Category: debt

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crisis debt economics environment Key Article politics problems society taxes

Can we afford for Britain not to lead?

Britain, partly on account of its preeminent financial center in the City, may be the only advanced country positioned to move to a new socio-economic model.

Any country proposing to make an even moderately radical break from the status quo will face deep scepticism from the establishment, and the establishment today is embodied in the international financier and the global corporation, on whom the peace of our societies and the satisfactions of the great majority are now dependent.

Our current system already rides a razor-thin line between plausibility and fantasy with never-seen-before levels of debt and monetary adventurism, the credibility of which are predicated on long term projections of growth and stability that beggar the imagination.

Any new ideas for how to structure our political economy must either promise to conform to the tightrope we are on, or provide a credible alternative. Any plan that increases spending or investment but does not raise new revenues must necessarily be dependent on some combination of growth, debt, or monetary expansion. Given the already stretched boundaries of the current construct, notions of higher levels of growth, debt, or monetary expansion can only be dependent on justifications that amount to postulation. What seems certain, and to which Greek politicians can attest, is that no country without control of its own currency and direct access to an international financial centre would be able to entertain deviating from the path of the status quo.

It is the very precariousness of the status quo that lends weight to the admonitions of the establishment, embodied in the advice doled out by Germany (through the Eurogroup) and the world’s financial überinstitutions. They are, rightly, deeply sceptical of novel approaches that refuse to adhere to the established limits of fiscal and economic boundaries, because the precious commodity of confidence that underpins the entire system is not within their direct control and rests on a generalised acceptance of models that use historical basis as their justification.

Thrust thus into the seemingly concrete confines of fiscal and economic rules that prescribe that “there is no alternative” (TNA), there are some that divine an escape route through the use of the very tools that support the status quo, and favourite amongst those is monetary adventurism, mostly in some form of “quantitive easing”. Primarily a despondent and confused left, but also an angry and careless right, are gravitating to justifications for their expansionist promises that rely on the use of the same growth, debt, and monetary adventurism that their nemeses already deploy. Irrespective of the quality of their arguments, what is evident is that their ideas are dependent for practical application on the existing financialisation of the economy. This new gloss on old ideas betrays their plans as contradictory to the analysis that they use to substantiate their intentions. If the current malaise is substantially explained by the financialisation of the political economy over the last 30 years, how can the remedy be to lean further on that same system to justify investment? If we are destroying the planet with our growth based models for advancement, how can it be a solution to devise new systems that are ever more dependent on further growth? If expanded debt has substituted for fiscal rectitude, how can more debt, justified by more growth, help to retrieve balance in our affairs?

This then is the root corruption at the base of the supposedly new models we are offered today: that they are at once a critique of the status quo, and they then lean on the established structures to enable their proposed remedies. They cannot stand, and they will face the same fate as Greece: to be subjugated to the established structures, or face penury and exclusion, lest they unbalance the precarious justifications used in the rest of the system by the rest of the world. This is not cruel punishment, this is simply self preservation by the majority.

No model that will not simultaneously increase public revenues and balance that burden with an increase in the quality of life of the great majority can walk away from the established constructs. If the model depends on the existing structures but refuses to accept the strictures of that regime it will be, and must be, frozen out when it comes to implementation.

Moving on from the vanities of the shallow philosophies of the new left and the new right, what of the possibilities for proper change? What of the fate of a properly constructed new political economy, wherein the fiscal logic is not dependent on infinite growth, debt, or monetary adventurism? Such a concept would also have to face the realities of the status quo, and navigate a future in which the rest of the world remained to be convinced of such a path. This could only be achieved in a society which had control of its own currency and direct access to a domestic financial market with sufficient depth and strength to weather the early phase of establishment. Otherwise the maintenance of the inherited debt would quickly overwhelm the nascent reconstruction. This substantial hurdle would be insurmountable in all except a very few countries, and amongst those possibly only the UK has the demos and the institutional fabric strong enough to make it happen.

Britain could lead the way and do what others want to do, but cannot do, because we host the institutional fabric necessary to enable change independently. There is a world of difference between proposing a fiscally balanced future that only needs to maintain the existing debt load, and a proposal to exacerbate the existing paradigm as a means of reaching a promised future. The sanctity of government bonds rests in the ultimate power of a state to raise taxes, which is the resorting guarantee behind the economic projections of any particular administration. If the financial markets have convinced themselves that the current debts are sustainable on the current projections then any new plan that incorporates raising the revenues to pay for its proposals leaves the current status unruffled. There would remain any number of underlying assumptions that a new plan would have to leave undisturbed, and that is where a strong domestic financial market becomes important. The critical impact of a judgement to sustain continued credibility, versus the costs of concluding otherwise, is only likely in a country that has monetary independence and a deeply integrated financial system. For those reasons Britain is uniquely placed to make the move to a more sustainable and joyful political economy, and to benefit from the first mover advantages.

Completing the next phase of the post 1945 settlement by extending the same principles embodied in the NHS to a complete range of basic life supporting services is well within our grasp, with recent research from UCL suggesting such an extension would need only a 2.3% GDP rise in taxes. The effect would be transformative and lay the foundation of a new age of innovation, social cohesion, and rebalanced labour relations.  By shifting the responsibility for a satisfied demos from material consumption to a more relational basis, dependence on finance is reduced at the same time that costs are reduced through social wage substitutions. Until other societies replicate the model, the first movers benefit from substantial competitive advantage.

If human societies are to break the current mould that seems to lead inexorably to never-seen-before destructions, then it can only happen if a new model is established free from the implausible justifications of infinite growth on a finite planet, unrepayable debt, and magic money. Few countries have the present time luxury to consider these long term problems, less have the predisposition to question their own orthodoxies, and even fewer have the capacity and strength to embark on such a journey. Can anyone other than Britain take the lead? Can anyone afford for Britain not to take the lead?

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crisis debt Democracy legacy parties politics

2015: The Last “Feel Good” Election

The General Election in May will be the last “feel good” election in the UK for a considerable time. This year the politicians are fighting to reassure people that their delusions of sustainability are in fact possible, and that they each have the most assured path to that illusion.

Who will soothe us to sleep with the sweetest lullaby?

We are living unsustainably. That means it cannot be sustained, it will not carry on, that there is an end to much of what we take for granted today. This is not just an ecological-environmental fact, this is a financial-economic and a human-social fact. To believe otherwise requires an almost super-human capacity for self deception.

After the next financial crisis, and the break down of “middle class” expectations, it will seem incredible that we did not see it coming. Unprecedented levels of financial debt, never balanced budgets, massively unbalanced trade, and millions of humans consigned to the margins of society: these are well known and completely visible facts about our society. We are living in a house of cards, and this house will fall before the following general election.

The UK’s general election could be tame compared to what happens in Europe in the coming half-decade, where populist movements from the left and right will dis-integrate what we currently call the EU into a shadow of its current state. (Of course there’s also the very real possibility that the UK will break up or leave the EU after this election.) A combination of pressures related to energy, trade, immigration, solvency, and demographics will transform the cozy into the crazy.

Debt increases 2007-2014Shifting trade and monetary winds around the world will make much of the current debt loads obviously unsustainable in the coming five years. Economic growth will not regain it’s pre-Crisis levels, and combined with generalised deflation, the debts of all but the most secure will crumble into default. There is not enough safety on earth to provide havens for the all the liquid cash in the world, and it is too late to regulate the flow of capital or shore up the weak.

By the next time the UK goes to a general election we will have double or treble the unemployment, a hole in the budget the size of the NHS that we cannot fund through more borrowing, and the reality, that is already obvious now, will have become inescapable.

So enjoy this little charade through May. Worry about the little things, and agree not to discuss the bigger things. Latch on to the good news, and ignore the facts. This will be your last chance to do so, and seeing as pretty much everyone is on board with the story, you may as well enjoy the ride.

Continue reading “2015: The Last “Feel Good” Election”
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ConDem debt Democracy politics society

Malaise afoot

There is malaise foot, people sense it, and without sensible alternatives they will increasingly gravitate to the simplest and most self-protective options that are available. This political malaise has a short horizon, even if any one of a dozen potential powder-kegs does not go off to shorten it further (a debt crisis in next 3 years being the most likely).
3 deficits_0

Living life, private or public, off debt is an instinctively unstable position, and we are all aware of our deep financial, social, and environmental debt – for which we have no repayment plan. Individuals in this situation commonly, and understandably, abscond, turn criminal, and rage against the system. For individuals in a decent society we have the rule of law to provide a way out of such situations, for whole societies there is no such rail to lean against. This is the story of the evolution of human societies, and the unfit pass into history.

Without the appearance of a practical, credible and safe path forward, today’s advanced societies are pressing into a breach left open by the failure of both centre-left and centre-right politics to apprehend the dire need for such a path.

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budget ConDem debt politics problems

UK policy: trapped behind the yield curve

If you want to understand why all of the major UK political parties are committing to essentially the same fiscal strategy, i.e. reducing borrowing to zero by the end of the next parliament, then you’re going to have to understand what the “yield curve” is.

yield curveThe “yield curve” is a line drawn on a graph connecting the different interest rates that the government has to pay to borrow money over different periods of time. For the UK this is quite a steep curve, because our short-term interest rates are much lower than our long-term interest rates. To borrow money for two years at a time we pay about 0.5% a year, but to borrow money for 10 years we would have to pay around 2.8% per year. That means we have to pay five times more in interest if we want to borrow money that we will repay in 10 years from now, compared to money that we borrow and say will we will repay in 2 years from now.

Fairly obviously, as a result of this steep yield curve, the UK Treasury benefits from shifting its borrowing to much shorter term “gilts” (average gilt maturity has shortened by 5 years in the last 4 years, from 14 years in 2010 to 9 years today – see table below), because it is so much cheaper to borrow money over the shorter period. The logic is that if we are unable to repay that debt at the end of the shorter term, then we simply issue new short-term debt (gilts) and use that money to pay off the previous gilts.

Understanding2So why are the U.K.’s interest rates to borrow money over the short term so much lower than they are over the long term? The reason is because, over a two year time horizon, lenders have a fairly high degree of certainty that the existing government policy will be enacted, and budgets met. But given the size of the overall fiscal problems for the UK government (we have a very high ratio of debt to GDP, and we have a higher level of annual borrowing to meet current spending, at about 6% of GDP, which is twice the limit set on Eurozone countries’ maximum borrowing), lenders have a much lower degree of confidence about how the UK is going to eventually bring its fiscal situation under control.

When lending money to the UK for just two years, lenders only have to evaluate whether the current set of tinkering measures will or will not be implemented, and they don’t have to care about whether the long term situation will be resolved or not.

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budget change crisis debt Democracy problems

Common sense for Proper Change

It may not feel like it right now, but we are in desperate straits, and in need of radical change if we are to maintain the society that we have built over the last 300 years.How Bad Is It graph

Britons deserve the right to choose a proper solution at the next general election, and that is why we have formed the LIFE Party.

Slashing at our social fabric, or paying ourselves more, cannot be the only two alternatives on offer in the nation that used democracy and freedom to spawn the greatest advances in human accomplishment. In a time where balance is so desperately needed, between man and planet and between ambition and compassion, simply loading one side of the scales is a betrayal of our proud history and our potential future.

Continue reading “Common sense for Proper Change”
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budget debt economics problems WellFair

We have to solve the real problems

The real problem is that we are not running a working system.

  • Not economically or financially.
  • Not socially.
  • Not environmentally.

Economically we are not balancing our books, and using debt to plug the gap. And we are paying millions of people to do nothing, in a society were simply existing is expensive, financially and environmentally.

Socially we are not nurturing the cohesion, understanding and specialist skills we need.

Environmentally we are not moving off fossil fuels fast enough.

We are still in the process of figuring out how to make it all work. How to provide a decent standard of life, how to do that in line with a working economic system, and have that system provide enough room to invest in future infrastructure that is sustainable.
We, obviously, have not figured out the big stuff yet.

Collecting taxes to pay for social security and fund national infrastructure looked like the solution. But that was back in the beginning of the 20th C when resources were cheap and demographics were in a special state. Now resources are expensive and we are arriving at a natural demographic balance.
Taxes alone will not generate sufficient revenues to pay for our society and the investments we need to make. This has been true for 50 years. We need to face his fact.

  • GDP growth is not the answer because we still have an old economy based on fossil fuels, and an old structure that suppresses sustainable micro-economic activity.
  • Increasing wages is not an answer either. It does not address any of the major problems, it is not practical, and it assumes there is enough wealth to pay for all our needs. But as we have already said, we have higher social needs (with progressive demographics) than our economy can afford to generate taxes to pay for.
  • Increasing taxes will not do it either. We are already close the maximum tax rate an economy can withstand before it starts contracting. Some increase is possible, but it’s not enough to bridge the gap between our needs and our resources.

How do you meet expanded social needs at the same time as investing in the future, when you’re not generating enough taxes already?

You revert the social contract to its natural state.
The social contract over the long arc of human history has always been to guarantee a basic, decent life to all members of the group. We need to revive that contract. The social contract is not about money, it’s about a decent LIFE. The social contract is a guarantee of services, not cash. A guarantee of shelter, sustenance and access to basic services such as transport, health care and education.

Reverting to the natural social contract has a transformative effect on our finances. It reduces the cost of life, and it makes investment more affordable. It does this because it costs us less, as a society, to deliver basic life services than it does for each individual to buy the same services on their own. Every £1 it costs us to deliver basic services is worth 3 or 4 times as much to the recipient. So we trade pay for services, which reduces the cost of the services, which in turn means that we have to raise less taxes to pay for the same amount of service.

A natural social contract delivers better services, to more people, at lower cost. It brings our finances into balance, using a reasonable tax to fund affordable services. And it makes investment cheaper by lowering the cost of basic labour. Finally, and most importantly, it changes the relationship to work, from one of coercion for survival, to one of voluntary contribution for reward.

All this requires surprising little change and upheaval. We simply need to spend 3 years rolling out local community services for free food, local transport, Internet and basic phone services. These compliment the existing free healthcare, education and shelter services that we already provide. The rest of the benefits flow naturally without legislation. Wages fall of their own accord, micro-businesses start on their own, and the benefits of efficient resource use accrue naturally.

Making these changes is what LIFE is all about. We are about facing the big and real problems, and delivering solutions that will take us through a period of change as gently and peacefully as possible.

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debt economics problems WellFair

Understanding Affordable Social Democracy

The great challenge of the 21st century: How do we organise a society that is both sustainable and affordable?

To understand the origin of this problem, please read this first.

Looking for a 1 page summary? Download Affordable Social Democracy.

The chart below presents the factors contributing to the challenge, see below for detailed explanations.

understanding

What this shows is that the tax burden on the economy will inevitably exceed is maximal percentage as our population ages, unless the percentage of total activity in the society that is monetised is reduced.
In short: some services have to be exchanged for free, otherwise you go broke trying.

Blue line: Social Age/Lifespan
As human society passes through the 3 revolutions (Industrial, Technological and Information) it levels off and reaches a more stable balance of young and old in proportion to working age adults.
At the end the percentage of able and working age is a minority.

Green line: Resource Cost
This represents the percentage of the true cost of a resource that is reflected in it’s economic price. As human societies across the world all start their progression through the revolutions, and as the “externalities” of resource use manifest, the greater the percentage of the true cost of a resource gets incorporated in it’s economic price. Low values represent high exploitation.
This line could even go above 100% in the near future, as we have to recoup expenses related to previously unpaid-for externalities that come home to roost, such as climate change mitigation costs.

Red line: Tax Burden
The Tax Burden represents the monetary cost to the economy of meeting the social needs of the society. This increases with 2 factors:

  • Social lifespan – the percentage of a life spent maturing and ageing
  • Monetary Penetration – the extent to which total activity in the society is monetised, specifically the attribution of monetary values to services

Orange line: Tax Drag
This line compensates the tax effect on the economy by the extent to which true costs are incorporated in resource prices. While resources are available at below true cost (exploitation), the economy does not have to work as hard to generate the wealth to cover the tax burden. As the Resource Cost increases, the economy has to work harder to produce the same amount of wealth.

Max_commercial

Most factors are outside our control, demographic changes and resource cost increases are basically fixed, the only factor within our control that can make a difference is monetary penetration (the percentage of total activity that is paid for with money). If as much activity as possible is pushed into the wealth economy and exchanged for money, the correlated tax burden on the wealth economy has to exceed it’s optimal maximum of around 40%.

On the other hand, if monetary penetration is kept below 80% in a society with 50%+ dependency, then tax rates can be restrained to the 40% maximum. Even better would be to push monetary penetration down to 70%, at which point the tax burden is under 36%.
See table: There is a direct relationship between dependency ratios and tax rates. In this table blue=capitalist, green/yellow=social, red=communist. Pick your tax rate and you can see which social system you need to have to make that tax rate possible.

If you live in a society with 50%+ dependency, the key is to have at least one fifth of all activity in “not paid for in cash”. Ever since the industrial revolution we have pushed to have more and more activity “monetised” (paid for with money), and therefore part of the society’s GDP, measured in money. That works fine while the majority of all activity is productive, (i.e. you don’t have a lot of old and young people) because taxes are a proportion of the money economy, and when the money economy is growing tax revenues rise faster than the increased expense caused by having more activity monetised. However once the majority of the population is dependent (i.e. lots of old and young people), having more activity monetised increases expenses more than it increases tax revenues.

The way to push monetary penetration down is to deliver social security as free, non-means-tested, universal services. This works to socialise the most basic portion of labour cost, because it is exchanged in an unconscious barter for the value of the services.

 

Data Table

Notes

1750

1800

1850

1900

1950

2000

2050

Social Activity (Barter)

% of total activity that is exchanged without cash

95%

90%

70%

60%

40%

20%

10%

Commercial Activity (Paid)

% of total activity that is paid for in cash/credit

5%

10%

30%

40%

60%

80%

90%

Avg Lifespan

45

46

47

47

70

82

90

Productive Start Age

12

14

15

16

17

20

23

Productive End Age

45

46

47

47

65

66

67

Working Age/Life

73%

70%

68%

66%

69%

56%

49%

Social Age/Lifespan

27%

30%

32%

34%

31%

44%

51%

Resource Cost

Actual cost relative to true/free cost

10%

20%

30%

40%

50%

70%

100%

Labour Production Effort

Working lifespan contribution factored by actual cost

733%

348%

227%

165%

137%

80%

49%

Economy Size (UK)

BoE Real GDP UK (1850+)

100

225

548

1,854

13,308

976,533

2,000,000

Underlying Economy (Real Effort)

Real economic effort, as if resources were true cost

10

45

164

742

6,654

683,573

2,000,000

Social Cost

Cost of providing for social lifespan on underlying economy factoring % of activity that is paid for

0

1

16

101

1,255

240,084

920,000

Tax Drag

Tax rates factored by Resource Cost

0.13%

0.61%

2.87%

5.45%

9.43%

24.59%

46.00%

Social Cost II

Cost of providing for social lifespan at actual resource cost factoring % of activity that is paid for

1

7

52

252

2,510

342,977

920,000

Tax Burden

Nominal tax rates for social costs

1.33%

3.04%

9.57%

13.62%

18.86%

35.12%

46.00%

Maximum Tax Burdens
There is a fair amount of research on the issue of the maximum tax burden that an economy can sustain before the effect becomes negative on the performance of the economy. To make a determination on a simpler basis, we can just look at the current tax rates for various countries around the world.

  • Top 10 Highest Tax Countries (includes all the Scandavian): average 45%
  • Top 50 Highest Tax Countries: average 37%

 

Economically Active Ages

IMG_0141

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debt

State of British Public Debt

Since the end of 2008 the total size of the British government borrowing has more than doubled from 617 billion to 1.39 trillion. And that excludes the money we have lent ourselves through the Bank of England, if you count that the total size of the debt has nearly tripled to 1.78 trillion.

At the end of 2008 v Now (total debt including QE):

  • Pension & Insurance funds: 38% v 20%
  • Foreign investors: 33% v 25%
  • Banks: 4% v 28%
  • Bank of England: 0 v 22%
  • Other Finance Institutions: 22% v 5%

Of all the extra money the UK government has borrowed since 2008, the banks have lent us 41% and the Bank of England has lent us 34%.

Interestingly, the total that UK banks borrowed from us in their bail out was £456Bn, and since then we have borrowed an extra £479Bn from the banks. So we gave them the money to save themselves, and they lent it back to us. We are now paying £5 million an hour in interest on government debts. As the banks own 28% of our debt, we are paying them £33.6 million a day for the privilege of borrowing the money we lent them in the first place.

Data from UK Debt Management Office, http://www.dmo.gov.uk/index.aspx?page=Gilts/Data

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change crisis debt economics problems

Synthesis

You know something’s wrong, that we have not sorted out a decent way to live together, yet. And you know that there is a better way, that we are not this stupid and blind, that we can do a better job of living together in peace with prosperity. Well, you’re right… here is why and how.

The tension in money

The search for a truly functional economic system is still going on – we haven’t got there yet. The richest societies are swimming in wealth and debt at the same time, the fastest growing countries are destroying their living environments, and the failing countries are mired in restrictive cultures. Capitalism may be the “least worst” system, but it is not good enough to sustain human life on this planet.

Marx’s critique of capitalism (that the working classes would eventually revolt against those who accumulated the capital) has turned out to be misplaced. It is more true that we are evolutionarily predisposed to the acceptance of hierarchy, even when it is dispensed from no more meritorious source than random genetics. The real failure of capitalism as a system for organising human societies is no less foundational than the failure in Marxist theory, its failure is the absurdity of placing a system of capital at the root of a system for organising humans.

Capitalism is an economic system, and not a political system. Moreover it is an economic system specifically focused on capital, and its kissing-cousin ‘money’. When capitalism is purloined to become a social system, it faces an inevitable tension that must exist in a system that recognises money as the only representation of value. In a “capitalist society” money is used in two different ways:

  • a medium for transactions (including those that do not create any wealth),
  • a store of wealth. 

These two roles pull in fundamentally opposing directions, and corrupt the very foundation of capital as an economic element.

In its transactional role the impetus is always to create more money, to represent a higher and higher proportion of the total activity in the system. Because if capitalism is to be the social system, then it is necessarily forced to embrace the notion that all activity can and should be represented by money.
In its role as a store of wealth, on the other hand, it is necessary to constrain the supply of money to only that amount that represents the remaining capital after transactions have been completed.

The tension between these opposing roles that money must play in a purely capitalist society, is its ultimate downfall – not the class revolution imagined by Marx.

The only thing that can be everything and special at the same time, is nothing.

21st century enlightened economics recognises a third, or middle way. It recognises capitalism as a perfectly valid mechanism for representing economic activity, and at the same time recognises that economic activity is only a subset of the total society, because the economy is a child of the society.
Once we relinquish the enslavement of capital as the sole representative of all transactions, we are freed to recognise that there are many transactions in the social sphere that are bartered for social value, and which are much better not recognised as having monetary value. 

The 20th century classroom

The 20th century was really the battleground of two 19th-century phenomena: the scientific revolution, and the pressure that revolution placed on the organisation of human societies. Developments in scientific knowledge led first to the industrial revolution, then to the electronic revolution, and lastly, but not finally, to the information revolution. In each revolution the capability to create and recognise increases in wealth grew exponentially. Each revolution also led to exponential increases in our ability to look after ourselves, to feed ourselves and provide for our health, leading to massive increases in the human population.
We stand here in the morning of the 21st century, almost exhausted by the incredible events of the last 150 years, and yet facing, with immediate significance, the challenge of bringing it all together into a sustainable mix. We must now complete the fourth revolution, the sustainability revolution, if we are to go into the afternoon of this century with anything like the population we have today.

If we could see ourselves today, we would see a person standing on the top of the globe, brandishing pieces of paper, and shouting out “This is my worth!”. And in an instant we would recognise the fallacy of ‘economics as society’. The compulsion to bring every activity into the monetary realm is a self-defeating strategy that pits credibility against the wealth it seeks to protect. As more and more of a society’s activity is turned into money, and money is used a store of security, the dragon chases its tail until it has consumed itself. This is where we are now. As our money seeks security, it is the flow of the money that defines the value of the assets, and the connection between wealth and money is loosened, until it is lost. We are there already: the price of nearly every asset is not significant of its real value, instead it is the quality of its ability to provide a secure store of money that defines it’s price.

21st-century enlightened society

21st century enlightened society is one in which a capitalist economy exists alongside, and inside, a sustainable human society. 21st-century enlightenment economics retains and nurtures the perfectly human elements of competitive resource allocation, reward for effort and innovation, and it does so without pretending to be a system for organising human society.

The organisation of large-scale human society is in every way a superior activity to that of economics. 21st-century social organisation must meld the interests of humans, with the preservation of our environment, it must acknowledge our tribal tendencies, accept our natural ambition, recognise our dependence on specialisation, and appeal to our highest callings to follow a path that is inherently sustainable and balanced.

Bad endings

There are two root causes for the failure of every large-scale human society to date: environmental destruction, and specialist denigration. Why are fascism and communism ultimately doomed to failure? Because they both fail to honour and support the specialisation necessary for complex large-scale societies. Why is capitalism doomed to failure? Because it fails to recognise environmental and social values. Why are religious societies doomed to failure? Because they do not provide the freedom necessary to allow specialisation to flourish.

Every human, even a completely solitary human, is dependent on their environment for survival.

And large-scale human societies are equally dependent on their ability to honour and nurture specialisation for their survival. Large numbers of humans require complex infrastructure and sophisticated administration to survive, and both of those are dependent on the availability of, and respect for, a wide range of specialists. Honouring specialisation has a kissing-cousin too: respecting diversity, which inevitably leads to secularism.

By learning from our history and understanding the proper role of economics, we can start to divine the threads we must weave into a path to a sustainable future: we must protect our environment, honour and nurture specialisation, and recognise our economy as a child of society.

If you are destroying your environment, denigrating the contributions of specialists, or promoting money is the only signifier of value, then you should know that you are also sowing the seeds of the destruction of your society. If you restricting individual liberty, you are restraining the unnecessary experimentation that is the heart of innovation. If everything is money, then money cannot be capital, and your capitalist economy is broken. Use a hammer to drive a screw, and you end up with nails.

Happy endings

There is a happy ending. Understanding the proper roles of money, diversity and environment leads us to a new, sustainable social structure; one that must incorporate these essential ingredients:

  1. An economy that uses money for trade and commerce, and does not attempt to put a price on every activity.
  2. A society that values the contribution of specialists, and protects the freedom they need to succeed.
  3. A deep respect for the natural environment on which we depend.

We achieve a sustainable economy by providing the basic necessities of life to each other, without charge or condition. In this way we confine the use of money primarily to commercial transactions, and so we protect the proper role of capital, and allow it to operate usefully inside our economy. We also own our social responsibility, and make ourselves the masters of our economy, because we are not asking money to fill an unnatural role as our social security.

We create a sustainable society by recognising the value to the whole society of diversity, and the essential contribution of specialists of all kinds. Individual liberty is the foundation of successful specialisation.

We protect our environment by incorporating it is a valid priority in all our policies, and by enforcing its recognition in the pricing structures of our economy.

These are the foundations of LIFE’s policies. Grounded in a clear understanding of what is necessary to survive, we can complete the final revolution: to provide a future worth living for our children and their children.

 

Categories
crisis debt economics

It is evident

It is evident that the UK is in a difficult situation. Much of what we consider to be our “way of life” is hanging in the balance, which is why our politicians seem so uncommonly aligned to a very similar course.

The size of our public debt means that we are rightfully concerned about interest rates on Treasuries. As we continue to rack up an additional 5%+ a year of GDP in extra debt, only the anomaly of historically very low interest rates has made it possible to continue without more drastic changes. Pretty much all of the parties in Westminster understand the situation, and are fearful of making any suggestions that UK PLC will deviate from a course of austere spending control.

What no one wants to deal with is that we really don’t have spending under control, and every pressure we see ahead (ageing population, healthcare costs, energy infrastructure, pensions) looks likely to push spending up, not down. Borrowing an additional 5%+ of GDP a year is not “under control”, especially when you’re already at 90% of GDP. The current government’s budgets don’t even forecast making a dent in total public debt before the end of the decade.

The end of QE is coming, even if the UK and Europe want to continue theirs, the USA’s QE dwarfs them, and as it is retracted over the next two years interest rates on debt around the world will rise. UK 10 Year Treasuries have already gone from 1.7% to 2.3% in the lead up to the announcement that the US Federal Reserve will start “tapering” their QE late this year or early next. Historically the UK has paid a 10 year interest rate on its debt closer to 5%, and that simply means that as debt revolves in the coming years the cost of servicing our debt will rise. This extra cost of debt servicing (minimum +£5B/year, more likely +£20B/yr) will easily eat up any of the ‘savings” being proposed by any of the major political parties today (ConDem headline savings: £11B/yr).

If, as it seems evident we will, we go into 2016 with 100% public debt/GPD, rising interest rates, and no plan to bring the total debt down for another 5 years, most investors will see UK Treasuries as one of many junk bond opportunities, not a safe haven. Nothing the ConDem coalition, or the Labour opposition, proposes suggests that our situation in 2016 will be anything other. Assuming that investors hold fast through the 2015 election, for lack of better options globally and because humans are naturally optimistic, then the next government will have to have a pretty radical budget plan ready to roll, or 2016 is going to see the UK joining the list of “bankrupt European nations that let their social costs run away from their economic realities”.

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LIFE is the only political movement in the UK with a plan to address this potentially catastrophic situation.

LIFE will convert the benefits system into a universal services model, raise taxes, and create significant economic growth. Not because our policies are magic, just because we understand economics. We understand that removing the floor on monetary unit labour costs stimulates very significant micro-economic activity, activity that is currently suppressed by the monetary benefits welfare system.

Delivering social security as universal services also makes it politically possible to broaden the tax base, because the equivalent of a ‘living wage’ is guaranteed. Once the services are up and running they cost no more to deliver than the old benefits system, but they deliver economic advantages that the benefits system cannot: the liberation of micro-economic activity, the abolition of the minimum wage, and the effective socialisation of a significant portion of the cost of delivering real social security (absorption of cost by the population as part of the implicit barter for social security).

When LIFE is elected in 2015, we will have a practical economic plan that constrains public spending, increases revenues, produces sustainable economic growth, and provides a reasonable medium-term path to total debt reduction.

It is evident that the Westminster incumbents, of all shades, do not have a plan, and can’t imagine a plan, that will save the UK from junk status in 2016. This is serious stuff: the future of the British way of life depends on a credible budgetary and economic plan for the 2015 General Election.

To quote Lord Adonis, “Once you have an economic plan, the rest, of course, is ‘detail’, essentially,…”.