted the strong rejection. Who allowed that to happen?

Ben Houchen, in winning his first Tees Valley contest in 2017 as a Tory promised to nationalise the local airport which he did and it created many new jobs.  Nationalisation is a policy borrowed from Labour.  Houchen has always said he is locality oriented and the use of socialist policies shows he is a non-ideolgical Tory.  The Boris-Rishi government has supported his Tees Valley projects - including environmental climate change schemes - by directing spending to the area. Also Treasury North, which is a partial government departmental move to Darlington, is a rather socialist, state planning idea. It probably helps in all these local changes that Chancellor of the Exchequer Rishi Sunak holds a nearby constituecy.  

Freemarket conservatives wanting small government (don't move but reduce the Treasury?), low borrowing and 'let the market rule'  are rare these days. Covid-19 financial support has meant Tory central government money is now always on tap for lots of schemes. The (allegedly) penny pinching austerity gloom of the Cameron-Osborne era is well gone, and now seen merely as anti-Labour sound bites, but which helped dampen expectations of government-directed productive investment which now the New Tories are unashamedly borrowing from Labour.  But remember: the high priestess of the free market, Margaret Thatcher secured a deal for Nissan in Sunderland in the 1980s with a  special central government money deal for Nissan.     

So the Conservatives are doing what is needed to remain in power whilst favouring neglected voters by boosting their local economy with cash handouts. Old fashioned pork barrel politics, as ever. The latest scheme is the Community Renewal Fund which will share £220m with 100 favoured places in a year and five of those are the five towns of the Tees Valley. Red Tories are in town.

The problem with such politics - sensible enough given the limited vision - is that only some groups of voters are favoured rather than producing a fairer outcome for all. Under Old Labour it might be such as union members,  managers of state institutions, and home renters; under Old Conservatives it might be shareholders, capitalists eager for state grants and home owners. 

When will overall fairness prevail? Instead of a hope that a trickle-down of government money may come my way via my Mayor, why not each citizen respected as contributer and beneficiary of a good recovering economy?   The previous blogpost on Universal Basic Income  illustrates how that idea of a payment to everyone unconditionally is well researched to be affordable - 'revenue neutral'. Even better an extra measure would be the funding of UBI to include land value tax charged on the land value underlying all homes, and allowable against income tax,  along with a reform of council tax. Renters would benefit as they would pay no charge, the landlord would. 

We need a re-set in our politics and economics in favour of fairnes for all, not just for instance the homeowners who are benefitting  from a housing boom. That would be better levelling up. Our society is becoming increasingly divided as defined by owning or renting a home. Renters are being sidelined as they have no unearned nest-egg accumulating on the value of the land with their house as homeowners do. We all contribute to our economy as we work and run things and a healthy economy raises house (actually land) prices, but that value is soley due to land ownership. Too bad if you rent your home, no level playing field for you from your contribution, it all gravitates down to the owner. What's fair in that?

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

 

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.       

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.

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' 

Theresa May's Magnificent Words

Our new Prime Minister Theresa May said some Magnificent Words as she entered No 10 Downing Street. 
...We will make Britain a country that works not for a privileged few but for every one of us'
Words that could have been sourced from the book The Free Lunch - Fairness with Freedom which in a similar vein, deals with how to start to overturn the 'Lottery Principle' of life where 'The poor create the rich'.  The problem with Magnificent Words at Number 10 is they raise expectations and then scepticism, given the meagre achievements of governments. But let us leave Mrs May's Magnificent Words still bright, shining and untested and wish her the very best. We all look forward to her chancellor's first budget for signs that this time it will be different.         

As an illustration as to how the current arrangements of our society work for the few and not the many, at a recent public planning enquiry in Winchester, developers awaited expectantly whilst a planning Inspector assessed objections to that part of the local plan relating to the small town of Alresford.  Winchester City Council has taken some years to formulate this plan after much public consultation.  Whatever the outcome of Inspector Nigel Payne's deliberations, soon the green light will be given to a landowner/developer or two, to cash in on a huge uplift of land values. For example a green field of agricultural land with a value of merely around £700 per house-plot size, will zoom to a value of perhaps £200,000 per house-plot after the local authority grants planning permission for housing.  Our 'democratic' system massively favour landowners over those needing the land to have a home. The movement in wealth is from the many to the few: 'The poor create the rich'. What about that Mrs May?

An example of a more egalitarian outcome sought at the same hearing was about public car parking. A car park is needed alongside two adjacent sites owned by different landowners. Which one would release the land for this? Might both? Someone said land for car parking has little value, because car parking by local councils is not an economic service. Quite wrong. This article from The Times in 2015 shows  that for English local authorities over £0.6 BN of revenue was raised through car parking. So a local authority which has control over land planning use, can restrict city parking and can force drivers to pay to park creates a clear money-spinner for themselves and their tax payers. What is happening is that they use their democratically given monopoly power and, as rentiers being leaseholders or owners of land, are using it for the common good above the break-even cost of parking. This will help cap other taxes and can also reduce pollution if park and ride schemes are used.

Another issue mentioned at the hearing was the use of a part of development sites for 'affordable housing' - to be rented by, or part-sold to low income earners. Some of the uplifted land value of a whole development is clawed back through using a portion of the site's land (at a low cost to a not-for-profit housing association) solely for rented or part-owned homes. An enlightened device favouring some of the disadvantaged. 

On one scheme on a previously developed (brownfield) site in a particular Winchester city site the developer had declared he cannot afford to release land for such homes in his new development. 'The sums don't add up!' But a competent developer would have known of their liability to provide the public benefit through land at lower than market housing value to make affordable housing possible. Development obligations such as these have been around since at least 1990 with planning regulation for developer contributions such as 'section 106' and now the Community Infrastructure Levy. Perhaps a developer overpaid for land at some stage so the sums now don't work. But should the public benefit suffer because an unwise commercial decision may have been made by a developer at the top of a market price bubble? If such a case is accepted it opens the possibility of a high price false 'sale' to an associated firm to establish non-viability due to a high base cost. 

This scare story about non-viability of affordable homes was raised as a possibility for a large greenfield site in Alresford. But the planning officer reported that the landowner/developer  for that site is happy that the site development is viable with all costs covered for new trunk road works, affordable housing, et al. A large greenfield site with no development history is less likely to have had run of different owners who might have overpaid at some stage. Or perhaps the developer is being sensible about the huge gains still available and doesn't want the jinx the magic of the expected planning consent.   

So the Winchester inspection will eventually result in one or two very pleased (wealthier) landowner/developers, through the public gift of planning permission. Albeit with help for some housing-poor.  Not forgetting we too who have been buying our homes for decades, whilst not gaining quite that 200+ times wealth multiple from these brand new developments, also benefit a growing equity nest egg through this long standing public gift of planning consent - and for us, tax free. 

The unfairness of the institutional skewing as above, of so called 'market capitalism' to the benefit of the few is developed as a theme in Guy Standing's book:  The Corruption of Capitalism: Why rentiers thrive and work does not pay 'he reveals how global capitalism is rigged in favour of rentiers to the detriment of all of us, especially the precariat. A plutocracy and elite enriches itself, not through production of goods and services, but through ownership of assets, … '. Read the extract provided.

Another book, by Fred Harrison, As Evil Does gives evidence (p.64) that academic research is blocked by government to prevent solutions that would overcome such failings of our society. Such as land value taxation. He refers to an article by Nicholas Stern about his 'Report on the reform of the tax system', in the FT 6 Aug 2014 'Fairer Fixes for the public purse lost in a chancellor's drawer'.   

Have you seen Sir Nicholas's report yet Mrs May? Could be a good way to fulfil those Magnificent Words.

ECOBATE 2016 speakers Profs: Sir Vince Cable; Yanis Varoufakis & David Llewllyn. Gaston Reinesch (Central Bank Governor)

The fourth ECOBATE conference (European Conference on Banking and the Economy) is to be held on Wednesday 12th October in Winchester and the submission date for papers is 1st July.  These conferences are unusual as they have always attracted interest from academics and from the general public. Lord Adair Turner  acknowledges the influence of ECOBATE founder Richard Werner on his thinking:
'Richard's writings on monetary policy and the importance of a credit focus are absolutely important, and very important to the evolution of my thinking.' 

The format will be similar to earlier years with free public sessions and keynote speakers from mid-afternoon:

• Sir Vince Cable, former Secretary of State for Business, Innovation and Skills. Hon. Prof. Univ. of Nottingham.
• Professor David T. Llewellyn, Prof. of Banking, Univ. of Loughborough
• Gaston Reinesch, Gov.Banque Centrale du Luxembourg, Member of the General Council of the European Central Bank (ECB)
• Professor Yanis Varoufakis, Prof. of Economic Theory,Univ. of Athens, Greece; former Minister of Finance, Greece

This year's ECOBATE will be held under the auspices of the Association for Research on Banking and the Economy a new charity (Reg. No: 1166422) set up by Professor Richard A. Werner with charitable objects as follows (Charity Commission website):

THE CHARITY'S OBJECT IS TO ADVANCE THE EDUCATION OF THE PUBLIC IN GENERAL (AND PARTICULARLY THOSE INTERESTED IN THE ECONOMY AND SOCIETY) ON THE SUBJECT OF THE ECONOMY AND SOCIETY AND TO PROMOTE SCIENTIFIC RESEARCH FOR THE PUBLIC BENEFIT IN ALL ASPECTS OF THAT SUBJECT. THIS MAY INCLUDE AWARDING SCHOLARSHIPS OR GRANTS AND ORGANISING EDUCATIONAL EVENTS.

Also announced is a series of Oxford Seminars starting in October at Linacre College , Oxford.

See also links to blogposts: ECOBATE 2011 (1-4) ; ECOBATE 2013 (1-4) ; ECOBATE 2014 (1-3). 
posted by Charles Bazlinton. Author, The Free Lunch - Fairness with Freedom

QE: easy for the rich. Kaletsky's QE: easier for the poor. Corbynomics? Bank of England independence.

Last week's blog had Natalie Bennett at Making Money Work, asking: Could monetary policy do anything about inequality? Steve Keen said that dealing with private debt would address inequality and it was his suggestion that one-off payments to everyone could tackle this, on the condition that debts be repaid first. Lord Turner didn't think there is a 'magic...costless way' of addressing inequality - the way to do this is progressive taxation.

Philip Aldrick (The Times 19 Sept) QE spared Britain a recession...  is particularly clear that monetary policy increased inequality by creating asset price bubbles such as in gilts, bonds and house prices. Inflation is rocketing in these assets, leading, for example, to fading hopes for first-time homeowners.  Low interest rate funding and high demand from UK and non-UK owners buying to let inflates this bubble. [ Private Eye has a searchable map of such overseas owned properties using Land Registry data. Check your area! Whole streets in London are foreign owned].

Clearly monetary policy as carried out since QE in 2009 has increased inequality in housing. But Anatole Kaletsky in Prospect Magazine: How Corbynomics could work  has a neat solution. Instead of QE's £375bn spent to prop up financial markets ('making the rich richer') he proposes that this could have been spent by being given via a weekly £20 payment, to every 'man, woman and child in the UK' until UK growth returned to pre-crisis levels. He proposed this back in 2012. The Free Lunch Blog mentions it here.

So monetary policy could reduce inequality - since equal payments to all inevitably raises living standards proportionally more for the less well off. As long as conditions are strictly adhered to as to the eventual termination of the payment no harm would be done.

That would be a temporary remedy for a sluggish economy. (NB: temporary QE has lasted 6 years so far). But politicians would be wary of the dangers of launching such a citizen-based policy because it would be difficult to stop politically when the monetary need was over. What would be needed to take over would be a similar payment to all but funded by reform of the welfare/tax balanced budget. Such a Citizen's Dividend / Basic Income would need to be established by the end of the monetary booster to avoid the pressure on politicians to extend the  monetary policy dangerously beyond its period of monetary need. Basic Income UK and Citizen's Income Trust have the details of an unconditional non-withdrawable payment to all, as of right.and it is broadly affordable within current budgets. That is the policy that would establish a new citizen's right, like voting, education and a health service.

Another use of monetary policy to promote sustainable growth is suggested by Prof Richard Werner: that credit creating institutions could provide monetary incentives for education purposes '$100,000 for each child born...such a policy would not be inflationary: among all inputs into the production function, human resources are by far the most important.' (New Paradigm in Macroeconomics p340).
To ensure good education for all must be among the most effective ways of poverty reduction and thereby inequality.

Inequality reduction by monetary means would not be magic - merely an effective policy against poverty and as a means of growing the economy.

But QE is magic - for wealthy people. From early 2009 when QE started the UK FTSE 100 share index to date has gained over 60% & UK house prices have risen 67%.

Strange how central bankers and governments fail to take easy steps to help the poor but so easily open doors for the rich to garner greater riches. The Monetary Policy Committee at the Bank of England has met dozens of times since QE started and resolved every time to keep interest rates at 0.5%. Their learned deliberations have now blown up another asset price bubble. Is the BoE really so partisan that it cannot think beyond top layer wealth creation as the sole answer to the crisis? Is it really there for the good of all - as might expected in a democracy? Presumably our government in meekly acquiescing to a measure that has achieved so little for so long, wholly agrees with it.

Bank of England independence is strongly defended. The question to be put is: How dependent on central bank policies ought the government to be?        

Centre ground politics: Citizen at the centre, Mr Corbyn?

An opportunity is available for a new politics in the UK that would advance the cause of the citizen, through a clear focus on citizen themselves, as viewed without the ideological spectacles of conventional party politics. Will Labour's Kendall, Burnham, Cooper or Corbyn manage to lift their heads from accepted wisdom? 

The Tories have set their jib and are teasing Labour to follow on and endorse their poverty-extending austerity policies, which are unhelpful to the promotion of a sustained economic recovery. As Matthew Parris in The Times (Sat 25 July 2015), has it, this is a manifestation of the 'supermarket view of politics' of our day - where voter footfall governs nuances of narrowly similar policies from all parties. Cleverly, through this shared view of what is important, Labour is in thrall to Tory policies which seem primarily designed to discomfort the opposition rather than benefit the nation itself. [See: How did the Tories do that?] Labour follows Chancellor Osborne like a dependent poodle as the Labour leadership crisis now demonstrates. The critter is not rebelling, biting off its lead and morphing into a mistress of its own destiny, but is keeping in close step. Except that Jeremy Corbyn is creating differentiation as he attracts attention with his refreshing straight talking which is panicking the three other leadership contenders - and bringing great ire from Tony Blair.

The return of the dark ages of Old Labour supposedly embodied in Corbyn belies that he has actually said some quite positive things, which any reasonable person might agree with. Such as establish a national investment bank for innovation and high tech investment  [see: Marianna Mazzucato] ; create QE for people instead of for banks; strengthen tax avoidance regulation; shift the tax burden to wealth and companies and off consumption and individuals; re-nationalise the natural monopoly of the railways.  What will be the outcome of Mr Corbyn backing into the limelight? Does he view politics through the old view: the 'dead hand' of the state - or will we get citizen-centred politics, which some of the above seem they might be?

The Universal Credit scheme is taking for ever to transform the benefits system - will it ever work starightforwardly? The Citizen's Income Trust  has proposals for a  better answer, a revenue-neutral Citizen's Income as a right for all. This would bring many benefits such as: reward unpaid carers, enhance the living wage of workers and foster job creation by small and struggling businesses; bring freedom through work/life choices that are pro-family; remove benefit traps and make work pay; enable charitable donations for community-inspired projects; and overall reduce poverty and raise living standards for countless individuals, families and groups.  Any Tory or libertarian should be able to see the individual-enhancing benefit of a Citizen's Income removed from bureaucratic means-testing, but would  Labour actually dare to introduce it and in one bound make real the doubtful 'living wage' of George Osborne? The citizen would be placed firmly at the centre of government policy making through a Citizen's Income as of right. But would Labour dare itself to trust the people this way?

Currently our socio-economic system is heavily biased towards those who own property. It is not every citizen that experiences the wealth-creating effect of property ownership. Renters are forever disadvantaged also-rans, whilst freeholders stack up a 'free lunch' of property wealth brought to them by the society-inspired wealth enabled by everyone, including the renters. No individual can ever create a rise in the value of their own land apart from being a minute part of the creative community that surrounds them.

Taxing land values on a annual basis would, along with a Citizen's Income, correct this lifetime imbalance in fairness.  A simple, revenue-neutral way to introduce it would be to levy a tax on the location value of the land alone (excluding the building value) and allow a reduction in £1 of income tax paid for every £1 land location value tax paid. Houses would become more affordable and wider ownership encouraged, more houses would be built to maximise the income from a given plot of land to pay the levy. The income tax / land value tax swap would avoid a disruptive change in finances for most households. Income-poor property owners could be allowed to defer some of the tax until the sale of the property.  The current favouritism towards property owners would be reversed bringing a new consensus - the promotion of the common good. Debt through mortgage would reduce as prices eased, releasing the income from normal jobs away from payments to bankers into useful goods and services. The evidence of a failed market shown, for example, by the pressures of international buyers on house prices shows that the land monopoly needs to be constrained to function more fairly than now. Land location tax is a major part of that answer.

Encouragement of new local community banks funded by local councils, social enterprises and a national investment bank should proceed apace.  With 7 years between now and the financial crisis it is high time that an alternative to the out-of-scale international banks is needed for local investment.  Small local banks are essential, scaled to fit the needs of small and medium sized firms which are beyond the marketing scope of the current high street banks. This too would be a policy that puts the citizen's needs at centre stage in terms of financial help for their enterprises, instead of as a supplicant at the door of the high rolling bankers only seeking mega-deals. The credit supply is artificially throttled through a lack of suitable local bank outlets. This failed market needs policy encouragement to make it function for the good of all.

Old Labour wanted the state in the centre ground of too many areas of life that are best handled by individuals, families and groups - as has been shown by deregulation. Conservatives see the free market as the answer to all, despite the existence in plain sight of obvious market failures. Recent government promotion of  housing purchase schemes, for example, are clearly counter-productive as they feed the heated house price frenzy thereby blocking off those still unfortunate to be excluded.

Conventional  politics fights over the centre ground. A new politics is needed that firmly puts the citizen at the centre ground.

Posted by Charles Bazlinton, Author: The Free Lunch - Fairness with Fredom which explores this theme of the citizen at the centre.  
The author is promoting the establishment a Local Community Bank which will pass profits to local good causes.