Street School Economics

A guest post from Dr Gail Bradbrook, an activist based in Stroud who is active in the Transition and Tax Justice movements and sees economic literacy work as a way to pull these concerns together

A few years ago I began my own journey towards economic literacy. I’ve long been concerned about enabling a more equal, sustainable world and yet how that related to changing the economy was a mystery. I had a pile of vague words and notions in my head, sound bites and ideas, half of them myths. They didn’t connect.

With that comes a sense of disempowerment. Perhaps my longings for justice were just silly in the face of basic economic theory. Perhaps the economy emerged from our human nature and wanting it to be different is an exercise in naivety. It’s certainly convenient if lots of us feel like that and if we remain so cloudy in our understanding. Perhaps it’s no accident that many of us do?

Street School Economics was borne of a personal desire to understand more. Dozens of books, hours of videos and courses later, I have pulled together information and sources on: the Street School website.

As well as looking at some of the basics in economics, such as markets, wealth and money, it also covers some key ideas such as debt, the limits to growth and inequality. A whole raft of solutions are offered, from the actions individuals and communities can take, to the policy solutions that are waiting to be actioned. I hope it’s a resource that people will find useful.

So the idea is to take economics on the streets, to listen to people’s thoughts and give information. So far we have begun to create some kind of ‘art presence’ that will catch the eye. We’ve just decorated a marketing stand we had, but you could use other structures. The presence has contained words which might reflect the kinds of ideas, queries and blockages that a person may have in their mind already, for example: ‘Why not let the banks go bankrupt?’ or ‘I’d rather keep my head in the sand’ or ‘We can deal with debt by giving everyone some money’.

We let people browse and if they want a conversation you can ask what they know about economics. Consider what is the one thing you’d like them to take away? For me it is that this economy has been chosen and there are different types available . . .   we might chose an economy that has the goal of maximising happiness and minimising harm. You can have a table with 'mini lessons' on – we laminated the pages from the Prezi on the site. We had leaflets to hand out and also include leaflets from relevant campaigns or local initiatives.

Obviously the idea of this work is to give people enough knowledge to demand something better. There are other ways to promote economic literacy and we are just starting to pull a network together of those interested in spreading this thinking- be in touch if you want more information (gail.bradbrook AT btinternet.com). We could demonstrate outside economics departments, others have run cafe economiques and lecture series. What else should we try, how do we build a movement?

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Does the Hinkley Deal Involve Subsidy?

There has been some confusion since Ed Davey’s announcement of the details of the plan for building a reactor at Hinkley C in Somerset, and some of this confusion may not be accidental.

First, we have the issue of whether the government is in a position to make this decision. In fact, it is not. Any arrangement that involves explicit or implicit subsidies needs to be investigated under the EU’s state aid rules which are ‘forms of assistance from a public body, or publicly-funded body, given to selected undertakings (any entity which puts goods or services on the given market), which has the potential to distort competition and affect trade between member states of the European Union’ (definition from the BIS website).

During parliamentary questions on 15 May to Michael Fallon, Minister of State for Business and Enterprise, Martin Horwood, MP for Cheltenham, asked the minister ‘how he proposes to comply with the standstill obligation in EU state aid law if he enters into an investment contract or sets a strike price before the European Commission has decided whether to approve such measures’. Fallon replied that ‘Any investment contract, if offered, will contain a condition dependent on a state aid decision from the European Commission’ (Hansard, 15 May 2013).

The minister’s clear view is that the setting of a strike price for energy will require a consideration by the EU Commission in terms of its compliance with competition law, law that relates specifically to the granting of state subsidies that may distort competition. Hence we can infer that the minister himself believed that this arrangement amounted to a public subsidy.

This appears to contradict the statement made on Monday by Ed Davey that ‘For the first time, a nuclear power station in this country will be built without money from the British taxpayer’. This is a carefully phrased statement, since the strike price is an implicit guarantee while the insurance against increasing costs are a risk on the public, which is to say nothing of the responsibility for disposing of the waste the plant generates.

While Davey is nervous about breaking his previous pledge that there would be no subsidies for nuclear, South-West Liberal Democrat MEP Graham Watson is not. As reported back in April he told the somewhat 'Business Green' that he supports subsidies for nuclear power in the South-West. Watson'defended the UK government's right to offer hefty state aid support for new nuclear reactors'.

Specifically in relation to Hinkley C, back in May the minister was asked by Paul Flynn at what stage the negotiations with EDF had reached. The minister replied that ‘in the case of Hinkley Point C, the Government have committed to provide summaries of reports from external advisers and analysis on the value for money of any contract agreed’. These reports were not forthcoming on Monday and I would be interested to see them if anybody knows where to track them down.

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Deconstructing Austerity II. Jobs

Aside from fallacious claims about reducing the national debt, the Conservatives' second claim to economic success--the creation of millions of private sector jobs--is also requires exploration. The well-rehearsed argument goes that massive cuts to public spending are not problematic since the private sector will take up the slack and create jobs to replace those lost in the public sector. There are several sleights of hand say that require unpicking in this part of the austerity narrative.

First it is important to note that the statistics tell us something about the quantity of jobs but nothing about the quality of those jobs, an argument made cogently by the TUC. A job as a nurse or an administrator in a public-sector setting is likely to be a unionised job with a nationally negotiated rate of pay and decent terms and conditions. The sort of job being generated in the private sector is much more likely to be an unskilled, poor-quality job with low pay. These jobs will do nothing to help with the standard-of-living crisis and will also not contribute to rebuilding a flourishing economy even in conventional terms.

The political narrative behind these arguments about the substitution of private for public jobs is the inability of the public sector to create wealth: an important part of the Conservative attack on the public sector (and devastatingly critiqued in an earlier blog!). So it is important to realise that many of the 'new' private sector jobs are actually simply redefined public-sector jobs. My job is a good example. Two years ago I worked in the public sector but now I work in the private sector. Because universities were privatised and are no longer funded from taxation, my job is now one that creates value whereas previously I was a parasite on the taxpayer. The same also applies to those who work in privatised sections of the health service or in services that are increasingly being outsourced from public sector employers such as schools and hospitals. (The Guardian has carried out some preliminary work unpicking this tissue of statistical manipulation.)

Finally, we need to ask what is a job? The data are most often used by Tories in claiming credit for this economic miracle are aggregated data based on everything that counts as a job. Incredibly even people working on zero-hours contracts are included in these figures as are those who are on any type of work scheme. So you don't actually have to be working to be counted in the government's jobs figures. Any government spokesman who presents data on increases in jobs without relating these two full-time equivalent jobs is, if not a liar, at least being very economical with the truth.

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Deconstructing Austerity I. Money

The narrative of austerity as proposed by Osborne and his cronies is that our huge national debt is the responsibility of feckless Labour politicians and their uncontrolled spending. An examination of the data from the Debt Management Office shows clearly that this is nonsense (this is shown in the graphic and discussed in more detail in my paper 'Who Owes Whom?'). The many billions that were spent as an emergency to prop up failing banks and prevent the financial system from crashing are the real explanation for the huge increase in the public debt. Osborne is a liar by omission because he will not discuss whether he would seriously have refused to invest this money and allow cashpoints to seize up.

 

The reality is that under Osborne far more money has been poured into preventing the cardiac arrest of the economy that results from a lack of circulating money. This is the money created through quantitative easing and the difference between it and what was spent by Darling during the crisis is that the QE money was direct credit creation whereas the money spent by Darling was generated through the sale of bonds and hence features in our national debt.

Since 2009 £375 billion has been created directly by the Bank of England and poured into financial institutions. They have greedily hoovered up this money and paid it to shareholders as well as improving their balance sheet position. They have barely loaned any of it to businesses or invested it in the economy, although the government could have used it for such direct investment, as I argued at the time. This explains why the wealthy and those with interests in finance are flourishing while the rest of us are suffering austerity. The £80 billion created for Funding for Lending has similarly not resulted in an increase in debt and has also been kidnapped by the banks rather than being fed into the real economy.

The Treasury bonds that were bought during the quantitative easing programme are still sitting inside the Bank of England presumably with a big label saying 'do not touch'. If they were to be cancelled, which they could be since they are IOUs issued on our behalf, nearly a third of our national debt would be wiped out in an instant. What a marvellous way of reducing the burden of austerity - or not depending on your political objectives.

These are political choices and hence the narrative of austerity politics that there is no alternative is simply a lie. Darling could have created money directly to save the banks; Osborne could create money directly now for investment in a renewable energy transition. Darling's unwillingness to resort to direct credit creation in the early days is hard to fathom and perhaps resulted from a failure of understanding. Osborne's refusal now to engage in any type of monetary policy that would assist the real economy is a consequence of his desire to use the financial crisis to achieve his long-term policy goal of destroying the public sector.

Almost without challenge Osborne portrays himself as the saviour of the economy while Cameron claims deceitfully to have reduced the debt. The national debt is of course still increasing (see the Spectator graphic) and while the deficit is slightly decreasing we're way off Osborne's original projections. However, this is all smoke and mirrors since the Conservatives have no intention and no desire of reducing the national debt: it's far too useful to them politically.

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Owen Paterson: The Badger Bites Back

Since I was given the opportunity to respond to his inane remarks about fracking back in the summer I have taken an increasing interest in the escapades of Environment Secretary Owen Paterson, whose suggestion that his failed badger cull was the fault of the badgers has brought him greater public attention recently. When asked for that comment I had just eaten a particularly dreadful railway burger and so was feeling irritated before I even read his remarks, hence my suggestion that he was only a so-called environment secretary.

With the benefit of some reflection I actually feel my comment was well aimed, since the problem I have with Paterson is about what he thinks the environment means and therefore what it means to be the minister for it. Paterson is clearly taking a definition of ‘environment’ that is diametrically opposed to my own and one that exposes him out as a classic representative of the man-in-dominion approach to the natural world. This comes easily to those who have grown up owning large stretches of countryside and seeing it as a playground for them to cavort in and a place to shoot any creatures that might make their home there. A Green environment secretary would take the perspective of humans as part of that environment not an external, colonising force. Shifting from the view of land belonging to humans to the view of people belonging to the land was an important step in my ecological evolution.

Paterson’s increasingly strident attacks on the opponents of fracking, those who attempt to defend badgers, and to protect our environment against genetically modified crops have made it clear that Patterson has been Crosbied. Lynton Crosby's main influence on the government has been to persuade them to abandon any pretence of basing policy on scientific evidence or even to debate with their opponents at all. Instead the strategy is to go for full frontal assault on people who do not share their view, calling them wicked and shameful and suggesting that they revel in childhood blindness or the slow death of soft fluffy animals.

Paterson was clearly chosen for this role because of his fondness for seeing the environment as something to be exploited and a ‘wholly owned subsidiary’ of UK plc, rather than understanding that the economy is entirely dependent on the environment, as Herman Dally suggested an ecological approach to economics requires. Hence the NPPF (the coalition government's planning policy), with its presumption in favour of growth and an undebated and unrestrained support for fracking no matter what the environmental and social cost.

Paterson's suggestion that the badgers moved the goalposts was greeted with hilarity but is in fact one of his more sensible suggestions. If he could only begin to see parts of non-human nature as having agency and deserving respect we might see some improvement in his hitherto dire performance in protecting the environment.

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The Troika, the US Hedge Funds and the Diversion of Taxpayers' Money

A guest post by Stephan Lindner

Do you remember John Paulson? In 2007 he became famous for having the highest income of all hedge fund managers on Wall Street, because he bet against the US housing market. Not all of his deals were fair, to say it politely. Later the SEC investigated a deal called ABACUS 2007-AC1, for which Paulson told Goldman Sachs to create a CDO with bad subprime mortgages, so that he could bet against it. Goldman Sachs agreed 2010 to pay $550 million to settle with the SEC and a former vice president of Goldman Sachs, who was responsible for the deal inside of Goldman Sachs was found liable for fraud in front of a jury. With that single deal Paulson earned around $1 billion and never had to justify himself in front of a court. And now he tells the whole world, that he owns shares in two Greek banks, Piraeus Bank and Alpha bank. Reuters cites from a statement: ‘They have good management and we think the Greek economy is improving, which should benefit the banking sector.'


What does this management looks like? In Greece after the haircut the banks are more or less bankrupt and need to be recapitalized. Officially they are solvent thanks to the $50bn. they received from the troika, but most experts still estimate that the non-performing loans are still higher than the injected capital. Normally nobody would like to give capital to such banks. Here is the explanation the owner of Piraeus bank found for this situation: Reuters reported in summer 2012, that he used credit in his own bank to buy shares of his bank (read the full story here). In this New York Times article from June you can read even more of what the president of Piraeus bank did to make his bank grow during the crisis to become the biggest bank in Greece:


If you think you get into trouble if someone finds out about such business practices, you are wrong. Mr Salinas is still the President of Piraeus bank and the Greek Central Bank, which investigated all allegations, could find no evidence of wrongdoing. And they have the ideal informant: the president of the Greek central bank is a former vice president of Piraeus bank. So what happens to people who report about such practices in Greece? It isn’t pretty.

We might also ask how the troika did everything possible to make the buying shares of Greek banks as lucrative as possible? For each Euro someone invests in banks like Piraeus the troika pays an additional nine Euros, and if the share price aises to a certain level, the investor gets the right to buy this additional 90 per cent of shares, not for the then actual much higher price, but for the low price at which they made their first investment. Hurrah for the troika for making such lucrative deals with taxpayers’ money. Read the full explanation of the Paulson deal in todays blogpost of Yanis Varoufakis.

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Get a Life not just a Living Wage

I spent Saturday at a conference on the living wage organised by the regional TUC. It seems sad that you need to campaign for the right to earn enough money to live on but this is the reality of the living wage campaign. It was easy for me to agree with it since the Green party's policy is to raise the minimum wage to living wage of 60% of average earnings (currently around £8.10 per hour). The representatives from the Conservative and Labour parties present similarly supported and the living wage, although their parties do not have it as part of their national policy platform.

The idea that paying workers reasonably is good for everybody in the economy is neither new nor radical. It was the idea that enabled Ford's Detroit workers to buy the cars they were manufacturing, and forgetting this important lesson about capitalism is part of the explanation for the disastrous state of Detroit today.

My own presentation was focused on the living wage as a first step towards the end of wage slavery and needless to say I ranged rather more widely than the idea of bringing wages up to a liveable minimum. The beginning of my story was the way the Empire of Capitalism struck back at the end of the 1970s and the huge impact this had on the income dispersion. This is illustrated in the graphic taken from the work of Danny Dorling, which shows the share of total income going to the richest 1% of people between 1918 and 2005. The impact of trade-union activism and increased worker expectations is clear, as is the counter-effect of the Thatcherite ideology and attacks on union power.

My next graphic, based on ILO data, demonstrates clearly the importance of the Tina narrative in persuading workers not to ask for higher pay. It shows the clear indication of productivity increases on a global basis and the fact that the value generated by these workers working harder has been paid in profits rather than in wages. The argument around globalisation was used to persuade workers that they must compete with those in the lowest-paid economies in the world, and that asking for higher wages would destroy their own jobs. The inevitability of a race to the bottom when this ideology is played out is illustrated clearly in the graphic showing wage rates in different countries.

The great disparity of wages across EU countries which are part of the same single market is surely an issue that requires political debate. Why do we accept the very low pay offered to workers in central and eastern Europe? The deal we are offered is cheap goods rather than well-paid jobs, encouraging us to focus on our role as consumers rather than producers. The political economy underpinning this is not discussed but should surely be open for democratic debate.

The gains in wages illustrated in the earlier graphic were the result of solidarity across industries within a market. Globalisation undermined this but if we are to return to international solidarity in a globalised economy then surely a global minimum wage must be our ultimate demand, rather than a low wage, even if a living wage, subsidised by corporate welfare in the form of tax credits.

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