Reports in all newspapers this morning suggest that the Irish bail out has not worked: the markets have reacted without enthusiasm and the talk is, inevitably, of contagion, It’s almost assumed now that Portugal and Spain will follow suit. Belgium is next on the list. And I doubt that will be the end of it. Others will join in due course including, at the very least, the failed tax haven states with massive funding deficits, such as Jersey, Guernsey, the Isle of Man, Bermuda, Cayman and more.
So let’s not pretend any more that this was caused by a rogue bank — as people like to claim of Anglo Irish. It was bad, but it did not pull the system down. And let’s not mistake the fact that the system is going down. The pretence otherwise is simply a time buying exercise, and one that looks like it may not work for long. The truth is that world banking is tottering. The underpinning of money was, in far too many cases, property, and property prices are falling and that means that bankers’ confidence money in the money they created (because 97% of all money is made by bankers) is failing with it.
Bailing out state after state won’t solve this issue. The problem does not belong to one state: the problem is global. As TJN has shown with regard to the Greek crisis — the issue is one of inter-connectivity, at the core of which are tax havens. The pretence is that a state may be bailed out — and its people held responsible for the fecklessness of their banks under the lax regulation that people’s reckless elected politicians permitted - but this is as much a lie as they claim that all this was the fault of Anglo Irish.
No one country, no one politician, no one bank, no one regulator created this mess. This mess came about because we believed three things.
The first was that corporations could be stateless. In the age of globalisation corporations said they floated above the state, its petty constraints and the obligations it imposed on them to comply with regulation and to pay tax. And they persuaded politicians they were right. Indeed they still are. Alistair Darling still subscribes to this view — and it is fundamentally wrong.
Second, we believed that we’d solved boom and bust — and inflation. Actually, all we did was outsource jobs to China to beat wage inflation and suppress the wages of most ordinary people, and then sustained growth through credit based on supposedly rising property values whilst denying many access to the homes they needed. It was and is a ludicrous economic model.
Third, we believed business knew more than politicians about how to run anything. Morality disappeared under the illusion that the market was the ultimate arbiter of right and wrong. Faith in democracy declined as the belief that the ultimate vote was that through the till. And the confidence of most of those with moral conviction drained away with the onslaught of this idea that poured through all media. For the few who still cried out in the wilderness there was almost universal derision.
Each of those ideas are wrong. The corporation is rooted in the state. There is no such thing as a free flow of capital: it always has a cost, and we’re now paying it. The reality is that prosperity is based on work — not finance or asset inflation. And there is a very real need for democracy and moral leadership, especially now in a time of crisis.
Each of these issues is important, vital even. But of the three the biggest issue is the last. The vacuum there is potentially crippling. It is the absence of vision against which the young are protesting. It is leadership they are demanding. And it is leadership they must have — or we move to extremes.
Corporations have to be tamed.
Finance has to be tamed.
The state must re-emerge.
But so too must the politics of social conviction: the politics that says there is a right and a wrong, the politics that says we can by individual effort change the world for the better — not for ourselves, necessarily — but for the sake of humanity at large.
That’s the politics of social democracy — but I mean radical social democracy — not the sop to watered down neo-liberalism that has been a pale excuse for social democracy for far too long.
This blog is a small contribution to that debate — and the need for change: change of the only type that can deal with the systemic failure that’s emerging, rapidly.
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This kind of vision is why I read this blog every day.
Shouldn’t we be asking ourselves the really fundamental questions at this point as Richard is doing here?
I remember one City bigwig explaining the success of the financial markets thus: there’s all this money flowing round the world at any one time, we capture if briefly, skim a little off, and send it on its way again.
Where does the money come from? Was it ethically captured? Who ultimately benefits from this? Are City taxes really adequate compensation to a state that turns a blind eye to so much chicanery?
It seems to me that anyone with an investment in keeping things as they are is almost on the point of losing any moral authority to make any wider argument about how society should function.
I also think that those driven by the need to accumulate money don’t realise that many, many people are fed up with the western lifestyle built over the last thirty years: longer hours, boring work, managers’ arrogance, formulaic culture, political arguments that five year olds can understand…etc.
Or is life (our lives) really just about helping the next generation of young entrepreneurs find their niche in the global economy…? All of us doing things we don’t want to do so that a few can satisfy their pointless aims.
Meanwhile the sun is still shining, the trees wave quietly in the breeze, the parks are full of smiling people, the boats are moving slowly across the lake…
Nah forget all that because you’ve got 60 hours of staring at a computer screen ahead of you, doing a job you hate, with people you despise, for a future you no longer care about!
@Philip
So true
So many professionals I speak to hate their jobs, what they have to do, the utter meaningless of it all
And all this to buy an iPod
Whoopee
We’ve really screwed up on this big stuff – like what lief’s about, and screwed up finance whilst doing so
while I disagree with most of the content of this blog, part of the reason I read it is because I agree almost entirely with the diagnosis set out above.
What I wonder about is whether it is possible to remake urban society. It is interesting that in Philip’s post when he lists things of value he naturally reverts to natural images: the sun shining, the breeze in the trees, parks, lakes. My fear is that if you live in an inner city there is little natural beauty to replenish the soul. But also, cities have to be places of finance, because so few people in so few cities actually make stuff: the whole urban model is based upon service – bringing stuff in from the countryside, adding 20% and flogging it on. It is all about “skimming” money and it all encourages big business (which is part of the problem). Add in anonymity and the belief that in a city everything is obtainable at the right price and huge levels of inequality are inevitable and you get a nasty cocktail.
In other words, is finance the source of our problems or is the pre-eminence of finance simply a consequence of our becoming an urban society? Would it be possible for a London, Paris, New York or Moscow to exist without the inequality and democratic deficit that is so objectionable?
@Philip
I guess your surname isn’t Green.
@Mad Foetus
Don’t knock cities. Not everyone wants to live in a field, which is fortunate because we have a shortage of habitable land. I love cities but the best ones have a fair share of water, flora and fauna to delight the eye too.
@Philip
Despite it’s depressing tone I found myself agreeing with everything you say. Too often intelligent people, who should know better, are all too happy to be apologists for what is a corrupt and failed system.
Every morning at 6.15, as I’m getting ready for work, I turn on the Today programme and hear the finance news. Every single day the guests they have on are so consistent in peddling the same neoliberal nonsense they might as well stick with the same guest. They all celebrate profiteering and tax avoidance whilst at the same time criticising unions or any groups who seek to challenge the status quo. Just yesterday some City ‘expert’ was being interviewed about Ireland and was asked how was it possible for the Irish banks to pass the recent EU stress tests and yet now be bankrupt? No proper answer was forthcoming and his only response was ‘well that’s in the past’. I’m sorry, that’s not good enough!
There is a growing movement in the blogosphere and now spilling onto the streets (students, Vodafone, cuts etc) that this system is corrupt. Only when the influence of the newspapers have diminished will the movement really take off. We are proles in a land-grab co-ordinated by a political, business and media elite.
Back to Ireland, I recommend this post on the Golem XIV blog.
Dear Mr. Murphy:
It is so refreshing to read an article by someone who actually sees the truth and speaks it. I’m a 75 year-old American and have been saying for about 30 years that people refer to the “Market” in the way people used to refer to God. How fatuous. But so many Americans believe the drivel that Ayn Rand wrote and Ronald Reagan popularized that it is easy to see why they have been so foolish. You are right that this misperception is the foundation of the economic and political insanity that has followed.
As to the problem with stateless corporations, I think John Buchan put it best many years ago when he wrote “capital knows no homeland”. We are seeing this situation exemplified on a far wider scale than he could have imagined. It isn’t just a few financial brigands who are raping and pillaging, but almost all corporations. Contemplate the corporate money in the latest U.S. elections. The need is for regulation that is reasonably simple to understand and which is effective. Some rules were put into effect after the First Great Depression that worked. Unfortunately, politicians repealed most of them. In the U.S. the worst case of corrupt legislation was the repeal of the act that separated retail banking from investment banking and insurance. We now have “megabanks” that are considered too big to fail. The only thing in nature that grows without limit is cancer.
I am constanty amazed at central bankers who keep telling us we must have some percentage of inflation. Bunk! For centuries the only time people suffered inflation was during floods, famines, pestilence, etc., and when the mints debased the coinage. Almost everyone’s coinage has now been debased. Perhaps the Norwegians are the only financially sensible people on earth. The holy grail of central bankers and governments should be price stability.
Mad Foetus has, I think, a rather limited view of urban civilization and of the part that wealth creation plays in a society. In my lifetime, let alone for centuries before, cities were places where “things” were made. There were machine shops, furniture factories, steel mills, cobblers, creameries, auto factories, and a multitude of other “non-service” industries. Even in a middle sized city such as San Francisco, California, where I was born, one could buy an item in a shop and could usually find the manufactory of the item in the city itself. Those who don’t read history are more apt to confuse today’s culture as being some sort of unchangeable condition that existed in all of prior time. Hence, cities as service centers only is fallacious. As I understand Austrian economic theory, wealth is generated by work and production and investment in the means of production. Finance does not create wealth, it just facilitates its movement.
You may have noticed that I spoke of the “First Great Depression” above. I see the present time as the Second Great Depression. Governmental statistics are manipulated world-wide now so that a nearly 20% unemployment rate in the U.S. is brought down to 10% by government statisticians and inflation is calculated without food and energy included. Only an academic or an incumbent politician finds these definitions meaningful. The man-in-the-street knows his paycheck is shrinking and his job may be in jeopardy. The word “recession” replaced “depression” after 1929. I am not sure but I am willing to bet that economists and politicians were looking for a word with less emotional connotation. These activities are an example of basic political dishonesty. Corporate influence is also unchecked. The idea of shame has been lost. Greed, sharp dealing, lying, and force are now considered virtues and not vices. Only a return to standards of conduct that are based on precepts of mutual benefit, compromise, honesty, and less concentration of wealth will keep us from the excesses of political upheaval.
I realize my comments have been long, so I thank you for the succinct piece you have written.
@Robert Poulsen
Thanks
Your comment is appreciated
Likewise @Neil