Tuesday, 11 March 2014
Jobs Growth for Wales subsidises young people who have had difficulty finding work into jobs. 80% of the subsidised jobs are with the private sector, and 78% of subsidised employees stayed in employment after their subsidy expired according to Polly Toynbee.
That is a much better record AT LEAST ON THE FACE OF IT than the Work Programme, and the causes of the difference are a puzzle.
The above 78% figure could of course be highly misleading: it could be that the people making up that 78% are simply displacing others: i.e. it could be that the net employment raising effect of JGW is zero (at worst). Nevertheless the difference between JGW and WP needs examining.
The explanation could be that JGW only takes on those below 25 years old, whereas WP includes a significant number of over 25 year olds. Thus JGW could be taking on labour with a better potential than WP. That is, failure to get established in a career when under 25 is understandable: it can take people several attempts at several types of job before finding something that suits them. In contrast, failure to get established by the age of 30 or 40 may indicate a significant degree of unemployability.
Saturday, 8 March 2014
I was at a meeting recently at which Andrew MacLeod made two objections to the Milton Friedman / Positive Money banking system. His first objection was that the increased cost of running banks would mean increased bank charges which would dissuade some of the less well off from having bank accounts. The answers to that point are as follows.
First, over recent decades, there has always been a small proportion of the population who don’t want bank accounts, i.e. who are paid cash and deal only in cash. That “way of life” doesn’t seem to involve insuperable problems.
Second, it is however possible that with the digitalisation of money (debit and credit cards etc), a bank account will become a basic essential, like food or fuel to heat homes.
Now there are two basic ways of providing people with basic essentials. One is to provide the entire population with the relevant basic essential and free at the point of delivery (e.g. the National Health Service and education for kids in the UK). And that policy is adopted where we think the relevant basic essential is best provided by a publically owned monopoly.
But (and second) we don’t adopt that policy where we think the relevant basic essential is best provided by competing private sector firms (e.g. food, fuel for heating homes, and . . . bank accounts). The policy adopted in respect of the latter basic essentials is to ensure everyone has sufficient income to AFFORD basic essentials, and leave it to individuals to allocate their income as they wish.
And that policy makes sense in that the default assumption in economics is that GDP is maximised where prices are set at free market prices (unless someone can explain why the market has gone badly wrong).
Now under the current fractional reserve banking system, banks are SUBSIDISED (e.g. the TBTF subsidy). Thus current arrangements do not maximise GDP. In contrast, under the Friedman / Positive Money full reserve system, banks would NOT BE SUBSIDISED, therefore the F/PM system is Pareto efficient. It maximises GDP. Ergo MacLeod’s above objection is invalid.
Andrew MacLeod’s second objection was to the effect: “Why go to all the upheaval involved in switching to the Friedman / Positive Money system when we’d get the same benefits from decent bank regulation?”
Well my first, and perhaps flippant answer to that is that the F/PM system IS A FORM OF improved bank regulation. But a better answer is thus.
MacLeod’s above second objection does contain some truth. That is, if we raised bank capital ratios to about 25% (as advocated by Martin Wolf, Anad Admati and others), that would make banks about 99% safe, from which you might deduce that raising the ratio to 100% as is involved in the F/PM system is overkill. Well I gave an answer to that point here and here (and in earlier posts referred to in the latter posts).
Friday, 7 March 2014
Thursday, 6 March 2014
The MF/PM system involves 100% reserves. And that in turn involves loans being funded just by bank shareholders or other types of loss absorber. And that in turn means that depositors who are not prepared to put their money at risk cannot have their money loaned on by a bank and thus earn interest.
Now a possible objection to that system is that we’re failing to use all that lovely money which the latter “no risk” depositors have stored up. So assuming there are viable lending opportunities out there, interest rates would have to be raised in order to attract more shareholder / loss absorber money to fund those loans (boo hoo). Indeed the latter sort of objection was put in section 3.21 of the Independent Commission on Banking’s final report.
But there’s a flaw in that argument, as follows.
Assume to keep things simple that the economy is at capacity. And assume that the above “lovely stored up money” is used to fund loans. That amounts to, or causes an increase in aggregate demand, and that’s no allowable, assuming the economy is already at capacity. Thus to counteract that increase in demand, interest rates would have to rise: just as in the case of where loans are funded just by shareholder / loss absorbers!
So . . . the idea that there is some sort of free lunch to be had from using the money in dormant accounts is a myth.
P.S. (same day). By way of trying to rebut the above argument, advocates of using dormant accounts could claim that if the economy is NOT AT capacity, then using money in those accounts to fund loans would raise demand which would be beneficial. However, the answer to that is that effecting stimulus by conventional means costs nothing in real terms. E.g. having government / central bank print money and spend it and/or cut taxes would raise demand. But printing £20 notes (to put it figuratively) costs nothing. So using money in dormant accounts yields no benefits can can’t be obtained for free in other ways.