Quantitative Easing for the Poor?

Creating money was once looked on as a dangerous game, destabilising the economy and potentially leading to rampant inflation. But this traditional wisdom was swept aside and now the financial junkies are protesting the advertised end of the policy in the US and creating market falls on the basis of those expectations. In the UK context, researchers at the Bank of England investigated the distributional effect of their QE policy, i.e. who were the winners and who were the losers. Their conclusion was that most of the benefits accursed to the wealthiest 5% while some of this living on pensions were losing out quite substantially.



On the radical side of economics we have been trying to argue for direct credit creation for social benefit. At the beginning of this month the New Economics Foundation issued a report formalising this demand. Strategic quantitative easing makes the case that new money should be directly created by government to fund the transition towards a sustainable economy, particularly paying for green infrastructure and the rapid policy of home insulation that will reduce carbon emissions and prevent deaths through cold this coming winter.

Now it seems that the US government has found a way of making credit creation work for the poor. I had not realised until I watched Faisal Islam's extraordinary report on the Rhode Island gold card the sheer extent of the federal food stamps programme. US commentators have noted that the food stamps programme is the modern equivalent of the Depression era soup kitchens. It seems sadly symbolic of our individualist and technocratic age that rather than sharing a bowl of soup, in no matter what dreary conditions, today's dispossessed are issued with a deceitful imitation of the gold credit card of the wealthy.  Nationally, the number is approach 50 million and as Islam's report showed, it is now remarkably easy to use your preloaded card to do your shopping.

Now I know that the money to pay for this programme, a huge $75bn., is not directly created, but since the quantitative easing programme buys back treasury bonds, thereby reducing the debt, it effectively creates the scope for this massive federal programme for the poor. It also makes clear that questions about how money is made and who has the right to decide how it is spent has been removed from democratic control through the increasing use of technical language for what is really simple. Governments can make money directly and it is a political choice that in the UK that money is sent to financial institutions rather than to help the poor.
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Drop the Debt, Dublin Style

Campaigners from the Anglo: Not Our Debt camapaign were busy in Dublin this week, investigating a crime scene. They cordoned off the Central Bank in Dame Street and subjected it to forensic analysis on the CSI model. The white-collar criminals were not in evidence, but in the case of Ireland the fury at politicians is at least as fierce as the fury at banksters themselves. The Irish campaign is part of an international network of groups campaigning to challenge the imposition of austerity in response to illegitimate debts that were not entered into by democratic agreement. Such debts should be labelled as 'odious' and should not be allowed to destroy social bonds or public services.

The anger of the Irish campaigners relates to the failure of the government to use the criminal law to bring to justice those who have destroyed the Irish economy. They are encouraging the Irish people  'to submit complaints of suspicion of financial crimes in Anglo to the Gardaí, for example under Section 6(1) of the Criminal Justice (Theft and Fraud Offences) Act 2001.' Hence the creation of a crime scene in central Dublin yesterday.

Although the Anglo-Irish Bank no longer exists the Irish people are still paying for its reckless lending: repayments will amount to more than €47.9 billion by 2031, a full 30% of Ireland’s GDP. The campaigners are calling for the debts to be frozen. Their fury has been increased by the release last month of the so-called 'Anglo tapes', in which John Bowe, ex-head of capital markets at Anglo, can be heard laughing about the bailout that the bank has managed to extort from Irish taxpayers.

In a tape that would shame anybody outside the financial 'community' Bowe discusses his negotiations with Ireland's financial regulator as 'fun and games'. He asked for €7bn. in return for which they offered only paper guarantees and which he refers to as a bridging loan 'until we can pay you back. . . which is never', this last joke being a cause of considerable mirth on both sides. The phone call took place in October 2008, two days after Ireland pushed through a €440bn (£373bn) bank guarantee scheme that has nearly bankrupted the state. What the tapes make entirely clear is who is holding the power: the politicians have clearly capitulated to the interests of the bank's boldholders, explicitly so according to Bowe.

But these tapes underline the illegitimate nature of the debts and increase the potential for arguing a legal basis for them to be declared odious.Vicky Donnelly, of the Not Our Debt campaign said, 'The Anglo tapes show that the Anglo debts originated on the basis of deliberately misleading information. We question the timing of the release of the tapes and request that the full content of the tapes be publicly disclosed. We want to know who knew of the content of the tapes which, had they been made public earlier, would have led to massive public pressure to write off the Anglo promissory notes last February. This debt is illegitimate and should be written off now, once and for all.'
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Graphic Co-operation for Children

The wonderful thing about the summer is remembering how lovely it is to lose yourself in a book. My own delight is somewhat reduced by the fact that I have a desk full of books I should have reviewed around a year ago, but leaving that aside I would like to share one with you today: The Co-operative Revolution, a graphic novel by Polyp.

This is an ideal book for children or grandchildren you may be having to entertain this summer. It is a story of the ongoing adventure of co-operation in three sections: past, present and future. The historical section packs in information about the Tolpuddle Matyrs, Peterloo and a host of other iconic working-class events, together with the bare bones of the story, and the promised graphic illustrations. The culmination, inevitably, is the Rochdale Pioneers and their decision to liberate themselves from capitalist shop-keeping. The final image is the grave of George Holyoake, appropriately next to George Eliot in Highgate Cemetery--another excellent outing for young people and those looking after them in London this summer.

The middle section tells the amazing story of the global co-operative movement today. This section is rather heavier on data and may be a little too worthy for some young people (or older people!) But the short interlude spent with the Brukman Street Gang (telling the story of Argentina's empresas recuperadas) helps to lighten the load, to coin a phrase. The sections on the inevitability of co-operative at the biological level is one in the eye for Richard Dawkins et al. and reinforced the need to join the co-operative evolution rather than revolution.

Finally, we have Polyp's vision of the future of co-operation, a futuristic fantasy where an entirely politically correct workers collective called Rochdale Aerotech successfully equip a future Mars exploration project with special 'atmosphere parachutes'. I must confess that this section strained my bioregionally honed senses to breaking point, but it might find more favour with those who still see Forward to Mars as a promise rather than a threat.

The book is a wonderful inspiration with all the key players and a concluding co-operative timeline that would be useful in the classroom as well as for reading on the beach.
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Knowledge, Power and the Research Excellence Framework

Far beyond the arcane reaches of the Basel capital requirements, touched on in my last post, lies the swampy territory of the Research Excellence Framework, its very name bringing a whiff of fascistic thought control and striking terror into the heart of the nation's academics. Measuring research excellence is the sort of activity that creates an appealing soundbite for politicians of the ilk of Michael Gove but rapidly evades the mind, escaping into a realm of subjectivity and confusion, once it becomes an actual policy.

Thus have we, who labour in the mines of knowledge with sweated brow, attempted to resist the suggestion that there is anything meaningful about assessing a certain research paper as be 'worth' 3.25 or 2.75 according to criteria such as rigour, originality and significance. Sadly, it is often the papers that are particularly heavy on meaningless theory, or that are of the politically unchallenging variety that should find their way into the Journal of Overnight Discoveries, that score highest in these exercises.

The fact that the research evaluation system works against radical work has been a longstanding prejudice held by those of us who believe that quality cannot be enumerated and is unlikely to be clearly apparent until 50 years after a paper has been published, but at last we have some evidence to support our case. In the field of economics Fred Lee, professor of economics at the University of Missouri, has analysed the way in which economics papers are ranked and reached some disturbing conclusions. He has unearthed a self-referential and self-reproducing elite of economists who review each others' work, publish each others' work, and largely agree in terms of their conclusions about how the economy works.

As Lee correctly points out, this sort of groupthink amongst economists is a prime explanation for the disastrous nature of the financial crisis in 2007/8 and the fact that it was 'not foreseen'. But these charmed circles also work to control research funding, since work that is published in the most highly ranked journals, those with a 4* rating (yes, really) will ensure that their authors receive three times more research funding than those that only receive a 3* rating. Since the Cambridge Journal of Economics, the highest ranking economics journal that includes heterodox work and the site of Lee's paper, only scores a 3, heterodox economists are limited terms of the time they can spend writing and publishing and are unlikely to obtain jobs in the highest ranked universities.

Lee and his co-authors reach some startling conclusions, arguing that the control of the economics discipline is no less than an attempt to eliminate alternative views: 'the going concern model of UKeconomics puts into focus what others have identified as cultural, political, language, or social genocide of the "other"'. When in this case that 'other' might be the suggestion that capitalism can never be sustainable or that a debt-based money system will inevitably lead to global injustice, it becomes evident that this is a debate that needs to find its way beyond the walls of the academy and into the public domain.
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One Rule for the Rich?

My suspicions were aroused when the credit-rating agencies started criticising the capital holdings of the Co-operative Bank. After all, any bank is effectively bankrupt at all times, so pointing the finger of accusation just becomes a self-fulfilling prophecy. I put my suspicions down to paranoia, but now that the BBC's Robert Peston is starting to make similar noises about the Nationwide I am beginning to wonder whether I wasn't suspicious enough.

As Peston notes, the response by many to the disasters and calumnies of the banking corporates has been to look in the direction of mutual ownership. I have called for the Royal Bank of Scotland, rather than being sold back to shareholders, to be broken up into a system of local community banks, owned by those in the local economy who would uses their services, and with boards made up of local businesspeople, councillors, and citizens. Green MP Caroline Lucas made a similar point during her intervention in the banking debate earlier this week.

The logic is clear: if we, the public, provide the guarantee that allows the banking system to have credibility while operating in a state of permanent insolvency then we should have control over how it directs credit and should also see the profits from banking invested for public benefit not private gain. The redistributive effects of such a shift would be massive, which may be why the commentators are now portraying mutual financial institutions as unreliable.

Yesterday's suggestion from credit-rating agency Moody's that the situation is improving for the commercial banks is the final piece in the puzzle. Since the problem for both the Co-operative Bank and the high street banks is that they are holding commercial property assets that have massively lost value since the crisis, it simply cannot be right to say that their credit ratings are moving in opposite directions, at least not if you take this as an independent indication of financial health, rather than a piece of political propaganda. The rules set by the Basel Committee as to what counts as a reliable form of capital are similarly prejudicial to the interests of building societies, whose assets really are safe as houses and far less subject to risk than the complex financial instruments counted as assets by the banks. Nationwide boss Graham Beale made a similar point in an interview with the FT recently.

The inconsistency with which mutual and shareholder-owned financial institutions are being treated by financial commentators leads to an unsavoury conclusion. Could it be that, having used austeria to attack public services and the working conditions of those employed throughout the economy, the defenders of capital are now using it to destroy the vestiges of the co-operative and mutual economy?
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Darwin and the Zombie Companies

The issue of the zombie economy is one feature of the new economic situation we are in as the crisis extends over time. In the short term, lenders and banks can wait for the good times to return but as the depression extends and more debts fall due they start to accumulate and undermine more companies. It appears to have been zombie companies that busted the Co-operative Bank, inherited from the Britannia Building Society.

Mark Thomas of PA Consulting invented the idea of the Zombie Economy, with companies refusing to die because of the devastating social consequences but failing to thrive because of carrying massive levels of debt. The zombie company can earn enough to service its debt but it cannot invest or grow. It can only struggle along but cannot innovate. It is a drag on the functioning of a capitalist economy. The data on corporate insolvency and personal bankruptcy clearly indicate the massive impact of the financial crisis but appear to show that the peak is past. The contrast between the high rate of personal bankruptcy and the relatively low comparative rate of corporate failure suggest that the thesis of a zombie economy may have some basis.

During a Radio 4 documentary on the issue last winter John Moulton used Darwin's phrase 'survival of the fittest' to describe the need for financial institutions to abandon these companies that cannot repay their debts and whose assets are not worth even a fraction of what they were before the crisis. Solving the crisis, he claimed, required the law of the jungle to be allowed to reign. The bankrupt companies should go to the wall, releasing economic energy.

here is a practical problem with this, because if the banks pulled the plug on the zombie companies that have borrowed their money the disastrous relationship between their liabilities and assets would become apparent and we might find ourselves in Financial Meltdown II: Revenge of the Zombies.

But what about the question of which business is the 'fittest'? Darwin would be more use to us if his phrase were interpreted as he intended: fit does not mean healthy but rather appropriate. In this sense the phrase might usefully guide us to question what sort of business is appropriate to the just and sustainable economy that we should be building in response to the disasters of recent years. It could guide us to the changes we need to make to corporate law to introduce appropriate and socially beneficial motivations to the heart of the enterprises that form part of our economy, rather than the short-term and selfish motivations that dominate within the existing corporate legal structure. Tweet

From Bread and Circuses to Plastic Surgery and Football

The question resonating around the world after the demonstrations in Brazil is why the dissatisfaction is emerging from the 'middle class', from those who have gained much from the economic boom that the country has enjoyed over the last 20 years. I would  like to claim that my rousing public speeches during my recent visit to Brazil were the catalyst that inspired the protests, but since I only spoke at the university in Sao Paulo this would be an outrageous lie. In fact I had no hint that these demonstrations were on their way. What I did experience was a horrifying level of advertising desperately trying to funnel the new wealth towards private, individualist consumption. Can it be that the demonstrations are proof of the ultimate dissatisfaction people feel with this as the end of a human life?

The erosion of democratic politics in the world after globalisation has led to a world where the young do not believe in the organised politics of the party. When all politicians look the same, espouse the same message and act as mouthpieces for corporate interests politics itself becomes tarnished. If the market is at the heart of all political ideologies what is the point of voting or attaching yourself to a party? Of course I have to say that I think the world's green parties are different, but that message is not being relayed though the media and is not reaching the people on the streets.

In Brazil the disillusion set in under Lula, the former trade-union unionist who had been in gaol under the dictatorship and was President for the first decade of this century. Although the evidence to support this is patchy at best, the suggestion made by radical critics to me was that Lula had made a deal with the denizens of global finance that he would not challenge the basic rules of capitalism in his country. Private enterprise would be allowed to flourish and people would be encouraged to content themselves with consumer goods rather than seeking to wrest control of the means of production from their betters. It is this deal that appears to be threatened by the demonstrations and the reaction from Dilma Rousseff, herself formerly a guerrilla fighter, is awaited with interest. Can she use the street mobilisations to increase the radical stance of her government? And does she wish to?

The mobilisation of political energy amongst the educated young of the world is exhilarating. It is the first step towards the next generation taking on the responsibility for building the world they want to inhabit and share. But at some stage economic and social demands need to be translated into political proposals that are agreed and implemented. The decision by pro-corporate politicians to encourage young people to see themselves as individualist consumers means that they have no tools, education or experience to make this next step. I am not seeking to criticise young people finding their own way of doing politics; in fact, I am rather excited about it. I am looking forward to discovering what they will propose.

The basic pattern of the politics I understand is threefold:

• Demands need to be translated into a political programme that is consistent and coherent;
• Platforms are preferably underpinned by and ethical and/or ideological commitment, e.g. equality for socialist parties, ecologism for green parties;
• These platforms are then used to organise political mobilisation into legislative action by political parties.

 My own history of activity in the Green Party has convinced me that the second two requirements of a functional democracy are not working in the UK and many other countries. But for the young people demonstrating on the world's streets I think their problem lies more with the first requirement. I was alerted to this by watching the BBC3 programme Free Speech. Aimed at the young and politically disengaged, it assembles a panel of celebrities to make a political case on a certain topic. The panel is mixed between celebrities from various walks of life one of whom is probably a politician. Ok, I was feeling pretty snobby about the facile comments made by pop stars about revolving world poverty or tackling the civil war in Syria, but this was not the main problem. What got me really concerned was the way the audience was encouraged to celebrate entirely inconsistent proposals.

The result of this approach to politics is a world where young people feel disgruntled and take to the streets with a bewildering array of demands that cannot all be accommodated. While it makes sense to demand new shoes and a new sofa and a mini break to Venice - the only limit being the plasticity of the credit card - this simply is not true of political demands. If we abolish tuition  fees we will need to raise taxes, cut other spending or engage in some radical monetary policy; if we  fly more then we will need to cut our carbon emissions in another area. Politics is the art of the possible precisely because the skill lies in mediating conflicting demands rather than accepting then all. And of course this is all so much easier if you have an ideological  rudder and an organised and trusted party structure to undertake the negotiation. Dilma's request to meet the demonstration's leaders may be disingenuous, but perhaps, being of the same generation as I am, she has simply not caught up with the idea of a leaderless demonstration of discontent.

No doubt politics-as-consumption seemed very smart to Edward Bernays and his ilk, whose attempts to merge the worlds of advertising and PR with that of political debate and citizenship were dissected by the TV series The Century of the Self. They were reactionaries, concerned about the radical nature made by newly emancipated citizens, and fearing that open democracy would lead to alienation and chaos. I hope to be proved wrong, but it seems to me that the mobilisation of those who have grown up to demand three mutually incompatible things before breakfast faces politicians with a more challenging task than ever. I am waiting to see how the demonstrators devise their own way of turning their demands into a legislative platform that can change their society.

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