The Future Now

Resurrecting the American Dream

The good folks who hosted my recent visit to the United States have just posted a recording of one of my lectures on youtube.  So thanks to them, and here it is:

Fuelling a new world money supply

I have a new piece on comment is free this morning which assesses the motivation behind the recent proposal by the governor of the Chinese central bank for a new global reserve currency. 

I also point readers towards Richard Douthwaite's pamphlet, The Ecology of Money, which contains a much better proposal to link such a currency to energy use.

Money for nothing

My latest piece for comment is free, which addresses the need for monetary reform in the wake of the G20 summit, and was published on Sunday while I was in Belgium, has attracted a large number of positive comments.  Very encourgaging.

Building progress out of the meltdown

I have a new piece over at Comment is free this morning in which I argue that, in the absence of any political appetite for the kind of structural reforms needed to get the economy back on track, instead of investing in an over-capacitied car industry, we shoud be investing in much needed social housing.

Goodwin's Pension

As you can probably imagine I have little time for Sir Fred Goodwin and his ilk.  People like Goodwin reconfigured the banking system for the benefit of a wealthy elite of which they were proud to be part.  Ridiculous pension arrangements were part and parcel of the system by which these people made their undeserved fortunes.

But they could not have done it without the acquiescence of government, and in Britain for the last twelve years that government has been a Labour government.

For John Prescott to absolve Gordon Brown of all responsibility, as he did on the Today programme this morning is, quite frankly, and to use language with which Prescott would himself be comfortable, taking the piss. 

Bankers and politicians thought they could get away with it.  The former because many among their number feel themselves entitled to obscene remuneration for running business which produce nothing of tangible value.  The latter because, for reasons which they really ought to explain, they refuse to challenge the wealth, power and privilege of a tiny minority. In their failure to do so they prove themselves totally lacking in democratic credentials.

If there are no legal means by which Goodwin can be forced to return his pension pot, then perhaps we taxpayers might be reimbursed through a charge on the future earnings of everyone who has served in this government over the last decade.

A paradigm shift in economics

These concluding paragraphs from Anotole Kaletsky's column in today's Times should stir the passions of any self-respecting progressive:

So economics is on the brink of a paradigm shift. We are where astronomy was when Copernicus realised that the Earth revolves around the Sun. The academic economics of the past 20 years is comparable to pre-Copernican astronomy, with its mysterious heavenly cogs, epicycles and wheels within wheels or maybe even astrology, with its faith in star signs.

The academic Establishment will resist such a shift, as it always does. But luckily economists understand incentives. They should now be given a clear choice: embrace new ideas or return their public funding and Nobel prizes, alongside the bankers' bonuses they justified and inspired.

Alas, as you might expect from the always stimulating, but rarely anything but conventional Kaletsky, the rest of his piece says little about the nature of this paradigm shift.

The problem is that in order to be a successful academic economists, you have to toe the establishment, neo-classical, line.  This narrow form of economics, which forms the basis of all economics text-books and teaching makes a set of assumptions about the foundations of the economy, and proceeds then to examine how this particular kind of economy works.

Any economists that values their career will not question these assumptions for fear of rocking the boat.  As Keynes said  'In the City, it's better to be conventionally wrong than unconventionally right."  The same applies to academic economics.  And it largely explains why we're in the mess we're currently in.

What is needed is a rejuvenation of the discipline of political economy, of the kind practiced by Adam Smith, David Ricardo, Karl Marx, Henry George, Joseph Schumpeter. J.K. Galbraith and E.F Scumacher among others.  Political economists need to wrest back the discipline from the econometricists that have come to dominate the profession.  Their assumptions must be assessed against ethical criteria.  We need to ask the question, 'what kind of economy and society do we want?' and then set about devising economic structures and institutions fit for the purpose of delivering that moral vision.

Brian Hodgkinson's book, A New Model of the Economy, is a good place to start for any economists that want to be in at the start of the paradigm shift.

Forward to the past

I have this new piece over at Comment is Free this morning.  Part of the series entitled, Who owns the progressive future, it suggests that rather than rehearse old arguments between left and right, we should instead look for inspiration to some as yet untried ideas of the past, with reference to the thought of Karl Polanyi and Henry George.

No brave new world, yet

Depite all the talk of a new Bretton Woods, there is remarkably little reporting of the outcome of  this weekend's Washington summit in this morning’s press.  But then it was never likely that the Washington summit would make real progress towards addressing the underlying causes of the economic crisis.  There is little in the final communique to suggest that any real lessons have been learned.  Nobody is questioning the fundamental nature of the global economic arrangements that have brought us to this point, nor is anyone prepared to admit that the system of global finance, which is supposed to support the real economy, has morphed into monster that routinely undermines it.

There is a simple reason for this depressing lack of action:  Despite a string of bank failures, mounting unemployment, and general acceptance that the forthcoming recession will be long and deep, too few people in the countries that matter have yet to feel sufficient pain to force politicians into the kind of common-interest negotiating position that inspired the post-war economic consensus.

What is the economy for?

With UK unemployment nudging 2 million once again (and that's the official count - if we apply the measurement criteria used back in the 1970s, it's now well over three million) it's time to ask again a simple question: just what, and more to the point, who, is the economy for, and what ends it is supposed to serve?

It's not - or should not be - rocket science:  the economy consists of those mechanisms and institutions in society through which its members secure for themselves the means to survival and satisfaction in life in exchange for their labour.

For the last thirty years, however, the objective of full employment has fallen off the radar of economic policy because the neo-classical school of economics that has come to dominate the political and academic establishments has persuade people in large numbers that economic policies focussing on continuous growth and low inflation offer the best hope for economic advance. 

This argument is now revealed as a gigantic con-trick, pulled off by economists and politicians, ably aided by much of the mainstream media, in the service of the interests of elite wealth and privilege.  Democracy, meanwhile, appears quite unable to defend majority interests.

I'm not arguing that the state should take responsibility for directly creating jobs for those whom the market doesn't provide.  But there needs to be a moral basis for economic policy, and key among the values referenced should be a commitment to an economy in which everyone has access to the resources and opportunities necessary to make a reasonable living for themselves. 

By starting from that belief, and ensuring it remains the over-riding goal in policy formulation, it should be possible to restructure the economy along more just and inclusive lines.  Presently however, there seems little chance of such progress.

Small is beautiful

I have a new piece over at Comment is Free this afternoon looking at the social and economic impacts of the contrasting histories of the UK and Italy.

Something for nothing

I have another piece at Comment is Free this morning.  This one looks at the financial crisis in terms of the huge discrepancy between consumption and production that has become the norm over the last decade of so.

Economic justice by the book

I have a new piece over at Comment is Free this afternoon, this one inspired by John Stewart's excellent political novel, The President.

Society's shame

I have a new piece at Comment is Free this morning.  This one looks at the ongoing housing crisis.  Once again the Guardian's standfirst sums it up very neatly:

Millions live in sub-standard housing. Labour hasn't delivered, the Tories are bereft of ideas and even the voters don't care.

Stop selling you idiots

Having opened about 50 minutes ago, the FTSE is going through the floor right now following the failure of Congress to approve the US Governments bail out plan last night.

Talk about burning down your own house.  If only people would stop selling shares, especially bank shares.  Most bank shareholders have already lost money; the best way of recovering at least some of those losses is to sit tight, and prevent the crisis deepening any further.

Plummeting share prices no longer remotely reflect the value of companies; there's now a very good case for suspending trading - especially in HBOS shares which are continuing to fall despite a rescue plan having been agreed.

What we are seeing is the gross irrationality of the market at work, and that reflects the gross irrationality and amorality of most of those who play the markets.  The people who run the markets effectively run the real economy upon which most of us depend for our livelihoods.  Psychologically, they are precisely the wrong people to be in charge.

It looks like things will get worse before they get better.  And improvement will be a long time coming.

11am update:  Well, either this post had a rapid (and unexpected) impact, or we are now seeing the flip side of the erratic behaviour described above.  In London shares have rallied, apparently on rumours that the US bail out plan can be saved.  Interestingly though, as Joseph Stiglitz points out this morning, growing numbers of economists believe the Paulson plan won't work.

Solving the banking crisis

I have a new piece on Comment is Free this morning looking at the banking crisis and its connection with the crazy way private banks are allowed to create money as debt simply to turn a profit.

Cityphilia

With impeccable timing, The London Review of Books has put John Lanchester's superb essay Cityphilia (originally published in January) back on its home page.  If you haven't read it, you should.  You're unlikley to find a better analysis of the origins of the current financial crisis, and its implications for wider society.

Broken Society

Playwright David Edgar has an excellent piece in today's Guardian in which he reminds us it is the Tory policies of the 1980s that are responsible for the current crisis and for many of today's social problems.  He argues that Cameron's new Tories should not be allowed to escape responsibility, even if new Labour could have done much more to repair the damage.

Good riddance

This piece by the always excellent Chris McGreal in today's Guardian explains why the resignation of Thabo Mbeki is long overdue.  Like many though, I fear it will take more than a change of leader for South Africa to escape its current predicament.  The country is a perfect example of how economic growth can do absolutely nothing for society, if its fruits are not widely distributed.

The few who knew

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.

A new model of the economy

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.

Click here to take advantage of this offer.

Financial meltdown

As someone who has been predicting the economic and financial chaos that we are now witnessing for a number of years, it's rather difficult to know what to say now it's finally upon us.

To be honest, I didn't think it would quite as catastrophic as it has turned out, although my gut feeling was always that as the financial markets became ever more complex and globally interdependent, then the inevitable crash could only get bigger.

It's fascinating to read a million and one commentators give their opinion.  Suddenly we are all experts on short-selling.  But all this attention to the detail and intricacies of the markets and the various instruments that have been devised solely to allow traders and fund managers to make more money for themselves and their wealthy clients should not distract us from the real problem: that a financial system that makes its central focus the generation of unearned wealth from speculative trading of shares and securities that has nothing to do with the real economy needs replacing with a system which supports the economy in a way that promotes the interests of all citizens and of wider society. 

Reform is not enough; we need to replace the system with one that works, and to do that we need a thorough reassessment of the underlying economic theory on which the whole fragile edifice is built.

A fair deal on land reform?

I have a new piece over at Comment is Free, looking at the situation with land reform in South Africa.

The nice people at the Guardian cut the original version (it was a bit long).  For anyone interested, here it is.

The longer version makes mention of the fact that, unlike most countries, South Africa has been levying a partial tax on land values for many years; a practice that has now been outlawed.

Cake and eat it capitalism

This piece by Larry Elliott in yesterday's Guardian on the nationalisation of Freddie Mac and Fannie Mae perfectly describes the hypocrisy of the current economic system, and those who support it.

As Elliot says,

If ever there was a time to bring in controls on the ability of banks to create unlimited amounts of credit, to restrict the more toxic forms of derivatives, to rein in the activities of hedge funds, to insist that remuneration structures are not biased in favour of reckless speculation, and to use anti-trust law to break up the power of the big institutions then this, surely, is it.

But as he correctly points out, no one, from Gordon Brown to Barack Obama is making the right noises.  Surely we can't let the interests of elite wealth and privilege off the hook again, while taxpayers pick up the tab?

ps: for anyone who, like me, intensely dislikes the use of ghastly American nicknames to describe some of the largest financial institutions in the world, their real names are: the Federal Home Loan Mortgage Corporation (Freddie) and Federal National Mortgage Association (Fannie).

None of them get it

Works and Pensions Secretary, James Purnell, today attacks the Tories for misunderstanding the causes of poverty, and therefore having no chance of tackling it, if and when they form the next government.

I think he's right about the Tories, but his claims for his own party ring a little hollow after ten years in which the Labour government has set out to reinforce precisely those aspects of the economy which are guaranteed to encourage a growing gap between the haves and have-nots, and leave those at the very bottom with no hope of improvement.

I’m not sure politicians from any the main parties are genuinely interested in creating an economic context conducive to poverty reduction; if they were, they would surely take notice of the evidence that  putting all your economic policy eggs in the basket of economic growth doesn't lead to any reduction in poverty given the way the economy is currently configured.

Redistributing money from rich to poor was only ever a sticking-plaster on the open sore of endemic poverty. Only a redistribution of access to economic opportunities and the assets (land and capital) that make them viable, will bring an end to poverty. No politician, anywhere, is prepared to accept this simple truth.

After Henley

It was fascinating, after such a long break, to hear Tony Blair on the Today Programme this morning.  AS you will know I'm no great fan of his, but this morning he reminded us of the qualities a politician needs to survive. Qualities he was able to acquire in spade loads, while his successor, presumably, had his head buried in books.

Blair was typically diplomatic when pressed on what Gordon Brown should be doing to turn his fortunes around. He wasn’t going to be bounced into giving advice over the airwaves; though it's difficult to imagine quite what advice he could give, even in private.

He was at pains to point out that Brown is to some extent the victim of circumstance. If Blair had had to deal with Northern Rock, the credit crunch, record oil prices and the prospect of stagflation in his first year in charge, he too would have found his honeymoon rapidly curtailed. But he would also have made a better fist of persuading the electorate to trust him, and that things would turn out alright in the end. And, however unrealistic those assurances might have been, they would have satisfied enough people to stave off the kind of unprecedented electoral meltdown that Labour suffered at Henley last night.

And, of course, Blair could have sacked his chancellor. One of his cleverest tactics as PM was to spread the idea that he had little understanding of economics; and that it was therefore sensible to leave responsibility for the economy entirely in the hands of the man next door.

Blair’s grasp of economics may have been patchy, but I suspect he was at least aware of one enduring truth: that in economics, what goes around comes around. While Brown was boasting that he had achieved what none of his predecessors had managed, and cracked the secret of the boom-bust economic cycle – an idiotic claim that sections of the media and academia were grossly negligent in their failure to question – Blair kept his counsel.

As I wrote here just before Brown became prime minister, with his rather unbelievable apparent naivety of  economic realities, he spent most of his time at the Treasury setting himself up for a massive fall. Nonetheless, Blair is correct to suggest that his successor is to some extent a victim of circumstance. That circumstance is globalisation, or rather the way in which the process of economic globalisation has removed from politicians most of the traditional tools of economic policy. Their hands are now tied in ways that those of earlier generations of policy makers never were.

According to Blair, therefore, we should cut Brown some slack. But whenever politicians talk of the new global economic context it's as if that context has mysteriously emerged from undetectable cosmic dust particles, and been foisted upon governments while their backs were turned. Nothing could be further from the truth. This new and troublesome context is the direct result of a purposeful project that began with Reagan and Thatcher, and has been consolidated, largely by governments of the so-called centre-left, in the years since.

That process of consolidation continues each time a senior minister makes a speech calling on us to celebrate the growth in the number of millionaires. And it continues each time the former prime minister ask us to look kindly upon his struggling successor, while conveniently ignoring the fact that neither of them have ever seen fit to question any aspect of the economic revolution of the last three decades.

Brown is a poor politician; and while the electorate is unlikely to forgive him that, I can. What lost him my support was his failure to understand that a just society can never emerge until governments recognise the social consequences of the economic changes of the last three decades, and have the courage to strike out in a quite different direction.

Radical solutions

I have a new piece over at Comment is Free now, which you can read here.

It's a response to Aditya Chakrobortty's challenge to progressives to do better in their response to the current economics crisis.

A keynesian Cure?

As you will know if you've read any of the articles listed in the left hand column of this page, I am not a Keynesian.  That is to say I don't believe a return to the Keynes-inspired fiscal polices that served western society so well in the decades after 1945, could deliver social justice today.

Keynesianism is a pretty good method for dealing with the failure of an unregulated market economy - one which inherently favours the already wealthy  - to provide an equitable distribution of economic opportunities and resources.  But it is a sticking plaster; and for anyone committed to the principle of social justice, an admission of failure.  Advocating a Keynesian approach is to say, 'well we can't do anything about root causes or the structural failings that promote injustice, so let's just try to alleviate the worst symptoms without screwing up the economy too much'.

The question remains, however, that if no progress is being made in respect of root causes, is there a short-term, stop-gap role for Keynes-based policies?  Having read this piece by Austin Mitchell MP (old Labour) in Monday's Independent, I'm beginning to think there is.

As Mitchell says, the problem with private investment is that its biggest impact is asset inflation: making the things owned by people who hold assets (like land) worth more, while doing nothing to produce more of the goods, or create more of the economic opportunities, which are needed by people at the poorer end of society.

As Polly Toynbee reminds us in today's Guardian, for all the faults (and they are many and considerable) the Labour government does still seem keen to do something about child poverty.  And it can only get anywhere near its vaunted targets by following a more Keynesian agenda.

Of course it's no long-term substitute for tackling the crazy foundations of the current (un)free market economy: the private appropriation of economic rent, allowing privately owned banks to create money at will, and allowing surplus cash that should be used for much needed investment in trade and manufacturing to be used as casino chips on global financial markets.  But it's worth a second look.  Especially with the global economy poised on the brink of recession.  The usual argument against a return to Keynesianism is that it would spark massive and damaging capital flight.  But with economic conditions as they currently are, that capital would not find many welcoming destinations at present.

Are the kids alright?

Alice Miles had a very good piece in the Times this week, prompted by the Children's Society Report into how children are being harmed by relentless exposure to advertising.  She asks,

...why is it in a child's interests to be treated like a consumer? It has yet to be proven that giving even adults a wide range of choices improves their lives.

Further to my previous post about the importance of finding a viable strategy for bringing about social change, one thing we can be sure of is that the future depends almost entirely on the values, perceptions and attitudes of the current generation of children.

What Miles' piece makes abundantly clear, is that the social and cultural enivoronment in which our kids are growing up today is quite different from the world we (Alice land I are both in our forties) inhabited as youngsters.  And this is bound to have an impact on the kind of adults they turn into.   

Already, too few adults are aware of, or care about, the commercialisation of culture and its impact on people's lives.  Given the messages now being pumped into malleable young minds, we can be reasonably sure that, as adults, their generation will be even less aware of the links between increasing consumerism, people's psychological and spiritual wellbeing, and the wider impact on society and the prospects for building a more just and inclusive global order, than most people are today.

There is so much evidence that ever-increasing consumer choice does not lead to increased psychological wellbeing or happiness.  It is, however, the only way our dysfunctional economy can sustain itself, and therein lies the problem.

Vulnerable arteries

Yesterday, the corner of the world I inhabit hit the news after an accident in the Blackwall Tunnel caused it to be closed all day.  Deisel leaked from a lorry and caused a mile and a half of road surface to melt, necessitating the closure of the north-bound carriageway, and resulting in traffic chaos for the whole of south-east London.

For those of you who don't know the area, the Blackwall Tunnel is the only high-volume river crossing between Dartford to the east of London and Tower Bridge.  If it has to be closed, massive disruption inevitably ensues.

Of course accidents happen, but one conclusion I draw from this is that it is ill-advised to put all your economic eggs in one basket.  London is getting too big, it is becoming too densely populated, and doesn't have the infrastructure to deal with incidents like yesterday's.

As currently configured, the economy causes steady centralisation of economic activity and populations, when what the country needs is decentralisation and for economic activity to be better spread around the country.  Not only would this reduce the widening prosperity gap between different areas, it would also mitigate the impact when, as they inevitably will, things go wrong.

The Great Tax Clawback Scam

Fred Harrison, whose recent book, Ricardo's Law, I reviewed on comment is free last year, has now made a short film in which he outlines the book's central message: that our failure to address poverty is a direct result of a tax system which favours the better off, and discriminates against the poorest; a tax system which taxes the wrong thing: people's labour, while leaving the unearned wealth that accrues to landowners largely untaxed.

He makes a persuasive argument, and it's a rather good film.  You can watch it in high definition via the producer's website, here, or on YouTube here:

Fred's book is available here, and other books on land value taxation are available through his (and my) publisher, Shepheard-Walwyn.

A fair chance in life

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.

 

Profits before people

No great surprise to learn this morning, that British Gas made record profits in the last year; a year in which consumers have faced massive hikes in their energy bills.

It's an old trick that firms have been indulging in since the industrial revolution: put your prices up as soon as raw material costs start to rise and add a bit extra on, to offset (largely mythical) additional overheads.  Then, when wholesale prices start to fall again, take as much time as you like in passing the falling costs to the customer. 

All big corporations do it, and as utility providers, like gas companies, although now privatised, still operate largely under the conditions of a monopoly and are not really subject to the competitive rigours of the market, they get away with it.

As I have written elsewhere, this is one of myriad ways in which large corporations operating under the benign conditions of deregulated marekts, ensure the balance of wealth is tipped continually in favour of the already wealthy (shareholders and senior management) and against the vast majority of their stakeholders (customers and staff).

The probability of meltdown

In this rather scary piece, Martin Wolf considers the predictions of US economist Nouriel Roubini, who, while having a reputation for pessimism, makes a strong case that the US economy is facing a serious, possibly catastrophic, recession.  Wolf also supports Roubini's view on the chances of the rest of the world being able to insulate itself from America's problems: virtually nil.

It's the classic downward spiral; the only escape from which, after a great deal of pain, will be via governments once again taking control, rather like the British government has just been forced to to in the case of failed lender, Northern Rock.

Whether this constitutes a viable opportunity for progress towards convincing greater numbers of the inevitability of periodic failures in the current economic system and that these are not just about numbers, but have a serious impact on people's lives, remain to be seen. 

For those of us who have been forecasting this outcome, there is no 'I told you so' pleasure to be taken.  Only the faint hope that this time the powers that be will wake up and start listening to the calls of those who argue for a different approach to economic management, one that draws on the values of socialism but also the practical advantages of a market economy with robust justice-promoting foundations.

A devalued concept

Another good piece on the democracy debate prompted By David Miliband's speech earlier this week. This time from Adrian Hamilton in The Independent who concludes:

If I were the new Foreign Secretary, I would drop the word democracy altogether. It is in danger of becoming too devalued as a concept. Concentrate instead, in our discussions with China, the Gulf States and Africa, on the things that make up democracy: freedom of speech, an independent judiciary and equal human rights for all. On those we can talk with some (although not complete) authority and may hope to make some difference, step by step.

Of course we cannot speak with any authority on the question of helping to create conditions for economic justice in a globalised world, which is, presumably, why Hamilton fails to mention this other crucial prerequisite for democracy.

It never fails to amaze me how, in the debate about promoting democracy, so few politicians or commentators are prepared to consider the relationship between improving economic justice and the entrenching of democratic institutions in society. 

Admittedly the relationship is a complex one.  In the case of the developed western nations, a early taste of economic justice gave ordinary people an appetite for more, and democracy was the mechanism through which they chose to pursue a more equitable society. 

Today, however, we appear to have all but given up on the principal of economic justice within the mature democracies, and certainly between nations, so we can have little of value to offer those societies where democracy is struggling to get a foothold.

The capture of Keynesianism

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.

Selling myths on television

This is a good little piece by Ros Coward, who points out something that's quite obvious but has gone largely uncommented on: the way television, both commercial and public service, has been used to promote the recent craze for investing in residential property. 

It's fair to say that the decisions of commissioning editors in respect of the multitude of property programmes that have hit our screens in recent years have had a direct impact on house prices, particularly at the lower end of the market where first time buyers are struggling like never before.

As Coward says,

Its hard to imagine another business being given a free rein to promote its worldview on television like this. Especially one with such important consequences for individual lives.

Absolutely right, its another example of how every every corner of our culture is now subject to a relentless pressure to commercialise.  And another example of the fallacy that everyone can become rich quick if they'd just take a few risks.

A home is a place to live: everyone should have the right to a home, and to home ownership if that's their choice.  By treating home ownership principally as an investment opportunity, we have created conditions in which growing numbers are denied those rights.

If you want to go well ...

... be sure to go Shell.  That was the slogan used by Shell for a TV advertising campaign back in the 1970s.  Doubtless some of you, like me, will be able to recall the tune.

Today the slogan applies more to Shell's shareholders, and its very well remunerated senior executives, than to its principal stakeholders: its customers.

While forecourt prices have been driven up by the relentless rise is the price of crude oil, Shell has reported record profits for a British company of £13.9 billion.

A while ago, when British Gas reported massive profits, I wrote a piece in which I argued that the excessive profits of large corporations while consumer prices were rising is clear evidence that the business model that underpins current economic arrangements inevitably leads to a transfer of wealth from those who have relatively little to those who have plenty.

Think about it.  Fuel prices go up much faster than the wages of most drivers.  Shell's profits, and therefore its dividends to shareholders go through the roof.  The company has many more customers than shareholders (and most of those customers cannot afford to become shareholders) therefore shareholders are getting richer at the expense of customers.

British Union leader Tony Woodley has called for a windfall tax on such profits.  I think we should go further, instead of imposing windfall taxes when profits pass some subjective measure of excess, we should base tax policy on a recognition that oil reserves are a gift of nature.  The distribution of the wealth derived from their exploitation should reflect this and be spread among all citizens, not disproportionately in favour a minority of the already wealthy.

A large proportion of Shell's profits arise because oil companies are allowed cheap and sometimes free access to oil reserves when they should be paying the rest of us for the privilege.  Of course the company's ingenuity and investment should be rewarded, but not at this level, and not when the rest of us are facing higher prices and reduced pay awards.

Public sector fat cats?

Council Tax up to pay Fat Cats £50,000 a year.  That's the headline on the front of today's Daily Express.  It's up in arms because there are now 30,000 middle managers in local government earning twice the national average wage.

It fails to mention why these people command such salaries.  It's because pay rates are largely determined by the labour market which applies as much to the non-profit and local government sectors as it does to the profit-seeking commercial sector.

The public sector puts a great deal of effort into working out how much to pay its staff in order to ensure it can attract people of sufficient calibre to manage large, complex organisations that have to deliver a multitude of services.  Salaries have to be paid at these levels because that's what people doing similar jobs in the private sector are earning.  Cut the salaries and the best people will leave.

Now, I'm sure there's a great deal of waste and inefficiency in local government, but much of the private sector is similarly troubled; consider the train operating companies, for example.

Express readers would no doubt argue that there's a difference, in as much as we are paying for public sector inefficiency through our taxes, but then we also underwrite private sector inefficiency via the prices we pay for the goods and services produced by private businesses.

It's certainly true that the salaries of middle managers in local government are much higher in relative terms than they once were, but the gap gap between the highest and lowest paid has been stretched as a result of private sector pay awards.

Kenya and Rwanda: differences?

A rather confused piece, I thought, by Richard Dowden, director of the Royal African Society in yesterday's Independent.  He argues that there will be no genocide in Kenya, because the Kenyan situation is quite different from that of Rwanda in 1994 when up to a million people were murdered in four months.  Instead of explaining the differences (which are considerable), he ends up highlighting the similarities between the two countries' situations.

Rwanda was, and Kenya is, a product of a flawed modern political system being imposed on a society where tribal allegiances still figure prominently in consciousness of many people.  Not because people are innately tribal in a way that westerners are not, but because the colonial and post-colonial history of each country has seen one group assuming power over, and restricting the economic opportunities of, others. 

The Rwandan genocide was a political act, planned and commanded from the highest levels of government.  Kenya's current violence may not be a result of explicit instructions from senior political figures (although the murder yesterday of opposition politician Mugabe Were looks to be more than a random killing), and it has certainly not been planned in advance (in Rwanda hundreds of thousands of machetes were imported from China in the year before the genocide) but the warning signs are there, which is why every possible effort must be made to avert a further escalation in the violence.

Dowden may be right to argue that whatever happens in Kenya it will not be genocide, but we should hardly draw comfort from this.  Unless the violence can be brought to a rapid end, many thousand could die, to add to those already being displaced.

The only solution is to hold new elections under the supervision of an international  body (perhaps the African Union).   A date should be set some months ahead to allow for proper organisation of an election which produces a legitimate and unchallengeable result.  It is hard to envisage any other solution while President Kibaki remains in power on such a dubious mandate.

Dowden concludes by saying:

This is going to be horrific and puts Kenya and the entire East African region at risk of economic collapse.

Although a stolen election was the catalyst, surely it's the perception of economic injustice among certain ethnic groups and the total disregard for those perceptions among politicians that underlie this conflict.  And that's inevitable given the level of cultural development in Africa, and the overly competitive, scarcity-based western economic model under which all Africans are now forced to live.

The business of outplacement

I have to admit I only learned of the phrase outplacement this weekend, when a friend who works in the recruitment business told me how his department was being temporarily re-located, in order to clear several floors of office space in readiness for a huge influx of new outplacement business.

This business comes in the shape of thousands of high-earning city workers who are losing their jobs as a result of deteriorating market conditions.  As part of their redundancy packages, their former employers will pay for them to go along to companies like the one my friend works for, to be advised on how to make the best of their unfortunate predicament: how best to save, spend or even invest their redundancy payments, and what alternative career options they might consider.

While a few may decide to throw it all in and retrain for another profession, there are no others professions that pay anywhere near the rewards you get as a city trader.  Those that get close require years of study and experience, and are, in any case, fiercely competitive.

Most of these victims of the financial crisis will decide to sit tight until the market swings upwards again, and the banks start re-hiring.

I wonder if we should feel sorry for them?  It's a terrible thing to be made redundant.  But surely these individuals are the architects of their own downfall?  It is they who encouraged the rest of us to believe that the good times could last forever.  It is as a result of their irrational behaviour that the pension funds of millions of ordinary people are now in jeopardy.  It is because of the way they exploit and abuse the market system that the entire global economy is now teetering on the brink of recession.

Some will argue it's a consequence a badly designed system; that these people are as innocent as the rest of us.  But it only takes a basic grasp of economic history to know that a downturn is inevitable, and its scale will generally mirror the preceding upswing.

No, these people chose to ignore the risks because the personal rewards were too great.  It is individual greed that has brought us to this position.  The kind of greed that the advocates of changes to economic rules over the last three decades have repeatedly told us is good for economic advancement.

Well it may be good for the economic advancement of a small minority, but it means uncertainty for most of us, and continuing misery for those at the bottom of society.

People in the the outplacement business are rubbing their hands with glee right now.  But those they will be counseling in the coming weeks will not be worrying too much.  Through their generous severance packages, the financial markets look after the risk takers.  It's the rest of us who have to bear the consequences.

Beyond our failed democracy

I have an article in the current edition of Land and Liberty Magazine, the journal of the Henry George Foundation in which you might be interested.  Their online presence is not as up to date as it might be, but you can download a pdf of the latest issue.  If you do, and you like what you find, please make a donation here.

Most easily of all, you can read my article in full, here.

A Minsky moment?

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 monetary shipwrecks.

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.

Mega-Fraud

There will doubtless be much wringing of hands at the news that a Societe General employee has committed the largest fraud in history, effectively costing his (now former) employers a cool £3.7 billion.

Readers of this blog will know that I'm no fan of the globalised financial system, which I think has mutated into a morally fraudulent mechanism for further lining the pockets of the already wealthy.  These days it has very little do with with the legitimate business of channeling investment capital into genuine economic enterprise; the sort that employs people, or makes things that ordinary people need and want.

That said, I suspect this fraud has less to do with the system than the culture of greed and aspiration that marks the times we live in. 

Jerome Kerviel might, had things gone differently, have made a pretty packet out of his devious scheme.  Given that he'd acquired the nouse to circumvent SocGen's control systems, had he not begun to play the markets only a year or so before things started to go pear shaped, he might conceivably have got away with it.

Apart from greed, and of a course psychopathic dishonesty, he must also have suffered a severe case of that peculiar gamblers' belief that, if you keep rolling the dice for long enough, things will come good.  Of course, that's an attitude commonplace in today's financial system.   

Our feudal society

Chris Dillow has a typically stimulating post at Stumbling and Mumbling.  He points out that by all the established criteria, the economy is currently run more along feudal lines than capitalist ones.  I agree with much of his analysis, but, suggesting that the expropriation of labour by force is one of the indications of our continuing feudalism, he says,

The average worker expends more surplus labour working for the state than he does for capitalists; tax takes in advanced economies are around 40% - much higher than profit shares. Feudal-type exploitation is therefore greater than capitalist exploitation.

If I'm reading him correctly, he's implying that the take home wage of the worker (after tax is paid) represents fair payment for work done.  He assumes the market generally pays a fair wage, and that the tax take and the proceeds of profit shares (if they exist) represent the payment for surplus labour. 

However, in both a feudal and a capitalist economy, in the absence of free land, the wages of labour are kept artificially low by the fact that the non-landowner has no option but to work for whatever rate of pay s/he can obtain.  There is no direct relation between the take home pay of the wage earner and the value of the work actually done.   Much of the value generated by the application of what should be surplus labour is taken by the employer in dividends drawn on profits or via inflated executive salaries.

I agree with Chris that our society has more in common with feudalism than text-book conceptions of capitalism; after all, access to the means to secure a living is still controlled by a small proportion of the population.  But he could have made an even stronger case.

How to avert a recession

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 rule but 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.

The truth about bankers

John Lanchester has a superb analysis of the banking system in general and the mechanics of the Northern Rock debacle in particular, in this month's London Review of Books.

Of particular interest are Lanchester's observations of the impact on life in the capital when those who work at the business of making money from money in the City of London earn many times the income of the majority of ordinary wage-earners.

As he writes, inflated city salaries are a direct result of how

....successive governments have, in policy terms, given the City more or less everything it wants.

If more people were aware of how the financial system works, how it is configured to deliver wealth to the minority of those who are are already wealthy, and how this morally dubious objective makes periodic economic slumps inevitable, then surely they would exercise their democratic right to have it changed.  Then again, as I write in the current edition of Land and Liberty magazine, our prototype democracy fails completely to defend majority interests and requires wholesale revision.

What is the Treasury for?

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.

Weathering the storm

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?

Bag a bargain today

Those nice people over at Amazon have discounted my book, so if you haven't read it and would like a copy, you can buy it here.

When it was published, The Possibility of Progress garnered one or two positive comments.:  Tony Benn thought it "a deeply moral and intellectual book".  James Robertson called it "important, impressive and readable".  Tony Vickers suggested that it might be "the book that Henry George would have written if he'd been alive today."

At the book launch Tony Benn, Clare Short and Susan Kramer all turned up to give their backing to the book, more information about which you can find here.

I'm currently working on another book which explores similar themes from different angles, but while that one is in production, The Possibility of Progress should keep you going.

If you're in the United States, you can order it through amazon.com by clicking here. (Sorry, no discount).

Of course, if you can afford it, and have an independent bookshop nearby, why not get them to order it in for you?  It'll cost you the full price (£14.95) but you'll be supporting a small business, rather than a corporate giant, and contributing to the cause of progress in a tiny way.

Happy reading!

Mark