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Has the Tory Government found a ‘magic money tree?’

Introduction

This note tries to answer a question raised by some non-economist friends: to what extent can Government pay for it’s expenditure by just printing the money? Is there a ‘magic money tree’, and what are the pitfalls and limitations on using it? I have simplified the argument in places, for ease of exposition to a non-technical audience. I have also included some speculation about the political implications. The emphasis is on the concepts – I haven’t done any analysis of the UK data, so the speculation is no more than that.

How does Government finance it’s spending?

Government has three options for financing an increase in spending. It can tax more, it can borrow more, or it can ask the Bank of England to create the money it needs – which sounds like having a ‘magic money tree’.

Government spending financed by taxes is fairly simple to understand. Government takes money from taxpayers and spends it instead – hopefully on purposes that most taxpayers agree are worthwhile.

 If Government finances it’s extra spending by borrowing, the Bank of England sells Government bonds, which takes money out of the economy when those who purchase them reduce their bank balances in order to make payment. When Government spends the money it has borrowed, the situation reverses, as the bank balances of those providing those goods and services increase. There is no overall increase in money supply.

If Government spends without taxing or borrowing to pay for it, what happens is that the Bank of England increases the money supply by raising net credit to Government, with no offsetting reduction in bank deposits held by the private sector: overall money supply has increased. When Government spends the extra money, Government bank balances fall back to their initial level, but private sector bank balances increase as those providing goods and services to Government bank the proceeds. If it is easier to visualise, the effects of this process are exactly the same as if the B of E physically prints extra bank notes for Government to spend.

The Demand and Supply of Money

The Bank of England can create as much money for Government as it wishes. The interesting question is what happens as a result. The answer depends on the relationship of the money supply to real output and the price level.

The money supply consists of commercial bank deposits, plus net credit from the banking sector to Government, plus net foreign assets (foreign exchange reserves held by Bank of England and the banks). Commercial banks are also able to create money:- every time they extend a loan, they create a deposit in the name of the person receiving the loan. The limitation on their ability to create money in this way is that they must keep sufficient reserves to be able to meet the demand from depositors wishing to withdraw their funds. Reserves are normally a tiny percentage of their total assets, most of which are in the form of longer term loans and investments. If customers suddenly wish to withdraw more funds than the bank has provided for, the Bank of England steps in to advance funds to the banks, albeit at a punitive interest rate to discourage the banks from taking unreasonable risks. This happened on a massive scale after the 2008 financial crisis, when banks experienced a high level of withdrawals by customers no longer confident that their money was safe.

An important task of central banks like the Bank of England is to manage the money market in such a way that the commercial banks supply sufficient funding to support economic growth and allow the economy to operate at close to full capacity. If too little money is created, interest rates are pushed up, and investment and economic growth stalls; if too much is created, inflation may ensue, as a result of ‘too much money chasing too few goods.’ The Bank seeks to manage the growth of the money supply by changing the interest rate at which it will lend to the banks, and by buying and selling Government debt in order to either supply more funds to the market, or absorb surplus cash.

We have discussed the supply of money, but what determines the demand for it?

Economists like to decompose national output into real output Q and the price level p. You can think of Q as the physical bundle of goods and services actually produced in a given year, and p as a vector or list of the prices at which they were sold. Every time a good or service is sold, money is transferred from buyer to seller. It is true by definition that the total money supply (M) in a given period equals total output (p times Q)  divided by the number of times each £1 is used, a number that economists call the velocity of circulation of money, or v. This is simply true by definition:

Mv=pQ.

The monetarist economists turned it into a theory by assuming that v is broadly constant in the short term. The assumption that the number of times each £ is used in a year is broadly constant is quite a strong one  -especially in a pandemic when everyone’s ability to spend is quite constrained. It continues to be debated to what extent v is stable, but the key insight is that there is a relationship between the demand for money and the monetary value of national output. The more we produce, the more money we need in order to finance the buying and selling of goods and services. This means that the Government (or, more accurately, the Bank of |England on behalf of Government) can indeed use the ‘magic money tree’ to increase the money supply as demand for money increases.

If we start from a situation where the supply and demand for money are in balance, then an increase in Government spending financed by increasing the money supply will be balanced by an increase in money demand, as Government seeks to buy more goods and services. If there is ample spare capacity in the economy, then real output will expand to meet the increased Government demand. Problems arise if the economy is at or near full employment, and firms are unable to increase their output to meet the extra Government orders.

If there is no spare capacity, then Government will only succeed in obtaining the extra goods and services it needs for it’s expanded expenditure programme if the private sector consumes less. This could happen through a reduction in v – perhaps the private sector saves more, or has to wait because of shortages of critical labour or goods and services. However, a large part of the gap between demand and supply is likely to be met through suppliers increasing prices as they realise that the extra Government demand gives them more bargaining power.

To summarise: if there is no spare capacity, the extra quantity of goods and services that Government wishes to buy can only be supplied if the private sector consumes less. Price increases are the mechanism by which the amount that can be purchased is brought into balance with what is available. Government is only able to secure the increased quantity of goods and services it has planned to purchase by reducing the supply available to businesses and households, just as would have happened if it had financed the spending through taxation. Everyone, including the Government itself, will find that, because of increased prices, planned levels of spending will buy less than expected, and the objectives of the spending will not  be fully achieved.

In a trading economy of course, part of the excess demand can be met by imports. Introducing the external sector to the analysis adds some complications but does not fundamentally alter the picture. If goods and services can be purchased from abroad, there is no capacity constraint. If Government increases it’s spending beyond the ability of the domestic economy to supply, then money will flow out of the country as imports increase and less is available to export.

The country will have to buy more foreign currency in order to buy the extra imports. This will reduce the excess money supply, as £s flow out of the country to foreign suppliers. The increased demand for Euros will change the exchange rate, raising the £ cost of buying a Euro. The excess demand for foreign goods and services will eventually be self-correcting as the depreciation of the exchange rate reduces demand for foreign goods and services, in the same way that inflation frustrates demand for domestically produced output. If domestic demand continues to exceed the capacity of the domestic economy, then foreign holders of UK currency will eventually become wary. Interest rates charged by foreign creditors will increase to reflect the expected rate of decline in the value of the currency. Contracts will be denominated in Euros rather than £s. If continued for too long, the combination of a collapsing exchange rate and public and private debt denominated in foreign currency can eventually lead to unsustainable debt problems as African and Latin American countries found in the 1980s. I am not suggesting that this is a serious risk for the UK, but there is a need to manage domestic demand to be broadly consistent with a sustainable balance of payments position in the medium term.

Economists and central bankers generally discourage Governments from making too much use of money creation to finance their spending. The danger if Government continues to have recourse to the printing press to finance it’s expenditure is that a vicious circle can develop. Firms and households expect prices to continue to rise, and therefore seek to protect themselves by holding tangible assets rather than money, and seeking to adjust their prices and wages to the rate of inflation, building more excess demand into the system. In the jargon, the velocity of circulation can become very high. If not checked, the result can be hyper-inflation, banking collapse, and a retreat into a barter economy. This is not just fanciful theory, there have been plenty of real world examples from Germany in the 1920s to Zimbabwe more recently.

COVID 19 and the Magical Money Tree

The circumstances of the current pandemic in the UK make the risks of financing Government spending through borrowing or through money creation relatively modest, at least in the short term. To understand why, a short explanation of the national accounts will be helpful.

The key concept is that every good or service produced in the UK or any other national economy generates an exactly equivalent income for someone. Labour and capital are combined through a production process to produce outputs that are sold to produce income that is shared between the workers and the owners of the capital. Output consists of investment plus consumption goods, and equals income that consists of consumption plus savings. The output of consumption goods equals consumption expenditure by definition -because consumption goods that are not sold in the period are defined as an investment in stocks . This means that the condition for the supply and demand of goods and services to be in balance is that savings should equal investment. This is true by definition after the event.

The problem occurs when investment plans and savings plans differ. If firms plan to invest more than households plan to save, the physical capacity of the economy to supply the necessary goods and services will be exceeded. The banking system may create the money to finance the investment, but physical supply limits will push up prices and interest rates as firms compete for the available labour and capital equipment, reducing the profitability of investment. Conversely, if savings exceed investment, there will be insufficient demand to fully employ the available labour and equipment. The interest rate may fall, reducing the incentive to save and making investment more profitable. However, there is no guarantee that any positive interest rate exists at which the two can be brought into balance. The key insight of Keynesian economics was that, if the private sector is unwilling to invest the available savings, then Government can step in and restore full employment by spending more, increasing the Government deficit. This was the basis of economic policy from the end of the second world war until the rise of monetarist economics in the 1980s.

The lockdowns and the restrictions that have accompanied the COVI|D 19 pandemic caused a reduction in output in the UK economy, and therefore a reduction in people’s incomes. Government tried to limit the reduction in people’s incomes by measures such as the furlough scheme. Other things being equal, one might have expected the population to try to maintain their expenditure by drawing down their savings and borrowing more. This, combined with increased Government spending, might have resulted in total demand exceeding total output, with inflation the result. That was my expectation, in an earlier blog post. In practice, this did not happen.

Somewhat surprisingly, the lockdown has seen a big increase in household savings. Those towards the bottom of the income distribution have struggled, as have many in the hospitality sector and many self employed. However, those who are retired or remain employed have increased their savings, partly a precautionary response to a less certain future, but mainly the result of frustrated consumption as holidays and recreation plans were prevented by lockdown.  This increase in savings has been accompanied by a reduction in investment. Banks and other financial institutions are reluctant to lend in uncertain times where the viability of firms is unclear. The combination of increased savings and reduced investment came at a time when interest rates were already close to zero.

This puts Government at present in a very strong position to finance a massive Government deficit. The Government stock of debt has reached about 100% of GDP, which is high but by no means unprecedented in our post-war history, while the cost of servicing that debt is very low, due to near zero interest rates. With such uncertainty over the viability of private sector investment, Government looks by far the safest place to invest savings, which means the Government can borrow as much as it likes for next to nothing.

The interesting question is what happens when the current unusual situation begins to unwind. Savings are likely to fall quite substantially as it becomes possible to spend on all of the things that have been denied us during lockdown. Investment will revive as easing restrictions removes the uncertainties that prompted delays to investment plans . The banks are very liquid at present, which means that they are well placed to expand their lending very rapidly if credit-worthy customers come forward. With investment likely to increase and savings likely to fall, it is likely that the economy will experience significantly higher interest rates and some inflationary pressures. This is manageable, but will require the Government to reduce the stimulus to demand represented by it’s greatly expanded deficit. This will partly happen automatically as the need for pandemic support eases and higher output brings in more taxes. However, the pandemic revealed the need to spend a great deal more to rectify long standing problems of insufficient spending on major areas including the health service, social care, and local Government, while the cost of servicing the debt will increase. The danger is that an irresponsible Tory Government intent on winning an election may be unwilling to raise the necessary taxes, and may indeed want to reduce them. With similar problems across the globe, there is a potential risk of a return to relatively high inflation and interest rates that could make debt management more difficult, but it seems a remote possibility at present.

As the economy revives, the demand for money will increase, and Government can in normal circumstances make increased use of money creation to finance it’s spending, without causing inflation. This also has the advantage of limiting the increase in Government debt stock and debt servicing costs. A significant caveat is that this depends on what happens in the commercial banks. If revived confidence leads the banks to greatly expand their lending, something they are well placed to do at present, then the Bank of England will become concerned about excessive money supply growth and inflation. In that situation, the Bank may need to reverse the Government contribution to money supply growth to make room for increased private sector demand . The Bof E will need to sell more Government debt than is required to finance the deficit – turning the public sector money creation into reverse, raising interest rates, and raising the cost of financing the Government deficit.

Political Implications

These strange economic times may also partly explain why a Government that appears to many of us to be hopelessly incompetent has nevertheless maintained a lead in the polls. The massive increase in domestic savings has enabled the Government to spend staggeringly enormous sums without raising taxes, and without causing inflation. Many in the country have improved their financial situation; many others have benefitted from generous support via the furlough schemes, enabling them to survive the pandemic with lower costs than they might have expected.

So far, nobody has had to pay for this generosity. Those who have suffered most are perhaps not Tory voters – and we have seen plenty of gerrymandering efforts to direct more of the available largesse to Tory seats. The incredible wastefulness of the chumocracy has yet to cut through precisely because it appears that nobody has yet been asked to pay for it.

The continuing Tory lead might thus be explained by the goodwill factor of the vaccination drive, and the extraordinary scale of the support to household incomes. This positive view might erode when economic revival puts more pressure on Government finances – but that does not look imminent. For the moment, enough people are positively surprised by the extent to which Government has succeeded in protecting them from a pandemic that the Government is not perceived as having caused. Those who have been paying attention may know that the impact in the UK is far worse than it needs to be, but enough people have had a better pandemic than they were expecting to give Government the benefit of the doubt.

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How Labour Can Win

How Labour Can Return to Power

There is a possible route back to power for Labour, based on three strong policy platforms:-

 

i. Remain in the EU

Be the party for the 48% who wish to remain in the EU, and for the many more who are coming to that view as the lies of the leave campaign and the shambles of the negotiation become increasingly obvious.

ii. Reduce Inequality

But also be the party for those who have been left behind by globalisation, many of whom voted Brexit because they had so little to lose. Labour was always the party of redistribution, taxing those who can afford it in order to help those who need support. We need to focus on the hardships faced by so many and tackle head on the inevitable Daily Mail critique that Labour wants to tax ‘hard working families’ to provide handouts to the workshy. The approach cant be just about taxation and benefits, it also concerns investment in infrastructure to support a more balanced distribution of economic growth, less biased towards the South East. But we also need to say explicitly that economic growth is not the only goal, we have to concern ourselves with how the benefits are shared.

 

iii. Invest in public services – including a commitment to adequately fund health and social care.

We spend far less on health than other richer countries including our European neighbours. Comparison with others suggests we already have the most cost effective health system in the world. Meeting rising demand effectively is only possible with more money, something we should be willing to pay for.

 

There are several good answers to the question ‘how do we pay for all this?’:-

Relax Austerity: As argued in a previous blog (’public expenditure cuts:not needed, but very damaging’, https://mickfoster.wordpress.com/) , there is no pressing case for further austerity, and a higher share of public expenditure in GDP is prudent in current circumstances where debt service remains low by historic standards, and is likely to remain so. Without making the further cuts proposed by the Tories, the debt will fall as a share of GDP simply through economic growth at historic rates, and there is also scope for higher taxes, ending our participation in a race to the bottom.

 Better In than Out: If we do not leave the EU, we will save ourselves considerable costs of adjustment and will benefit from rather higher economic growth. This theoretical result from modelling is already being confirmed by the plunge in the value of the pound at the prospect of a hard Brexit.

Stop Tory Vanity Projects: We could liberate some funds for worthwhile public expenditure by changing our priorities – scrap the dubious Hinkley and HS2 projects, and (ideally) the entirely pointless expenditure on Trident.

 

Can this bring Labour back together?

With the exception of the possibly contentious issue of Trident (though I have never understood why such lunacy has support in the party), I would imagine that a platform based on these three pillars could be attractive to most Labour MPs. There will need to be debate based on research to help forge evidence-based compromises on how far to push issues such as redistribution and a more expansionary fiscal policy. The prospect of a reasonable shot at forming a Government should focus minds.

 

What is the alternative?

I doubt if there is one in the short term. I suspect that there will be an opportunity for a no-confidence vote that might prompt a new general election at some stage in the run up to triggering Article 50. The only hope for Labour to be a relevant political actor in that process –or indeed in 2020 – is if it has something distinct and clear to say on the case for remaining in Europe. That is the only issue where there is a real possibility of attracting enough new voters to evict the Conservatives. When the Tory Government seem set on inflicting enormous and irreversible damage to our economy, our society, and our Union, there is a once in a lifetime opportunity to be the party of the sane alternative, attracting voters who would not perhaps normally vote Labour. We must seize that opportunity.

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Some thoughts on why we need to vote Labour in coming local elections in Essex

The Essex County Council election is important to YOU if you:

 

Have elderly relatives in need of support to maintain their dignity and independence

 

Have children in State schools

 

Use the roads and highways that cross our county, and that the ECC is responsible for maintaining

 

Are concerned about the services available to support vulnerable children and adults

 

Use and enjoy the library services and the opportunities for further and adult education

 

All of these services are under threat.

 

In 2016-17:-

 

-The Tory Government is cutting the amount of money it provides to ECC by a third – some £50mn.

 

– But a bigger population and the cost of paying the National Living Wage mean it will cost the council an extra £40mn just to deliver the same services.

 

– Together, this means ECC needs an extra £90mn in 2016-17 just to stand still. It has increased Council Tax by 4% – the maximum it can increase it without calling a referendum – but this will bring in only an extra £22mn.

 

– The council plans to fill the remaining gap in 2016-17 by drawing down reserves to dangerously low levels (just 23 days of expenditure), and by continuing to cut overall expenditure despite the severe pressures from rising demand and increasing costs.

 

– On it’s own website, the Tory run Council admits it does not know how the increasing shortfall can be met after 2017-18.

 

This is happening across the country –indeed, relatively wealthy and fast-growing Essex is better off than most councils.

 

The Tory Government is not putting public finances on a sound footing – it is transferring the problems to local authorities and to health Service Trusts, and building up problems that are becoming increasingly apparent and will be expensive to solve.

 

What difference would a Labour Council make?

We will need a Labour Government to solve the underfunding of the services on which those of us who are not Eton educated millionaires depend.

 

But There are four key reasons to vote Labour in the ECC elections:-

 

To send a message to the Government that you are not happy to see money wasted on tax cuts for the rich while our roads are full of potholes and basic services on which we and our loved ones depend are in risk of collapse.

 

To elect a council that you can trust to prioritise the things that ordinary people want and value.

 

To fight back at local level against extreme Tory policies that undermine your public services, and for which they have no mandate – including the forced academisation of primary schools, and the creeping privatisation of almost every public service.

Vote against Private affluence for the few – but Public Squalor endured by all of us.

 Vote Labour

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Publications on the Economics of Development

I had a long career as a developmen economist, first with DFID and then with the ODI, and finally as an independent consultant. With DFID, as head of Africa Economics Department, I did a lot of work on new approaches to development assistance, working with colleagues to develop more effective approaches to using aid to support sustainable poverty reduction and improved access to social services. This led on to me establishing the Centre for Aid and Public Expenditure (CAPE) within the ODI. I was the first head of CAPE, from 1999 to 2001, and I am proud that it continues to go from strength to strength. From 2002 until my eventual retirement in 2014 I worked as an independent consultant, but had the opportunity to combine practical consultancy work with some research. My focus in later years was on the problems of very high aid flows, and the difficulties of providing support in challenging policy and institutional environments.
I have pretty much retired now, and have no immediate plans to do more work in this area. The relevance of my work is clearly on a diminishing curve with time,but I do still get asked for copies of stuff I produced over the years. Most of my publications are available on Research Gate, but not necessarily well organised, and not everyone with an interest will necessarily find their way there. I thought it might be useful to provide this chronological listing of articles, book chapters, working papers, and consultancy reports. This is still work in progress. I will eventually aim to add links to where copies can be found, but that may take me a while. If you have trouble finding anything listed then please send me a request and I will do my best.

List of Publications
Mick Foster and Anthony Higgins, Programme Management Review for Australian Aid support to the Solomon Islands Health Sector, Options Paper, November 2013

Mick Foster, Anthony Higgins and Myra Harrison, Samoa Education Sector Policy Support Program, Report of First Sector Policy Support Design Mission, December 2011

Mick Foster, improving the provision of basic services for the poor:- linkages with broader public sector and Governance reform. AusAID, Office of Development Effectiveness.

Mick Foster, Rob Condon, Katja Janovsky and Chris Roche, Australian Aid to health Service Delivery in Papua New Guinea, Solomon Islands and Vanuatu: Evaluation Report and country working papers, June 2009, AusAID, Office of Development Effectiveness

Foster, Mick. How to stop development aid from doing harm. Europe’s World, Autumn 2007.

Tony Killick and Mick Foster, The macroeconomics of doubling aid to Africa and the centrality of the supply side. Development Policy Review, March 2007.

Foster, Mick and Tony Killick, Economic management in Africa: what would be the effect of doubling aid? The Commonwealth Ministers Reference Book, 2007.

Foster, Mick and Killick,T (2006), What would doubling aid do for macroeconomic management in Africa: a synthesis paper (ODI Working paper 264, April 2006). Downloadable fromhttp://www.odi.org.uk/publications/working_papers/index.html

Foster, Mick. Fiscal Space and Sustainability: Towards a Solution for the health Sector. (Reproduced in WHO, World Bank (2006), High-level forum on the Millennium Development Goals, Selected papers 2003-2005).

Foster, Mick. MDG Oriented Sector and Poverty reduction Strategies (2005), Lessons from Experience in Health, HNP Discussion Paper, World Bank, October. (Reproduced in WHO, World Bank (2006), High-level forum on the Millennium Development Goals, Selected papers 2003-2005).

Fozzard, Adrian and Mick Foster (2004), Changing Approaches to Public Expenditure Management in Low-income Aid-dependent Countries. Chapter in “Fiscal Policy for Development, Poverty Reconstruction and Growth”. Edited by Tony Addison and Alan Roe, UNU-WIDER, May.

Foster, Mick (2003), A note on Criteria for Assessing the Case for Overseas Aid, Development Policy Review, May 2003. N/A

Foster, Mick, Adrian Fozzard, Felix Naschold and Tim Conway (2002), “How, when and why does poverty get budget priority? Poverty reduction strategy and public expenditure in five African countries. Synthesis Paper.” Overseas Development Institute, Working Paper 168. ISBN 0850035791.

Foster, Mick and Douglas Zormelo (2002), “How, when and why does poverty get budget priority? Poverty reduction strategy and public expenditure in Ghana”. Overseas Development Institute, Working Paper 164. ISBN 0850035902.

Foster, Mick and Peter Mijumbi (2002), “How, when and why does poverty get budget priority? Poverty reduction strategy and public expenditure in Uganda”. Overseas Development Institute, Working Paper 163. ISBN 0850035929.

Norton, Andy, Tim Conway and Mick Foster (2002), Social Protection: Defining the Field of Action and Policy, Development Policy Review, 2002, 20 (5):541-567, November.

Foster, Mick and Felix Naschold (2001), Government-Donor Partnerships in Support of Public Expenditure, Chapter in Making Development Work, Development learning in a World of Poverty and Wealth, World Bank Series on Evaluation and Development, Volume 4, ed. by Nagy Hanna and Robert Picciotto, Transaction Publishers. N/A

Foster, Mick and Jennifer Leavy (2001), “The Choice of Financial Aid Instruments”. Overseas development Institute Working Paper 158. ISBN 085003 5724.

Andy Norton and Mick Foster (2001) “The Potential of Using Sustainable Livelihood Approaches in Poverty Reduction Strategy Papers.” Overseas development Institute Working Paper 148. ISBN 085003 5287.

Norton, Andy Tim Conway and Mick Foster (2001) “Social Protection Concepts and Approaches: Implications for Policy and Practice in International Development”, ODI Working Paper 143.ISBN 085003 5139.

Foster, Mick and Sadie Mackintosh-Walker (2001), Sector Wide Programmes and Poverty reduction. ODI Working Paper 157, commissioned by Government of Finland for the like minded donor group. ISBN 085003 5716.

Brown, Adrienne, Mick Foster, Andy Norton and Felix Naschold (2001), “The Status of Sector Wide Approaches”. ODI Working Paper 142, commissioned by Ireland Aid for the like minded donor group. ISBN 085003 5074.

Foster, Mick (2000) “New Approaches to Development Co-operation: What can we learn from experience with implementing Sector Wide Approaches?” ODI Working Paper 140, commissioned for DFID White Paper, October. ISBN 085003 5023.

Foster, Mick, Adrian Fozzard (2000) “Aid and Public Expenditure: A Guide”. Commissioned by DFID for the economists guidance manual. ODI Working Paper 141. ISBN 085003 5031.

Foster, Mick, Adrienne Brown and Tim Conway (2000) “Sector-wide approaches for health development: a review of experience ” WHO, Geneva, June.

Foster, Mick and Felix Naschold (1999), ‘Pro-poor budgets and the role of development cooperation’, chapter of “Operationalising the Comprehensive Development Framework: Evidence from Contemporary Research” (ODI’s contribution to the World Bank Annual Review of Development Effectiveness), June.

• Foster, Mick (1999) ‘Lessons from Sector Wide Approaches in Health’, WHO: Geneva, March.

• Foster, Mick (1996), Improving Overseas Development Assistance: The Broad Sector Approach, May 1996, published with proceedings from May 1996 IMF seminar, ‘Deepening Structural Reforms in Africa’.

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BBC: Belicose, Biased, Complacent – and far too dominant

A letter from David Elstein in the most recent London Review of Books quotes official Offcom data showing that the average adult UK citizen gets over 60% of their news from the BBC. This is a consequence of BBC dominance of TV and radio news, their strong (and free access) presence on line, and the steep decline of print news media. As Epstein points out, if any commercial organisation commanded a 60% share of news consumption, there would be a national outcry and calls for it to be broken up.

If the BBC was a genuinely impartial reporter of the news (assuming such a thing to be even possible) then perhaps this would not matter, but it is clear that the BBC has a very narrowly defined idea of the political spectrum within which it tries to be impartial – roughly extending from the current right-wing conservative Government to the Blairite right of the labour party. They seem complacently unaware of their own bias, happily referring to Jeremy Corbyn as ‘extreme’ and ‘left-wing’, but never applying the description ‘right wing’ or ‘extreme’ to the policies of the current Government -despite their stated determination to cut public spending to 35% of GDP, a level not seen since the birth of the welfare state. This abandonment of the postwar political consensus by the current Conservative Government is in my view far more extreme than anything proposed by the current labour leadership, which has espoused domestic policies that were mainstream before Mrs Thatcher ended the tradition of ‘one nation’ Toryism.

The shoddy and complacent nature of BBC journalism is illustrated by another article in the LRB. Patrick Cockburn gives a detailed account of the state of the war in Syria. He makes a number of key points:-

I. The only effective opposition to ISIS in Syria is from the Assad Government, Shia militias and their Iranian allies, and the Kurds. The only one of these groups with which the US feels able to work is the Kurds, but they are only 10% of the population and only effective in a small part of the country – and US support for the nationalist ambitions of the Kurds is not without risk given the implications for the stability of Turkey.

ii. There is no such thing as a moderate Sunni opposition, and efforts to create one have been wholly ineffective.

iii.With no ground forces to support outside the areas where the Kurds have been engaged, the US bombing campaign has been entirely ineffective as a response to ISIS – though it has caused enormous destruction and killed a lot of people. Some fifty analysts working for US central command protested about official distortions of what was happening on the battlefield, aimed at trying to present a more positive picture.

Cockburn comments that ‘Britain is wrestling with the prospect of joining the US-led air campaign, without noticing that it has already failed in it’s purpose.’ He says that some even in Washington are beginning to think that the Russian approach may have some merit, because the Syrian army remains the most effective force opposing ISIS.

Anyone relying entirely on the BBC for news and analysis of the Syrian conflict would have little notion of these complexities. BBC reporting that I have seen has been obsessed with the politics of whether or not the UK Government has the political will to join the US in bombing Syria, with little or no discussion of what such bombing would achieve. They have not taken on the mission to explain the messy regional politics of Sunni and Shia rivalry. They have been highly critical of Russian involvement and support for Assad, but have not been prepared to give any real attention to asking what alternatives might stand a chance of working.

This is one example of a BBC coverage of foreign affairs that is as narrow as their coverage of domestic politics, with news priorities and perspectives reflecting a US-centric view of the World. There are times when I almost wonder if the CIA have infiltrated the BBC as a more trusted and therefore more effective alternative to Voice of America. I suspect though that the explanation is just laziness and complacency. The BBC seems to have more journalists and more contacts in the US than elsewhere, which is why the list of usual suspects called on for ‘expert’ opinions seems to be dominated by American voices.

I have searched in vain for any balanced account of events in the Ukraine, in the Middle East, or in the South China sea. The perspective of those opposed to the US in these disputes is almost entirely lacking. It is dangerous that our dominant source of news shows little interest in understanding and explaining the perspectives of countries in dispute with the US, preferring instead the knee-jerk assumption that our US allies must be in the right. There is an alternative narrative that perceives the US as no less the aggressor than those with whom it is in dispute, and that perspective needs to be understood if we are not to stumble into further conflicts.

Perhaps the BBC was always this bad – though my memories suggest otherwise – but, even if it was, it matters a lot more now that they have become so dominant. I am not sure how to adjust it without risking a US style corporate dominance of news media, but it ought not to be beyond us to find a way to combine public interest broadcasting with deeper analysis, and a greater diversity of voices and views, than are reflected by the current monolithic BBC

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Mick Foster: economist, drummer, and would-be author

Thanks for visiting my site. I am an economist with more years of experience than I care to admit to, most of it in overseas development, though I have also worked as Chief Economist in the UK Home Office, and had a brief stint in the Cabinet Office. The site contains:-

i. My research and consultancy work on economic development – most of this is available on researchgate.net, but not everyone has access to that.

ii. Discussion of policy issues that interest me, trying to push back against the avalanche of lies and distortions that seem increasingly to taint our politics and our media coverage.

iii. Some of my fiction writing while I figure out how best to get it either published or self-published. Short stories under the heading ‘Lives in Development’ can be seen here https://mickfoster.files.wordpress.com/2015/10/lives-in-development.pdf

iv.  I will also have a theme for the various bands and music events I am involved in, with a few links to where our music can be heard.