Pharaoh dreamed: and, behold, he stood by the river. And, behold, there came up out of the river seven well favoured kine and fatfleshed; and they fed in a meadow. And, behold, seven other kine came up after them out of the river, ill favoured and leanfleshed; and stood by the other kine upon the brink of the river. And the ill favoured and leanfleshed kine did eat up the seven well favoured and fat kine.

This is as political as this site seeks to be: 3000 years old!

But the point is surely well made: Joseph interpreted the dream rightly: when there are years of plenty reserves should be built up: so that when “famine” years come there  is money in the kitty to allow for such.

Nearly all politicians will do all they can to avoid building up reserves: rather they allow the popularization to gorge themselves in the belief that “tomorrow never comes”

Seemingly a belief too of many economists.

The Centre of Ethical Economics, together with the editor of “thismillennium.com”  is trying to create a book on this subject. Help, please!

It appears to be widely accepted that the price of all buildings - and in particular private homes - has been the breaking point setting off the present crisis. This has very simple origins: irresponsible governments and banks who have for popularity and financial reasons let house prices increase much more than the rest of inflation. Offices, shops and factories were allowed to become overpriced to help pension funds to succeed in the short term. House price increases was very popular with those who owned houses: their wealth increased without any action being required on their part.

One set of “experts” blame “low interest rates” which made houses “too affordable”. This is immoral. The reason is that governments felt that it would have been unpopular to not allow house pricing to run ahead of inflation by not taking preventative action (for example by putting high capital gains tax on excessive house sale gains).

Banks gave firm financial encouragement for their staff to lend high amounts without any thought that this might be in the long (or as it happens) medium term bad not only for their customers but also for the banks themselves. We know that in the UK, for example, for many bank branch managers the sale of mortgages at almost whatever cost to customers was considered more important than using prudent banking practices.

All that was needed was simple ethical thought, a study of the past, and a little common sense.

(see further “Housing“)

But the resultant depression is causing many un-necessary effects.

Are there lessons to be learnt: and if so will they be accepted by those for whom a revolution to their accepted thinking is required?

This is where we generally get involved.

To put it at its simplest: if, to stop economic “overheating”, governments had increased income tax - made the better-off contribute their share of the medicine - AND put surplus funds thus obtained into reserves: then adequate money would now be available to help in the times - the inevitable times - of depression.

It would appear that the only reason against this is the really rather immoral way in which political parties and politicians state that for none-too-ethical reasons that income tax should always be kept at minimum levels. And perhaps the cynical attitude of those who think that taxation is anti-work, anti-personal freedom and surpluses will never be held.

But we are not politicians. We merely hope that some of them will be brave enough to get out of old, stale, rather immoral and economically rather dubious thinking.

More work on this will follow in 2009. But there are further thoughts on this subject within the site.

The pessimist is one who thinks that the human being in inherently incapable of being other than greedy. The optimist “knows” we can change.

This site is the challenge for the optimist to succeed.

As with any such quotes, it would be easy to knock it per se. But that is always unfair, since taken out of context one can all too easily prove anything by juggling with those words.

Certainly it is right that it is of ethical concern as to how the rich do distribute their wealth. Many would argue that it does not matter, since should a rich person spend (say) a great deal of money in purchasing a football club then the spectators, players, managers, ground staff - and so on - will all benefit from that expenditure. The money is not being put onto a bonfire to end up purely as smoke and ash.

Yet would not there have been far greater benefit if that money was used to dig wells and put in water purification systems in remote Africa - or a similar type of project?

No, where the statement does need questioning is the preceding one: just how was that wealth acquired? Was it by getting excessive money from sales made? Or by paying staff at a lower rate than they should reasonably have expected?

It is rather like looking at an old “stately home” and putting the question up: yes, lovely building, but just who paid for it and how was the money got to finance the building?

This does need developing.

There is a large agreement that present controls of macro-economies are (mainly) through the use of one of two mechanisms: the variable use of bank interest rates; and fiscal means. The second seems to be out of favour for two reasons: that it puts the “blame” for such actions on politicians rather than on bankers: and because taxation has become a political “brownie point” concept: the lower the taxes one political party promises, regardless of any thing else, the more electable will it become.

(It may be noted, however, that the recent tax refunds in the USA have been given simply because the US dollar was so lowly valued that further lowering of the interest rate was considered impossible: but on this occasion the political gains have been negligible)

But the use of the interest rate mechanism has major practical problems in long-term increasing of a country’s overheads (rents etc are almost never lowered when interest rates fall): but from our point there results a severe ethical problem: should the economy of a country, when it overheats, be put right by effectively making the rich richer and the poor poorer? Should the poor in practice pay for the situation resulting from the over-spending of others?

The theory seems to be that those who have to borrow (not the rich) will reduce their spending when they have to pay more for their borrowing. But why just them? Why do the rich (who do not have to borrow) also have to share in the reduction of spending power?

Surely the amount of money available in one form or another is the significant factor. So why not variable income tax rates? Is it an impossible dream that taxation for incomes should be based on a present, daily rate rather than annual ones?

As mentioned above, the problem would appear to be totally political. Whilst the economists are concerned with inflation and money-flow, (and we do not argue that they are wrong so to be), should the task for controlling such be given to a body without an ethics guideline or committee to guide such? More thought is surely required.

[It is perhaps not without significance that most of the world’s religions give strict condemnation of “usury”.]

End of 2008 note: Very low interest rates in some parts of the world have not produced the quick solutions the protagonists of the interest rate tool have suggested. Why?

But is this always or even often correct? The business has to make profits for all kinds of reasons. Even at its simplest to enable funds for research & development and remunerate fairly investors. And yet. And yet….

Is there a difference between the profit for retention / use by the business and the money taken by the shareholders / owners / managers for their own use?

Just what is the excuse for the accountant or the lawyer to charge for an hour well over double what the pensioner receives in a week?

Is there any real validity in the oft-stated excuse of professionals that “somebody has got to compensate them for their long training”? Why? Surely they went into their profession because they thought that their work would be compatible with their intellect and their desires? Not because they would need “compensation”? Did ever a politician or a priest complain that they were not paid enough to cover their hours of training? (Yes, most politicians do serve many boring hours of apprenticeship).

Surely we all know of successful entrepreneurs who supply members of their families with expensive cars: yet pay many of their staff so little that their children have to get school lunches paid for by the state..

How many managers in industry or commerce would refuse to accept the challenge or the power of being main board directors simply because they were not going to be paid significantly more than previously?

(This article is in the process of re-write)

It is argued that this situation has the beneficial effect of making the individual work hard and profitably and encourage that person to put enough funds into reserve rather than to spend all the available money in short term personal benefit.

This has a whole variety of problems, however. Is the hard and profitable work fair or excessive? Are excessive hours worked, so that family at critical times receive too little of the quality time of the earner, the earner having not only spent excessive time working but also perhaps in travelling to work or putting too much mental effort in so that too little is left when he returns home?

The whole matter of “fair reward” is commented upon in other papers.

However if one concentrates on maximising income to allow high surplus funds for saving, then has the earner given sufficient to society in “voluntary” matters – helping with youth football training, being on school PTAs, organising events for the Macmillan fund, acting as treasurer to some town-beautifying organisation?

To put it bluntly: should encouragement be given for one to neglect others and the wider society simply to maximise one’s own comfort in old age?

The second point that needs challenging is that is bad to fail to save a sufficient portion of one’s income.

Now it is surely self-evident that the childless couple should be able to save more than those with children. The logic of those who argue for maximising personal reserves is then that children should be avoided. But who will then be around to be the workers in future generations?

[To avoid misunderstanding: some of the very nicest people neither have children nor are they driven by the desire to save or make money.]

So should the main determinant on available funds in our old age be based simply those we have privately saved up, whatever the cost to family and society?  This is the heart of ethical-economics consideration.

But further: where does the actual money to pay out pensions come from? Is there a mystical cake, which is available with ever-flowing funds marked “institutions”? Or is there just one cake available for funds from which pensions are paid: largely being paid by current consumption, but the decision on how to share this cake between state and “private” pensions is simply a political matter?

For example: a shopping centre was owned by the state: rents for the shops, the “overheads” built into pricing, were duly determined, presumably for the public good. But then it was sold off to a pension fund: whose statutory duty is not to the public interest or the public good but to maximise income for its members.

Let us be quite clear: savings in pensions etc are worth nothing unless there is money around to take over those savings. Imagine someone has put £100,000 over many years into the purchase of gold bullion: but then earnings drop to such an extent that there is simply no available money to buy such “luxuries”. The £100,000 becomes worthless.

The gold bullion (i.e. the pension) are only of value if at the time the pension is to be paid out there are those people available to purchase the item.

Hence the important thing in the provision of pensions is surely not the past activities of the pensioner but the earning power of the generations around when the pensions are being paid out.

Once again, there seems that very little thought has gone into formulating current pension ideas.

(to be continued)

There appears to be two official American attitudes towards Global warming: the second, wholly laudable, is that alternatives must be found - and quickly - to present global warming producers. After all, when a former American President said that within 10 years they would get to the moon: they got there. So they should be able to accept the challenge to replace the causes for global warming.

BUT: the first, the initial reaction, is deeply worrying. Nothing can be accepted if, in the short term, it affects wealth production.

Now this is where those who believe in ethical economics must clash with politicians: though not, it may be said, of many business leaders.

Of course, much depends on the concept of morality: is short-term financial profitability more important than the long-term good of the planet?

Now we accept that the American constitution is completely a-religious. Yet while there is the huge American church-going public we cannot understand why this situation is accepted. The Jesus of the gospels, so theoretically important to the American public, seems to have been far more concerned with the abuse of financial power than ever He was with the Kingdom of God.

Which should take priority? The ethical case - if it is such, and we know of no-one arguing that the long-term good of the planet is not an ethical matter - or the economic, the short-term benefit of the few, the American producers / wasters who represent a very small percentage of even the present world population.

At present there is no definitive answer: for there is no accepted discipline of ethical economics. But surely there should be!

House pricing causing major difficulties has very simple origins: irresponsible governments and banks who have in the past for popularity and financial reasons let house prices rise well above inflation rates.

In some parts of the world - for example in Spain and the USA - there is an additional reason: the oversupply of houses. This causes house prices to fall, but is (was) obviously foreseeable by any government who controlled in any way planning/building controls.

The other, seemingly opposite, reason, is that in the UK: a continued use of high interest rates which together with excessive house pricing (caused by governmental failure to control these) has meant that many house purchases have become unaffordable.

(There is a rather stupid and amoral/immoral argument that in the case of the UK interest rates should have been higher in the past to make the houses unaffordable earlier. But the discussion on interest rates is elsewhere in this site) .

The reason is that governments felt that it would have been unpopular to not allow house pricing to run ahead of inflation. Accordingly they failed to take preventative action (for example by putting high capital gains tax on excessive house sale gains).

Banks gave firm financial encouragement for their staff to lend high amounts without any thought that this might be in the long (or as it happens) medium term bad not only for their customers but also for the banks themselves.

All that was needed was simple ethical thought, a study of the past, and a little common sense.

Have we any short-term solutions? No. We do not simply because we are not seeking to be a short-term economic site. Historically there would not have been current problems if there had been a better interaction between ethics and economics. In the future, should ethics and economics interact in the actions of government and banks then this situation will not repeat.

The situation of Rented Private Houses

…

As a practical example of the interrelationship between ethics and economics in a none-too-obvious area one can consider the cost of home rents.

There are three core factors which determine these rents: the capital costs to the landlord; the costs of interest charged to him in funding such (or loss of interest should he self-fund): or the reasonable “return on capital” expectation; and the marketing factor: what one can expect to be paid as rent.

The first of these is very awkward and contains many political quandaries: but the basic point is that the price of land, which is a major determinant on house costing, is freely determined: whilst the supply of this land is strictly controlled by government. Now this simply makes very difficult and damaging sense in economic terms: either supply and pricing should be strictly controlled, or they should both be “free”.

This is not the place to go fully into the case for freeing the supply of land: though in truth this is seldom made, sometimes for selfish reasons (’not in my back yard’), sometimes because modern regulations make it very hard to built low density housing, sometimes because the desire for ‘pristine’ countryside outweighs the desire of people not to necessarily live in tight proximity with others.

All we would suggest is that we take a closer look at deserted villages in from the past. Because they have not had large concrete foundations etc they have become re-cyclable. Could it be that modern building regulations are taking a very wrong view of the longevity of houses? There is surely little in history which would suggest that most houses being built in the first quarter of the 21st century will still be standing in the 22nd. So why make them so difficult to demolish? Why not assume that perhaps those locations will be wanted for other purposes?

But when house rents (or capital costs) are too high just who benefits? Surely, yes, the one who sold the land or the building. But the one who has (or chooses to) rent? Is the net result that either he has too spend too much of disposable income on rent or demand too high income for the good of both the economy and of those who purchase his services. (to be continued..)