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Posts Tagged ‘economics’

One of the things I’ve been thinking about since this pandemic began is money. Not my own personal finances, but money in society. Since the last big economic crash in 2008 a lot of governments brought in austerity measures because they said things like “there is no magic money tree”, and “we have to balance the budget”. But then once the pandemic took hold all of a sudden there were billions, literally billions more dollars, pounds, euros etc spent….and that huge increase in spending looks set to continue.

What’s happened?

Did somebody find the magic money tree after all?

It was thinking about things like this which led to me to explore a bit of economics and, no, I’m not about to deliver an economics lecture here, and reading a few books hasn’t made me an expert. But I thought I’d just share some of the more useful insights and ideas that I’ve discovered. Maybe I should also say that most of the economists I’ve read who have seriously impressed me are women. People like Kate Raworth, whose “Doughnut Economics” model makes it easy to see how there is a sweet zone between failing to deliver on the needs of human beings, and over-taxing the environment, and so threatening the existence of all life on Earth.

People like Mariana Mazzucato who describes how we can rethink the role of government in society and orientate our decisions around a sense of public purpose.

But I started with Stephanie Kelton, and read her “The Deficit Myth”. This single book turned my thinking about money upside down.

However, all I want to share with you today is to prompt you to ask yourself the question “Where does money come from?”

I took the photo I’ve posted here in Japan many years ago. It was in the grounds of a temple, and it shows lots and lots of coins which people have thrown into the water. We humans have a tendency to do this in many cultures – throwing coins into fountains, into wells, or into ponds, and making a wish. When I look at this photo I realise that I think of money as something physical – either coins, or notes.

However, the truth is that for me, and I suspect for most of you, most money isn’t physical at all any more. I’m retired so I my income is a government pension. The government don’t send me coins and notes each month. They use a keyboard to tell my bank to increase the size of my bank balance. Most of that balance is spent on things like rent, energy and telecoms, and food. Pretty much all of that spending doesn’t involve my handling any coins or notes at all. I set up a regular instruction to my bank, or I use a plastic card at a till, and the number in my bank balance goes down, while the number in the landlord’s bank balance goes up, or the number in the energy company’s bank balance goes up, or…..you get the picture.

Now I didn’t really think about that much till I read Stephanie Kelton’s book. But there has been a huge shift in the world, away from what was called “the gold standard” where the money created by the government was linked to the amount of gold they had their vaults, to what is now termed “Fiat currency”. The dollar and the pound, for example, are “fiat currencies”. Only the issuing government can create that money, and it does so by using a keyboard to change the size of various bank balances.

I used to think the government spent the money they raised – in other words they tax us and use those taxes to spend on Public services etc. But I hadn’t thought it through. Stephanie Kelton makes it clear that it’s the other way around. The government can’t take in tax any money other than the money it has already created. In other words, nobody creates new money apart from the government. Well, if you do, it’s called forgery or fraud!

So, when the government wants to spend some money on, say Covid tests, hospitals, supporting businesses, then it does that by creating money on the Central Bank computers. That’s the magic money tree that seems to have been discovered.

But wait, I thought, you can’t just keep creating more and more money, can you? Well, it seems you can’t. You can keep creating more and more money until society’s resources are fully engaged. Beyond that, inflation occurs. What then? Take some of the excess money out of the economy through taxation is the suggested answer.

Huh! Well, honestly, I had never thought of it that way.

Perhaps the most important thing I’ve learned is that government finances are NOT like family finances. And the big difference is….we can’t print money when we want it, but the government can.

OK, there is an awful lot more to learn and understand about all this, but Stephanie Kelton’s book is a great starter.

Does this interest you?

Maybe not, but it interests me because it seems as clear as clear can be that our current economic and political systems are not working. Covid has exposed our vulnerabilities, our weaknesses and our true deficits. If we don’t address those then this isn’t going to be the last pandemic to wreak havoc on us all.

Here’s a nice little summary of the key points in The Deficit Myth

And here’s my favourite podcast for learning more about these ideas.

Honestly, money isn’t something I’ve given much thought to in my life….well, apart from my own family finances that is……but the new ideas of Kate Raworth, Stephanie Kelton and Mariana Mazzucato are a total revelation to me, and they actually make me believe a lot more is possible than I had realised. They give me hope.

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This is probably the most unusual and spectacular rainbow I’ve ever experienced. I took this photo (and a whole batch of others) when this rainbow appeared at the top of the hill over the vineyards a few years back.

I’ve never seen this phenomenon before, nor since. What makes it so special is how the whole world under the rainbow is a different colour, a different intensity of light, from the rest of the world. It really seemed that the rainbow was revealing another world. A world within our world, a world shining through our world to reveal itself.

I’ve thought about this several times since, and every time I go back and look at these images again.

Normally when I see a rainbow, it looks just like a band, or an arc, painted onto the sky. But this rainbow seemed to be a whole three dimensional phenomenon. It really seemed as if I was being shown a different world below the bands of colour. A world which seemed brighter, more vivid, and so, more real than the “normal” world.

That colour reminds me a bit of something I’ve seen in some movies where they use that sort of colouration to tell you that you are watching a flashback.

So I felt that I was witnessing something which was a shift in both time and place…….a glitch in the space-time continuum.

No wonder it felt special!

When I look at it again today I am struck, yet again, by the sense of glimpsing “another world”, and that’s a phrase I’ve come across many times during this pandemic. How many of us are saying the way we’ve been living, the way we’ve been organising our societies and economies, is exactly what has brought us to where we are – turned upside down by wave after wave of this tiny little virus. So, if we want to do more than survive this, if we want to emerge from this experience having learned a whole bunch of lessons, then maybe we are well placed to create “another world” – a different world which would be healthier, more resilient, more robust, more able to adapt and grow.

So, when I thought about that I realised that when I’ve been trying to imagine what that world of “after” could look like, I realise now that I’ve been thinking of what doesn’t exist. That’s all very well, but very utopian, and maybe, frankly, unachievable. But what this rainbow experience reveals to me is not another world which doesn’t exist, but another world which DOES exist.

Bear with me here……here’s some of the things I’ve noticed during this pandemic. Poorly paid, undervalued workers in our societies have become the evident “heroes”, have become “essential workers” who keep society alive. They haven’t changed what they do. In many ways they have been the invisible workers……the health carers, teachers, shop assistants, drivers, cleaners…..the list goes on. Our societies have tended to laud and promote “celebrities”, rich people, and certain high profile politicians. It turns out that maybe we had our priorities upside down. Maybe we should be celebrating, valuing, supporting and rewarding the thousands and thousands of “ordinary” workers who keep us all alive more than those whose greatest skills seem to be self-promotion and greed.

We’ve suffered from over a decade of “austerity” economics, of neoliberal economics which have promoted ideas such as the need for governments to “balance the budget”, of “trickle down ecomomics” (to encourage greed because as the rich get richer then their largesse will gradually trickle down to the poor), of “Homo economicus” (the model of human behaviour based on self-interest and rational choice), of the “wisdom of the market” and the pernicious nature of “big government”. But suddenly, the “magic money tree” has been found and governments have found the ability and the desire to spend trillions to keep society going and to fight the pandemic.

Do you see what I mean? I could go on and give other examples, but maybe this post would turn into a book!

Because what we’ve also seen is people coming together to support each other. People celebrating caring over competition. Scientists and governments co-operating at speeds never seen before to progress our understanding of the virus and develop new tools.

Not only is “another world possible” but that other world already exists. It’s just that we’ve been feeding the wrong “hungry wolf”. See – http://moritherapy.org/article/the-story-of-the-two-hungry-wolves/

So, if the rainbow is a symbol of hope, here’s my hope – that we work together to put our energies and resources into creating a better, more caring, more co-operative, healthy world. It’s not just possible. It’s already there, just waiting for us to step forward and start living in it.

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I don’t know about you but in the middle of this “world economic crisis” I’m just not hearing what seems like a decent plan. The main so-called solutions seem to be about how to get people borrowing and spending again. But weren’t borrowing and spending actually at the heart of the problem? Wasn’t it the system which encouraged the unregulated pursuit of self-interest which produced exactly the current crisis? But tired old slanging matches between free market capitalists and state control advocates just seem like debates about who should hold the reigns of power. It feels like something more radical and new is needed. I found myself saying, don’t we need a society more based on love, than on power? (and does that mean I’ve never quite left Woodstock, flower power, and the “LA habit” behind?)
I’ve long since been impressed with the work of Richard Wilkinson and been convinced about his findings on inequality so when he commented on one of my posts recommending his latest book, The Spirit Level (ISBN 978-1-846-14039-6), I knew a trip to Amazon was imminent.
Most of The Spirit Level, which he has written with Kate Pickett, re-presents the findings and the arguments I’ve read before. If you’ve never read any of his work, then is, for sure, the best starting place. However, where it got exciting for me was at chapter 14. In fact, the last three chapters of the book were the three which gripped me most strongly.
The authors quote Thomas Hobbes who believed that there was always a danger of conflict in human societies as people competed over scarce resources, so the purpose of strong government was to keep the peace. You’ll be familiar with the Hobbes’ phrase that without such government life would be “solitary, poor, nasty, brutish, and short”. Against this view they propose

“As well as the potential for conflict, human beings have a unique potential to be each other’s best source of co-operation, learning, love and assistance of every kind. While there’s not much that ostriches or otters can do far an injured member of their own species, among humans there is.”

They describe the ‘ultimate game’ where volunteers are paired randomly, one is given a sum of money and told to propose to the other a share of the money. If the ‘responder’ accepts the proposal both keep the money. If they reject it, neither keeps the money. Interestingly, what happens is that the commonest offer is 50%. This is despite the fact it’s made clear that there will be only one ‘round’ of this game and the volunteers will never meet again. ‘Responders’ reject offers less than 20% on average, so punishing greedy proposers. This shows two interesting human characteristics – co-operation and “altruistic punishment” which reinforces co-operative behaviour.
Somewhat startlingly, but undeniably, they claim that human beings have lived for 90% of our history in egalitarian societies based on co-operative, hunter-gatherer groups, and only with the invention of agriculture did dominance hierarchies develop.
Their conclusion is to call for more “affiliative strategies”

At one extreme, dominance hierarchies are about self-advancement and status competition. Individuals have to be self-reliant and other people are encountered mainly as rivals for food and mates. At the other extreme is mutual interdependence and co-operation, in which each person’s security depends on the quality of their relationships with others, and a sense of self-worth comes less from status than from the contribution made to the well-being of others. Rather than the overt pursuit of material self-interest, affiliative strategies depend on mutuality, reciprocity and the capacity for empathy and emotional bonding.

I think this hits the nail on the head. I think we need some bright minds to come up with the  detailed methods, but I do believe what we need now is a radical realignment of our energies and our structures away from the mistaken belief that competitive self-interest producing dominance hierarchies are the best model for society, back to our roots, to the 90% of our history, to

“mutuality, reciprocity and the capacity for empathy and emotional bonding”

Wilkinson and Pickett make it clear that their research has compared existing developed nations, not current models against a hypothetical utopian one. If we can reduce our enormous economic inequalities, we can look forward to less violent, more healthy societies. If you’re not convinced about that, read this book.

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The main news programme on the BBC tonight had the word RECESSION plastered behind the newsreaders for virtually the entire duration of the programme. Got me thinking about what on earth’s going on in our “global economy”. It seems the economic system we are all living with is designed around the concept of growth. Technically, a growth rate less than zero for two consecutive quarters is the official definition of a “recession”. Some of the items covered under this heading included fears of shop owners that people won’t buy so much this Christmas. But hold on a moment. Does this make sense? Can you really design a system that will work forever on the basis of consumption and production of more, more, more? We’ve already seen in recent weeks the consequences of a financial system geared around the mantra of making more and more money. In a finite world, does any of this make sense?

And what happens when human beings just keep consuming more and more? Oh sure, they grow all right – take a look at this map of the increasing levels of obesity in the USA – watch it spread across the whole continent like a contagion. This growth, this getting bigger, fatter, consuming more……this is health? This is a goal worth striving for? This is a system which will deliver good lives for the human race?

I don’t think so.

You see growth in a healthy way, growth in Nature isn’t about ever increasing consumption and accumulation. It’s about development. A healthy child grows into a healthy adult by maturing and developing. This involves learning, experience, acquiring skills, becoming resilient, adaptable and fit. That kind of growth is sustainable. That kind of growth is worth pursuing.

I don’t have the answers to this one, but it just strikes me that maybe we need an economic model which is based on a more natural and a more human concept of growth…….development, maturity and the fitness to be able to cope with what comes along. Not the current model based on greed, consumption and ever increasing production. The current model doesn’t work. It’s an illusion.

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