Three Things I Like

I've always liked this 1855 Ford Madox Brown painting, The Last of England.

& I've always liked that passage in one of Douglas Adam's novels where they construct a spaceship to take all the hairdressers, PR people, stylists and so on off planet to allow everyone else to get on with the real business of life.

& now , it seems, there is the prospect of a third thing I like:

" Half of British bankers would consider leaving the country if a cap were put on their cash bonuses, a survey showed on Friday.

The poll by jobs website eFinancialCareers.com found that 49 percent of British-based bankers would consider voting with their feet such a limit to their income were introduced. That figure rose to 71 percent among financiers with six to ten years experience."

Via Alice

Dilbert Does 'Keynesianism of the Bankers'

Hey, the argument is in my previous post but this puts it better...

Nationalise, Rationalise, Sanitise, Privatise ?

JKA says the Swedish strategy is working for RBS:
"So... toxic assets cleansed, cyclicals insured, all this and an 84% government shareholding. Nationalise, Rationalise, Sanitise, Privatise."

This is a useful corrective to 'chicken little' type press coverage responses which simple go 'Oh-ah - the Sky is falling in' at the scale of the losses. But I'm not convinced, not yet.

Saving RBS isn't at all the same as restoring the status quo ante. The banks may be re-floatable - although we have to see how far government support can possibly stretch in the final analysis - but that doesn't mean that it is sensible to patch them up and set them off doing what they used to do, but 'more prudently' this time.

A 'Keynesianism of the bankers' isn't at all the same as a 'Keynesianism of the people'. It's quite possible to imagine a finance sector flourishing once again - on the basis of not loaning (as much) money to small firms or wannabe home-owners as once they did. In fact, that's the 'economically rational' thing to do. Politics in the coming period is going to be about challenging that 'rationality'. I don't just mean left wing politics - I also mean the politics of people like Rob, who wants to rebuild his version of Britain. It ain't possible on the basis of the status quo ante. Harder decisions have to be taken about long term investment, and about tax rates.

The banks may, in four or five years, all be re-privatised: there is no current political imperative to do otherwise - although, if the 'Icelandic moment' spreads from the periphery to the centre, that might change. Let's not give up hope completely, even if there is no sign, as yet, of a 're-birth of the left'.

But even if we're only concerned about the future of our particular country - a national-popular moment, as Gramsci would have it - we can''t afford to let the banks let loose to simply do the same thing all over again. Tougher regulation, at minimium, surely has to be part of the deal.

Bad Banks: Bad for Whom ?

Everywhere there seems to be talk of setting up one or more bad bank. Will Hutton is a long time advocate and last week Willem Buiter devoted his FT column to explaining how to do it. As I understand it the basic idea is to split the assets of the existing banks into 'good' and 'bad' tranches, and hive off the toxic debts into a separate organisation which can then be either allowed to go belly up or, according to taste, taken into public ownership and nursed back to health in an explicitly 'Swedish' style. The resulting 'good' banks will then, it is claimed, be better able to start lending again - or, if you accept that they are already lending, to fill the gap left by all those exploding Icelandic and Irish banks which no longer operate on any scale in the UK. That is the purpose of government's re-capitalising them.

All this sounds very technical to the non economist. But Willem Buiter gives the clue as to why it is not:

"The senior debt of many of the institutions that are likely to turn out to be bad banks is often held by institutional investors like pension funds and insurance companies. If and when the old bad banks default on that debt, the holders of the debt obviously get hurt. While that is regrettable, it is surely better that the burden of the losses incurred as a result of past bad lending and investment decisions fall on those who made these decisions rather than on the tax payer."

So, it seems, the pension funds take the hit. But this is not politically plausible - or at least it wouldn't be if enough people understood the politics of this proposal, which I doubt they do. It's a kind of three card trick: the toxic debts of the banks and financial sector get off set against our futures. It's doesn't seem immensely different from the proposal to take a levy on pensions which has recently brought Ireland to boiling point.

Government intervention should be designed to protect people's mortgages and pensions as well as stimulating the economy. It shouldn't be designed to restore the status quo ante for the financial markets. Or at least that's what I thought Labour governments were suppose to be about...but perhaps that's dreadfully old-fashioned of me.

Robin Blackburn has some imaginative ideas for a 'bail out from below' in which the pension funds play a key role. But this can't work if they're stuck with the toxic stock of 'zombie' banks. It's high time these technical solutions to the crisis were discussed more politically.

The Economic Crisis: First Sight of Green Shoots in Italy

Bloomberg reports:

"Jan. 30 (Bloomberg) -- Revenue raked in by Italy’s mob surged 40 percent last year, turning crime into the nation’s No. 1 business, Eurispes said in its annual report.

Income increased to 130 billion euros ($167 billion), up from about 90 billion euros in 2007, according to figures supplied by Eurispes and SOS Impresa, an association of businessmen to protest against extortion. Drug trafficking remains the primary source of revenue, bringing in about 59 billion euros, and the mob earned 5.8 billion euros from selling arms, the Rome-based Eurispes research group said today.

“During a crisis, people lower their guard,” Roberto Saviano, who wrote the bestseller “Gomorrah” about the Camorra crime bosses, said in an interview. “Studies show the criminal market never suffers during a crisis. I’m convinced that this crisis is bringing huge advantages to criminal syndicates.”

Via MR

Isn't it wonderful how the market mechanism reallocates capital to more efficient enterprises during a recession?

Well, sort of

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Via Sunny at Liberal Conspiracy.

Beguiling video...and yet not quite enough to convince me. Why did this system develop in the first place? I still hold to the view I posted here:

"Around 1970-75 the rate of return on industrial capital began to decline in the USA and across the West - this resulted, first, in a renewed emphasis on cutting back the share of national income that went to wages and salaries (cf here) and, second, the development of a huge and sophisticated system of credit driven finance capital. It is this unprecedented credit system which has created globalisation, not any allegedly 'game changing' technologies such as computers. It allowed big capital to lend money to vast numbers of people whose static or declining real wages would otherwise have prevented them from acquiring assets such as housing."

Reykjavík on the Liffey ?

100,000 marched in Dublin against a cut in the social wage - a pension levy in this case. Roughly speaking that's equivalent to getting something like 1.25 million Brits out on the street. The TU's are condemning the governing elite and the bankers as 'economic traitors' to the nation. This sounds very like Iceland.

I couldn't help picking up via a discussion at the Cedar Lounge Revolution that there is one little remarked on difference between Iceland and Ireland: Ireland has an army. & its generals are determined to do their duty if there are widespread strikes. But the solders 'staff association' - the wonderfully named Permanent Defence Forces Other Ranks Representative Association (Pdforra) - were on the demo. So were reps from both the Garda associations.

If I were Brian Cowen I'd be thinking very carefully about how best to casually drop this point into discussions with the ECB and the IMF - it might help him get better terms for a country hovering a little too close to sovereign default for comfort.

Two stories about work and mind altering substances.

This last week it's been half term in London schools. Just the right time to organise a police raid on my nine-year old's primary school...

I should explain. The caretaker had been growing - ahem, I mean allegedly growing, of course - a small forest of cannabis plants in the boiler room. It was the sky-high electricity bills which revealed the secret. Someone tipped off a tabloid and suddenly Mrs. Charlie, a parent governor, has spent half the week issuing po-faced statements of support for the excellent head and the other half fending off humorous texts from her mates archly asking if this was a new PTA fund raising initiative. This should be a nine day wonder: there's no suggestion that any one's little darling came into contact with the plants.

But these things can linger in the collective memory, as Richard Fortey's rather wonderful 'The Secret Life of the Natural History Museum- Dry Store Room No.1' has reminded me. Before the war, there was allegedly an illicit still inside the hollow Big Blue Whale. (It's a delightful book - the NYRB review is reproduced here). The Head of Exhibitions was said to be responsible. I can only imagine it didn't show up on the utility bills....

Jumpers for Goalposts: On Football and Banks

I've been thinking about how bloody dreadful going to the football was when I was young: the leery crowds, the lack of adequate safety measures, the simmering mood of aberrant masculinity, the pig pens of stadia. I did go, nonetheless, and got various kinds of joy from it, not all of which I care to confess to at this distance in time.

It was seen as a game irredeemable tainted with hooliganism, racism and misogyny; a sport played in dangerous, antediluvian premises. All too often, it really was like that. As Heysel, Hillsborough and the Bradford fire revealed.

This was well before the days of When Saturday Comes and the Mark Perryman Liberation Front (aka Philosophy Football) you understand. Football was not cool. It was seen as the sporting analogy of those old nineteenth century smokestack industries Mrs. Thatcher was busy closing down - a survival of a less attractive, class bound past. The future, surely, was individualised, participative sporting activity (going to the gym, jogging and so on) involving choice, not attendance at ritualised mass events? Especially not mass events so overwhelmingly dominated by men, and often uncouth young white men at that.

It didn't turn out like that did it? Sure, a lot more people go to the gym than they did in the 1980s (although I seem to see fewer joggers these days). But football is still a mass spectator sport of choice - indeed, the mass sport. It's just that its now advertised on the telly with multi-racial families moving sofas to the edge of a pitch and running onto to comfort 'dad' when he gets tackled. A sanitised - and to a degree, de-misogynised - version of the old 'mass' entertainment has been sold back to us as 'niche' entertainment. How did this happen?

First, Mrs.Thatcher cleared the ground with her imposition of all-seater stadia and other safety measures. Secondly, Europe, in the form of the UEFA ban on English clubs after Heysel, economically forced a degree of painful change as well. Thirdly, and probably most important, was football's discovery that it could form a symbiotic relationship with an emerging and socially disruptive new technology, satellite TV. TV made English football rich. Football, with movies (another survival of mass entertainment from the pre-WW2 years), acted as the cutting edge which allowed 'niche' satellite TV to disrupt the old oligarchical, 'top-down' system of public broadcasting. So football made Murdoch and co very rich as well.

Now my hunch is that all this may have already peaked. English football is deeply indebted, and even Abramovich is facing something of a financial pinch. But that's not my major concern at the moment. What I want to tease out is the potential for a metaphor.

The global crisis means something is going to have to change in our national economic structure. The government needs to sweep away the dangerous aspects of our banking system just as Thatcher swept away those old death-trap stadia. This has to mean, at the very least, a return to 'pre-big Bang' division between retail and merchant banking and quite possibly a version of Richard Murphy's 'network banking' idea. International co-ordination is necessary to enforce a cultural change in world finance, just as the UEFA ban after Heysel was intended to do in English football. & the remains of our manufacturing base needs to be energised to engage with emerging technologies, especially green technologies, to provide a way forward in terms of employment and sustainable wealth creation.

Blogging Problems

I've discovered why all the smart folk* use Wordpress, not Blogger. I tried to change my template last night and foolishly tried to import a bespoke one rather than using one of the very limited number of 'off the peg' templates available in Blogger. It's taken me ages to get back to normal as the supposedly clean and aesthetically pleasing design of the bespoke template mucked up almost every element of my chosen design - including turning the comments link into a very strange 'Up?' .

I'd be off to Wordpress like a shot if I could just work out a way of exporting my blogroll. This needs to be in OPML to be importable into Wordpress but I can't find a way of getting my links in Blogger into that format. Any one know how?

( *Obviously I mean all the smart, cheapskate folks. Typepad looks nice, but you have to pay for it.....)

& This is the Upside...

Earlier today, I posted about, amongst other things, Sir Andrew Cahn, chief executive of UK Trade & Investment. The FT had quoted him as saying, that despite the recession, Britain's security exports had a bright future. I hadn't actually put two and two together and worked out the implication of his saying that his organisation had 'doubled their staff' in this area. The Campaign Against the Arms Trade provide quite a lot of help in understanding Sir Andrew: his job is to boost and subsidise these exports. He's taken over the former Ministry of Defence functions around this - well apart from the really dodgy stuff around exports to Saudi Arabia.

Worldmapper offers this image of the value of arms exports in 2003, with countries re-sized to represent their relative importance in the trade overall. Does it look like Britian has an underdeveloped arms sector?

This recession is turning into a vulgar agit-prop morality tale: the bankers get bailed out, the arms manufacturers get twice as many civil servants to help them and the rest of us wait for the downturn to hit us...

Bad Science v Bad Radio Station

You can go elsewhere for the detailed arguments on this one: its not my field.

But every blogger should add a link to Ben Goldacre's site as he appears to be measuring the links as a yardstick of support.

Stray Thoughts on the Political Sociology of Ageing

When I was 20 – in the late seventies - people who were my age now (50ish) had lived through a period of remarkable change. They had come to adulthood at the end of WW2 or under the Attlee government, seen the setting up of the NHS and birth of the Beveridge State – but also lived through an undeniable fading away of Britain’s Great Power status. The politics of national decline was a constant theme in current affairs commentary and learned academic articles. It gave a prism through which to see all other debates, be they about membership of what was then called the ‘Common Market’, the correctness or otherwise of Britain’s nuclear deterrent or the unstable industrial relations of the times. For most 20 year olds it was unbelievably dreary, hence...

Those once 50 yr olds are 80ish now, if they’re still around. & you don’t often hear the issue of ‘national decline’ being bandied about as an organising political theme. Mrs.Thatcher changed that. She smashed the Unions and created the conditions for what we used to call a ‘regressive modernisation’: a break from the past, an orientation to the new ‘shape’ of the global economy based on a fully marketised society. What this meant in practice for the UK economy was a strong shift away from mass scale manufacturing and towards high finance, business services and armaments. New Labour accepted this basic re-shaping of economic and political life, just as the Tories of the 1950s had, in very large part, accepted the Attlee/Beveridge/Keynesian political economy they found themselves managing. So the 50 year olds of today have accepted the ‘normality’ of this marketised society. (Well, apart from a few lefty oddballs like me....).

But what of today’s 20 year olds ? If the current credit crunch actually represents a ‘tipping point’ in the viability of the Thatcherite settlement then might their generation, as it ages, gradually rediscover the language of ‘national decline’ ? That debate might be pushed down either right or left channels obviously. So this is both my best hope for a re-development of an active left and my worst nightmare.

The Financial Times View of the UK's Future

Or at least their view on Jan 22. I imagine such views are subject to revision ("Events dear boy, events"). There are three things of interest in this article:

1. It raises again the question of quite how big Britain's finance sector actually is - here the FT is predicting a fall from 8% of GDP to 6%. This is more or less in line with Chris Dillow's view, as expressed here. Last year the chairman of Lloyds claimed it was 10%. But it is far lower than the 30%+ claimed for the 'Business and financial services' sector here. So what are these 'business services' which make up the difference? Accountancy and outsourcing type stuff in the main I'd guess: stuff which acts as the manure in which a big pure finance sector can grow, which is why such activities are grouped together with finance in the national accounts in the first place. They're inextricably linked. This matters to my view of the crisis, because it is a key factor in determining how far my hunch that we have to re-balance the economy is politically, as opposed to just economically, relevant.

2. We have Ross Walker, of the Royal Bank of Scotland, warning the private sector’s contraction in contrast to the public realm means “we are likely to end up losing entrepreneurial spirit”.Yeah, right - that's really worked well for the Royal Bank of Scotland, hasn't it? He does at least have the good grace to also acknowledge,“The credit boom went a long way to disguising the mediocrity of the UK”. It's just I don't supposed he'd agree the financial sector was a key part of that mediocrity.(Tom P seems to have found some interesting research suggesting this might be structural, and I hope he expands his point)

3. Sir Andrew Cahn, chief executive of UK Trade & Investment (it's a bit of government) gets to play the part of the happy-clappy booster, saying the fall in the value of the pound will lead to growth in some 'unlikely' sectors. “We have doubled our staff on security because it is a growth area,” he says, insisting that security is not just defence equipment but airport protection systems, protective clothing, and security advice and services at sporting venues.Unlikely? With a huge proportion of our surviving world class manufacturing based around armaments I think it strains credibility to describe this as unlikely. But this seems a strong indication of the unimaginability, in Westminster and Whitehall, of any 'swords into plougshares' type industrial strategy, never mind a Green New Deal.

Prawo Jazdy, Irish Road Lout

Ah, some small flaws in the free movement of labour unearthed.
Via Johnny Guitar

Principles of Economics Explained in 5 mins 20 seconds

Housing Finance: Holding it Together With String..

"Housing associations are set to start trading complex financial instruments with each other to sidestep spiralling bank fees", says the trade press. Golly, that sounds impressive!

I wonder why the bank fees for doing this have gone up so much? Oh yes, I remember - it's because the trade in 'complex financial instruments' proved not to reliably offset risk after all, just to accumulate it in 'difficult-to-unravel' bundles which exploded in their faces.

In reality this is a sign that the basic logic of the capital funding system for social housing is under pressure. Since the late 1980s associations have been unable to access 100% public funding for new developments. Instead they have to bid for a level of public subsidy and top this up with private loans or finance from other sources. All other things being equal, the lower the public subsidy you asked for the more likely you were to get it - and thus the more private finance you needed. This came in many varied and splendid forms with many different kinds of strings attached - and different repayment dates and interest rates. Hence the need to 'smooth' out the terms by trading with the banks. Now the banks will only do this at painfully high rates, so the associations are trying to do it amongst themselves.

It's a pretty desperate move. It may buy some time - a year? two years? who knows? - but there is no way on earth the housing association movement can replicate this function of the banking system on a permanent basis. So associations' ability to bid for low levels of public subsidy may well begin to decline, even if the regulator doesn't get the heebeejeebees about being expected to take on FSAesque type functions. So if the demand for public subsidy begins to rise the government will be facing a choice between paying more per new social housing unit created - or just building less of them...

& let's hope these 'complex financial instruments' don't go belly up the way their equivalents in the City and Wall St have done. Rescuing a single housing association is something this government knows how to do -basically it gets another association to take it over - but rescuing a chain of them linked through impenetrable and complex financial instruments is really uncharted territory...

The Economic Crisis: How's the Centre Left Doing?

Henry knows.
"It may well be.... that the time is ripe for social democracy. But I fail to see any social democratic actors out there who are ideologically prepared (let alone politically organized) enough to take advantage of these opportunities. Hence, we’re seeing what might be described as parodic social democracy – many of the organizational forms of social democracy (temporary stimuli, nationalization of major chunks of the economy) being undertaken by right leaning and centrist administrations as stop-gap measures to save capitalism and markets, rather than to subordinate them to broader social and democratic needs."

'Parodic social democracy'. Somehow the phrase has a certain ring to it, don't you think? .

Epochal Change by Powerpoint

I've just had one of those, " Naw, that's ridiculous....isn't it?... No, I mean - isn't it?" moments. See what you think of his 28 slides. A fuller, more recent speech can be found here. His basic premise: the USA is heading for a (end of the) USSR moment...

Inevitably via B&T, collector of the unnoticed crumbs of global politics that fall between the cracks of the latticework of media coverage ....

A 'Modern' Economist's Take on Marx

Via, comes Brad Delong, the astonishingly prolific Clintonite economist/blogger, to tell us why mainstream economists disagree with Marx. He boils it down to three 'challenges' and three answers:

• Challenge 1 - the business cycle is endemic to capitalism. Answer - yes, but we can significantly mitigate this through Keynesian measures to the point where it is liveable with.
  

• Challenge 2 : capitalism produces massive inequality. Answer - yes, but we can mitigate this via social democracy and the 'social wage' as embodied in the welfare state.

• Challenge 3 - capitalism's 'cash nexus' is anti-human, reducing people's experience of work to one of imposed meaninglessness. Answer - basically, so what? Demonstrably, enough people can find jobs which satisfy them to blunt this criticism, and leave it little more that a moralistic wail or a metaphysical claim.

Now, of course, there is truth in all three of these responses. But may I just archly enquire quite how answer 1 is currently shaping up? & what are the prospects for answer 2 looking quite so convincing as the global recession proceeds and the cutbacks in state spending start coming in with a vengeance?

But the real problem is with his answer 3. He doesn't seem to understand that this is, in fact, the key line of argument (together with the Labour Theory of Value, which I don't accept) which leads to demands for economic democracy, or workers control. He doesn't understand this because he is an economist, not a political economist. Such things are outside the little intellectual box mainstream economists have made for themselves to live in. He's a bright man, diminished by his theory.

1970s Redux: An Non-Economist's Musings on Inflation

^{I see two of the economists whose blogs I read are having a little set to about the likelihood of inflation setting in. Alice Cook thinks we’re about to start printing money and gloomily warns of Zimbabwean hyper-inflation being around the corner; Chris Dillow says, no, it’s not like that at all, we’re talking about credit easing, not quantitative easing (aka ‘printing money’) in the first instance and in any event the government and Bank of England have the macro economic tools to control any problems well before they get out of hand. Alice comes back and Chris joins the debate on this second contribution.}

^{Now I’m a firm believer that, usually, the best way for us non economists to approach any debate between two practitioners of the dismal science is to quote FDR :}

^{“ For God sake bring me a one armed economist, so they can’t keep saying ," ...on the one hand....but on the other hand..."". So I’m certainly not going to take either of them on directly. Yet I do sense a echo here of long-ago political debates in the 1970s about the relative importance of the money supply as a causal mechanism for explaining inflation.}

^{I am reminded of the Left's then favourite explanation for inflation, as expressed by Pat Devine:}

" The increase in the money supply was itself a consequence of the struggle between capital and labour over the division of full employment output. In the context of that struggle, in which workers increased money wages in order to obtain a larger share of output, and capitalists increased prices in order to prevent this, full employment output could only be bought at the higher prices if the money supply was increased. The increase in the money supply was thus a necessary outcome of the commitment to full employment. Only when that commitment had been abandoned at the end of the 1970s, did it became possible to seek to contain the money supply. A restrictive policy towards the money supply is merely a means of disciplining labour through the acceptance of mass unemployment if workers do not restrain their demands for a larger, or in some circumstances even the same, share of real output."

This conflict theory of inflation depended on an understanding of how a wage-price spiral, originating in a particular balance of class forces, became a wage-public-expenditure-price-tax spiral, that was then given a vicious extra spin by shifts in the balance of global power which allowed former colonies to increase commodity prices, especially for oil.

Well, the ‘balance of class forces’, to use that wonderful phrase from a different age, is now very different. There is no wage-price spiral – or at least not an upward one (I don’t rule out attempts at wage cuts). But I do think that the balance of global power is visibly shifting as a consequence of this crisis, in favour of China, the other BRIC countries and, less certainly, the oil producing nations. Even with a devalued pound I can’t see the feeble remains of our national manufacturing base rushing to replace all those cheap manufactured goods we’ve been importing at such low prices. So, surely, we’re going to pay more for them? And buy less of them as a consequence?

Q. Isn’t this, not the money supply issue, the road back to ‘stagflation’?

A. “Well, on the one hand...but on the other...”