Sovereign and Sovereignty

I am wondering whether I can persuade the cast of Blackadder to assemble for one last hurrah. The plot will revolve around the growth of greed in Regency England. It can make refer askance to the South Sea Bubble. The century is entirely wrong but who will care?

Blackadder has become caught up in speculative frenzy. Being immoral but not irrational he is not a very successful trader. He either cannot understand or cannot accept that liabilities are actually assets and this weakens his ability to trade effectively. Baldrick, by contrast, is making money hand over fist trading turnips, night soil, the future value of Prince George's sock collection, and so on.

Cut to Mrs Miggins's pie shop which is abuzz with talk of the positions her customers are taking. Everybody has abandoned their trade in favour of speculation. Suddenly Shelley, in his big girl's blouse, leaps onto the table to decry the 'irrefragable injustice' of the national debt. He is pelted with old pie crusts.

Conversation moves to gossip about new schemes, with a crescendo of excitement around the potential of investments in a mosquito-infested swamp in South America. Shares are increasing rapidly in value. Baldrick has abandoned his current investments to put all his money into this new colony. Nobody is sure who is behind the scheme but nobody can afford to be left behind. Eventually, Blackadder persuades Prince George to trade the national debt for a share of the swampy settlement.

The inevitable happens and the mosquito coast is revealed to be worthless and everybody loses their shirt, including all the Romantic poets who had not been able to resist a flutter. Baldrick is philosophical about his losses, since he is left with more turnips than he knows what to do with. Prince George has transferred his debts to his subjects and still has plenty of socks. Blackadder is revealed as the eminence grise behind the scheme but can no longer be found in London.

The point of the plot is not complex but then neither is the fraud we have all been subject to. What can we propose in terms of a happy ending? Baldrick sets up his own currency based on root vegetables? The people storm the Bank of England to demand direct money creation? Blackadder is tired for treason and his flat in Cheyne Walk is confiscated? Sadly, this is the point where Prince George wakes up and realises is was all a dream.

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Garden of Eden Accessible by High Speed Rail

Q. When is a garden not a garden

A.    When it's a quarry

In spite of Kent's claim to be the Garden of England, one might not have automatically thought of Ebbsfleet as the most likely site for the country's new garden city.  So how would we assess Chancellor George Osborne’s claims to the visionary nature of his proposal for a development of 15,000 houses in an old quarry site near the high-speed line to Paris? Would Ebeneezer Howard have recognised him as a soulmate?

The Chancellor is an educated man but you do feel he might not have read that deeply on the garden city movement. Scepticism about his choice of location was fended off with the response that 'there is the land available' and that Ebbsfleet has a high-speed line nearby. Surely the vision for a 21st-century garden city should be focused more on sustainable communities than speedy commuting? I would certainly have expected to see plans for food-growing emphasised rather than transport infrastructure.

But the heart of Osborne's disagreement with the original garden city movement lies in the issue of the ownership of land and the value that comes from it. Howard's ideas were about liberating people from oppressive landlords and financiers to become genuine owners of their own homes and communities. It is clear from Osborne's statement that the houses at Ebbsfleet will be built by 'an urban development corporation’ and that the business model, like the model for the new town itself, are actually part of the same busted-flush economy of profit extraction for the enrichment of a wealthy minority.

The call for garden cities grew out of the appalling conditions in the smoky Victorian slums. A breath of fresh air and a reconnection with the countryside was part of the vision but it was matched by the idea of capturing the value of land once it had housing built on it and channelling this money into public services, cultural activities and high-quality social housing. If the value developers usually receive in return for planning permission was socialised rather than privatised we could expect to see well-designed, energy-efficient homes, built of top-quality materials and with large gardens.

The vision of the garden city runs alongside the idea of the greenbelt, an area around urban settlement that would allow people access to nature and would prevent urban sprawl. It is exactly this approach to planning that has been threatened by this government’s planning policies, with their centralised determination of appropriate housing numbers for local communities and the presumption in favour of ‘sustainable development’, which has meant that local planning authorities’ attempts to refuse housing on unsuitable land are being repeatedly overturned by the Planning Inspectorate.

The announcement of a 'garden city' is a clear attempt to divert attention from the rebellion underway in the Conservative Party of its disastrous planning policy and the rebarbative Communities Secretary who is imposing it on unwilling local communities. Pickles's junior, Planning Minister Nick Boles, is taking stick from Tory councillors who are outraged by the way the changes to planning mean that they have lost control of local spaces, with the 'presumption in favour of sustainable development' allowing construction corporations to ride roughshod over local wishes and local plans.

I have several friends who stopped volunteering when the Conservatives made political claims to ownership of the Big Society. Why should their goodwill be used for corrupt political motives?, they asked. I fear that the Chancellor's cheap political use of the idea of a 'garden city' may have the same destructive impact on the creative wish to build one's own home that has been stirred by the likes of Kevin McCloud. A true garden city is a place of inspiration and liberation; the proposal for 15,000 houses in an old quarry in Kent is an insult to the memory of the pioneers of the movement.

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A Common European Home

Cameron's meeting with Hollande last week underlined again our isolation from the central European debates, while last month's vote European Parliament indicates the strong majority in favour of total free movement within Europe. While it would be wrong to suggest that there is anything like consensus over this issue, since there are already many anti-immigration members of the Parliament and their numbers are likely to swell after May's elections, there is a centre of gravity around the idea that once within the Europen home, citizens are free to seek better lives in other member states.

The moral commitment supporting this position, although often unstated, is that everybody within the European Union has an equal right to a certain standard of living, usually measured in purely material terms. This position has been driven particularly by German members who extended their own sense of responsibility for their brothers and sisters in the East to make this a Europe-wide understanding that the countries of Central and Eastern Europe deserved a lifestyle similar to those in the West. After the fall of the Soviet Bloc it seemed churlish not to welcome Czechs, Bulgarians and others who had escaped communist domination into the wealthy and free culture of western Europe.

At an ideological level this position is fine, noble even; the problem arises when it runs up against the limits of political economy. We are being asked to share the wealth of Europe more equally between citizens who begin with wildly different levels of income. Yet this is not to be a managed process it is to be a process determined by ambitious individuals who follow their dreams in a random process. Aside from the financial transfers through the European Convergence mechanism, what was the policy to ensure and equalisation of incomes? Perhaps equally important, where was the questioning about quality of life, and about what the accession countries might be losing in their headlong rush to consumerism?

It adds to the complexity that the movement to equalise standards of living between very different societies has taken place against a backdrop of increasing corporate power, as trade unions have been attacked and governments have retreated from strong regulation. In this context the Enlargement made available to global corporations a skilled and yet poorly paid workforce, and whether these people arrived in our countries or stay in their own countries it is hard to argue that they do not put downward pressure on wages and cause jobs to move eastwards. Given that at the time of Enlargement many western democracies had socialist leaders, it is quite extraordinary that they did not include in the deal some requirements for minimum wages, even the transition towards an EU minimum wage. If the assumption behind policy-making is really that we seek a Europe where citizens are equal in civil rights and also in standards of living then such a policy was always essential.

The vision of Europe we were sold was one where our cousins to the east would rise upwards to meet us in our halcyon luxurious lifestyles. Yet such a vision always required rapid economic growth across the European economy, for without it equality was bound to mean those in the pre-2003 EU states facing a lower standard of living. Any growth that Europe experienced in the past decade was largely credit driven, and now that the bubble has burst growth is hard to come by and hence the pressure for equalisation has become a downward pressure on living standards in EU member states.

As a Green Economist I am entirely committed to equality but I must also recognise the limits of the ecological system on which we depend. I cannot share the irrational exuberance of a socialist politician I once discussed this with who told me 'I'm an old fashioned socialist: I believe everybody should have a Ferrari'. The widespread and growing evidence that we have reached the ecological limits, whether we are thinking about climate change or biodiversity loss, suggests that the earth simply cannot sustain Ferraris for all. The choice for European citizens is whether we follow the Nationalists in keeping our Ferraris and leaving the Romanians with Ladas, or whether we accept an egalitarian future even if it might mean rehabilitating the bicycle.

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Chronicle of a Crisis Foretold

A guest post by Paola Raffaelli, who is an expert in the Argentinian social economy and is studying for a PhD at Roehampton University

The crisis that occurred last week in Argentina is the unleashing of a cycle that began 40 years ago with the onset of neoliberal policies. This was exacerbated by a complex domestic and international situation. These factors that converged this time will be analysed, not losing sight of the structural perspective.

This most recent crisis in Argentina is part of an economic cycle that has recurred frequently during the last 40 years: cycles of currency appreciation, currency flight, devaluation and financial strangulation. The reason lies in the national productive structure of the country: the agricultural sector dominates Argentina's exports but only provides a low level of employment whereas the industrial sector requires imports and but generates high levels of employment. Therefore, from the early 20th century onwards, productive (and Peronist) national models faced recurring crises caused by the limitation on obtaining the necessary dollars for the industrial sector to continue producing. The agricultural sector, that was advantaged by the 2002 devaluation but lost in economic terms during the last five years, has been pushing for a currency devaluation since 2008.

The relationship with the dollar also has a social component. During these 40 years, Argentina’s economy has depended on the dollar, including the 10 years in which it was de facto dollarised as a result of the convertibility Law. Major purchases such as property are always made in dollars which helps to explain why Argentina is the country with the most dollars per capita after the US (around U$S1600 per person).

Economic growth during the 10 years after the 2001 crisis averaged around 7% per year. But growth in a country that does not have its own energy resources (hence the motivatation for the the renationalization of YPF oil company) and with an outdated productive infrastructure is severely constrained. In turn, the lack of control over inflation, which was around 40% in 2013, and lack of trust in the government led to a currency flight of 20 billion pesos during the last 3 years.

In order to wriggle out of a crisis that appeared inevitable, Cristina Fernandez de Kirchner’s government has, since April 2012, implemented restrictive measures to prevent currency flight. These began with the inability of withdraw cash outside the country and deepened to reach a 35% tax on purchases made abroad. Such measures are as impossible to understand for someone who is not Argentine as the despair we have about saving in dollars. These restrictions created a black market for dollars, called the 'blue dollar'. The escalation in the price of ‘blue dollar’ and the inflation increase in recent months could only lead to one outcome. Even if the government had tried to hold the price of the dollar in the last week there was a devaluation of nearly 20%, which adds up to 50% in the last six months (32% of devaluation and 15% increase in the purchase tax).

What is driving the speculation is expectations. Speculation in the agricultural sector, where farmers hoarded their crops in expectation of the dollar increase (it is estimated there are crops stockpiled in silos worth about US$4bn). Speculation among importers, who due to an increase in the dollar, accelerated their purchases in order to reduce costs. Speculation of international companies waiting for a devaluation that would allow them reduce labour costs. From the most important communication media, government opponent since 2008, propaganda emerged during these five years in favour of devaluation and increased inflation. Thus, society as a whole acts according to a self-fulfilling prophecy.

In turn, these crises that are brewing gradually take place within a conducive international framework. In recent times, the fall in commodity prices affected the inflow of dollars to Argentina, and the increase in energy imports to supply production further damaged the national current account. The crisis also occurred at the time when the US was withdrawing stimulus dollars for emerging economies such as India, Turkey and Brazil, Argentina's main trading partner. Finally, the Minister of Finance himself linked the outbreak of the crisis with international pressure, denouncing Shell for having withdrawn capital last week and trying to increase the dollar price.

This crisis is the result of a distributive struggle among different actors, both internal and external, which play a role in Argentina's economy. And government by 'market pressure', which we can equate with the agricultural sector, international companies, domestic inflation and social pressure of banning the purchase of dollars within a more difficult international context than in previous months the months before, finally led to the devaluation.

Argentina has a difficult scenario for 2014 with union claims of around 30%, 40% inflation and national currency reserves of less than US$30bn. Undoubtedly, Cristina Kirchner’s government faces its most difficult year and will have to find answers within heterodox economics if they do not want to betray their principles.
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US Monetary Selfishness is Devastating for 'RoW'

Remember the World Series? The naming of this League has always struck me as an interesting insight into how the US sees the rest of the world. In reality only US teams play in the league, implying that the US is the world. Their economic and monetary policy has always adopted a similar worldview.

The phrase 'the world is your oyster' has really described the approach the US has been able to take to global markets since the agreement at Bretton Woods in 1944 that dollars would become the fundamental backstop of all global value. This role used to be played by gold, which we all had a fighting chance of digging out of othe ground and so had some degree of neutrality. Since 1944 it has been paper money, under the control of the US bank the Federal Reserve.

The agreement also stated that the US had to hold enough gold in Fort Knox to back the dollars it issued. But Nixon unilaterally abandoned that agreement in 1971 and since then the US has been able to create money at whim, and import goods from the world in exchange. This extraordinary and deeply unfair situation has funded excessive consumption and an impossible deficit at home, and left foreign countries - particularly China - holding vast quantities of US debt.

Since the 2008 crisis, the US has used this unfair avantage to pour money into its economy to prevent it suffering the sorts of recessions we have seen in Europe - around $85bn. per month have been shovelled out through buying treasury bills back from financial institutions, in other words a massive amount of value being created and given to banks. Now the US has decided recovery is sufficiently secure to reduce or 'taper' this policy, but the financial institutions are objecting and the stock market has fallen radically as a consequence.

You can see this discussed in a useful video called The Epstein Report. It is also explains why this will lead to an increase in US interest rates. If you think of interest rates as the price of money it makes sense that, as the cheap or actually free money will be reduced, the price of money will tend to rise.

But the consequences of such an interest-rate rise in the US are small beer compared to the devastating consequence of this policy to other economies across the world. US monetary selfishness has led to a financial collapse in Argentina and devaluation of currencies in Brazil and Turkey as the US, in the words of the Brazilian central bank governer, hoovers out of 'emerging markets' the money it is no longer injecting into its markets at home. Decades of openness in global finance, forced on the world's economies by the IMF, have left them completely vulnerable to this US policy, as there are no controls on capital movement and they cannot now establish barriers.

Never has the US's selfishness been more clearly demonstrated. And never has the need for a global settlement on finance, agreed by all parties rather than imposed by the US, been more clear. Tweet

Reclaiming the Economy

 

Davos 2014: Who is Wearing the Trousers?

 

Surely one of the important roles the media plays in our modern society is framing the narrative, determining the parameters within which we understand reality. This week the world's media is doing an important job in normalising a situation where politicians who should be representing us are instead subjugating themselves to the elites who gather annually at Davos.

In my recollection the role of the journalist at this point would be to challenge a situation where the most important decisions about how our economy will evolve over the next few years are being made by a group of self-selected wealthy people inside a ring of steel in a Swiss ski resort. But times have changed and journalists no longer see their role as having anything to do with speaking truth to power or working for the common good. In the reality they are normalising through their breathless broadcasts their role is to rush about the expensive venue seeking out the most important, rich, or famous person that they can find so that we will be gratefully able to hear their views.

This morning, for example, I discovered that Matt Damon found himself surprised by the youth of the Finnish Prime Minister. Thanks for that helpful insight into the leading issues of the day. It's not that I don't like Matt Damon or that I'm not interested in his opinions, it's just that in my version of reality he belongs in Entertainment just as Michael Schumacher belongs in the Sports section of the broadcast, and the weather belongs in, well the weather. When I pay my TV licence I think the news I am paying for should be about important significant events and how those who we have elected to run the country on our behalf are going to tackle them.

Which brings me to David Cameron, who is making a speech at Davos today. You might ask why he is making a speech in Switzerland rather than Scunthorpe or Swansea or somewhere in this country where people have the chance to vote for him and people are expecting him to represent them. The answer is very clear: he does not believe that the economy is any longer subject to any sort of democratic control.  He has gone to Davos to offer the services of the working people of Britain to a corporate boss and what he is offering is cheap labour with poor conditions and cheap energy with wasted environments. If the Davos elites need fracking we'll give them fracking.

Surely even Tory voters are horrified by this lack of self-respect in our country and our citizens. Are we so desperate that we have to send our politicians to Switzerland with a begging bowl to rattle in front of the corrupt and exploitative corporate elites? But our current politicians are working hand in glove with the corporations where they will take up well-paid non-executive positions when they retire, having worked for them undercover during their time in office. This unhealthy relationship has seen our resources privatised, our public services destroyed, and now our creative energies being sold off to the lowest bidder.

It is this process of undermining democracy through the use of economic power that I would like to see dissected by decent journalists working to challenge power rather than rushing about through marbled halls sycophantically seeking it out.
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Wafer thin MINT theory

Ever since I first heard the idea of grouping together a number of countries under the heading BRIC I began to wonder what on earth was going on and what these countries might have in common. The first and admittedly shallow question I asked myself was whether countries with the initial letter I were being included in these groupings simply to make the acronym work. The disgraceful dismissal of the Mediterranean economies as PIGS is a case in point. Ireland's economy was certainly in trouble as a result of a housing boom but otherwise had no place in this group. Could its usefulness in having an initial 'I' actually have exacerbated speculative attack against its national debt?

In recent days, and largely because he has a new series on Radio 4, the man who invented the acronym BRIC, Jim O'Neill, has emerged from the shadows to claim his laurels. It is remarkable in economics how often a person can be remembered for simply one phrase or concept, no matter how shallow, so long as it supports a move that benefits the global economic elite. Jim O'Neill it transpires is a Goldman Sachs man, part of the international club that bankrupted the global economy: so why on earth is he being allowed to frame the future direction of that economy on prime-time national radio funded by myself and other British citizens?

But let's return to my initial question about whether the idea of the BRICs has any theoretical merit. The four countries involved have wildly different cultural backgrounds, motivations, and religious orientations. India and China being by far the most populous countries on earth are clearly very influential, but their economic trajectories have been utterly different in recent years. Brazil sits in the US's backyard, which has Left an indelible mark on its political economy, while Russia has emerged during the past 20 years from several generations of communism into a form of oligopolistic capitalism.

On considering this question more deeply it becomes obvious that I am crediting the idea with much greater sophistication than it deserves or claims. The answer to my question 'What do all these countries have in common?' is a simple one: they have natural and human resources that can be exploited to generate value for the global elites. They represent the most likely site for the expropriation of value. Hence the term BRIC implicitly demonstrates how globalisation works and the mindset of those who are driving it.

Which brings us to Jim O'Neill's new radio series and his exciting new acronym MINT. (Incidentally his Wikipedia entry tells us that he previously included Korea in this list but has substituted Nigeria either for theoretical reasons or simply to make a more attractive word.) The four countries whose initial letters are combined to create the word MINT--Mexico, Indonesia, Nigeria, and Turkey--again appear to have little in common other than natural resources and willing governments.

I accidentally caught five minutes of the programme on Mexico and was shocked by the shallow application of crude theory, such as O'Neill's dismissal of the thousand-year-old market in Mexico City as inefficient. His level of analysis was frankly embarrassing and I questioned who could have allowed him onto the BBC. But of course the program is not commissioned for its insight but rather as an advert to those who are seeking new territories for their investment. For this reason perhaps countries whose initial letter is a vowel might think urgently about changing their names.

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