Tuesday, 25 March 2008
Thinking the Unthinkable - Post 'Growth' Economics
(The 'Continental', the original paper money issued outside the gold standard, by the fledgling United States, which suffered inflation so severe it led to the once popular idiom "not worth a continental")
It's an interesting month to be thinking about ideas like 'the end of banking'
in capitalism 3.0 Peter Barnes made the point that there were rare occasions of financial crisis so severe that government had the upper hand over markets and could push through pro-social legislation (such as with the New Deal)
I'm planning to (co-)author a paper on issues like that under the general heading (my business partner Jules Peck's current obsession): the implications of a post-GDP-growth economy
I want to sketch out some territories here and I'm hoping for input and comments and suggestions for further reading, these are very early first thoughts just wanted to get a few of them down
Here's business as usual in very simplified terms:
- society is run for the needs of 'owners', for instance shareholders
- these are treated as latter day tsars, to paraphrase Dick Cheney meeting their needs (and greeds) is 'non negotiable', everything else has to conform to this, otherwise (threats real or imagined are produced such as) they will take their capital into more business friendly markets
- the deal is that these people demand a return on their investment, what this means is that they put some money into something and you pay them this money back plus a much higher return than even just an interest rate
- preferably a BIG return, they want to go from very rich, to richer every year - they talk about having an appetite for risk (for which this is a reward) but my experience of investors was very well expressed by a friend complaining about some of hers as 'business babies' - and they will cheerfully kill your business to cut their losses if any losses threaten
- the trouble is that the economy isnt really growing (2)
- especially when you take governments issuing money into account (3)
- instead the whole economy is behaving like a Ponzi scheme (see wikipedia) which is roughly one where current participants in a racket steal from future participants (1)
1) the current credit crisis was born out of a housing market scam - selling 1/5 of American homeowners (the poorest 1/5) loans they wouldnt be able to afford unless the market continued to rise - ie they passed all the risk on to that sector of the population, banking is in crisis yes, but it is the poor people by and large who are losing their homes as a result
Another pseudo growth with heavy environmental prices to pay is the so-called retail miracle - ie we kept spending and spending, replacing goods faster and faster, buying more and more, taking out loadsacredit too - all on the belief that if you owned a home then you were fast becoming a millionaire and could afford to retire on it
These are Ponzi schemes - making homes unaffordable for newer generations to make the existing players rich
and like most ponzi schemes (a variant of pyramid schemes) it cant go on forever, one day it will always crash - squandering the now scarce resources of the planet which belong to future generations while they are still cheap because they are not priced to reflect their true cost (leaving companies all but free to use and free to pollute)
It's the consumerist retail (ie shop until we drop) boom that has undone any gains made in the UK on other fronts, environmentally; yet it is seen as another TSAR/BABY for instance in political circles - it MUST be fed - and proponents of this view (including the Sun criticising a move to reduce the use of xmas lights around shopping centres) if the retail boom doesnt continue then the whole house might come crashing down - which it now probably is anyway - news today said American consumer confidence was 'at a five year low' (I'm surprised its not a 50 year low - thats what Alan Greenspan says, this will have been the worst post war financial crisis - but things take a while to sink in perhaps?)
2) the economy isnt really growing,
[what on earth are you talking about, of course its growing????]
well it depends what you mean by growth
because of the pressure on companies to deliver 'growth figures' they will attempt to fix (ie hike) pricing if possible, they will get employees to work longer hours for the same pay, or they will move and move to countries where people will accept lower pay and fewer expensive health & safety measures
the growth introduced by innovation could be argued to be cancelled by the very high failure rate of innovation, and indeed the cost of things like endless replacement cycles in industries which do innovate effectively (IT never quite pays back according to longterm studies, because it is redundant long before it gets the chance to recoup what it cost, plus there is the whole cost of integration)
I am not an economist but I suspect from discussions with people who are that there is a case that (just like communist states) we have been cooking our books
I need to dig into this further, but I know for a fact that longterm growth in companies' share price has much more to do with multiples of earnings increasing (the stocks and shares as a collectors market, like the art market, which sets its own prices based on the percpetions of what others will pay) than fundamental economic growth, through real advances in productivity per hour worked by worker decently paid
3) money is made out of thin air
one reason governments have to keep a tight grip on inflation is that they are a major cause of it through the money supply
for instance this from a site explaining it all for canny investors keen to make money oout of inside insights:
"Money is created in two ways: First, money creation comes from borrowing it and spending it. (Money is literally borrowed and spent into existence.) Second, it can simply be printed up "out of thin air" by a central bank. The U.S. economy and other modern economies have central banks and fiat currencies. Central banks have two major powers. They can 1) "peg" the nominal level of short-term interest rates, and 2) purchase assets such as government debt, with newly printed money. When the central bank pegs short-term interest rates at a low level, it greatly encourages corporate and individual borrowing and spending."
So what does this all mean? In the light of current events you have to wonder if banking in its current form isn't (as the medievals saw it) the kind of practice that should be outlawed, at least in this form. Interesting alternatives have emerged like local currencies and microcredit. There is a great film on aspects of all of this (I've only watched some of it so far, but so far so good) by the way called money as debt that's free to view online.
What we are told is that banking/the current capitalist system/monetrism etc. is all that keeps us from the sorts of runaway inflation and economic collapse of the 1930s; people in berlin with wheelbarrows full of money. Or that we will be starving, like people in countries we happen to have placed under blockade (half a million children in Iraq died from the effect of 'sanctions' long before any invasion). But the history suggests that hyperinflation is caused by over supply of money and that crashes are caused by speculation (that sounds like roulette - more precisely it's like a game of pass the parcel, when the music stops, the asset hidden in the box proves to be worth much less than it was just bought for).
I just dont buy the 'as good as it gets' ('it's either the status quo or north korea') argument. It's easy to terrorise people about what might happen if we tinker with market freedom. Some parts of the economy which operate out of the economy happen to function okay actually; from the BBC to Wikipedia to (early) Linux. They seem if anything to function rather better than okay. And there are many functioning hybrids based on both voluntary effort and conventional economics mixed up together. This isnt entirely fringe thinking either; for instance Alvin Toffler wrote a few years back about money vs non-money economies the latter being the source of a huge amount of the value - an interview summarising this is here or you could read his whole book Revolutionary Wealth, for which here's some blurb:
"21st Century wealth, according to the Tofflers, is not just about money, and cannot be understood in terms of industrial-age economics. Thus they write here about everything from education and childrearing to Hollywood and China, from everyday truth and lies to what they call our "Third Job" --- the unnoticed work we do without pay for some of the biggest corporations in our country. They show the hidden connections between extreme sports, chocolate chip cookies, Linux software and the "surplus complexity" in our lives as society wobbles back and forth between depressing decadence and a hopeful post-decadence. In their earlier work, the Tofflers coined the word "prosumer" for people who consume what they, themselves, produce. In Revolutionary Wealth they expand the concept to reveal how many of our activities -- whether parenting or volunteering, blogging, painting our house, improving our diet, organizing a neighborhood council or even "mashing" music -- pump "free lunch" from the "hidden" non-money economy into the money economy that economists track."
I'm just piecing together what I know and it isnt much yet but the economics bit isnt the key - it's about fleshing out a scenario which could inform innovations, help people think the unthinkable. The question is how to think about all this as a decent person running a decent business, or a politician who just wants the best for their constituents? Is it time to stand up to those business babies? Could you find new business models which succeeded in organising valuable economic activity, without someone having to lose out down the line. Are there ways to combine the voluntary, creative, gift economy with the old one - beyond the donations that keep Wikipedia going - eg if every user had a token share and paid a dollar a year. How would you trade in a market which was 50% barter? Would you for instance start housing workers, like the old companies did (workplaces were also homes)? It's all very big and unforseen, but back at what Peter Barnes said we are already in the pit of a major financial crisis, the question now is what good we can make of it, beyond simply weathering it?
Necessity, the mother...