OMG

The Guardian columnist Simon Rogers has produced a useful graphic, illustrating how the changes to growth forecasts announced by Osborne in the autumn statement affect our national borrowings.

This is truly scarey, especially if you notice how the GDP predictions in the later years have clearly been fixed to keep the borrowing possible in the next couple of years. As the predictions move through time it is clear that they lose contact with reality and are created post facto to make the numbers work inside the Treasury. What we will really be facing in 2014 or 2015 if we carry along the path that Osborne has set does not bear thinking about.
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A Matter of Life and Debt

There has always been something about the nature of pension calculations that is faintly unsavoury and few roles in life can be as unattractive as that of the actuary. While we all take a vague interest in our life expectancy as well as our life expectations, we frequently balance these with superstitious and childlike attempts to ensure our health and well-being, whether these take the form of prayer or sporadic bursts of jogging. For the actuary, the minute calculation of the likelihood of death from a range of causes is the bread-and-butter of life.

On Wednesday we will see millions of the people who ensure that we live long and healthy lives, and that we enjoy high standards of well-being, going on strike to protect their own security in a retirement they hope to live to see and to enjoy. Investing in a pension is itself a gamble, since a significant proportion of people die before reaching the age of 65. As retirement ages increase and the pension funds those working in the public sector have saved become the subject of the acquisitive attention of politicians, the risks can only increase, making the prudential decision to invest for your old age a much less appealing one.

A rational government would applaud the regularity with which those working for the public sector save for their old age, rather than attacking the union officials who encourage them to do this, and then defend the conditions under which those savings are paid back to them in retirement. Such a government would also value the contribution to the life of the nation made by these servants of the public, rather than consistently downplaying it relative to the 'wealth creation' of the private sector.

More typical of private-sector motivation and value-system is today's news that Rolls Royce has agreed a 'longevity swap' with its pension provider, meaning that it is gambling against its employees ability to live a long and healthy retirement. The company has transferred its unwillingness to countenance a large number of retirement years on the part of its former employees to Deutsche Bank financial services. As pension shifts from being a system of care and mutual support to one of risk and financial reward, one cannot help wondering how long it will be before we are offered a cash incentive to do the decent thing, and make away with ourselves before our allotted time. A moral hazard if ever there was one.
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Speaking Truth to Power

I have an exciting day this Wednesday and if any readers of this blog would like to join me for part of it that would be very welcome.

Back in the summer I put together some evidence for the Environmental Audit Committee's Inquiry into the Green Economy on behalf of the environmental thinktank Green House. As a result I have now been asked to give evidence to the committee members, who will ask me questions about how we might move towards a green economy.

This is, frankly, rather daunting, and it doesn't help that the sessions take place in the Thatcher Room of Portcullis House! My job appears to be to sit in the heart of government and tell them that the economic model we are working with is not only unsustainable but unjust and unstable into the bargain! The key target of government policy is entirely misguided.

In preparing for this I have come across a very interesting document called Enabling the Transition to a Green Economy. We can celebrate a small victory in that the draft version of this document was labelled as a Roadmap, something Green House criticised in our evidence. Like the report 'Keeping the Lights on' about energy a few years back, it makes clear the mental barriers to a sustainable future.

This report is not that encouraging, clearly identifying business rather than people as the key partner in the transition to a green economy. It focuses on efficiency and competitiveness, with no mention of the structural problems of a capitalist, growth-based economy. This is my clear task for Wednesday, and in the face of the evidence of the hegemony of business it is no wonder I feel rather daunted.

After the Commons I am moving down river to speak to the Occupy London protestors at their Tent City University. With luck I may be moved into the Bank of Ideas at the newly occupied former UBS building. I am calling my presentation 'The Audit-city of Hope', which doesn't quite work but you know what I mean. I hope to radicalise the demands beyond 'What do we want?' 'Better regulation of the banking sector'; 'When do we want it?', 'Within a reasonable timeframe'. My focus is going to be on building the energy to establish a national audit committee to find out who we owe the debt to and decide what proportion of it can reasonably be repaid.
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Rebalancing, What Rebalancing?

I write this post as a councillor in the local authority that faced the largest cut in its central government funding in the current funding period - a full 28% over this and next financial years. I assume this is a reward for having a Tory council and having just elected a Tory MP, as well as being a debt-free local authority. I have to hope that the good voters of Stroud draw the right conclusions and do something different with their votes next time.

Recent research from Newcastle City Council has made me feel both better and worse. Published in today's Guardian it makes the partisanship of the present government plain to see. Traditional redistribution measures, including the sharing of local authority rents and local business rates, are being abolished, leaving the richer parts of the country free to profit while those in the deindustrialised north in particular struggle. Northern cities and boroughs are losing £150 to £200 per head, while the leafy boroughs and shires of the south lose between nothing and £50 per head.

The inequalities are magnified by the fact that poorer areas are more dependent on public-sector jobs, which are some of the few well-paid jobs in northern cities that once depended on skilled manual jobs. The massive cuts to the public sector will also hit these areas disproportionately hard.

From a macroeconomic point of view this makes plain the massive withdrawal of liquidity from the local economies up and down our country that is taking place. The paradox of thrift is alive and well in Stroud, as councillors and officers alike respond to fear and threats of future austerity by leaving posts unfilled and cutting spending to add money to the growing reserve. The shade of Keynes haunts our council chambers, but nobody is listening.
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Argentina Learns not to Pampa Financiers

As the credit noose tightens, it is not surprising that commentators are seeking examples of countries who found their way out of unrepayable debts - and lived to tell the tale. In the case of Argentina, whose debts at the time of its default in 2001 were $81bn. - a record for the time although dwarfed by current debts - life after debt has proved to be a very positive experience.

The story is told in a couple of podcasts made by Peter Day for his World of Business series on Radio 4. A paper I wrote about Argentina's barter networks introduces this story. Caught in the orbit of the US dollar, Argentina was unable to allow its currency to adjust to the needs of its own economy, much as the smaller economies of the Eurozone are today. This culminated in a financial collapse in 2001, with the loss of huge amounts of savings by the members of Argentina's middle class.

What becomes clear from the podcast is that clever young economists within the Argentinian finance depart and/or central bank were alive to the causes of their crisis and took political control. As a recent report (pp. 58-62) indicates, refusing to pay socially impossible debts was a positive decision both in Argentina and in Russia. Default was the first step, followed by a decision not to become involved in debt again. Similar decisions by other Latin American countries actually threatened the future of the IMF - since without debtors a bank is defunct - until the credit crunch in Europe gave it a new lease of life.

With no possibility of receiving credit Argentina had to live from its own resources, which turned out to be a blessing rather than a handicap. With a massive and fertile land mass, and a popuation of only 40 million well-educated people, Argentina had nothing to fear in its debt-free future. As food and fodder prices have boomed, so has Argentina, with its government benefiting from a 35% export tax on soya production.

Another interesting lesson is the rapid growth in the 'informal' sector, which is a typical feature of many poor economies but less typical of a highly sophisticated economy like Argentina. This may also be a feature of the future of European economies. On the positive side it can be interpreted as self-provisioning and self-reliance, but its shadow side is exploitation and precarity.

The sting in the tale of the story of Argentina is that its economic success has enabled it to seek foreign finance. The credit vultures are circling and seeking their share of the natural wealth of the country. How far will Argentina's politicians remember their lesson and keep control of their national wealth?
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24/7 and Other Fallacies of Modernity

For all our technology and the vertiginous nature of our consumption, we live mean lives. In his last book the great commentator on 20th century life Ivan Illich bemoaned the loss of our senses, by which he did not mean that we had taken leave of our senses—although he might have done—but that we have lost much of the sensory richness our ancestors enjoyed. He gives as an example that 'Dozens of words expressing the nuances of perception have fallen into disused. In terms of the sense of smell, the victims of this process have been enumerated: of the 150 German words that indicated variations on smell that were used by the contemporaries of Durer, only 32 are still in use today.' (p. 197)

And for all our presumption of what Val Plumwood has called a 'mastery over nature' we are still thoroughly dependent on the productivity and cycles on the natural world. We take the phrase 24/7 to be an expression of our hubristic conquest of time, of being a civilisation that never sleeps. In reality, however, it demonstrates precisely the reverse. To choose a week of seven-day weeks and 24-hour days is an attempt to force some kind of uniformity on the free-flowing pattern of seasons. Some calenders still follow years of 13 rather than 12 months, enabling a more equal number of days per month.

The need for an intercalary day ever four years demonstrates the problem of trying to accommodate the cycle of the moon with the cycle of the sun, and provides further evidence of nature's refusal to fit within the rational, orderly systems through which we choose to arrange our lives. And this is to say nothing of the position of Easter, a festival whose ability to retain its meandering pattern through our spring is the most cheering vestige of a time when seasons ruled our lives.

Bioregionalism is the reintroduction of place into political economy: personally it is about learning about place in the world and perhaps the universe. We can see many ways in which the relearning of ourselves in relationship with our local places might impact on the understanding of political economy. How might such a naturally embedded approach to living facilitate the shift from the culture of over-consumption that is threatening our planet?

One thing that the bioregional economy might offer in exchange for the material consumption of the globalised capitalist economy is a strong sense of identity in relationship with our local places and the other people and species we share them with. This should be balanced by a reassertion of our power within the provisioning systems of our contemporary world: a reassertion of the politics within political economy, and a realisation of the need to put the economy in its place.
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The Silent Coup

For some time I have been worried about the political consequences of the social unrest in some of the Mediterranean countries whose history of democracy is limited and whose political cultures are unstable. I had been watching out for action by their militaries to quell street protests or a greater role for the military in political life.

But during the past few days I have realised my foolishness. The coups are happening in an entirely civilised way, carried out by men in suits rather than men in fatigues. An online dictionary defines a coup as 'The sudden overthrow of a government by a usually small group of persons in or previously in positions of authority.' In the case of democracies it can be taken to mean the replacement of one government with another without recourse to elections.

The first evidence that this was becoming the preferred strategy of the financial elites came with the removal of Papandreou when he had the effrontery to announce that such a major decision as subjecting his people to financial rule by the IMF would require their agreement through a referendum. Within 24 hours he had been ousted and today we hear he is to be replaced by Papademos, who is being politely referred to as a 'technocrat' but whose banking credentials are the reason for his appointment.

As a former vice-president of the European Central Bank he is considered a safe pair of hands by the holders of financial assets. Since he is not a member of the socialist party, who won a majority at the last election, he could hardly become the leader of such a government. In Orwellian style, the government is to be titled one of 'national unity'. In an affront to democracy Greece will now be led by a man who has never held elected office.

Italy also seems to be lurching its way towards a 'government of national unity' again headed by an unelected banker. Last evening Mario Monti was made a senator for life by Italy's President, a step seen as preparatory to his taking over as Prime Minister. He is a former politician and was European Commissioner for the single market, which included the finance brief. The total of governments that have fallen as a result of the financial crisis has now risen to five. As the financial elites jostle to protect their ill-gotten assets the main loser appears to be democracy.

The lack of democracy in our own country is blatant and was the real cause of the expenses scandal. Charging to stand in elections and the continuing and growing bias in the media against any views that question the capitalist status quo is a threat to democracy. But in May 2010 voters did have other choices: their refusal to take them is entirely different from citizens who are being prevented from making democratic choices that might cause a loss in the value of assets being held by the elite, as we are seeing in Italy and Greece.
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McKinsey: The Jesuits of Capitalism

Had you been wondering why, for the past decade or so, all developments in the health sector and most developments in the public sector generally were going against the public interest and in favour of corporate interests. The heavy involvement of global management consultancy firm McKinsey begins to explain this failure of democracy in such a crucial area of our lives.

Barbara Panvel has been studying McKinsey's activities for several years now. In a recent post on her Political Clean-up blog she explains the history of infiltration of the Labour Party by these Jesuits of capitalism, with their free-market catechism and their worship of the God of Greed.
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Why is the Euro so Strong?

With chaos in the negotiations with Greece, rumours of potential bankruptcy in Italy, and real concerns about the economies of Portugal and Spain, you would expect the currency that binds all these countries together to be falling through the floor. The graphic indicates that, over the past calamitous year, the range of movement has been between 1.48 and 1.28, and that at the value of the euro is hardly any lower than it was a year ago.

I was stung by a comment on one of my blogs from last week, complaining that I was being incomprehensible and jargonistic, so here I am going to explain simply why I think this is the case. This comes down to a discussion about what I have been calling for several years the 'currency wars'. When faced with hard times countries seek to return to growth and one means of doing this is to increase the volume of exports. Having a weaker currency makes your exports cheaper to the countries who buy them. So countries have been deliberately reducing the value of their currencies.

There are various ways of doing this. Some commentators claim that the US policy of quantitative easing is deliberately designed to achieve this end. Certainly, putting a lot of extra currency into circulation should reduce the inherent value of that currency. A more obvious way is just to lower your interest rates: since interest rates are effectively the price of money, this is an automatic means of making your money cheaper and causing its value relative to other currencies to fall.

To keep some sort of idea of the relative value of different currencies we need a standard, sometimes called the numeraire. In the 19th century gold was used as this standard, but this had all sorts of distorting effects on economic activity - primarily the fact that you couldn't increase economic activity unless bare-chested chaps deep in the bowels of the earth were digging up enough of a golden metal, which was frankly completely irrational, although emotionally appealing.

At Bretton Woods, the conference where the victors in the Second World War negotiated the shape of the world economy in the decades to follow, it was agreed, reluctanctly, to allow the dollar to take this role and to become the world's reserve currency. The consequences were hugely beneficial to the US in terms of imports, but ultimately destroyed its productive economy.

As the power of the dollar wanes, the other currencies that traders consider strong enough to take the role of a global reserve currency - the Japanese Yen, the Swiss Franc, the euro, and even sterling itself - have all become more attractive. This explains why we are not facing the speculative attacks that Greece is, not the performance of George Osborne at international conferences. As each currency becomes attractive to traders seeking a safe haven, the authorities that control its value seek to undermine it, since they do not want to suffer the export problems that result from having a highly valued currency.

In this form of reserve currency, the euro is still an attractive option and its interest rate of 1.5% now seems high by comparison with just 0.5% in the UK and 0.25% in the US. In addition, its competitors in terms of being the currency of last resort would resist its value falling too far, since that would require them to take more of the strain. This has led to the currency wars, which are a form of trade war in disguise. Because such wars cause international tensions, a solution that involves the creation of a neutralreserve currency, run for the benefit of the world's people and not an individual state, has long been my preferred option.
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Economics Students on the Move

How our economy will be organised in the future relies heavily on how our future economists understand the world and its workings, as well as their values. Economics education is obviously, therefore, of fundamental importance. The movements to reform economics education, shifting it from the realm of theology into one of pluralism and genuine debate, have been followed with interest by this blog.

So it is with delight that I heard this morning of the revolt by Greg Mankiw's students. Manikiw is the author of one of the most widely used introductory textbooks, as described by Geofrey Hodgson:

'Gregory Mankiw’s Principles of Economics, in its five versions, has internationally been the dominant basic text for more than a decade. Also its author was chairman of President Bush’s Council of Economic Advisers from 2003 to 2005.'

Here is the letter his students at Harvard, paying $40,000 for the privilege of biased and distorted information, presented to accompany their walkout from his introductory economics class, according to a US blog:

'Dear Professor Mankiw

Today, we are walking out of your class, Economics 10, in order to express our discontent with the bias inherent in this introductory economics course. We are deeply concerned about the way that this bias affects students, the University, and our greater society.

As Harvard undergraduates, we enrolled in Economics 10 hoping to gain a broad and introductory foundation of economic theory that would assist us in our various intellectual pursuits and diverse disciplines, which range from Economics, to Government, to Environmental Sciences and Public Policy, and beyond. Instead, we found a course that espouses a specific—and limited—view of economics that we believe perpetuates problematic and inefficient systems of economic inequality in our society today.

A legitimate academic study of economics must include a critical discussion of both the benefits and flaws of different economic simplifying models. As your class does not include primary sources and rarely features articles from academic journals, we have very little access to alternative approaches to economics. There is no justification for presenting Adam Smith’s economic theories as more fundamental or basic than, for example, Keynesian theory.'

The students undertook this action to express solidarity with the Occupy Wall Street movement.

Mankiw is a populist, using his own blog to blandly reassure about the existing economic model, blithely ignoring its destructive impacts and its lack of connection with reality. The fact that his own students are alive to this and are following the example of students in Paris and Cambridge in calling for an economic education that takes seriously the problems of the world we live in is hugely encouraging.
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Subverting the Agenda

An opportunity has arisen to test the nature of the democracy we live in. The powers that be have magnanimously agreed to allow we mere citizens to set up petitions on the Direct Gov website. It was this process that led to the fiasco of the debate over the European Union. But will the revolting peasants be permitted to enquire into the tax affairs of their betters?

To test what happens when more than 100,000 people sign to require that to happen we need you to sign the that has been launched on that very site. Please sign today and circulate the link far and wide.
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Politicians Paint Themselves into a Market Corner

The shenanigans over the rate of the feed-in tariff is a good example of the way in which politicians have, in accepting the myth of the omnipotent market, limited their room for manoeuvre and made themselves incapable of taking the steps necessary to ensure social and environmental benefit.

We can argue about the appropriateness or otherwise of the 43.3p set by Labour for the rate of the feed-in tariff and whether it was just a deliberate banana-skin for the incoming Tory government, but the broader question of who should pay the cost is what really demands attention. The transfer of money uniformly via energy bills in a market dominated by an informal cartel and from those who can least afford to pay, towards those who have the spare resources to buy solar panels to install and would then receive the tariff was always a questionable scheme.

Imagine a world where the production and distribution of energy was in public hands - local government rather than national, ideally - and where the cost of energy rose as you used more, rather than costing most when you use least. The extra money charged to heavy energy users could be made available via grants to local people, or used to directly fund the installation of solar panels on the roofs of the tenants of social housing, who are least able to pay their energy bills. You have neatly created a just solution and simultaneously generated sustained demand for solar panels, reducing costs and making them available at a lower price to those who can afford to buy their own. This is a political solution, but it is hardly communism.

In the end this decision to set a price to underpin the development of a market for solar in the UK, immediately followed by a reversal, is bad for business too. It gives a mixed message which is exactly the opposite of the clear signal businesses need to make investment decisions. It will have negative knock-on effects in other areas, as managers doubt political commitment to the transition to a green economy.

As the myth of the market itself corners the market in ideas, we see the consequences in terms of inert and impotent politicians, and we all pay the social and ecological price.
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