OMFG

I could probably make this entire blog about refuting the right wing’s nonsense. I won’t, because frankly there’s more to life, but it makes for good entertainment from time to time.

Check this out, courtesy of some strange place called the Heritage Network:

A middle-class taxpayer’s income is subject to a 25 percent federal income tax. Then there is the federal Social Security and Medicare payroll tax of 13.3 percent in 2012—5.65 percent of that is removed from the employee’s paycheck, and the remaining 7.65 percent is paid by the employer. (In reality, the employee pays the entire 13.3 percent, because the employer’s portion of the tax does not affect the cost of labor: The employer would pay the employee 7.65 percent more if there were no employer’s portion of the payroll tax.)

Get that? Our poor employers are just dying to increase our wages, they’re just hamstrung by those damn taxes. What a load of shit. I know a thing or two about economics, accounting and business in general, and I can tell you that businesses will never pay something they don’t have to. That goes for taxes and wages. It’s not a zero sum game (something that, ironically, conservatives will often tell you when it applies to redistribution of income).

I swear to Ceiling Cat, you can’t make this crap up.

Everyone is busy

The humans have been away on holiday and of course they switched off the modem before they left, so I’ve not been able to internetise for a while (as an aside, why is it that you humans switch off everything in the house except the fridge? From whence comes this trust in the fridge that is not shared with any other appliance?)

I hope to be back to more regular blogging in the coming days, once the human’s thing that he calls “month-end” (more like world-end if you ask me, the way he carries on about it) is finished and he brings his laptop home from the office. He’s always busy these days, busy busy busy which reminds me, please check out this post on Permanent Crisis, Neoliberalism is stealing our time. It’s the second in a series of posts on the subject of time, and the first posts in several months on that blog, which is a great source of information on the social and cultural impact of neoliberalism.

 

Must be a dirty word

The right-wing think tank American Enterprise Institute doesn’t understand what a balance sheet is. The linked article is another inept attempt to prove that inequality doesn’t really exist. Because, they say, instead of looking at income disparities, we should be looking at consumption. Look, an increasing percentage of poor people have microwaves, dishwashers, computers and printers! And more of them have heating and air-conditioning than at any time in the past! Are there no workhouses for these people? Ok, that last one was mine (actually Dickens’).

Now there’s a word missing from that article, which is astounding in the context of discussing consumption in the year 2012. I actually did a CTRL-F search for it, and it returned “0 of 0”. That’s right, the word DEBT is completely missing from that happy scenario. This is the equivalent of a corporate CFO reporting that the company has €10 million available in the bank, so let’s crack open the champagne, without mentioning that the funds are only available because the bank has given them an overdraft facility.

Almost any graph you look at giving consumer debt figures over the past few decades tells the same story. These are just a couple of them:

Since the 1970s wages have been forced down while productivity has increased. The outcome of this is a huge gap between the purchasing power of consumers and the output of the economy. How is this gap breached, without the economy collapsing in on itself? With debt, of course.  Now conservatives will want to tell you that we’re just coveting what rich people have, that income disparities aren’t really an issue. And in a way they’re right. Income disparities are themselves not relevant – they are, however, a good indicator of the real problem, which is the spending power – productivity gap.

Increasing debt levels is what is keeping the Neoliberal system going; in 2008 the system crashed, because it suddenly became evident that there was nothing behind the illusion of wealth. Now, neoliberals are trying to shift the debt burden to governments (“too big to fail” etc), in a desperate attempt to pretend that the wealth is still there, that it hasn’t been destroyed in a debt-fuelled explosion.

And conservatives will continue to blame the wrong people, because there can’t conceivably be anything wrong with the system, can there?

Michael O’Leary’s merry-go-round is in full tilt once again

Michael O’Leary, Ryanair’s flamboyant chief executive and chief mischief maker is back in the news again, once again trying to buy Aer Lingus. This happens every few years; Michael gets bored with crunching numbers in his Dublin Airport or London offices and decides to have some fun with the Department of Transport and the Competition Authority; trying to find new ways to turn the former into his downtown headquarters and the latter into nervous wrecks. This time he’s offered €1.30 per share, less than half what he offered in 2006. That’s fair enough, I suppose, Ryanair’s own shares are down by a similar percentage over the same timeframe. I can just picture (Minister for Transport) Leo Varadkar rolling his eyes and thinking “here we go again.” Everyone knows it will never happen, even if the government agreed to sell their stake in Aer Lingus, it’s unlikely our own competition board, let alone the EU, would sanction it.

Now don’t get me wrong – I think Michael O’Leary is great craic. I love hearing him on the news, laying into some hapless individual from the Dublin Airport Authority or the D.O.T.; I love the way he comes up with zany ideas just to get publicity, any type of publicity it seems. Remember “Spend a penny, pay a pound”? And everyone believed he would actually do it, but it was all just a publicity stunt. And all jokes aside, Ryanair is a strong company with a superb business model. They really have made travel in Europe cheaper for everyone, if perhaps a bit more irritating.

What continues to amaze me as an economist, however, is that every time Michael O’Leary is back in the news, some radio DJ will inevitably read numerous texts sent in to their show along the lines of “Michael O’Leary should be running the country, he’ll sort everything out.” This is a common phenomenon worldwide it seems – Mitt Romney’s experience as a venture capitalist alone qualifies him to run the US government, apparently. But countries are not corporations, not even remotely like them, and it’s a sign of how deep into Neoliberal thinking we all are that we think this way. When last did you hear some politician announcing that the country is “open for business” or calling us “Ireland Inc.” Probably not too long ago.

Michael O’Leary might, for all we know, make a very good Taoiseach (if he was even interested in the job, which he isn’t). But he might also be crap – we just don’t know until we hear what his policies would be. We know he hates unions and the €10 departure tax at Dublin Airport – that’s about it. There’s no earthly reason why a successful business person should be any better or worse at running the country than a successful person in any other field. Does anyone really think Michael Schumacher would automatically be a good transport minister because he’s a brilliant racing driver? Or should Padraig Harrington be minster of sport? Bono could take Arts and Culture; actually Bono could take anything, if Bob Geldof doesn’t get it first. But you see my point. An entrepreneur is just another profession, so you may as well elect a good entertainer, engineer, IT specialist, policeman, priest or cleaner.

I’ll have to end this with a Ryanair joke – this is apparently true…..I know a guy who knows a guy etc. Anyway, Ryanair flight about to depart for Gatwick is going through the usual safety brief that you humans who fly regularly are so familiar with – the recorded announcement with the stewards doing the actions – it gets to the bit with the oxygen masks. “Pull the mask down, placing it over your mouth and nose………” Someone shouts from the back: “and insert €2 for oxygen!”

I’m just going to come out and say it.

This is going to be a rare polemic. It’s because I find you humans so amusing, so tragic, and a lot of the time, so stupid. Morality may be an illusion, but, just like the monetary system, it’s an illusion that works. So why have you abandoned it? Why have you adopted an economic system that says nothing of good and evil, but only what “The Market” dictates? You truly have found a new religion, for The Market now leads you, has taught you the correct responses; it tells you what it wants. And what it wants is no less than total obedience to it; The Market is everything and nothing makes sense outside of a market transaction.

You need to restore your older, tried and tested morality. It may be boring and somewhat distasteful, but it’s the only thing that works for you. To move yourselves beyond good and evil may work for us cats, and it may work for some of you as individuals, but you humans cannot survive indefinitely as individuals.  You’re a society, social creatures. So start to act like it. Stop being so terrified that you might end up paying for someone else’s well-being. Their well-being is your well-being, that’s what society means.

There’s no point in harking back to the Golden Age of economic growth and prosperity (post WW2 to the 1970’s, when wages rose in direct correlation with economic output) without a recognition of Golden Age values. Remember, economics is a social science, and as such must necessarily integrate and correctly interpret data in the light of human factors.

I can understand the recent movement some of you have made to break the system. But I’m imploring you now, realise what it is you’re asking for. Total reconstruction of your economic system won’t come about peacefully. The only way it will happen will be through almost total destruction of humanity – nuclear holocaust or natural disaster, some sort of near-extinction event. I’m going to assume you don’t want that, so what then is your alternative?

You must work with what you have, and strive to make it more humane. You can and must change the way you value things – I don’t think it’s that hard.

 

 

Our banking system is broken

Conventional banking plays a vital role in any economy. In a strictly technical sense, banks do create money. Here’s how it works: Banks are required by law to hold a certain percentage of their liabilities (deposits made by you and me) as actual cash reserves. This is so that we can draw  cash at the ATM when we need to, or move our money to another bank if we so choose. We’ll assume a nice tidy figure of 10 percent (the actual requirement is usually lower). Now let’s say you come into some money; maybe through a relative’s will, or whatever; a sum of €100000.00. In a state of bliss you deposit the money at your local branch. Does it all just sit there, waiting for you to draw it out again? Nuh uh. The bank only has to hold onto €10000.00, they can lend the rest to somebody else. So €90000.00 goes to the local shoe store as a loan to buy stock. As soon as they pay for the stock, another bank somewhere else has an additional €90000.00 in deposits, they keep €9000.00 and loan out the other €81000.00. And so it goes on; taken to it’s limit with an infinite number of rounds, we can calculate that the deposit multiplier is equal to the reciprocal of the required reserve ratio. In this case:

M = 1/10% = 10.

Your initial deposit of €100000.00 has enabled lending of €1 million. Congratulations.

But you might also notice that the system only works if banks are actually lending. What is happening at present in Ireland is that banks are not lending. In the first place, people are reluctant to deposit money with Irish banks, and money that is there is not being circulated, which is how a normal economy functions.

How do we remedy this?

  • just like in any other market (this being the market for credit), deal with the demand issues. The government is addressing this in their Action Pan for Jobs 2012. Supply always follows demand.
  • Simplify the business of banking. It’s too complex, to the point that we still don’t even know how deeply in the dwang we are with Anglo Irish Bank, more liabilities keep popping out of the woodwork. This is a direct consequence of the neoliberal emphasis on transaction for transaction’s sake. Banks must shed peripheral “business” (which is no more or less than financial alchemy) and do the only thing they do well – take deposits and make (sensible) loans. The personal relationships between bank managers and their customers must be re-instituted as a matter of urgency.
  • Allow the failed banks to fail so that they stop bleeding us dry. Sounds simple enough (you’d think). Allow other players to enter the market, you know, banks that actually want to conduct the business of banking here.
  • Large-scale debt forgiveness / reductions for those in negative equity or labouring under heavy business debts as a result of the recession. Stop throwing around stupid phrases like “moral hazard”. There’s nothing immoral about having bought a house that’s now valued at a fraction of what the mortgage is.

I have more to add on morality and economics in general, but that will be for my next post.