Category: problems

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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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politics problems society WellFair

The Tory’s Awful Honeymoon

It takes years of patient and hard work to rebuild communities if they breakdown, and so it makes perfect sense that it takes years of underfunding before the consequences of failing to nurture a community also become apparent.

Across this land the awful tragedy of the almost impossibly arrogant notion of a “big society” promulgated by the Tories in this decade is now unfurling. The idea that the voluntary sector can and would pick up and replace public services when the government abandoned them could only make sense to a shallow-thinking, protected group of naives. But it is the curse of those who view the world exclusively through the lens of motivation that they cannot see the social imperative that makes their view possible.

Leaders in the NHS are sounding alarms about the effect on health services, but they are just the ‘canary’ for a much wider thinning of our social fabric.

Continue reading “The Tory’s Awful Honeymoon”
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change crisis Key Article legacy parties politics problems society

Floundering on the Rocks of Policy

While it is increasingly obvious that what we are doing isn’t going to work, what to replace it with is an even bigger unknown.

Continue reading “Floundering on the Rocks of Policy”
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Key Article problems society

Promises

Hominoids only emerged from the Savannah to cover the world after they adopted promises as the basis of their societies. In a material world, where money is used as a replacement, is rediscovering the importance of promises a leap too far for most of us?

There is something that humans before the “economic era” knew and understood, a truth that we find hard to grasp with our economic minds: human society is based on promises, not money. The primary social promise is of mutual safety, given to every member of the society in the form of help and care, available in the event of need, and provided as service. That promise of social safety is not conditional, but it does anticipate that in return each member will make their best personal contribution.

Certainly the humans of a few thousand years ago, and, I would wager, even our great-grandparents, would have unconsciously known that their society was bound together by mutual promises. So basic was this fact that it need not have been consciously examined. That a promise of mutual safety was exchanged for mutual contribution was inherent, instinctive, and bound into the fabric of common understanding, as it has been since the dawn of our species.

If there is one thing that will help you understand our troubled predicament today, it is this: that we are dependent on others, to whom we are bound by promises, not money. If that jars with your sense of reality, you are not alone. If you recognise its absence in the world around you, you are also not alone. Let’s try to understand why.

Continue reading “Promises”
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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.

Continue reading “UK policy: trapped behind the yield curve”
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budget economics Key Article problems WellFair

Why WellFair Works Fair

The welfare debate has become confused and poisonous. We are firmly in the territory of “deserving” versus “undeserving” poor, when the real issue is affordability. As all advanced societies start to grapple with the challenge of how to run a peaceful, modern society within the confines of a low growth economy and within a sustainable budget, we need to develop a vision for how social security will work in that environment.

It is commonly recognised that the delta between income and the cost of living is the problem, but reducing the cost of living is virtually never discussed as an option to solve this problem. This is a blind spot obscuring the key to sustainable and affordable human society.

Solving the welfare conundrum has been a central mission of LIFE. So here we will review what we are really seeking to achieve with welfare, what has gone wrong, and how we can reach our objectives.

Continue reading “Why WellFair Works Fair”
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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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economics problems taxes

Perfectly understandable

We don’t pay for everything today, we can’t pay for everything today, and it was never true that we would be able to pay for everything.
We were slightly distracted on our journey from pre-revolution to post-revolution into thinking that our reality was defined by the 3 revolutions (industrial, technological and information). We are still humans, and the revolutions were only changes to our methods, not our natures. Our reality was before, and remains today, that of a social, group animal surviving on a finite planet through our mutual exchange of support.

In pre-revolutionary society (pre-1840) the vast majority of people survived almost exclusively through the mutual exchange of support. There was never enough commercial activity to even consider paying for mutual social security, it had to be bartered for. The 3 revolutions transformed our ability to generate commercial activity. In a span of only 150 years (1840-1990) we expanded the percentage of total human activity that was commercial in nature from a small minority, to what seemed to be almost total encompassment. The speed and breadth of the revolutions almost blinded us to our reality, the reality of interdependence that we are now re-facing as we emerge into the post-revolutionary world.

For the short period when a society is in the midst of its revolutionary progression, it naturally has a population that consists mostly of working age adults, before the effects of advanced healthcare have kicked in, and before the information revolution requires the extended incubation of advanced education. During this mid-revolutionary phase the society can pay for its limited social needs by taxing the expanding economy.

Early adopter societies, entering the revolutionary cycle before the majority of other societies have started, can also exploit under-priced resources abroad, and create an over-sized economy that allows the increasing social burden of its maturing demographic to be paid for out of a tax on its inflated economy.

understandingBut once the majority of societies have entered the revolutionary cycle it is not possible to maintain an exploitation-inflated economy, because resources are no longer available at below true value.

A mature post-revolutionary society has a minority working age population and an economy that, while greatly enlarged from its pre-revolutionary state, is still a minority of total activity. At this point, a tax on the economy high enough to pay for the social needs will reduce economic performance, creating a downward spiral.

This looks like a big problem. But in fact it is just the re-emergence of a truth that was always there: no matter how blindingly brilliant the 3 revolutions have been, they did not change the basic truth about our nature: we are a group, social species, dependent on our group for our individual survival, and visa versa.

There has always been a massive amount of activity in our group that was never “paid” for, and it could never be afforded from a tax on commerce. Only the short period in the evolution of a society through its revolutionary cycle, when working age populations are high, supports an illusion that we can buy our way out of our interdependence.

The “first world” in the 20th C was not at a destination, it was simply a stage in motion through the natural progression to a normalised demographic, in a resource-constrained world. Human populations naturally resolve into quite likeable and practical distributions, as birth rates fall off with increased security. The pricing of finite resources naturally resolve to comply with the closed-circuit reality of our planet. This normalised reality is not a problem, it has ample opportunity for greater joy, but it does require us to recognise and accept our situation. We do not live lives defined by the value of commerce (revolutionary activity), nor are we limited by the taxes we can impose on commerce. The only real limit we face is that of finite resources.

Our reality is the same as it ever was: the majority of our activity is social, a barter between humans for services. A minority of the activity in an advanced human society is commercial, and that’s OK.

We cannot abandon the revolutions, our enlarged populations are entirely dependent on the continuing practice of industrial, technological and information activity. But our dependence on them is purely practical. Revolutionary activity is contextual to our desires, and our desires are human. Defined as “joy”, we seek and find reward to interconnection and interaction on a human level, commerce is merely an enabling method. The future of humanity depends on accepting our social nature and leveraging the revolutions.
The way to accomplish this unification is to accept our mutual social contract for support services, and welcome the functional contributions of the revolutions while rejecting their dysfunctional elements. Industry, technology and information are all good when filtered through understanding of their roles in support of human society. The two primary requirements this understanding gives us are:

  • our success is based on the wondrous specialisation we can support within our groups
  • we live on a finite planet.

The aspects of the revolutions that support specialisation and sustainability are invaluable. Industrial, technological and information processes that denigrate specialisation or sustainability can be comfortably jettisoned.

For data and analysis of tax rates, see here.