This is one answer
This is another
The question being:
What motivates neoliberals?
We neoliberals believe that poverty – no, poverty, not inequality – is a bad thing. Therefore we need to run the economy in a manner that reduces poverty.
So, free market capitalism it is then. Doing a grand job, we need more of it.
But the question of what I must be thinking about now seems particularly important at this moment.
Bated breath….
UK universities are being killed
Great. How many will be left? Half a dozen? A score? No more than that, right?
Today, however, the Bank of England is doing the opposite. Despite ongoing economic weakness, a cost-of-living crisis, stagnant growth, unaffordable housing and rising business pressures, it has deliberately pushed real interest rates back into positive territory. The result is a transfer of income from borrowers to lenders and from ordinary households to those who already own substantial financial assets.
House prices are falling. Mildly, in nominal terms perhaps, a bit more in real terms, yet more as a multiple of incomes. So, positive real interest rates are aiding in solving that unaffordable housing thing, no?
Yet Spud whines.
What is more, unlike any other business, banks’ business is explicitly underpinned by the government through the provision of a guarantee to those who place deposits with them. No one would trust them without that guarantee. People need to know that they will be bailed out when banks fail, but as a result of it, banks know they will be. Their profit-extraction model, which is based on these guarantees, deserves special tax treatment as a consequence.
The banks are – righteously – charged an annual fee for this insurance. So, we’re done, right?
But, of course, Spud doesn’t know that.
A doctor stopped me in the street recently to thank me for making videos that make sense of a world that doesn’t. I get messages like that all the time. And I want to say this clearly: you are not going mad. The world around you is.
In the United States, millions of homeowners have fixed-rate mortgages that last for the entire life of their loan. They know what they will be paying not just next year, but potentially for the next 20 or 30 years. And, if interest rates fall, they can usually refinance and benefit from lower rates, whilst if rates rise, they are protected. The world’s risks are not dumped on households as they are in Britain.
In this video, I explain how the American mortgage system works and why it delivers a level of security that most British homeowners can only dream of. I look at the role of Fannie Mae and Freddie Mac, the government-backed institutions that help underpin much of the US mortgage market, and explain how their guarantees make long-term fixed-rate lending possible.
Spud does not explain two things.
1) Fannie and Freddie both went bust as a result of this structure
2) Americans pay an interest rate premium over UK mortgages. Someone, somewhere, has to carry that risk of refinancing as rates fall. In a fixed rate for term system that payment will be – is – in the form of an interest rate premium on all loans made. That’s just how that system works. A floating rate system is cheaper, at any given underlying base rate, than a fixed rate one. Jus’ one of those things. Also, one of those things that is well known. Except, obviously, to Spud.
You can call me picky if you like, pendant even, but if you’re going to try to comment upon oil you really do have to know the difference between oil reserves, strategic reserves and inventories.
Myself I predict a boom in US oil production. Takes a few months, at most, to bring new fracking online. So, that’s what will happen with these higher prices.
Why do so when there is already a shortage of demand inside European economies, and when it is known that raising interest rates can only work as a tool to tackle inflation when there is excess demand?
And why raise interest rates when this inflation is clearly being caused by a shortage of oil, gas, fertiliser, food, and other materials, none of which will in any way be made more available by increasing interest rates?
Well Dickie, if you reduce demand then you’ve solved the shortage, haven’t you?
In this video, I challenge one of the most deeply embedded assumptions in modern economics: the idea that there is a shortage of money.
No one in economics thinks there’s a shortage of money. Everyone agrees that it’s entirely possible to print more. Well, Duh!
There are quite a lot of people who insist that there can be a shortage of *useful* money, that’s true. Which is why we’ve all those chapters on monetisation of fiscal policy in the textbooks and so on. Effectively, descriptions of why Modern Monetary Theory doesn’t work from before Modern Monetary Theory was invented.
And thus is the strawman exploded.
The reality is, as I know from several meetings with him over an extended period, Pat McFadden is a man of very little intelligence, and even less curiosity.
Yet these are the people Spud insists should have much more power.
Why are oil traders stupid?
That’s the question.
I have said it before, and I will no doubt say it again, but these supposedly rational market players are demonstrating they are anything but that.
…
The current oil price is around $93 per barrel, which, as the chart shows, represents a marked decline from the peak seen in recent weeks. Yet again, it would seem that oil traders believe what Donald Trump has said. They seem to think that because he hinted that a deal on the Strait of Hormuz might now be available, everything will return to normal very soon.
So, obviously, Spud is going to long the market and be very, very, rich. Good Luck!
Of course, there is an alternative suggestion available. A retired accountant does not, in fact, know more about what the oil price should be than the participants in the $3 trillion a year or so physical oil market, the $8 trillion traded futures and $20 trillion OTC markets.
But, you know, get rich Spud.
From there, it was just a step to consider how a politics of care might be very different from the stereotypical politics of the assumed “normal person”, which is common to all neoliberal political parties at present, including both Reform and Restore.
What we realised was that we had found the defining difference between those neoliberal politics of slightly varying hues and the politics of care. All neoliberalss, including those on the far-right, assume, paternalistically, that there is a “normal person” whose needs they must satisfy. The politics of care is fundamentally different. It presumes that the role of politics and of the state is to assist a person to fulfil their own purpose, which need not be normal at all, and around which diversity is permitted.
It was as if a canyon had opened, a rift had been discovered, or even a new paradigm had been noted. I confessed to some excitement as a consequence.
Having worked out that one size does not fit all the man still insists he’s against neoliberalism, classical liberalism, markets and choice and continues on with the asnwer of MOAR STATE and MOAR TAX.
Sigh.
The entire point – along this axis at least – of markets and liberalism, neo- or not is that folk vary, their desires, potentials and possibilities vary and so we need a system that leaves folk be to live their own life their own way. It’s the very point of liberty in fact. Sure, sure, a helping hand here and there but he’s doscovered the very point of the system he fulminates against.
Could these policies succeed where decades of orthodox economics have failed?
So, that’s the Spud rhetorical quesxtion of the day answered.
As Spud tells us, Hormuz is closed, world’s running out, The Depression awaits:
Oil prices on track for steepest monthly fall since 2020
Brent crude futures down 19% since end of April
Oh. Now that is a tad inconvenient…..
There is a NEETs crisis – but it is being deliberately created by the government
Sure, higher min wage, no firing of dullards, more taxes on employing someone, too many degrees and not enough training, hte nationalisation of apprenticeships. Sure, all being deliberately created.
The analysis following that title somewhat fails of course:
The fact is that the entire foundation of UK macroeconomic policy rests on the belief that some unemployment is necessary for inflation to be controlled. Neoliberal economists call this the NAIRU, the non-accelerating inflation rate of unemployment. Behind the technical language is a very simple proposition. The economy must always contain a pool of people who cannot find work.
Cretin. The point of Nairu is that changes to the microeconomic structure of the economy – wages, taxes on emplyment, ease of hiring and firing, all that sort of stuff – change what the Nairu is. If you’ve a high Nairu then you’ve a stultifying micro-set of rules. The answer is to change those rules.
Entirely possible to have a Nairu at the 2% or so that is really zero unemployment – gotta give people time to change jobs etc – but that does mean having a red in tooth and claw free market employment market.
The first victims are usually young people. They have the least experience. They are the newest to the labour market. They are the easiest to exclude. They have little chance of complaining because they are, economically, just about the weakest group in society, and, when many have few dependents, they are also considered the easiest group to sideline. When economic opportunities contract, they are pushed aside first. The NEETS issue is then deliberately constructed. It exists as a policy choice.
So, vicious free markets to aid the young!
In this video, I explain why every pound of government debt is also somebody else’s financial asset.
That’s why it’s a debt that has to be repaid. Because it’s someone else’s financial asset.
There are trillions of pounds available for investment in the UK. More than £700 billion is saved in ISAs, much of it in cash, and there is much more in pension funds, again with significant amounts of cash being held, as I noted in an article on Substack yesterday.
The problem is not, then, that there is a shortage of funds in the UK economy. We do, in fact, have an excess, or glut, of savings that are serving no useful purpose.
What the government needs to do now is act as the intermediary for the supply of capital from savings through the creation of regional investment banks, funded by government-backed bonds, subject to a government guarantee, as deposits in banks already are, in which it should be required that new ISAs and some pension contributions should be saved.
The government is now going to fund the new local greengrocer. That’ll work out real well, right?
This scarcity is apparent in several ways, with issues related to environmental projects being particularly notable. Good managers capable of thinking up such schemes are in incredibly short supply, and whilst schemes that are themselves environmentally essential can be identified, working out how to monetise them is hard at a microeconomic level, so they do not happen.
Dickie sees there’s plenty of cash. But it’s not being invested in greenie stuff. Because whatever the benefits to society of greenie stuff – to use his stance here – it’s v difficult for an investor to make money.
OK.
That means, as I’ve been saying these decades, that his ideas of how to force more money into such investments don’t work. What’s required is the work to make such investments profitable to investors and the money – which is, as he says, out there – will naturally follow.
Make being greenie profitable and it’ll happen.
That within his own envelope of thinking of course. My own is that we should be as green as is profitable but that’s a different thing.
I argue that food, fuel and energy must be treated as public goods in a crisis.
They’re rivalrous, excludable, they are not public goods. Therefore they cannot be treated as public goods.
In fact, the entire problem is that they are rivalous and so cannot be public goods.