Change we can believe in?
It’s almost the end of the year. It’s also the end of an era.
The USA and the UK are suffocating in a blanket of national, corporate and personal debt. The amount of money that has been poured into our failing banking systems is now of the order of $15,000,000,000,000 worldwide or one quarter of the value of everything the world produces in a year.
Homelessness and unemployment are rising.
I have resisted writing about our economic world of late, as I didn’t wish to enter the realm of “Grumpy Old Men.”
Well, happy New Year!
It won’t ever be the same again. BUT capitalism albeit that it’s in crisis is far from finished yet.
Forget the National Debt to GDP ratio. We’re in hock. Both in the USA and the UK, we owe through personal, business and government debts three times more than we make in a year. That’s right our overall debt to GDP ratio is 3:1.
So where did all the money come from? If we’re not making it, how can we owe so much? It’s simple. We borrowed it and now, some of our creditors are asking to be repaid.
The system is unable to produce enough real wealth (value) to maintain profitability (surplus value). It has hidden this difficulty by creating masses of “fictitious capital,” claims on wealth that do not correspond with any real wealth (actual commodities and services). These include mountains of debt, profits made on unproductive labour (such as making missiles and other armaments, which, unlike cars and steel production, do not re-enter the cycle of production, and various forms of speculation, as well as using up the environment without replenishing it (a form of “primitive accumulation” also called “looting the future” ). At some point the bill was sure to come due.
Money is a fictitious commodity. Banks create it. Let’s see how it works. I borrow $250,000 to buy an asset. I grant mortgage rights on my asset to the bank as collateral. Seller deposits my $250,000. Bank retains its 10% reserve as required by US law then lends the balance, $225,000. We’ve started creating money. Now we have $475,000 in circulation against my original asset value of $250,000. So it goes on. My $250,000 asset can create money by way of lending funds equal to more than nine times that amount.
It goes without saying if that money is invested in housing stock in a rapidly falling market, let’s say, house prices fall by 30% that seems reasonable right now and in line with bank predictions, then the loss generated by banks exceeds the value of the original asset deposit by well over 100%. The result, as Mr Micawber might have said, is unhappiness.
It’s going to get worse. The CEO of Barclays Bank, and a fellow economist who I know personally, Roger Bootle at Capital Economics, say house prices in the UK will fall by 30% to 35%. I believe their estimate is conservative and likely to be exceeded by at least 15% to 20% if one includes 2008 price drops. The USA is following the same pattern.
The house price boom was the pursuit of fool’s gold.
No additional value was being created by hiked-up house prices.
It was simply a false and untenable form of asset inflation that fuelled unrealistic levels of credit. The world was awash with property millionaires buoyed up by borrowings. No more, since to use another banking expression, they are all about to take a bath.
It’s a double bubble burst, personal assets and debt crashing at the same time means more and more people will struggle to repay their debts against devalued collateral, and end in foreclosure and homelessness.
It’s going to get a lot worse.
The car companies are only the tip of the iceberg. More big businesses, especially those with high levels of debt, will crash in 2009. Big companies have borrowed too much especially those taken off the market in private equity deals.
Rises in unemployment will further reduce consumer spending that in turn will have an effect on economic output, jobs and income.
There will be bigger gaps between rich and poor, and bigger economic contradictions.
There will be homelessness and unaffordable empty houses.
I noticed this week that in the UK, over 760,000 houses are now empty. So who owns them and what will happen? What happens to empty homes in foreclosures when no one can buy them? Worst still what happens to the people on the street?
That thought bugged me, so I rang the press office of the UK charity, Shelter, which works for the homeless. I gather there may be about 500,000 homeless in Britain. But it’s not official as Government statistics say 72,000.
It doesn’t matter which statistic is right there are enough resources to provide people with homes. That’s the point.
Papers recently leaked from the UK Home Office predict a growth in social unrest leading to higher crime, racism, political extremism and other acts of violence.
Britain is likely to borrow further hundreds of billions of pounds to shore up failing businesses and attempt to create jobs in the public sector.
Can Government really make a difference?
Some of the criticisms of the American Presidency make me laugh. So now George Bush is to blame for all manner of social ills.
Really?
I doubt if that guy has the brains to tie up his shoelaces without supervision! He signs things that are produced elsewhere. The power in American society exists outside the Oval Office. You’d better believe it; else go renew your subscription to Naïveté International!
What tools does government have at its disposal?
It has some influence over the base interest rate that has been lowered dramatically and is still failing to produce any real traction in a depressed economy. There is taxation and public spending. Finally, there is legislation and regulation.
The USA and the UK is investing about two trillion dollars of taxpayer funds in the banking sector. It’s a money sink. It may shore up the private equity interests of major shareholders in banking, however I do not believe it will have any further economic benefit.
“The creation of further credit in an already over indebted economy is like giving someone with liver disease their own supply of whisky to help them recover.”
All the bail-outs will do is compensate the banks for poor lending practice and help make good, bad debts and losses already incurred based on the creation of fictitious capital.
The bail out is also socially misdirected. More and more people will suffer as a result of economic failure.
Personal hardship will be rife.
I would prefer to see my taxpayer funds invested in the good of people in society as a whole rather than some wealthy, powerful minority of bank shareholders.
A new “New Deal”?
It seems we are now rejecting the conservative idea that “the market” should function without government supervision and regulation, not to mention intervention. Instead there is a new programme of state regulation and the subsidy of corporations.
Some people are calling for a new “New Deal,” meaning regulation and bail outs of corporations, plus government-sponsored projects and investment in public works.
Undoubtedly there are many ways in which public works would be beneficial. The national infrastructure could be replaced. Ecological projects are desperately needed. Expanding public services would otherwise help people with medical, educational, and employment needs. Life might become less painful for many.
This is not the same thing, however, as ending a deep recession, let alone another Great Depression. The last Great Depression was not cured by the New Deal. It lasted over a decade and only ended with the Second World War. This points to the limitations of a new “New Deal,” even if one was politically feasible.
In these respects, the same considerations apply to Britain as the USA.
Economists everywhere predict a demise in the US dominance of world economic power, and a transfer of that power to the likes of China and other developing economies. I’m not sure if it will be that simple.
Also I do not necessarily believe that Barack Obama and his newly elected government will make much real difference to our world.
His carefully constructed and hypnotic marketing rhetoric appears to have little substance behind it. I am open to be persuaded by well-reasoned, carefully researched, cogent arguments that demonstrate otherwise. I am not open to second hand oft-repeated media pap that, in my view, frequently insults the intelligence of a ten year old.
How I might feel about what’s on offer is perhaps best summed up in the words of Mark Twain:
“In religion and politics people's beliefs and convictions are in almost every case gotten at second-hand, and without examination, from authorities who have not themselves examined the questions at issue but have taken them at second-hand from other non-examiners, whose opinions about them were not worth a brass farthing.”
So what of “Change you can Believe in”, and Obama’s messages of “Hope”, “Change” and “Believe”?
What the hell do they mean? Change to what? Hope for what? Believe in what?
They are all potent messages, since anyone confronted by hardship and difficulty, in worrying about their future, their family and whether their home mortgage might be foreclosed, might wish for a change in their personal circumstances, might wish to hope for a better life, might wish to believe in their own future.
Is this what Obama is promising?
The power of his meaningless messages is that you can believe and hope for whatever you want them to mean.
We’ve been here before.
The people of the UK believed that their world would change, that they could hope for a better future, when they elected Tony Blair and his social democratic, centrist New Labour party. Did it change? Did it hell! Look where we are now and wake up!
Blair was bright, charismatic and apparently progressive too. He had a lot of “Obama” appeal. His appeal to the nation was one of reunification following the socially divisive and destructive years of Thatcherite Reaganomics, of years of the fall-out from greed and selfishness caused by the free market economy. He delivered nothing to little, which in its own way might go some way to demonstrate the impotence of governments that are not based on any mass social movement campaigning for change.
Instead Blair joined with Bush and America to go wage the “war against terror” in Iraq.
Both Bush and Blair lied grotesquely to their parliaments and the public in order to go wage war in the Middle East.
So who supplied the WMD to Iraq in the first place?
Here’s a piece from the UK Times newspaper, published on December 31 2002, approximately three months before the US / UK invasion of Iraq.
The Times is not known for taking subversive political positions. Historically, it has been the newspaper of the UK establishment:
“DONALD RUMSFELD, the US Defence Secretary and one of the most strident critics of Saddam Hussein, met the Iraqi President in 1983 to ease the way for US companies to sell Baghdad biological and chemical weapons components, including anthrax and bubonic plague cultures, according to newly declassified US Government documents.”
Got it! So the US sold WMD to Iraq then declared war against the country for owning what it supplied to them. Of course, that makes so much sense.
But by the time of the invasion, there were no WMD.
There were certainly no links between Saddam and Al Qaeda of any note.
Besides, Al Qaeda is a fluid, non-state, global organisation with cells throughout the world. No obvious connections have been established between Iraq and Al Qaeda. Saddam may have been a ruthless, unstable tyrant, but that was not the justification for this invasion, nor is it commensurate with or justified by the enormous loss of life caused by the conflict.
Our governments ruthlessly exploited our fears and paranoia based on the attacks of September 11th, 2001. There is no apparent connection between this reprehensible incident and Iraq.
America and the world grieved for the 3,000 lives lost at 911.
Who grieves for the hundreds of thousands of civilian casualties, of mothers, children and babies too who have lost their lives in the Iraq war?
No exact casualty figure is known for those Iraqis who have lost their lives in this conflict. There are documented deaths of some 100,000 Iraqi civilians. Others estimate that the total number of Iraqi casualties of war is closer to 1 million with 4 million having been displaced from their homes.
There’s a point here, but before we go on to consider it further, let’s look at a thesis put forward by the former US State Department official, William Blum, who observes that between 1945 and 1999, the US has conducted serious military interventions in over 70 nations to secure the following basic imperatives:
- Making the world safe for American corporations
- Enhancing the financial statements of defence contractors at home…
- Preventing the rise of any successful society that might serve as a successful example of an alternative to the capitalist model
- Extending political and economic dominance over as wide an area as possible, as befits “a great power”
Are there any more?
You can make up your own mind where the war against Iraq fits, as it doesn’t fulfil any objectives that were stated by our governments as the basis for engaging in this conflict.
By the way, I am simply reporting Blum’s view, I readily acknowledge that other imperatives might exist, but nevertheless I believe that broadly his view reflects an uncomfortable reality.
I have so many concerns about the so-called “war against terror” not least of which is that the threat of so-called Islamic terrorism is indefinite in its reach and its defeat is indeterminable.
As such it provides a spectre of imminent doom that presents a highly convenient rationale for extending operations worldwide as a basis for extending Anglo-American political and economic dominance and control.
The levels of racism and hatred excited by the “war against terror” against our own Muslim communities, and Islamic nations and communities in general, are such that it would be no surprise to me if they struck back at us.
I do not condone violence; all I would advocate is that we find a way of transforming this latent risk of further conflict before it is too late.
We may have to resolve defence double standards too. If we don’t want other nations to possess nuclear weapons, then we may have to forego them ourselves.
Those who really own the most powerful Weapons of Mass Destruction are frequently those who complain the loudest about others having them too. The combined USA / UK arsenal of WMD is greater than any other one country in the world including Russia that has a massive holding in its nuclear inventory. It doesn’t bring me any peace of mind knowing that fact.
I know so many Americans pin their hopes on Obama to bring peace in our world.
I doubt if any one man can do that. It requires the social masses to bring peace, and frankly most are too complacent, too lazy and too dumbed out by mind-pap media to do that.
I know also that gun sales to white American right-wing rednecks seeking to defend themselves against the onslaught of Obama’s “socialist army” have risen to an uncomfortable level.
Obama is no socialist.
I fear that too many have swallowed the vacuous messages of his massive $0.6 billion marketing campaign too.
Also I fear, and it’s a very uncomfortable thing to say, for attempts on his life. A political assassination might have social consequences too terrible to contemplate, and may be the excuse that the political right wants and needs to seize power and control again, to exploit the same mass hysteria they so ruthlessly exploited in the devastating sadness and aftermath of 911.
We’ve got used to the process of “threat, reaction, solution” that so often equates to little more than mass murder in the pursuit of goals that power groups in our societies pass off as a vehicle for their own interests.
Think about Iraq. Think about the gains and losses there. What gain? Could it be oil and a strategic presence in the Middle East? What loss? Hundreds of thousands of innocent civilian Iraqi lives.
It makes me weep sometimes. I feel very concerned for our future.
The USA and the UK are suffocating in a blanket of national, corporate and personal debt. The amount of money that has been poured into our failing banking systems is now of the order of $15,000,000,000,000 worldwide or one quarter of the value of everything the world produces in a year.
Homelessness and unemployment are rising.
I have resisted writing about our economic world of late, as I didn’t wish to enter the realm of “Grumpy Old Men.”
Well, happy New Year!
It won’t ever be the same again. BUT capitalism albeit that it’s in crisis is far from finished yet.
Forget the National Debt to GDP ratio. We’re in hock. Both in the USA and the UK, we owe through personal, business and government debts three times more than we make in a year. That’s right our overall debt to GDP ratio is 3:1.
So where did all the money come from? If we’re not making it, how can we owe so much? It’s simple. We borrowed it and now, some of our creditors are asking to be repaid.
The system is unable to produce enough real wealth (value) to maintain profitability (surplus value). It has hidden this difficulty by creating masses of “fictitious capital,” claims on wealth that do not correspond with any real wealth (actual commodities and services). These include mountains of debt, profits made on unproductive labour (such as making missiles and other armaments, which, unlike cars and steel production, do not re-enter the cycle of production, and various forms of speculation, as well as using up the environment without replenishing it (a form of “primitive accumulation” also called “looting the future” ). At some point the bill was sure to come due.
Money is a fictitious commodity. Banks create it. Let’s see how it works. I borrow $250,000 to buy an asset. I grant mortgage rights on my asset to the bank as collateral. Seller deposits my $250,000. Bank retains its 10% reserve as required by US law then lends the balance, $225,000. We’ve started creating money. Now we have $475,000 in circulation against my original asset value of $250,000. So it goes on. My $250,000 asset can create money by way of lending funds equal to more than nine times that amount.
It goes without saying if that money is invested in housing stock in a rapidly falling market, let’s say, house prices fall by 30% that seems reasonable right now and in line with bank predictions, then the loss generated by banks exceeds the value of the original asset deposit by well over 100%. The result, as Mr Micawber might have said, is unhappiness.
It’s going to get worse. The CEO of Barclays Bank, and a fellow economist who I know personally, Roger Bootle at Capital Economics, say house prices in the UK will fall by 30% to 35%. I believe their estimate is conservative and likely to be exceeded by at least 15% to 20% if one includes 2008 price drops. The USA is following the same pattern.
The house price boom was the pursuit of fool’s gold.
No additional value was being created by hiked-up house prices.
It was simply a false and untenable form of asset inflation that fuelled unrealistic levels of credit. The world was awash with property millionaires buoyed up by borrowings. No more, since to use another banking expression, they are all about to take a bath.
It’s a double bubble burst, personal assets and debt crashing at the same time means more and more people will struggle to repay their debts against devalued collateral, and end in foreclosure and homelessness.
It’s going to get a lot worse.
The car companies are only the tip of the iceberg. More big businesses, especially those with high levels of debt, will crash in 2009. Big companies have borrowed too much especially those taken off the market in private equity deals.
Rises in unemployment will further reduce consumer spending that in turn will have an effect on economic output, jobs and income.
There will be bigger gaps between rich and poor, and bigger economic contradictions.
There will be homelessness and unaffordable empty houses.
I noticed this week that in the UK, over 760,000 houses are now empty. So who owns them and what will happen? What happens to empty homes in foreclosures when no one can buy them? Worst still what happens to the people on the street?
That thought bugged me, so I rang the press office of the UK charity, Shelter, which works for the homeless. I gather there may be about 500,000 homeless in Britain. But it’s not official as Government statistics say 72,000.
It doesn’t matter which statistic is right there are enough resources to provide people with homes. That’s the point.
Papers recently leaked from the UK Home Office predict a growth in social unrest leading to higher crime, racism, political extremism and other acts of violence.
Britain is likely to borrow further hundreds of billions of pounds to shore up failing businesses and attempt to create jobs in the public sector.
Can Government really make a difference?
Some of the criticisms of the American Presidency make me laugh. So now George Bush is to blame for all manner of social ills.
Really?
I doubt if that guy has the brains to tie up his shoelaces without supervision! He signs things that are produced elsewhere. The power in American society exists outside the Oval Office. You’d better believe it; else go renew your subscription to Naïveté International!
What tools does government have at its disposal?
It has some influence over the base interest rate that has been lowered dramatically and is still failing to produce any real traction in a depressed economy. There is taxation and public spending. Finally, there is legislation and regulation.
The USA and the UK is investing about two trillion dollars of taxpayer funds in the banking sector. It’s a money sink. It may shore up the private equity interests of major shareholders in banking, however I do not believe it will have any further economic benefit.
“The creation of further credit in an already over indebted economy is like giving someone with liver disease their own supply of whisky to help them recover.”
All the bail-outs will do is compensate the banks for poor lending practice and help make good, bad debts and losses already incurred based on the creation of fictitious capital.
The bail out is also socially misdirected. More and more people will suffer as a result of economic failure.
Personal hardship will be rife.
I would prefer to see my taxpayer funds invested in the good of people in society as a whole rather than some wealthy, powerful minority of bank shareholders.
A new “New Deal”?
It seems we are now rejecting the conservative idea that “the market” should function without government supervision and regulation, not to mention intervention. Instead there is a new programme of state regulation and the subsidy of corporations.
Some people are calling for a new “New Deal,” meaning regulation and bail outs of corporations, plus government-sponsored projects and investment in public works.
Undoubtedly there are many ways in which public works would be beneficial. The national infrastructure could be replaced. Ecological projects are desperately needed. Expanding public services would otherwise help people with medical, educational, and employment needs. Life might become less painful for many.
This is not the same thing, however, as ending a deep recession, let alone another Great Depression. The last Great Depression was not cured by the New Deal. It lasted over a decade and only ended with the Second World War. This points to the limitations of a new “New Deal,” even if one was politically feasible.
In these respects, the same considerations apply to Britain as the USA.
Economists everywhere predict a demise in the US dominance of world economic power, and a transfer of that power to the likes of China and other developing economies. I’m not sure if it will be that simple.
Also I do not necessarily believe that Barack Obama and his newly elected government will make much real difference to our world.
His carefully constructed and hypnotic marketing rhetoric appears to have little substance behind it. I am open to be persuaded by well-reasoned, carefully researched, cogent arguments that demonstrate otherwise. I am not open to second hand oft-repeated media pap that, in my view, frequently insults the intelligence of a ten year old.
How I might feel about what’s on offer is perhaps best summed up in the words of Mark Twain:
“In religion and politics people's beliefs and convictions are in almost every case gotten at second-hand, and without examination, from authorities who have not themselves examined the questions at issue but have taken them at second-hand from other non-examiners, whose opinions about them were not worth a brass farthing.”
So what of “Change you can Believe in”, and Obama’s messages of “Hope”, “Change” and “Believe”?
What the hell do they mean? Change to what? Hope for what? Believe in what?
They are all potent messages, since anyone confronted by hardship and difficulty, in worrying about their future, their family and whether their home mortgage might be foreclosed, might wish for a change in their personal circumstances, might wish to hope for a better life, might wish to believe in their own future.
Is this what Obama is promising?
The power of his meaningless messages is that you can believe and hope for whatever you want them to mean.
We’ve been here before.
The people of the UK believed that their world would change, that they could hope for a better future, when they elected Tony Blair and his social democratic, centrist New Labour party. Did it change? Did it hell! Look where we are now and wake up!
Blair was bright, charismatic and apparently progressive too. He had a lot of “Obama” appeal. His appeal to the nation was one of reunification following the socially divisive and destructive years of Thatcherite Reaganomics, of years of the fall-out from greed and selfishness caused by the free market economy. He delivered nothing to little, which in its own way might go some way to demonstrate the impotence of governments that are not based on any mass social movement campaigning for change.
Instead Blair joined with Bush and America to go wage the “war against terror” in Iraq.
Both Bush and Blair lied grotesquely to their parliaments and the public in order to go wage war in the Middle East.
So who supplied the WMD to Iraq in the first place?
Here’s a piece from the UK Times newspaper, published on December 31 2002, approximately three months before the US / UK invasion of Iraq.
The Times is not known for taking subversive political positions. Historically, it has been the newspaper of the UK establishment:
“DONALD RUMSFELD, the US Defence Secretary and one of the most strident critics of Saddam Hussein, met the Iraqi President in 1983 to ease the way for US companies to sell Baghdad biological and chemical weapons components, including anthrax and bubonic plague cultures, according to newly declassified US Government documents.”
Got it! So the US sold WMD to Iraq then declared war against the country for owning what it supplied to them. Of course, that makes so much sense.
But by the time of the invasion, there were no WMD.
There were certainly no links between Saddam and Al Qaeda of any note.
Besides, Al Qaeda is a fluid, non-state, global organisation with cells throughout the world. No obvious connections have been established between Iraq and Al Qaeda. Saddam may have been a ruthless, unstable tyrant, but that was not the justification for this invasion, nor is it commensurate with or justified by the enormous loss of life caused by the conflict.
Our governments ruthlessly exploited our fears and paranoia based on the attacks of September 11th, 2001. There is no apparent connection between this reprehensible incident and Iraq.
America and the world grieved for the 3,000 lives lost at 911.
Who grieves for the hundreds of thousands of civilian casualties, of mothers, children and babies too who have lost their lives in the Iraq war?
No exact casualty figure is known for those Iraqis who have lost their lives in this conflict. There are documented deaths of some 100,000 Iraqi civilians. Others estimate that the total number of Iraqi casualties of war is closer to 1 million with 4 million having been displaced from their homes.
There’s a point here, but before we go on to consider it further, let’s look at a thesis put forward by the former US State Department official, William Blum, who observes that between 1945 and 1999, the US has conducted serious military interventions in over 70 nations to secure the following basic imperatives:
- Making the world safe for American corporations
- Enhancing the financial statements of defence contractors at home…
- Preventing the rise of any successful society that might serve as a successful example of an alternative to the capitalist model
- Extending political and economic dominance over as wide an area as possible, as befits “a great power”
Are there any more?
You can make up your own mind where the war against Iraq fits, as it doesn’t fulfil any objectives that were stated by our governments as the basis for engaging in this conflict.
By the way, I am simply reporting Blum’s view, I readily acknowledge that other imperatives might exist, but nevertheless I believe that broadly his view reflects an uncomfortable reality.
I have so many concerns about the so-called “war against terror” not least of which is that the threat of so-called Islamic terrorism is indefinite in its reach and its defeat is indeterminable.
As such it provides a spectre of imminent doom that presents a highly convenient rationale for extending operations worldwide as a basis for extending Anglo-American political and economic dominance and control.
The levels of racism and hatred excited by the “war against terror” against our own Muslim communities, and Islamic nations and communities in general, are such that it would be no surprise to me if they struck back at us.
I do not condone violence; all I would advocate is that we find a way of transforming this latent risk of further conflict before it is too late.
We may have to resolve defence double standards too. If we don’t want other nations to possess nuclear weapons, then we may have to forego them ourselves.
Those who really own the most powerful Weapons of Mass Destruction are frequently those who complain the loudest about others having them too. The combined USA / UK arsenal of WMD is greater than any other one country in the world including Russia that has a massive holding in its nuclear inventory. It doesn’t bring me any peace of mind knowing that fact.
I know so many Americans pin their hopes on Obama to bring peace in our world.
I doubt if any one man can do that. It requires the social masses to bring peace, and frankly most are too complacent, too lazy and too dumbed out by mind-pap media to do that.
I know also that gun sales to white American right-wing rednecks seeking to defend themselves against the onslaught of Obama’s “socialist army” have risen to an uncomfortable level.
Obama is no socialist.
I fear that too many have swallowed the vacuous messages of his massive $0.6 billion marketing campaign too.
Also I fear, and it’s a very uncomfortable thing to say, for attempts on his life. A political assassination might have social consequences too terrible to contemplate, and may be the excuse that the political right wants and needs to seize power and control again, to exploit the same mass hysteria they so ruthlessly exploited in the devastating sadness and aftermath of 911.
We’ve got used to the process of “threat, reaction, solution” that so often equates to little more than mass murder in the pursuit of goals that power groups in our societies pass off as a vehicle for their own interests.
Think about Iraq. Think about the gains and losses there. What gain? Could it be oil and a strategic presence in the Middle East? What loss? Hundreds of thousands of innocent civilian Iraqi lives.
It makes me weep sometimes. I feel very concerned for our future.
|
How do we get out of this mess?
24/10/08 14:17 Filed in: Economic Crisis
I find all the numbers about the economy that are being banded around now to be mind-boggling. There are two big numbers that stick in my mind and that is the size of the bank bailouts in the UK and the USA. In the UK, the cost of the bailout plan is estimated to be around $1 trillion and in the USA, $700 billion.
The USA is the largest economy in the world with an annual Gross Domestic Product of $13.8 trillion, that represents about 25% of the world’s total economic output. The UK is the fifth largest economy with a GDP of $2.8 trillion. Ranking at positions of 2, 3, and 4 are Japan, Germany and China. China’s economic importance is growing fast but the size of its economic output is a little over 25% of that of the USA.
These are a lot of numbers I know. I wanted to write them down so I got some perspective on what it is we are talking about.
The size of the UK bank-bail out if it was looked at on the scale of national economies would rank at 13th in the international GDP table. The amount of money that the UK is making available to its banks is greater than the GDP of some 166 other countries.
With the cost of the bailout, the size of the national debt of USA and UK has soared during 2008. Under the Bush administration, the size of the national debt as a proportion of GDP has risen from 60% to around 115%. In the UK, the national debt may reach 100% of GDP or more this year.
Another alarming statistic (Source: BBC Business news 24 October 24, 2008) is that the UK aggregate of national debt, corporate and personal borrowing is three times that of the country’s annual economic output.
So what’s happening now? We’ve had runs on banks and international markets. Now there’s a new game on the streets. We’re having runs on national economies. Banks, hedge funds and mutual funds are demanding repayment from economies that they perceive to be at risk, either because of their reliance on foreign borrowings or because they are net importers of goods and services or both.
The UK pound has fallen 20% against the dollar in the past three months. South Korea’s currency, the won, has fallen by 29%. There are some obvious candidates like Hungary, Ukraine and Iceland lining up in the financial emergency room too.
The South Korean problem is complex and again, whilst the issues are in the banking systems, they have nothing to do with mortgages, housing or sub-prime loans but wholesale capital withdrawals resulting from imprudent deals struck by banks in currency hedges (Currency hedges are intended to offset risk through the simultaneous sale and purchase of forward currency contracts).
South Korea is a strong exporter. Its trading performance and its balance of trade is healthier than UK’s and probably the USA’s too albeit on a smaller scale. It ranks thirteenth in the world in terms of economic output.
Other countries suffering substantial capital withdrawals are South Africa and Argentina.
It’s expected that the UK will announce economic contraction today or “negative economic growth” as the city boys like to call it. It will get worse, possibly much worse as the UK has moved out of manufacturing industries to an economy where its mainstay is the fast contracting financial services sector. The financial services sector in the UK while it only accounts for 4% of total employment represents 30% of the UK’s GDP.
As Mr. Bush Sr. said, “It looks like we’re in deep doo doo now.”
It’s not only about the sub-prime issue anymore. When markets start dealing in national economies, it affects us all. Historically, national instability on a wide scale has tended to result in conflict and wars. Let’s hope we’ve learned some lessons from the past.
I’ve heard lots of arguments about reducing taxation and the bailout bringing benefits from the “trickle down” effect. Trick or treat more like! The treat is that the wealthy benefit, and the trick is that the poor suffer. Trickle down has been argued since Hoover in the twenties. It didn’t work then, it doesn’t work now. There is nothing to support the argument that it has ever worked.
In principle, I am strongly opposed to the bail out now. I have changed my mind about it. I am opposed to it since it is fundamentally undemocratic. To use, Chomsky’s words, “private corporations are tyrannies who account to no one other than themselves.” They are run for their own profit, not the benefit of the world or the public. In short, they are in it for themselves and no one else. If banks want to play Russian roulette with national economies, they’ll do it if they see profit for themselves.
I don’t believe either that the rot in the banking systems is solely to blame for our current economic difficulties. I have never believed that particular story. The turmoil in our financial systems is, I believe, a symptom of underlying economic instability rather than its cause. Banks may play a big part in that system and be central to its functioning but they do not exercise any overall control of the economy itself, but supply a service to it. The service is debt, more normally called credit. The realisation or appreciation of assets, or the prospect of future earnings offsets the credit risk. Credit is at risk, when economies contract, assets depreciate and earnings do not grow or diminish. When credit goes bad, banks make losses.
The so-called sub-prime crisis may not have happened unless the value of homes, of mortgage collateral, was called into question. The asset value of homes fell which meant that banks were unable to realise the security they had taken in return for the credit that they had extended.
My real concern is for the average person on the street. I don’t know a massive number of people, but I have talked to so many who are suffering or have suffered major economic hardship now. They have lost their jobs, their homes and in one case, I know someone who will be facing bankruptcy in the next couple of weeks. He was formerly a capable and successful businessman. I don’t need government to say, “We’re in recession. It’s official!” I know that to be the case as financial difficulties are multiplying around me all the time. I can see them with my own eyes. Everyone I know, every single person knows someone who is suffering real hardship now.
So what’s the answer? There are possibly two answers, but both amount to the same thing. It’s not that difficult. The answer is about democracy. In the dictionary definition, democracy "is government by the people in which the supreme power is vested in the people and exercised directly by them or by their elected agents under a free electoral system." In the phrase of Abraham Lincoln, democracy is a government "of the people, by the people, and for the people."
We need to decide whether democracy is what we want and be prepared to do something about it. We have to decide what we want in this world, if it’s public welfare or not. The wellbeing of banks does not and will not necessarily bring about public welfare or alleviate personal financial hardship. They will willingly take taxpayers’ money then spend it in achieving their own ends whether that’s mergers, acquisitions or anything else, so long as it feeds their own self-interest.
The free market ideology was upheld until big businesses started to flounder. Now everyone is talking about increased regulation and control of big business by government. I might ask, in order to achieve what end and for whose benefit?
The political process has become divorced from the people both in the UK and the USA. I do not know anyone who believes they have any real influence over the democratic process. Government is, therefore, no longer democratic or to use Chomsky’s words “there is a democratic deficit”. Whether it’s Republican or Democrat, New Labour or Conservative, nothing will change until we recover the essence of Lincoln’s dictum and we assume and take responsibility for public well-being.
Obama will not make a difference unless he works within some overall social organisation that restores democratically representative government. The real power structures within our society have little to do with government, but are capable of being transformed by government if it has the political will to do so. These power structures that are founded on economic self-interest will resist change by using every means at their disposal. It’s no small challenge.
I believe in democracy. I also believe in freedom, personal and social responsibility and self-determination. That’s about all.
I mentioned two options: First. we can pull out of free market economics to an extent and endeavour to restore economic equilibrium through increased government control and regulation. I am not sure it will work. Democratic government represents the will of the people. Business corporations represent their own interests. They are neither the same nor are they necessarily compatible. Our economic systems are failing. It may be that government intervention keeps the market, which is fundamentally unstable and inherently inefficient, on “life support”, but I wonder if the patient will ever recover. This is the first option. It’s about big government and government control. Nevertheless, it requires a fundamental re-alignment of the conduct of government with overall public interest and wider democratic participation.
I’ve had a number of personal crises in my life. They have all been about change and the need to change. I’ve never had a benevolent philanthropist throw money at me so I could carry on living as before. I have had to change. There is a lot of nonsense talked about the Chinese etymology of the word crisis saying that it signifies two words, “danger” and “opportunity”. This is incorrect. In fact the Chinese word crisis is derived from the something closer in meaning to “an incipient moment”, a moment in which something is in the process of becoming. I believe that a crisis is closely connected, not with catastrophe but, with the process of change itself.
My second option is also my preferred one and it involves turning the bailout on its head. It goes like this: We leave the markets and businesses alone to find their own solutions. They may or may not. It matters little. Government provides a safety net to the people and directs its resources entirely for the benefit of the people affected by any systemic economic failure. $700 billion should do it easily, and it would not be a bottomless pit either. In practical terms, this means that it would need to guarantee not the wellbeing of banks, but the safety of people’s money in those banks. It means that it would not legislate massive state initiatives to create jobs like the “new deal”, but support economic initiatives by the people themselves for the benefit and wellbeing of themselves and their own communities. It might even go further and promote work in environmental, health, education and ‘care for the elderly’ initiatives.
The key difference would be one of focus and of catering for people directing their efforts and resources for their own wellbeing, rather than for the benefit of the small minority who control large corporations. Large corporations may or may not survive in such a world. Their survival would be influenced by different factors, not by how much profit they made, but by how well they served a social need or purpose. I would vote for such a world.
It may be that the right solution is a hybrid of these two options. I would not rule out the direct intervention by government in a bank's administration or in facilitating a take-over in order to act in the public interest. My problem is in government using taxpayer's money to buy banks out of a problem that achieves little by way of improving corporate responsibility, and offers no obvious social benefit.
Sadly, I doubt if the answer will come with Barrack Obama, but he does offer the best chance of change. I hope he's not just different icing on the same old cake. There isn’t a hope in hell of getting out of this mess with McCain and Palin.
In conclusion, here’s today’s economic update from Europe. Shares in Europe’s main markets are down between 7% and 8% this morning.
The Bank of England deputy governor, Charles Bean said, "This is a once in a lifetime crisis, and possibly the largest financial crisis of its kind in human history."
The price of gold, typically, the place people put money in times of crisis has fallen by five per cent.
The USA is the largest economy in the world with an annual Gross Domestic Product of $13.8 trillion, that represents about 25% of the world’s total economic output. The UK is the fifth largest economy with a GDP of $2.8 trillion. Ranking at positions of 2, 3, and 4 are Japan, Germany and China. China’s economic importance is growing fast but the size of its economic output is a little over 25% of that of the USA.
These are a lot of numbers I know. I wanted to write them down so I got some perspective on what it is we are talking about.
The size of the UK bank-bail out if it was looked at on the scale of national economies would rank at 13th in the international GDP table. The amount of money that the UK is making available to its banks is greater than the GDP of some 166 other countries.
With the cost of the bailout, the size of the national debt of USA and UK has soared during 2008. Under the Bush administration, the size of the national debt as a proportion of GDP has risen from 60% to around 115%. In the UK, the national debt may reach 100% of GDP or more this year.
Another alarming statistic (Source: BBC Business news 24 October 24, 2008) is that the UK aggregate of national debt, corporate and personal borrowing is three times that of the country’s annual economic output.
So what’s happening now? We’ve had runs on banks and international markets. Now there’s a new game on the streets. We’re having runs on national economies. Banks, hedge funds and mutual funds are demanding repayment from economies that they perceive to be at risk, either because of their reliance on foreign borrowings or because they are net importers of goods and services or both.
The UK pound has fallen 20% against the dollar in the past three months. South Korea’s currency, the won, has fallen by 29%. There are some obvious candidates like Hungary, Ukraine and Iceland lining up in the financial emergency room too.
The South Korean problem is complex and again, whilst the issues are in the banking systems, they have nothing to do with mortgages, housing or sub-prime loans but wholesale capital withdrawals resulting from imprudent deals struck by banks in currency hedges (Currency hedges are intended to offset risk through the simultaneous sale and purchase of forward currency contracts).
South Korea is a strong exporter. Its trading performance and its balance of trade is healthier than UK’s and probably the USA’s too albeit on a smaller scale. It ranks thirteenth in the world in terms of economic output.
Other countries suffering substantial capital withdrawals are South Africa and Argentina.
It’s expected that the UK will announce economic contraction today or “negative economic growth” as the city boys like to call it. It will get worse, possibly much worse as the UK has moved out of manufacturing industries to an economy where its mainstay is the fast contracting financial services sector. The financial services sector in the UK while it only accounts for 4% of total employment represents 30% of the UK’s GDP.
As Mr. Bush Sr. said, “It looks like we’re in deep doo doo now.”
It’s not only about the sub-prime issue anymore. When markets start dealing in national economies, it affects us all. Historically, national instability on a wide scale has tended to result in conflict and wars. Let’s hope we’ve learned some lessons from the past.
I’ve heard lots of arguments about reducing taxation and the bailout bringing benefits from the “trickle down” effect. Trick or treat more like! The treat is that the wealthy benefit, and the trick is that the poor suffer. Trickle down has been argued since Hoover in the twenties. It didn’t work then, it doesn’t work now. There is nothing to support the argument that it has ever worked.
In principle, I am strongly opposed to the bail out now. I have changed my mind about it. I am opposed to it since it is fundamentally undemocratic. To use, Chomsky’s words, “private corporations are tyrannies who account to no one other than themselves.” They are run for their own profit, not the benefit of the world or the public. In short, they are in it for themselves and no one else. If banks want to play Russian roulette with national economies, they’ll do it if they see profit for themselves.
I don’t believe either that the rot in the banking systems is solely to blame for our current economic difficulties. I have never believed that particular story. The turmoil in our financial systems is, I believe, a symptom of underlying economic instability rather than its cause. Banks may play a big part in that system and be central to its functioning but they do not exercise any overall control of the economy itself, but supply a service to it. The service is debt, more normally called credit. The realisation or appreciation of assets, or the prospect of future earnings offsets the credit risk. Credit is at risk, when economies contract, assets depreciate and earnings do not grow or diminish. When credit goes bad, banks make losses.
The so-called sub-prime crisis may not have happened unless the value of homes, of mortgage collateral, was called into question. The asset value of homes fell which meant that banks were unable to realise the security they had taken in return for the credit that they had extended.
My real concern is for the average person on the street. I don’t know a massive number of people, but I have talked to so many who are suffering or have suffered major economic hardship now. They have lost their jobs, their homes and in one case, I know someone who will be facing bankruptcy in the next couple of weeks. He was formerly a capable and successful businessman. I don’t need government to say, “We’re in recession. It’s official!” I know that to be the case as financial difficulties are multiplying around me all the time. I can see them with my own eyes. Everyone I know, every single person knows someone who is suffering real hardship now.
So what’s the answer? There are possibly two answers, but both amount to the same thing. It’s not that difficult. The answer is about democracy. In the dictionary definition, democracy "is government by the people in which the supreme power is vested in the people and exercised directly by them or by their elected agents under a free electoral system." In the phrase of Abraham Lincoln, democracy is a government "of the people, by the people, and for the people."
We need to decide whether democracy is what we want and be prepared to do something about it. We have to decide what we want in this world, if it’s public welfare or not. The wellbeing of banks does not and will not necessarily bring about public welfare or alleviate personal financial hardship. They will willingly take taxpayers’ money then spend it in achieving their own ends whether that’s mergers, acquisitions or anything else, so long as it feeds their own self-interest.
The free market ideology was upheld until big businesses started to flounder. Now everyone is talking about increased regulation and control of big business by government. I might ask, in order to achieve what end and for whose benefit?
The political process has become divorced from the people both in the UK and the USA. I do not know anyone who believes they have any real influence over the democratic process. Government is, therefore, no longer democratic or to use Chomsky’s words “there is a democratic deficit”. Whether it’s Republican or Democrat, New Labour or Conservative, nothing will change until we recover the essence of Lincoln’s dictum and we assume and take responsibility for public well-being.
Obama will not make a difference unless he works within some overall social organisation that restores democratically representative government. The real power structures within our society have little to do with government, but are capable of being transformed by government if it has the political will to do so. These power structures that are founded on economic self-interest will resist change by using every means at their disposal. It’s no small challenge.
I believe in democracy. I also believe in freedom, personal and social responsibility and self-determination. That’s about all.
I mentioned two options: First. we can pull out of free market economics to an extent and endeavour to restore economic equilibrium through increased government control and regulation. I am not sure it will work. Democratic government represents the will of the people. Business corporations represent their own interests. They are neither the same nor are they necessarily compatible. Our economic systems are failing. It may be that government intervention keeps the market, which is fundamentally unstable and inherently inefficient, on “life support”, but I wonder if the patient will ever recover. This is the first option. It’s about big government and government control. Nevertheless, it requires a fundamental re-alignment of the conduct of government with overall public interest and wider democratic participation.
I’ve had a number of personal crises in my life. They have all been about change and the need to change. I’ve never had a benevolent philanthropist throw money at me so I could carry on living as before. I have had to change. There is a lot of nonsense talked about the Chinese etymology of the word crisis saying that it signifies two words, “danger” and “opportunity”. This is incorrect. In fact the Chinese word crisis is derived from the something closer in meaning to “an incipient moment”, a moment in which something is in the process of becoming. I believe that a crisis is closely connected, not with catastrophe but, with the process of change itself.
My second option is also my preferred one and it involves turning the bailout on its head. It goes like this: We leave the markets and businesses alone to find their own solutions. They may or may not. It matters little. Government provides a safety net to the people and directs its resources entirely for the benefit of the people affected by any systemic economic failure. $700 billion should do it easily, and it would not be a bottomless pit either. In practical terms, this means that it would need to guarantee not the wellbeing of banks, but the safety of people’s money in those banks. It means that it would not legislate massive state initiatives to create jobs like the “new deal”, but support economic initiatives by the people themselves for the benefit and wellbeing of themselves and their own communities. It might even go further and promote work in environmental, health, education and ‘care for the elderly’ initiatives.
The key difference would be one of focus and of catering for people directing their efforts and resources for their own wellbeing, rather than for the benefit of the small minority who control large corporations. Large corporations may or may not survive in such a world. Their survival would be influenced by different factors, not by how much profit they made, but by how well they served a social need or purpose. I would vote for such a world.
It may be that the right solution is a hybrid of these two options. I would not rule out the direct intervention by government in a bank's administration or in facilitating a take-over in order to act in the public interest. My problem is in government using taxpayer's money to buy banks out of a problem that achieves little by way of improving corporate responsibility, and offers no obvious social benefit.
Sadly, I doubt if the answer will come with Barrack Obama, but he does offer the best chance of change. I hope he's not just different icing on the same old cake. There isn’t a hope in hell of getting out of this mess with McCain and Palin.
In conclusion, here’s today’s economic update from Europe. Shares in Europe’s main markets are down between 7% and 8% this morning.
The Bank of England deputy governor, Charles Bean said, "This is a once in a lifetime crisis, and possibly the largest financial crisis of its kind in human history."
The price of gold, typically, the place people put money in times of crisis has fallen by five per cent.
Teetering on the edge...
06/10/08 13:41 Filed in: Economic Crisis | Economy
Good morning, America.
Today, the principal European stock markets have fallen by between 7% and 9%. The economy of Iceland looks to be teetering on the edge of collapse. Governments throughout Europe are seeking to bolster up the fortunes of failing financial institutions.
My heart wasn’t in that piece I wrote about the big bank bail out last week. I simply didn’t believe that the US sub-prime mortgage issue was at the root of the problem. I still don’t.
Governments can scramble to bring market turmoil back into some sort of balance. I believe they will fail. And you don’t need a crash course in economics and politics to work out why.
Markets arose from a basic acknowledgement that humans are an interdependent species. They fulfilled the need of intermediating in an exchange of human value. They had their roots in the requirements of humans to live in mutually supportive relations. Notionally, at least, we swapped value via markets that were simply a medium of exchange as was money.
Something else happened, and markets took on the guise, not of exchanging social needs, but accumulating wealth. Their principal function was to generate profit for the few by the many. Markets now create wealth but they fail to distribute that wealth effectively. Markets have become dislocated from our social world.
People are frightened. They fear for their livelihoods, their wellbeing, their jobs and their savings. That is no surprise at all. I share those fears too.
Free market capitalism takes no account of that which it cannot commodify. Basic human needs of respect, safety, love and affection, wellbeing, security and protection have no place in a market economy. Market economics must return to some very basic questions of use value and exchange value. We have to take into account the real value of human effort and work, and that is very different from its market value. Market economics does not value affective or social relationships, the family, the community, the environment or the world we live in, all of which are vital to human wellbeing and survival.
Free market economics has given birth to a monster, one that has no regard for human wellbeing. As hard as governments may try to bring it under control, they will fail. The free market has no social purpose or social conscience.
I will say something that is perhaps deeply unpopular. I believe that the post 9/11 paranoia has been based on something that Jungians call “shadow projection” - seeking an object of blame outside ourselves for that which we cannot deal or cope with in our own reality. Don’t get me wrong, 9/11 was an appalling act of terrorism. I oppose it wholeheartedly. But I believe that the notion of a “Muslim threat of terrorism that undermines our western civilization” (whatever that is) is an ideological distraction from those things going badly wrong closer to home…right under our noses in the free market economy. There may be more terrorism yet. Economic instability in the west is likely to be seen as a terrorist opportunity. Market economics is destabilizing the Middle East too. So is the cause sub-prime mortgages? I would doubt that too, wouldn’t you?
That’s it for now. This blog has no economic value and I must go off and work out how to earn a few pennies. Till the next time… À Bientôt.
Today, the principal European stock markets have fallen by between 7% and 9%. The economy of Iceland looks to be teetering on the edge of collapse. Governments throughout Europe are seeking to bolster up the fortunes of failing financial institutions.
My heart wasn’t in that piece I wrote about the big bank bail out last week. I simply didn’t believe that the US sub-prime mortgage issue was at the root of the problem. I still don’t.
Governments can scramble to bring market turmoil back into some sort of balance. I believe they will fail. And you don’t need a crash course in economics and politics to work out why.
Markets arose from a basic acknowledgement that humans are an interdependent species. They fulfilled the need of intermediating in an exchange of human value. They had their roots in the requirements of humans to live in mutually supportive relations. Notionally, at least, we swapped value via markets that were simply a medium of exchange as was money.
Something else happened, and markets took on the guise, not of exchanging social needs, but accumulating wealth. Their principal function was to generate profit for the few by the many. Markets now create wealth but they fail to distribute that wealth effectively. Markets have become dislocated from our social world.
People are frightened. They fear for their livelihoods, their wellbeing, their jobs and their savings. That is no surprise at all. I share those fears too.
Free market capitalism takes no account of that which it cannot commodify. Basic human needs of respect, safety, love and affection, wellbeing, security and protection have no place in a market economy. Market economics must return to some very basic questions of use value and exchange value. We have to take into account the real value of human effort and work, and that is very different from its market value. Market economics does not value affective or social relationships, the family, the community, the environment or the world we live in, all of which are vital to human wellbeing and survival.
Free market economics has given birth to a monster, one that has no regard for human wellbeing. As hard as governments may try to bring it under control, they will fail. The free market has no social purpose or social conscience.
I will say something that is perhaps deeply unpopular. I believe that the post 9/11 paranoia has been based on something that Jungians call “shadow projection” - seeking an object of blame outside ourselves for that which we cannot deal or cope with in our own reality. Don’t get me wrong, 9/11 was an appalling act of terrorism. I oppose it wholeheartedly. But I believe that the notion of a “Muslim threat of terrorism that undermines our western civilization” (whatever that is) is an ideological distraction from those things going badly wrong closer to home…right under our noses in the free market economy. There may be more terrorism yet. Economic instability in the west is likely to be seen as a terrorist opportunity. Market economics is destabilizing the Middle East too. So is the cause sub-prime mortgages? I would doubt that too, wouldn’t you?
That’s it for now. This blog has no economic value and I must go off and work out how to earn a few pennies. Till the next time… À Bientôt.
Human survival or the survival of capitalism?
12/09/08 23:04 Filed in: Social Change | Future
We may have to choose.
To those of you who might be afraid of economics and economic systems, don’t be! They are very simple. All that an economic system does is to make things, consume things and distribute things according to an allocation. That’s all!
Capitalism is equally simple...
“The decadent international but individualistic capitalism ... is not a success. It is not intelligent, it is not beautiful, it is not just, it is not virtuous—and it doesn’t deliver the goods. In short, we dislike it and we are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed.” — John Maynard Keynes
In a way, that’s a remarkable quotation. Keynes was no revolutionary, but a very conservative and influential economist whose work inspired Western governments in their economic policy for decades, especially in the UK.
But going back to the nature of capitalism: Capitalism’s main characteristics are the accumulation of value, private ownership (of the means of production), production for profit, and hierarchical organisation of the workplace.
I feel much the same about capitalism as did Maynard Keynes. I’m equally perplexed.
I’ve been reading a lot of late about new and emerging theories about economics, politics and social organisation and came across an interesting set of criteria in some material about “participatory economics”. I’m not sure if I could accept all participatory economics’ (parecon for short) theory and ideas but I did like the six values against which these theorists evaluated the effectiveness of various economic systems.
Here they are:
1. Equity, or fair and just outcomes;
2. Caring and mutual respect among all people;
3. Diversity of outcomes which would benefit everyone;
4. Participatory self-management, or having a say in decisions to the extent that one is affected by their outcomes;
5. Efficiency, or not wasting resources;
6. Environmental sustainability.
For me, that is the most sensible and desirable list of criteria for an economic system I have ever seen. But looking at this list, capitalism doesn’t do very well. Let’s see:
• Capitalism generates atomised, self-interested behaviour, not caring and mutual respect among people.
• Capitalism generates inefficiency, since it’s based on individual behaviours.
• Capitalism’s environmental record speaks for itself; it destroys biodiversity.
• Capitalism does not promote self-management, but instead generates a situation where a few make decisions for the many.
• Capitalism does not generate diversity.
• Capitalism’s consumption is characterised by the total neglect of others. Consumers think of only themselves and can ignore the effects of the goods they buy on the environment and on the workers who produced the goods.
I’m not swinging in any political direction here either, since most of the same criticisms can be applied to socialist economic models too.
I’m not so sure about capitalism at all. It’s based on the infinite expansion of consumption. Does that work for you? Try eating more and more, year on year and see where that gets you. It’s an absurd idea I know. Capitalism is as absurd.
The American biologist E. O. Wilson estimates that if the entire world consumes at the same rate as the USA, then we would need four planet earths to sustain mankind now.
Hysterical or common sense? Better believe it’s common sense, since if we don’t address this issue in the twenty first century, there may not be a twenty second.
To those of you who might be afraid of economics and economic systems, don’t be! They are very simple. All that an economic system does is to make things, consume things and distribute things according to an allocation. That’s all!
Capitalism is equally simple...
“The decadent international but individualistic capitalism ... is not a success. It is not intelligent, it is not beautiful, it is not just, it is not virtuous—and it doesn’t deliver the goods. In short, we dislike it and we are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed.” — John Maynard Keynes
In a way, that’s a remarkable quotation. Keynes was no revolutionary, but a very conservative and influential economist whose work inspired Western governments in their economic policy for decades, especially in the UK.
But going back to the nature of capitalism: Capitalism’s main characteristics are the accumulation of value, private ownership (of the means of production), production for profit, and hierarchical organisation of the workplace.
I feel much the same about capitalism as did Maynard Keynes. I’m equally perplexed.
I’ve been reading a lot of late about new and emerging theories about economics, politics and social organisation and came across an interesting set of criteria in some material about “participatory economics”. I’m not sure if I could accept all participatory economics’ (parecon for short) theory and ideas but I did like the six values against which these theorists evaluated the effectiveness of various economic systems.
Here they are:
1. Equity, or fair and just outcomes;
2. Caring and mutual respect among all people;
3. Diversity of outcomes which would benefit everyone;
4. Participatory self-management, or having a say in decisions to the extent that one is affected by their outcomes;
5. Efficiency, or not wasting resources;
6. Environmental sustainability.
For me, that is the most sensible and desirable list of criteria for an economic system I have ever seen. But looking at this list, capitalism doesn’t do very well. Let’s see:
• Capitalism generates atomised, self-interested behaviour, not caring and mutual respect among people.
• Capitalism generates inefficiency, since it’s based on individual behaviours.
• Capitalism’s environmental record speaks for itself; it destroys biodiversity.
• Capitalism does not promote self-management, but instead generates a situation where a few make decisions for the many.
• Capitalism does not generate diversity.
• Capitalism’s consumption is characterised by the total neglect of others. Consumers think of only themselves and can ignore the effects of the goods they buy on the environment and on the workers who produced the goods.
I’m not swinging in any political direction here either, since most of the same criticisms can be applied to socialist economic models too.
I’m not so sure about capitalism at all. It’s based on the infinite expansion of consumption. Does that work for you? Try eating more and more, year on year and see where that gets you. It’s an absurd idea I know. Capitalism is as absurd.
The American biologist E. O. Wilson estimates that if the entire world consumes at the same rate as the USA, then we would need four planet earths to sustain mankind now.
Hysterical or common sense? Better believe it’s common sense, since if we don’t address this issue in the twenty first century, there may not be a twenty second.
O Brave New World!
09/09/08 13:34 Filed in: Social Change | Future
Where to from here? My answer is that I’m as unsure as the rest of us.
I do believe in freedom, autonomy and voluntary association as human values in which to aspire.
It surprises me how many people I talk to about freedom who appear terrified of it. I know many people are frightened of freedom, perhaps in the same way that they are frightened of responsibility. I’m not altogether sure where that fear comes from. In psychological terms, it may be from anxiety about maturation, from the desire not to leave the succour and the emotional sustenance of the providing parent. I’m not sure that is right entirely. We live in a world where we do as we’re told, and where we often conform to an infantilised state of mind. Psychologically, I wonder too what this fear of responsibility is about. Is conformity and responsibility an antithesis? It may be. Conformity is the easy way out too. It means copying someone else because another says it’s the right thing to do, rather than feeling or thinking for oneself. It is easier not to think.
There are two aspects of freedom, I believe, and they are “freedom from” that is a negative connotation and “freedom to be” which is its positive opposite. This is a little like the infant growing up. The “freedom from” is a freedom from oppressive and overbearing institutional way of life where we are told how to act, think or feel, rather than do it for ourselves. The “freedom to” part is to experience ourselves as loving, creative, constructive, responsible, actualised, and sometimes fulfilled, human beings. Resisting freedom in social terms may be the same as resisting growing up in human development.
And what of autonomy, how does that differ from freedom? Autonomy is simple. It’s the exercise of responsibility for oneself. It means taking responsibility for one’s own actions and moral decisions.
Perhaps there is a little more than that in our economic world to consider: There is the difference between “having” and “being” and how we define ourselves as human beings. If we define ourselves in economic terms, by what we have, then we lose our identity, our autonomy, if we lose our possessions. We become nothing if we have nothing.
As the psychologist and philosopher, Erich Fromm wrote: Being is about nothing more than the productive use of our human powers. “(Being means)…to give expression to one’s faculties, talents, to the wealth of human gifts with which every human is endowed. It means to renew oneself, to grow, to flow out, to love, to transcend the prison of one’s isolated ego, to be interested…to give.”
Freedom does present problems to humankind that have been overlooked by many individualist liberal philosophers. The major problem with freedom is that it requires individuals to exercise a high degree of personal, social and moral responsibility, rather than have someone else tell them what to do and take decisions for them.
There’s a favourite quote of mine by Nobel Prize winning American economist, James Buchanan, that I have mentioned elsewhere. He is talking about the “parental” role of government and the state:
“With parentalism…we refer to the attitudes of persons who seek to have values imposed upon them by other persons, by the state, or by transcendental forces. This source of support for expanded collectivization has been relatively neglected by both socialist and liberal philosophers, perhaps because philosophers, in both camps, remain methodological individualists.
Almost subconsciously, those scientists-scholars-academics who have tried to look at the “big picture” have assumed that, other things being equal, persons want to be at liberty to make their own choices, to be free from coercion by others, including indirect coercion through means of persuasion. They have failed to emphasize sufficiently, and to examine the implications of, the fact that liberty carries with it responsibility. And it seems evident that many persons do not want to shoulder the final responsibility for their own actions. Many persons are, indeed, afraid to be free.”
Without either freedom or responsibility, one cannot have existence by voluntary association, since voluntary association requires that humans collaborate and cooperate freely and responsibly to achieve their common goals. An intelligent observer of my writing suggested that we might need leaders since we are not necessarily capable of acting consensually, collaboratively and cooperatively. She makes a very good point.
It’s true that our present social systems are based on an authoritarian hierarchy that purports to be democratic. It is far from being truly democratic since other than deciding on the election of the “haves” or the “have mores” there is no general participation in decision-making. I have no influence over issues around health, poverty, education, social welfare and defence, other than those prescribed by alternative candidates. It’s token democracy where strong government is synonymous with state authoritarianism. The combination of the authoritarian state and multi-national capitalism means that I am told how to act, behave, think, work and consume. It erodes my humanity, since I am no longer free, but a thing, a means to someone else’s end. I am homo consumens, the consumer man.
My friend also makes an important point too indirectly about knowledge and belief. We have only very limited knowledge and experience of freedom and the exercise of personal and social responsibility since all aspects of our society are organised around leadership hierarchies where leaders take responsibility for telling others how to act. We might believe that we need leaders, since we have no experience of being without them.
I have two experiences of leadership experiments, both where, at least notionally, I was the leader.
The first was a quirky accident of fate. I was invited to join the board of a large mental health project based in London. They had a problem. They had too much money and were at risk of losing some very large government grants unless they got rid of a lot of cash quickly. Rather unflatteringly, at least so I thought at the time, I was asked to go there since their treasurer (a CPA known to me from university) felt I would know how to spend money "creatively"!
I joined the board of trustees, and within about six months, I was asked to stand to be chairman of the board. It was a trustee's voting nomination that I accepted. I accepted and was appointed.
It was an executive chairman's post and part of my job was supporting its management and staff. Within the trust, there was a deeply democratic ethos. Any employee, could attend a board meeting, and exercise voting rights in common with a board member. The only rights I had as chairman were the exercise of a casting vote in a deadlock, or a veto vote that deferred a decision to the next board meeting (that could be exercised only once).
My commercial training, and by day I worked as a chief executive of a computer software company, might have told me that this was a recipe for disaster. On the board, we had legal, financial and medical advisers, experts whose views and advice might theoretically be overturned by a junior employee.
It never worked that way, since there was a deeply respectful management style. Management’s role was not perceived to be one necessarily of leadership, control or authority, but of support, and access to the resources (including human resources) that enabled staff to undertake their work.
In theory, the employees through access and contribution to the board decision process might have caused a manager to be discharged or appointed. It never worked that way, because the role of management was to support and facilitate, rather than control.
What was even more rewarding was that not only did this odd management style that was properly democratic work, but it was enormously successful! It was so successful, in fact, that the Trust was appointed by the UK National Health Service to be its principal adviser and consultant on projects of its type. On a personal note, it was also the most alive and enjoyable place I have worked in my entire life. One of the things that distinguished this special project was the enlightened and involved attitude of its entire staff who cared deeply for what happened in their organization and jointly took responsibility for its wellbeing and its purpose.
In the nineties, I also had the experience of attempting to turn over a technology business to employee ownership and broader management participation. It could not have been more different. Some managers and employees had such profound difficulties in taking on responsibility that they teetered on the edge of sanity. Destructive sub-cultures formed who tried to usurp, seize or break off parts of the business that they could steal for themselves. In the end, I put a stop to it and returned it to its previous paternalistic management style that was, at least, largely benevolent and benign.
Of course, there was a major difference between these environments. The staff of both organizations were well paid, that much they had in common. The mental health organization had growth in its sights, but it was not its main purpose. The mental health project functioned as a trust for the benefit of those in its care; the company was a capitalist enterprise run for the benefit of its shareholders.
Despite a massive investment in culture change programmes, the underlying culture of the company was difficult to change. All that extended ownership achieved was to make manifest the unhealthy, political, opportunistic and often dishonest dynamics that existed in the workplace at almost every level. The ethos was that people worked in order to make its shareholders rich. People were a means to an end. When it was proposed to change ownership, it was seen as an opportunity by some to do to others, what had been done to them.
I’ll continue to think about this dilemma. I am unsure as to whether freedom and capitalism are contradictory forces. In my past, I had thought that, in a way, capitalism might embody freedom, but now I’m undecided. I’ll go away and think about the human values that underpin our capitalist societies. By the way, I’m opposed to socialism in all its previous manifestations too. Capitalism may be the lesser of two evils, where socialism represents authoritarian, and often totalitarian, state control.
More soon…
I do believe in freedom, autonomy and voluntary association as human values in which to aspire.
It surprises me how many people I talk to about freedom who appear terrified of it. I know many people are frightened of freedom, perhaps in the same way that they are frightened of responsibility. I’m not altogether sure where that fear comes from. In psychological terms, it may be from anxiety about maturation, from the desire not to leave the succour and the emotional sustenance of the providing parent. I’m not sure that is right entirely. We live in a world where we do as we’re told, and where we often conform to an infantilised state of mind. Psychologically, I wonder too what this fear of responsibility is about. Is conformity and responsibility an antithesis? It may be. Conformity is the easy way out too. It means copying someone else because another says it’s the right thing to do, rather than feeling or thinking for oneself. It is easier not to think.
There are two aspects of freedom, I believe, and they are “freedom from” that is a negative connotation and “freedom to be” which is its positive opposite. This is a little like the infant growing up. The “freedom from” is a freedom from oppressive and overbearing institutional way of life where we are told how to act, think or feel, rather than do it for ourselves. The “freedom to” part is to experience ourselves as loving, creative, constructive, responsible, actualised, and sometimes fulfilled, human beings. Resisting freedom in social terms may be the same as resisting growing up in human development.
And what of autonomy, how does that differ from freedom? Autonomy is simple. It’s the exercise of responsibility for oneself. It means taking responsibility for one’s own actions and moral decisions.
Perhaps there is a little more than that in our economic world to consider: There is the difference between “having” and “being” and how we define ourselves as human beings. If we define ourselves in economic terms, by what we have, then we lose our identity, our autonomy, if we lose our possessions. We become nothing if we have nothing.
As the psychologist and philosopher, Erich Fromm wrote: Being is about nothing more than the productive use of our human powers. “(Being means)…to give expression to one’s faculties, talents, to the wealth of human gifts with which every human is endowed. It means to renew oneself, to grow, to flow out, to love, to transcend the prison of one’s isolated ego, to be interested…to give.”
Freedom does present problems to humankind that have been overlooked by many individualist liberal philosophers. The major problem with freedom is that it requires individuals to exercise a high degree of personal, social and moral responsibility, rather than have someone else tell them what to do and take decisions for them.
There’s a favourite quote of mine by Nobel Prize winning American economist, James Buchanan, that I have mentioned elsewhere. He is talking about the “parental” role of government and the state:
“With parentalism…we refer to the attitudes of persons who seek to have values imposed upon them by other persons, by the state, or by transcendental forces. This source of support for expanded collectivization has been relatively neglected by both socialist and liberal philosophers, perhaps because philosophers, in both camps, remain methodological individualists.
Almost subconsciously, those scientists-scholars-academics who have tried to look at the “big picture” have assumed that, other things being equal, persons want to be at liberty to make their own choices, to be free from coercion by others, including indirect coercion through means of persuasion. They have failed to emphasize sufficiently, and to examine the implications of, the fact that liberty carries with it responsibility. And it seems evident that many persons do not want to shoulder the final responsibility for their own actions. Many persons are, indeed, afraid to be free.”
Without either freedom or responsibility, one cannot have existence by voluntary association, since voluntary association requires that humans collaborate and cooperate freely and responsibly to achieve their common goals. An intelligent observer of my writing suggested that we might need leaders since we are not necessarily capable of acting consensually, collaboratively and cooperatively. She makes a very good point.
It’s true that our present social systems are based on an authoritarian hierarchy that purports to be democratic. It is far from being truly democratic since other than deciding on the election of the “haves” or the “have mores” there is no general participation in decision-making. I have no influence over issues around health, poverty, education, social welfare and defence, other than those prescribed by alternative candidates. It’s token democracy where strong government is synonymous with state authoritarianism. The combination of the authoritarian state and multi-national capitalism means that I am told how to act, behave, think, work and consume. It erodes my humanity, since I am no longer free, but a thing, a means to someone else’s end. I am homo consumens, the consumer man.
My friend also makes an important point too indirectly about knowledge and belief. We have only very limited knowledge and experience of freedom and the exercise of personal and social responsibility since all aspects of our society are organised around leadership hierarchies where leaders take responsibility for telling others how to act. We might believe that we need leaders, since we have no experience of being without them.
I have two experiences of leadership experiments, both where, at least notionally, I was the leader.
The first was a quirky accident of fate. I was invited to join the board of a large mental health project based in London. They had a problem. They had too much money and were at risk of losing some very large government grants unless they got rid of a lot of cash quickly. Rather unflatteringly, at least so I thought at the time, I was asked to go there since their treasurer (a CPA known to me from university) felt I would know how to spend money "creatively"!
I joined the board of trustees, and within about six months, I was asked to stand to be chairman of the board. It was a trustee's voting nomination that I accepted. I accepted and was appointed.
It was an executive chairman's post and part of my job was supporting its management and staff. Within the trust, there was a deeply democratic ethos. Any employee, could attend a board meeting, and exercise voting rights in common with a board member. The only rights I had as chairman were the exercise of a casting vote in a deadlock, or a veto vote that deferred a decision to the next board meeting (that could be exercised only once).
My commercial training, and by day I worked as a chief executive of a computer software company, might have told me that this was a recipe for disaster. On the board, we had legal, financial and medical advisers, experts whose views and advice might theoretically be overturned by a junior employee.
It never worked that way, since there was a deeply respectful management style. Management’s role was not perceived to be one necessarily of leadership, control or authority, but of support, and access to the resources (including human resources) that enabled staff to undertake their work.
In theory, the employees through access and contribution to the board decision process might have caused a manager to be discharged or appointed. It never worked that way, because the role of management was to support and facilitate, rather than control.
What was even more rewarding was that not only did this odd management style that was properly democratic work, but it was enormously successful! It was so successful, in fact, that the Trust was appointed by the UK National Health Service to be its principal adviser and consultant on projects of its type. On a personal note, it was also the most alive and enjoyable place I have worked in my entire life. One of the things that distinguished this special project was the enlightened and involved attitude of its entire staff who cared deeply for what happened in their organization and jointly took responsibility for its wellbeing and its purpose.
In the nineties, I also had the experience of attempting to turn over a technology business to employee ownership and broader management participation. It could not have been more different. Some managers and employees had such profound difficulties in taking on responsibility that they teetered on the edge of sanity. Destructive sub-cultures formed who tried to usurp, seize or break off parts of the business that they could steal for themselves. In the end, I put a stop to it and returned it to its previous paternalistic management style that was, at least, largely benevolent and benign.
Of course, there was a major difference between these environments. The staff of both organizations were well paid, that much they had in common. The mental health organization had growth in its sights, but it was not its main purpose. The mental health project functioned as a trust for the benefit of those in its care; the company was a capitalist enterprise run for the benefit of its shareholders.
Despite a massive investment in culture change programmes, the underlying culture of the company was difficult to change. All that extended ownership achieved was to make manifest the unhealthy, political, opportunistic and often dishonest dynamics that existed in the workplace at almost every level. The ethos was that people worked in order to make its shareholders rich. People were a means to an end. When it was proposed to change ownership, it was seen as an opportunity by some to do to others, what had been done to them.
I’ll continue to think about this dilemma. I am unsure as to whether freedom and capitalism are contradictory forces. In my past, I had thought that, in a way, capitalism might embody freedom, but now I’m undecided. I’ll go away and think about the human values that underpin our capitalist societies. By the way, I’m opposed to socialism in all its previous manifestations too. Capitalism may be the lesser of two evils, where socialism represents authoritarian, and often totalitarian, state control.
More soon…