Anarchy in the USA

Even the mainstream media is now aware that there is something approaching an uprising going on in New York and other US cities right now. At least, if it were happening in an Arab country, our media would certainly be calling it an uprising, albeit a fairly peaceful one, if we overlook the copious violence coming from the police, as is usually the case, regardless of where in the world you are. I'm not going to offer any detailed analysis of this phenomenon. Instead, I leave you with a poem, the first version of which was written on the inauguration of President Obama in 2008. The basic message is in tune with those protesters occupying Wall Street today; that power must belong again to the people and that no leader can ever be trusted to deliver the people's will:

Occupy Wall Street

Anarchy in the USA

I woke up to a dream of hope:
the silent hordes who’d been asleep,
possessed for one ecstatic moment
of love before that love is spent.
For now, instead of begging bowls,
they raise their cups and think of schools,
clean water, liberty and rice,
in place of war and pestilence.
Who is the man who’d be a god,
and slake our thirst for more than blood?
But we have gorged ourselves on gods
and soaked our claws in sunny words,
and now we’re sick, too sick to swallow
the honeycomb promises of kings who borrow
magic from the myriad-headed hydra
(serpent slayer of the ancient Maya).

While Fear and Faith stand by the throne,
the world still wears a golden chain –
now will some god-king give the command
to throw all idols to the ground?
No. Hail the one, who would be chief –
he is you, and me, and a turning leaf.

Quantitative Easing for Dummies

On Wednesday, the US Federal Reserve announced another round of quantitative easing (QE), only they called it Operation Twist, because they've tried quantitative easing twice before and it didn't work, so they're hoping a change of name might bring better luck. This is intended to boost a flagging economy, so the markets predictably responded with blind panic. The UK is also set to follow the same strategy soon. In case you're wondering what this is all about, I've put together a handy little Q&A about QE:

A brief pictorial explanation by Eric Lewis

Q: What is quantitative easing?
A: It's when a central bank 'prints' money and then uses it to buy government bonds (government debt).


Q: You mean the government prints money in order to purchase its own debt? That sounds fishy.
A: Yes. Pretty cool, though, huh? Bet you wish you could do that.


Q: Quite. Also, when you say 'print', what exactly do you mean? Do they actually print banknotes?
A: No, silly. They just electronically credit the accounts of the people they buy the bonds from. They just conjure the money out of thin air, because money is imaginary stuff; it doesn't really exist. That's the beauty of it and it requires no thought whatsoever: just press a button and it's done! Even George Osborne can do it.


Q: OK. Who are the people they buy the bonds from?
A: Whoever happens to own them. In practice, it's mostly banks who already hold government bonds (gilts). It can also be pension funds or just wealthy individuals. Often, the government simply issues new bonds and promptly buys them from itself.


Q: 'Buys them from itself'? Presumably, the issuing bank also gets a cut on the deal?
A: Yes and yes.


Q: Wow! Aren't the banks doing rather well out of this?
A: Stunningly, awesomely well. They get a price premium on the bonds they already own and they get a commission on the deals for bonds they don't own. It also helps turn somewhat risky sovereign debt into risk free cash reserves. Win-win-win! For the banks.


Q: Great. How is this supposed to help the wider economy?
A: Hmm. Good question. Well, the hope is that the banks will use the new cash reserves wisely by lending it to businesses or to consumers for spending, so that will stimulate both investment and demand and get the economy growing. It also helps keep long term interest rates down by raising the price of gilts.


Q: What if the banks don't use the money wisely? What if they just gamble it in the commodities or derivatives markets? What if they just stoke up another asset-price bubble? What if their executives just use it to pay themselves multi-million dollar bonuses to buy yachts and villas in Aruba? What if they just sit on it?
A: Don't be silly. Banks are always wise and always do the right thing by the rest of us.


Q: I see. Haven't we done this before?
A: Yes. Twice in the US and once already in the UK since 2008.


Q: Did it work?
A: Are you kidding? Why do you think we're doing it again?


Q: Why ARE we doing it again?
A: Well, if a thing didn't work three times, do it a fourth time just to make really sure. Seriously, I don't know. The banks seem to love it, though.


Q: Is there any alternative?
A: No. Absolutely not. Never. I resent that suggestion.


Q: Are you sure there's no alternative?
A: Well, maybe. Instead of boosting banks' cash reserves, one could print money and invest it directly in the domestic economy. I suppose we could build much needed housing, improve the rail network, provide vocational training, invest in renewable energy, communications infrastructure, education, health care, get people back into work, etc etc. If you like that sort of thing. We could even create a mutualised National Investment Bank out of the banks we already own and give it a mandate to lend to small business and community projects.


Q: Why the hell don't we do that, then?
A: You just don't understand economic theory, do you? Private sector good, public sector bad. Private sector good, public sector bad. Private sector good, public sector bad. Thatcher is God! Baaaaah. Baaaaah. Wibble.

Capitalism: A Post-Mortem

If Capitalism is not already dead, then it seems to be in its death throes. Drastic action will be needed to keep the monetary systems of Europe and the US from seizing up again, as European leaders meet to try to save the euro and even the US lurches towards a possible default on its debt. Maybe the central bankers and politicians will find a way to save Capitalism for the time being, but will it be worth it? Capitalism was briefly tamed for 25 years after World War 2, when the Bretton Woods system established stability. The raging monster was firmly chained during this period which is now fondly remembered as the Golden Age of Capitalism: a time of strong growth, low unemployment and increasing prosperity for all, a time during which our welfare systems were developed and social mobility actually meant something. This period also gave rise to the notion of the American Dream, which has long since become exactly that - just a dream, sustained by advertising and credit cards.

Welcome to the Machine

When I speak to people who grew up in the 1950s and 60s, it is no surprise to me that they tend to have faith in this system, Capitalism, because they can't quite understand how it has changed. Those of us who grew up in the 80s and 90s tend to have progressively diminishing faith in the beast, as we come to realise that it can never be fully tamed. The beast started to slip its bonds as soon as they were forged. By the 1980s, it had broken free almost completely, thanks to the efforts of politicians like Margaret Thatcher in the UK and Ronald Reagan in the US. Immediately, the beast set about devouring whole communities in the name of productivity and profit. The result was an ever increasing concentration of wealth in the hands of an ever-diminishing global elite. Unemployment soared in the developed world as labour was cast aside like a rusty spanner.

Financial capital now reigns supreme and the most profitable 'industry' is the one that doesn't actually produce anything at all, except debt: banking. How did it come to this? But wait. Surely, Capitalism is not all bad. Maybe we can just fix it again. Hasn't Capitalism given us progress and prosperity for 300 years? Without free markets, global trade and competition, would we have personal computers, cars, air travel, medicines, mobile phones, the internet and televised football? I think the answer is 'yes', apart from the last one perhaps, because scientific and technological progress is driven more by human curiosity and the flow of information than by anything else. In fact, free markets did not create the internet and probably never would.

Nevertheless, I will admit to having a great admiration for the idea of free market economies, by which I mean genuinely free markets - not the markets we have in practice which masquerade as being free whilst in fact being controlled and manipulated by oligarchs (both governments and big business). Free markets are not the same thing as Capitalism. I would say they are opposites. In many ways, a free market is the ultimate expression of the political philosophy of anarchism. A truly free market is a self-organising structure created by a network of equal and free agents. As such, it is potentially a thing of beauty and a useful tool. Free markets do not need hierarchies! Unfortunately, it is the existence of hierarchies which causes free markets to fail so badly within a Capitalist framework. Capitalism is the offspring of a marriage between a quasi-free-market ideology and a perverse socio-monetary system which is the antithesis of liberty. The result is a modern version of feudalism. A slight digression is required to explain this:

In textbooks of free-market economics, we learn that money is supposed to represent 'utility', which is supposed to stand for the needs or wants of an individual human agent. What this means is that when you pay £2 for a cup of coffee, the coffee represents at least £2 worth of pleasure or satisfaction to you personally. To be more precise, it represents no less satisfaction than something you would be prepared to forego for the sake of a payment of £2. Example: you sell a book for £2 and then buy a cup of coffee with the money. Obviously, the coffee is worth more to you than the book, so you have gained from the transaction. Miraculously, everybody gains from every transaction - or else they wouldn't undertake them. It is this equivalence between money and utility which allows economists to claim that free markets maximise overall utility, just as John Stuart Mill recommended:

MONEY  ≡  UTILITY

This is the great myth of right-wing libertarianism. If only it were true, the world would indeed be just as Ayn Rand wanted it and greed would probably be good. (Actually, Ayn Rand was a hypocrite and my tongue is firmly in my cheek at this moment). The truth is that money does not equate to utility, as even the dullest economics graduate could see - if he wasn't so blind. People are not allocated a stock of money based on the sum total of their needs and wants. Money is created by banks and governments, or inherited. This means that a starving child in Ethiopia has no power to meet even his or her most basic need for food, because he or she has no access to money. By contrast, a child born into a rich family in America can satisfy every casual whim, even though the utility of a Humvee to a 17-year-old brat from Texas is surely a fraction of the utility of a bag of rice to the Ethiopian child. I can't believe I have to point this out, but apparently I do. In practice, Capitalism is a system where

MONEY  ≡  POWER

This is the real equivalence. Markets tend to be dominated and manipulated by a handful of agents with huge power, granted by their possession of huge amounts of money, far beyond what is needed to meet most of their desires. By the same token, power begets money. Worse still, many of the most powerful agents are not even human! This is what I meant when I spoke of a socio-monetary system. Today, the wealthiest (and therefore most powerful) agents in the world are multinational corporations and national governments - not individuals. This is a very serious problem and it contrasts starkly with the situation pertaining 250 years ago, in the days when Adam Smith was formulating the principles of liberalism. To see the problem, just consider this question: what are the needs and desires (i.e. utility) of a corporation? Or a government (especially one which is not very democratic)? I'm not going to expound on this, as I'm sure you'd like to think about it. If you want a primer, try reading or watching The Corporation, by Joel Bakan. Bakan's thesis is that if a corporation were to be viewed as a human being, it would necessarily be considered a psychopath, in consequence of its legal constitution. It follows, therefore, that Capitalism is a feudal system dominated by a psychopathic non-human aristocracy with a subordinate gentry class of wealthy individuals and corrupt politicians. Even the wealthy are victimised by this system.

These are the most fundamental and intractable problems of Capitalism, but they are not the only ones. Even economists recognise a few other problems, and generally sweep them up under the heading of 'externalities'. Externalities are important but they are not fundamental. The conclusion is that Capitalism cannot simply be fixed. For example, when UK Health Secretary, Andrew Lansley talks of opening up the National Health Service to free-market competition, what he has in mind is actually something very similar to the 18th Century Acts of Enclosure, whereby common land (a resource) was taken away from the peasantry and appropriated by the aristocracy and gentry. This has nothing to do with real free markets, because free markets cannot ever exist under Capitalism.

So, Capitalism is rotten. We know that now. It has only been around for 300 years or so, which is the blink of an eye in terms of human history. There is no reason to think it will last any longer than the Roman Empire did. But what can we replace it with? Post-Capitalism, of course. Forgive the glib answer: it's a cipher which invites speculation and experimentation. I don't have a ready-made system, like Marx. All I can say is that Post-Capitalism will have no place for feudalistic, hierarchical, profit-obsessed, psychopathic multinational corporations or highly centralised, bureaucratic, corrupt, undemocratic governments. It will also be a more equal society in every sense. Post-Capitalism will be a creation of the people, by the people, for the people.

My Big Fat Greek Default

BREAKING NEWS: Greece has defaulted on its debts! Oh, wait. Apparently it hasn't happened yet. Most media commentators are still talking about a second bailout of over 100 billion euros (it may be a gazillion, I can't quite remember). This will arrive if the Greek prime minister, George Papandreou, who survived a vote of confidence, can push through yet more austerity measures, of the sort only previously imposed by the IMF on banana republics whose rulers dispense financial advice to their people down the barrel of a gun.

Many wise words have been spilled explaining the dangers of 'contagion' to the rest of the eurozone and the whole banking system. We are supposed to believe that a Greek default would be a catastrophe for mankind: something like a massive asteroid that could wipe out all of Europe's bankers, politicians and media pundits at a stroke. Only the thing is this: it has already happened. For the Greek people, it has been happening for the past year already and the pain will continue indefinitely.

What would Socrates do?

Now for a lesson in semantics. Q: What is the difference between a 'bailout' and a 'default'? A: Nothing, except:

1) It is the ordinary citizens of Greece and Europe generally who are paying the whole price, instead of the bond holders - i.e. the banks who hold Greek debt and whose irresponsible lending created the crisis. The wealthy bond holders don't lose a cent. Isn't that nice? They get all their money back, with increased interest, and their risk is nil. Nada. Zilch.

2) A 'bailout' does nothing to wipe the slate clean. It's like going on a savage cocaine bender just to get over the terrible depression that followed the last one, knowing full well that the black dog will return again tomorrow, with a whole pack of its mates.

To take the drug analogy further, who do we blame? The seedy dealer, peddling empty promises of endless sunny illusions? Or the poor sap who believed those promises? The analogy isn't quite precise, in this case, because politicians act as a kind of middle man between the bankers and the people. It's the politicians who sell those promises and take a cut on the deal, which is why they are always on the side of the bankers, of course. Both parties to the deal are somewhat to blame, but most people can see that it is the drug pushers who bear the greater share of responsibility and deserve to be punished (whilst the addict goes into rehab).

In this case, the drug pushers, far from being punished, are put in charge of solving the problem. Funnily enough, they prescribe another dose of drugs, only the price has gone up - way up - and the addict has to sell all his possessions just so he can afford to keep taking the drugs. Meanwhile, the addict's friends and family (who are also on the same drugs), have to chip in to help him pay.

What is the real solution to this problem? It is called the Red Pill, my friends. The Red Pill dispels illusions. What is that great big fat mountain of debt, really? It is nothing: an illusion, a simulacrum, a scam, a confidence trick. Where did it come from? It was created by banks (97% of it) out of thin air. That which is created from nothing can go back to nothing. So what if a lot of imaginary money disappears from whence it came? Give the problem back to the banks. They created it. They can sort it out. A lot of rich people will get slightly miffed. Default.

Footnote: In the case of Greece, the drug also goes by the steet name of 'the euro'. This drug releases a steady stream of cheap credit into the user's blood system, causing a feeling of intense euphoria and a craving for German imports, which can last for years.

Update 28/6/11: I hope I made it very clear above that the EU/IMF/ECB bailouts are not designed to assist the Greek economy at all, but simply to allow private bondholders to cut and run before Greece inevitably defaults. This is easy to see if you understand that 70% of Greek debt was in private hands last year, but this is now down to about 50% and falling. Here is another article explaining how Greece is being hung out to dry, by former Citibank economist, Michael Burke. The people of Greece, thankfully, are not easily fooled any more. They have had enough of venal, worm-tongued politicians in league with fraudulent bankers. The corporate media is mostly arrogant and complacent about the extent of popular anger, as well as the causes of the crisis and I suspect they will be in for a shock. It would not surprise me at all if the Greek government were toppled by force within the next two weeks.