Joseph Stiglitz on BBC

listen to ‘Joseph Stiglitz: "The prospects of Europe recovering through austerity are nil" - The World at One, BBC Radio 4’ on Audioboo

"The prospects of Europe recovering through austerity are nil"

Mutual Indebtedness

I usually think that Nigel Farage is a hateful reptile. But watching this speech on 13 June I have to admit that he has a point. European politicians have their heads up their arses.

"I remember 10 years ago... [they were saying that] with the Euro by 2010 we would have full employment"

100 billion is being put up for the Spanish banking system. 20% has to come from Italy. The Italian banks lend money to Spanish banks at 3% interest, but they have to borrow it from the markets at 7%. Genius! [Paraphrase].

David Cameron and Subliminal Campaigning.

hard working 

families 

the right thing 

something for nothing

Have a close listen to David Cameron some time soon. He constantly repeats little trigger phrases that tap into what George Lakoff calls 'frames'. He tries to get them into every sentence. This is because, directly or indirectly, he has been advised by some of the most cunning evil geniuses from the advertising world.

Frames evoke emotional associations. So Cameron incessantly repeats 'hard working' and 'doing the right thing'. Everyone likes to think of themselves as hard working and doing the right thing. These are not Conservative values. But Cameron is using the advertising technique of constant repetition to associate the Conservative brand with these frames in our minds.

When you do this in ordinary speech is sounds a bit awkward. Listening to him you think, he sounds like an idiot. But each time he says 'hard working' there is a little response from your brain: images, attitudes, and emotions are evoked. The more often the same kind of stimulus occurs in reference to a particular set of circumstances the more we associate the two. It's just how the brain works, how we learn -- repetitions strengthens neural connections. In our natural environment this is a real advantage. In the present Cameron uses these subliminal (i.e. not quite conscious) messages to try to manipulate us. Even if we dislike Cameron we come to associate him with the frames 'hard working' and 'doing the right thing', etc. He just needs to keep peppering his speech with these triggers, say them with conviction, and the rest of what he says is just filler.

Now if you don't believe me then watch a Derren Brown show. Brown uses subliminal messages to manipulate his audience, then at the end tells them what happened. Bet on Cameron not telling us how he manipulated us. It so happens that Conservatives have a head start on this kind of thing. George Lakoff thinks that it is because conservatives are much more likely to study Business Studies at university. And they all study marketing at some point. So they caught on much earlier. And of course big business, which is broadly supportive of conservatism as a result of the deregulatory agenda, spend millions on advertising, so they have some insights as well. Progressives the world over a less interested in Business Studies. In the UK the support for Labour comes from the the working classes who typically have less education. So they seem to be struggling to catch up.

One of the facets of this approach to campaigning, and make no doubt that Cameron is in campaign mode for the next election, is that reason is distorted by belief. I've written about this in the context of religion: becoming religious is very like falling in love. I've observed that Neo-Conservatism has much in common with religion (except it offers no eschatology). What we observe about decision making is that we unconsciously decide which facts are salient by how we feel about them. This is why a person with strong convictions cannot be persuaded by facts: even if they are true, the emotional weighting tells us that the facts are not salient. What Cameron is doing is attempting to change the way we feel about facts.(See Facts and Feelings).

And this is why we get political paradoxes. Cameron repeatedly talks about 'hard work'. But he himself has had everything on a plate. He's never worked in his life, apart from a brief spell as an unpaid secretary, let alone worked hard. Most of the cabinet are the same. What's more the people benefiting most from Neo-Conservative deregulation of the economy are those who borrow money to speculate on asset prices. This requires no effort. A lot of trading is done by computers! Certainly inheriting money requires no effort. In fact the people who work hard are the obvious ones: the working class. And ironically the working class have lost out worse than any other section of society as wages have remained stagnant, union power has been eroded, and house prices have become unaffordable. Meanwhile the people who effortlessly make money have exponentially increasing salaries, access to politicians ears (often paid for), and have profited from the repeated debt fuelled asset bubbles. Cameron and his cronies have nothing in common with hard working people, and no real sympathy with them. But we can bet that hard working people will be starting to identify with Cameron because of the simple trick he is using.

Similarly Cameron says 'doing the right thing'. But he is not doing the right thing. For instance he is trying to pin the blame on our financial troubles on welfare, when we really know it was deregulated banks. We know that successive governments allowed banks freer and freer reign. And they used this to line their own pockets and beggar the nations of the world. £1 trillion to bail them out, and now we find that half of them were cheating on interest rates! Nor are many of Cameron's friends and associates 'doing the right thing': Rebecca Brooks, James Murdock, Andy Coulson, Jeremy Hunt; George Robinson, Philip Green and a host of other Tory Party Donors. Now the vaunted banks who are supposed to save us from economic ruin are caught cheating! These are not people who do the right thing.

Cameron and his associates are not people who share British values like working hard, playing fair, doing the right thing. If their really was a big society it would have crushed them decades ago for defaulting on our shared values. Let's face, all these people are just queue jumpers.

Why is this rank hypocrisy not obvious to everyone? It must in part be because Cameron's side are sincere. They believe their own rhetoric. They were children when Lewis Powell wrote the founding document of the NeoCon religion in 1971, and they're been bought up believing in that world view. They believe that the very position they've attained vindicates their moral superiority. And they have class ideologies reinforcing that as well. If the were insincere the job of defeating them would be easier.

Even when they cut corners or actively break the law they are on the whole not found out; and if they are found out the punishment is out of all proportion. A London rioter who stole a bottle of water got six months in prison. A banker who drove his business into the ground while personally profiting to the tune of 10s of millions of pounds is actually rewarded with salary increases in the order of 40% and bonuses with millions. Barclays rig interest rates and no one is indicted for fraud. A fine of £290 million seems like a lot of money, but to them its not really - just 10 days profit. Plus punishing the corporation rather than individuals means that no one has to take responsibility for the fraud.

So just reflect. A little war is being waged for our attention and for our emotional investment. Cameron is trying to slip beneath the defences of the nation and associate his odious self with 'hard work' and 'doing the right thing'. He speaks out about 'getting something for nothing'. But he does not work hard, he does not do the right thing, and all he's got was for nothing. Cameron is lazy, corrupt, and undeserving.

One final little note that 'the right thing' might be a moral message. But since not winning the election outright Cameron's support from the Tory core voters has been shakey. So this could be aimed back at this own people. He might well be waving his Right Wing politics at these people to get them to trust him as well.

But we need to beware stumbling into the realm of subliminal campaigning and framing. It is a complex field that requires serious study. We need experts to advise us on how to combat Conservative use of these techniques. George Lakoff, one of the founders of cognitive linguistics has been advising progressives in the US and his Huffington Post blog is certainly worth reading. But a little knowledge is a dangerous thing. At least we can be aware that this sort of thing is going on, and how it works.

At the very least it would be interesting to document these little catch phrases and note how often they are used. And who is using them. If anyone spots any more, please let me know in a comment.

Please Sign the Petition

"We the undersigned call for an independent, judicial public enquiry into fraud, wrongdoing and ethics of British banks, their management and their staff, and the role of the British Bankers Association. The terms of reference of this inquiry should also include the manipulation of interest rates on about £225 trillion of assets. The inquiry must have full powers to compel witnesses to appear on oath, and to obtain all forms of evidence."

https://submissions.epetitions.direct.gov.uk/petitions/35421

Stop the housing Ponzi scheme

"The government's new housing policy will collapse sooner or later like a fraudulent investment strategy"

Yesterday the government unveiled its housing strategy to "get the housing market moving again". The centrepiece was a mortgage indemnity scheme to help first-time buyers to get on the property ladder. But this policy is a disastrous waste of taxpayers' money that will satisfy nobody.

By Ian Mulheirn. New Statesman. 22. November 2011.

There is bad news...

"The UK has fallen back into recession as the economy shrank by 0.2% between January and March.

A sharp fall in construction output was behind the surprise contraction, the Office for National Statistics said.

The Chancellor, George Osborne, said the figures were "disappointing" and blamed both the European crisis and Britain's spending in the 'good years'." -- BBC Interview.

How come a dunce like me can understand what's wrong with the economy and what's wrong with what the Chancellor is doing about it, and the world's leaders and economists cannot?

It's simple. The debt bubble left the private sector owing about 500% of GDP and households about 100% of GDP.  The private sector is busy paying off debt and/or going bankrupt. They mostly don't want to borrow more because they're over indebted -- they borrowed like drunken maniacs in the boom, and now they have a hangover in the slump. Of household debt about 80-85% is mortgage, but what's left means that there's no market in consumer credit either. Except at very high interest rates -- and anyone can tell you that bank lending rates currently bare no relationship to the Bank of England's base rate.

From the bank's point of view only about 8% of their lending is to the real economy -- i.e. to invest in businesses produce goods and services, and to buy houses. The risk of trying to improve that is that the market is overloaded, likely to stay in recession for some years, and asset prices set to fall even more. So lending to the real economy is not sensible for them, in the sense that they will not make record profits this year like they did last year. They happily take money from the government, but they have no one left to give it to now the debt bubble has burst. Indeed it's still so high Steve Keen is predicting yet another major credit crunch.

So, yes, Europe is a mess, because they too ignore debt, and our (insolvent and uncreditworthy) banks are highly exposed either directly or indirectly and if Greece goes broke and defaults, crashes out of the Euro and uses it's own currency (which it almost certainly will do) a lot of money is going to disappear. Or is that wealth? Still sorting our the difference.

Anyway. How hard is this to understand. It's not that hard is it?

What we need to do, but probably won't, is tackle private sector debt. Have a modern debt jubilee. Then regulate the banks to restrict how much money they can create, and make them loan to the real economy to fund businesses that do stuff and create jobs.

Vote for me. I couldn't do worse than this lot!

Keen to be Heard

This is a good balanced article on Steve Kee's impact on the world of economics. It makes clear that mainstream economists, especially in Australia see him as rather extreme in his views and predictions, but also respect him for having predicted the Global Financial Crisis. His prediction that house prices would fall by 40% has yet to come true, but given the evidence it ought to!

BRW Interview and Assessment

Cameron and How he is Framing the Political Debate

Paying tax is how we help each other, how we express our concern for the education of children, caring for the sick and elderly, and providing amenities for the community, like roads, electricity and water.

I've been looking into George Lakoff's work on how political discourse is framed. Conservatives have an underlying metaphor of the community as a family ruled by a strict father, who is always right, rules by authority and force (if necessary). In this family morality is expressed as obedience. It requires discipline. The moral are rewarded with success. So if you are poor, it is because you lack discipline and are therefore immoral. A loving parent would discipline an immoral child by chastising them.

Does David Cameron's touting for votes by punishing the poor make a little more sense in this light? And what about the rewarding of his successful, i.e. rich friends? And since Jimmy Carr portrays himself as a pervert for comic effect (edgy, but successful), he doesn't deserve the enormous success he's had, so he is targeted when Tory donors using similar schemes are fine and dandy.

The strict father family is invoked in other ways. Since Reagan, at least, conservative politicians have been framing tax as a affliction. Reagan campaigned on "tax relief" ie relief from the imposition and affliction of government taking our money.  When tax is framed as a burden it is only rational to stick to the letter of the law, not the spirit of the law. We forget the the spirit of the law is working together to create a better world.

Also "the market" (which is entirely a fiction created by delusional economists) is like the perfect strict father: the market knows, decides, rewards and punishes, and its authority should not be ursurped by regulation. Conservatives feel drawn to this idea. Perhaps this is an idea that has had it's day, but in fact not legislation has been passed which might make a difference to the markets. The markets are still free to gamble on assets for instance. The market as conceived by economists is simple, rational, linear, and tends towards an equilibrium. It perfectly rewards the industrious and punishes the lazy. The market then is the Buddhist conception of karma, and impersonal force which keeps tabs on us.

Providing support for young people to find independence, is important for creating a dynamic society. In times when house prices have been inflated by criminals gambling on asset prices, we have a moral obligation to provide help paying the rent. We could do away with housing benefit if rents reflected  the real cost of ownership.

Conservatives are concerned that people are getting something for nothing, that the system rewards those who choose not to work. Laziness is immoral in their world view, and Cameron has several times let slip that he sees himself as not only a political leader, but a moral leader. Conservatives are asking themselves why anyone should "benefit" from not working, not why we should support those who are unable to work because economic mismanagement has lead to high unemployment. Facts don't help because Cameron is appealing to emotions which emerge out of a deep seated world view. We can say that there are 11 people out of work for every job available in the UK, but this does not change the fundamental attitude. Housing benefit just epitomises this problem for Torys.

Ironically the people making money with no effort are the bankers and those with enormous investment portfolios. Like Cameron himself. If working hard is a virtue then the bankers who gambled our money away are some of the most vicious members of our society. They didn't earn the money. And the public had to spend a trillion pounds bailing them out. "The market", to use that language showed us that banks and financial speculators were wrong and immoral by making them insolvent. But the government has failed to follow through on the morality of that particular mess.

Part of the problem is that progressives tend to argue by negating the words of the conservatives (who are way ahead in terms of setting the agenda). But even when we negate a word we invoke the frame it is defined by, and the narratives it is embedded in. George Lakoff illustrates this by saying "don't think of an elephant".

But progressives have a different family in mind. A family of nuturing parents. Mother and father are involved. They teach us that respect does not come from position or authority but has to be earned. We look after each other, and help those who need help. The nuturing family is tied into a the extended family, and into the wider community.

Progressives failed to make the point that paying tax is how we help each other, how we express our concern for the education of children, caring for the sick and elderly, and providing amenities like roads, electricity and water. They don't point out that though pooling our resources we have created a better society. If we forget what it was like we have Charles Dickens to remind us!

No one, no matter who they are or what they are doing, succeeds on their own. There is always a team. The most successful business person relies on teams of people to carry out their vision and implement their strategies. Cameron himself relies on Tory donors, party workers, policy advisers, the civil service, his wife and family, on voters. We are all inter-related.

How do we get this across without falling into the trap of sounding like communists? Because the conservatives have long ago linked this kind of discourse to the Soviets and the Chinese.

One thing you will notice about Cameron is that he does not attack the left on their own terms. He does so in his own conservative language, repeating catch phrases. Now Cameron and his team are not particularly adept at this game, but more recently Cameron has been falling back on more traditional conservative language. And the conservatives around the country will be lapping it up, not because Cameron is stating facts or being more logical than the left, but because to a conservative this kind of talk feels right. And on the other hand this means that simply opposing this message with facts is unlikely to change minds. On my other blog I have tried to explain how this process works.

How the Germans See Us

German Comedy Ambassador Henning Wehn makes a few pointed observations for a little light relief. Not sure what the date on this is, but by the remarks it may be pre 2008.

Four Horsemen

Here is the first trailer for the film The Four Horsmen made by the Renegade Economist. The film has not been shown in my home town of Cambridge, UK and I'm exploring bringing it here. I know not many people are reading this yet, but if you're interested let me know.

Predicting the Unpredictable

Politicians and economists try to say that no one could have seen the Global Financial Collapse coming.

Oh Yeah? Says who?

What do these names all have in common?

Dean Baker, Wynne Godley, Michael Hudson, Steve Keen, Paul Krugman,
Jakob Brøchner Madsen, Ann Pettifor, Kurt Richebächer, Nouriel Roubini,
Robert Shiller, George Soros, Joseph Stiglitz.

They all predicted the 2007 crisis

This time line from Real-World Economics Review Blog shows that beginning in 1995 non-orthodox economists started to say that something was wrong with current economic models and the state of the economy across the developed world. There is not excuse. There were warned by credible people, but they chose to ignore the warnings.

Foresight and Fait Accompli: Two Timelines for the Global Financial Collapse.

Robin Hood Tax

Now here is a bloody good idea!

A tiny tax on bank transactions that don't involve the public

0.05% or even less

raises £100-200 billion per year!
to be spent on social projects

Sign up on the site
Go see your MP and tell them you support it

The Housing Rachet Racket

“Our conclusion is that UK residential property appears unattractive as an investment. Prices appear to have been bid up by investors seeking ‘safe havens’ to preserve their wealth given record low interest rates. However, the UK residential property market is far from risk-free.” --Coutts [The Queen's Bank]. via HousePriceCrash.

There's a fundamental problem when investors are buying houses to rent out, but in doing so the force the prices of houses up. This makes housing less affordable, forcing more people to rent. Since prices are high, rents are high. But prices are only high because of speculators... and so on.

The figures we hear about how many houses are needed in this country beggar believe. And in the meantime speculators are beggaring those who were previously merely poor.

On Maslow's hierarchy of needs shelter comes at the first level along with clothing, food and other basic requirements for human survival. How did we get to the situation where some people make a living gambling on the basic survival requirements of other people?

Of course in a fairer world more demand would drive more house building. But investment in new housing is chronically low, probably because of the massive over-indebtedness of the private sector, and the high interest rates (wrt to inflation) being charged by the banks. So we not able to meet demand, and this also puts upward pressure on housing. And not only that but our population is rising quite fast.

It's not simply that something must give, it's that something is giving and it is the poorest people in our society being forced into poverty. Well, I call it a society, but that is something of a misnomer isn't it? In our "society" it's every man for himself, and devil take the hindmost. Which is in fact barbarism.

There is a quiet civil war going on in Britain. One group are raiding and pillaging. One group are helplessly being pillaged.  The victims are a vast majority. Sometimes they called themselves "the 99%", and the other side "the 1%". We could all just band together and say NO! I'm no advocate for communism, but the government has a duty to protect it's citizens from hostile forces. The people taking our money and our homes are hostile forces. The government are failing in their duty of care, only they can act to stop the war, by legislating.

We all need to go and see our MPs and tell them face to face that they have to do something differently. Don't just write, as the get dozens of emails every day. Make and appointment and meet them. Tell them that there is no trickle down effect, that speculators and gamblers are robbing us. If enough of take this small action, then we might start to make a difference.

Debt and deleveraging

Uneven progress on the path to growth

Report from the McKinsey Global Institute. Puts UK aggregate debt at around 507% of GDP mid 2011. This seems a tad low compared the the ONS figures that put private debt at about 430%, household at 96% and government at about 88%.  Giving us a total of 614% of GDP. Note how much more indebted we are than everyone except Japan. MGI conlude:

At the recent pace of debt reduction, we calculate that the ratio of UK household debt to disposable income would not return to its pre-bubble trend for up to a decade. Overall, the United Kingdom needs to steer a difficult course: reduce government deficits and encourage household debt reduction—without limiting GDP growth. The United Kingdom will need renewed investment by nonfinancial businesses to achieve this. (p.6)

The report is based on a study of a number of historical events comparing "deleveraging" events - where leverage is the ratio of debt to assets.

But the problem is that non-financial business is mortgaged to the hilt. Can we really expect banks to ramp up lending?

The Baleful Influence of Ayn Rand

In his excellent documentary with the awkward title All Watched Over by Machines of Loving Grace, Adam Curtis included the story of how Alan Greenspan, one of the major figures responsible for the crisis in world finance, fell under the spell of the strange and seductive Russian émigré Ayn Rand. It really is worth watching the documentary. It exists from time to time as pirated videos on YouTube and is shown on TV from time to time.

Rand advocated a "philosophy" which she called "Objectivism". Her work was mainly produced in the form of novels such as The Fountain Head, and Atlas Shrugged. Adam Curtis describes her philosophy.

"Human beings were alone in the universe, they must free themselves of all forms of political and religious control and live their lives guided by their selfish desires. If they did this they would become heroic figures."

In her own words

"If man want to live on earth his highest purpose is the achievement of his own happiness. He must not force other people, not accept their right to force him. Each man must live as an end in himself and follow his own rational self interest."

Rand herself was a charismatic figure who gathered a group of adoring disciples around her. Her ideas and her approach to life see pathological in retrospect. Her philosophy seems bizarre to us now, though she still has followers. This is a time when we see collective altruistic action as beneficial. Inspired by Live Aid we find ways to work together and some of the most significant events in the last few years have been the Arab Spring and the Occupy movement. And rightly so because empathy and altruism are our finest features, and we are social animals who thrive through cooperation. I've showed on my other blog that one literally cannot divorce reason from emotion. We are human beings, not Vulcans. Indeed we all know that his reason is both Mr Spock's strength and his weakness.

Rand was influential. Vastly influential. Many of the entrepreneurs in Silicon Valley had read Atlas Shrugged and saw themselves as Randian Heros. But it is her influence on Alan Greenspan I want to focus on here. Greenspan fell in love with Rand her ideas. He became one of her inner circle, though in the Curtis film other insiders claim that she never liked him. Now there is an irony, because of all her disciples Greenspan was most effective at implementing and spreading her ideas.

Akerlof and Shiller point out in their book that the original ideas of Keynes were watered down to make them more acceptable and that this watered down version was what people took for Keysian theory. Recent Peter Keen has pointed out that economists don't seem to read their own literature. Keynes General Theory was replaced by John R Hick's quantitative interpretation of it. Keynes did not assume that consumers were rational, he assumed that they were capable of irrational behaviour as well. This irrational component was played down, weakening the theory, and this allowed it to be replaced in the 1970's by the Neo-Classical model in which people rationally pursue their own self interest, and that governments should not interfere with people in pursuit of happiness. Sound familiar?

Neo-Classical economics is an extension of Ayn Rand's Objectivism, with Alan Greenspan as one of it's chief prophets. But like Rand herself, and her philosophy is anything but objective. And neither is Neo-Classical economics objective. It treats people and their behaviour in an extremely naive and unrealistic way. And it does not allow for the actual way that people behave which is not always rational.

What it lead to was the financial sector convincing politicians that they ought to be free of any government control and that this would lead to a kind of utopia in which everyone would benefit. As Curtis points out it was partly based on a belief that computers would facilitate a new kind of stability by predicting risk and allowing the financiers to hedge against it.

But we've seen what it has lead to. Multiple financial disasters. And now the world wide collapse of the banking system, at the same time as bankers salaries have grown exponentially. Greedy bankers have pillaged the world economies and got mega-rich doing so, all the while telling us that it is for the best. And it's politicians who have facilitated all this by removing restrictions on the finance sector and becoming Free Market evangelists, thinking that in the process they themselves might become Randian heroes.

Rand has cast a long shadow over the Western World. If we're ever going to get out into the light again, we need to shrug off Rand and her stupid ideas.

David Cameron in La La Land

"David Cameron has denied the UK is in a 1930s-style slump, but said more will be done to get the economy moving."

"Frankly Britain needs to roll up its sleeves and do everything we can to get our economy moving."

-- BBC 

The question is, why is Cameron being such a Pollyanna? It may be that he is worried about confidence levels as the country palpably fails to come out of "recession" five years down the track, and Europe teeters on the brink.

Or maybe he thinks that Europe is not so bad? Obvious the bank bail-out strategy worked so well here, that it's only a matter of time before Greece and Spain are right as rain... no wait, that's right, it didn't work for us... because of private debt.

Cameron is looking more like Neville Chamberlain every day, don't you think?

Economic growth, asset markets and the credit accelerator

"According to the U.S. National Bureau of Economic Research, the “Great Recession”is now two years behind us, but the recovery that normally follows a recession has not occurred. While growth did rise for a while, it has been anaemic compared to the norm after a recession, and it is already trending down..."

"The only sure road to recovery is debt abolition—but that will require defeating the political power of the finance sector, and ending the influence of neoclassical economists on economic policy. That day is still a long way off."

Steve Keen's recent paper for the Real-World Economics Review. 57.

Renegade Economist with Ann Pettifor

Ann Pettifor talking about the problem of debt. My notes from the talk follow.

In 2003 AP predicted the Anglo-American debt crisis. She had been studying debt in 3rd world countries. The crisis seems to have begun in the early 1970's on the periphery in poor countries in places like Africa. She organised Jubilee 2000 which got the banks to write off $100 billion in loans that were never going to be paid anyway. [Sound familiar?] However the reaction from the mainstream was dismissal.

AP spent some time working at the New Economics Foundation studying sovereign debt. She became interested in why debt had not accumulated much in the period 1945-1971, but after 1971 began to accumulate rapidly. The popular view was to blame OPEC, but this did not ring true. She read Haliner (Sp?) and realised that the build up of debt coincided with the deregulation of credit.

In 1971 Nixon unilaterally bailed out of the Bretton Woods agreement, and the UK introduced something called Competition and Credit Control (which was all about competition with no controls). This lead to "lending without limits". And it also meant that central banks could no longer control the spread of interest rates, they could only control the base rate which is effectively irrelevant (i.e. unrelated to the interest banks charge consumers).

In 2003 it was "blindingly obvious it couldn't last" but only the New Statesmen took AP seriously. AP writes for the NS now. In 2006 worried that friends and family were borrowing unwisely she published The Coming First World Debt Crisis which warned of the collapse. The book did not sell well at the time, but does better post crash.

Neo-Classical economists have a silo mentality. Overly specialised. AP approach is more wholistic. She would "remove the financial sector claws out of the academic world". The current academic approach to economics is bizarre, but the economists are "hired guns", who mostly don't have tenure. Only a few tenured academics like Jeffrey Sachs can really say anything outside the mainstream. The finance sector is funding research and institutions.

Sidebar about INET conference and mixing with the old guard. Pluralism good even if old guard are boring.

AP reading paper ostensibly by Ben Broadbent, formerly of Goldman-Sachs, now on the board of the Bank of England (BoE). He says that the cause of the crisis is nothing to do with easy money, and all down to interest rates. [Saw this in Guardian comments recently; and c.f this from the New York Times 2008]. AP the paper showed signs of having been written in the Goldman-Sachs research dept. and delivered by Broadbent. [I think the speech in question was Deleveraging. There is another take on this speech on the FT website. JR]

He says stupid things like "for every saver there is a borrower", something apparently repeated by "dear of [Tim] Geitner". But we've had a monetary system since 1694 and money is just an entry in a ledger. Banks create money by double entry book keeping.

Neo-Classical economists are stuck in a ptolemaic [i.e. extremely anachronistic and empirically wrong] world view. We find such fundamentalism amongst religious people, but not expected on the board of the BoE. They are sincere, but frozen in time. What is amoral is that the banks finance the system, lend without regulation and at very high interest rates.

Lending interest rates is a huge issue, and underplayed by other non-orthodox economists. We need banks to lend at a low enough interest rate to allow entrepreneurs to pay back loans and still make a profit (eventually). But banks want a big return on an "effortless activity", they just make ledger entries to create money, but they charge rent on that money.

Interviewer raises the issue that "only 8% of loans went into the real economy". Response: "We have to regulate the banks." We know how to do it, because it's been done before in the 1930's when there was arguably more globalisation, more immigration for example. Keynes and Roosevelt championed regulation. We have to manage the banks, and in particular cross border credit so that we can control the money supply and the real costs of borrowing. We need to do two things.

1. We need to adopt Keynes dictum of keeping interest rates permanently low, to enable entrepreneurs to make a profit, but also to slow down resource extraction. If profits are low on mining, for example, we have to mine more to make it more profitable. But these resources are finite and the activities to get them destructive so the less the better.

2. We need to control the creation of credit.

"We need to say to banks in no uncertain terms: you may lend for productive purpose, but you may not lend for speculative purposes. You can't lend to a gambler, but you can lend to someone who's going to do something [in the real economy and create value, such as making goods & services"

There is no shortage of money is a monetary system

The Florentine banking system lead to the renaissance, while the founding of the Bank of England lead to the Industrial Revolution.

It is true that bankers have bribed and captures politicians, making them remove regulations, but it is the fault of politicians who took bribes and lacked backbone [and probably any deep understanding of economics JR]. One does have to be weak in the face of the banking lobby. Compare Roosevelt with the German politicians of the 1930s. In USA we got the new deal; in Europe we got fascism.

"We can't do much about Goldman-Sachs, or even RBS which we are supposed to own. But we can hold politicians to account. Part of the problem is that the public are ignorant, and even the economists struggle. But the Jubilee 2000 movement has shown that the public can understand things if they are explained. "People aren't stupid". And once they understand there's no stopping them.

Banks create money out of thin air by entering a number in a ledger. This is free money that the banks charge rent on, which is exorbitant and unfair.  Politicians changed the rules, they can be prevailed upon to change them back!

In presidential elections in France 1 in 5 people voted for the fascist Front National. 35% of working class people voted fascist. They're desperate and see the banker doing so very well. No on is listening to them, but Le Penn says "I am listening". In 1930's Hitler began with about 18% support, and he too told people suffering from economic hardship "I am listening". And yet the Bundesbank are saying "there is no alternative".

There is an alternative--

1. Get a grip on the issues. Read the newspapers, especially the Financial Times and try to understand it. Use the web [interviews like this and others I link to].
2. Go and meet your MP. Don't just write. Tell them you don't like what they're doing. Reign in the bankers. They need to change the rules. Changing the rules can only be done by politicians. "civil servants [in the IMF and World Bank] can't change the world". We need to get politically involved. Join political parties and apply pressure to policy makers to stop pandering to the bankers. Apply pressure to politicians.

G20

But Mr Barroso mounted a strong defence of the EU's handling of the crisis so far.

"Frankly, we are not coming here to receive lessons in terms of democracy or in terms of how to handle the economy," he told reporters.

Mr Barroso said the global crisis had not originated in Europe.

"This crisis was originated in North America, and many of our financial sectors were contaminated by, how can I put it, unorthodox practices from some sectors of the financial market."

BBC

Really? Surely they don't think that they are handling the crisis well? Perhaps Mr Barroso should be a little more humble? They've just agreed to give Spain's banking system €100 billion. But with non-finance private debt at 220% of GDP they're in the same position as us. The private sector is over-stuffed with debt, and giving banks more money is a joke. The Spanish banks will more or less have to do what our British banks are doing: sit on the money, or lend tiny amounts at exorbitant interest rates. And pay big executive salaries and bonuses.

And as for the crisis originating in North America that needs to be taken with a grain of salt. The bubble began to burst there, but Europe and the UK were playing exactly the same game, and in some senses still are. Especially in the UK we had very similar unorthodox practices, particularly gambling on asset prices. We also had a debt fuelled demand bubble.

But the other interesting thing in this article is that the UK is the most exposed country in the G20. Our external debt is more than 420% of GDP (the govt. share is not mentioned) The USA, by contrast only has external debts of 98% of GDP. 

The main point is that when the European dominoes start to fall, the UK will be lucky not to be dragged down with them. This helps to make sense of David Cameron's recent moronic figure waving exercise. His advisers are telling him that if Europe goes they'll drag the UK with them. We are highly exposed to insolvent European banks. We may have stayed out of the Euro, but we borrowed a truck load of them.

2008 "The US Bailout Won't Work"

Here's Steve Keen being interviewed in 2008, explaining why the US bank bailout wouldn't work. And of course he was right. It didn't work. Are they listening yet? Not hardly.

The wrong austerity cure

Imposing drastic cuts to services will not solve the banking crisis engulfing Europe.

"Fiscal profligacy did not cause the sovereign-debt crisis engulfing Europe, and fiscal austerity will not solve it. On the contrary, such austerity has aggravated the crisis and now threatens to bring down the euro and throw the global economy into another tailspin.

In 2007, Spain and Ireland were models of fiscal rectitude, with far lower debt-to-GDP ratios than Germany had. Investors were not worried about default risk on Spanish or Irish sovereign debt, or about Italy's chronically large sovereign debt. Indeed, Italy boasted the lowest deficit-to-GDP ratio in the eurozone, and the Italian government had no problem refinancing at attractive interest rates. Even Greece, despite its rapidly eroding competitiveness and increasingly unsustainable fiscal path, could attract the capital that it needed.

Deluded by the convergence of bond yields that followed the euro's launch, investors fed a decade-long private-sector credit boom in Europe's less-developed periphery countries, and failed to recognise real-estate bubbles in Spain and Ireland, and Greece's slide into insolvency. When growth slowed sharply and credit flows collapsed in the wake of the Great Recession, budget revenues plummeted, governments were forced to socialise private-sector liabilities, and fiscal deficits and debt soared." 

 Laura Tyson
(Former chair of the US President's Council of Economic Advisers.)

Via Al Jazeera. (Note that Al Jazeera are often a good alternative to mainstream Western media)

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Germany, Greece and the Marshall Plan

"Europe should learn from history. But it needs to learn fast. There might be no recovery unless debts are reduced to manageable proportions. That is what ended the Great Depression in Europe in the 1930s, and that is what in all likelihood is needed again. Professor Sinn is right to resolutely ask for action on this, even if his take on the Marshall Plan is wrong."

Albrecht Ritschl. The Economist 15.6.2012

Steve Keen on BBC Hardtalk

SK on BBC Hardtalk.

"Write off debt, bankrupt banks, nationalise financial system (temporarily), and start all over again."

"We're already in another Great Depression"

What is a modern debt jubilee?

The Modern Debt Jubilee is one of a package of measures recommended by Professor Steve Keen. Steve is one of that rare breed an economist who predicted the beginning of the Second Great Depression which began in 2007.

In this blog I want to collect up all the links and articles about Steve's ideas particularly as they relate to the UK. This in the vain hope that one or other political party might want to take it up. There are already several groups calling for a debt jubilee for the nations impoverished by the World Bank and the IMF. But the idea of the Modern Debt Jubilee applies to developed nations, and I live in the UK.

The basic idea is that we stop bailing out the banks, and bail out the people and private sector who were conned into taking on far too much debt. And we give everyone a sum of money, with the proviso that if they have debt, the money must be used to pay off that debt.

I'll be posting more as time goes one.