Wednesday, 20 July 2016

Cut or Spend


Cut or  Spend

Why is the "austerity" question still being debated?

     Still the battle rages! Ann Pettifor and Veronica Chick (Financial Times 4th Oct 2010) declared (ex cathedra) that cutting government spending (or increasing taxes) would not decrease the deficit, but increase it. But no one headed. The Nobel Prize winner Paul Krugman ran a column week after week with the same argument. In June 2012, he and Layard published "A manifesto for economic sense" [1], calling for a policy of fiscal stimulus to reduce unemployment and foster growth. Yet the ordinary citizens and their ordinary governments are very loath to spend further money as a way to reduce the deficit; it is too counter-intuitive.
     Part of the argument is easy: "A sovereign state is not the same as a household."  Obviously! But that point is not enough to persuade the averagely cautious to borrow money on world markets in order to "restore growth". Though I have grappled before with this topic [2],  I take it up again now, and attempt a more quantitative approach. I do not have the mental power to follow an algebraic analysis, and nor will my intended readership. But I have evolved a robust and glaringly simple approach to numerical problems of this sort. I assume very rough figures for the way salaries enter into the prices of goods, and have simplified grossly to expose the argument, but I believe that this approach could be 'tuned' rather accurately if the correct splits (of one sum between its 2 or 3 parts) were determined and inserted. My conclusion is startling.
     Imagine for simplicity the United Kingdom to be a closed community with no external trade. I can therefore equate GDP with the sum of all income in the country [3]. Suppose, initially, that the annual GDP is 1trillion GB£. (1Tr£) [Table 1; Stage 1]  Suppose that the government collects 20% of all income as income tax and 20% of non-exempt spending as VAT. The income tax revenue stream is therefore 0.2Tr£ [Stage 2].  
     If all the remaining net income (0.8Tr£) were spent, half on VATable commodities, and half on VAT-free items [Stage 3],  the VAT stream would be 0.08Tr£, as that is 20% of 0.4Tr£ [Stage 4]. Of the VAT-free portion of GDP, I am going to assume that half represents salaries for farmers and shopkeepers, etc, while half is the cost of "raw materials". The salary portions, of course, constitutes part of the eventual GDP [Stage 4]. (It is arguable that much of "raw material" is also income, e.g. for the forester.)    
     The VATable portion of net income, after deduction of the VAT, is spent on our voluntary purchases. I shall assume (in the first instance) that this also will be distributed 50:50 between raw materials and salaries (of boat-builders, opera singers and the like). The latter, as before, becomes part of GDP.
     Let us now spend the tax we have collected (IT+V) [Stage 5], and suppose that 50% is salaries of civil servants, soldiers, nurses, etc.; so eventually part of GDP. A further 20% might go on benefits (which I shall count as GDP in that it will be treated as income by its recipients), 20% on infrastructure, leaving 10% as waste (e.g. paper clips, rubber bands, and shredded paper.) [Stage 6]
     In this very crude first analysis it seems that, with an initial GDP of 1Tr£, a certain amount is lost to the economy on raw materials, infrastructure, and waste (0.444Tr£), while the remaining 0.556Tr£  recycles and becomes part of the final GDP of 1.556Tr£. (This may relate to what economists know as the 'fiscal multiplier' [4].) [5]
     In Table 2 the argument is repeated with none of the assumptions changed except that VAT and income tax are both raised to 30%.  It turns out that the losses to the economy now amount to 0.4175 with 0.5825 returning to GDP to produce an eventual GDP of 1.582Tr£.

The surprizing result is that raising taxes, in addition to improving infrastructure, has raised GDP, for the taxes in this model are largely returned to the economy in the form of salaries and benefits.

Table 1.  Recycling of GDP with VAT and income tax at 20% (Units=Trillion £GB)

Initial GDP=1Tr£
Inc tax 
0.2
Net income 
0.8

VATable spending 
0.4
VAT exempt (rent, food)
0.4

VAT 0.08
Spent voluntarily
0.32
GDP
0.2
raw material
0.2
Total tax 
0.28
GDP
0.16
raw material
0.16


Waste
0.028
InfraS
0.056
Benefits
0.056
GDP
0.14





Table 2.  Recycling of GDP with VAT and income tax at 30% (Units=Trillion £GB)

Initial GDP=1Tr£
Inc tax 
0.3
Net income
  0.7

VATable spending 
0.35
VAT exempt (rent, food)
0.35

VAT 0.105
Spent voluntarily
0.245
GDP
0.175
Raw material
0.175
Total tax 
0.405
GDP
0.1225
Raw material
0.1225


Waste
0.04
InfraS
0.081
Benefits
0.081
GDP
0.203





References:
[3] http://www.investopedia.com/terms/g/gdp.asp
[5] Strictly speaking the recycled GDP will itself recycle after splitting into 'waste', 'infrastructure' etc., adding progressively smaller amounts to GDP with each cycle: 0.556, 0.309, 0.172, 0.096, etc..  But for simplicity I consider only one cycle through the table for that is sufficient to make the argument. For the higher tax rate the additional GDP with successive cycles is: 0.582, 0.339, 0.198, 0.115, etc..


Sunday, 17 July 2016

Dear Jeremy Corbyn


Dear Jeremy Corbyn,

You would doubtless like to see [1] a Labour Party that espoused good Socialist principles, [2] that advocated them clearly, [3] that attracted gifted men and women to the party, [4] that motivated them sufficiently to dedicate a couple of years of their life to fighting an election, and [5] that won over sufficient voters in the United Kingdom to win a general election. Should any one of those let you down, you will be ineffectual. 
You are thrilled to find the wave of enthusiasm for your stance on Iraq, Trident, and Austerity that swept you to the leadership of the Labour Party in September 2015. On that basis there are some grounds for thinking that your stance might win a majority in the event of a general election, and no doubt you would like that put to the test. But, as Bismarck  shrewdly said, "Politics is the Art of the Possible". An idealist would doubtless stick to "the truth" even when no one listens, and no one follows. But the pragmatic dictum is nevertheless true to the extent that what actually happens is not achieved by the ineffectual idealist, but by the effectual realist; either a high-minded realist, or a low-minded realist.
To win a general election you need 650 loyal and able candidate MPs, and 10 million voters in the country. What is needed is idealism plus management skills, plus analytical power to calculate the effect of policy options, plus energy, rhetoric and luck. So, there is work to be done. Do you need help? Are you making good use of the available talent in the Party?
Has Labour a policy on:
Quantitative Easing?
Sale of council houses?
Proportional representation?
Worker participation on boards (Mitbestimmung)?
High-Speed rail?
Curtailing the scope of the NHS so that it can achieve its aims?
Reforming the tax system along the lines of the Mirrlees Report?

Yours sincerely, Ian West
Middleton Cheney, Northamptonshire.

Monday, 4 July 2016

Is Corbyn the only possible Labour Leader?

If the Labour Party is looking for a leader they should work out what they want. Labour MPs might like someone to lead the opposition in parliament, particularly at prime minister's question time; a sharp intellect, quick with words, someone with antennae sensitive to the mood of the 'party in parliament', and the media, but resilient to the buffeting of envious critics. 

That would be nice. But the party leader MUST have a grass-roots following. They should have a potential constituency as large as that of the current governing party, or the ability to co-operate with smaller (protest) parties till they have a commanding lead in parliament. Therefore they should not be divisive, in the way that clause 4 (calling for state ownership of the means of production) was divisive. But instead should adhere to principles with a wide appeal, like honesty, generosity, and consistency; and advocate policies ensuring international stability, and the rule of law; and ensuring that "...power, wealth, and opportunity .. (lie) in the hands of the many, not the few...", (as written on the back of the Labour Party membership card). 

I cannot see anyone as a potential Labour Party leader who supported the sale of council houses, or of the GPO, or the invasion of Iraq or the bombing of Syria. Whom, amongst current MPs, does that leave?

--
Ian West, Middleton Cheney, Banbury, 

Tuesday, 28 June 2016

How can we explain the Exit vote?


Explaining Brexit to a Taiwanese friend 

Dear Hsiu Ju,

My first thought, on hearing that the referendum resulted in a 52:48 vote for leaving the European Union, was a sort of stunned disbelief. How could we?  Why did Cameron chose to have a referendum now? Maybe he tricked himself into it.

It is ironic that the two campaigns did not meet each other’s arguments. There was little deployment of the emotional case for staying (apart from Gordon Brown, and John Major). There was little clarification of the elected and thus democratic nature of the two European councils and parliament, and their supremacy over the commission (except by Professor Michael Dougan). No-one pointed out that we could already operate a points based system for non-EU immigrants, but chose to let them in for several over-riding reasons (humanitarian, or selfish). There was no answer by the 'leavers' to the financial case for ‘remain’, except to repeat lies about £350 million per week. The press and broadcast media may have let us down; been biased, or feeble. But such a conclusion smacks of paranoia, and in any case only pushes the question back one stage. There are undeniable problems with the Euro, the Concilium is cliquey, the Commission is too powerful and too independent, and the fiasco in the Middle East has placed a new strain on the open borders, but these point where hardly discussed.

So, there was an inadequate debate; just slogans. But can democracy be so easily fooled? Perhaps it would be wiser to assume that those who voted for exit had good reasons.  

A scrutiny of the results showed several clear trends. The young favoured 'Remain'; the old favoured 'Exit'. It also emerged that northerners, labourers, and the less educated do not want to be in the union, and it is easy to see why; they suffer by it. You ask me what people were thinking about when they voted ‘leave’. I have heard the following points of view, and put them in roughly the following order.
1. Some people think that too many east Europeans are coming to the UK, drawing Social Security, or taking jobs and lowering wages. (Of course, such immigration is in general welcomed by those who buy labour, but is bad for all those who sell labour, or need charity.)
2.  Some cry “Give us back our sovereignty”. I believe this attitude is partly based on a mistake. Democratically elected British representatives in the European Parliament and Council of Ministers approved most of the laws made by Europe, but did not have the guts to say so to a divided Britain. The media found it amusing to ridicule the funny rules of the 'foreigners'; and of course there are always SOME grounds to disparage any law. There may even be some European laws (or rulings), that a majority of British people object to, but we certainly do not know that, because such a question has never been put to a referendum. From my perspective, European laws are well made, and the process is wonderfully open to scrutiny. On the other hand the Union does seem destined to make some mistakes: the problems with the Euro, the Commission being too powerful and independent, the move simultaneously to widen and deepen the Union.
3. It was said that we pay £350 million a week to Europe, and many voters will have thought that was far too much. They were apparently unaware that we got most of it back, either as money or as benefit (farm subsidies, bridges built, etc.). There is a suspicion that the bureacracy of the Union wastes money, but this is largely in ignorance; the audit is thorough, and the civil service very much smaller than our own on a per caput basis. Britain is above average wealthy (in the context of Europe ), and so we contribute some money to be spent on poorer parts of Europe (as also other parts of the world). Some people probably objected to us funding donations to recipients chosen by Europe rather than Britain. Indeed, I have occasionally wondered why it has been assumed that the traditionally poorer countries of southern Europe need to be brought up to the same standard of living as the chilly countries of northern Europe, when they enjoy such a stunningly superior climate. "Free movement of peoples" would have evened things out.
4. The trend in Europe seemed to be for continued expansion. The idea of 78 million turkish muslims joining Europe may have alarmed a number of voters.

Our parliament is sovereign in the UK, and should debate what we should do. (With Proportional Representation that should have made a referendum unnecessary.) There is no law that says we have to ‘obey’ a referendum. (Only 39% of voters called for exit (0.76 x 0.52)). There are solid financial grounds for remaining in Europe, and cultural and political benefits from remaining in, and improving, the Union. On the other hand there are solid objections that must be met. The absence of a specific and detailed alternative to the European Union is scary, and the task of creating one is rather daunting; but those would be poor reasons for staying.
I hope that I have been fair.
Ian West, Middleton Cheney, Banbury.

Monday, 6 June 2016

The Evolving European Union (3)


Did the UK spoil the European Project?
I think the fact that the European Union is under strain, and its fabric creaking alarmingly is, at least in part, the fault of Great Britain.
A club was set up with the clearly formed, but partly hidden, objective of making cooperation pay (in monetary terms) to such an extent that the key states in Europe would voluntarily integrate their economies and war would become unthinkable.
For some reason** we (the UK) opted to stay out but, after a decade, began to envy the economic advantages of membership; and after a further decade we joined the club, in 1973. But we did so with reservations, with our fingers crossed, so-to-speak. A sizable section of the UK thought it possible to have the economic advantages without the integration. Meanwhile the core (and founding) members of the club continued with their original and by now perfectly explicit intention of integration.
Since the UK joined the European Union, there has been steady progress in two somewhat conflicting directions — widening, and deepening. I believe Britain was as keen as any country to enlarge the Union with the inclusion of the Mediterranean countries, and the countries of Eastern Europe freed from the Soviet Union following the removal of the Berlin wall in 1990. Enlargement would increase the size of the 'Single Market', and at the same time secure the democratization of these once-Soviet countries. Meanwhile the deepeners proceeded with their project by abolishing passport controls (1995) over the 26 countries of the Schengen Area, and introducing a single common currency for the 19 countries of the Euro Group (1999/1/1). The UK opted out of both those deepening steps. But even for the 2 EU countries that have opted out of the Schengen area (UK and Eire) there is no way we can exclude the entry of EU passport holders.
Now, in June 2016, we have some vociferous voices in Britain wishing that we had not opened our border so generously to mass immigration of Eastern Europeans. It is ironic, is it not? We thought we could have their labour and their markets without having to share our social services and welfare-state. (And I suppose we could, had we sufficiently anticipated.) Likewise, there are skeptics who claim there is a logical fallacy in having countries like Germany and Greece sharing a common currency; dour, mercantilist, credit-countries and sunny debtor-countries. German and French banks were happy to receive regular interest payments from Greece and Portugal, but were not prepared to shoulder their bad debts. Is it not ironic, and reprehensible, that this failure to pay was not foreseen by the lenders? I, and others, think it is perfectly possible for rich and poor countries to share a currency, with iron discipline (see Ecuador and the USA); but Martin West and other argue convincingly that it is indeed impossible to manage a currency that suits both Greece and Germany equally.
 What happens if we vote to leave? Do we lick our wounds, see how many countries choose to leave with us, then establish an alternative union more to our liking?
What happens if we stay? Do we start attending more creatively to the debates that shape the Union, rectify knows weaknesses, and learn to live with our neighbours?
I can face either possibility, but I would grieve if our exit led to the collapse of the whole European project, grieve for the immense and high-minded effort that has gone into creating a unique Union of cooperating states, over these last 65 years.
(** Perhaps a smug conceit that we had little to learn and, with our Commonwealth, little to gain,)

Friday, 27 May 2016

David Chapman and Meaningness


Meaningness and Eternalism

For years David Chapman has been grappling with, and  developing online, his views on the age-old problems of morality and the 'meaning of existence'; problems that have dogged mankind for thousands of years, and which, until the last few hundred years, were solved by religion (in its widest sense). In the last few centuries the proportion of the human population that feel bound to reject religion has been growing, leaving more and more people nagged by the worrying possibility that our lives are pointless.  Chapman talks about purpose, ethics, and selfhood, but in a manner that he believes is neither religious nor philosophical, for he thinks of himself as anti-religious, and anti-philosophical.
His rejection of religion has centred on the concept of 'eternalism'.  Eternalism, according to Wikipedia, is a philosophical approach to the ontological nature of time, which takes the view that all points in time are equally real, as opposed to the 'presentist' idea that only the present is real and the 'growing block universe' theory of time in which the past and present are real while the future is not. Chapman clearly has in mind faith-systems like Christianity, Islam, communism; systems that provide believers with answers to the otherwise insoluble problems of ethics, metaphysics, and politics. He sees (I suppose) a common feature in that the answers provided are unchallengeable precisely because they are not contingent on time and place; they provide answers for all time; so he calls them 'eternalist'. Chapman rejects 'eternalism', and its false promises. I see the common feature of these religious (and perhaps also political) systems to lie in the way they are propagated, held, and justified. I call them 'faith-based', as I see that the propositions are supported not by observation, experience, or logic, but by hearsay, authority, and wishful-thinking. And I reject them on those grounds. (Communism does not fit neatly here, and needs another paragraph.)
But I agree that they are 'eternalist', so far as that goes. And agree that they are attractive to their devotees in their comprehensiveness, and in providing a feeling of certainty; a feeling that is seductive, but illusory. Chapman goes on to explore the way we love to feel we understand things even when we do not. Few people can tell us exactly how a tin-opener works, or a bicycle, or the tides; though most of us are happy with out sketchy level of understanding. I confess to having a great love of certainty (even siding with Einstein in the Born-Einstein debate about 'God playing dice'). And confess to finding it unexpectedly hard to explain tides if we go at it at all thoroughly. However, I avoid the mistake of thinking that I can explain tides, because I have several times tried, and know the difficulty (E.g. why two tides per day. Why two equal tides, if the density of water and earth are different.) On the other hand, I was not too rattled to find I did not know (until I thought about it) which leg of the tin-opener had the cog, which the cutting wheel. It is after all sufficient to know 'how to use it'.
This is interesting, but I suggest it is not relevant to his central problem, which is to find a way of answering the recurring question of  'the meaning of existence' that is not simply an unsupported, eternalist statement of faith.
In order to search for and find this elusive quality, David Chapman felt he had to name it and, as no name currently existed, he invented the word 'Meaningness'. (It is possible that the word 'meaningfulness' might have sufficed, but was already in use and could not be 'patented'.) Perhaps we could look at it this way: we spend 2 hours of our life watching a film and, depending on the film, we feel benefited, or we feel we have wasted our time. We are, in this, discussing the 'meaningness' of the film; not the 'meaning' of the film, which is a quite different question. Or we could ask, as perhaps David Chapman does, 'what is the meaning of our life?' How much or how little does it have of the quality of 'meaningness'? 
But in the very act of asking that question he is, I believe, creating his problem, for to ask the question seems to imply that there is an answer; that there is a 'purpose'; that there is someone (or some thing) that can harbour an intention, and has the ability to arrange things thus, or differently. Those are implication we have already rejected. (Vide supra.) If you deny all possible answers, then you should not ask the question.
It seems to me that David Chapman has not yet achieved his goal, for much of his online Meaningness hypertext consists of 'place-holders' labelled "work in progress". But I think he is working on the right lines. His work is almost a Baconian Novum Organum of Meaningness, for he treads his way round the topic, testing each vision in his mind for its meaningness. He is building up a list of reactions to situations using his own 'feeling' of meaningness.
To my way of thinking this quest is indeed philosophical, and I suspect Chapman only declared himself anti-philosophical so that he did not have to read up all the myriad words that preceding philosophers have written on the subject. I believe the 'answer' will be a sort of objective subjectivity, for I see the possibility of a 'natural history of the human mind', where the subject matter lies inside the brain of the investigator, but the objectivity arises from the existence of similar brains. I believe morals are generated by the individual mind, but tested and verified by society, as I have blogged elsewhere.

Saturday, 23 April 2016

The Evolving European Union (2)

European Legislation

Laws, remember, are made in the European Union jointly by the European Parliament and Council (concilium  or Council of Ministers), on both of which Britain is represented in an appropriate manner.

Someone has said that 60% of laws that apply to us in Britain were made in the European Union; are in effect European Laws. Well, the number might be 58% according to FullFact.org; but never mind the exact proportion, it still makes my friend Peter feel bossed around by strangers, deprived of his sovereignty.

However, it does not have that effect on me. I surf my way to eur-lex.europa.eu and in less than a minute I find I have access to the entire legislative process of the EU cataloged by year back to the beginning; brilliantly transparent, brilliantly lucid. I find that the products of the EU legislature are of 3 types:
[1]   Regulations; which apply in a binding way across all members states of the Union.
[2]   Directives; which only become binding in any particular country if that country adopts and enacts their own law to that effect.
[3]   Decisions; which relate to individual cases, as between two competing slaughterhouses in Cyprus.

My friend Peter is therefore concerned only about the Regulations, of which some 1500 were passed by the EU in 2014 and again in 2015. Let us take at random Regulation (EU) 2015/2284 of the ‘European Parliament and Council’ of 25 Nov 2015 repealing Council Directive 76/621/EEC relating to the fixing of the maximum level of erucic acid in oils and fats. Does Peter object to that being repealed, purely (we are told) for tidiness and clarity?  I think not. Or Regulation (EU) 2015/2421 amending Regulation 861/2007 establishing a European Small Claims Procedure. No problem, surely? The Laws passed by Europe seem timely, well drafted, fair; in short competently done. If they were not passed in Brussels they would have to be passed anyway in London.

What might make anyone a trifle uneasy is the thought of that team of 23,000 civil servants beavering away in their clever, methodical, way. Why not 25,000? Or 30,000? Parkinson’s Law applies in Britain; so I suppose it might apply also in Europe. We should look next at the Court of Auditors, to see if they are doing their job.


If there is any serious criticism of the European Union --  we should fix it.