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Archive for July, 2011

Socialism for the Rich – Capitalism for Everyone Else

Few people question current arrangements for money issue, but allowing privately owned banks to create money is like putting a three year old in charge of a sweet shop.

by Mark Braund

Renegade Economist (July 27 2011)

The wider public is depressingly disinterested in the workings of the economy; nowhere is this more evident than in their ignorance of the monetary system. If more people understood the means by which banks create money, the way it swells the coffers of the already wealthy, and the destabilising effect it has on the real economy, then surely there would be a outcry of Murdochian proportions. Banks create money by making loans to their customers. This method accounts for around 97 per cent of the money in circulation. Nearly all money is created as debt, repayable at interest. This means that all loans have to be repaid with money also created as debt and loaned at interest. No wonder the economy struggles, when the system of money creation heaps cost upon unnecessary cost. And no wonder the banks generate such enormous profits.

Entrepreneurs – Banks Are Not Your Allies…

This system, known as fractional reserve banking, is an integral part of the nexus of unearned wealth: Banks’ shareholders earn dividends from the super-profits extracted by the process of money creation; banks loan money to their own investment arms to finance speculative activities which undermine the real economy and then pay themselves unwarranted bonuses from the proceeds; and money issued as debt helps drive up asset prices, especially land, through the housing market and the market for commercial property.

Not only does the system of money issue skew the economy in favour of the already wealthy, it places an unnecessary burden on genuine entrepreneurs by charging them for the use of money. Money is not wealth, but it is required to pay for land, labour and capital. Why should enterprising businesspeople pay a premium for the use of money, when without it business is impossible?

It gets worse: Through the activities of credit card companies, banks try to cover up their economic misdemeanours by lending money for consumption to those unable to earn enough to get by. This creates an impression that the economy is in good health because people keep spending. In fact, UK personal debt, at GBP 1,452 billion is roughly equivalent to the country’s GDP.

Reformed Capitalism – for Everyone

If they are to remain in private ownership, banks must be obliged to work under a revised system of full reserve banking: they should only lend money which they can fund from deposits and reserves. If the money supply needs to be increased, new money can be issued through banks by a central authority. Banks can continue to lend money at interest in order to cover their costs, and make a reasonable profit, but they should not be permitted to create new money at interest, and they should be required to compete for business by offering the best possible savings and borrowing rates to their customers.

The current system of money issue widens the gap between rich and poor by concentrating its lending for investment on large corporations, while charging the economically excluded exorbitant rates on borrowing for consumption. It conspires against an optimal supply of money by ensuring that the quantity of money in circulation never reflects the amount of wealth being created, thus introducing instability into the economy and driving the damaging cycle of boom and bust.

Economic stability, business efficiency and social justice all demand a complete overhaul of the monetary system.

 

 

The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled.

- John Kenneth Galbraith

 

 

 

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Mark Braund Is a freelance writer with a specific interest in the prospects for transformative social change towards a more just, inclusive and sustainable society. He also is regular contributor to the Guardian and lives with his family in London. His website is www.markbraund.com.

http://www.renegadeeconomist.com/blog/socialism-for-the-rich-capitalism-for-everyone-else.html

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Speculate, Accumulate and Derail the Economy

Speculative investment is held up as a cornerstone of modern capitalism, but given the way it screws up the economy, I’m surprised it’s still legal.

by Mark Braund

Renegade Economist (July 20 2011)

As a way of securing wealth without engaging in real economic activity – the act of combining land, labour and capital to create something with exchange value in the market place – it’s been around almost as long as land rent. But unlike rent, the gains enjoyed by speculative investors arise not as a side-effect of legitimate economic activity, but as a result of a conscious effort by people with spare cash to subvert the natural workings of the economy. Speculative investment reduces the ability of the economy to meet it’s primary objective: enabling everyone to satisfy their basic needs through a process of mutual exchange.

Three broad types of speculation are worth considering here: speculation in land, in tangible commodities, and in the markets for money and other financial instruments.

Sit Tight ’till the Price is Right …

Over time, land values rise because people are willing and able to pay more for the use of land. But speculators don’t generally make use of the land they own; they want it simply because it grows in value. And the act of speculative landholding itself causes land values to rise further. It drives up prices making it harder for people who need land to get access to it: some end up homeless, others unemployed. The same happens with speculative investments in tangible commodities like oil or wheat. Again, speculators have no use for the commodity in question, but they drive up prices for those who do. We all contribute to the unearned wealth of speculators each time we put fuel in our cars. And in poor countries, hungry people pay with their lives when wheat prices are driven up beyond the means of governments to import sufficient to cover the shortfall in domestic production.

If I Didn’t Do It Someone Else Would …

But screwing up the land and commodity markets is not enough for the ambitious speculator: speculation in the financial markets promises even greater rewards. Not only can currencies be played off against one another, regardless of the consequences for the citizens of countries so targeted, but there is no limit to the number and nature of financial ‘products’ than are invented, traded, and thus made subject to speculation. Among these are ‘naked’ Credit Default Swaps, whereby investment banks, hedge funds and institutional investors intentionally put themselves in a position to benefit from sovereign debt defaults, like the one about to overwhelm the people of Greece.

The Rigged House Never Loses

Financial market speculation has been compared to a casino, but the comparison doesn’t stand up. In a game of roulette or blackjack, the odds are stacked against the punter; these are games of pure chance. In the financial markets, the game is rigged in favour of speculators, who, through their financial power, are able to influence events so they win every time. The beneficiaries of speculative investment get wealthier, not because they work hard (or at all), but because financial wizards have devised ways for the rich to further enrich themselves at the expense of the rest of us. If you accept speculation as an intrinsic and therefore legitimate part of the economic system it becomes hard to find grounds for regulating it. Given that it serves no useful economic purpose, perhaps it’s time we realised the world would be a better place without it.

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Mark Braund Is a freelance writer with a specific interest in the prospects for transformative social change towards a more just, inclusive and sustainable society. He also is regular contributor to the Guardian and lives with his family in London. His website is www.markbraund.com.

http://www.renegadeeconomist.com/blog/speculate-accumulate-and-derail-the-economy.html

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Land Rent – the Genesis of the British Class System

Land rent is one of several sources of unearned wealth that bestow privileges on a minority of citizens while biasing the economy against the interests of the majority.

by Mark Braund

Renegade Economist (July 13 2011)

In classical economics, each of the three factors of production – land, labour and capital – earns a share of the wealth generated through enterprise: land earns rent, labour earns wages, and capital earns profit.

There are various determinants of how much each factor earns, but what distinguishes rent from the other two, is that rent just happens. Wages are earned by people who give their labour effort; profits are earned by entrepreneurs who make judicious use of their capital, but rents fall into the laps of landowners without their having to do anything to earn it, besides having their name on the title deed.

Entrenched Privilege vs the Jobless Underclass

Land ownership bestows considerable economic power. In Britain today, seventy per cent of the land is owned by just one per cent of the population. Most land is owned by a few wealthy individuals and a handful of large corporations. The major beneficiaries of landownership are people who are already rich. The steady rise in the value of their land has nothing to do with effort, ability or merit. Simply put, wealth begets wealth. As well as holding an asset that automatically increases in value, they can charge for the use of their land, and they are able to leverage the means to additional wealth through borrowing, using their land as collateral.

David Ricardo first described how the rightful earnings of labour and capital are appropriated by landowners in his famous law of rent. Much of the wealth that should be paid out in wages to people who work, or as profits to the entrepreneurs who employ them, currently ends up on the balance sheets of landowners who get richer at the expense of the rest of us, especially the poorest, who own no land.

As more wealth becomes locked into land values, less is available for investment and consumption; both key drivers of economic growth. And when land ownership is concentrated in the hands of so few people, the majority are denied viable economic opportunities because they have no land to farm, or can’t afford premises from which to run a business.

Unexamined Assumptions and Injustice

This state of affairs may have existed since humans first conceived of private property in land, ten thousand years ago, but historical precedent doesn’t absolve present injustice. We succeeded in abolishing slavery, women won the right to vote, apartheid was overthrown; so why hasn’t our growing moral awareness led to a reassessment of the entitlements of land ownership?

Justice demands a more equal distribution of land and the benefits of land ownership. Obliging landowners to pay at least a portion of their unearned wealth over to the state via a tax on land values would make a real difference: It would curtail the enjoyment of unearned wealth by the landowning minority; it would provide an alternative stream of public revenue to fund investment in public infrastructure; it would enable a reduction in other, disincentivising, taxes; it would bring about a more equitable distribution of both land and economic opportunities; and it would help create an economy in which everyone receives a fair reward for their work.

Next Week …

I shall look at the pernicious role of speculative investment in promoting a divisive and unjust economy.

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Mark Braund Is a freelance writer with a specific interest in the prospects for transformative social change towards a more just, inclusive and sustainable society. He also is regular contributor to the Guardian and lives with his family in London. His website is www.markbraund.com.

http://www.renegadeeconomist.com/blog/the-genesis-of-the-british-class-system.html

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The bipartisan con about the debt ceiling

2011/07/30 1 comment

by Dean Baker, Counterpunch

Undernews (July 28 2011)

At the beginning of 2008 the Congressional Budget Office, the country’s most respected official forecasting agency, projected that the budget deficit in 2009 would be just 1.4 percent of GDP. The reason that the deficit exploded from 1.4 percent of GDP to 10.0 percent had nothing to do with wild new spending programs or excessive tax cuts. This enormous increase in the size of the deficit was entirely the result of the fallout from the housing bubble.

Remarkably, both Republicans in Congress and President Obama have sought to conceal this simple reality. The Republicans like to tell a story of out-of-control government spending …

It might be expected that President Obama would be anxious to correct the misconception about the budget, but this would not fit his agenda either. President Obama is relying on substantial campaign contributions from the business community to finance his re-election campaign. Many business people are anxious to see the major government social programs (Social Security, Medicare, and Medicaid) rolled back. They see the crisis created around the raising of the debt ceiling as a unique opportunity to accomplish this goal.

In order to advance their agenda, President Obama also has an interest in promoting the idea of the deficit as being a chronic problem. Plus, it gives him an opportunity to blame the deficit on the fiscal choices of his predecessor, President Bush …

The crisis over the debt ceiling is the answer to the prayers of many people in the business community. They desperately want to roll back the size of the country’s welfare state, but they know that there is almost no political support for this position. The crisis over the debt ceiling gives them an opportunity to impose cutbacks in the welfare state by getting the leadership of both political parties to sign on to the deal, leaving the opponents of cuts with no plausible political options.

To advance this agenda they will do everything in their power to advance the perception of crisis. This includes having the bond-rating agencies threaten to downgrade US debt if there is not an agreement on major cuts to the welfare state …

The battle over the debt ceiling is an elaborate charade that is threatening the country’s most important social welfare programs. There is no real issue of the country’s creditworthiness of its ability to finance its debt and deficits any time in the foreseeable future. Rather, this is about the business community in general, and the finance sector in particular, taking advantage of a crisis that they themselves created to scale back the country’s social welfare system. They may well succeed.

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Undernews is the online report of the Progressive Review, edited by Sam Smith, who covered Washington during nine of America’s presidencies and who has edited alternative journals since 1964. The Review, which has been on the web since 1995, is now published from Freeport, Maine.

http://prorevnews.blogspot.com/2011/07/bipartisan-con-about-debt-ceiling.html

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We don’t discuss Unearned Wealth

A topic that gets virtually no coverage in mainstream economics is unearned wealth, yet it is both a cause and a symptom of our continuing economic malaise.

by  Mark Braund

Renegade Economist (July 06 2011)

Some eminent thinkers have recently tried to conflate wealth with wellbeing, suggesting we should measure wealth not simply in economic or monetary terms, but in terms of other indicators: happiness is the latest buzzword. But happiness is impossible without a minimum level of economic security. Wellbeing cannot be achieved simply by convincing ourselves we are happy regardless of our economic circumstances. It’s difficult to avoid the conclusion that the happiness debate is a tactic employed by politicians to deflect attention from the ongoing failure of the economic system to provide sufficient economic opportunities, and thus condemn millions to poverty.

What is Wealth?

Happiness is a noble, if rather nebulous, goal; but any definition of wealth must emphasise the primacy of economic security. I would define wealth as “the ability to purchase in the market place those goods and services which are essential to wellbeing, along with others which, though not essential, nonetheless enhance quality of life”. Under this definition the economy must, at the very least, be arranged so that all citizens can secure their essential needs. Currently it fails in this respect to the tune of at least a billion people worldwide.

Wealth, then, is the ability, or capacity, to satisfy our needs and desires. Most of us, assuming we are fortunate enough to have a job, or enterprising enough to carve out a niche in the uncertain world of self-employment, earn a living by exchanging our labour effort for a wage. Whatever work we do, it generally involves playing a role in the process through which the factors of production – land, labour and capital – are combined to create goods and services. We are paid in money which gives us purchasing power in the market place where the goods and services we produce are traded. But for a small minority, the greater proportion of their wealth is acquired not through work, but by other means.

Over the coming weeks I shall investigate the sources of unearned wealth; who benefits and why; how the economy came to be configured to allow some people to derive this wholly unjust advantage; and the consequences for those of us who have to work to live, and for the millions of people who are denied this basic human right. I hope to demonstrate how the mechanisms through which a minority derives unearned wealth are also responsible for denying viable economic opportunities to a quarter of the world’s people, and ensuring the rest of us live in a state of perpetual insecurity.

Next Week

First, we will look at land rent: the wealth derived by landowners not as a result of  their labour effort, but from the collective efforts of wider society. Then, wealth derived from speculative investments that have no connection with the real economy. Next, interest; wealth derived by charging for the use of money, and the wider problems caused by the way money is issued. Then, the complex problem of profit: where it comes from, and the uses, legitimate and illegitimate, to which it can be put. Finally, inheritance, and the issue of genetic advantage, and what George Bernard Shaw termed the ‘rent of ability’.

The series will conclude with discussions about the impact of unearned wealth in terms of consolidating elite power and maintaining the status quo; the obstacles to implementing the requisite changes to economic structures and institutions; the need for change to be effected globally through a democratically derived consensus; the idea of creating a fair market in place of the current so-called free market, the (much reduced) role of the state in an equitable society, and finally, an imaginary sketch of  a more just, inclusive and stable global society in which unearned wealth has become a thing of the past.

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Mark Braund Is a freelance writer with a specific interest in the prospects for transformative social change towards a more just, inclusive and sustainable society. He also is regular contributor to the Guardian and lives with his family in London. His website is www.markbraund.com.

http://www.renegadeeconomist.com/blog/we-dont-discuss-unearned-wealth.html

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Tax property, not people, for a fairer society

Levies on land values do not depress or distort wealth creation and are easy to assess, cheap to collect and hard to avoid

by  Philip Inman

The Guardian (May 02 2011)

Amid all the talk of rebalancing the economy, there is little mention of the most powerful lever the government could pull to generate growth, which involves a switch from taxing income to taxing wealth.

It is a subject that tends to get little coverage, mainly because its supporters are considered on the fringes of the political spectrum. Ultra-lefties support wealth taxes for obvious reasons. Ultra-capitalists support them because they understand that allowing the rich to ring-fence much of the nation’s assets and protect the mechanisms that allow values to increase without any serious government interference robs their children, and everyone else’s, of any incentive to work harder.

And now it is not just the aristocrats who accumulate serious wealth but also increasing numbers of middle income babyboomers – senior teachers, BT engineers, BA airline pilots and local council middle managers. With their million pound homes and million pound pensions, the problem is even bigger.

For an ultra-capitalist, the rapid accumulation of wealth over the last fifteen years, which in property terms amounts to about GBP 2.5 trillion, is making us fat and lazy. Only a wealth tax can sort it out.

Yet the debate has broadened in recent years with more mainstream groups taking up the cudgels. The OECD, the rich nation’s thinktank, has joined the ranks of supporters. Liberal Democrats Chris Huhne and Vince Cable, in their pre-coalition careers, also voiced some sympathy. Andy Burnham adopted the scheme in his pitch for the Labour leadership. Many mainstream economists have also argued the case.

Social unrest

The OECD and the orange book Lib Dems, though mostly concerned with making capitalism work better, are also concerned about the potential for social unrest. As the full impact of the financial crisis hits, they can see radical solutions are necessary. They argue for a fairer society because they understand that mature capitalism is becoming sclerotic. Without some fundamental changes those groups with little to lose will turn to protest and violence.

Burnham, who has evidently been doing more thinking than most in the Labour party, can see the potential for an alliance across the political divide that allows him to give the keys of wealth creation and accumulation back to a younger generation too poor to save and with no option but to rent.

What they are all talking about is the adoption of a land value tax. Purists would abolish all current taxes and replace them with an LVT that asked for a payment in line with the value of land under ownership.

Someone earning GBP 40,000 a year would stop paying around GBP 7,000 in income tax, GBP 1,000 to GBP 2,000 in VAT, GBP 1,600 council tax and any of the transaction charges that fill the exchequer’s coffers. No more capital gains tax or stamp duty on property sales or the sale of shares. Instead they would pay a fixed annual sum, to be paid monthly, on the value of their land, which could have a wide range, depending on how much the land is worth.

Move out of town and work locally, and your overall tax bill could be a fraction of its current total. Buy an expensive piece of real estate in the city centre and you would probably pay more.

There are many consequences of following this path that are positive for wealth creation. The worker keeps all his income and there is a 100% gain for every extra hour worked. If you develop your property, it has only limited effect on the value of the land, giving you every incentive to modernise and improve the property.

Under the proper working of the council tax, increases in property values, as opposed to land values, lead to higher taxes, which is a disincentive to carry out those improvements in the first place.

Mark Wadsworth is an economist, blogger, sometime Tory Bow Group adviser and campaigner for land value taxes. He recently told Economic Voice website:

I’m an economist not a politician, and I can only repeat what all the great economists have said down the centuries: taxes on land values are the least bad taxes because they do not depress or distort economic activity, ie wealth creation. Land value tax is easy to assess, cheap to collect and impossible to evade.

Not only that, LVT is an entirely voluntary tax: you decide how much you are willing to pay and you choose a house or a flat within that price range. Only, instead of handing over all the rent or purchase price to the current owner, the location value would go to the government.

What he means by this last sentence is that property prices would necessarily settle at a lower level because a buyer will deduct the location value, knowing they must send it to the exchequer in the form of a tax.

Fred Harrison, the doyen of LVT proponents, adds that the effects are broader and longer term. In his 2005 book Boom and Bust, he points out that landowners who aggressively accumulate land for property speculation in prime parts of the country would face a huge tax bill. Idle land would be brought into use, subject to planning permission.

Property wealth

So not only do we get a tax that is easy and cheap to collect, it would be difficult for the super rich to avoid with their offshore trusts and company ownership structures, and it would also lower the value of the asset that is stifling social mobility – property.

As the economist Martin Weale has argued, the accumulation of property wealth is in effect an act of theft perpetrated on the younger generation who must pay the exhorbitant prices demanded by baby boomers or rent.

The OECD argues against taking a purist line. It fully supports tackling taxes on the gains people have made through their businesses activities. These are taxes on entrepreneurialism or plain hard work. (Don’t think of the City fat cat, but the Labour-voting JCB driver who works twenty hours overtime only to find he has crossed into the forty percent higher tax bracket. The party of higher income taxes is not helping him.)

However, abolition is a step too far. In a series of documents over the last couple of years the OECD has argued for a shift away from income taxes on individuals and businesses to a land value tax and VAT.

It wants to retain VAT for several reasons. There is the simple advice never to put all your eggs in a single basket. But more importantly, in an age of consumerism and potential environmental degradation, government’s need to influence consumer behaviour and sales taxes are another tool. VAT is embedded in European tax raising and, like LVT, is hard to avoid.

Despite all these advantages, there are many powerful forces ready to dismiss LVT as fanciful, not least the property-owning classes who have an entrenched view that their house price is a just reward for their labour.

But what LVT campaigners have shown is that the average taxpayer will be no worse off – they will simply pay less income tax and a higher wealth tax.

guardian.co.uk (c) Guardian News and Media Limited 2011

http://www.guardian.co.uk/business/2011/may/02/land-value-tax-oecd-comment

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Renegade Economics

by Mark Braund

www.markbraund.com (July 16 2011)

I’m now penning a weekly column for the excellent Renegade Economist website {1}. This is a new(ish) initiative by a bunch of young and creative individuals who, in a nutshell, want to change the world.

I’m especially pleased to write for them, because, as you will know if you’ve been following my scribblings on this site, or over at The Guardian {2}, I, like millions of others worldwide, share that simple aspiration.

My first contribution consists of a ten-part series on the theme of Unearned Wealth: the basis of minority power and privilege, the flip side of which is the appalling poverty and hardship suffered by upwards of a billion people, and the chronic insecurity endured by many of the rest, even in the developed countries.

I hope to demonstrate the link between unearned wealth at the top, and the denial of viable economic opportunities at the bottom. The mechanisms by which the wealthy consolidate their position are an intrinsic part of an economic system that has emerged, and continues to evolve, largely in response to grossly unequal power relations in society.

Historically, those relations were defined by aggressive warfare, colonial conquest, slavery, the subjugation of women and many other injustices which, as we celebrate the achievements of modernity, we are proud to boast have been condemned to the dustbin of history.

Except they haven’t, really: there’s still no shortage or warring, much of it connected to the desire for greater economic power on the part of the already economically powerful, as it always was. Traditional forms of colonial conquest are now frowned upon, but it’s okay if you seek the same outcomes through an economic system which is heavily biased in favour of the rich countries, and, specifically, the richest people within those countries.

Slavery is a thing of the past, we are pleased to console ourselves, except it is estimated that there are up to 27 million slaves in the world today {3}, people who slip through the safety net through which we try to regulate an economic system that eschews all considerations of value except financial ones, and certainly has no time to consider the value of human life. And, while in many countries, women have a better deal than their mother’s or grandmother’s generations, statistics abound that show the struggle for genuine equality to be far from over.

Doom and gloom it may all be, and while it’s important to be realistic, it is still possible to be optimistic. The transformation in levels of moral awareness and understanding over the last century is unprecedented: more people today express a strong preference for a different kind of world, and a firm belief in the possibility of improvement than would even have considered the question a hundred years ago.

We now have to find a way to channel that growing collective aspiration for a better world into concrete, coordinated action. And for me, that begins with spreading the word about the constraints placed on our moral aspirations by an economic system whose motives are diametrically opposed.

I’m well used to accusations of utopian idealism, of people saying it’ll never happen. But as I pointed out in my book, The Possibility of Progress (2005), one of the biggest obstacles to creating an inclusive and just economic order is the pessimistic belief that nothing can be done. Of course it can be done, if enough people want it to happen and believe in its possibility.

To this end, over at the Renegade Economist, I shall be examining the various sources of unearned wealth; the way they are connected through our archaic system of money issue; possible fixes to tackle unearned wealth as both a cause and a symptom of the current crisis through changes to the tax, financial and monetary systems; and the prospects for achieving these objectives through the existing institutions of democracy.

The first, introductory, piece in the series, is at {4}, and this week’s piece, looking and land rent, is at {5}. A new article will be published each Wednesday, and next week’s will examine the pernicious effects of speculative investment.

Links:

{1} http://www.renegadeeconomist.com/blog/mark-braund.html

{2} http://www.guardian.co.uk/profile/markbraund

{3} http://www.newint.org/features/2001/08/05/facts/

{4} http://www.renegadeeconomist.com/blog/we-dont-discuss-unearned-wealth.html

{5} http://www.renegadeeconomist.com/blog/the-genesis-of-the-british-class-system.html

http://www.markbraund.com/

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The Possibility of Progress

by Mark Braund

Ethical Economics (July 20 2011)

It’s now six years since Shepheard-Walwyn published my book, The Possibility of Progress (2005). A good time, perhaps, to evaluate what, if any, progress has been made in the intervening years.

Certainly a great deal has happened: we’ve had the biggest financial crisis since the 1930s, leading to a global recession more severe than most people thought possible. In the process, the inherent failings of the banking system have been laid bare. Ideal conditions, you might think, for a successful strike at the shortcomings of the current economic system and the root causes of injustice.

But no: instead, the aftermath of the crash has been dominated by a remarkably successful campaign by supporters of the current order to deflect attention from the real causes of the crisis through a depressingly familiar process of petty political point scoring.

Politicians of all parties are to blame for the current crisis: all of them supported, and continue to support, the economic arrangements that delivered us to this point. And most economists are similarly culpable. In response to the most severe test of their theories in a generation, practitioners of the dismal science have offered only the miserable spectacle of a debate between out-of-fashion Keynesians and unabashed supporters of the thoroughly discredited neo-classical model; neither of which group acknowledges the structural failings of the current economic order, or the underlying causes of the crisis.

Not that such people lack for intellectual rigour, only that their ambitions for the discipline of economics are unnecessarily limited. These two quite different schools of thought are united in one respect: neither believes there is any possibility of changing the underlying economic framework. In their view, there is no alternative to a regime which taxes effort and enterprise but leaves unearned wealth, like the rent enjoyed by landowners, untaxed.  They don’t begin to discuss the possibility of overhauling the system of money issue that gives so much control over the economy to privately owned banks, the negligence and ineptitude of which have been all too visible in recent times. And they never challenge the activities of those who indulge in speculation in currencies, commodities and invented financial products, in the process undermining the ability of the financial system to channel much needed investment into the real economy.

But it’s all very well having a strong sense of what needs to change about the economy in order to create a more just and inclusive society. Those of us who believe in the possibility of progress will struggle to attract widespread support until we better understand why it is that so few people – people who stand to gain tremendously from a new world order – remain so disinterested in politics, in economics, and in the possibility of transformative social change.

This is why, as well as examining the economic changes necessary to usher in a better world, the book investigates the factors that cause people to take an interest in these subjects. Why is it that some people develop a strong sense of social conscience and a desire to change the world, while others, regardless of the quality of their life, choose not to engage?

It’s a difficult question; one for which I don’t have any definitive answers, but by putting the question, hopefully a constructive debate is set in motion. And if a few more people start to consider both the merits, and the possibility, of making progress towards a more just and inclusive society, then the world is already a better place. In the meantime I shall continue trying to find the answer over at my website, www.markbraund.com.

http://www.ethicaleconomics.org.uk/2011/07/the-possibility-of-progress-2/

 

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Salvaging Resilience

by John Michael Greer

The Archdruid Report (July 20 2011)

Regular readers of this blog will know by this point that my efforts to make sense of the shape of the emerging deindustrial future involve the occasional odd detour, and one of those is central to this week’s post. Mind you, those same regular readers may be wondering if the detour in question has to do with Ben Bernanke’s secret name as a Sith Lord, a point which occupied some space in comments on a recent Archdruid Report. (The best proposal so far, in case you’re wondering, was Darth Flation – think (in)Vader, (in)Sidious, et cetera.)

Still, that tempting topic will have to be left for another week. Instead, I’m going to have to clear up the confusions surrounding a bit of jargon popular in the current peak oil blogosphere. That process is more than a little reminiscent of fishing scrap metal out of a swamp; in the present case, the word that needs to be hauled from the muck, hosed off, and restored to its former usefulness, is “resilience”.

The rise of this term to its present popularity in green circles has a history worth noting. A year or two ago, the word “sustainability” began to lose its privileged place in the jargon of the time, as it began to sink in that no matter how much manhandling was applied to that much-abused term, it couldn’t be combined with the phrase “modern middle-class lifestyle” without resulting in total absurdity. Enter “resilience”, as another way to talk about what too many people nowadays want to talk about, generally to the exclusion of more useful conversations: the pretense that a set of lifestyles, social habits, and technologies that were born in an age of unparalleled extravagance can be maintained as the material basis for that extravagance trickles away.

The word “sustainability”, it bears remembering, has a perfectly clear meaning. It means, as the word itself suggests, the ability of something to be sustained, either for a set period of time – “sustainable over a twenty year period”, for example – or indefinitely. That was its problem as a green buzzword, because next to nobody wanted to talk about just how long the current crop of “sustainable” tech was actually likely to stay viable (hint: not very long), and even fewer were willing to grapple with the immense challenges facing any attempt to sustain any of today’s technologies into the indefinite future.

The problem with “resilience”, though, is that it also has a perfectly clear meaning. Once people figure out what that is, it’s a safe bet that they’ll be hunting for another buzzword in short order, because resilience can be defined very precisely: it’s the opposite of efficiency.

Okay, now that you’ve stopped spluttering, let me explain.

We can define efficiency informally as doing the most with the least. An efficient use of resources is thus one that puts as few resources as possible into places where they sit around doing nothing. The just-in-time ordering process that’s now standard in manufacturing and retail, for example, was hailed as a huge increase in efficiency when it was introduced; instead of having stockpiles sitting around in warehouses, items could be ordered electronically from a database so that they would be made and shipped just in time to go onto the assembly line or the store shelf. What nobody asked, and very few people have asked even yet, is what happens when something goes wrong.

The great Tohoku tsunami a few months back provided a wakeup call in that direction, as factories across Japan and around the world suddenly discovered that the shipment of parts they needed just in time for next month’s production runs had been delivered instead to the bottom of the Pacific Ocean. In the inefficient old days, when parts jobbers scattered all over the industrial world had warehouses full of parts being produced by an equally dispersed array of small factories, that would have given nobody sleepless nights, since the stock of spares on hand would be enough to tide things over until factories could run some extra shifts and make up the demand. Since production had been efficiently centralized in very few factories, or in some cases only one, and the warehouses full of parts had been rendered obsolete by efficient new ordering systems, knock-on costs that would have been negligible in 1970 are proving to be very substantial today.

Efficiency, in other words, is not resilient. What makes a system resilient is the presence of unused resources, and these are inefficient by definition. A bridge is resilient, for example, if it contains a good deal more steel and concrete than is actually needed to support its normal maximum load; that way, when some outside factor such as a hurricane puts unexpected stresses on the bridge, the previously unnecessary structural strength of all that extra steel and concrete comes into play, and keeps the bridge from falling down. Most bridges are designed and built with that sort of inefficiency in place, because the downside of too little efficiency (the bridge costs more to build) is a good deal less troubling than the downside of too little resiliency (the bridge collapses in a storm). Like every project worth doing, a good bridge has to strike a balance between many conflicting factors, no one of which can be maximized except at the expense of others of equal importance.

This is something that one of the iconic figures of the Seventies, Buckminster Fuller, never quite grasped. For me, Fuller is what another iconic Seventies figure called a worthy opponent; his writings constantly force me to reexamine my own ideas, because they grate on my nerves so reliably. Partly that’s a function of Fuller’s insouciant assurance that technology inevitably one-ups everything else in the cosmos – Theodore Roszak’s apt gibe, “I would not be surprised to hear (Fuller) announce someday that he had invented a better tree”, comes to mind – and partly it’s his insistence that the universe had to make the kind of sense he wanted it to make – this is a man, remember, who spent much of his life insisting that pi couldn’t really be an irrational number – but the issue that comes to mind right now is his consistent preference for efficiency at the cost of resilience.

That’s not to say that Fuller didn’t score some major successes. If my house was in a good location for a wind turbine, I’d almost certainly use Fuller’s octet truss design for the tower, and a lot of very sturdy geodesic domes have been built using his patents. Still, it’s worth noting that not even Fuller was able to live for long in a dome house made to his own designs; if it had been perfectly caulked, it would have provided a comfortable home with very efficient use of materials, but since caulking is never perfect in the real world, it leaked like a sieve whenever it rained. That’s one of the reasons why Lloyd Kahn, the compiler of Domebooks I and II and a major proponent of geodesic domes back in the day, backpedaled in his 1973 compilation Shelter. That very worthwhile piece of Green Wizard literature talked at length about the problems with geodesic dome construction, and put most of its space into vernacular building from cultures around the world, from yurts and tipis to good sturdy old-fashioned carpentry that holds off the rain.

Most of the troubles that saddled Fuller with the label “failure-prone” were, like the vast number of leaky geodesic dome houses that sprang up in the Sixties, the product of too much efficiency and too little resilience. The Dymaxion car of 1933 is a case in point. In most respects it was a brilliant design, maneuverable and ultraefficient, but its career came to a sudden halt when one of the three prototypes got bumped by another car on Lake Shore Drive in Chicago, flipped, and rolled, killing the driver and seriously injuring everybody else on board. Fuller designed the car with a narrow wheelbase relative to its length for the sake of maneuverability, and a high center of gravity to provide a smoother ride on rough roads. Both those choices made the Dymaxion car more efficient but less stable, and at highway speeds that’s not a safe tradeoff to make.

Thus efficiency is not resilient, and resilience is not efficient. Just-in-time ordering is conceptually the same as the Dymaxion car’s narrow wheelbase and high center of gravity: a great idea, as long as nothing goes wrong. Since it may have occurred to you, dear reader, that today’s industrial civilization seems to have a lot in common just now with these examples of high efficiency and low resilience, you may be thinking that it might turn out to be necessary to accept a lower degree of efficiency, in order to provide our civilization with the backlog of unused resources that will give it resilience.

Ah, but here’s where things get difficult.

There’s a reason why contemporary industrial culture is obsessed with efficiency, and it’s not because we’re smarter than our grandparents. Every civilization, as it nears the limits of its resource base, has to deal with the mismatch between habits evolved during times of relative abundance and the onset of shortages driven by too much exploitation of that abundance. Nearly always, the outcome is a shift in the direction of greater efficiency. Local governments give way to centralized ones; economies move as far toward mass production as the underlying technology will permit; precise management becomes the order of the day; waste gets cut and so, inevitably, do corners. All this leads to increased efficiency and thus decreased resilience, and sets things up for the statistically inevitable accident that will push things just past the limits of the civilization’s remaining resilience, and launch the downward spiral that ends with sheep grazing among ruins.

Trying to build resilience into a system that’s already gotten itself into this bind is a difficult project at best. The point of these efficiency drives, after all, is to free up resources to support the standards of living of the privileged classes. Since these same privileged classes are the ones who have to sign off on any project to redirect resources toward resilience, the difficulties in convincing them to act against their immediate self-interest are not hard to imagine. Since efficiency tends to take an aura of sanctity in such cases – privileged classes, after all, are as prone as anyone else to convince themselves that what’s good for them is good for everyone – proponents of resilience face an uphill fight against deeply rooted assumptions. After all, who wants to go on record in support of inefficiency?

And of course that’s exactly what we’ve seen in recent decades in industrial society. The Glass-Steagall Act, which imposed resilience on the US banking system at the cost of a fair amount of inefficiency, is a good example; it was gutted by an enthusiastically bipartisan majority, giving us the highly efficient but hopelessly brittle financial system we have today. Many other measures that put resilience into the system were also scrapped in the name of “competitiveness”, though it’s worth noticing that America’s ability to compete in any arena that doesn’t involve blowing large chunks of a Third World country to kingdom come has gone down steadily while these allegedly competitive measures have been at work. All of it, slogans aside, served to free up resources to maintain living standards for America’s privileged classes – a category that extends well down into the middle class, please note, and includes a great many people who like to denounce the existing order of American society in heated terms.

That’s our version of the trap that closes around every society that overshoots its resource base. The struggle to sustain the unsustainable – to maintain levels of consumption the remaining resource base won’t support indefinitely – always seems to drive the sort of short-term expedients that make for long-term disasters. I’ve come to think that a great many of the recent improvements in efficiency in the industrial world have their roots in this process. Loudly ballyhooed as great leaps forward, they may well actually be signs of the tightening noose of resource constraints that, in the long run, will choke the life out of our civilization.

Thus it’s a great idea in the abstract to demand a society-wide push for resilience, but in practice, that would involve loading a great many inefficiencies onto the economy. Things would cost more, and fewer people would be able to afford them, since the costs of resilience have to be paid, and the short term benefits of excessive efficiency have to be foregone. That’s not a recipe for winning an election or outcompeting a foreign rival, and the fact that it might just get us through the waning years of the industrial age pays nobody’s salary today. It may well turn out that burning through the available resources, and then crashing into ruin, is simply the most efficient way for a civilization to go.

Where does that leave those of us who would like to find a way through the crisis of our time and hand down some part of the legacy of our civilization to the future? The same principles apply, though it’s fortunately true that individuals, families, and local communities often have an easier time looking past the conventional wisdom of their era and doing something sensible even when it’s not popular. The first thing that has to be grasped, it seems to me, is that trying to maintain the comfortable lifestyles of the recent past is a fool’s errand. It’s only by making steep cuts in our personal demand for resources that it’s possible to make room for inefficiency, and therefore resilience.

Most of the steps proposed in these essays, in turn, are inefficient – indeed, deliberately so. It’s unquestionably inefficient in terms of your personal time and resources to dig up your back yard and turn it into a garden; that inefficiency, however, means that if anything happens to the hypercomplex system that provides you with your food – a process that reaches beyond growers, shippers and stores to the worlds of high finance, petroleum production, resource politics, and much more – you still get to eat. It’s inefficient to generate your own electricity, to retrofit your home for conservation, to do all the other things we’ve discussed. Those inefficiencies, in turn, are measures of resilience; they define your fallback options, the extra strength you build into the bridge to your future, so that it can hope to stand up to the approaching tempests.

The emerging patterns of the salvage economy that have been discussed here over the last few weeks feed into this same quest for resilience. Many older technologies, of the sort that might readily be salvaged and put to use, are a good deal less efficient than their modern replacements, and therefore much more resilient.

Here’s an example. There’s been plenty of talk in recent years about the risk of an electromagnetic pulse (EMP) attack against the United States. It’s been the subject of Congressional hearings, a popular novel, and a great deal of hoopla in the media. There’s some reason for all this concern, as a single modest nuclear warhead detonated up in the ionosphere above the northern Midwest would generate a pulse that would fry electronic equipment over most of the continental United States, and it’s been argued that any of several non-nuclear technologies could do the same thing on a more local scale. There’s been a great deal of backing and forthing about how to shield national infrastructure against such an attack, but it’s only occasionally been noted that electronic technologies that are very nearly invulnerable to EMP already exist, and can be found in antique malls across the country.

The secret to those technologies? The old-fashioned vacuum tube. Vacuum tubes use plenty of power and convert most of it into heat, and the sturdy structure made necessary by that inefficiency makes tubes shrug off sudden transient pulses of the sort an EMP generates. Modern integrated circuits are many orders of magnitude more efficient, and so those same transient pulses go right into the heart of an IC chip and destroy it. If you plan on using a tube-based radio for communication in the event of an EMP attack, mind you, you need to be sure that it doesn’t have first-generation solid state components such as selenium rectifiers, or replace those with diode tubes, and you’d probably better do the sensible thing and get your amateur radio license, too, so you can get in some practice with your rig in advance. Still, it’s a viable approach, and a good deal cheaper than the alternatives – and it would be just as viable, and just as cheap, if the US government were to do the smart thing and arrange for a couple of midsized domestic electronics firms to start manufacturing reliable tube-based electronics as backups for critical infrastructure across the country.

There are countless other examples. By and large, older technologies are less efficient, because they were made in an age when efficiency wasn’t as overvalued as it is today. That means, in turn, that older technologies are by and large more resilient, and those who are concerned about resilience will often find that older, simpler, sturdier technologies are a better bet than the current state of the art. By and large, in turn, making use of those technologies means accepting downscaled expectations; a tube-based radio is easy, a tube-based television is challenging, and a tube-based video game would be around the size of a double-wide mobile home and use as much power as a five-story office building. This is why, sixty years ago, radios were common and cheap, televisions were less common and pricey, and games were played on brightly colored boards on the kitchen table or the family room floor without any electronics at all.

Still, downscaled expectations will be among the most common themes of the decades ahead of us, and those who have the uncommon sense to figure this out in advance and start getting ready for a less efficient future will very likely benefit from the increased resilience that will provide. Over the weeks to come, as I finish up the discussion of salvage and prepare to wrap up the entire series of posts on green wizardry that have been central to this blog’s project for more than a year now, I hope to be able to suggest a few more options for resilience along these same lines.

_____

John Michael Greer is the Grand Archdruid of the Ancient Order of Druids in America {1} and the author of more than twenty books on a wide range of subjects, including The Long Descent: A User’s Guide to the End of the Industrial Age (2008), The Ecotechnic Future: Exploring a Post-Peak World (2009), and The Wealth of Nature: Economics As If Survival Mattered (2011). He lives in Cumberland, Maryland, an old red brick mill town in the north central Appalachians, with his wife Sara.

If you enjoy reading this blog, you might want to check out Star’s Reach {2}, his blog/novel of the deindustrial future. Set four centuries after the decline and fall of our civilization, it uses the tools of narrative fiction to explore the future our choices today are shaping for our descendants tomorrow.

Links:

{1} http://www.aoda.org/

{2} http://starsreach.blogspot.com/

http://thearchdruidreport.blogspot.com/2011/07/salvaging-resilience.html

Categories: Uncategorized

The Monumental Fed Rip-off

2011/07/26 1 comment

by Thomas H Greco

Beyond Money (July 24 2011)

We now have the results of the first-ever audit of the Federal Reserve. What it reveals is astounding and outrageous.

Senator Bernie calls it “socialism for the rich”, but it’s not merely “socialism for the rich”, it’s wholesale looting of our common wealth by the people who run the world. This blows sky high all arguments in favor of an “independent” central bank. Independence in this case means allowing an unelected self-serving elite to take what they want free from any effective oversight or control by the people or the people’s representatives.

The list of institutions that received the most money from the $16 trillion Federal Reserve bailout can be found on page 131 of the GAO Audit and are as follows:

Citigroup: $2.5 trillion ($2,500,000,000,000)
Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
Bank of America: $1.344 trillion ($1,344,000,000,000)
Barclays PLC (United Kingdom): $868 billion ($868,000,000,000)
Bear Sterns: $853 billion ($853,000,000,000)
Goldman Sachs: $814 billion ($814,000,000,000)
Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
JP Morgan Chase: $391 billion ($391,000,000,000)
Deutsche Bank (Germany): $354 billion ($354,000,000,000)
UBS (Switzerland): $287 billion ($287,000,000,000)
Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
Lehman Brothers: $183 billion ($183,000,000,000)
Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
BNP Paribas (France): $175 billion ($175,000,000,000)

Source: http://www.gao.gov/new.items/d11696.pdf

An excellent article on this story, from which the above list was obtained, follows below.

http://beyondmoney.net/2011/07/24/the-monumental-fed-rip-off/

_____

Audit of The Federal Reserve Reveals $16 Trillion in Secret Bailouts

by Unelected.org (July 24 2011)

See table at http://www.countercurrents.org/bailoutsmall.jpg

The first ever GAO (Government Accountability Office) audit of the Federal Reserve was carried out in the past few months due to the Ron Paul, Alan Grayson Amendment to the Dodd-Frank bill, which passed last year. Jim DeMint, a Republican Senator, and Bernie Sanders, an independent Senator, led the charge for a Federal Reserve audit in the Senate, but watered down the original language of the house bill (HR1207), so that a complete audit would not be carried out. Ben Bernanke, Alan Greenspan, and various other bankers vehemently opposed the audit and lied to Congress about the effects an audit would have on markets. Nevertheless, the results of the first audit in the Federal Reserve’s nearly 100 year history were posted on Senator Sander’s webpage earlier this morning.

What was revealed in the audit was startling: $16,000,000,000,000.00 had been secretly given out to US banks and corporations and foreign banks everywhere from France to Scotland. From the period between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the world’s banks, corporations, and governments. The Federal Reserve likes to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at zero percent (0%) interest. Why the Federal Reserve had never been public about this or even informed the United States Congress about the $16 trillion dollar bailout is obvious – the American public would have been outraged to find out that the Federal Reserve bailed out foreign banks while Americans were struggling to find jobs.

To place $16 trillion into perspective, remember that GDP of the United States is only $14.12 trillion. The entire national debt of the United States government spanning its 200+ year history is “only” $14.5 trillion. The budget that is being debated so heavily in Congress and the Senate is “only” $3.5 trillion. Take all of the outrage and debate over the $1.5 trillion deficit into consideration, and swallow this Red pill: There was no debate about whether $16,000,000,000,000 would be given to failing banks and failing corporations around the world.

In late 2008, the TARP Bailout bill was passed and loans of $800 billion were given to failing banks and companies. That was a blatant lie considering the fact that Goldman Sachs alone received 814 billion dollars. As is turns out, the Federal Reserve donated $2.5 trillion to Citigroup, while Morgan Stanley received $2.04 trillion. The Royal Bank of Scotland and Deutsche Bank, a German bank, split about a trillion and numerous other banks received hefty chunks of the $16 trillion.

This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.

- Bernie Sanders(Independent, Vermont)

When you have conservative Republican stalwarts like Jim DeMint (Republican, South Carolina) and Ron Paul (Republican, Texas) as well as self identified Democratic socialists like Bernie Sanders all fighting against the Federal Reserve, you know that it is no longer an issue of Right versus Left. When you have every single member of the Republican Party in Congress and progressive Congressmen like Dennis Kucinich sponsoring a bill to audit the Federal Reserve, you realize that the Federal Reserve is an entity onto itself, which has no oversight and no accountability.

Americans should be swelled with anger and outrage at the abysmal state of affairs when an unelected group of bankers can create money out of thin air and give it out to megabanks and supercorporations like Halloween candy. If the Federal Reserve and the bankers who control it believe that they can continue to devalue the savings of Americans and continue to destroy the US economy, they will have to face the realization that their trillion dollar printing presses can be stopped with five dollars worth of bullets.

The list of institutions that received the most money from the Federal Reserve can be found on page 131 of the GAO Audit and are as follows:

Citigroup: $2.5 trillion ($2,500,000,000,000)
Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
Bank of America: $1.344 trillion ($1,344,000,000,000)
Barclays PLC (United Kingdom): $868 billion ($868,000,000,000)
Bear Sterns: $853 billion ($853,000,000,000)
Goldman Sachs: $814 billion ($814,000,000,000)
Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
JP Morgan Chase: $391 billion ($391,000,000,000)
Deutsche Bank (Germany): $354 billion ($354,000,000,000)
UBS (Switzerland): $287 billion ($287,000,000,000)
Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
Lehman Brothers: $183 billion ($183,000,000,000)
Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
BNP Paribas (France): $175 billion ($175,000,000,000)
and many many more including banks in Belgium of all places

Source: http://www.gao.gov/products/GAO-11-696

Full PDF on GAO server: http://www.gao.gov/new.items/d11696.pdf

Senator Sander’s Article: http://sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3

http://www.countercurrents.org/bailout240711.htm

Categories: Uncategorized
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