Here's a fascinating chart of spam activity on oD's forums for the past 2 months:

So, has Mollom beaten the site spamsters? It certainly looks as if they eventually learn that their spam messages are getting blocked ... Now we just need Mollom to implement this for Drupal 4.7 so we can apply to the main site and I'll be singing the praises of Mollom to all who care to listen.

The Bank of England has just come out with its quarterly inflation report.

The big headline is that recession for the next 12-18 months is almost certain.

A comparison with August's forecast is interesting:

Although the shape of the downturn is broadly similar, the current forecast has essentially shifted down between 3/4% and 1.5%. Note also that the BoE has been consistently optimistic in its forecasts---if you look at the balck "ONS Data" line, that is how things actually turned out. You might have thought that the statisticians at the BoE might have learned by now to take the pinch of salt into their own forecasts by now. (Actually, the optimism seems even worse than the graphic suggests. The Quarter 3 out-turn growth was a whisker above 0%, which is right on the outside edge of the outside August probability band. However, the BoE has decided to represent this graphically in the November chart as being on the inside edge of the outside band. (Ah! The rhetoric of charts!)

Anyway ... what we now know is that the BoE thinks we have a nastier and sharper depression coming than it thought in August. It is interesting -- particularly so given the election cycle that sees a general election by May 2010 -- to see what kind of shape they predict for the end of the depression.

Their central estimate is that things are getting better very fast by May 2010, with growth around 2% and the rate of change of growth very rapid --- things have been pretty bad just 6 months earlier. Sounds good for Brown. Indeed, one assumes that an independent bank must play the election calendar into its scenario-building, and must be assuming heavy government action in its central case.

In this respect, it is interesting to compare the August and November inflation forecasts. This is the current forecast of inflation:

And this was the August forecast:

In August, the rate of price growth rate was expected to fall for the whole 3 year forecasting period. Now, inflation starts to rise again (although from a lower base) already by mid-2010. This seems clearly compatible with a change in the basic assumptions about increased government borrwing and a lower sterling exchange rate.

Based on these BoE forecasts, Brown's window for an election in 2010 looks very tight---when incomes have started growing again and before inflation has shown the economy to come out of the depression in a pretty unproductive state.

And remember the BoE pinch of salt -- that will make the window even tighter.

Open Circle, ODD Group

A brief reminder that the theme tomorrow evening, Tue 28 Oct, will be 'Consciousness 2'.
I've had a brief chat with Bob on the phone, who will again chair the session, and I enclose a few additional notes which may be used during the evening.

==

-1Consciousness

Additional notes for Tue 28th Oct.

From The Conscious Brain  by Steven Rose - former Professor of Biology, the OU.
(Penguin Books,  Revised Edn,  1976).  

“Consciousness means many things, sometimes simultaneously, often contradictorily.
Thus, it may simply mean a state different from being asleep or in a coma;  the reverse of being ‘unconscious’.  It may be used to relate to the private world of the mind in contrast with a presumed ‘public’ world of observed behaviour.  People speak of ‘altered states of consciousness’ which may be induced by drugs, often implying by this altered awareness or altered perception of the world around.  
Consciousness may have a Freudian meaning in which some human acts, or the motivations for them, occur at a level out of reach of the thinking ‘conscious’ mind with its overt rationalisations,  buried in some relatively inaccessible ‘subconscious’.   Finally, there is the Marxist sense of consciousness.  
The difference between these uses of the term is that whilst most of the earlier ones are essentially static definitions, of consciousness as a ’state’ of being, in the Marxist sense consciousness is a dynamic force which emerges in interaction between the individual and his or her environment….

Consciousness in my sense of the term, is a continuously unrolling, continuously developing activity of minds/brains in interaction with their environment, modified, either temporarily or permanently, by changing circumstances.”

 

Enclose notes for the Blue Mugge pub discussion next Tue 4 Nov.   Roger Elkin has prepared these notes and will lead/chair the discussion.

A reminder of programme change: on Tue 25th Nov we will be debating and discussing  The Crash, 2008.

Also:      Friday 7th November   10.30 - 3.30pm
The WEA has organised:
Celebrating Tawney in 2008.
The 100th anniversary of Tawney's first University/WEA Tutorial Class in Longton.
The speakers are acknowledge experts on the subject.
Venue:  Potteries Museum and Art Gallery,  Hanley

 

Open Circle or Odd Group

Tuesday   4th November 08 at The Blue Mugge Pub, Leek

Some Poetry Definitions

1     S.T.Coleridge:         Poetry; the best words in the best order.
2    W.B. Yeats:        Poetry is truth seen with passion.
3.    William Wordsworth:     Poetry is the spontaneous overflow of powerful feelings: it takes its origin from emotion recollected in tranquillity.
4.    T.S. Eliot:        It is neither emotion, nor recollection, nor, without distortion of meaning, tranquillity. It is a concentration, and a new thing resulting from the concentration, of a very great number of experiences… a concentration which does not happen consciously… Poetry is not a turning loose from emotion, but an escape from emotion; it is not the expression of personality, but an escape from personality.

4Which of the above do you agree with?
5Is there anything that you would add to help to define what you think poetry is… and should do?
6What makes a “good” poem?           
7What features make the following poem “good”?

 

Mushrooms                         Sylvia Plath

Overnight, very
Whitely, discreetly,
Very quietly

Our toes, our noses
Take hold on the loam,
Acquire the air.

Nobody sees us,
Stops us, betrays us;
The small grains make room.

Soft fists insist on
Heaving the needles,
The leafy bedding,

Even the paving.
Our hammers, our rams,
Earless and eyeless,

Perfectly voiceless,
Widen the crannies,
Shoulder through holes. We

Diet on water,
On crumbs of shadow,
Bland-mannered, asking

Little or nothing.
So many of us!
So many of us!


We are shelves, we are
Tables, we are meek,
We are edible,

Nudgers and shovers
In spite of ourselves.
Our kind multiplies:

We shall by morning
Inherit the earth.
Our foot’s in the door.                                       13th November 1959

 

The Group of 20 meeting in Washington this week-end will do little in the way of solving the financial crisis, let alone designing a new World Economic Order (WEO). The Green New Deal (GND) hopefuls would like to see  environmental concerns built into the fabric of the WEO --- if banks can have reserve requirements, then why not carbon per dollar loan limits too? --- or at least make the idea of Keynesian reflation focused on programs for renewable energy. Whatever the fundamental problems with the suggestion (see my response here), the two practical problems for the GNDers are firstly that Obama will not be present at the Washington meeting and secondly that there is a remarkable lack of support for an international-level tie of the financial and green agendas in the economics community. The creative and very timely Vox ebook edited by Barry Eichengreen and Richard Baldwin has many radical suggestions, but not a mention of any GND ideas.

This may be disappointing for all of us concerned with the environment. But it seems right. We can still avoid depression, and we should focus our attention on that. The unforeseen consequences of the crash of 1929 were horrific, as could be the consequences of depression over the next decade (Simon Maxwell and Dirk Messner in oD are very good on this). This is especially true for emerging nations and powers whose social stabiltiy and geopolitical good behaviour requires delivery of improving economic conditions.

Maxwell and Messner get the balance just right, I think -- the November 30th Copenhagen climate change summit must keep the environmental agenda moving with an eye firmly fixed on the middle-distance. The G20 summit must deal with the immediate and dangerously close.

Mike Small (Fife, Bella Caledonia): What's a more motivating force, fear or hope? Across the pond Obama has inspired a generation, re-inspired another and put 9 million people on the electoral register. Here a halving of the Labour Partys majority has been represented as a historic victory. Here it was politics as usual, and bitter negative politics at that. Labour have successfuly played on peoples fears of economic collapse. But can Britain be held together by fear? Where is a credible positive agenda emerging from London? It's not going to be the Olympics or the sight of a UK football team emerging at Hampden comprising 11 Englishmen.

There is no doubt that Labour ran a very successful campaign, but that's not why they won. The SNP ran a great campaign but chose a candidate that made them the incumbent (Peter Grant is the Head of the SNP Council), but that's not why they lost.

There are three reasons why Labour won.

Ben Folley (London, Compass): The future of the US Missile Defence system is now up for discussion following the election of Barack Obama as US President and two weekends in a row where the Czech Social Democrats have won enormous electoral victories over the governing conservatives, just as the Czech Chamber of Deputies prepares to discuss and vote on the installation of a US missile defence radar station.

Obama has previously suggested he is not willing to provide endless funds to a system for which there is little proof of operational success.

Within that context, and the success of the Czech Social Democrats campaigning on an explicit anti-missile defence agenda, the broad statement of over 50 Labour MPs released yesterday, welcoming their sister party's opposition and calling on the government here to allow an open debate on British involvement in the system, is particularly welcome. Their calls are boosted by a new opinion poll showing the British public believe US Missile Defence installations increase threats to national security.

The European Investment Bank's deal, announced yesterday, whereby it made €30bn available for lending to the Europe's small and medium sized companies is interesting for the model of emergency banking that it suggests and pilots.

Westminster is delegating two ways: first, the administration of these loans is going to the big clearing banks, who know the businesses in question, have their credit records and bank movements; second the source of the funds is coming from a European institution that is used to spending and accounting for public money.

So when we've had enough investing in propping up bad banks, here is what we do: we massively increase the capital available to the EIB---as taxpayers, we put our money there rather than in idle accounts with the banks through their equity account---and we employ the bankrupt bad banks to be our agents in lending the money.

We'll need to design the incentive contract with the bad banks ... but with financial sector employment falling fast, that negotiation shouldn't be too tough on us. The banks can get some variable amount depending on a host of effectiveness indicators: volume lent, default rates, GDP growth ... with a bonus "kicker" in the contract on average median incomes and carbon emmissions for the whole economy over the next 20 years.

I have just published Mary Kaldor's latest column, which I think makes a really valuable contribution to our view of the financial crisis. The economics commentary, however much it professes to have learnt its new growth theory from Schumpeter, does not think about the actual characteristics of the technology development phases we are in or relate this to the current crisis.

MK's view (which borrows much from Carlota Perez) is that this crisis should be understood in relation to the new technologies as the 1930s crisis was understood in relation to Fordism and mass consumerism. MK sees deregulation and liberalism not just as the advance or retreatof some ideology, but rather as a phase which is suited to the early development of a technological/economic/institutional epoch --- a phase which finds justifications to shake off institutions from a prior age. But initial investments and returns are not sustained, and the financial sector becomes "creative" in the search for the return it has started to consider to be rightfully its own. This is what happened after the dot com bust and the mass move of finance into the extraordinarily unexciting business of (over)-financing home building.

One of the nice things about this way of looking at the crisis and at economic history is that it contextualises economic ideologies and offers a creative synthesis that might take us beyond state/market arguments. It encompasses each in different phases of the epochs of development.It also allows us to look at the 1930s asking not so much about the lessons in terms of technicalities of money supply management, but more in terms of the political and institutional shifts that took the world economy beyond 1930. Can we hope that creative destruction might be a little less destructive this time around?

I'd still like to see the analysis become more specific. From the vantage point of the early 1930s, could one see that Fordism would require/engender national welfarism, American economic hegemony, etc? And if we can, what does the nature of new information and energy technologies imply is needed for the next epoch? World-wide welfarism? Democracy support? A new finance infrastructure, including learning from micro-finance? Anti-consumerist values ...

Is there a Schumpeterian who would like to stick their neck out with a forecast? 

George Osborne gave the Today program an opportunity to demonstrate the great emptiness of the media-political conversation this morning.

Paraphrasing, here was the interview:

SM (interviewer): "What is wrong with Darling's plan?"

GO: "You can't spend your way out of a recession with a Keynesian splurge on big projects"

SM: "What would you do diffferently?"

GO: "Freeze council tax, give small businesses help and let the bank of England cut interest rates, putting money in people's pockets."

SM did not then ask why this wasn't itself Keynesian splurging. There are three points here:

1. what should be the level of fiscal largesse?

2. is it better to spend this mainly on public investment or to delegate that spending to households and small businesses?

3. who eventually pays for fiscal largesse?

GO pretended to answer "1" by answering "2", and Today let him get away with it. "3" is a very interesting question which GO proposed one answer to that was never challenged by SM. The point about "who pays?" is closely linked to Ricardo's equivalence, the argument that claims that there is no difference between financing government spending through borrowing or through the raising of taxes. Public borrowing has to be paid back, eventually through higher taxes. Taxpayers, if they understand this, will know their lifetime consumption possibility has fallen by exactly the amount of the public spending, so who cares if it is financed through taxes now or higher taxes later (higher in order to cover interest payments)?

The argument is fine in a classical regime - as long as we do not currently face the risk of a Keynesian recession. The point of a Keynesian recession is that capital markets do not work; hence the equivalence argument based on households comparing present and future consumption is simply not applicable. The only question that Today's interview should have drilled towards was this: does GO think there is no risk here (there is certainly a case to be made -- Tim Congdon has made it recently -- but is GO really taking the political risk of supporting this view)? Or does he deny Keynesian efficacy in such an eventuality? 

One day, Today will ask the hard questions.

 

The BoE quarterly report has a table (reproduced below) of all the measures that have been taken by central banks world-wide to get banks lending again. The fact that, after all we are doing, they still are keeping all the cash they can get their hands on for themselves, shows that their difficulties are much worse than these solutions envisaged. I have written several times about the Credit Default Swap market, and here is a really insightful article (hat tip Eurointelligence) describing exaclty how the "CDS overhang" (or should that be hang-over?) is causing a sort of financial black hole into which any cash that comes into the orbit of a bank gets whooshed.

What the article makes clear is that taxpayer funds and guarantees -- worldwide amounting about £4.5 trillion -- do not cover the losses that banks are exposed to on their unregulated CDS dealings. A CDS is just an insurance contract: a bank agrees to pay out some stated amount if some specified  loan (bond)  goes bad. Banks, hedge funds and insurance companies found they could sell thisinsurance in large quatities -- far larger than the value of the loans being insured. In the casino on which the sun never set --- our modern financial markets --- there was a market in bets on other people's ability to pay, whether you had a stake in the game or not. There are $50 trillion of outstanding CDS contracts. It is fear of these liabilities that is making banks cash-hoarders.

But liabilities may well be capped below the $50 trillion number. When Lehman's was bankrupted, institutions that had insured Lehman bonds had to find cash to pay out on the insurance. CDS's are non-regulated, non-standardised, 'over the counter' (OTC) products and come with a wide variety of terms. According to the article, some of the CDS's required that the insured party deliver the underlying debt in order to get paid. This limits the size of the CDS payout overhang. Unsurprisingly, insurers have been asking for delivery of Lehman debt before paying out. It will be interesting to see if the price of bankrupted Lehman bonds starts to move up. 

 

 

 

Iceland's chill has led Bjork to tune in to her inner philanthrocapitalist. (Hat Tip CalendarGirl ). In this interview, Bjork describes her reaction to Iceland's economic woes and explains what she is actually doing to build a new economy based on green localist principles. Admirable for its pragmatism, is it a model for all of us?

Bjork is looking to encourage MBA students, geeks and rural workers in Iceland to produce business plans that provide good incomes in the knowledge and eco-tourism economies in order to avoid building more  aluminium smelting plants --- that's what Iceland resorts to when it is in a fix, exploiting its huge hydro potential.

The dilemma faced by Iceland today---pay bills by inviting  ALCOA (The Aluminium Company of America, whose CEO was Donald Rumsfeld) to build more dirty business, or feel financially poorer but preserve the environment---is one we will all face soon. Is environmentalism a luxury?

Bjork wants to attack the problem by offering an alternative to ALCOA, a vision of "a new, independent, environmentally friendly Icelandic economy". She is building -- or thinking of building, I am not sure which -- an incubator for these new businesses. Sounds very attractive:

It's one big institution where everybody who has a good idea goes and they all work together and help each other and then companies start to come out of there. But it takes like eight years. For me, it's sort of like a record company. It's like an indie label in a way. It's grassroots, where all these people can come and feed off of each other and get support. Where if one person gets a good idea, the other five will help them..

But there are pieces of the idyl that are much less attractive:

•  [We want to] "build this purely Icelandic thing up with Icelandic money, Icelandic companies."
• "We should make companies here made of Icelanders, both working class and the brainpower, discover new things that stay in the country."
• "Why not have the Icelandic people who are educated in high-tech and work already in those factories in the higher paid jobs, why not let them build little companies who are totally Icelandic with the knowledge they have? Then they get the money and it stays in the country."

There are hints of looking to use the incubator and environmentalism to keep the nasty world out in all these identitarian references. Why can't we have what David Hayes and Andrew Dobson have characterised as a Cosmopolitan Localism -- a localism and environmentalism that does not see the world as a threat, and that has the confidence to live its identities in the open? Iceland has just been slapped for its Viking raider hubris of the past 10 years. So a desire to retreat into autarchy is understandable. But it too should be resisted. It is just as much of a perversion as the raider mentality.

(Thanks to  verapalsdotir for the photo)