open Democracy News Analysis - The week that changed everything, Ann Pettifor - Comments

joefranks69 on "The week that changed everything"

joefranks69 — Thu, 25 Sep 2008 20:24:21 +0000

"and leading politicians are trapped in a bizarre ideology for no reason at all, other than their own gain (I presume)."

One doesn't choose one's ideology, as you suggest. It merely accretes. One's ideology usually happens to serve self-interest, but not because it is consciously chosen, but because information and ideas that serve self-interest are more likely to be remembered and stored than contrary information and ideas.

"The standard Leftist analysis – that globalisation has been for the
few, and to the detriment of the many – ignores the gains made by
hundreds of millions of the poorest people in the world"

The article - and leftist analyses in general - focus not on nebulous "globalization," but on neoliberalism. China, for instance, has not been faithful to neoliberal prescriptions, and it is where the lions share of "gains made by hundreds of millions of the poorest people in the world" purportedly have occurred. Yet a closer analysis even of half-neoliberal China's successes reveals that while income has increased for the "hundreds of millions", this has come along with a reduction in health, education and retirement benefits that were never included in income statistics.

Outside of India and China (where neoliberalism has not been faithfully implemented), the past thirty years of neoliberalism's imposition has resulted in precisely what leftist analysis claims.

Logged in Lawrence Efana on "The week that changed everything"

Logged in Lawrence Efana — Tue, 23 Sep 2008 21:42:12 +0000

There is something to appreciate across the range of articles made available by open democracy in these recent months directly and indirectly on the theme of the crisis experienced in world financial markets and incidentally also world economy. Open democracy deserves a praise-worthy introduction in the course of seeking the space to comment on Ann Petifor's paper, partly because of the modernized referencing system used - an innovation the internet is probably wishing some fields of university science could benefit from; and partly because of the level of professionalism - a part of which, in my view sufficiently streamlines balance of "the theoretically abstract with the historical, empirical and practical". I am sure many enjoy these. If so it is partly what makes Ann Petifor, like most of the rest we love commenting when we come across their papers] interesting and stimulating. The bunch of materials or sources referenced are of immense help when commenting and even when digressing in the process.

Surely not all commentators are economic professionals and that in itself is a blessing. They are useful and can dash in other relevant perspectives hence enrich comments. In the first place therefore, my understanding is Ann Petifor is not 'ideological', but rightly critical to stimulate commentators come-up with ideas in their varieties. At the same time, when closely examining most of the articles and comments so far, everyone appears to be going round the same theme over and over - perhaps a good way to emphasize the dilemma we are in and wake consciousness of people by repeatedly bombarding them in these economically depressing/active but "politically-lazy" times?

For above reasons, the article reflects, argues and makes a sound case for 'why' and 'how' things got to where we are now - out of hands] in the financial market to the detriment of the faith we otherwise want to have in the power of globalization. Extreme deregulation and economic liberalization are held particularly accountable, parallel to the destructive effects on the values of assets/property, jobs, pension investments and no-less what could have been achievements of small as well as large-scale businesses. The consequences are immediate and remote in terms of the urgency of what to do; but focus on a crisis which might, if ill-approached and ill-interpreted contribute in short and long-term to make life more difficult for members of the civil society, especially the poor and poorest of them. Her discontent clusters around these, accounted for historically in different ways.

Note Ann has been cautious over defining the victims - a position not unrelated to balance reform policy-approach. Her anxiety is over orthodox professional economic advisers and policy-makers, judging from the records of success and failures and hesitation to bend: be 'reasonably' flexible, especially now that crises are immanent. I think she means in 'an open-space' thinking, that a slash of Keynesianism rather than stifle what to learn, would indeed boost success and thereby carefully make meaning of regulation and deregulation to the benefit of prudent management of the idea of free market and holding "raw" capitalism at bar.

The series of conditions she offers must be seen to derive from above values. I am impressed by her 'tripod-view' tied to the idea that setting (Central) Bank rates and interests should be people conscious in ways that make the economy work more smoothly across: 'labour, industry, and finance'. Capital control is essential here considering how loose it was and the lessons learned now, but beyond that to crown it all, she agitates in favour of such financial guardians likely to be strongly committed morally, if at all a new navigator's chart - a politically challenging mission needing consensus, is to be successfully developed. It is her conception of a comprehensive - all embracing change. She is working to soften conservatism, give economic change "dynamic/sustainable" human/development faces], what are likely to take us over the huddles of the "Club of Rome" and not mess-up [exponential] growth for the future of the world and its environment. I hardly would quarrel with her over these contributions, since each of us has the right to add: democratically puff-up the flesh of 'change' hence the 'new' yet to be born.

Lawrence Efana [Finland]

alfredo.bremont on "The week that changed everything"

alfredo.bremont — Tue, 23 Sep 2008 21:15:55 +0000

it is about time, as there is an urgent need for a new system to emerge, certainly none has the magic formula but it can be found is we look deep into ourself, how we behave how we ostracize and how we discern. this however is a blessing to humanity as it has finally put the imperialist ideas of Washington on hold, hopefully the next president will realize that this Washington dream of dominating the planet is absurd and it will never take place. Americans most become more realistic and understand that America is not the zenith of the world and Americans are no better than anyone else including Iranians and Palestinians. Americans will have to accept reality the good way or the bad way. hopefully they will chose common sense and humanity ethic, faith and morals rather than weapons of mass destruction. America as a whole is quite an illiterate nation and has impose stupidity worldwide. this will have to be acknowledge. the way to evolve is not by a I-POD but rather by reading Paul Valéry! this return to the civilize realm of the American nation can do wonders to them and to the rest of us

spamlet on "The week that changed everything"

spamlet — Tue, 23 Sep 2008 13:39:57 +0000

Starts well, but the 'solutions' are hardly radical enough to follow: "an argument about the very foundations of the model of economic governance that rules the world.".

Pettifor's 'three delusions' are only delusions within a much bigger delusion in what Adam Smith would have seen straight away as the grand delusion that profit making companies can be relied upon to do what is best for any nation that gives them a home and a right to trade. Smith warns most emphatically that we must not trust:

"an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have upon many occasions, both deceived and oppressed it."

Yet all of modern economics and government is dedicated to handing ever increasing power to these very, 'oppressors and deceivers', and, indeed, to dedicate the whole future of the planet to their exponential aggrandisement at the expense of everyone and everything else. No surprise at all, then that this leads us into a boom and bust cycle, with the environment and world resources paying a crippling cost for the boom, and the world's poor paying a crippling cost for each bust. Can the final 'big bust' be far away? (And I don't mean Dolly Parton!)

And of course, trumping even this is a far bigger delusion: that infinite 'growth', requiring infinite population growth, is possible in a finite world.

Tragic, but amusingly, the economics pundits all call years of planet destroying, steady exponential 'growth': 'stability'!

Beside these, the author's delusions, have her comfortably inside the Titanic playing with the cutlery, and the solutions amount to only a slight rearrangement, and a continuing adherence to the basic, world destroying, principle of 'growth'. [ If I might indulge in a little utensil shuffling myself, I don't see what has to be so bad in allowing’ deflation to bring prices boosted by decades of speculation back to the levels that they should have with regard to their true costs and the real, unforced, market for them. Indeed, when the oil bubble bursts, and climate change kicks in, it will take one heck of a lot of very unpleasant ‘deflation’ of population before the true sustainable level is reached: Best to start now, don’t you think? Nor do I see what is wrong with a Japan, that economists are so ready to give us as an example of all things bad: a country where people are the longest lived and most healthy in the world, and where most people seem to be pretty content, sounds as close to Utopia as man is likely to get: until population falls sufficiently to give them all a lot more personal space that is.]

I would look further back for solutions than Keynes. Seems to me Smith had it all about right - if not always the easiest author to follow . To him there was an underlying morality, and a loyalty to one's country - yes, the real, physical, land of that country - and its people, that came first and foremost. The natural tendency of man to greediness and frivolous waste, notwithstanding the religious imperative of the times, had to be constantly guarded against, and backed by firm controls on the creation, movement, and abuse of money and capital. Sounds to me like the 'solution' was there right from the start, but the "deceivers and oppressors" were handed control of the system. Smith would not be in the least surprised to see the state we are currently in: after all, he did most emphatically tell us so.

Economists? ‘Money men’? Speculators?

Ban the ‘billion’ (milliard – the French have it right.) and ‘trillion’ (billion).

Lock them up. Give them a real billion of anything, and make them count it one at a time.

Let them out when they’ve finished.

By then, we might just have saved the world.

DavidHSmith10 on "The week that changed everything"

DavidHSmith10 — Tue, 23 Sep 2008 12:05:35 +0000

What is happening to the money supply in all this? I ask this because my logic suggests it should be falling whereas the stats up to August at least say otherwise. Is there a measurement problem? The reason I ask is that if money supply has dipped then why cannot central banks be authorised to 'print' new electronic money free of debt to stabilise the situation. They would probably have to nationalise the insolvent banks (paying nothing for the equity) and sell the shares once the banks are again solvent in order to claw back and destroy the money so issued.

precycled on "The week that changed everything"

precycled — Tue, 23 Sep 2008 09:36:22 +0000

The reasoning for a long bank holiday isn't clear. How does sending bankers home make it easier to get the info they've tucked away behind the filing cabinets? Surely what's needed is personal responsibility for bank bosses to enforce immediate disclosure and transparency. They can enjoy a holiday afterwards.

If we're thinking systemically then how about noticing that systemic financial insolvency is a symptom of systemic ecological insolvency. As a society we've forgotten that wealth creation is founded on preserving and producing real resources for people and nature, not on every dodgy activity that turns a buck. We need to progress to a historically unprecedented pay-as-you-go society rather than a hide-the-debt society. This applies to both ecology and economy. The 'green new deal' is an interesting start but omits the role of market-driven ecological price correction and assumes the kind of government-led action programme which is impossible within the current waste-based economic growth model.

While we're at it we might as well consider the level of cooperation between people globally, which is below any imaginable sustainable minimum and may thus also be considered 'insolvent'. It's not hard to foresee the current ecological and financial crises interrupting food and energy supplies with a resulting tipping point in conflicts. This would not be a pretty sight - picture bacteria in a petri dish as the agar runs out.

Two key corrections stand out. The political habit of looking for security at the end of a target-sight is an expensive ($1.2 trillion) indulgence. This cannot be fixed with the kinds of campaigns attempted over the past 50 years but there is a simple economic correction. Just omit weapons-related spending from GDP calculations. This would reverse the current incentive for nations to make, buy and use more weapons. National and global economic growth would inspire an immediate switch of strategy to emphasise productive investments of funds and non-military problem-solving.

The final correction may be the most challenging to pull off. Economics was never intended to run as a machine for transferring wealth from poor to rich, but that's how it has turned out. The wealthiest folk pay the least taxes yet governments propose that the bill for financial excesses is picked up not by the wealthiest but by taxpayers. The world is still brimming with monetary wealth, much of it being sloshed into barrels of oil which surge in price. There probably isn't a political hope in hell of obliging any serious redistribution of wealth but it does seem fair to oblige the world's millionaires to take part in a forum where they agree how to make themselves relevant and helpful in reversing the world's many problems. This would update a long tradition of philanthropy by creating a cultural purpose for wealth accumulation. Money not for its own sake, but for the good it can do.

James Greyson www.blindspot.org.uk

Cash&Burn on "The week that changed everything"

Cash&Burn — Tue, 23 Sep 2008 09:00:21 +0000

I agree (it is hard not to) that we have come to a turning point in finance, that transaction-based finance capitalism is unlikely to return to its former heights. However, history is littered with incredibly poor decision-making by states and markets alike.
Pettifor’s one-sided analysis implies that regulators are blessed with a wisdom they do not have, while markets are singularly pernicious, and leading politicians are trapped in a bizarre ideology for no reason at all, other than their own gain (I presume).
This is spurious, and sometimes (I’m sorry to say) laughable.

I’ll highlight the obvious flaws in two of the four suggested points.

A week’s bank holiday would spread panic across the globe, as would the idea that regulators can find the ‘true’ price of assets. The point about prices is that they are set by the market; they cannot be set by fiat. Just ask the US government as it dallies with TARP.

Re-introducing capital controls would throw the baby straight out with the bath water. Pettifor’s blinkered analysis cannot recognise that globalisation of finance has brought great gains for the world, as well as problems. Banning it would set the world back decades, to a small and likely mercantilist world.

The standard Leftist analysis – that globalisation has been for the few, and to the detriment of the many – ignores the gains made by hundreds of millions of the poorest people in the world, a curious oversight, but one thoroughly in keeping with the Cold War foundations of most of the movement’s leading thinkers.

A lack of time limits my comments here, but there’s always more on my blog, Cash & Burn, but a final word on this matter is I do not agree that the 1930s was a golden era – the decade sowed the seeds for the most destructive war the world has ever seen.

163-551-391-780-739 on "The week that changed everything"

163-551-391-780-739 — Mon, 22 Sep 2008 21:19:47 +0000

It would also be refreshing to see a principled and honest evaluation of the effect that social engineering efforts during the 1990's by the federal government had on this problem with the requirements that banks provide mortgages to people based on their racial/economic status rather than their creditworthiness. The enabling behavior of Fannie and Freddie Macs by encouraging the sale and securitizing of these worthless loans further exacerbated this toxic combination.

Some of the same politicians who are now crying foul and threatening more federal intervention are the same who were actively involved these mis-guided and ill-advised requirements for banks to make sub--prime loans, They, and one of the presidential candidates have been the largest beneficiaries of the millions of dollars contributed to their political war-chests by Fannie and Freddie.

These huge contributions were an arrogant but successful effort to prevent passage of the numerous bills in Congress intended to reign in Fannie and Freddie, whose CEOs walked away with obscene amounts of money even in the face of their scandalous manipulation of the books of these institutions. It is no surprise to see who these shameless former CEOs are now advising in the current presidential campaign.

The week that changed everything, Ann Pettifor

Mon, 22 Sep 2008 12:27:37 +0000

The last week has changed everything. A series of extraordinary events in the United States - from the collapse of Lehman Brothers to the forced sale of Merrill Lynch, from the state takeover of insurance giant AIG to the Federal Reserve's emergency bailout plan - has transformed the crisis in the financial markets into an argument about the very foundations of the model of economic governance that rules the world.

Ann Pettifor is executive director of Advocacy International. In the 1990s she helped design and lead the international campaign Jubilee 2000. She is editor of The Real World Economic Outlook (Palgrave, 2003) and author of The Coming First World Debt Crisis (Palgrave, 2006)

Also by Ann Pettifor on openDemocracy:

"The coming first world debt crisis" (1 September 2003)

"Ethiopia: the price of indifference" (19 February 2004)

"Gleneagles, 7/7 and Africa" (4 July 2006)

"Debtonation: how globalisation dies" (15 August 2007)

"Globalisation: sleepwalking to disaster" (11 December 2007)

"The G8 in a global mess: 1920s and 1980s lessons" (7 July 2008)

"America's financial meltdown: lessons and prospects" (15 September 2008

For three decades the ship of global finance has been steered by the economics of globalisation - the flawed neo-liberal economics of the Chicago school. Their navigational charts for deregulation and liberalisation have led the global economy into a financial hurricane of unprecedented intensity. This crisis will prove immensely destructive - of the value of assets like property, of jobs, of pensions and investments, and of the hard-earned achievements of companies small and large, everywhere. Above all, the crisis will damage the lives and the futures of millions of blameless citizens, most of them poor.

Orthodox economists did not see the crisis coming, even as the financial hurricane hit land on what I have called "debtonation day", 9 August 2007. They still do not understand it. They failed to warn their paymasters or the captains, crew and passengers of the finance-sector's ships. Even now, their intellectual and policy maps offer no way forward.

This is because orthodox, neo-liberal economic theory pays little regard to the role of finance in the economy. Systemic insolvency is not permitted in the assumed world of orthodox economics. Very few members of the Chicago school have read Irving Fisher's Booms and Depressions (1932); and if they have read John Maynard Keynes on the theory of money and interest, it was only to malign or marginalise his rationale for the regulation of finance. Instead, they lionised free-marketeer Milton Friedman, trenchant enemy of "big government".

But in the single week of 14-20 September 2008, the public and even much of the media began to register the scale of the finance sector's and governments' intellectual and policy failure. No one - it seems - is fooled anymore. Free-marketers now embrace big government with a fervour that embarrasses socialists. Even more conservative voices in the establishment media have begun to challenge the flawed economics that they have for so long championed.

The world may be moving on its axis, but the change has not yet gone nearly far enough: for neo-liberal economists remain at the helm of the global economy, and continue to disseminate potent mis-diagnoses of what is happening. These economists include the world's major central bankers and finance ministers. It is vital that their economics and their three principal delusions are challenged if the global economy is to be steered safely out of this all-consuming storm.

Three delusions

The first and most important of these delusions is the belief that banks and financial institutions are illiquid, when in fact they are insolvent. Systematic insolvency is, again, categorically excluded from world of orthodox economics. It was the failure of central-bank governors and finance ministers like Alistair Darling and Hank Paulson to acknowledge insolvency in the summer and autumn of 2007 that has prolonged and deepened the crisis. It is the failure to recognise insolvency now that lies behind the apparently endless, and ineffective flow of taxpayer-backed liquidity from central banks.

Second, central bankers are - thanks to their reverence for orthodox economic theory - allowing illusory inflationary pressures to justify keeping interest-rates high, and refusing to relax monetary policy. Despite a spike in oil and food prices, inflation is now falling. The deleveraging of asset prices (think of the fall in property prices) will force down a whole range of prices and if not checked, could lead to deflation. Deflation will be far more devastating to the population as a whole than mild inflation. The 1930s and Japan since 1990 are sobering precedents here. Central bankers must escape from the gridlock of orthodox economic theory and act now to check the downward, debt-deleveraging, deflationary spiral.

Third and most urgently, central bankers and finance ministers have to escape the constraints of orthodoxy - and think system-wide fixes not quick fixes. To ban a few short-selling speculators is but tinkering with a system that needs comprehensive overhaul.

Also in openDemocracy on the global financial crisis of 2007-08:

Saskia Sassen, "Globalisation, the state and the democratic deficit" (18 July 2007)

Tony Curzon Price, "The end of gentlemanly capitalism" (13 August 2007)

Robert Wade, "The financial crisis: burst bubble, frayed model" (1 October 2007)

Avinash D Persaud, "The dollar standard: (only the) beginning of the end" (5 December 2007)

Fred Halliday, "Sovereign Wealth Funds: power vs principle" (5 March 2008)

Willem Buiter, "The end of American capitalism (as we knew it)" (17 September 2008)

Four solutions

What then should be done? Here are four steps.

First, a good place to start would be where Franklin D Roosevelt did in 1933 - by declaring a week-long bank holiday. The Federal Reserve, the Financial Services Authority (FSA) and the Bank of England could then take time and check the books of banks for well-hidden "toxic waste" - their massive undeclared liabilities, including more than $60 trillion of so-called "credit default swaps" (CDS). Only when regulators have a proper sense of the scale of the mess, can they take decisive and appropriate action. Right now they are sloshing buckets of our money about, unsure as to the whereabouts of the financial "weapons of mass destruction" that banks have concealed.

Second, there must be an end to "inflation targeting" - which is just a cover for keeping interest-rates high. High interest-rates are great for lenders/creditors, but a killer for debtors, and there are far more debtors in the economy than savers. If this financial crisis - and the planetary threat of climate change - are to be faced, there is a need for cheap (but not easy) money to help finance investment in energy security (for more on this theme, see the report I co-authored, A Green New Deal [new economics foundation, 2008]).

Third the Bank of England and the Fed should regain control over interest- rates - all rates. The interbank lending rate (the so-called Libor rate) should no longer be set by a closed committee of private bankers meeting daily at the British Bankers' Association. Rates must be set by a committee accountable to society; and, when setting rates, it must consider the interests of all who make the economy work - labour and industry as well as finance.

Fourth, in order to again exercise control over all rates, the Bank of England will have to reintroduce capital controls. That might require a new international agreement, along the lines agreed at Bretton Woods in 1947.

All of this is doable as well as necessary. These are the initial system-wide fixes needed to deal with systemic threats; the public have every right to expect the guardians of the nation's finances to implement them promptly.

If they are to do so, these guardians will need a new moral compass, new navigators and new helmsmen and women. But one thing that is not needed is a new navigation chart. That was provided by John Maynard Keynes in his The General Theory of Employment, Interest and Money (1936). Its ideas will today do just as well to restore the world to a period of stability as after the great depression of the 1930s. This was a period that Barry Eichengreen and Peter H Lindert (in The International Debt Crisis in Historical Perspective, MIT Press, 1991) described as "a golden era of tranquillity in international capital markets".

To return to such a golden era, the money-lenders, speculators, and orthodox economists responsible for the gross failures exposed by the week that changed everything must stand aside - so that everything indeed can change, and for the better.

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