For social harmony, in our time, we need a big enough and a small enough universal basic income.

Sir, Chris Giles refers to a “1994 OECD study [which] contained a warning of the dangers in store for countries that failed to tackle problems in their labour markets. “It brings with it unravelling of the social fabric.” “Improve employment rates to tackle inequality” February 15.

Giles opines, “Flexibility and social protection is a winning combination for advanced economies. While it does not prevent all employment problems, whether you take a right-of-centre “work not welfare” attitude or a left-of-centre “a hand up not a handout” stance, in general the combination works.”

I agree! An unconditional universal basic income, large enough to allow many to reach up to whatever jobs are available, is “a hand up not a handout”.

And an unconditional universal basic income, small enough so as not allow many to stay in bed, is also “work not welfare”.

So what’s keeping an UBI from being implemented?

To begin there’s not sufficient recognition of the real conflicts, basically a class war, between those who having a job want better pay and those who want a job at any pay.

But, first and foremost, it is those who profit, politically and monetary, on imposing their conditionalties when redistributing tax revenues, who strongly oppose a UBI, since it, naturally, would negatively affect the value of their franchise.

PS. The Chavez/Maduro regimes are clearly outliers among the redistribution profiteers but just as an example I once calculated that the 40% poorest of Venezuela had received less than 15% from the Bolivarian Revolution than what should have been their allotment had Venezuela’s net oil revenues been shared out equally to all. On the other side many of the odious profiteers pocketed many thousand times what should have been their share.

@PerKurowski

The prime element of a Universal Basic Income is its unconditionality, and that’s why redistribution profiteers hate it the most

Sir, John Dizard titles“Sorry, but the world is not yet ready for universal basic income” October 11, but then he writes an article exposing exactly why we need a Universal Basic Income. Clearly he has not understood the real implications of UBI’s most important principle that of its unconditionality; never to be paid out because you are something different, like in jail.

I came to Universal Basic Income by means of my long fight for having all Venezuela’s net oil revenues shared out equally among all Venezuelans. That would have saved my homeland from its current tragedy. Instead those revenues fell into the hands of odious, besserwisser, corrupt redistribution profiteers… who paid it out generously to themselves and their friends… and with especially bad cheese to the rest of Venezuela.

“UBI…cannot be done within the bounds of the existing social contract in advanced countries.” Absolutely, as long as we allow redistribution profiteers to define those bounds.

Those redistribution profiteers who, circling their wagons in order to defend the value of their franchises, convinced Dizard of that “big tax rises and reductions in other benefits would be needed, even for a modest basic income”. Their most usual tool is using very high figures for that basic income. There is absolutely nothing that would stop advanced countries from beginning by paying out some US$ 200 per month to all its citizens. That would help oil the economy much more than a tax cut.

We urgently need something to help create decent and worthy unemployments in time, before all social order breaks down… and redistribution populists like Hugo Chavez and pals take over. 

@PerKurowski

How long are you going to allow statist bank regulators subsidize the public sector borrowings with a zero percent risk weighting?

Sir I refer to Kate Allen’s and Chris Giles write “The total stock of OECD countries’ sovereign debt has increased from $25tn in 2008 to more than $45tn this year” “Rising tide of sovereign debt to hit rich nation budgets, warns OECD” February 23.

I do not know what the total OECD debt was in 1988, but the US public debt was t$2.6 trillion when then statist bank regulators assigned it a 0% risk weight. At end of 2017, much because of the subsidies imbedded in that 0% weight, US’s public debt was now US$20.2 trillion. It still has a 0% risk weight.

In 2004, in a letter you published I wrote: We wonder how many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector. In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.

I came then from a development country, Venezuela, but that comment clearly applies to the OECD too.

In December 2009, on the eve of the new decade, FT also published a letter in which I wrote: “My worst nightmare is that unmanageable Versailles-type public debts will become fertile ground for those monsters that thrive on hardships”. That nightmare is only getting worse and worse.

@PerKurowski

Universal Basic Income panics redistribution profiteers. OECD’s model insists on these targeting better the poor.

Sir, Chris Giles writes: “The modeling exercise by the OECD, the Paris-based organization of mainly rich nations that specializes in cross-national comparisons of policy ideas… shows the simplicity of basic income schemes would come at the cost of a need for increases in taxation, less effective targeting of support on the poorest and large numbers of gainers and losers.” “Basic income ‘would fail to reduce poverty’” May 29.

What can I say? The study is full of self-serving premises like “the right to a basic income would undermine the incentives to work because it would ‘sever links between carefully balanced rights and responsibilities of job seekers’”. There it completely ignores the role of UBI in helping the unemployed, without creating any stigma, to get out of bed in order to capture whatever temp opportunities there might exist in a job market characterized by more and more structural unemployment.

Also when the report concludes, “Large tax-revenue changes are needed to finance a basic income at meaningful levels,” any savings of redistribution costs are clearly ignored, and the “meaningful level for a basic income” is undefined.

Sir, this is clearly a case of redistribution profiteers defending the value of their franchise. That is only to be expected.

@PerKurowski

http://myubi.blogspot.com

Global supply chains should and will change, as robots and automation substitute more and more for cheap labor.

Sir, Shawn Donnan, referring to a recent report by the World Bank writes that a “report by World Bank economists yesterday highlights the fragile state of one historically important engine of global growth — trade” “Policy uncertainty threatens trade growth, says World Bank” February 22.

And he follows up with “One of the big consequences of the explosion in trade agreements in recent decades has been the emergence of global supply chains. Such chains are widely seen by economists to have made businesses more efficient and to have helped boost productivity”

Indeed, but certainly more than policy uncertainty, what could currently affect global supply chains, is that these were based on cheap labor, and more and more cheap labor is being substituted by even cheaper and cheaper robots and automation.

What amazes me is that it is almost impossible to find any statistics; from for instance the World Bank, IMF and OECD, on how many jobs have effectively been taken over by robots and automation, for instance the last year. That to me sure represents a big lacking of data required for projecting tomorrow. 

@PerKurowski

Is now OECD blaming central bankers? Has it no shame? OECD is just as guilty.

Sir, William White, the chair of the OECD’s economic and development review committee tells us “Only government action can resolve a global solvency crisis” September 26.

I don’t get it. Is now the OECD blaming central bankers? What? Since 1988, with the Basel Accord, Basel I, approved enthusiastically by the OECD, the sovereigns of the OECD, in other words OECD governments, for the purpose of the capital requirements for banks, have been risk weighted at 0%, while We the People have been assigned a risk weight of 0%. What good has that done us?

White writes: “The monetary stimulus provided repeatedly over the past eight years has failed to produce the expected expansion of aggregate demand.” Is expansion of aggregate demand by monetary stimulus the only thing that was expected to solve stagnation? If so, our grandchildren are screwed. What about the workings of the real economy, like the SMEs and the entrepreneurs, those that OECD and bank regulators don’t want to have access to bank credit, only on account of these being risky borrowers?

@PerKurowski ©

If IMF seems to favor the private sector, rest assure it is favoring even more its shareholders, the governments.

Sir you write “International Monetary Fund last week…published an article questioning its own neoliberal tendencies…concluding that “instead of delivering growth, some neoliberal policies have increased inequality, in turn jeopardizing durable expansion”. And you describe it, marvelously imaged, with that “In seeking to be trendy, the IMF instead looks as out of date as a middle-aged man wearing a baseball cap backwards”, “A misplaced mea culpa for neoliberalism” May 31.

My opinion though is that if a mea culpa should be forthcoming from the IMF that should have more to do with how they allowed the label neoliberalism to cover up for statism. For instance most public services privatized in Latin America were awarded based on who offered to pay the governments the most, not on who offered to charge the lowest tariffs; and so all money received became de facto tax advances to governments, to be later covered by customers having to pay higher tariffs. Neoliberalism? Hah!

John Williamson coined the term “The Washington Consensus” that was rightly or wrongly adopted as a stand in for neoliberalism, in 1989.

The year before, the Basel Accord, determined that for the purpose of setting the capital requirements for banks, the risk weight of sovereigns, at least those of the OECD, was zero percent, while the risk weight of citizens, the private sector, was 100 percent.

What neoliberalism can thrive along side such virulent statism as that displayed by the Basel Committee?

Let us not fool ourselves; IMF represents the governments, not the private sector, not the citizens. If it does something that seems to favor the private sector, the citizens, rest assure it is by doing so favoring governments even more.

@PerKurowski ©

One inequality is so bad for growth that it should enter the Guinness Book of Records.

Sir, Chris Giles discusses the point of view of OECD and IMF with respect to the relations between inequality and economic growth, “Inequality is unjust — it is not bad for growth”, August 19.

Giles correctly writes: “Vigorously promoting competition…simultaneously boosted efficiency and fairness” and “attacking vested interests and the economic rents that allow the fortunate few to gain at the expense of others is a fruitful avenue for policy.”

But Giles, sadly, finds again no reason to mention the access to bank credit, one of the most fundamental ingredients of any pro-growth and pro-equality agenda, and how bank regulations completely distorted it. Here follows a short recap:

The basic capital requirement banks had to hold against assets in Basel II of June 2004 was 8 percent.

The risk weight for an AAA to AA rated sovereign (which means money managed by government bureaucrats) was 0%, so that the effective capital requirement was 0%, so banks could leverage infinitely when lending to such governments.

The risk weight for an AAA to AA rated private sector borrower (the AAArisktocracy) was 20% so that the effective capital requirement was 1.6%, so banks could leverage more than 60 to 1 when lending to this AAArisktocracy

The risk weight for a borrower without a credit rating was 100%, so that the effective capital requirement was 1.6%, so banks could only leverage 12.5 times to 1 when lending to for instance SMEs and entrepreneurs.

That meant that banks could leverage their equity and the implicit support they receive from taxpayers immensely more lending to “The Safe” than when lending to “The Risky”.

That meant that banks could earn much higher risk-adjusted returns on their equity when lending to “The Safe” than when lending to “The Risky”.

That meant banks would lend more and at lower relative rates to “The Safe” and less at higher relative rates to “The Risky” thereby curtailing the opportunities of those who have not yet made it.

And that had banks dangerously overpopulating supposedly safe-havens like the AAA rated securities backed with mortgages to the subprime sector and Greece; which caused the very bad for growth financial crisis; while simultaneously, equally bad for growth, negating the fair access to bank credit, the opportunity, to those tough we need to get going, most especially when the going gets tough.

The number one reform that needs to take place, for growth and equality to have a fair chance, is to get rid of the credit-risk weighted capital requirements for banks; and this even if it requires to temporarily lower the basic capital requirement for banks.

However the problem with that is that it would require all experts of OECD, IMF and all other having anything to do with bank regulations to explain, the why of this distortion in the allocation of credit to the real economy… and the why of their utterly long silence on it…

And of course, on the silencing part, FT and the likes of Chris Giles, are also among those having some explaining to do.

PS. Basel III, by tightening general capital requirements for banks has, on the margin, even increased some of the distortion the credit-risk weighting cause. 

@PerKurowski

Bank regulators suffer “pre-dread-risk”, an exaggerated sense of fear and insecurity anticipating catastrophic events.

Sir, you know, and John Plender knows that over the years, with more than a thousand letters, I have warned that current capital requirements doom banks to dangerously overpopulate “safe havens” and equally dangerously under-explore the “riskier” but surely more productive bays where SMEs and entrepreneurs reside. And the regulators, as the safest of all safe havens, designated the infallible sovereigns… their paymasters.

In November 2004 FT published a letter where I said: “We wonder how many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector. In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.”

And now John Plender writes about “a shortage of so-called safe assets… a stampede into sovereign bonds with negligible or negative yields — Even a modest move in the direction of historic interest rate norms could pose a threat to solvency [of] banks whose balance sheets are stuffed with sovereign debt” “Why bullish markets did nothing for bearish boards”, August 6.

An in the discussion Plender mentions that “OECD economists [have] identified flawed incentive structures as part of the reason for divergent perceptions of risk… equity-related incentives and performance-related pay…earnings per share and total shareholder return, [which] are manipulable by management.”

And Plender also brings forward “economists at the Basel-based Bank for International Settlements believe that low interest rates beget yet lower rates because they cause bubbles, followed by central bank bailouts. Their worry is that we risk trapping ourselves in a cycle of financial imbalances and busts.”

But Plender, in true FT tradition, does not say one single word about the perverse manipulation of credit markets carried out by bank regulators.

Plender mentions Andrew Haldane putting “particular emphasis on the phenomenon of “dread risk”, a term used by psychologists to describe an exaggerated sense of fear and insecurity in the wake of catastrophic events.

But, does not requiring banks to have 500% more capital when they lend to “the risky” than when they lend to “the safe”, evidence the mother of all exaggerated sense of fear and insecurity… in this case anticipating catastrophic events… a sort of pre-dread risk?

Because, that is exactly what regulators showed when, with Basel II, they required bank to hold 8 percent in capital when lending to a “risky” SME or entrepreneur, but only 1.6 against AAA rated assets… and allowed zero capital when lending to infallible sovereigns.

PS. The OECD’s Business and Finance Outlook 2015 also similarly ignores the effects of the risk-averse bank capital requirements. When referring to the “reduced bank lending [which have] affected SMEs in particular” it shamelessly limits itself to stating “credit sources tend to dry up more rapidly for small companies than for large companies during economic downturns”. 

@PerKurowski

OECD: Make capital requirements for banks, instead of on credit ratings, depend on job-creation-potential ratings.

Sir, Sarah O’Connor reports that “OECD warns on ‘chronic’ low pay and job insecurity” July 10.

When you have bank regulations that are solely targeted to avoid those perceived credit risk which are basically already cleared for by bankers, by means of risk premiums and size of exposure; and which care not one iota about the effective allocation of bank credit… you will not be able to generate as much jobs as you otherwise could. It is as simple as that.

If you are really desperate for jobs, then offer banks to be able to hold less capital against loans that have a high potential of job creating ratings, so that banks can obtain higher risk-adjusted returns on their equity financing what you wish they finance.

And, by the way, if you want more planet earth sustainability then equally offer banks to be able to hold less capital against loans that have high sustainability ratings.

In short it all has to do with giving banks a purpose different from just silly credit risk avoidance. “Silly”? Yes! Bank capital is to cover for unexpected losses and it is precisely what is considered as absolutely safe from a credit risk perspective that carries the greatest potential of delivering the unexpected.

OECD, has a fundamental and urgent structural reform to do, namely throwing out the credit-risk-weighted capita requirements for banks. That would do much more for the creation of jobs than its worrying and wringing hands. 

PS. And perhaps OECD needs to start thinking about worthy and decent unemployments too.

@PerKurowski

Before Greece asks Europe to give it a chance it should stop hindering the free fair flow of bank credit to Greeks.

Sir, I refer to Yannis Dragasakis’, Yanis Varoufakis’ and Euclid Tsakalotos’ “All we ask is that Europe give Greece a chance” March 18.

Before they have the right to ask that of Europe they should give their own citizens a chance.

They write of “Many of the 60 per cent of young people out of work will one day be reclassified as long-tem unemployed”… and yet they play along with bank regulations which by favoring credit to the government, hinders the free flow of fair credit to SMEs and entrepreneurs, those who stand the best chance to create the sustainable jobs the Greek youth so urgently need.

In Paris, March 25-26 OECD will hold its Integrity Forum 2015 titled Curbing Corruption Investing in Growth. To me, when regulators tilt the access of bank credit in favor of their employers, here by means of risk-weighted equity requirements, it sounds like a sort of corruption, and it definitely stops medium and long-term growth. I hope OECD, though also government dependent dares to analyze that issue.

@PerKurowski

Yes Tim Harford, where are the independent bank regulator robots when we really need them?

Sir Tim Harford writes: “bored with blaming bankers, we blame robots too, and not entirely without reasons. Inequality has risen over the past 30 years” “Man versus machine again” March 14.

But Tim Harford ends asking: Where are the robots when we need them?

I agree. Robots would never ever have come up with something like the Basel Accord, which, in 1988, decreed that banks were required to hold 8 percent in equity when lending to the private sector but 0 percent when lending to central governments of OECD countries.

Reasonably designed robots, not preprogrammed by statist or communists, would know that the last thing they could do while regulating banks, was to distort the allocation of bank credit to the real economy.

@PerKurowski

Martin Wolf, silly risk aversion is not part of our western values.

In a recent OECD paper titled “Trends in income inequality and its impact on economic growth”, authored by Federico Cingano, we read the following note:

(5) With perfect financial markets, all individuals would invest in the same (optimal) amount of capital, equalizing the marginal returns of investment to the interest rate. This occurs as complete markets allow poor individuals, whose initial wealth would not allow reaching the optimal amount of investment, to borrow from the rich (infra-marginal gains from trade). If, on the contrary, financial markets are not available, and the returns to individual investment projects are decreasing, under-investment by the poor implies that aggregate output would be lower, a loss which would in general increase in the degree of wealth heterogeneity (see e.g. Benabou, 1996; Aghion et al, 1999).

Substitute “risky” for the “poor” and you should be able to understand that current credit-risk-weighted-capital (equity) requirements for banks creates an under-bank-lending to those perceived as risky that leads to a lower aggregate output, most specially that of the future, which is dependent on the risky risk-takers having fair access to bank credit.

Martin Wolf, in “Europe’s lonely and reluctant hegemon” December 10, with relation to Germany's responsibilities towards Europe tells it that “The time of thinking small is past” and that it needs to “take an assertive position in defending western values”.

Sir, I content that little is so “thinking small” than thinking that by allowing banks to hold much less capital against assets perceived as safe; and therefore allowing banks to earn much higher risk-adjusted returns on equity on these assets when compared to what they earn lending to the risky; can somehow make banks more stable, like if these lived in a vacuum isolated from the real economy, will.

And Sir, I vehemently hold that such silly risk aversion is not part of our western values, much the contrary. “God make us daring!”

And so what the Western world (including Germany) first needs to urgently realize, is that those bank regulations dooms it to stall and fall, no matter how much QE-ing, fiscal-deficiting or infrastructure constructing it does... following Martin Wolf’s instructions.

Sometimes the original and the pirated copies are just each other's parasites

Sir, Hugh Williamson reported May 8 that “Counterfeiting losses are less than claimed, says OECD” and mentioned that the upcoming results of some studies could prove embarrassing to some international business lobbies which have used high estimates to further their causes. I looked further into the details of such studies and found worrisome that OECD seems to put counterfeiting and piracy in the same sack of problems, where they do not belong.

A counterfeit is an imitation made with the intent to deceptively represent its content or origins. This is not only clear criminal behaviour but besides the direct costs, implies often great dangers, as for instance in the case of falsified medicine.

Piracy, the copying of a trademark or patent covered product to be sold at so much lower prices that no one could think of deceit, is comparatively speaking more of a venial sin, and about which we need more debate before declaring it so illegal that it should be hounded down, at any cost, and as a consequence increase the growth potential for those in the society that are dedicated to criminal and illicit activities.

Just as an example let me ask you the following: What is worth more, an original Vuitton handbag in a ladies lunch where all the ladies carry Vuitton, Gucci, Prada or Hermes Birkin (my daughter’s favourite, she is now looking at a pre-owned simple hand bag going for $9750) or that same handbag in a ladies lunch where all other ladies use pirated Vuitton bags. Exactly! The worth of the original is increased by the willingness of people to use cheaper copies of it. And in this respect the $900 dollar bags has nothing to do with the $20 dollar copy except as mutual parasites. You would never ever be able to sell the true bag at $900 were it not for the $20 dollar fakes, and also less of the $20 dollar fakes without the $900 original.

I have written a great book, Voice and Noise, and that is slowly turning itself into a collector’s item on account of so few reading it. I would love to have it pirated, if that would help me to reach thousands of readers. Any willing pirates out there? Then I could easily have my original retail for $190.