|It's assets, stupid!
We are in danger of becoming impressed at new policy promises that, in effect, consist of throwing money at problems which exist because during the last nine years, policies drained that money away. This is referred to in the note, Promising to rebuild what has been proactively destroyed is not a sign of economic competence - a note. It is emphasised in that note that KMS policies create winners, losers and those who seem to continue in a neutral impact state. However, because policies do not secure Positive Systemic Consistency, political parties are provided with the opportunity to mould policy to support political party support constituencies and often to prejudice those identified as opponents of the party. This is devisive and destructive. Our analysis on the impact of quantiative easing (QE) shows a massive influx of money, intended to eventually boost investment in the real economy, being channelled by banks and large corporations into assets. The outcome of this process will be to a guarantee of a more permanent disparity in wealth and incomes in the future.
During one of Bill Clinton's campaigns one of his strategists, James Carville, coined the phrase “The economy, stupid”, in 1992, as one of the messages campaign workers needed to concentrate on. The other two were, predictably, “Change versus more of the same” and, of course, "Health care.” All of this was shaped to win him the election in a period of economic difficulties.
If one observes the outcomes of UK government policies, the result of quantiative easing has been a massive redirection of money into assets as opposed to finding its way into the real economy as investment in production, consumer transactions or people's pockets. See: The outcome of quantitative easing on real incomes - summary note. So the banks, individuals and companies who have taken advantage of quantitative easing (QE) have not become preoccupied with investment for production, enhanced productivity or higher wages but rather in asset holding. Why? Assets provide their holders with a guaranteed future rentier income or gains from resale for a select group, while these opportunities remained beyond the reach of the general population, whose options to secure any guarantee of future incomes have declined. In essence QE has seen a promotion of a massive expansion in privately held assets.
This Bank of England "policy" has done little to help the conditions of the working population which is becoming increasingly asset-less. Therefore, this asset accumulation disparity is the source of a guaranteed future increasing disparity in incomes and wealth.
|The Cantillon effect|
QE has the effect of releasing cheap money to banks who are normally expected to pass on this benefit of low interest rates to companies for investment to enhance prodctivity and growth in production and services. However, these funds have not been used in this way but rather the QE policy has been abused and used to enrich bank shareholders and larger corporate client executive and shareholder incomes directly and not through investment in higher productivity production. This is a case book example of an extreme form of the Cantillon effect.
The Cantillon effect was explained by Richard Cantillon (1680s – 1734) an Irish-French economist and author of "Essai sur la Nature du Commerce en Général" (Essay on the Nature of Trade in General). In his Essay, Cantillon provided an advanced version the quantity theory of money, however he also dug deeper and perceptively into the differentials in inflation associated with the introduction, circulation and velocity of money. He explained that the original recipients of new money enjoy higher standards of living at the expense of later recipients. This is because of inflation in asset prices caused by the propensity of wealth individuals to invest in assets. For example real estate investments impact house prices and rents. As a result of time lags impacted by a disproportionate relative inflation in prices of assets and consulption goods drives a fall in the purchasing power of the currency in the hands of non-asset holding individuals i.e. the majority. These concepts of relative inflation, or a differential rise in prices among different goods in an economy, is now known as the Cantillon effect. The Cantillon effect has two components. One is the impact of new money on differential inflation rates between assets and consumption items and, the other, is the real incomes and wealth effects that result in an increasing disparity in incomes and wealth within the country. Under QE this effect has been extreme because banks short-circuited money distribution largely to themselves and a reduced number of large corporate customers to deal in assets and share buy backs.
This outcome comes on the end of a significant and hidden massive asset privatisation process. This is not a reference to clapped out rolling stock on the railways, leaky water supply services and health provision real estate or even to the RBS shares valued at £32 billion being authoised for sale by George Osborne for just £2 billion or even the sale of council houses worth aound £40 billion.
The British land grab
In a recent book, Brett Christophers, a political economist and economic geographer and a Professor at Uppsala Univerity has pointed out that the largest and hidden privatization has been worth the tidy sum of £400 billion involving the transfer of public land holdings into the hands of a select group of private "asset holders". This was initiated following Margaret Thatcher's commitment to privatisation and continued under the New Labour Blair regime and subsequent Conservative governments ever since. This has involved over 2 million hectares of land or 10% of the British land mass2. Estimates of the private rentier incomes derived from these transferred assets is somewhere in the region of $20 billion each year which is also inflation-proof, unlike people's wages.
Although people do concentrate their attention of the "economy" as being important, the analyses tend to be about cash flow in terms of incomes and work conditions and the means of improving this cash flow through investment in productivity-enhancing technologies and techniques. However, the increasing disparity in wealth and income levels in this country is caused not only by the lack of interest of money and assets holders in productive investment, but rather by the slow build up of transactions by a small group concerning asset acquisition. This requires more analysis because assets maintain their value, they are relatively inflation proof and therefore a foundation is being established of a permanent state of wealth disparity, it is therefore apparent that the issue is, of course, "Assets, stupid".
Although income disparity has risen over the last decade, wealth disparity, related to asset holdings, has increased by far more. This really is something Labour and other opposition parties might pay attention to since this massive transfer of state assets in the form of land has taken place under the nose of parliaments who do not appear to have been sufficiently attentive in their scrutiny of these events.
It is notable that under the terms of UK legislative procedures there were complaints of the EU being responsible for "stealth legislation" making up somethimng like 80% of our new legislation. In reality the "stealth" part was simply the reality that our MPs letting these laws enter our statute books on the basis of a cursory nod. Therefore, the most important "stealth legislation" in terms of significant permanent economic consequences for disparity in wealth and incomes, has not been anything to do with the European Union. It has been related to the details and small print of many home grown legislative acts, made at Westminster, in full view of parliament that included components related to publicly owned land.
1 Hector McNeill id Director of SEEL-Systems Engineering Economic Lab
2 Brett Christophers, "The New Enclosure" published by Verso, 2019.