Causes of the Crisis

“The financial crisis was caused by excessively low interest rates, heavy-handed market interventions and over-indebtedness. Are we seriously to believe that the right therapy involves even lower interest rates, stronger market interventions and more debt?”

- Rainer Zitelman “The Power of Capitalism.”

This is correct. The low interest rates were set by central banks, notably the Federal Reserve, in order to cushion shocks such as the Korean crisis and the Dotcom bubble. Alan Greenspan acted to prevent a stock market collapse in response to outside shocks. He smoothed what would have been corrections. He acted to ‘steer’ the economy using easy credit to prevent contractions, the business collapses, and the unemployment that would have followed.

The low interest rates created a housing bubble, seeing huge increases in the average price of US houses. First under President Carter, then much more under President Clinton, government acted to ensure that mortgages could be obtained by low income people, including minorities. With the aim of extending home ownership lower down the income scale, the qualifying rules were slackened, and mortgages given to some who could not afford to make the required payments. These ‘sub-prime’ mortgages were packaged with others into securities, many of which were bought by Fannie Mae and Freddie Mac, the two quasi-public housing agencies. The degree of risk these packages contained was unquantified and uncertain.

Investors, faced with easy credit and the assumption that the Fed would act to prevent a stock market collapse, bought stocks and shares with less caution than they would otherwise have shown. Moreover, with low interest rates, returns on more conventional investments were low, leading many investors to pursue the higher returns offered by riskier shares, bonds and real estate, whose prices rose in consequence.

When the housing bubble burst, the fall in the value of houses left many institutions and individuals, including banks, unable to meet their obligations. Mortgages were foreclosed, and homes were repossessed and sold at a fraction of their former value. The Financial Crisis of 2007-08 took the world by surprise, but in retrospect its causes could have been discerned. Queen Elizabeth perplexed economists by asking why none of them had seen it coming. The answer might have been, “Because none of us was looking.”

The Financial Crisis was wrongly described as a “failure of capitalism,” and has led some to seek alternatives. In fact the roots of the crisis were political, representing the desire of legislators and bankers to keep the economy on a smooth, upward-sloping curve, rather than subject to the bounces and corrections that the economy would otherwise experience. A real economy is subject to the rough and tumble of trial and error, with mistakes being made and corrected, with businesses going under and capital redeployed elsewhere. Legislators dislike its roller-coaster ride, however, especially at election time, and intervene to attempt to smooth it.

An important lesson of the Financial Crisis is that government and its bankers should not try to steer the economy, but allow it to be steered instead by investors, businesses and banks responding to price signals and perceived risks, and making the individual decisions that will cumulatively determine its shape. Whether that lesson will be learned is still uncertain.

Venezuela Campaign: Chavismo paid — big time

Hugo Chavez’s economic policies did not create a socially just society in Venezuela. Under Chavista rule, mismanagement has gone hand-in-hand with corruption. Corruption is a scourge which affects many developing nations, but in Venezuela under Chavez and Maduro, it has become a professional business, with disastrous consequences for ordinary people.

We are only just finding out how this happened.  The US Justice Department has been doing sterling work tracking down the perpetrators and beneficiaries of Chavista corruption. Hugo Chavez’s Minister of Finance, Alejandro Andrade, has just pleaded guilty to stealing over $1 billion of public money. Sadly, this is probably only a small fraction of the sum that has really been stolen.

Andrade, who used to be Chavez’s bodyguard, was appointed by him to be Minister of Finance in 2007 and served for four years until 2011. In 2012, he was appointed president of the state-owned bank, Bandes.

Mr Andrade didn’t want to stay in Venezuela when he left office, moving instead to the United States—supposedly Venezuela’s great enemy.  In 2012 he bought a multi-million dollar 9,000 square foot house with five bedrooms, marble floors and a swimming pool a few miles from the Palm Beach International Equestrian Centre. The six-acre property in the gated Palm Beach Point development also has a large barn for some of his 60 horses. A $3.5m six-bedroom house next door was bought for Andrade’s 26-year-old daughter, Maria.

In a guilty plea Mr Andrade admitted receiving millions in bribes from Raul Gorrin, owner of television station Globovision, and other conspirators. This money was for securing the rights to carry out corrupt foreign exchange transactions at privileged rates. Gorrin has been charged with paying bribes to Andrade and others as well as helping to launder the payments.  Gorrin bought the Globovision TV station in 2013 and changed its anti-regime editorial line to one of support for the Chavista Government.

Gorrin is accused of buying expensive gifts for Andrade and other Chavista officials, including private jets, yachts, homes, champion horses, luxury watches and a fashion line. That is in addition to the millions of dollars paid into accounts in Switzerland.  

Andrade has already been forced to forfeit 17 show horses, with names like Tinker Bell and Bonjovi, that he kept at his Florida property. The US Government has also seized this property and his 11 vehicles, including three Mercedes Benzes, a Porsche, a Cadillac Escalade and a Bentley. His collection of more than 30 top-end watches is also forfeit. The Olympic equestrian career of his son Emmanuel (who calls Gorrin ‘uncle’) is now probably at an end.

Over one trillion US dollars was collected in oil revenues by Venezuela during the Chavista period. Little of that appears to have been spent improving the lives of Venezuela’s people. Water is in short supply, the electricity network barely functions, the phone system is breaking down, the hospitals have no money for medicines, the transport system has ceased working, schools don’t function, and the population is starving.

How much of the $1 trillion has been stolen by the likes of Andrade remains to be seen, but these Justice Department probes are only scratching the surface of this web of corruption.  

It is critical that the international community, including Britain, finds as many of these stolen billions as possible. If Venezuela is ever to rebuild itself, it will need every last cent.

More information on the Venezuela Campaign can be found on their website. 

Yet More Future Inventions

Many future inventions will be designed to address problems, and to provide creative ways of dealing with them. Some of these problems relate to human beings, their health and lifestyle, and some bear on concerns about the planet, and will be designed to make it a better place. Here is my fourth list of inventions that might well feature in our near future:

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16.  Bugs to break down plastic. Current concerns about plastic in the oceans and perhaps in the food chain might well lead to less use of non-degradable plastics, but there remains the problem of dealing with the quantity already in the oceans. While remote minesweeping-like robots might be deployed to mop up some of it, a genetically engineered organism designed to digest and degrade plastic might afford a simpler and more viable solution.

17.  People-carrying drones. People have talked for at least seven decades about flying cars, and many prototypes have been built and flown. None succeeded because they had the drawback that people imagined a car sprouting wings and taking off down a runway like an aeroplane, with the driver needing a pilot's licence. We need people-carrying drones that can take off and land vertically, perhaps from the tops of buildings. Having the machines controlled by artificial intelligence could solve the old problem of the complexity of three-dimensional traffic control.

18.  Mechanical mental control. Primitive versions of this exist in which people have their brain waves amplified to turn a light switch on and off. They wear a skullcap with metal plates to monitor their brain activity, which is amplified to send a signal to the switch relay. We need a more sensitive version, perhaps an ear-stud, or even a chip inserted under the skin behind the ear, to allow the user's mental activity to turn switches on and off, to fly drones, and to control other machines by thought.

19.  Constant diagnostic health monitor. Many medical threats can be treated and alleviated if detected sufficiently early. A health monitor could be worn, or placed in the body cavity, to send constant feedback of heart rate, blood pressure, blood cell count, and other diagnostics. The information would be sent periodically to a central computer that could then alert the patient or their medical authorities if early warning signs indicated a problem.

20.  Bering Straits bridge. This is not, strictly speaking, an invention, but a work of engineering that will require much inventiveness and ingenuity. Russia is closest to Alaska in the United States across the Bering Straits. Such a bridge would be a huge challenge, but Russia in 2011 committed itself to $65bn for such a project. One proposal is for a bridge to span the 25 miles from Alaska to the Diomede Islands near the middle of the Straits, then a tunnel to connect it from there to Russia. The bridge might take the form of an enclosed elevated tube. The project would give land access between America and Russia, and later China, and the challenge would undoubtedly symbolize an interconnected world.

If you don't like the share structure then don't buy the shares

Capitalism is, of course, important. That lust for profits drives a great deal of the innovation we see across the economy. Markets are more important in that it’s that competition which limits the ability to profit and means that we out here gain the most from the system. Markets in that very capitalism itself similarly regulate behaviour.

Which makes this complaint more than a little ridiculous:

A group of powerful investors, including Legal & General, has demanded a crackdown on the shareholding structures used by tech tycoons such as Evan Spiegel and Mark Zuckerberg to retain control of companies after they float.

The group, which includes the Dutch pension giant PGGM, wrote to the two biggest US stock exchanges this month calling for a time limit on the use of multiple share classes with different voting rights.

There’re a number of companies out there into which one can invest. If the business plan of one is not to taste then there’s another which might be of interest. The same is true of the terms upon which one can invest. If this offer - say, no voting rights upon shares to be bought - doesn’t attract then unlike busses there will be another along in a minute.

If you’re not happy with voting rights and multiple share classes then don’t buy the stock. There’s really no great mystery to this at all.

It’s also true that these very investors know this. Bonds offer one deal, interest plus the return of capital - hopefully - and no voting rights. Preference shares another deal, straight equity a third and so on. All of these investors will have some exposure to each and every class of investment under those varied terms. Whining about the detail of one sub-class here is most unbecoming.

For this is rather the point of these public markets in the first place. We get to decide where we’ll invest and which terms we’ll accept for doing so. Demanding what isn’t being offered isn’t the correct plan, not investing on terms we don’t like is.

The joys of price fixing - Sark to rejoin the Dark Ages

Of course prices should be fair and reasonable. Quite how you go about it matters though, as Sark is just finding out. For an attempt to do this means that the island’s electricity supplier - and thus the water system - is going to close down.

At the centre of the row is David Gordon-Brown, the boss of the island’s sole electricity provider, who says that a controversial ban by the island’s government, preventing him from charging more than 52p per kilowatt hour, has forced his company to rack up unsustainable losses and leaves him with no choice but to switch off the lights.

The law for price fixing. The electricity company. The price controller.

Price fixing is terribly attractive to everyone as numerous examples around the world show. There’s also a basic truism to understand. If you set the price of something below the cost of production then that thing ceases to be produced. There are no exceptions to this.

Set the price of electricity upon Sark below the cost of providing electricity to Sark and there will be no electricity upon Sark.

Reality’s a right pain, isn’t it?

How totalitarian do we want to be in the war on obesity?

We, of course, do not think there should be a war on the outcomes of freely made choices. If it is true that we prefer more food and less exercise to a long life than that’s the emergent outcome from our liberty and that’s the end of that.

There are those, obviously enough, who disagree. They then using that rhetoric of a war, an existential struggle, because that is the manner in which it is possible to restrain liberty in order to gain some desired goal. The thing is, how totalitarian do we want to allow them to be about this?

Restaurants and takeaways could be forced to reduce portion sizes, abolish children's menus and change unhealthy recipes, under official proposals aimed at tackling Scotland's obesity crisis.

Food Standards Scotland (FSS), the government agency governing food standards and nutrition, argued urgent action was required to make meals purchased outside the home less fattening.

It unveiled a public consultation on proposals to create a calorie limit on the dishes offered, alter recipes to include more fruit and vegetables and "redesign" menus to exclude the fattiest foods.

"Small or half portions" should be offered to diners, it said, and a cap imposed on the "energy density" of meals…

To argue that restaurants should do this is just fine. Argue for anything you like. To use the power of the state to force? Seriously? Only x number of chips allowed on a plate by government dictat? They can go boil their heads, can’t they? For that is that step too far into totalitarianism.

We would remind of one little thing. 1939 to 1945 saw Britain at its most vulnerable, engaged in total war against a truly vicious enemy. Certainly, there was food rationing. And what was never rationed? The takeaway food of the day, fish and chips. If we could beat the Nazis without allowing the government to do that then other wars such as that upon obesity, being the mere bagatelles that they are in comparison, can be fought without it too.

Even More Future Inventions

While we cannot accurately predict future technology, we can identify some of the things whose development would be useful and beneficial. It will be down to human ingenuity and creativity to determine if viable versions can be produced. Given the commercial implications, however, it is reasonable to suppose that many of them might happen. Here is my third list:

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11. A plant which has been genetically adapted or bred to mop up super-large amounts of CO2. If CO2 is being churned out faster than the eco-system can process it, some extra help of this type to tip the balance would be an asset, especially if the plant could be engineered to grow in places unsuitable for food crops.

12. A de-alcoholizer taken orally as a tablet, liquid or spray which will act rapidly to remove alcohol from the bloodstream, instead of leaving it to be processed in the usual way. This could help people sober up rapidly, lowering their risk of accidents on the way home. It might eliminate morning-after hangovers, and prevent the adverse health effects of processing alcohol via the liver.

13. A new small-scale power source which does not use fossil fuels or put out harmful emissions. Cold fusion would have been ideal, had it been real. What is needed is a technology to give people some independence from large-scale power production and transmission. Perhaps something on a domestic scale can be developed.

14. Membranes to extract heavy metals from water. Osmotic technology has much going for it, and it is possible that membranes could be used for osmotic mining. They could be put in the oceans to collect gold and other elements present in small quantities in seawater. When toxic spills occur, they could extract the lead and mercury and other toxins. It takes creative minds to develop the technology, but as with all these inventions, there would almost certainly be a substantial financial reward to be gained from it.

15. An extra choice on the TV remote to replace the figure performing sign language in the bottom part of the screen by text for those who need it, and to remove it altogether for those who do not. The majority of people who have hearing difficulties are elderly, and while very few old people know sign language, nearly all of them can read. Some people find the rhythmic off-centre motion of the sign language figure to be disturbing. Since the two pictures are superimposed, it should be easy to devise a way to remove one of them for those who do not need it.

A logically confused piece of ecological blather

We obviously have our preferences here but it’s still entirely legitimate to ponder how we’d like farming to be done. Efficiently by machines or lovingly and tending to Gaia by kumbayah. We prefer eating but you can go with the ecological movement if you prefer.

However, there’s still this logical failure in this argument in favour of the agroecological method:

Agroecological innovations in transitions to sustainable food systems are being driven largely from the bottom up by civil society, social movements and allied researchers.

That’s super given that we’re actual and real liberals around here. People do as they wish, experiment, decide what they’d like to be doing and how. Others watch, copy the methods that work and we all become richer as a result. Result, eh? Exactly what we desire from any socioeconomic system, the maximum of freedom, liberty and wealth.

What confuses is this logical error:

Government, civil society and private sector representatives will soon meet in Rome at the United Nations Food and Agriculture Organization to discuss the future of farming. Who controls the global governance of innovation will be a hotly debated topic.

But given these highly contested views on innovations for food and agriculture, it is vital that everyone is able to exercise their right to have a say on the future of their food supply. Deliberative and inclusive processes such as citizens’ juries, peoples’ assemblies and community-led participatory processes are urgently needed to decide priorities for food and agricultural innovations. This is all the more important in today’s context of rapid global change and uncertainty.

So. Do you want to live in a world in which artificial food is produced by intelligent robots and corporations that put profits before people? Or one where agroecological innovations ensure we can nourish ourselves and our communities in a fair, ecologically regenerative, and culturally rich way?

But why do we have politics involved? Why have a vote? We’re in a bottom up, civil society, voluntary association world aren’t we? What’s government got to do with it, government being that legitimate method of compulsion?

That error rather worries. If agroecology is a better system then it will win in a market system. If it’s not better then why would we use the power of government - or even that tyranny of he majority which is democracy - to insist everyone must do it?

More Future Inventions

This is my second list of inventions that present technology cannot yet supply, but which might be developed, given sufficient creativity and determination. To some extent this list, like my first one, is something of a wish list. They are all inventions that would benefit a significant portion of humankind, some more so than others. I take the view that our future technology does not emerge, for the most part, from chance discoveries, but because we are striving towards it. We start with problems or shortcomings, and we set our creativity and our resourcefulness working to provide solutions. We often succeed. Here’s my second list:

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6. A really quiet, low-emission aircraft engine. Jet engines are more efficient every year, and much quieter than formerly. We need a jump to a new type of engine that does what we want. It must use less fuel (or less fossil fuel, at least), yet generate more power more quietly. Designers in Cambridge are working on lifting-body shapes with top mounted engines, but we perhaps need something more radical yet, something to replace the jet engine just as the jet engine replaced the propeller.

7. A wearable device which can cool the body and dehumidify the air in close proximity to it. This has to be portable, perhaps worn on the belt or in the pocket, or incorporated within clothing. It could be a small air conditioner circulating cool air around the body, or a perhaps something using the cooling effect of passing current through joined metals.

8. A sonic interrupter. This will not be a noise-cancelling headset. What is needed is something that will give a bubble of silence around the user. It might detect incoming sound waves and flatten them or degrade them sufficiently. Armed with one of these people will be able to create their own zones of silence in public places such as trains and restaurants.

9. Something to pulverise fish bones into fine powder without damaging the soft fish. A lithotripter uses ultrasonics to do this to kidney stones, but we could use something similar to do this to fish bones in supermarkets, restaurants, and even homes. It would end the unpleasantness of people finding bones in their mouth, and the deaths caused by choking on them. Instead the bone powder will add nourishment to the meal.

10. A device that chills as rapidly as a microwave heats. We need something of similar size that can, within seconds, chill a bottle of wine or soft drink, or rapidly cool cooked dishes such as fruit compôte that are best eaten cold.

Aditya Chakrabortty's quite right, money talks

One of the things we might fairly accuse the Guardian of, that left which is its readership and production team perhaps, is a failure to recognise what is as opposed to what they think ought to be. Which means that this about face is worth noting:

On the one hand, you have the self-inflating chaos at Westminster, the fever dreams of Jacob Rees-Mogg’s gang and the rehearsed rage of the Democratic Unionists. And on the other, you have the truth nailed by Philip K Dick. “Reality,” he wrote, “is that which, when you stop believing it, doesn’t go away.” So let’s remind ourselves of some reality.

...

Even as politicians and the press fantasise about how Britain will leave Europe, big business is already at the departure gate. For Westminster, Brexit is months in the future; for boardrooms making plans, it is the present. Big carmakers have this year halved their investment in new models and factory machinery. The consultancy EY records a 31% slump in the number of foreign businesses setting up headquarters in Britain. Boris Johnson certainly makes good copy – but money talks much louder.

Leave aside the specific example here, that’s just rhetoric, and savour the underlying argument. There’s reality, in which money talks loudly, then there’s politics which can and often does become entirely divorced from that universe outside the debating chamber.

An excellent little point to make about the world. For example, there is no gender pay gap there’s simply a difference in the average manner that men and women organise life after the arrival of children. The UK has not one whit of poverty by any historical or global standard, we have some inequality. Such inequality has fallen in recent years by the standard measures and by proper and realistic ones - measures of consumption after taxes, benefits and government provision of goods and services - is at historical lows. Perhaps companies ought not to pay the management lots of money but they do and societal setups where they don’t have less efficient corporate sectors. Even, Big Tech doesn’t sell data, it just allows advertising to select demographics in exactly the same manner that the Guardian’s jobs page trawls the population that believes none of this paragraph.

All of which rather tells us why we’re not going to see this analysis - money talks, reality matters - spreading to the rest of The Guardian’s pages. For if it did there wouldn’t be a Guardian, would there?
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