Grammar schools

According to the unimaginative left you can only have Grammar schools with a single 11+ exam design. There are no possible other designs that allow academic individuals to be schooled in a school focused solely upon academic achievement. And that's Hitler so no to Grammar schools.

Well no. We can easily design a sensible Grammar school system.

Firstly the whole test is a massive pain and you do have to spend ages preparing for it. It would be much better if the primary system started to stream earlier and individuals moved up and down between the schools.

So you then have a virtual comprehensive system with streaming.

But to get anywhere further down the achievement scale you have to spend more resources on the middle layer than you would on the high academic achievement grammar schools.

Grammar schools should have class sizes of 40 because you can efficiently teach cleverer kids in that sort of group size. Class sizes up to what you have in university would make it less of a leap. That then allows you to get group sizes down to 15 or lower at the other end of the scale and make a real difference.

The failure of comprehensives was simply to merge the academic grammar schools into secondary moderns to make the averages look better. They never fixed the problem. They just masked it.

That's the real problem - why did the secondary modern concept fail the middle tier so badly?

But despite that the leftist approach of 'all must have prizes' and "let's bring half the nation down to the average' (I know this is impossible, its called a joke) is insane. The Tories have been somewhat critical of the 11-plus exam, but not the funding inversion. So if you want good policy come to this blog.

You would have thought this was obvious. It's the same division of labour point the Adam Smith made - two specialists combined will always outperform a set of generalists.

So remember all the 'referendum causing uncertainty' in early 2016

If as the Remainers now say, the UK's hasn't exited the EU yet, and the (presumably) negative effects of Brexit will happen then, what of all the claims that even calling the referendum would cause a crash?

As a commentator at Bill Mitchell's blog puts it:

"No, no, no. You cannot have it both ways. You cannot simultaneously have an orgy of propaganda and misinformation on a daily basis by the mainstream media outlets and the ‘serious’ financial press about the already occurring deleterious effects “of Brexit” (even though it has not (yet) taken place) AND claim that the ‘serious’ argument in favor of remain by ‘serious’ people (economists, politicians, financiers) was ONLY about what would happen AFTER the actual official exit of the U.K. from the EU AND assuming that the U.K. government will take no appropriate fiscal and monetary actions (i.e. expansionary ones) to counter-act any reduced injections or increased leakages that may result from no longer being a member of the EU."

What the USA needs... in 2020

Now that Bernie has flopped I thought I would that I would make an idealistic series of policy proposals for the good old USA.

They have to abandon the current destructive line of thinking in economics, regulate the banks and recognise government is only constrained by real resources. Until they sort out the material problems nothing else matters really.

It comes down to this. The U.S. government can give direct legal commands to the private banks to create or destroy credit and private banks are required to execute them. They can also impose tax obligations that can be required to be paid in dollars on pain of some punishment (e.g. jail time.)

If there are resources free in Dollars, the U.S. (federal) government can purchase them.

And that's fundamentally all you need. Everything else (Fed, govt bank accounts of its own IOUs, messing with interest rates etc) is smoke and mirrors and stupid voluntary constraints hiding, complicating or crippling(!) this simple operational system.

The general line should be that increased spending is to be ‘paid for’ by increased production, and that any price rises will be treated with ‘competitive measures’ – the state investing to set up competitors that price compete, breaking up cartels or increased corporate taxation in extremis. Get that right and you’ll go a long way before you actually fill anything up. Just regulate the bloody companies and 'stir the pot' via sharing IP and so forth. It is not hard.

If you go to the hairdressers with a newly minted note, do they turn you away or work longer/harder/faster to cut your hair and earn that note?

The resources are generally there. The estimates of output gaps are wildly low because of the way classical economists think, and in fact we run economies practically on tickover because of the way they see things. Certainly in the service sector. And are they really running manufacturing on maximum overtime?

They also need to introduce 'asset side' regulation of banking - basically if you make loans outside of certain very narrow criteria they are unenforceable. So make criteria that serves the public purpose.
In my view the *only* reason we should pay bankers to do anything is if they can demonstrate the skill of underwriting capital projects against a prospective income stream.

In simple terms this means somebody going into a bank with a proposal that requires a certain amount of money. The bank staff considers whether the prospective income stream proposed to repay that money is adequate to repay the loan and pay the wages and costs of the bank.
Note that there is no asset collateral involved in this process.

The way I would narrow banks is to offer them an incentive - an unlimited cost free overdraft. 0% funding costs. In return they must drop all the side businesses and just do capital development lending on an uncollateralised basis - probably in the form of simple overdrafts. In other words they become an agency businesses delivering state money to those that require it.

That way instead of banks not lending to businesses they *only* lend to businesses and drop all the crap. That also frees up a bunch of bright people working in the financial sector and a huge amount of space inappropriate private lending took up for the government.

Finally, they need to offer full employment and universal healthcare. The private sector's job is not to create jobs. It is to automate and get rid of them. To eliminate BS jobs and replace people with machines:

http://www.3spoken.co.uk/2015/11/job-guarantee-jobs-for-people.html

Living wage jobs in local communities by sampling what needs doing. In addition to things such as open source programming.

Zero unemployment and underemployment must be the goal. Anyone who wants a Job must get one. Only frictional (voluntary, between jobs) unemployment must remain.

Further America can lead the way on pharmaceuticals. The state can fund whatever drug research is required, and then issue the results on an open patent.

There is no need for large pharma companies and private intellectual property. In fact as drug development gets more and more risky inevitably it will have to be socialised.

That then leaves manufacturing and distribution of the drugs as the way the private sector can deliver drugs to the medical system.

So who is going to sell it then?

I forgot this was still going on

More tata steel news

And more talk of nationalisation.

Steel making from iron ore is a very silly thing to be doing in the UK. We no longer have supplies of Iron Ore and there is sufficient diversity of steel supply from elsewhere. So why is there a difference between importing steel and importing the ore? UK steel works should be about recycling steel that is already here – and it should be near fully automated.

But what should the steel workers do then? Simple - you just find an alternative job that is suitable. My suggestion is that the engineering the steel workers should be doing is constructing automated housing production lines – creating energy efficient houses that can be simply bolted together on site.

Your thoughts, dear readers?

Richie has banned me from commenting on his blog

Here

"With the greatest of respect, if you really think I am not about effecting change then I have no interest in reading any more of the nonsense you have offered over a long period

You are the second long term contributor to hit the spam list today"

Savage.

Brexit strategy - be aggressive

These people are in no position to demand anything.

The longer we leave it, the better. We take our time. We make our plans. We talk to the *opposition* leaders in the EU countries about how best the UK can help them get into government. We can talk to leaders around the world and get deals in place to start once Brexit is sorted.

Generally in this negotiation, if the EU wants something, then the UK is probably best advised to do the opposite.

With elections in France and Germany next year, I would ask for discussions with Hollande and Merkel and if rebuffed, start talking to the political opposition in those countries instead. Why talk to the monkeys when you can talk to the organ grinder?

All EU studies I have seen so far get the null hypothesis wrong

All the studies get the null hypothesis wrong. They fail to separate out those who would get a Visa with those who wouldn’t. So they are simply wrong.

Leaving the EU is only about the latter category of worker.

So unless the remainers can provide a study on that category, then they are useless in evidence. Because the issue is not migrants *as an aggregate* as the whole EU debate is about migrants who wouldn’t get a Visa.

Unlimited immigration of *unskilled* workers may well suppress the wages, housing and public services available to equivalent skilled (and unskilled) workers in the UK.

The trick the Portes of the world use is to aggregate the skilled and unskilled immigrants together and *refuse to talk about that set of people that would be excluded outside the EU* – those who wouldn’t otherwise get a work visa.

We don't need *unskilled* immigration, and we don't necessarily need the skills of the EU.

We need access to a world market for skills on an equal basis. The UK immigration system should work like most in the world - a skills based system.

Donald Trump has won

He's dragging people down to his level.

Here

Excuse me, but who the fuck do these people think they are?

Here

From the supposed 'public finance experts' the IFS. Perhaps these people should fuck off instead of forcing us into a depression?

A reply to Mark Wadsworth - on MMT and designing land value tax

MMT does *nothing more* than sweep the excess savings of the non-government sector back into the circulation because, contrary to popular belief, it doesn't do that automatically. To clear 'naturally' you have to have a depression and capital destruction.

So if government budget deficits are 'dangerous' and 'debt is still debt' then so is non-government sector borrowing and spending from saving. But apparently the mainstream are comfortable with that.

You have to see excess saving as voluntary taxation. So the correct calculation for the government injection is

Government Spending - Taxation - Excess non-government savings

which will be zero.

The anchors are the automatic stabilisers which ebb and flow counter-cyclically. Job Guarantee enhances those to provide superior price anchoring capacity - flattening the inflation curve as the economy tightens. 

So in terms of circulation, the auto-stabilisers reduce government spending and increase taxation volume automatically as the economy heats up. 

And we know they work, because they are doing their job right now.

So the trick of policy is to set main taxation/spend policy relatively tight and let the auto-stabilisers loosen it to the correct level.

The way I would do this in practice is to create a counter-cyclical fiscal authority (CFA) as a separate balance sheet from HM Treasury and reportable to parliament as a whole. HM Treasury remains as a creature of the Executive as it is now.

Once you have a tri-party design then the Executive budget *can* be required to balance - it must tax to spend on discretionary projects. To borrow it must apply to the central bank with a project plan just like you or I would have to.

CFA 'funds' the automatic stabilisers, via an overdraft with its central bank subsidiary, and possibly it could be given discretionary powers to vary a land value tax by a certain percentage for fine tuning (chargeable to the freeholder, payable by the mortgage chargee if there is one).

So you have the central bank on a ZIRP - which removes the incentive to excess save for income purpose.

You have the CFA fine tuning the gross taxation policy via a land value tax, and letting the auto-stabilisers do the main work.

Then you have the Executive taxing and spending via the Treasury on their political goals.

Comedic interruption

I David Cameron, do not subscribe to your "good and evil" I am above such puny nonsense NOW PUT ON A PROPER SUIT!

Meet the new boss, same as the old boss

Turnbull here

Home owners across the country will see the value of the family home "smashed" under Labor's "very blunt, very crude" negative gearing policy, Prime Minister Malcolm Turnbull has warned.

In a blistering political attack on the opposition's policy, which was unveiled last weekend and which restricts negative gearing to new properties while also reducing capital gains discounts available to investors, Mr Turnbull warned " this should put concern into the minds of every single house owner".

And in a clear sign the federal government is prepared to launch a massive scare campaign in the lead up to the 2016 election over the Labor policy, which is designed to save $32 billion over a decade, Mr Turnbull warned "Bill Shorten's policy is calculated to reduce the value of your home".

"The Labor Party's negative gearing policy and its wind back on the capital gains discount – its increase in tax on capital gains – is a very dangerous one. It's been very, very poorly thought out," Mr Turnbull said.

"The consequence of it will be a decline in property prices, every home owner in Australia has a lot to fear from Bill Shorten."

Grexit. Done.

You get a new currency in Greece the instant the ECB closes the Greek central bank’s TARGET2 account. At that point all transactions across that interface will simple fail.

So all you need to do is put in place correspondent banking arrangement with commercial banks to do the *exchange* between Greek Euros and German Euros. And that simply requires a bank with a leg in both camps – a reserve account with Greece and a reserve account elsewhere in the Eurozone. Or a correspondent between two banks that achieves the same thing.

The problem here is a bunch of people over thinking the problem. Get down to the essence of the issue – exchanging Greek Euros for German Euros in a float situation.

Then you keep everything else *exactly the same as it is now*.

Done.

Of course the Greeks won't do it.

Logic

Let's see now. Russia "invaded" Ukraine although it did not send its troops across the border. (The Russian force in Crimea was there by prior arrangement a base leased from Ukraine.)

The US and Turkey, which have declared the intention to overthrow the legitimate government of Syria, have cross a national border with regular troops and equipment and set up bases there, and it is not an invasion.

Right.

Dave on housing

Umm...

MMT - Banking in a nutshell

Firstly a bank creates a loan. So the loan is to person A, and firstly the deposit is to person A as well. At that point the bank is still fine and still fully funded.

What happens then though is that person A wants to pay person B.

If person B is at the same bank, then there is NO problem. The deposit is switched to person B and the bank is still fully funded.

The fun starts when person B is at another bank :o

What has to happen that is that bank 2 has to take over the deposit in bank 1 from person A. That increases the assets of bank 2 which then creates a new deposit for person B.

That’s how payment works. Somebody has to take the place of the original depositor in the source bank before you can create anything in the target bank.

Of course at that point bank 2 is taking a risk on bank 1 and will expect to be paid by bank 1 an interest rate to compensate for that risk.

And it also means that if bank 2 isn’t prepared to take a risk on bank 1, that nobody in bank 1 can pay anybody in bank 2.

It’s this latter point that caused the creation of central banks – to make sure that the payment system clears. The theory being that all the banks trust the central bank ‘in the last resort’ and therefore the central bank can ensure payments always clear.

So the cost of funding is really the payments bank make so they can be part of a payment clearing system.

It is the same with cash. Reserves are debited and a deposit no longer exists.

Central banks can then add regulations and drains, reserve ratios, capital ratios, discount windows and all sorts of other things to increase the cost of funding. This is ‘discipline on the liability side’ to try and limit what banks lend for. It doesn’t really work as we saw in 2008 – because the first thing that fails is the payment system.

MMT suggests that this is counterproductive and that the central bank should just provide the liabilities necessary at no cost to ensure the payment system clear. Instead banks should be ‘disciplined on the asset side’, i.e. specific regulations as to what sort of loans a bank can make. If the loan isn't up to standards it becomes a bad debt. Too many of those and the bank goes bust.

This description is somewhat simplified (no equity and capital), but I hope it gets over the essence of what is going on. BoE doesn’t provide reserves when commercial loans are made. They provide reserves as loans to the commercial banks at a high price with quite a lot of restrictions to encourage banks to borrow from each other, as described above, first.

And banks don’t need deposits. But they tend to be cheaper overall and more sticky than the alternative forms of funding – capital bonds and equity.

And if the bank is big enough, it can make a few bob charging for customer transactions within its own balance sheet.

If a Barclays customer pays another Barclays customer, then all that happens is a few numbers change position on the Barclays computer. But Barclays can charge for that and earn income literally from doing nothing.

Full MMT Banking reform proposal here