Upwardly mobile tadpoles

All the parties, and even the egalitarian Polly Toynbee, are currently obsessed by the concept of social mobility: that everyone, regardless of their background, should have the ability to rise. This is essential a Tory concept as it accepts as an ideal a hierarchical society. Liberal Democrats should have no part in it.

In the context of social mobility equality of opportunity means equal opportunity to become unequal. Surely for Liberal Democrats the ideal is for everyone to have an equal opportunity to develop their full potential, be it barrister or bricklayer, plasterer or politician, businessman or blacksmith (or both, as with Christopher in The Archers), or even just a successful parent with 2.4 children in a decent council house near a competent school and a bus stop with a reliable service

No one puts this better than R H Tawny in his celebrated Halley Stewart lectures on Equality, given in 1929

It is possible that intelligent tadpoles reconcile themselves to the inconvenience of their position, by reflecting that, though most of them will live and die as tadpoles, and nothing more, the more fortunate of the species will one day shed their tales, distend their mouths and stomachs, hop nimbly on to dry land, and croak addresses to their former friends on the virtues by means of which tadpoles of character and capacity can rise to be frogs.

Page 142, Allen and Unwin edition

Rather than upward mobility, Liberal Democrats should be looking to build a society in which: "The aristocrat who banks with Coutts, The Aristocrat who cleans the boots...They all shall equal be." I know it didn't quite work out in Barataria, but Liberal Democrats are nothing if not optimistic, as our Birmingham conference demonstrated.

Anonymous fame

In his G2 "review" of the Liberal Democrat conference (23/09/11) Alexis Petridis writes:

"The moment when a lone voice shouts:'Rubbish!' as Danny Alexander suggests Gordon Brown spent too much turns out to be a dizzying pinnacle of insurrectionary excitement that the conference will never scale again."

I am happy to acknowledge that the lone voice was mine and sad that no other Liberal Democrat was prepared to express dissent to a blatant distortion of the truth. The prime cause of the current expenditure deficit is not Labour profligacy but the collapse of revenues resulting from the financial crisis which in its turn was caused by the financial deregulation which is part of the monetarist creed with which almost everybody went along. True, Vince Cable uttered a few words of caution in 2006, but as far as I can remember that was more to do with private rather than public debt, and I don't recall any sustained Liberal Democrat campaign to urge people to cut up their credit cards and live within their means.

At the 2010 election we promised more honest politics. Latching on to a dishonest myth, however popular and convenient, will not restore the public's confidence in politicians and the democratic process. I understand that today's headline in the Daily Mail calls upon the Labour Party to apologise for the economic mess in which it claims they left the country. If Liberals and the Daily Mail are singing from the same hymn sheet we have cause for worry.

Petridis is wrong, however, to think that there was only one expression of dissent. Alexander's claim that an immediate coalition and savage cuts were necessary to avoid the fate of Greece brought from me a cry of "Nonsense!", and his insistence that the government will not alter course (as the economy stagnates and unemployment rises) a cry of "Shame!" Again, alas, a lone voice. Where were the other Liberal Democrats who are proud to be inheritors of the traditions of Keynes and Beveridge?

For my own suggestions of how the course should be changed please see My Plan B post (09/08/2011)

Whilst on the subject of the Labour record, it is worth remembering that, with all his faults (and especially PFI) Gordon Brown is credited with taking the lead in organising prompt and effective international action which possibly averted an even worse financial crisis in 2008. There is no evidence of similar action by any member of the present cabinet. Again, my own suggestion is that the G8 finance ministers should get together and slap a Tobin-type tax on all financial transactions with effect from this-afternoon. Maybe I do George Osborne and Danny Alexander a disservice and they are working on this at this at this very moment, but I'm not holding my breath.

Liberal Democrat Conference; morale booster

Liberal Democrat activists are certainly a hardy lot. In spite of the loss of about one third of our (their) council seats last May endless repetitions of our achievements in government:

* pensions linked to earnings
* 880 000 low earners out of income tax
* the pupil premium
* the green investment bank
* loans rather than up-front payments for part time students
et al
were endlessly cheered. Surprisingly, fixed term parliaments, which I feel in the long run may be the most important achievement, weren't mentioned all that often.

There were also, unfortunately, endless repetitions of the half-truths, if not the downright lies, that the public deficit is all the fault of Labour's profligacy, and that savage cuts are necessary to avoid the fate of Greece. Polly Toynbee's headline, "Balderdash and Mendacity " (Guardian 20/09/11 - sorry, link thing is not behaving itself) may be a bit strong, but really she has the conference bang to rights

Happily, light may be beginning to dawn. Vince Cable called for "stimulus" along with stability and solidarity, and there were hints of small gobbets of extra expenditure.

I've just heard on the "Today" programme an American whose name I didn't catch say that normally he was in favour of balanced budgets but current American attempts to lower their interest rates even further are a waste of time and that "fiscal stimulus" as advocated by "your Mr Keynes" is what is needed. Maybe the world is learning.

Brownfield sites - a public-private partnership.

A must-read article by by Simon Jenkins, a Guardian columnists who is also chairman of the National Trust, provides a devastating critique of Eric Pickles's plans to "reform" planning laws in order to release protected greenfield land for housing. Among other things Jenkins claims that existing brownfield sites are estimated to have room for a further 3m houses.

A friend of mine who specialises in housing finance tells me that the major reason why builders prefer to build on previously undeveloped land is that the risk is substantially less. Building on brownfield land involves the risk of subsidence due to the possible collapse of old drains and culverts, seepage of noxious gases and other undesirables. If local authorities were to clear and prepare brownfield sites for building, and guarantee them, that would produce a more level playing-field.

That seems to me to produce an excellent opportunity for a viable public-private partnership. As a bonus the public works involved in clearing and preparing the sites would produce an income injection into the economy which would help create the demand for the houses to be built.

Changes in the planning rules may seem small beer compared with the effects of businesses bankruptcies and public services cuts caused by the government's misguided economic policy. But the effect of these falls mainly on present generations. A free for all by greedy developers looking for short-term profit will damage our green and pleasant land, and the quality of life of future generations, for centuries.

The Banking Firewall

George Osborne's repose to the Vickers proposal to create a "firewall" between the retail and "casino" activities of the banks is perhaps more robust than many feared. However, several questions remain.

Most obvious is: why on earth do we have to wait until 2019?. It is already four years since the run on Northern Rock. Four years after the Great Crash of 1929 the Americans actually introduced their Glass-Seagall Act which created a similar separation, not proposals to think about it. It is the repeal of the Glass-Seagall Act in 1999, with similar deregulation in the UK, which is largely responsible for our present financial woes.

Why therefore is there to be a seven year pause: time for the banks to find ways round the new regulations? VAT has been increased, benefits are being cut and public services slashed now, not in seven years time for us to get used to the idea. Just to put things into perspective, the recent riots are said to have cost the UK taxpayer £133m. Such rioters as have been caught and convicted have been punished now rather than been given seven years to sort themselves out. The cost of bailing out the banks is said to be in excess of £850bn but the bankers do get their seven years potentially to wriggle out of the consequences of their folly. So much for justice and all being in this together.

A second question is to ask whether a "firewall" or "ring-fence" is enough. There's already a whole financial industry devoted to finding ways round new rules, and this area will provide another lucrative field. Vince Cable has advocated complete separation between retail and merchant banking activities, and he is probably right.

Much is made of the estimate that the cost of the proposals, if fully implemented, is said to be between £4bn and £7bn. £7bn is roughly the total paid out in City bonuses in 2010.

Testament of Yoof (2)

For the background to this post please see Testament of Yoof (1)

“Third, a Liberal is an Internationalist. He realises that the inequalities that exist in this country are nothing compared with the inequalities between this country and the developing world. He believes that our rich country should, as one of its highest priorities, play its full part in assisting the Third World in its fight for economic development. In practical terms this means that he will not only press for the raising of Britain's Aid Bill to 1% of our G.N.P., at once, but he will also fight for trade agreements which will help the poor countries , and against those (like the Labour Government's new Cotton Tariffs last year) which hamper them. "

Well, I certainly stand by all that. It is shameful, after forty years, how relevant it remains. As far as I can remember Britain signed up to the UN call for rich countries to devote 1% f their GDPs to development aid in 1967. Three years later Liberals were calling for this target to be achieved "at once." We still haven't got there though, to his credit David Cameron has agreed to honour the Labour government’s promise to reach the government's share of the target (0.7%) by 2013.
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Progress on the reform of the international trading system has been equally modest Still today international trade agreements, supervised by the World Trade Organisation, remain heavily skewed in favour of the rich.

However, a great deal has been achieved in bringing the subject of world poverty on to the political agenda, not least through the Jubilee 2000 campaign to cancel much Third World Debt. Unfortunately the promises made at summits are rarely honoured in full.. For example, Egypt, where more than 18 million people live below the poverty line, still has an international debt of $30 billion, much of it borrowed by Hosni Mubarak, not for development but to prop up his regime. Mubarak has been overthrown but the people of Egypt are still required to pay his debts. Details of a "Dictator Debt Day of Action” in London on the 31st October can be obtained from the Jubilee Debt Campaign.

That 50% tax rate

As every student of elementary economics will have been taught, there are two ways of analysing the effect of income tax on effort and enterprise.

One assumes that work is disagreeable and leisure is agreeable. All workers have to do some work but at the margin have the choice of whether to do a little bit more or a little bit less. The higher the net wage (ie after tax) the more attractive work becomes compared to leisure. This is the rationale for paying time and a quarter or time and a half for overtime. A high marginal tax rate reduces the net wage and makes work less attractive. Therefore the worker reacts by doing less work and enjoying more leisure.

The other analysis comes to the opposite conclusion. It assumes that the worker has in mind the income necessary to maintain his/her household's standard of living. Most households live up to their incomes. An increase in the marginal tax rate means that net household income falls. Hence the worker will work more in order to maintain the household standard of living (whereas under the first argument he would say something on the lines of "Sod this for a lark," work less and lower the household standard of living even further.)

There are flaws in both analyses. Both are couched in terms of hours worked and most workers don't have much choice: we are given a job with a stated number of hours and that's it (apart from the possibility of overtime, mentioned above.) Only part-time workers tend to have much flexibility on the number of hours worked, although, of course, some "full timers" can get a second, part-time (evening) job.

A more serious flaw, in my view, is that both analyses assume that the monetary reward is the only or most important factor in determining how hard one works. Beyond earning enough for the basic necessities, this is unlikely to be true for most people. Pride, the respect of one's colleagues, desire for promotion, doing a fair day's work for a fair day's wage, all motivate the employees. Entrepreneurs are similarly motivated, along with aims such as to maintain the reputation of a respected business, to increase the size of the business or market share, fame (for actors, singers, artists etc), to wield more power, gain in prestige, or even have enough to contribute to a political party and get a knighthood.

Empirical evidence suggests that marginal tax rates may affect the amount of work offered by part time "second income" earners (in earlier times usually housewives earning "pin money) but not many others. That high marginal tax rates discourage effort and enterprise is a convenient myth promulgated by the rich.

Personally I would keep the 50% tax rate, introduce it at a lower level and consider even higher rates for for higher incomes. Remember at present it is only paid once taxable income has reached £150 000 a year, Depending on allowances, that's around £3,000 a week. Over half the working population would be in the seventh heaven if they received that amount a month. If we really are "all in this together" then the rich have to play their part, not opt out of the society that enables them to be rich.