Telesis "...an ancient Greek word signifying the achievement of a steady progress towards an objective through careful planning & the intelligent use of resources"
The British economist John Maynard Keynes and the American economist Milton Friedman represented approaches to macroeconomic management which were quite distinct.
John Maynard Keynes 1883-1946
Keynesianism promoted a proactive intervention in the economy by government through demand management (applying tax, public works and the setting of interest rates). This approach dominated macroeconomic management between 1945 and the late 1970s. But following the international petroleum price shocks in the 1970s, Keynesianism proved to be ineffective at coming up with a solution to slumpflation.
Milton Friedman 1912–2006
Monerarism and more laissez faire were seen as a way out of the impasse. The leading advocate of this approach was Milton Friedman. This approach has had more influence on macroeconomic policy since the early 1980s until now.
Weaknesses in KM (Keynesian-Monetarist) Approaches
The remaining paradox is that Keynesian effects persist because government sectors are so big (40% of GNP in the case of the UK) and even with independent interest setting there continue to be economic cycles; the system has not yet been perfected.
The politics of trade strategies
The KM approaches have lacked a rigorous theoretical component covering the inherent economic risks associated with some aspects of supply of critical natural resources on the basis of international trade which is becoming more important under globalization.
Technology & Technique
KM policies never addressed in a coherent theoretical and practical manner the significant potential of technology and technique but this was relegated to point of interest pioneered by Kenneth Arrow in his demonstration that a large part of "unexplained" economic growth emanated from "learning". In spite of this work not much attention was paid to the development of policies which could help unleash this significant potential. Even now, most gains in economic performance from these sources are supply side initiatives with little policy support; during the last 20 years this supply side impact has become more obvious with the impact of information and communication technologies.
Economics
Economics is generally perceived to be the analysis of the monetary value relationships which exist within activities where resources are used to create, sell and distribute products and services. These invariably employ technology and/or people applying specific learned techniques.
Practical experience in economics
Real Incomes
We manage a new economics medium, Real Incomes, recently launched by APE - Agence Presse Européenne
Real Incomes is an online medium which provides an analytical review of the essential issues concerning the British economy.
Since SEEL was established we have been engaged in the bringing clarity to the interface between technology, technique, economics and finance (systems engineering economics) and have developed considerable practical experience in the theory, development and management of assignments in agricultural economics and systems, project evaluation, input-output analysis, optimization and simulation.
Community support in economic development initiatives (Central Europe)
A first step for marginalised communities to begin to benefit from an economy in a productive fashion is for them to gain some participation in the decisions which affect their lives. SEEL has been actively involved in helping develop local participation in decision making by providing help to communities for the organization of independent associations and NGOs for minority groups. We have done this through direct extension advice at community level, capital grants and free legal counsel, the drawing up of legal foundations and training of individuals in management of such organizations. All such organizations are completely independent but SEEL provides ongoing free extension advice.
We have also dedicated considerable effort to the analysis of the poverty environments which have arisen, and are sustained, as a result of proactive discrimination and covert law-breaking by central and local governments and government services targeting specific minorities.
Several member states of the European Union present a stark case of a shameless and damaging failure of Europe to uphold human rights. Our work here involves the organization of objective surveys and analysis to quantify the considerable economic and social costs arising from mismanagement of governments and European institutions. Our reports and findings can be used by relevant advocacy groups. Such documents will contain proposals for practical pathways towards effective self-determination through the achievement of increased real incomes for the communities concerned. One of the most important recommendations which we have already followed up is the formation of an international contract employment service for such communities including work and language training. This service is known as TechneQuality.
Standing back - analysing the governance and economic management of the United Kingdom
The way in which societies are organized at the community level and the forms of participation in decision making through the political system have significant impacts upon the economics of social processes. Constitution, the way in which governance is organized and the relationship between the people of a country to national decision-making can be analysed through constitutional economics as distinct from economic policy. Our work in this field gives emphasis to the development of the theory and practice of a Real Incomes Approach to economics with the objective of maximising the benefits of constitutional settlements.
Raising the profile of technology & technique
By far the most deficient areas in economic theory and practice relate to the general lack of any specific adaptation of the Keynesian and the Monetarist approaches to the needs of enterprises all at different stages in their development and all employing different technolgies and techniques. Paradoxically the common systems of fiscal policy under Keynesianism and Monetarism tend to enforce suboptimization of economic operations. Economic growth is the outcome of the operation of supply side decisions in the real economy.
Another increasingly important aspect of overall "national management" is the significant trade-off which exists between so-called economic stability viewed from the standpoint of government sector activities and the independent setting of interest rates and the de facto potential sources of instability under globalization. Natural resources-derived primary commodities such as petroleum, are concentrated in a relatively small number of discrete production regions and are subject to official cartel management, such as the case of OPEC (Organization of Petroleum Exporting Countires) or hidden cartel operations in the case of many minerals and other commodities. This signifies that governments of importing countries do not have any effective means of controlling the "international price". Under such circumstances governent fiscal policies need to be designed to avoid levering any exogenously (external) derived market prices into the economy and thereby destabilising the economy, social and the political situation. This is what happened in the 1970s with the three petroleum price rises. Neither Keynesianism nor Monetarism addressed this issue of risk and indeed, they continue to fail to explicity take into account this increasingly apparent reality of globalization.
A warning - Financial commoditization in a Global market
A recent example (2007) was the impact of financial derivatives. These are financial commodities created largely in the United States financial markets. The problem area is that of the housing mortgage market in the USA is something like six times that of the UK. However lending for house purchase has increased to around twelve times the UK market size. This extra growth involves a class of risk, assessed as the balance between liquidity (ability to cash them in) and their return (mortgage payments) which has not been subject to coherent and objective standards of assessment. The lack of prudence reflected in increasing numbers of institutions dealing in these commodities was the result of a rapidly expanding market where the risk of not finding buyers for such commodities was low. The main "leading edge" traders and institutions to purchase such financial commodities were institutions in the USA, United Kingdom, Germany and France. However, with interest rate rises in the United States and in the United Kingdom some institutions had portfolios or holdings which contained too many such financial commodities in a situation where the ease of "offloading" them was declining. As a result the impact was for there to be the equivalent of a price rise for such financial commodities and fall in demand resulting from a fall in confidence as to their value associated with likely inability of mortgage holders being able to continue payments. This led to a liquidity (cash flow) problem constraining the operation of these organizations. This resulted in several mortgage lenders and banks facing difficulties. In the case of the British mortgage company/bank Northern Rock investors began to withdraw their deposits in a "run" on the bank. The USA Federal Reserve, European and United Kingdom authorities had to respond to mitigate the economic and financial impacts on investors in banks and mortgage lenders who were thought to be over-exposed to such financial commodities.
United Kingdom authorities responded to mitigate the economic and financial impacts on the investors in Northern Rock as well as customers of other banks and mortgage lenders who might be over-exposed to such financial commodities. The solution was to step outside the market regulatory1 system mechanisms and offer a Government guarantee on customer deposits; by mid-November 2007 estimated loans to Northern Rock alone had reached £26.5 bllion. In essence the established regulatory system failed; failure was confirmed in the government's final resort of natuionalising Northern Rock.
The impact is more significant than generally admitted
The reason this market failure did not have larger ramifications was that only a limited number of private enterprises were considered to have exposed themselves in this way. However, the impact is not insignificant with the latest off-the-record estimates being a massive £40 billion in the UK alone (almost 8% of the government budget). However this passage served to demonstrate that neither Keynesianism nor Monetarism has coherent solutions and as a result a series of ad hoc measures related to confidence-building by government were needed to resolve the problem of what is supposed to be a free and regulated1 market. The difficulty has been that where a financial derivative is developed in a large financial market such as the USA and then sold on to smaller national markets, such as the UK, the relative exposure of the consumers in the smaller economies is larger. The impact is equivalent to an exogenous price rise of some essential commodity. Regulations in such markets are supposed to be tilted towards the consumer but they failed because of the inability of or the absense of regulations related to quality of investment and because of the scale of operations. This provides an example of the exposure resulting from a too eager promotion by political parties of participation in globalization in the absense of effective regulatory instruments and, indeed, macroeconomic policies. A point to note is that one of the key constraints in the case of the United Kingdom was that European Law inhibited the UK Government from achieving a more graceful and effective solution. There are therefore, in the areas of constitution significant issues arising from the constitutional impacts of existing European treaties which constrain policy. This makes the current discussions as to whether or not European treaties are constitutional to be completely misdirected. All European treaties have a direct constitutional and therefore economic impact. The practical interpretation of all constitutions has a direct impact upon the performance of economies. Although this fact is not well understood,let alone admitted by politicians, SEEL is making contributions to the theory and practice of constitutional economics largely through what is known as the Real Incomes Approach. The more we have advanced into this realm the more it would appear that this approach can provide significant improvements in economic analysis and policy formulation.
Inadequacy of fiscal policies in managing risk
In the case of energy resources governments do not have policy variables nor even targets, under Keynesian or Monetarist policies, to protect the economy and therefore real incomes. Governments in this case are even less able to gain any traction to tilt things in favour of the consumer, that is, the electorate.
Risk profiles remain high and have not been addressed
This state of affairs represents an undelying risk to economic and political stability associated with any future exogenous price shocks in the energy sectors. Under current international circumstances such rises remain likely and the motivation for such rises would come from the political interests of cartel members or dominant suppliers who have more control over supply. The current example of the use of energy resources as a potent foreign policy instrument in a power strategy is the concentration on state control over energy resource exports (petroleum & gas) by Russia. However, Russia only has 6.6% of the world's known petroleum reserves but has been able to be particularly effective in applying natural gas as a potent foreign policy instrument, especially in the case of Europe, ably assisted by several former Soviet block countries in Central and Eastern Europe, whose government are particularly prone to influence through cash diplomacy. The general tactic is to arrange supply contracts which are dimensioned to represent a significant if not the majority of energy supplies to client countries. Russia's tactics are less masked than other suppliers of petroleum who hide behind cartel arrangements. On the other hand there has been insufficient investment in petroleum extraction and processing against the trends in world demand. As a result, given the capital investment cycles involved, the exposure to rising prices remains outside the influence of importing country governments. The vital issue of concern is that Keynesianism and Monetarism through inappropriate fiscal policy instruments can actually contribute to augmenting the negative real income impacts of price rises in natural resources based commodities, as they did in the 1970s. In reality such energy strategies expose not only economies they also restrict the ability of governments who have structured fiscal policy to levy high fuel taxes to respond and therefore expose the stability of governance of the country to foreign strategic manipulation. Where such strategies are combined with cash diplomacy, that is paying off national political parties in client countries to accept the high degree of exposure through energy supplies, then fundamental constitutional issues are raised. Economic decisions begin to default to a situation biased towards national political party interests as opposed to the security of the people and the economy as measured by the relative immunity of the economy from price rise shocks. The Real Incomes Approach addresses this sort of issue of national economic and political exposure.
1 regulation and regulatory regimes do not signify constrained freedom of trading. Regulations relate to minimum trading standards concerning access to information enabling the determination of the specific risks associated with transactions and holding on to the traded assets. On the other hand the exposure of any particular asset holder is a matter related to their specific confidence in relying on regulatory standards and available information as representing an objective measure of risk and their determination of their ability to carry that risk.
