Rational choice?

The rise, and now fall, of David Laws genuinely merits the over-used journalistic adjective meteoric. The man had moved from relative obscurity to the position of Lord High Executioner in a matter of weeks. His story seems to have the mark of a mystery play; his character is the rational economic man.

In the past month, much has been made of David Laws's double-first in economics from Cambridge. This has been touted as a reassuring indication of brilliance: here is a man who understands the workings of the market and can therefore save us from our financial travails. His rise to prominence in the Liberal Democrats was the result of his persuading them to leave behind their days of beards-and-sandals economics and wholeheartedly embrace the market, through the publication of the Orange Book.

I always ask my students why they chose to study economics. Over the years I have found that they are often vulnerable, shy, and socially dislocated. In the iron laws of the market they find a sense of security. Learning to read the movement of finance markets or the mathematical formulae of a regression equation brings power to those who have often felt powerless. In the rational economic man they see an icon to aspire to: a role model of elegance and control.

The ecofeminists detest the rational economic man. As Mary Mellor writes:

'Economic man is fit, mobile, able-bodied, unencumbered by domestic or other responsibilities. The goods he consumes appear to him as finished products or services and disappear from his view on disposal or dismissal. He has no responsibility for the life-cycle of those goods or services any more than he questions the source of the air he breathes or the disposal of his excreta.'

Rational economic man is ashamed of his own embarrassing body, his sexual idiosyncrasies, his dependence on women, his need for rest and sleep. These are interpreted as weakness, rather than humanity, and must be hidden ever deeper within a shaved and moisturised skin, a sharp and expensive suit. Once they are revealed he has become, in the words of today's headline, 'a broken man'.

Yet it is this very dislocation of our identity from our physical existence that is writ large in the way our economy is dislocated from nature. As we hide our weakness and our illnesses, so we deny the planet's need for rest. The superficial manifestation of the late-capitalist world is impressive, but behind the facade the earth itself, and the indigenous peoples who still live close to it, are slowly dying.

The loss of David Laws from the Treasury is a mixed blessing. His competence in understanding the crisis we are in was a counterbalance to the crass ignorance of Boy George, although both, as wealthy men, have faced a problem of credibility when trying to persuade us to live on less. Did he make a rational choice to deny his need for love, to conceal his lover, to deceive the world about the sexuality that made him ashamed? The door has been left open for him to return, but before he does, in the style of a true mystery play, he must learn the lessons of his own humanity, and the greater wisdom that the earth teaches. Tweet

Anti-Textbooks, not Anti-Economics

For those who teach economics life can feel fairly limited. The most popular textbook in the Anglo-American world is Principles of Economics by Gregory Mankiw, now in its 5th edition. This was the book I was given to teach from when I first taught economics some ten years ago. It is still the most popular textbook today. An incalculable amount of damage must have been done in that intervening decade through the distorted perceptions of reality that cohorots of economists students have been left with. Probably not as damaging, though, as Mankiw's spell as President of Bush’s Council of Economic Advisors from 2003 to 2005. In this case we really could have hoped that the voodoo economist had failed to practice what he preached.

But the days of presenting the holy writ and then sharing one's misgivings with students who have seen through its other-worldly inanities are over, because Zed have produced The Economics Anti-Textbook. As the authors say, 'This book is not "anti" economics or even "anti" mainstream economics. It is "anti" mainstream textbook economics' with their 'narrow range of world-views'. This is immensely refreshing. I particularly enjoyed the boxes containing 'Questions to your professor', which the authors claim to have included 'to stoke the fires of revolution'. This book seems yet more evidence that such a revolution against orthodox economics theory is building.

You may be surprised to learn that reading this book is actually fun. It addresses a series of issues that make anybody teaching economics uncomfortable because they are clearly not an honest portrayal of reality. Beginning with the theory of perfect markets; then moving on to efficiency; externalities (the costs of economic activity that are not included in the firm's accounts and are therefore routinely ignored, pollution being the primary and most threatening example); the absence of power from the conventional account; and ending with a critique of the assumption that material stuff is a cause of well-being and that people are 'rational calculators'. In a concluding tour-de-force, the authors explain the 2008 financial crisis in terms of all of these factors that are absent from the orthodox economics textbook.

If you are not already au fait with standard economic theory but would like to understand what TV pundits are on about, this book could be a good place to start. Tweet

Danny the Green on Greece

An impassioned plea from Danny Cohn-Bendit in the European parliament to rethink the policy on Greece has been posted on YouTube. The link is too large for Blogspot so you will have to cut and paste: http://www.youtube.com/watch?v=dQGkP68AVTI&annotation_id=annotation_971859&f Tweet

Plus ca change . . .

When British people voted for change last Thursday, it seems to me that two events of the past year were motivating them: the expenses scandal and the bankers' bailout. Thus we would have expected to be governed by people who would take a strict approach to financial shenanigans and who would better represent us, in the sense of being people like us, people who have experienced difficulties paying their bills and who understand how to use a bus.

The shape of the cabinet indicates that this is very far from the case. Apart from token Teresa, they are fairly uniformly white, male, and public-school educated. Worse still, of the Liberal Democrats included, two have made their money in the financial markets and the third - apparent darling of the chattering classes Vince Cable - is a former Chief Economist at Shell.

Here is a brief summary of the education, age and gender of the cabinet appointments made so far, plus any experience they had outside politics (where relevant):

David Cameron: PM –Eton, Oxford University, born 1965, male

Nick Clegg: Deputy PM – Westminster, Cambridge University, born 1965, male

William Hague: Foreign Secretary – local comprehensive, Oxford University, born 1961, male

George Osborne: Chancellor – St. Pauls, Oxford University, born 1971, male

Theresa May: Home Secretary - grammar school, Oxford University, born 1956, female (employment background in banking)

Ken Clark: Justice Secretary - grammar school, Cambridge University, born 1940 (corporate directorships and commentator on financial markets)

Liam Fox: Health Secretary – St. Bride’s High School, Glasgow University, born 1961, male (worked as a GP)

Vince Cable: Business Secretary – grammar school, Cambridge University, born 1943, male (Chief Economist at Shell)

Chris Huhne: Energy and Climate Change Secretary – Westminster, Oxford University, born 1954, male (made a personal fortune on the stock-market)

David Laws: Chief Secretary to the Treasury - independent school, Cambridge University, born (investment banker and former Vice-President of JP Morgan)

If it weren't for Liam Fox, you might think this country had only two universities.

Far be it from me to compare UK plc with a company or even a local authority, but if you were to engage in any sort of unbiased selection process to choose people to run a large and struggling economy at a time of crisis you might wish at least a significant proportion to have some experience that was relevant. The cabinet we have are PR men, economic advisers and professional politicians. They have nothing between them that could possibly act as preparation for the sitution they find themselves in.

But what they do share, and this is far more important in these days when a politician with principles seems so last century, is an adherence to a neoliberal philosophy and a sense of entitlement to power and privilege.

If you're surprised by the pedigree of those Liberal Democrats who have made it into the cabinet then you need to think back to the coup that took place in the party in 2004. This revolved around the Orange Book, co-edited by David Laws, which claimed to 'reclaim Liberalism' but in reality moved the party sharply to the right. The contributors are almost all key players in today's Liberal Democrat Party, including all those who are now Cabinet members. Presumably the movement of the Liberal Democrat Party away from its heritage of imaginative, alternative policies - such as land tax and citizens' income - is not unrelated to the party's presence in the Cabinet today. Tweet

The Church of St. George

A week before the election - and how long ago that seems now - I was happy to accept an invitation to make a presentation to the IU Conference on land issues. The International Union for Land Value Taxation is an interesting organisation with a long pedigree that campaigns under the slogan 'Why is so much wealth in the hands of so few'. Its primary motivation at present is to propagate the policy of land value taxation.

In spite of its obvious appeals in terms of justice and practicality - after all, land cannot be hidden or sent overseas as a means of evading tax, as most other assets can - the taxation of land has not received much attention in recent years. This is partly, I think, because those who argue for it often come from the opposite ends of the left-right spectrum.

On the left end we have people who, following Gerard Winstanley and the Diggers, argue that land is a common wealth and that value extracted from it in tax should be shared between all the citizens of that commonwealth, or nation. On the right end we have those who argue that the absence of a cost for land stifles its efficient exploitation, leading to over-strict planning laws and the like. If people had to pay to own land, they would be sure to get the maximum financial return from it.

Henry George, the radical journalist of some 150 years ago who created a global grassroots campaign for land taxation, seems to have had sympathies with both of these arguments, but that was before the planetary limit was an observable concern. Since the recognition of the limits to growth we would need to work a land tax in conjunction with the planning system to prevent over-exploitation.

I was not received with universal approval at the conference, largely because I had made a speedy attempt to calculate how much a land tax might actually yield in the UK today, and what proportion of the overall tax tax this appeared to be. My assumptions were clearly questionable, but I felt it pointless to discuss theory without having some handle of what the fiscal implications for the UK might be. Although I presented my figures with a lavish quantity of caveats, they were attacked (subsequently) for being treacherous.

However, explanations offered to me as to why I was wrong were theoretical. George argued that a land value tax could be a 'single tax' since all other sources of taxation would ultimately have to be derived from land as the source of all wealth. As a green economist this argument appeals, but it cannot be theoretically upheld today for a couple of reasons.

First, the value that is generated by companies today is not linked to any particular parcel of land and does not derive from it. Most is created from thin air by financial institutions. Second, our consumer lifestyle relies on renting - at extremely cheap prices - productive land in many other countries around the world, to produce our food and the raw products for our clothes and consumer goods. If we truly lived from the value of our own territory we could never sustain the levels of living we now consider our right.

While this undermines the theoretical argument for land value taxation, it also suggests that land value tax might be able to play a crucial role in recreating the link between the value that land can produce and the financially based size of a national economy. It is the breaking of this link that is driving environmental destruction. Limiting the money system and introducing a tax on land values could offer policies to restore it. Tweet

Theatre of the Absurd

What are we to make of the late-night performance that took place in Brussels yesterday. The sums of money now being dramatically thrown around are different by an order of magnitude from the national budgets of just a couple of years ago. The €750bn euros this deal represents is a grotesquely large sum for governments to promise on our behalf.

The money is not real. It never existed and the bulk of it is 'guarantees'. What is a financial guarantee? It is an empty performance, a simulacrum to cover the absence of any real value being created by many of the European economies, a sideshow to divert public attention from the reality that our national wealth has been ransacked by the financial market and that nothing of any real value remains.

The ministers also apparently offered to buy bad debts from the market in the first round of 'quantitative easing' by the European Central Bank. The UK has injected as much money as it could possibly borrow to keep markets afloat last year; now only the wealthier economies of Europe can produce money to feed the rapacious wolves of the finance markets. As they do this, that money will be sucked into the stock market, causing the same artificial rally we have seen in UK markets over the past year. Their claim that balancing securities will be sold - to waylay German fears of inflation - will be tested in the coming months.

The curious question that must be asked is how can we be in a situation where everybody is in debt all at the same time. If you accept the standard view of money and accounting that would be impossible since a debt must create a parallel credit. The existence of debt in every economy simultaneously is evidence that money itself is created as debt and that, under such a system, debts accumulate until they feed on the very economies that gave rise to them.

This particular drama has distracted attention from our domestic problems. Now that the wounded prey in the Eurozone have attracted a strong monetary defender the wolves will turn their attention back to Britain, as a more likely source of profit. We are likely to have a greyer, more resigned version of the Greek tragedy in which to play a minor role over the coming months. Tweet

Trading for Power

City commentators, the market makers of those who earn their cash in the casino economy, are torn during these days of high-level political negotiations. At no other time can the illusion of our democracy have been clearer. We will not be allowed to have a government of which the markets do not approve.

But which government should the market men go for? At first blush, you might think they would favour the fiscal probity and pro-City inclination of the Conservatives. The top line of their rhetoric is usually about the need for stability and a strong pound. This is the cover story, for in reality the city can make far more money from turbulent times. In the words of a friend whose main target is political corruption: 'The disgusting sight of the bond markets opening during the night to speculate at our expense demonstrates starkly what we are up against: the return of the casino economy backed by a neoliberal coalition government.'

The traders who speculated against Greek bonds until they - and the country they represened - was destroyed, were able to profit vastly from this sport. As they gradually reduced the 'credit rating' with one hand, with the other they were able to extract higher interest-rate payments for holding those bonds. The working people of Greece must pay that interest - and suffer the disastrous social consequences of the battle over the corpse of their country's economy.

In the UK, even greater profits can be made, since speculation can be against both the glinting gilts of the Treasury bonds and the pound. If currencies maintain stable values against each other then the scope for buying cheap and selling dear is automatically reduced. The volatility in the currency markets is an opportunity for currency traders to thrive.

Even at a superficial level, the easy way in which young men from the City pass judgement on negotiations about the future of what we like to think of as our democracy is disturbing. Beneath this lies the disturbing truth that a summer of civil unrest and union activity might be exactly what they want. Such turbulence can offer them the opportunity to feed once again off the working people of this country. Tweet