On Monday night I watched Jeremy Paxman's programme on the First World War. One of the social dimensions of the war that he discussed was the massive sale of war bonds in 1917. More than £11 billion in current prices was raised in a few months. People literally invested their savings in something they believed in, which was the need for victory.
On Tuesday I, and quite a number of others, spent time thinking about tax justice and healthcare, not just in the UK but around the world. With so many development experts present I concentrated on the home front, and recalling Paxman and the war bonds suggested the sale of NHS bonds as a way of replacing PFI as the mechanism of choice for funding the NHS.
The idea resonated immediately. That was not just because others had seen the programme, although some had. Those present were instantly sure that such bonds would sell.
Now this is not a new idea on my part. Colin Hines, Alan Simpson and I first proposed such an idea in 2003 as part if what we then called our proposal for People's Pensions, believing that bonds could underpin pensions that people would wish to invest in as they could relate to the product they were buying. It has since been used by us, regularly, as part of the Green New Deal proposal.
I remain baffled about what there is to not to like about the scheme. Of course it is, in a sense, hypothecated borrowing, but unlike hypothecated tax I have no problem with that since borrowing is not obligatory and payment of tax is.
And no doubt someone somewhere will find an EU based objection (although I struggle to think that this might be).
Right wingers will also, and equally predictably, argue that this will be the state crowding out private savings, but that's risible. Providing choice is not crowding out.
And such a scheme would, I think, have considerable appeal, especially to older savers who are looking for some certainty in their returns and to those, like me, who frankly think that right now capitalism has no real idea how to generate any returns to savers except by undertaking market abuse and by undertaking rent seeking activity.
If these bonds could be placed in pension and ISA wrappers then the appeal would be even stronger, whatever reservation I have about these structures.
I personally think it a 'no brainer'.
One for the manifesto anyone?
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This Government won’t countenance anything that is free of the stock market and the rentier world of financialisation!
How would NHS bonds differ from standard UK gilts, or other, more user-friendly, government savings vehicles such as premium bonds or national savings certificates ?
The original WWI bonds were issued at such generous interest rate terms that many consider them to have prolonged the post-war depression.
Labour politician Tom Johnston would later write of the 1917 War Loan “No foreign conqueror could have devised a more complete robbery and enslavement of the British Nation”.
What? 3% was enslavement? How?
They would differ by being available at lower unit costs, by being more easily traded, by being available in pension and ISA wrappers and by being hypothecated
Sure, it’s marketing
What’s wrong with that?
Better than PFI by miles….
And how the Victorians built our infrastructure, may it be noted
The 1917 War Loan paid a coupon of 5% and was sold at a 5% discount. Which was higher than the prevailing gilt yield.
The question I was asking is how would an NHS bond differ from the same maturity gilt. The UK currently doesn’t have a problem raising capital, not that long ago gilt yields were under 2%. The fiscal “issue” the UK has is its current tax base not matching its desired expenditure. That wouldn’t be dealt with by an NHS bond.
So would an NHS bond pay a higher coupon than a similar gilt, and if not then what would be the point, apart from as a marketing exercise.
Marketing yes
But to beat PFI it’s a winner
And to privatise railways too
I saw the Paxman programme and felt immense sadness when I saw the part you mention. People were sacrificing what little they had to provide ‘money’ for the government, because in those days of gold-standard thinking, it was effectively a commodity in limited supply. If you couldn’t dig yellow metal out of the ground, or obtain some in exchange for something else, you had a limited amount of ‘money’.
In modern times money is created out of thin air by governments and banks, the only limits on it are how it affects inflation, and the relationship is not 100% clear to in terms of the actual mathematical relationship.
When Cameron lets slip that ‘money is no object’ he’s completely correct, the limit is on actual resources such as peoples time and raw materials, not on the amount of pieces of coloured paper. The decision on whether or not to use these resources for the benefit of the people is a completely political one.
Would this work for buying back various privatised services? Pretty sure the queue to buy back the railways would be long. Also agree with Brian though!
I think we would get queues, yes
Richard
The New Green Deal plan is in principle a good one, but is predicated upon funding using borrowing at interest, which is inefficient and unnecessary, and hypothecation, which is politically unpalatable.
In the course of my work at UCL’s Institute for Security & Resilience Studies in the last three years I’ve been researching how exactly the monetary and fiscal systems worked before the banking system came along, and their relevance to a networked knowledge economy.
Of course there WAS a system working after a fashion for centuries before banks and joint stock companies came along. Some pervasive myths have grown up involving barter and goldsmith’s receipts, while the inconvenient truth of credit instruments has essentially been airbrushed from history.
Funding using the prepay credit instrument – ie the sale at a discount of future revenues or production – actually pre-dates modern debt (loan stock) and equity (common stock – which makes the private sector ‘private’).
Sovereign funding using tax prepay instruments – which was evidenced by the ‘stock’ portion of the tally stick record – gave rise not only to the expression ‘tax return’ (the periodic accounting at which the stock was returned to the Exchequer to be matched to the counter-stock and cancelled) but also the expression ‘Rate of Return’ – the rate over time at which the initial discount or profit was realised by tax-payers who opted to prepay their taxes.
Pre-pay funding literally involves a periodic return in terms of ‘money’s worth’ of value, but there is no money paid for the use of money (aka compound interest),
In other words, there is no need to issue dated loan stock (which is actually not debt at all but a form of dated interest-bearing equity) at all. Governments can, and should, issue new forms of prepay ‘stock’ – such as health prepay; energy prepay; land rental prepay and so on. Indeed, there is still an archaic rump (Consols particularly and War Loan) which are undated ‘liabilities’ (they are actually National Equity, not Debt), but bear fixed interest.
You are more than smart enough to realise the effect that the re-emergence of prepay funding could achieve. It can and will completely reconfigure the financial system, because it enables people to link economically directly through Peer to Peer credit (which is not the same as P2P debt of existing money) and Peer to Asset investment in property, energy and infrastructure.
So to sum up, I think we will see the State reconfigure in a more participative form along functional lines
Governments have always been reluctant to hypothecate: so don’t go there: disintermediate the state to a supervisory, standard setting and quality control functioncarried out Switzerland style at the local level wherever possible.
Collect a land levy at local level, and pay a land dividend of land levy credits equally to all. Collect a carbon fuel levy, and pay an energy dividend of energy credits equally to all, which may then be invested through ‘energy loans’ in future energy savings. My approach to the governments disastrous Green Deal is here
http://www.bristol247.com/2012/12/11/how-bristol-can-introduce-a-truly-green-deal-49013/
Then there’s health, and much else. But the key message is that the re-introduction of pre-pay is a game changer, and is already routine in the wholesale markets: eg Russia’s recent $85 bn prepay crude oil deal.
Keep up the good work, but please, consider going Back to the Future.
Chris
As ever my problem with what you suggest is that it may be clever, but it’s centuries from realisation
You may say I’m not a dreamer (and you’re not the only one) and might wish that some day I’ll join you but for now I’m going to work with the possible
Best
Richard
Richard,
don’t forget that the possible is always limited by what we are allowed to imagine by the propaganda machine. We must continually question, attack and undermine the premises on which it operates. The Schwabian housewife. Thatchers TINA and her handbag economics. The UK government needs to borrow its own money from private individuals. Money printing by the state causes inflation but money printing by banks doesn’t.
If you don’t know alternatives exist, you can’t question the status quo, and alternatives are by definition impossible because T – I – N – A !.
If only you were working with the possible, Richard.
Are you aware of the capabilities of mobile payment technologies – where a currency reaching 3.5bn people already exists? Or the disruptive effect of the Bitcoin protocol (forget the currency) – which bypasses banks and government entirely – in relation to accounting and enterprise models?
I’m working on practical prototypes, both at micro (community) level in Scotland and at macro level in a country which has no choice other than these agreements and prepay instruments.
The basic core can be implemented within a year.
You’re a good man, and I wish you the best of luck with your efforts to reform the system from within, but there is a revolution going on under your feet.
Chris
I’d like to believe you
But I don’t
And I am no Luddite
And there is a very good reason for opposing such disruptive change. The Bitcoin is designed to undermine tax systems
If you want to disrupt well-being there’s little better way of doing it than that
Richard
If you want a Carbon levy – fine…..but you’d better make sure that each and every country in the entire world has it otherwise all you’ll do is off-shore UK jobs to places that don’t have it and thus have much cheaper energy….
….think I’m joking….the boss of TATA isn’t and TATA steel is a global company that can invest and place jobs anywhere in the world…..
http://www.tatasteeleurope.com/file_source/StaticFiles/Functions/Media/Foundation_Industries_Report.pdf
Richard
Bitcoin is not the end game, but it is perhaps the end of the beginning. It is as disruptive – and flawed – as was Napster for the music industry.
You can’t wish it away.
What you can do is come up with the next iteration of web accounting which is designed with reasonable privacy, rather than unreasonable anonymity, built in.
As a triple entry accounting system the bitcoin protocol is revolutionary. But as someone said, it is the Netscape of e-payment, pending the arrival of a Google to render it redundant.
Double-entry book-keeping, and the economics of profit and loss built upon a paradigm of intermediaries (whether private or public) are inherently limited. Networked accounting systems based upon shared transaction and title repositories are evolving rapidly and that is the area I have long been working in.
Chris
Good luck
You’re going to need it
And many lifetimes
And a revolution that will shake the world to its foundations
Richard
Cheers, Richard.
The Revolution is here already, and it began in the foundations.
May the best paradigm win!
You leave me confident