No Depression = no 30s-style revolution in ideas. Discuss.
I've been going through the rushes we shot in New York on the day Lehman collapsed, in advance of tonight's programme - a special edition of Newsnight exploring what's changed as a result of the financial meltdown.
It was a surreal day and one of the most surreal moments happened on the stroke of 9am, when a nemesis figure arrived at Lehman's front door in the form of a large man with a beard and a red flag. Only his light-sensitive spectacles spoiled the Karl Marx likeness. He shocked the cops and earpiece-toting security guards by launching into an f-word-laden diatribe along these lines:
"F--- Lehman; f--- AIG, f--- Merill Lynch. Capitalism is doomed. They want us, the working people, to pay for the crisis. Our parents told us about the Depression - they want us to relive the Depression. They want that for us. Hell, no!"
When approached by reporters requesting his last name for the record he responded, after a moment's thought, with a snort: "What's your last name?" Not Hollywood central casting, nor Thomas Pynchon blowing deep and surreal could have invented such a figure nor placed him in such a place at such a time.
Yet the amazing thing about the crisis, one year on, is that he was substantially wrong. Many on the left - and for that matter the ideological right - assumed that the predominantly neo-liberal governments of the G7 countries would let the recession rip, let the banks fail and foist the cost of the crisis onto the population in the form of job cuts, bankruptcies and falling incomes.
They thought this because they had strong evidence to go on. In the early 1980s, the policy response to economic downturn could be summed up by John Major's later catchphrase: "If it isn't hurting, it isn't working." Both in Britain and the US governments crafted policies that would exaggerate the effects of recession: raising taxes, raising interest rates, letting the "lame ducks" of industry go to the wall.
For the old there was, too, the memory of 1929, when the US authorities, in deference to the market, simply let the financial collapse take its toll in the hope that it would "liquidate" all that was inefficient and leave the system stronger.
This time around it's been different. The state has rescued the market. Banks in Britain, the US and beyond have been half-nationalised. Taxpayers' money to the tune of $5 trillion worldwide has been used to replace collapsing demand from the private sector. The G20 leaders have congratulated themselves on the record, and in writing, for "avoiding the mistakes of the 1930s".
From the get-go this response has confused and alienated those who believe markets should be allowed to work untrammelled. The demonstrations, e-mail campaigns etc against the bailouts in the US, which have spilled over now into anti-tax tea parties and protests against state-run healthcare, are evidence of this.
But the bailouts have also confused and alienated the left. Instead of a collapse scenario there is now, at worst, a 10-year stagnation and quite possibly - for the most state-led economies like Brazil and China - rapid resurgence.
"They" - the man with a red flag meant the powerful ruling elite of the Western countries - it turns out, did not "want us to re-live the Depression". In fact they more or less spontaneously swung to the opposite position: they threw away the rule book in order to avoid having to impose the cost of crisis on their own populations in the here and now (though as we will see, the cost will be borne later).
The question historians will ask is "why?" - and how will that change the world?
In the first place the answer is because the free-market wing of US economics did, in its own way, learn the lessons of 1929. The left has long scoffed at Milton Friedman for trying to reduce the cause of capitalism's epoch changing Depression to a simple mistake of central bank policy.
But the result of Friedman's views becoming orthodox was that, on the eve of crisis, an academic steeped in them was at the helm of the central bank and determined not to repeat the mistakes of 1929. In 2004 Ben Bernanke told Friedman and co-author Anna Schwarz, at Friedman's 90th birthday party:
"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
That is what was at stake on the morning of Wednesday 17 of September, when Bernanke and Hank Paulson realised they were facing financial collapse on a scale that would dwarf Lehman and AIG, and a Depression that would start on or around the following Monday when the ATM machines stopped dispensing cash and giant private firms stopped issuing pay cheques.
So the first part of the answer is that freemarket economics, it turns out, contains sophisticated, if rusty, counterbalances to the doctrine that the market is always right. The freemarketeers had long pondered what they would do in the case of another 1929 - Bernanke famously postulating the concept of dropping money from a helicopter. And they did it.
Of course that does not solve the ideological crisis for free-market economics. As Alan Greenspan famously admitted, it's broken - above all the assertion that the best regulator is the market itself. He told Congress on 23 September last year:
"Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself especially, are in a state of shocked disbelief... I made a mistake in presuming that the self interest of banks and others was such that they were best capable of protecting their own shareholders."
But better and more sophisticated economic theory is only one reason for the turn to state intervention. For some reason most of the world's governing parties and politicians either did not want to impose austerity, or thought they could not get away with it.
I think the reasons for this are the most interesting question arising for historians, and I hope they're being pondered by somebody reading this in 2109 (obviously in a subterranean bubble protected from the collapsing ecosphere) in a better position to know the answers. Something in the spirit of the age made it impossible to justify unleashing market-led destruction of businesses, jobs and lives.
It think this comes down to three things.
First, technology. We might moan about the collapse of representative democracy but we do live in an age of networked communications: that is, the old model of information flowing from the centre outwards is dead.
Just as the story of Tolkien's Lord of the Rings becomes impossible if you give Frodo a cellphone, so many of the great political impositions of the 20th Century would have been impossible with networked comms. That's why the Chinese and North Korean governments are so hostile to the internet and SMS. Unpopular policies have become quite difficult to impose: you have to manufacture consent and you have to control the information flow.
Second, the demise of deference. The populations of the West are not greatly content even with central banks printing money, slashing interest rates and governments handing out large dollops of cash to keep unspectacular small firms afloat. Any attempt to do what the red flag man anticipated - that is to foist pay cuts, job losses, givebacks of work conditions etc over a short period of time - would have provoked resistance. The one country where it became unavoidable - Latvia - went from Swedish-style apathy to violent rioting within weeks and was only stabilised by external intervention.
Third, there is this sense that - even if something was deeply wrong within the financial system - the real-world economy was not broken and did not need fixing with a dose of Depression. Those who remember the 1980s will know that the pro-cyclical (ie crisis worsening) measures adopted by governments were rationalised by the need to drive out inefficient businesses and archaic labour practices: Fleet Street printers, legendarily clocking on with the assumed name of Mickey Mouse to draw an extra salary, with the connivance of managers; British Leyland shop stewards who could bring the entire factory to a standstill by ringing a bell etc.
There is no sense now that the real-world economy is beset by labour strife or inefficiency, and that has been a major factor conditioning the response of those in power. However it is beset by debt and we are probably kidding ourselves that there is not a deep malaise out there in a world where cappucino cafes rise while real wages fall.
The result of all this, one year on, is an ideological hiatus. Free-market capitalism did not behave as its red flag waving critics thought it would. Indeed, it did not even behave in a way its supporters assumed it would. It found - pun intended - a "third way".
It adopted - reluctantly and with many false starts - Keynesian measures. It printed money and it threw taxpayers' money at demand and the state now owns large parts of the banking system. Because of all these highly abnormal things, which cannot be easily filmed, illustrated or directly experienced, the average Joanna and Joe actually experiences life going on as normal.
That, for me, is the answer to the question: why has there not been an intellectual revolution in response to all this?
But remember we're only about a quarter of the way through the crisis. Because all state intervention does is transfer the pain from the present to the future, and from the private sector to the public sector.
Already this is creating disquiet because of the rapid revival of investment banking. JP Morgan analysts show that 50-60% of all bank profits are being generated from high-risk activity right now. That, at root, is why the bankers and hedge fund bosses will be walking away with giant bonuses at Christmas, even as the jobless totals rise.
But it will get scratchier. In states that cannot afford massive deficits there will be austerity. That's why the UK debate on cuts, when and where they'll be made etc has hardly started. In states that can afford the spending spree - above all America with its deficit and China with its habitual surplus - the decision to resolve the crisis in the public sector rather than the private lays the basis for a dangerous clash of interests in the mid-decade.
Does America devalue its own debt and bankrupt China in the process, provoking a trade war, or not? That's a question I hope will be answered within a decade rather than a century, and hopefully with a benign outcome.
On top of all this, the fact is that the "real world" economy, for all its vibrancy, was based on something unsustainable - that is, the constant expansion of cheap credit. Whether it's the lifestyle celebrated in Friends or the one depicted in The Wire, it was all based on easy money that is not going to be available in the same amounts going forward.
So, at the end of it all, we've got an anomaly: state capitalism and Keynesian solutions enacted by politicians and advisers who would prefer the free market and who don't buy Keynes' core assertion that capitalism is inherently unstable.
Will this lead to a wider intellectual revolution as it did in the 1930s? We'll be discussing this tonight on Newsnight.
Some believe it's just a matter of time. In the 1930s the crisis signalled a fairly rapid swing in ideology, away from the market and individualism and towards not the state but also social programmes based on redistribution and solidarity.
But we tend to foreshorten the timescale. The policy revolution took four years and a US presidential election. The revolution in economics took seven years - with Keynes publishing the General Theory only in 1936. And in literature 15 years lie between the creation of Jay Gatsby and the creation of Tom Joad. So it might just be timescale.
But there's another view. The most trenchant critics of capitalism, in the anti-globalisation movement, have been going round for quite some time now propagating the slogan "One No; Many Yeses". That insistence on fragmentation and diversity rather than a single doctrine was actually born out of experience too.
In the 1930s sociologists noted the emergence of what they called the "authoritarian rebel" - the "party soldier" of the left and right, the Hollywood gangster, the brooding cartoon anti-hero.
Many on today's left, scarred by the experience of Soviet communism, are determined not to repeat the experience of the authoritarian rebel. In addition, they regard the issue of state versus market as secondary to saving the planet. That's not to deny there are some, like the man with the red flag, who hold a traditional leftist critique of capitalism. The question - and they are certainly asking it themselves - is why that view has not gained more popularity in response to the crisis.
For all these reasons, it may not just be that we're experiencing an ideological time-lag. The failure of a new narrative to emerge may have deeper roots. Technology has fractured the whole concept of dominant narratives; the anticapitalist movement has rejected a dominant narrative in favour of many competing ones; and for many the battleground has moved from the terrain of the economy to the ecosphere, altering the very concept of left and right.
That's how it looks a year after the explosion: mind you, it would have looked very different in October 1930 to how it looked in October 1933.
We'll be exploring all this with a cast of thinkers, strategists, idealists and bankers tonight on Newsnight at 2230. Pile into the debate right here, in the comments section...
Comment number 1.
At 15th Sep 2009, stanilic wrote:Not so much a blog as an essay but timely for all that. This will take some time to fully explore but here are some images to add.
It was Norman Lamont who said that if it wasn't hurting it isn't working. I cannot see that man without thinking of it, plus the thought of him singing in his bath is only less obscene than David Mellor performing the two-backed beast in a Chelsea shirt. The joys of days gone by!
The fact that this time round the state rescued the market shows the true conventional wisdom that was preaviling at the time and anyone who thought otherwise has been living in their own bubble for too long. The problem is that having once rescued the market the state should then have continued to restructure the market so the event could not repeat. It is more significant that the state has failed to move onto a restructuring programme than that it bailed out the market in the first place.
The intellectual failure of the Left has been evident for the last thirty years. The prevailing bankruptcy of New Labour displays this more than anything else. Being on the Left these days is more about protecting the vested interests of well rewarded bureaucrats than creating a society of equals free from exploitation. This ideological hiatus fed directly into the causes of the banking crash as `things could only get better'.
Now speaking has someone who has occupied the political waste-land somewhere between the old Liberal Party and the anarchist-communism of Piotr Kropotkin for the last forty and more years, it is time for the Left to return to its origins, reject the corporatism of the state and big business and refocus on communal organisation from the ground up. This is the only way society can deal with the mass poverty and unemployment which is burgeoning. Let the poeple organise themselves!
To measure current events against the Thirties is what we all do but nothing is ever quite the same. The ideological and political developments that will come to flow this time round will be different from the rather nasty authoritarian movements of the Thirties whose origins lay in the First World War and earlier. We have had other events since then and our culture is different. These differences are significant.
For my part I think we are seeing the end of the British social-democratic state for the simple reason that it has failed much like Weimar failed. This does not mean we will fall under the rule of fascists but that we need to enter into a political journey which will develop an ideology whilst in progress.
We may not know what we want just now, but we have learned a lot these last eighteen months and most certainly know what we do not want.
I think that will do for now. Thanks for the invitation: I will stay up late.... again.
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Comment number 2.
At 15th Sep 2009, bookhimdano wrote:like the athenians did to socrates the dominant narrative tends to poison the truth because it teaches the children to rebel against the parent's gods.
there is probably a statistic somewhere that says something like 95% of the wealth is owned by 1% of the population. or what was known in a pre WW1 uk as the inner empire of 100 families that controlled the british empire. Mass poverty of landless classes in the uk arising from the enclosures of common land by the ruling class. This is not ancient history. There was a recent case of an attempt to enclose common land in east anglia or somewhere.
even today millionaires get public money for owning 6000 acres [on which there is not even a land tax] but people with £6000 savings lose benefits. We have a system of structural oligarchy. A land of inner empires both nationally and internationally.
As the axiom money is power rules then policy in politics is ruled by those with money. Look at the Lords Hansard debates pre reform. Most of it is about subsidy to landowners and compo for landowners.
Even symbolically the 'national' oath is not to defend the rights of all the uk but of the privileges of one family and the 'national' anthem has nothing about the nation in it.
It was from this international oligarchy that the light touch regulation philosophy came from. this was adopted by New Labour as a religion and they still believe in it now.
Clearly these oligarchic models do not serve the people who are now bailing them out. So what economic models could we have? No one wants 'free market' heads i win tails you lose economics or communism that sees equality through terror as the highest idea of the mind.
Which leaves the co op model or the john lewis model where each person has an equal stake. Where both co-operation and business sense can work together. Or by analogy a return to 'common land' where each could graze their cattle. The oligarchs will call it communism and the communists will call it free market.
however the oligarchs will seek to poison any narrative that diminishes their 'enclosures'.
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Comment number 3.
At 15th Sep 2009, watriler wrote:Marathon blog but "....recession rip, let the banks fail and foist the cost of the crisis onto the population in the form of job cuts, bankruptcies and falling incomes." Are you in your self contained eco sphere already? Excuse me when did we exit the recession? Have the job losses stopped and reversed? The bail out of the banks may have made life less anxious for the bankers but the rest of us seemingly must look forward to cold turkey unto death. Where are the programmes to get people back in work producing useful things and services rather than IOU's? The left may be confused but they are not busted and defeated like New Labour!
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Comment number 4.
At 15th Sep 2009, UltraTron wrote:Think Paul's right on the money about the effects of technology on shaping debate. The internet makes it possible for anyone with any fringe idea to find a community of similar internutters and sit about reinforcing each other's views. And the gradual erosion of mainstream media audiences makes it harder for the politicians to use the mainstream media to set the ideological agenda effectively. Whatever it was that Marx said about those that control the media control the something or other, well the something is out the bag now.
It's weird, for years now in this country the main political parties have moved closer and closer to each other on almost every issue, while at the same time the internet has increased the reach of and appetite for smaller groups with narrower agendas.
Maybe out of the seething mass of competing ideologies that abound on the net a kind of Darwinian process of selection will give rise to a new set of ideas for people to coalesce around.
There have always been internal tensions inside all of the big political parties, but they were always eclipsed by the differences between the main parties themselves. That's no longer the case, and the so-called third way is the result of the final collision and death of traditional left and right politics. Maybe this intellectual hiatus is a deep breath before a big bang, at least on one side of the old political divide, as all the uneasy alliances that held the labour party together are obliterated after the election. Paul's written a few times about the void at the centre of the labour party left by the desertion of the old core vote. Those old labour supporters don't have a political voice any more, but the opportunities to organise through technology could change that.
Hopefully the combined effects of the financial crisis, the expenses scandal, and increasing concerns over sustainability, will change the political landscape. And the difficulty that politicians will have in controlling how that landscape takes shape through traditional media will make the process slower, but might make it less likely to result in a lurch to an extremist agenda like fascism in the 30s.
Totally agree with what posters 1 and 2 said. Hopefully the voice that technology can give the masses will make it a little bit harder for the oligarchs "to poison any narrative that diminishes their 'enclosures'".
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Comment number 5.
At 15th Sep 2009, Jericoa wrote:Paul,
Another excellent article and a great response from Stallinic above also, which i broadly agree with. It is actually akin to some kind of intellectual relief to see (through your post today) that there are people out there in positions of influence who do grasp what is going on and the processes required to 'get us to the next place'.
The 'time lag' factor you point out is an interesting one, in our modern world we tend to think that everything happens in the blink of an eye, because mostly it does in our day to day experiences, be it e-mail v postal service or the e-transfer of billions in assests around the world as oppose to ships carrying gold bullion between central banks.
Your are right, the forces at work here move at a different pace to the modern world and I am not sure what that will mean. Politics still only moves in 4 or 5 year cycles of change, depending on the timing of a sea change in the world like this crisis it could take 10 years just for a new ideology to emerge, capture the imagination and get voted in. We are not even at the stage of a new ideology emerging as yet. For the UK we are probaly talking about the election of 2015 at the earliest for a new ideology to get voted.
Taking into account the pace of political change, where we are in the cycle now and human nature i would guess the following for the UK.
1) We carry on as we are until the election next year, there is no time for anything else to emerge and be absorbed by the public psychy in terms of anew ideology.
2) The conservative win a landslide, there will be no hung parliament.
3) The delayed pain will begin in the form of cuts in welfare, healthcare, pensions, tax rises and goodness knows what else. They have no choice and they are the right party to do that probably.
4) 2011 Reality will bite the populous for the first time, there will be big downward re-adjustment in the relative wealth of british citizens in the world, whether you be a middle earner or on welfare, the pain will begin then. Expect many strikes and disruption, particularly in the civil service, in the 80s it was the NUM, in the 2010's it will be the civil service. It is just too big, bloated by 'non jobs'and pension liabilities even a small child could understand can not be afforded.
5) At around this time in the context of the suffering the changes above will bring a new type of ideology will start to emerge, maybe from the wrekage of the labour party, maybe from somewhere else, I dont know. The new ideology will be based around ( as #1 says)
Let the people organise themselves! Using modern technology to do just that for most of our day to day needs. It will involve philosophical changes as well, people will need to be happier with less and some religious practises will also need to be challenged, particularly those which still insist on using the indoctrinal disciplines that were essential several hundred years ago, but are counter productive to society today ( population growth being the most obvious of these).
6) The election in 2015 may be too early for that to emerge unless the spending cuts are so severe that there is a 'survival type' almost revolutionary response from the nation due to the changes in living standards, so assuming it is a smooth bloodless process we are talking 2020 probably.
It is going to be a fascinating period to live through, make no doubt of that, the best way to grasp the spirit of these times is to fully engage with it, take our heads out of the sand and look at ourselves in an unleveraged objective way. We can then use our solid demogratic base, institutions and british 'backs to the wall' creative tenacity to turn this thing around and show everyone a sound basis for creating amodern world fit for the purpose of human beings experiencing life with the maximum of awareness and engagement and the minimum of suffering.
Thats all i can manage in my luch hour, I am looking forward to this process now, what are we all waiting for? lets get on with it!
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Comment number 6.
At 15th Sep 2009, supersnapshot wrote:Great Sum Up Paul,
accelerating technology and fractured naratives, poisoned truth and Platonic idealism ?
How about:
I've enjoyed reading this guy's thoughts, and from your writings I suspect you are already familiar with it - the back door out of Plato's Pharmacy perhaps ?
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Comment number 7.
At 15th Sep 2009, barriesingleton wrote:MONEY IS ONLY A SYMPTOM - ITS 'CORRECTION' WILL CURE NOTHING
The phenomenon of Tony Blair shows us that we still live in a feudal world of exploitative leaders and exploited masses. Manipulation of money by the former, at the expense of the latter, is just an extension of mankind's fundamental inability to live anything but a 'primitive' life, sustainably.
It MIGHT just be possible to stabilise the current matrix of nihilism, but I doubt it. The level of wisdom required, in the general population, to bring stability to an over-complex (maddening) world, is anathema to Feudal Lords. It is no wonder that Blair's brand of 'education education education' yielded dim serfs.
You cannot 'get money right' in isolation, no matter how many systems you install, but put 'wisdom right' and money will not be a problem.
PS Some worthy said on radio that banking is, by nature, a 'risk business'. It is true - my bank always wanted me to bear THEIR risk, several times over.
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Comment number 8.
At 15th Sep 2009, leftieoddbod wrote:what an intro...it boils down to the same thing that has happened down the centuries...the poor will pick up the tab for this one hence the bankers are already in the trough...point proved, t'was ever thus
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Comment number 9.
At 15th Sep 2009, barriesingleton wrote:IS THIS TELLING OF ME - OR OF BRITAIN?
I was employed from 1950s to 2000s, had a business from 1970s on, and am now retired. During that time I rubbed shoulders with people who were making VAST gains on market-based investment. I was sorely tempted but never indulged. I do not gamble - for the simple reason one can lose. I was cajoled by bank, and prompted by government but did not yield. At each mini-crash I had 'survivor guilt'. Then the whole thing collapsed, and a lot of people, just like me, but who had gone with the flow and risked all, saw much of their money evaporate. Mine stayed put. All I ever applied was that simple truth: "If you gamble you can lose". I have given up guilt, now I am just appalled and depressed.
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Comment number 10.
At 15th Sep 2009, barriesingleton wrote:SOLID STATE TIBETAN PRAYER WHEELS - THE WAY FORWARD (#6 link)
I apologise for skimming the linked piece SS. Might the Tibetan taboo eschewing the industrial and motive wheel, be relevant? If God had meant man to have wheels, surely he would have fitted them in Eden?
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Comment number 11.
At 15th Sep 2009, supersnapshot wrote:10Barrie and The way forward.
Well of course yes and no. Tibetans didn't manage to invent god, but have wheels, and Westeners managed to invent God, but had to wait for the wheels. But the chinese have invented Alibabadotcom !
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Comment number 12.
At 15th Sep 2009, UltraTron wrote:Bookhimdano, #20 from the last thread, but applicable to this discussion:
I've got no idea what the correct model is re human nature, but maybe E O Wilson can point us in the right direction. Cooperation has been absolutely central to our success as a species (in terms of geographical radiation and competition for resources). Working out how to design a social and economic system that encourages cooperation (like the John Lewis system on a whopper scale), in place of rampant competition and the greed that hyper-competition rewards, is a big challenge that needs to be addressed by Paul's panel of eggs and beards.
And to make it more difficult, it'll have to be cooperating to achieve some kind of sustainable state of equilibrium, not just cooperating to build more things we don't need or to appropriate more resources from whoever is easy game.
Perhaps some affirmative action is required to parachute some enlightened retirees into power, instead of the usual crew of careerist malignancies who're beholden to the status quo.
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Comment number 13.
At 15th Sep 2009, shireblogger wrote:Very thought provoking, Paul. I would like to put a different angle. Globalisation and regulation is relevant. Wall Street and the City set themselves up as the intermediary for recycling surpluses from the oil producers/asia into western consumer and business debt for good returns. The rules were relaxed, monetary policy loosened and the markets deregulated by UK/US to accomodate and ease. The UK/US governments took a middleman's take in tax revenues and enjoyed the bubble created. We now know this was built on a foundation of sand. Responsibility for this massive market malfunction lies squarely with policy makers and sophisticated regulators in the anglo-saxon social democratic economies. How could it then be workable/sustainable to let the citizenry pick up the immediate tab for the excesses of the financial elites. Sub prime was heralded by policy makers as an enfranchisement of the poor. It wasnt as if the ordinary Joe was gambling for gambling's sake. So, policy-makers tread very carefully with their electorates. I dont think this is Free market / Keynes pure and simple. A collective conscience pervades the policy-makers' response.
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Comment number 14.
At 15th Sep 2009, virtualsilverlady wrote:I have to agree with someone interviewed on the Jeff Randall programme last night. Nothing has changed for the problems have just been moved around.
The debts of the banks have been shifted to the taxpayers
That is only putting the crisis on hold for the same problems are still there and the debts are going increasingly bad.
There is a social responsibility for governments to start looking seriously at how to make real changes within their own countries to undo the mistakes they have made over a decade. They have to start on a path of evolving economies that are more balanced and self sufficient.
We have lost many good potential long term entrepreneurs needed for our future prosperity to the easy short term money making activities of property development and buy to let. The magical formula of easy money for little effort which is never sustainable in the long term.
It is wrong to lull people into a false sense of security to keep them quiet knowing that it will all blow up somewhere down the line. This appears to be what is happening at the moment and unless this bought time is used to instigate the right measures for the future which people actually believe in then prospects are bleak indeed.
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Comment number 15.
At 15th Sep 2009, leftieoddbod wrote:so it is proved then...greed is NOT good
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Comment number 16.
At 15th Sep 2009, allmyfault wrote:"......JP Morgan analysts show that 50-60% of all bank profits are being generated from high-risk activity right now........"
Well, most of us know that will end in tears again.
So what is the plan/response when such a correction happens. Have they all got our AIG insurance, or are we to bail them out again directly, or do they get to go to the wall?
Who is in charge here?
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Comment number 17.
At 15th Sep 2009, suprjambo wrote:Paul as ever an excellent blog entry, thumbs up!
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Comment number 18.
At 15th Sep 2009, Spanner3777 wrote:This comment was removed because the moderators found it broke the house rules. Explain.
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Comment number 19.
At 16th Sep 2009, infint wrote:I'm not an economist, I'm an engineer. When a machine or system seems to be poorly matched to the job it is expected to do, I tend to fall back on first principles. What exactly is the job I expect this machine to do?
In order to understand the economic situation and its problems and remedies, I would like the answer to 3 questions?
What is money? What is wealth? What is growth?
I imagine some sort of limited society e.g. 1000 people living in a closed environment. Nothing comes in and nothing goes out except maybe energy.
From this I have some ideas.
Money is essentially an accounting system - You owe me, I owe him, he owes you. The monetary value of something is determined by supply and demand. On this basis, the trading of money to make money is a dangerous illusion.
Wealth is the accumulation of some sort of asset which can be traded. It is essentially inequality. If someone is wealthy then someone else is less wealthy. I am not comfortable with the idea that wealth can be accumulated by taking assets from the less fortunate.
Growth is the spread of a new idea. One person does it, then 10, then 100. Growth is limited by at least 2 factors; the size of the population and the amount of resources required. When economists seem to assume that the only healthy economy is a growing economy, where are the limits?
Building a new supermarket does not mean new jobs (except for the builders), it just moves some jobs from the old supermarkets. You can only sell so many cans of beans.
At his point I might conclude that the present economic crisis is only a hint of what is still to come when the limits of growth really begin to take effect.
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Comment number 20.
At 16th Sep 2009, stanilic wrote:The most amusing characteristic of the programme itself was that it tooks us precisely nowhere: the reality is that nobody knows what to do. Most are still locked into old attitudes as they see no need to change and others are wholly focussed in a desperate struggle to stay afloat in an environment which has turned very hostile.
For the first time in his appointment I enjoyed listening to the Archbishop. I have already rehearsed the Original Sin argument only I connected it to the Fall of the Markets as opposed to the Fall of Man: but then not being a teacher of theology I am at liberty to mock it.
I must confess the two individuals who irritated me the most were the former banker, who despite being a quite affable chap sadly came across as a bit smug, and the retailer who thought he was there to advertise his product.Thanks Jeremy for cutting him off.
I do feel we are going to continue asking this question for some time yet. I have always disapproved of the competitive idea of society - I recall a teacher terrifying my class with it when I was nine years old - as I don't think it to be either productive or efficient, but also I consider the prevailing bureaucratic alternative as even more ridiculous.
Perhaps we should all discard our conceptions as to the nature of society and allow ourselves to be led by experience for a while. But then I am out here in the real economy, paying my own way and, apart from what is left of my pension fund, have no vested interests to defend.
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Comment number 21.
At 16th Sep 2009, UltraTron wrote:Yeah I thought Rowan Williams was the only one who really offered a fresh perspective. Although I'm not sure how he got away with criticising bankers for peddling "unreality": slightly rich.
Blanchflower was totally useless. When asked what politicians could do, his answer was "if there was something easy, it would already have been done". What about if it's not hard then it's not worth doing? Him, and the old banker, seemed totally unable to break out of the mindset that the objective was to get back to the same old unsustainable grasping for growth, greed is good, GDP envy.
I never understood why seemingly rational people were always happy to accept cycles of booms and busts as inevitable, as if they were some kind of higher order phenomena imposed from above like the seasons. They are entirely the result of human behaviour. If a pilot plunges a plane into a mountainside, we don't just shrug and euphemistically call it a downturn.
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Comment number 22.
At 16th Sep 2009, Jan wrote:The main problem with bailing people out is that they don't learn the error of their ways and so resort to their previous behaviour asap. As a parent I've been in that situation with my own offspring!
However on a bigger scale,direct consequences as a result of misdeeds can cause untold damaged to other people as well so by adopting the methods so far used by world governments the pain for the average person is lessened as far as it is possible. But in reality governments have been buying time in the hope that those responsible for the crisis have time to alter their mindset. We have all been guilty to a greater or lesser extent hoping to get rich quick on borrowed funds and are addicted to money. None of it is sustainable either for ourselves or for the health of our planet.
If I had been one of the banking elite I hope I would have been able to leave after making the first million or so and let someone else have a go as how many millions does one need for heavens' sake? But no-one in banking (or any other profitable business) thinks like that. Why not? What is the point in the nine-to-five grind and the commute to the City for years on end? No-one on their death bed wishes they had spent more time at work!
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Comment number 23.
At 16th Sep 2009, John_from_Hendon wrote:"No Depression = no 30s-style revolution in ideas. Discuss."
Not yet!!! It took quite a time for a real head of steam to get up for social change in the 30's the problems may have their roots as far back at the that three decades of the previous century (see the Long Depression).
We are only a year in, as yet and I do not see any reason for with optimism or pessimism - just concern.
There is one this though that cannot be denied and that is arithmetic. Japanese style multiples of income for buying houses can not last the arithmetic is against it, so something gives either substantial inflation, or falls in house prices. etc. etc.
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Comment number 24.
At 16th Sep 2009, random_thought wrote:"Instead of a collapse scenario there is now, at worst, a 10-year stagnation"
Hmm... The 10-year stagnation will be very painful if it involves 10-years of mass unemployment (15-20% plus). Is that really better than a collapse scenario? The latter would have caused lots of people to lose their savings (mostly the better off). It would have caused lots of companies to go into administration if their cash was wiped out- but quite possibly if the underlying businesses were sound they would have been bought up by someone else, so the losers would be the shareholders in the original company (mostly the better off) rather than the workers. And the advantage of the collapse scenario would have been that the debts would have been written off for good, whereas with what actually happened they just got transferred to the taxpayer. Letting the banks go bust *and at the same time* printing money like mad might have been a good option. But it would have been *extremely* risky.
The fundamental problem is the gap between rich and poor. If the ordinary consumers don't have money to spend, then there's no demand. Lending them money (with interest) has provided a short-term solution for the past decade or so, but it was obviously unsustainable and came to the end of the road.
Bailing out the banks primarily bailed out those with savings and maintained the status quo. Given the risks involved in letting the banks go bust it may well have been the right thing to do, but now the rebalancing must be done. Cuts in public spending, which will inevitably hit the poor hardest and make inequality worse, are precisely the wrong thing to do. A massive redistribution of wealth and income is what is actually needed. But it's hard to see the fools and cowards in the main parties doing what needs to be done,
Two years from now, after a series of cuts in public spending and with millions more out of work, will there be riots in the UK? It's quite possible. Currently we have an underclass of the unemployed, disenfranchised and demoralised who have been persuaded that that really is all that life has to offer them. The millions who will lose their jobs over the next couple of years won't have that attitude. Things could get nasty, and my fear would be that anger could end up directed against recent immigrants rather than against those who really caused this mess.
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Comment number 25.
At 17th Sep 2009, walshp wrote:I am struck by the optimism on the part of my fellow bloggers in terms of economic and social change. Here in the USA it feels as if chances for any substantial reform are disappearing. Just yesterday, President Obama talked tough to a room full of Wall Streeters but introduced nothing in the way of new policy. As stunning as it seems, he even suggested they regulate themselves.
Perhaps in the EU things will be different. But here in the States it looks as if we will create a few new oversight positions while investors speculate on bundled life insurance policies. As for a coherent response from the left? Little chance. It is the radical right that is taking all the oxygen and left-leaning liberals are watching the Democrats abandon commitment to public health care.
We seem to be digging in our heels, unable to face new ideas. As Paul suggests, we suffer from cognitive dissonance. Sadly, we Americans seem to be demanding reality change to fit our misperceptions.
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Comment number 26.
At 17th Sep 2009, billjefferies wrote:The idea of 10 years of stagantion seems pretty unlikely. Previous experience of recessions like this one with a massive inventory bust, suggest the most likely thing is very strong growth for at least the next 18 months.
I think Paul misses out a key component of the non-Great Depression narrative, profits. The rate of return on UK capital for example, has not fallen through this recession. That's the first time that's happened. In the US profit rates remain very high and in China too. In other words, the reason that the global authorities saved capitalism was simple, they had the money and the incentive to do so.
The key leading indicator for industrial output, the inventory/orders ratio is at a record high, indicating that world industrial output will top 15% annual rate in the next months.
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Comment number 27.
At 17th Sep 2009, stayingcool wrote:I cannot believe that you are coming up with this garbage - certainly seems that you are too far up your own bottom to be able to see anything (hopefully that delicate phrasing will pass your censor)
Why cant you see that capitalist and hard economic 'principles' are only front, that whatever keeps the capitalist show on the road is what counts, principles are for the fairies.
Instead of wondering why the principles ahve been transgressed, why not look at what is actually happening?
What has kept it on the road is handing zillions of public money to the rich, bonuses uninterrupted, with gapingest hole in the public purse - that's our money, or rather, debt.
The biggest transfer of wealth from the poor to the rich ever, and you are congratulating the measured response of the wealthy and the 'contradictions' that theorists percieve, while realists can see that it all fits perfectly. We lose and we pay. There is perfect coherence.
Why can you not see the wood for the trees. To put out analysis when you fail to do so results in a misleading effect, and an effect of 'who needs enemies with analysts/commentators like you'.
How many unemployed will you have on - or is that a different universe?
No, actually, there is only one
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Comment number 28.
At 18th Sep 2009, TheNewPonzi wrote:# 27 - yes, it certainly is a huge tranfer of wealth from the 'poor' to the rich. Lending to businesses and the real economy has not risen since the bank bail-outs. The real purpose of QE becomes increasingly clear as time passes: its another bank bail-out in disguise. Taxpayers money and guarantees, accounting changes to bolster toxic loans and off balance sheet poison, and all the rest of it has only led to colossal public sector debt in 'the west'.
Casino banks have blackmailed certain western governments into giving them access to taxpayers cash. The lending that was meant to be the quid pro quo for this has not materialized, but with banks now effectively running the UK and US they are unlikely to be brought to account.
The French and Germans have quite rightly determined to exit this self delusory phase as soon as practicable. They should pay no attention whatsoever to Brown's empty bluster and bluff. He'll be out on his ear soon enough anyway.
The Anglo-Americans are in a real mess. Their public finances are shot and yet refuse to acknowledge that their days of world interference and warmongering are numbered. The Chinese now have an opportunity to disarm them in a way that the USSR never managed. All they need to do is ration their buying of US & UK debt and force cuts in defence budgets; we can already see this in the UK, with the future of the Trident replacement doubtful.
The response of the Anglo-Americans seems to be desperate denial that anything is amiss with their busted free-market ideology:
UK response to new world order: Buy Our Debt (please) - pathetic.
US response to new world order: Buy Our Debt (or else) - dangerous.
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Comment number 29.
At 18th Sep 2009, ThorntonHeathen wrote:27. stayingcool
Whilst I have every sympathy with the self-evident injustice of the bank bailout that inspires your rant, it seems YOU just cannot see the trees for the wood - just because Paul congratulates the wealthy on being nimble enough to save their own behinds, it doesn't follow that he is "on their side", to adopt for a moment your Manichean world view. The British Army often declare their admiration for the fighting skill and tenacity of the Taliban... do I make myself clear?
To really stay cool you need to have been around the block a few times to end up as a cynical old backslid anarcho-green leftie like me and a few others on here...(Stanilic?)
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Comment number 30.
At 18th Sep 2009, stanilic wrote:29 ThorntonHeathen
Old backsliding anarcho-greenie; yes, I will own to that as I have done it all. Cynical? I try not to be.
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Comment number 31.
At 19th Sep 2009, stayingcool wrote:Dr Johston's dictionary, published 1755
Kakistocracy: a form of government whose rulers are the least competent, least qualified or most unprincipled of all citizens.
Time to bring this one back!
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Comment number 32.
At 19th Sep 2009, supersnapshot wrote:Or Kleptocrasy ? - Liam Halligan used this on newsnight :
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Comment number 33.
At 20th Sep 2009, stanilic wrote:31 staying cool
Kakistocracy: what a lovely term.
All the nicer for being rooted in the Gallic word `cac' meaning excrement. I believe the Irish applied a similar word to the former James II of England and James VII of Scotland after the Battle of the Boyne.
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Comment number 34.
At 20th Sep 2009, dysgwrcymraeg wrote:Why is the ³ÉÈË¿ìÊÖ not reporting the Baroness Scotland expenses row?
Are you doing the mandy's bidding?
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Comment number 35.
At 21st Sep 2009, Jericoa wrote:THE SIGNS ARE ALREADY THERE FOR THOSE WHO CAN SEE
The bins in leeds have not been emptied for 2 weeks due to a strike which due to salaries being cut to be in line with some beurocratic ' equality legislation'. other councils have yet to try to introduce it. I have alot of sympathy fopr those guys actually who do actually do something very very useful. they have to put up with £thousands wiped off their salary by the red tape PC brigade...so they get paid in line with dinner ladies. talk about throwing the baby out with the bathwater, what a great metaphor for the disaster that is 'big government' with too many people on the public books looking for a job to do and causing trouble as a result.
The cat is out of the bag that we can no longer afford to send 40% of kids to university to do media studies or psychology or zoology or medieval history in their 10's of thousands ( somebody remind me why we do that again cos it beats me). Interest rates on student loans must go up or the intake go down or tuition fees increased probably all of those actually.
The post office is going to strike for their unsustainable pensions shortly it would seem. What are their chances of success do you think?
All this stuff is happening NOW before anybody will even talk about huge cuts in government spending, let alone start to implement it for real!!
Now let me see, what is on the chopping block in future?
Cuts in benefits...well that is going to go down well with our 5M strong benefits dependent class whom have thus far being placated.
What are all those youngsters going to do who will not be able to go to university in 2011, 2012 etc they are going to have lot of time on their hands, no jobs and no money ..hmmmm
I am sure the civil service with the public service attitude will of course be pleased to accept a roll back of the blatently un-affordable final salary schemes without going on strike...wont they?
The 'hard working families and small business' will equally be pleased at having to pay more taxes to support all of the above and pay off the gov debt also...wont they?
It may feel like a partial recovery at the moment but the signs are there to give an indication of what is to come.
Those who can see it will be well advised to prepare for it, as would government and the media.
Now would be a good time.
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Comment number 36.
At 21st Sep 2009, UltraTron wrote:Whaaa Jericoa, I agree with a lot of what you say a lot of the time, but I can almost feel the stress oozing out of the screen. Things look bad, but possibly not that bad. You should just turn off the news for a week, it'll do wonders.
Also, I can't agree with this "The cat is out of the bag that we can no longer afford to send 40% of kids to university to do media studies or psychology or zoology or medieval history in their 10's of thousands (somebody remind me why we do that again cos it beats me). Interest rates on student loans must go up or the intake go down or tuition fees increased probably all of those actually".
First, it strikes me that if we can afford a war in Afghanistan then we should be able to afford to send people who have worked hard to gain the requisite qualifications to University. Not that the tax payer is exactly footing the bill anyway. I'd treat the nonsense trotted out by the CBI with a pinch of salt.
Second, what exactly is wrong with media studies, psychology, or zoology? The media industry contributes a massive slice to the UK economy, is relatively low carbon owing to its relatively whole-hearted embrace of flexible working, and doesn't require government handouts.
It seems like it was a collective failure of psychology that got is into a situation where almost 1 in 4 people will need to be treated for a psychiatric disorder in their lifetime, and judging by the lack of adequate supervision of psychiatric patients in many NHS trusts perhaps more psychology students should be encouraged.
The study of zoology, which encompasses subjects as diverse as aquatic ecology (fisheries), the study of social insects (bees, where have all the bees gone?), and evolutionary biology (at the heart of our own psychology), is one of the most fascinating areas of research bar none.
Presumably we should all go and study the great white hope engineering instead, so that we can get a job making cars that nobody needs, expensive yet redundant vanity defense projects, or wiping out ecosytems and displacing millions by building giant hydro-power plants. (Only joking, obviously green engineering solutions like tidal and solar power could be a key to sustainability, but a balanced economy and happy society will need to be strong in a range of disciplines is my point.)
And student loans are not awarded by the government and paid for by the tax payer, but by the student loans company. And due to a quirk in the way that the interest rate (which is pegged at the rate of inflation) is set for the loan, students are already paying back at above inflation. Once hyper inflation sets in then it's game over, as it's pretty much the only loan you can get that will track inflation.
"Interest rates on student loans must go up or the intake go down or tuition fees increased probably all of those actually". What a great way to reinforce the already entrenched social immobility in this country.
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Comment number 37.
At 21st Sep 2009, Jericoa wrote:#36
There is nothing wrong with zoology or media studies or psychology as such, it wasn't meant to be an attack on any particular sector of education, those examples were simply taken from my own experiences as follows:
Watching an endless stream of psychology students at my graduation,most of whom I knew have have subsequently retrained to do something else) it was in marked contrast to the numbers of people who graduated from tricky subjects like engineering maths, sciences etc. They had a good time at uni I am sure (like I did), but was it the best use of our brightests and best? That was back in the days when only about 10% of kids made it to uni, lord knows how many graduate psychologists we produce now!
Zoology got targeted because I know someone who recently graduated in zoology, had a great time in africa on field trips etc etc, i dont have a problem with that, but she is now struggling to get a job as an assitant manager in a shop. Nothing to do with zoology. Because it is so specialised only those from a very select few universities will ever actually get to practise what they are taught is my point. The vast majority will be managers in shops if they are lucky. I could see it was aproblem when i graduated 16 years ago, imagine now!
i picked on medievil history because i saw a blog from agraduate of the same recently, it made depressing reading 30k in debt, no job and ( according to him) no prospect of a job that would ever allow him to pay back 30k. he stated he wished he had done a course in plastering and served an aprenticeship...... Is that what we want?
The potential dividend from mechanisation and technology (brought about by education) should be that we should all be able to work less and enjoy other things more. However the insane un-ending march for 'economic growth' means that does not happen, we are driven to try to find ever more ways to keep people occupied, be it in education or governmental 'red tape' in managing the tax credits system or spying on parents trying to get their kids into a good school by using grandmas adress. We do it in order that we can keep the beast fed with 'growth'. It is a shocking waste of human life is it not? To be marginalised or made to do awful jobs that dont really need doing just so that you can say ' you have got a job and are contributing to society'.
How many jobs now a days actually do contribute to society (like the bin men of Leeds for example?
How many people do we actually need to do them?
How can the spare time generated be used to best improve our quantum of happiness during our all too brief stay here?
I totally agree with the point you make on Afghanistan by the way, I would much rather funds be spent on any kind of education than, what has certainly become a pointless war. I say that with no disrespect for our serving soldiers in Afghanistan, it is up to us to get them out of there but collectively we dont know our backsides from our elbows at the moment, brave lads out there but the situation is no less tragic than the Somme to waste such bravery to save the face of others.
I cant bear to see Gordon brown out in Afghanistan shaking hands with those lads when he cant even tell the truth in parliament (no cuts) and had to be embarresed into allowing Ghurkas to live in the UK.
Maybe I will turn off the news for a week. The feeling of utter bewilderment it instills in me is obviously doing my cognitive functions no good. I wish i did not give a damn about all of this, it is a burden to both give a damn and see the truth of it. its just too much..therin lies insanity.
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Comment number 38.
At 24th Sep 2009, SirBlogger wrote:What I find most interesting is that so many believe it is over. It seems the best case is an L shaped recession but more likely this is going to be a double dip just as the last one was in the US. The insider money on Wall Street is selling and getting out while they can.
The capitalists just bailed themselves out. The best we can hope for is a long downward spiral until we hit the Chinese/Indian standard of living.
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