Monday, January 19, 2009

“What Do We Want..Quantitative Easing..When Do We Want It..Now!”

The SERTUC Regional Council meeting on Saturday morning (see previous post) had invited the economist, Graham Turner, of GFC Economics to update us on the “impact of workers of the current economic situation and future prospects”.

A huge topic to cover in 15 minutes. Graham to his credit didn’t seem fazed at all by this and did his best to cram in a minor PhD worth of alternative financial info in the allotted time spam. Despite the odds - it worked.

Graham argued that the Banks are still lending as much as they did during the boom years despite the common perception of a “credit crunch”. However, what they are doing now is lending to the OFC or “other financial corporations” such as lease and finance companies who use to get their money from capital markets. Which have now all dried up. The Banks are using the money they got from the government to lend to this “shadow banking sector” rather than directly to industry and consumers. He wants the Banks to be nationalised outright since piecemeal recapitalisation of Banks is not working.

He feels for Obama “I really do” since he thinks he will be overwhelmed by events - 1:10 US mortgages are in arrears or being foreclosed. This will increase as the recession takes hold. 1.5 million US jobs have been lost or more commonly, people are forced to go part time. The true unemployment and forced part time rate is now 13%.

He believes that the weakening of Unions in the West contributed to the present crisis since it led to a squeeze on earnings which meant consumer goods and homes were unaffordable which resulted in excessive lending

Graham’s solution is the infamous “quantitative easing” - large scale financial fiscal stimulus of the economy. In April 1932 the tide was turned in the States by buying bonds not cutting base rates. The gilt yield at the moment in the UK is some 4% pa; it needs to get down to 1.5%. By printing money or by whatever is needed. There is no current inflation threat only a real deflation threat. We need to learn from Keynes and from what worked in the 1930’s. Probem is that the lesson of history is of course we don’t learn from history.

Graham is based in Mile End around the corner from where I work. Well done to SERTUC for having him speak. He went down very well with the audience. I did my usual question to him about the role of workers capital governance in the current crisis but got my usual reply (he thought that I was talking about the current dire financial state of many pension funds not workers capital – it must be me?).

Graham has a book out called “The Credit Crunch – Housing Bubbles, globalisation and the Worldwide Economic Crisis”. I queued up with many others to buy a copy which now sits on a shelf immediately to my right and is now glaring at me unread.

Two further things of interest – the first question he had from the floor complained that there hadn’t been enough “class analysis” in his presentation. Graham answered by apologising for not referring to the impact of on the working class of the crisis but made no reference to any theories on class consciousness (which was a relief and a welcome surprise).

Steve Hart, the Unite London regional secretary, asked Graham if could think of a more snappy, user friendly slogan to explain what he was arguing about. Steve, quite reasonably pointed out that he could not imagine going on a demo with thousands of people shouting “What do we want...Quantitative Easing... When do we want it?..."“Now”. I think that Graham suggested “Print Money Now” and “No Wage Cuts”. Which are not that catchy but will do.


Charlie Marks said...

I guess next time you'll have to be much more explicit with regards workers' capital as opposed to pension funds in general!

Must ask you John, how interested are you in workers co-ops, employee-ownership schemes, etc?

It might be something that comes up as an issue - for example, workers take a pay cut in exchange for share and greater say in business? This applies to the private sector, natch.

"but made no reference to any theories on class consciousness (which was a relief and a welcome surprise)."


Charlie Marks said...

PS: not too keen on this whole quantitative easing thing. Seems like the Chancellor and PM are trying to avoid nationalising the banking sector (well, a major part of it, at least) for fear of looking like they're heading a socialist government.

No surprises that ex-trotskyist Darling always looks a bit sheepish when the word "nationalisation" is mentioned!

Apparently there was a badly-asked question on mutuals vs. privately owned banks - it might be better, for example, if the govt said it was going to return public banks to commercial albeit mutual ownership...

Anonymous said...

Print money? Zimbabwe here we come!
What a fantstic job the Iron Chancellor has done - our economy is sooooo well placed to weather the economic crisis - what with the highest levels of personal debt in the developed world, the fall of the pound, mass unemployment looming, industry going down the drain...oh I can hardly see him because of all those green shoots! How competent, what great experience Labour bring to bear..fantastic. talk about being exposed for what you are..

Anonymous said...

"not to worry Baldrick, if all else fails then a refual to look reality in the face will see us through"

Can't you see Labour have truly fucked the economy up and offer no solutions. Not that I'm happy that we're gonna get the Tories at the next election but you couldn't get a fag paper between the two parties now anyway. Quantative easing? really? is inflation a solution now? you lot really are desperate aren't you. Fact of the matter is the working class will never trust Labour again. Perhaps if the unions and the Labour party had spent more time trying to build dreaded class consciousness amongst the working class then we would be better placed to resist the intensifed regime of cuts in public services and wages, the lowering of terms and conditions and jobs bloodbaths that acompanies all economic crisis'. But as things stand we're all fucked. And I'd just like to thank the Labour party, Trade Union leaders like the old grand duke of... oh sorry I mean Prentice and thier good friends at the CBI and the banks for that.

John Gray said...

Hi Charlie
Sorry about the delay in responding. Yes, I think I need to spell it out clearly. Activists in any field tend to forget that just because you get wrapped up with an issue doesn’t necessarily mean that other people are even faintly aware of what you are going on about. Or remotely interested. We have to try harder to engage with people and get them involved.

I am interested in co-ops and employee ownership. The Co-op obviously works and my favourite store is Waitrose. There is a definitely a role but I did have a bad experience once working for a co-operatively run organisation once which did put me off a bit.

I don’t think it works for everything and I think that effective worker’s capital, “proper” works councils and even TU reps on boards is perhaps more practical?
Credit unions, Post office’s, building societies and other mutually owned services (in Australia the unions directly run many pension funds) is an area that needs more support.

Also in my dim and distant youth I had the misfortune to attend meetings which were quite interesting and lively until anyone mentioned “class analysis”. Well, see my first paragraph.

Hi Charlie 2
I think I saw the same interview. He was basically backed Grahams arguments that the Banks used the money lent to them so far replace the money lost by the absence of other financial institutions. I felt he looked uncomfortable when he stated that this has not increased the total money supply. I thought that Brown and Darling made it quite clear that if the banks do not “play ball” they will all be fully nationalised.
I’ll have to be carefully here since this is another dim and distinct recollection from when I was a kid studying economics and Keynes (and applied beer drinking). But, I think that if the chief current financial problem is about replacing not only the money from OFI’s but the massive losses that the Banks have made then the state will have to intervene and fiscally inflate (quantitative easing) the economy. The ownership of the banks is a secondary matter.

This is making my head hurt – perhaps class analysis wasn’t all that bad?

Hi Anon
Actually there is a money supply argument that Friedman would have recognised. There is nooooo danger of inflation. The danger is deflation. It is the patriotic duty of the Government to spend your money.

Hi Paul c
Nah, there is huge differences between Labour and the Tories. If you don’t see this then why aren’t you bothered about the Tories getting in? There are huge differences between the Party and the Ultra Left granted. If you have all the answers then get your fingers out, learn how to talk to people not rant at them, how to knock on doors and persuade people to support you not for them to laugh at you after you have left.

You won’t do this will you? Too much like hard work I suppose? Much, much better to sell newspapers outside Tesco’s and sneer and blame everyone except yourselves for your complete and utter political failures.

Charlie Marks said...

John, thanks for replying. good to hear you are a fan of coops - I remember when gordon was coming in there was talk of him adopting "cooperativism" as his vision. Not much has come of this, alas, but recently Hazel Blears has said that cooperative ownership forms could play a part in getting us through the recession, which I take positively. (Have you seen the policy debates re: the Co-operative Party's manifesto online? A very open way of developing/debating policy - something other progressive parties could learn from - including Labour, of which the Co-operative Party is, erm, part.)

Sadly the government hasn't nationalised those banks it has stakes in (perhaps the only big bank which is stable is HSBC). This will lead to continuing jitters until it actually takes place.

As for the future of private banking, Paul Myners has been writing in the FT about the govts intention of restoring the old form of ownership - very disappointing, it has to be said.

He fails to recognise that the government could own the banks on our behalf and employ experts to run them as commercial institutions, as is the case with Royal Mail. As he doesn't account for the failure of private banking, it's quite laughable. Here we are, owning the banks after the bankers took too many risks and were rewarded excessively for their recklessness.

John Gray said...

Hi Charlie
Sorry for not responding sooner. Nationalising the Banks permanently? This is the key question. I think that there are good arguments for nationalising them if necessary, but permanently?
The Left have not answered the problem that why should a bunch of Oxbridge civil service graduates be better at running banks than their fellow Oxbridge graduates who by and large ran the Banks until recently and have been replaced by yet another similar lot!

Why can't we the real owners have a role to save the banks?

Charlie Marks said...

Yes. As mutuals.

But there should be no return to the joint-stock form. This form of ownership has caused chaos.

John Gray said...

Hi Charlie
Personal savings for the mutual’s but I can’t see them as effective lenders to business. Not that the main banks are covering themselves with glory. But sometime in the future when things get back to normal. The coldest darkest nights do end and daylight reappears (Myners).

The issue is not joint stock arrangements itself but the failure of those stock holders to exercise ownership (Adam Smith and all that)

Charlie Marks said...

The whole point of joint-stock ownership is you get the good side - dividends, but not the bad side - liability.

It's not one-member one-vote. Hardly matching our democratic ideals!

Recall the founder of the first national union organisation in the UK, Robert Owen, was also the father of the cooperative movement! This is no coincidence.

The Cooperative Bank lends to businesses - why couldn't we convert our banking sector into a bigger version of this ethical bank?

The joint-stock model has failed - spectacularly. Bankers were rewarded for their excessive risks, the shareholders didn't complain because the dividends were good. They knew that if it all went wrong they would only lose their shares.

The labour movement has never been about getting some kind of "moral capitalism" as Cameron calls it - a rehash of Thatcher's "popular capitalism" of mass share ownership (which resulted in foreign ownership of our utilities!)

Did the Cooperative Bank or Nationwide take ludicrous risks? No - they acted in the interests of their members. (Cue the final scene of It's A Wonderful Life!)

John Gray said...

Hi Charlie
It’s a mixed economy argument. There is an important role for mutual, co-operative banks and credit unions. But equally there is the role for the “private sector”. This banking crisis wasn’t the first crisis of capitalism and it will not be the last. Banks stopped providing usual banking services and turned themselves into selling financial services instead. Which has ended in tears for now. Remember Shareholders (Most people with pensions and insurance policies) were never consulted or involved in these decisions. That contributed to the mess we are in.

I wouldn’t be too sure that some of the mutual building societies that over-relied on the money markets for funds aren’t in trouble either. But we will probably not know much about this since most of them are not “democratic” organisations either!

Charlie Marks said...

John, if they were in trouble, we would have heard about it! As it stands, only the private banks have gone running to the taxpayer for a bailout! Why return to this situation in a few years?

I'm sorry John, but private banks don't send out voting papers at all. So even if the influence is limited (over individuals, not issues) building societies are more democratic.

If you accept, like Gordon "No more boom and bust" Brown must also, that rule by capitalists leaves us inherently crisis prone, why you not at all annoyed to have to save the capitalist class by bailing out their institutions?

John Gray said...

Hi Charlie
If we get effective capital stewardship then I believe we can make a real difference to the running of the economy. After the financial disasters now is our time. It’s not “Revolution Now” but I think we have a very good chance of doing more for the greater good than in the previous centuries of “struggle”. We have for the first time a more democratic and equal financial model that actually works and we can finally follow on the great Labour social advances of 1945.

The private banks do/did send out voting papers – “we” actually elected the Executives who ran the risk committees of major banks and voted/agreed their remuneration packages! The trouble was that we just let fund managers vote on our behalf. They meanwhile are all incentivised to always vote to maximise short term return. No wonder it came crashing down. Stark raving Madness! It doesn’t mean you throw the baby out with the bathwater.