Category Archives: Economics

Economics

Contents
Negative Interest Rates
American Unrest
The Cooperative movement was born out a mixture of radical socialism and paternalist philanthropy
Budget Deficit
How to Prevent Swine Flu
Swine Flu Vaccination Plan
Economics Theory 3. Robots

Negative Interest Rates

Negative Interest Rates

Negative Interest Rates

The following news snippet about negative interest rates made me sit up and think:

A curious auction of German bonds this morning saw investors agree to negative interest rates, but more than half the debt was left unsold.

The Bundesbank sold €1.17bn of 12-month bonds at a yield of -0.0184% (which means buyers will receive slightly less than they paid when the debt matures in September 2013).

A total of €3bn of bills were on sale, but despite receiving €6bn of bids it held back €1.83bn which it now plans to sell in the secondary market.

What does it mean to have negative interest rates? It means that the lenders (institutions) are actually willing to invest their money into these bonds, knowing that the risk of losing a tiny fraction of their money is 100%

They are in practice paying a small fee to the German government to keep their money safe for them.  All investments carry a small risk of losing money, share prices can go down as well as up, and banks, financial institutions and governments can go insolvent and renege on their debts. The people who bought these bonds perhaps considered all other possible investments as riskier than the German bonds, but they have to put their money somewhere, so were willing to pay the price.  Either that or they have some kind of portfolio management policy which requires a particular spread of investments and risks, and this was the only way they could make it balance on that day.

The precarious state of the world’s economies is such that despite governments printing money, energy prices rising and other inflationary pressures, the debt crisis and austerity policies being implemented may result in real monetary deflation, where wages and consequently prices fall in real terms and it may be worth trading  €1  One Euro for the promise of  €0.9998  ninety nine point nine eight cents in a year’s time. Where else can you keep your money safe?

The psychological effect of this on financial confidence and market stability should not be underestimated.

Are there any other examples of negative interest rates out there?

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American Unrest

American unrest started in Wisconsin and now descends upon Washington

One Day General Strike needed to build fightback against Walker’s Bill!

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The Cooperative movement was born out a mixture of radical socialism and paternalist philanthropy

The Cooperative movement was born out a mixture of radical socialism and paternalist philanthropy during a period of upheavals and change. It was a group called The Rochdale Pioneers who established the first successful co-operative in 1844, starting a revolution which is still going strong. Royal Arsenal Cooperative Society Ltd In theory the cooperative movement provides an alternative to capitalism by changing the relationship between the workers and the owners of business. In a workers coop the business is owned by the workers collectively, although it still has to operate in a capitalist marketplace. Not all coops are workers coops though. The coop retail service was a form which claimed to share the ownership of the enterprise with the customers rather than just the workers. Customers were paid a dividend, terminology deliberately derived from shareholders dividends, which was paid out periodically according the amount spent in the coop supermarket. This system degenerated into a stamps scheme, which ended up almost like green shield stamps and is mirrored today by the loyalty card schemes operated by distinctly non cooperative retail giants Sainsbury and Tesco.

The Cooperative Good for Everyone

There is much more to the Cooperative movement than the visible shops trying to compete on our high streets and retail parks though. Today in the UK, as well as The Co-operative Group with its six million members and 5,000 outlets across its family of businesses including food, financial services, travel, pharmacy and funerals, there are thousands of other co-operators who share the same heritage. The cooperative model is often the best way for rural communities to organise services such as broadband into areas where the big telecoms companies can’t be bothered to deliver. Alternative energy is another good example:

LR Coop Wind farm

The UK’s first community owned wind farm, Baywind Energy Co-operative was established in 1996. The project has always favoured local investors, that way the economic benefits of the wind farm are kept within the community it serves. In 1998 Baywind secured a loan from The Co-operative Bank to purchase two turbines for their Harlock Hill site. It has also received several grants from The Co-operative Enterprise Hub to develop new, co-operatively owned wind farms across the UK. Baywind now typically generates around 10,000MWh of electricity each year – enough to power around 30,000 homes. And along with educational visits throughout the year, it funds environmental books for local schools. There’s even a Coop Facebook page now,which you can ‘Like’ to get updates. The Co-operative Join the revolution Get involved

Sponsored Post

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Budget Deficit

Under EU Eurozone rules for the single currency, no participating country may run a budget deficit running at more than 3% its national wealth.

Ireland’s is set to hit 32% this year. source: Wall Street Journal

European Union rules permit member states to hold a maximum public spending deficit of 3% of gross domestic product, while the maximum gross debt level is set at 60%.

2009 figures however, show that the average government deficit of the 16 euro-zone nations stood at 6.3 percent of G.D.P., and at and 6.8 percent of G.D.P. for the overall E.U. Average debt stood at 79.2 percent and 74.0 percent, respectively.

So it’s not just Greece and Ireland that have broken through the fiscal rules. Everybody has. And the countries still outside the Eurozone such as the UK, are even worse.

But cutting government spending could lead to a vicious circle, in which falling demand further depresses employment, leading to greater declines in demand and output, lower tax revenues, and an even larger budget deficit.

Spain has a larger economy than Greece, Ireland and Portugal put together. Spain’s public debt deficit is 66% of GDP.

“We’re in the midst of an international currency war” – Guido Mantega, Brazil’s finance minister, at the recent International Monetary Fund (IMF) meeting in Washington DC.

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How to Prevent Swine Flu


Dr David Hill ( from the World Innovation Foundation ?) left a comment on my previous post – “Swine Flu Caccination Plan” which I feel deserves to be promoted to a post of its own, below. He points out the real danger of a mutated swine flu variant, the problem with a vaccination plan due to the timescales involved, and proposes a solution for preventing swine flu and other fatal flu pandemics based on eradicating the conditions in which new variants arise.

Here is the comment from Dr David Hill in full:

The problem is that no one listens including the media. Swine flu if it mutates to something equivalent to the Spanish flu of 1918/1919 (Spanish flu was a swine flu variant) has the same potential to kill humans on an unprecedented scale as it did 90 years ago. The problem is that both swine and avian are constantly mutating into something different. So by the time you have isolated and made a vaccine for the last one, it has changed again and circumvented the old guard and becomes useless. The problem is that this happens all the time and where drugs become irrelevant. The reason, it takes three months to develop an antidote and 6 months to mass produce and distribute it (a logistic nightmare in itself alone) and where on average therefore the vast majority have to wait 9 months for the cure. The problem is that even in slow coach travel times 1918, the Spanish flu which took between 20 and 100 million lives worldwide (there is no authoritive number but where it is estimated between the two), did its deadliest between week 14 and week 26, some 12 weeks at least before the masses would ever receive the drug cure presently. The 1918 killer flu had a very similar circumstance as today, a mild version before the deadly version arrived in the fall of 1918 with a vengeance. The only way that this deadly killer can be stopped therefore, if anyone is listening out there, is through a complete overhaul of modern farming and husbandry methods and to give considerable financial help to those who breed the livestock that we all eat. Basically as a single example, just stop them sleeping with the animals on cold nights in the tropics as this is how the flu virus passes from pig to chicken to man – eventually; and where the pig is the receptive incubator. Simply give them a heater and fuel, a much cheaper option that global suicide in both human and econmic terms as it will be. For the ‘Tropics’ are where some of the most eminent virologists and micribiologists in the field say is the place where the killer virus will emerge.The philosophy of not letting it happen in the first place. The drugs strategy is futile and it is only a matter of time before the killer strain that will kill literally 100s millions appears. The problem is that the vast profits of drug companies and the government’s ignorance to the real facts will be the nails in all our coffins. The statistics and potential speak for themselves,

World Population 2 billion – 1920
Range of deaths
20mil/2billion = 1 in 100
100mil/2billion = 5 in 100

World Population now at 6.8 billion now equates to,
1 in 100 – 70 million min. today
5 in 100 – 340 million max. today

But, these figures could well be higher, as rapid world transit now makes for faster and wider transmission than in 1918.
I therefore say lets start now as I have been saying for the past three years and defeat this mass killer like no other by field work and not the futile drugs strategy that will do very little indeed to save lives. For presently we are all fooling ourselves.

If we put only £50 billion into this field work globally ( a small price for the human nightmare and financial melt-down that a global equivalent to Spanish flu would bring),we could eradicate the situation but where this £50 billion will no doubt end up alternatively in the pockets of the large pharmaceutical companies with little effect whatsoever. Get real everyone before it is basically too late and I am not joking – force governments to change their strategies from something that is impotent presently to something that will eradicate the problem at source. Common sense really but where currently no one seems to have any.

Worryingly also is the fact that as examples of other problems on the horizon is that the United States makes only 20 percent of its flu vaccines it uses and my country Britain makes zero percent of its flu vaccines, as all its flu vaccines are produced abroad. When a killer pandemic happens it will be hard for the producing countries to release any before their own people are serviced. Little known but true (Michael Osterholm, director of the Center for Infectious Diseases Research and Policy at the University of Minnesota – 16.07.09).

I have been stopped from putting these comments and facts out by the media before. Let’s hope that minds are fully opened now and that the real solution can be heard and not just the bottom-line for drug companies!

Dr David Hill

World Innovation Foundation - Innovating the Future World - Independent Innovation Driving Sustainability

So Dr Hill has identified the main obstacles to implementing a simple cost effective solution to prevent swine flu –

1) World health strategies are distorted by the production of drugs for profit.
2) The production of food still takes place in semi-feudal conditions in large parts of the world.
3) Nation states will compete to look after their own populations first rather than collaborate internationally for the good of all.

And hints at a solution – the people have to wake up and force governments to change strategies. He doesn’t go as far as I would, and point out that the implementation of a global plan to make food production safe and the harnessing of all the modern scientific understanding and technologies for the benefit of world health instead of the drugs companies can never take place all the while these means of production are in private hands run for the purpose only of making a profit for shareholders. So ‘forcing governments to change strategy’ will mean in practice, forcing governments to take over the industries involved and run them under some form of democratic ownership and control.

The first step must be education and I hope the reproduction of this alternative viewpoint here stimulates further thinking and debate, and in due course maybe, action to prevent the possibility of further killer swine flu pandemics and other variants of what should surely be preventable human diseases.

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Swine Flu Vaccination Plan

UK Swine Flu Vaccination Plan

As I write, a massive vaccination plan is swinging into action for the UK. There has been a noticable media cautiousness when reporting the swine flu story in recent weeks, perhaps a responsible reaction to a perception of over hype when the epidemic was still very young.  This is ending now as daily reports of increasing fatality numbers roll in. People are understandably worried and cannot understand why schools and workplaces are not closing where the swine flu has taken victim, to help prevent the spread of the virus.  In fact, any idea of containing the outbreak has now been dropped. It’s too late, the disease cannot be contained, it has already spread widely. What would happen if we all stayed away from school and work for two weeks? – an interesting question but the emphasis now is on trying to keep serious cases to a minimum, and on vaccination.

The UK government has ordered enough vaccine to cover the entire population.

GPs are being told to prepare for a nationwide vaccination campaign.

Dr Peter Holden, the British Medical Association’s lead negotiator on swine flu, who has been attending Department of Health meetings on the outbreak, said GPs’ surgeries were prepared for one of the biggest vaccination campaigns in almost 50 years. Although swine flu was not causing serious illness in patients, health officials were eager to start a mass vaccination campaign, starting first on priority groups. First, the jabs would reduce the chances of a shortage of hospital beds because of people suffering from swine flu. Second, it would reduce the effect on the economy by ensuring workers were protected from the virus.

“The high-risk groups will be done at GPs’ surgeries. People are still making decisions over this, but we want to get cracking before we get a second wave, which is traditionally far more virulent.”

Holden said it was likely the elderly would be given their seasonal flu jab as well as the swine flu vaccination. The new vaccine is likely to require two doses.

swinefluvaccine

Five Days Safety Fast Track for Swine Flu Vaccine

The swine flu vaccine will be safety tested and fast-tracked for use in Britain within just five days once it is developed.

In the week after the fictional  Torchwood – Children of Earth, was shown on TV, with a government using an emergency vaccination programme as the cover story for taking ruthless action against their own population,  people will want to know more about this vaccination programme before submitting their familes to it.

Some of the main questions will be:

  • What are the aims and objectives of the vaccination programme?
  • How safe is it, what are the risks?
  • Will the vaccine protect against a future, more virulent strain of the A (H1N1) virus widely expected?
  • If I’ve already had swine flu do I need to take the vaccine?

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Economics Theory 3. Robots

This is the third in a sporadic series on economic theory, prompted by questions and answers on earlier posts.

How is the Labour Theory of Value affected by the Economics of Robots ?

A discussion has been burbling away on my post about How is wealth destroyed and where does wealth come from written last October, in a month when the world financial systems were exposed as being hopelessly overstreched and fell into an unprecedented destructive cycle of collapse, bailouts, bankruptcy and state takeover.

In September I had asked “Where does money come from?” answering from the basics in terms of primitive barter systems and early trade. The October post explained the Labour Theory of Value, which states that the market value of a commodity is ultimately determined by the total amount of socially necessary labour time that went into it’s production and delivery.

The comments have been really great. Conrad Taylor provided insights about early coinage and banking systems in 9th century Arabia. We discussed the price of fish. And then in the big wide world this happened:

The argument between two strands of capitalist ideology has just shifted enormously in the past weeks from monetarist to Keynsian economic theory – AR

Peter Childs proposed that all the problems stem from an error in the way stock market valuations are calculated.

Then David N asked cunningly:

Suppose I have a shop that is completely robotic…my shop has created wealth without the use of labor, hasn’t it?

This is a good attempt at rebutting the labour theory, but in reality it doesn’t really matter if there is only one person left minding the shop and supervising the robots, or even nobody at all. The final product still embodies labour power from other parts of the overall process including the production and transport of raw materials and energy. Yes, there may even be some human accounting, management and marketing tasks which prove to be socially necessary to make the product worth bringing to market, or maybe not.

A robot at a TV Factory in Mexico CC pic by Avram Cheaney

A robot at a TV Factory in Mexico CC pic by Avram Cheaney

Aurino explains that the newly equipped robot powered shop has only a temporary opportunity to make super profits.

as soon as your competitors discover the same thing, the market price of your widgets will be determined by the price of your raw materials plus the amount of labour required to design, manufacture, operate and maintain the robots.

Mark Rowe’s suggestion takes this line of reasoning further:

If labour is the key – with the robot scenario wouldn’t you need to consider all the labour that contributed to the design, manufacture, operation and powering of the machines

Yes indeed. We can also differentiate between the one-off efforts involved in design and manufacture of the robots, and the ongoing requirement for some labour to operate, power and maintain these machine tools. As far as the value of the items produced by this newly automated labour-efficient factory is concerned, the initial investment will sooner or later be disregarded, and both the perceived and actual value of the items once brought to market will drop to match the lower amount of human labour power involved in the production process.

Machine Labour Hours?

Now then, McDudeqq’s answer is so far away from any previously existing theory that it’s quite hard to take onboard, but worth making the extra effort to consider. All he says is

It is machine (labour) hours

As if machine running hours can be considered in the same way as, or perhaps on a par with human labour hours. Well the robots are consuming a certain amount of energy for each hour of production, and will require a scheduled maintenance after certain fixed periods which could be divided into the hourly rate, so why not.

Is there a fundamental difference between machine hours and human hours?

Well humans have certain needs which if not fulfilled will not make them very useful workers. Sleep for example! In order for your worker to be able to work at making profits for your on a regular basis, she also needs to be able to take a minimal amount of time off for rest and everything else necessary to keep body and soul together, as they say. Of course we all need to eat, just as the robots consume energy, so the provision of food, shelter, warmth and even the production of future generations of workers needs to be factored into the total labour costs of buying each human labour hour.

Driving down the cost of labour is what profitability is all about, which is why corporations will sometimes invest millions in order to lay off just a handful of workers. As long as it reduces the total wages bill, the profitability will be seen to have inreased, thus pushing up the stocks value which can then be used to borrow and invest in yet more labour reduction, as long as things are going well.

So let’s continue our discussion about wealth, labour and recession . How do you think new technologies such as robots fit in to existing economic theory such as the labour theory of value? Is this something that should benefit from national and international stimulus packages?

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Thanks for reading Andy Roberts articles about Economics on the DARnet Blog