Fantasy Government and Fantasy Finance

We have elected an incompetent government that has presided over an ever growing culture of lies and greed. They have allowed lobbyists and special interests to influence policies for the price of an agreeable lunch and a few favourable headlines. Spin and deceit have replaced honesty and open government. And without giving it any serious thought, people are saying capitalism has failed. This has nothing to do with capitalism. It has no more to do with capitalism than the USSR had anything to do with socialism. The same people also say these financial institutions are the wealth creating sector of the economy. No they aren’t. The real wealth creators are the factories and the people who make things, and those who distribute and supply them.

By what twisted logic does it make economic sense to close profitable factories which give gainful employment to thousands, send those jobs overseas, knock down the factories and build houses in their place to sell at inflated prices to the now unemployed workers? If ever there was a formula for creating a sub-prime mortgage crisis, that has to be it. And that, in essence, and on a colossal scale, is what has been going on for years with the complicity of the government and all its regulators. Now, the institutions responsible for this merry-go-round of economic madness are clamouring for taxpayer aid from the government and blaming everyone but themselves for the mess. We have for too long rewarded failure, now we will pay the price.

More than two decades ago ICL, Britain’s last major computer manufacturer, had trucks ferrying unsold computers from one depot to another in a desperate attempt to give the impression of activity and mask how close they were to collapse. It didn’t work, but it’s uncannily similar to how some financial institutions have behaved in recent years. Smoke and mirrors; sleight of hand; cryptically-named financial products. Banks everywhere competed with each other to build the biggest market share in worthless investments, often having no idea what they were buying. Why did they do it? Because they paid themselves huge bonuses for doing so. Lehman Brothers, for example, paid out a staggering $9.5 billion in “bonuses” only nine months ago.

It’s hard to accept the term “bonus” as a fair description of the money they have looted, especially as in the case of Lehman Brothers it must have been crystal clear to those at the top the payments were entirely unwarranted and potentially fatal to the business. But such was their greed, they went ahead anyway. This is nothing to do with capitalism, or free market economics, it is the inevitable consequence of a corrupted financial system, plain and simple. President Nixon once famously declared, “I am not a crook.” I would like to see the leaders of the remaining great financial institutions say the same thing. And I want them to prove it because frankly I have no confidence in the regulators to investigate and prosecute wrong doing.

Who set the framework in which the institutions and the regulators operate? Step forward Gordon Brown, he was at the helm at the Treasury for a decade, making all the rules. Of course, he didn’t do it alone, thanks to “revolving doors” he had City people come and work at the Treasury where they shaped government policy before returning to the City to exploit the newly relaxed standards they helped bring about. Now as Prime Minister it is evident for all to see how completely incapable Brown is of leadership. Yet to listen to the government, their track record would seem to be above reproach. But the fact is, this government lives by deceit. It spins, it lies, and it has no shame because it lives in a fantasy world where it makes its own reality.

We need to go back before the second Gulf War for a measure of how venal this government is. Britain and America went to the court of world opinion and lied on oath. There were no weapons of mass destruction, there was no connection between Saddam and al Q’aeda. The phials of biological weapons, the drawings of mobile chemical labs, the intelligence documents reporting shipments of Yellow Cake from north Africa, they were all fake and Bush and Blair knew it. So instead of confronting the real terrorists, we have spent billions of dollars and pounds and laid down thousands of lives fighting the wrong war in the wrong place. However, it has been to the personal enrichment of many of those best connected with both governments.

Simply put, democracy has failed. This is not the failure of capitalism or of free market economics. It is our collective failure as voters to hold to account governments that lie and deceive, that allow lobbyists and special interests to overrule our interests. What goes on in Washington and Downing Street is a travesty for government. What goes on in Wall Street or the City of London is a travesty for an economy. Both should be working for the common good, not self-preservation and self-enrichment. We need change. We cannot be apathetic the next time we have an opportunity to vote, we must seize that opportunity and put an end to the politics of spin and the economics of greed. We must have honesty and open government.

An economy run by Arts graduates?

Sam Leith writes an excellent piece in the Telegraph today essentially saying that Arts Graduates know nothing about how the economy works because it is unknowable. That’s a good point. On that basis, the present sorry government must be Arts Graduates of the highest calibre because the Prime Minister and his Chancellor demonstrate how much they don’t know about the economy on a daily basis. Leith gives credit to those who work in the City and assumes they must be great experts in the economy. There I must disagree. The mistake, which I think a lot of people make, is to confuse what drives the City with what drives the economy. There couldn’t be a greater gulf between the two even though the City has a great impact on the economy as a whole.

Those who succeed in the City, and many do in spectacular style, do so not because they know how the economy works, but because they know how the City works. That should not be a subtle distinction. The reputation of the City has taken a pounding recently, and probably deservedly so, because everything to do with the economy is causing great concern to ordinary people whose daily lives are blighted by miscalculations, misjudgment, or just plain mischief.

That concern was enough to give the Labour government its worst electoral defeat in living memory. The Crewe bye-election will be another opportunity to give them another black-eye. Over in America, things are hardly any better. They have a presidential election taking place right now which provides an insight into some of their concerns. One such is the NAFTA trade agreement which came under fire recently as the cause of American jobs being ‘exported’ to Mexico. We have a similar problem here, but does anyone seriously believe that jobs are going to India or China because wage rates in the third world are so much lower than they are here? Only an Arts Graduate could believe that. The reason jobs are being exported is because City bosses earn huge bonuses from exporting them. If they didn’t earn such bonuses, those jobs would not be exported. Of course I use the word ‘earn’ in the loosest possible sense, in the sense of an athlete who ‘earns’ a gold medal by taking steroids or a mugger who ‘earns’ money by waving a knife in someone’s face. They are merely working the system.

And that’s the root of the problem. It is a system. A system of rules and regulations, of treaties and trade agreements that provide endless opportunities for smart operators to work it to their personal advantage. In what possible way, for example, can it be good for the American economy that an investor can buy into Yahoo! after it had turned down a takeover bid from Microsoft, and then sue the board for rejecting it? He had no involvement in the business beforehand, no concern for the nature of the business, or the interests of its customers or suppliers, but now he can hope to have the bid reopened and see his share-holding soar in value as a consequence. All perfectly legal and proper so far as Wall Street is concerned, of course, but absurd that a market can be manipulated in this way. Plainly Wall Street, and the City, do not facilitate the economy, they distort it. Likewise NAFTA and all the myriad of similar treaties do not create free trade, they interfere with it.

Someone who did know about the economy, and knew it very well, was Adam Smith. When he extolled the virtues of a ‘free market’ he wasn’t writing about a market that was closely regulated to somehow make it ‘free’, he wasn’t writing about states that had treaties to ensure ‘free’ trade between them. ‘Free’ to him meant free from all such interferences in the first place. It would be the invisible hand of self-interest that would drive free trade and ensure it stayed free. He would be astounded by an economy that barred imports that competed with local produce, intervened to buy up surplus stocks to maintain an artificially high price, dumped that surplus stock on third world countries, and in consequence ruined those markets for their local farmers and producers. Such is the EU vision of an economy. He would be equally astounded by an economy that enabled exotic fruit and vegetables to be flown half way around the world, at significant cost to the environment, to be sold at rock-bottom prices, while at the same time fuel prices are soaring and motorists are penalised to reduce their so-called carbon foot-print. This is not an economy that is capable of being understood.

We need reform. In Arts Graduate terms, economics has become like the Turner Prize, devoid of all social worth and intellectual merit. It is ripe for those with no understanding of the real world to exploit and manipulate to their own ends, the people who should matter are shut out. So we need reform across the board, from the City to farming as well as manufacturing, but most of all, we need reform of our government. Capitalism, for that is what is at stake, is as unworkable now as communism was, and look what became of that.