5th January 2011
We are entering year in which stock markets might boom, bankers and commodity traders might profit, but jobs will be lost and society will become angrier and more restless. (See this FP blog on the current uprisings in Tunisia). The year has begun with a stark reminder that we face an increased number of extreme weather events – events of ‘biblical proportions’ - that scientists have long warned indicate climate instability caused by human action.
Our priority therefore has to be to inform and brief readers, supporters and friends on the alternatives to the economic policies that failed society so catastrophically in the 30s, and that now fails both society and the ecosystem.
Through the sheer force of the finance sector’s ‘pieces of silver’ and clout, these dysfunctional and outdated policies are once again deployed by policy-makers in the US and Europe. It is ironic that bankers and their friends in the political classes, the economics profession and the media are so hell-bent on policy orthodoxy that will, undoubtedly unravel this year, by increasing unemployment and with it, government deficits – both here and in the US. These policies for increasing unemployment (in the vain hope that Chinese consumers will take up the slack) will ultimately hurt both big business and the banks, and will, in my view, lead to yet another financial crisis. As Simon Johnson notes in his book “Thirteen bankers: the Wall St takeover and the Next Financial Meltdown” – conditions are ripe for another banking crisis. Far from the 2007-9 crisis leading to sustainable change, Government backing for banks has been “transformed into a virtual certainty….. Incentive structures created by high leverage (shifting risk from shareholders and employees onto creditors and ultimately, taxpayers)” remains intact.
Governments have been loathe to enforce regulation that would break up the banking monopolies (on the contrary they have helped entrench those monopolies) – regulation that would protect both depositors and taxpayers. Their efforts to get banks to lend to companies undertaking productive work, have been pathetic, and has inclined these same companies to hoard their cash. Then there are the huge bonuses - with only Ireland’s finance minister insisting that these be dropped in return for taxpayer support. Instead government-backed subsidy from central banks in the form of guarantees against losses and very low rates of interest, has helped banks pump up bonuses and begin to repair their balance sheets, even though there is some way to go before the finance sector once again becomes fully solvent.
So the struggle intensifies: to promote ideas and policies that will serve, not ruin our fragile democracy, social fabric and ecosystem. I hope this column will be able to play a part in that.
Over the break I have been thinking about refreshing the blog, and have decided to offer my readers both commentary, but also links to relevant and interesting articles – central to our theme, or should I say more precisely, our themes. These include above all, the financial system, monetary policy, the domestic and international financial architecture; policy goals for full employment; for financing economic activity, and in particular economic activity that addresses the range of crises facing our society. The crisis of unemployment in general – both in rich and poor countries – and youth unemployment in particular. But perhaps one of the most urgent crises facing us all, that of climate change.
But these subjects can depress our spirits, so I will try and lighten up blogs with stories and images that lift the spirits and restore the soul. Wish me well, as I do you all.