Former Labour leadership contender Bryan Gould - one of the few successful politicians of recent times whom, having experienced the sham of national politics first hand, threw it in and returned to his original career - has this very good piece on the inevitability of the current crisis and the naivety/stupidity of those, like Alan Greenspan, who apparently never saw it coming.
As Gould says,
This is a crisis that has been thirty years in the making. Its
approaching outline has been visible for a very long time. Only those
who did not want to see (and that includes almost all the so-called
expert commentators and actors in the drama) could have failed to
register the warning signs.
It really is as much a question of psychology as economics.
I have a new piece up at Comment is Free this afternoon. It takes a look at possible long term solutions to the financial crisis through the ideas outlined in an excellent new book by Brian Hodgkinson. As the Guardian summarises in its standfirst:
Left and right, economists have been suffering from a shortage of new ideas. But that may be about to change.
I think this book could make a major contribution to building a more just and equitable society. I recommend it wholeheartedly, and am pleased to report that the publishers, Shepheard-Walwyn are making it available to readers of this blog at a considerable discount.
The consistently excellent Prem Sikka has this piece over at Comment is Free this afternoon, in which laments the current state of democracy and the rising power of corporations:
As he concludes,
The taxation debate is indicative of a deepening crisis of democracy.
Public confidence in parliamentary democracy will continue to be eroded
until the power of corporations is checked. Normal people pay a large
share of their income in taxes, but the political structures are unduly
influenced by corporations and their controllers. They seem to enjoy
representation with little or no taxation. The choice is clear: we can
have either democracy and public accountability or rampant corporate
power with enormous private wealth and power concentrated in the hands
of a few business executives, but not both.
When a young person has something to look forward to, something to
aspire to, something he really wants to hold on to, then keeping within
the law and avoiding the gangs might just become the rational choice.
The wise, but common sense, words of the excellent Ally Fogg over at comment is free now. One of the best pieces I have read about why kids are drawn into gang culture, and what needs to be done to reverse that trend. You should read it.
Good to see Conor Foley back at comment is free with his opinions on the speech yesterday by David Miliband, Britain's Foreign Minister, who seemed to be saying that we should turn back the clock to a time when the world was run by an elite group of rich nations purely in their self interest.
Miliband's speech is a perfect example of the process of legitimisation through which dubious policies, like the invasion of Iraq, enacted without parliamentary consultation, and against the democratic will, are subject to a gradual process through which they are made to appear reasonable and proper. The intention of this process, is, of course, to make it easier to get approval for similar interventions in the future.
It's surely no coincidence that Miliband's speech comes just at the point when the great experiment to create a global deregulated market economy is beginning to come apart at the seams. That project, if the promises of its architects were to be believed, was to have created global prosperity and conditions in which perceptions of injustice within and between nations would diminish and democracy would flourish.
It was never going to happen, and now the chickens are coming home to roost, Miliband and the unprincipled guardians of the Britain's Labour government, have no option but to push gently back in the direction of managing the world through quasi-imperial dictat.
At a time when the new Australia Prime Minister, Kevin Rudd, is sufficiently courageous to apologise publicly for the worst colonial excesses of his nation, and with the possbililty of an Obama White House within a year, how depressing that the Brits feel it necessary to ramp up the neo-con rhetoric. Where is the vision, where are the values?
08:45 update: I've just read Simon Jenkins piece on this subject. It's worth a read.
Neal Lawson had a very honest piece on comment is free this morning, in which he came down unequivocally on the side of those who despair at the lost opportunity of a three-term Labour government, and the way new Labour has exchanged principles for power to no end other than re-election.
He quotes Lord Tebbitt who said recently:
These days, I find myself saying, 'Chaps, there are some things which should not be privatised'.
There is no chance whatsoever of new Labour changing course now. They will have to lose the next election and be dragged back to the centre by a Conservative government (perhaps kept on the straight and narrow by the Lib-Dems). We will then see if they have the guts and the soul to re-reinvent themselves as the party of social justice. I'm not hopeful.
As Lawson concludes, and as I have written elsewhere recently, it's a time for prophets; but there's no sign of anything ressembling a prophet in the modern-day Labour party.
Now I'm no Keynesian, although I do recognise the crucial role Keynesianism played, post-1945, in ensuring that the re-built western economies delivered full-employment to populations for which the experience of the 1930s was still painfully etched in the memory. Rarely can the democratic will have been expressed so successfully through economic policy as it was in the 1950s and 1960s.
Quite different structural reforms are required today if the global economy is going to deliver on that same promise; it is a task beyond Keynes.
Nonetheless, Thomas Palley has a thought-provoking piece over at comment is free right now, in which he describes how governments that are keen not be associated with Keynes' thinking, are happy to take up his policy prescriptions when it suits them, especially when the economy starts failing in precisely the 1930s kind of way that Keynes said it would if everything was left to the markets, and systemic deficiencies were not addressed.
While I don't fully agree with Palley's prescription, his analysis of what's been happening to the US economy is spot on:
The current US economic expansion looks like being the first ever in
which median household income fails to recover its previous peak. Job
growth has been tepid for much of the time, and the
employment-to-population ratio has remained well below its previous
peak. This dismal experience comes on top of three decades of wage
stagnation, during which household income only grew because of longer
working hours and having both household heads at work.
Martin Wolf has an excellent analysis of the probable causes of the current turmoil in the financial markets in his FT column this week. Was George Magnus right, he asks, to argue that we are facing a Minsky moment, with
a collapse of debt structures and entities in the wake of asset price
decay, the breakdown of ‘normal’ banking functions and the active
intervention of central banks?
Wolf argues that there are several contributory factors to the current crisis and people will pick the one, or combination, which suits their perception of how the economy works. But I was particularly interested by this:
a still less orthodox view is that man-made (fiat) money is inherently
unstable. All will then be solved when, as Mr Greenspan himself
believed, the world goes back on to gold. Human beings must, like
Odysseus, be chained to the mast of gold if they are to avoid repeated
I think that the system of money creation upon which the economy rests is seriously implicated in the failure of markets and regulatory authorities to avoid the manic peaks and and depressing troughs that have plagued economies since the industrial revolution. Certainly there are other contributing factors, but these arise largely as a consequence of the way we allow private banking interests to create money at will, with the result that the exchange value represented by the total money supply has little to do with the quantity of wealth and wellbeing created through economic (and social) activity.
This argument is dealt with very well in Michael Rowbotham's excellent book: Grip of Death, and it is a theme I will explore in detail in my next book.
As for whether the Fed's dramatic decision to slash interest rates will have the desired effect, I'm with Larry Elliott who says today:
... make no mistake, the policy of slashing rates to rescue big finance
is both flawed and fraught with risk. The big flaw in the cheap money
approach is that it was too much cheap money that got the US (and
Britain, for that matter) into difficulties in the first place. If the
policy response to the collapse of one bubble is to blow up another
one, then that's an indication of intellectual bankruptcy.
Over at the Times, Anatole Kaletsky is more sanguine, although even he argues that some good old-fashioned fiscal intervention by governments will be necessary in order to make the Fed's monetary prescription effective.
As he concludes, it is impossible to say for certain yet what will happen. But one thing we do know for sure: a great deal of pain will be felt by many people. And, as ever, it will be the worst off that suffer most. Contraction in the job market, higher consumer prices and an increase in mortgage repossessions will hit millions of people, and there will also be a major impact on the public finances: quite how Gordon Brown is going to fund his pledge to build three million new homes after this, I'm not sure.
Only when there's a much more widespread appreciation of the flaws inherent in the modern financial system, will it be possible to create conditions in which the majority will enjoy real economic security.
Barbara Stocking, Chief Exec of Oxfam, has a brave piece at comment is free. She defends the presence of Oxfam at the World Economic Forum in Davos, arguing that
For every selfish capitalist, there is an enlightened businessperson
inspired by the challenge of global poverty and committed to changing
the way they operate to help end it. They are important not solely
because they care, but because many of them in are in positions of
significant influence and can therefore do something about it.
It's a difficult one, for while Ms Stocking may have some very productive conversations with some of the attendees, and may well obtain support or sponsorship for some of Oxfam's initiatives and projects in the developing world, she is not likely to persuade anyone that the problems of the poor world are a direct consequence of the way in which the global economy is structured.
And it is the structure of the economy that has enabled those who go to Davos to make their fortunes. I'm not saying the poor are poor because the rich are rich, only that under the current system, the means by which the rich get rich necessarily reduce the life chances of those at the bottom, be they in rich countries or poor ones.
There is a rapidly growing band of African millionaires, but this has led to no change in the situation of most Africans, and nor will it.
When it comes to poverty alleviation, there are two options: Allow a minority to exploit an unjust system, and then lobby for them to give a share of their wealth to reduce poverty, as Bill Gates, Warren Buffet and George Soros have done very generously. Or, arrange things so that the disadvantaged have a fair chance in life and can access the means to their own economic security. This would permanently reduce the amount of suffering in the world, whereas charitable aid often amounts to little more than short-term sticking plaster.
Ms Stocking is in a difficult position. If she spent her time attacking the means by which the wealthy get rich, she probably wouldn't be invited to Davos. But it is to be hoped that organisations like Oxfam remember the true roots of poverty, and don't just settle for crumbs from the tables of the rich and powerful.
I have a piece over at comment is free just now lamenting the dumbing down of much of what is shown on TV these days. Specifically the new format applied to the BBC's Ski Sunday which, on the evidence of last weekend's programme, has pretty much dispensed with skiing.
Comment is free is running a series under the banner Change the worldfollowing last weekend's Fabian Society conference on the same theme.
I guess one shouldn't expect too much with the Miliband brothers so centrally involved, but there is little sign in the conference programme of any debate about the causal links between an economy which fails so many and the political reactions of players on both sides of the growing cultural divide, nor as yet in the pieces on CiF. I shall be watching with interest, and will wade into the debate if time permits.
Prem Sikka has an interesting piece at comment is free today. He argues that instead of forcing pay cuts on the public sector to stave off the looming economic crisis, the government should be cutting taxes for the least well-off in order to increase the spending power of the poorest.
Sikka's call is echoed by The Item Club, Ernst & Young's economic forecasting unit, as reported in today's Observer. This piece points out that a tightening of fiscal policy is required under Gordon Brown's golden rulebut that it is likely only to exacerbate the current slowdown. Let's hope Alistair Darling has the authority to overrule Brown on this one.
I have a great deal of sympathy with Sikka's trickle-up argument. Giving a small amount of money to a large number of people will be much better for demand at all points in the economy than the alternative: giving large quantities of money to a small number of people; the upshot of the government's fiscal and deregulatory policies during the last decade.
Like most commentators and academics however, Sikka, who writes very well elsewhere on the problem of corporate accountability, appears to think determinedly within the confines of economic orthodoxy. While his prescription is the right one as far as it goes, he does not acknowledge that the patient is fundamentally sick, and the wider economic framework in need of radical structural change. His piece is worth a read though, not least because it contains a plethora of useful statistics which show how the economy is failing large numbers of ordinary people.
I have a new piece over at Comment is Free prompted by this morning's article in The Times by Peter Riddell in which he argued that the Treasury should stick to economics and lay off social policy, as if there were no link between the two.
I have a new post over at Comment is Free just now. It's about the dreadful floods affecting parts of Mozambique, where I lived for a while and to which I still feel an attachment. The piece asks the simple question, if we can't manage to sort out our own society and economy so that the poor can be protected from floods, what hope is there for the people of Mozambique?