Degrees, Money and the Future

For a long time, it was politically incorrect to protest the huge increase in university/college attendance across developed nations in Europe and North America. University attendance went from approximately 14% in the 1970s to over 40% today. Tony Blair famously wanted 50% of youngsters to attend university. A degree was lauded as a springboard to socio-economic mobility, and graduates were supposed to boost GDP growth and tax revenues by taking up high-skilled jobs.

But the reality is turning the dream into a nightmare. The sad truth is that the number of graduates exceeds the number of graduate jobs, and many graduates—particularly from some of the humanities and social sciences—end up under-employed. Furthermore, the burden of college debt acts like a vice on the economy. It doesn’t matter whether the debt is private debt (like in the US) or public debt (like in most European countries). Most obviously, debt harms consumption. It has knock-on social effects on fertility and demographics; young people burdened with debt start a family later (or don’t start it at all), and struggle to afford a house. Moreover, from a macroeconomic perspective, the loans are dangerous, since a lot of them are bad—that is to say, many debtors won’t repay the full amount, or the interest, or repay within the expected maturity period.

The hard truth, that young people, parents, and policymakers don’t want to hear, is that high-skilled, university-level jobs make up at best 20% of the available jobs. I am also highly skeptical that this will increase in the future. The percentage may increase, but only because the total number of jobs will decrease as more jobs are destroyed by automation (high-skilled jobs are much more resistant to the effect of automation). The jobs that require a degree are highly technical and/or vocational: medicine, pharma, nursing, dentistry; programming; engineering; data science; and so on.

Automation, AI and the post-scarcity economy are things that have been discussed elsewhere in more detail than I will go into here. The long and short of it is: we are heading towards are a post-scarcity economy. We are not there yet, and the process will take time. Also, let me be clear that a post-scarcity economy does not mean the end of scarcity; some goods and services will remain scarce, but the majority will be available in abundance. To give you an idea: food, energy and consumer goods will be abundant. Heck, they are already pretty abundant right now. Have you ever seen a shortage of nails? Nails, like many other goods, can be mass-produced for a very low price, and they require almost no human input in their creation. Other things will remain more scarce, especially things that require a lot of high-skill human labour.

That’s the key, the salient point of this little essay: labour. Historically, we have regarded labour, work, as something valuable and worthy. An entire religion, Protestantism, revolves around the value of work. Work means steady payment; a livelihood. But labour is inherently tied to scarcity. Humans have to labour because things are scarce: food, shelter, medicine and so on. So what happens when all the work is done by robots and software? Let’s assume that everything could be done by robots or computers, just for the purposes of this thought experiment.

Ideally, we would live in a utopia; humanity would never want for anything. In reality, the barrier lying between us and this utopian vision is capitalism. We admire capitalism because it has worked well for the last two centuries or so—with government regulation and the managing of natural monopolies, of course. Adam Smith was more or less right. He was misunderstood by the braying free market neoliberals; Adam Smith never argued that the “invisible hand” would make markets self-regulating in general (only if a very specific set of criteria were fulfilled). A mixed market+command economy is the way to go. This is something that France, the UK, Scandinavia and Germany understood, but which the US and Soviet Union did not.

Unfortunately, I think the economic model of the past century may no longer function in this post-scarcity future, because it is still predicated on the idea of renumeration for labour. To put it bluntly: in the future, many, perhaps most, of the population will be unemployed. They will be unemployed for no other reason than that they will have nothing to do.

I believe that we will need a Universal Basic Income at some point in the not-too-distant future. Moreover, I think a successful economic model of the future will still have capitalism (i.e. capital, companies, competition etc.) but in a far more diminished way. Capitalism will be limited to areas of rapid innovation, scarcity, and high differentiation. Everything else will be administrated by organs of the state, be it local, regional or national governments. Money will still exist, so this will be socialism, not communism. The state already administers 40–50% of the economy measured by GDP, so this should not be a big pill to swallow (newsflash, Americans). Why will it be adminstered by the state, you ask?

This leads onto the next point. Capitalism is unstable and destructive. It creates a small number of winners and a large number of losers. (Sorry, right-wing Americans.) In the future, this tendency will be exaggerated until society will fray apart. An industrial reserve army of the unemployed—an army of losers—will be created. There are only three possible scenarios. One, capitalism tries to maintain itself through coercion. Two, socialism prevails. Or three, massive social unrest results in anarchy, and the post-scarcity economy is destroyed, bringing us back to the status quo ante… by which I mean something before 1770: the medieval world. This scenario seems more likely in third world countries that are politically unstable.

Let’s go back to square one, and the original point of this essay. More university degrees will not lead to better pay or employment. There are powerful economic and technological forces at play that are leading us to a world with high unemployment. Instead of creating more debt and broken dreams, policymakers need to focus on managing the transition to a post-scarcity economy based on UBI, the provision of basic goods, and reduced inequality.

What does this look like, in practical terms? Well, it won’t be a world of perfect equality. I don’t believe such a thing is possible or even desirable—and I say this as a staunch socialist. Natural inequality is the reality of the world we live in. Some humans are smarter than others, or more talented, or hardworking; they should be rewarded. So the economic situation will look like this. Everyone will be guaranteed a basic income of, say, 2000 euro a month. They can earn extra by participating in the labour market when possible. Some people will earn high salaries, like 3K, 4K, 5K a month because they do something difficult (and they will pay taxes on their income). And there will be a few millionaires or billionaires, but fewer than there are today. The state’s revenues will shift from being predominantly taxation funded to being funded more by the sale of goods, e.g. food and housing. This is because there won’t be enough taxpayers to fund public goods like healthcare and (obviously) UBI itself otherwise.

Money is hard to understand for the layperson. Money is not scarce; it can be created at will. But scarce things do have a higher price. This is why creating more money causes inflation: there is more money, but the number of goods does not increase.

How can the state fund UBI? It’s not through taxation: you can tax UBI, but since that money comes from the government, there is no mathematical way to fund UBI with itself. Rather, the state can simply print money and ensure that the supply of goods (which it controls) matches up. The state will also tax corporations that make large amounts of money through the sale of goods and services. This system will ensure that basic goods are provided, but also that people have disposable income to spend on more whimsical things—art, fine dining, holidays, whatever—at their discretion. Remember that this will not be a truly post-scarcity society, just a “mostly” post-scarcity one. Provided that the money supply is managed sensibly, this system will work very well.

Now that I think about it, this system could already be partially implemented in the world we live in today, since we are already approaching post-scarcity in some ways. But to accomplish this, we have to have political awareness. We cannot allow our politicians to further the interests of the rich, and pull the wool over our eyes. People are not unemployed because they are lazy, or because they don’t have a degree, or because they don’t know how to code. Only 1% of the population knows how to code, and demand is at most 2 or 3%. People are unemployed because of technological growth.

Some people will not like what I am saying about degrees. Humanities people in particular think that humanities degrees are being devalued in favour of STEM. But actually my argument has nothing to do with funding one or the other. It is true that humanities degrees do not pay as well as (most) STEM degrees, so that is a good argument to avoid going into debt for one. But I would very much be in favour of subsiding degrees so that the best humanities students can study for free. The real problem—which I want you, the reader, to understand—is when we make 1 in 2 youngsters get a degree just for the sake of it. Believe me, all those psychology students (psychology is one of the most popular majors) don’t really want to be doing a degree; they just want to party. Them getting a degree, however, prejudices bright students who are genuinely interested in learning. It strains financial resources and devalues the worth of a degree.

Thanks for reading this far. If you have some thoughts to share, please comment below.

Why Economic Models are Bullshit (Part II)

Hello readers!

Previously, I wrote a post entitled “Why Economic Models are Bullshit (Part I)”. Therein, I covered one of the problematic areas of macroeconomics: namely, that students are badly taught the subject. But that does not tell us enough about the other side of the coin—the reason why macroeconomic models are, by themselves, problematic (aka “bullshit”). In this post, I explain just this.

Before I begin, and in case you are wondering: yes, I am progressing with Fallen Love. I am about halfway through the revision process; I will post an update later on. For the time being, I am extremely busy both with the book and with my university studies. Consider this my final update for the month.

Anyway, onto the topic of today’s post...

The Follies of Macroeconomic Models

I am not the first to criticise an economic model, and in particular, I am not the first to criticise the discipline of economics as a whole. Some critics speak from a position of ignorance; they sometimes make good points, but cannot articulate their criticisms beyond relatively vague generalities. (A few examples: economic models don’t work because you can’t put people in an equation. Or, economics is not a science. Both hold a grain of truth, but are not extended upon beyond platitudes.)

Some critics, however, are economists. Thomas Piketty and Ha-Joon Chang are good examples of the latter, though the venerable Steve Keen is my personal favourite among the rebels. If you have had read these economists, you may detect some of their criticisms among my own; though I quite fancy that I am original. Anyway, vanity is a vice, so allow me to get to the meat of the arguments...

Problem No. 1: economic models are not dynamic. To clarify, by “dynamic” I mean that the models do not explicitly refer to time—either graphically, mathematically, or even in argument. Some economists (especially those who have never done a proper science, like physics or chemistry) seem to think that economic models are dynamic because... time is in there somewhere.

Of course time is present in these models, in some way—they wouldn’t make any sense otherwise. (They make little enough sense as it is!) The problem is that this relationship is dreadfully ambiguous; there is absolutely no clarity about what happens when, and this leads to a number of conceptual errors and oversights.

The above graph is a clumsily drawn example, representing an IS–LM model of a small open economy, with e (nominal exchange rate) on the vertical axis and Y (national income) on the horizontal axis. The two sloping lines are IS-curves, while the vertical line is an LM curve. The shift of the IS curve outwards represents a ceteris paribus fall in taxes.

The moral of this story is that, in a small open economy with perfect capital mobility, fiscal policy doesn’t work: you can’t change national income with fiscal policy measures. Even if we assume this is true (there are economists who do not agree with this assessment), the problem is that the graph is extremely obtuse.

There is a whole time dynamic involved here. First, a fall in taxes leads to an increase in Y, which in turn leads to an increase in r (interest rate) as the money supply is fixed. The increase in r leads to a situation where r>r* (the domestic interest rate is higher than the international); this leads to an influx of capital, which in turn drives up the exchange rate e. The appreciation of e leads to a fall in NX, which brings Y back down to the initial Y.

None of that is shown on the graph. We only see a new equilibrium point at e2 and Y. Great explanation there!

Problem No2: economic models confuse cause and effect. If you look at the IS–LM graph aforementioned, you might be forgiven for thinking that somehow Y (national income) affects e (the nominal exchange rate). In the sciences, we put the independent variable on the x-axis, and the dependent variable on the y-axis.

To peruse one of many examples from physics:

The story here is pretty straightforward: you apply a force, and the material stretches in a particular way dependent on its material properties.

Occasionally in physics, some graphs don’t follow this convention, usually for reasons of convenience.

The problem is that nearly all economics models have it backwards: they put the independent variable (the causation, the mover) on the Y-axis, and the independent variable (the observed change) on the X-axis. This small change makes economic graphs unnecessarily confusing. In the IS–LM model, e affects Y because e affects NX and Y is dependent on NX; however, there is no clear relationship going the other way round.

In formal logic notation,

(x → y) ≠ (x ↔ y)

This says that (x implies y) is not the same as (x and y imply each other). Or to put it in more comprehensible terms: if I sleep through my alarm I will be late; but if I am late, that doesn’t necessarily mean I slept through my alarm (I could have been stuck in traffic!)

Problem No3: economic models make overly idealised assumptions. This is a big one. Economists say that the art of economic modelling is choosing good assumptions; but if so, economists must be terrible at their job.

Let’s look at the previous model I showed: the IS–LM model under conditions of a small open economy with perfect capital mobility. You may now observe that, actually, well—capital isn’t perfectly mobile. You can’t do a runner with a house. What’s more, houses take time to sell (again, dynamic systems!) and the resale value is not always high (risk element). In many parts of the world, there are restrictions on foreigners buying houses.

Because the assumption of perfect capital mobility is wrong, the aforementioned conclusion is wrong as well. Fiscal policy does have an effect on national income—just look at the UK under austerity. It is thought by many economists that Osborne’s economic policy cost the UK a lot of lost income growth. The Sterling did not depreciate and net exports remained pretty dismal (the former stayed high and the latter stayed negative).

A more useful assumption would have been: assume that some capital assets are mobile while others are not. Determine the share of mobile-assets for the economy you are looking at. This way, you get a much better grasp for what’s actually going on.

Problem No4: vagueness. This is a problem that I have rarely seen mentioned, perhaps because it is of a slightly more philosophical nature. Essentially, what I have noticed in economic models is that they can be quite unclear as to what a concept or variable is referring to.

Take the example of r*, which represents the going interest rate across the globe. Or even just r, which represents the going interest rate in a national economy. My question is: which interest rate does it represent, exactly? Investments have many rates of return. We all know that some investors make a fortune on the stock market; others make a loss. Bonds have different returns based on their maturity period.

If we just take a weighted mean of all these different interest rates, we risk missing some important constituent details.

If we look at the globe, we... observe that there are many interest rates, across both private sector and government investments. Even if we confine ourselves to only government bonds, we see that there are large discrepancies based on the countries’ riskiness (Argentina or South Africa have higher interest rates on their bonds than Germany or the US).

At this point, economists just thought: “Aha! We can model interests rates as being r* + P, where P is the risk premium.”

Except it’s not that simple; the concept of risk premium is itself vague. How do you quantify a risk premium? No one knows. Investors make investment decisions based on their perception of that risk, but the risk itself is uncertain; the interest rate we observe is just the expression of a social belief, not some neat numerical correction.

To put it in philosophical language, the ontological status of the risk premium (and numerous other macroeconomic concepts) is misunderstood. And the consequences are not just philosophical; they can lead to a number of conceptual errors with serious policymaking implications. One prominent example is in neoliberal economics, and its belief in the divine importance of the market price.

In a debate about rent prices in London, the neoliberal economists might say: “All these social housing schemes are nonsense. Why should the state interfere and distort the housing market price?” The use of the word distort is very important—it suggests that the market price is almost like a physical quantity, a reality that should not be meddled with. In reality, of course, the housing prices of London are really just a reflection of the (deluded) expectations of property owners on future prices, among other things.

Problem No5: the role of risk, uncertainty, and expectations. This is another area of economics that is under active research, and in which we are starting to see improvements. I’ve decided not to go detail here; the topic is quite technical, and anyway, I’m doing research on it right now. Perhaps I will cover it in a future post. Until then, I will (again) recommend reading the venerable Steve Keen, along with various other economists such as Frank Knight and Gunnar Myrdal.

Concluding Remarks

What I have written ultimately only scratches the surface; there are much more fundamental questions to be asked about macroeconomics and its ability to accurately model and predict real world economies. Nevertheless, I think the five key problems I have highlighted constitute a good set of methodological problems with macroeconomics—and they are problems that can be feasibly solved.

My conclusion for students, policymakers, and other economists is this: presently, economic models are pretty rubbish. They are in urgent need of improvement—or else economists will find themselves stuck in the credibility crisis they are now in. But better models will demand the work of newer, wiser, and better educated thinkers.

In other words, we need a twin revolution; a revolution in the way we teach economics, to attract stronger students from a wider variety of fields, and a revolution in the way we do economics. Will the field rise up to this challenge? Perhaps. People like Steve Keen give me hope. On the other hand: there are a lot of economists who prefer to keep their head in the sand. What can I say? I hope they die quickly.

Why Economic Models are Bullshit (Part I)

Hello dear readers!

Previously, I wrote on a number of topics, chiefly among them: my exams, and Fallen Love, my upcoming novel. Alas the former has prevented me from working on the latter; Fallen Love will probably not be finished until January, as I stated. Still, with my exams finally over, I can get back to working on it.

You may be wondering as to the title of this post. Your guess would be correct—this post is indeed a brief argumentative essay (read: rant) about economic models, on which I have spent the last week of my life revising for. I am taking both micro and macroeconomics, but this post will mainly be about macro; I will get onto why in a moment.

A Pedagogical Disaster

The simplest reason for my particular hatred of macroeconomic models has to do with teaching. That’s the simple reason, but the more complicated reason has to do with content (though the two are, of course, tied together).

To put it simply: the teaching has been disastrous. More than half of our class failed the first exam—this is in a selective university, mind you, with many of the student body having attained excellent grades in secondary school. One reason was the teacher. We had two teachers, and the first was quite dire.

“That’s one bad apple,” you say. “There are bad teachers in the world. That doesn’t mean macroeconomics is bullshit.”

This fact alone does not prove my point—except that this is not a single, isolated phenomena. Economics students across the world routinely struggle with their courses, complaining that they do not really understand it; that indeed, “it”—macroeconomic models—don’t make any sense. One bad teacher is one thing. But can the entire pedagogical structure of economic teaching be at fault?

I would argue yes. The most common complaint I’ve heard in my university is that (and I am paraphrasing only slightly) “I draw the graphs, but I don’t know what it means or why.” There are a few reasons for this. To begin with: concepts. Macroeconomic concepts are strongly under-explained. The course introduces things like “inflation”, “GDP”, “unemployment” and (my personal favourite) “money”—but these macroeconomic concepts differ significantly from the prima facie conception that students begin the course with.

A case in point: a number of students conflated the AS–AD model with the supply-and-demand model from micro economics. They even sound similar—one is “aggregate” supply and demand, the other just vanilla supply and demand.

Although they look extremely similar, they aren’t the same. The microeconomic model has P (prices) on the vertical axis and Q (quantity) on the horizontal axis—this arrangement is problematic, but I’ll get to that. Anyway, the AS–AD model has P (price levels) and Y (real GDP, output) on the respective axes. These are different concepts. Price levels are a measure of weighted, generalised prices across a macroeconomy (usually they are calculated in the form of the CPI)—they’re not the same thing as the price in a market. Y, representing real GDP, is sometimes called output, leading students to conflate it with quantity output.

Money is the worst, however. Students have no idea what money actually is (in fact a lot of economists don’t understand what money is, but students are even worse). In a macroeconomic context, money doesn’t just mean the euros in your pocket; it represents a wide range of things, from liquid assets held in bank accounts (M1) to savings accounts (M2) to more nebulous concepts of money that are too technical to go into here.

This is also why students struggle with the IS–LM model, which rests on a complicated set of assumptions about money and what money does in an economy.

Anyway, onto the next pedagogical error: mechanistic teaching and oversimplification. Our teachers presented all of these models as a series of mechanical steps, expressed in equally mechanical equations. “What happens if taxes increase under the classical model?” (Some curves shift.) “What happens if labour supply increases under the AD-AS model in the short-run and long-run?” (A complicated mess.) “What happens in the Mundell-Flemming model if, under a fixed exchange rate condition...” (I give up.)

There was very little explanation of why all these things happened. Why would a government want to increase taxes anyway? Why does the model look at these variables? What explanatory power do these models have, and what assumptions do they make?

These are all key questions that remained unanswered. This leads me onto the third pedagogic mistake: not teaching history. These models did not fall out of the sky. They were developed by economists—in a particular time and place, in a particular intellectual climate, and in a particular historical context. It’s difficult to understand these models, much less criticise them or apply them, without this precious context.

Yet, even without all these mistakes of pedagogy, there are more fundamental reasons why macroeconomic models are difficult for the students to comprehend. To repeat the title of this post: macroeconomic models are bullshit.

Conclusion Part I

I realise that you are probably tired of reading this, dear reader, so I will save my juicy critique of macroeconomics for the next post (titled “Why Macroeconomics is Bullshit, Part II”). For the time being, I will let you ponder the parlous state of economics teaching in our schools and universities.

Until then, make sure to check out Fallen Love in case you haven’t already.

And a Brexit in a Pear Tree...

Hello readers!

It has been sometime, alas, since I have been active here on the Magical Realm. This is due to several reasons. Firstly, university has taken a great deal of my time: I have two substantial papers to write; there is preparation for two exams; and there are assignments on top of it. The Wednesday of last week also required me to travel in order to be present in a lab session. All in all, this has proven time-consuming and demanding.

I have also been busy with several other necessities, including applying for huurtoeslag (rent benefit), tuition loans, and seeing the doctor.

Anyway, I have found a window of opportunity to write to you, dear readers. The topic of this post? Brexit. (Yes, it’s overdue.) But before I go into that, allow me a quick recap of the writing situation.

The Necromancer and the Ark

I am undertaking a ‘read and review’ session on Goodreads for the Necromancer. This means that I review 4 books from different authors, in the space of about 2 months; in return 4 authors (none of them the ones I’m reviewing) review my own book.

There are two benefits to this approach. Firstly, I get free books. Free books are always great. Secondly: I get reviews from people who are at least half-way competent at reviewing. The downside, of course, is that this process is rather time-consuming.

As for the Ark, I am concocting something special (and surprising). I will say no more than that.

Finally, do remember that the Necromancer will be getting a Kindle Countdown deal on Christmas. As I say—give someone a gift. I’m sure we’ll both appreciate it :)

The Brexit Bus

Some developments have occurred since I last blogged on this issue. Many of them are unsurprising. Theresa May is calling for hard Brexit—just like I said she would. Boris Johnson is making a fool of himself as Foreign Secretary: his undiplomatic remarks regarding Saudi Arabia’s proxy war in Yemen, while justified, are ultimately stupid, since the Tory government policy is to ignore it.

The Brexiters have also managed to come up with some more vacuities (I guess I ought to be surprised, but the Brexiters have shown limitless imagination in that regard.) One such is that the ‘Remoaners’ (what a charming neologism) ought to stop moaning; instead they should keep quiet and work for a successful Brexit.

The idiocy of this viewpoint is too great to unpick point by point; we would be here all day. Instead, it can be illustrated much more simply using an analogy. A bus is driving across a mountain road. Half of the people in the bus are shouting at the driver to drive the bus off the cliff; the other half is begging him not to. The former group, 52% to the other’s 48%, wins out. The bus drives over the cliff, killing most of the people onboard.

You cannot blame the 48% for shouting at the driver. It is not their fault that the bus is lying in ruins and several people are dead. Driving the bus off the cliff was a stupid idea. There’s no such thing as ‘successful Brexit’; it’s an oxymoron.

Another vacuity trotted out—this one favoured by Unionist Brexiters—is that Scotland voted for the UK to remain in the EU. The Unionists then go on to say, through a disingenuous reductio ad absurdum, that if the SNP had their way, why—we’d expect London, Bristol, Oxford, Liverpool and Manchester to split off from the UK!

The first argument is an exercise in desperate pedantry. The second argument is disingenuous because it assumes Scotland is a region, a bit like London or the Midlands—it’s the only way the argument from analogy can work. Of course Scotland is not a region; it is a nation. A nation with hundreds of years of history, its own devolved government, and the right to self-determination.

But how would Scotland, in practical terms, actually manage it? I have not addressed the constitutional, political and economic challenges of continued EU membership for Scotland, until now; and therefore these will be the last topic of this post.

Tough Choices for Scots; but a Bright Future Ahead

Economically, EEA membership and EU membership are, as far as Scotland is concerned, identical. The Accession procedure however is different: to accede to the European Union Scotland must meet the criteria (it already does, obviously); and it must be agreed unanimously by Member States. Some have floated the possibility that Spain might veto Scotland’s entry. I personally am skeptical of this; thankfully, as far as economics is concerned, this shouldn’t be a problem. To join the EFTA (and by extension to participate in the EEA) Scotland’s entry needs only to be agreed upon by Switzerland, Norway, Liechtenstein and Iceland.

These countries have not suggested that they would oppose Scottish membership; indeed, considering the similar size and economies of the countries involved (Scotland has the same population as Norway, and an oil and gas sector) it is probable that such an arrangement would go smoothly. There is good will politically between the countries as well—and that’s just as important.

To be honest, I think most people in Scotland would be happy with this arrangement. The other problem that remains is the same problem that Scotland would have faced had it gone Independent back in 2014: currency.

The rUK has already clearly stated that Scotland cannot use the Pound Sterling. So Scotland has two choices: it can issue its own Scottish pounds, or it can join the euro. (There’s also a possibility that it may have to do the former before it does the latter, but I’m not too sure.) Obviously this decision will have to be thought through, but I think the evidence clearly points to the latter as being a better option.

Scotland would be a small country facing a period of uncertainty: this would likely mean that its currency would start out weak (which would cause problems with inflation) and subject to volatility as international money speculators assess and reassess its position. Moreover, two other serious problems present themselves. Scotland’s oil sector would likely—after the initial years of uncertainty—cause the Scottish pound to appreciate. Scotland will then suffer Dutch disease. On top of that, the volatility would make it more difficult for Scotland to trade with the rest of the EFTA.

Scotland could try and peg its currency to the euro in order to ameliorate these problems, but as Black Wednesday showed us—this is not so easy as it appears in theory. It is the forex that decides exchange rates, not central banks, and especially not the central banks of countries with a few million people.

There’s also a personal side for me. My parents are funding me to study in Amsterdam; I don’t want them to earn a weak Scottish pound. It would be far easier if their salary were paid in euros.

The last economic issue I wish to address is rUK trade. Unionists like Ruth Davidson (and some in my own party) proudly point out that most Scottish trade—64% to be precise—is with the rest of the UK. Presumably UK membership would be more important than EU membership, at least as far as economics is concerned. Right?

Well, not quite. For one, as autonomy Scotland claims, that 62% figure is questionable; it’s very difficult for companies to separate Scottish and rUK business operations. (And it is business operations we’re talking about—exports don’t just include physical goods.)

Leaving that aside, the trouble with percentages is that they can change. The 64% is a metric of Scottish exports now, as they stand with this constitutional arrangement. But may I remind Unionists that the rUK has 60 million people; the rest of the EU has 450 million, and EU trade agreements cover nearly the entirety of the rest of the world (population 6.5 billion, albeit most of them poor).

It is hardly inconceivable that Scottish exporters could export elsewhere—Europe after all is a huge internal market, with a highly streamlined regulatory framework, no tariffs, passporting rights, and countless other benefits the likes of which no other trading zone can match. And it’s close to Scotland too, and already well integrated, unlike Brexiter fantasy trade with countries that are thousands of miles away and lack anything close to what the EU is. (Just look at May’s bumbled trip to India.) Plus Scotland might benefit from rUK companies relocating to maintain preferential EU market access.

Anyway, with that out of the way, let’s look at the deeper questions of politics and constitution.

Clearly, Scotland wants to stay in the EU. And not just for economics—as Nicola Sturgeon has shown us, the EU means more to Scotland. There are, dare I say it, patriotic feelings involved. The EU represents something: the European Dream, openness, human rights, prosperity—take your pick.

So how does Scotland stay in the EU? As I’ve already mentioned, the Accession process requires Scotland to meet criteria (which it mostly already meets since it’s already in the EU, obviously). Some of these of course are to have a government and central bank, and for this reason Scotland would need to be independent.

The other side of the coin is unanimous agreement. Spain might veto Scotland’s entry because of Catalonia; but this should not be taken as granted. I’m sure Rajoy will not veto it if he gets Gibraltar. Or, Scotland can join the EEA and then simply wait. Rajoy’s position as Spain’s head of state is extremely fragile, and he could quite plausibly no longer be head of state within a few years.

Another possibility is that Scotland gets to stay in the EU by becoming the successor state to the UK. Apparently, this is legally feasible.

Anyway, let’s assume Scotland keeps its place in the EU. What about its relationship with the UK? There are some complicated problems to work out. If Scotland joins Schengen, it will have to have border checks with England. If Scotland doesn’t join Schengen, then again—it’s complicated. Scottish citizens would have freedom of movement to the EU, but UK citizens wouldn’t. But would UK citizens have freedom of movement to Scotland?

To be honest, I don’t see why Scotland can’t have its own arrangement with the UK. It could offer UK citizens freedom of movement (though only to Scotland, unless the UK citizens claim dual nationality) and the UK could reciprocate to only Scottish citizens.

Also, bear in mind that freedom of movement does NOT mean there is no hard border; that’s what Schengen is for. When I go to Romania by car, I have to pass border checks. But being a Romanian citizen I obviously have free movement, as do all other EU citizens.

Can Scotland therefore maintain an open border with the UK? I believe the answer is no, for a number of complicated reasons. The UK will likely be out of the customs union, so goods would have to be inspected. As for people, EU counter-terrorism is one thing to think about. Freedom of movement is another: UK citizens could enter Scotland then (if Scotland is in Schengen) head illegally to work in the EU.

Anyway, let’s not get worked up about this. So long as freedom of movement exists between the UK and Scotland, people will be fine to go to either country. A ‘hard border’ sounds scary but it’s really not the end of the world—it’s just formality, no different from passport checks at the airport. I do it all the time. Heck, UK citizens do it all the time when they go to Europe.

Final Thoughts

This has proven a long and complicated post on what is a long and complicated issue. I hope you have found me intelligible (do leave a comment if anything is unclear!) and interesting. Now, work calls. Keep following the Magical Realm for a Christmas special!

My Review of Capital in the 21st Century, Part Two

Hail readers!

I am at last back to civilisation, and will remain here for the next week or so. Although I am very busy—I need to pay my tuition fee to Amsterdam, I need to procure various documents, and of course there’s work to be done on the Ark—I have taken the effort to continue writing here on the Magical Realm. As part of these efforts, here is the second part of my review of Thomas Piketty’s Capital. (For the first part, look here.)

My review of Capital in the 21st Century, part two.

Previously, I wrote a review on the first third or so of Capital that I had read. As you may be able to guess, this review will concern the theses presented in the next third of the book—as well as to elaborate further on some of the initial theses, which reoccur throughout the book.

In Capital, Piketty presents a number of new topics. He moves away from the definition of the capital income ratio, its evolution throughout time, and other abstract macroeconomic indicators; instead he treats inequality in a more visceral, recognisable sense: he talks about what kind of incomes and wealth the upper and lower deciles possess.

For example, the top 1% of a nation’s earners get anything from a couple of percent of national economy (equating to a wage of about 5 or 6 times the average)—as was the case in 1970s Sweden, the most egalitarian nation on record—to as much as 20% (as is the case in the United States presently).

In terms of capital, the picture is more stark and has always been so. In the heyday of inegalitarianism—such as in Belle Epoque France or, worse, 1900s Britain—the top 1% held about 60% of all the nation’s wealth. Note also that the yields of this capital was potentially even more unequal—as Piketty shows, those with large fortunes get better returns than those with more modest ones.

Piketty goes on to detail at least three more very important features of inequality. Firstly, capital income is much more significant than wage income the higher up the social strata you go. For the lower class—about half the population—capital income is insignificant. For the middle class (the top 40% or so) capital income is more significant but still small.

But go up to the 1%, and capital income is significant—though a minority. By the time you get to the top 0.1%, capital income makes up the majority of that class’s income.

Secondly, Picketty reveals that the ‘middle class’ phenomenon was very real and relatively recent. Up to the turn of the twentieth century, the top 10% of society owned as much as 90% of the nation’s wealth—as was the case in Britain. But by the middle of the century, the top 40% of society owned about 35% of the nation’s wealth. The bottom half of society still owns close to nothing—not much has changed in that regard—but it is interesting to note that a middle class does exist.

Thirdly, Piketty links inequality of capital directly to the macroeconomic metrics of the capital/income ratio, the rate of return on capital, and the rate of growth of the economy. He explains why inequality became noticeably less pronounced after the war—in no small part because of the political consensus that developed, but also because of the high growth and large shocks to capital that the period saw—and why the 21st century, with its slower growth and higher capital ratio, is becoming more unequal.

Anyway, the point of all this is that Capital in the 21st Century is an extremely relevant and very persuasive work of non-fiction. Piketty’s vast reams of detailed, long-term (think 200+ years) and highly considered data are a masterpiece. Other economists—such as Kuznets—are like pygmies in the presence of a giant like Piketty.

Nevertheless, I do have one or two nitpicks with Piketty—most notably when it comes to the role education plays in inequality, and more so, on the public policy that has been the norm for the past couple of decades where it concerns education.

Is Education Unequal? And if so, what?

Piketty believes unequal access to education—and, in particular, university education—is an important driver of inequality. However, I disagree with this, for two reasons. On a first point of order, I think that university education in most European countries is as equal as it’s ever going to be. (I will elaborate on this shortly.) And on a second point of order, I think Piketty—like most of the political class—is wrong to focus on education as the remedy.

But firstly, allow me to clarify what I mean when I say that university education in Europe is as equal as it’s ever going to be. Piketty, when arguing that university education is unequal, focuses on the usual metrics: the parent’s income and education as predictors of the child’s education and future income. The fact that the two are correlated—as most of us know, kids from well-educated and rich families are more likely to end up in university than other kids—is something Piketty doesn’t like.

But two things need to be clarified. Firstly, the philosopher in me needs to point out that this may be an inequality of outcomes and not necessarily an inequality of opportunity. Throughout most of Europe, there are negligible tuition fees. There also grants, loans, and scholarships to help disadvantaged pupils. In Denmark, they even pay students to attend university.

(Note that I do not include Britain when I say ‘most of Europe’. Here, the government has abolished grants, there are very few scholarships, and tuition fees are very high. Going to university involves accruing large amounts of debt if you’re not from a well-off family, and that debt disproportionately affects poorer students.)

The fact that university education in Europe is available to all is enough to make many centre-right minded people happy. If there is equality of opportunity, it is reasoned that any inequality of outcomes is because the poorer students don’t want to go to university and don’t want to work as hard.

I for one am skeptical of such an argument, which is why my disagreement with Piketty is of a different sort. I fully agree that poorer students are disadvantaged in going to university—for the simple fact that their parents don’t value university education. If you’re from a poorer, manual-labour background, it is hard to understand why university education is valuable.

So yes; we can certainly complain about this, and formulate policy to try and encourage students from poorer backgrounds to go to university—to inculcate that sense that education is valuable.

But ultimately, none of this is as important as Piketty makes out. Such a scheme may increase social mobility, but it will not change inequality—and indeed, it may have unintended consequences.

This is because of the very simple fact that while well-paying professional jobs—like engineers, doctors, programmers, what have you—do indeed require university-level education, they are ultimately finite. We can’t all be engineers and doctors. Making millions of young people go to university is therefore a waste of valuable time and money.

As many young graduates are discovering, going to university only to end up doing a job you could have done without a degree is the ultimate disappointment. It is grossly wasteful, too: going to university for three years costs the graduate and the taxpayer around £30,000—and the figure is rising. Going for four or five years to do a Master’s (as many increasingly are) adds another £20,000 onto that. But that’s just the tip of the iceberg. Going for four or five years to do a useless degree followed by a useless master also stops you being in the labour market for four or five years. Once more, this means tens of thousands of pounds of lost earnings. It means thousands of pounds of lost tax revenue. And it means less experience doing a job.

I’m not even done yet! This in turn has social externalities. It means getting a mortgage later; it means less money to pay for pensions. It frequently means waiting longer to have a child—hence the lower fertility rate of many European countries. (Caveat: this is of course just one factor of many.)

So you see, I think Piketty is deeply mistaken to place so much faith on university education. University is increasingly becoming a tool for social disunity rather than progression.

So What Should Be Done, Instead?

Although I disagree with Piketty on the issue of education, he is right about two other things. For one, capital: its tendency to grow increasingly concentrated and bring increasingly large returns is a major force for ‘economic divergence’ (i.e. rampant inequality). Therefore, Piketty is absolutely right that an important way to reduce inequality would be through the taxation of income from capital, and—also—the taxation of inheritance.

Piketty also uses that data to reveal that inequality is also, of course, from wages as well as from capital. Indeed, the reason that current day Europe is more egalitarian than the present day US is not because of capital—which in any case is larger in Europe—but because incomes are more compressed. Since income from wages makes up about three quarters to two-thirds of all income, a more compressed wage restructure results in a much more equal country (even if capital incomes are very unequal).

So, it logically follows that we also need to compress the wage structure. In fact, I propose that is a far more important goal than putting students in university.

How can this be done, you might wonder? Piketty has one obvious answer: fight against the supermanager. Piketty shows than in the Anglo-Saxon countries, increasingly large CEO compensation—directly in the form of pay-packets, but even more so through stocks and bonuses—is an important reason for why inequality of wages has increased since the 1980s in Britain and the United States.

CEO compensation is an issue of the complex social structures and institutions that exist in firms. One way to reduce CEO compensation would be to change the structures of corporate governance: to give workers and unions more say in management’s pay (to move to a ‘stakeholder model’ as in Germany, in other words) and to give shareholders more say in CEO salaries. (The latter, albeit, will tend to increase CEO compensation in times of strong stock market performance, but it will at least prevent CEOs from increasing their pay packets when firms are actually doing badly.)

Another way would be to change social norms. Firms, like everything else, operate in the social structures that exist in that country. If huge CEO pay-packets are frowned upon—as they are in Switzerland and Sweden, for example—then it is the case that supersalaries are less common.

A final, and simpler way to reduce CEO salaries would be to tax them. Piketty shows that when the Anglo-Saxon nations had high rates of marginal taxation—as high as 98%, which was the case for Britain in the 70s—CEO pay-packets were a lot smaller. (Why? Because the firm’s management aren’t going to give their money away to the government.)

Personally, I think we could go even further. Of course lowering the insane CEO compensation would leave more money for the rest of us, but who will get that money? The middle-management lower down? Or the workers—the janitors, the people at the tills, the rank and file?

That’s why I think Piketty needs one more ingredient in his egalitarian soup: unionisation. This also ties in with my point regarding education. We can’t make everyone a doctor or a lawyer. But what we can do is make sure that even the burger-flippers at McDonald’s get paid a decent wage.

Indeed, the Scandinavian countries do this, and with considerable success. Unionisation is why the Danish McDonald’s workers gets paid around 240,000 Danish Kroner—that’s €30,000 or $40,000—instead of $20,000, as they do in the US. Double the workers’ wages and you’ll find greater social cohesion. And nor will you have to obsess over who goes to university: you won’t need a degree to live a reasonably comfortable life.

The International Element

Another aspect that Piketty makes clear is that any means to reduce inequality—through taxation especially—will have to contend with the global reality of capital and highly-paid workers. Piketty believes that a tax on capital should be Europe-wide, or even global.

Can this be achieved? I believe so. The EU can certainly mandate minimum taxes—it already does so, in fact: every EU country must have a primary VAT rate of at least 15%. They have to apply fuel duty at a minimum level. It doesn’t seem implausible that the EU could, say, mandate a minimum 15% rate of corporate tax, or require a minimum tax on income from capital.

And the EU might even strong-arm other countries into doing the same. Tasty trade deals for the US might come with strings attached—minimum rates of tax. I’m sure the EU could also negotiate deals with the South American countries, Japan, and possibly India—with which it has very good relations.

Final Words

As I’ve said: Piketty’s Capital is a fantastic work of non-fiction. It approaches the issue of income inequality with a rigorousness, nuance and intellectualism that few can manage. It turns abstract and misinformed public debate into concrete data.

I do disagree with some of Piketty’s conclusions, but so far I am keen on reading more.

Final Words Before the Referendum

I have written extensively on the issue of the EU referendum; the most detailed post is of course my essay, A Socialist’s Case for EU Membership, along with my more digestible post on the Jo Cox murder

This post will be the last before the referendum tomorrow. Incidentally, tomorrow I also have my transport economics exam—an apt coincidence if ever there was one.

Of course, this makes me very busy. I have a significant amount of practice and revision left to do for tomorrow’s exam. And, to top it off—tonight I will hopefully be getting feedback on the cover for the Necromancer! This is courtesy to the company that helped me find my editor, Reedsy. Reedsy is a marketplace dedicated to writers looking for editors, marketing people, and designers; as part of this goal, they are hosting a live video on Facebook with one of their professional cover designers. My own book should be on the list. Hopefully, I’ll get some good advice!

Anyway, since I am so busy this post will be brief. It will mainly focus on the BBC’s ‘Great Debate’ (haha) and on the points there made.

Logic is Not Leave’s Strongpoint

One of the claims made by our very own Gisela Stuart—a Labour MP (!)—is that the EU is responsible for Greece’s 50% youth unemployment, and for the economic problems of southern Europe more generally.

Of course, this is nonsense. In fact, Greece’s situation would be worse if it weren’t for the EU.

Why? The answer is simple: a lot of the Greek government’s debt belongs to foreign creditors. Among them are Italy, France and Germany (yes, Italy loaned Greece money) but a lot of money is owed to the IMF and other international creditors.

Now, Greece is in the euro. The euro is a much maligned currency, but Greece’s financial problems would be quite a bit worse if it wasn’t in the euro. This is because of a simple reason: if Greece still had the drachma, the drachma would have devalued hugely in the course of the crisis.

This would have been disastrous for Greece. Greece would have seen its debt multiply before its eyes; for the money it borrowed it borrowed in euros and dollars. If, before the crisis, 300 drachma = 1 dollar, and if, after the crisis, 1 dollar = 900 drachma, Greece would effectively have to pay 3 times as much to service the debt denominated in $.

So if Greece wasn’t in the euro, it would either have to pay vast amounts of money servicing the debt, or more likely it would default. Now: defaulting isn’t such a bad thing in the long-run, but there’s no doubt it causes a lot of short-term pain. Without the euro a default would have been inescapable. With the euro, Greece at least has a choice.

A large depreciation in the local currency—such as the one Iceland saw, and which Greece would have seen if it wasn’t in the euro—would also have terrible consequences for inflation. Economists lament Greece’s 1% deflation, but history shows us that 100% inflation is far, far worse. The Weimar Republic saw hyperinflation like that. They ended up burning money for fuel, unemployment was sky high, and they eventually elected Hitler. (Another little known fact.)

A Greek hyperinflation would have left Greeks freezing in their homes—foreign gas being too expensive to afford. It would have left cars unused, with no petrol to fill their tanks. Those who bought mortgages in foreign currency would lose their homes.

So you’ll excuse me if, when seeing a Labour MP so unwittingly suggest the destruction of a country’s economy, I feel my blood boiling.

You’ll also have to excuse me if I scoff at the notion that the euro caused the Greek crisis. Let me put it simply: a country whose government accrues debt for decades (even before joining the euro), whose politicians lie to its people and claim there’s plenty of money, and which has seen its largest employer and revenue stream (tourism) decimated by the global financial crash, is going to suffer—euro or no euro!

Sadly, blaming the European Union for the failures of national governments is a common tactic of the Leave campaign. The truth is often harder to swallow.

My Faustian Pact

I promised that this would be a short post. I aim to fulfill this promise. I have, incidentally, also made a promise to myself: if the UK leaves the EU, I will do two things. Firstly, I will leave the UK. Going to university in Amsterdam or Leuven suddenly seems like a much more attractive proposition than spending £9000 a year to study in a country that will soon become isolated by a wave of nationalism.

And secondly, I will read HL Mencken’s Notes on Democracy. As one of history’s more prominent (and perhaps most eloquent) critic of democracy, he believed that the masses would always be too ignorant to make good decisions; that they will always be manipulated by demagogues and populists for their own ends.

Eighty years on, Mencken’s argument has more than a ring of truth to it. Tomorrow he will be put to the test.

I hope he will be proven wrong. But I suspect his timeless words will prove correct.

On Picketty’s Capital: Part One

There is a substantial amount of literature already in existence concerning Thomas Picketty’s Capital in the 21st Century. Although it may seem a little superfluous, then, to add my own thoughts, I have two good reasons for going so. The first is that as an A-level economics student, it is beneficial for me to gain a good understanding of the theses presented in Capital; and what better way to do that than by writing on it?

The second is that I have a number of minor observations regarding Picketty’s work, especially in historical terms, which I feel I ought to share.

So, with that, allow me to present my thoughts.

Capital in the 21st Century: A Bold Proclamation

The most obvious thing that immediately strikes me when reading Capital is the sheer scope of the thing. Picketty, unlike many economists, doesn’t bother with narrow micro-analysis of what is, in both historic and economic terms, an insignificant period of time. Picketty’s work spans centuries of data, not decades.

I feel this gives Picketty a perspective very much lacking in the works of other economists. Whereas other economists make bold proclamations on the basis of insufficient data—for example, by heralding a new age of growth following only two decades of postwar economics—Picketty can take a much more long term and nuanced view of economic history.

It’s particularly fascinating to see how the so-called ‘conservative revolution’ of the 80s very much resembles the economic order prevalent throughout the 19th century and into the Great Depression. I therefore find it ironic that Thatcherites claim to be ‘modern’ (and the leftists backward, by implication) when their economic orthodoxy is the very same that dominated the Victorian era all the way up to the Great Depression.

Picketty’s work also sheds light on what we’ve known for some time, but which too many economists still fail to realise: the three postward decades known as the Trente Glorieuse were Europe playing catch-up, hence the high rate of growth. A very similar thing seems to be occurring in China.

Picketty, interestingly, predicts that Europe and America’s currently high share of world output (close to half, for little more than a tenth of the population!) will decline due to two factors: firstly, nations like China and India closing the gap on per capita economic income; and secondly, low demographic growth in Europe and America compared to the rest of the world.

I feel Picketty’s analysis, while not unreasonable, is perhaps a little optimistic. I for one don’t share Picketty’s belief that the rest of the world will catch up to Europe, Japan and America too soon. China’s growth seems to be stalling (though the time period is too brief to be sure) and I suspect political factors will keep Africa and the Middle-East trapped in 3rd world conditions for time to come.

That’s the thing with economics: politics matters. Terrorism and religious fundamentalism, not to mention civil war and regional conflict, will plague the Middle-East for the foreseeable future. I’m not sure how far China can get with its approach to education, workers’ rights and business practices. And Africa’s success in combating corruption and foreign ownership has been mixed.

Speaking of foreign ownership, Picketty does make some strong points. In particular, he debunks the neoclassical theory of international investment:

In theory, the fact that the rich countries own part of the capital of poor countries can have virtuous effects by promoting convergence. If the rich countries are so flush with savings and capital that there is little reason to build new housing or add new machinery (in which case economists say that the “marginal productivity of capital,” that is, the additional output due to adding one new unit of capital “at the margin,” is very low), it can be collectively efficient to invest some part of domestic savings in poorer countries abroad. Thus the wealthy countries—or at any rate the residents of wealthy countries with capital to spare—will obtain a better return on their investment by investing abroad, and the poor countries will increase their productivity and thus close the gap between them and the rich countries. According to classical economic theory, this mechanism, based on the free flow of capital and equalization of the marginal productivity of capital at the global level, should lead to convergence of rich and poor countries and an eventual reduction of inequalities through market forces and competition.

This optimistic theory has two major defects, however. First, from a strictly logical point of view, the equalization mechanism does not guarantee global convergence of per capita income. At best it can give rise to convergence of per capita output, provided we assume perfect capital mobility and, even more important, total equality of skill levels and human capital across countries—no small assumption. In any case, the possible convergence of output per head does not imply convergence of income per head. After the wealthy countries have invested in their poorer neighbors, they may continue to own them indefinitely, and indeed their share of ownership may grow to massive proportions, so that the per capita national income of the wealthy countries remains permanently greater than that of the poorer countries, which must continue to pay to foreigners a substantial share of what their citizens produce (as African countries have done for decades). In order to determine how likely such a situation is to arise, we must compare the rate of return on capital that the poor countries must pay to the rich to the growth rates of rich and poor economies.

On top of that, he also provides an empirical argument:

Furthermore, if we look at the historical record, it does not appear that capital mobility has been the primary factor promoting convergence of rich and poor nations. None of the Asian countries that have moved closer to the developed countries of the West in recent years has benefited from large foreign investments, whether it be Japan, South Korea, or Taiwan and more recently China. In essence, all of these countries themselves financed the necessary investments in physical capital and, even more, in human capital, which the latest research holds to be the key to long-term growth. Conversely, countries owned by other countries, whether in the colonial period or in Africa today, have been less successful, most notably because they have tended to specialize in areas without much prospect of future development and because they have been subject to chronic political instability.

On Points of History

Since Picketty’s work draws from data as early as 1700, and even as far back as year zero, historical knowledge and accuracy is obviously relevant to his analysis.

Picketty draws a surprising amount of data from literary sources. Jane Austen and Balzac feature in particular. I find these literary sources absolutely fascinating: it reveals a world where money was not only near constant and inflation minuscule, but also in which inequality is well known and quantified.

For example: Picketty mentions that in Jane Austen’s works, a person was only considered wealthy if he or she were able to afford a house, a minimum number of servants (especially maids) and were able to buy proper clothing and arrange suitable transport. To do that, by Jane Austen’s approximation, one needed around the order of 900 pounds a year.

The average worker wage at that time was 30 pounds a year.

What’s especially fascinating to me is not only how well known and extreme the level of inequality was, but how it compares to the 21st century. These days, you don’t need to earn on the order of 3/4 of a million pounds a year in order to afford a nice house, car and clothes; or indeed a vacuum cleaner.

But why is this? Evidently, clothing and domestic chores have become cheaper owing to mass production and the invention of washing machines.

But inequality—is it really that different from the Victorian era? There are people earning a good deal more than £750,000 a year in the world.

Anyway, this is a topic I suspect Picketty will address in later chapters.

I did find a historical point to quibble. Picketty claims Americans have a more benign view of capitalism than do Europeans because the former have always had private property rights—the US government at one time had high rates of marginal taxation and public investment programmes, but it never had the kind of sweeping nationalisation that Britain and France did following the war.

After all, in America the state did not own half of the people’s homes (as it did in Scotland for some time), it did not own car companies like Renault, it did not own banks, it did not own telecom, rail or airlines companies.

But I think Picketty is ignorant of American and European history here. America has always had the Free Man (TM) complex: as Picketty himself mentions, Jefferson had that idea of a nation of free landowners living in equality. These free landowners owned their own land, their own houses, and could live largely indepedently from the government.

We Europeans, on the other hand, see capitalism as something deeply Victorian in nature. We see the work houses of the poor; the vagabonds looking for work, persecuted by the authorities; child workers; and factories with 60 hour weeks, abysmal working conditions, and squalor. The European view of capitalism is Dickensian, not Libertarian.

America’s capitalist fantasy (and it is a fantasy, make no mistake) came about because of a transient state. America, when founded, was a vast territory that experienced high population growth, both internally and from immigration. As Picketty himself makes clear, the abundance of land and the high demographic growth were strong convergence forces that kept inequality under control.

But while the American Dream may have been plausible in the 18th and early 19th centuries, it was bound to run into the realities of capitalism sooner or later. America’s useful land wasn’t infinite. Massive population growth (from 3 million in the 1770s to 300 million today) and massive CO2 pollution—America has one of the largest per capita CO2 emissions in the world, at 17 tonnes per year—cannot be sustained indefinitely by the planet. There are no more Indians left from which to steal land and gold. (See: Oklahoma Land Race, and the Black Mountains of Dakota.) The days of slavery are over.

Picketty himself covers some of this quite well. He has extensive data on how much capital slaves constituted in the Southern states, for example—up to 300% of national income, which is a considerable figure.

But he hasn’t yet put these points together.

My Early Conclusion

So far Picketty’s Capital has proven illuminating, intriguing and relevant to the modern world. I feel much of his analysis is spot on, in part because of the vast amounts of historical data he’s amassed—but also because of his ability to clearly and logically formulate arguments and see problems in other arguments. His points regarding neoclassical international trade theory are especially adroit, but his ability to draw on literary sources as a way of enriching our understanding of economic history is also impressive.

That said, there are a few minor flaws. The first is that thus far, he’s made a few assertions which he hasn’t really backed up a posteriori or indeed a priori. For example: he claims that inequality has forces of divergence and forces of convergence. The most important example of the latter he claims to be the ‘diffusion of knowledge and skills’. Unfortunately, that seems a bit vague to me, and he hasn’t elucidated on what he means either through empirical case studies or with thought experiments.

I suspect he may detail this later on, though, so I’ll refrain from giving firm conclusions at this point in time.

Anyway, those are my thoughts so far. If you found this interesting, keep following: I’ll be writing more as I progress.

Mr Stargazer is Back

Hail readers!

It has been a long while since I last wrote here on the Magical Realm. Don’t blame me; blame the rather less than competent engineers of BT. They were supposed to connect us to the Internet on Monday—last Monday. They then said they didn’t have a map of the exchange nodes next to our house (why didn’t they bring that when they came to connect us?) and that they would be installing it on Wednesday.

Wednesday came and went. Then they told us by Friday; that came and went. They told us they’d connect us by Wednesday this week; they didn’t. I have been forced to publish this through the university’s Internet. Suffice to say, I am far from pleased.

But really, I shouldn’t be surprised. BT have shown themselves to be less than competent before. And it’s not like we have a choice: in our area, a God-forsaken town in the Midlands, all of the phone and Internet infrastructure is owned by BT.

The situation is similar in many other parts of the country—in urban centres like Manchester or London Virgin Media has fibre optic, but much of our telecommunications still passes through BT via DSL.

Anyway, rant aside, this is an almost textbook example of market failure via monopoly. Because BT owns all of the phone and Internet infrastructure in the area, they have a local monopoly; and so they are not obliged to compete in order to improve the infrastrucure (which is still DSL and still limited to a paltry 8Mb/s in some places). Nor, it seems, to provide good service.

Our ISP is actually Sky, but they still have to use BT’s phone line and thus be hobbled by their incompetence.

There are a few potential solutions. One would be for other companies to set up their own phone lines, perhaps with public investment and other incentives from the government. The problem with this approach is obvious: telecom infrastructure isn’t cheap, and the money would have to be stumped up by the taxpayer.

A different solution is to return to what we had previously: British Telecom, i.e. have BT nationalised. Firms would still be able to piggyback on the national infrastructure (thus allowing some competition without having to replicate the same expensive infrastructure multiple times) and hopefully with some sort of democratic oversight, BT might actually serve the interests of the people.

Anyway, enough of that. You’ve probably been expecting news of my efforts in reaching an editor, so here goes.

On Editing

Due to my lack of Internet access, I have not been able to contact more editors on Reedsy. However, my phone did have access to Internet—albeit to only 2G (!) despite the fact that it’s 2016 and I live in the middle of a town. Anyway, I was able to receive an email from Elliott—the company’s founder—who drew my attention towards 5 editors he deemed open and suitable.

Thus I have now filed a new request, and hope to be getting some more quotes very soon. Once I have, I hope work can begin and my time won’t be wasted on the incompetence of others…

Beta Reading

I have also decided on sending the latest draft of the Ark, with part two complete (did I mention?) onto a person who did a beta read for the first part; that is, Margaux Espinosa, who also reviewed the Necromancer some while back.

In addition to her, I have not heard back from my secret beta reader, so they’ll be getting an update. And, I shall look for more beta readers wherever I may find them; Goodreads has proven useful in the past.

The Necromancer

Incidentally, a lady has offered to review the Necromancer (remember that?) and will hopefully post a review sometime in the not too distant future. I must say I’m curious to see what she’ll say. Oh, and thanks to the Goodreads group for helping me find her.

The Magical Realm over the Spring

With my A level exams coming up in May, I am obviously somewhat pre-occupied with revision—I’ve done a little this past week, but not much owing to my continued irritation with BT—and with work on the Ark. You can understand why theMagical Realm will be on the back-burner so to speak.

Nonetheless, I will be keeping you all updated. I can do that much.

Finishing Off

I have covered a fair amount of topics in this update, so just to recap: I have not had Internet until now and will be occupied with various tasks for the remainder of the week, in addition to my revision; I am still waiting for a washing machine to arrive (…); and I have contacted more editors regarding the Ark, as well as a beta reader.

On top of all that, I have been busy getting used to our new house. We’ve installed a number of curtains and net blinds inside. Most of the furniture is set-up, along with the TV; but my Internet, washing machine, and a few pieces of small furniture have not.

I’ve also been busy changing address with the bank and other institutions.

So, that’s most of what I’ve been doing.

On a final note, I have continued reading Picketty’s Capital in the 21st Century and have now read a fifth of it. (Considering that the work spans 1000 pages and is full of graphs and maths, that’s no mean feat, believe me.) I have decided to write my thoughts as I go along. These I will publish on Goodreads, and here on the Magical Realm.

And why, you might ask? Because Picketty’s work is fascinating and relevant to our modern age. Also, it will help me with my economics. ;)

With all that out of the way, stick with me. As you can see, a lot is going on…

The Ark, and Goings On

Hail readers!

I have, as of late, been quiet. This is largely owing to my workload for the week (school, alas; a harsh mistress) but also because I’ve been occupied with work on the Ark. I am partway through completing chapter seventeen; it is proving a long, difficult, but satisfying piece of prose.

I have also promised you that I’d be releasing more chapters in the Ark out into the Magical Realm. This promise I shall uphold; stay with me. I am not certain which chapter I shall release right now—perhaps one of the earlier, or maybe even one of the later.

Aside from this, I also have plans to create some more poetry. I shan’t say much of my latest inchoate concoction, but to say that it will involve romance (again!) due in part to popular demand; but mostly because it is that which my muse commands me to write.

Anyway! Aside from this little update, I shall also share one or two political musings. These shall be brief (for I’ve written enough on the matter as of late!) but shall hopefully keep you interested. So: onto politics.

The Soviet Union

Adducing the Soviet Union as a way to discredit left-wing thinking is a common meme among the disingenuous thinkers of the right. But the Soviet Union has gained new popularity as of late; because of, funnily enough, our dear Jeremy Corbyn. Here are some extracts from such a piece over at the Guardian:

The question at the heart of Aaronovitch’s book, just as it must be at the heart of any study of British communism, is a much wider one, wider even than politics. With some notable exceptions, many of the communists I knew seemed to be essentially decent and intelligent people. But how was it that decent people like Sam and Lavender Aaronovitch – or my parents – could stick with the Party when they all knew, at some level, about the inhumanities for which the communist movement was responsible? And how was it that they stuck with it when it was becoming ever more obvious that the whole determined communist experiment was failing?

Communism didn’t work. And most people who lived under it hated it. These are not passing objections. They will need to be relearned as the centenary of the Russian revolution approaches. Yet our parents were like the deluded old Bolshevik in the gulag in Vasily Grossman’s Life and Fate, who cannot see the connection between his youthful political commitment and the horror of life and death in the labour camp. They were like – in Sam and Lavender’s case they actually were – people who remained in a failed marriage. They couldn’t in the end face the reality that something that had given their lives such meaning had turned out so badly. They put loyalty before sense and reason in their politics and in their lives. They lived with their lies as best they could. And they certainly weren’t the only ones, then or since.

But Aaronovitch’s song of love and pain for the lost family of British communism has made me think again. True, we don’t have a communist movement any more. But we do without doubt have a revived left in Britain, which has dusted off some of the same ambitions, some of the same political ideas, some of the same historic dreams and some of the same deep flaws, foolishness and even intellectual turpitude that made British communism unsustainable.

In the piece, Kettle makes two claims: 1. Communism failed in Russia because its intellectual underpinnings were fundamentally flawed and 2. Corbyn’s party, while not communist, is making the same sorts of mistakes.

The first claim is only a half-truth. The second claim is a lie. Here’s why.

Why Did Communism Fail?

While such a topic would involve some very complex historical, political and economic analysis; the basic reasons are simple.

Firstly, the Communists in charge—Stalin most of all—were power-hungry, corrupt, inhuman, megalomaniac, delusional, paranoid lunatics. No economic plan or political ideology could be successfully implemented by such lunatics.

Remember: Stalin murdered his own generals out of paranoia; and his decision single-handedly ruined (and ended) millions of lives at the hands of the Nazis. Stalin was a man who sent people to the gulags at even a hint of rebellion. And some he sent without any blame at all; such were the depths of his delusions.

But these are the crimes of Stalin—not Marx. Equating Stalin’s actions to Marx’s writings (if indeed one considers Marxism an ideology, as opposed to just a critique of capitalism) is like equating Margaret Thatcher’s ideology with Pinochet’s torture chambers.

Of course, the two are incomparable. Thatcher was an elected prime-minister; Pinochet was a paranoid dictator put into power by the CIA. Being a mass murderer isn’t part of being a free market ideologist anymore than sending people to the gulags is part of being a Marxist. These actions were committed by evil people hungry for power.

It is true that Communism isn’t perfect. Although it has brought significant improvements to Cuba (despite the colourful leadership of said island, and the US blockade) there are undeniably issues with Communism—like the sheer impossibility of having a complex macro-economy run by the commands of a bureau; or the substantial loss of freedom involved in being Communist citizens.

But claiming Communists to be Stalinists is to be disingenuous.

Communism in Practice

It’s also worth mentioning that there exist numerous sub-types and interpretations of Communism; you can have authoritarian Communism a la Russia, or you can have democratic Communism. (Indeed, the ideology is well-suited to democracy.)

What’s more, any attack on the living standards of formerly Communist nations like Russia or Vietnam must also consider that a) Russia and Vietnam were poor to begin with—under Capitalism—due to colonialism, despotic Tsars, war, serfdom and much more; and b) the hysterical US invaded one such nation, and with disastrous consequences.

Corbyn is not a Commie

While Kettle does admit that Corbyn isn’t actually a Communist, he does imply that Corbyn has tenets of the Communist movement; that he holds the same hopelessly idealistic and intellectually foolish beliefs.

But does he? Kettle’s insinuations are vague. Why? Because if you look at what Corbyn is proposing, very little is at all foolish or hopeless.

1. Corbyn wants to renationalise the railways; this policy is popular among voters and has a strong economic rationale.
2. Corbyn wants to keep benefits, like Housing Benefit. This is economically sound (the cost of the benefits is far outweighed by the tax revenues, police time etc. as I’ve covered) and has some support among the public. Certainly I don’t see why more can’t be convinced.
3. Corbyn wants rent controls and council housing; both have public support and sound economics.
4. Corbyn doesn’t want to bomb Syria. This is the majority public position, although I think it naive and cowardly.

As with Rafael Behr, Kettle is a commentator who doesn’t let history or fact get in the way of a good narrative.

Conservatism: A Critique

Hello readers! As promised, here is my essay on Conservatism. Note that while Oli, unfortunately, has been unable to contribute this time—his work at university likely having proven all-encompassing—he may chime in at a later date. Now! Read on.

Firstly, we must clarify what we mean by Conservatism. As is often the case with political ideologies, the term is used to mean many things: it can mean the policies enacted by David Cameron’s government; it can mean the policies in the Tory manifesto (not one and the same thing!); and it can mean the ideals purported by Cameron and co., though these often are very vague and even in contradiction with his policies.

To help answer this question, consider the old adage: it is easier to define a political ideology by what it is not than by what it actually is. This holds true for Conservatism especially. I’ll tell you one thing Conservatism ain’t: conservative. Conservatives, just like Socialists and Liberals, do want change; they just want different types of change.

It is true that Conservatism doesn’t like drastic social changes; partly this is because they view our society as being generally a Good Thing (albeit flawed), and because—in the case of the Conservatism promoted by Cameron & co.—the status quo benefits them. That said, even Socialism and Liberalism aren’t too fond of grand ideological projects. This is because all three ideologies are pragmatic at a fairly fundamental level. Communism, for example, is an ideology many Socialists like in theory if not in practice (although there are exceptions—Socialists consider private property a human right).

Conservatism is distinct from other right ideologies—like Libertarianism or Anarchism—in a much more substantive way, however, than is Socialism distinct from Communism. Whereas Socialists generally find the Communist ideology palatable (if implausible) Conservatives are typically horrified by Libertarians. This is because Conservatives view the world in a way fundamentally different from other rightwing ideologies. Conservatives are moderate in their nature, yes, but there’s more to it than that.

Conservatives are actually proponents of government, in ways Libertarians and Anarchists certainly are not. They view the State as being crucial for a civil and successful society—life without government would, in the words of Hobbes, be ‘solitary, poor, nasty, brutish and short’. Where Conservatives differ from Socialists is in the functions and role of the State.

Certainly, Conservatives do want the State to uphold law and order (in fact they’re usually very keen on this—likely because law and order keeps their property safe from the proletariat), and to fight wars, and—in the case of pre-Thatcherite Conservatism at least—to build housing and nationalise industries if it is in the overall interests of the country.

Now: Cameron’s Conservatives have no such interests these days. This is because their Conservatism is a bastardised Conservatism—while this ideology has always been supported by the wealthy, the comfortable and the would-be bourgeoisie, it never went as far as to continue with obviously pernicious policies (like inflating house prices) because it benefits a tiny few. The modern Tory party is essentially a cult of the rich.

But what, you may ask, do Conservatives believe that is different from Socialism—if Cameron’s party is indeed bastardised?

In truth, Conservatism and Socialism are not really all that different. Even things traditionally attributed to Conservatism—i.e. bigotry: opposition to gay marriage, racist language (‘if you want a nigger for a neighbour, vote Labour’) etc.—are unnecessary additions to Conservatism, and indeed not even exclusive to the right. (Many cabinet ministers in Atlee’s government were none too happy about Caribbean immigrants, for example).

But there are perhaps three things that distinguish the two ideologies more than anything, in practice. Firstly, Conservatives have an enduring belief in the virtues of Capitalism; and, especially these days, lightly-regulated market capitalism and financialism. Socialists understand the benefits of Capitalism, and employ it to some degree; but they’re much more skeptical, particularly when it comes to banking, climate change, and the goodwill of the bourgeois class.

Secondly, Conservatives place less of an emphasis on equality (of outcomes especially). While they actually tend to like equality, and especially equality of opportunity—the example of the poor man who worked hard, went to university, and became wealthy is one they’re especially fond of—they are not concerned with the struggles of the working classes like Socialists are.

And finally, Conservatives have very different ideas about the causes of wealth and poverty than do Socialists. For a Socialist, wealth and poverty have a number of causes; most pertinently they are: an economic system that, by its nature, empowers the already powerful and weakens the already weak; and social power, allowing the wealthy a bigger slice of the pie. But most of all, Socialists view poverty as the product of disenfranchisement, insecurity, and a lack of education; this then leads to comorbid problems like obesity and alcoholism.

For a Conservative, wealth and poverty have more to do with virtuousness. They sometimes view the poor as uneducated, bad with money, or (perhaps) a little bit unfortunate—but often they view them as feckless scroungers. The wealthy they view as paragons of society.

For the three reasons that Conservatism differs most greatly from Socialism, so too does Conservatism fail intellectually. Here’s why.

Capitalism and the Proclaimed Virtues Thereof

The first key flaw with Conservatism, I think, is its faith in Capitalism. This is not to say that we should all be Marxists—for pure-command economies are almost as bad as pure market economies. But I do believe Conservatives have a faith in the market and in business that is rarely warranted.

Allow me to employ some examples. The Tories in the early 90s thought it a good idea to privatise rail. After all: the market will be more efficient than the big, bureaucratic British state—right?

Wrong. To quote from my polemic on Jeremy Corbyn:

The case is overwhelming: since privatisation, railway ticket prices have increased 22% (adjusted for inflation); subsidies have increased, but most of the money has gone directly into shareholder’s pockets; and the UK has rail prices that are as much as double those of nationalised European nations. (We Own It)

Furthermore, it is estimated that simply by not having to pay shareholders, the government could chop off 18% from ticket prices. (ibid.)

Nor can it be argued that the railway companies provide better service: the average age of the trains has gone up; and to add insult to injury—they are more overcrowded, too, with only a 3% increase in carriage capacity to meet a 60% rise in demand. (ibid.)

So how did the Big Bureaucratic British state (and all those Eurocracies like France and Germany over the Channel) manage to run trains better than corporations?

The answers are not simple, but nor are they that complicated. The companies that took over from the state were oligopolistic and continue to be oligopolistic; they rarely compete directly, and employ predatory pricing to keep out competition (the latter has been reduced due to regulation). The Conservative vision of free choice and successful competition did not materialise. Railways do not have many alternative routes and they cannot easily be replaced by other modes of transport.

Then there’s economies of scale. One big state can do things more efficiently than a lot of little companies—it benefits from technical advantages, in managing railways and trains en masse; it can buy things en-masse; and the state benefits from very low interest rates.

But more than anything, the case of nationalisation—in rail, and even more obviously in the NHS—proves the Conservative spiel wrong. Markets do not tend to equilibrium; often they are not efficient, and not run in the interests of the many. This is because markets, rather than being like gyroscopes, are more like a complex interacting web of varying, often contradictory human interests. Furthermore, consumers are often irrational (buying goods on the basis of marketing and social pressure) and lack the information and available time to make rational decisions if they even wanted to.

Consider a supermarket. Suppose you want to buy detergent. You, in the belief of the free market economists, must—from the dozens of brands and products available on the shelf—know which detergent does the best job, consider the externalities of detergents (like their effect on aquatic life), and then select the exact product which maximises your utility.

Want a phone? Better not be swayed by those shiny iPhones that all the cool people seem to have. Want food? Best know exactly how each product on the shelf tastes. Want fashion? Best know how the workers in Bangladesh are treated. And so on.

And so not only are Conservative beliefs in the market suspect, but so too are their arguments against the state. As Germany shows us—heck, as our own NHS shows us—states can run companies than not only act in the interests of broader society, but that are also managed efficiently. Why? Because it is in everyone’s interest to have well-run public services.

Of course public services are not always well-run. Bad relationships with unions, racial and class-based antagonisms, and incompetent politicians (both lower down and higher up) can derail good public services. But there is one key difference between this and a badly-run corporation: we can do something about it. It’s under our control. The corporation, on the other hand, is run by the CEO, Board, and Shareholders. Our ability to influence it is far reduced.

However, an even more unwarranted Conservative belief is in the virtues of Financialism. To quote from the Tory’s ‘Freeing Britain to Compete’ report (published 2007!):

The (Labour) government claims that this regulation is all necessary. They seem to believe that without it banks could steal our money ……………

We need to make it more difficult for ministers to regulate, and we need to give the critics of regulation more opportunity to make their case against specific new proposals………

We recommend deregulating venture capital fund raising, and investment for professional investors………

A Conservative government should relax banking regulation, allowing a new breed of venture/micro-credit institutions…………….

(Quotes courtesy of Pride’s Purge)

As we all know, the big crash of 2007 proved all the above to be pure fantasy.

I won’t go too much into the why. Suffice to say that the usual happened: the market system had its way; banks gambled, making short-term profits that could only lead to a bust; consumers didn’t know any better; and the financial interests of the bankers led not only them, but the entire political establishment, to abandon reason.

Anyway: I think I’ve covered this flaw insofar as is feasible short of writing an economics book on the topic. Let’s address our next bug-bear—equality.

Conservatives and Equality

Unlike some, Conservatives by and large like equality. In fact, they make quite a fuss about the equality of opportunity. They even, in fact, like to have equality of outcomes (though not, of course, if it openly contradicts the diktats of the market—or the interests of their donors).

Conservatives also like to attack Socialists because Socialists ‘would limit the great so as to be equal to the mediocre’. This, however, is a misunderstanding of Socialism; the real mistakes are being made by Conservatives.

Firstly, Socialism does not want to shackle the good to remain with the bad; rather, they wish to free the good (and the mediocre) from the oppression of the lucky undeserving.

There are two examples that best illustrate my point: housing, and education.

With education, Socialists are quite keen on equality of outcomes. Why? Because equality of outcomes, in reality, is crucial to equality of opportunity. A good student—even if possessed of wit and determination—will struggle in an environment characterised by chronic insecurity in housing (i.e. constantly having to move); in one where their parents are alcoholics, and/or abusive; and in which the tools of their success (books, computers, free time) are unavailable due to poverty. It’s hard to read Adam Smith’s the Wealth of Nations—and become a brilliant economist—when you’re parents need you to work at Asda’s to pay the bills. And ditto becoming a photographer if your parents can’t afford cameras.

It is because equality of opportunity needs at least some equality of outcomes (even substantial equality of outcomes) that the Conservative ideology becomes self-contradicting.

Indeed, the current Conservative government is acting very much against either equality. In housing, they provide ‘Help to Buy’ (i.e. demand subsidies) to further inflate house prices and drive more people into the loving arms of Buy-to-let landlords. And God-forbid you suggest building houses, be it council housing or housing for private ownership; only the market can do such a thing!

As for education, I have some trouble understanding how removing maintenance grants (to help poor students pay for accommodation while at university) and introducing £9000 a year tuition fees can possibly aid equality.

(The latter issue is a bit more complex, of course, but the principle is simple: students who have to go into £27,000 of debt will struggle to pay back that loan when they’re confronted with unemployment or low wages for entry-level graduate jobs. The difference between the haves and have-nots will be exacerbated, however, since the haves can rely on the bank of mum and dad. Not so the have-nots.)

Wealth and Poverty

The final misconception underlying Conservatism is, with little doubt, the supposed causes of wealth and poverty.

Conservatives frequently portray themselves as being pragmatic and in touch with reality. But their notions of poverty are anything but in touch with reality—let’s see why.

Firstly, we must ascertain why poor people are poor. The topic is of course very complex, but here are the key causes I’ve both personally observed and which the data supports:

1. The conditions of the labour market. It’s really quite simple: with the way things are set up, we need people to work in supermarkets; to waiter in restaurants; and to staff call centres, act as cleaners, and work manual jobs. These people will not be paid very well. Salaries ranging from the minimum wage (like averaging around £14K/year gross or so) to, at most, £20K will be the norm.

So you see, whichever way you cut it, some people are going to be rather poor—unless you can improve their pay. This would, among other things, involve playing nice with the unions.

2. Unemployment and working conditions. Even with Osborne’s miraculously low figures approaching 5%, people are still unemployed; JSA is not very much money; and quite a few people are living insecurely under zero-hour contracts and forced self-employment.

3. Chronic mal-education, depression, and social problems. In my experience, those from poor families lack motivation in school, and are doomed to repeat the mistakes of their parents.

4. Some people are poor because they’ve been rendered unfit to work (due to disease or disability) and receive little support from the state.

Conservatives seem blithely ignorant of pretty much all of the above. For the first point, they seem to believe all it takes is ‘education’. Sorry to break it to you folks—but unless you stop going to restaurants, clean up after yourselves, and have robots cash the till, these people will need to be hired. Giving them degrees or A-levels won’t make a damn bit of difference. In fact, quite a few graduates do end up working manual jobs—and never repaying their university debt.

As for point two, some easier solutions are available. We could abolish zero-hours contracts for larger firms. We could force employers to contribute to National Insurance, and have NI really be an insurance—paying out a guaranteed sum of money, every month, regardless of working hours for as long as the individual is employed by the firm.

Unemployment and self-employment are trickier. The NI scheme could perhaps the extended, again, to cover self-employed people. But unemployment is a problem fundamental to capitalism. To even go into it would be the topic of high-level economics; but suffice to say that a combination of the National Education Service (already proposed by figures in my party), more state control of the economy (yes), and possibly even printing money may be effective.

As for points three and four, you will see little sympathy from Conservatives these days. But one thing is for sure: ignoring them doesn’t mean they’ll go away.

Wealth and Tax

The final misconception I wish to address, going on from the above, is wealth and taxation. Conservatives don’t like raising income taxes, especially (it would seem) on the rich. Partly this is because of obvious reasons—the Tory party is funded by the rich. But a number of ideological and practical reasons are given.

1. It (a 50% tax) won’t raise revenue. False—the 50% tax didn’t raise revenue because it was only introduced temporarily and because rich people forwarded their asset gains. This basically means that they reported lower-than-usual incomes when the tax was introduced, and higher-than-usual incomes after it returned to 45%. So effectively the 50% tax collected abnormally low revenue, and the 45% collected abnormally high revenue. One must also consider taxes in the context of Osborne’s significant cuts to HMRC staffing; if Osborne doesn’t staff HMRC properly, then of course they won’t be able to catch tax evaders (of which there will naturally be more of if the rate goes up to 50%).

2. Tax is bad—it causes growth to stall because people have no incentive to work. False; as I’ve written already this argument fails to consider how revenue collected by the state can be used to increase economic growth—by training the engineers of tomorrow, keeping our roads and railways running quickly and efficiently, and by providing health services at a much lower cost than comparable private health insurance. Even benefits can lead to economic growth. Housing benefit—recently chopped by Osborne—puts a roof over the heads of some very young and very vulnerable people. By doing so, these people are much more likely to become successful, tax-paying members of our society as opposed to criminals costing police time, or sick people in NHS beds.

3. The rich don’t deserve to be taxed—they worked hard for their money.

The final argument is symptomatic of the last Conservative mistake. Rich people do work hard for their money (unless they inherited, of course!) but normal people work hard too. They don’t become rich. This is because rich people are in a very economically privileged position: firstly they had the upbringing and resources to allow them to e.g. become software engineers; secondly, they had the trust of the wealthy to obtain capital (since rich people are overwhelmingly of the capitalist class); and thirdly, they were lucky. They hit the market with the right product at the right time. They’re not more virtuous than mere mortals!

What’s more, rich people should pay taxes—because, firstly, they can (unlike poor people) and, secondly: because they more than anyone benefit.

That’s right—even if rich people don’t claim benefits, they are the chief benefactors of state investment nominally. What allows Jaguar to be successful? Engineers and designers who went to schools funded by the state. What allows people to buy cars? Roads funded by the state. Who enforces contracts for Jaguar? The police, funded by the state.

And so why should Jaguar’s CEO, who earns £4.5M, not pay taxes? (One could even ask why he’s given such a handsome share of the pie, but that’s a topic for a different essay).

But this example challenges Conservatism in yet another fundamental way. Conservatives think of wealth as private—‘it’s my damn money,’ in Thatcher-speak. But in reality, wealth is just as much social in character as individual; because nobody makes wealth on their own. Jaguar’s CEO’s wealth stems from Jaguar cars; that’s the ‘wealth’ in this equation (which must not be conflated with money). The CEO doesn’t make the cars himself. The people who work the factories, who design the engines, who style the cars; they make the cars. Who gets the wealth is a social decision—because the wealth is created collectively!

(Note that this is not to say the CEO does nothing at all; that would be a gross failure to understand the demands placed on a modern car company, and the role of the CEO.)

Conclusion

This essay has proven lengthy. Despite this, I have not been entirely concise; for such is the nature of the blog. Doubtless, explaining some of the underlying economics and philosophy would take up a book’s worth of words.

But I do, however, hope that this essay has at least challenged you—if not convinced you outright. Beware the claims made by Conservatives. The truth is often complicated…