30 May 2010

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.

29 May 2010

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.

13 May 2010

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

12 May 2010

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.

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.

10 May 2010

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.

8 May 2010

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.

6 May 2010

Dollar, Euro, or Ebcu?

The unaccountable power of credit-rating agencies has now come under attack from the EU's most powerful politician, Jose Manuel Barroso, the president of the European Commission. Clearly the speculation against national economies is dangerously destabilising for all the European economies, but behind this attack we may also see a glimpse of the struggle for currency hegemony between the dollar and the euro.

The political purpose behind the establishment of a European currency was to provide an alternative to the dollar, whose role as global trading currency enabled the US to fund its superpower military strength and its unsustainable lifestyle at the cost of the rest of the world's people. The credit-rating agencies, all based in the US, can turn market sentiment against the weaker European economies, thus undermining the currency they share. Hence Angela Merkel's suggestion that Europe needs to establish its own credit-rating agencies.

The European financial crisis is rapidly cycling out of control. We are moving beyond the dealings of young men sitting at computer screens and onto the streets. The anger between some Greek citizens and their government is matched by an anger between different European nations. The EU currency straitjacket is, as was predicted, leading to tension between the vastly different economies it forced together. In currency wars, as in military wars, it is the elites who make the decisions and divide up the spoils, while the poor pay the price.

Green economists have long argued for a political response to this crisis that opens up the question of how money is created. At the global level we suggest a neutral currency, which enables trade between countries without allowing this to accrue benefit to the country that controls the trading currency. If such a currency were linked to carbon dioxide emissions as an environment-backed currency unit (Ebcu) it could also ensure that the global economy stayed within planetary limits.

Open Letter to European Policy-Makers

The following letter, entitled 'The Greek crisis is a European crisis and needs European solutions' has been sent from the Macroeconomic Policy Institute in Dusseldorf. It has now been posted, together with a complete list of signatories, here.

For weeks the attention of the financial markets, media commentators and policymakers has been on the Greek crisis. Yet it has rumbled on. The Greek population is being asked to make painful cuts which will only depress incomes output and employment further, even as interest rates are driven up to crippling levels. Most recently its bonds have been declared ‘junk’ by rating agencies, which, the damaged credibility of such agencies notwithstanding, threatens to have disastrous knock-on effects. This is a disaster for Greeks, but it is also profoundly the wrong course for Europe as a whole, which needs to chart a European path out of the crisis.

We are appalled that European policymaking has systematically lagged behind events, allowing itself to be driven by volatile market sentiments, populist politicians and a media that all too often exhibits fundamental ignorance about the issues. This has dramatically raised the costs and risks of resolving the crisis.

Greece’s fiscal catastrophe has four causes. First, there is the past fiscal weakness of the Greek state, in particular the inability to generate tax revenues, as a share of GDP, in line with its European neighbours, but also inexcusable statistical manipulation. Second, Greece’s relative competitiveness has steadily worsened, especially within the euro area, as reflected in a sustained current account deficit as a result of above-average increases in unit labour costs and prices and a stronger economic growth dynamic. Third the economic crisis - which, given the country’s conservative banking sector was a classic external shock – has ravaged public finances, just as in other countries. And last but not least, fourth, the interest cost burden has dramatically increased, as genuine concerns about fiscal sustainability combined with speculation and misinformation to dramatically raise the rate of interest on new Greek government bonds.

Only the first of these reasons calls unambiguously for Greeks to accept the pain of fiscal austerity. All the others have a strong European dimension and call for European solutions. In particular, the loss of competitiveness by Greece (and a number of other countries, including Spain and Ireland) is the mirror image of an increase in relative competitiveness by others, notably Germany, Austria and the Netherlands. The latter countries could not have increased their net exports without the faster demand expansion in the former group, which, it is often forgotten, were also responsible for much of Europe’s economic and jobs growth in recent years, while demand and output growth in the surplus countries has been sluggish. The problem is symmetrical and the solution must be as well.

For Greece has not – as is often claimed or implied – lagged behind Germany in raising productivity: on the contrary hourly labour productivity increased more than twice as fast in Greece than Germany during the ten years of the euro since 1999. Nor do frequent claims in the media of Greek ‘laziness’ stand up to scrutiny: average annual working hours are the longest in Europe (and hundreds of hours per year longer than in Germany!). The problem has been with nominal wage and price setting.

Due to strong differences in wage setting, Greek nominal unit labour costs increased by more than 30% since the start of EMU – and the increases in Italy, Spain, Portugal and Ireland were even higher – whereas in Germany they rose by just 8%. Monopolistic price setting is also critical, enabling firms to pass on higher wage costs or imported prices onto domestic prices. Such wage and price divergences are not sustainable within a monetary union where exchange-rate adjustments are no longer possible. But this requires an adjustment from both ends. Wages and prices in Greece and other countries need to fall in relative terms, but they must increase faster in Germany, whose aggressive wage moderation policies are deflationary, export unemployment and threaten to explode the monetary union. This is the only way to rebalance the euro area while avoiding the huge risk of a deflationary spiral.

Misunderstanding these causes, European policymakers have fiddled while Greece has burned. Monetary policy has been left entirely out of the discussion. Fiscal support offers have been too little, too late and subject to unreasonable conditions. The EU2020 Guidelines proposed by the Commission do recognize the imbalances problem, but the proposed measures are not symmetrical. As a result speculators have driven the cost of resolving the crisis higher and higher. Lending public money to Greece, at interest, is not charity. It is a recognition of the interconnections of a monetary union and in the vital interest of all Europeans. No-one benefits from Greece and other countries embarking on massive fiscal austerity, demand deflation and competitive price deflation. This is all the more so when monetary policy is up against the zero bound and the European economy as a whole still dependent on policy stimulus. Greece must not be forced into massive demand deflation: having avoided the mistakes of the Great Depression at European level it makes no sense to repeat them at national level.

On the contrary it is in Europe’s vital interests to resolve the Greek crisis on the basis of rising incomes across the continent and to put in place the needed machinery to cope with competitive and fiscal imbalances in the future. The future of the euro area as a whole is at stake. There is a serious risk of a falling Greek domino knocking over a series of other countries. Portugal and other countries now stand where Greece was a few months ago. The economic, political and social costs would be enormous. Has Europe learnt nothing from the 1920s when Germany was, in many ways, in a similar situation to Greece today? Prevented from raising exports to service its foreign debt (reparations) by mercantilist policies, Germany embarked on a disastrous course of deflation and depression which paved the way for the horrors that followed. Today as then, deficit countries cannot simply save their way out of crisis, they must have the opportunity to grow their way out. And this is also the only way to limit the damage to surplus countries, who are otherwise also destined to lose out in terms of growth, employment and financial stability.

We call for a coordinated economic policy response around the following five elements:

The ECB must provide as much support as possible to the fiscal consolidation and rebalancing effort. In the short run that means committing to maintaining its base rates close to zero. Keeping interest rates low is vital to help minimise refinancing costs while pushing up the rate of nominal GDP growth. It must continue to accept Greek bonds as collateral.

Euro area governments should commit to meeting Greece’s needs to restructure its sovereign bonds for a three-year period. The sums involved do not require the involvement of the IMF, whose participation is only justified, if at all, by political considerations. This would immediately and drastically reduce the market interest rates to be paid on new bond issues: the rate demanded by euro area governments should be explicitly tied to the benchmark rate for German Bunds plus a penalty rate, which should be set so as to ensure the best possible chances for consolidation while avoiding future sovereign moral hazard.

Greece accepts enhanced supervision of its public finances and announces a longer-term fiscal consolidation package designed to have as limited negative effects on demand as possible in the short run (notably drastically reducing tax evasion), but primary fiscal surpluses in the medium run; it couples this with a time-limited freeze on wages and administered prices and policies to increase product market competition.

Germany, Austria and other surplus countries commit to maintain fiscal stimulus and a period of faster-than-productivity-growth wage increases; more generally, fiscal exit strategies should be coordinated within the Council to underpin area-wide economic recovery while rebalancing demand within the currency area. This requires asynchronous exit strategies. Greece and other deficit countries have to employ them earlier while the surplus countries like Germany follow later on. After the adjustment period wage policies should return to an orientation to the medium-run growth of national productivity plus the ECB’s inflation target in all countries.
Greece is not the only crisis country and policies are needed to prevent the crisis spreading to other vulnerable countries.

The issuing of Eurobonds, possibly with a role for central bank purchases on the secondary market, should be considered to reduce financing costs. Moreover, the EU should embark on an immediate review of its various policy coordination mechanisms with a view to strengthening them and refocusing them in the direction revealed to be necessary by the crisis, namely: a symmetrical focus on surplus and deficit countries; the monitoring of private debt-savings dynamics, rather than just the public sector, and thus a focus on current account positions; incorporating wage and price setting and accordingly strengthening the role of social partners. A starting point is the proposed EU2020 Guidelines which need to be revised accordingly.

The Greek crisis is a chance to drive European integration forward to the benefit of all Europe’s citizens. But current policies, based on misperceptions of economic interlinkages and short-sighted and erroneous views on ‘national’ interests, threaten to destroy the monetary union, set back European integration and imperil its economic and political future. EMU simply cannot go on like this. We call on European policymakers to find European solutions that serve the interest of all Europe’s citizens.

5 May 2010

If it is all Greek to you, read on

I'm convinced that much of the discussion about finance, global and corporate, is deliberately obfuscatory. Simple activities that could be described using words like 'gamble' or 'risky investment' are concealed in arcane phrases such as 'taking a position' or 'creating a collateralised debt obligation'.This certainly worked - even the CEOs could not understand what was going on.

But I know a woman who does. Mary Mellor has helped me find my way around the mysteries the financialised global economy, and she has also had the good sense to publish a book on what when wrong, and what we should do to put it right. It's called The Future of Money: From Financial Crisis to Public Resource. As a taster, here is her take on the mysterious drama being played out in Greece:

'The Greek situation demonstrates the problem of an interconnected global financial system. When the new socialist government took over in October 2009 it revealed that the previous government had hidden deficits in its accounts (with the help of Goldman Sachs). This was a ‘Bear Stearns’ moment. Early action at this point could have stablilised the European monetary system pro tem (but not in the longer term without reform) but the leading European economies dithered, particularly Germany where the government was facing regional elections. Bear Stearns became Lehman Brothers. Greece is a small economy within the EU (around 3% of GDP) and around 0.5% of the world economy. Its total debt was around 300 bn euros. Its immediate needs were around 8 billion euros. By the time rescue was at hand it was facing short term interest rates of up to 38% and an immediate need of a hundred billion euros. What was needed in the early stages was an injection of euros which could have been issued by the ECB. Why did this not happen?

'Because of the ideology of money issue as a private commercial matter. The ECB is not empowered to lend to governments only to the financial system as a private entity. This makes the assumption that governments and financial systems are separate, but this is not the case. As demonstrated by the 2007-8 financial crisis the financial problems of the private sector, particularly its debt crisis became a debt crisis for states. As states poured money into the sector they were forced through their ideology of privatised money to borrow from the ‘financial market’. Who were the financial market? The banks whose debt they had just rescued. Banks made money lending to states through the front door who had just rescued them through the back door. The Greek situation is even more ludicrous. Banks have lent to the Greek government. Other governments will not provide support, so banks are facing billions in bad debt. It is rumoured some banks in France, Germany or Switzerland may be threatened. They will need to be rescued by the very same governments who would not support the Greeks in the first place.'

In the mean time, of course, huge profits have been made by the financial intermediaries - money that will be paid by the Greek workers.

4 May 2010

Ethical Deficit

I was shocked to read such a blatant example example of casual racism in this week's Sunday Times, which I foolishly picked up out of interest while on a train. It made me realise the slide in standards of analysis and morality that the Murdoch ownership of the Times brand has provoked.

This assault on the good people of Greece by those with extended waistlines back-balances that contrast with their atrophied moral consciences reveals the worst aspects of the UK Establishment. The intention of such writing is that, once we have satisfied ourselves with stereotyping and insulting our Mediterranean brethren, we will apply our own shoulders to the wheel with renewed vigour lest, perish the thought, we might be confused with people who enjoy leisure time or seek to lead the best lives they can with the minimum of effort.

In the battle for hearts and minds that will ensue once the ballot boxes are put back into their locked cupboards we will witness the return of two of capitalisms most unsavoury cheerleaders: the Fat Controller and the Calvinist preacher. If Rod Liddle represents the former then Gordon Brown has always been haunted by the latter: the musty smell of the manse that hangs around him is the main reason that we have never taken him to our hearts.

How far distant we are from the Greeks remains to be tested over the coming months. Will we really buy the line that we should work harder to pay for the bankers' bonuses? Has the work ethic survived the years of debt-fuelled plenty? A common cause of grievance is that we have been deprived of a democratic opportunity to choose how the economic crisis should be tackled - as in Greece, whose politicians also sidestepped the issue in their legislative elections in October last year.

The lazy and dangerously divisive journalism from the Murdoch scandal-sheets should not divert us from the issue that is at stake: how the value in our economy is shared between working people and those who control capital. On a more personal level, I leave it to readers to decide who are really the pigs.

3 May 2010

Blood, Sweat and Tears?

Let's just imagine, for one moment, that we do not understand how international finance works, that we accept the notion that we have no control over our money supply, that we are victims of the depradations of global currency speculators. And then let's take an even more frightening step and imagine that we might be an economic strategist for one of the mainstream political parties. What on earth would we do about the economy? What would we have to say to the Chancellor once behind the closed doors of No. 11?

I have two suggestions about how we might tackle the debt problem within a conventional economic framework. I believe both could make the bitter pill easier to swallow, because they treat people like grown-ups and because they are based on an understanding of justice as fairness that has been singularly lacking from our politics since 1979.

While growth-addicted politicians have been luring the UK's citizens into debt-fuelled consumption for decades, the evidence is that this has not greatly enhanced our well-being. The gadgets and air flights have led to dislocation and the breakdown of the relationships that really guarantee our well-being. Citizens might be prepared to accept less money and less stuff on one vital condition: that they believed the inequality that has accompanied the expansion of our economy for the past 30 years were to be reversed.

At the global scale, we call for a Contraction and Convergence - reducing energy consumption to a level that the planet can survive, and sharing this equally between all the world's people. At a national level I would suggest a similar approach to tackling the debt. If there must be public-sector pay restraint, then the lowest paid should still see increases, with the cuts coming to the best paid. This would address the deficit while simultaneously reversing the inequality that is so pernicious to social health. For the private sector, a maximum wage differential and considerably more progressive tax system could effect a similar convergence of incomes.

Just as we argue for the global contraction and convergence as a way of enabling our economy to fit within planetary limits, so we could consider the need to reduce the need to reduce government spending as part of a policy of a managed reduction in economy activity. As argued by the degrowth movement, this help us to 'put the economy in its place'. Over the next decade we could take what Marshall Sahlins eloquently calls the 'Zen road to affluence', valuing our selves, each other and the beautiful world we share, rather than burning oil and cash to provide ourselves with more stuff.

Whether we have a government of national unity or a weak government of one or two parties on May 7th the task facing whoever moves into No. 11 will be the same: reassessing what a successful economy is and moving away from the growth-and-consumption beano, fuelled by debt, that has been the hallmark of UK plc since Big Bang in 1986. If enacted with justice and in order to rebalance our relationship with nature this could offer a great opportunity.