Money on the Move

It would be nice to portray David Malone as an Everyman, stumbling disbelieving through the financial crisis and documenting his rising confusion, frustration and rage. To an extent this is true: he may be a leading documentary film-maker but when it comes to credit-default swaps and fractional reserve banking, we have almost all been brought to the same level of ignorance and disbelief.

Malone's book The Debt Generation is a positive response. From the summer of 2008, when he first glimpsed the 'Mad Max Future' he kept a regular diary of the news of financial mayhem. The book is humorous, but there are few belly-laughs. However, the very personal nature of the account is its main strength. We all took the same journey from a sunny summer, through an incredible autumn and on to the coninuing winter of our discontent. The difference is that David Malone kept a regular record, and in the era of ephemeral information this is invaluable.

Here is an extract from February 2009:

'Now here is a surprise. Jean-Claude Trichet, the head of the European Central Bank, has just declared, 'We live in non-linear times' . . . Our leaders and economic masters are linear recidivists. They still think of the economy as if it were a machine that has broken down. . . They imagine all they need to do is pour in lots of lubricating money, replace a few bent and busted parts, then press the big green GO button and the machine will roar back to life.' (p. 79)

Malone concludes that the financial system - indeed the whole economy - is a system. The problem we have is systemic and only systemic change can fix it. As crises pile up the wisdom of this position becomes clearer by the day.

In a world where community has broken down and mutual aid is, for most, no more real than the legend of King Arthur, all we have to rely on is our money. This is the message of capitalist invididualism: your money will make you happy; your money will keep you safe. This is why the financial crisis is so pointedly and destructively frightening and why people are losing their heads. Some are reacting with anger, others with despair, while the majority resort to denial, analgesia and shopping.

For those of us who are keeping our heads there are a rising number of campaigns for a new type of banking system, new money, or a whole new economic system. You can find out more about David Malone's work at The Debt Generation website. Positive Money is a campaign growing out from the New Economics Foundation. There is even a Bill that has been introduced in parliament which you can ask your MP to support. Tweet

Ooh aah!

You might think that footballers would know a thing or two about money. Not only are they paid absurd amounts of the stuff, but they have also seen their game destroyed in a process of rapacious financialisation so that nothing beautiful remains. Well, ok that winning goal that Spurs scored against Arsenal on Saturday is an honourable exception.

So we can be delighted to hear from Eric Cantona that it is not complicated to sort out the global financial crisis. All we have to do is nip to the bank on December 7th and take all our cash out. This will precipitate a banking collapse: banks are the problem, so problem over.

The advantage of being French is that you can make such prognostications sound really cool and when you say 'C'est pas complique' you sound irresistible. But Eric could not be more wrong about this providing a solution to the problem. Just like in 1968, destroying an existing system is not the complicated part: it is putting something better in its place that takes the thought and effort.

I'm intrigued to see whether this money withdrawal ploy will take off like the Rage Against the Machine mass buy-in did last Christmas. Perhaps it is something about the festive season that lures us to act in a communal fashion. If it works, then Cantona may finally get himself onto a Philosophy Football t-shirt, although there will no means of buying it.
. Tweet

Currency to Serve People and Planet

We need to see the Irish tragedy as part of a wider picture: the ongoing currency wars and the struggle for domination of the global capitalist economy. Since 1945, the US has enjoyed extraordinary power as a consequence of the Bretton Woods Agreement that the dollar should be acceptable in the place of gold as a global numeraire. Since the US reneged on its promise to support its currency with gold in 1971, its government has been able to print dollars at will, and claim goods in return. This, more than anything else, explains the decadent US lifestyle - and its planetary consequences.

Europe's response, after years of decline and unfair competition, was to establish the Euro. This was a fatally flawed strategy since, unlike the USA, Europe is not a natural currency area, and there is no single democratic body that matches the currency area. Hence it has always operated like a strait-jacket, with some currencies having interest rates too low for their needs (hence the Celtic boom and bust) and others having interest rates too high. It was Germany's currency, the Mark, which gave the Euro its credibility, and the German economy that provides the ballast for the currency. Hence what worked for Germany has been forced onto the other members of the Eurozone, with disastrous results for their national economies.

Yet the problem of dollar dominance persists. Hence Skidelsky's call for a 'bancor', or bank gold, a proposal for a neutral currency to facilitate world trade and form the basis for national currency holdings. This should be the call of the Irish people: global justice and a balanced system of international trade. This has been the call of the Chinese for some time. It is only because we live in the Anglo-American media bubble that our perceptions of the dollar demise are so distorted.

I have been calling for some time to consider the possibility of linking the new global currency to carbon emissions, thus putting an automatic brake on economic activity on a global basis, and rationing CO2 emissions by country. Another possibility is that the exchange rates between countries might be fixed in an inverse relationship with wages, so that no country can undercut another by restricting rates of pay. In this way, a neutral global currency could not only stabilise the financial system but also end the 'race to the bottom' that globalisation has brought in its wake.
. Tweet

Vultures Circle Dying Tiger

Today we are likely to witness the death of what Richard Douthwaite once called 'De Valera's Dream'. The dream of an Irish people in control of their own destiny, proud of their culture and their bountiful resources, confident in their ability to follow a different and better path to that of their erstwhile coloniser. But while the Irish were smart and brave enough to escape English military domination they misunderstood the dangers of the more subtle currency colonialism to which they are now subject.

At last Ireland's politicians are talking about sovereignty, but they are 20 years too late. Sovereignty was lost when the country opened its border to US finance and when it allowed its domestic economic policy to be controlled from Germany by joining the euro. As in Iceland, the policy was driven by a tiny 'business' elite who benefited most from the inflation in asset prices and the development boom. The masses were lured into support by cheap money and tawdry consumer goods: a poor price for the loss of independence.

It is tempting to ask how many of Ireland's politicians really believed that they could control that beast whose misnomer is of epic proportions: the Celtic Tiger. An economic policy designed in corporate America, driven from Frankfurt and labelled by Baudrillard was always going to end in tears. The finance-driven model of economic development led, as it always does, to social instability, inequality and ill health, as documented in Feasta's 2004 volume Growth: The Celtic Cancer. A model of growth based on uncontrolled, undirected growth in this way can never be either socially or environmentally healthy.

De Valera's model of development came with a narrow parochialism and stifling Catholicism that would be unacceptable today. But in its focus on indigenous resources, the agricultural sector and cultural specificity it has much in common with a bioregional approach to economic development. The vision of a self-reliant economy that uses its own resources for the benefit of its own people may now seem more appealing than a turbo-charged boom-and-bust model, especially when that automatically implies a loss of democratic control and environmental sustainability.

. Tweet

For local readers

Mary Mellor is coming to Stroud on 2nd December to talk about what went wrong with the money system and how we could redesign a system where money works for us and belongs to us. For local blog followers this will be a useful opportunity to learn and feel empowered.

Tweet

Improving the Climate for Business

The history of the fuel-duty escalator in the UK was a chequered one. Rather than energy policy being determined in the public good, and with respect for the planet, it became an area of political in-fighting and corporate bullying. The fuel protests of 2000 frightened politicians away from a responsible policy of a steadily increasing fuel price.

But perhaps we could go one better. Perhaps we could set an upward trend in fuel prices that would not only send a clear signal to markets that carbon-based energy would only get more expensive, but also support them by ensuring a consistent upward trend, removing the volatility that increases business costs by making long-term planning so difficult.

Price volatility presents a major hurdle to the business and public-sector investment in renewable sources of energy that can serve as an alternative to oil, as well as a hurdle to investment in efficiency measures, conservation, and the general re-ordering of our society to be less energy intensive. A stable oil price across the UK would be a huge support to business. The idea of the policy would be that the government would relate fuel tax inversely to fuel prices, so that it would suffer the volatility rather than business and customers, who would none the less face a steady upward trend in price.

The Conservative government introduced a ‘fuel price escalator’ in 1993, ensuring that the annual increase in fuel duty would be initially 3% and later 5% greater than inflation. This was explicitly intended to help the UK achieve its Kyoto targets. According to the UK Treasury in 2000, ‘The road fuel escalator was a major success in helping the UK to meet its Kyoto commitments. It is estimated that the increases between 1996 and 1999 will have saved 1 to 2.5 million tonnes of carbon by 2010.’

By 2000, the UK had the most expensive fuel in Europe, with fuel tax representing over three-quarters of the price paid at the pump. These relatively high prices led to protests by truckers, including the blockading of key oil facilities and food shortages, which caused the government to announce the end of the escalator in November 2000.

Fuel duty contributes around £18bn. annually to the UK Treasury; it is collected nationally and is not hypothecated. UK consumers pay an additional sales tax (VAT) on fuel, currently at a rate of 17.5%. A specific form of ‘red’ diesel used by those in agricultural and construction sectors has a much lower rate of tax and aviation fuel is not taxes.

In 2008, the UK Chancellor announced that he would postpone the increase of 2p per litre in fuel duty, to support businesses who were struggling with the combination of increases in oil prices and the credit squeeze. However, this policy has not been changed as oil prices have fallen, indicating that the UK government’s approach to fuel duty is still short-termist and essential political, with no seeming motivation towards encouraging the move towards a low-carbon economy in the long term.

The proposal suggest a simple policy with a simple goal: to set a clear upward trajectory for the price of the major input to most industrial companies—that of their fuel. This would support investment in the transition to a low-carbon economy and remove much of the uncertainty that the Stern Review found was prohibiting such investment.

What are the political implications for such a tax proposal? Although any suggestion that fuel prices might increase is likely to be greeted with horror by the corporate oil lobby, it could be demonstrated to be to the benefit of ‘business’ who appear to be the main political constituency these days. As a proposal which is actually a pro-environment measure, but can be framed as a pro-business measure, it could be very attractive to a party wishing to brush up its green credentials without threatening the business lobby. The proposal would also help to level the playing-field between the large corporate players in the economy, who can hedge the cost of their fuel, and the smaller players who suffer most from price volatility.

Of course a government that can introduce such a measure can also abolish it, and the impact on individuals might be unpopular, particularly if there were no parallel measures to protect the more vulnerable against fuel poverty. However, making a clear commitment to removing fuel price volatility could be a virtuous spiral—initially it would give businesses and individuals an incentive to invest in low-carbon developments, but once they had, they would then have bought in to the measure and would be less likely to lobby for its repeal.

What the breakdown of international negotiations over CO2 reductions has made clear is the difficulty of agreeing a policy to deal with this most important issue. The danger for the countries who industrialised first—such as the US and UK—is that they have become so dependent on fossil fuels that they are finding it difficult to adapt. The most powerful argument in favour of making the changes that human survival requires—especially at the corporate level—is that failing to do so will rapidly undermine the power of business in this new century, which will be the century when fossil fuels cease to drive our economies. Thus a policy which encourages the fossil-addicted businesses in those countries to invest in the new future, by removing oil price volatility, could make high-taxing strong central government the true friend of the corporate sector.

. Tweet

Diverting the Currency Wars

Robert Skidelsky joins the debate about the need for a neutral global trading currency, but this time in the Financial Times which is also available at his personal website. This is the Green Party's policy and was proposed by this blog for the last G20. Skidelsky, being an unreconstructed Keynsian, has not included the planetary limit in his thinking; the EBCU proposal would do this. China will be arguing for a neutral currency, issued by the World Bank, as it has been doing for some time. We should put our energies behind this call, but with the additional twist of a currency that keeps trade and production within environmental limits, as well as bringing balance and equity.


. Tweet