31 December 2012

Economic Policy for Lemmings

Economics is a complex study because economies are systems reliant on many variables which interact with each other in ways that are difficult to interpret. As an economist what you tend to do is to have a basic belief about how the interactions work and a particular focus on variables you think matter most. A Keynesian, for example, would focus strongly on effective demand and its interaction with government spending. A neoclassical would focus on tax cuts for the wealthy as a stimulus to economic activity. A green economist would make energy a key variable in their consideration, as well as money.

But surely we must be consistent in our basic understanding of how economies work. So if we think that spending cuts can lead to recession in one country this must be the case for another country that also has a similar level of economic development and is also a capitalist economy? I ask this question because of the bizarrely inconsistent reporting of the emergency debate in the US about whether to rush voluntarily over the 'fiscal cliff'. In 2011 Congress passed the Fiscal Control Act, limiting politicians' freedom to make economic policy, and particularly prohibiting any policy that would increase the country's enormous debt.

It is an indication of the atrophied state of US democracy and the poor quality of its politicians that they can only make policy by tying their own hands at some future date. If the do not agree today then both sides will lose: there will be a rollback of Bush's tax breaks for the wealthy matched by cuts in spending on programmes for the vulnerable, including Medicare.

The political fight between politicians who have had to accumulate vast sums of campaign funding just to reach office is an unseemly and unrepresentative one, but the reporting of the potential consequences of 'falling off the cliff' is more troubling. The BBC reports baldly that the spending cuts could 'trigger a US slowdown' that might also lead to an intensification of the recession in the global economy. If this is so easy to see from the perspective of the other side of the Atlantic, why is it so hard to see that similar policies to cut public spending are also destructive to our own economy? As US politicians are criticised for stumbling towards the edge of the cliff, why are the same journalists not criticising the lemming-like instincts of Osborne and chums who gleefully decided to push us all over that cliff in their first budget proposals?

As I said earlier, it is hard to explain how economies work, and much harder to predict future economic outcomes. That is precisely why it matters to have a basic theory of how the main variables interact. If you think that public spending cuts lead to recession then you should say that clearly, and as clearly at home as when critiquing somebody else's economy. What we have seen so far in terms of public-spending cuts has been just the overture: the huge cuts to disability payments, housing benefits and transfers to local authorities represent significant withdrawal of effective demand. The consequences for the national economy will be a year of even deeper recession in 2013.

30 December 2012

Drunken Driver Rewarded with Knighthood

How on earth can it be justified to give Hector Sants a knighthood in the New Year's Honours List? More than anybody else he is responsible for allowing the public interest to be neglected so that bankers could profit. His tenure as boss of the Financial Services Authority in the period leading up to the financial crisis defeats all attempts at superlatives. As the man who, more than any other individual, is responsible for the worst financial crisis for a century, that has detroyed livelihoods and bankrupted the country 'disastrous failure' seems wholly inadequate.

In a way typical of the Information Age, when if something isn't available via Google then it is not information, it is quite difficult to find out anything interesting about Sants. We do know that he approved the RBS takeover of the Dutch bank ABN Amro, costing billions in public money when RBS had to be taken into public ownership. We also know that the Commons Treasury Committee accused him of being 'asleep at the wheel' as the British economic car veered wildly around the risky financial roads to speculation and dodgey takeover deals. More speculatively, in March of this year the Evening Standard reported on Sants's failure to protect UK investors during the collapse of broking firm MF Global.

He seems fairly efficient at organising his own PR, viz this fawning story by Jill Treanor in the Guardian, encouraging us to admire a man who gives up his massively overpaid job in the city to engage in public service as a regulator. I suppose she must be feeling rather sheepish since news emerged about his megabucks position at Barclays. From banker, to the regulator who did not regulate, and back to banker - what is there to admire in such a trajectory? Awarding a public honour to such a man is just to rub our noses in the culture of rewards for failure, while the price of the failure is borne by citizens who just work hard or the vulnerable who rely on public services.

In his evidence to the HoC inquiry Sants commented that people who have shown 'serial misjudgement' should not be allowed to run financial organisations again. Although he also confessed to his own failure in this evidence he does not seem to think this undermines his right to a multi-million pound job as head of compliance at Barclays. In awarding him a knighthood the establishment clearly agree. His service to British banking has been rewarded; the devastation wreaked on the British people and our economy ignored.

21 December 2012

Finding Your Place in Space

In spite of the cultural dominance of the idea of 'science' and forming understandings on the basis of 'facts' it is clear that what you think you are is crucial to defining what you are and what you may become. The furore over an ancient calendar belonging to a people who were arguably destroyed by the technologically superior culture of our ancestors is demonstrating today the influence of myths in determining our sense of ourselves in time. I want to argue that we should also be asking questions about how we think of our place in the world in a geographical sense.

Most of us are defined by political boundaries. I am a councillor for Stroud District, but when I think of 'Stroud' it is the people and the landscape that make it a place I love. This emotional identification of places through natural landforms and human and animal companions lies at the heart of the reconceptualisation of our world that bioregionalism demands. It is for this reason that I called my book The Bioregional Economy. I suggest bioregions as the basic provisioning units of a system of self-reliant local economies that will be the sustainable economy of the future. But perhaps more importantly I suggest the importance of a undertaking a rethinking of who we are that involves allowing our selves to be defined much more by the part of the world we inhabit.

Blogger and - crucially - geologist Nick Arini has taken this idea on an produced a really interesting and useful blog about what the boundaries of his bioregion might be. Nick concludes that proponents of bioregions often suggest one characteristic to use in defining their boundaries: watersheds, say, or geological underpinnings. He argues for, and I would agree, a fusion of characteristics, and that the definitional characteristics are specific to each bioregion. He concludes:

'I wanted to consider a bioregion as a living being and this idea that each region is unique and is defined by its own set of characteristics supports this notion. Applying the same formula to each different bioregion is likely to yield sub-optimal results. Listen to your region and let it tell you what characteristics are important for defining its identity.'

He is suggesting sketching the boundaries of other UK bioregions, although since this process is all about knowing your backyard this process is best done as close to home as possible. If you would like to follow Nick's example and define your bioregion please be sure to let me know how you get on.

20 December 2012

Laughing All the Way to the Bank Bailout

At last something has come out of Ireland that gives you a reason to smile, if only wryly. Campaign Group Debt Justice Action has made an application to the Guinness of Book of Records on behalf of the Irish government. The category: most expensive bank bailout per head of population. As the video tells, since Iceland refused to allow its citizens to carry the weight of private bank failure, 'plucky little Ireland' has enforced on its citizens more private debt than any other country - including Greece. The cost is €16,500 for every man, woman and child in the country.

According to the Irish Independent, Ireland is the only country currently suffering from a banking crisis so serious as to rank in the top ten worst banking crises of all time. The country has already won the dubious accolade from the International Monetary Fund of being the costliest since the Great Depression. The study by IMF researchers compares the severity of 147 banking crises between 1970 and 2011.

Debt Justice Action tells us that:

'It is estimated that at least €67.97 billion has been poured into Irish banks so far, representing 45% of GDP, which came to €156.4bn in 2011 though DJA argue that the nature of Ireland’s economy makes the figure of 56% of GNP, €123.9bn in the same year, more relevant.

Of the €70 billion, one single institution, the infamous Anglo Irish Bank, accounts for over €30 billion of socialised debt. When the interest is factored in, this will cost Ireland €47 billion, or the equivalent of €26,000 per person working for pay or profit in the country.'

Two conclusions seem worthy of note. First, and most obviously, a global financial system that is so crisis-prone, and whose costs are so immense, is clearly in need of major structural reform. But secondly, the loss of the Irish people is the gain of the financiers, hence the general paean of praise for Ireland's politicians while they beat up on their old, sick and vulnerable citizens to pay their corrupt bankers.

12 December 2012

Not with a Bang - Not Yet

The news that the inquiry into the decision about whether to build a new nuclear station at Hinkley Point in Somerset was complete in less than a year slid out into the public domain almost unnoticed. In spite of the horrors of Fukushima - still unresolved - in spite of the decisions by a number of other countries to abandon their nuclear programmes, the UK government is still ploughing ahead with this dangerous and out-dated technology. Local people demonstrated but were barely covered by national media. Where was the lengthy and dramatic public inquiry, akin to the three-year process that preceded the permission for a new station at Sizewell in 1987?

Such things are now vestiges of a lost democracy, swept away in the brave new world of the Infrastructure Planning Commission, now 'seamlessly transferred' into the Planning Inspectorate. Without any apparent irony the government website informs us that: 'The main change introduced by the Localism Act will be that the relevant Secretary of State will be the decision maker on all national infrastructure applications for development consent. The Secretary of State will have three months to make a decision, following a recommendation from the Planning Inspectorate'. The main consequence of Pickles's commitment to localism is that he will now make all controversial decisions in his department in London.

Being somewhat surprised about the speed with which the Hinkley decision was made I enquired of the National Infrastructure Directorate of the Planning Inspectorate about how the members of the Hinkley panel were chosen and what was their relevant experience. I was told that when the IPC was an independent body the Commissioners were public office-holders whose biographies and personal information was available on the IPC's website. When it was subsumed into the Planning Inspectorate they became civil servants and so it was no longer appropriate to publish their personal details.

Chair of the panel Andrew Philipson appears to set the tone for the approach to people's concerns in the face of the planning juggernaut. According to a press release from Stop Hinkley: 'When local resident and single mother Nikki Clarke asked who would look at the dangers of nuclear power to the health of local children if the IPC were not prepared to do so, Sir Andrew's response was to tell her that her point was irrelevant; when she tried to continue he had her microphone switched off and adjourned the meeting, asking her to leave.'

This is what the Ministry of Localism means: the ministry of centralised decision-making in favour of the elites, within a government committed to communication by doublespeak.

11 December 2012

Bristol Green Deal

The election of an independent  mayor in Bristol offers opportunities for truly creative policy-making. In this guest post Chris Cook, a former market regulator in futures and petroleum markets and now senior research fellow at UCL, suggests a novel financing mechanism for funding a rapid expansion of Bristol’s renewable infrastructure as one step on the road to what he calls a ‘natural grid’.

One of the key objectives of any 21st century political administration – and Bristol is no different - is how to achieve energy independence and energy security by becoming as self sufficient in energy as possible. Energy independence for Bristol can be achieved in two ways: firstly by investment in Bristol renewable energy, and secondly, by massive investment in energy efficiency.  21st Century problems cannot be solved with 20th century solutions, but the irony is that the radical funding solutions leading to energy independence may be found prior to the advent of modern banking in1694.

Prepay 1.0

It has been long forgotten, but for many hundreds of years British sovereigns financed their expenditure though issuing undated IOUs – at a discount enabling a profit - to creditors who provided value in exchange. These IOUs were returnable in payment for taxes and that part of the wooden 'tally stick' record issued to a creditor as a token of the IOU was known as the 'stock'.

Interestingly, the phrase 'rate of return' describes the rate at which the creditor could generate his profit by returning his IOU/stock to the Exchequer for cancellation.  The more tax he was due to pay, the quicker was the rate of return of the stock.

Now, while the idea that the mayor's administration might fund itself by issuing prepaid rates 'stock' at a discount in this way is a fascinating one, it happens to be illegal, and this proposal is rather more pragmatic, being achievable immediately, with no change in any law.

Prepay 2.0

Both renewable energy and energy efficiency are free.  Clearly, if renewable energy or energy savings can be packaged and sold to investors at the right price, then necessary capital investment can be funded. But there are several problems with conventional sterling (£) funding of renewable energy.

Firstly, compound interest on bank borrowings: a debt doubles in 10 years at 7% compound interest.  Secondly, electricity is sold at a low price to a wholesaler, who makes as much profit as the regulator permits when selling to retail customers. Thirdly, the high rates of return demanded by investors in respect of shares in Victorian vintage 'Joint Stock' Limited Liability Companies. 

Then, to add insult to injury, because most renewable energy development is by foreign owned companies, most of these fat profits from UK renewable energy are hoovered out of the UK. So, let's put renewable energy investment to one side for the moment and look at the low-hanging fruit: massive investment in energy efficiency – or a Bristol Green Deal.

The Gas Pool

The Gas Pool will be a fund, administered by an ethical and competent provider of financial services such as Triodos Bank. The proposition for Investors is that they may buy units in the Pool, and that these units will be denominated, like their gas bill, in MMbtu's of heat energy.  So investors may invest directly in the value of natural gas. However, in addition to only being able to sell units conventionally (or unconventionally)  to other investors they will also have the 'stock' choice of returning their units in payment for gas bills.

Note here that in the US there are billions of dollars invested in natural gas and other energy funds by investors who observe zero% interest on Treasury Bill investment, while the Federal Reserve Bank prints new dollars massively.  These risk averse 'inflation hedger' investors do not seek a return on their capital: they simply seek a return of their capital.

Gas Loans

The Bristol Gas Pool will invest – alongside the existing Green Deal and complementary to it – in 'micro' level energy saving investments in homes and the resulting 'Gas Loans' will be repaid as occupiers buy back units in the Gas Pool at the gas market £ price via their gas bill.

The conventional bank debt funded Green Deal suffers from two flaws: firstly, compound interest at perhaps 7%, and secondly, the behavioural problem that even though people may save £ there is no guarantee they will save energy. However, with Gas Loans, there is firstly no compound interest, since the return to investors is in the energy value of gas, and secondly unless occupiers use less energy then they will not save £. With the right legal and financial structure, such a Bristol Green Deal could be introduced tomorrow.

A Natural Grid

But of course, investment in homes addresses only part of the problem.  The UK needs a least energy cost 'Natural Grid' which is complementary to the 'least £ cost' National Grid currently festooning the country's beauty spots with pylons. Denmark leads the way here, both with retrofitting 'macro' infrastructure (eg Copenhagen's 150km hot water grid) and with massive 'bottom up' investment in community level heat infrastructure, such as combined heat and power, and heat storage.

Such macro and 'meso' level investment in Bristol – such as a network of community level modular Combined Heat & Power installations- may be funded using similar techniques. But exactly how that works would be - like resolution of unsustainable Bristol property debt using similar investment techniques – for another radical Bristol policy story.

10 December 2012

Understanding Money

Many people are seeking to understand how the money system works and looking for answers on websites and in books. My own journey of discovery has been informed more by Mary Mellor than by anybody else. She has a refreshingly down-to-earth approach and an underlying commitment to sustainability that make her explanation particularly appealing.

Very sensibly, Mary's local Transition Towns network asked her to give a series of lectures explaining money, which were filmed and have been made available online. Mary gives four lectures: What is Money?, Money and Banking, The Financial Crisis, and The Future of Money. Mary's view of the latter is an empowering one: money should be a social resource from which we all benefit. We must end the privatisation of money and the banking monopoly.

Mary is critical of the view of money in economic theory, claiming that it is shot through with inconsistencies. It is focused on modelling rather than understanding. 'The influence on coinage on Western notions of money has misled us', she claims. Even in 1698 the amount of money held in 'tally sticks', a physical system of recording money owed between two parties, was actually larger than the amount of money held in coins. Money is a story of relationships, a story of communities, and of economic exchanges based on trust.

James Robertson, doyen of the monetary reform movement and grandfather of green economics, said about these lectures: 'Mary Mellor's understanding makes an essential contribution to anyone wanting to know more about how the money system work and what its future could and should be. I warmly recommend these films to anyone who wants to learn more and think what we should do about it.' So please find time to watch them, learn more, and begin to change the world.

7 December 2012

Life Beyond Growth: Join the Evolution

I have been puzzling over why the Office for Budget Responsibility, which was only established to give prudent and honest advice about what is happening in our economy, has failed so resolutely to either predict or interpret the current economic position. It hasn't helped that the man chosen to head up the organisation was qualified in communications more than in economic analysis, but perhaps there are deeper answers to the questions about why it keeps predicting more growth than we are likely to achieve.

If you were on the edge of a paradigm shift, would you honestly be able to look across the gulf and believe what you were seeing on the other side? Or, rephrasing that question with relevance to the purpose of this blog, would you be able to believe that growth will never return and that your job as an economist should be not predicting its returning, or even trying to bring about its return, but rather encouraging the evolution of the economy towards a structure that does not rely on growth?

Let's spend a while looking at the figures. Osborne's disastrous revisions to his growth figures, which lead him to conclude that we must face at least another six years of grinding austerity, are based on more OBR predictions. The OBR now suggests that the 0.8% growth they predicted just eight months ago has been transformed into 0.1% of contraction. Next year's growth, they suggest, while less than their March prediction of 2%, will still be a determinedly positive 1.2%. The fantastical nature of these predictions arises from the fact that the past always looks worse than in OBR-land, but the future continues to look rosier. This suggests a failure of judgement and the need for a reality check. The OBR economists appear to be psychologically incapable of responding to a world beyond growth: being incapable of imaging such a world they gaily predict it away.

What is the view from Euroland? Even the German economy, the final functional growth engine, is beginning to sputter. In spite of our view of Germans as sober and rational, the disease of fantastical prediction appears to be spreading their way. The Bundesbank is making even more rapid adjustments to its predictions, suggesting the German economy will grow by just 0.4% next year compared with its June forecast of 1.6%. When a key economic variable can be reduced so drastically in just five months you realise that you are dealing with psychological rather than statistical error.

So what does the economy beyond growth look like? At present, without any evolution in our expectations and basic parameters, it looks very grim indeed: desperate pressure on the planet, growing inequality as the fight over the shrinking pie continues, and increasing social tensions as the elites refuse to accept that a future without growth means they cannot continue to extract disproportionate amounts of wealth as they have in the past.
Yet as a green economist I can see the end of growth as part of a story with a decidedly happy ending. Economic growth, and the inequality and ecological pressure it brings with it, could be replaced by an economy where the objective was balance and harmony between people, other species, and the planet we share. How can we move towards such an economy? What might its social and political institutions look like? How can we begin to create a culture that makes this not just a possible but a desirable future. It is to answer these questions that Green House is hosting a seminar in London on 19 December in partnership with the Green European Foundation. Please join us - and join the evolution.

6 December 2012

Winter Statement of Discontent

Some have characterised the presentation of the Chancellor's autumn statement yesterday as a paradox of political theatre: how could a man who comes to the house to admit that he has failed in all the objectives he set himself possibly look so cheerful? And how can the opposition perform so badly in response? The key to the answer lies in the word theatre: what the Tories do so well is the debating they learned in their public schools, which they perform with the panache of those educated to know that they have the right to rule.

And from another perspective, of course, Osborne has been one of the Conservatives' most successful chancellors. He has used the financial crisis to advance the interests of capital in ways that would have seemed impossibly radical before 2008. The measures offer clearer evidence yet of the Tory strategy of using the debt to achieve long-desired political objectives.

Item 1 is the cut to corporation tax, now to be reduced by 3% in April rather than the promised 2%, meaning an official rate of 21% from 26% last year: a full 5% reduction in the contribution from business at the very time they are in the dock for avoiding the tax they are supposed to pay. Osborne boasted of his generosity to corporates: 'This is the lowest rate of any major western economy. It is an advert for our country that says: come here; invest here; create jobs here; Britain is open for business.' The headline UK rate has already been reduced from 26% to 24% this year. The rates of 40% in the US, 33% in France and 29% in Germany make it clear which Chancellor is really the capitalist's friend and help to explain why we can no longer afford to fund our public services.

Items 2 is cuts to welfare, with a three-year freeze meaning real reductions and real hardship for all except pensioners. It is basic arithmetic to explain why those on the lowest incomes can least afford to see their incomes squeezed by inflation since the marginal impact on them of rising prices is so much strong. The justice of this situation is about not depriving the poor of the means to survive, rather than some new conservative commitment to income differentials. And meanwhile the stigmatisation of all those who claim welfare (which is probably around 99% of us at some point in our lives) stokes the fires of prejudice and fear.

The best news in the budget is the retreat from an earlier announcement of an end to national public sector pay. In the poorer areas of the country, nationally negotiated pay rates for public-sector workers can keep local businesses afloat in desperate economic times like these. Negotiating deals for teachers and doctors that relates to local labour-markets would have sucked more money out of the regions, exacerbating the inequalities between regions that have already increased throughout this Recession. Presumably the U-turn here was a result of Liberal Democrat pressure.

The 'greenest government ever' banner now lies in tatters at the Chancellor's feet as he lures investors into the sorts of developments that will drive economic growth at any cost, threatens to abandon Labour's climate change targets, and offers subsidies to the frackers. With 30 gas-fired power-stations looming and the final abandonment of the fuel-duty escalator we can wave goodbye to any hope of doing out part to prevent carbon dioxide emissions from spiralling out of control.

The language used by the Chancellor is also deceptive and oppressive, although I find it helps to substitute the word 'capital' for the word 'business', making sense of Osborne's repeated claims to be 'prioritising the interests of business'. I am also intrigued by the constant repetition of the phrase 'the economy is healing'. Is the personification of a complex system made up of a mass of individuals supposed to win or empathy? Or to soften the perception of the stark economic news? It is fairly clear that, rather than healing, the economy is like a patient that has been stitched up leaving a festering wound inside. Proper healing would have required tackling the distorted financial and monetary systems rather than ignoring their flaws and hoping that they will somehow mend themselves.

28 November 2012

(Star)*ucking the Economy

A guest post from the Green Bean Counter aka Rebecca Boden, Professor of Critical Accounting at the University of Roehampton.

Starbucks insinuates itself into the fabric of our lives, branded as everyone’s friendly fellow citizen – a coffee shop with a convivial atmosphere where you can hang out on sofas, or have a business meeting. Starbucks’ image as our ever-present and commercially successful friend is somewhat tarnished by the recent news that it pays virtually no UK corporation tax (the tax on corporate profits) on its 700 or so stores. In the world of accounting that I inhabit this is correct because Starbucks makes virtually no profit. You might think that they're really bad business people after all - but you'd be wrong.

In fact, Starbucks are very good to their shareholders, as they would claim they are legally obliged to be. They also have very good (coffee) bean counters who use two primary tactics to move profits out of the UK and into countries where the tax charge is lower.

First, they buy the coffee they sell to us from themselves. The bit of Starbucks that sells the coffee to other bits is a separate legal entity based in Switzerland. Even though it's selling to itself, it doesn't sell cheaply: the coffee traders make a healthy 20% profit on their transactions with the rest of Starbucks. This increases the expenses of the UK coffee shops, reducing their UK profits. Whilst this makes a big profit appear in the Swiss company, the advantage is that there is a much lower rate of tax on corporate profits there.

All of this is just bookkeeping - the coffee never actually goes near Switzerland, although it is bought and sold through there. Such 'transfer pricing' manoeuvres move money (and, usually, profit) from one country to another by fixing a sale price that has little to do with open markets and everything to do with paying as little tax as possible.

The UK tax authority - Her Majesty's Revenues and Customs - does have powers to tackle transfer pricing by adjusting companies' taxable profits, substituting a fair market (arm's length) price for the selling-to-yourself price. But this is complex and the arguments fraught - companies like Starbucks might argue that they pay over the odds to guarantee security of supply or superior quality. These can be difficult arguments to dislodge because open market prices are inherently subjective.

Second, Starbucks asserts that it is its branding that lets it sell so much coffee. The brand is owned by another Starbucks company - this time based in the Netherlands. This collects profit-reducing royalty payments equivalent to 6% of turnover from the coffee shops and moves them to the Netherlands where, again, they seem to enjoy very favourable tax treatment. Again, this manoeuvre can, in principle, be attacked by HMRC. But you could also have endless, and irresolvable, arguments about the value of a brand in selling a cup of coffee.

Starbucks argues that they do pay over a lot of tax to HMRC. True – but the overwhelming majority of that is not tax on Starbucks but tax which falls on others that it collects on the government’s behalf. This includes the personal income taxes and national insurance contributions payable by employees (which are deducted at source in the UK). Starbucks does also pay national insurance contributions itself in respect of its employees. But it’s important to remember that these pay for workers’ benefits, like pensions or sick pay, and therefore relieve employers’ costs. Then there is Value Added Tax, the final incidence of which falls on the end consumer but which is collected by the seller - Starbucks. And Starbucks does pay fairly minor local property taxes - but this is to provide all of the services like street cleaning etc. that help make Starbucks profitable in the first place, so could really be seen as business costs. Local property taxes are property-related, not profit-related. This puts Starbucks, with its economies of scale, at a significant advantage over more local and smaller-scale businesses which would pay the same taxes for the same premises.

What Starbucks doesn’t pay much, if any, of is tax on is its underlying profit – the profit it would make it its transactions were all at arm’s length rather than to itself. The routing of coffee ownership through Switzerland and the paying of royalties to the Netherlands are mere strokes of the keyboard, yet they create an accounting reality which leads to the entire surplus value of the business being spirited abroad. And the opportunity cost is even greater than the tax loss – the decimation of locally-owned (and therefore locally responsible) business and the creation of clone-town Britain.

27 November 2012

Has Capitalism Been Overthrown?

The general acclaim that greeted the announcement of Mark Carney as the new Governor of the Bank of England immediately roused my suspicions. Surely somebody could have raised a peep of disagreement with the fact that he is the greatest central banker the world has ever seen and second in credentials to only the Messiah himself? What could explain this universal fawning, I wondered, while I listened to the regaling of his impressive cv. My mind stumbled over one crucial fact: he has worked for Goldman Sachs. Carney has worked for the global financial corporation in Tokyo, New York and London.

I have told the sad tale of the takeover of the US Treasury Department by Goldman Sachs in an earlier post: a story that culminates in the move of Tim Geithner from Goldman to the Treasury. This safe pair of hands could cover the hole in my otherwise flawless theory: the fact that Ben Bernanke has not worked for Goldman Sachs. But on the upside Mario Draghi served his time there, before taking over the European Central Bank, serving as vice-chairman between 2002 and 2005. The revolving door between Goldman Sachs and the world's central banks is no secret, providing material for a Bloomberg blog last year. The implications of the fact that global finance is now running national monetary policies across the world receives little critical comment, however.

My own candidate for the job, Professor Richard Werner of Southampton University - the man who invented quantitative easing - was probably not surprised that his phone remained silent yesterday. After all, he has suggested that we allow the bank to produce enough cash to buy back our debts and end the Age of Austerity. Whose political interests would that serve? He is also unfashionably German. As when Sven-Göran Eriksson took over as England manager there were some quaint comments about Carney being the first 'foreign' governor, as though nation-states have any nostalgic import for these masters of money who only really identify with the offshore fantasy island labelled 'Cash' and resembling the Big Rock Candy Mountain for those who can gain access.

Perhaps I am just being naive here. Was there ever a time when capitalism meant a large number of small companies competing for investment capital as well as for customers? Was there ever a time when governments played a role for their citizens rather than being operatives of Central Bank Inc.? (Leo Panitch tells an interesting tale of the state-finance relationship.) In Marx's day the many-tentacled banking machines travelled under the name of Rothschild. Perhaps we should celebrate the democratic widening of the global economy demonstrated by the fact that the bankers governments are serving today are at least not all members of the same family.

24 November 2012

How Big is your Green Stimulus?

Moving on from my earlier post about the green paradox of thrift I have been paying some attention to the discussions about green stimulus. The idea is for the government to either borrow or leverage indirectly private-sector money to be invested in sectors considered 'green'. Since how we define green industry or even the green economy is contested this has been a process subject to considerable lobbying and tendentious argument.

The world leader in terms of green stimulus is Korea, which according to a report from the UN’s Environment Programme update on the Global Green New Deal has sent 79% of its investment money in the direction of green sectors, compared with 34% for China, 18% for France, 13% for Germany and 12% for the USA. Korea plans to invest the equivalent of US$83.6 billion by 2013 including US$44 billion on building energy security and US$22 billion building up its green production sectors. In absolute terms, China’s green stimulus of US$ 218 billion is the largest of the G20 countries: China is investing massively in its railways (48%) and in energy efficient buildings (35%). The investment in Green Keynesianism from the UK is too small to feature in these comparisons.
French energy journalist Yves de Saint Jacob describes how France's traditional commitment to a state industrial policy has been redirected towards apparently green sectors. In sympathy with the tone of this paper he raises the question: 'Is economic revival compatible with sustainable development, or, to turn the problem on its head, perhaps a little cynically, is recession the only effective means of reducing CO2 emissions?' before describing the really significant investments made since Sarkozy's election in 2012. France is investing massively in its rail network and its canals with public finance of €8bn. and the hope of leveraging in more from the private sector. The aim is to emerge from the recession with significant improvements to non-road transport including a new tunnel between Turin and Lyon and a new Seine-Nord canal linking Europe's northern ports to Mediterranean markets. In addition there are significant investments across the country's already impressive TGV network and significant investments in so-called green production sectors: €500m. is being spent on incentives to encourage the development of greener cars, while consumers are being offered €1000 when they trade in their older car (at least ten years old) if they buy a lower-emission replacement. In the construction sector €850 is being spent on refurbishment to improve energy efficiency.

Amongst pro-environmental economists and lobbyists the call has been for a Green New Deal, this time explicitly echoing the largest Keynesian response to the Depression: Roosevelt's New Deal programme of infrastructure investment and job creation. This call began in the UK with the report from the Green New Deal Group that grew out of Colin Hines’s work with the New Economics Foundation. Rather than the flagship-style policies of Sarkozy and Obama, this group focused instead on the urgent need to ensure safe and warm homes for elderly people with energy prices rising rapidly. It was a form of human-scale development approach to Green Keynesianism that would have warmed the cockles of Schumacher's heart as much as the living-rooms of elderly pensioners. From an economic perspective it proposed a triple win: health for the vulnerable, jobs for the workless, and stimulus for the economy. It was almost totally ignored, with the government instead proposing its Green Investment Bank, another example of using public money to leverage private money but socialising the risks and making no attempt to ensure socially beneficial allocation.

The Green European Foundation has funded a thorough comparison of the progress of such Green New Deals across the members of the EU. The research, conducted by the Wuppertal Institute, confirms the widely differing sizes of stimulus packages as well as the proportions directed towards green transitional investment. In both cases the UK is well towards the bottom of the rankings. In Figure 5 the UK is shown to be one of only two countries whose green economy actually shrank between 1999 and 2004 (the other being Greece). While Finland’s eco-industry grew by 54% during this period that of the UK shrank by 18%. This is clear evidence of the misallocation of resources that results from an over-emphasis on finance. The country's reliance on the financial sector to gain foreign exchange also explains the UK’s apparently positive performance in terms of the efficiency of its GDP in energy terms. If your wealth is earned through invisibles such as insurance and financial products and your production has been off-shored this can mask an underlying failure to invest in green transition which can threaten long term energy security and economic viability.

23 November 2012

Life without the Car

For my generation the car represents freedom and I am struggling to evolve. I spent an exhausting six weeks without my car some years ago. It meant a lot of cycling in the rain and a greatly reduced social life, since I live in rural Gloucestershire where there are no buses after 6pm or on a Sunday. Now I spend some of my life in London and my daughter has left home I am inspired to try again. The difficulty of overcoming the indication is made clear by the fact that, since my car broke down more than a month ago, it has been sitting on my drive. I will not get it mended but I cannot give it up.

How cheering it was, then, to find a short film that indicates how little younger generations are attached to the car. This emerged from some teaching I did at Masaryk University in Brno. The students were asked to make a film about any aspect of 'green economics' and one group chose reducing their carbon footprint. The university is internationally focused and so they were able to interview students from across the world, asking them which of a number of energy-balanced aspects of their lifestyle they would sacrifice to reduce their carbon footprint.

Of course this film was made in Brno, where the trams are a delight and the transport system is integrated in terms of timetables and ticketing. And these young people do not yet have children and are still for the most part energetic and healthy. But what cheers me most is that for people of this generation the car is no longer a symbol of freedom or a source of glamour. As a recent episode of Costing the Earth reported, young people no longer find psychological satisfaction in car ownership in the way we did: bikes and buses are cooler than a shiny set of wheels.

22 November 2012

Cold Comfort

Age UK have offered their regular and timely alert about the cost to the country of our inadequate housing stock, but this year they have tailored their message for the age of austeria. Is it more likely to achieve the desired response from policy-makers when couched in terms of saving money to the NHS? Do we really care so little about life that merely listing the numbers of thousands who die because of the cold is no longer enough?

The figures, although seemingly rather dubious, are none the less impressive: illnesses caused by cold homes cost the NHS £1.36bn. per year. The cold puts pressure on most bodily systems but stress on the heart and lungs leads to strokes, heart attacks and respiratory diseases all thriving in the cold months. There are at least 27,000 deaths that need not have happened if we had a properly insulated housing stock.

This situation is not new - the English, after all, invented the draft and being cold inside your home is a particularly British habit, as those who have travelled in central or northern Europe can attest. So why is it not tackled? First, is the problem of its lack of glamour. It is so much more thrilling for a politician to be seen by a model of the next airport or the vast Severn Barrage. Surely there is also something cultural hanging over from the cold dormitories in which so many of our politicians spent their childhoods. Perhaps they still believe that it was chilblains and cold baths that made the empire great.

But there are also important economic reasons. Huge infrastructure projects such as high-speed railways generate the sorts of balance-sheets where large sums can be siphoned off through various consultancy roles and offer lucrative contracts to the sorts of corporations that have the government's ear. The persistent work of improving the quality of our homes offers jobs in the local community for people who have only their vote to offer. The Green Party has been arguing for the local solution for years, proposing £2bn. to £4bn. per year investment to insulate four million homes per year at the last election. This is not glamorous and receives little media attention, short of failed attempts to rubbish the figures.

The failure to invest in energy insulation is demonstrative of our failure to tackle the issue of climate change as a whole within an economy focused on profit and individualism. The deaths of old people this winter are the price we pay for having such an economic system, as is the legacy of ill health for many children who grow up in cold homes. During my visit to Berlin recently the most obvious indication that I was in former east rather than former west Berlin were the huge district heating systems linking properly insulated buildings to sources of state-generated power. It is one of the lessons of a planned rather than market system that when the state makes providing you with a warm home its business, standards of energy efficiency are likely to be much higher. While few of us would welcome a centralised planning system, the failure to tackle effectively either cold homes or energy efficiency suggests that this is another area where the market is failing - and with lethal consequences.

13 November 2012

Modelling a New Economy

Yesterday I received copies of my new book, The Bioregional Economy. This is always an exciting moment, and also a nerve-wracking one. In the book I make a strong proposal for rethinking the economy to achieve maximum human well-being within the frame of the 90% reductions of carbon emissions that the Tyndall Centre says we need to avoid the worst of climate change. This means some really radical changes to how we work, the level at which decisions are made, and how resources are owned and controlled. I do not shy away from any of these difficult decisions.

I was presenting the proposal to the Geography Department at Glasgow University last week. Afterwards a Greek colleague came up and told me that the proposal is obvious. While this isn't the sort of thing you like to hear when you have spent time writing a book about a radically new proposal, I know what he meant. It turns of that Theo Kromydas co-wrote the Wikipedia entry on Epicurus, and so I am taking this as evidence that, as all good ideas must, I have backing from an ancient Greek philosopher. The book's subtitle is 'Land, Liberty and the Pursuit of Happiness', and it seems that this might have been written by Epicurus, whose philosophy was based on the understanding that humans, like all animals, seek pleasure.

According to Kromydas, Epicurus has a sophisticated view of pleasure, which included ethical behaviour. Bodily pleasure that causes intellectual or moral distress is not the sort of pleasure we should be seeking. His definition of happiness is a mind free from disturbance and a body free from pain, a state he referred to as 'ataraxia'. One of the points I make most strongly in my book is that, while fossil-fuelled capitalism has produced a bewildering array of material products, it has not brought us peaceful minds and hence cannot claim to have achieved happiness even in the Western countries.

I will be launching the book in the Convent Parlour at Roehampton University on 12 December at 5pm. Since my lucky number is 12 I could not have a more auspicious day. If you can help me publicise the book either by organising a local meeting or writing a review for a publication or online outlet please get in touch. My esteemed corporate publisher is also offering a fairly hefty discount on the book until 14 December, so an opportunity to do some Christmas shopping.

11 November 2012

The Fall of Public Man

The mayhem at yet another of our key public institutions is adding to the sense of living through deeply unsettling times. It is also an example of when we need to read between the news, partly because political forces are at play, and partly because journalists are especially unreliable when they are reporting on their own.

I have been waiting for the time when news as gossip began to cause problems: the child abuse panic is, it seems to me, the first serious outcome of the confusion between social media and journalism. We have always known that journalism is about opinion as much as truth, but before the burst of electronic information there was some editorial control over the use of information. Once BBC correspondents began reading Tweets, collecting information from the internet, and broadcasting films from anonymous mobile phones - sources of information whose provenance they had no way of establishing - news lost any claim to being reliable or in any way attached to Truth.

In a democratic society this is problematic. We cannot possibly afford to obtain or sift all the information available to us: we need to rely on trusted channels. When the trusted channel we ourselves fund for this purpose has resorted to gossip we are really in trouble. It was back in 1974 that Richard Sennett wrote about the loss of distinction between public and private, but his theories have demonstrated themselves in ever-widening circles as we are encouraged to take an interest in the views of low-grade celebrities that would far better be kept to themselves. As he wrote back then:

'Masses of people are concerned with their single life histories and particular emotion as never before; this concern has proved to be a trap rather than a liberation', he wrote. Given that each self is 'in some measure a cabinet of horrors, civilised relations between selves can only proceed to the extent that nasty little secrets of desire, greed or envy are kept locked up'.

We should also be deeply suspicious about the timing of all of this. With the Leverson Inquiry due to report soon,  and to call for political regulation of the media, those who seek to maintain their unaccountable power are manoeuvring against any control. We should be asking why the Savile story emerged when it did? Who knew about the cancelled Newsnight story? And how did they obtain that information? The gutter press have a role here, but so also do the police, who are implicated in both the North Wales paedophile ring and the failure to investigate it fully.

We have seen the fall of George Entwhistle, generally regarded as a decent chap of the old school: a real journalist. He has been replaced, if only temporarily, by somebody who has no journalism experience and apparently is a marketing and management expert. The BBC has been under considerable political and financial pressure by those who would seek the fall of public broadcasting. I hope we can rally to the corporation's cause and defend our right to information with as much determination as we defend our right to health.

7 November 2012

We Are All Greeks

Over the weekend I was able to engage in some discussions about events in Greece. It is an increasingly desperate situation akin to similar situations in democratic countries put under pressure by finance capitalism. Political views are polarising between the extremes. Syriza, the coalition of left parties, is building towards a majority, but the fascists Golden Dawn are handing out bread and simple slogans - and they are also infiltrating the police. When people are hungry enough they may vote for a socialist party; whether that party is allowed to take control of the country is another matter.

Our comrades from Greece spoke movingly about how supported they felt by the use of the slogan 'We are all Greeks', that has been seen increasingly in recent months. It goes beyond the need for solidarity; it goes beyond the need to attack racism, however subtle; it goes to a deep understanding that the nature of capitalism as a system that requires co-operation if it is to serve human needs without leading to war. The rules of the global system need to be focused on balance and prosperity for all, rather than enabling the stronger, larger economies to profit at the expense of the rest.

This was the argument made by Keynes at Bretton Woods, in his desperate and failed bid to create a global financial and trade system that would not set us on the path to future wars. It is simple: in a system of exchange one country's success will inevitably lead to another country's failure and so rules have to be introduced to enable the weak to gain as well as the strong. Economic policy should be based on the principle of circulation rather than accumulation. While Germany refuses to recirculate its accumulated wealth in Greece it will not only damage the Greeks and increase tensions, but ultimately damage itself.

Keynes argued for the bancor, a neutral trading currency, and for countries to be fined for holding trade surpluses as well as trade deficits. What was agreed was the dollar as the trading currency and no rules to achieve trade balance. The euro was created to enable Europe to compete against the dollar, but it created its own imbalances which are the responsibility of the system designers, not the Greek people.

4 November 2012

Fiat Luxemburg

I am spending the weekend in Berlin as part of an expert group exploring creative and just responses to the financial crisis, funded by the Rosa Luxemburg Foundation. As a Green, this is an interesting experience for me: finding out where the radical left are on the issues of the day. Most encouragingly many amongst their number are recognising the ecological crisis as the defining issue of our times and considering how this might be taken into their worldview and political platform.

The most stimulating contributions have been from the Greek delegates, two of whom are contributing to the policy of the Greek left coalition Syriza. Greece is portrayed as a laboratory for the next phase of rapacious neoliberalism, with the debt crisis being used to facilitate the fire sale of valuable national assets, including the large amounts of land that is owned by the state in Greece. In such a situation default can seem like a liberation. As charmingly argued by Sergio Tzotzes from the University of Crete, 'The sinking of the titanic was an unexpected liberation for the lobsters in the kitchen of the luxury liner.'

As the first default under EU rules, it is important that we study the conditions that were placed on Greece, which were notoriously draconian. Greece defaulted to the extent of €105bn on an original debt of €360, but new loans of €130bn were taken on, meaning that Greece was immediately in trouble again. Worryingly, these agreements have not been passed democratically by parliament but rather signed off by ministers. As the price of this restructuring there was a devaluation of pensions and savings of 90%. This was a default on the private debt, leaving the public debt unaffected. The default was governed by British and Luxemburg law, which is creditor friendly, and the terms imposed by the EU were more savage than have traditionally been imposed by the IMF in similar situations.

My own contribution to the seminar was about moving towards a diversity of forms of money operating at different levels with different objectives and under different forms of control. I think it fair to say that my proposal was roundly condemned. Marxist theory says that money is a commodity like any other and that it is the productive economic that is primary: money will follow decisions made about production. To me this directly contradicts the evidence of recent years and undermines attempts to tackle the way money enables the tiny minority who control money to use this power to also control the key productive and consumption resources.

The Left feels like a rump of something that was once exciting and dynamic. I am surprised by their friendliness to somebody who is basically an interloper but I do find them labouring with some dogmatic ideas that hold back creative thought, especially in terms of solutions. It is important to remember, though, that while it is the machinations of the neoliberals that have brought us to this mess, it is the weakness of the organised left that has allowed them to get away with it. I am not nostalgic for the 1970s but I do recognise that it was the withering of the Left since those years that has permitted the downgrading of my job and attacks on our public sector.

23 October 2012

Is the US About to Default?

There was just too much going on in the IMF report I blogged about yesterday to cover it all. However, one of the most interesting paragraphs is the following:
'The third advantage of the Chicago Plan is a dramatic reduction of (net) government debt. The overall outstanding liabilities of today’s U.S. financial system, including the shadow banking system, are far larger than currently outstanding U.S. Treasury liabilities. Because under the Chicago Plan banks have to borrow reserves from the treasury to fully back these large liabilities, the government acquires a very large asset vis-à-vis banks, and government debt net of this asset becomes highly negative. Governments could leave the separate gross positions outstanding, or they could buy back government bonds from banks against the cancellation of treasury credit. Fisher had the second option in mind, based on the situation of the 1930s, when banks held the major portion of outstanding government debt. But today most U.S. government debt is held outside U.S. banks, so that the first option is the more relevant one. The effect on net debt is of course the same, it drops dramatically.'

The report also suggested a buy-back of private debt, the other side of the debt coin that is holding back the global economy.

What is the explanation for this extraordinary change of heart, if not yet of policy? Could it be that the US acknowledges that its debt, both public and private, is simply unpayable? However great the temptation to return to the lure of further borrowing, eventually states as well as individuals must adjut that they are bankrupt. But the US has grown rich on producing debt that has been bought by other countries, and those at the top of the pile have grown the richest, fastest. There must surely be a price to be paid rather than letting the financiers and those who have gambled with them slope off to their mansions in the Hamptons.

In an earlier paper I suggested that a default of the largest sovereign debtors was inevitable. I proposed that the price the world might extract would be to implement a new global currency regime that uses carbon as backing for the global trading currency. This would allow a fresh start but would limit the consumption of all countries to a level that is environmentally sustainable and will allow us to avoid frying the planet.

22 October 2012

IMF Study Supports Public Money Creation

My post earlier this month reporting that Adair Turner, one of the front runners for the post of Governer of the Bank of England, has suggested that the financial assets the Bank bought in return for its quantitatively eased money should be simply cancelled felt fairly shocking at the time. Around the same time my attention was brought to a paper emanating from the IMF that has the even more surprising proposal that we should return to an effective 100% reserve on the creation of credit. In layman's terms this removes from banks the power to create money and reduces their role to re-lending money that has been deposited with them.

The paper is couched in terms of a re-examination of the proposal from Henry Simmons of Chicago University and later summarised by Irving Fisher in 1936 and is thus called The Chicago Plan Revisited. The report has two authors, a Czech economist named Jaromir Benes who works for the Reserve Bank of New Zealand and Michael Kumhof who is a staffer at the IMF. While the report states clearly that its findings do not represent the policy of the Fund it has been approved for publication.

The authors summarise the Chicago Plan as follows:

'The key feature of this plan was that it called for the separation of the monetary and credit functions of the banking system, first by requiring 100% backing of deposits by government-issued money, and second by ensuring that the financing of new bank credit can only take place through earnings that have been retained in the form of government-issued money, or through the borrowing of existing government-issued money from non-banks, but not through the creation of new deposits, ex nihilo, by banks.'

Fisher argued that such a policy would remove the ability of banks to introduce instability into the monetary system. More crucially in view of the highly damaging consequences of the massive public debts being carried by a number of developed economies, the Plan would allow for the elimination of these debts, since money would be created by public authorities rather than borrowed from banks with interest, which creates a corresponding debt, given that irredeemable government-issued money represents equity in the commonwealth rather than debt'. Fisher forecast a similar reduction in private debt.

The authors of this report test Fisher's theories using an econometric model. Their conclusions are striking: 'We find strong support for all four of Fisher’s claims, with the potential for much smoother business cycles, no possibility of bank runs, a large reduction of debt levels across the economy, and a replacement of that debt by debt-free government-issued money.' They suggest that banks would continue to exercise their role of allocating money between lenders and borrowers and providing high-street banking functions, but they would lose the role of creating money.

The authors write that 'We take it as self-evident that if these claims can be verified, the Chicago Plan would indeed represent a highly desirable policy'. Since their modelling suggests that the claims can be verified in terms of the current economic crisis we must await further policy moves from the IMF with interest, and the kind that doesn't bring debt crises in its wake.

21 October 2012

Dispatch from Austerlitz

The award of the Nobel Peace Prize to the European Union is a timely reminder of the central role that this much-maligned organisation has played in all our lives. If we have spent our lives in comfort, alienating decadence even, and without having to fight for our birth-right, then much of the credit for that must go to the founding fathers who found a way to ensure that we had more to gain from standing together than by falling apart.

But the economic crisis that was caused by finance and has shown the current generation up for the political pygmies they are has frightening echoes of the crisis of the 1930s that led us into the last great European, and then global, war. During the 1930s, as brilliantly described by Karl Polanyi, the gold standard was the strait-jacket that strangled domestic economies while allowing the financiers to grow rich. This time around that role is being taken by the Euro and the Eurocrisis is allowing them to grow rich while the people of Europe are impoverished.

The Czech economy is doing pretty well by the standards of some of those with whom it joined the EU. The Czechs had the good sense to hold onto control of their currency the Koruna. It trades at around 35 to the pound and this allows the Czechs to maintain a fairly significant manufacturing sector. This small Central European country has more reason than most to fear the spectre of European war. In the Jakubske church in Brno, the city I visit most regularly, there is a series of dates painted onto the ceiling to commemorate dates when the people of the city needed to seek refuge. My Czech friends laugh when I say that my country has not be invaded since 1066; they can recall 60 invasions the last of which was the cost of 'peace in our time' for Chamberlain.

A few miles away is the battlefield of Austerlitz, site of Napoleon's most famous victory. My visit to the battle site was appropriately undertaken under thick fog, similar no doubt to the fog that enabled Napoleon to disguise his attack on the Pratzen heights and overwhelm a superior force. The greatest danger I faced was from a rally race that was most inappropriately staged by the battle memorial. The battle lies at the heart of Tolstoy's War and Peace, where it is a staging-post to the glorious victory of the Russians in 1812. The following century it was the Somme, which reminds us again of the exceptionality of what really has been peace in our time for the past 70 years.

If you travel to the south of France by train you will leave Paris from the station named for this battle; it matches our own Waterloo station, named to commemorate the place in Belgium where the English army halted Napoleon's continental rampage. These stations remind us of the century or so of conflict that ended in 1945. Between the cultural exchanges, the creations of pan-European institutions, and the mutual guarantee of economic security, the EU can and should be rewarded for underpinning peace in most of Europe for most of the past century.

This is why the Peace Prize comes at a timely moment. Because the current European obsession with the single market is putting the unity of nations in jeopardy. When David Cameron calls for a negotiation so that we can improve our relative situation he ignores the fact that our gain will be another's loss. His question 'What does Britain get back from Europe?' Is the wrong one. The project of peace in Europe is one we all gain from jointly, that cannot be counted in terms of a million here or there on farm subsidies. I have two sons and a daughter of fighting age and what I most want from Europe is to be assured that they will not be called to fight on her soil.

18 October 2012

Putney Debates Round II

Readers of this blog will recall an earlier post when I called for a revival of the Putney Debates, the heated discussions that took place in St. Mary's Church Putney at the end of the English Revolution, usually referred to as the English Civil War. My energy was diverted in different directions but Occupy have taken up this idea and organised an excellent series of events under the banner of the New Putney Debates.

The series begins on 26 October and runs through into November. It touches on all the key themes of the original Putney debates: the need to question patterns of land ownership and the right to own land, questions of power and how it should be shared in what is now a purportedly democratic system, and the issue of equality. On Sunday 28th October there will be a reading of Caryl Churchill's 1976 play A Light Shining in Buckinghamshire in St. Mary's Church. According to the programme, 'The second half of the play focuses on the conflict within the New Model Army between the senior officers (the Grandees) and the Agitators, who stood for the interests of the ordinary men and women.¨This part will have a special poignancy for many of us with a long history of political involvement.

The question of the power of religious institutions, so central to the debates in 1647, has been left out of this series, which seems to me a pity. While the issue of institutional religion may be a marginal one for many political activists the question of the exclusion of spiritual values from public debate seems to me overdue for revival. At the Green House conference on the future of green politics last weekend a workshop on this theme was led by Satish Kumar, who spoke to the theme 'Soil, soul and spirituality'. There was general support for the idea of spiritual motivation as central to human community, and the need to harness this as part of the project of saving the planet.

13 October 2012

Osborne Offers Dodgey Deal on Employment Rights

A surprising article from the Financial Times identifies 'cash upfront on the road to serfdom'. It describes how plans announced by George Osborne offer employees the chance to sell their birthright for a mess of pottage, or in this case to voluntarily relinquish their employment rights in exchange for shares in the company they work for. This is taking the idea of self-exploitation to new depths.

This is surely unlikely to be legal, and a letter from an employment lawyer in the same edition of the paper suggests that this is more ineptitude on the part of Osborne, or what he calls a 'car crash of a policy'. His argument relies on the precedence on European law, however, and the defence we have from European human rights and employment law is clearly the target of the 'renegotiation' with the EU that Cameron is calling for.

12 October 2012

Adair Turner Makes Play for Job as Governor

At last a crack appears in the establishment position over the national debt. Following the statement from the Office for Budget Responsibility that the country is bankrupt, last night Adair Turner, former head of the employers' organisation and now boss of the financial regulator the FSA, came out arguing the case for the Bank to take the necessary steps to eliminate the national debt. He has effectively conceded one of the key planks of the arguments of those who seek monetary reform: if you have maintained the control of your currency, as we did by resisting the push to join the Euro, then you can print as much money as you need to eliminate your unpayable debts. The limit on this is faith in your currency and your national economy.

This is, of course, a deeply political point. It continues the theme of earlier posts that the decision to accept our level of indebtedness is political rather than economic. Turner's proposal is relatively limited. He appears to be arguing about the government debt that was bought from companies through the quantitative easing programme, and that the Bank is cautiously holding onto rather than cancelling. In my article 'Who owes whom?' I quantify this as around 25% of our national debt. It is important to note that Turner is suggesting this as a means of reviving the economy and stimulating growth. He is not conceding the monetary reformers central demand: that the creation of money should be exercised by the state in the public interest rather than by the banks for private profit.

This is clearly a move by Turner to establish himself as the radical and creative candidate to succeed Mervyn King as Governor of the Bank of England. Perhaps King would like to follow this policy but lacks Turner's political nous. The contest within capitalism is now clearly between those who are using the debt crisis to bear down on the power of working people and shift the balance of ownership towards the wealthy, and those who would seek a more workable form of social contract. To those of us who consider that capitalism is inherently an unjust and unsustainable form of organisation this is still something of a sideshow.  We also need to keep our focus on how the massive financial readjustments themselves transfer value between rich and poor - whose assets will be protected? Those of the banks or those of the pensioners?

11 October 2012

Sisterhood is Powerful

The most successful challenge to the global domination of neoliberalism has been slowly maturing in Latin America. The latest development is an interesting coalition between two women in powerful positions where you might least expect. In Argentina, where stereotypes suggest the men rides horses and the women are pushed around the dance-floor like shopping trollies, the female President and female head of the Central Bank are cooking up a distinctly different monetary policy.

The banker, Mercedes Marco del Pont, has recently achieved the rare accolade of being voted 'worst central banker in the world' by the lackeys of the financiers. Her sin appears to be balancing the needs of the Argentinian people with those of the finance sector. She is refusing to have the sole focus on inflation that the IMF demands and has annouced that financial stability, employment creation and economic development with social equity will also be objectives of monetary policy.

Somewhat predictably Christine Lagarde, Managing Director of the IMF threatened Argentina with a 'red card', to which President Cristina Fernandez de Kirchner responded 'My country is not a soccer team. It is a sovereign country and, as such, is not going to accept a threat.' Last time we caught up with Argentina on this blog, they were celebrating their liberation from debt-based financing, and  reclaiming their right to the value of the country's resources. Wray updates us: the recent poor weather has threatened both of Argentina's main exports: soya and beef. This helps to explain the inflation problem that the central bank is facing, but so far the political and monetary sisterhood in Argentina is holding firm.

This story is based on the account of Modern Monetary Theorist Randall Wray; he tells the story in greater detail on his Economonitor blog.

8 October 2012

Spies, Cash and Conspiracy Theories

The similarities between the current global economic crisis and that of the 1930s has led many more thoughtful commentators to re-evaluate the importance of history to the development of policy. A striking recent example, which has been poorly trailed but is well worth watching, is Stephanie Flanders recent series Masters of Money. The link with the Open University shows, but isn't it time we all knew a little more about the variety of economic theories? Flanders makes a sterling effort to explain the thinking of three 20th-century giants - Keynes, Hayek, and Marx - none of whom, interestingly are being paid much heed by contemporary politicians.

I revealed my own interest in economic history in a recent article that was posted on the New Statesman economic blog Current Account. What perked my interest was the revelation that Harry Dexter White, Keynes's sparring partner at the Bretton Woods negotiations and effectively the architect of the post-war global financial settlement, was in fact a Soviet spy. As I point out in the article, in 1944 the US and Soviet Union were still allies, so this is not such a bizarre situation as it might have been by 1948, but none the less it does raise questions about exactly what the negotiators at Bretton Woods were seeking to achieve.

Perhaps the most touching lesson from history is that 100 or so years ago key figures in public life made it their life's work to understand the complexities of the economy. Their objective was not self-aggrandisement or self-enrichment but the impulse to make life better for their fellow citizens. While I find Hayek's idea that politicians should never intervene in markets to be utterly misguided, I can understand how he learned this lesson during the hyper-inflated Vienna where he was a young man, and that his scholarship was dedicated to preventing the same sort of suffering from occurring again. How distant and quaint such motivations seem today, when the highest aim of most authors is to be granted the accolade of a TV series.

As I conclude in my article about Bretton Woods, both the authors of the compact appear to have died of broken hearts: Keynes was dead within two years of the ending of the conference, worn out by his attempts to ensure peace in his time and ours. White outlasted him by two years but could not survive the pressure of the McCarthy era. He suffered a heart attack shortly after giving evidence to McCarthy’s House Unamerican Activities Committee in August 1948.