Tag Archives: Plutocracy

The Wealth and Poverty of Nations – David Landes

Published by Little, Brown and Co 1998 650 pages)

As my old history master never tired of saying, Wealth Is  Power! That is the reason why the cause of  nations becoming rich or staying poor is so fundamental a  political and social question.  It is also an infinitely  intriguing  subject, being  in principle beyond a  definitive answer  because any ascription of importance to any quality or event  judged relevant to the matter is by its nature subjective.  However, objectively  unanswerable as it may be,  it is  important to continue to address the subject because it has become a central part of  the ideological battleground  between the First World and the Third World, East and West,  Left and Right.  

 To this ideological battle David Landes brings an antidote to the anti-western forces which are so strongly entrenched in  the Third World and amongst the elites and ethnic minorities  of the First World. Driven by a deep knowledge of the subject,  he refuses to take uncritically  the “right-on” party line on colonialism, slavery and, indeed, the causes of  national wealth.  In fact, this book is an abattoir for  sacred cows dear to the progressive mind. As Mr Landes  is an American academic, this is a particularly brave stance to adopt  in the hysterical atmosphere of the typical modern US campus. On that count alone he is to be congratulated.

Two themes dominate Mr Landes’ thinking. The first and lesser is  the colonial experience,  particularly of  European  colonialism, since the fifteenth century: the second is industrialisation.

Mr Landes dismisses the claim that colonialism was the primary cause of the wealth of European powers or their  cultural offshoots such as the United States, by pointing to inconvenient  facts such as the experience of Spain, the greatest power in Europe between 1500 and 1650, and Portugal. Despite the immense wealth generated by their American  possessions, as societies they remained poor even during their period of greatest material gain from the Americas. Nor did their rulers achieve financial respectability – the  Spanish Crown managed to go bankrupt in 1557, 1575 and 1597.

As for the slave trade, one may point to the wealth  of  Britain at the time of abolition and in the century which followed. In 1807 Britain’s GNP was approximately 200 million pounds. By 1914 in was over 2 billion pounds. (Prices in 1807 and 1914 were approximately the same as far as these things can ever be judged) At most, Mr Landes  allows that the wealth received by Britain from the slave trade, India and the Americas may, but only may,  have slightly accelerated the first Industrial Revolution.

 The Industrial Revolution drives the book. For Mr Landes,  the question of the wealth or poverty of nations  only becomes  important  after the onset of industrialisation:

“The industrial revolution made some countries  richer,  others  (relatively) poorer;  or more accurately,  some  countries made an industrial revolution and became rich; and  others did not and stayed poor.” (page 231 ) Prior to industrialisation, the disparity in wealth between states, regions and even  continents  was relatively small.  Come the  Industrial  Revolution and massive disparities begin to appear. For Mr  Landes, it is to the success or otherwise in industrialising which is the primary cause of present disparities in national wealth.

 Mr Landes’ general interpretation treads a well worn path.  He views the historical process of industrialisation as twofold. First, comes  a pre-industrial preparatory period  in which irrationality of thought is gradually replaced by scientific  method  and what he calls  “autonomy  of  intellectual inquiry” (page 239) , that is, thought divorced from unquestioned  reliance  on  authority,  irrationality, especially superstition.  At the same time technology begins to be   something more than by- guess-and-by-God. This gives birth to  industrialisation by creating both the intellectual climate  and  the  acquired  knowledge,  both  scientific  and  technological,  necessary  for the  transformation  from  traditional to modern society.

Those are the bare bones of Mr Landes’ argument. He backs it with considerable detail.  All the usual suspects for the causes  of the  Industrial Revolution are paraded  and examined: technological, intellectual, cultural,  social, political, legal, economic, natural resources and climate.  Mr Landes gives greatest weight to intangibles such as intellectual  development,  political  maturity,  legally enforced respect for private property and a sound system of   money and credit.

One of the great strengths of the book is Mr Landes’ refreshing determination to pay attention to what actually occurs rather than what theory says should happen. Thus he goes against the economic fashion of the age and  questions  that  shibboleth of classical and neoclassical economics,  comparative advantage,  the idea that countries  should manufacture what they are most suited to in the circumstances of the international market. Mr Landes cites the instance of the Englishman John Borrow, who in 1840 urged the states of the German Zollverin to concentrate on growing wheat, and sell it to buy British manufactures and comments: “This was a sublime example of economic good sense: but Germany would  have  been  the  poorer for  it.  Today’s  comparative advantage…may not be tomorrow’s.”  

At a time when casual and gratuitous public insult of the  English is commonplace, the book is a salutary reminder of how disproportionate an influence this country has had on  the world. Two of the chapter headings will give a flavour of  this: “Britain and the others” and “Pursuit of Albion”. In the latter Mr Landes is emphatic on England’s importance:

 “The Industrial Revolution in England changed the world and  the relations of nations and states to one another…The world was now divided between one front-runner and a highly  diverse array of pursuers. It took the quickest of the  European “follower countries” something more than a century to  catch  up”.  (page 168). In other  words,  without  England  industrialisation would have been at best greatly delayed and  at worst have never occurred. (To that immense influence, may be added the Empire, the founding of the United States by  involuntary  proxy,  the development  of  parliamentary  government, the international success of the English language   and the individual likes of Newton, Locke and Darwin.)

Mr Landes also gives the modish lie to the idea that  Englishness is a weak or non existent plant. When examining the reasons for the first Industrial revolution occurring in these Islands, Mr Landes (he refers to Britain but it is  clear from the context that he means England) lists among the prime causes precocious English nationhood viz: “To begin with, Britain had the early advantage of being a nation. By that I mean not simply the realm of a ruler, not simply a   state or political entity, but a self-conscious, self-aware unit characterised by common identity and loyalty and by equality of civil status…Britain, moreover, was not just any nation. This was a precociously modern, industrial  nation.” Page 201).  

Before English readers get too bigheaded, it should be added that Dr Landes is distinctly critical of Britain’s failure to maintain the momentum of their initial industrialisation and  cites as dreadful warnings to others such failures as  Britain’s inability  to keep the lead in the chemical   industry in the nineteenth century and the dismal story of our car industry since 1945.

There is one part of the book which the reader should treat with caution. Mr Landes spends the first two chapters lending  rather uncritical  credence to the  distinctly contentious idea, much favoured by the Left and the Third  World,  that Europe was above all of the world especially   favoured  by  climate  and  natural  resources,  while  sub-Saharan Africa was especially disadvantaged by Nature.

 However, even here he redeems himself by refusing  to make this a prime cause of differences in national wealth. At best, in Mr Landes’ eyes,  natural advantages are necessary  but not sufficient conditions for industrial progress.

In the end David Landes, like every historian, economist and sociologist before him who has considered the subject, of necessity fails to provide an absolute explanation for the phenomenon of the wealth of nations.  What he has achieved  is a work of very considerable scholarship, which describes  and  analyses  the  multifarious  possible  causes  of disparities in national material success as comprehensively  and intelligently as any work the reader is likely to put their hands on.

Readers afraid that economic history is dry stuff should put their fears behind them. David Landes has an easy literary style and litters his text agreeably with anecdotes and surprising  facts in the manner of  Fernand  Braudel’s  Capitalism and Civilisation.

Do we really want to live forever?

Research into ageing is progressing to the point where a substantial increase in  the human lifespan may become reality within a generation or two. In November 2010  Ian Sample of the Guardian reported   http://www.guardian.co.uk/science/2010/nov/28/scientists-reverse-ageing-mice-humans#history-link-box   ) on research at the John Hopkins University of Baltimore which has rejuvenated  mice

“What we saw in these animals was not a slowing down or stabilisation of the ageing process. We saw a dramatic reversal – and that was unexpected,” said Ronald DePinho, who led the study, which was published in the journal Nature.

The question which humans need to consider seriously now rather than later are  the effects , both on the individual and on society at large, of substantially increased lifespan.

Greatly increased human lifespans are potentially profoundly dangerous because they will detach humans from the lifespan evolution has prepared them for.  it is a mistake to imagine that few people live to be old until recently, the very low average life expectancies in the past and the third world today were and are primarily due to infant deaths before the age of 5 with very heavy mortality in the first year.  If you got past 5 you had a good chance of reaching adulthood and if you reached adulthood a sporting chance of living  beyond 6o, with significant numbers living into what even today we would consider extreme old age.  In short,. There have always been people living to the outer limits of the natural human  life span so that any substantial increase in longevity will mean entering into virgin territory. 

The greatest fully-authenticated age to which any human has lived is 122 years 164 days by Madam Jeanne Louise Calment of France. She was born on February 21, 1875 and died on August 4, 1997. However, few humans have ever got past 110. More and more people are living to be 100 in the developed world but the vast majority of those die not long after reaching their century.  The average  lifespan of those not struck down early by illness, accident or  violence is  probably between 80-90. 

Suppose  humans begin to live until the average lifespan is  160, about double the average of those living in developed countries now.  That will mean some will probably live to 200+.  Few would welcome a century or more of extreme old age with all its natural physical privations.  But suppose  that scientific advances slowed the ageing process to half it is now , with a man of 80 being the equivalent physically of a man of 40 today.  Surely that would remove the obstacle to enjoying twice our current lifespan?  It would probably not do so.

The person might be physically the same at 80 as they were previously at 40,  but the psychological and sociological place they would be in would be completely different. Imagine having to live with the same partner for 120 years or more. Think of having to deal with your siblings for  a century and a half.  Consider the prospect of having to occupy yourself, with work or otherwise, for 120—140 years, with many decades of waiting for advancement.   Some would  adjust to it, but I doubt whether most would be able to beat off ennui . In this context it is worth thinking of the large number of people, mainly men, who die early in their retirement.

Of course, in all probability expanded life expectancy would not mean a life where the ageing process had been  slowed proportionately to the increase in lifespan, but even if  it  had been, an  average lifespan of  160 would mean  twice as long suffering the physical and mental inhibitions of old age.  Nor is it probable that all illnesses could be prevented or cured or damage caused by accidents or wilful violence repaired to restore the damaged individual to full health and capability. Imagine suffering from arthritis not for twenty years but forty years or having to care for someone suffering from dementia  for  half a century.  The toll on individuals and the taxpayer would be vast.

To those problems would be the prime sociological one of how and when to breed. Even if puberty was delayed in the same way general agein and a person was likely to be 50 before they bred rather than 25, that would still leave 110+ years to know their children. And who would want to have a childhood stretching out to 50 years?

Then there would be the problems of vast population inflation even if breeding rates remained as they are today because twice the longevity equals twice the population and the subsequent pressure on resources.

If age was extended beyond  160 all these problems would multiply.

There would be the very real  danger of the rejuvenation treatment being restricted to the rich or some other form of an elite. This would in effect create two species of homo sapiens. It would also provoke, sooner or later, great social unrest.

Could man ever be immortal even in principle? ? To achieve  that would require the ending of all mortal disease and the repair of all mortal  injury, but even then death from accident, war or murder would happen sooner or later.  Perhaps it will become possible to “download” a personality with all its memories and then “up load ” the personality to an artificial body or more probably a clone of the original, but what would that be,  you or something else altogether?

Is society materially enriched by “free markets” and “free trade?

This is an impossible question to answer categorically because there is no way knowing what would have happened if protectionism had   remained full blooded throughout the last century and a half.  One can   compare growth rates under stronger or looser protection regimes,   but   they really   say little   because the other determining  factors  such  as public expenditure have  varied so greatly.   These variables also blur  judgement  about  the comparative  merits  of  controlled  and  “free”  domestic markets.

The most certain thing one  can say from the economic experience of the developed world  is that governments running commercial industries such as coal and steel  directly  is generally  a mistake.  (Governments are the natural  suppliers of universal services such as  healthcare  only because private provision of such things is never adequate.)

What  is certain is the fact that the material effects of “free  trade” are  far from uniform.  It is no consolation to those who suffer  along the  way  that others may benefit from their  disadvantage.  The  next generation  or the generation after that may  be richer but why  should their  benefit  be brought  at the cost  of  disadvantaging   a  prior generation?   Certainly no politician or political party standing at an election would dare to do so on  a platform  of “we shall make many  of you poorer to make future generations richer.”     Those living at  any point in time have their own moral context and needs.

The constant economic turmoil caused by “free trade” and its inevitable concomitant,   the  supranational  corporation,   undeniably  leads  to circumstances   which  greatly  disadvantage  large  swathes   of   the population  in the First World through the removal of First World  jobs to the rest of the world.  At worst,  these people become the perpetual victims of structural unemployment (try getting a job in an area  where the main employer closes and you have no scarce or easily  transferable skills or you are middle-aged or, indeed, try opening a new business or becoming self-employed in a depressed economy): at best they are driven into ill-paid and uncertain employment.

What is meant by material enrichment?  Britain as a case study 

The assumption is that  the material conditions for most  have improved considerably  over the past two hundred years.  Any economics  textbook will  plot  economic improvement in terms of rising  real   wages.  But those  supposedly   rising real wages are based on measures  which  are often    questionable,  incomplete  or derived from very  narrow   data such as corn prices.   Even modern measures such as the  Retail  Price Index (RPI)  are  not  static,   their  content  and  weighting  being regularly revised. Nor do such measures  fully represent the true costs of necessities,  the  most notable distortion in  Britain  being  the failure  of the  Retail  Price Index  (and  its  successor  index  the Consumer Price Index)  to reflect housing costs fully.   Any comparison between  different times  based on such measures needs to  be  treated with caution.

Of course no one in their right sense would question whether there  has been  massive   material  advance in the past two  centuries.   A  more interesting  question  in  our  context is   whether  most  people  are materially better off  now than they were in 1960s,   by which time   a fully fledged  welfare state  was bedded in,  housing,  both owned  and rented, was  reasonably  priced,  social housing was  being  built  in massive quantities,  university  education was  not  merely  free  but students subsidized with  grants,  unemployment was tiny  and inflation low.

Today   the  welfare state is constantly under attack  by  the  British political  elite  and  in  some areas such  as  NHS  dentistry  already seriously  inadequate,  while the state pension is much reduced  as   a fraction of the average wage following two decades of  increases linked to the   cost-of-living pegging rather than increases  linked  to  the average national wage. Housing  of  all  sorts  in most parts  of  the  country  is  presently absurdly   costly  and  social  housing  is  greatly  reduced   through Right-To-Buy and minimal new building since the 1980s.  The  cost  of  university education  is rocketing  and  grants  are   a distant memory.

 Unemployment remains high today even by the 2010 official figures  – approximately  2.5 million  by the  most  widely used  international measure –   figures  which   most probably   severely understate the real unemployment level  because  it ignores  the  considerable  disguised unemployment within the  2  to  3 million  people currently on long term sick benefit payments (the  1980  figure  for such people was 600,000). The increase in those staying  on at school  after  the age of 16 and going on to  university  has  also reduced the present figures by taking hundreds of thousands out of the jobs market for years.   From 1945 to the late seventies  unemployment neverrose above a million on the official claimant count and for  most of  the time  was  considerably  lower  even  with  little   disguised unemployment and  far  fewer people staying  in  education  after  the school-leaving age (which was only 15 until the mid sixties).

There   are  other  fundamental  social changes  which  bear  upon  the material  state of the nation.   Many more people today have to  travel long distances to work than they did  forty or fifty years ago.   That is  costly both in terms of fares and time.   More  generally,  it  is increasingly difficult  for someone on the average wage to  support  a family  on that wage.  That often means both parents have to  work  not from choice but necessity.

Taxation  bears much more heavily on the poorer part of the  population now than it did in the past.   Direct taxation  – income tax,  national insurance, inheritance duty –  applies to many more people  now than it did in  1960,   primarily  because a  failure  to  maintain   personal allowances and tax bands at a reasonable level. Direct taxation is also broader  in scope,  for example  VAT compared to purchase  tax.   Such taxation takes proportionately more of the income of the poor than  the rich.

It  is  a moot point whether overall people  are  generally  materially better off than they  in 1960.  They may own more trinkets such as  TVs and computers and  some imported goods such as clothes  may be at least much cheaper,  but those are  small advantages to set against the great increase in housing costs and commuting fares and the  diminishment  in social provision. Doubtless a section of society has benefited,  but it would be a brave man who wanted to argue that the condition of the vast majority has improved, especially the poorest third  of the population. 

Many  will   read this with astonishment, saying  but we have  so  much more  today,  dazzled  as they are by the many  new   products.  It  is important not to confuse technological advance with “free markets”  and “free  trade”  or general  material wellbeing.  People are  undoubtedly better  off in 2005  in terms of being able to purchase such things  as cars or electronic goods then they were in 1960.   But people in  1975 were also  better  off in those respects  than  those  who  had  lived fifteen years before. That improvement   was long before “free markets” and “free trade” had become the elite ideology.   It is worth  adding that   new products often  result in additional expenditure  regardless of whether the individual really wants the product – any product  which becomes widely used is difficult to resist.  Technological  innovations are particularly prone to induce reluctant purchases.

Economics and the liberal internationalist mind

Freefall: Free Markets And The Sinking Of The Global Economy  by Joseph Stiglitz

Published

USA W W Norton and Company Inc. 2010 

Britain Allen lane 2010

ISBN 978-1-846-14279-6 

 Robert Henderson

This is a profoundly depressing book.  It is not so  because its subject  is boring  or delivered in the leaden prose commonly  beloved of academics.  Rather, the lowering of spirits arises  from the fact that someone who won the Nobel Prize for Economics in 2001 and served as chief economist with  the World Bank shows himself to be  naïve to the point of imbecility.

Stiglitz’s naivety is not simply an  ad hoc expression of a character trait. It is shaped and ordered by  being  imprisoned within  an ideology which contains a large dollop of fantasy, a fact  made  wondrously  ironic because a  thread running through the book is the levying of the same charge by  Stiglitz against those who worship at the altar of Milton Friedman as in    “Economics had moved  – more than economists would like to think – from being a scientific discipline  into becoming free market capitalism’s biggest cheerleader.” (p238).  Note the claim that economics was once a “scientific discipline”. More of that later.

Stiglitz’s ideological straitjacket is what might   be called  Spendthrift Internationalism. Like virtually every neo-Keynsian he seems to have forgotten what Keynes’ recipe for economic governance was, namely that it was a two part programme; the reduction of public debt during economic upturns and the spending of healthy amounts of public money during downturns even if this means increasing public debt. Stiglitz  ignores the putting money aside in good times part of the equation and fails to raise the question let alone answer it of whether having failed to follow  the first part of Keynes’  prescription – the putting aside of money in good times – the second part – the use of public money even if it has to be borrowed to maintain aggregate demand – is the  best way forward, which it may well not be if the public debt swells to such heights it seriously distorts  and depresses  the economy for decades by suppressing demand  through the need to pay the money required to service the public debt, much of which will go to foreign bond holders.  These sums can be immense especially when interest rates return to more  normal levels. Ironically, in view of his failure to substantively address the question of the dangers of  massively increasing  public debt,  Stiglitz makes a point of emphasising  that the  $1.5 trillion of US government debt  currently held by China costs the US  $15 billion pa at 1 per cent but  would cost $75 billion at 5 per cent (p190). 

The man’s weakness for ideological capture is further  displayed by an  unquestioning acceptance of  the man-made global warming religion, for example, when he writes of the US energy industry “…which poured greenhouse gases into the atmosphere, even with incontrovertible evidence that it was leading to climate change.” (P187)  or  puts his general case with “ The biggest environmental challenge, is of course, that posed by climate change. Scarce environmental resources are treated as if they are free. All prices are distorted as a result, in some cases badly so. “ p188) 

Stiglitz’s  solution to the present economic disaster  is, God help us,  global regulation: “If  a new global reserve system, and, more broadly, new frameworks for governing the global economic system, can be created, that would be one of the few silver linings to this otherwise dismal cloud.“ (p211).   A good idea of where he is coming from can be gleaned from his chapter  and section headings  which include  A New Capitalist Order, Towards A New Society, Toward A New Multilateralism. (I wonder if Stiglitz  is aware of how closely these ape in tone the fascist and Nazi slogans of the 1930s?)  

What form would this Stiglitzian global regulation take?  He  would require  nation-states to effectively sub-contract the economic management of their country to some as-yet undefined world authority: “In a well designed global reserve system countries with  persistent surpluses would have their reserve currency allocation diminished, and this, in turn, would encourage them to maintain a better balance. A well-designed global reserve system could go further in stabilizing the global economy, for if more of the global reserve currency were issued when global growth was weak, it would encourage spending  – with a concomitant increase in growth and employment.” b(p234).  

But Stiglitz has much greater dreams of world control: “Achieving the new vision will require a new economic model – sustainability will require less emphasis on material goods for those who are over consuming and a shift in the direction of innovative activity. At the global level, too much of the world’s innovation has been directed at saving labour and too little at saving natural resources and protecting the environment – hardly surprising given that prices do not reflect the sacristy of natural resources. There has been so much success in saving labour that in much of the world there is the problem of persistent unemployment, But there has been so little success at saving natural resources that we are risking environmental collapse.”  (p192)

It is difficult to see how anyone who is not blinded utterly by a quasi-religious devotion to internationalism could believe such a thing. The  history of international organisations which attempt to subsume the interests of nation states for a claimed  general good  is one of unbroken  failure, from the League of Nations to  the present day farces of the World Trade Organisation – which applies its regulations according to the strength of transgressors rather than as a matter of  law   –  and the UN, an organisation  overwhelmingly comprised of authoritarian states which  routinely flout in the most emphatic manner the moral principles on which the organisation was founded.

Most pertinently for the present, we have the example of the Eurozone countries twisting and turning as they  are faced with the  desperate  prospect of a  Euro member, Greece, going bankrupt, with the likes of Spain, Portugal and the Republic of Ireland forming a disorderly queue behind the Greeks to be next to the point of sovereign debt default. 

Despite the fact that the  Euro is in danger of collapsing,  the richer members of the EuroZone are showing sustained reluctance to transfer money to the poorer ones to stabilise the currency or to emphatically underwrite their  public debt. As I  write (5 May)  an agreement appears to have been finally cobbled together to prop up Greece  with a mixture of loans  from the richer EuroZone states and the IMF, but it is far from certain  either that the Greek people will allow the austerity measures which are a condition of the loans to be put into operation – a riot is currently happening in Athens – or that they will be any more than a temporary reprieve for Greece. If the rest of the so-called EuroZone PIGS ( Portugal, Ireland, Greece and Spain) make up the PIGS) come calling with similar requests for help it is unlikely that they could be accommodated by either the EuroZone or the IMF.

This  reluctance of EuroZone states to act outside their national interest should be  salutary for the internationalist, because the European Union is by far  the most advanced example  in the world of a supra-national political union formed without the use of overt force. Moreover, the Euro is the  jewel in the federalist  crown for  the  political elites of the major countries  within the EU, elites  who  are constantly, overtly and covertly, pressing forward the agenda for a United States of Europe. If the Euro falls  it will deliver a deadly  blow to their federalist dream,  yet even that  will not persuade them to resolutely support Greece because of their  fear of  uproar and civil disorder from their national populations. 

 If the EuroZone  states with half a century of  experience of the EU in its various incarnations will not act as a single entity without regard to national interests,  how much more fanciful  is the idea of  the establishment of a global  regulatory system in a jurisdiction where there is no experience of an existing supra-national union and vastly greater differences in wealth, culture and history than  exist within the EU?  It is so improbable that fanciful is much too polite a word for the project  touches the confines of lunacy.

It may be  nonsense in terms of its practicality, but it is also dangerous nonsense, because  even though it could  never be a  practical proposition,  the effort to put it in place would result in gross losses of national sovereignty and that means, as those of us living in the European Union know only too well, an ever looser democratic grip of electorates on their political elites.

Stiglitz is also remarkably negligent when it comes to the practicality of  regulating  private enterprise for he gives no indication that he has any meaningful grasp of  the difficulties.    Even at the domestic level,  the experience of the past decade starting with  Enron shows how poor even the governments of the most sophisticated economies are at preventing everything from mind-boggling recklessness to outright criminality. This is partly due to collusion between politicians and business in reducing legal restraints on what business may do and  partly the sheer difficulty of devising a system of regulation to deal with massive private concerns which frequently spread across their activities across the globe.  To take just two examples. First, it is very difficult to find people willing and able to do the work to accept  for public sector  salaries and operate within the constraints of public service – a particular problem in the banking sector because of the vast remuneration paid to those in need of regulation and the complexity of the financial instruments used and other transactions such as currency speculation. Second, the use of audits conducted by private firms paid for by the company audited  as a regulatory check is questionable in any circumstances because of the conflict of interest. It becomes  meaningless in the case of very  large companies, because only a handful of accountancy firms are large enough to deal with the audit and they not only receive fees for the audit but frequently sell other services such as management consultancy to the firms they are auditing.  [Those wishing to understand more of the practical difficulties can find chapter and verse in my article “Enron accounting… and how to prevent it “. which I enclose below].  If it is immensely difficult to keep a grip on businesses operating in a national market, imagine how those problems would be multiplied if  there was an attempt at a global regulatory system for banks and their ilk, a regulatory regime which would have to spread across a vast array of political systems, business practices and cultures. 

The infuriating thing about  Stiglitz  is that he does not have the excuse of ignorance or incomprehension for his naivety.  He frequently identifies problems but then  ignores them, most plausibly because they do not fit with his ideology . For example, he acknowledges the pull of national interest and castigates at length the failure of the present  global financial authorities such as the IMF and World  Bank to either prevent the present crash or to have managed  either sympathetically or efficiently the economies of those countries which sought help. In spite of these flirtations with reality  he still has a childlike  faith that another set of institutions  can succeed, although  pathetically he admits that  “What the new system of global economic governance will look like may not be clear for years to come”. (p212).  In short, he is in the NeverNeverLand of “Let my wishes come true

This refusal to accommodate himself to  reality extends to market economics itself: “Adam Smith may not have been quite correct when he said that markets lead, as if by an invisible hand, to the well being of society. But no defender of Adam Smith  would argue that the system of ersatz capitalism to which the United States has evolved is either efficient or fair, or is leading to the well-being of society.” (p200).

What Stiglitz is complaining about here is both the amount of taxpayer subsidy, hidden and overt which American business receives, from agricultural subsidies to the present gigantic banking bail-out  and the general ability of corporate America to reduce competition through political lobbying. The problem with his complaint is  it does not address the question of what constitutes a free market and how the concept  of a free market is aligned with politics.

A truly free market would be one in which there was no state intervention, the consequence of which would be monopoly or at least greatly reduced competition.  The fact that  anti-monopoly laws are the norm rather than the exception in advanced economies means that the markets in even supposedly market economies are not only  state-regulated markets,   but markets  regulated in the most fundamental way to prevent the natural end of a free market.  Labels matter. Call laissez faire economics not free market economics but state-regulated market economics or even anti-monopoly state-regulated market economics and it takes on a very different emotional connotation.  Free is a feel good word;  state-regulated generates at best a neutral emotional response and at worst is a feel bad word.

Stiglitz  is strongly in favour of  such state intervention :

“Making markets work is…one of the responsibilities of the state.” (p 201) and fingers the Left for taking the lead in this area “It is an irony that the “Left” has had to take an active role in trying to get markets to work in the way they should, for instance, through the passage and enforcement of anti-trust laws to ensure competition, through the passage and enforcement of disclosure laws to ensure that that market participants are at least better informed; and through the passage and enforcement of laws on pollution, and financial sector regulation… to limit the consequences of externalities.” (p201) . Moreover,  he does not trust the market wholly even where it works efficiently: “Efficient markets can…produce socially unacceptable outcomes”.  (p204)  

Stiglitz cannot or does not want to see that state intervention  compromises the very idea of  a free market because it is a market designed not  by  Nature but  men. Once it is allowed that it is legitimate for the state to intervene in the market,  the pass has been sold on the concept of a free market, because intervention of any sort having happened,  it is impossible to argue that any other sort of state intervention is in principle wrong, dangerous or inefficient. All that can be done is to argue on the detail, that this or that is contingently undesirable.   The situation is akin to that between free expression and censorship, You either have free expression or a range of permitted opinion. One breach of free expression and any censorship is arguably permissible. It is also noteworthy that Stiglitz does not tackle the problem for free markets of other gross state interferences  such as limited liability, patents and copyright or the less overt market distortions,  particularly those in evidence in international trade , such as different tax regimes, legal systems  and social legislation. (It is important understand that laissez faire  economics and international trade are not the same thing. International trade draws upon any form of domestic economy, from the market-driven  to the wholly state owned). 

An even more  fundamental  difficulty is the fact that  Stiglitz  starts from the position that capitalism/market economics can be objectively defined and  has an  objective reality. This mentality is epitomised by Stiglitz’s  frequent references  to economics as a science, an example of such claims I gave early in the review.  This is a common practice  amongst the social science academic fraternity  and is born of  the inferiority complex commonly found amongst them,  for social scientists know  in their heart of hearts know that subjects like economics lack the predictive power of  the natural sciences and are in their often speculative and subjective content  more akin to the humanities than science.

Physics and Chemistry allow a great deal of prediction because they are concerned largely with describing physical and chemical phenomena and events which are bound by  natural laws.  Other sciences like  biology and  geology,  are less successful with prediction, but nonetheless they concern themselves with objectively verifiable facts such as the physical structure of organisms and  the sequence of rock strata.  They can also meaningfully predict in areas such as genetic inheritance .

The social sciences have much  less predictive power than biology and geology.  Psychology in areas such as IQ testing and the creation of  experiments come closest to the natural sciences in method,  but even here the vast amount of dispute over the results of such testing and experimentation suggests that the subject is far from certain in the way that the natural sciences are certain.

 But most of social science is even less certain than those narrow aspects of psychology for it deals with observations of human behaviour which by their nature are in some degree tainted with subjectivity however hard the researchers try remove them. For example, how can class, or  if you prefer socio-economic status, be objectively decided?  The income of people can be measured as can their educational accomplishment, but class is far more than that because it embraces not only cultural difference in terms of interests,  but the different social relationships classes generate, for example, traditionally the poor have formed a\ much more interdependent relationship with one another than have  the better off  amongst their own class.

Social scientists over the past half century have attempted to disguise this unfortunate lack of predictive ability and permanence of observed phenomena by  introducing ever more complex mathematics and statistics into social sciences to lend it a specious  similarity to sciences such as physics and chemistry. It also had the effect of making social science  ever more opaque to the lay public.  (The deliberate use of mathematics to make work inaccessible to most is not a new phenomenon. Newton confided to Edmund Halley that he had made the mathematics of the third volume of his Principia more difficult than need be to make it impossible for those he called “the smatterers”, ie,  those with some mathematics but not a profound knowledge, to challenge his work.) This opacity meant  in the case of economics that objections to economic theory, especially the dominant theory of the day, could be readily evaded where those objections came from those outside the academic fraternity.

In the case of economics there is precious little similarity with the natural sciences for its predictive power is very weak and much of its theory is based on supposition rather than hard fact. Even the most basic “laws” of economics, those of supply and demand, are not scientific laws in the sense that Newton’s laws of motion or Boyle’s Law are laws, for there are a significant number of instances  where the  higher the price of something  the more will be sold (extraordinary demand curves),

Such  demand  arises in three  situations. The first is where the person wishes to pay a certain amount for something because they either wish to give someone a present which will reassure the recipient by its value that they are valued by the giver or to acquire something expensive for themselves which will impress others. The second is where something is being offered at such a low price that the prospective buyer doubts its quality or provenance. This is particularly true of food and drink,  The third is brand loyalty. A person may be able to buy something of equal quality at a lower price, for example, supermarkets’ own brand goods, but prefer to pay more for a brand of which they   grown.

There is also a great deal of  irrationality (as economists define irrationality, ie,  making spending decisions which are  not the most materially beneficial or even harmful ) in the way people  make economic decisions.  For example, people smoke, drink, take drugs and overeat despite knowing they are spending money on that which has deleterious effects on their health. They bet even when they know  it is very long odds that  they will win. People also commonly fail to invest money saved in the most profitable way, not least because they lack the expertise to make any meaningful judgement themselves of what would be the best bet. 

The point about such behaviour is that human beings are not desiccated calculating machines. People  drink, take drugs, smoke and overeat because it gives them pleasure or to satisfy an addiction, which in a sense is pleasure or at least an easing of pain. They bet despite astronomical odds against winning because they are buying that precious human asset, hope. They may  fail to make sound investments because they are not willing to devote the time to learn about investments because they are either intellectually lazy or prefer to use their time in other ways. Such qualities cannot be readily quantified and  probably not meaningfully quantified at all. All  this  uncertainty  gives weight to the old joke about ask three economists for an economic prediction and you get four opinions.

Does all this uncertainty  mean  economics has no value, that it can predict nothing of consequence?  It is a moot point. The problem is not that economic predictions never come true,  but that there is no certain way of deciding which predictions will come true either in terms of when something will happen or its exact effect. Government forecasts are routinely seriously wrong and no economic forecaster or economic model is consistently reliable.

The problem of deciding which forecast  is most likely to be correct is further complicated by the facts that economics is tightly tied to politics and that academic economists will be subject to the natural social pressure of  going along with the herd even if they do not want to. There is also the strong tendency within humanity towards ideological capture, especially those ideologies which promise a ready and comprehensive way of guiding people to make decisions. .  Laissez faire economic theory is a prime example of such an ideology, for  it both removes from its adherents any need to go through the laborious and demanding job of assessing situations pragmatically and provides at least in what might be called its vulgar form a simple rule to apply in any circumstance, namely, the market is God and will provide. There is a further problem with laissez faire: its consequences, whether intended or not, are in practice to promote the interests of the haves over the have nots. Hence, there is also a base motive to promote it.

Is there a better way of  forecasting economic activity?  Here is a broad suggestion I have played around with for some time but never had the resources to test.  Let us suppose the trade cycle in a modern advanced economy is primarily driven by the ability of people to satisfy their wants within the constraints of their income, wealth and ability to gain credit. During an  economic upturn people are purchasing that which they can afford in the sense of having the wherewithal to buy it  rather than whether they can afford it in the long run. As wants  within the constraints of the individual’s immediate resources are met the upturn slows. Eventually a proportion of the population has  satisfied sufficient of their obtainable wants to cause an economic downturn because  overall demand drops as obtainable wants become fewer and fewer.  The economy then declines until demand begins to revive because new obtainable  wants have arisen from the wearing out of  existing physical items and the creation of new models of physical items  and the introduction of entirely new products  and services.  The trade cycle them moves to the upturn. 

Bubbles are extreme instances of the satisfaction of obtainable wants, with the bursting of the bubble occurring when enough of those  capable of satisfying a  want for the bubble product  have satisfied that want for the  market from the product to decline.

If that hypothesis is correct, it should be possible to predict both the general trend of an economy and bubble events by tracking the patterns of expenditure of  different income groups both within national economies and over broader economic areas.   Would it work? Frankly, I do not know, but the logic seems sound and it would if honestly done at least provide objective data on which to make a decision as opposed to the economic modelling which guides so much of modern economic policy making. As present methods of predicting are so poor, it would be worth trying anything which had a plausible chance of success, Suck it and see.

Stiglitz wants to have his economic theory cake and eat it. He recognises the fundamental problems raised by both laissez faire  economics  and globalisation Yet when shove comes to push Stiglitz  still supports both. He wants to control economic activity for the purpose of maintaining what he wrongly imagines to be the operation of the free market, whilst advocating a good deal of state involvement in the economy beyond merely regulating the banks, for example, his draconian view of what needs to be done to satisfy the Global Warming agenda and his desire to see large transfers of wealth from the First World to the developing world. Yet despite this authoritarian caste of mind, he still fancies himself to be a pro-markets man.

One last example of Stiglitz’s divorce from reality.  He is still banging the tired old comparative advantage drum, the idea  that countries (or areas within countries) should concentrate their economic efforts on that which they can produced most competitively.  ( In the early days of laissez faire economics as a dominant ideology in Britain (from the 1840s onwards), the likes of Cobden, Bright and Ricardo argued that Germany, then un-unified, should forget about industrialising and concentrate on agriculture.)  The idea epitomises the detachment of  laissez faire from reality, for it  ignores small matters such as national security through self-sufficiency in vital goods and services and the danger of  structural unemployment arising from sudden drops in demand – caused by war, blockade, natural disaster, economic depression, the rise of new international competitors or the obsolescence of a product- for the narrow range of products offered by the country narrowing its economy on the  comparative advantage principle. 

Stiglitz puts forward an adaptation of the classic idea:. “A country’s comparative advantage can change: what matters is dynamic comparative advantage. The East Asian countries realised this. Forty years ago, Korea’s comparative advantage was not in producing chips or cars, but in rice. Its government decided to invest in education  and technology to transform it comparative advantage and to increase the standard of living of its people.” (pp195/6)

This is pure baloney. South Korea has not concentrated on what they did best but has  gone  through the dramatic  process of industrialisation. That is a one off step change not merely an economic event which be repeated.   Once  industrialised, all a  country can do economically, short of de-industrialising, is make changes in the detail of its economy, a very different process to that of moving from a pre-industrial to an industrial society. . Moreover, the idea that it is efficient either in terms of economic progress or social utility for a country to constantly have to re-invent its economy would I suspect strike most people as  absurd. Human beings need a degree of stability in their lives.

Stiglitz fancies himself to be a rational man applying a scientific discipline. In reality he is simply a man with a deep need for certainty and security. This makes him a sucker for ideological capture, and once captured he  comfortably   ignores facts which conflict with the ideology and  takes past failure to implement the ideology as evidence not of the impracticality of the creed,  but as a signal that the ideological ends were not sought fiercely enough and, consequently,  must be  pursued with ever greater vigour and ruthlessness until the ends are obtained.

This book is worth reading for one reason and one reason only: as a primer on the modern internationalist mentality of those who increasingly control our lives.  At that level it is a truly frightening read.

The police are effectively colluding in violence

The police are effectively acting colluding in violence

By the use of “kettling” the police are ensuring that the violent elements amongst demonstrators can best attain their ends.  Groups such as Class War use the following  technique to maximise violence. They put members willing to start the rough stuff at the front of a demonstration to act as a vanguard. Other members are dotted about in the crowd to both give the impression the demo is generally set for violence and to incite others around them by example.  At the back of the demo is another wad of members to act as a rearguard to stop the demonstrators retreating.   That is the ideal.  If  there are not enough to people to meet the ideal most or even all will be put in the vanguard.

“Kettling” does much of the violent elements  work for them.  It traps people in a restricted area so that the violent elements can forget about providing a rearguard because no one can leave the demo.  Those in the crowd not naturally inclined to violence will become more so as their anger at being trapped rises and conditions more fraught. When violence does take place  in a confined and crowded space, it is difficult for  anyone not to become involved simply in self-defence . Because no one can leave the area,  the premise on which English law’s self-defence  is based – reasonable force including the need to retreat at the first opportunity from the violence or threat of it – is removed. 

The police must know all this. That being so,  their continued use of “kettling” begins to look like a deliberate attempt to provoke violence. That in turn makes them look like agents of the state, a fact recognised by  Sir Hugh Orde,  president of the Association of Chief Police Officers and erstwhile Chief Constable of the Police Service of Northern Ireland (PSNI).

“Asked if there was a danger to the police’s reputation by repeated clashes at demonstrations, Orde told the Guardian: “Yes, if it is allowed to be played as the cops acting as an arm of the state, delivering the elected government’s will, rather than protecting the rights of the citizen.

“We need to be clear we are doing it as operationally independent, and not subject to influence by anyone as to how we do it.”  http://www.guardian.co.uk/uk/2010/dec/10/police-tuition-fees-protests-orde guardian.co.uk, Friday 10 December 2010 20.58 GMT

The implication of what is happening because of police tactics  is that any large-scale demonstration can be manipulated by the police to produce a violent response whilst at the same time allowing the violence to be contained within an area chosen by the police.  It is like a stage play being mounted with the police as the director. As violence  does not play well with the general public ,  any serious attempt to protest can be discredited if the police choose to act in this way.

The other effect of “kettling” is that groups who wish to join a demonstration cannot do so. This can in itself result in violence, or as an excuse for violence,  as was seen on Thursday 9 December when demonstrators  intent on going to Parliament Square filtered out instead to the Trafalgar Square/Regents Street area when they could not gain access to Parliament Square, an episode  which eventually resulted in an assault on a car carrying Prince Charles and his wife.

There is also the question of  the civil liberty not only to demonstrate but to move freely about.  Many people get caught up in demonstrations without meaning to as they go about their private business. Many more find that they cannot go to areas they want because “kettling” has occurred. Nor is it acceptable that demonstrators who wish to leave a demonstration cannot do so. Whether what the police are doing is illegal after the raft of authoritarian laws passed by the Blair and Brown governments is debatable. What is not debatable is the need for people in a free society to be able to move about freely.

The behaviour of individual policemen at demonstrations is also increasingly dubious. I think back to the Countryside March which saw considerable violence by the police against marchers who were about as law abiding a group as you could find. To see officers dressed in riot gear, frequently  more than one at a time, savagely beating an unarmed  protestor is not a pretty sight, and all too often seems to be action not to prevent disorder  but to sate the anger and desire for violence within the officer himself.  Those who think that the police cannot be willingly confrontational should think back to the miners strike in the 1980s when serried ranks of riot police banged their riot sticks in unison on their shields and taunted the miners.  Violence and aggression by police officers  allied to “kettling” will dissuade many from going on demonstrations simply from fear of what might happen. That is not healthy in a supposed democracy.

We are approaching a crunch point. If this type of policing goes on, large scale demonstrations will become increasingly difficult to mount  both from the point of view of public order and as meaningful vehicles to change public opinion. The danger is that large-scale demonstrations in Britain will go be default from being part of the democratic process.

Those who decry violence at demonstrations should reflect upon the words of the historian Lewis Namier who described the government of 18th Century England as “Aristocracy tempered by rioting”. There is something of that in every country and time and a great deal of it in modern Britain where the social elite have re-established a very firm hold on politics .  In England for more than a century  mass violence has been rare. If it is becoming common now it says much about the state our politicians have reduced the country to.  People are becoming desperate. That is the message the likes of Cameron and Clegg should take from what is happening.

Tuition fees and Coalition lies

The coalition are floating their penal proposals for student funding on several lies.

Lie 1. The tuition fee  debt  will not affect the ability to get a mortgage because the tuition fee debt will not  be collected if a person’s income falls below the minimum contributory figure which is set to become £21,000.

This is a lie  because (a)  if the person’s income is above £21,000 (and any first-time  house purchaser’s income will have to be substantially above that),  the amount paid on the student debt reduces their disposable income, a fact which will be taken into account by any mortgage provider, and (b) the unpaid debt increases year by year as interest and inflation uprating are applied.

Lie 2. That the system is fairer than a graduate tax, because if a graduate tax was applied it could be evaded by working abroad, something particularly likely in the case of foreign students studying in Britain.

This is a lie because, although in theory true, the reality is that under the proposed system of tuition fees, there will be no means in practice of ensuring  those who study in Britain and then work abroad of pay their debt.  (This applies to student maintenance loans as well as tuition fees.)

Lie 3. That the average graduate earns much more than a non-graduate over a working lifetime.

This is a lie because the projection is made from historical data. When the argument was first used it was claimed that the figure was £450,000 not £100,000. The reason it dropped was beautifully simple: the £450,000 figure was based on data from a time when far fewer people went took a degree (less than 8% in 1970 and 43% now)  and a degree was scarcer and consequently more valuable.  It is likely that the £100, 000 figure will be lowered further as the earnings of recent graduates become more prominent in the projections.

It is worth adding that even £100,000 is a pitifully small reward for it works out at £2,500 pa over a 40-year career.  Moreover,  those  additional earnings are before tax.

Finally, there is already solid statistical evidence that arts degrees and what the public likes to call “Micky Mouse degrees”  such as media studies provide  no additional earnings.

Lie 4 That the debt will not put people off going to university.

This is a lie in the sense that the coalition cannot have any certainty of the claim’s truth yet present the claim as objective fact. While it is true that to date tuition fees have not reduced the willingness of people to go to university,  the massive increase in fees and the  rising cost of living necessitating further borrowing  will easily produce total debt  per student in the region of £40,000. There must come a point where the disincentive effect kicks in. In  addition,  would-be students have increasing knowledge of the travails of students who have already been burdened with debts and the falling monetary value of a degree.

Lie 5 That the proposed fees are fair because it is unfair to expect those who do not go to university to pay for those who do.

This is a lie because our taxation system is based not on any concept of hypothecated taxes (taxes for a particular purpose),  but on a central treasury which is used as elected politicians decide. This means that there are any number of instances where people pay taxes for things they do not approve of or do not directly benefit from, for example,  the childless paying for the children of others, the non-motorist paying for roads and  the pacifist paying for armed forces.  If the coalition was consistent on this claimed principle they would insist that only those who benefitted from school education paid for it.

Lie 6 There is no alternative to such  tuition fee increases to funding the present level of  higher education.

A straightforward lie.  What the coalition means is they do not choose to use any of the alternative measures.  These include:

1. Ending Foreign aid – a saving of £9 billion pa.

2. Reducing the per capita Treasury funding to Scotland, Wales and Northern Ireland to that of England – saving £15 billion pa

3. Raising basic income tax by a penny in the pound – additional tax raised of £3 billion pa.

The other alternative would be reduce taxpayer funded degrees to 20% of  school leavers (Germany has only 25% at university).  That would allow full tuition fees to be paid and a maintenance grant to be paid.

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