EconomicsPosted by john sloboda Fri, March 09, 2018 09:17:05
For some years now, I have invited complete strangers into
my home to stay a few days, and use my food and facilities as if they were
members of my family. No money has
changed hands. Sometimes I have
accepted similar hospitality from others when travelling.
This has been done within the context of an international
web-based community hosted by www.couchsurfing.com. It is the brainchild of computer programmer Casey
Fenton. According to Wikipedia “the idea
arose in 1999 after Fenton found a cheap flight from Boston to Iceland but did
not have lodging. Fenton hacked into a database of the University of Iceland
and randomly e-mailed 1,500 students asking for a homestay. He received between
50 and 100 offers and chose to stay at the home of an Icelandic rhythm and
blues singer. On the return flight to Boston, he came up with the idea to
create the website.”
now has 15 million members worldwide, with some 400,000 active hosts. It connects hosts to travelers, who can check
out each other’s information, read and write reviews of each other, and arrange
meetings. It describes itself as part of
the gift economy, where the only “transaction” is the free decision to share
one’s home, one’s time, one’s skills and experiences.
I tell friends and family about couchsurfing, I get a variety of
responses. Many focus on the possible
risks. What if the guests are
dishonest, disrespectful? What if they
trash the place?
experience is that the risks are small, and can be minimized with good
sense. But, of course, one wouldn’t take
any risks at all if there were not compensating benefits. It’s pretty obvious what the benefits for
guests are – free room and board with a locally knowledgeable host to show you
around. But the benefits for hosts are
the last 6 or more years, I have got to know a huge range of adventurers. Although many are young, and needing to watch
every penny, money as such is hardly ever what drives them to travel in this
way. They want the deeper human
connection that comes from reciprocal exchange with true locals. Each of them have had a story to tell, a
gift from their culture to share, a passion to follow. And
the most often asked question of me is “can you show me the London that you
know and go about in, away from the tourist hot-spots?”.
couchsurfing experience is often part of a deeper journey and search. Travellers are often seeking to learn, grow, extend
themselves beyond a comfort-zone. For
instance, I recently hosted a young traveller from the Far East, who had never
been outside his country before. At the
age of 19 he decided to take a 2-month tour of Europe, alone, in a harsh
winter. When he arrived with me, he had
almost run out of money. So he walked
the 6 miles from central London to my place – in the snow! Another young couple from Eastern Europe were
on a combined budget of £10 per day. So
they found the cheapest way to travel around London, using the public bikes (£2
per day), preparing their food in my place, and only visiting free museums and
parks. A third visitor, who has become a friend, was
a middle-aged man, bringing up 5 boys in rural mainland Europe. He wanted to give each of his sons a special
experience – so has been bringing them one by one to London in the only way
that was affordable. Others were not so short of money, but chose
anyway to couchsurf as a more authentic way to travel. For instance, one pair of visitors were from
a conservative religious background, using their travel as part of their
process of working out how to transcend the restrictions of their prior
upbringing. For one visitor, staying
with me helped someone who has now become a friend to make the decision to come
and live in London permanently. It is
amazing to me that, despite all the challenges, the world is still full of
Anglophiles who aspire to realise their dreams here in the UK rather than in
the country of their birth.
visitors have been eager to learn about me too: what I have done, where I have
been, how I relate to what is going on in the UK politically and
culturally. The shortness of time we are
together (I usually have a maximum hosting of 3 nights) means that we can get
into some quite intense conversations quickly – no time to waste. Where possible I have taken out a couple of
hours to give my visitors a walking tour of my locality, including Clissold
Park, Stoke Newington Church Street with its plethora of small independent
shops and cafes, and Abney Cemetery. It
is so rewarding to see their eyes light up as they discover “the real London
that tourists don’t see”. Recently a
young couple from central Europe said “we liked Trafalgar Square and Big Ben
well enough, but actually we liked hanging out in Stoke Newington best of all”. Some of them have researched the area in
advance, and have shown me things I didn’t know. A pair of coffee addicts took me to what has
been rated the best local coffee shop in my area. Before their visit I had not even heard of
it. Another couple had found that there
was one of Banksy’s wall paintings less than a mile from my home. I had never seen it till they showed it me!!
are at the centre of the couchsurfing culture.
I lose count of the delicious home recipes that my guests have brought
with them. It is such a pleasure to
watch someone “take over” my kitchen, and prepare food for us to eat together
from their family and culture with pride and satisfaction. It is as we sit round the table, with a
glass of wine, that the conversation flows most freely, and the deepest confidences
when one is meeting such a variety of people from so many backgrounds, of so
many differing temperaments, some connections are warmer and smoother than
others. But all have been on the
positive side of neutral. This has
helped to shift my perception of my home.
Rather than seeing it as a private bolt-hole, I see it as a resource
which good fortune (and a little planning) has placed at my disposal to share
with others. If there are empty rooms, why not fill them – even if sometimes
that causes a little inconvenience (as when I can’t access a needed book because
someone is asleep in the room where it is).
It has even got to the stage now when I feel a little strange when it is
just me at home, and I start wondering how to fill the spaces again.
quite close to the centre of London makes my home a very popular one for travellers. I get several requests each week, most of which
I have to turn down. But it is also a
privilege not to have to “hunt” for my guests.
They choose me, and my only task is to decide whether to accept. Even the ones I reject have done me the
respect of “making a case” for why they should stay with me, and in the process
have shared something of themselves, often at some length.
huge and recurring element of the internal British conversation at present is
about community, how and why we have lost it, how we can rebuild it. I live in an apartment block with 20
separate residences. I don’t have any knowledge
of who lives in 15 of them, and would not even recognize them if I saw them in
the street. When people have moved into
the apartment next to mine, some are genuinely astonished when I have dropped a
welcome card through their door. One
recent neighbour said that this had never happened before in a lifetime of
renting around the capital.
is just one vibrant and life-affirming manifestation of the fight against the atomization,
isolation, and commercialization of human experience, particularly urban
experience. As such, it is part of a
profoundly political process. Long may
it prosper as a means of “using the internet to get people off the internet”
and into each other’s lives.
EconomicsPosted by john sloboda Sat, May 26, 2012 11:33:57
My colleague Richard Parncutt has just put together one of the best lay analyses of causes and solutions to the current global financial crisis that I have seen. It is as
I am reproducing it in full here, because Richard's site does not have a reply post facility. Anyone wishing their response to Richard to be public rather than privately emailed to him, may post it here.
THE FINANCIAL CRISIS FOR DUMMIES: CAN’T SEE THE WOOD FOR THE
25th May 2012
Forget about all those pages and youtube files out there
called "financial crisis for dummies". They are generally good and
interesting, but they are not getting to the point. Their authors can't see the
wood for the trees.
National debt, income inequality, and taxation
First of all we have a contradiction
that is plain for anyone to see. National governments are struggling to pay
their debts, while at the same time multinational corporations are making
gigantic profits. In most countries, the gap between rich and poor has been
steadily rising for decades (income inequality). Now in 2012, ordinary people in the
middle and working classes are being asked to accept "austerity
This is distortion of the truth (aka
bullshit) and it should be identified as such. If money is needed, the people
who should pay first are those who have it. Where else is it going to come
from? Clearly, the rich are not being taxed enough. We
should be taxing wealth more directly, in addition to
income, and separately from it. We also urgently need transaction taxes (e.g.
Tobin tax) to generate income and curb financial speculation, and we urgently
need environmental taxes (e.g. carbon taxes) to combat global warming and other
environmental problems. Regarding wealth tax, we need more transparency about
the total wealth of individuals. Everyone with any net wealth (or at least those
whose wealth exceeds a given threshold) should pay a fraction of a percent of
that wealth to at least one national government every year.
What I am saying is not left-wing or
right-wing. I am talking about rescuing the framework within
which both left and right operate. That is the modern democratic system
that we know and love, which is based on a balance between free enterprise and
social security. This system is under threat and everyone is wondering what the
solution might be.
Four ways to distort the truth: Complexity, bias, manipulation, and secrecy
Everyone is talking about the complexity of the crisis. But just imagine the following
idea. Perhaps there is a simple solution, but we don't know what it is because
it is somehow being suppressed. Perhaps the people doing the suppressing don't
even realise they doing it. So who are those people? Clearly, they are the
people who are profiting from the crisis and the system that caused it. Please
note that I am not talking about some kind of plot. The people involved are not
plotting, on the whole. They are simply looking after their own interests, as
everyone does in one way or another. One of the ways that they do that is to
promote complex accounts of the finance crisis. This makes them feel important,
because they understand something that others do not. It also makes them feel
comfortable, because it means the main problems that caused the crisis may
never be addressed. The rich and their sidekick economists are right that there
is a complex side to the crisis, but public awareness of this complexity will
not lead to a solution. Instead, it will lead to confusion. I will argue on
this page that we can reduce the problem to its main components. When we do so,
it becomes rather simple. It is then possible to solve it completely and
When discussing these issues, it is
important to be aware of bias. When the rich complain
about paying more tax and present complex economic arguments to justify not
paying it, we should just ignore them, just as we would ignore anyone who is
obviously biased. Of course most people want to avoid paying more tax and will
try all kinds of methods to prevent that, including distortion of the truth.
You can justify just about anything by quoting passages from the Bible,
similarly, you can find an economic theory to justify just about anything. That
does not mean it is true. But when a group of rich people start talking about
increasing wealth taxes, our ears should prick up. more
If the rich are asked to pay more
tax, they respond by manipulating public opinion. Since
that is exactly what I am trying to do with this page, I should explain myself.
I am not rich, so my means are limited. The wealthy are at a great advantage,
because their contacts with individuals, colleagues, employees and media always
depend on wealth. One of their favorite narratives is the "rags-to-riches
story". It is true that many famous people dragged themselves out of
poverty by a combination of good ideas, hard work and good luck, in a context
in which social security was almost non-existent.
Think of Bob Marley. But the truth
is that not anyone can do that, and the ones who did not succeed are not
famous, so we cannot use them as examples. The least controllable factor is
luck - being in the right place at the right time. Luck also includes the
people with whom one interacts to get good ideas, and the motivation to work
hard. It is a logical fallacy to conclude from examples like Marley that
"anyone can make it". In fact, the probability that a person born in
poverty will "make it" is very small, regardless of good ideas or
hard work. The rich may or may not understand that, but that is not the point.
The point is that they are generally good at looking after their interests
(that's why they are rich), so they use their economic, social and political
resources to spread such fallacies and justify the massive gap between rich and
Another common form of manipulation
is to claim that anyone on the left of centre is probably a communist who is
plotting to take over the world and take away our freedom. Half a century after
McCarthy we still have to deal with rich people and their sidekicks pedaling this
kind of nonsense. It would be equally ridiculous to claim that all rich people
In the process of increasing wealth
taxes, we must also target secrecy and increase
transparency. Top of the list of problems in this area is the tax haven. The Swiss
bank secret, for example, is surely one of the greatest scandals of all time.
For decades, dictators have been stealing money from their own people, who live
in poverty, and hiding it in Swiss bank accounts - with the full knowledge of
bank officials who are also making money out of the deal. The individuals in
Switzerland and elsewhere who are responsible for perpetuating this corrupt
system have all kinds of excuses and are generally treated with respect. What
could be more outrageous than that? We urgently need to make international
agreements about wealth tax to ensure that people don't just shift their assets
from one country to another to avoid tax. This should be an election issue in
all countries. And it's not a question of how much we should tolerate tax
havens and tax secrecy. There is never any plausible justification for these
things. By democratic means we can and should get rid of them altogether. more
The end of national debt
We have grown so used to national
debts that we think they are normal. But they, too, are outrageous. Consider
this: When politicians borrow money for their country from private sources,
they are obliging future generations to pay it back. But future generations are
not consulted, nor are they generally very happy about paying other people's
debts. If someone asks me to pay their debts, I am not happy about it. Why
should future generations be happy about it? According to simple democratic
principles, this widespread practice should be illegal.
If a country does not have enough
money to meet its needs, just forget all those economic theories and get to the
point. Of course public institutions can always be made more efficient - but
that is seldom the main problem. If the government
doesn't have enough money to finance the public sector, the main
solution is taxation. Someone has to pay the bill! And given that the gap
between rich and poor is far too wide in all countries, this generally means
taxing the rich, because that is where the money is. You won't find much of it
Another method is to print more
money, which causes inflation. That effectively reduces the assets of the rich.
By using this articially created money (in fact money is always artificially
created) to improve social services, the gap between rich and poor is reduced.
In the end, this method would be similar to taxing the rich. When confronted
with this idea, the rich just laugh and make jokes about how economically
irresponsible it is to print more money. But in fact when you consider the main
points and don't allow yourself to be sidetracked by unclear economic theory,
printing more money is a reliable method of redistributing a country's wealth,
provided the rich don't convert their wealth to other currencies in advance.
You don't need an economics degree to understand that.
But it is more honest and direct to
tax the rich directly. Even the rich would agree with that. Of course
international exchange is a problem, but that is also a problem with wealth
tax. In both cases international agreements are needed.
Three concrete steps
Given these arguments, how can we
move toward a more stable and fair financial system? The problem will not be
solved by complicated economic theories, which change from one generation of
economists to the next. Besides, the problem is not only economic - it is also
moral and historical. Here is a simple, transparent, practical solution:
1. Pay off existing national debts. This involves first
establishing which debts were legal in the first place, because only they
should be paid. In many cases, legal investigations will be necessary. These
should happen in independent procedures within each country. If a debt is found
to be illegal, it should be canceled. Having established which debts are legal,
they should be paid off, slowly but surely. Since the gap between rich and poor
is currently far too wide, that should primarily be achieved by taxing the
Incidentally, a large part of the
Greek national debt could be paid off by a combination of reducing local tax
evasion and increasing local wealth taxes, combined with direct assistance from
the European Union - similar to the
Marshall Plan after the Second World
War, but financed by wealth, speculation and environmental taxes. I am talking
about giving, not lending, and the numbers would be much smaller than the
trillions spent by EU countries in 2008 to bail out corrupt banks. The Greek
people may not be entirely innocent, but they are certainly not responsible for
a global crisis that, as everybody knows, was jointly created by banks,
corporations, governments, and those economists who could have warned them, but
did not. It is undemocratic to treat the inventors of δημοκρατία as scapegoats while
the guilty live in luxury. Perhaps the Greeks would be better off leaving the
EU and regaining control of their currency, as described here.
2. Make it illegal for governments to borrow from private
sources. Just repeating: National debts oblige future generations to
repay them or to pay interest on them. But we have no right to force future
generations to do anything, just as we have no right to reduce their quality of
life through global warming. Moreover, if a sovereign nation has control over its
own money supply and taxation system it has no need to borrow from private
sources. Its income is based on taxation. Further information: link
For many people that is the most
surprising assertion on this page, and it certainly surprised me when I learned
about it. But this idea is surely perfectly clear and indisputable. What right
do we have to borrow from future generations? None at all. What right do
politicians have to give away a portion of the autonomy of their democratically
elected successors? None at all.
3. Make it illegal for banks to lend money that they do not
have. I expect that most bankers would object to this point, and present
me with a cascade of impressive sounding economic arguments. But the problem is
not economic, it is moral. Lending money that you don't have is a form of
lying. Fractional reserve banking, as this practice is known, is remarkably
similar to crimes such as fraud and counterfeiting. A bank's reserves should
not be 5% or 10% or 20% of the money it is lending, it should be 100%,
otherwise there is no money to lend. No wonder the economic system is in
crisis. For further information look at the last few minutes of this video.
Again, this is a surprising idea
when you first consider it. But on further consideration it is perfectly
feasible. In fact, it is hard to imagine how the financial system could
possibly work any other way. If you or I cannot lend money that we don't have,
why should a bank? If I tried to make money by lending money that I had
borrowed from someone else and charging more interest to my debtor than I was
giving to my creditor, I would be committing a criminal offence. Besides, everyone
would hate me when they found out. My reputation as an honest person would be
ruined. No wonder we are not very impressed with the banks.
The bottom line
Underlying all this is a broader
issue. The monetary system is, or should be, created, owned and controlled by
democratic nations. Private companies are free to use it, but not to control
it. Sovereign nations, not banks, must remain in control of
the money supply. If we accept that principle, it follows that sovereign
nations should never pay interest on debts to the private sector. Never. At the
moment we have a situation where banks, not nations, have control over the
money supply. People think they are living in a democracy because they vote for
politicians in elections, but what actually happens after that is determined by
big banks and corporations. This is a familiar problem, and what I am trying to
say on this page is that there is a practical and feasible solution, and I am
grateful to Bill Still for having made these points so
clearly and forcefully.
If these simple principles are
followed - and the transition will be easier than it appears, provided that
existing, legally sound contracts are respected - we will get our free enterprise back. In free enterprise, there are many
legitimate ways to make money, but they can generally be reduced to two
categories: good ideas and hard work. Both good ideas and hard work generally
benefit society, which is why free enterprise has been such a successful idea.
Once you have money, you can lend it to people and demand interest, at which
point we are starting to talk about capitalism. Capitalists rely on the legal
system to ensure that they get their money back. If you are a bank, you can
look after money for some people while at the same time lending that same money
to others. The money supply is under the control of a democratically elected
government. A legal system is in place that prevents people from tricking each
other. The law prevents fraud, money laundering, phishing, political
corruption. It also prevents suppression of competition by monopolies. From
these examples it is clear that legal regulation is an integral part of free
enterprise. By restricting freedom, they paradoxically make the system more
free. But freedom was always a paradoxical thing.
An important point is that the law should generally prevent trickery. Democracy only
works if voters understand the issues, so political honesty is an essential
ingredient. The law should prevent people and banks from lending money they
don't have, in order to make money on the interest; and it should prevent
governments from borrowing from private sources, because they don't have the
courage to tax the people who voted for them. Borrowing from the future is like
taking money from babies, obliging them to pay it back they grow up. Don't
worry about those babies, they won't object! That's not free enterprise, that's
cowardice. I am also saying that we need a healthier attitude to taxation. Rich
capitalists think they "made" their money. But money is not made by
individuals, it is made by governments, and society is the ultimate source of
any wealth. Paying back in the form of taxation is and always was a part of the
deal, and deals are an important part of free enterprise. Right? So don't act
like you're surprised or offended or something when the tax collector comes
along, and don't waste your valuable time on tricks to avoid or evade tax.
Instead, devote your time and money to generating good ideas and good products.
Another advantage of this approach
is that it eliminates dependence on growth.
It has been clear for decades that national economies cannot continue to grow
forever, if only for ecological reasons. We are reaching the limit of our
natural resources. So economic theories that continue to rely on growth are
dinosaurs. We must give them up and plan for a future without growth. But
people are still talking about growth, because growth makes it is possible to
lend money that one does not have, and borrow money from the future. Growth
enables such virtual debts to be repaid. Obviously, this time-honored idea is
no longer working. It may be painful to give it up, but we will have to do it.
Governments are local or regional, but
money is increasingly global. One of the most difficult challenges facing the
human race today is the establishment of a democratically
controlled global financial infrastructure that can enforce the
principles that I have set out at a global level. An important task of such an
infrastructure would be to ensure that rich individuals and multinational
corporations are taxed in a fair and open manner, and the taxation is fairly
distributed among national economies. Such an infrastructure would stop countries
competing with each other to create the best conditions to attract
investments/money: low taxes for big corporations, cheap labour, few
environmental constraints, ignoring human rights violations. Instead, countries
would compete to produce the best ideas and the best products - according to
basic principles of free enterprise. Voters need to be informed about this
problem so that it becomes a political issue in all countries. We should be
electing politicians who are working toward this goal and developing realistic
Like Sam Cooke in the song
"Wonderful World", I don't know much about history, biology and so
on, but I do know that one and one is two. I am not an economist, but I do
understand some basic things about morality and I also think that I am able to
distinguish the wood from the trees. This page is about the wood, but most of
the information you can find on this topic is about the trees. Of course it is
important to understand the detail, but until we start focusing on the main
problems, everyone will be confused and the problem will never be solved.
The opinions expressed on this page
are the personal opinions of the author. Please send me suggestions for
improving this page. My email address is on my homepage. I thank John Sloboda
and Emilios Cambouropoulos for their contributions and discussion.
EconomicsPosted by john sloboda Thu, April 12, 2012 11:39:15
(This article posted on the web site of the New Economics Foundation puts Europe's financial problems, and the needed solution, in a nutshell. Why won't politicians do the right thing?)
Austerity measures won't save the continent.
James Meadway, Senior Economist
The eurocrisis is back, as expected. Greece is contained –
at least for the moment – and attention has shifted to Spain. Twenty per cent
unemployment, a shrinking economy, rising government deficits, and public and
private debts totalling more than four times its national income have conspired
to panic the financial markets. Spain has failed to hit the stringent borrowing
targets set by the EU. Costs of borrowing for the Spanish government have shot
up in the few days since Easter.
With weary predictability, the solution offered by the European
more austerity: sharp spending cuts now to reduce Spain’s deficit, and
bring its public debt under control. Equally predictably, this is grossly
misguided. Spain, up to 2008, ran consistent budget surpluses – unlike Germany. It was the financial crash of that year and the
subsequent, very sharp, recession that provoked the deficits. As unemployment
rose, and tax revenues fell, the gap between what the government spent and what
it earned opened wider. The deficit exploded and the national debt rose.
Spain already had heavy debts. But they were not, in the
main, owed by its government. They were owed by its citizens. By 2008, Spanish
public debt was just 30 per cent of GDP. It has risen now to 79 per cent and continues
to increase. But just as in Greece before it, by choking off economic
activity, austerity actually increases the burden of the debt. In Greece’s
case, its debt to GDP ratio was 130 per cent at the start of this round of
crisis, in late 2009. By late 2011, after nearly two years of severe austerity,
it stood at over 160 per cent. Spain, Ireland and Portugal have all suffered
the same way.
Austerity is not just the wrong medicine for the wrong
diagnosis. It is actively harmful. By insisting on austerity, the EU and major
European powers are – in effect – placing the immediate needs of finance above
any other consideration. It is hopelessly short-term at best and it is driving
the whole continent into stagnation.
The imbalances behind the crisis
This is not a Greek crisis. It is not a Spanish crisis.
This is a crisis of the European system. It is the direct product of
deregulated finance and a dysfunctional single currency. During the boom years,
easy credit masked real underlying weaknesses. Greater and greater injections
of debt kept the European system moving. In particular, with different
economies locked inside the single currency, effectively operating fixed
exchange rates against each other, chronic balance of payments imbalances built
up. In the north, countries began to run huge surpluses on their current accounts. In
the south, these were matched by huge trade deficits, funded by debt. With
currency adjustments ruled out, the imbalances became permanent. Spain ran
annual current account deficits that reached 10 per cent of GDP or more, year
When boom turned to bust, these deep weaknesses were
exposed: and, worse yet, the debt overhang is immense. Spain is an acute
example: a property boom, which at one point saw 12 per cent of the workforce
employed in construction, was funded by cheap credit sloshing through the
euro-backed financial system. Rising property prices helped drive greater
borrowing. By 2007, average
household debt had risen to 130 per cent of average household earnings, up
from just 68 per cent in 2000. So government borrowing remained low, but
private borrowing exploded. As the financial crisis broke, ending the property
boom, those private debts turned bad. Spain, like the rest of Europe, now
suffers from an immense debt overhang.
The problem of debt
Until that overhang is removed, the crisis will not end.
The mechanism works like this. European banks, stuffed full of loans
threatening to default, know they are weak. And they know all the other banks
are weak. They fear collapse. This fear makes them reign in on further lending.
As lending dries up, the risk of default and subsequent collapse increases. It
makes perfect sense for each bank to tighten up its lending – they don’t want
any more exposure to risk. But it undermines the whole system. This is the
irrationality of private finance at work.
By the second half of 2011, this fear had begun to turn
into a serious financial freeze. Spain and Portugal in particular were suffering
enormously as capital retreated. Inflows of private funds, necessary to keep
their economies moving, were drying up. In response to this, the new –
unelected, note – head of the European Central Bank, Mario Draghi, authorised
the flooding of financial markets with liquidity – hard cash. Tearing up the
ECB’s own rulebook, over €1tr of new cash has been released electronically into
European banks since December, through the so-called “Long-Term Refinancing
There’s nothing greatly “long-term” about this. The bulk of
the new cash went straight back into the ECB’s own deposit accounts, European
banks preferring the safety of the official institution to anything else out
there. Very little went to businesses – the credit crunch did not end. But some
went into buying up European government bonds, which, in the case of Italy and
Spain helped reduce their costs of borrowing for a while.
These purchases, in turn, increased the banks’ exposure to
those countries. With no recovery in sight, that debt threatens to default.
That threat is now worse than it was before Draghi’s “rescue operation”. And
the debt doesn’t need to actually default to allow fear and panic to spread
disastrously throughout the financial system. The increased possibility of
default is enough. Like an epidemic diseases, financial contagion can spread
rapidly through the system, dragging country after country behind it. Spain is
a big economy with substantial debts. But bigger still is Italy, with its
€1.3tr public debt burden. It is also now back in the bond markets’ firing line.
Ending the crisis – the first steps
To break the crisis, two things need to happen. First,
austerity must end. It is counterproductive, but it is followed because finance
holds the upper hand. That means ending the swingeing spending cuts and looking
to public investment to create sustainable jobs. Second, debts will need to be
written off. They are the product of a bloated, crippled financial system and
the rest of European society should not be expected to bear their burden. Nor
can they: for as long as the debts demand repayment, prospects for any recovery
are grim. For Greece, this will mean cancelling all of its outstanding public
debt. For Spain, where private debt is the concern, this will require writing
off household debts: a general amnesty being declared, perhaps along the lines
recently implemented by Iceland. Of course, this will damage the banks; they
will need nationalising and – unlike our own dear RBS, where public servants
ape private greed – run democratically in the public interest. Capital and
exchange controls, to prevent financial markets spreading contagion, will also
be required. Countries like Spain and Greece will need to exit the euro to be
in with a chance of achieving any recovery.
Until a serious break is made with the errors of the past,
the continent will remain trapped. As things stand, there are no realistic prospects
for recovery – although those who believe in magic free-market fairies may want
to offer unrealistic ones. The pattern is familiar: each attempt to stave off
the last crisis prepares the way for the next, worse, round of panic. That
vicious circle must be broken, and broken in the interests of the people of
protests against austerity, from the occupations of the squares to the
strikes, show the way forward.
EconomicsPosted by john sloboda Sun, February 12, 2012 23:12:35
Greece is the epicenter of a drama that threatens to unwind with all the intrigue and subterfuge of ancient Greek myths and tragedies. As with the legend of Icarus, big, and now bigger, transnational banks provoked the gods with their wax-and-feather financial fabrications to create the appearance of soaring wealth.
Now that they have flown too close to the sun and their wings have melted, these banks are being brought to earth by the obligations and consequences imposed by their fabrications.
Rather than take responsibility, these banks seek to appease the gods by sacrificing taxpayers. In fact, if one looks closely, these banks aspire to be gods themselves. They clothe themselves in their indispensability and shield themselves from accountability with tales about how many innocent citizens will be hurt if they don’t get their next bailout. It is as if they say, “We are above the law… We are the law.”
Mathematics, legal enforcement, restraint, humility all must fall under the sword of their hubris.
In the end, just as with a Greek tragedy or a Yeats poem, this center cannot hold and things fall apart.
When one abuses the laws and principles of mathematics and capitalism, claiming to be a faithful servant, consequence and accountability eventually catch up. The breaking point inexorably nears. Citizens are beginning to think, voice, and act:
“We can do without the false idols that call themselves banks. In fact, we need them to be dissolved for us to survive and thrive.”
Reality is the revenge of the gods.
Not just about fairness: Everything unwinds
This is not just about fairness anymore; it is about the exposure of central, global illusions that affect everyone, not just banks. For the last three plus decades, debt-fueled “growth” has instilled a life sense that everyone gets rich, values always go up, and no one has to pay. If those illusions evaporate than those citizens complicit in this failed fantasy may actually join forces with the realists (those who knew it was a scam all along) to produce unified citizen revolt. Hell hath no fury like the people spurned and lied to, even if many had some responsibility in welcoming and fanning those lies.
The implicit deal was this: We will collude so everyone gets rich going forward. We will collude so no one has to pay if there is any unwinding. (But, hey, it’s a new era, and that’s not going to happen!) Open default breaks the illusion, and austerity breaks up the collusion. This is why default has to be hidden, deferred, restructured. It is not just about chaos around party/counterparty risk (in particular, cascading claims that are not backed by anything). It is not even just about finance. It’s about all the other things that will unwind, culturally, politically, and psychologically, if Greece defaults and sets into motion the necessity of someone actually paying up. In short, recognition of reality has disastrous consequences for the status quo and its control myths.
The infinite growth meme unwinds: The cancerous economic obsession with infinite growth in a finite world is already unwinding, but will hit full force with cascading defaults. It is one thing to have a “slowdown,” and another to have your economic brakes lock up on you and your gears slammed into reverse. About the only thing that seems to be growing currently is the number of people partially employed or permanently unemployed. As a humorous aside, the situation is getting so pronounced that quality of life might actually have to replace quantity of possessions as the cultural indicator of the good life, and what would that do to the economy?
Politicians’ power of the purse unwinds: Greek politicians, like many other Western politicians, will do almost anything to get re-elected. The easiest way to do this is to pay people off, particularly government workers and constituents, in the form of generous benefits or pet projects. What happens if your tax base will not support this? You sell your political soul, defer, and/or hide the true costs of your largesse behind undisclosed derivative deals with Goldman Sachs that eventually put your entire country’s sovereignty in jeopardy. As a result, Greece’s former prime minister, George Papandreou, is now out after a very short term in favor of a unity government. Shady deals funded unsustainable perks that not only inflated popular expectations but created catastrophic debt and risk.
Guaranteed entitlements unwind: So now that the illusion of infinite growth is being exposed, the corresponding ballooning entitlements that enticed the larger public to become complicit in the illusion are becoming unglued. It would take almost a decade of gross national product to pay off the U.S. unfunded liabilities for Social Security, Medicare, and Medicaid, which exceed the staggering sum of 100 trillion dollars.
Retirement and health benefits cannot be paid out of fake prosperity and “notional” (i.e. imaginary) values. They require real services and products and an accepted public medium of exchange. (I will leave off the argument as to what constitutes “real” and “accepted” since even fiat currencies are dubious in this regard.) People will be forced to adjust their expectations and adapt their realities. With public and private pension plans also complicit in derivative scams to fund benefits, it will be no surprise if many pensions simply declare themselves bankrupt in the next decade.
The maximum profit mandate unwinds: We have reached such heights in our hysteria about growth and our psychological addiction to more-more-more, that we have seen stock prices fall, even with record revenues, if the corresponding company doesn’t meet expectations of even higher growth and revenue. It is getting to the point where a company cannot simply have a solid year and just pay out its dividends and maintain its good health. Instead companies have to be ever hopped-up on economic steroids and cost-cutting (i.e. shipping jobs to virtual slave labor in China) so as to not fall short of expectations.
These steroidal practices are destroying the companies and the means by which consumers can afford products and services. A relentless short-term focus serves no one in the end. “Maximum” less and less corresponds with “optimum,” because present assets can be cannibalized or revaluated to give short-term boosts to numbers, creating systemic and foundational deficits that destroy the health of a company and its surrounding society. Hopefully the idea and practice of optimum profit will replace maximum profit as the Great Unwinding continues.
The central question:
The central question, obscured by all the hand wringing and crocodile tears is simply this: Why should public citizens who have no stake in private enterprises, who received no profits or dividends, who had nothing to do with creating losses, be forced to pay for private losses? The only legitimate answer is, “They shouldn’t.” Anything that does not acknowledge this tenet is not functioning capitalism, and if it is functioning capitalism it cannot violate this tenet.
Yet we witness apologist expert after expert excusing this fatal breach in capital practice as “regrettable but necessary to save the system.” They seem not to have noticed that the system has already killed itself by violating its own foundational laws and principles. If anything, current conventional practice might be accurately described as an all-out anti-capitalist assault on democratic free enterprise.
So now the follow-up question is easy to answer: “Why are we paying for something we did not buy and had no hand in creating?” The answer: We no longer have functioning capitalism. Call it what you want— corporate socialism, crony capitalism, cancer capitalism, plutocracy, kleptocracy, oligarchy, neofeudalism— the system we have now is the equivalent of a private person going up to a stranger on the street and extracting “protection money” to pay for that private person’s underwater house mortgage.
As this simple fact grips the population, and people wake up to the present economic reality, there will be increasingly organized moves toward civil disobedience and alternative economy. “Cannot pay” will merge with “will not pay” since the only way to re-establish health and integrity in a corrupted economic system is to starve the cancers that have taken it over. This has already started with Occupy Wall Street, strategic defaults, and riots in Greece.
So if someone asks you, seeking to appeal to your fear, self-interest, and need for approval, if you are willing to “be responsible for bringing down the global system,” your answer should be an emphatic, “Yes.” “Are you asking if I want to bring down fraud, theft, abuse and the cancer that global finance has become for me, my neighbors, my children, and my children’s children? Are you asking me if I want to replace the current broken system with something that serves actual people? Not only, ‘yes,’ but ‘heck, yes.’”
By Zeus Yiamouyiannis, copyright February, 2012
Read more: http://feedproxy.google.com/~r/google/RzFQ/~3/HmlrTodjA2Q/first-dominoes-greece-reality-and.html#ixzz1mDCnFI5a
EconomicsPosted by john sloboda Sun, January 08, 2012 18:54:40
I'm reposting in full below a great short piece by the independent political economist Richard Murphy. In a few short paragraphs he has spoken more common sense about business than I have heard from any politician (of any political persuasion) or business leader. He also has a useful twitter account (@RichardJMurphy)
Richard Murphy for Prime Minister!!
Seriously, what are our political parties playing at?
A relative of mine attended a conference sponsored by the excellent "Positive Money" organisation (http://www.positivemoney.org.uk/). One of the speakers there was the veteran Labour MP Michael Meacher, who claimed (and no-one contradicted him) that there are only six people in the Houses of Parliament who really understand how money works. And he is one of them.
Is it lack of understanding that stops our politicians? Or is it, as Murphy suggests, lack of will?
http://ht.ly/8lXbr - January 8th 2012
Ed Miliband has announced himself in favour of good business. I am
delighted he has. So am I. It’s astonishing that some are saying that by
declaring himself against spivs, chancers, asset strippers, speculators
and tax avoiders he is somehow anti-business. Far from it: he’s
declared himself very pro-business precisely because it is these people
who are any-business.
But being anti-something is not good enough. Being pro-good business
is what is required and that requires a clear understanding of just what
a good business might be. I’m not seeking to offer a definitive guide
here, but take these as examples. A good business:
1) Makes clear who it is so people know who they are dealing with
2) Makes clear who runs it
3) Makes clear who owns it
4) Makes clear the rules by which it is managed
5) Puts its accounts on public record if it enjoys limited liability,
and does so wherever it is incorporated whether required to by law or
6) Seeks to comply with all regulation that applies to it
7) Seeks to pay the right amount of tax due on the profits it makes
in the place where they are really earned and at the time they really
8 ) Seeks to pay a living wage or more to all who work for it
9) Recognises trade union rights
10) Operates a fair pay policy so that the pay differential between
highest and lowest paid in the company cannot exceed an agreed ratio
that should never exceed twenty
11) Makes fair pension provision for all employees
12) Does not discriminate between employees on the basis of race,
nationality, national origin, gender, sexual orientation, age,
disability and similar such issues
13) Does not abuse the environment
14) Has a clear code of ethics that it publishes and is seen to uphold
15) Is transparent in its dealings with customers
16) Seeks at all times to minimise risk to those it deals with and takes all steps to ensure they know what those risks are
17) Accepts responsibility for its failings and remedies them
18) Works in partnership with its suppliers and does not abuse them
19) Advertises responsibly
20) Creates and supplies products meeting real human need
I could readily add to that list, which I do not think I have tried to prepare before. But the gist is obvious.
So what would this look like in practice, meaning how could this
status be assessed? This was a question I was asked by a councillor last
night who wanted to put good ethics into practice in his council’s
I hope that the assessment criteria for the above should be clear in
most cases with the exception perhaps if the fact that this list clearly
implies the need for country by country reporting to explain:
- What it is called where it operates meaning it must name each subsidiary and specify where it operates
- Its profit and loss in each country and jurisdiction in which it operates
- How much tax is pays on the profits it earns in each jurisdiction
- What its internal trading is so that its transactions within its internal supply chains can be identified
- How many people it employs in each jurisdiction that operates in
and how much it pays them in aggregate plus their pension cost
- How much it has invested in tangible assets and working capital in each jurisdiction on which it works.
Only then is the data to assess whether it is a good corporate citizen available for assessment.
The final part in this equation is suggesting an assessment criteria
for what is a good company. In some cases this will, again, be obvious
from the suggestions made. For example, it might be expected that a
company either recognises a union or it does not. However things are
rarely that simple. Different subsidiaries in different countries may or
may not recognise unions so composite scores are possible.
Other indicators can be prepared using this data. For example
explainable and unexplainable presence in tax havens becomes an issue
when the number of subsidiaries in such places are known. The proportion
of trade through or assets in such places also becomes significant
assessment criteria if country by country accounting data is available.
The likelihood of tax compliance can also be assessed properly when
country by country reporting data is available.
‘So what?’ might then be the question. What would be the point of all
this? Well when things are measured behaviour changes, we know that.
But more significantly the government is a major purchaser from many
companies. If its procurement policy was based on the requirement that a
company meet a minimum standard or no contract could be issued then
this becomes a very powerful tool indeed, and those criteria need not be
consistent. So, for example, in the case of PFI offshore might simply
be a non-starter.
The point though is this: we can identify good companies and the
introduction of country by country reporting would make the whole task a
What this means is simply this: reform to our currently unacceptable
corporate culture is possible. All it takes is political will and we can
Is that will available? That’s the question.”