Some explanation on my last post

I was extremely surprised and touched by the supportive responses I had on my previous post where I declared my intention not to blog about economics anymore.

I had no idea how many people took an interest in my blog. I was also flattered by having very intelligent people write to tell me that my contributions are valued. Some even asked me if I was doing ok. I am moved by all this show of support.

I suppose what has happened is that I feel that I’ve run up against a problem I don’t know how to solve.

When I met Warren Mosler, I noticed how often he uses the phrase “the public purpose”. I think it’s a very good phrase – John Kenneth Galbraith’s Economics and the Public Purpose is likewise a very good book. But to use it opens up some deep philosophical questions. I have every intention of continuing to think and write about these questions. But I no longer think (if I ever thought it) that economics is the right way to approach them.

The questions are: What is the public purpose? Who gets to decide what it is? And what institutions are required to serve it?

It is good to make logical arguments in favour of certain answers to these questions. But they’re for everyone to think about, not for me to pontificate upon. Speaking to people in Britain has revealed to me that I just don’t know what people want.

Almost everybody here in the UK complains about greedy, corrupt bankers. Mosler has a very simple policy outline: give banks a list of what they can do – what serves the public purpose – and ban them from doing anything else. Ban them from taking financial assets as collateral, from selling debt to third parties, and other things that are not in the public purpose. Yet this direct and simple solution has zero uptake in the UK. Nobody writes about it in the newspapers. I haven’t heard a single politician even mention it. And activist organisations specifically focussed on banking reform, such as Positive Money UK, are fixated on far more radical solutions that seem aimed at centralising and consolidating the power of banking interests rather than regulating it.

Again, almost everybody here says they want people off welfare and into work and that they want better public services. There is obviously a very simple way of solving both problems at once: offer public sector jobs to anyone currently on welfare who would rather work for a living wage. Again, zero uptake in the UK. Instead, a growing number of people support the idea of a universal basic income. So almost the whole population thinks that one problem for the UK is too many people on welfare and too few people in work, and then half of them think the solution is just to take away the welfare while the other half think it’s to give welfare to everybody. Almost nobody thinks the solution is to offer work to the people on welfare. I just don’t get it.

Neil Wilson suggested to me that maybe it’s politics rather than economics that I don’t understand. I think it’s deeper than that: I just don’t understand the British public. They say they want a banking system that doesn’t just serve the greed of the few. Ok, here’s how to make banking work in the interests of the many instead. No interest. They say they want people to have the chance to work rather than living on government handouts. Ok, here’s how to effect that change simply and straightforwardly. No interest.

I know what I think the public purpose should be. But I have no idea what people in general think it is. And clearly I can’t take what they say they think it is at face value, since they completely ignore the most obvious policies for bringing that about.

To explain my previous point about MMT: I don’t think the problem is that people don’t understand how government spending works. The two policies above don’t even seem like they’d be particularly costly – not in comparison with the status quo. So it’s not that people think they would like these things but believe them to be unaffordable (look at the number of people that support universal basic income). The problem is much deeper and weirder. Are the policies too good – too effective at serving what the public declares to be the public purpose? Are the British worried they might not have enough to complain about if such things are implemented? I just don’t know.

Until I work this out, I don’t know how to contribute anymore. Any help is greatly appreciated.

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14 thoughts on “Some explanation on my last post

  1. Mike Otsuka

    “Yet this direct and simple solution has zero uptake in the UK.”

    “offer public sector jobs to anyone currently on welfare who would rather work for a living wage. Again, zero uptake in the UK.”

    Isn’t the uptake highly limited outside of the UK as well?

    This is a genuine question, and there’s no objection to what you say lurking underneath. But I wonder why your remarks are so specifically about your inability to understand the *British* public in particular.

    Reply
    1. axdouglas Post author

      Yes, very little uptake worldwide. What I don’t know is how much political capital other countries have put into the “making work pay” narrative. The ubiquity of that rhetoric in the UK is what makes it so odd that nobody’s interested in the most obvious way of acting on it.

      In the US, of course, the fact that the welfare-to-work trade might add one single dollar of spending to the budget is enough to torpedo the whole project in certain quarters. That’s why the MMT line of explaining government spending makes sense there. But in the UK I just don’t think that’s the barrier; it’s something else, possibly peculiar, possibly universal.

      Reply
      1. Mike Otsuka

        The underlying explanation of aversion to government spending in the US is entrenched plutocratic resistance to the idea that governments can do good (though they make an incoherent exception when it comes to war and incarceration), since that’s at odds with their faith in the market and the “private sector”. This resistance is the common explanation of opposition to government regulation (of banks and others), government spending on jobs, government debt, and the like. Plutocrats wield influence and shape the agenda in the UK and elsewhere too. (Simple-minded, I know.)

      2. axdouglas Post author

        That sounds right. But I still don’t think it’s the whole explanation in the UK. With regard to the banking policies there isn’t even a government spending component to it. Now people might say that they’re scared of regulation, but that’s just what makes me confused given all the ‘throw the bankers in prison’ sentiment: do people trust the banks more than the legal system or not?!

  2. mrkemail2

    Most *voters* in marginal seats who elect governments want two things – higher house prices that they can cash in via mortgages and lower wages as cheap hired help is hard to hire today.

    They are mostly middle aged and older ladies and some men, who own family houses in the South East bought 20-40 years ago.

    I can argue at length property speculation (fueled by government-sponsored private debt) is the single biggest, defining, central issue of the past 30 years of UK (and Australian etc.) politics and economy.

    And it is because the amounts of money involved are GIGANTIC… My usual “money shot” quote:

    http://www.bbc.co.uk/news/business-19288208

    “In 2001, the average price of a house was £121,769 and the average salary was £16,557, according to the National Housing Federation. A decade on, the typical price of a property is 94% higher at £236,518, while average wages are up 29% to £21,330”

    That’s an average between the North and the South, and it does not really apply to the North.

    But even it taking it as it is, that means £12,000 a year for a decade of tax-free effort-free income for a working class family in the South earning around £16,000 after tax.

    £12,000 a year of tax-free effort-free windfall is GIGANTIC, especially if it recurs every year for 10 years as per the above numbers; and actually it has been going on for 20-30 years. And for the millions of people with a house in London it has been even bigger than in the rest of the South.

    Do people really realize what an extra £12,000 a year of (purely redistributive rentier) windfall going on for decades can mean on top of an earned after tax income of £16,000? For millions if not a dozen million families?

    Do readers here realize what that means to “aspirational” Southern voters and what they are prepared to vote for to keep it coming?

    And that most or all of that was due to government policy to bribe voters in the South and accordingly virtually none of that happened in the North?

    Reply
    1. mrkemail2

      Cash in via *remortgages* I mean.

      By far the most effective way to bribe voters into tory (with a lower case “t”) voters has been Right-To-Buy, plus hang-and-flog policies targeted at older women.

      For example recently apart from Help-to-Buy, the Right-to-Buy discount has been increased enormously, something that has gotten less attention that it deserved:

      http://www.telegraph.co.uk/news/politics/9181928/Council-tenants-to-get-up-to-75000-to-buy-their-own-homes-David-Cameron-to-say.html
      “The average Right to Buy discount, as a percentage of the market value of the property, fell from 50 per cent in 1998-99 to 24 per cent in 2008-09. In London, the figure fell from 53 per cent to 10 per cent.
      The discount will more than quadruple the discount cap in London and treble it in most parts of the country. The discount will be available from today (3 April) to two million council tenants and another 500,000 housing association tenants.”

      http://www.independent.co.uk/news/uk/politics/social-housing-in-crisis-as-too-many-homes-are-sold-under-right-to-buy-9684172.html
      “Social Housing can now be sold at a discount of 70 per cent of its value, with a capped saving of £77,000 across England and £102,700 in London boroughs.”
      “in London, where some councils have found they are so short of homes they are having to rent back the properties they recently sold.”

      A fraud case makes it clear how huge are the profits from Westminster-Council style “social engineering”:

      http://www.birminghammail.co.uk/news/midlands-news/birmingham-right-buy-fraudster-who-7764383
      “A woman who claimed a whopping 70 per cent discount to buy her council house – whilst living in a second home that she owned – has escaped jail after admitting fraud.
      Sonia Hunter became the first person in the Midlands to be convicted of a ‘Right to Buy’ scam after claiming a massive £46,600 discount on a home that she had no right to buy.
      Hunter claimed the discount to buy her Newtown council house and went on to pay just £19,800 for it last year.
      But the 57-year-old, who had been a council tenant in the Attenborough Close house for 34 years, was actually living at another home she owned in Erdington’s Court Lane.
      The fraudster had bought the second house in 1996 and was renting out the council house.”

      *Women* voters in the 1%+50% seem to me conflicted, and want it both ways: they are delighted to pay lower wages to immigrants from much poorer countries for their hard work as carers, gardeners, plumbers, builders, cleaners, shop assistants, and to get higher rents for the properties they own from the same immigrants stuffed 2-4 to a room, but they also want those nasty-looking immigrants to stay away from them, to be deferential and keep their eyes down and to be invisible, like good servant wallahs, because they are afraid of or have spite for the “other” (the poor or working poor or immigrants from much poorer countries).

      In the past same with the “savage paddies” who emigrated to England in past centuries. My usual link to what the South East thought of “savage paddies”, which could be republished today with just the captions changed:

      http://thesocietypages.org/socimages/2008/10/06/negative-stereotypes-of-the-irish/

      In other words women voters in the top 1%+50% love immigration from much poorer countries when it makes it easier to find cheap hired help, but don’t like sharing their suburbs or towns with them.

      I think that if the UKIP or the Tories proposed to put all those Romanians and Bulgarians and Africans etc. in out-of-town, out-of-sight, slums with curfews (as it is done in some other countries with large hordes of metics doing the banausic work), those voters would be really pleased; as long as they could also invest in the slum houses with a huge discount for an instant tax-free profit and then charge high rent to those “parasitic” immigrants.

      The skill of some politicians lies in pandering to property owning middle and higher income older women in the South East, by supporting their economic interests for more immigrants from much poorer countries to drive down or keep low below-average wages and push up property prices, while reassuring them about their safety and distance from the “other”s.

      Thus Theresa May’s constant stream of “security theatre” (mostly misandrist too) legislation implicitly or explicitly targeted at nasty-looking dusky/swarthy men (a strategy that has included Blair’s ASBOs), or that is aimed at ensuring that the “victim” spouse always “wins” divorces, both of which delight the hang-and-flog middle aged and older women voters.

      Reply
  3. bsalau93

    Whenever I speak to people about this, they very quickly come on to the question of how will it be paid for?

    Most people have taken the government budget constraint to be canon and it tends to be a big hurdle in convincing them that financing such a program, or any other works is not the constraint.

    Seeing as the political class are so captured by the GBC, the need to tighten your belt makes it easy for parties to seem responsible and competent, becase it relates so easily to voters’ lives. It can be difficult to convince others that that narrative is wrong, after all, if it was true why has no one tried to do it before? Why do so many people believe it? How can so many other people be wrong and us right?

    I think your idea on public purpose would be an effective entry into the economics. I think first people need to be convinced that the government has a duty to interfere on our behalf, and to begin stepping away from neoliberal ideas of restricted government action unless it favours market players. Once people accept that then it is easier to explain how, since they have already accepted the why.

    Reply
  4. Nick Rowe

    Good. You’re recovering.

    Imagine a Gold Standard, except there’s a gold mine in every town, where the unemployed can go and mine gold with their bare hands (panning for gold). Any miner can earn W ounces of gold wages per hour, where W is a constant and the same everywhere. (I’m stealing Brad DeLong’s metaphor.)

    Now replace the gold with paper gold, and panning for gold with doing something useful for the government, which owns the paper gold mine.

    If labour and jobs were homogenous (like gold) this would be a rather good monetary system, with great self-equilibrating properties. But there’s the problem.

    Reply
    1. axdouglas Post author

      Thanks!

      Yes, labour is not homogenous, so you need the government to just eat the differences among workers and pay them the same. I will give unto this last, even as unto thee.

      We already have employers eating the differences among workers (or more productive workers giving up their surplus productivity to less productive workers) when we set a minimum wage or pass other labour protection laws.

      This, I guess, is another philosophical issue. It’s like when people ask why your luggage gets weighed when you get on the airplane, but *you* don’t get weighed. What’s happening is that a conception based on utilitarian efficiency is running up against some sort of conception based on fundamental equal rights.

      We’re often negotiating a compromise between these two conceptions of the public good, and this strikes me as just another case in point.

      Reply
      1. Nick Rowe

        (Thinks back nearly 50 years to Divinity class) Parable of the Vinyard? I always reckoned there was some interesting economic philosophy in that parable, but never got round to trying to work it out.

  5. Jure Jordan

    Hi Alexander.
    I have lived in the East, west and in between and i think i know why people have such dissonanting views as you described it.
    The trigering event is GFC which punished many people. It shock them outof letargy about macro questions, all were interested only in their own lives/ micro questions.

    People experienced GFC as a punishment to them, now they all want punishing others not helping others. So, any proposition that helps ‘others’ is a no-no. Hence, as you say, any solution that brings what people want shows no interest because is about helping others.

    Why i have mentioned my living in the east, west and in between? I have noticed that basic economic policies differnce have starting points in philosophy: should we concentrate on punishing or helping people? West used to be about rewarding and helping good behaviour and hard work by economic success. East was and still is about punishing for unwanted behaviour as a main policy philosophy. It is all about institutional setup.

    So, now the west turned toward punishment as only recomendation to solve problems. Any solution that is about helping people is not considered because people were punished and now that is their reflex and feedback looping it to ever worse conditions.

    Reply
  6. Dave

    I think what you may be missing is that most people have a very good understanding of how the world works. The phrase “The road to hell is paved with good intentions” comes to mind. People intuitively know the real world isn’t just about aggregates and identities. They know from experience power dynamics, social context and institutional competence are probably just as if not more important. They’ve noted that economists and their theories predict little if anything and yet their practice has been very supportive to the already powerful and asset rich. They’re very well aware that one rule for all isn’t a thing, who you are and who you know being much more important. They’ve learned to be suspicious and cynical of academics and politicians who use the phrase “There is obviously a very simple way..”. but have little skin in the game.

    They’re also aware that they are a part of that system, each and every one constantly weighing up their best intentions against their own self interest. A very lucky few get to think about all these issues without worrying about keeping a roof over their head, and even smaller number get to do it as part of their job..

    All that said, I don’t think you should lose heart, no one person has to understand everything or come up with the ultimate solution and I’ve certainly found you blog very thought provoking.

    Reply
  7. Peter Shaw

    axdouglas – This comment is over-long, but the topic doesn’t divide readily.

    The responses to your previous post perhaps relate to what I call the Database Problem: If, when you store your document, you are confident you know how and for what purpose it will be retrieved, you very probably are mistaken.

    Your communication problem may be far less “weird” than you think, if you shift your PoV (“the experimenter is part of the experiment”). You must allow me a little discursiveness.

    I read that Warren Mosler has posed the excellent question-at-large: “How do you get people to explore their options?”. What you describe are instances of abject failure to do this. I am all too familiar with such “immune-responses”.

    Witness various Europe and its current behaviours, and recall that “cultural change is slow”. The quotation refers to business culture, but generalises usefully. Perhaps the Brits of today are essentially the tolerant and (fairly) reasonable Brits of fond memory, but now in different circumstances.

    I hope you allow “Luxury is the mother of invention” some credibility, as it can explain much. Its converse indicates that in difficult times we cling to the familiar, however demonstrably inadequate. Is that behaviour you saw?
    A family anecdote from 1937 England (but said much later) may bear on this: “Everyone knew someone would have to deal with Hitler, … but *we did not want war*.” – classical intellect vs gut-feel, with the latter winning until (largely) quashed by circumstance. Perhaps a prerequisite for useful discussion is that all parties must feel somewhat prosperous and resourceful. Does philosophy address morale?
    mrkemail2 upthread gives succinct reason for your (non-)hearers’ response. This may be necessary but insufficient; do they also feel that the scheme has them riding on the back of a tiger with all their eggs in one basket, so insecure? (muddled metaphors seem apt for the mindset)

    The Wiki page on the venerable principle of Rectification of Names ends its counterfactual with “… and the people are unable to move hand or foot.” – IOW they not only don’t know what to think, they don’t know how to. Could this fit what you saw?
    Your enquiry into economics has very probably disclosed that the discipline stands in sore need of this principle. If you coined your own terms as needed (compliant with it), you could present your arguments in lucid but unfamiliar form, and perhaps engage the mind of your listener.

    In taking on “public purpose” (PP), you might not escape economics. I have a simple argument which suggests that a for-profit monopoly naturally over-charges and under-delivers (by perhaps a third), and debate is on price. However, a public monopoly (in principle) serves all, and debate is on affordability. It follows that the latter must operate on different principles, which will still be of economic form. A corollary is that a public monopoly, losing vision, will evolve to the for-profit state – examples may present themselves.
    I think you will need a working definition of a “public good”. I speculate that the selection of something as one is not itself an economic act, but have no idea what criteria apply.

    My remarks above on culture(s) indicate that any consideration of PP should immediately prompt the question: “Which public?”. The EU Establishment appears to have a one-size-fits-all paradigm, with outcomes we see. So (tentatively), PP to be coherent and useful should be strongly hierarchal.

    Can a multi-cultural PP exist? If so, it must ban aggressive warfare (of any kind), perhaps on the general lines of “your freedom of expression stops a half-inch from my nose”.

    Remarks above on morale suggest that an outcome of good PP might be a widespread feeling of modest prosperity and resourcefulness. It may amuse you to take this yardstick and score a MSM current-affairs production by it.

    Reply

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