What is wealth?

Photo: Spudgun67, Creative Commons

Photo: Spudgun67, Creative Commons

“There is no wealth but life. Life, including all its powers of love, joy, and of admiration” (John Ruskin, in Unto this Life)

To be wealthy is to have a vast amount of money, isn’t it? So isn’t wealth just money? No. Money has no value in itself, and it is only useful as a means to an end. Money is just a claim on those kinds of wealth that happen to be for sale.

‘Wealth’ refers to whatever enables us to live and to live well. Most prosaically it includes goods and services. Some of these are provided without payment – most domestic labour, for example, or the food gardeners grow for their own use. Even though we don’t pay money for them, their products are a form of wealth. We should include nature’s bounties too – from clean water and sunlight, to fertile soil and all the plants, fishes and animals that grow themselves, but which we can use, often with little effort. Our own bodies are a form of wealth; our health is our wealth. And wealth includes some non-economic things, like being loved, which of course can’t be bought. We shouldn’t dismiss Ruskin’s claim as merely poetic or fanciful.

Aristotle saw the pursuit of money as an end in itself as a form of madness.

Photo: Democracy Chronicles, Creative Commons

Photo: Democracy Chronicles, Creative Commons

But what was an exception 2,300 years ago has become widely taken for granted today, for under capitalism, the pursuit of money profits has to be the goal for capitalists if they want to survive in competition with others; if they’re not successful in this they go out of business. Whatever they may say about wanting to put their customers first or wanting to bring their product to the world, they ignore this imperative at their peril. For the rest of us, money is of course necessary as a means to an end, for getting the goods and services that we need, but it’s easy to slip into treating the pursuit of money itself as our main goal.

So who are the wealth creators?

Realising this is essential if we are to explode the myth of wealth creation as the preserve of the rich.  Everyone who contributes to the production and distribution of goods and services – in a broad sense – whether for sale or not, is a wealth creator. If you’re teaching a child to read, or looking after an old person, you’re creating wealth – even though you may not get paid for it.

What about the rich, then? As any get-rich-quick book will tell you, the way to become rich is not merely – or even – to work hard, but to get control of assets that others need but lack, so that you can charge them for their use, thus providing you with unearned income. You can get a lot of money – claims on wealth produced by others – without creating much wealth yourself, if you control some key assets, including money itself. The way to become rich is to become a wealth extractor! 2014-09-24 15.41.59

Why We Can’t Afford the Rich wins The Peter Townsend Prize 2015

With the winners of other academic awards at the British Academy

With the winners of other academic awards at the British Academy, in shiny red tie . . .

Professor Peter Townsend (1928-2009) was the authority on poverty and inequality in the UK. He is best known for his 1200+page Poverty in the UK in which he developed and applied the concept of ‘relative deprivation’.

The Peter Townsend  Prize, worth £2,000, is awarded biennially and supported by Policy Press for outstanding work with policy relevance on a topic to which Townsend made a major contribution. It is awarded in commemoration of Professor Peter Townsend, one of the most distinguished global figures in contemporary social policy and sociology. As an international researcher and public intellectual, he made an immeasurable contribution to analysis and policy-making in the areas of poverty and inequality, health inequalities, disability and older people. He was a Fellow of the British Academy. This prize was established to honour his memory following his death in 2009. The Prize was first awarded in 2011. The winner is selected by a committee that is independent of Policy Press. (I do not know who was on the panel or who nominated my book.)

The prize was awarded at the British Academy awards ceremony on 29th September 2015.  I have donated the money to the Child Poverty Action Group.


Given Townsend’s reputation, it is truly an honour to receive this prize. Yet I was very surprised to get it. I would never have imagined a book with such a provocative title and one written in a non-academic style could win an academic award.

I was also surprised because until recently it seems that it was widely considered unnecessary to say much about the rich in considering inequality, and unacceptable to argue that wealth and poverty are interdependent. But as Townsend said in Poverty in the UK: “To comprehend and explain poverty is also to comprehend and explain riches.” (p. 337). I agree. The converse is also true.

Now, things are changing. Not only has there been Thomas Piketty’s Capital in the 21st Century, but several organizations which normally support the rich have recently called for reduced inequality: the IMF, the OECD, the World Economic Forum (the Davos set, see p. 244-5 of my book). An then of course, there’s the Pope.

Townsend also called for the abolition of excessive wealth and excessive incomes (Poverty in the UK, p.926). In light of that astonishing statistic from Oxfam – that the 80 richest people in the world have as much wealth as the poorer half of the world’s population, all 3.5 billion of them – one can only agree.


Before you vote . . .

class war they started it

‘If there is a class war – and there is – it is important that it should be handled with subtlety and skill. … it is not freedom that Conservatives want; what they want is the sort of freedom that will maintain existing inequalities or restore lost ones.’ (Maurice Cowling – British neoconservative in his Conservative Essays, 1978)

‘There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” (Warren Buffett, estimated ‘worth’ $44billion, Chairman and CEO of Berkshire Hathaway, quoted in The New York Times, November 26, 2006.[i]

And the coalition government has been winning its covert class war against the poor, the unemployed, people on benefits, whether for reasons of disability, lack of jobs, or inadequate pay. The bedroom tax is merely the most obvious example – financially-pointless, mean-spirited and nasty, and irrational and cruel, given the shortage of small houses for rent or sale.

At the last election, the Conservatives got 50% of their funding from the financial sector. Predictably, the coalition government did its funders’ bidding and blamed the Labour Party for the global financial crisis, while protecting the financial sector from any serious reform, so it’s free to wreck the economy again at the public’s expense.

We live in a democracy in the shadow of plutocracy – the rule of the rich. 85% of our newspapers are owned by right-wing plutocrats and non-UK taxpayers, and their mouthpieces’ headlines give their game away everyday.

When politicians wring their hands over finding an extra £8 billion to fund the NHS, remember this: the combined wealth of the richest thousand people in the UK is £547 billion, up 5% on last year, which is more than 4 times the size of the cost of the NHS (£127 billion) last year. Which of these figures can’t we afford? (Sources: Sunday Times Rich List, and Office of National Statistics.)

We need proportional representation plus an assault on the media plutocrats.

Please bear this in mind tomorrow when you vote.2014-09-24 15.41.59

[i] http://en.wikiquote.org/wiki/Warren_Buffett In 2013, Buffett was ranked as the fourth richest person in the world by Forbes.


Zero inflation? Don’t believe it!

Photo: Luke Jones, Accretion Disc, Creative Commons

Photo: Luke Jones, Accretion Disc, Creative Commons

It was predictable. After years of austerity, falling real wages, and failing to cut the deficit, George Osborne had to find something to brag about in his pre-election budget: zero inflation was the answer! It’s never happened before – at least since consumer price inflation was first measured.

You might say it’s good because it means people’s incomes are retaining their value, instead of being whittled away by inflation. But it’s also bad news for debtors – such as mortgage holders and students with loans – and good news for creditors, as the value of debts doesn’t decline. So those who lend more than they borrow – overwhelmingly the well-off and especially the rich, will be better off than before, while the majority, who pay more in interest on debts than they receive on savings, will feel worse off, other things equal.

So far so good. But also off the point, because inflation is not zero. Here’s why.

On one of its web pages, the Office of National Statistics tells us that “The rate of inflation faced by households has fallen to its lowest level on record.”

But on another page it tells us this: UK house prices increased by 9.8% in the year to December 2014, down from 9.9% in the year to November 2014. And in more detail:

  • House price annual inflation was 10.2% in England, 4.0% in Wales, 5.5% in Scotland and 4.9% in Northern Ireland.
  • House prices continue to increase strongly across the majority of the UK, with prices in London again showing the highest growth.
  • Annual house price increases in England were driven by an annual increase in London of 13.3% and to a lesser extent increases in the South East (11.5%) and the East (11.4%).
  • Excluding London and the South East, UK house prices increased by 7.4% in the 12 months to December 2014.
  • In December 2014, prices paid by first-time buyers were 9.5% higher on average than in December 2013. For owner-occupiers (existing owners), prices increased by 9.8% for the same period.

    Photo: Chris Breeze, Creative Commons

    Photo: Chris Breeze, Creative Commons

How come the glaring contradiction between these two lots of official data? It’s because large elements of consumer spending, especially housing costs – usually nearly a quarter of spending, are excluded from the bundle of goods used to estimate the Consumer Price Index (CPI). In the UK, a million working households – mainly young, single, living in the South-East  and in the poorest 20% of households – spend over half their net income on housing. (1) The CPI is not an adequate measure of the cost of living.

A few may worry about young first time buyers facing ever bigger difficulties getting on ‘the housing ladder’. Others reply that assuming that their parents have a house (a big assumption!) and it’s rising in value, they can ‘borrow from the bank of mum and dad’. (As if all young people were happy to be dependent on their parents! Q. What happened to those neoliberal ‘self-reliant individuals’? A: They’ve got helicopter parents. )

A good inflation hedge?

But there’s another twist. Look this topic up on the web and you’ll find lots on how a house can provide you with a pension if it rises in value, and you ‘trade down’ by moving to a cheaper area or smaller house. So housing is often seen as ‘a good inflation hedge’. Well it is, if you’re a house owner and can do this, and if you take a myopic, individualistic and selfish view of the matter. Asset inflation is not wealth creation: it merely shifts wealth from the asset poor to the asset rich. Where do the beneficiaries imagine their housing windfalls come from? They only have any value if there are goods and services they can buy with them, so when they exchange their windfall for these they are getting something for nothing. (2)

(1) Source: The Resolution Foundation has produced a graph on what they call ‘the2014-09-24 15.41.59 housing pinched’ – people spending over half their net income on housing.

(2) In my book, I argue that your pensions shouldn’t depend primarily on your economic power in terms of your control of assets, but derive from democratically-regulated transfers between the generations: i.e they should be state pensions.

The Neoliberal Something-for-Nothing Economy

Photo: Jim Linwood, Creative Commons

Photo: Jim Linwood, Creative Commons

Want to get thousands of pounds for nothing? It’s easy if you own property in the right places.

In one in five local authorities, houses in the UK have ‘earned’ more than their owners over the last two years. For them, unearned income has exceeded earned income. Predictably, almost all these places are in the South-east and London. Top of the list is the London Borough of Hammersmith and Fulham, with average house prices rising nearly £200,000 in this period, while the median household earnings in the borough have been £56,698.[1] You may say the owners can only realise these gains if they sell their property, but they can also take advantage of them because higher prices mean more collateral for borrowing to buy more property. And of course most bank lending goes not to productive business for investing, but for buying existing property, particularly housing. Housing in upcoming areas of London is becoming improperty – property bought not for use, but as a source of unearned income – something for nothing – an object of speculative investment.

So what’s the problem? Well, as many noted, such rises in house prices make things all the more difficult for those trying to buy a house first time, and anyone wanting to move into the south from outside. This is true enough, and it is a further indication that young people can increasingly expect to have to rent their homes from private landlords instead of owning it.

Photo: Alan Cleaver, Creative Commons

Photo: Alan Cleaver, Creative Commons

But what the reports missed was the simple injustice of the property windfall as unearned income. Think about those capital gains – for some, the equivalent of a lifetime of free lunches. The only way you can get a free lunch is if someone else produces it for you. Those who gain an extra £200,000 in this way have a claim on £200,000 of goods and services that others produce, and without having to produce any goods and services that didn’t already exist in exchange. If there were nothing to buy with the windfalls, then they would be worthless. Clearly those producers – wherever they may be – have to produce that extra over and above what their own pay (earned income) can buy, to support the unearned income of the rentiers.

So yes, we should worry about first time buyers, but we shouldn’t miss the elephant in the room: unearned income and the rentier economy. The broadsheets, BBC’s Newsnight and the chattering classes love discussing house prices but they seem incapable of noticing this. Could it be because of the massive over-representation of the 1% in the media?

It’s not only unjust: it’s also dysfunctional for the economy, as it’s unproductive. At this time when we urgently need massive investment in the green economy to cut CO2 emissions, and in the construction of new social housing, most bank lending is going to fuelling yet another property bubble in existing housing. Over the last 40 years, debt related to property has risen as a percentage of GDP, and it’s not because people want to buy bigger and better houses but because supply hasn’t kept up with demand, causing land values and house prices to inflate. It’s the kind of inflation neoliberals secretly love, but they keep it hidden by excluding mortgage interest repayments and house prices from the inflation figures. As political economist Colin Hay said, they clearly thought ‘retail inflation bad, house price inflation good’. It’s good for property owners, but at other people’s expense. When politicians and uncritical commentators talk about ‘reviving the housing market’ they mean making sure house price inflation continues, not building more houses.

Diana Parkhouse, Creative Commons

Diana Parkhouse, Creative Commons

Those who seek out such gains may think of themselves as smart, prudent ‘investors’, exactly the kind of people the economy needs, but they couldn’t be more wrong; they are living off others’ work and drawing investment away from productive uses.

George Osborne’s latest budget threatened £12 billion cuts to welfare, but at the same time his giveaways on property enlarge the private welfare state for the rich and comfortably off. ‘Help-to-buy ISAs’ for first-time buyers further fuels demand for housing without increasing the supply. Result?: more windfalls for existing owners.

When will we stop asset-based unearned income?

[1] This is one reason why the ratio of wealth to national income has risen from c.200% in 1940s to over 500% in 2010. An increasing proportion of what we produce is soaked up through the inflation of property values.

2014-09-24 15.41.59

Climate change and the rich

Photo: DonkeyHotey, Creative Commons

Photo: DonkeyHotey, Creative Commons

Everyone may have heard of Bill Gates, the richest person in the world, but not many people know of the Koch Brothers, David and Charles, who have long been in the list of the ten richest people in the US, with a combined ‘net worth’ of over $100 billion in 2014. They own the second biggest company in the US, with business interests ranging from oil (including from tar sands) and gas, to building materials, chemicals, fertilizers and electrical connectors – mostly heavily polluting industries. They clearly have an interest in climate change denial.

The leading climate change denier in Senate, James Inhofe, was funded to the tune of half a million dollars over five years by fossil fuel energy companies, particularly Koch Industries. Obama is reported to have got $884,000 from oil and gas companies in the run-up to the 2008 election. The Koch brothers also fund the lunatic fringe of the Republicans, the Tea Party. Amidst all the noise of the last US election, candidates were eerily silent about climate change. The Kochs are among the funders of the ‘State Policy Network’ – an $83 million network of right wing think tanks across every US state. Now a coalition centred on the brothers is planning to throw $889 million at the 2016 elections. This is plutocracy at its most brazen.

Matching or even outdoing the Koch brothers is Donors Trust – a US right wing organization that helps the rich avoid tax by making charitable gifts. (You may think that’s the wrong way round: shouldn’t charitable giving be an end in itself, not a means for avoiding tax? Well, this is how they put it themselves: “You just received a bonus, inheritance, or trust fund distribution. You need to give to charity to reduce your tax burden but don’t have time right now to figure out where and how much. Open an account at DonorsTrust, immediately receive your full tax deduction, and disburse charitable gifts at your leisure.”) Climate change denial is one of their funders’ most popular causes.

Photo: A Siegel, Creative Commons

Photo: A Siegel, Creative Commons

In the UK, Nigel Lawson, Thatcher’s Chancellor of the Exchequer, has been an energetic denier of anthropogenic climate change, through his Global Warming Policy Foundation. Lawson has refused to name his funders, but they include supporters of the neoliberal thinktank, the Institute of Economic Affairs (itself funded partly by oil and tobacco companies), which also supports climate change denial. Matt Ridley, son of Thatcher’s henchman Nicholas Ridley, and former boss of Northern Rock, whose family estate in Northumberland has a coal mine on it that will generate an estimated £4.1 million every year until 2020, has also joined the deniers. Surprise, surprise.

Philip Mirowski has researched neoliberal think tanks, and argues that – contrary to appearances – neoliberals actually have a strategy for dealing with climate change. It has 3 parts:

First, deny climate change;

Second, advocate carbon markets, in which permissions to emit CO2 can be traded;

Third, invest in ‘geoengineering’ to weaken and reverse global warming and its effects. This might include cloud seeding, adding chemicals to the ocean to stimulate CO2 absorption, or capturing CO2 and storing it underground, putting mirrors in space to reflect back sunlight, and so on.

Photo: John Morgan, Creative Commons

Photo: John Morgan, Creative Commons

This may indeed be the strategy, but as Mirowski points out, it’s madness. Each element of is flawed, though the first two are straightforward bits of deceit. The neoliberals know damn well that global warming is happening and that it’s the result of over two centuries of fossil-fuel burning. But in order to buy time, they deny its existence or say it’s nothing to do with human action, just as tobacco companies knew that smoking was a health hazard and yet denied it so they could continue to profit from it. And attacking scientists, especially where they come up with inconvenient truths, is always a good populist ploy.

Second, they advocate carbon markets because they know they don’t work. The idea is that the government sells permissions to businesses to emit carbon. Those involved in sectors that can reduce their emissions will profit from doing so because they can sell some of their permissions to others who can’t or won’t. By progressively restricting the total number of permissions the government can reduce emissions, and do so in a way that is responsive to the different needs of different businesses. But the business sector can easily prevent it reducing emissions: aside from the sheer political might of major energy companies, they also hold much of the technical information that the regulator needs in order to run the system, so they can protect themselves, and even make profit out of it, especially by constructing derivatives related to the carbon price – another financialization opportunity. Not surprisingly, experiments with such markets in Europe, the US and New Zealand to restrict emissions have failed miserably. But they appeal to mainstream economists, trained to think in terms of economic models rather than real political economic processes, and they are a good way of buying more time for capitalism.

Third, there’s the long-term neoliberal solution of geo-engineering. Technological optimists will always say the history of capitalism has been one of unpredicted inventions and innovations, some of them, like the internet, of vast consequence; so don’t worry, something will turn up. The dangers of creating unwanted side effects by meddling with highly complex and interdependent systems of climate and the ecology, including the chemistry and life of the oceans are huge. Nevertheless, having learnt nothing from over two centuries of imagining we can always dominate nature, there are research projects in progress on geo-engineering, and a feverish scramble for patents on technologies; the profit has to be the main thing, of course. The neoliberal dream is a world whose population is held to ransom by a few geoengineering companies that control the climate.

Some of the projects are funded by billionaires, such as Bill Gates and Richard Branson. Branson, self-publicist and head of the Virgin group of companies, was reported to have

Photo: D@LY3D, Creative Commons

Photo: D@LY3D, Creative Commons

said “If we could come up with a geo-engineering answer to this problem, then Copenhagen [the Climate Change Conference of 2009] wouldn’t be necessary. We could carry on flying our planes and driving our cars”. (Branson, appropriately enough, lives on an island in the Virgin Islands, avoiding UK taxes.) So banking on geo-engineering also encourages complacency about our current fossil-fuel addicted economies and lifestyles. Branson’s imagined world is a bizarre one in which one part of capitalism freely burns still more carbon while another part mitigates its effects, both of them regulated by profit.

Many of the rich are banking on continued fossil fuel extraction – not only by investing in it, but through their dependence on unsustainable growth. As I argue in my book, if we are going to stop global warming we have to take back control of our economies from the rich. And as Naomi Klein notes, the rich also know this, and that’s why people like Nigel Lawson – who says ‘green is the new red’ – are so keen to deny climate change.

Other links on climate change deniers:




2014-09-24 15.41.59

Greece and EUsury

Screenshot 2015-02-22 14.15.10Picture this: You’re in deep financial trouble, so you ask a comfortably-off friend if they can lend you £1000 for a while. They say yes, but the loan will be at 5% interest, compound, and if you haven’t paid it off by a certain date, they will take possession of enough of your stuff to compensate them. That would be the end of the friendship. It would be glaringly obvious that your so-called friend was not helping you but taking advantage of your weakness. It’s one thing to pay back the £1000, quite another to pay any more than that. (You might buy them a little present or give them a treat when you’d done so, just to show you appreciated their help, but if you simply gave them some extra money, that would embarrass any true friend.)

Lending at interest, especially high rates of interest, is properly called ‘usury’. Usury refers to a relationship between strong and weak, in which the strong (the lender) expects not just repayment of a loan, but interest on top of it. Usury has been around for millennia, and reviled for allowing the rich to free-ride on the labour of others; at various times it’s been banned by some religions, mainly for this reason. The story of the borrower getting deeper in debt, having to work for the lender, or give up their property, or being thrown in a debtors’ prison is an old one, but modern usury operates in more impersonal but no less exploitative forms. The usurer benefits from the borrower remaining in debt, as long as they keep paying them interest. The net flow of money is from borrower to lender, not the reverse. In these circumstances, it’s the lender not the borrower, who gets the free-ride.

So it’s strange how we are told that debtors should repay their debts as if that were only fair. It is if it’s just a matter of returning the principal (plus administration costs and interest to cover inflation), then OK, but anything above that is unearned income for the lender. Even then, we need to check to see if the pre-existing situation under which the borrower came to seek the loan was fair, or if the creditor was helping or hindering them in becoming more economically sustainable.

Modern usurers and their apologists defend interest charges as compensation for taking a

Photo: Alopoudis Dimitris, Creative Commons

Photo: Alopoudis Dimitris, Creative Commons

risk, but as we see in the Greek debt crisis, when the risk turns bad, the lenders can’t stomach taking a loss, and try to push the risk onto the debtor, or onto the public, as in the case of bank bailouts. And they usually have the political clout to do so. If interest is a payment for risk, then either the lender shares in that risk or it is money for nothing. For the lenders, these debts are ‘assets’ – sources of future income – and many have banked on getting the payments.(1) So the lenders are being bailed out. 92% of the €252 billion from the Troika (IMF, ECB and EU) that Greece received went to bailing out private lenders; only the remainder went to the Greek people. Sure, earlier Greek governments ‘agreed’ to the contracts, but they did so over the heads of the Greek people, and increasingly they have to negotiate under duress. Usury is precisely a relationship between unequals in which the borrower has fewer options than the lender.

The usurers don’t just want their loans and interest repaid, they want the borrowers’ property, and the debt is a useful stick to beat them with to get it. In classic neoliberal style, they demand privatizations – sell-offs of key state assets, particularly those that can provide rent for the owner. Before Syriza took power and stopped it, a body called the Hellenic Republic Asset Development Fund was busy selling off Greek assets from resorts, ports, marinas, golf courses, regional airports, government buildings (sale and leaseback), to rail transport, water supply, roads and energy. As it says on its website: “Privatisation is not seen as a mere sale of assets; rather, it is the key element in re-establishing credibility, itself the basic pre-requisite for Greece’s return to global capital markets.” The programme was set up as a condition of Greece’s earlier €245billion bailout.[2]

The other part of the usurers’ medicine – austerity – is not even in their own interest for cuts in income just depress spending and hence what businesses can sell, and the country’s ability to repay debts. Over 50+% of young people in Greece are unemployed. How can you make an economy viable by making its most valuable assets unproductive?[3] Austerity has shrunk the Greek economy by more than 20% since 2010 so its debts have become relatively larger, from 133% of GDP in 2010 to 174% in 2014.

A history lesson from Germany that it wants to forget

After the First World War, Germany was made to pay reparations of $33 billion – a burden which triggered hyperinflation and economic misery for many ordinary German households. At first the US intervened to stagger the payments and provide loans, but after the 1929 crash, it demanded full repayment of the loans. The result was economic decline and unemployment of 6million – fertile ground for the rise of Nazism. After World War Two, the cancellation of debts and the US’s provision of aid under the Marshall Plan enabled Germany’s economic recovery. Greece was one of the countries that took part in that debt cancellation. But of course, now, the roles have been reversed, and Germany will not consider acting similarly vis-à-vis Greece. (Greece’s own Nazi party, Golden Dawn, would benefit from more immiseration by the German-dominated Troika of the EU, European Central Bank, and IMF . . .)

[1] As in Spain, many of the loans were made recklessly before the crash by private banks in and outside Greece, against property, inflating property bubbles.

[2] http://www.wsj.com/articles/greece-open-to-selling-all-its-major-ports-1402070040 – see the wonderfully sarcastic comment from Basil Coukis, recommending selling off the Acropolis so it can be turned into a theme park.

[3] Much has been made of failures of Greece’s past governments to enforce taxes on the rich and the upper middle classes. This problem is not limited to Greece: As the HSBC scandal shows, Britain’s own government is in favour of such non-enforcement where the rich are concerned.2014-09-24 15.41.59