Wednesday, 23 February 2011

Masonic Secrets

As promised, quality economics journalist Paul Mason came to give a presentation today, on the subject of Is There An End to the Crisis?. He was excellent - a good speaker but also a good listener. His thesis is that we aren't living in a moment of crisis: crisis is the normal state of capitalism (though he did point out that it's a lot worse because we invented some insane financial securities in the late 90s).

The key challenges are: rebalancing an economy so it's not just finance but real things like manufacturing; moving to an investment-based growth strategy rather than a credit (i.e. debt) funded economy; reducing the deficits without causing revolutions. On this last, I disagreed: what's wrong with a revolution if it's the only way to change things?

Along the way we discussed house prices, the decline of the US and its passionate hatred of state spending (I asked why the US government couldn't trick the Tea Party by spending loads of money on weaponry as usual, but he thought they're too angry even for that to work), the Roman model, house prices, the long-term decline in real wages (American salaries have remained flat or slightly lower since 1973), the rise of China and the prospects for the Euro.

It was fascinating stuff. Mason's very interested in China. He says that they're moving towards a slightly freer system but that they're not (as yet) interested in the kind of global hegemony America's operated. They want to be regional bosses, and they're not yet sure about whether to move to a social welfare/infrastructure-building state, or a consumer capitalist one (let's hope it's the former).

With the Euro, Mason's pretty pessimistic. He thinks the Greeks will leave: they don't want to stay in and the Germans, whose economy underpins the Eurozone but also creates the imbalances between rich Germany and poor Ireland/Spain/Portugal, doesn't want to carry them any more. He thinks Ireland will be bailed out massively though, because it's a 'conduit' between Germany and Co., and the offshore tax havens. What a revolting role for a nation to pursue: lice-picker to the productive bigger fish.

He uses an interesting analogy for the role of the banks (no time for the disgraceful behaviour of regulators, credit-rating agencies and the accountants). They are, he said, like the Alien in the film of that name. They've attached themselves to our economies, and if you cut them off, their acidic blood - the debt which has fuelled the economy for twenty years - will eat through the ship's decks - the real economy - one by one. The saviour this time, he says, was the state (at massive cost to us, hence the austerity we're facing), but no states are strong enough to do it a second time.

So what are our options:
1. Devalue the currency so we can export a lot and not afford to import much. That exports unemployment and suffering to the third world.
2. Do nothing and face revolution.
3. Radically restructure the global economy and work together. He thinks China's toying with some interesting ideas, such as a non-dollar global reserve currency to end currency wars.

For a man who clearly admires the US, he's pretty pessimistic about it: the politics, the poverty, its whole-hearted endorsement of naked capitalism. For instance, he points out that Nissan has moved away from the unionised East Coast high-wage areas to the Deep South. It pays less and its supplier factories have moved too. These subcontractors pay much lower wages, so that only undocumented immigrants work there. Then the locals get all racist and a spiral of social decline sets in. The population doesn't want the government to spend any money and even the stimulus isn't working because local authorities provide so few services that they can't effectively spend any of the money Washington is giving it to restart the economy.

Mason's solution is to copy Germany - his version of that country is one of high public investment. They spend a lot on schools, training and infrastructure. You therefore get a workforce with very high skills (hence BMW, Porsche, Siemens etc) who earn a lot because their jobs can't easily be outsourced. German companies grow through investment rather than debt (state-owned industrial banks help) and they're always technologically advanced. Think back to the 1960s: Britain's car industry died because it carried on producing outdated rubbish on outdated machines - investment was never a possibility. The UK would become like Germany: more boring, less extreme, but stable.

I found all this very interesting. I did have a few questions though. Such as: how are we going to move to an investment economy? Our entire financial system is based on allowing bankers and speculators to make massive profits overnight - short-selling is a clear example. There's nothing to make these people invest for the long-term. So if there's a profit to be made from halving your company's share price overnight, they'll do it, even if it means you can't raise money for new machinery. Also, how do we get the accountancy firms to stop authorising wheezes, and credit-ratings' firms from behaving irresponsibly? We've spent 30 years claiming that regulation destroys dynamism and innovation: just because the state has saved capitalism doesn't mean that capitalism will submit to the state. They're out there trying the same old stuff… they never learn.

Anyway, it was a fascinating session, and I'm really pleased that Mason is coming back for more.

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