COVID 19 and the economic system

This is the first time I’ve written anything here for years. But it occurs to me that the current pandemic highlights a failure in our economic system to deal with what’s important rather than what is profitable.

During a walk I took this morning, I was reflecting on a post I had seen (and cannot now find) on Facebook. I didn’t think I agreed with what had been said about how we should be responding to the coronavirus pandemic and was trying to think through why not.

This is the result of that thinking.

Firstly two questions:

1 How many acres of productive agricultural land has COVID 19 destroyed?

2 How many power stations has COVID 19 destroyed?

Which leads on to another question:

If we have all the agricultrual land we had before COVID 19 struck and if we have all the power stations, then why are people going hungry and cold?

Surely the problem is not about a lack of resources, because our ability to meet the basic needs of food and warmth have not changed – the problem is one of distribution.

Or put it another way, we don’t need to “open up our economies” and “get people back to work” to be able to feed and keep them warm.

Which makes me wonder whether there is something wrong with our economies in the first place. Surely our first priority at the present time should be to come up with ways to make sure that people are fed and kept warm and only later do we need to consider if we can send them out to work.

Yes, I accept that people need to get out, because being shut indoors all the time is difficult. And yes, people do need to work and make their own way in life, because that is part of being human. But they don’t necessarily have to do it NOW, during an exceptional period when meeting up carries unusual dangers either for ourselves, the people we meet, or loved ones that we go to back after meeting up.

Or put it another way, our focus should be on making sure that the things that need to work, do work. In other words that we can distribute food to those who need it – whether they can pay for it or not. And on making sure that the basics of life – keeping warm – are in place.

And on top of that we can probably do a lot to look after those struggling with being shut in – whether they are elderly or infirm or young with boisterous children or something else.

So the question is, does our economic system work well for us now? And if not should we look at it and consider a change to the system?

Why we shouldn’t be politically correct

With thanks to Lars Syll for highlighting this extract

By being “correct” we can sometimes end up encouraging views that make no sense – because we don’t allow people to not only hear truths but also put them in to context.

For example “men and women are different” is not a sexist remark, but if we are not allowed to say it and explain what we mean, we can end up with people hearing it for the first time in a context which leads them to think that “women are inferior” which is sexist and unjustified by the evidence.

Does competition really exist?

Lars Syll’s post says that state intervention interferes with the market and as a result competition does not necessarily eliminate bad bosses (quoting banks as an example – without state intervention after the 2008 crisis, many banks would not exist and their bosses would no longer be employed).

But surely this is the same as saying that competition does not really exist.  State intervention has rigged the system!

But what of the argument that competition eventually eliminates bad bosses? True, it does sometimes; the relatively egalitarian John Lewis Partnership has done better than department stores such as…

Source: Does competition really eliminate bad bosses? | LARS P. SYLL

Marketization undermining the welfare system | LARS P. SYLL

Sweden has during the last couple of decades tried to marketize the public welfare sector. The prime mover behind the marketization has (allegedly) been the urge for cost-minimization, freedom of c…

Source: Marketization undermining the welfare system | LARS P. SYLL


Perhaps not as far advanced as the British “marketisation” of welfare (and healthcare), this review of the effects in Sweden suggests that we cannot expect “privatisation” to work for a number of reasons:

  • Local authorities struggle to come up with appropriate contracts and effective monitoring of them
  • It is difficult to maintain standards (and equality across the country) when the system gets fragmented by breaking everything down into small “contracts”
  • It is difficult for providers to not only provide the best possible standards of care and the highest profits to shareholders – or put another way the system builds in a conflict between doing your best and doing it for the best price

Are we running a deficit in politicians

Not a lot has been made of the quick turnabout in policy. Philip Hammond presented a budget with lots of facts and figures and within a week, the key economic policy – being sensible – is out of the window and the budget has a £2bn hole in it.

This is not the first time this has happened with a “fiscally responsible” conservative government. George Osborne – the man who can hold down any number of full-time jobs – has had to reverse key policies within days – he was the man who decided a £4.4bn cut in benefits was not acceptable (in 2016). And he presided over the “omnishambles” budget of 2012 when various VAT changes (including the pasty tax) were later scrapped.

The problem is not limited to conservative politicians, with Gordon Brown announcing in 2007 he was “cutting” the 10p tax rate – which meant a hike in taxes, which he had to balance by national insurance changes of his own.

But the real problem seems to be the deficit in reality. When chancellors talk about “reducing the debt” what they seem to mean is “not borrowing quite as much as last year.” When ordinary people and businesses talk about “reducing debt” they mean paying some of it back.

When recent conservative chancellors talk about being fiscally responsible, they seem to ignore the numbers and try to claim that labour chancellors borrowed irresponsibly when borrowing under 40% of GDP (2005 to 2009 on average) when in recent years borrowing is only now coming back down to that level of GDP.

The idea of actually paying some of the debt back is still a dream. The “red book” which has all the forecasts in it still shows the government borrowing more money every year to 2021-22.

I was one of the only economists who predicted the financial crash of 2008 – in 2017 we need to make urgent changes The Independent

Economics is driven by ideology – it is ideology, not science, which drives them to assert that bank bailouts are tolerable but policies that protect the poor aren’t. Unsurprisingly, these flawed theories and models are a great comfort to financial elites – which is why so many economists are hired and funded by big banks, corporations and the wealthy

As someone who correctly predicted the financial crisis (first in 2003 and later in a 2006 book) I support Andy Haldane’s assertion that the economics profession is “to some degree in crisis”.

Source: I was one of the only economists who predicted the financial crash of 2008 – in 2017 we need to make urgent changes | The Independent

The reality of how money is created | LARS P. SYLL

A great article backed up with a challenging image

Everything we know is not just wrong – it’s backwards. When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes.

Source: The reality of how money is created | LARS P. SYLL

Economics vs. reality

With thanks to Lars P Syll for this argument about how far we should go to make economic models.  He concludes:

It is better to be vaguely right than precisely wrong

economics_versus_reality-e1431153441673Denicolò and Zanchettin, in an article published by the prestigious Economic Journal, claim to have shown among other things that “stronger patent protection may reduce innovation and growth.” As a…

Source: Economics vs. reality

Why are the boomers so angry?

No, its not really about Borrowing, but I have just spotted this article and was fascinated by the possibility that older people have just decided to kill their golden goose.

Flip Chart Fairy Tales

A quote about Brexit supporters by a friend of mine last week attracted a lot of attention when I stuck it on Twitter yesterday.

This is the last ‘fuck you’ from the baby boomers. They took the secure corporate and government jobs with the guaranteed pay rises and final salary pension schemes and benefitted from property they bought cheap and sold dear. They burnt the bridges behind them by colluding with the dismantling of the very things that had brought them prosperity. Their last act will be to burn the economy before they die.

It even made the Independent. Some people were offended by it but, for the majority of those who commented, it seemed to strike a chord, suggesting there is at least a grain of truth in it.

It is certainly true that the pollsters are recording the highest support for Brexit among older voters. YouGov data

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