As The Egregious Professor So Often Tells Us, Adam Smith Has No Relevance In This Modern Age

Commitment is to a person, family, friends, community, workplace, region, culture, religion, gender or identity, country, humanity, the planet. And I am aware I will have made omissions. Commitment is a message that others matter. Equally, it’s a sign that the commitment of others matters to us.

Writing this made me think about commitment. Almost without exception we humans know what it means. And again, almost without exception we have it. So I thought of plotting our commitment on a vertical, Y, axis.

I think it appropriate to allow for the opposite of commitment. I call that antipathy. Since few hate everyone I think we all start with positive commitment. But it can become negative

The horizontal, X, axis I use to plot remoteness. The resulting plot shows that as some groups are more remote from us we are as less committed to them.

Hmm.

Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake, and let us consider how a man of humanity in Europe, who had no sort of connection with that part of the world, would be affected upon receiving intelligence of this dreadful calamity. He would, I imagine, first of all, express very strongly his sorrow for the misfortune of that unhappy people, he would make many melancholy reflections upon the precariousness of human life, and the vanity of all the labours of man, which could thus be annihilated in a moment. He would too, perhaps, if he was a man of speculation, enter into many reasonings concerning the effects which this disaster might produce upon the commerce of Europe, and the trade and business of the world in general. And when all this fine philosophy was over, when all these humane sentiments had been once fairly expressed, he would pursue his business or his pleasure, take his repose or his diversion, with the same ease and tranquillity, as if no such accident had happened. The most frivolous disaster which could befall himself would occasion a more real disturbance. If he was to lose his little finger to-morrow, he would not sleep to-night; but, provided he never saw them, he will snore with the most profound security over the ruin of a hundred millions of his brethren, and the destruction of that immense multitude seems plainly an object less interesting to him, than this paltry misfortune of his own. To prevent, therefore, this paltry misfortune to himself, would a man of humanity be willing to sacrifice the lives of a hundred millions of his brethren, provided he had never seen them? Human nature startles with horror at the thought, and the world, in its greatest depravity and corruption, never produced such a villain as could be capable of entertaining it. But what makes this difference? When our passive feelings are almost always so sordid and so selfish, how comes it that our active principles should often be so generous and so noble? When we are always so much more deeply affected by whatever concerns ourselves, than by whatever concerns other men; what is it which prompts the generous, upon all occasions, and the mean upon many, to sacrifice their own interests to the greater interests of others? It is not the soft power of humanity, it is not that feeble spark of benevolence which Nature has lighted up in the human heart, that is thus capable of counteracting the strongest impulses of self-love. It is a stronger power, a more forcible motive, which exerts itself upon such occasions. It is reason, principle, conscience, the inhabitant of the breast, the man within, the great judge and arbiter of our conduct.

Nope, no relevance at all that Smith guy.

Interesting, this, isn’t it?

The Guardian reports this morning that:

Barclays’ chief executive, Jes Staley, is facing a financial penalty for an alleged breach of conduct after City watchdogs completed an investigation into the banking boss’s attempts to identify a whistleblower in 2016.

Barclays said the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) are alleging that Staley’s actions were a breach of an individual conduct rule that relates to a “requirement to act with due skill, care and diligence”. The size of the penalty has not been disclosed.

That fine should have been disclosed. But more important is this note that followed:

The bank stressed, however, that regulators are not alleging that he acted with a lack of integrity or that he lacks fitness and propriety to continue in his role as chief executive.

Ask yourself this: could you explain the fact that the CEO has been fined for a breach of the rules concerning individual conduct that clearly related to a matter of personal self-interest and then suggest that he did not lack integrity to a class of 11-year-olds? If you can, then Barclays’ claim stacks. All I can say is that I could not do that with any credibility. And I can tell you, they would not believe you if you tried.

This is from the man who insisted the Crystal Methodist was just fine to run a bank, indeed that the entire management structure had no banking qualifications or training was just peachy.

What, like having a referendum on Brexit?

It has been a persistent theme of this blog that the march of neoliberal capitalism has been away from democracy and towards neo-feudalism. The evidence that this is the case is compelling and largely provided within a UK context by the Conservative Parties contempt for almost everything that upholds democratic rights and traditions.

Egregiously egregious

Second, most extractive companies are valued not on their current profits but on the reserves that they hold.

No, they’re not. Can’t recall which way around this works to be honest, did the checking of it a long time ago. But between BP and Shell one has more reserves than the other. And it ain’t the one worth more either.

And as my old friend and fellow Green New Dealer, Jeremey Leggett, has long suggested, most of their known reserves are going to have to stay in the ground if the world is not to fry.

So, third, we face both a massive energy crisis and a financial one too as the enormous valuation placed on those reserves in the world’s financial markets collapses, as surely it will.

It’s Ritchie who keeps insisting we mustn’t discount to net present value, isn’t it? Which is a pity, for that’s what the stock market does, discounts the future income from a stock at the market interest rate. Note, not the gilts rate, the one applied as the discount rate to future stock market incomes – 7% is a reasonable guess here. And the NPV of income 20 years out at 7% discount rate is, well, it’s spit, isn’t it?

The Egregious Professor Assume the Efficient Markets Hypothesis is correct

We’ve all seen Ritchie shouting that the efficient markets hypothesis is incorrect.Markets don’t get prices right, politicians with thumb up arse do better.

Which is interesting:

As he notes:

The yield curve [that shows the difference between expectations on long and short-term interest rates], is sending a clear message, however. The fear of a Fed mistake is increasing. The spread of 10-year over 2-year Treasury yields is almost back to a post-crisis low, while the spread of 30- over 2-year yields is indeed now at a post-crisis low: If expectations for interest rate rises for the next two years are growing, but not expectations for longer rates, the implication is that the market thinks that the Fed will indeed deliver rate rises, and go too far — leading to slower growth, and therefore lower yields thereafter.

I agree with him.

He’s using market prices to make his point. From which he must be assuming that market prices encompass all available information – that the efficient markets hypothesis is correct then.

Listen to me! To Me! TO ME!

In 2015 Jeremy Corbyn adopted the policy of People’s Quantitative Easing when seeking to be leader of the Labour Party. He borrowed the idea from me. Since being elected he and John McDonnell have little used the idea. This is hard to understand since it was probably the most distinctive part of his whole economic appeal in 2015, letting him suggest that the funding to build the new infrastructure this country required would always be available if the physical resources to deliver it on the ground existed.

Well, yes, OK.

So, in other words, all the legal and structural arguments against People’s Quantitative Easing fall away: it has already been authorised and is already legal. Labour could say so and they would be entirely right in doing so.

The question then is why aren’t they doing so? After all, we are still not living in ‘normal economic times’, whatever that might mean now. And there is not a shadow of a doubt that we are suffering underemployment that is resulting in low productivity and so under-usage of capacity which only needs the availability of credit (which is, note, the reason for QE) to bring it into use. This is exactly what a National Investment Bank could deliver. That Bank could, of course, offer its bonds to the market, most especially as a form of National Savings, I suggest. But the backstop for its funding could and should still be People’s QE.

The result would be that in every constituency those ‘shovel ready’ jobs that we know need to be done could be funded.

Great, now, hands up everyone who thinks there are available physical resources in he building trade these days?

Quite so……

The pure delight of Howard Reed’s economics

Howard Reed says:
April 10 2018 at 9:45 am
I think the 2017 manifesto was much better than anything Labour had put out since 1974 (I’ll ignore 1983 as that manifesto was a bit of a mess for a number of reasons)

Hmm, OK:

While I would say that commitment to a balanced budget is an obstacle in the way of a good economic policy, it’s not an insurmountable obstacle. One area where John McDonnell was relatively radical was that he committed to large-scale infrastructure spending funded, effectively, by money creation – i.e. the capital budget wasn’t included in the balanced budget rule, it applied to current spending only. I would argue that a very major component of govt spending is actually investment – including not just infrastructure but public sector workers’ salaries, and indeed a large portion of benefit expenditure (it delivers huge returns to the economy in terms of improving children’s life chances, reducing homelessness and ill health, etc). So one option would be a sleight of hand – reclassify most of public spending as capital instead of current and then you could still have a balanced budget rule, it just wouldn’t matter that much as the majority of spending would be outside it and not subject to it.

Spending upon benefits for scrotes is investment. Although what in, other than votes, isn’t entirely apparent.

He also seems to have missed that this was already Gordon Brown’s definition of investment.

Ritchie really does want to bankrupt us

It could also, of course, continue the line of attacking the tax gap which I pretty much created for it from 2008 onwards with work for the TUC and other unions. It has worked; let’s not deny it. But as current research I am doing shows, that’s mostly because the constraints that politicians have put on themselves (balance the budget, constraint debt to GDP ratios, keep within EU 3% budget targets, etc) have over time meant that tackling the tax gap has been the only game left in town to a government that says it wants to increase spending, even if none of those constraints really exist.

Or it can blow the constraints away. It can say it is government spending that can create jobs in every constituency, as a Green New Deal would, and nothing else can. And it is government spending that can push up productivity when it looks like the private sector has run out of ideas on this issue. As well as the fact that government spending can build houses, transform our energy and transport systems, and so much more, all of which we could do if only we had the money.

And Labour should be bold. It should say we have the money. It’s ours to make. And if more tax is needed that will only be because there is more income to pay it from. And that’s a good thing.

At the same time Labour should make clear that those who will pay more tax are those who will make most – but they will still be better off because they always get more than their fair share of any boost to the economy. There is then no punishment planned: just fair recovery of the new wealth that Labour will liberate within an economy that is in the doldrums.

And I think people will buy that idea. In fact, I think that’s the sort of thing they are hoping for. A little red tinkering at the edges is not enough to inspire them to think Labour will change their lives. Who owns trains will not, ultimately, do that. Even NHS reform, passionate as I am to make sure the waste of faux markets is removed from it, will not be apparent to most people. That’s manifesto material for geeks. What matters are jobs, secure incomes, communities where people live, housing, good schools and secure old ages with an underpinning of comprehensive healthcare. Nothing but breaking the balanced budget constraint can deliver that.

Firstly, he argues that more spending will increase the tax take, so that we’d have a balanced budget. Then he tells us that only by ignoring a balanced budget can we have increased spending.

Umm?

But the lovely bit is that all these things we want, we can only have them without a balanced budget. That is, they cost more than we’re willing to pay for them. That’s not exactly a rigorous proof that they’re worth having, is it?

Now it’s true that I could be wrong here but

Third, I’d like them to actually make clear that audit is about ensuring companies are solvent when at present this fundamental requirement of UK law, implicit in the duty of an auditor to check that a company is able to pay a dividend without prejudicing its creditors, is ignored by the FRC.

I am under the impression – mistaken no doubt given that I appear to disagree with the Egregious Professor – that it is the duty of directors to ensure that a company is a going concern, is solvent.

I can’t really see any other way of this being done either. Audit is a once a year procedure, taken after year end. Companies go bust throughout the year….

Shut up and like it!

And that is its weakness from the outset. Politics rarely supplies what people want. If it did free holidays in Barbados would be available on the NHS. It has to, if it is to be useful, instead provide what people need.

Makes you wonder why we have the elections so that the people can decide what they want really.

Isn’t this kind of him

There is a solution to this whole issue. It is to make Amazon and eBay liable for collecting VAT on all sales through their platform unless the retailer using their services can prove they are not liable to be registered for VAT purposes. I know this may penalise some smaller retailers with an extra admin burden. And it will mean that Amazon and eBay would have to ensure that non-VAT chargeable sales such as books could be kept out of charge. But given the tax losses that are happening I think the costs this would impose would be fair and would justify a small price increase to cover admin, if necessary.

Isn’t that just peachy? Amazon gets to charge all of its punters more to cover the costs of collecting tax? Are we certain that shouldn’t read HMRC offers Amazon a slice to cover those costs?

If only the Egregious Professor grocked…

…Anything at all:

Now there may be good reason for that: broader markets, real reduced risk because of better information, and so on. The absence of world war helps too. But it also means that if we were to return to ‘normal’ or the mean then the change in rates would be massive:

The most useful contrast is with 1997 – 2007, of course. We’re talking adjustments of four percent or more.

That is not going to happen. There are good reasons. Most mortgage holders would fail to make their payments. Most banks would then collapse. and government debt costs would increase and may politicians would panic at that whether appropriately or not. I will be blunt. Everything has changed. Those rates are history.

This though has massive implications. If this is the case then monetary policy as a mechanism for controlling inflation and economic activity has died: rates that let it work cannot be recreated. And yet almost the whole of macroeconomic thinking is premised on its use, as is the role of central banks in our economies.

The reality is that everything has changed. And yet there is, so far, almost no reaction. Fiscal policy – spend and tax – is the only tool left to the government now and yet no one is saying so.

Four percentage points, not four percent. Jeebus.

But more than that. We’re currently using, as we have this past decade, monetary policy to avoid the risks of deflation. That QE and all that. Ritchie’s insistence is that because we’re successfully using monetary policy it’s not possible to use monetary policy successfully and therefore fiscal policy is the only option left.

Err, yes, yes…..

Idiot is idiot

Conviviality goes down. Who does the Egregious Professor complain about:

Guess who the auditors are? KPMG. Again. To add to a long list of failed audit clients who have gone from boom to bust very rapidly in the recent past.

Auditors manage the finances of a business do they? Or just check, once a year, that the counting has been done properly?

Note the phrasing here

The Fair Tax Mark certification scheme was launched in February 2014 to allow businesses that are paying tax in a responsible way to demonstrate this commitment to their customers, contractors and associates. Already more than 1,500 shops and offices ranging from AMT coffee bars, to Richer Sounds and the Co-op Group are Fair Tax Mark accredited,

Outlets, not organisations…….

If only the Egregious Professor understood the subject under discussion

The headline:

The UK’s passports for sale scheme is not taking back control: it’s flogging the country to the highest bidder

Well, yes, OK, selling passports could be thought of that way of course. I think it’s a great idea myself but still.

The FT has reported that:

The number of wealthy Chinese acquiring UK “golden visas” that give residency in return for investing £2m or more in assets rose sharply last year as worries over Brexit paled next to Britain’s attractiveness as a secure bolthole for international money.

Mainland Chinese took 116 of the 355 “investor visas” granted in 2017 by the UK government to wealthy individuals, up 56 per cent from the previous year.

Umm, an investor visa is a passport for sale is it?

At a time when migration is an issue in UK politics passports should not be for sale to anyone.

Interesting, I hadn’t known that a visa means a passport. In fact, I rather thought that the one precluded the other. A British passport, a full one, means that you don’t need a visa to come here, doesn’t it?

Secondly, this whole policy clearly undermines the idea of citizenship and commoditises it. This is the antithesis of any idea of nationhood which supposedly so matters to this government.

In fact, it’s not citizenship.

Fifth, there is no evidence that the people who supposedly ‘invest’ in the UK actually deliver value. They may live here. But do they really deliver for the UK? I suspect not, at all. Tourism is useful, but not that useful and many who acquire these passports will not be here much of the year, I suspect.

Well, yes, investment is useful, even from foreigners. And it’s not a passport.

Sixth, and perhaps most important, the whole idea that citizenship is based on principles is abandoned.

It’s still not citizenship.

Here are the rules about such a Tier 1 (Investor) visa:

How long you can stay
You can come to the UK with a Tier 1 (Investor) visa for a maximum of 3 years and 4 months.

It’s not a passport, it’s not citizenship, it’s a time limited visa allowing, for that time period and that period only, residency.

Ritchie’s not a clue, has he?

Err, yes, right

But this does not mean a scrip tax does not make sense: it does. The reason why is that it gives us all a stake in these businesses in a way that is not apparent now. Even those with pensions have not a clue in the vast majority of cases in what companies they have an interest. A sovereign wealth fund would hold that interest very tangibly, and should be actively engaged with companies to protect stakeholder rights.

This is why such a fund is important. It would say to companies that their arguments on shareholder value are wrong. Shareholders would then, very obviously, include real people who have real interest in tax being paid; who want public services and who abhor tax abuse, gender pay gaps, casualised working practices, anti-union attitudes and executive pay that abuses the whole system of market capitalism.

So, err, we’ll be managing a sovereign wealth fund in a more personal and tangible manner than we do our own pensions then, will we?

We know this Ritchie

I wanted to cringe, the comment is so desperate. Doesn’t he realise that this is the whole issue the data is meant to reveal? The debate about equal pay for equal work was meant to be have been resolved in 1970. We all know it has not been, but highlighting data on that issue was not the purpose of this new data. The issue now is about precisely why women are not offered the same job opportunities as men, and so are paid less as a result.

More women than men decide to become primary child carer.

And that’s it, that’s the whole and entire explanation. We really don’t need companies to be reporting the gender pay gap to know that.