I blame Adam Smith

Really, its all Adam Smith’s fault. After all, the founder of modern economics was a Professor of Moral Philosophy and its similarly impossible to understand the dominant attitudes towards the current crisis other than in moral terms. Here’s some examples:

• The tosh about skivers vs strivers and associated notions of fairness? That’s a (supposedly) moral argument that is.

• The troika, well the German for the most part, approach to Greece? Is a moral stance; they made this mess with their spending and tax dodging, so now they have to pay the price for any aid they get so they do.

• No additional public spending today because it would be at the expense of tomorrow’s youth? Yup, that’s a largely moral stance that is.

• More generally, what I’ve personally encountered is the sense that because we had a credit fulled boom we deserve the current bust, because that’s only fair, isn’t it? Like we deserve it, really. And anyway, we need to repay the debt because you can’t go on borrowing forever.......

A big problem with such notions of morality is they’re so utterly half-arsed i.e. not thought thru. Rather, they typically operate as instincts or what adherents, if challenged, dress up as “common-sense”. Except, they’re not, they're more simply statements of ignorant prejudice.

Take skivers vs strivers; researchers have actively gone out hunting and failed to find almost any of the multi-generational unemployed households that get the Daily Mail so excited. In the meantime, the benefit cuts are clattering the incomes of the disabled and the working poor as well as the unemployed who are almost all actively seeking work.

Greece? Well, I don’t think destroying an economy via the terms attached to French and German funded bailouts that helped the French and German banks that had lent to Greece in the first place is teaching Greek people the lesson France and Germany thinks it is.

Spending more today would hurt the youth of tomorrow? If proponents of this argument were actually bothered about the youth or even the "yout" they should perhaps reflect upon the massive rise in long-term youth unemployment seen across Western Europe and the associated permanent damage this is doing to future, productive capacity (and individual lives).

As for us all somehow deserving the bust, well current UK monetary policy is geared to protecting the heavily indebted via super low interest rates whilst using quantitative easing to boost asset values. Guess what caused the credit crunch here  – no it wasn’t casino banking, it was the bursting of various cheap credit fuelled asset bubbles, which here primarily meant commercial property and company values, things yer average punter had absolutely nothing to do with.

Credit did serve a useful political purpose though in that it papered over the stagnation in average real wages seen in the run up to 2007 and the associated rise in economic inequality. I’m not sure why that’s something most people should feel especially guilty about though. Oh and the notion that a country can’t borrow forever or at least for a very long time is simply dumb.

The problem with morality is that its a big dogmatic-y i.e. engrained and purely reflexive in a lets not let dull stuff like facts get in the way. And its creating big problems. What are nasty prejudices masquerading as common-sense appear so deeply engrained, widespread and popular are having a huge influence on government policy. Right now, we really are shooting ourselves in both feet whilst blaming someone else - the disabled and the poor for the most part - for the pain.

Pushing string

So there’s fiscal policy and then there’s monetary policy, the other side of the economic policy coin. Ideally the two work together. Now? Less so.

Fiscal austerity is doing its damndest to undermine and generally crap on demand what with the massive reduction seen in government spending on capital goods, investment and what not to preserve the UK’s AAA status. Monetary policy by contrast is at best tinkering and tickling round the edge as follows:

-          Historically low interest rates to minimise the number of indebted bods and companies failing (hmmm, what about zombie companies being a bad thing then?)

-          Low interest rates also encourage a competitive i.e, a devalued pound (take that all you dumb fucks that whined about the credit rating downgrade undermining the phallic worth of the pound, that’s monetary policy bitches)
- Low rates also also (well negative real rates) provide a disincentive to save i.e. they encourage people to spend, spend, spend in ourt consumer driven economy
- Obviously, following on from the above, low interest rates and the associated tolerance of above target inflation cheekily chip away at the real value of debt in our deeply indebted nation (shame pay growth is also negative in real terms)

-         Then there's quantitative easing or QE to encourage well its not that clear really, investment in marginally more risky, but still comfortably investment grade assets? To prop up prime asset values that benefit bods with pensions? No got a scoob really

-          And latterly the invention of all sorts of ways of cutting credit costs to, to, well what exactly?

Am guessing, judging by what Bank of England bods say, this last one is about encouraging demand by making it cheaper to borrow except, well how’d you reconcile that with fiscal austerity and what that’s been doing to the willingness to invest for years now? The answer is you can’t, the reason being because you can't.

To give an example using the key economic example of pies; make a pie cheaper then yeah, sure I might buy one, mebbe even two extra, but that’s cos I like pies. If I didn’t like pies, then whether they cost 50 quid or a horsemeat-tastic 50p, I ain’t buying any more and you’re wasting your time.

Similarly, cutting the cost of credit don’t mean shit if I don’t want to borrow new money or to quote from the latest Bank of England creditconditions survey

there was “a reduction in credit demand from small companies … (and) … demand from large firms was expected to remain broadly unchanged” So there you are then, banks don't want to lend to small businesses, banks don't want to lend to small businesses ....

Really? The Bank of England's own research into the impact of its own policy indicates small businesses aren't that keen on borrowing right now, which makes sense. Like European exports aside if you were a business dependent on government contracts would you fancy investing in new stuff right now? Thought not. Refinance your existing debt makes sense obviously, but borrowing more? Nah, no thanks.

Hence, a key and innovative part of current monetary policy looks about as effective as pushing string.