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We're not doomed. Discuss.

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Paul Mason | 09:14 UK time, Tuesday, 23 September 2008

Instead of pontificating this morning on the banking meltdown I am in a mood to ask questions to see if Idle Scrawl's growing band of contributors have any answers.

1. Have we mistaken an essentially US financial crisis for a global one? Given the USA is the financial centre of the universe and the ultimate source of consumption for Chinese goods, Middle East oil etc, you can overdo this - but have any European banks gone bust? Even HBOS, the emerging thesis is, was so badly run (and the UK stock market so laxly regulated) that the shorting attack on it was bound to sink it - so it's an "outlier". Or to re-pose the question, having failed to convince myself: is this primarily a crisis of the Anglo-US banking system?

2. Taking for granted this is a Minsky Moment, shouldn't we stop talking about the "collapse of capitalism"? What is collapsing is a set of ideas, which to most people seemed perfectly rational: that deregulation and information technology, combined with more intelligent economic policymaking had created an unbustable boom. This, incidentally is the source of Gordon Brown's famous claim. As Hyman Minsky pointed out - and he's the only man simultaneously popular with hedgefund managers and anti-capitalists - financial crises are part of capitalism and indeed part of the business cycle.

3. What can come out of the "first crisis of globalisation"? To invoke another economist who crosses political boundaries, Nikolai Kondratieff, is this merely the first crisis of a long-wave of economic growth that began in 1989 and should continue out to 2040? If so it is not the "end" of the globalised economy but the end of the beginning. If we interpret Kondratieff's long-wave theory as an insight rather than a dogma, we can discern that once the first spurt of enthusiasm for a new kind of economy is over, a new way of regulating it emerges. Isn't that what we are at the very beginnings of with Paulson, Chris Dodd and co (or to pose it even more startlingly: could the Chinese way of regulating info-capitalism turn out to be the historic norm?). After all the child labour bosses of 19th century Manchester, before Peterloo, though it was the end of the dynamism of the system when the law intervened to stop them working children to death. On the contrary, the early regulation of the factory system, arguably, laid the basis for the whole 19th century expansion of capitalism.

In short I propose what could come out of this is a highly regulated and more stable info-capitalism. As I am writing this over my cornflakes, I will not endure the Galileo treatment for it. But it's a thought. Like I say. Discuss!

Comments

  • Comment number 1.

    Very interesting. Don't think I can add an awful lot, so I shall carry on eating my porridge...

  • Comment number 2.

    DESTINY AND DOOM

    No previous 'civilisation' to ours has survived, even without the added factors of technology and globalisation. Why should we?

    The sad thing is that, faced with this challenge, way beyond Sudoku, Rubik's Cube and the Times Crossword; instead of finding the best among mankind to solve it, we have juvenile, wannabe 'leaders' (far too many now to list) who could not run a bath in a bath-house.

    Even sadder, PUBLIC SERVICE Broadcasting,
    (aka BBC Newsnight) neither comprehends nor cares; insisting on picking at symptoms, such as the present financial boil, rather than investigating what ails mankind.

    Hello Newsnight - I am both waving and drowning. Come on in, the water's lovely.

  • Comment number 3.

    ADDITIONAL

    Paul - surely you can see that those who get to the top are those WHO ARE DRIVEN BY PSYCHOLOGICAL NEED to get tot he top?
    Have you not also spotted that the masses are influenced more by such attributes as oratory and charisma than rationality and ability? (Think Blair.)

    As political PARTY success now requires a massive war chest (mostly to fight off other parties) parties must stay in bed with money, hence money will not be given a hard time. Ergo, political parties are fundamentally corrupt and will always have leaders who can split off that truth in their minds. A split mind even allows 'the other half' to be a 'Son of the Manse'. I rest my case.

    Correcting the problem will not be easy but here's a start: SPOIL PARTY GAMES.

  • Comment number 4.

    ....have any European banks gone bust...

    interestingly the spanish banks are on their knees but were not targeted to the same extent as the uk banks.

    the financial system is one. it has no 'countries' as such. Nation states are a creature [a necessary fiction!] of finance not the other way round. its run by an oligarchy who prefer to keep in the background. Their operations are smokescreened by

    1. schools of economists who put forward 'a set of ideas, which to most people [non economist] seemed perfectly rational'

    2 politicians who are 'frontmen' paid to 'explain' why office cleaners are taxed more than billionaires and why nation states must bail them out to protect their assets and give them public grants for owing capital e.g the 4 billion a year subsidy given to uk landowners most of which goes to millionaires.

    interestingly this naked oligarchy and their system of arguments was demonstrated very well in the Lords Hansard before the hereditary reforms. the majority of the big debates were about protecting subsidy for landowners.

    the projections for china is that in a few years it won't need the west at all. Its own demand will grow to consume its production.

    If political science is finding out 'where the power is' and if money is power then its a case of finding where the money is.

    As for what happened in the unregulated financials we need look no further than 'The Third Man' where post war Vienna serves as a metaphor for an unregulated market. The Ferris wheel speech.

    Martins: Have you ever seen any of your victims?

    Harry Lime: You know, I never feel comfortable on these sort of things. Victims? Don't be melodramatic. Look down there. Tell me. Would you really feel any pity if one of those dots stopped moving forever? If I offered you twenty thousand pounds for every dot that stopped, would you really, old man, tell me to keep my money, or would you calculate how many dots you could afford to spare? Free of income tax, old man. Free of income tax - the only way you can save money nowadays.

    we will have to run through a lot of sewers to regulate the Harry Limes?


  • Comment number 5.

    HARRY LIME THEME

    There's theme developing here Paul - and it isn't money or mechanisms . . .

  • Comment number 6.

    Why are these blogs more interesting than the programme itself? You're accidently exposing TVs inherent inability to get below the surface of the financial crisis. Go to your room at once.

  • Comment number 7.

    just for fun here's the Ferris Wheel Speech

    http://www.youtube.com/watch?v=mZg8a0nqjTE

  • Comment number 8.

    TV's depth exists in inverse proportion to its immediacy and impact. I will get Hyman Minsky on Newsnight pretty soon (yes I know he's dead but his ideas). Maybe tonight if the sound link goes down again and I have to fill 45 mins. Then you will get not only Minsky but Kondratieff, Keynes, Afred Marshall and if you are really lucky Adam, Baruch Spinoza.

  • Comment number 9.

    THE UNSKILLED BRICKLAYER

    If you took a man, at random, with no experience of the building trade, and put him in front of a pile of materials with which to build a house, he would 'do his worst' at the lowest level. All the rest of the house would have to stand, for its lifetime (if it did not fall) on this poor footing.

    We humans are born, as unfinished animals, and presented with the task of making ourselves functional humans. We all fail - more or less - as we must. But even animals are crafty, and we innately disguise our failings. The more keenly we feel our faults, the more assiduously we disguise.
    The more we feel threatened, the more power we seek. This is the source of the driven politician.

    If education (even X3) yielded aware, empowered, adult philosophers, rather than institutionalised units of Mammon-fodder, the poor-in-spirit politician could not survive and the money-based iniquities from Lottery, though casinos, to all the excesses now collapsing (like the house above) would be seen for what they are: uncivilised.

    Small wonder that the mental health of this country is in decline - misery for those caught up, and yet another deferred cost of government. But FUNDAMENTALS are not taught, nor of MEDIA INTEREST hence not ADDRESSED. Unless they are, doom is guaranteed; if they were, I, at least, would find life a lot more to my liking. And, when all is said and done - it's all about me, isn't it?

  • Comment number 10.

    THEN WE ARE DOOMED.

    Paul writes (#8):
    "TV's depth exists in inverse proportion to its immediacy and impact."

    Am I hearing: "It's a job - innit!" ?

    Discussed.


  • Comment number 11.

    Many's the day I've set off determined to get Stephen Fry for the show and ended up with ....well it would be invidious to say who I ended up with but you know how it goes.

  • Comment number 12.

    Paul wrote:

    "In short I propose what could come out of this is a highly regulated and more stable info-capitalism".

    The slight, and in my view insurmountable, flaw in your 'proposal' is that it requires synchronised global regulation.

    I would be very interested in how you think that we can get from the free-for-all we have today to that condition.

  • Comment number 13.

    1. No not an Anglo-American crisis but not a global one either. It is rather a crisis of the western model. Centred on New York and London, it will nevertheless impact on other markets that were sucked in. The Chinese are very exposed because of an over-dependence on the US as an outlet for manufactured goods and because they have lent so much money to the Americans. The Russians are exposed because so much of their economy is based on commodities for which demand will decline. You are right about no European bank collapsing - yet - but some in western Europe have had to make major adjustments especially in Germany, Switzerland and France, because they were taken in by the 'quick buck' opportunities the sub-prime deals appeared to present. The Middle East, Indian sub-continent and eastern Europe has not been similarly exposed.

    2. This is not the 'total collapse of capitalism' because the alternative model of social ownership is not sustainable on cost grounds alone. There are already people howling with anguish at the size of the 'Paulson Pot'. Imagine the outcry if nation states or supra-national institutions suddenly took it into its collective head to socialise the entire global economy. It simply would not work.

    3. The bad thing that will come out of it is that a lot of people - ordinary folks, not main players - are going to be badly hit where it hurts. A significant proportion of them must shoulder some responsibility for being seduced into unmanageable amounts of borrowing but the rest are innocent bystanders. On the plus side, downsizing will mean a lot of cutting away the 'dead wood'. When this eventually pans out, there will be a lot less paper around which is worth more than the words printed on it, many fewer people being paid large amounts to do non-jobs. It will be leaner, fitter and healthier.

    In the short term, the market will have to contract to a point at which it once again becomes sustainable because it can be measured against tangible assets as opposed to paper promises. Real estate prices will continue to adjust downwards until it reaches levels at which there is a balance in the supply and demand equation.

    In the mid term there are plenty of growth opportunities in areas which can be described as 'useful'. Realistic alternatives to fossil fuels is an obvious one with new generation nuclear generation and alternative greener technologies. Neglected infrastructure requires upgrading and will soak up some of the construction skills lost during the inevitable property slump. Information and communications technologies will continue to grow.

    Political imperatives will probably dictate that the regulation pendulum will have to swing possibly too far the other way.

    This is not the end of the capitalist society because there simply is not a credible alternative. Corporations have had to learn how to rationalise and downsize. Now it is time for an entire economic system to do so. It may be painful but it is necessary.

  • Comment number 14.

    The problem is that financial and economic crises are feeding into one another - in the US primarily, but in the UK too. That is going to have obvious political consequences.
    I never liked Kondratiev's schema - history never repeats itself precisely, and certainly not with that chronological neatness. The business cycle was working with clockwork regularity in the 1950s; but was subject to a lot of delays lately, to the extent that for a while some people thought it was suspended for the duration.

    I find Minsky more fitting than Kondratiev, but even so each crisis has its own dynamic. If you want to look at it in the long term, we could be seeing a passage of economic power from the US to Asia - but not the end of capitalism (that system will only end when people want it to end).

    A financial collapse to a 1933 extent is more of a worry, and all the turmoil and drama of the short term of the next week or so can only be put in perspective in that light - will the financial system collapse,? And if it doesn't, then at some point attention will turn to the economic crisis.

  • Comment number 15.

    Surely the degree to which they can extricate themselves from this mess depends upon whether they can unpick all those CDO's, which as far as I understand it , have been sold on quite a few times.

    I think threnodio is right in this respect:

    "In the short term, the market will have to contract to a point at which it once again becomes sustainable because it can be measured against tangible assets as opposed to paper promises. "

    From that point of view all this talk about "maintaining growth" seems a bit like Canute

  • Comment number 16.

    GORDONOMICS

    Just watched Gordon's triumphant speech. It seems to me that just a space and time became 'spacetime' with Einstein, cash and time have become intertwined as 'cashtime'.

    By applying Darling's Uncertainty Principle, there is no way of knowing when all these costly promises might materialise.

  • Comment number 17.

    The 'corporation' needs regulation - without it, it's just a wolf. But the quality of the regulation is what counts. Not Phil Gramm style 'non-regulation' or Ed Balls style 'light regulation'.

    But not the bandwagon being jumped on by the EU to try and 'empire-build' by taking on all the legislation for regulation to unelected and non-democratic bureaucrats in Brussels.

    The problem is, in a globalised world, the 'corporation' without any national interests to keep loyal to, will just migrate to the place that has the least regulation, and the most lax supervision.

    Which is why I worry when Gordon Brown talks about 'global financial supervision' or suchlike - how can he manage that, when he cannot even manage 'British financial supervision' ??

  • Comment number 18.

    THE GROWING COST OF ANARCHO-CAPITALISM?

    Barrie (#5) Yes, and it's more than a little worrying.

    Whilst it's generally 'only' knives in our schools and on our streets, the cost of our current lack of boundaries is clear (which is why we have gangs as substitute families). It's depressing/frightening.

    As we continue to feminize (verbalize) our Liberal-Democracies more and more, the boys will kick back more and more, which shows up in the massive statistical over-representation of the more androgenous amongst human males (usually Black) committing violent crimes.

    Scandinavian countries have it relatively easy.

  • Comment number 19.

    MISERS AND CONSTIPATION

    I was once told, out of the blue, by a psychoanalyst (honest JJ) that money is sh it. Just like that! I was genuinely startled.
    Since that moment, decades ago, I have had time to see the truth of it enacted, not only in the sense of my heading, but also in money's unique capacity to contaminate and make unwell, individuals, communities and the world.

    We teach our children not to tread it into the house, to wash their hands as appropriate and generally treat it as a necessary evil - not to be espoused. Folklore and religions have sage advice regarding money, but in the disconnected, wisdom-free zone of today, that can all go hang. And we may well follow.

    Perhaps Brown bites away his finger nails so that none gets lodged there, though I suspect he has no inkling of what underlies these words. And, being so ill informed, he will never make a great leader.

  • Comment number 20.

    I'm new here, so please don't shout at me if I make some naive comments. I'm still learning about economics and I'll explain why that might be relevant in a minute.

    Paul wrote 'In short I propose what could come out of this is a highly regulated and more stable info-capitalism.'

    Well, didn't we have the highly regulated bit, previously, before the repeal of Glass-Steagall etc? What's to stop that cycle just repeating itself ad infinitum? Even if you are right, Paul, does that make the current crisis any less serious?

    I accept we may not have had the combination of 'highly regulated' and 'info', at least not as 'info' as nowadays. This is where my 'still learning' might have some relevance, perhaps. Like a lot of people, I left school with few qualifications and spent most of my life in a succession of moderately paid jobs. It's only since recently semi-retiring that I've started giving myself a crash course (no pun intended) on economics. Not via an educational institution but from info freely available on the Internet and Paul Mason's and Robert Peston's blogs, for example. Incidentally, I am extremely grateful to Paul, Robert and all who take part in the discussions on their blogs. I feel very priveleged to have been able to 'earwig' some very informative discussions. What I'm now wondering is how many other people might be doing the same as me. If more and more people are, like me, using the Internet to start understanding economics and what has been going on, maybe the wealthy and powerful won't find it so easy to keep us under their thumbs. Just a thought. I feel like we all need a glimmer of hope.

  • Comment number 21.

    WONTBEDRUV #20

    Welcome! You won't get any stick from me, I have no idea who is right or wrong on all the monetary stuff. I see a failure to address money, for what it IS (what it has become) as the root problem - in other words: a philosophical/cultural one.

  • Comment number 22.

    Barrie #21

    Thanks for the welcome. Lucky I'm also trying to teach myself a bit about philosophy, too, then;-)

    I found myself agreeing with what you wrote at #9, particularly about the important stuff that isn't taught in our educational establishments. I think it was Oscar Wilde who said something along the lines that nothing worth learning can be learned at school.

    Wouldn't it be a lovely irony (assuming GB keeps his promise) if the poorer young people used their computer/broadband vouchers to access all the free and empowering knowledge that's available online? Who knows where that might lead...

  • Comment number 23.

    wontbedruv (#22) It has nothing to do with poverty. Low verbal ability can't be improved through more money, education or brain-gym. The argument that pouring money into education, education, education somehow benefits the recipients is naive. The Contextual Value Added model used by schools to predict SATs is a regression equation which weights SES variables in such a way as to egregiously make it appear that genetic variables (like ethnic group membership) are not where the drivers are. This allows the government to sink lots of cash into BSF, Academies and other money-making schemes like Future Leaders, Aiming High, SEAL, etc, which please their backers like publishing houses and builders.

  • Comment number 24.

    Paul,

    "What is collapsing is a set of ideas, which to most people seemed perfectly rational: that deregulation and information technology, combined with more intelligent economic policymaking had created an unbustable boom. This, incidentally is the source of Gordon Brown's famous claim."

    This comment surprises me, mainly the "to most people seemed perfectly rational" part. Is that really true?

    I don't know anyone who believes that, or ever did. All the people I know who have commented on this situation have observed for years that an economy built on debt and a housing bubble couldn't endure. That said, I mostly mix with people in the physical sciences. engineering and IT, and people like that instinctively discard the possibility that you can get something for nothing.

    I noticed that right up until the collapse of Lehman Brothers, Gordon Brown seemed to be clinging to the idea that if only we could inject a little more liquidity to the system then things would return to normal, where "normal" means 125%, no-deposit mortgages at six times your earnings. I dismissed it as a typical of dishonest politicians, but given what you say maybe I was wrong. Earlier tonight I saw an interview with an estate agent who was _still_ peddling the idea that we just need to get the banks lending again and hey presto - problem solved.

    I think you are right about ideas collapsing but I hope your choice is wrong. I hope the ideas that are collapsing are all the self-indulgent, self-deluded ones; that house prices always go up; debt can increase forever; interest rates are always low; someone else will always pay. Stuff like that.

  • Comment number 25.

    I greatly appreciate your blog, Mr. Mason. It has proven to be very helpful to me by providing me with a broader perspective on economics. Thank you for your good and faithful work.

    I believe that the starting point of any public policy - be it economic or otherwise - should be based upon the realization that human beings are flawed, imperfect creatures. And any policy or system of governance that ignores this fact is in danger of creating more harm than good.

    That being said, it seems to me that the concept of globalization is a bit like a house of cards in that it attempts to create a global economic system (a Utopian idea, if ever there was one) while ignoring the immense complexities - both good and bad - of human existence.

    I would like help understanding just how it surprises people when flawed, imperfect and - dare I say it? evil - human beings have abused this global economic system for profit and at the expense of the millions of people.

    It perplexes me to think that our American leaders would go to such great expense to recreate this house of cards, when even a vague understanding of history and human nature reminds us of the inevitable: Human depravity will cause this house of cards to fall again.

    Granted, I am an Edmund Burke devotee. Therefore, I ask, am I missing something?

  • Comment number 26.

    C.P. SNOW

    hants_gw (#24) "people in the physical sciences. engineering and IT, and people like that instinctively discard the possibility that you can get something for nothing."

    Those are the people in touch with the real world. They know the dangers of deluding themselves (and others) as they know that their physical systems fail under such circumstances (but they're 'geeks' don't you know?).

    The media is far more verbal than spatial (think Jen in the IT Crowd). She's our media and political 'intelligentsia' writ large. See NCAH and CYP21 on C6P21 for details.

    One isn't supposed to say that because it offends their vanity and they can't help liking the limelight, it's a 'girl' thing.

    The media is a feminised sector (ask Paxman or Buerk) and feminism is closest to Bolshevism.

  • Comment number 27.

    JJ #22

    I did not say that I agree with spending more on education but nor do I agree with what you say in this and many previous posts (yes, I have read them).
    In my opinion (and experience), there are many and diverse reasons why some people derive little benefit from formal education, whatever their IQ (even if one believes that IQ can be accurately measured, which I do not). I left school with very few qualifications but, many years later, sat a MENSA test and was told I had an IQ higher than 99% of the population. I believe that IQ testing, like so-called psychmetric testing, keeps some psychologists in work but has little other value. Incidentally, I left MENSA soon after joining, appalled by the views and attitudes of many of its supposedly intelligent members.

    I think one of the reasons why govts are so besotted with education is that the vast majority of MPs are university graduates and, perhaps, have to believe that this is the 'one true path' to wisdom and success. Whereas society used to write off as failures those who failed the 11 plus, it seems we now write off as failures anyone who hasn't been to uni. Just another sort of inflation, perhaps;-)

  • Comment number 28.

    Instability had become part of the housing market. To state the obvious, selling off a lot of social housing and removing rent controls while huge disparities grow in income allows the very much better off to take house prices to the stratosphere while still being able to buy second and third houses in areas where less well off people might otherwise live. Encouraging more than 100% mortgages in a less secure work situation adds to the mix while in addition it becomes popular to see renting as something shameful. There is now a possibility of someone renting what was a council house from a private landlord at a much higher rent. Moving to where there is work from an area from which a lot of work has gone must be more difficult than ever.
    Nothing makes sense. I must go back to school.

  • Comment number 29.

    i agree with briggs @ 14 that kondratieff's theory seems too tidy. but it does pick up on a point that most economists agree with - that long term growth depends on technology, meaning our ability to make more value out of the limited resources available to us. in that sense, i think it must be right that we are far from reaping all the efficiency gains available from the current it revolution, not least of which is the global sharing of info and ideas which one would hope will lead to an acceleration of sensible technological development.

    okay, so that is the hubris. what we are seeing in the current crisis is minsky. my take on minsky that it is to do with systemic leverage. when you get a sustained period of underlying "kondratieff" growth, it is normal for the financial system to gradually leverage up and up. investors want to get the biggest bang for their buck, assuming the bang is of the right variety.

    the problem is that higher leverage means higher sensitivity (not to mention poorer lending standards). so a slight slow down in the underlying economic growth - e.g. because of rising energy and food prices - can lead to a sudden deleverage. and it is in the nature of systemic deleverages that they are sudden and violent thanks to the various well-known feedback mechanisms - falling asset prices, cascading defaults, etc. arguably, the longer the boom, the more the leveraging up and therefore the more violent the bust.

    this is clearly a global crisis, in the sense that everyone will suffer. but it is anglo-saxon in the sense that the us and uk have become most systemically leveraged during the boom years. i don't expect e.g. german banks to go bust. even deutsche bank, the most americanised bank in germany, is sailing through this crisis remarkably well, partly because it always had a much stricter "germanic" risk management culture than other investment banks even though it was the most active in credit derivatives (though not in us home loans).

    free marketeers claim that markets assess and correctly price risk and scarcity based on the information available. but as soros points out, this is not true, as markets also create their own realities. the relationship is symbiotic. market bubbles feed into economic bubbles, and vice versa. and markets always have blind spots - they fail to see how their own behaviour is altering the underlying reality.

    my biggest fear in all this is the very big blind spot that people have for china. it has experienced over two decades of double-digit growth. i would conject it is certain that that country's financial system is riddled with bad loans that will be exposed when the country's growth inevitably slows down over the next 6-12 months. everyone assumes that chinese "catch-up" growth will go on and on uninterrupted. why should it?

    it will be interesting to see whether the chinese communist party of today remembers how to deal with an economic downturn and widespread social unrest.

  • Comment number 30.


    Winners and losers...

    It's now clear that Wall St and The City couldn't organise a **** - ** in a brothel.

    Authorities in the US don't even know the true scale of the problem yet - it seems to be ever-expanding! That's what makes the situation especially scary - the possibility that beneath the recent bank failures lies an all-consuming financial black hole of unlimited, spiralling debt!

    But, assuming absolute catastrophe can be averted, when the dust finally settles on the financial markets, who will gain from the turmoil and uncertainty in the US and UK?

    Frankfurt will probably be the long-term winner in Europe, since it has long been poised to take over from London as the continental centre of finance.

    Vanity, vanity all is vanity!

  • Comment number 31.

    THANKS TONY

    wontbedruv (#22) Educated/educable people aren't to be listened to (because that hurts)?

    Pass that by me (or Pol Pot) again.

    Ask not what your schools and government can do for your country, ask what you can do to **** up your county and then complain about it?

  • Comment number 32.

    You're totally missing one fundamental point. Our present way of life is predicated on using tomorrow's money to pay for what we want today (debt). This in turn relies on endless economic growth. Economic growth on the scale to which we have become accustomed is based almost entirely on cheap energy - stacked and stored in the earth for millions of years and now having been gorged by humans for the past 100 years.

    The era of cheap energy ends about now; our Energy Return on Energy Invested will drop precipitously in the coming decade or two. No amount of fancy, debt-fuelled financial products, derivatives and systems will operate without reliable (ie cheap energy based) economic growth. The rates of economic growth we've experienced in our lifetimes are about to cease (or at least fall dramatically) as we figure out how to live within our energy means.

    So, forget trying to put back into its shell the scrambled egg that is now the Anglo-US financial system. Start figuring out how to live without cheap energy and, so, without unsustainable economic growth.

    I don't have the answers, but I do know that the transition from us relying on cheap (borrowed) energy to a lifestyle based on the sustainable use of real-time energy is going to be painful.

    Bankers and financiers have yet to see the problem, let alone figure out solutions.

  • Comment number 33.

    markanash @ 32

    "Bankers and financiers have yet to see the problem, let alone figure out solutions."

    actually they did already see the problem - that is why there has been a huge rise in energy prices. it is not their job to find a solution, only to direct capital towards others that can.

    otherwise i broadly agree with what you say, although i think there is scope for another 5-10 year economic cycle before the pain really kicks in.

  • Comment number 34.

    I'm a great admirer of Newsnight and especially your slots.
    I wonder if you might be able to investigate a throwaway remark I heard right at the end of a either last Thursday's or Friday's edition of Newsnight.
    Nicola Horlick, among others, was being interviewed. Did I hear her correctly? What I thought she said was that the reason the FSA is unable to control the city is that as soon as one of their investigators comes close to finding anything wrong, they (i.e. Nicola Horlick's "side") simply employ that person. I presumed she meant that this practice keeps them quiet. She said, rather smugly, "We can pay more".
    Unfortunately, it was right at the end of the discussion with time running out. But I thought this ought to be investigated more closely.
    Perhaps you could take another look at the programme.

  • Comment number 35.

    RE: 26 JadadJean

    I can see how the C. P. Snow reference relates to journalism versus science/engineering. What intrigues me here is the place of the finance industry.

    I suppose I had always assumed that the bankers knew exactly what they were doing (ie they knew that their behaviour made an eventual bust inevitable) but they cynically reasoned that prior to the bust they would pocket such vast salaries and bonuses that they wouldn't be seriously affected. The fact that tax-payer funded bailouts and assorted mergers are protecting many of them from the bust that they have created is then just a bonus (no pun intended). This would place them on the "scientific" side of Snow's two cultures - realistic and, as it happens, amoral. Paul Mason's assertion (the one that surprised me) is that they genuinely believed that their behaviour was viable in the long term. I'm not so sure that this places them on the "arts" side of Snow's divide. I'd characterise it more as deluded.

    "See NCAH and CYP21 on C6P21 for details."

    Sorry, that went over my head. Could you expand on the acronyms?

  • Comment number 36.

    hants_gw (#35) CYP21 is a gene in band 21 of the long arm of chromosome 6. It's responsible for an enzyme which is critical in the synthesis of the sex steroids. Non Classic Adrenal Hyperplasia is the most common autosomal recessive anomaly in mankind. Whilst sexual dimorphism is established by the presence and effecs of the SRY gene on the Y chromosome (and testosterone) the effect of the CYP21 polymorphism on C6p21 is to increase the amount of testosterone in BOTH sexes, and this MAY paradoxically lead to a very slight feminisation of males and slight androgenisation of females. Statistically, different ethnic populations carry these CYP21 polymorphisms at different rates, which, I suggest, may mean that different groups have different degrees of sexual-dimorphism (which shows up in subtle cognitive ways as well as other phenotypic characteristics). I'm suggesting this may have significant cognitive/behavioural and this political consequences as usually there's an opposite verbal-spatial tilt between the sexes.

    Look out for short males.

  • Comment number 37.

    Thanks to all above, especially the new people. I will try to do more "crash-course economics" stuff, because this is what people come up to me in the street and ask me about also.

    But I will warn you about two things: 1) I am not an academic economist 2) I think this is an advantage.

    My favourite scene in the movie Gettysburg is where Confederate General George Pickett reveals he came "dead last" in every subject at West Point. "The Yankees got all the clever ones, and look what good it did them" (at this point the South was whupping the North's ass).

    The reason it's an advantage is because conventional economics, I believe, only understands the conventional. If you look at the Bank of England's forcasts on inflation and growth, every quarter, they have been dramatically over-optimistic every time. They are silently revised each quarter with a methodological shrug of the shoulders, and even the policymakers who think they are not good enough still have to take decisions on the basis of this data, because it's the best there is. Then take accountancy: Friday Lehman is technically solvent, Monday it is technically bust.

    Conventional economics can only take you to the point where shocks and politics (and crime) intervene. Then the debate becomes: can you theorise shocks, crises, political decisions and grand larceny as part of economics? I believe you can: that's why I try and take a "political economy" approach to the journalism, and leave the pure economics to experts I can get to come on my programme and educate me. Also, it's worth saying that I don't think anybody has adequately theorised political economy. But the political economists posed the right questions, from Quesnay, thru Smith, Ricardo and Marx etc.

    (Incidentally I will post soon on the Kondratieff cycle debate. It's going on all over the place, hedge funds, universities, the left, the right)...

    I'm not asking people to agree with this approach, but I did manage to get it written into my jobtitle when they appointed me, so it's as well to know where I am coming from on this.

    So give me a wish list - what would people like to discuss or know more about?

  • Comment number 38.

    Oops that was supposed to be short arm (sorry, this is more than a bit off topic).

  • Comment number 39.

    Paul,
    That's a very generous offer you've just made @ #37.

    So here's a seemingly simple set of questions:

    - what's different between this financial crisis and the Great Crash of 1929?
    - how automatic is the link between a financial crisis and a massive downturn in the general economy, in the manner of the Depression of the 1930s following the Crash of 1929
    - What would Smith, Richardo, Marx and Keynes made of all this?

  • Comment number 40.

    MARKET CONFIDENCE AND REGULATION

    WrightAlison (#34) I watched the interview again (as I write, it's still available via BBC iPlayer) after reading what you said. The interview was on Friday, about 13 minutes into the programme (with the critical bit at 17:40 or so). Gavin asked Nicola whether the financial system may be so complex that the regulators (FSA) might not really understand what they're regulating. Nicola agreed, making reference to the proliferation of hedge funds which are hardly regulated at all. She went on to say that it was difficult for the regulators to hold on to their most senior, i.e. experienced, Compliance Officers as those regulated would poach them because they could pay more. I took her just to be saying something quite innocent in that all financial services who ARE regulated by the FSA need Compliance Officers just as the FSA does. I thought she was just pointing out how difficult it must be for the FSA to regulate if they suffer high staff attrition rates.

    Having said that, I find it almost impossible to believe that financial services will do anything but try to stay just on the right side of compliance, and that's the ones who ARE regulated. The more I look into what goes on, the less confidence I have in any of it. Which is probably why so many people would rather not look too closely into it?

  • Comment number 41.


    I have to agree with the sentiment of markansah at no. 32. Hopefully, capitalisam will find a solution to "peak oil" but I'm not convinced. I sometimes feel like Private Fraser (We're all doomed, doomed I tell you!) but the thought of the convergence of peak oil, global warming, top soil erosion, world over population etc worry me. Can capitalism cope with/survive/provide solutions to all of this in the next 20-40 years?

    I'm not sure if I read too many doom laden books and I am just too pessimistic. What surprises me however is how little media analysis there is. Is it because what I read is rubbish or is it too frightening a prospect for many people to contemplate? For example, the recent news treatment of rising energy costs suggests that it is a blip. From what I have read it is not so much a blip but the start of things to come.

    Should I chill out and stop worrying or should I get my "The end is nigh(ish)" sandwich board out?


  • Comment number 42.

    wondbedruv (#27) "I believe that IQ testing, like so-called psychmetric testing, keeps some psychologists in work but has little other value."

    Then like many other people you have some false beliefs, and the danger with those is that one is prone to deductively infer false conclusions from bad assumptions. Psychometrics has been hit by political correctness and a lot of false propaganda. As a consequence, a lot of contemporary psychology is now nonsense. The reality is that every year all but ~10% of the children in the country sit IQ proxies in their SATs and many schools use NFER CATs to predict levels in SATs. What matters here is not whether one believes this or that can be measured validly or reliably, but whether statistically one variable (or set of variables) can be shown to be usefully predictable by another. This is basic science (and practical technology too), and it's as true of Quantum Mechanics as it is in psychometrics or economics.

    Telling others what one believes is often just a matter of revealing one's ignorance. We all do it. Most of the time we don't realise we're doing it (for what should be obvious reasons). Don't confuse what you like or don't like with what's true or false.

  • Comment number 43.

    benagyerek (#29) "everyone assumes that chinese "catch-up" growth will go on and on uninterrupted. why should it?"

    Do they? It may not go on and on, but it is growing still is it not, and there are markets outside the USA and EU (which have relatively small indigenous population). China has a mean national IQ of 108 (or so), passed eugenics legislation in 1995, has an essentially Stalinist (Democratic-Centralist constitution an (essentially) still planned economy with NEP (the type that isn't supposed to work according to Hayekian/Thatherite(Friedmanite) ideologists (especially if nobbled by Trots/anarchists), a population of 1.4 billion, and heads the SCO which includes Russia and may one day include India, Pkaistan, Mongoia and Iran. If one does the comparable analysis for the Liberal-Democracies, what does one see? Low birth rates (but highly skewed towards dysgenesis), high low-skilled immigration (supposedly to compensate, but perhaps really in the past just to fuel the sub-prime boom?), rising levels of spin, corruption and crime, with large numbers of high-verbal (feminized) wordsmiths (who have been selected for their ability to argue, argue, argue) in denial not facing up to the empirical (spatial) facts because those are very 'depressing' and their hubrism/narcissism isn't really up to dealing with that sort of geeky reality? Did you know that 80% of stuff is bought by women?

    In the etheral realm of the Financial Services sector, these types continue to dreamweave. It's a domain where variables never seem to come into contact with reality until it's too late. And then what do they really have to offer Dodgy 'reverse auctions' of unfathomable debt?

  • Comment number 44.

    RE: 37 paulmason-newsnight

    "So give me a wish list - what would people like to discuss or know more about?"

    That's quite an invitation. Very decent of you.

    My guess is that for the foreseeable future you'll have plenty of material from the headlines, but if you come to a loose end ...

    I'd like to understand a little more about Britain's balance of trade deficit. As far as I know it is currently in the £40-50 billion range and the trend is deeper into the red. It's also been in the red for quite a few years now. This suggests one of two things.

    a) The deficit is in fact benign and we can go on like this indefinitely. This seems counter-intuitive to me and I'd like to understand how this particular deficit is special in that it can grow forever and never needs to be repaid.

    b) We are headed for another crisis, when the deficit becomes so large or has continued for so long that it suddenly tips over into some sort of crash. Presumably that would take the form of things like a collapse in the value of the pound, a sharp drop in imports and a drop in living standards as we attempt to pay back the accumulated deficit

    If it's the latter option then I think your reference to "political economics" becomes relevant because the obvious next question is why no politician has anything to say about this.

 

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