Greek Chorus

I've thought about calling this blog 'thinking the unthinkable' but I decided to use such a cliched strapline was probably itself unthinkable. Perhaps 'explaining the inexplicable' would be more appropriate. But what I am not prepared to do is repeating the unrepeatable and so, in response to a request from a friend and colleague for some guidance on the Greek situation, I am offering a tidying up and pulling together of various previous posts.

We need to begin with an understanding of the misguided euro project, which was driven by corporate interests and political ambitions and was unpopular with economists from the start. The sort of strait-jacket it imposed on countries' interest rates assumed a uniformity of economic development and social values that simply did not exist. The strictures that were entered into and are now being enforced are similar to those imposed by the gold standard in the 1930s, and so brilliantly explained by Karl Polanyi in his Great Transformation. For a more radical view of the purpose of the Euro project you might enjoy a paper by Ramón Fernández Durán called 'Mars Vs Venus, or Dollar vs Euro?'

This helps us to answer the question of whose fault it is - the financiers and corporate power-brokers who sought to increase their power and ease their extraction of surplus value. It was the poor design and inadequate debate that resulted in the tragedies now playing themselves out in Greece, for which the Greek people cannot be held accountable and should not be made to suffer. Similar arguments were made by Mary Mellor, and were posted to the blog in May 2010.

This brings us to what is to be done. Here I point to the lessons from Argentina, where a country's leaders refused to see their society destroyed and forced their creditors to the negotiating table. Politically this is the only acceptable option: a democratic decision about who gains and who loses value. In the free-for-all that is now threatened in Greece the financiers will flex their muscle while pensioners and the soon-to-be unemployed will be the losers. The tragedy not just for Greece but for the world is that similar negotiations at the global level have not been taking place and are desperately overdue if we are to preserve our democratic right to decide how our economies function.
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More Balls about Tax

How refreshing that the economics debate has moved on. It used to focus almost exclusively on the rate of income tax, the 'penny on, penny off' debate that dominated for a decade or so. For the past year we have seen a genuine disagreement: about whether it is the rich or the poor who should shell out more of their incomes in tax. With the absence of a growth strategy, and no other thinking about responses to the economic crisis, the argument now turns to who should be the beneficiary of the tax cuts which are, apparently, our only hope.

Ed Balls is calling for a cut in VAT, encouraging us to spend more. As Osborne rightly responds, in a country that imports more than it makes, much of the tax thus diverted from the Treasury will not stimulate small businesses here, but increase growth in China. This gives the Tory backbenchers a wonderful opportunity to argue for tax cuts for their rich voters: ditch the 50p tax rate and reduce yet further the rates of corporate taxation. they bray from their leafy shires. This is justified on the basis of the entirely unsupported assertions that somehow allowing the rich to avoid paying back to society will encourage economic growth. But where is the evidence that they are less likely to buy Chinese goods than the poor? When the rich want their benefits evidence-based policy-making makes a swift exit.

This is a lovely opportunity for the mainstream parties to return to their familiar class-war tactics while missing the big picture. For a more imaginative Shadow Chancellor this might be a good time to think about taxing assets rather than incomes. We could see the bankers' bonus in that light, but far more productive in terms of loosening up the economy would be a tax on land. Andy Burnham proposed this more radical and creative option during his bid to become Labour leader; Miliband has not had the courage to adopt it.

Meanwhile, to the Tories you must ask what is the point of cutting corporate taxes when it is the small businesses that will create the jobs. In spite of the domination of the air-waves by corporate business, ONS data show that companies employing fewer than 50 people account for 97% of jobs in the UK, with less than 0.16% of people working in companies of more than 500 people. If the government is really interested in stimulating job creation rather than rewarding its paymasters it would adopt the Green Party policy of a banded economic tax related to the size of the company.
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Bringing Economics Down to Earth

I have been a bit lax about posting recently because I am watching a publisher's deadline rush towards me over the horizon. The book is to be called The Bioregional Economy: Land, Liberty and the Pursuit of Happiness. This is all about bringing the economy down to earth and so I'm very pleased to share with you a presentation Mary Mellor gave recently at Schumacher College.

She focused on the distortions within standard economic theory, criticising the unreal nature of neoclassical theory, and explaining why it has resulted in a global economy that is so disembedded, a really useful concept that she uses along with other feminist economists to explain the way finance has come to dominate the real economy. This has parallels with Polanyi's writing about the 'great transformation' from earthbound to market-based economies.

Mary describes the 'destructive transcendence' which uses expropriation and profit to drive a growth-based economy that ignores human needs and devastates the planet. She also describes the nature of money creation and circulation. The whole presentation is a classic view of a gaian approach to economics and I'm proud to link to it from this blog.
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Why is a Local Authority Not Like a Business?

It is the budget-setting season and in local authority debating chambers across the land administrations are trying their darndest to squeeze every last penny out of budgets - the age of austeria requires nothing less of them.

The hegemonic idea of business as the superior form of organisation was damaging during the boom, when it was used as justification for rising rates of inequality and falling ethical standards, but during the bust it is downright dangerous. Councillors, especially Tory councillors, have often run small businesses and they try to run council budgets the same way. So if you have any influence over councillors, or are one yourself, please make this argument loudly during the process of budget-setting.

I have previously blogged about what Keynes called the Paradox of Thrift, but I want to explore it in a bit more detail as it applies to local authority budgets. If you are a business, then money you spend goes on the negative side of your balance sheet - it is a leakage, its benefits are external to your balance-sheet and therefore it should be minimised. This is because your business has clear boundaries. If you are a highly diversified business you may be able to keep a much higher degree of spending within your organisation, which is why SMEs are facing unfair competition, but none the less keeping costs down makes absolute sense.

If you are a local authority all the businesses within your area are inside your organisation, since all pay taxes if they thrive as do the people they employ. The boundary you should bear in mind when writing budgets is the local economy: just as you try to minimise costs within a business your priority as a politician should be to minimise leakages from the local economy. To cut your own budgets to the bone, or not to spend money budgeted in this period, is like cutting your own income rather than cutting your own outgoings.

What Keynes so elegantly described in his multiplier theory is that public spending and private spending follow opposite dynamics. An understanding of the systemic nature of a local economy, the importance of the circulation of money rather than individual transactions, and the importance of multiplier effects are all vital to those who set budgets within local authorities. Sadly, too many are bringing the mindset they used to maximise profit on an individual balance-sheet into the council chamber, and through their misplaced thrift they are undermining our local economies already struggling as a result of centrally imposed spending cuts.
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I Can't Get No Satisfaction

You may have noticed a similarity between the last few posts, which are focusing on the failure of aggregate demand in our economy, and strategies for addressing this. Last time around the strategies focused on throwing money into the economy, reducing the quality of products, and, perhaps the strategy that has been most successful, changing the social hierarchy so that it relies on consumption rather than moral quality or personal charm.

The origins and techniques of the advertising industry as it developed in the US from the 1920s onwards is entertainingly discussed in Adam Curtis's TV series The Century of the Self. The critique began much earlier, with the publication in 1957 of Vance Packard's book The Hidden Persuaders. Packard blew the whistle on how scientific developments in psychology were being used to manipulate US citizens to undertake mass consumption. What he called the ‘depth approach’ to advertising was based on insights from social psychology. It was, as he described it, ‘impelled by the difficulties the marketers kept encountering in trying to persuade people to buy all the products their companies could fabricate’ (p. 17).

Packard expressed horror at what he called the marketing to ‘eight hidden needs’ which he identified as emotional security, reassurance of worth, ego-gratification, creative outlets, love objects, a sense of power, a sense of roots, and immortality. Although his work is now more than 50 years old, the routes advertising finds to exploit our psychological needs appear not to be. This use of scientific methods to uncover our inner needs and then to design products to meet them resulted in what Packard referred to as ‘the packaged soul’.

The focus of this activity was not the satisfaction of citizen-consumers; quite the reverse. To maintain levels of demand sufficient to avoid a slump it was essential that people consumed things they didn't need, and that what they bought rather than satisfying them, created desires for further purchasing. This helps to explain the paradox of growth as explored by Richard Douthwaite: that once societies reach a certain level of human development further growth can reduce rather than increasing happiness.
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Stop Digging

Although we seem to be living in an era of forgetfulness when it comes to the insights of John Maynard Keynes, to my mind we should characterise the disastrous economic situation of the late-phrase capitalist economies in terms of a chronic failure of aggregate demand. In a famous passage in the General Theory Keynes describes how different cultures have dealt with the problem of insufficient demand:

‘Ancient Egypt was doubly fortunate, and doubtless owed to this its fabled wealth, in that it possessed two activities, namely, pyramid-building as well as the search for the precious metals, the fruits of which, since they could not serve the needs of man by being consumed, did not stale with abundance. The Middle Ages built cathedrals and sang dirges.’ (The General Theory, 1936: Bk 3, chap. 10, sect. 6)

Keynes is credited with solving the problem of the Great Depression through his theory of the multiplier effect of demand stimulation policies, although others have argued that in reality it was the switch to a wartime economy that put the capitalist economy back on an even keel. This was effectively a strategy of making enormously big holes across Europe and then spending around another decade gradually filling them in; this is obviously to make no comment on the loss of life and livelihood that was the price of this strategy.

Keynes’s argument was for injection of demand by public authorities, but the private sector had already begun its strategy of increasing demand before the stock-market crash and subsequent Depression. Although I should say at the outset that I do not believe that changing the sorts of light-bulb used can save us from ecological catastrophe, it may be that understanding the behaviour of the Phoebus cartel of light-bulb manufacturers just might.

The group was made up of all the leading manufacturers of the day including General Electric, Osram and Philips. At a meeting in Geneva in 1924 the Phoebus group decided to enforce a maximum life-time of the light-bulb at 1000 hours, eschewing the superior design already achieved by Edison around the turn of the century. A long-lasting life-bulb reduced their profits and so innovation was restricted. The oldest light-bulb in the world is still in place and casting light over the Livermore Fire Station in California: it is 110 years old.

The strategy of creating demand through the deliberate design of obsolescent or poorly made goods flourished in the years following the war. It was parodied in a contemporary film by Alexander Mackendrick called The Man in the White Suit. In the film Alex Guinness played Sidney Stratton, a research chemist working in the textile industry. Stratton’s expensive research to discover a miracle fibre that is not subject to the depredations of dirt or wear is successful and uses it to make a luminous white suit. His moment of glory is short-lived, however, since both managers and unions recognise the dangers posed by a suit that does not need to be replaced: Stratton is sacked and pursued both metaphorically and actually by both sides in the age-old capital-labour battle. Eventually he discovers that his suit is vulnerable to sunlight, but he remains undeterred and we leave him in the final scene striding purposefully off to another research laboratory where his attempts to create genuinely sustainable products will be doubtless be greeted with horror.

In the early days of the enthusiasm for creating demand its proponents were quite explicit about the various techniques that they used. King Camp Gillette, inventor of the disposable razor, argued that 'We have the paradox of idle men, only too anxious for work, and idle plants in perfect conditions for production, at the same time that people are starving and frozen. The reasons is overproduction. It seems a bit absurd that when we have overproduced we should go without. One would think that overproduction would warrant a furious holiday and a riot of feasting a display of the superfluous goods lying about. On the contrary, overproduction produces want.'*

We can be cynical about the profit motives of the industrialists, but there was a genuine desire to avoid unemployment and the suffering it caused, and to stimulate demand by any means to make sure there were enough jobs to go around. The strategy worked within its own terms, but it has left us in the disastrous position where efficiency in terms of energy and resources has no place in the modern economy. Now that we recognise the limits to growth we need to unpick this Keynsian solution and rethink the role of aggregate demand as the solution to our economic woes.

*quoted at Slade, G. (2006), Made to Break: Technology and Obsolescence in America (Cambridge, Mass.: Harvard UP),p. 10.
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All in the Mind

I've been thinking about the idea of a 'conspiracy theory'. This seems to be used as a phrase of condemnation these days, suggesting that anybody who does not believe the official version of events, the spun version of reality, is some kind of nutter. I began to wonder whether it is time to rehabilitate the conspiracy theory - perhaps have some t-shirts printed saying 'We are all conspiracy theorists now?'

We could take this further, and suggest that the cognitive dissonance that is required of us to live in a world where the Conservatives can claim to be the greenest government ever and yet focus the political strategy on returning to growth and cutting funding to renewable energy, the only available intellectual response is an inherently mistrustful one. Is it that in the era of mass democracy and an educated electorate politicians are avoiding the explicit political debate and engaging in deception instead? Perhaps consideration of their real motives, whether conspiracy theory or conspiracy fact, is the sanest response.

In 1928 Edward Bernays published a book called Propaganda. It is hard to get historical framing right, but my understanding is that at the time this was not seen as a problemtic title, and that Bernays felt no need to be ironic. Much is made of the fact that he was Freud's son-in-law, but whether or not this is important he certainly relied heavily on the insights of psychology, and how these could be used for what he considered beneficial socio-political ends. In the book he claimed that:

‘If we understand the mechanism and motives of the group mind, is it now possible to control and regiment the masses according to our will without their knowing it . . . Mass psychology is as yet far from being an exact science and the mysteries of human motivation are by no means all revealed. But at least theory and practice have combined with sufficient success to permit us to know that in certain cases we can effect some change in public opinion . . . by operating a certain mechanism.'*

In this thinking lies the origin of nudge, the avoidance of political debate by lazy or insecure policy-makers so expertly dissected by Andrew Dobson in a recent report for Green House. Perhaps the origin of the conspiracy theorist's enthusiasm can also be found in this determination by those with power to subvert democracy without our really understanding how.

*quotes in Ewen, S. (2001), Captains of Consciousness: Advertising and the Social Roots of the Consumer Culture (New York: Basic Books), pp. 83-4.
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