Malcolm Blair-Robinson's Blog, page 2

Budget 2024: Will Reeves Fix the Broken Economic Model?

I would like to think yes but I am almost sure the answer is no. But what she looks as if she is going to do is to shore up the current model and make it function not as a drag on growth, which has been the case since the 2008 crash, but as an engine of growth.  How far she will succeed with that depends on what she does.

There are hints that there is to be revision of the chaotic book keeping at present in force for the public finances, which may free up funds to support the collapsing public services, now operating just above the level of a failed state. It is certain that paying for day to day expenditure by borrowing has to stop and to stop it some very painful increases in taxation are in store.

I do think that we will be in a better economic place by the end of Wednesday next, but it will be innovative rather than transforming. To repeat previous posts, we cannot resolve our problems long term until the government, through the Treasury, not the Bank of England, regains control of interest rates, terms of credit, savings rates and the money supply.

And that will not happen yet.

 

The Economy: Exploring The Answers 3: Currency and Financial Levers

Money is what any economy is about. Because who has it and what it is used for shapes not only the social structure but also the destiny of the nation. Some countries exercise control of all the financial levers which determine the shape of their economic model and, as already discussed in a previous post, they must have a sovereign currency to make that happen. Those in currency groupings have less control, but are better protected from rash ill informed local decisions.

This post will explore two key elements. The first is the integrity of a currency and what that means in practice. The second is to identify the levers of financial power.  It will not explore how moving them  could set us on a better path. That will come in a later post.

Fiat currencies, as paper and electronic money is known, depend for their value on the market view of their reliability long term. As none of the major western currencies is backed by gold and all are floating, the value band within which they are traded, depends on the market having confidence that the management of the  national economies  which issue them, is in safe hands. That means doing what is in the interests of those markets. If they have doubts, they sell off the offending currency and demand a much higher coupon on any borrowing by that country. As the UK discovered during the wild Lis Truss experience.

This proved how market awareness is now the most significant driver in determining the limits within which governments can take political decisions and put them successfully into effect. This is politically disastrous because it causes the democracy itself to become dysfunctional. People vote for stuff which is promised but not delivered. And that undermines  faith in public institutions  and pushes people to extremism.

It is possible to tinker with the existing model and to improve its balance, through taxation and investment. But because the government has no accumulated wealth and no surplus income, it would have to increase personal and business taxes and also borrow.  The model must be changed if there is to be a reversal from almost continuous decline, so that the economy can be shaped for expansion over the long term. For this the government has to take control of all the economic levers.

These are all interest rates, including bank rate, a new minimum saving rate, a new mortgage rate. Terms of borrowing, including minimum deposits, repayment periods and qualifying income multiples. Control of the money supply, up and down, including a halt to quantitative easing by the Bank of England and instead responsibility for so called printing money returning to the Treasury. A more aggressive management of the currency trading value band.

The next  post will look at how using these levers wisely could open a new road to prosperity. It is important to remember that economics is not a fixed discipline. An economic model which works in one set of circumstances will fail in another. Indeed the changes which bring prosperity can also lead to downfall. So called Thatcherism is a recent example of this.

This blog series is concerned with the times we live in, here and now, because we are sleepwalking through a crisis and we have to wake up.

The Economy: Exploring The Answers 2: Debt

There was a time when debt was considered to be not a good thing. But times have very much changed. Now debt is  so much a part of the economic structure that it almost operates as a second currency.

Not only is the government in debt, borrowing is also the foundation of business. It is the foundation upon which many people are forced build their lives, starting with student loans to pay for their education, then a mortgage to buy their home, accompanied by credit cards to fund their spending. If they set up a business on their own, it is likely that the bank will give a helping hand. It all sounds very easy going and convenient, but like so many good things if overdone, it destroys what it creates.

For far too long successive British governments have failed to grasp both the function of government and the purpose of the modern state. They have delegated the responsibility of economic growth to the private sector and the responsibility of delivery of intended government legislation and policies to a nightmare agglomeration of watchdogs and regulators. Most of the operational service functions of the state are outsourced to private contractors who then make a killing for their shareholders.

In the early 1970s the government  handed the value and control of the currency to the markets.   Since the late 1990s governments have passed responsibility for setting interest rates to an allegedly independent central bank, but which in fact they own. This has stoked the inflation of fixed assets purchased with borrowed money, so that they  are forever on an upward spiral. When the money runs short because of an overheating market, the government steps in and prints more.

The impact on decent housing as a basic human need for everyone, has been disastrous. Because markets have been allowed not just to grow naturally, but instead to develop new spheres of activity, for example in energy, it is markets, not politicians, who now control the direction of travel.

When the markets hit the buffers as they did in the 2008 crash and the volume of debt massively outstripped the value of supporting assets, leading to suicide level losses and the insolvency of almost all the major banks, the West’s governments rushed to print money to shore up the failed system so it could reboot and carry on. The authors of the disaster were rescued and rewarded, while the ordinary people took the hit to their living standards and ambitions.

Unfortunately with the UK Tory led governments since 2010, their muddled ideologies have led to financial starvation of public services to the point where  they are mostly broken. Health, education, prisons. the courts, are frightening examples. But they have also led to rising national debt on an unsustainable path. We now have national debt in excess of GDP, and interest payments on that debt bigger than any other departmental expenditure annually, except the NHS.

The new Labour government is faced with unsustainable monthly borrowing to pay the bills, increasing the debt by the hour, while the economy is not growing and has not done so meaningfully for years. If the UK were a corporation it would be  in the sphere of qualified accounts, and close to the point of going bust.

Labour will do its best to shore up the system and there is a lot it can do which will help, but in the end nobody seems recognise that we are way past the point of good housekeeping. We have to gut the house, cut out the rot and rebuild it. Otherwise it will eventually fall down.

And the first principle of that reconstruction is that we cannot borrow money to pay for it.

The Economy : Exploring the Answers 1: Money

What is money? It is not a thing. It is a measure. It measures values of all economic activity including services, labour, assets, goods, skills, knowledge. This list is another seemingly endless recital. But the key element is that, like centimetres or grams, without something to measure, it has no value in itself.

In past times the physical expression of money did mostly have value in the form of coins, which were of gold. silver and copper. But when paper was used there was no  value in the actual notes except the paper itself.  With modern electronic money there is no physical element. Last year over 80% of money transactions in the UK were electronic.

Here comes the brain twister. Most people think of money and the currency as the same thing. But they are not. Money is a measure and valueless unless measuring, but the currency has an intrinsic value and can be traded and exchanged. It is the physical expression of money. You can touch it and hold it.

For a country to be fully independent it must have a working currency. It is the absolute expression of independence. If a country shares a currency with others, none are individually sovereign states, because they have elected to share their sovereignty, to create a powerful  independent union, of which they are a more secure and prosperous part. The structure can vary. The United States, following the carnage of their civil war, consider themselves a single country with an indivisible union and one currency. In other words a union from which you cannot separate. The EU, on the other hand is a voluntary union of states, some of whom share a common currency, but others retain their own. If a state decides to leave the EU it can.

The UK, especially England, has a very strong sense of sovereignty, especially since the Reformation, which finally threw off the dominance of Rome. Traditional conservative  sentiment over sovereignty is perhaps why there was so much resistance from Thatcher over the ERM in the latter part of her premiership and towards joining the Euro. The sentiment eventually overtook the whole political establishment. There is a very strong  sense of full sovereignty and a national currency being indivisible, as indeed they are.

But with that sovereignty comes ownership, responsibility, management and financial discipline. This requires political control of who benefits and who loses. It shapes the financial model, which in turn shapes the society. And in a democracy who does all that is the remit of  the people through their choice of  government and parliament. Unfortunately bit by bit, without any malign intentions, the Western economic model has transferred control from governments to central banks and markets.

This has resulted in political inertia over issues which burden ordinary people most, because in the end uncontrolled  markets will always act in their own interests. In particular they will favour assets over labour and are blind to social injustice. They leave all these questions to democratically elected politicians, who consistently fail to deliver on promises made, because they no longer control the key levers of power. They do no more than tinker at the margins of the great economic issues of the day.

This is a much bigger threat to our way of life than any military threats coming from countries that we chose to regard as enemies. Because as the people who benefit from markets grow ever richer, those who keep the essentials of modern civilisation running, grow ever poorer. The cost of housing becomes the dominant feature of the domestic budget while earnings fail to keep up. Social cohesion begins to fracture and strikes and riots multiply. Moderate political parties which broadly support the system find themselves under pressure from the far left and far right, who want to tear it down.

As a consequence the relative standard of living of workers, on whose daily contribution all the modern elements of a civilised state depend, is falling, while speculators and investors in fixed assets have never had it so good as they forever inflate their wealth, fed by unlimited supplies of printed money. Every latest forecast for productivity and  national debt produce unsustainable figures. The new government struggles to shore up in the short term a structure which will not anyway stand for long. What can be done about it?

Future Blogs will explore the options. They will be way beyond any thinking acknowledged in the Treasury today and outside the experience of anyone in power. But they will be neat and simple and clean. And they will work.

The Economy: The Problems

Great Britain, as it was then mostly known, was the leader of the industrial revolution. We assembled the largest empire in the history of the world, out of our ability to build ships and railways and every single component of both manufacturing and consumption. Self sufficiency and independence were a given.

Now, manufacturing accounts for less than 10% of our GDP. We have an economy dominated by domestic consumption, yet we import 90% of everything we consume. This blog is not going to plunge you into a blizzard of figures. First because there are now so many sources on line to provide every statistic which interests you and second because the problem is not the figures. They are the symptom. The problem is the structure.

Having shifted the economic activity from making things to services, we have forgotten to think about where the money comes from to pay for these services, whether  they are provided by the state or the private sector. As we ceased to generate enough new wealth (literally so when it comes to energy) we bridged the gap by borrowing. And instead of investing the borrowed money into new wealth creation, we used it to inflate fixed assets, primarily land and property.

Having set out on that dangerous course we convinced ourselves that we were becoming ever richer, with a new selfish ideology running into every stream of our lives, which gave the individual priority over the common good. This stoked a smouldering fire which burned through national assets,  shrinking the state, even though the population was growing. So now nothing works. Transport, the NHS, education, social care, the justice system, prisons, sewage, power, flood prevention, the list goes on, are all under invested and at breaking point

All of that can be improved with a fairer more enlightened approach to both analysis and solutions. But the structure will remain. And it is the structure which has enabled everything that has gone wrong. It is founded on the principles that the markets know best, central banks should set interest rates, borrowing by governments and individuals is the only way to expand, money can be printed almost on demand and the fact that both the pound and the dollar have lost over 95% of their value over the last sixty years is okay. In fact the rot set in when both currencies floated free of the gold standard in the early nineteen seventies.

We now have a stunted economy too small to fund the services and infrastructure of a modern state, cash starved in spite of almost the highest levels of personal paid direct and indirect tax in history. So to renew our economic model to one that fits the needs of the hour and equips us for the challenges of the future, which are many, is the number one priority.

What is truly shocking is that, so far, such a major refit it is not even on the agenda.

Anger Grows: Is This Good or Bad?

My holiday from blogging and writing generally is coming to an end.  It seems the right moment. Renewal is the political buzz word now.  A new government has brought a change of mood. Relief at one level, but anger at another. Public morale is lifted by Olympic medals but is dampened by the realisation that our country is torn by riots. Unfortunately history shows us that real change for the better only happens when mounting anger builds against the status quo. But for violence there is no place and it must stop.

Are we truly a multi-racial muti-cultural society? Or are we fragmented into separate groups eyeing each other with suspicion, even hatred? In a country built  on immigration since early man walked  over land that once joined us to continental Europe, why are we so obsessed with it?  We have  a history of absorbing invaders including, Saxons, Romans, Vikings and the Normans. Is it because immigration puts a strain on our public services which then cannot cope? If so why are our treasured institutions like free education and the NHS in such a state that they are struggling? Would they not struggle anyway because for too long they have been underfunded and mismanaged by government tinkering and ideology driven reforms which fail?

The emergence of  community marches against violence is important. It shows that there is a silent majority who will not be coerced by the far right (or left) and for whom the multicultural society is real and worth protecting. The hands on engagement to restore order by the government is a tremendous advance on platitudes hiding behind the right of free speech of recent past. But the disruption to the criminal justice machine which will ensue, following the priority given to the riot cases, only reveals another national institution underfunded and on its knees. Overcrowded prisons and court delays of years are sure signs of a crumbling state.

All we seem to know for sure is that we are in a bad place and there is no quick fix. Trust is at its lowest ebb in my lifetime, not just in politics but in almost everything. So future postings on this blog will explore the roots and origins of our troubles and offer possible solutions. These will aim to help us progress from blame to ambition. We cannot change the past, but we can build a future.

The ideas will be radical, even outlandish, to many. Most of the subjects were covered in my book, published in 2009, 2010 A Blueprint for Change. Copies are still available through the link (cheaper copies can be found second hand) if you want to see where I was right and where I got it wrong.  But hopefully it gives me a licence to have another go, not with another book but a series of blogs to come.

These will set out fundamental reforms which are essential to set our country on its path to renewal. So far our new government has shown it wants to be honest with the people and has the will to take very tough and unpopular decisions to  rebuild the ability of GB to grow. However, it appears engaged in making the system work better. Some changes for sure, but basically the same system.

I believe the system itself is broken and has to be rebuilt. All of it. So watch this space.

 

Will The Chaos Never End?

Not yet anyway. Meanwhile it is strikes, the NHS, collapsing concrete, passing the buck, high interest rates,  falling house prices or a government of musical chairs unable apparently to get a grip or exercise control.  All of this unending bad news stems from two related ideologies. One is that the individual is greater than the state and the other is that the state is subject to market forces. Both of these are said by believers to be the highest examples of freedom when in fact, for the vast majority, they devour it.

Add to that cuts, economies, efficiency savings, project postponements and austerity over very many years and you end up with a deformed economy which cannot deliver. That is what we have now. Hunt and Sunak can tinker at the margins to effect marginal improvement, but in the end there will be only marginal recovery, nothing sustained, no great leap forward. At the first adverse event, and there are many coming down the track, the decline will return.

What is needed is a complete overhaul and restructuring of our system of government, our economic model, our economic management, our control of money and our social and strategic priorities. We need an industrial policy, a housing revolution and direct delivery of energy to business and households. Quangos, regulators and apologists engaged in scattering responsibility to avoid direct ownership must be consigned to the dustbin.

None of this will happen because we have  a political class of the utmost incompetence and mediocrity. Hidden within it, eclipsed by the lies and broken promises of their peers, lie waiting a small number of sharp minds with the capacity to do something worthwhile. To empower them something has to blow. When it does, the bang will be big. Make no mistake about that.

Only then is there any chance of a fresh start. Without it, it’s down hill. All the way.

Ownership, Responsibility, Accountability

There is an unwelcome culture now embedded in the English structure through which the State and its outsourcing satellites runs our public services. Or responds to unexpected emergencies and events. Late or never delivery, cover ups, buck passing and warnings ignored are no longer the exception but the rule.

This has to change because while in the past these things caused a short term storm, it passed and people forgot. Except for those whose lives had been  affected, often ruined. But now public attitudes have very much advanced through social media and platform sharing, to the point where their information is more up to date and accurate than the official line. Once they spot a problem they cannot be bought off with platitudes nor will they let go.

A properly researched list would be almost endless and way beyond the resources of this blog. But into most people’s minds spring Contaminated Blood, Bloody Sunday, Weapons of Mass Destruction in Iraq, The Post Office Horizon scandal, Grenfell and the ongoing small boats. Current news dwells, quite rightly, on the outrageous Michaelson miscarriage of justice and the horrific Lucy Letby serial killings.

It is always the same. Warnings unheeded, the problem ignored or if revealed covered up. Then when it bursts into the open, nobody owns it, nobody is responsible, nobody goes, an inquiry comes to indecisive conclusions long after the event, when public consciousness has moved on.

Well that has to stop. Or else the people, in a convulsion of anger and despair will stop it. That would traumatic and the collateral damage vast.

Time is running short.

Three Small Points About Big Things

NHS Reports of using spare capacity in the private health sector to help deal with backlogs in the NHS make sense. In the short term this is the obvious route to improvement, as it does not require massive reorganisation of the NHS. To be effective it needs to be disciplined and working to a programme, rather than ad hoc here and there. The situation demands something like 70% of private sector capacity being used to treat NHS patients. The other positive in the headlines is talk of diagnostic centres separate to hospitals.

NEW OIL DIG LICENCES Net zero campaigners are justifiably outraged by such a retrograde proposal. There is however some logic in this, although the government has as usual been cack-handed in its messaging. Even if we proceed with renewable energy development at pace, including power lines to distribute it, we will need a run off of fossil fuels, currently mostly imported. If we can reverse that, use only home dug and get it into the national grid, not only will we be reducing our carbon footprint by avoiding imports, but we will be creating real new money as well. For a financial model addicted to relying on borrowing and printing this is good news.

INTEREST RATES Up again, but softly with an 0.25 rise rather than the bolder 0.5. The trouble with this steady as we go approach, now in its 14th attempt, is that it puts off the moment of recovery so far into the future, that flatlining for not just months, but years, is seen as a good outcome. This is very not so. At the moment it is beginning to look as if the fifteen years it took to deal with the last bout of inflation illness maybe what we are in for this time. Meanwhile all the other major economies appear to be doing much better, with the US where the latest figure is under 3%, very much better.

NHS: Rebuilding a Functional Service

As I said in my last post, the organisational structure of the NHS, both medical and administrative, is dysfunctional. Unless you are addicted to queues, waiting lists and  needless suffering. Failure to actually deal with these issues, apart from tinkering, promises and announcements, now threatens the very future of the NHS as a public service. Handing over to the private sector to set up an insurance based US style model is a real threat. Yes it would be political suicide, but with the state of the national financial model on the edge of serious failure, there may suddenly be no alternative.

So to avoid disaster there must be a plan.  Here is an outline of one to get the debate going.

Let us first deal with what has to go. The entire GP system, with separately contracted self-employed doctors trained and paid for by taxpayers, yet increasingly unavailable to most of them, goes. As does the the hierarchical structure of  of the medical profession.  Care, cure, remedy and repair are about teams not ranks.

Hospitals that close at night and at weekends, on the model of a department store, when only emergencies are accepted out of hours, must end. Not least because it costs more to shut them than to keep them open, but primarily because it hobbles outcomes and is nectar to lists.

Finally junior staff, over-worked with very long hours and so underpaid many leave, will stop. As will doctors currently ranked as ‘consultants’ working limited hours for the NHS and moonlighting up the road at a private clinic, mostly treating patients recruited from one or other of their bulging NHS lists.

First what we will call Family Healthcare. This is where it all should start. The initial call and consultation with a doctor. The tests. The diagnosis. The ancillary services and treatments. Scans, blood tests, biopsies, x-rays. The pharmacists, physios, counsellors, therapists. Referrals to specialists at hospitals only when diagnosis certain. Initial consultations with doctors from family to senior level, all at this single Community Health Centre open 24 hours for accident and  emergencies and fully operational for  12 hours each day. Trauma requiring admission would go to the District General Hospital, which would have no A&E department open to the public. Specialists would hold clinics in the health centre and family doctors would always see ill patients, for example with a fever, in their homes.

Next comes the District General Hospital which would be open 24/7 fully staffed and operational, running three 8 hour shifts for everybody. Senior doctors would lead teams in which each member, from the most junior nurse upwards, would be seen as a critical and important contributor. Of course there would be respect for all and experience would be valued and rewarded, but the hierarchical pyramid of today’s NHS would be gone. All doctors would be doctors. Surgeons would be doctors, not Mr or Mrs because they were once barbers or butchers of whatever the tradition is. We need timely treatment, not tradition.

The specialist and teaching hospitals would remain the most advanced destination for the most serious conditions, as they are now. Nurses and doctors would continue to study and qualify as now, but additional intermediate qualifications would be available over a shorter learning time for assistant physicians, either as an end in itself or as a stepping stone to full qualification later. All medical training would be free but those who receive it would be debarred from private practice. Any switch later would require a payment to taxpayers of then cost of training a replacement.

It is obvious that most of this, even as a sketchy outline, is way beyond anything being discussed or planned at the moment. Much of it would be impossible under the current funding model anyway, so it must be read in conjunction with my earlier post on NHS funding.

But if nothing is done except a little of this and that, the days of any return of the NHS as we once knew it, are gone. Moreover the current creaking, decayed national treasure, with its lists and queues and suffering, will finally fall over. So the choice is getting a grip or political oblivion for the government in power when it topples. All politicians should be worried, but the Tories should be very worried indeed.