Central Bank Digital Currency (CBDC). The Digital Pound - Consultation. A response

The Bank of England asked for comments about its idea for a digital currency: 'The digital pound: a new form of money for households and businesses'. 

My submission was as follows: 

    ''I disagree with the proposal for a digital currency. It will disrupt the current banking model as this will have a tendency to reduce funds deposited with ordinary banks which will reduce banks'  scope to engender loans to customers. The proposal for centralizing normal retail banking implicit in a centrally controlled digital currency is a bad move and against the promotion of the freest flow of money to viable businesses through the relationship a bank has with its customers.

    Many people would possibly completely, or substantially, exit from their normal banking for much of their financial business and the existing banks will thus become weaker players in the promotion of the many local economies that comprise the national economy.

    The nation needs more banks of the normal current retail type and for them to be more localized particularly when they are involved in small and medium businesses who need credit to grow and provide employment.

    The idea of a central digital pound brings a danger that a central authority might, despite the privacy enhancing procedures proposed, in the extreme be able to control the spending freedom of every citizen for ideological or political reasons which is obviously with our current outlook, to be avoided. The banks are good at spotting fraud currently perpetrated and there is no need to use the reason of central surveillance possible through a digital pound as being essential for preventing scams.''  

Charles Bazlinton 30 June 2023

In the Financial Times article 'Central Banks should not be blind to the threats  posed by CBDCs' (25 July 2023) Eswar Prasad author of The Future of Money also warns about digital money.   

Posted by Charles Bazlinton 26 July 2023

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

             

Brexit is done. Get Fairness Started

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.       

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

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

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

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

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

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

It seems Labour is aligning with issues the public feel need sorting:

• affordable housing to bring a lost generation of renters into home ownership 
• re-nationalisation of railways and water to stop the gravy train of top management and shareholder rip-offs at the expense of consumers
• the scrapping of universal credit to set in place a fairer system 

Let's hope what they are planning are long-term solutions. Look no further than this blog for:

• monetary policy so as to buy up utilities with fiat money at no interest and debt (this blog Dec 15, 2017)
• the replacement of Universal Credit with non-means-tested Citizen's Income (this blog Jan 30, 2018)
• the funding of Citizen's Income through land value tax, matched with income tax reduction (this blog Jan 30, 2018). 

Will there be a brighter post-Brexit dawn? If Conservatives can't get the vision and leadership for citizen empowerment maybe Labour will. Something must be done. 

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

Rev Michael Curry & that Harry/Meghan address. What's not to like about Fairness with Freedom?

Rev Michael Curry might have flung a door open for over a billion people on 19th May 2018 through his talk at the royal Harry/Meghan wedding. The intriguing possibility that society might be transformed through following 'love your neighbour as yourself' - 'the good of the other, for the wellbeing of the world, for us' unexpectedly showed up on a hot sunny Saturday in, of all places, an English royal palace. The setting was gilded with centuries of privilege. His inspirational words were like a honeyed dream which we do not need to wake up from because they are grounded in a deep reality - at least for those who want to be  awake to the possibilities. And the media is still echoing the Michael Curry impact. The root of the love the Reverend spoke of is in the unconditional love of God for the world as encapsulated by what Jesus achieved and by 'love of neighbour' and its guidelines from Moses for running a society - which Jesus gave his full backing to. 

The book The Free Lunch - Fairness with Freedom has the same theme. Anyone challenged by Michael Curry to reform society - by setting new standards for fairness and for freedom for more of us than can afford freedom now, should read it.

'Love your neighbour as yourself', is not just about giving more to charity. The issue is too demanding for that. What is needed is for the creative efforts of everyone to be channelled fairly to everyone, as all are given more freedom to be themselves. Charity was only a backstop under Moses' principles and most modern national welfare is effectively  institutionalised charity which is becoming far too big to be affordable. We should move towards a scenario  where there is less neediness to be solved by patronising donations. What is essential is a fundamental citizen-based fairness combined with a new freedom for all. 

The key for this is not an unfeeling set of rules. What is needed is feeling. How would you feel under the circumstances of the 'other'? Love your neighbour as yourself.  Fortunately the tide seems to be turning slowly, Tear Fund  a noteworthy charity is pressing for such reforms as The Free Lunch advocates. 

The Bank of England acknowledges the principles of monetary reform advocated by Huber and Robertson  (see page 44 The Free Lunch) and Prof Richard Werner, which would lift a financial burden from every citizen. Archbishop Welby is on the hunt for comprehensive economic justice which 'love your neighbour ideas' ideas would start to meet: Welby's Wishlist for Fairness  

'Love your neighbour as yourself' is not a mere comedic catchphrase, it's origins are philosophically founded in ancient, human, spiritual wisdom and has possibilities that would transform fairness for society and extend treasured freedoms to all, rather than just for the currently privileged. To follow such a paradigm would not only benefit the poorer with material benefit but would be doing the rich a spiritual favour, because as Jesus said: 'How hard it is for the rich to enter the kingdom of God'.  

A wedding. An enjoyable coming-together of two people, family and friends, and a Bishop who trumpeted an old idea to a global audience. Beyond the select wedding crowd in St George's Chapel, Windsor Castle, his 'love as fire' theme could just catch on for the common good, anywhere.

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

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

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

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.

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 

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         
         

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