It's The Economy That's Stupid

Abie Philbin Bowman made a good point at the gig yesterday. Once, people believed in a mysterious, invisible force. They didn’t understand it, they could hardly even describe it, but they credited it with vast power, claimed it controlled just about every aspect of the world, and declared that whatever it wanted to happen was what must happen. They called it “God”.

Now, they call it “the economy”.

It’s so true. Nobody really understands the economy. We can’t even define it – is it the sum total of human transactions, or just the sum total of human transactions that involve things you can count? But nevertheless we positively invite it to take control of our lives. As someone else said, the problem with calling economics the “dismal science” is not that people think it’s dismal, but that people think it’s science. At best, it might aspire to being a branch of psychology. Yet people actually try to run the world according to its self-defeating prophecies.

A concept tossed around a lot in current economics is “competitiveness”, which sounds like it has to be a simple, positive good. Got to be lean and fit to make it in this world, don’tcha? It seems almost synonymous with efficiency. But when you look at it more closely you realise that there are a lot of assumptions involved here. “Competitive” is sometimes used as a synonym for “cheap”. When it comes to wage costs, it seems competitive always means cheap.

Competitiveness is at heart a sports metaphor, so let us imagine economic activity as a game like soccer or rugby. We – as a country – have to get out there and be competitive. Cool. Let’s go get ’em! We’ll show them who… costs less. We’ll give it 110% all the way through the first half, and right through the second, and on through the third, and… Hold on, three halves? When does this game end actually?

It doesn’t. We’ve taken the concept of competitiveness from sport, but overlooked the fact that a game is a brief interlude of peak performance. You can’t live your whole life like that. That would be, well, a desperate struggle. If democracy and civilisation exist for any reason at all, surely it is to free us from desperate struggle. And yet struggle is precisely what they’re telling us we need.

So it turns out that, like a lot of words used in economics, “competitiveness” translates most accurately as “whatever makes most money for the people who already have most money”.

But I Regress

Income Tax rates by Country based on OECD 2005...
It's insane how low our direct taxes are

Incentives for property investment? There are times I want to go into government buildings with some sort of brain detector, see can I find anything. The reason why the property market is moribund is that property is still insanely overvalued. Urging people to invest in something overvalued is not only what got is into trouble in the first place, it’s surely a form of fraud.

Insanity is repeatedly doing the same thing while expecting a different outcome.

This budget is going to make me worse off. This is not what I object too though. What gets me is that it will make people who are better off less well off than it will make me. This is something to do with it being a “jobs budget”. They don’t want to create a disincentive for the poor to work by taxing the rich too much.

I think they do their economics by voodoo and shibboleth. They have raised money today by every means conceivable except raising income taxes, because raising income taxes is a Bad Thing. The result is that we have a highly regressive budget that hurts the poor far more than the well-off. Certainly it could be counterproductive to pile on excessive taxation. But is it not even more mad, in the midst of economic disaster, to have some of the lowest direct taxes in the developed world?

My mother, confused about why she’ll be able to afford less fuel this winter, asked me “So why can’t they tax the rich?”

I thought for a minute, and replied “Mainly, because they’re rich.”

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But I Regress

Income Tax rates by Country based on OECD 2005...
It's insane how low our direct taxes are

Incentives for property investment? There are times I want to go into government buildings with some sort of brain detector, see can I find anything. The reason why the property market is moribund is that property is still insanely overvalued. Urging people to invest in something overvalued is not only what got is into trouble in the first place, it’s surely a form of fraud.

Insanity is repeatedly doing the same thing while expecting a different outcome.

This budget is going to make me worse off. This is not what I object too though. What gets me is that it will make people who are better off less well off than it will make me. This is something to do with it being a “jobs budget”. They don’t want to create a disincentive for the poor to work by taxing the rich too much.

I think they do their economics by voodoo and shibboleth. They have raised money today by every means conceivable except raising income taxes, because raising income taxes is a Bad Thing. The result is that we have a highly regressive budget that hurts the poor far more than the well-off. Certainly it could be counterproductive to pile on excessive taxation. But is it not even more mad, in the midst of economic disaster, to have some of the lowest direct taxes in the developed world?

My mother, confused about why she’ll be able to afford less fuel this winter, asked me “So why can’t they tax the rich?”

I thought for a minute, and replied “Mainly, because they’re rich.”

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Some Mild Economic Hassle Ahead

Third world market / mercado tercermundista
Sign of the Times - Image by Andreuchis via Flickr

Some may say I’ve been ignoring the global economic crisis, but the way I see it, if you’re at a funeral you don’t say “Jesus, it’s a dead guy in a freaking box!”

Let’s try to be positive. There has been a little good news in the last week. Some sort of half-assed budget deal was cut in the US, saving its economy from plunging to Third World status. Yet. The Euro still exists, even if it seems about as stable now as an upended pyramid. Full of nitroglycerine. On fire.

But otherwise, the outlook is not so good. The Americans cannot borrow and spend to get out of recession because the balance of power is held by political morons. In the eurozone, we apply band-aid after band-aid to a haemorrhage. Sooner or later we will need to face up to the facts: We either have one single economy with one single fiscal policy, or we can’t have a single currency. That’s not a decision we know how to even begin contemplating taking, and the longer we put it off, the more countries are going to be flung like screaming toddlers from the runaway merry-go-round.

And in a sure sign of economic brick-crapping terror, the gold price is skyrocketing again. Two weeks ago I pointed out that the world’s gold stocks were now worth eight trillion dollars. It’s estimated that in three months they’ll be worth over a trillion more. Funny how market chaos seems to be good for people who happen to own a lot of gold. But that’s probably just one of those coincidences.

We shouldn’t panic or despair yet though. There’s still China. China, that engine of the global economy, driving back collapse. Even when all of us in the West are too broke to buy each other’s stuff, we can always afford theirs. Guess what’s happening in China? Their buoyant, vibrant, export-fuelled high growth economy has led to – no go on, guess – has led to… Have you got it? Yep, that’s right. A housing bubble. China has a housing bubble.

But don’t worry, it’s bound to find a soft landing. Don’t they all? Ha ha ha. Oh God we’re so doomed.

Education – It Keeps Them Off The Streets

Woodcut from Cesare Ripa's Iconologia depictin...
An Image Representing Dignity, Somehow

With the launch of SOLAS, a new state agency combining job-finding, skills, and further education, I’m growing more and more suspicious that Ireland’s government is planning compulsory training for those on welfare. I have little objection to such schemes if they’re about equipping people with useful knowledge, preparing them for real jobs, making workers up-to-date and competitive.

However, I remember the 80s.

I remember Fás – like it was yesterday – and its predecessor agencies. I remember their much-ridiculed schemes. Training people to use telephones with the help of bananas. I get a horrible sense of déjà vu.

Useless education is counter-productive in so many ways. Being forced to attend tedious lessons when you would much sooner be doing something interesting is bad enough when you’re a child. To have it done to you as an adult is doubly as depressing, because it’s compounded with infantalisation. Any gain in dignity such schemes are supposed to convey needs to be weighed against that.

Another downside is that it takes people out of the black economy. Yes, I meant downside. To be blunt, the black economy is necessary. If everything was done by the book, very little would get done at all. People need services at a lower price than the legal economy can provide, particularly in times of recession. And, particularly in times of recession, those on unemployment assistance are often in a position to provide those services. This frees up what would otherwise be complete economic gridlock, where hardly anyone could afford to pay anyone to do anything.

But also in times of recession, the black economy can grow so much that it begins to compete noticeably with the legit one. I submit that that is no bad thing in the short term. But governments don’t like it of course, for the natural reason that the black economy is, by definition, ungoverned, and they are more susceptible to the protests of legitimate business than they perhaps should be if economic recovery were the only priority. So enforced education, and other timewasting exercises like makework schemes, function at least in part to tie people up and prevent them competing.

Back in the 80s, one solution mooted for this and other related problems such as the ‘poverty trap‘ was a national basic income, so that people on welfare would not be competing with those outside the system. Perhaps it’s time to look at such ideas again.