Wednesday, May 30, 2012

The Bankia bailout

On Friday 25th 2012 Spain's largest banking group Bankia went cap in hand to the Spanish government in order to ask for a €19bn state intervention, in order to prevent them from going bankrupt. The banking group already received a €4.5bn "investment" in 2010 meaning that the Spanish taxpayer is going to foot the bill for a €23.5bn "investment" in return for something like a 90% stake in the debt riddled banking group.

The markets obviously took the news badly, Bankia shares plummeted 13.38% before trading in the company was suspended, the rest of the Spainsh banking sector took a hit, The blue-chip Ibex 35 has been in free fall and the yields on Spanish government bonds began rising towards the 7% mark that is widely regarded as unsustainable.

The president of the Bankia group José Ignacio Goirigolzarri further panicked the markets by saying that "We don’t need to talk about giving any of it back" but changed his tune over the weekend to imply that he meant the unprecedented bailout could be used as a "state investment" and that it would be up to the Spanish government when to sell its stake in Bankia to obtain the highest possible price to benefit taxpayers.

This narrative about bailouts being "investments to benefit the Spanish taxpayer" will sound remarkably familiar to residents of the UK who were told in 2007-08 that the £850bn package of bailouts and emergency nationalisations of debt riddled financial institutions like Northern Rock, Bradford and Bigley, Lloyds and RBS should be considered as lucrative government investments instead of a wanton act of using taxpayers' money to prevent the bankruptcy of unviable debt laden businesses.

Northern Rock was split up into a "good bank" and a "bad bank" with the government keeping the bad bit and selling the "good" bit to Virgin Money at a loss of £2bn. A similar trick was played with Bradford and Bingley, with the government keeping the debts and flogging off the "good bank" on the cheap to Spanish banking group Santander, who rebranded it (as well as the other former building societies it had acquired) under the Santander name. By far the biggest intervention was the RBS nationalisation, which cost £45.5bn for an 83% stake. As of 2012 the British taxpayer is looking at a £22bn (48%) loss on RBS alone.

Common sense alone should be enough to tell the Spanish taxpayer that this is going to be absolutely nothing like an "investments to benefit the Spanish taxpayer". If it is such a lucrative investment opportunity, where is the enormous queue of private sector investors lining up to grab their share of this wonderful investment opportunity?

On the Monday the Spanish Prime Minister Mariano Rajoy continued the charade at a news conference by insisting that the intervention was not a "bailout" but an "investment" and that  there would be no "bailout" for the wider Spanish banking sector either. The right-wing Popular Party leader said he was confident the €23.5 billion being injected into BFA-Bankia would be recovered. "Once the bank has been cleaned up, as the leading financial institution in Spain, it will be sold and the state will get back its investment".

Given the massive losses on UK bailouts/investments in debt riddled banks, Rajoy must either be delusional or utterly disingenuous to claim that the Spanish taxpayer will somehow spin a profit out of the creation of a zombie bank, that should have been allowed to die from its terminal debts.

Rajoy and the Popular Party have stated that the method of providing the "investment" has yet to be decided after several commentators began reporting that the only way that the debt laden Spanish government would be able to provide funds for the insolvent bank is through swapping Spanish government bonds in return for at least a 90% stake in the company, which would then redeem the bonds at the European Central Bank to create liquidity. The reason this is supposed to work is that the ECB still treat government bonds as if they are high quality collateral, rather than the extremely risky assets as the markets do. The Financial Times then ran a piece claiming that the ECB had flatly rejected the idea of indirectly bailing out Bankia via bond transfers only for the ECB to retort with the statement that "contrary to media reports published today, the European Central Bank has not been consulted and has not expressed a position on plans by the Spanish authorities to recapitalise a major Spanish bank, the ECB stands ready to give advice on the development of such plans."

There has been a wave of public indignation after it was revealed that the departing financial director of one of a Bankia subsidiary company Aurelio Izaquierdo had accrued a huge €14m pension fund. This too is reminiscent of the UK banking crisis where executives at debt stricken banks walked away with vast pension funds and golden goodbyes. The most notorious example being Fred Goodwin who was rewarded for his work in leading RBS to a £24.1bn loss with a pension fund worth £700,000 a year and a 2.6m bonus for the year in which the bank posted the biggest loss in UK corporate history.

The Prime Minister has steadfastly refused to hold an official inquiry into the Bankia crisis, presumably out of loyalty to former chief executive Rodrigo Rato, who served as the Spanish finance minister for Rajoy's Popular Party between 1996 and 2004 and also served as the head of the IMF between 2004-07.

An abandoned construction project in Ibiza, still displaying the ludicrous
182,500€ asking price. There are an estimated 700,000 such properties in Spain.
One question that should be under serious consideration is, how on Earth Bankia posted 2011 profits of €302m in February 2012 under the leadership Rodrigo Rato, only to revise them downwards to a loss of €2,979m a few months later after he had stepped down?

Perhaps some of the executives at Bankia are relaxed about waiving their pension funds and severance pay because they have already had their payoff through the sale of massively overvalued shares thanks to the creative accounting that allowed them to overestimate their performance in 2011 by well over €3bn. The excuse for this absurd "miscalculation" is that the bank are sitting on a vast amount of "toxic" property assets, however the Spanish property crisis happened back in 2008. The Spanish banks have had four years to establish their exposure to toxic property assets, they would have to take people for cretins if they expect anyone to believe that they only just found out the enormous scale of  recklessly speculative property investments on their books.

This latest financial crisis is making one thing very clear, that Mariano Rajoy and his right-wing Popular Party are much more determined to protect Spanish corporate interests than they are to protect the interests of ordinary Spanish people. It was only a couple of months ago that the Spanish industry minister Manuel Soria spoke out against Argentina's oil renationalisation plans, saying that  "If there are hostile moves towards [Spanish corporate interests] anywhere in the world, this government will interpret them as hostile moves against Spain" only a couple of weeks after vast public protests across Spain against the draconian new pro-corporate anti-worker labour reforms that PP have introduced. This Bankia intervention is going to cost an additional €19bn, either from their bond swapping plan or raised directly from the markets, which represents a huge proportion of the €27bn in austerity measures inflicted on ordinary working Spaniards in the 2012 budget with the justification that Spain can no longer afford luxuries like pay rises, welfare and infrastructure investment or labour rights.

See Also


Tuesday, May 29, 2012

The inefficient state fallacy

One of the fundamental beliefs of the orthodox neoliberal is that government spending must be cut because state spending is less efficient than private sector spending. This is a form of reductive fallacy, in that a vast amount of economic circumstances are being reduced down to fit a simplistic right wing platitude.

On the face of it the fallacy is absurd, there is nothing that makes a worker suddenly become more productive once he is working for a capitalist boss rather than a state run enterprise, in fact the short-term profit motive can actually make private sector businesses much less efficient in the long-term as they slash investment in training, research and modernisation order to provide larger short-term profits to shareholders (a philosophy called Shareholder Value Maximisation). The idea that all state spending is inefficient is as simplistic and absurd as the idea that all private sector spending is efficient. If all private sector activity was "efficient", there wouldn't have been over 230,000 bankruptcies since the Coalition government came to power in 2010 and the state wouldn't have had to have intervened to save the deregulated financial sector from the consequences of their own reckless gambling.

These selected fiscal multiplier statistics demonstrate that well spent
state funds can provide significantly more economic benefit 
than returning the cash to the private sector via tax cuts.
One of the economic tools for determining the monetary value of state spending is the fiscal multiplication value. A score of 1 would mean that the state investment returned exactly the same fiscal value to the economy as it cost. It has been calculated that state spending on construction can create very strong fiscal multiplication values (estimated to be as high as 2.84 in the UK) as large labour intensive projects tend to add to aggregate demand, whilst tax cuts for the extremely rich (the lost revenue is considered as spending) often create extremely low fiscal multiplications. In the United States making the Bush tax cuts permanent created an extraordinarily low fiscal multiplication value of just 0.29. In 2008 the strongest fiscal multiplication effect in American state spending (as calculated by Moody's) was a score of 1.73 for the temporary increase in the provision of Food Stamps to impoverished American families.

Another area that creates strong fiscal multiplication is state spending on tax enforcement officers, who can often return an average of more than ten times their own salaries in what would have been lost tax revenue. If the ideologically driven neoliberal decides to slash the number of tax inspectors as part of their austerity drive, any savings on salaries and overheads are more than wiped out by the resulting loss in recovered tax revenue. Even if these recovered tax revenues are spent on slightly inefficient state spending projects with fiscal multiplications of 0.6-0.9, this would still create a vast amount more localised economic activity than simply allowing the cash to disappear into some foreign tax haven.

It is clear from these selected fiscal multiplication statistics that some forms of state spending create vastly more economic benefit than returning the funds to the private sector (via corporation tax cuts) or to the public (via the Bush tax cuts for the super-rich). If all state spending was truly inefficient, then the fiscal multiplication effects should be the other way around, with state spending and investment failing to break even and the tax cuts for private and corporate interests making large positive returns.

If a government initiates a strategy of indiscriminate across-the-board cuts in government spending they are likely to destroy a great deal of fiscal multipliers in the process, throwing the baby out with the bathwater in effect. To give another hypothetical example of false economies driven by an ideological stance on state spending:
In order to meet their ideologically driven austerity objectives, a government attempts to cut public sector spending on policing. These cuts end up leaving one neighbourhood with very few bobbies on the beat. Criminals begin to realise that the area is poorly policed and begin a campaign of car thefts, household burglaries and business burglaries. Over the next year or so insurance companies pick up the growing crime trends in the Post Code area and hike rates for car, home and business insurance. The large above inflation rises in car and home insurance eat into the disposable income of local residents, meaning they have less money to spend in local businesses. The rise in crime and unruly behavior on the high street deters older people from doing their shopping there and combined with the huge hike in business insurance rates several local retailers go bankrupt. In the act of saving the salaries of a dozen policemen in the area, the government has ended up losing a great deal of corporation tax that would have been paid by the busted businesses, the income tax of their now unemployed staff, the VAT on the produce the businesses used to sell, and the unpaid back taxes of several of the bankrupted businesses. The state also faces the additional costs of paying the redundancy pay and then the unemployment benefits for the dozen sacked policemen and the unemployment costs of dozens more people that used to be gainfully employed in what has rapidly turned into a high street filled only with abandoned premises, gambling shops, pound shops and predatory lenders offering 4,000%APR loans to the growing number of unemployed people in the area.
Anyone that tries to make the claim that all state spending is by definition inefficient and supports across-the-board cuts in state spending and investment, really doesn't know what they are talking about. Economics, just like the rest of the World, is not clearly divisible into simplistic categories of black and white or good and bad.

In reality the field of economics is coloured in ambiguous shades of grey. Some state spending is terribly wasteful (absurdly inefficient PFI contracts, crazy outsourcing deals or huge arms deals for weapons that will never even be used) yet other forms of government spending are incredibly efficient, creating far more in economic benefits than the initial investment cost.

Looking back to the most successful period in British economic history, which was the mixed economy era of 1948-1979 in which the economy grew by an average of 4.5% of GDP per year and over the 32 year period the national debt was reduced from 237% of GDP to only 43%, this period of extraordinary levels of economic growth and debt reduction coincided with vast levels of state investment in infrastructure, social housing, power stations, NHS facilities, the motorway network and countless state operated enterprises. The UK has never again seen economic growth and debt repayment on this scale, ever since Thatcher initiated the neoliberal revolution in 1979 and started slashing government investment and selling off profitable state run enterprises. Tony Benn summed up Thatcher's indiscriminate attacks on state spending and investment by saying that "her whole philosophy was that she measured the price of everything and the value of nothing".

There is absolutely nothing wrong with demanding that the state uses taxpayers' money more efficiently but demanding that they implement indiscriminate across-the-board cuts in spending and investment (as a whole bunch of so-called business leaders did in a letter to the Telegraph in 2010) is extremely likely to result in worsening economic conditions (the double-dip recession). Simply slashing government spending by arbitrary amounts for ideological reasons (demanding that the NHS save £20bn for example) is extremely unlikely to achieve good economic outcomes. The best way to achieve better state sector efficiency is to establish which areas of state spending and investment are creating strong fiscal multiplication effects then increase spending there, and then set about cutting spending in areas that create the lowest fiscal multiplication values.

It is also important to recognise that state spending has more than just financial outcomes. As much as the right-wing brigade would like us to believe that "there is no such thing as society" and that pure self-interest is the only true virtue, there are actually more than just economic costs to state spending. Even if the economic benefits of the outcomes are not immediately apparent, with a little thought it is easy to understand. Investment in health care increases economic productivity by keeping workers healthy and alive for longer, investment in education is economically beneficial because educated workers are productive workers, investment in policing is economically beneficial because crime is one of the most economically harmful activities. Investment in welfare payments to the extremely poor are extremely beneficial, since poor people tend to spend their money in the local economy (increasing aggregate demand) and the relatively low costs of making welfare payments is much smaller than the scale of economic damage if desperate people start turning to criminal activities in order to meet their basic needs.

A rational economic recovery strategy would be for the government to focus upon the fiscal multiplication values of state spending and investment and target additional investment at areas which have high fiscal multiplication values (construction, house building, welfare provision, research and education) whilst cutting spending in areas that create very low economic returns. The problem is of course that all three of the Establishment Westminster political parties are still enamoured with their defunct orthodox neoliberal ideology, which dictates that state spending is bad for the economy, hence the near unanimous mantra of "austerity" from the Tories and Lib-Dems and "Austerity-lite" from Neo-Labour.                
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Public Sector Net Investment explained

Government investment (or to give the full technical term Public Sector Net Investment) is the amount of money invested by the government on new infrastructure projects, things like hospitals, schools, army bases, police stations, motorway improvements and railway bridges. Anyone that has ever experienced publicly funded education at a state school or a public university, received treatment at an NHS facility or driven on a motorway has experienced the economic benefit of Public Sector Net Investment.

Increasing the amount of Public Sector Net Investment during economic downturn periods is a tried and tested method for boosting economies out of recession. Franklin D. Roosevelt boosted the US economy out of the post Wall Street Crash "Great Depression" by regulating the speculative activities of the financial sector and investing heavily in public infrastructure projects. After the Second World War, the UK economy was in ruins, with a national debt in excess of 237% of GDP, the establishment political parties agreed upon the post-war consensus and set about building hospitals, schools and social housing at an unprecedented scale and after three decades of the mixed economy of regulated capitalism and large scale state spending, the UK national debt had been reduced to just 43% of GDP. After Carlos Menem's government completely broke the Argentine economy with their diligent adherence to IMF pseudo-economic dogma and ceding their fiscal autonomy by linking their currency to the US Dollar, the Kirchner government restored economic growth of 9% of GDP per year, by closing tax loopholes and using the increased tax revenue to invest heavily in public infrastructure projects such as building houses, schools and hospitals, and improving infrastructure in areas that had been without basic utilities such as running water and electricity.

The reason that targeted public sector investment works as a short-term economic stimulus is that a lot of the government investment is economically recycled in the form of wages, tax contributions and private sector profits on the supply of materials and services. Public sector investment can also work as a long-term economic stimulus if the spending is done intelligently. The aim of public sector investment should be to establish strong fiscal multipliers. A strong fiscal multiplier is an expenditure that ends up creating more economic activity than the cost of the initial investment.

To give a very simplified fictional example; a government funds the development of a new power station in an area with unreliable power supplies. 40% of the construction cost goes towards the after tax salaries of the workforce (which adds to the amount of aggregate demand in the wider economy by boosting the disposable income of the workers)  30% of the construction cost goes towards tax payments (which can be recycled into the construction of other economic multipliers) and 20% goes towards the corporate profits of the construction and supply companies (which provides more wealth for shareholders and more capital for private sector expansion).

Once the power station is operational it acts as an incentive for several companies to locate themselves within the local economy to take advantage of the cheap and reliable electricity, generating more jobs and more disposable income, increased tax revenues for further public sector investment and more profits to stimulate further capitalist expansion. After the power station is decommissioned it can be estimated that the construction of the power station more than paid for itself, through increased economic activity, higher tax receipts and increased private sector investment in the area.

The Tory led coalition have decided to ignore the lessons
 of history and attempt to cure a recession by
slashing public sector investment.
Other fiscal multipliers include the funding of schools and universities (because educated workers are productive workers), the construction of hospitals and other health care investments (because healthy workers are productive workers), and the building of public infrastructure like road and rail links (since sitting in traffic jams or waiting for delayed trains is economically inefficient use of what could be economically productive time). Another surprising kind of fiscal multiplier can be direct welfare payments (such as pensions and unemployment benefits) which are generally spent locally, stimulating economic activity. An American study showed that the biggest one year (short term) fiscal multiplier of any US government policy in 2008 was actually achieved through the temporary increase in the provision of food stamps to destitute American families, with a fiscal multiplication effect of 1.73.

Public Sector Net Investment generally has a very high fiscal multiplier effect, especially investment in the construction sector. All of this seems to have passed the Tory led Coalition government by. Since they came to power in 2010 they have cut public sector net investment from 3.5% of GDP to 1.5% of GDP under the ideologically driven assumption that all government spending is inefficient if not completely evil. Effectively what they are doing is throwing the baby out with the bathwater. In in a drive to cut state spending at all costs, they are also cutting investment in areas where government spending is actually very efficient. At a time when the cost of UK government borrowing is extremely low, meaning very low interest repayments on money borrowed to invest in fiscal multipliers, the Coalition government have decided to ignore the lessons of history and drastically slash the amount of public sector investment in economically beneficial infrastructure projects in what is looking more and more like a barmy ideologically driven agenda than a coherent government strategy.

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Monday, May 28, 2012

3D economics, Disposable income, Demand and Debt.

A diagram illustrating how "austerity reduces aggregate
demand and damages the economy.
Thanks to their pushing through of ideologically driven neoliberal policies under the guise of "austerity" the Tory led Coalition government have dumped the UK economy back into recession. It is not like they were not warned, even the Labour party opposition that were daft enough to deregulate the banks and then oversee the inflation and implosion of the biggest speculative bubble in UK history had the wits to point out to the Tories that "cutting too deep and too fast would be bad for the economy". Plenty of people predicted that Tory austerity would be self-defeating, but they had already set out their ideological stance that the only solution to the economic crisis must be "more of the same" neoliberal dogma that caused it in the first place, a position heavily reliant on the "great neoliberal lie" that state spending, not reckless financial sector gambling caused the crisis.

Why was it so obvious that the Tory austerity drive would be so counterproductive? To explain it in simplistic terms that even Tories can understand, I propose that the current economic chaos should be considered in terms of the 3Ds of economics; Disposable income, Demand and Debt. I am then going to consider whether these "cut now, think later" austerity policies have come about due to economic incompetence and if not, what the real unstated reasons for inflicting them might actually be.

Disposable income, Demand and Debt

It is stunningly obvious that reducing the amount of disposable income in the system through "austerity measures" and stagflationary central bank policies (money printing whilst keeping interest rates ridiculously low) will cause dramatic reductions in economic demand. If people have less disposable income to spend, they tend to reduce expenditure. On a small or short-term scale this wouldn't be too bad, but if government policy forces millions of people to simultaneously cut back spending, the wider economy suffers, as reduced sales cause relatively static production overheads to take up greater proportions of production costs. This means that the private sector is forced to either cut dividends or reduce salaries (by laying off the workforce or imposing pay freezes) both of which create further reductions in disposable income and therefore reductions in economic demand, potentially triggering an economic death spiral. The other option for private sector enterprises is to cut expenditure on research and development, modernisation and training, damaging the long-term economic prospects of the business, and harming future economic productivity.

The other consequence of imposing economic strategies that reduce disposable income is an increase in the amount of personal debt in the system as millions of families are forced to borrow more (in order to keep the rooves over their heads, clothes on their kids and food in their bellies). When people do rely on borrowing, this further eats into the amount they can spend in the "real economy" by increasing the proportion of their disposable income that goes towards making interest repayments. A Consumer Credit Council Service study recently found that over 24% of UK household disposable income is spent on nothing more than interest repayment. The rising levels of personal debt in the UK and the rapid spread of parasitic ultra-high interest payday lenders has already been documented. It seems that the Tories have refused to learn the lessons of the financial crisis; that predatory lending, high levels of debt and unsustainable borrowing are a recipe for a catastrophic economic meltdown.

Large scale systematic reductions in disposable income have the consequential effects of reducing demand and increasing debt within the system. At a time when the government should be taking decisive measures to stimulate economic growth and reduce the amount of debt in the economy, they are pursuing an ideologically driven austerity agenda which is doing the exactly the opposite.

After two years of economic stagnation and the recent return to the status of "technical recession" it is clear that the Tory "austerity drive" has harmed the UK economy in the way that I have described. The Tories have overseen a large reduction in household disposable income, leading to a fall in demand and a rise in personal debt. Other ideologically driven policies from the Tories look set to intensify the Disposable Income/Demand/Debt economic decline, especially their reforms of student finance which look set to lumber millions of low-mid income students with an "aspiration tax" to be subtracted from their disposable income, preventing them from investing it in economically beneficial activities such as starting their own businesses, collecting savings, making investments, contributing to pension funds or simply spending it.

The Tories have demonstrably created a massive reduction in the amount of disposable income in the economy via massive public sector layoffs and pay freezes, pension attacks and welfare cuts, all exacerbated by  huge above inflation rises in utility and transport costs and the Bank of England's stagflationary fiscal policies.

George Osborne, the archetypal example of
the incompetent over-promoted rich boy.
Either the Tories are so economically illiterate that they just don't even understand the consequences of their own policies or they are doing it deliberately and just don't care about the long term social and economic damage they are causing. The case for economic incompetence is a reasonably strong one, you only have to look at the man who is nominally in charge of the UK economy to get the impression that he an archetypal example of the over-promoted rich-boy, who should never, under any circumstances have been let anywhere near the levers of power. There is plenty of economic evidence that the Tories don't know what they are doing too, the incompetent botch job the previous Tory administration made of rail privatisation (the creation of privatised, subsidy junkie regional monopolies), their failure to calculate that the introduction of £9,000 a year fees would necessitate a vast amount of government borrowing to pay out the loans, the brazen incompetence of their meddling in the Royal Navy F-35 fighter jet procurement and their failure to understand how unpopular their granny tax measures would be with one of their key demographics (pensioners). Despite the strong case to be made for Tory incompetence we must also consider the case that they are deliberately attacking disposable income, reducing economic demand and increasing levels of personal debt in order to suit their political agenda.

Even though the case for Tory incompetence is a reasonably strong one, the fact that similar ideologically driven "austerity" schemes are being pursued across the rest of Europe and much of the rest of the western World suggests that this seemingly insane adherence to destructive self-defeating austerity is not just an affliction suffered by the English upper classes. This leaves us with the important question; if these policies are not driven by sheer economic incompetence, what would would make the Tories want to pursue such an socially and economically destructive strategy?

Potential alternative explanations

1 Neoliberal orthodoxy: After three decades of "neoliberal orthodoxy" the political classes are incapable of thinking outside the orthodox paradigm of more privatisation, less regulation, less labour rights, more tax cuts for the rich, etc. The fact that their beloved neoliberal economic theories were completely invalidated by the neoliberal economic meltdown which demonstrated firstly that deregulated financial sector markets do not self-regulate ("the invisible" hand is a myth) and secondly that state intervention is necessary (rather than "evil") because without it the neoliberalised financial sector would have collapsed entirely, taking the relatively tiny "real economy" down with it. The problem with this idea that if the political classes are sticking with the defunct paradigm of neoliberalism because they are incapable of "thinking outside the box", this is pretty much the same as the argument we are trying to counter; that they are clueless and incompetent.

With most of the UK's largest export markets also embracing austerity,
and the US in danger of joining them should the Republicans win,
demand for imports from the UK is going to be diminished.
2. Increased competitvity: One possible explanation is that the Coalition are trying to address Britain's appalling trade deficit by increasing competitivity. By devaluing the currency and reducing labour costs and employment conditions they are attempting to increase exports and improve the balance of trade.

This explanation is backed up by Tory justification of their much criticised regional pay plans, that by reducing public sector pay in poorer areas, the private sector will face less wage competition in these areas, allowing them to offer poorer wages and working conditions and therefore create more jobs.

The problem with this competitivity drive explanation is the fact that the Coalition have provided £40bn to the IMF in order to impose similar austerity measures through Structural Adjustment conditions on their loans in other European economies such as Spain, Greece and Ireland. The effect of these austerity measures is to reduce demand in Europe meaning that there will be no improvements in the balance of trade. If all of the western economies impose the same kind of cost cutting measures simultaneously, these socially and economically damaging cuts wont actually improve competitvity or the balance of trade at all, since demand is going to be reduced across the board.

3. The China block: One theory that is doing the rounds is that these austerity policies are actually a coordinated western government strategy to curb Chinese economic expansion and their growing domination of global trade. The theory is that these austerity policies are a deliberate strategy to reduce household disposable income in order to deter consumer spending on Chinese manufactured goods. The problem with this explanation is that Chinese factories produce an awful lot of cheap crap, and in times of economic turmoil and reduced disposable income, consumers are much more likely to buy cheaper alternatives than quality branded goods. One area of the UK economy that has been booming since the global economic meltdown is the "Pound Shop sector" which is based on the model of selling cheap low quality Chinese goods at bargain basement prices.

To give a hypothetical example; if Mum has been made redundant and Dad has suffered four consecutive years of pay freezes, they are much more likely to buy cheap Chinese manufactured birthday presents for their kids than high quality British or European manufactured branded toys like a Hornby railway set or a pack of Lego (even if they do choose branded European goods, manufacturers such as Hornby are still actively shifting their production to China too!). Since Chinese factories produce the kind of cheap, poor quality goods that people tend to buy when they can't afford to let quality or ethical reasons determine their choices, reducing household disposable income is likely to harm the Chinese manufacturers much less than it actually harms local manufacturers.

4. Debt creation: The introduction of the highest public university fees in the World for English students has demonstrated that the Coalition government have absolutely no qualms about driving people into enormous amounts of debt. Perhaps their attacks on disposable income are actually intended to drive more people into debt? If people find that their household disposable income is being eroded away, they can either make cutbacks or they can take on more debt in order to make ends meet. The beneficiaries of increased borrowing would be the financial sector who could generate huge profits by lending on the Central Bank super-low interest "giveaway loans", and their Quantitative Easing windfalls at eye watering interest markups.

The fact that the majority of Tory party donations come from the financial sector and that one of their biggest donors (Adrian Beecroft) is the director of a private equity fund that owns the predatory lender gives some credence to this theory, however the main reason that the economy is in such a mess in the first place is that the financial sector inflated a vast speculative bubble built on "easy credit" and unsustainable debt. The narrative of the economic crisis has been all about recapitalisation of the banks and the difficulty in obtaining credit. Incentivising people to borrow more money in order to maintain lifestyles that they cannot afford or just so they can make ends meet (in the cases of poverty stricken families) is exactly the opposite of sustainable recapitalisation. It is not beyond the realms of possibility that the Tories are trying to recapitalise the financial sector by driving millions of people to take out high interest loans whilst the Bank of England and European Central Bank provide the financial institutions with an almost limitless supply of cheap money to lend out at huge markups, however this cannot be seen as a sustainable economic policy.

5. Reduce social mobility: The biggest barriers to social mobility are low disposable income (lack of ability to accumulate capital), debt and lack of education. All three of these seem to be deliberate Coalition policies. The reasons a Tory led government would want to favour establishment interests ahead of the interests of ordinary working people or the wider interest of creating long term economic stability are as manifest as they are obvious. The financial sector provide the majority of Tory party funding, most of the rest of their funding comes from other capitalists and their traditional base, the landed gentry. The Tory party is riddled with people that went through the establishment training system of public school education and they boast a cabinet of multi-millionaires.
The Tories have repeatedly demonstrated their absolute contempt for the interests of the the ordinary working people that they have been known to refer to as "the enemy within". The desire to protect the old establishment of landed gentry and the public school old boy network is one of the deepest Tory desires, protecting their own personal financial interests and those of their corporate and financial sector backers are also core Tory motivations. The best way to prevent the downwards mobility of over-promoted public school old boys, reckless financial sector gamblers and greedy corporate fat cats is to prevent the upwards mobility of talented and hard working ordinary people.

Several of the coalitions policies can already be seen as blatant attacks on social mobility. The student fees hike which will lumber hundreds of thousands of kids from low-middle income families with vast unpayable debts and end up disincentivising thousands more that are rightly put off by the prospect of racking up £50,000 or more in debt that will grow at well above the rate of inflation unless they manage to poach themselves a £50,000 a year job from under the noses of the public school old boy network. Regional pay plans will lower pay in poor areas and look set to damage vital public sector services in these areas by incentivising staff to move to more affluent areas in search of better pay. George Osborne's tax changes look as if they are designed to transfer even more of the burden of taxation from capitalists (corporation tax cuts) and the super rich (cutting the 50p rate for earnings above £150,000) to consumers (hiking the VAT rate).

The suspicion that the Tories are deliberately slashing the incomes of ordinary working people and driving millions into debt as a deliberate policy to protect the interests of the establishment elite by reducing the social mobility of the "lower orders" is backed up by the fact that in 2011 the richest got richer, whilst the majority suffered the austerity.


It is fairly obvious that the increased competitively and the "China block" explanations are worthless. If reducing aggregate demand was about increasing exports and closing the trade gap then funding the IMF to impose similar policies across the UK's main export markets would be utterly self-defeating. If austerity is a western conspiracy to confront Chinese manufacturing might, it isn't going to work because squeezed consumers are more, not less likely to buy cheap, low quality Chinese goods. Protectionism in the form of trade tariffs would make a much more effective western plot to slow down China's economic growth than a set of policies that result in creating recessions across their own economies.

The government are still keen neoliberals, even though many of the central neoliberal principles have been repeatedly and comprehensively invalidated, the Tories are so enraptured by the ideology that they are even determined to privatise the police forces that were more than happy to work as Margaret Thatcher's private militia in the early days of the neoliberal revolution. That the Tories are so obsessed with imposing defunct ideologically driven neoliberal pseudo-economics is pretty much the same as being incompetent and economically illiterate, but the question still remains. Why are they so determined to stick with invalidated neoliberal dogma? I think the answer lies in proposals four and five. The Tories are determined to protect the interests of their own class, they are after all the party of the establishment. The best way to protect the interests of the establishment is to reduce the upwards social mobility of the "lower orders" by restricting their access to capital (disposable income) by driving them into debt and by disincentivising them from getting higher education or making them pay up to 9% of what should be their disposable income in an "aspiration tax" that the children of the establishment elite can easily avoid. Driving ever more people into debt would have the added bonus of helping out the financial sector gamblers that are the main source of Tory party funds.

The Tories are the party of the establishment, their party is riddled with millionaires and public school establishment trainees and they take the vast majority of their party funding from establishment sources. The following flow diagram gives an illustration of how several government policies reduce social mobility, decrease disposable income, increase  public debt and protect establishment interests.The fact that these reductions in disposable income and the increases in debt serve to reduce economic demand and damage the wider economy doesn't seem to matter to the Tories, since their core objective is only to protect establishment interests rather than to run a stable economy for the benefit of everybody.

See also

Saturday, May 26, 2012

The Minimum Alcohol Pricing farce

The price of four tins of Tennent's lager looks set
to rocket to £3.50 under the new minimum pricing rules.
The SNP led Scottish government have just introduced minimum alcohol pricing (50p a unit) as a response to widespread alcohol problems in Scotland and the Tory led coalition is intent on introducing similar price fixing measures (40p a unit) in England and Wales.

The Minimum Alcohol Pricing bill passed through the Scottish Parliament with a landslide 86 - 1 majority vote in support of draconian price fixing measures, meaning that in Scotland the cost of a four pack of lager is set to rise to an eye watering £3.50. The Scottish Health Secretary Nicola Sturgeon justified the move with some absurd projected figures gleaned from a flawed study by Sheffield University, which conveniently told the Scottish government that commissioned and paid for the report exactly what they wanted to hear. The study was flawed because it failed to factor in several seemingly obvious negative socio-economic consequences of alcohol price fixing.

The Tory led Westminster Coalition also seem determined to push through alcohol price fixing measures with Theresa May acting as the Tory cheerleader for the scheme. The only voices of concern from the political establishment have been raised by the Labour party, who have estimated that Minimum Pricing in Scotland could create an estimated £125 million profit windfall for the alcohol industry, whilst providing no direct support to the police, health service and social services that spend £billions dealing with alcohol related problems such as late night disorder, liver disease and domestic violence.

It seems absurd that the beneficiaries of this policy which is supposedly aimed at reducing consumption will be the alcohol industry and the alcohol retailers that have created the majority of the alcohol related socio-economic problems, whilst the sectors that have actually spent decades dealing with the consequences will see none of the extra revenue.

Socio-Economic evidence

The whole idea of Minimum Alcohol Pricing is absolutely absurd, a vast amount of socio-economic evidence points to the fact that problematic drinking is a geo-cultural problem, not a problem of pricing.

If we look at countries with higher alcohol prices than the UK such as Norway, Denmark and Finland we find that they have lower average rates of alcohol consumption yet all of them have significantly higher rates of alcoholism and alcohol related deaths. In fact, within the European Union there seems to be more of a positive correlation between high alcohol prices and incidence of alcohol related deaths, than a correlation between alcohol consumption and alcohol related deaths!

If higher prices led to lower levels of excessive
drinking and alcohol related deaths, one would
 expect this graph to be the other way around.
The comparison with Denmark makes a very interesting case, they have significantly higher alcohol prices yet their levels of alcohol consumption are almost identical to the UK. The remarkable difference is in the rates of alcoholism and the incidence of alcohol related deaths, which are both vastly higher in Denmark than in the UK. If higher alcohol pricing was a real deterrent to problematic drinking, one would expect the UK to have a higher incidence alcohol related deaths than Denmark where alcohol is significantly more expensive.

Another interesting comparison can be made between the UK and Spain. Spain has significantly lower alcohol prices, yet their average levels of consumption, rates of problematic drinking and incidence of alcohol related deaths are all significantly lower. Visit Spain and you will not see Spanish people staggering, pissing, spewing and fighting all over the street (the people behaving like that are generally British tourists getting "shitfaced" on all the cheap booze). In Spain there are fewer heavy drinkers than in the UK (and those that do drink heavily tend to maintain better control of their behaviour), average alcohol consumption is lower and the alcohol related death rate is only 36% of the rate in the UK. Alcohol prices are significantly lower in Spain, yet the average consumption of alcohol is also significantly lower. If we are to accept the politicians' simplistic view that price is the principle determining factor in alcohol consumption rates, one would expect average alcohol consumption to be higher in Spain where it is cheaper, yet it is significantly lower.

Portugal also provides some interesting evidence, where the average alcohol price is similar to Spain, but their average consumption rate is the highest amongst the 13 western European nations under consideration. One would expect the country with the highest average consumption rate to also have one of the highest rates of alcohol related death, however the Portuguese death rate is almost identical to the UK death rate and a fraction of the death rate of other nations with much lower rates of average alcohol consumption such as France, Germany, Denmark, Austria and Norway.

Norway has by far the highest alcohol pricing at 234% of the European average and more than double the UK rate which has pushed consumption to the lowest level by far of the 13 countries, however their alcohol related death rate is much higher than the UK rate. When you take a closer look at the stats it is actually possible to determine a weak correlation between higher alcohol prices and higher rates of alcohol related death. I don't have the time or the budget to carry out a proper statistical analysis to see if there is a causal link, all I can do is suggest potential causes. The higher alcohol prices in these economies could have come about due to political attempts to reduce the alcohol problems through price manipulation or the prohibitive stance has caused increases in excessive consumption (as the criminalisation of certain addictive drugs has created an exponential growth in the number of addicts, Heroin in the UK for example) or the correlation could be a statistically irrelevant coincidence.

Comparisons of Western European economies shows that while there is weak correlation between alcohol price and alcohol consumption,  there is also a positive correlation between high alcohol prices and higher instances of alcohol related deaths and no correlation between average alcohol consumption and the instance of alcohol related deaths.

I believe that the incidence of alcohol problems actually has much more to do with the "culture of drinking" than it has to do with the price of the alcohol. The stats in the illustration above lend some support to my view, especially the significantly higher rates of alcohol related deaths in countries with similar or significantly higher alcohol prices than the UK (Denmark, Norway, Finland, Belgium & Sweden).

To resort to using a bit of "common sense" anecdotal evidence for a while I'm going to talk about Spain. It is customary in Mediterranean countries like Spain to serve alcohol with food (Tapas or other snacks), which "soaks up" the alcohol resulting in fewer people getting paralytically drunk. Spanish people also tend to drink more slowly than British people. I believe this is due to the strong influence of many decades of restrictive UK licencing laws on the British drinking mentality. These restrictive laws ended up incentivising pub goers to drink as much as they could before the pub closed, a haste that has remained part of the British drinking culture despite subsequent relaxations in the licencing laws. There is more of a relaxed attitude towards drinking in southern Europe, where drinking sessions are not treated like races with kudos to the fastest and heaviest drinkers. In Southern Europe there is also much more social stigma associated with getting leglessly drunk, vomiting, getting into drunken fights or spending the night in a jail cell, things that seem to be much more common amongst younger British drinkers, judging by the difference between the carnage in British high streets and hospitals late at night and the relative calm in the Mediterranean towns (the ones that don't suffer a seasonal influx of British tourists at least).

Adverse consequences

The cited positive consequences of this Scottish alcohol price fixing scheme are that there will supposedly be an estimated 300 fewer alcohol related deaths and 6,500 fewer alcohol related hospitalisations over the next decade, however the study hasn't properly considered what seem like obvious adverse consequences to the massive inflation of alcohol costs. Namely increases in alcohol smuggling, bootlegging, home brewing and poverty within families with one or more alcoholics. That the study has only managed to project relatively small socio-economic benefits is worrying, especially since the study failed to consider several potential (and extremely likely) adverse impacts.

I believe studies should be carried out to determine the adverse effects of introducing Alcohol price fixing legislation in Scotland before the scheme is rolled out elsewhere. If the adverse effects are not properly studied before legislation is rolled out elsewhere in the UK we can assume that the policy is ideologically driven not evidence based. The areas than need to be studied are:

Alcohol smuggling: Huge increases in legitimate "over the counter" alcohol prices will almost certainly lead to a corresponding increase in  alcohol smuggling from outside the price fixing zone. The scale of alcohol and tobacco smuggling from the continent was estimated at £5.5 billion in lost tax revenues back in 2008. Studies must be carried out to determine the volume of alcohol transferred from outside the price fixing zone and comparisons made with the cited reductions in legitimate alcohol sales. If measures are not undertaken to assess the increases in cross border transfers into the price fixing zone and the scale of lost tax revenues, and these figures are not offset against the claimed reductions in legitimate "over the counter" sales, any cited benefits to the price fixing legislation cannot be accepted as reliable.

Bootlegging: There is already a large problem with the illegal trade in counterfeit alcohol in the UK. Measures designed to massively increase the sale price of legitimate alcohol supplies will almost certainly incentivise more criminals to enter the counterfeiting racket in search of larger profit margins. It would be extremely difficult to determine the scale of the increase and the adverse consequences of  increased consumption of potentially dangerous bootleg alcohol, since the illicit trade in bootleg alcohol goes largely unmonitored.

Increased family poverty: It seems likely that a large proportion of "problem drinkers" will continue to consume excessive amounts of alcohol, simply expending more of their family budget on alcohol purchases and consequentially reducing the amount that is spent on meeting their children's needs. At a time when family budgets and disposable income are already being squeezed through austerity and economic stagflation a large increase in expenditure on alcohol is likely to have severe adverse effects on families that are unfortunate enough to have one or more alcoholics.

Home Brewing: As alcohol prices become increasingly unaffordable it seems likely that many people will turn to the cheaper option of brewing their own juice. I don't think this consequence would be anything like as harmful as the others mentioned, however the lack of consideration of a seemingly obvious consequence highlights yet another flaw in the University of Sheffield study. If there is a rise in home brewing, this rise must be offset against claimed reductions in consumption of "over the counter" alcohol and the lost tax revenue must also be taken into consideration.


There are countless viable alternatives to a blanket  price hike for all alcohol consumers. The most obvious place to start would be better enforcement of existing laws and the introduction of new laws and regulations aimed at curbing problematic drinking behaviour. The problem with this approach is obvious. Any coherent integrated strategy to reduce problematic alcohol consumption would take a lot of man hours to enforce. With the Tory led coalition pushing through severe ideologically driven cutbacks in policing, the health service and social services it is extremely difficult to imagine where these man hours would come from. Here are a few alternative proposals to a draconian catch-all penalty for alcohol consumers.

Nuisance duty: Instead of introducing price fixing measures that would benefit the breweries more than anyone, the government could consider a "nuisance duty" on alcohol sales to provide funding for late night policing to discourage crime and disorderly behavior, public education and health service and social services interventions to help people suffering from alcohol addiction. Surely the beneficiaries of hikes in the price of alcohol should be the services that deal with the fallout, rather than the companies that have already profited enormously from creating this wave of problematic behavior.

Eduacation and rehabilitation: In all walks of life education and rehabilitation are better and cheaper deterrents than draconian punishment. People that cause trouble through problematic drinking should be compelled to at least learn the basics of responsible drinking and socially acceptable behavior before they are hit with financial sanctions and prison sentences.

Public order: Police should be given powers to compel problematic drinkers to undergo alcohol education and rehabilitation, repeat offenders would then face fines and detention for committing drunken public order offences.

Health sanctions: People that repeatedly turn up at hospitals in drunken states should be made to pay a "drunkenness levy". The foundation of the NHS is free health care at the point of need so imposing draconian levies for absolutely everyone that turns up drunk at at hospital would be unfair, since people do tend to have accidents when they are drunk, however repeat offenders should be compelled to undergo alcohol education and rehabilitation and if they still carry on offending they should have to pay a significant contribution towards their health care costs. If people abuse the system by regularly getting leglessly drunk and then taking up the time of paramedics and hospital staff, they are effectively stealing resources from the people that don't abuse the system so they should be made to pay.

The importance of food: Public drinking establishments should be given incentives to provide food. Drinking on an empty stomach is notoriously dangerous, pretty much everyone has made the mistake of feeding hunger with booze and suffered the consequences at least once. A culture shift towards providing alcohol and food together (as the Spanish do with Tapas) could be surprisingly effective in alleviating some of the worst public order problems.

Culture shift: Public figures and the media should run a campaign against problematic drinking. People should be made to feel ashamed and socially stigmatised if they repeatedly cause drunken chaos. For too long people have been normalised to wild and aggressive drunken behaviour in public places. There needs to be a culture shift towards social stigmatisation of excessive drunken behaviour, without a change in the current permissive attitude towards drunken chaos, problematic drinkers will continue to feel that there is nothing particularly wrong with their unruly and intimidating behaviour.

The proposals I have outlined are aimed at educating people that are in danger of becoming problematic drinkers, reforming their behaviour and then penalising those that continue with their problematic drinking. I think that this kind of approach would both be more effective and fairer than an across the board sanction against all drinkers. However I have little faith that such policies will be pursued since the introduction of a catch-all disincentive is obviously cheaper and easier to do than attempting an integrated effort to change the problematic drinking culture, so that is why we are set to be lumbered with it.


It seems that the politicians that are pushing these price fixing schemes are motivated by their desire to "do something" about the manifest alcohol problems in the UK, however the act of just "doing something" doesn't help if the thing that is being done is some kind of ill conceived, poorly justified knee-jerk response to the problem. I believe that coordinated measures to combat the binge drinking culture and to focus upon problematic drinkers would be far more effective than a blanket price hike for all consumers.

The problem is, that an integrated holistic approach to the problem would be both much more difficult to achieve and a lot less visible than simply making a big fuss about voting through a basic price fixing scheme to penalise all drinkers without regard for the negative consequences.

The worst aspect of the alcohol price fixing legislation is that the main beneficiaries look set to be the breweries and the alcohol retailers that did so much to create the problems in the first place. With no stipulation that the extra cost to the consumer goes towards preventative services, it could be considered that the supporters of minimum alcohol pricing are engaging in gesture politics and actually care more about protecting the interests of the alcohol industry than they do about offering genuine solutions to the manifest alcohol related problems in the UK.

One of the craziest things about alcohol price fixing is that the Tories are pushing it. For the last two years they have been behaving like rabid neoliberals most of the time (privatise everything even the police, cut wages, cut pensions, attack labour rights, slash government spending, cut taxes for corporations and the rich, donate £40bn to the IMF.....) yet price fixing is absolutely against the neoliberal free-market ideology.

I wonder what is going on? Maybe Victorian style moral puritanism is the one thing that trumps neoliberal pseudo-economic dogma in the Tory mind.


The socio-economic evidence that drinking problems are a cultural problem, not a pricing problem is all around. The study that is being used to justify the scheme is flawed, in that it doesn't consider what seem to be obvious negative consequences such as increased family poverty, smuggling and bootlegging and lost tax revenues. An across the board price hike will end up financially penalising moderate drinkers as well as problematic drinkers and the big financial beneficiaries of the scheme look set to be the brewery industry, not the services that are put under immense strain by the British binge drinking culture. Overall, minimum alcohol pricing is nothing more than ill conceived, poorly justified, empty gesture politics. It is of utmost importance that the negative consequences of this Scottish alcohol price fixing experiment are carefully monitored before this kind of knee-jerk, ideologically driven moral puritanism is rolled out elsewhere.

See also

Friday, May 25, 2012

Comparing Nordic apples with American oranges

The supporter of ideologically driven right-wing economic orthodoxy will often come up with truly pathetic arguments to justify their position. Sometimes it is because they hold their audience in such contempt that they think that they can get away with making rubbish arguments, but often, it seems the proponent has such low intellect that they can't even understand why their own arguments are so fundamentally flawed.

Simplistic direct comparisons between these economies are
bound to provide plenty of misleading conclusions
The argument by false analogy (comparing apples and oranges) is one of the most pathetic forms of fallacy used by thick people, or by people hoping to convince an audience that they assume to be thick. One of the finest displays of right wing argument by false analogy can be found in a Daily Telegraph article by Tim Stanley, in which he  lamely attempts to diminish the Scandinavian social democratic model.

After a lot of fairly predictable hot air about how he believes that high taxation, strong social mobility, high welfare standards, high general incomes and greater equality are all bad things he concludes with a quite remarkable paragraph.
"The sad fact is that sometimes the relentless pursuit of fairness in outcome imperils the creation of an atmosphere of opportunity. Put crudely, yes Scandinavia probably does ferry a child safely from cradle to grave with the result that levels of poverty and crime are conceivably lower. But where is the Swedish Facebook? How many Danes have walked on the moon? Does Norway have a Commonwealth? How’s that Finnish movie industry doing?"
The first thing to note about the four questions he asks in his concluding paragraph is the vast population disparity between the social democratic Nordic countries he is criticising and the neoliberal Anglo countries he is eulogising. To make direct comparisons between the outputs of such vastly differing economies is transparently misleading. Much fairer comparisons could be made between places with similar populations.
  • Finland vs Scotland
  • Norway vs Colorado
  • Denmark vs Wisconsin
  • Sweden vs North Carolina
It is clear that the pro-neoliberalism argument would be lost using fair comparisons, both in terms of actual wealth (GDP per capita) and in terms of utterly absurd questions (where is North Carolina's Ikea? Does Colorado have a coastline? How's that Scottish mobile phone manufacturing industry doing?) hence Stanleys's decision to use fallacious and absurdly disproportionate ones instead.

Returning to the remarkable display of fallacious reasoning in the quoted paragraph, let me address Tim Stanley's four questions in order:

"Where is the Swedish Facebook?"
Sweden doesn't have a Facebook but it does have another very famous website called The Pirate Bay, (which has more visitors than any British based website other than the state controlled BBC). Sweden also has a global retail brand with a turnover of €25bn called Ikea, which is surely of more economic significance than a website that produces nothing apart from spamvertizing revenue, costs the "real economy" billions in lost productivity (as millions of workers skive off work to check their updates on their smartphones on a daily basis) and which just provided one of the most farcical IPOs in recent history, hardly a glowing example of neoliberalism at work.
"How many Danes have walked on the moon?"
Ask yourself this; how many Americans have walked on the moon?  The answer is 12, making a ratio of 1 for every 28 million of their citizens. Given this ratio you would have expected less than 1/4 of a Dane to have made it to the moon so far. This question about moon walking is nothing more than a boast about American economic might which utterly disregards the vital bit of information that not a single American has walked on the moon since Apollo was cancelled in the early 1970s, meaning that since the rise of neoliberalism as the economic orthodoxy in the United States since the late 1970s, as many Danes as Americans have walked on the moon (none).
"Does Norway have a Commonwealth?"
This question is even more absurd than the moon walking one. Norway does not have a Commonwealth because it did not have an empire established during the mercantilist era and strenghtened during the era of industrialisation. Using the fact that Norway weren't successful mercantilists and empire builders several Centuries ago as a criticism for their social democratic stance over the last 50 odd years is just bizarre. Noting that Norway has not retained the remnants of an empire built up centuries ago and using that as an implied criticism of modern Norwegian economic policy is either the work of an idiot, or the work of a man that assumes his audience to be idiots. One remarkable bit of information that Stanley completely failed to mention in his article, is that Norway a country with a population of only 5.01 million (or 1.6% of the US population if you like) has the largest sovereign wealth fund in the entire world ($573bn), which contrasts sharply with the vast unfunded welfare deficits in the US and the UK.
"How’s that Finnish movie industry doing?"
Again, another apples and oranges comparison. Finland has actually produced some quite good films in recent years, but expecting a country with a 60th of the population of the USA to compete with Hollywood in terms of output and revenues would be utterly absurd. One way in which the Nordic film industry does out compete the US is in quality of output. For every genuinely well made and thought provoking film out of Hollywood, there are at least a dozen lazy, stereotype riddled, mindless action or romcom films. The discerning viewer of World cinema knows that "Scandinavian film" (lets incorrectly refer to Finland as a Scandinavian country instead of a Nordic one, as Stanley does throughout his article) has a long tradition of producing engaging dramas, which generally demonstrate much better grasps of realism, nuance and ambiguity than their cash addled US counterparts.
The lameness of these points in Stanley's concluding paragraph demonstrate what a weak case against social democracy he had managed to construct. The economic evidence is absolutely clear, the social democratic mixed economy model provides greater economic stability, greater productivity, greater social mobility and an equatable share of the growing national wealth for the vast majority of citizens. Neoliberalism on the other hand allows the inflation of vast speculative bubbles which result in severe economic crises, creates the illusion of growth through the creation of debt throughout all sectors of society, damages social mobility and is has only ever been proven successful at transferring wealth from ordinary working people to the tiny economic elite.

That a defender of neoliberalism would resort to misleadingly comparing Nordic apples and Anglo-American oranges in the conclusion to his attack on social democracy speaks volumes about the intellectual poverty of his position. The absurdity of Stanley's arguments underline the fact that he is either an idiot himself, or someone that believes he is preaching to an audience of idiots. I'll leave you to draw your own conclusions about the intellectual capabilities of his audience of Telegraph readers.

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