If young workers in an advanced capitalist nation wanted to launch a revolution, what skills do they have? Millennials and Generation Z are routinely disparaged as ‘soft’. No matter how hard they toil in underpaid, insecure service and care jobs, they seem to strike many older people as far less tough than their forebears. But war has many theatres. And today, finance is one of them.
How do we live in a world where, in the short run, we are all infected? Even if we are not infected, and never will be infected, we must live as if we are infected. Every social interaction contains the possibility of death. Not touching your face in public is an act of self-discipline that can protect the nation.
Y Combinator, a San Francisco-based ‘seed accelerator’ for start-up companies, is working on a pilot for unconditional basic income. The project’s research director toldQuartz magazine it will explore ‘alternatives to the existing social safety net’ in a world in which robots take our jobs. They say subsistence grants dished out by corporate solutionists offer the answer. The Finnish government is halfway through a two-year trial, giving 2000 unemployed people €560 a month, with no obligation for them to look for work (or turn it down). Supporters of unconditional basic income include Mark Zuckerberg,Stephen Hawking, Elon Musk and Bernie Sanders.
Elon Musk, the CEO of SpaceX, has said he expects to see the first delivery of cargo to Mars using his new Interplanetary Transport System as early as 2022, with the first manned mission following two years later. A manned mission to Mars may sound implausible, but so did just about everything else that Musk’s company has achieved in the last fifteen years.
Last week Jeremy Corbyn said that Labour might consider adopting a universal basic income as party policy. Emphasising the responsibility of government to 'protect citizens' from uncertainty, rather than exacerbate it, he isolated a UBI as a potential solution to the risks of globalisation – but only after proper research and testing. That's probably a good idea, since nobody is really sure what happens when you start to give money to everyone for doing ‘nothing’. There was an experiment in Manitoba in the 1970s, and trials are imminent in Finland and Oakland, California, but they won’t give much sense of how it would work in a country with 65 million people and the world’s sixth biggest economy.
The Chinese media have been gunning for George Soros for predicting a ‘hard landing’ for the country’s currency. A headline in the People’s Daily is mild by comparison with some of the invective: ‘Short China and you short yourself.’ But who believes Soros is getting ready to short the renmibi, as he did sterling in 1992? He said nothing in Davos last month about betting against the renminbi.
In the summer of 1997, one Asian currency after another fell. With the financial crisis in full swing, rumours circulated in Beijing that George Soros had placed a bet with China’s prime minister, Zhu Rongji. It had no repercussions in the currency markets, because Soros couldn’t short sell renminbi, as he had with sterling five years earlier: China’s currency was, and still is, not fully convertible. But Soros is said to have bet $100 million that the People’s Bank of China (PBOC) would not be able to defend the renminbi’s parity with the dollar. It did and he lost. China’s currency has been appreciating ever since – until last week, that is.
A new five-year plan is always a landmark event in the life of the people. The chancellor has acknowledged the deviationist errors of the past. He has re-educated himself since the 2012 budget which tried to VAT meat pies, a staple of the worker’s diet. He has learned how to do glottal stops so he can tell the people how it is in a language they understand. He is the economy’s friend. He knows that a friend to the economy is a friend to the worker, the powerhouse of the land.
Most of the time, the question that decides an election is the one everyone remembers being put by Ronald Reagan: ‘Are you better off than you were four years ago?’ It’s a good question, but at the moment in the UK it’s also a difficult one to answer. Yesterday, George Osborne triumphantly tweeted about the latest numbers. ‘GDP revised upwards from 2.6% to 2.8% for 2014,’ he said, and also: ‘Real household disposable income per capita up strongly on quarter & year... Living standards higher than in May 2010.’ That might sound like a clear answer to Reagan’s question. But the numbers are squidgier than they look at first sight.
The chancellor's Autumn Statement is as political and obscure as we might expect. A bit of spending here and a bit of cutting there. A tilt at the rich and corporations which, except for the change to stamp duty, won’t do much. The ‘banding’ of stamp duty is a kind of mansion tax which in principle would be desirable, if it didn't mean that the government has yet another reason to ration housing. (More houses means cheaper houses, which means a lower return on stamp duty.)
At the end of last year the Federal Reserve started scaling down its massive $85 billion monthly asset purchase programme (commonly referred to as quantitative easing) by $10 billion a month for as long as the US economy continues to improve. The plan is to eliminate it by the end of 2014. So far that plan is on track and on 29 January the Fed reduced the asset purchase programme for the second consecutive month to $65 billion. The end of quantitative easing is a big deal not just for the United States and the mature economies of the global north, but for everybody. On 23 January, the Argentinian peso lost 15 per cent in one day. ‘The worst sell-off in emerging-market currencies in five years is beginning to reveal the extent of the fallout from the Federal Reserve’s tapering of monetary stimulus,’ Bloomberg reported.
Ross Ulbricht was arrested on 1 October, suspected of being the Dread Pirate Roberts, the mastermind behind the online illegal drug emporium Silk Road. Messages of support quickly spread across social media; funds are being raised for his legal defence. The Silk Road was shut down on 2 October. Allegedly run out of Ulbricht’s bedroom in a shared flat in San Francisco, the website boasted more than 950,000 registered users, and made getting drugs – apparently very good drugs – much easier and safer than ever before. But its founder isn’t a folk hero only because of the quality of the junk he made available. It’s also because of his radical libertarian philosophy.
France last week had its credit rating knocked down a tick from AA+ to AA by one of the ‘big three’ rating agencies. Standard & Poor’s blamed the French economy’s sluggish recovery, high unemployment and a high debt-GDP ratio. Credit ratings, whose rationale is to make risk assessments for investors, matter for governments and other bond issuers, since lower ratings mean higher borrowing costs, and downgraded bonds can tailspin as increased repayments up the likelihood of issuers’ defaulting. For governments, that means higher budget deficits, and calls for austerity to balance the books.
So credit ratings are big bananas. But what are credit rating agencies?
Between 1999 and 2001 I lived in Shaoyang, a small city in Hunan province known throughout China for being dirty. This wasn’t just the prejudice of outsiders; many of its residents complained about the ‘poor conditions’. Rubbish bobbed on the milky green surface of the Shao Shui river, spread along its banks and choked the dam upstream. The street that led to the college where I taught was lined with food stalls, rubbish heaped around them. During the day people would pick through the piles looking for glass, plastic or metal they could resell; at night the rubbish was set on fire. People wiped their chairs in restaurants before sitting down, or carried newspapers to sit on on the bus, but didn’t think twice about throwing cans and tissues out of car windows.
In his Treasury Select Committee evidence yesterday, Paul Tucker, deputy governor of the Bank of England, denied nudging or winking to Barclays over the Libor rate. Whatever the semiotics, warning signs over Libor were already plain long before Tucker’s supposed nictation in October 2008. Minutes from November 2007 of the Bank’s money markets liaison committee meeting show its members were already exercised, eleven months before the exchanges between Tucker and Bob Diamond at Barclays, over lowballing Libor prices: several expressed concern that ‘Libor fixings had been lower than actual traded interbank rates’. The oversight regime resembles a dead chameleon, stuck on orange, while the system goes critical.
‘Death to the Euro.’ The handmade sign was pinned to the wall of a community centre in San Luis, a gentrified neighbourhood just inside the boundaries of Seville’s old city. It was a balmy Friday evening, but inside a crowd of around a hundred people were listening to a 45-minute PowerPoint presentation on puma, a new local currency for San Luis launched last month. Puma is the third local currency to be introduced in the Andalusian capital this year. Pepa and jara already circulate in Macarena, a working-class district on the other side of Seville’s city walls.
According to classical Garbage Can theory, set out in a landmark 1972 article by Marshall Cohen, James March and Johan Olsen, bureaucracies are essentially chaotic systems. In the public policy soup, policy entrepreneurs vie to find problems to which they can offer a solution. With an ad hoc cast of contributors, policy-making is a collection of choices looking for problems, issues and feelings looking for a decision situation in which they might be aired, solutions looking for issues to which they might be the answer, and decision-makers looking for work. George Osborne makes an unlikely Garbageman.
Nobelprisdag is a special day in Sweden. Stockholm city centre stops while the prizewinners are shunted from the Grand Hotel to the Concert House for the awards, then on to the City Hall for the dinner, followed by the laureates’ speeches, and a ball. All this is fully covered on Swedish television, preceded by the Peace Prize ceremony relayed from Oslo. It starts on SVT2 at midday, and goes on into the small hours.
The chancellor’s autumn statement was rhetorically quite adroit. It remains within the ‘narrative’ established by the coalition when it was formed – that Britain’s debts were at unprecedented levels, and as such there was no alternative to paying them off as fast as possible. Anything else would lead to our being no better than Greece, Spain or Italy. The happy consequence of drastic debt repayment is that yields on British government debt are as low as Germany’s (true, but not because of debt repayment) and much lower than the decrepit Mediterranean states. That the ‘size’ of Britain’s debt is largely folk myth doesn’t alter the fact that the perpetuation of the myth is consistent with everything the government has already said.
Last week George Osborne announced that the government intends to cut back on Public Finance Initiative public procurement. PFI contracting, introduced by the Major government in the 1990s, grew apace under the Neo-Labs. Its attractions were obvious enough. Ministers responsible for public procurement in education, defence and health tend to find themselves under pressure to spend money in ways that deliver visible, short-term results, which has impeded capital investment in public infrastructure. PFI promised capital funding off the public balance sheet, with lots of new schools and hospitals to be paid for later. There was also the idea, which now looks ever more quaint, that for-profit businesses would bring market rigour to public works.
Apocalypses aren't what they used to be. Thirty years ago, science fiction stories about sentient computers taking over the world tended to imagine them trying to wipe us all out using nuclear bombs (The Terminator, War Games). These days, if Robert Harris's new novel, The Fear Index, is anything to go by, the rogue AI's weapon of choice is the financial markets. 'Tales of computers out of control are a well-worn fictional theme,' Donald MacKenzie wrote in the LRB earlier this year,
The problem is plain. If new loans to Greece are arranged, even at lower rates of interest, its debt will rise. If its existing loans are rolled over or sold, the rating agencies may declare default and jittery banks and other investors will expect more interest on new lending. But the solution this week is likely to involve a degree of both, in the hope that the compromise will not be too unpalatable to too many. The alternatives – for Greece to default completely and leave the Eurozone or for the zone to announce that it will move to a common fiscal and spending policy – are next to unimaginable.
Relatively speaking Africa may not have been as badly hit by the credit crisis as other parts of the world but champagne imports are nevertheless down across the continent. Except in Congo Brazzaville, that is, where sales last year sharply increased – even though it is one of the poorest and most indebted countries in the world, where two-thirds of the population live on less than a dollar a day and life expectancy is 45.
Wynne Godley, who died last week, wrote half a dozen pieces for the LRB. 'Saving Masud Khan', published in 2001, was 'the story of a disastrous encounter with psychoanalysis which severely blemished my middle years'. A year earlier, he wrote a piece about the fragility of the US economy in which he observed: It seems fair to conclude, at a minimum, that the high level of debt now poses a risk. And in 1992, he wrote presciently about the flaws in the Maastricht Treaty:
Dubai’s latest moment of turmoil is being talked up as a test of ‘Islamic finance’. But is it really? The problem: in 2006 Nakheel Development Ltd issued bonds to the value of three and a half billion dollars, and can’t pay out when they mature next week. The issue in question is ‘sharia-compliant’. This kind of bond, known as a ‘sak’ (plural ‘sukuk’) has seen huge growth in the Islamic and non-Islamic world over the last ten years. I’ve explained how sukuk work in the LRB and how state borrowers and corporations in the West are getting keen on them: The UK Treasury had been planning an issue but it went on hold after the banking meltdown; last month General Electric issued $500 million of sukuk with Middle Eastern investors in view. Very roughly, a bond is Islamic when there’s a tangible underlying asset on which the issue is based – for instance real estate – and when there are no guarantees saying the investor can’t lose: risk has to be shared between borrower and lender. The rapid convergence of Islamic and conventional finance plus the high-level collaboration between intellectuals and product-engineers in both camps have done wonders for sharia-compliant instruments, but there are pitfalls. One is the preference of conventional investors for a guarantee on some kind of return. That’s not permissible in Islamic finance, though if you’re an investment banker or corporate fundraiser you might find a sharia expert who could see a way around the difficulty and put his imprimatur on your product to make it attractive. Looking for a friendly scholarly opinion on a product is known as ‘fatwa shopping’.