26 February 2013

Big Ideas on Macroeconomics

Working in Cardiff for a year and a half severely curtailed my London-based activities and while I was able to keep the theatre going simply by booking for weekends I was force to miss most events that had fixed dates.

One casualty of this was Big Ideas which meeting on the last Tuesday of the month and work kept me away for a whole year. A new project back in London meant that I could make February's meeting and I was desperate to attend despite not being that interested in the subject, macroeconomics.

The format, and my ritual, remained the same. I walked there from Victoria stopping at Govinda's on the way for a vegetarian curry. I got to the Wheatsheaf not long after 7pm giving me plenty of time for a leisurely pint before heading upstairs to claim a good seat for the discussion starting at 8pm.

Our guide for the evening was Ann Pettifor who is an economist of some renown. She spoke for about twenty minutes to introduce the subject that was then taken up by the rest of us in a group session with Ann responding to the questions raised.

What follows is my notes from the meeting, taken on my iPad for the first time. I was also able to use it for tweeting (#bigideas) thanks to the pub's wi-fi.

Ann Started working on sovereign debt of weakest countries, now a lot has been written off.

Debt is now a first world issue, both private and public borrowings have increased dramatically over the last twenty years or so.

It is wrong to try and use micro economic arguments to arrive at macro economic solutions, e.g. comparing public debt to a credit card. This metaphor is liked by politicians but the two situations are not the same.

Public debt as ratio to GDP, around 70%, is not the problem, we been there several times before and have always emerged strongly.The real problem is private debt that is running at over 400% of GDP.

Private debt is being completely ignored but we cannot have a recovery until it is fixed.

Allowing individuals to walk away from their debts (e.g. returning house keys to the mortgage provider) is a disorderly way to escape from debt. Rescheduling debt is orderly.

Or, we generate income so that the debt can be repaid. This is the best approach but the government is doing the opposite by making cuts.

Ann said that we cannot finance recovery through taxation but I do not agree. Income tax might not work but some form of wealth tax (imposed without notice) would. The 1,000 richest persons in the UK have increased their wealth by so much in the last 3 years, £155bn,  that they themselves alone could pay off the entire UK budget deficit. We could/should simply take that money.

We have the money, we found £16t to save the banks, mostly invented money.This is a great power so there are questions over how this power is used and controlled.

We should regulate the banks rather than nationalise them (why?). Not convinced by the argument that housing is a bubble - people have to live somewhere and houses are in short supply. House are useful assets unlike, say, art or tulips, so are less susceptible to bubbles.

The evil guys are the bankers, apparently. Nobody agreed with me on the problem being caused by customers demanding loans and also high savings rates. Banks are just meeting customer demand.

We should reintroduce Capital Controls to manage capital flows. Tobin tax is small in comparison - and it's trying to do something else. There is a political issue here as Capital Controls are associated with the old days and with totalitarian regimes. As a country we seem reluctant to give power to democratic bodies in Europe but are happy to be controlled by unelected market players.

I had a good evening and the ninety minutes flew by. I would have stayed on too for more chat, and more beer, if not for a pressing need to get home. I also felt that Ann and I were broadly on the same side so I was surprised to find myself disagreeing with so much of what she said. I think that some of this may have been down to the way that the arguments were put which I thought lacked rigour and flow.

A day or so later I listened to an RSA Podcast on The Inequality Crisis that I found more logical and more convincing.

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