You should demand aggregate demand – not more bank lending.

In a speech in the House of Commons on 20^th March, Andrew Tyrie claimed that more bank lending was central to the recovery. (There is an excerpt from his speech below).
Unfortunately the evidence from employer surveys does not exactly support Tyrie’s claim, though no doubt he can be forgiven for overestimating the importance of banks given that he has spent several months as chairman of the Banking Standards committee (and done the job brilliantly).
After an hour’s Googling, I unearthed the following three surveys, the first two from the UK and the third from the US. 

1. Kirklees.
This survey (p.23) done by Kirkless council found the percentage of employers citing sundry barriers to growth to be as follows. Apologies re the wonky columns.

General economic climate  23
Lack of customers              20
Competition                        19
Cash flow                           16
Interest rates                      16
Business costs                   13
Strength of pound              12
Market size                        11
Access to bank finance       9
Transport costs                   8
Legislation                           8
Lack of capital investment   7
Energy costs                        7
Shilled labour shortage        5

2. Shropshire survey (p.1)

Equivalent figures for a survey done in Shropshire:
State of the economy            64
Red tape                                 48
Taxes                                      45
Energy costs                          45
transport costs                       43
Cashflow                                 42
Competition                            37
Labour costs                           33
Availability of finance             30
Size of market                         29
Exchange rate                         21
Keeping up with technology  19
Broadband speed.                   18

3. American Sustainable Small Business Council.
This survey done by the above organisation asked employers, “Which of the following is the most important problem right now for your small business?” Answers were as follows.

Weak customer demand        34
Cost of health coverage etc  15
Government regulations       14
taxes                                       12
Competition                           10
Availability of credit                6
Availability of skills                 5

Excerpt from Andrew Tyrie’s speech.
“…but the plain fact remains that small and medium-sized businesses in our constituencies cannot get the funding they need from the banks. Banks lack the confidence to lend to them, and businesses lack the confidence to borrow from banks on the terms offered. The SME sector cannot fully recover until the partly state-owned banks return to more normal lending behaviour….”

____________

P.S. (9^th April 2013).   More evidence . . . This survey of small firms around the world (including Europe) found that, “Accessing finance once the business is established seems to present little challenge….”

And this ECB survey of European firms (see chart on p.4) simply confirmed the above, namely that access to finance is not problem No.1. It’s “equal second” problem, and of no more importance than three or four others.

 

Warren Mosler composes a variation on a Milton Friedman theme.

Friedman said, “Inflation is everywhere and always and monetary phenomenon.”

And Warren Mosler said recently, “Unemployment is everywhere and always a monetary phenomenon.”

Of course you can’t sum up complex issues like inflation or unemployment in eight words, as is attempted in the above two sentences. But  in as far as it’s possible to cram a truism into very few words, I like both the original theme and the variation.

Adair Turner ponders regulating banks out of existence.

Adair Turner has just made an interesting speech at an INET conference. In reference to the 1930s Chicago school, he said (around 2.30),“Those economists came up with two really quite radical propositions. . . . The first was that the finance – and in particular banking – was subject to such potential instability that not only we should regulate banks tightly but that we should regulate banks out of existence. They didn’t believe that fractional reserve banks should exist.”






The phrase “regulating banks out of existence” is a good description of full reserve banking. That is, under full reserve depositors are made to choose between, first, having their money lodged in an entirely safe fashion (perhaps having their money lodged at the central bank). But that is clearly not “banking” as is normally understood which consists of accepting deposits and lending that money on to borrowers.
Depositors second option under full reserve is to let their bank lend their money on or invest it, but in doing so, depositors foot the bill if those loans or investments go wrong. Now that is essentially little different from buying shares in a corporation or mutual fund (unit trust in the UK). And that, again, is not banking as normally understood.
(Hat tip to Mike Norman and Positive Money).

Cyprus banks explained.

Being serious all day long is danger to your mental health. So here is three minutes of humour on Cyprus. (Hat tip to Billyblog).

Self proclaimed fascist takes over at my local football club. Shock horror.

Paolo Di Canio, who is prone to giving fascist salutes, has taken over at the Sunderland football club. And David Milliband, the Labour politician, is ostensibly so incensed that he has resigned his post at the club. Now there’s a slight problem there.

My Chambers dictionary defines fascism as a combination of different characteristics including “militarism”. And Milliband voted for a military invasion of Iraq for some very dodgy reasons, which resulted in the death of hundreds of thousands of Muslims. So I’m not interested I sermons on fascism from Labour or Tory politicians who voted to invade Iraq.

Another element in fascism according to the dictionary is “restrictions on personal freedom”. Well now, a restriction on personal freedom which has now mercifully been removed, no thanks to Labour, is the freedom to insult. Section 5 of the Public Order Act made it illegal (until recently) to insult anyone. Scarcely believable, isn’t it, especially given that politicians all queue up to insult each other at election time? And twice as many Labour politicians wanted Section 5 retained as compared to Tories or LibDems. See this survey of politicians’ views.

A third reason I’m not impressed by the contrived outrage coming from the political left is that they use the word fascism so indiscriminately that the word is essentially meaningless. As Prof. Timothy Garton Ash put it in The Guardian, “the label “fascism” has been hollowed-out to mean little more than something the left hates at the moment”.

Or as George Orwell put it, “The word Fascism has now no meaning except in so far as it signifies something not desirable".

In contrast to the above contrived outrage, destruction of the English language and general grandstanding, there is an important question as to whether Di Canio is seriously opposed to free speech or democracy or is seriously into “militarism”. If anyone can fill me in on that I’d be grateful.