The shockingly inadequate reaction to the bankers' crisis is the reason Britain is in such a state today

It's 10 years to the day since Lehman Brothers collapsed into bankruptcy and practically nothing has been done to rein in the excesses of the mega-rich speculator class who created the Bankers' insolvency crisis.

First the entire establishment class rallied around to ensure that their mega-rich speculator mates wouldn't lose out as a result of the crisis they caused with their reckless gambling, with bailouts, and quantitative easing cash galore to prop up the value of the assets of the rich.

Then Tories cynically used the bankers' economic crisis as an excuse to impose ruinous austerity dogma as a means of pushing the cost of the crisis onto ordinary people through wage repression, in-work benefits cuts, welfare cuts for sick and disabled people, local service cuts, etc.

Meanwhile the Tories actually rigged the economy even further in favour of the mega-rich by slashing corporation tax, slashing taxes on the mega-rich, and lavishing the speculator class with ridiculously one-sided outsourcing contracts, and handing them massive chunks of public infrastructure and services at bargain basement prices (like the Royal Mail) or even for free (like the state schools given away to private academy profiteers).

The bankers' insolvency crisis called for decisive action to ensure such a meltdown could never happen again. Action like breaking up the "too big to fail" banks, restraining the ridiculous short-term bonus culture to make financial rewards dependent on the long-term sustainability of the institutions paying them, jailing the most reckless and fraudulent of the financial sector gamblers, increasing competition and diversity in the financial sector, reducing the amount of wealth that gets funnelled into non-productive areas of the economy like property price speculation and the vast global derivatives casino ...

But instead of decisive action nothing was done, so that the property bubble and the the global derivatives casino have continued sucking vast amounts of wealth away from the real productive economy.

But what's even worse is what the Tory response to the bankers' crisis taught the mega-rich speculator class.

It taught them that financial crises are absolutely fantastic news for them. Their losses will be protected through bankers' bailouts and obscene policies like quantitative easing, while the cost of the meltdown is borne by the poor and ordinary.

And now, instead of waiting for the next crisis to come along (when the housing bubble bursts, or major banks gamble themselves into insolvency on the global derivatives casino again) the mega-rich speculator class are seeking to deliberately cause the next crisis.

They know that they can plunge the entire UK economy into a much bigger crisis than the bankers' meltdown if they can ensure that the UK conducts a "no deal" flounce out of the EU.

If they know exactly how and when the crisis is going to occur, the opportunities for making £billions by betting against Britain are obviously absolutely huge.

Then once they've made a killing by betting against Britain, and against the elements of the real economy they know will suffer huge losses in a "no deal" meltdown (manufacturing, haulage companies, leisure and tourism, aviation, shipping, agriculture, the automotive industry ...) they can pile back in with the £billions they made by betting against Britain in order to buy up masses of distressed British assets on the cheap.

The UK establishment response to the bankers' crisis created moral hazard by proving that the state would not let the mega-rich speculator class fail under any circumstances (even when they gambled themselves into insolvency).

Tory austerity dogma made the moral hazard even worse by demonstrating that the Tory party would deliberately load the cost of the crisis onto ordinary people, whilst actually rigging society even further in favour of the mega-rich speculators who trashed the economy in the first place.

And Brexit is the culmination of this truly outrageous response to the bankers' crisis.

First the Brexiteers used the wave of public anger at the consequences of austerity madness to deliver the Brexit vote, by attacking immigrants and the EU as the reason wages were collapsing, public services were failing, and poverty was rising ...

And now they're seeking to use this Brexit vote as an excuse to deliberately trigger another economic meltdown so that their greedy billionaire speculator mates can make even bigger fortunes on the social and economic suffering of the rest of us.

You'd have to be a fool to not see how the shockingly inadequate response of the establishment class to the bankers' crisis, and the imposition of ruinous hard-right Tory austerity dogma are responsible for the absolute state of Britain ten years later.

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12 solutions to the UK housing crisis

The opaquely funded hard-right think tank IEA has offered a £50,000 prize for an essay outlining a strategy for dealing with the housing crisis. I'm obviously not going to win it with this article given that they're stipulating that the proposal must be a right-wing market based strategy, which is lunacy given that the housing crisis has actually been caused by decades of right-wing market based housing policy. 

As far as I'm concerned a right-wing market based solution to a problem caused by right-wing "leave it to market forces" ideology meets Einstein's definition of insanity; doing the same things over and again, but expecting different results.

So I won't be winning the IEA prize, but the challenge did get me thinking about strategies to deal with the housing problem. Here are 12:

Stop the social housing fire sale

The first, and most obvious step is petting an end to the disastrous fire sale of social housing at way below market value under the Right to Buy scheme. 

The fact that 40% of Right to Buy former social housing properties have ended up in the hands of private landlords is compelling evidence that this scheme was never actually motivated by a desire to increase home ownership at all, but by an ideologically driven desire to ruin social housing provision.

I do believe that social housing tenants should continue to have the option of buying their property, but only at full market value, and only if all of the money from the sale is reinvested in building/repairing social housing for the benefit of future generations.

Build social housing

In the wake of the 2007-08 bankers' insolvency crisis the Bank of England magicked up over £400 billion in Quantitative Easing, which they used to prop up the value of assets mainly held by the super-rich.

If the state can invent new money to protect the wealth of the super-rich, then it should also be able to create money in order to benefit wider society through infrastructure projects.

One such infrastructure project could be a fund for the construction of hundreds of thousands of new social housing units, which would not only benefit the tenants, but wider society too.

The construction of the houses would create jobs and demand within the economy, the tenants would pay rent creating a revenue stream for the government, and being freed from sky-high rents in the private rental sector would provide the social housing tenants with extra disposable income to spend, save, or invest in productive economic activities like starting small businesses.

Monetary reform
 

Source: Economics Help

One of the main reasons house prices have spiralled out of control is that the amount of money directed into the housing sector is dictated by profit-seeking private banks, not by any logical process.

As long as the private banks keep creating ever more money to pump into the housing sector, it's obvious that house prices will continue to inflate further and further beyond the reach of ordinary people, until there's another financial sector collapse, another set of bailouts, and the whole property price inflation frenzy starts up again.

If the amount of money directed into the housing sector is controlled so that it more-or-less matches wage growth, then house price inflation would no longer keep rising so ridiculously. 

Prioritise lending 

One of the most obscene things about the UK housing market is that it's usually way simpler to obtain a mortgage in order to rent the property out (buy-to-let) than it is to get a mortgage as an owner-occupier.

This is absolutely backwards. The easiest mortgages to obtain should be for people who intend to use the property as a home, and those who intend to use the property as a profit-seeking endeavour should be discouraged by significantly higher rates.

This could be achieved through government intervention with a tax on for-profit mortgage lending, the proceeds of which could be put into a fund to reduce rates for owner-occupier mortgages, and especially first time buyers.

Additional taxes on buy-to-let profiteers would also create a disincentive to them buying up all the affordable property in their area order to live off other people's backs.

Scrap Council Tax

Just think about it. You couldn't really get a more illogical form of local taxation than a tax based on a hastily conducted house valuation process that happened in 1991.

Council Tax either needs to be scrapped and replaced with a more logical form of property taxation, or at the very minimum reformed and updated based on current property valuations.

Land Value Tax

One alternative to Council Tax would be the adoption of Land Value Tax, which taxes all land based on its value.

One of the main benefits of Land Value Tax is that it gives idle land monopolists a huge incentive to put their land to productive use by selling it, renting it, or actually doing something productive with it themselves.

Here's a link to a full article on the subject.

Clamp down on slumlords

One of the worst aspects of the UK housing market is the virtually unregulated environment in which unscrupulous slumlords are left to operate.

In 2016 the Tory party voted down an amendment to their Housing Act that would have created a legal requirement to ensure that all private rental properties are "fit for human habitation".

You would have thought that a minimum legal standard to ensure that private landlords are prevented from renting out properties that are unfit for human habitation would be a decent starting point in tackling the scourge of unscrupulous profiteering slumlords, but no. The Tories voted against it, and it's hardly surprising that 71 of the Tory MPs who voted this measure down are private landlords themselves.

Security of tenure

One of the worst aspects of the private rental market is the lack of security of tenure. The fact that landlords can hoof tenants out after six months creates a perverse incentive to get rid of decent tenants in order to hike the rent and get a new set of tenants in. The landlord gets the benefit of a bi-annual rent hike, and the estate agents get the benefit of two sets of rip-off agency fees every year.

The losers are obviously the tenants who end up on an involuntary cycle of house moving, rent hikes, and rip off agency fees.

One solution to this grotesque profiteering would be to introduce new rules to reward good tenants with security of tenure. If tenants have stayed up-to-date with their rent, and kept the property in decent condition after six months, the landlord should be legally required to significantly extend the notice period on their next contract, so that good tenants never face the prospect of being forced out of their homes at just one month's notice.

Rent controls

The prospect of rent controls gets right-wing free market fanatics wetting their pants with fear. They know that the shockingly unregulated UK rental market is an excellent source of unearned income, and rent controls would significantly impede their profiteering.

The benefit of rent controls is that they prevent private landlords from socially cleansing certain areas by hiking rents way beyond the reach of ordinary people.

If people in wealthy areas want their bins collected, their supermarket shelves stacked, their hair cut, their car washed, or their house cleaned, then it's grotesque to expect those workers to spend hours commuting in from miles outside the area just to do the low-paid work.

As the state builds more social housing, one of the most efficient ways of preventing social cleansing is to introduce local rent controls.

Tax empty properties

There are hundreds of thousands of empty properties across the UK. Research published in January 2018 found that there are at least 11,000 properties that have stood empty for over ten years!

This is absolutely scandalous at a time of rising homelessness, soaring private rents, and millions of working people priced out of the housing market.

One obvious solution is to impose a tax on empty properties, giving the owners a clear financial incentive to either rent them out or sell them off.

Housing stock upgrades

One of the simplest solutions to the housing problem would be a national investment in housing upgrades. There's absolutely no excuse for modern houses to have no roof insulation. heating properties with inadequate insulation is a ludicrous waste of energy and resources.

One of the simplest ways to encourage investment in housing upgrades would be to introduce new minimum standards for private rental properties. If the housing isn't adequately insulated, the landlord is barred from renting it out (and if they leave it empty, they face paying the empty property tax).

Another way of improving housing stock is subsidised schemes to fit insulation and solar panels. Unfortunately the Tory government has been busy ideologically vandalising these kind of housing upgrade schemes because they don't comply with their crackpot "just leave it to market forces" ideology.

Ban tax-dodgers

One of the most obvious solutions of all is to ban tax-dodging shell companies based in tax havens from buying British property. If you're not a British citizen or resident, or an entity registered in Britain, then you're not allowed to buy British property.

Anyone who thinks it's not a real problem that tax-haven shell companies are able to buy up British property really needs to take a look at the Private Eye registry of offshore ownership to get a handle on the shocking scale of the problem.

Just think about all of that dodgy money sloshing around the UK property market, and how much of an effect it's had in adding to property price inflation.

And just think about all the tax that's not been paid, in the UK or wherever the money originated,

There's absolutely no justification for allowing tax-haven based entities to continue buying up such huge swathes of Britain.

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Are Brexiters immune to irony?

One of the most commonly cited objections to membership of the EU were the complaints that the EU is undemocratic and that it's not right that unelected technocrats and political appointees should rule over our lives.

On June 23rd 2016 37% of the UK electorate voted in favour of a haphazard abandonment of the EU without anything even remotely resembling a coherent plan of action for what comes next. The immediate reaction of the Prime Minister David Cameron was to hand in his resignation and begin drawing up a list of his Tory mates to stuff into the unelected House of Lords and shower with knighthoods, OBEs, CBEs and other gongs.

The House of Lords

In the end Cameron stuffed thirteen new Tory cronies into the ridiculously bloated House of Lords including two multi-millionaire Tory donors (Andrew Fraser and Jitesh Gadhia). He wanted to stuff two more Tory donors in there too but Michael Spencer (who was embroiled in the Libor rigging scandal) was rejected by the scrutiny committee and Remain Campaign bankroller Ian Taylor turned down the peerage because he didn't like the negative publicity.

Thanks to David Cameron's six years of cronyism the House of Lords is now the second biggest legislative chamber in the world, second only to the Chinese parliament. It's by far the biggest unelected chamber, and as such is an affront to democracy. An awful lot of Brexiters seem immune to the irony that their vote to quit the EU is going to hand even more political power to the unelected £300 per day plus expenses House of Lords political cronies club.

Theresa May

David Cameron's replacement as Prime Minister Theresa May outright refused to intervene to stop David Cameron's brazen display of political cronyism. Interestingly she was appointed as leader of the Tory party without a hint of democracy. The 150,000 Tory party members should have been given a vote on their next leader, but the other candidate Andrea Leadsom was leaned on to withdraw from the contest so that may could be anointed as Prime Minister without any filthy oiks having their say.

The Bank of England

As a result of the vote for Brexit the widely reported economic chaos happened. The Bank of England slashed their economic growth forecast for 2017 from 2.3% to just 0.8%, which was the worst decline in economic expectations since records began.

Nowadays in the UK monetary policy is decided by a small group of unelected technocrats called the Bank of England Monetary Policy Committee (MPC).

The nine member MPC is comprised of the Governor of the Bank of England (appointed by the government) four external members (appointed by the Chancellor of the Exchequer), the Bank's chief economist and three deputy governors.

These nine unelected technocrats have enormous powers to influence the lives of ordinary people through tinkering with interest rates, propping up failed banks, inventing hundreds of billions of pounds out of nothing to flood the financial markets or buy up corporate bonds ... Yet there is no democratic accountability whatever and virtually nobody has even heard of the members of this tiny unelected group.

The response of these unelected technocrats to the Brexit mess was to use it as an excuse to create £170 billion out of nothing to flood it into the financial sector. Their own evidence from last time they did they created cash out of nothing after the financial sector insolvency crisis is that 40% of the economic benefit went to the 5% of wealthiest households, but they've decided to do exactly the same thing again rather than trying a different approach.

Instead of using the newly created cash to invest directly into stuff like infrastructure, jobs, house building, services, education, industrial development ... (things that benefit everyone) they've decided to distribute the cash to the private banks to funnel into unsustainable house price and asset inflation bubbles (things that almost exclusively benefit the wealthiest people in society).

The irony

As a direct result of the vote for Brexit David Cameron used his resignation as an excuse to stuff another 13 unelected Tory cronies into the House of Lords, the UK now has an unelected Prime Minister pursuing a fanatically hard-right agenda (just like a lot of people predicted) and the unelected technocrats at the Bank of England MPC are using the (widely predicted) economic chaos as an excuse to pump vast amounts of newly created cash into the private banks to gamble with as they please.

It's absolutely obvious that the UK is an undemocratic shambles dominated by political cronyism, private corporate power and unelected technocrats, yet there's hardly any outcry about it from Brexiters. It's as if they're perfectly content with cronyism and unelected technocrats ruling over their lives, as long as they're British* cronies and technocrats.

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* Or in the case of the Bank of England Governor Mark Carney - an unelected Canadian technocrat appointed by British Tories.

Unelected technocrats use the Brexit mess to launch more QE for the private banks

In the wake of the financial sector insolvency crisis the Bank of England Monetary Policy Committee (a tiny band of unelected technocrats) decided to take the radical step of creating vast amounts of money out of nothing and flooding the financial markets with it. The policy was called Quantitative Easing (QE) and in the end £375 billion in new money was created and flooded into the financial markets.

Post-crisis QE

There were plenty of critics at the time who pointed to the Japanese experience (Japan used QE to keep their zombie banks alive then suffered two decades of economic stagnation called "the lost decades") and complained about the negative effect of dragging interest rates down to the all time record low of 0.5% on things like savings, pension funds and the investment portfolios of insurance companies.

Times were difficult and unorthodox economic policies were certainly required to resolve a huge financial sector crisis that orthodox economic theories had completely failed to predict.

In hindsight Quantitative Easing turned out to be an incredibly poor method of stimulating economic growth. Instead of directing the windfall of newly created cash towards economically beneficial activities (infrastructure projects, jobs, business loans, research, house building) the private banks simply used it to continue their previous behaviour of inflating unsustainable speculative house price and stock market bubbles, gambling on in the almost completely unregulated derivatives casino and maintaining their obscene bonus culture.

The Bank of England's own evidence showed that 40% of the direct economic benefit of Quantitative Easing ended up going to the 5% of wealthiest households.

Direct Quantitative Easing

One of Jeremy Corbyn's most important economic ideas is that if the central bank is going to create money out of nothing then it needs to be injected directly into the economy rather than being given to the private banks to gamble with as they please.

Corbyn's idea is that newly created cash should be directed at economically beneficial projects (infrastructure projects, jobs, education, house building, industrial development ...) via a National Investment Bank (something I'd been advocating years before Jeremy Corbyn became Labour Party leader).

Of course Corbyn's idea makes a lot of sense because private banks can never direct the money to achieve the best outcomes for wider society because they have a legal obligation to ensure the most profitable returns for their shareholders. The priority of the private banks is to make profits for themselves, the priority of a National Investment Bank would be to ensure the best returns on investment for the wider economy.

Corbyn's Direct QE idea has predictably been attacked by the incredibly hostile Westminster establishment club and their attack-dogs in the mainstream media. They've repeatedly derided Direct QE as nonsense and ridiculed its proponents for supposedly "believing in magic money trees".

It's funny how in establishment minds the creation of money out of nothing to give to private banks to do with as they please is referred to as "unconventional monetary policy" but when someone suggests creating money out of nothing to invest in infrastructure, jobs and house building suddenly it's "believing in magic money trees"!

Post-Brexit QE

After 37% of the UK electorate voted in favour of a haphazard abandonment of the EU with nothing even resembling a coherent plan for what comes next the UK economy took a huge (widely predicted) hit. The Bank of England revised their growth figures for 2017 downwards from 2.3% to just 0.8%, which is the biggest downgrade in their growth forecast since records began!

The BoE response to this self-inflicted economic turmoil was to announce another huge tranche of QE for the private banks. £60 billion in the same kind of QE as before and another £100 billion created out of nothing with a stipulation that the banks actually lend it rather than hoarding it (although the punishment if they don't lend it doesn't seem to be all that clear), plus an additional £10 billion to buy up a load of corporate bonds.

The Bank of England are well aware that their first experiment with QE was a cash cow for the wealthiest individuals in society to milk, and that very little of it ended up directed towards economically beneficial stuff like infrastructure investment, industry, house building, education, research and development ... yet they're doing more of the same.

Even as they announced their "more of the same" tactics, the Bank of England admitted that their interventions would neither be able to prevent the calamitous post-Brexit decline in economic expectations nor prevent some 250,000 job losses.

It really does beggar belief that the Bank of England have decided to recycle the exact same monetary policies that failed last time around. Given the findings of their own report about the last round of QE. One conclusion is that members of the Bank of England Monetary Policy Committee have the intention of further enriching the already extremely wealthy and no real concern for the long-term prospects of the wider UK economy (otherwise they would surely be trying a different form of unconventional monetary policy). The other conclusion is that they're ignorant of the findings of their own report and they don't have a clue what they're doing, their policies being nothing more than mindless knee-jerk reactions to an economic situation they don't have the faintest clue how to actually resolve.

Either they're deliberately and cynically using the Brexit mess to serve the interests of the wealthiest minority, or they don't actually have a clue what they're doing. Neither explanation inspires any confidence that this tiny band of unelected technocrats are capable of steering the UK in the right direction.

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QE for the bankers failed, time for something else

 

 

After the 2007-08 global financial sector insolvency crisis the Bank of England began creating money via a process called quantitative easing (QE) in an attempt to prop up the UK economy. This 'new money' was distributed to the private banks that caused the financial sector meltdown in the first place. If the purpose of this exercise was to stimulate an economic recovery it was an abject failure (the UK suffered the slowest post-crisis recovery in economic history), but if the process was intended to further enrich the wealthiest people in society it was a roaring success.

How QE for the bankers failed

It's absolutely clear that the original £375 billion tranche of quantitative easing cash from the Bank of England benefited the wealthy minority. This isn't just my opinion, the Bank of England openly admitted that at least 40% of the benefit of their quantitative easing programmes went to the wealthiest 5% of households.

Anyone who understands basic macroeconomics will know why the accumulation of the majority of 'new money' by the wealthiest minority is a poor economic outcome. The super-rich are very much more likely to hoard any additional wealth they receive than the poor and ordinary. Ordinary people are much more likely to create economic demand by going out and spending it.

 

If monetary policy results in a ten figure windfall for the super-rich minority then the majority of it is likely to end up re-inflating the property market, re-inflating the stock market or getting stuffed in secretive offshore tax-havens.

If further enriching the wealthiest minority and re-establishing the economic conditions that existed before the 2007-08 meltdown were the objective then QE for the bankers was highly successful. If the objective was to stimulate any kind of economic recovery QE for the bankers was an  absolutely appalling waste of £375 billion.

 

Alternative forms of QE

 

If the benefits of 'new money' are distributed in different ways then the economic benefits could be much better. There are two main ways in which quantitative easing can be used differently in order to avoid the situation where the majority of the 'new money' ends up inflating unsustainable asset bubbles or stuffed into tax-havens.

 
Direct Quantitative Easing

 

Instead of creating 'new money' and distributing it to the private banks to do whatever they like with it, Direct QE cuts out the middle man and directs the 'new money' towards economically beneficial projects.

There are plenty ways a government intent on creating prosperity could use Direct QE cash to stimulate the economy and make the UK an attractive place to do business. High speed broadband for every home and business in the UK, improvements to our dilapidated public transport infrastructure, investment in the education system, science and R&D, pro-active health policies to keep the UK workforce in better condition, investment in renewable energy projects and energy-saving technologies ...

 

This quote from the respected economics professor Robert Skidelsky makes the case for Direct QE.

"The only way to ensure that 'new money' is put into circulation is to have the government spend it. The government would borrow the money directly from the central bank and use it to build houses, renew transport systems, invest in energy-saving technologies, and so forth. Sadly, any such monetary financing of public deficits is for the moment taboo. It is contrary to European Union regulations – and is opposed by all who regard post-crash governments' fiscal difficulties as an opportunity to shrink the role of the state." [source]

Skidelsky is making the case that if the central bank is going to magic money out of nowhere via quantitative easing, it would be better given to the government to invest in infrastructure projects and services (creating jobs and economic demand in the process).

 

'Helicopter money'

 

The other form of QE that would likely be far better for the economy than simply handing out 'new money' to the bankers who caused the economic crisis in the first place is nicknamed 'helicopter money'.

The idea of 'helicopter money' QE is that the central bank should distribute an equal share of the 'new money' that they create to each citizen. For example, if the Bank of England creates £65 billion in quantitative easing money, then each citizen in the UK should get a citizen's dividend of around £1,000 each.

Some people might try to argue that giving an equal share of 'new money' to every person is some kind of communist lunacy, however a citizen's divedend form of QE is actually quite a free market policy in comparison to QE for the bankers (handing control over the distribution of 'new money' to an elite group of establishment insiders). In fact the nickname 'helicopter money' was popularised by the right-wing ideologue Milton Friedman.

Reforming EU policy

 

As Skidelsky pointed out in the quote above the current policy of the EU blocks the European Central Bank or the central banks of other member states (like the Bank of England) from using Direct QE to fund infrastructure projects and stimulate economic demand. As far as the EU is concerned it's only acceptable to create 'new money' if it is distributed to the banks so that it can be used to benefit the wealthy minority at the expense of everyone else.

The solution to this problem would be for the UK government to demand that EU law be changed to allow quantitative easing money to be used in ways that benefit the whole economy, rather than exclusively benefiting the wealthiest minority. However the obvious problem is that the UK government is a Tory one with no interest in doing anything but serving the interests of the wealthiest minority, (serving the interests of their wealthy backers is the central ideology of the Tory party). It's obviously an utterly ludicrous fantasy to imagine a Conservative government lobbying the EU for them to overturn a monetary policy that exclusively benefits the rich at the expense of wider society and the economy as a whole.

Tory slash-the-state fanaticism

 

Another point that Skidelsky raised in the above quote is the way that many (including the Tory government) "regard post-crash governments' fiscal difficulties as an opportunity to shrink the role of the state". It's refreshing to see an economist admit that this is what the Tories are up to.

There's no way that the Tories would ever adopt a policy of Direct QE because using the state to administer an economic recovery where the private sector banks had manifestly failed would be a massive refutation of their core ideology that (despite all of the evidence to the contrary) the private sector is always more efficient than the state.

It's astonishing that such a huge number of people fell for the Tory austerity con. Even when they first started with their absurd "we must cut our way to growth" propaganda campaign it was obviously complete gibberish, but after six years of it, it's now absolutely clear that the austerity narrative is nothing more than a smokescreen to cover up the same old Tory policies of distributing as many state assets as possible to the private sector and the transference of wealth from the majority to the wealthiest minority.

As long as the UK is governed by a bunch of ideologically driven right-wing fanatics we'll be stuck with their economically toxic austerity dogma and the idea of the UK government administering a direct stimulus led recovery will remain a complete fantasy.

Corbynomics

 

The mainstream press have done such a consistent job of attacking and belttling Jeremy Corbyn that very few people actually understand what his economic policies are. For every column inch written about Corbyn's plans for the economy there's doubtless been hundreds of inches of absolute drivel written about how he's scruffy, too old, too left-wing, didn't sing the national anthem, didn't bow deeply enough at the Cenotaph ...

One of the most absurd and oft-repeated criticism is that Corbyn would take us back to the 1970s when what he is actually proposing is the use of Direct QE to fund infrastructure projects, which is clearly a modern progressive policy, albeit one that is based on a wealth of evidence from economic history rather than pure ideology like Tory austerity.

The Skidelsky quote above is actually a glowing commendation of Labour Party economic policy and a blatant swipe at Tory ideological austerity. Of course right-wing austerity fetishists will resort to the age old tactic of trying to smear their critics as lunatics, however with Skidelsky it's a bit of a problem given that he's is a former House of Lords Treasury spokesman for the Tory party! It's  obviously a little bit difficult for Tory tribalists to smear someone as just a "loony leftie" when they're a respected economics professor and former Tory party treasury spokesperson.

Blairite Shills

One of the most dispiriting things of all when Jeremy Corbyn announced his Direct QE policy was the way that a number of Blairites in the Labour Party joined in with the Tory chorus of disapproval, even going as far as calling Direct QE "economically illiterate".

Some of the worst offenders were Yvette Cooper (wife of Ed Balls, the architect of Labour's disastrous 2015 austerity-lite election campaign) and Chris Leslie (Ed Balls replacement as shadow chancellor).

It was utterly bizarre to see so-called Labour Party politicians furiously attacking Direct QE (a policy of stimulating the economy by improving infrastructure and creating jobs) and defending the failed policy of QE for the bankers (a strategy that resulted in a massive bonanza for the super-rich minority and pretty much nothing good for anyone else).

It just goes to show how much work Jeremy Corbyn has got to do to turn the Labour Party into a genuinely progressive party when so many Labour MPs so clearly favour the interests of the extremely rich over traditional Labour values like social justice, jobs and prosperity for all.

Conclusion

On the positive side it's great to see Skidelsky talking a bit of economic sense. After six years of economically toxic austerity gibberish it's about time more economists stood up and proposed alternatives like Direct QE.

If the Bank of England is going to use quantitative easing to create more 'new money' then it will need influential economists like Skidelsky arguing against a repetition of the failed QE for the bankers experiment.

On the negative side the UK political establishment looks to be stuck with a bunch of ideologically driven right-wing fanatics for the forseeable future, and as long as economic policy is dictated by hard-right economic ideology, the concept of the UK benefiting from any kind investment led recovery is a complete pipe dream.

 Another Angry Voice  is a "Pay As You Feel" website. You can have access to all of my work for free, or you can choose to make a small donation to help me keep writing. The choice is entirely yours.

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Jeremy Corbyn is not as radical or unpopular as the mainstreaam media try to portray him

Anyone who has failed to notice the incredibly biased mainstream media coverage of Jeremy Corbyn's exponential rise in popularity is either someone who shuns mainstream media entirely, or the kind of absurdly gullible fool who rote learns all of their political opinions from the mainstream media without subjecting any of it to even the most rudimentary critical scrutiny.

The BBC habit of referring to Corbyn as if he's some kind of radical left-wing extremist (when his policies are actually those of a centre-ground social democrat) is annoying, especially since they don't constantly frame David Cameron and George Osborne as being extremely right-wing, even though they're pushing the right-wing dogma of tax cuts for corporations and the super-rich, wage repression, attacks on labour rights, undermining of civil liberties, and vast ideologically driven rip-off privatisations much further than Margaret Thatcher ever got away with in the 1980s.

Ideological austerity

Probably the most annoying bias can be found in the way that Corbyn's economic policies are so commonly portrayed in the mainstream media as being dangerously radical or even extremist, when the evidence is absolutely clear that ideological austerity is a dangerous extremist ideology with severely destructive social and economic consequences.

I've written article after article presenting the evidence that ideological austerity is a socially and economically destructive agenda based on ludicrous economic fairy stories that make no sense whatever from a macroeconomic perspective. In order to save you from reading all of those articles I'll outline a few bullet points.

• Ideological austerity has resulted in the slowest economic recovery on record. In fact, GDP per capita (the amount of economic activity per person in the UK) is still well below the pre-crisis level, so it's fair to say that the UK economy hasn't even recovered yet. What the Tories like to define as their magnificent "economic recovery", is actually a very long period of economic stagnation.

• Ideological austerity coincided with the longest sustained decline in the value of UK wages in economic history.

• George Osborne promised that ideological austerity would have eliminated the budget deficit by now, in reality it hasn't even been halved. Amazingly the Tories even dressed this abject failure up as a great success by bragging that they'd "cut the deficit by a third" before the last election (or missed their stated target by two thirds in other words).

• The failure of George Osborne's ideological austerity agenda means he's ended up creating more new public sector debt in just five years than every single Labour government in history combined which is not something you're ever likely to hear mentioned in the mainstream media.

• Since the Tories got into power the UK has suffered an appalling decline in worker productivity in comparison to other G7 nations, and the UK balance of trade (the difference between what we import and what we export) remains unrelentingly in the red.

• The majority of trained economists agree with the proposition that ideological austerity has harmed the UK economy.

Given the mountain of available evidence that ideological austerity is an extremist political agenda that has caused long-term damage to the UK economy and failed to achieve anything that George Osborne promised it would back in 2010, it's astonishing to see Jeremy Corbyn being derided as some kind of raving lunatic for proposing a change of direction.

Media misrepresentation

Corbyn's policies have been portrayed by the mainstream media as some kind of lunatic far-left agenda with no public support, but the evidence paints a completely different picture. Despite the decades of media saturation with right-wing pro-privatisation propaganda, the majority of the public still see privatisation for the rip-off scam that it is. Polls consistently show that a huge majority of British people believe that the NHS, the railways and the energy companies should be run as not-for-profit public services. Corbyn is speaking the people's language when he proposes renationalisation of the railways and opposes the ongoing Tory carve-up and privatisation of the NHS.

There is widespread public support for the kinds of social democratic policies Jeremy Corbyn proposes, but the mainstream media like to frame the situation as if Corbyn is talking some kind of alien language that nobody but the far-left would ever agree with. Note the way Corbyn is so regularly described in the mainstream media as "left-wing", "radical" or "hard-left", while David Cameron is never described as being the "right-wing Prime Minister", despite the fact that he's pursuing an extremely right-wing economic agenda that goes way beyond what Margaret Thatcher managed to get away with in the 1980s.

The mainstream coverage of one particular strand of Corbyn's economic policy has been especially biased and uninformative, not least because the subject is so complicated that many of the people commenting on it clearly don't even know what they're talking about, and have little to no appreciation for the wider context. The subject is Direct Quantitative Easing (or "People's QE" as Labour have been calling it) and some of the critiques of the policy have been amongst the least informed fearmongering diatribes I've ever had the misfortune of reading.

Money Creation

In order to understand Direct QE, it's first essential to understand how money is created in the modern economy. Almost all of the money in circulation taday has been created out of nothing by the private banks at the point they make interest bearing loans. 97% of the money in circulation is this kind of invented bank money and only 3% is created by the state in the form of coins and banknotes. Of this money that is created by the private banks, the vast majority is directed into property and financial sector speculation, with only a tiny percentage being loaned to actual businesses that generate productive economic activity.

If this description of how private banks are allowed to create new money out of nothing sounds like some kind of crazy conspiracy theory, I suggest you read this document for the Bank of England explaining the process.

The vast majority of the public are unfamiliar with the fact that the process of money creation has been stealthily privatised into the control of an oligopoly of private institutions with liberty to create money out of nothing and spend it where they expect the highest short-term profits (not what might be best for the long-term development of the wider UK economy). 

The fact that the banks controlled the money supply before the economic crisis is crucial because it showed that when a small group of private banks are allowed control over the monetary supply of entire nations, huge economic crises ensue because the money is directed into risky but profitable short-term activities like the inflation of unsustainable housing and asset price bubbles, not into long-term investments that promote genuine economic activity.

The money creation policies of the private banks caused the economic crisis. Far too much of the money they created was poured into the housing market bubble and into the unregulated free-for-all that is the bloated global derivatives market, and far too little was directed towards support for innovative British businesses that actually engage in productive economic activity. 

When the sheer scale of the reckless financial sector gambling with the money supply became clear in 2007-08, the banks stopped lending and the credit markets froze up triggering the global financial sector insolvency crisis. The response of the UK state to the imminent collapse into insolvency of the financial sector was an "emergency policy" of creating £375 billion in new money in order to save the banks from the insolvencies they so thoroughly deserved.

QE for the banks

The results of this QE for the banks policy are clear. The insolvent financial sector was resurrected with money created by the state, but left to their own devices when it came to how money is distributed into the UK economy. The financial sector soon got back to their old schemes of inflating unsustainable property and asset price bubbles, just backed with cash invented by the state rather than cash they'd invented for themselves. The Bank of England conservatively concluded that 40% of the benefit of QE for the banks went to the 5% of wealthiest UK households, which is no surprise at all given that discretion over how these funds were to be distributed into the UK economy lay with the very institutions that caused the crisis with their reckless short-term profiteering in the first place!

Without familiarity with how the money creation process is controlled by the private banks, and what the initial tranche of QE for the banks actually entailed, anything resembling a coherent critique of Corbyn's Direct QE policy is impossible. If the media commentator is unwilling to explain how money is actually created in the modern economy and confused about the reasons for and consequences of QE for the banks, they'd be completely unable to come up with any kind of meaningful comparison with contemporary reality, instead just presenting childish platitudes about "printing money" and fearmongering about hyperinflation by making absurd comparisons to Zimbabwe or Weimar Germany.

Once we understand that the power to create money has been outsourced to the private banks, that their reckless use of the money they created out of nothing caused the global financial sector meltdown, and that QE for the banks was designed to save the financial sector from insolvency by inventing £375 billion for them to play with, it's possible to understand what Jeremy Corbyn's team are actually proposing in it's proper context.

Direct QE

When Jeremy Corbyn talks about using quantitative easing to directly stimulate the UK economy through investment in infrastructure spending, he's not talking about revoking the money creation powers of the private banks, he's talking about the state taking responsibility for a small amount of the new money that is created, and directing it towards genuine economically productive activity rather than the reckless "get rich quick" housing bubble and asset price inflation schemes favoured by the private banks.

I struggle to see how anyone could seriously object to a policy of using central bank money creation powers to invest in infrastructure, for example by ensuring that all British households and businesses have access to high speed Internet, rather than just allowing the private banks to continue gambling as they please and doing virtually nothing to promote genuinely productive long-term economic activity. 

Making sure that the UK has the best broadband network in the world would create a short-term economic stimulus as the money is spent and and the jobs are created to improve our IT infrastructure, and the end result of a highly connected marketplace would undeniably be great for British businesses in the long-term.

People who oppose Corbyn's Direct QE policy tend to fall into two camps. Those who just don't understand how money is created in the modern economy, nor the significance of what he's proposing, and those who fully understand that the private banks have an oligopoly on money creation but believe the ideological nonsense that the market somehow still knows best, despite the fact that the private banks caused the global financial sector meltdown with their reckless short-term profiteering, and are busy inflating the very same kinds of debt backed housing and asset price bubbles all over again instead of investing in economically productive activity.

The major difference between Corbyn's Direct QE policy and QE for the banks is that Corbyn's plan wouldn't just hand the money over to the financial sector in order to save them from insolvency and allow them to continue gambling on property and asset price inflation, the money would go direct to infrastructure projects with tangible economic benefits for the whole UK economy.

Conclusion

The mainstream portrayal of Corbyn's renationalisation and direct QE policies as unpopular with the public and dangerously radical is completely backwards. Especially given that the current government is pursuing an extremely radical and destructive ideologically driven agenda with the complicity of the mainstream media.

In reality Corbyn's policies aren't that radical or unpopular at all. 

I'd prefer to see Corbyn present a truly radical proposal, such as new legislation to prevent the banks from just creating money out of nothing through the introduction of cryptographically secure electronic money, but what Corbyn is proposing is at least an improvement on the current policy of leaving money creation policy entirely in the hands of the banks that plunged the economy into crisis in the first place, while the government uses that same crisis as an excuse to go on a highly destructive ideological crusade to slash and burn public infrastructure and services with the ridiculous justification that it is possible to cut our way to long-term economic prosperity.

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