A Triple Crunch
Financial meltdown, soaring food and energy bills, oil depletion, accelerating climate change. The global economy faces a ‘triple crunch’ which could develop into a perfect storm to rival or surpass the Great Depression. We have very little time. In terms of climate change, there is now less than one hundred months to turn things around.
At this new blog from nef (the new economics foundation), we will be debating the solutions to this convergence of crises. Current responses simple aren’t getting to the root of the problem. As the world slips further into financial and environmental freefall, this blog builds on over 20 years of new economics thinking and practice to set out solutions to the interlinked challenges we face.
Watch this space for more from nef researchers, staff and friends, exploring the challenges, possibilities and solutions in these turbulent times.
About nef (the new economics foundation)
nef is an independent think-and-do tank that inspires and demonstrates real economic well-being. We aim to improve quality of life by promoting innovative solutions that challenge mainstream thinking on economic, environment and social issues. We work in partnership and put people and the planet first. Find out more at www.neweconomics.org.
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18 October, 2008 at 5:55 pm
Brian Davey
Simple question. Does nef support “seignorage reform”? I ask because I can’t find the idea in the Green New Deal document.
In a recent article that was posted on the Oil Drum Herman E Daly, one of the world’s leading ecological economists writes of the current credit crunch:
“I would not advocate a return to commodity money, but would certainly advocate 100% reserve requirements for banks (approached gradually), as well as an end to the practice of buying stocks on the margin. All banks should be financial intermediaries that lend depositors’ money, not engines for creating money out of nothing and lending it at interest. If every dollar invested represented a dollar previously saved we would restore the classical economists’ balance between investment and abstinence. Fewer stupid or crooked investments would be tolerated if abstinence had to precede
investment. Of course the growth economists will howl that this would slow the growth of GDP. So be it—growth has become uneconomic at the present margin as we currently measure it. ”
I also have the report written by James Robertson and Joseph Huber, published by nef some time ago, “”Creating New Money”. It too calls for ending the debt based money system.
I thought ending the debt based money system was a core idea of new economics which is why I’m surprised not to find it in the Green New Deal document. (Did I read it close enough).
There’s a lot in there about re-regulating the banks and there’s a lot of rhetoric about the banks bad behaviour. But the signs are not good that the UK or the US government are actually capable of “regulating” the banks.
After all who, exactly will be doing this “regulating” – people trained as bankers of course. Just as Paulson is making it cosy for his crony circle in the US the idea that poachers can turn gamekeepers and regulate the UK banks just is not credible.
Here’s what Nick Leeson said about that
alongside the “best brains” in the trading rooms,
competing fiercely and taking risks, there are also ” the grey men of the
back office…. They do the paperwork behind the traders’ deals and run the
regulatory systems. It is their job to monitor the markets and ensure checks
and balances are properly applied. These bankers are invariably not up to it.
The front end of the business is far more profitable. The brightest and best
are seduced by the lure of big bonuses, leaving the third-raters and
burn-outs to take safe desk jobs in staid institutions such as the Bank of
England.”
http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=482060&in_page_id=1770
I mean look at the evidence. Today we have in the Guardian a story which shows that $70bn has been set aside for bonuses on Wall Street – a mammoth 10% of the US rescue package. Meanwhile in the UK the Independent tells us today that
“City bankers have not lost a penny of their multimillion-pound bonus packages so far, despite the credit crunch which has caused the worst financial crisis in 80 years, new figures show.
Official statistics reveal that, in the financial year to April, City workers took home £16bn, almost exactly the same as in 2007. The period covers the Northern Rock nationalisation and the UK employees hit by the Bear Stearns implosion. During the period, banks across the world were forced to make huge writedowns on investments linked to US subprime mortgages.
Bonus payments in the UK financial sector have more than trebled in just over five years, from £5bn in 2003, according to the Office for National Statistics (ONS). This is shared among just over one million employees in the sector, but that is heavily skewed towards the high-powered executives, who are routinely handed seven-figure packages.”
This is against this background reported a few months ago on the BBC:
Professor of Organisational Ethics at the Cass Business School, Roger Steare, undertook integrity tests on more than 700 financial services executives in several major firms and came to the conclusion that “There is a systemic deficit in ethical values within the banking industry. This will not change by hanging a few people out to dry,” says Professor Steare.
The results of these tests indicate that as a group, they score lower than average in honesty, loyalty and self-discipline, he said. He compared traders to “mercenary hired guns”, who regularly switch firms to maximise earnings. http://news.bbc.co.uk/1/hi/business/7207563.stm
Yes, you can hire a few of these guns and put them in the FSA, as long as you pay them enough, and what will that change.
The fact is unless you address the right of the banks to create money, you don’t addres the core of the moral hazard dilemma. The nef used to speak about such things so why isn’t it a part of its core message now?
The money system is a social and community commons that all of us need to use to make transactions and to facilitate the division of labour. Ergo it should be run as a commons, with institutions that are accountable to the community. Instead it is run by bankers who are responsible to the shareholders but above all who look to their own bonuses. This is a irresolvable contradiction and from that contradiction the moral hazard dilemma arises. Without addressing that you duck the core issue.
What’s more, as ecological economists have been saying for decades, a money system based on debt which must be paid back with interest demands a growth economy – for there has to be additional output that the bankers can share in when they are repaid with interest. This is an absolutely core idea that is key to tackling the problems of the limits to growth, inclusive of peak oil and climate change.
So why doesn’t the Green New Deal make that a central, perhaps the central part of its economic package?
You can have lots of rhetoric about misbehaving bankers and it reads all very well but it doesn’t go to the core of the problem until you point to this solution.
Brian Davey