Orthodox economics is often assumed - by both lay people and economists - to be a bastion of rationalism, where 'free markets' dictate optimal outcomes.
Of course, this rationality is not true, and the optimality begs the question of what or who a given free market outcomes favours. And whether we, as a society, want - 0r know - all of the ramifications of a particular outcome. This is one reason we legislate.
In economics as in all human endeavours, there is a frequently-hidden lack of rationality in human behaviour. With some experience with economics, it becomes apparent that 'free markets' lie at the intersection of rational determinism and irrational human psychology. Those at the libertarian end of the spectrum who favour removing the shackles of legislation are often ignorant of, or concealing, the full implications of such action.
Ross Gittens, the Sydney Morning Herald's Economics Editor, is fond of exposing the oddities of economic outcomes due to human behaviour. His latest commentary pertains to the effects of the government's First Home Owners Grants. On the face of it, the grants might sound laudible: with a housing market that is increasingly beyond the reach of new owners, taxpayers subsidise new entrants; and at the moment the economic stimulation would be a good thing.
However. The grants have been entrenched since 2000, well before the economy needed stimulating. Although they are now being treated as stimulation, the nett effect in this sense is that removing the grant would depress activity. Yet it has also been claimed that a cost to the government of $200m has blown out property prices by $3b.
Gittens argues the case that the raw appeal of free money has been responsible for a good number of the new housing entrants. His point is that this housing activity has been greatly exacerbated by the psychological effect of touting the grant as a 'limited offer' (which it currently is) of 'free money' - so grab it now. As a result, so many new players at entry level have been driven up the price of an entry-level home by more than the value of the grant. He suggests the best action is to wait for the grant to finish, and buy in when prices fall by more than the grant's value.
Of course, the other side of the coin is the creation of a property bubble that can induce a lot of defaults by people who have over-committed and whose situation then changes (usually through the reduced income of unemployment). This may well coincide with falling house prices once the grant comes off - and higher interest rates kicking in. This potentially risks affecting any economic recovery - making it much weaker and slower, or collapse altogether. Yes, interest rates are at their lowest since 1968. But the average Sydney house price in number of years of average earnings has shot up to nine times average annual income - more than the seven times average of the US and UK when their property bubbles burst (see here). It was three times the average annual earnings from the 1950s through the 1970s, which gives an idea why housing was more affordable for previous generations.
Gittens also gives as example a limited-time offer of $1m superannuation contributions being made tax-free, which induced people to borrow to take advantage of the tax windfall, only to see the investment crash by a far greater amount (than the tax benefit) when the sharemarket crashed. He reports advice - a general truism - not to get so carried away as to buy assets that weren't needed, nor take on more debt than could be handled. In these times of uncertainty, due caution helps.
Showing posts with label financial crisis. Show all posts
Showing posts with label financial crisis. Show all posts
Thursday, June 25, 2009
Friday, May 08, 2009
Financial crisis and Marxist mis-steps
On ABC Radio National recently, I listened to a discussion on the financial crisis, between an orthodox economist, a Marxist, and a mediating compere.
The crisis has taken different characteristics by turns:
- from the aggressive selling of mortgages in the US to people who could not afford to service the loans,
- the wrapping up (and obscurement) of those non-performing loans into complex financial instruments which were sold around the world, led to
- a crisis in confidence between financial institutions, who could not sufficiently trust other institutions, leading to
- a great slowdown in the circulation of financial capital, which caused
- a collapse of the viability/stability of many financial organisations (due to bad debts and reduced access to credit), which caused
- globalised recession, with the attendant bankruptcies and unemployment.
Only the last point (but not specifically global) is a recurrent feature of capitalism – the booms and busts so usually cyclic. The others are a particular chain of events. The fact that the complex, toxic financial instruments were circulated around the world is what led to the crisis becoming deep and global.
Because the crisis has been deeper than anything since the 1930s depression, governments around the world have been taking uncommon action to reduce the impact of the recession. This includes classical Keynesian stimulation measures (to encourage faster circulation of money to get the system pumped up again). But it has also included governments supporting major industries: as well as financial institutions (which supply the lifeblood to capitalism), industries that are core to a nation's production - the US auto industry, for example.
Some assistance to industry has taken the form of loans, some as guarantees, some as handouts - and sometimes governments have taken a stake in the corporation - partial or full nationalisation.
Now this is where the debate comes in. Classical Marxist analysis points to a crisis of over-production - too many goods produced, too little money in the hands of workers to purchase the goods. This in turn leads to the evolution of capitalism eventually into communism. Government nationalisation of industry - for capitalistic reasons (which somewhat precludes the recent nationalisations in Latin America by left-wing governments) - can be seen to be a direct harbinger of the classical crisis.
Be that as it may, the Marxist in the radio programme - a visiting Canadian professor - was asked for some insight into the current crisis. The best he could to was the classical viewpoint, that it was a crisis of overproduction. Which it is not. Recession can be characterised like that, to an extent. And in this case, it is quite stretching the point to shoehorn the current events into classical Marxist crisis theory.
It would have been very hard to predict the emergence of the particular characteristics of this crisis. Yet Marxian analysis takes many forms, of which prediction is only one.
The crisis has taken different characteristics by turns:
- from the aggressive selling of mortgages in the US to people who could not afford to service the loans,
- the wrapping up (and obscurement) of those non-performing loans into complex financial instruments which were sold around the world, led to
- a crisis in confidence between financial institutions, who could not sufficiently trust other institutions, leading to
- a great slowdown in the circulation of financial capital, which caused
- a collapse of the viability/stability of many financial organisations (due to bad debts and reduced access to credit), which caused
- globalised recession, with the attendant bankruptcies and unemployment.
Only the last point (but not specifically global) is a recurrent feature of capitalism – the booms and busts so usually cyclic. The others are a particular chain of events. The fact that the complex, toxic financial instruments were circulated around the world is what led to the crisis becoming deep and global.
Because the crisis has been deeper than anything since the 1930s depression, governments around the world have been taking uncommon action to reduce the impact of the recession. This includes classical Keynesian stimulation measures (to encourage faster circulation of money to get the system pumped up again). But it has also included governments supporting major industries: as well as financial institutions (which supply the lifeblood to capitalism), industries that are core to a nation's production - the US auto industry, for example.
Some assistance to industry has taken the form of loans, some as guarantees, some as handouts - and sometimes governments have taken a stake in the corporation - partial or full nationalisation.
Now this is where the debate comes in. Classical Marxist analysis points to a crisis of over-production - too many goods produced, too little money in the hands of workers to purchase the goods. This in turn leads to the evolution of capitalism eventually into communism. Government nationalisation of industry - for capitalistic reasons (which somewhat precludes the recent nationalisations in Latin America by left-wing governments) - can be seen to be a direct harbinger of the classical crisis.
Be that as it may, the Marxist in the radio programme - a visiting Canadian professor - was asked for some insight into the current crisis. The best he could to was the classical viewpoint, that it was a crisis of overproduction. Which it is not. Recession can be characterised like that, to an extent. And in this case, it is quite stretching the point to shoehorn the current events into classical Marxist crisis theory.
It would have been very hard to predict the emergence of the particular characteristics of this crisis. Yet Marxian analysis takes many forms, of which prediction is only one.
In the article Crisis in capitalist society, David Held, a British analyst of globalism, writes*:"a distinction must be drawn between, on the one hand, a partial crisis or collapse and, on the other, a crisis which leads to the transformation of a society or social formation." Held notes that government attempts to “regulate economic activity and sustain growth”, especially from the 1950s to the 1970s, “deepened the state's involvement in more and more areas”. But the trend after that was largely towards deregulation, bar regulatory regimes intended to foster competitive (rather than anti-competitive) corporate behaviour. Held characterises several forms of crisis, based on loss of political (popular) legitimacy. Ultimately, however, he calls for “a differentiated analysis of international conditions which form the constraints on, and the context of, the politics of modern societies”. Held himself concludes that it is hard to see that an analysis of transformation crises can “take the form prescribed by classical Marxism with its emphasis on, for instance, history as the progressive augmentation of the forces of production or history as the progressive evolution of societies through class struggle**.”
Which would tend to suggest that Held is not (or no longer) a classical Marxist (and his final sentence is a giveaway: "the theoretical tools of Marxism are inadequate as a basis for a theory of crisis today"). All this is to say that therein lies a multitude of differential interpretations from the Marxist end of the spectrum – only one part of which adheres to the traditional analysis of ultimate crisis.
In particular, to suggest that the current crisis is a classical one of overproduction is laziness, at the very least, and intellectual dishonesty at the worst. Don't expect all Marxian analyses to have the same faults.
For what it's worth, I don't see any clear endgame in current events; so far, it seems like just a major hiccup in the course of capitalistic history. Will there be any significant transformative changes by the time economic systems return to balance? I can't see that, although I would suggest the biggest potential effect may relate to the hangover of government debt. And government is, I contend, the main arena for class struggle today.
*Held, David: Crisis in captalist society, in Bottomore, Tom (ed.), 1991: A Dictionary of Marxist Thought (2nd ed.), Blackwell, Oxford.
**I would here note that class struggle should not be simplistically characterised as, for example, struggle between manual workers and wealth owners, but better the struggle between people qua wage-earners and forces - and people - that specifically propel the agglomeration of capital.
Sunday, May 03, 2009
Epidemics: making money, and losing it
Already, people are making money from the "swine flu" epidemic - both the nefarious and the opportunity-grabbers.
This is to be expected in a capitalistic world. You try to make money at the margins of opportunity. In this case, those margins are a) the fears of a population mass, and b) the attention of a population mass, respectively.
If I was superstitious, I'd be concerned that the first Australian case of this flu was a man who comes from just down the road (Coogee), and who contracted it from a holiday in Puerto Escondido, Mexico - where I too have holidayed. But I'm not superstitious.
It reminds me of the near-hysteria of the SARS epidemic six years ago. Epicentre Honk Kong, which contains a good mass of superstitious people. I told my colleague from Hong Kong that a good way to make money would be to market a potion claiming to prevent SARS, guaranteeing to pay a penalty compensation if it didn't work. You'd make your money from the large numbers sold, as against the small number of purchasers who subsequently contracted the illness.
Sure enough, a few weeks later a Hong Kong business was marketing a soft drink claiming to prevent SARS - or your money back (not even a penal return promised).
Efforts of the World Health Organisation are credited with breaking the back of SARS - which is why WHO has reacted so strongly to this Mexican outbreak. Still, my feeling has been that this is over-reaction, particularly since the number of fatalities has been small - and revised down - and has so far been confined to Mexicans (one of which was resident in the US).
SARS was far more virilent - the death rate was higher. I can't help wondering whether the main outcome of this current epidemic will be reduced economic activity - and a small prolonging of the current global recession.
This is to be expected in a capitalistic world. You try to make money at the margins of opportunity. In this case, those margins are a) the fears of a population mass, and b) the attention of a population mass, respectively.
If I was superstitious, I'd be concerned that the first Australian case of this flu was a man who comes from just down the road (Coogee), and who contracted it from a holiday in Puerto Escondido, Mexico - where I too have holidayed. But I'm not superstitious.
It reminds me of the near-hysteria of the SARS epidemic six years ago. Epicentre Honk Kong, which contains a good mass of superstitious people. I told my colleague from Hong Kong that a good way to make money would be to market a potion claiming to prevent SARS, guaranteeing to pay a penalty compensation if it didn't work. You'd make your money from the large numbers sold, as against the small number of purchasers who subsequently contracted the illness.
Sure enough, a few weeks later a Hong Kong business was marketing a soft drink claiming to prevent SARS - or your money back (not even a penal return promised).
Efforts of the World Health Organisation are credited with breaking the back of SARS - which is why WHO has reacted so strongly to this Mexican outbreak. Still, my feeling has been that this is over-reaction, particularly since the number of fatalities has been small - and revised down - and has so far been confined to Mexicans (one of which was resident in the US).
SARS was far more virilent - the death rate was higher. I can't help wondering whether the main outcome of this current epidemic will be reduced economic activity - and a small prolonging of the current global recession.
Sunday, April 26, 2009
Spending the way out of crisis
Olivier Blanchard, IMF chief economist, was interviewed by Kerry O'Brien a few days ago.
The chief issue was economic stimulation. If you accept this standard Keynesian approach to recession (and most do, in an orthodox economics context), then the question becomes simply one of where to direct the government spend, so as to provide the best targetted stimulation.
The old argument was that the most immediate stimulation comes from giving it directly to people. Infrastructure spends just circulate the money too slowly; quicker stimulation is needed.
But recently, we've seen people around the world have been saving rather than spending their government stimulation. In times of uncertain employment, this is quite understandable (governments just wish people would spend when told to, and save when told to!). The old tory chestnut, stimulation via tax cuts was quickly dismissed by Blanchard (even less useful than direct stimulation payments).
Blanchard's best suggestion was bringing forward existing infrastructure plans by several years. In effect, the indirect stimulation would shore up jobs, which would help most in restoring consumer (ie spender) confidence.
In fact, there is a far more obvious solution than any of those, if the aim is to start circulating money as quickly as possible. Simply give it to the most disadvantaged people: unemployed, underemployed, pensioners, etc. Those that have fewest resources will be most likely to spend quickly - on the necessities of life.
If that's enough to give a government the willies, another option is to channel such largesse through welfare and charitable agencies.
Blanchard was also expressing confidence in the current situation: although global recession had a way to go, he could see the light at the end of the tunnel. When asked if he'd be smiling at the situation in a month or two, he said he was smiling already. (I note, however, it is always hard to tell how accurate a picture is being painted by anyone in authority at times like this. Given economic confidence is the biggest issue, they would naturally exude as much confidence as possible.)
The chief issue was economic stimulation. If you accept this standard Keynesian approach to recession (and most do, in an orthodox economics context), then the question becomes simply one of where to direct the government spend, so as to provide the best targetted stimulation.
The old argument was that the most immediate stimulation comes from giving it directly to people. Infrastructure spends just circulate the money too slowly; quicker stimulation is needed.
But recently, we've seen people around the world have been saving rather than spending their government stimulation. In times of uncertain employment, this is quite understandable (governments just wish people would spend when told to, and save when told to!). The old tory chestnut, stimulation via tax cuts was quickly dismissed by Blanchard (even less useful than direct stimulation payments).
Blanchard's best suggestion was bringing forward existing infrastructure plans by several years. In effect, the indirect stimulation would shore up jobs, which would help most in restoring consumer (ie spender) confidence.
In fact, there is a far more obvious solution than any of those, if the aim is to start circulating money as quickly as possible. Simply give it to the most disadvantaged people: unemployed, underemployed, pensioners, etc. Those that have fewest resources will be most likely to spend quickly - on the necessities of life.
If that's enough to give a government the willies, another option is to channel such largesse through welfare and charitable agencies.
Blanchard was also expressing confidence in the current situation: although global recession had a way to go, he could see the light at the end of the tunnel. When asked if he'd be smiling at the situation in a month or two, he said he was smiling already. (I note, however, it is always hard to tell how accurate a picture is being painted by anyone in authority at times like this. Given economic confidence is the biggest issue, they would naturally exude as much confidence as possible.)
Wednesday, April 08, 2009
Climate change: losing the pivotal moment
The Australian government's Carbon Pollution Reduction Scheme is deeply flawed, and in fact discourages individual pollution-saving measures by individuals - the benefits gained will be captured by polluting industries under this proposed emission trading scheme.
Legislation reached the Senate, which has sent it off to enquiry. Public submissions are called.
On current evidence of government and global response, I am very pessimistic about turning back this tide. There are three ironies here:
1) At a time where there is great willingness on the part of governments and electorate to spend large re-stimulating the economy, the government is not grasping the opportunity to target spending and industry incentives to avoid significant climate change;
2) When the sums are done, warming will be seen to slow down (albeit a temporary blip) specifically because of the global economic downturn - and this will lead to greater complacency about the urgency of the problem.
3) The confluence of crises reaches us just at the point where there is broad consensus that global warming is real and serious. Any student of history reading up to this point might make the automatic assumption that action would be taken, because the way forward is so clear.
Via GetUp, I put together a quick submission for the Senate enquiry, as follows:
Legislation reached the Senate, which has sent it off to enquiry. Public submissions are called.
On current evidence of government and global response, I am very pessimistic about turning back this tide. There are three ironies here:
1) At a time where there is great willingness on the part of governments and electorate to spend large re-stimulating the economy, the government is not grasping the opportunity to target spending and industry incentives to avoid significant climate change;
2) When the sums are done, warming will be seen to slow down (albeit a temporary blip) specifically because of the global economic downturn - and this will lead to greater complacency about the urgency of the problem.
3) The confluence of crises reaches us just at the point where there is broad consensus that global warming is real and serious. Any student of history reading up to this point might make the automatic assumption that action would be taken, because the way forward is so clear.
Via GetUp, I put together a quick submission for the Senate enquiry, as follows:
Current Australian climate change targets truly do not reflect the gravity of the situation.
1) Human-induced change would be more catastrophic than any in history;
2) Upfront economic costs alone are trifling compared to later costs - verified by international reports;
3) Requisite change calls for economic upheaval; it is currently an ideal time to introduce change, for governments to back economic and industry restructure - at no other time will there be such opportunity and willingness for governments to invest - so this investment can be made in meeting both challenges at once;
4) Governments need to display leadership; show the electorate that long-term stability and prosperity is the aim, rather than short-term attempts at propping up dying industries.
It is clear to all that the government's climate change map is both weak and insufficient to effect the necessary change.
Why are we not taking action at the very best point where change can be achieved?
Economic stimulus can achieve both the long-term and short-term goals if it is specifically and entirely directed at initiatives - and industry-adjustment incentives - that protect the environment, species, and biodiversity that we currently have stewardship over.
Generations will otherwise remember this time as a pivotal moment of lost opportunity.
Regards
Stephen Simmonds
Thursday, April 02, 2009
There is no recession in Australia
Economics is a funny ol business. It's all about confidence, which is what the G20 group of world leaders has been trying to do in London. That is, instill confidence in the rest of the world to spend, spend, spend. Consumers: buy stuff. Capital owners: invest. Reporter: "what would it take for this conference to be a success". World Leader: "for you to report it as a success".
For some reason, France and Germany have a different agenda. They want to develop a new economic order. Which is laudable, but the world is currently in panic mode, and first things need to come first. Meanwhile, America and China are working on that new order anyway at the highest level (at the London talks, Obama and Hu Jintao got together, releasing a joint communique twice the length of that of the US and Russia). Which is about what you'd expect, given the changing nature of global economics over the past 15 years.
Confidence took a tumble courtesy of the unstable nature of capitalism. That and a frenzy of unviable home lending in the US (subprime) which was subsequently wrapped into little-understood securities to spread poison thorought the world's financial institutions, which subsequently took a tumble, refused to trust one another, refused to lend to businesses, which business subsequently started laying off staff, which meant those that went stopped spending and those that stayed were too scared of layoffs to spend. Enough of them anyway.
Australia's a bit different: if you can't make the mortgage repayments, you still owe: you can't leave an empty house as complete settlement of debt. Further, the banks have greater asset-backing requirements, so are in good shape. Still, the global market downturn has greatly affected Australia's resource exports, and subsidiaries of foreign companies - such as GM-Holden - are not immune.
Confidence. Australia is not officially in recession yet. The government and other authorities have been at pains to point that out, trying to prop up confidence. But it has been as good as admitted that when the next quarterly figures are released, Australia will officially be in recession.
The government's financial stimulation packages (effectively giving away money) have had some effect. Consumer spending over the past quarter hasn't really sunk - as it has in other countries. But people have to a fair extent been squirrelling away the bounty. All it has really shown is that it can have an effect, but to have the desired affect needs a substantially greater sum than has been spent so far. So even if the World Bank and OECD can laud Australia's initiatives and give a tick to the (relative!) robustness of the economy, there is a lot further to sink before enough confidence returns.
* A note related to the title: OECD data confirms New Zealand has been experiencing negative GDP growth since the beginning of last year (and thus almost a year into recession). Quite a surprise to hear that on the radio yesterday. Australia, by comparison, has yet to hit the second quarter of contraction which officially defines recession.
For some reason, France and Germany have a different agenda. They want to develop a new economic order. Which is laudable, but the world is currently in panic mode, and first things need to come first. Meanwhile, America and China are working on that new order anyway at the highest level (at the London talks, Obama and Hu Jintao got together, releasing a joint communique twice the length of that of the US and Russia). Which is about what you'd expect, given the changing nature of global economics over the past 15 years.
Confidence took a tumble courtesy of the unstable nature of capitalism. That and a frenzy of unviable home lending in the US (subprime) which was subsequently wrapped into little-understood securities to spread poison thorought the world's financial institutions, which subsequently took a tumble, refused to trust one another, refused to lend to businesses, which business subsequently started laying off staff, which meant those that went stopped spending and those that stayed were too scared of layoffs to spend. Enough of them anyway.
Australia's a bit different: if you can't make the mortgage repayments, you still owe: you can't leave an empty house as complete settlement of debt. Further, the banks have greater asset-backing requirements, so are in good shape. Still, the global market downturn has greatly affected Australia's resource exports, and subsidiaries of foreign companies - such as GM-Holden - are not immune.
Confidence. Australia is not officially in recession yet. The government and other authorities have been at pains to point that out, trying to prop up confidence. But it has been as good as admitted that when the next quarterly figures are released, Australia will officially be in recession.
The government's financial stimulation packages (effectively giving away money) have had some effect. Consumer spending over the past quarter hasn't really sunk - as it has in other countries. But people have to a fair extent been squirrelling away the bounty. All it has really shown is that it can have an effect, but to have the desired affect needs a substantially greater sum than has been spent so far. So even if the World Bank and OECD can laud Australia's initiatives and give a tick to the (relative!) robustness of the economy, there is a lot further to sink before enough confidence returns.
* A note related to the title: OECD data confirms New Zealand has been experiencing negative GDP growth since the beginning of last year (and thus almost a year into recession). Quite a surprise to hear that on the radio yesterday. Australia, by comparison, has yet to hit the second quarter of contraction which officially defines recession.
Thursday, March 05, 2009
Australia maintains short-sell ban
A devious rash of financial instruments emerged in the boomtimes, some of them originally created for legitimate reasons - currency hedging for those involved in international trade, for example - but many of them existed simply to give non-productive traders more opportunities to gamble.
Australia is said to be the last country in the world to maintain a ban on the short selling of shares - specifically, in this case, financial stock. This means speculators can't sell shares that they don't yet own in the expectation of covering themselves (and profiting) by subsequent purchases at a lower price.
A few days ago, a claim emerged that Asian financial interests were poised to take over Australian banks by forcing the price spiralling down through short selling - once the ban was removed by ASIC (the Australian Securities and Investments Commission).
That ban was due to expire, but ASIC has now extended the ban.
And rightly so. Many such practices that were of marginal at the best of times are anathema to unstable markets - which situation will be the case for some time to come. I have not seen justification for other countries' removal of that ban, but according to one Australian fund, "much of the criticism of the ban came from off-shore investors". Which rather begs the question what is to be legitimately gained from having overseas dealers indulge in short-selling Australin financial shares. (I note that the Herald's Ian Verrender has given a justification for lifting the ban - which is quite weak.)
In these volatile times, regulators are trying to promote stability and investor confidence - which they know are the only cures to the financial crisis. Probably the reason regulators are not doing more is that they have too strong a ground in the ideology of unfettered markets.
And despite the fact that this is an ideal juncture in history to redirect capital to more environmentally sustainable production, like most people they have a large part of their attention focused on the short term; until environmental crisis looms larger than financial crisis, scant action will be taken. In fact, there will be much temptation for governments to foster crisis solutions that are easy - but more environmentally damaging. Vote carefully.
Australia is said to be the last country in the world to maintain a ban on the short selling of shares - specifically, in this case, financial stock. This means speculators can't sell shares that they don't yet own in the expectation of covering themselves (and profiting) by subsequent purchases at a lower price.
A few days ago, a claim emerged that Asian financial interests were poised to take over Australian banks by forcing the price spiralling down through short selling - once the ban was removed by ASIC (the Australian Securities and Investments Commission).
That ban was due to expire, but ASIC has now extended the ban.
And rightly so. Many such practices that were of marginal at the best of times are anathema to unstable markets - which situation will be the case for some time to come. I have not seen justification for other countries' removal of that ban, but according to one Australian fund, "much of the criticism of the ban came from off-shore investors". Which rather begs the question what is to be legitimately gained from having overseas dealers indulge in short-selling Australin financial shares. (I note that the Herald's Ian Verrender has given a justification for lifting the ban - which is quite weak.)
In these volatile times, regulators are trying to promote stability and investor confidence - which they know are the only cures to the financial crisis. Probably the reason regulators are not doing more is that they have too strong a ground in the ideology of unfettered markets.
And despite the fact that this is an ideal juncture in history to redirect capital to more environmentally sustainable production, like most people they have a large part of their attention focused on the short term; until environmental crisis looms larger than financial crisis, scant action will be taken. In fact, there will be much temptation for governments to foster crisis solutions that are easy - but more environmentally damaging. Vote carefully.
Tuesday, January 13, 2009
Lucy Kellaway on unemployment
Although many economic indicators around the world are at their worst measure since the Great Depression, there is one that beats them all. The Bank of England's interest rate has sunk to its lowest level in over three hundred years.*
Meanwhile, the ultra dry Lucy Kellaway, financial/management commentator for the BBC and Financial Times, gives her take on advice for employment and unemployment (reported here in the Irish Times). As always, she's well worth a read**.
She reports with great bemusement the three tips from the Harvard Business Review on how to keep your job: act like a survivor, show empathy to your boss, and be a good "corporate citizen". Her response: it would make your job so loathsome that you wouldn't mind losing it.
Kellaway herself looks at being unemployed. She derides the standard philosophies of "networking like crazy", assessing strengths and weaknesses, and beefing up one's web presence: "It is too late to do sensible things".
Her thoughts on four things needed:
- a tidy pile of savings
- character ("backbone and level-headedness")
- perseverance (it may take time and shoe leather)
- luck
[However, in contrast to her also recommending a holiday, I would suggest a different change: training. The world is constantly changing, and such a time is ideal for improving skills and employability.]
*Still not the evolutionary upheaval of capitalism outlined by Marx. Globally, capitalist development clearly hasn't yet run out of expansion room.
**Her latest annual awards for management twaddle give a good read too. Her award for Best Term for Sacking People: "upgrade", as in "we're going to upgrade you: allow you to move on so you can upgrade your career elsewhere".
Meanwhile, the ultra dry Lucy Kellaway, financial/management commentator for the BBC and Financial Times, gives her take on advice for employment and unemployment (reported here in the Irish Times). As always, she's well worth a read**.
She reports with great bemusement the three tips from the Harvard Business Review on how to keep your job: act like a survivor, show empathy to your boss, and be a good "corporate citizen". Her response: it would make your job so loathsome that you wouldn't mind losing it.
Kellaway herself looks at being unemployed. She derides the standard philosophies of "networking like crazy", assessing strengths and weaknesses, and beefing up one's web presence: "It is too late to do sensible things".
Her thoughts on four things needed:
- a tidy pile of savings
- character ("backbone and level-headedness")
- perseverance (it may take time and shoe leather)
- luck
[However, in contrast to her also recommending a holiday, I would suggest a different change: training. The world is constantly changing, and such a time is ideal for improving skills and employability.]
*Still not the evolutionary upheaval of capitalism outlined by Marx. Globally, capitalist development clearly hasn't yet run out of expansion room.
**Her latest annual awards for management twaddle give a good read too. Her award for Best Term for Sacking People: "upgrade", as in "we're going to upgrade you: allow you to move on so you can upgrade your career elsewhere".
Monday, December 29, 2008
Environmental crisis (#3 of 2008)
The eye was off the ball this year, distracted by the global financial crisis.
In the last two decades, habitat destruction has been recognised as the biggest threat to biodiversity - but recognition has not sufficiently translated into action. That very narrative was compounded and magnified by the complete wrenching of the global ecosystem, simply because we vote for leaders who are too lacking vision to grapple with the large-scale industrial revolution needed to counter global warming.
The European Union has been - by and large - a bastion of sensible policy. However, their approach remains far too evolutionary and not revolutionary enough. China and India are slow to respond, but are not helped by lack of leadership from the industrialised nations. In America, we have to wait for George W Bush's pathetic body to be shovelled bit by bit out of the Whitehouse - and then have to wait for Obama's plan to translate vision into action.
Which, as it happens, is where Australia has tripped up in a big way. While espousing mantras on the absolute imperative of combatting global warming, Kevin Rudd's leadership has been characterised by lengthy inaction and delaying investigation - trumped by the release of a policy raft that demeans all Australians in the smallness of its vision - so much so that it has been said to actively encourage dirty carbon emitters to ramp up their destructive practices for some time to come - whereupon they will be handsomely rewarded with government handouts, and have plenty of room to make token improvements.
Kevin Rudd was characterised by a Canberra insider as being especially indecisive. His deputy - and frequent acting Prime Minister - Julia Gillard was in turn described as being particularly intelligent and action-focused. I have heard her performance in parliament several times, and her ability is clear and strong. Waiting for the great leap forwards.
In the last two decades, habitat destruction has been recognised as the biggest threat to biodiversity - but recognition has not sufficiently translated into action. That very narrative was compounded and magnified by the complete wrenching of the global ecosystem, simply because we vote for leaders who are too lacking vision to grapple with the large-scale industrial revolution needed to counter global warming.
The European Union has been - by and large - a bastion of sensible policy. However, their approach remains far too evolutionary and not revolutionary enough. China and India are slow to respond, but are not helped by lack of leadership from the industrialised nations. In America, we have to wait for George W Bush's pathetic body to be shovelled bit by bit out of the Whitehouse - and then have to wait for Obama's plan to translate vision into action.
Which, as it happens, is where Australia has tripped up in a big way. While espousing mantras on the absolute imperative of combatting global warming, Kevin Rudd's leadership has been characterised by lengthy inaction and delaying investigation - trumped by the release of a policy raft that demeans all Australians in the smallness of its vision - so much so that it has been said to actively encourage dirty carbon emitters to ramp up their destructive practices for some time to come - whereupon they will be handsomely rewarded with government handouts, and have plenty of room to make token improvements.
Kevin Rudd was characterised by a Canberra insider as being especially indecisive. His deputy - and frequent acting Prime Minister - Julia Gillard was in turn described as being particularly intelligent and action-focused. I have heard her performance in parliament several times, and her ability is clear and strong. Waiting for the great leap forwards.
Financial crisis (#2 of 2008)
The second-biggest event of 2008 may not have much long-term impact.
It's salient to note that the most severe global financial crisis ever has not brought about significant innovation in ideas or in actions. It's likely that the effects will not last as long as the Great Depression, for a couple of reasons - both related to lessons learnt from the 1929 crash.
First, international response has centred around large-scale Keynesian increases in public spending, to counter the widespread retreat of private capital. Second, the Depression was prolonged by trade protectionist policies, which isolationism is not being practiced today to any great degree.
But the world's leaders and policy-influencers are too busy reacting to the crisis to re-think their approach to financial systems. Certainly, there is a long-overdue recognition of the need to return to diligent regulation and monitoring of financial markets. It's quite plausible that financial regulation will become tougher than ever - which will make capitalists squeal, as not only is regulation anathema to "free" markets, but it also imposes transaction costs. Yet at the very minimum, regulation should force a far greater transparency to the financial instruments that are traded - which is one of the roots of the crisis: that is, trade in little-understood financial instruments into which were wrapped toxic unsustainable "low-doc" housing loans.
But that is typically abrogated by the philosophy that
Botin clearly didn't follow his own advice. The trouble is, if "everyone is doing it", the risk doesn't seem so great - it's spread around. That's one of the reasons Bernard Madoff got away with the largest financial fraud in history (just the same old pyramid - or Ponzi - scheme where dividends were paid from capital, not from investments, and more and more people were sucked in). Nobody understood how his instruments could make money, but the return was good and Madoff was "reputable". Financial regulation has to go far enough so as to prove or disprove any such scheme before the size gets into the tens of millions, let alone billions.
In the end, risks that were spread around were so great that they spread globally.
Last but most importantly, a very large opportunity has been missed - so far - by governments around the world. In attempting to revive capital formations with large injections of government money, it is the ideal time to foster - force - change in investment patterns to greatly favour lower carbon emissions. Instead, the financial crisis looks to be derailing the cause of remission of global warming in the crucial years in which the environmental crisis is now fully admitted.
It's salient to note that the most severe global financial crisis ever has not brought about significant innovation in ideas or in actions. It's likely that the effects will not last as long as the Great Depression, for a couple of reasons - both related to lessons learnt from the 1929 crash.
First, international response has centred around large-scale Keynesian increases in public spending, to counter the widespread retreat of private capital. Second, the Depression was prolonged by trade protectionist policies, which isolationism is not being practiced today to any great degree.
But the world's leaders and policy-influencers are too busy reacting to the crisis to re-think their approach to financial systems. Certainly, there is a long-overdue recognition of the need to return to diligent regulation and monitoring of financial markets. It's quite plausible that financial regulation will become tougher than ever - which will make capitalists squeal, as not only is regulation anathema to "free" markets, but it also imposes transaction costs. Yet at the very minimum, regulation should force a far greater transparency to the financial instruments that are traded - which is one of the roots of the crisis: that is, trade in little-understood financial instruments into which were wrapped toxic unsustainable "low-doc" housing loans.
"If you don't fully understand an instrument, don't buy it" - Emilio Botin, chairman of Santander, Spain's largest lender.
But that is typically abrogated by the philosophy that
"If you look for high profits, you have to face higher risk".
Botin clearly didn't follow his own advice. The trouble is, if "everyone is doing it", the risk doesn't seem so great - it's spread around. That's one of the reasons Bernard Madoff got away with the largest financial fraud in history (just the same old pyramid - or Ponzi - scheme where dividends were paid from capital, not from investments, and more and more people were sucked in). Nobody understood how his instruments could make money, but the return was good and Madoff was "reputable". Financial regulation has to go far enough so as to prove or disprove any such scheme before the size gets into the tens of millions, let alone billions.
In the end, risks that were spread around were so great that they spread globally.
Last but most importantly, a very large opportunity has been missed - so far - by governments around the world. In attempting to revive capital formations with large injections of government money, it is the ideal time to foster - force - change in investment patterns to greatly favour lower carbon emissions. Instead, the financial crisis looks to be derailing the cause of remission of global warming in the crucial years in which the environmental crisis is now fully admitted.
Wednesday, November 26, 2008
Poor journalism on executive pay
A minor quibble? Rather, an exemplary tale of how sloppy journalism can completely skew information, and thus understanding.
Edward Liddy is the new CEO of American International Group, an insurer that was just recently bailed out by the US government. A Herald report, a wire story from Associated Press, headlined the fact that Liddy was being remunerated just $1 per year for the next two years. (The only rider mentioned on this was "he may be eligible for a special bonus for 'extraordinary performance' payable in 2010".) All this accords with the general narrative run through the media that fat cat executives have been wallowing in luxury while the world is in turmoil and pain (a fair blow, if you read the spa story here, 'standard industry practice' with impeccably bad timing) - and that their deeds are only just catching up with them.
But. Don't expect executives to work for no pay, plus maybe performance-based extras. Altruism has its place, but it's not to be found working as chief executive for capitalists.
A little ferreting around uncovered a Bloomfield story explaining the situation. It reveals Liddy will also receive "an unspecified number of equity grants". That's where the actual money is hiding.
In fact, that AP wire story has been published elsewhere (examples here and here) with an additional sentence: "In addition to his $1 a year salary, Liddy will be getting an unspecified amount of stock." (The missing sentence can be found in other places, too, for example .)
It is clear that the Herald sub-edited out that sentence - for dramatic effect? To harmonise with the heading? The effect is, however, dissonant, as the end result - depending on how it is received by the reader - either conveys the wrong impression or just doesn't make sense.
One could say Not very bright. Unprofessional, even. But the impact is more than just a reflection of poor work. Such an omission of detail may leave people with a very different take on an issue. Ideological impact aside, such egregious misinformation can have as bad a nett effect as disinformation.
Edward Liddy is the new CEO of American International Group, an insurer that was just recently bailed out by the US government. A Herald report, a wire story from Associated Press, headlined the fact that Liddy was being remunerated just $1 per year for the next two years. (The only rider mentioned on this was "he may be eligible for a special bonus for 'extraordinary performance' payable in 2010".) All this accords with the general narrative run through the media that fat cat executives have been wallowing in luxury while the world is in turmoil and pain (a fair blow, if you read the spa story here, 'standard industry practice' with impeccably bad timing) - and that their deeds are only just catching up with them.
But. Don't expect executives to work for no pay, plus maybe performance-based extras. Altruism has its place, but it's not to be found working as chief executive for capitalists.
A little ferreting around uncovered a Bloomfield story explaining the situation. It reveals Liddy will also receive "an unspecified number of equity grants". That's where the actual money is hiding.
In fact, that AP wire story has been published elsewhere (examples here and here) with an additional sentence: "In addition to his $1 a year salary, Liddy will be getting an unspecified amount of stock." (The missing sentence can be found in other places, too, for example .)
It is clear that the Herald sub-edited out that sentence - for dramatic effect? To harmonise with the heading? The effect is, however, dissonant, as the end result - depending on how it is received by the reader - either conveys the wrong impression or just doesn't make sense.
One could say Not very bright. Unprofessional, even. But the impact is more than just a reflection of poor work. Such an omission of detail may leave people with a very different take on an issue. Ideological impact aside, such egregious misinformation can have as bad a nett effect as disinformation.
Friday, October 10, 2008
Global financial crisis - a context
Iceland, with a population smaller than Canberra, is suffering a banking collapse that is affecting local councils in England. Australia's Reserve Bank lowered interest rates a full percentage point (rather than the usual one quarter). The UK government invested 50 billion pounds in its major banks - characterised as a 'partial nationalisation'. Central banks in Europe and America simultaneously lowered interest rates half a percentage point.
What could it be but a global financial crisis?
Malcolm Turnbull, as the new Opposition Leader, took the populist line: that Treasurer Wayne Swan should have "put in a good word for borrowers" to get the banks to pass on the full interest rate cut. And when the Commonwealth Bank bought BankWest for a "bargain" price, he complained about reduced competition.
Yes, it did reduce competition, but for governments of the moment, that is not the point: the key issue is stability. Capitalist production is dependent on financial markets are inherently unstable, rising and falling on sentiment - that is, each person's perception of how the other person is feeling. For most commodities in a market, value lies purely in what someone else is willing to pay, and if there are few buyers, value vanishes in the ether. Governments around the world are desperate to restore confidence.
Periodic downturn is normal, but this one is different. Of course, the origins of the current crisis lie in the under-regulated US market, when the mass of bad housing loans was bundled up in poorly-understood securities, then onsold globally like a toxic virus. Lending slows, capital circulation slows, and the resultant liquidity crisis leads to financial institutions faltering.
The extraordinary actions of governments recently show lessons had been learnt from the 1929 crash. A similar pattern of liquidity and financial instability emerged then, but governments didn't intervene, banks collapsed and history ran its inevitable course.
So this time around, governments took action. Thus far, each action has been insufficient to turn confidence around, so governments around the world keep raising the stakes. These actions are counter to current orthodoxy, proving governments are acting on advice from people who have studied history, and yield ideology to practicality when pushed hard enough.
The perception has been that Australia is in better shape than most to weather the storm, due to three factors: one of the world's highest collective credit ranking of its banks; the financial "reforms" conducted in the 80s and 90s, and an extended resources boom due to China's productive forces. But immunity does not exist, and today Chinese purchasers of iron ore are talking of scaling back demand, due to expected dampening of markets. Swan didn't put in a good word for borrowers because bank stability is his crisis priority.
It will be interesting to see how far governments are prepared to go if further challenged - because surely there is more to come.
In the flurry, a major narrative could be missed: governments around the world have demonstrated their ability to respond to crisis remarkably quickly - and collaboratively. And intervention, nationalisation, and re-regulation [talk] shows they can drop ideology for pragmatism in an instant. The rapid reaction (bar the US Congress), and willingness to collaborate and intervene, should be a portent of the possibilities where global action is required. Unfortunately, global warming has engendered the opposite reaction - inaction. We have elected governments that only understand financial crisis, and not environmental crisis - which however less immediate is vastly deeper and longer-lasting. This demonstrates that we are poor at responding to longer-term issues, and that we have subverted too much of what we value as humans to the purely financial. In this capitalist world, environment is just one of many factors that has by default been treated as an ignorable 'externality'.
What could it be but a global financial crisis?
Malcolm Turnbull, as the new Opposition Leader, took the populist line: that Treasurer Wayne Swan should have "put in a good word for borrowers" to get the banks to pass on the full interest rate cut. And when the Commonwealth Bank bought BankWest for a "bargain" price, he complained about reduced competition.
Yes, it did reduce competition, but for governments of the moment, that is not the point: the key issue is stability. Capitalist production is dependent on financial markets are inherently unstable, rising and falling on sentiment - that is, each person's perception of how the other person is feeling. For most commodities in a market, value lies purely in what someone else is willing to pay, and if there are few buyers, value vanishes in the ether. Governments around the world are desperate to restore confidence.
Periodic downturn is normal, but this one is different. Of course, the origins of the current crisis lie in the under-regulated US market, when the mass of bad housing loans was bundled up in poorly-understood securities, then onsold globally like a toxic virus. Lending slows, capital circulation slows, and the resultant liquidity crisis leads to financial institutions faltering.
The extraordinary actions of governments recently show lessons had been learnt from the 1929 crash. A similar pattern of liquidity and financial instability emerged then, but governments didn't intervene, banks collapsed and history ran its inevitable course.
So this time around, governments took action. Thus far, each action has been insufficient to turn confidence around, so governments around the world keep raising the stakes. These actions are counter to current orthodoxy, proving governments are acting on advice from people who have studied history, and yield ideology to practicality when pushed hard enough.
The perception has been that Australia is in better shape than most to weather the storm, due to three factors: one of the world's highest collective credit ranking of its banks; the financial "reforms" conducted in the 80s and 90s, and an extended resources boom due to China's productive forces. But immunity does not exist, and today Chinese purchasers of iron ore are talking of scaling back demand, due to expected dampening of markets. Swan didn't put in a good word for borrowers because bank stability is his crisis priority.
It will be interesting to see how far governments are prepared to go if further challenged - because surely there is more to come.
In the flurry, a major narrative could be missed: governments around the world have demonstrated their ability to respond to crisis remarkably quickly - and collaboratively. And intervention, nationalisation, and re-regulation [talk] shows they can drop ideology for pragmatism in an instant. The rapid reaction (bar the US Congress), and willingness to collaborate and intervene, should be a portent of the possibilities where global action is required. Unfortunately, global warming has engendered the opposite reaction - inaction. We have elected governments that only understand financial crisis, and not environmental crisis - which however less immediate is vastly deeper and longer-lasting. This demonstrates that we are poor at responding to longer-term issues, and that we have subverted too much of what we value as humans to the purely financial. In this capitalist world, environment is just one of many factors that has by default been treated as an ignorable 'externality'.
Subscribe to:
Posts (Atom)