The Great Crash 1929, by JK Galbraith

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JK Galbraith

Summary: A witty, but challenging, take on how human greed and folly devastated the lives of millions

Some years, like some poets and politicians and some lovely women, are singled out for fame far beyond the common lot, and 1929 was clearly such a year.” 

John Kenneth Galbraith, the legendary economist and public servant, wrote this book in the midst of difficulties he was having in completing another, The Affluent Society. The result is generally regarded as the definitive work on the Crash. But in spite of the seriousness of the subject Galbraith writes with a lightness and humour that leavens the complexity, and which pokes fun at the folly of human beings.

img_1232-1Because what Galbraith depicts is a sort of collective madness that gripped a nation, or more specifically the wealthy of the nation: it was only really they who had the cash to speculate. The rising market of the 1920s convinced many that they could become rich without much effort. It was this delusion combined with extraordinary social inequality, other structural defects in the economy, and inadequate mechanisms and political will to regulate the craziness that led to a Crash of enormous proportions, which acted as a prelude to the Depression and the devastation of millions of lives across the globe.

Galbraith notes that, “I have never adhered to the view that Wall Street is uniquely evil, just as I have never found it possible to accept with complete confidence the alternative view… that it is uniquely wise.” But, as John Lanchester demonstrates in his book,”How to speak money”, the opacity of financial and economic language makes these sectors relatively immune from the sort of democratic scrutiny that other critical sectors, such as defence or the public services, are routinely subject. In such circumstances those who have mastered the language can appear sagacious to the uninitiated.

Galbraith describes in colourful terms just how dangerous this is and the risks that pertain when this happens. As the 2008 crash showed the economy has not yet been inoculated to human deceit and folly, and citizens must remain vigilant lest some future charlatans seek to sell financial snake oil to the rest of us.

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Less certain than death: corporation tax in the modern world

Originally published in Business Fights Poverty:

http://community.businessfightspoverty.org/profiles/blogs/dr-aidan-mcquade-less-certain-than-death-corporation-tax-in-the-m

In the wake of the recent controversies that have been sparked since the announcement of Google’s US $ 130 million settlement with Her Majesty’s Revenue and Customs, it is worth contemplating, of all things, a few interrelated issues of political and moral philosophy; I find they can often help cut through the bluster.

Milton Friedman once declared that the only moral responsibility of business executives was to maximise profits for shareholders within the law.

Friedman was many things, including a brilliant and accessible writer, although many, myself included, would argue, a deeply simplistic one. Even Ronald Reagan was able to grasp the central tenets of his political economics.

We still live in a world crafted by the economic beliefs of Reagan and, in particular, of Margaret Thatcher, which drew deeply on many of Friedman’s core ideas. One consequence was that his view of the ethical responsibilities of business executives has become the dominant moral code amongst business executives across the world.

A further consequence is that many corporate executives see it as a moral responsibility to minimise the tax that their company pays. It is important to understand this as politicians fulminate ineffectually about the “unethical” nature of legal company tax avoidance: that there is a counter-narrative amongst many business people, which asserts that they are doing the right thing, the moral thing, for their shareholders by minimising, or even avoiding, tax.

scrooge mcducI don’t agree with this perspective but my opinion will make little difference when weighed against the vast piles of loot that wholly legal tax avoidance could deliver. In any event that shouldn’t matter. The potential for tension and conflicts between competing moral philosophies was something which Adam Smith already anticipated in The Wealth of Nations (1776) when he argued that it was the state’s responsibility to regulate businesses: how companies can be made to make fair tax contributions is among the most pressing issues of business regulation today.

Certainly this is now a far more complicated issue than it was in Smith’s day as trade is significantly more international. But it is a challenge that must be confronted through extraterritorial law and, perhaps, new tax collection mechanisms, such as those mooted by Nigel Lawson, and the long overdue Robin Hood tax.  New approaches are vital if there is to be any significant progress towards tax justice, greater economic fairness amongst small, medium and large businesses and a balancing of public finances.

This is an issue where the European Union could demonstrate its worth by offering the prize of continued access to EU markets across the entire member states only to those corporations that agree to abide by more transparent and just rules of taxation.

Paradoxically, to get to a position where politicians would be prepared to move on such a project will probably require quite a few more businesses, particularly those who are arguably disadvantaged by not being able to take such a flexible view of where they should be taxed as their giant competitors, demanding such action. Today, very few politicians are prepared to contemplate any significant changes to the globalising political economy without the imprimatur of at least some parts of the business community.

The problem with inequality

Previously published in Business Fights Poverty:

http://community.businessfightspoverty.org/profiles/blogs/dr-aidan-mcquade-inequality

top-1-percentThis week, Oxfam reported that the wealthiest 1% of the world’s population own more than the rest of us combined. Or, put another way that “… runaway inequality has created a world where 62 people own as much as the poorest half of the world’s population.

In his book, How to Speak Money, John Lanchester argues that such inequality emerges from a general consensus amongst policy makers, borne out by significant progress in the real world,  that permitting such inequality is the best way to reduce poverty due to the economic activity which it stimulates.

Which would be fine if inequality itself were not a considerable problem. A number of business theorists and economists have argued that to obtain sustainability, it is essential to seek growth “at the base of the pyramid”, ensuring that the most abjectly poor have a stake in the global economy. But there may be even more worrying threats emerging from inequality.

In 2014, a study funded by NASA found that the competition for resources and the stratification of society into “elites” and “masses” were key factors in the collapse of civilisations. Essentially, by the time the existential threat to a civilisation began to encroach upon the day-to-day lives of the “elites” to such an extent that they were inclined to do something about it, it was already too late.

Such is the existential threat that today’s mind-boggling level of inequality poses to the world. And the challenge for ending this is not merely a rational political or economic one. The realities of contemporary slavery show us that those privileged by unequal power relationships in society become profoundly attached to them in ways that are often quite irrational. For example, a considerable constraint on obtaining growth at the “base of the pyramid” is that of prejudice; many Indian shop keepers would benefit if abjectly poor Dalits and Adavasi had more disposable income to spend. However, many of the same shop keepers would be aghast at such ritually “unclean” people coming into their premises, no matter how much money they possessed.

Similarly, the prejudice against South Asian migrants to the Gulf States makes it next to impossible for the prejudiced to contemplate how such migrants might contribute to society if they were given decent work instead of being part of the Kafala system which enables their enslavement with impunity.

There are solutions to such prejudices: extension of the rule of law, outlawing discrimination, and educating children for mutual understanding and respect. Such steps will require considerable moral courage by our political leaders. And given that many of the global elite are probably in thrall to such prejudices and utterly unaffected by their consequences, it is rather unlikely that too many proposals to tackle inequality and prejudice will emerge from Davos this week. We can only hope that the voices of citizens from civil society and business alike protesting the threats that inequality poses for us all, will eventually pressure the political and economic elites of the world to finally, perhaps at some future Davos, take concerted action to create a fairer world.

How to Speak Money: what the money people say – and what they really mean, by John Lanchester

 

 Sun Tzu, in the Art of War, argued that war was the most important issue in statecraft, because upon it rested the life and death of nations. But, John Lanchester suggests, economics, and economic policy, which affects the lives of every human being alive and those to come, must be a close second. In spite of this, economics is a remarkably inaccessible subject to most of the people who it so profoundly affects, its language so rarified as to be next to impossible for them to intellectually engage with.

Lanchester blames this on “reversification”, the complex and counter-intuitive nature of financial language. For example a “bailout” of the banks is pumping money into them; “credit” is actually debt; and so forth. So, Lanchester sets about reversing this reversification by providing a lexicon of some of the key economic and financial terms that are current in the contemporary political discourse.

Lanchester is an elegant and witty writer and this must rate amongst the most entertaining books on finance ever written.  Here, for example, is part of his explanation of “Nationalisation”: “[it] had entirely gone out of favour in most of the developed world until governments found they had to nationalise banks in order to save the financial system in 2008.” Or on “Student loans”: “A leading candidate for the next big thing to blow up the US, and perhaps the global, economy.” 

The importance of understanding the language of money is stressed in the book’s afterword. Here Lanchester outlines some of the challenges and dilemmas posed to social cohesion by the neo-liberal economics of much of the English speaking world. For example a neo-liberal approach appears to be the fastest way to create wealth at the expense of increasingly vast inequality. 

Amongst those who speak money and set financial policy in much of the world there is a consensus that this Thatcherite approach is the best model to follow and the growing inequality is the price that must be paid. That a recent study argued that inequality is a principle cause of the collapse of civilisations means that this should be a matter of considerably greater public and political discourse. It is not in significant part because the language of money excludes so many for entering the conversation. 

Lanchester himself expresses profound concern about the potential effects of inequality at the conclusion of the book. “When people say: ‘It can’t go on like this”, what usually happens is that it does go on like that, more extendedly and more painfully than anyone could possibly imagine; it happens in relationships, in jobs, in entire countries. It goes way past the point of bearability. And then things suddenly and abruptly change. I think that is where we are today.”

In providing a guide by which ordinary citizens can more readily engage in the politics of economics Lanchester has written an important book. Let’s hope enough people read it before the life and death of our current civilisation is decided by an elite who are too drunk on champagne and coked up to ever feel the effects of injustice or see the signs of crisis. 

Whoops!: Why everyone owes everyone and no one can pay, by John Lanchester

Goldman-Sachs-46830569144Whoops! is a clear, cogent and coherent explication of how the financial crisis came about, emerging from a culture of greed and a ludicrous, supposedly rational, belief that risk could, for all intents and purposes, be eliminated from financial transactions. More frightening is that almost nothing has been done to prevent such a crisis happening again – President Obama’s modest efforts having been eviscerated by the right of his own party and nothing notable in Europe at the time of publication in 2010.i-hate-being-greedy-but

So terrifying are the implications of the situation that even the regular and excellent jokes that pepper the narrative do little to alleviate the feeling of dread that the book evokes. It is a vital book and an indictment of pusillanimous politicians and economists who have defered to greedy bankers and consequently brought devastation to millions.