Voice From The Back: Youth Unemployment (2012)

The  Voice From The Back column from the June 2012 issue of the Socialist Standard

Youth Unemployment 

The economist Paul Krugman paints a frightening picture about youth unemployment. “In Spain, the unemployment rate among workers under 25 is more than 50 percent. In Ireland almost a third of the young are unemployed. Here in America, youth unemployment is “only” 16.5 percent, which is still terrible — but things could be worse” (New York Times, 29 April). Supporters of capitalism often laud its “efficiency” but it is difficult to think of anything more wasteful than debarring young workers from taking part in the production and distribution of wealth. Half of all young Spanish workers on the dole? Some efficiency!


The Plight Of The Elderly

It is only one case amongst thousands of how elderly men and women of the working class are treated, but it highlights the daily experience of workers everywhere. “A health board has been ordered to apologise to the family of an elderly man sent home from hospital in winter in his shirt, trousers, dressing gown and one slipper. David Spelman, 85, had hip replacement surgery at the Southern General in Glasgow after a fall in February 2011. Days after being discharged he fell again and died shortly afterwards” (BBC News, 8 May). An apology from the health board may satisfy some jobsworthy official.


The Pay Rises That Aren’t

One of the illusions beloved by supporters of capitalism is that while the system isn’t perfect at least there is a steady improvement of conditions. The Income Data Services has come up with figures that prove that is complete nonsense. “Of Britain’s 29.1 million-strong workforce around 80 per cent, or 23.1 million, work in the private sector. The vast majority of these received a pay rise which failed to keep pace with inflation, said the report by pay experts, Incomes Data Services (IDS). It said the average pay rise between January and March was 3 per cent, compared with inflation at 3.5 per cent. And 8 per cent of workers, typically those working in the manufacturing, construction or not-for-profit sectors, saw pay frozen” (Daily Mail, 8 May).


The Uncaring Society

As the government looks for more and more ways to cut support for the sick, the elderly and the disabled, recent figures show how it is affecting voluntary carers. “Almost six in 10 admitted that taking care of vulnerable family members had put them under so much stress and strain it caused depression, anxiety and nervous breakdowns. The same number said their caring responsibilities had harmed their careers, research by the newly-formed Carers Trust found. There are about six million unpaid carers in Britain looking after older parents or disabled children” (Daily Express, 8 May). Capitalism always seeks to cut overheads to increase profits and caring is just not one of its priorities.


Another Cunning Plan

In the BBC TV comedy series Blackadder one of the characters keeps coming up with a “cunning plan” that always turns out to be completely useless. The present government has a cunning plan to deal with the economic crisis. Cut the workers’ wages, increase their pension contributions, slash their pension’s benefits and increase the pension age to sixty-eight. This has led to hundreds of thousands of public sector workers taking part in a 24-hour, UK-wide strike in a dispute with the government over pension changes. “Cabinet Office minister, Francis Maude said pension talks will not be reopened and “nothing further will be achieved through strike action”. Mark Serwotka, general secretary of the PCS union – which estimates that an “overwhelming majority” of its 250,000 public sector members are on strike – said the UK would have “the highest pension age of any European country” (BBC News, 10 May). The truth is that inside capitalism slumps and booms are part and parcel of the system and there is no cunning way to plan it despite the efforts of Baldric or Francis Maude.


A Rare Flash Of Truth

Occasionally politicians have been known to tell the truth. This is such a rare occurrence that we feel we have to record it for posterity. “Education Secretary Michael Gove has attacked Britain’s class divide between rich and poor children, branding the split ‘morally indefensible’. In a speech at private-school, Brighton College, Mr Gove told teachers and pupils that Britain ‘has failed to tackle’ the widening parameters between the country’s social classes” (Daily Express, 11 May). “Morally indefensible” it may well be but as an out-and-out supporter of capitalism, an Old Etonian and a Conservative MP he has aided the day-to-day running of this “morally indefensible” social system.


Piety And Poker

It should come as no shock to socialists to learn that outwardly religious devotees are often dreadful hypocrites. We have, after all, had plenty of evidence of the Vatican covering up child abuse cases. The following news item nevertheless is an extreme example of religious hypocrisy. “Six leaders of South Korea’s largest Buddhist order have been forced to resign after being caught on video drinking, smoking and playing high-stakes poker at a memorial event for a dead Zen master” (Independent, 12 May). Well, at least they didn’t interfere with young children and unlike the priests they did resign.


National Ill-Health Service

Capitalism rewards the exploiting class and victimises the working class. A case in point is the treatment of the sick and the infirm. “Patients are being left lying on trolleys for up to 24 hours because hospitals are alarmingly short of beds, the union representing Britain’s nurses has claimed. Pressure on beds is so great that some people end up being treated in corridors, especially in A&E departments, according to a survey of 1,246 UK nurses and healthcare assistants belonging to the Royal College of Nursing who look after some of the sickest patients” (Observer, 13 May). This treatment only applies to the working class; if you can afford it you will get the most expert care quickly and efficiently.

Cooking the Books: Loose Talk About Thin Air (2012)

The Cooking the Books column from the October 2012 issue of the Socialist Standard

The pre-WW2 currency crank, Major Douglas, used to talk about banks being able to create credit by a mere “stroke of the pen”. Currency cranks have been comforted in this belief by some modern writers on money and banking saying that banks can create money out of nothing. What the cranks don’t realise is that these writers mean something quite different.

One quote they have trumpeted all over the internet is from leading Financial Times journalist Martin Wolf who wrote in 2010:

“The essence of the contemporary monetary system is creation of money, out of nothing, by private banks’ often foolish lending.” (10 November)

US economist, Paul Krugman objects to such talk:

“As I read various stuff on banking . . .  I often see the view that banks can create credit out of thin air . . .  it should be obvious that it’s all wrong. First of all, any individual bank does, in fact, have to lend out the money it receives in deposits. Bank loan officers can’t just issue checks out of thin air; like employees of any financial intermediary, they must buy assets with funds they have on hand.” (Link.)

Wolf will not believe that an individual bank on its own can create money out of nothing to lend. The theory he was expressing somewhat sloppily is that the whole banking system (including central banks, such as in Britain the Bank of England, in the US the Fed) can.

Today all banks (which includes building societies) have to hold reserves at the central bank which are used to settle payments between them at the end of the working day. The argument is that this means that a bank can make a loan without first having the money. But not for long: they have to find it by the end of the day (literally). In a polemic against Krugman, another US economist, Scott Fullweiler, explains:

“But, let’s also assume that Bank A had no reserve balances on hand when it made the loan. How does it transfer reserve balances to Bank B? As it turns out, the Fed provides an overdraft for any payment sent in which a bank’s account goes below zero – that is, the payment is never rejected when it occurs on the Fed’s books. The Fed does this as part of its legal obligation to promote stability in the payments system. The rub is that the Fed requires Bank A to clear this overdraft by the end of the day, which Bank A will most likely do in the money markets (such as the federal funds market, often via pre-established lines of credit). So, on the liability/equity side for Bank A, we end with ‘+borrowings’ in the money market to clear the overdraft.” (Link.)

This invalidates neither the view that all loans have to be covered by deposits nor that banks are financial intermediaries, borrowing money and then lending it at a higher rate of interest (as Fullweiler puts it, banks aim “to earn more on assets than is paid on liabilities“). What this theory is aimed at refuting is the view that the central bank can, under existing arrangements, control bank lending, as indeed it can’t (for other reasons too). But to express this by saying that banks have the power to create money to lend “out of nothing” is highly misleading and a gift to the currency cranks.

What it does not support is the view that an individual bank can make a loan with no funding by a mere computer entry and then charge interest on it, a common currency crank fallacy.