Economics as a religion

2 06 2011

Back in the 20th century when the world had two competing ideologies, economics began lurching towards taking on a religious role. A subject that was once closer to science, started to drift in the direction of theology. What was once based on statistics and evidence now revolved around earlier beliefs set in stone and taken as ‘truths’.

This initially took place in Communist Russia as the cult personality of Lenin and Stalin ensured the economic doctrine of their version of Marxism became the only viable way. The democratic west snorted at this totalitarian vision of every detail in an economy being run from within the bowels of a building in Moscow. As we discovered in the late 20th century, Communism was a hugely inefficient way of running an economy. It had rotted away from the inside to the point where it collapsed, the only reason it kept going for so long was that it was propped up by those who believed religiously in its virtue and success.

Josef Stalin and Vladimir Lenin imposed Communism on Russia almost as a replacement for religion, mostly for their own political ends.

In the capitalist economies of the west those who called themselves socialists were dismissed by their opposites of clinging onto a discredited cult religion. They argued that trying to manage the economy was a disastrous approach, one that led to totalitarianism. Better instead to let the market economy run its course. Out of this idea was spawned a new belief by the very people who derided the assumptions and theories of their old enemies in the communist party.

This new idea of pure capitalism was developed most notably at the Chicago School of Economics and by its main cheerleader, Milton Friedman. In a nutshell, this idea worked on the assumption that markets will go up and down but will always find a level playing field. The market with hundreds, thousands or millions or transactions will always deliver efficiency and competitiveness to the economy that lets it operate and does not interfere. This became known as neoliberalism, these theories found favour at the end of the 1970’s when Ronald Reagan in the US and Margaret Thatcher in the UK picked up on these radical new outlooks for the western economies.

Milton Friedman, godfather of neoliberalism and the majority of current economic thought.

Over the next 30 years the introduction of market economics was introduced to nearly every aspect of industry and public services. Across the political elites of Europe and North America it has become the fix all answer to any of societies woes. If a publicly run service has problems at its core, privatise it and let competing private entities find that level playing ground and the service will now, completely naturally, run efficiently and cost effectively.

Politically there is no real trumpeted alternative to this, like communism before it, neoliberalism has passed into the realm of religious fervour. There is now a long list of test cases where market economics has been applied and utterly failed. Chile in the 1970’s, Russia in the 1990’s and the financial worlds of the US and Europe in the 21st century.

From the top of politics to the upper reaches of academic economics, right through to the most vocal media commentators, neoliberalism is alive and well. This despite the world being well into the aftermath of the second catastrophic failure of laissez-faire capitalism in under a century.

At this moment Greece, a country where the neoliberal crisis has caused the failure of its economy, is being given strong medicine to cure its ills, its called…… neoliberalism. The country is being told that privitisation and deficit reduction should be its main priorities. So it cuts government spending, which exacerbates the downward tailspin of the economy, resulting in less tax receipts and further burden on social spending, which results in a larger deficit. When the medicine does not work, it is told rinse and repeat again.

Greece in crisis as ordinary people suffer the economic catastrophe, but although neoliberalism has failed them, they must suffer for the sake of Europe’s failed neoliberal bankers.

Politics and economics now find themselves wedded to a religion, a sacred economic doctrine to which there is no alternative. Most of the top politicians and their economic advisers have been brought up in this church and in the cold hard world of evidence and statistics that don’t add up, they do not know where to turn.

We are at a turning point in political and economic history with leaders that are wholly unsuited to understanding where they are in this vacuum. Interesting times, but we have not heard the last from the school of neoliberalism, because as Albert Einstein once described insanity, “doing the same thing over and over again and expecting different results.” What else is a politician to do when he has never contemplated an alternative.


The caretaker President

21 05 2011

It was as if he came out of nowhere. Before 2008 Barack Obama was an unknown quantity. Suddenly there was a young and articulate Senator giving some some rousing performances in the presidential nominee debates. People began to stop and take notice of him. He spoke differently than most politicians, he seemed to be an outsider, untainted by the ways of old. Those who listened began to believe he could light a fire under the cosy Washington elite. This was partly down to his great skills as an orator but also because of his perceived acknowledgment that politics had to change.

That word became the catchphrase of his campaign, he won over the voters and an atmosphere of genuine hope and optimism emerged, culminating in his historically significant inauguration. He had set himself up to be a game changer, someone who would take the old and discredited way of doing things and revolutionise them. It seemed everyone but the most cynical expected him to be one of the great presidents of the United States.

Now, two and a half years in, the true story of President Barack Obama turns from one of hope and becomes one of tragedy, a story on the limits of politics and democracy.

Obama has been a cautious and confused president on many issues, foreign and domestic. His speech, dubbed ‘Cairo 2’ sums this up perfectly. It was his answer to the critics who said he had reacted too slowly to the ‘Arab Spring’ protests. But when they came, his words contradicted each other. He praised the protesters who overthrew the American supported dictators in Tunisia and Egypt, but only after it had become an obvious fact on the ground. He criticized an old enemy in Syria, saying the people wanted democracy. Meanwhile, America’s old friends in Bahrain, should offer “reform” rather than democracy.

The dilemma for Obama is that the ordinary Arabs do not care which dictators are friends with the US and which are not. The narrative is clear on the old enemies of Libya and Syria, but then they protest in Bahrain and the monarchy cracks down with all the vigour of Gaddafi. This presents a problem, Bahrain is home to the US Navy’s fifth fleet and a close friend of those elephants in the the room, the Saudi’s. They need special treatment, but not only from Obama, David Cameron had a nice friendly photo call with the heir to the Bahraini throne. Bahrain buys a lot of weapons from Britain so while the Gaddafi family are on a bomb to kill list, the defender of human rights Cameron has “stressed the importance of the government moving to a policy of reform rather than repression.”

David Cameron and Bahrain crown prince Salman bin Hamad al-Khalifa outside No. 10 Downing Street, other human rights oppressors such as Bashar al-Assad of Syria and Colonel Gaddafi of Libya have not received an invite to have their photo taken with Mr Cameron.

The politicians are caught in a great dilemma, they believe in democracy and here is the perfect bandwagon of democratic revolution to jump on. However, they have to take all the caveats into account, so they walk a tightrope of support for democracy while keeping their strategic friends happy. Obama’s speech was timed so that it would be broadcast live during the evening in the Middle East, so he could convince the people of his honourable intentions.

The trouble is Obama and his speechwriters are deluded into believing how smart they are. They believe if they word things correctly, the Arabs will be blind to their double standards. Not only do they see through these polished words, but have done for some time. Most of their cynicism gained through what American Presidents down the years have said about Israel and ‘Palestine’. Obama brings this up in his speech in a way that seems like a break from the past but actually says nothing new.

Attention was focused on his line “The borders of Israel and Palestine should be based on the 1967 lines” as if this was a profound policy shift from an American President. Under international law the 1967 borders are those of Israel, any Israeli extension outside of these borders is illegal. Bill Clinton said something similar, yet nothing changed. You get the feeling that by saying all the right things to please his Israeli friends, Obama feels empowered to bring up 1967, only to be met with howls of indignation from his Israeli friends. But then he giveth with one hand and taketh away with the other. The Palestinians are trying to get a vote passed in UN to recognise the state of Palestine, something Obama will not support.

Discussions on what speeches like this should contain probably start out with the best of intentions, then they try to keep everybody happy, and the final draft just contains meaningless waffle. Obama will now shy away from this issue and do what every other President has done before him, pass the can of worms onto the next guy.

The occupation of the West Bank continues, the ritual of defiance and retaliation goes on as it always has for over 40 years.

This confused and toothless strategy has been applied to more than just the Middle East. Healthcare, Guantanamo Bay and banking reform have all got the same half hearted approach. It seems as if the most powerful man in the world is powerless, all he is left with is words and a fawning assembly of journalists to entertain. He is locked into a straight jacket of policies invented by his predecessors that are somehow as untouchable as the constitution.

This is the tragedy of Obama, whether he really believed his own words of “change” are irrelevant. The point is he convinced many he was genuine. Now he sits as a caretaker president, maintaining the status quo. Every time he tries to put his own signature onto an action he is called to heel, the policy is watered down. Barack hopes he will be respected as a great compromiser, but mainly he will be seen as just weak.

The end of the European dream

8 05 2011

The European project to bring all the states of Europe, big and small, into a mutually beneficial co-operative system was one of the political triumphs of the 20th century. It sought to end the hostility neighboring countries felt towards each other both economically and culturally. It did this by removing barriers to trade and ushered in an era of free movement of people, goods and capital.

It worked. An inter dependance grew up between nations who bought and sold commodities between them without tariffs. The original idea was that if countries were economically dependent of each other, the need to wage war would diminish. Later this grew into a belief that if Europe stood together economically, they could then collectively punch their weight on the world stage.

The Wonder Years: The Treaty of Rome, back when the European member states were all pulling in one direction.

The largest step towards this was the single European currency. In the early days the advantages of the Euro seemed obvious. A Spanish company could accurately price the cost of a good in Germany without the hidden charges of exchange rates. It made sense, but the disadvantage came in the surrender of individual countries ability to pull various economic levers in times of woe. In the late 1990’s this seemed like nitpicking, why would you need those levers when all the economies of Europe are performing and growing?

Fast forward ten years and some of those Eurozone economies are in dire straights. The collective economies never were in perfect sync requiring a one size fits all economic policy. In 2008 the music stopped and most notably Greece, Portugal and Ireland were left without even a fig leaf to cover up their problems up.

All these countries have very different issues, mostly of their own making. The economic downturn in Greece showed up the deep structural problems in the Greek economy and successive governments attempts to cook the books. In Ireland a massive Ponzi scheme collapsed but not before almost every bank and individual became exposed in one way or another. Property prices plummeted and took the economy with them once somebody pointed out the Emperor was naked.

One of Ireland’s ghost estates, the property bubble meant houses could be built anywhere and they would sell for a massively inflated price. When it burst property like this became a liability to the bank and therefore the state.

Usually these countries could take their own actions to deal with the crisis, but remember they packaged up those economic levers and sent them to Brussels. Before the Euro the economic collapse of Ireland would not have much effect on Germany, but Europe’s project to interconnect their fates now pulls Ireland into their orbit of worries. The trouble is, the financial elite in the European Central Bank (ECB) are exposed. All the economies of Europe must be healthy and operating for the Euro to be a strong currency. If one nation defaults on its debt, the gods (in this case the markets) become angry and threaten all kinds of terrible things.

The original spirit of the European project was we all stand together or fall together. For the European project to work, Ireland’s debts have to be shared between those who are liable, this is bog standard capitalism. That achieved the economy has to become more competitive and economic activity has to encouraged by investment, first public then private as things impove. This is bog standard economic theory, and in turn Germany helps Ireland get back on its feet and a contributing member of the family again.

This is where the original ideas of economic co-operation in Europe wither and die, without it Europe is at war again, albeit economically at war. The serious men (serious because we are supposed to believe they cannot be wrong) at the European Central Bank impose bailouts on its delinquent members. However, the aim is not to reform these economies and get them growing again, it is to apply a massive band aid that will keep the markets happy and the save the Euro from the embarrassment of a departing member state.

The thinking behind this follows what the ECB believes to be its most pressing priorities, they go something like this. Top of the list are the big French and German banks, their trouble is they got their hands dirty when they happily moved capital into countries like Ireland and then got burned when the investment went sour. The prevailing wind says these debts are paid by the Irish not by those stupid enough to make the investment in the first place. Second is the need to always present the Euro as a strong currency, dismiss any talk of its faults and certainly quash any talk of leaving the eurozone. This is the equivalent of a family attending a social occasion with the main aim being to deny the extra marital affair that took place or the love child that resulted. Thirdly or maybe further down the list comes actually fixing the broken economies of the European family.

The European Central Bank, the fate of the European project now rests with the bankers who occupy this building.

The problem with this is it won’t work. Ireland will default, its private banking debts are huge, and now saddled on the Irish taxpayer, who cannot pay because he lost his job. Greece is on the verge of leaving the Euro as its only way out is to devalue its new currency and work from the ground up. Europe is now a two speed economic zone, France and Germany with their balanced economies wag their finger at those on the periphery and offer punishment but no solution. Eventually the figures in the bailouts won’t add up, just like the same bankers figures did not add up in 2008.

Before we even get to that point the other unthinkable scenario may come to pass, the Spanish economy could implode. Much like Ireland, Spain had a property boom that the banks reveled in. If those banking debts get the better of the Spanish governments ability to cover them, the fifth largest economy in the EU could also need a bailout. This would be a bridge too far. The bankers in Brussels may be able to convince the markets that punitive bailouts in the small economies will keep them in line but a Spanish bailout of private banking debt would make even the most delusional neoliberal scratch his head and ask, ‘Do those numbers add up?’

From here on in, its every European government for themselves.

The irrelevance of Osama bin Laden

2 05 2011

Osama bin Laden is dead and ‘justice is done’ according to Barack Obama. His violent death will be a major western news story and a source of pride in the more right wing areas of the media. But what difference will it make?

News reports continue to label Osama bin Laden as the ‘mastermind’ of the 9/11 attacks. An exaggeration that suited both George Bush’s administration and bin Laden himself. He was never the mastermind of any terrorist action, he was merely the money.

Osama bin Laden came from a very wealthy and influential Saudi family. As a young man he went looking for adventure in Afghanistan, fighting against the Soviet occupation. Once there he joined a band of extreme foreign Arabs who set about waging ‘jihad’. The truth is this group of foreign fighters made little difference to the war effort and were viewed with suspicion by the Afghan/Pakistani mujahideen that led the insurgency against the Russians.

After the fall of the Soviet Union, bin Laden and his small group of followers truly believed they had brought down an empire, in much the same way fans of Ronald Reagan believed he did the same. Left with delusions of importance they set about bringing Islamic revolution to the rest of the Middle East through violent terrorist action.

It failed, the atrocities committed in countries such as Algeria in the mid 1990’s horrified the local population. Muslims and Arabs turned their backs on this extremist vision. By the end of the decade bin Laden and Ayman al-Zawahiri (still at large) settled in a far flung area of Afghanistan with a tiny group of followers. They were a failed religious and violent movement. As pathetic a terrorist group as you will find, but bin Laden was still a wealthy man.

Mohamed Atta and his other Saudi hijackers came to bin Laden to ask for funding to commit a terrorist action. He agreed, the hijackers then went on to plan the 9/11 attacks in Hamburg and Florida.

In the aftermath bin Laden was singled out as public enemy number one and from here on his relevance to the story diminished. Western states invaded Afghanistan, where the US military rounded up men at random and had them sent to Guantanamo Bay to strip them of their human rights, increasing radicalisation in the Islamic world. The US and Britain then illegally invade Iraq, using brutal force and unleashing vicious civil war, further increasing radicalisation in the Islamic world.

The treatment of those detained by the US military became a major Al-Qaida recruiting call, something bin Laden himself struggled to achieve.

The video and audio recordings of him dried up, his ‘leadership’ of his own global jihad became an invention of western media. Terrorist attacks in Madrid and London in the years after were committed by independent young men enraged at the sledgehammer tactics used by the western military to crack an incredibly small nut. The well trained and highly organised terrorist plots against the west were wildly exaggerated, instead of the terrifying biological weapon we got the crude underpants bomber of 2009.

Osama bin Laden was eventually found only a few miles from the Pakistani capital Islamabad, a supposed ally in the ‘war on terror’. How he survived unnoticed for so long there will lift the lid on a very murky can of worms, if the true story is ever revealed.

The irrelevant man is dead while the irrelevant war he sparked in Afghanistan still rages, between tribal fighters who didn’t like the look of Alexander the Great and certainly have no desire for American or British troops to be in their country (they are fighting the latter for the third time in 200 years).

How does it end? History repeats itself. Obama is now looking for the same exit strategy that Mikhail Gorbachev took in Afghanistan. A face saving exercise that means the political and military elite can claim there was some point to the war (many of them still have the inglorious Vietnam retreat fresh in their memory). The Soviets left Afghanistan with a weak communist government in charge, it lasted for only three years. NATO will eventually leave Afghanistan, with a corrupt and not even democratically elected government in place. It will be called victory, but again it will be irrelevant.

Soviet troops leave Afghanistan in 1989, ten years after they first invaded.
A milestone now reached by NATO.

What is the point of a politician?

30 04 2011

Three years on from the near collapse of global financial structures and the overwhelming narrative in current affairs today is the need to reduce the national deficit. To understand how this issue came to be the major political topic of our day you have to ask why have national deficits increased?

There are two answers to this question, the simple convenient one and the one that has a basis in economics. The nice simple message is that your nation has been living beyond its means, the public service can no longer be allowed waste taxpayers money on bloated inefficient services or giving money to those who don’t deserve it. To seriously discuss this theory you need to put your head into a particularly small cardboard box and work on the principle that a nation only has the ability to cut spending and no power to tax.

The real reason deficits have increased is the financial crisis has led to lower rates of economic growth. When an economy is growing, individuals and companies have higher incomes, the tax they pay is a percentage of this so if goes up its happy days for the government but if it goes down that tax income has to be sourced from somewhere else. For an example of this problem take the national accounts of Ireland. For years Ireland ran up large budgets surpluses as the economy boomed. The source of these healthy tax incomes were in large part from the construction industry which operated inside a textbook bubble. It burst and tax receipts fell through the floor, first as building sites fell quiet and then later as the rest of the economy began to starve without all that cash pouring out of the banks, into the construction industry and then making its way into hairdressers, restaurants and any other businesses cash registers.

These are the problems, what do our politicians propose we do? They tell us, they are too incompetent to manage public money. This is the most bizarre aspect of the current western political elites mindset. They have come to the conclusion that all the services governments are elected to provide to the people, are too complicated and unwieldy for mere politicians to run. They tell us, we as individuals are better equipped to ‘choose’ the right services for ourselves.

So that old perennial issue of privatisation is trumpeted as the solution. I will leave the merits of private versus public operation of services for another day, but from a politicians point of view it is the perfect sawdust to throw into the gap between their own ego and their lack of ideas. Let me explain, when politicians find their own vanity project, they will brag about the extent of their power and influence. Take the western intervention in Libya, the political rhetoric coming out of London, Paris and Washington is that of confident, assertive and principled politicians.

Handing over the responsibility of public services in effect means a politician can wash his hands of responsibility if bad news starts to seep out, however if good news happens to be the product of the scenario they can claim the credit for their ‘vision’, its a win win situation. Take the death of Jimmy Mubenga, in October 2010 the Angolan national was being deported from Britain. The Home Office in Britain contracts this work out to private security firms, in this case G4S. Jimmy Mubenga was escorted onto his flight at Heathrow and was then physically restrained by his escorts until he died after complaining that he could not breathe.

Jimmy Mubenga who died while in the custody of private company G4S

A scandal or a tragedy? It depends on who is responsible, if those escorting him were public servants then the politician at the top would have a duty to respond in some way. But this episode troubles nobody, apart from Mr Mubenga and his family. The Home Office can say this is an issue for the private company (but in more considered, sympathetic PR language), the private company can say they do not comment on individual cases but that they take their duty very seriously. Parliament, can say they will hold inquires which will take months to assemble and mean very little in end and the media is left in the middle of a circle of people all of whom point to the guy next to them.

Here lies the politicians very own get out jail free card, your hospital is unsafe and causing unnecessary deaths? You will have to speak with the private company or trust now running that hospital, the Minister for Health is no longer in charge. The grades at your independently set up school are well below average, thats an issue for the school board, the Minister for Education only looks after the Ministries stationary cupboard now.

If a politicians main aim now is to delegate their own responsibilities out, what is their purpose when this process is complete? Unless of course there is a mad and bad dictator ruling half of a major oil producing country. Your duly elected representatives suddenly find their power and principles, they were there all along, now off for some long overdue chest beating and legacy building.

Where to begin

22 04 2011

I was initially wary of beginning a record of writing on the web as I feared it would wind up being a scatter of loosely related thoughts. However, a number of global political and economic events in our recent and very recent history have brought home to me how interconnected almost all the major problems of the world are. The most interesting aspect of this is how little we understand of our world despite the multitude of information available.

More precisely, I want to explore the impact all these historical and future events will have on our western ideas of economic and democratic utopia. The society in which we live in today was shaped by the turbulent events of the first half of the twentieth century. War, European imperial decline and economic collapse all brought about new global systems of governing the movement of money and power. To a great extent, institutions such as the European Community achieved what they set out to do, that is to bring stability to relations in Europe through trade and dialogue. The Bretton Woods conference in 1944 and subsequent international treaties set out to manage the world economy, all with the crash of 1929 still fresh in their memories.

These institutions, all created in the mid twentieth century, are now failing to maintain their purpose. However, they are not alone. The whole economic and political way of life that was created in the second half of the last century is decaying.

Democracy cures all these ills though doesn’t it? The voting power of the people gives us leaders with new and progressive ideas to replace the old discredited mantras. If only this were true, for there is something rotten in our democracies. Our political leaders from Barack Obama to David Cameron are not men of vision or of action. In reality they are career politicians who have reached the zenith of their professional lives. Their big idea was to get into the top job in the land, they never really knew what they would do once they were there. Of course they have various ‘policies’ but in later posts I want to show that these are essentially nice fuzzy sounding ideas that sound great, but have little basis in reality.

Why can’t things continue on as they were? There are many reasons for this which I will explore in later posts but here are a few:

The onset of peak oil. That is where oil production reaches its zenith, and then falls thereafter leading to a price that can only go one way. Oil is the most economically important substance on the planet, without it our modern world would not be what it is today. But today our most prized black gold is a economic leech on the world.

The domination of global finance. In economics banking has a clear purpose, it the fundamental lubrication for money in an economy, but global finance no longer serves that purpose. The brutal reality is the financial world is a millstone around many nations necks. But profit is their business, and business is good.

The governance of the strongman. While western political rhetoric talks of spreading democracy, this is not a western political goal, economics invariably trumps political idealism. Democracy is dangerous, the people may not vote the way you want them to.

A falling standard of living. From the end of the second world war onwards, citizens worked hard and raised families in the true belief that their children would have a better and more assured start than they did. Many social guarantees were set in place in this period to make it a reality. Admirable political philosophy this may have been, but for business this was a barrier to trade. Something which had to be dismantled in order for the market to operate efficiently, and again it worked. Maybe not for you but it did for that mythical and most holy of modern western citizens, the “wealth creator”.

I will return with more detail.