Wednesday, 27 July 2016

Reader's Letter Of The Day

Spotted by Carol W in the FT:

Sir, I normally agree with your Europe correspondent, Wolfgang Münchau, and his incisive comments on European economic matters, but I disagree with him when he says that the eurozone “needs free movement [of labour] as a macroeconomic stabiliser — with people moving from countries with high unemployment to those with a shortage of labour” (“Opt-outs and the high price of misguided pragmatism”, July 25).

He states the orthodoxy, but not the reality. Labour migration is a dynamic process that tends to generate cumulative expansionary forces in the countries of destination and relative contractionary forces in the countries of origin; a process of “circular and cumulative causation”, as the famous Swedish economist Gunnar Myrdal once called it.

If one of the purposes of the free movement of labour (and capital) within the EU is to promote the convergence of European economies, the movement to an equilibrium is far from guaranteed. The free movement of labour from poorer to richer countries is not necessarily a “macroeconomic stabiliser”. The same argument applies to regions within countries: witness the continuing north-south divide in the UK and Italy despite years of labour flows from poor to richer regions.

The disequilibrating nature of free factor movements is a powerful reason for taking work to workers, rather than encouraging the free movement of workers to work. The EU could do much more in this regard if it is serious about the economic plight of the peripheral economies of Europe with high unemployment.

Tony Thirlwall, Professor of Applied Economics, Keynes College, University of Kent.

I don't agree with his conclusion (i.e. that we should encourage businesses to relocate to low-wage/high-unemployment areas), but the observation is sound: free movement increases regional inequalities. (I suppose some would use this as justification for restricting freedom of movement, I'm not sure that's a good idea either).

This is exactly mirrored by land values, of course. If people move from north to south, then land values in the south will increase, regardless of how many new homes are built there (building more homes to dampen prices is like throwing twigs on a fire to cool it down - more homes = more people = even higher values), and land values in the north will fall.

The obvious policy conclusion seems to me to just leave capitalism to itself to do what it does best (i.e. allow free movement and avoid subsidies to poorer regions) and collect the uplift in destination areas via LVT; reduce other taxes accordingly and distribute the rest as a Citizen's Dividend and you are half way there - stronger economy and less inequality. What's not to like?


Antisthenes said...

I am in principle not against the free movement of labour. However it does have it's bad side effects when it is done from poor countries to richer countries. In effect poor countries are exporting their unemployed which does two things. Firstly it removes the incentive for the poor country to improve it's industrial, commercial and business base/economy. Secondly it deprives the exporting country of skilled workers because all those moving to other countries for jobs are not unskilled. So make growing the economy of the exporting countries even more difficult.

Derek said...

What indeed. The Citizen's Dividend acts to encourage people to move to lower rent areas because they can get more for their money there even if there are no jobs in the low rent area. Without a CD, there is definite pressure for everyone to move to the high rent/high wage areas because those are the only places where you can make a living.

Mark Wadsworth said...

Anti, I agree with two thirds of your comment but not the bit about exporting unemployment. They are exporting their skills base for no return and hence indirectly importing unemployment.

D, ta.

Ben Jamin' said...

Agglomeration is a network effect. The bigger the network the more gains from economies of scale.

The trouble with taxing wealth creation rather than land values, is that the centre of our network, London, "metabolizes" too many resources at the expense of the network as a whole, weakening it's overall efficiency, lowering GDP.

The bigger picture is, if their was a leveling playing field, instead of London acting like a black hole, demand and investment would shift to whether both capacity and the potential for growth is highest.

It's no good having all the blood going to the heart, if it starves the rest of the body of oxygen. That's what our tax system does.

Dinero said...

As far as I am aware there is no country in the Eurozone that has a "shortage of labour".

Tony Thirlwall, he is the guy that had this FT article way back in 1991

DBC Reed said...

Doesn't this rather imply that destination countries should collect increased LVT and ship it back to population exporting countries? Given the level of anti-foreigner rhetoric now abounding (some of it on here) this does not appear practicable.

mombers said...

All the doctors, engineers, teachers, etc leaving weaker countries that need same is hardly a recipe for success. The third world has suffered from this for decades, the same is happening to weaker regions of the developed world now

Mike W said...

DBC Reed,

Take a look at this:

Polish Ghost Towns

Seems that the million Poles here are sending back a Billion pounds a year already. So it would appear to be very practible under all tax systems. No wonder the Polish Ambassador was on TV all through the Brexit vote night! What I do not understand about the article is how a country that spews out 1 in 10 of its youngsters can also be called a economic wonder at the same time.
Re LVT, I wonder who owns all the flats in Warsaw now?

Ben Jamin' said...


Like a genuine Commonwealth? I think it would be nice if one country showed the rest of the World how it's done on a national level first. But they'd have to vote YPPUK (or similar) first.

@ Mike W

And a very low birth rate. A dispersal economy, rather than an agglomerating one.

It's very likely then Countries like the UK with rising populations gain a momentum.

Good for us, not so good for the Global economy as a whole.

Mark Wadsworth said...

BJ, yes.

Din, that's a bit o/t.

DBC, yes, but it is difficult getting support for such solidarity within nations let alone internationally, let's start with the UK and see how it goes. The EU and Merkel have completely buggered up any chance of pan-European solidarity for the time being.

MW, those transfers back of £1,000 per Pole, do you think that is more or less than the extra income Poland as a whole would have if they had stayed there? It is difficult to guess, but the UK economy (or at least employers and landowners) are clearly winning out from this.

BJ, agreed to both points.

DBC Reed said...

The Labour Land Campaign ran a campaign for lvt'ing houses in British areas where good schools raised property prices and transferring the proceeds to schools in rough areas.This idea got a certain amount of favourable attention but could never overcome the resistance of the faux workers who only fixate on house prices , are not bothered about wage levels and, as we have recently seen, just want to deport people 1930's style. We have to acknowledge that our particular reform raises the ire of these extreme right-wing working-class Tories who until Pansy Cameron came along were not allowed any referendums in the certain knowledge they would vote for hanging, deportations etc. The evil genie of xenophobic racism is out of the bottle where it had been confined during the Mosleyite era.Sensible politics as usual is finito.

Mark Wadsworth said...

M: "All the doctors, engineers, teachers, etc leaving weaker countries that need same is hardly a recipe for success."

Exactly. There was a programme on telly about NHS recruitment teams going to the Philippines and signing up nurses etc, that made me ashamed to be British.

DBC, having made a good point earlier on, you are back to the same old same old. Home-Owner-Ism is not confined to your favourite hate groups, there are plenty of coloured, foreign and left-leaning Home-Owner-Ists. In fact the majority of coloured, foreign and left-leaning people are Home-Owner-ists because in this country, most people are. Fact.

Mike W said...

Mark above, not sure I could answer the net winner question you raise. DBC Reed made me think of the Steve Keen on Brexit where he points out that EU/German policy was the real culprit behind the movement of these youngsters across Europe. He says:

'This was an inevitable consequence of the Euro, as Wynne Godley foresaw in 1992, in one of the most prophetic articles ever written:

If a country or region has no power to devalue, and if it is not the beneficiary of a system of fiscal equalisation, then there is nothing to stop it suffering a process of cumulative and terminal decline leading, in the end, to emigration as the only alternative to poverty or starvation. (Wynne Godley, “Maastricht and All That”, London Review of Books, October 1992)

This clearly explains Euro locked Greece et al, to my satisfaction, but the Poles have there own currency, so are choosing their own decline willingly it seems. Ben Jamin, certainly a 'dispersal economy'.

James Higham said...

What's not to like? Murders and rapes by said migrants. A war, as the Pope mentioned. And this does affect stability and impinges on areas in the long run.

Mark Wadsworth said...

MW, good point about Greece and Poland.

JH, you are talking about migration from Arab and Muslim countries, a bad thing from our point of view.

I am talking about intra-European migration. I don't think that Polish plumbers and Spanish nurses have declared war on us.

DBC Reed said...

@MW But we've declared war on them. I do not suppose all those places in Yorkshire ,where one local got things off to a bright start by murdering an MP, are full of all those multinational Homeownerists you depict.You consistently underestimate the number of xenophobic economic simplifiers who think the answer lies in bashing migrants, having once proclaimed on here that it would do no harm to feed them anti-immigration propaganda provided by UKIP.Do you still stand by that assertion?
The question of migrant labour is difficult: you have imbeciles objecting to migrants in Wisbech, where the landowners caused the locals to deport themselves years ago having drained the area (only for all the alluvial land to blow away); the UK under Chamberlain rigged up a kind of Imperial Common Market in 1932 and post-war Commonwealth loyalists like Enoch Powell drew on the West Indian unemployed ( following British war time investment in sugar beet production)to address an acute labour shortage during the post war recovery.However, the Blackshirts now rebadged as the Union (with Europe) Movement, started race riots in Notting Hill (1958) on strict racist lines. Powell went racist himself with Rivers of Blood (1968).
The answer must lie in getting all the locals in work and/or supplying them with a Basic Income or Social Credit which recognises that the State can create money without borrowing.(As Lola believes that Free Trade cannot cause whole factories to move for the cheap labour to Poland as has happened in Northampton and as you believe
that only the Banks should create money, this blog, dominated by these two, is in a bit of a fix.)

Mark Wadsworth said...

DBC: his solution was this:

"The disequilibrating nature of free factor movements is a powerful reason for taking work to workers, rather than encouraging the free movement of workers to work. "

Which is what happened in your example of a factory being shut down and production shifted to Poland.

Clearly you are not happy with this happening. But you appear to be happy that Poles come over here to do our drudge jobs, boost employer profits, impoverish their own economy and put British workers out of work.

The third possible solution is shutting down free movement of workers AND free movement of goods (so British people can only buy British made shoes chocolate, plastic etc). But you call that the UKIP racist option.

One day, you will have to make up your mind.

"and as you believe that only the Banks should create money, this blog, dominated by these two, is in a bit of a fix"

Call yourself an English teacher? A cursory read of this blog would show that I and most of the others have spent the last nine years saying exactly the opposite of this. Do you actually do @reading" and "comprehension"? Can you actually give examples?

In any event, "money" is not "created" it is a unit of measurement of indebtedness. Like "miles" or "kilograms" or "centigrade" were not created and don;t really exist in themselves. They just measure something else.

Most indebtendness in turn is created by the rigged land/monopoly right system, which in turn is caused by the lack of a sensible tax system.

DBC Reed said...

@MW I made up my mind. I would have liked to be able to support the Jeremy Corbyn policy on the EU of "Remain and reform" as he put it. His reforms appear to incorporate the points made by the Labour Brexit Campaign about the EU's suppression of State investment, its forcible privatisation policy, its elimination of free collective bargaining,its promotion of zero hours contracts, and its insistence on Austerity. ( Although Osborne, remember him?, changed his mind on years of grinding Austerity one afternoon with a hey ho, never mind! as soon as Theresa May came on the scene.)
I wonder how right wing headbangers argue against investment by the State (see above) when "free" investment by capitalists has degenerated into the likes of Dominic Chappell ( public school; failed racing driver; yob) being given BHS and still having to make death threats to a business associate before ruining a household name business having no capital in the first place.
The Labour Brexiteers were supposed to be part of a bipartisan Leave campaign but were squashed by the anti-immigrant bandwagon run by the liar Johnson at the behest of the immigrant basher Farage.
I therefore feel I do not merit your vulgar abuse; particularly as I object to the neo Nazi deportation campaign which you studiously refrain from criticising having once thought it safe to support.
You criticise me for putting up with the free movement of Poles into Britain, but as the Europeans have made very clear , you don't get the benefits of a very large free trade zone without accepting free movement. (By your argument, this country should be prospering because we can use cheap well, trained Polish labour to make up-market stuff for "export" to the EU but because of the Dominics , the Philip Greens and Mike Ashleys,and the other shabby Titans of British industry we do not.)
As regards Money Creation I refer to "Money Creation in the Modern Economy" the official Bank of England attempt to straighten out in plain English all the Newspeak you employ on the subject.(I am not taking criticism of my English from somebody who does not understand the money creation process while engaged in a financial service.)
First sentence "This article explains how the majority of money in the modern economy is created by commercial banks making loans." There is no talk of money not being created and being some kind of variable Platonic essence which is indebted to the land market as you waffle. Money is created out of nothing by banks who have the nerve to pretend that its taken from pre-existing reserves .It is ridiculous, and you make yourself ridiculous, by banging on with this childish error.

George Carty said...

In your view is Marine Le Pen a kind of French Enoch Powell? Both seem to me to be protectionist economic nationalists with an anti-American and pro-Russian bent.