Jonathan,

Thanks so much for taking the time to reply. I agree with a lot of your points, particularly this line, which I think is a brave and eloquent summary of the situation we’re in:

“We might be in a crisis of capitalism, but it has highlighted the political and intellectual weaknesses of the British social democratic and liberal left.”

However, I’m still worried and confused by some of your economic opinions. You say that markets are “amoral and create inequalities”. But this simply doesn’t have to be the case. In fact there are examples of how the market can reduce inequalities. Take a global cap and trade system for instance. If we gave everyone in the world an equal carbon quota and allowed them to trade it, highly polluting rich nations would need to purchase an awful lot of carbon from the highly populated developing world. This would discourage carbon emissions and increase global equality.

It seems to me that if the left made market-based arguments like this more confidently, then it would come across as more coherent and credible. As you rightly pointed out, the case for a fiscal stimulus – a move that could help the leftist goal of empowering the poorest and rejuvenating the economy – is being made most effectively in the FT.

Of course the switch to economic arguments won’t solve all the left’s problems. Of course we need to deal with issues to do with civil liberties, party democracy and political culture. But at a time when the public is so worried about the economy, the left can’t afford to sound unclear about it’s economic position. We need to reclaim markets with the confidence that we can, for once, make them work for left as well as right.

It was never our intention to present a coherent left of labour position

Just as well.

The case for an alternative to neo-liberal capitalism is irrefutable.

It’s blanket statements like this which ensure that your politics are certain to fail – especially as you have just admitted you have no coherent position with which to replace it!

Rowenna is right – reclaim markets for the left if you have any hope of success.
People want better – and possibly more equal – outcomes.
Even I admit that.
But they know that state ownership and central planning are a recipe for failure.
Even given the market failure of the past few years, they know the alternative will not deliver.

It was never our intention to present a coherent left of labour position

If you had you would have placed a centrist policy.

[Left] –[centre-left] –[Centre] — [New Labour] — [Conservative] — [New Conservative (Dave Cameron)]

Thanks for this Jonathan. I look forward to reading the booklet now I have a bit more time to think. I remember months back criticising you for locating too much of your argument within the framework of the UK nation-state, but I am presuming that there will be more about the need for a new system of financial architecture and regulation in the book.

I still think fair trade arguments need to be greater prominence though – and Rowena makes a nice point about how markets could reduce inequality if you think out of the box about them. China and India have demonstrably become richer through their greater participation in global markets (although they have also bedome more unequal societies) while Africa was until recently becoming demonstrably poorer through its exclusion from them.

The left has to differentiate between markets that work well and markets that don’t work as well and are prone to failure.

The banking system is prone to failure and therefore needs more regulation but if we look at something like the Telecom industry, it’s working very well. Sometimes we need government interference in the Auto industry (like in the case of Rolls Royce) but other times we need the government to stay away.

Instead of using a sledgehammer to crack a nut either by having a policy of government intervention, or a policy of government non-intervention, the economic policy should be dealt with on an industry by industry, case by case basis.

The need presuambly is to generate clear crieria for when regulation should be nil (or light) and when it should be tight. The broad principles that come to mind are

– is the product or service a necessity (regulate) or a luxury (deregulate)?

– is there effective competition (deregulate) or a de-facto oligopoly (regulate)?

Or am I being naive?

Can someone recommend a university that my children can attend without being exposed to socialist indoctrination from the staff?

The Yooniversutee of reel laaaarf…

From which I was ignominiously rejected.

Buckingham! Except the government won’t pay, or necessarily even help, for you to send your kids there. Otherwise how can they ensure enough people receive their quote of socialist indoctrination.

Why is the amount of fiscal stimulus or quantitative easing an ideological question at all, rather than a technocratic one?

“My life changed on reading the Ragged Trousered Philanthropist, the scales fell from my eyes and I realised that the fiscal stimulus should be £50bn not £25bn, and quantitative easing should be £100bn not £10bn.”

Is that the sort of coherence you are looking for?

Of course if fiscal stimulus is just a pretext to increase tax and spend, and the left believes (rightly or wrongly) that high tax and spend is good for poor people, then that makes sense, but it has little to do with the recession. It is just doing what everybody else is doing and arguing that the crisis means that they were right all along, and we should do more of whatever they have been calling for all along.

Remove all powers from the FSA and give regulation back to the Bank of England , including insurance and ratings agencies. Brown’s removal of banking regulation from the B of E and therefore the ignoring of the increase in personal , coprorate and national debt iare the major causes eof the UK’s problems. What also controls our ability to move out of recession is personal debt( mortgages, credit cards and HP) and corporate debt. It is not quantity of regulation but quality and wisdom of the regulators which are important. All banks, building societies and FTSE 100 companies ought to report their debt and financial risks to the B of E every 4-6 months .

2 chavscum . If your children read engineering and play sports to high level , then they will be free of political indoctrination; they will not have time to play politics. Civil, mining, chemical and petroleum engineering require people to face reality – mistakes can kill. Most left wing middle class politics are supported by those who live in a paper reality; whatever they think , feel , write or say is real. All facts must be made to fit the theory. Those who are engineers who play competitive sports have to maintain contact with reality. Pushing one self through the pain barrier to achieve sporting excellence is real, defeat is real, a chemical plant blowing up and killing people is real.

“Can someone recommend a university that my children can attend without being exposed to socialist indoctrination from the staff?”

Why not home school them?

“Pushing one self through the pain barrier to achieve sporting excellence is real”

Yes, but it might get you a place on the Olympic team – which is another thing it is compulsory for wingnuts to despise.

“a maximum income at a ratio of 1:20 of the living wage (approx £7 an hour); ”

This is insane.

That’s £140 an hour.

If you do it by having 100% tax on incomes above that then you’ll cease to have a large chunk of economic actitivty. All that from all those people who currently earn over that amount (approx 300 k), You will certainly be the wrong side of the Laffer Curve and wil raise less tax….as well as there being less welath being created across the society.

Or if you do it by actually limiting hourly wages….well, how are you going to do that? How will you limit the pay of the self employed? There are times when I write for a newspaper and get more than £140 for less than an hour’s work. How do you deal with that? Or with a sole trader simply making good money?

Do none of you actually think before you start proposing things?

Just to make a few responses.

Conor, I remember our exchange. I’m not sure The Crash succeeds in developing a good global analysis and outlook.

On markets. I’m open to rethinking the role of markets and reclaiming them for the left although I think this is what New Labour was all about doing. The result has been corporate abuse, financial meltdown, monopoly capitalism and corporatist ideas like the PFI. The bigger issue for the left is to rethink the state because the left puts its faith in public democratic action and relationships rather than economic market relationships as the best way to govern societies. Currently we don’t have a model of the state that could replace today’s highly centralised, undemocratic and micromanaging market state. We need to develop mutualist, local forms of economic organisation and reinvigorate local democracy, as well as develop new global forms of governance.

I remain sceptical about markets delivering just outcomes. The cap and trade system will operate in a status quo of gross inequalities and I remain unconvinced it will work fairly or enable more equitable economic development. As for New Labour’s personalisation plans and its market based welfare reform, I don’t support them. On personalisation see Peter Beresford at http://www.lwbooks.co.uk/journals/soundings/articles/02%20S40%20beresford.pdf

On the issue of left wing universities and the various mostly daft replies. It is rubbish that universities are hotbeds of socialism. The right should be pleased that the market mechanism is doing its work in higher education. Unfortunately it is creating a philistine, corporate management and a risk averse learning culture. In the context of inventiveness and knowledge making the market tends to be a dead hand rather than an invisible hand; a reality that countless businesses and governments have had to struggle with. It’s why so much innovation derives from military research or from organisations protected from commodity exchange and the short termism of market demands.

Tim Worstall, the living wage is hourly paid but salaries are annual. I work out the top rate at about £250,000. The IFS estimate that the top 1 per cent of individuals – 470,000 people – earn an average annual income of £220,000 and between them own approximately 25 per cent of marketable wealth. Within this group wealth is unevenly distributed, with the top 0.1 per cent taking home an average of £780,000. This 0.1 per cent occupy the section of the economy where renumeration would be limited. Let them publicly argue why they need such large salaries. Many of their bonuses have contributed to destroying the economy. Now they are being bailed out by half the population which shares just 6 per cent of UK wealth, earning the median, disposable income of around £18,876 or less. So let’s have the public debate and throw in the theoretical value of the Laffer Curve at the same time by examining the tax take in the Reagan and Bush years which increased levels of taxation on labour while reducing tax on the rich. The problem with your liberal economics is that in the name of free markets and individual liberty you end up limiting the freedom of the many and perpetuating the wealth and property of the few.

“Many of their bonuses have contributed to destroying the economy. Now they are being bailed out ….”

small point perhaps, but rich bankers themselves are not being bailed out by tax payers, except to the extent that some of them are keeping jobs they would otherwise lose or experiencing slightly smaller losses on bank shares they own (this latter is probably the most meaningful route via which bailouts might end up enriching the already rich). Tax payers money is being spent on buying or insuring toxic assets, lending money to banks, buying shares in banks etc. which does not amount to bailing out the bankers themselves.

I think that persistently mis-describing the bank bailouts as ordinary people giving money to rich people is probably the main reason they are (wrongly) opposed. They might be rightly opposed for other reasons. The bailouts are designed to make the recession less bad than it would otherwise be, that means making tax revenue higher than it would otherwise be, govt expenditure lower than it would otherwise be and job losses fewer. I’m not saying there are no benefits to bankers from the bailout, I’m saying it’s a very misleading way of characterizing them.

“In the context of inventiveness and knowledge making the market tends to be a dead hand rather than an invisible hand; a reality that countless businesses and governments have had to struggle with. It’s why so much innovation derives from military research or from organisations protected from commodity exchange and the short termism of market demands.”

Snigger. You really have no clue at all, do you?

Not the slightest little iota.

One of the points of a market economy is that it encourages innovation and invention. Compare and contrast the great success of the Lada and the Trabant in their design and styling in the absence of competition as against the dreary shite that the the free market economies of West Germany, Japan and the US have served up to us over the years.

The Soviet mobile telephone companies were also a great success, weren’t they?

It’s certainly true that the are public goods arguments about pure science and research and that this is why they need to be publicly subsidised. But this isn’t a feature of markets being dead hands. It’s that as non excludable and non rivalrous goods such pure knowledge cannot be profited from and thus they will be undersupplied.

Seriously, just have a look around you will you? Take a peek at the real world?

Markets being dead hands to innovation is simply drivel.

As to the limit to wages. Note that I didn’t say anything at all about the morality of it. I questioned the sanity of how it would actually be implemented.

If you do it through the tax system then you’ll be over the Laffer Curve sweet spot without a doubt and you’ll get no damn revenue at all from a 100% tax rate.

If you try to do it by limiting more directly the wages that can be paid, how actually are you going to do that? How do you stop the self employed from earning more than your limit? How do you stop people from becoming self employed so they can earn more than your limit?

Tim, mobile telephone companies? I think it’s you who needs a whack with the cluestick, mate. Start by looking up ‘GSM’.

“Tim, mobile telephone companies? I think it’s you who needs a whack with the cluestick, mate. Start by looking up ‘GSM’.”

Umm, are you trying to say that Nokia, Samsung, Motorola etc do not compete in a market and do so through innovation?

I’m guessing you didn’t bother looking up ‘GSM’ before posting that trite reply, Timmay.

[fx: sound of goalposts being dragged across the park]

Don’t need to. I know very well that the technical standard was created at government instigation.

So what?

Shorter Tim: “Whatever”

Luis, I thought the bail outs were necessary but the corporate governance of the banks remains unchanged and lending rates to business remain high. The tax payer has taken on the burden of the debt while leaving the profit in private hands. I think the whole banking sector should have been nationalised and restructured over the longer term. We’ve ended up bailing out heavily leveraged loans. While the multiplier effect might have brought in massive profits in the good times, it will now bring in massive losses and the tax payer will pay the price over the next decade.

small point perhaps, but rich bankers themselves are not being bailed out by tax payers, except to the extent that some of them are keeping jobs they would otherwise lose or experiencing slightly smaller losses on bank shares they own

Luis – but that is in effect bailing out the entire banking sector isn’t it? if we didnt bail out these banks then about 90% of them would be bust and the financial industry would be mostly in ruins. That does mean we are in effect shielding them and protecting their high salaries.

That does mean we are in effect shielding them and protecting their high salaries.

That is an unfortunate side effect perhaps.
Obviously the main intention is to protect depositors and to maintain at least some level of credit creation.
Clearly a ruined financial industry = a ruined economy.
The question is who should bear what share of the costs.
It seems to me that sharehollders – who have lost a lot but should have lost more – and especially bondholders – who appear to be losing nothing – are being better treated than they should be.

Sunny,

well yes … and no. We may be splitting hairs here, but …. as you say, if there was no bailout, we would see more banks going bust. When a company goes bust its shareholders and creditors and workers lose out, but the business often re-emerges in some form (it’s bought out of bankruptcy or the management start a new firm or whatever) so with no bailout although banks would get wiped out, employment in the banking sector would not fall to zero. Some banks would survive and buy-up the pieces of the others, foreign banks would do the same, new capital would set up new banks and so on. There are plenty of bits of Barclays, RBS etc. that could be spun out and bought up. There would still be some rich bankers with richly paid jobs in banking if the banks when under. The difference between employment levels and salaries in that scenario, and employment levels and salaries in the bailout scenario, constitutes the extent to which individual bankers are getting bailed out. Same goes for the extent to which bank shareholders and creditors are being bailed out. This is just an expanded version of what I’ve already said, in the passage you quote. Even under the bailout scenario, lots of bankers are losing their jobs, seeing their incomes slashed and experiencing gigantic losses on shares (and rightly so) so although they are being shielded compared to the counter-factual, they are no being shielded so much in absolute terms.

But my main point is that while individual bankers are being bailed out to an extent, “bailing out bankers” is still the wrong way to think about, and the wrong way to describe, the bailouts (even though it is part of what’s happening). All these billions are not being funneled into bankers’ pockets, they are being spent on shares in banks and so forth. Some of that money will be spent acquiring assets with a resale value (and so should be thought of as money spent in the same way as money spent paying bankers’ salaries would be). Of course there will be a direct net cost to the taxpayer from the bailouts, but the beneficiaries of that expenditure are much more than the bankers themselves. I hope.

Jonathan,

“lending rates to business remain high”.

do they? that’s not a smart rhetorical

The tax payer has taken on the burden of the debt while leaving the profit in private hands. I think the whole banking sector should have been nationalised and restructured over the longer term. We’ve ended up bailing out heavily leveraged loans. While the multiplier effect might have brought in massive profits in the good times, it will now bring in massive losses and the tax payer will pay the price over the next decade.

sorry, above posted by mistake (can somebody delete?) here’s what I meant to say:

Jonathan,

“lending rates to business remain high”.

do they? that’s not a smart rhetorical question – I don’t know. Can anybody point to data on average interest rates paid on business loans over the last few years? I don’t know how business loans are structured – we’re fixed rates common? trackers? discretionary variable? Of course it’s hard to interpret interest rates without knowing what the expected default rate is, which may have risen recently.

“The tax payer has taken on the burden of the debt while leaving the profit in private hands”

I don’t know what that means … taken on what debt, owed by who to who? Profit from doing what? Take mortgages, the burden of the debt is held by the homeowner and the profit (assuming defaults are low enough to allow for a profit) is enjoyed by the lender. What debt burden has the tax payer taken on, while leaving the profit in private hands in the mortgage market? If the taxpayer has taken over as the lender, isn’t the burden of the debt still with the householder but the profit (or loss) now in taxpayer’s hands? But perhaps you had something else in mind.

“We’ve ended up bailing out heavily leveraged loans”.

Again, not sure what you mean …. banks may make leverage investments by borrowing money to invest with… but what is a leveraged loan, and how do you bail it out?

“While the multiplier effect might have brought in massive profits in the good times, it will now bring in massive losses and the tax payer will pay the price over the next decade.”

Yes, banks have been wiped out after having made leveraged investments that turned bad, so they need re-capitalising. I’m not quite sure what point you are making – are you saying that the losses to the taxpayer will be lower if this is done via nationalisation rather than via bail-outs of various forms? Well, I could believe it, but I don’t know on what basis you think this.

http://economistsview.typepad.com/economistsview/2007/07/yet-again-tax-c.html

Laffer curve?

It was created at government instigation, to a large extent by companies that were then still nationalised industries, and it would never have happened if the European Commission hadn’t banged the stupid heads together about the radio spectrum issues. Further, if the EC hadn’t permitted a huge exemption from competition, it’s unlikely the roaming agreements would ever have been signed in the first place.

And Ericsson wouldn’t have been in the mobile phone business to start with if it hadn’t been for the meeting of Nordic telecoms administrations on Midsummer’s Day 1969 in the Lofotens that decided to build the NMT system, the mother house of mobile telephony, to which GSM and UMTS owe their core network architecture. (That, in turn, probably wouldn’t have happened at least when it did if it hadn’t been for the Million Homes Project outstripping TELEVERKET’s capacity to lay lines…and the decision to go ahead with the AXE digital switches was driven by predictions for Swedish average earnings in the 80s…but I digress)

Further, you can’t overlook the contribution of Bell Labs, which was the creature of AT&T’s government-granted and regulated monopoly of long distance…you really need to look at another industry for your historical examples.

Oh yes, and that Laffer-notcurve example is even better if you look at the countries at the joyous left hand end; Iceland? Ireland? Dubai? Can haz IMF? KTHANX!