www.irishtimes.com:80/newspaper/opinion/2008/1018/1224279408893.html

Irish Times
October 18, 2008
Paul Gillespie
Crisis allows us to reconsider left-wing ideas

World view: In November 1857, Karl Marx wrote to Frederick Engels: "The American crash is a delight to behold, and it's far from over." He predicted the financial crisis - the most geographically widespread to have hit 19th-century capitalism until then - would deepen and lead to a complete collapse of Wall Street, writes Paul Gillespie

Notwithstanding his own financial distress, he had never felt so "cosy". Engels himself felt "enormously cheered". The events confirmed their theoretical analysis and political strategy of linking reality to preparedness.

That crisis spurred Marx to complete his economic studies on finance capital and its cycles of boom and bust, clearing the way for the more comprehensive Das Kapital, published 10 years later. It theorised the system as an anarchic, irrational and blind competition, pursuing profit and accumulation.

Credit and production expand in a contradictory way until they can no longer sustain profitability. Then collapse clears out waste, reorganises production and stimulates the capitalist state to amend the rules governing trade, finance and investment. The state's role oscillates between night-watchman and direct intervention, but its power should never be underestimated.

Marx's work has suddenly become popular again in Germany, as a new generation tries to understand the dynamics of these events and how they should be evaluated historically. There are disturbing memories of the 1929 crash and its awful political consequences, coming after the 1922-1923 financial collapse which destroyed German savings. As the crisis unfolded three weeks ago, German finance minister Peer Steinbrück was quick to claim "the US will lose its status as the superpower of the world economic system. The world will become multipolar." It is happening before our eyes. And Steinbrück says "generally we have to admit that parts of Marx's theory are not so bad".

Commentators have been quick to notice, and many to mock, such left-wing schadenfreude, whether directed at the US or capitalism as a whole. Germans especially should be aware of how hubris and nemesis can follow one another - as Steinbrück found out a mere 11 days after saying a bank rescue programme was not needed when he announced a plan to protect German bank deposits.

Although this is undoubtedly a grave crisis for finance capitalism, with deep effects on the real international economy, it is not - as yet - a systemic collapse. The extraordinary speed and depth of the events and the $1.8 trillion response to them, especially this week in the European Union, have helped avoid the meltdown heralded at the weekend by Dominique Strauss-Kahn at the International Monetary Fund meeting in Washington. French president Nicolas Sarkozy, British prime minister Gordon Brown, German chancellor Angela Merkel and Spanish prime minister José Luis Rodríguez Zapatero are taking the lead to create a "refounded capitalism" more capable of withstanding such cyclical shocks by better global regulation.

In an audacious initiative, Sarkozy and EU Commission president José Manuel Barroso are meeting US president George Bush this weekend to seek a G8 summit next month on a new agreement to regulate global finance. Presumably it would include the president-elect. If that is Barack Obama, he will be confronted with a dramatic adjustment of US power to a more multipolar world, for which he is better prepared and which he is more willing to accept than John McCain.

Note that most of these leaders are from the centre right, not the centre left. Centrism is resurrected from the wreckage of radical right-wing deregulation, more than is the left. The argument is about re-regulation rather than redistribution, the public rather than the private interest, transnational against national sovereignty.

So far, that is. The traditional left has had little operational purchase on the crisis other than I-told-you-so utterances about their inherently cyclical nature. Confronted with this international convulsion, "the Left" is for the most part as weak and tame as it certainly is in Ireland. Popular anger here and in the US, for example, is far more radical, but not expressed in such vocabularies. This is a real challenge and also an opportunity for the left - just as it was for Marx and Engels 150 years ago.

But does the left refer to traditional social democracy, which accepts market capitalism but seeks to equalise it; to the "third way" variety popularised by Blair and Brown; or to the "democratic socialism" of post-Stalinist parties? What of more recent green socialism? How to classify the rump of traditional Stalinist parties in Europe, India and elsewhere? Should Chinese and Vietnamese one-state authoritarian capitalisms led by such communist parties be included? Where do the left of South Africa's ANC and the burgeoning variety of Latin American left-wing movements fit in? Is the US Democratic Party part of that family? How do all of these relate to the growing radical or far-left tendencies and social movements drawing on previous bottom-up revolutionary traditions such as Trotskyism and anarchism?

Big events revive these debates, but they need to be reinvented for new times. Conventional sociological post-industrialism accounts rendering left ideologies and movements redundant badly need revision in the light of falling living standards and growing inequalities. So does Fukuyama's notion of the end of ideology and the triumph of market capitalism - as he now admits. Big names too: Keynes, Polanyi, Kondratieff, Galbraith and now Paul Krugman are deployed by social democrats against those who want to resurrect Marx and Engels.

pgillespie@irish-times.ie

Tags: Capitalism, Marx

Goodness gracious me, look at how *LITTLE* Ireland spends on public goods and services as a % of GDP.

Now, where's all this Irish socialism we so often hear about? Eh? Ehhhh??????




http://notesonthefront.typepad.com/politicaleconomy/2008/10/october-20th-morning-the-recession-diaries.html

Is it really plausible that the cause of our fiscal meltdown and recessionary decline can be put down to 'uncontrollable spending' when 1. Ireland spends less (and I mean really less) than any other Eurozone country. 2. That Ireland's increase in expenditure amounted to 1 bloody percent of our GDP - at a time when our population was growing much faster than almost any other country EU country?Could it be that our ability to cope with the meltdown is encumbered, not because our spending is too high, but rather because our spending is too low?   Is it possible that we do not have the resources to engage in 'counter-cyclical' policies (that is, flood money into the economy to maintain activity) because of our low-tax, low-spend economy?  Other countries which much, much higher spending are going through hard times, yes - we're all living together in this global downturn; but these 'profligate' countries haven't seen their economic fall like a parachutist without a parachute.

Tags: Recession

My review of George Soros’s new book has been published:

http://www.atimes.com/atimes/Global_Economy/JH02Dj02.html
Asia Times Aug 2, 2008
BOOK REVIEW
Tarnished 'truth'
The New Paradigm for Financial Markets by George Soros
Reviewed by Nicholas Kiersey

The root of Soros's complaint is just this: while the methods of natural science may be appropriate for studying the stuff of the natural world, such as nuclear physics, they often produce misleading results when applied to realm of human affairs. For the study of human life is confounded by the dilemma of "interference reflexivity". That is, because students of human affairs are also participants in the ongoing processes which they are trying to study they can never completely remove their preconceived prejudices from their analysis.

See also:
http://agonist.org/tjfxh/20080802/tarnished_truth_the_new_paradigm_for_financial_markets_by_george_soros

http://www.bigthink.com/business-economics/11893

This economist likes capitalism, but her critique is interesting because she is talking about more than distributive justice. She not only challenges inequality but laments how all human relations are seen as transactional today. This was what bothered Marx, too, when he came up with his labor theory of value. For the younger Marx anyway, the thing that made us human was our ability to labor. Mankind is the only species, as he noted, that could change its very species being (ants work but don't *labor* in this sense, if I remembering the nomenclature correctly). Labor is how we express who we are, and who we might become. So in this sense there is a qualitative virtue to labor that can't be captured simply by measuring its value in a wage. Instead, the whole process is rendered vulgar as the system obliges workers to go to the market with their 'wage hours' for sale. Given that the capitalists are required to make profit, they will want to hire the minimal labor required at the minimal price. As such, the capitalist system creates a labor market wherein the workers compete with each other for these relatively scarce jobs. The result is that the workers develop the habit of thinking that life is about work, not labor. This is the great tragedy for Marx: for if we are all to be workers, then there shall be no more poetry in the world. That is to say, we are reduced to robots and lose our ability to truly think. What communism is supposed to achieve, if nothing else, is to finally give us the true value of what we labor on. In other words, the 'wage' for our work plus our share of the 'profit' that the market says our product is actually worth. With all that extra capital in the laborer's pocket, he/she is free to work fewer hours in the day: to write poetry, to create music, to create wonderful new recipes for food, to explore the world of science, philosophy, go fishing, snow board, plant a beautiful garden, help in the production of lovely public spaces, etc.

So life would be less vulgar if we all got the true value of the 'wage hour'. But if that happened, there would be no profit left for the capitalist, and so the wheel turns...

NiK

Tags: Capitalism, Marx

http://www.amazon.com/New-Paradigm-Financial-Markets/dp/B00171KGFK/ref=sr_1_1?ie=UTF8&s=books&qid=1216067916&sr=1-1

I picked up a copy of George Soros's new book this week, 'The New Paradigm'. Its a little bit self-involved, but if you can get past this, its actually quite worth the effort. The basic argument is that blame for the current debt crisis should be lain squarely at the feet of modern economic theory, and its misguided belief that it is a 'science'. The idea that economics is a science is misguided, he argues, because relations between human beings are slippery things, and ultimately resistant to study through scientific method. Simply put, any such method would require objectivity. Yet it is impossible to ever be fully objective about a process in which you are yourself a participant. The analytic principles you would apply in the natural sciences are not legitimate for this purpose because you'll never have perfect information about the ongoing processes in which you are yourself participating and, more importantly, you'll never be able to completely remove your own bias from the analysis.

The solution to this philosophical problem, Soros argues, is to introduce reflexivity into our analysis. Reflexivity requires us to lower our expectations about what we can claim to know about human affairs. Making absolute predictions about future performance, for example, is impossible because any assumptions upon which such predictions might be based are necessarily incomplete, and tentative. Yet it is not enough simply to resolve this issue on an esoteric or philosophical level. For we have 'bet the farm,' so to speak, on a global financial system built around a set of non-reflexively developed assumptions. Namely, the assumptions of economic theory.

As a science of human relations, economics proves its worth by identifying generalizable patterns of human behavior over time. To do so, however, it necessarily relies on metaphor to limit the complexity of the things it sees. Take for example the fundamental argument of classic economic theory, that supply and demand always tend towards 'equilibrium' in the long run. The idea is that, with good enough information, the unrestrained pursuit of self-interests will always lead to an optimal allocation of resources.

As a functional metaphor for economic analysis, the idea of economic equilibrium may hold up for long periods of time. Yet it should not be accepted as dogma. For what are these concepts, of supply and demand? How are they made?

Economics says we have, each of us, inbuilt or 'given' outcome preferences. These are our most fundamental and timeless traits because they are so deeply embedded in our human nature. Now, certainly, if we really possessed such enduring traits then our analytical dilemma would be over. For these preferences would make our behavior in different contexts predictable, following basic laws of cause and effect over time. The problem, however, is that in financial markets the participants are not passive entities. They are reflexive beings, with capacities both as actors (agents of change) and observers (agents of knowledge). And given that each capacity has the potential to influence the other, those fundamental traits posed by economic science appear anthropologically specious. 

If we are reflexive beings then the premise that we engage in the market in a purely rational fashion appears somewhat overstated. For where rational actors adapt their expectations to new information in order to maximize their interests, reflexive beings develop beliefs which, if held collectively, can create fundamental shifts in the nature of the market itself. 

Contrary to economic equilibrium theory then, we find that actors do not approach the market from a position of externality, with preformed preferences, ever-adapting to new information about their position relative to an ideal point of equilibrium. Beliefs and perceptions, not expectations, are what we really need to be thinking about. Beliefs literally 'constitute' the economic system (and, I would argue, far more than even Soros lets on!).

So what does all of this mean for the current debt crisis? Well, Soros is clear here. The emergence of a new set of beliefs about the market is more than a mere reflection of what is going on 'out there', more than a mere change in expectations. Instead, it is an event with significance for the market itself. It can fundamentally re-write the basic narrative metrics that actors use to describe risk.

Soros goes through a series of booms and busts to show how well his theory holds up: the Conglomerate Boom of the 1960s, the 1980s International Banking Crisis, the late-90s Asian Financial Crisis, etc. At each point, his model is used to show that the market and its participants were engaged in reflexive behavior conditioned by certain basic understandings of what was 'normal' in the game. In the 1980s, for example, the creditworthiness of borrowers and the willingness of the debtors to lend were involved. But the creditworthiness of Mexico was not a 'real' thing in its own right. Rather, as it turned out, Mexican creditworthiness *mattered* historically only to the extent that it existed in the heads of the independent banks who narrated it.

And they narrated it as 'just fine' all the way to the bust. That is, the "moment of truth" where "reality can no longer sustain the exaggerated expectations" (66). Indeed, even at this moment they did not necessarily 'correct' their behavior. Like lemmings over a cliff, beliefs can drive the market often far, far on, past the moment of truth, and into calamity. "As long as the music is playing, you've got to get up and dance," as Soros cites Chuck Prince, the CXO of Citibank (84). It turns out, then, that there is little that is rational in the process at all.

So how about today's situation? In the current conjecture, are prices just a reflection of reality or are they effecting reality? Soros argues the latter. As he says, equilibrium is an ever "moving target" (72). And in this sense markets are always wrong. But sometimes they are more wrong than others. And you know you are in one of those moments when "some form of credit or leverage and some kind of misconception or misinterpretation" start to radically skew our economic affairs (78).

The current crisis is unlike any that has occurred before. Namely because it involves two bubbles, not just one. While the US mortgage crisis is the immediate "trigger" bubble, another "longer-term super-bubble" is by far the more important of the two. For where the misconception driving the property boom was that "the value of collateral is not affected by the willingness to lend," the super-bubble is driven by a more foundational issue: "market fundamentalism," the desire to extend the principles of laissez-faire economics to the entire domain of human global activity (91).

Soros goes into some detail about the ideology behind the super-bubble, and the development over time of a range of 'synthetic' securities of such complexity that they were beyond the understanding even of the regulators. Nevertheless, believing in the myth of market equilibrium, the regulators confidently abdicated their responsibility to investigate these instruments. All too casually, as we now know, they assumed the market would automatically correct any excesses.

How does Soros propose we remedy the situation? Case-by-case solutions are required. But at the general level, he argues, we need a more cautionary approach to the use of leverage. If creditors can expect to be continuously bailed out by central banks when their willingness to lend gets  them in trouble then regulators should exact a price for this. And the public should support this, too. For given that the US housing market is especially unlikely to bottom out on its own any time soon, it is clear that the costs of this breakdown will dwarf the costs of the regulative regime that might have prevented it. 

What are we to make of these arguments? Critical social science theorists will not find anything particularly new or innovative in this text. But the books importance lies not simply in what it is saying, but who is saying it. This is not the sort of radical free-market ideology you would expect from a financial speculator. And while I am not an economist, I am nevertheless fascinated that someone like Soros should start to enter into the realm of social science philosophy for guidance on the operations of economic markets.

Obviously enough, this book won't be put on any freshmen economics course reading lists. On the one hand, its just too incendiary - I can't imagine many economists would want their students to read about why the most essential assumptions about economic science are perniciously wrong. On the other, its a little too self-indulgent. But no surprise there. Its not an academic book, and its not meant to be. After all, these are the critical musings of a multi-billionaire with an enormous ego and little personally at stake.

Yet I can't help but feel that this book ought to be read. If for no other reason than it gives us some pause to reflect on just how much power we have given to the operative assumptions of economics. We have essentially abandoned vast tracts of the public sphere to market-based governance in the hope that it will arrange optimally efficient outcomes. Moreover, perversely, we tend to think that any effort to to re-regulate any of these lending practices would be incommensurate with the values of democracy. But just how democratic is a way of life governed by the logic of casino capitalism?

Economists say they are simply scientists telling us the truth about ourselves. But they are so much more than that. When they teach us that we are market-based creatures, they are creating a powerful metaphor about man's nature, and passing it off as a universal 'truth'. Warranted by their status as 'scientists', this truth works to erect limits on the horizon of questions we may be permitted to ask legitimately about what life is and what it is for. It is to this deeply political question that Soros wishes to draw our attention. And if he is right that we are witnessing the end of the current economic era, one can only hope that his message will get a fair hearing as we move to debate the terms of whichever system of exchange emerges to replace it.

- Nicholas J. Kiersey

Tags: Debt Crisis, Neoliberalism

http://www.gnn.tv/print/3726/Speculate_to_Annihilate
Speculate to Annihilate
The commodities crisis is being fueled by out of control capitalism
By Sam Urquhart
Published: Wednesday June 4th, 2008

Rising demand from both Chinese and Indian consumers has been flagged by many as the driving force behind the commodities surge, or “super-cycle” as economists like to call it yet there are far more powerful forces at work than Indian or Chinese demand. Those two nations together, despite numbering over 2 billion people, account for around 12 percent of global oil consumption. The U.S. alone accounts for 25 percent. Yet it is not U.S. consumers that is driving the destructive commodities super-cycle, it is its dysfunctional financial system.As Forbes online relates in a recent article on global oil prices, “Speculative investment in commodities has been fuelled by the dollar’s decline, with financial players buying into the market in a bid to hedge against the greenback’s fall and global inflation concerns.”

Tags: Empire, Commodities Crisis, Corporations, Capitalism

http://www.foreignaffairs.org/20070501faessay86305/c-ford-runge-benjamin-senauer/how-biofuels-could-starve-the-poor.html?mode=print
How Biofuels Could Starve the Poor
C. Ford Runge and Benjamin Senauer
From Foreign Affairs, May/June 2007

Summary:  Thanks to high oil prices and hefty subsidies, corn-based ethanol is now all the rage in the United States. But it takes so much supply to keep ethanol production going that the price of corn -- and those of other food staples -- is shooting up around the world. To stop this trend, and prevent even more people from going hungry, Washington must conserve more and diversify ethanol's production inputs.

C. Ford Runge is Distinguished McKnight University Professor of Applied Economics and Law and Director of the Center for International Food and Agricultural Policy at the University of Minnesota. Benjamin Senauer is Professor of Applied Economics and Co-director of the Food Industry Center at the University of Minnesota.

Tags: Biofuels, Energy Policy

http://commentisfree.guardian.co.uk/mark_braund/2008/04/radical_solutions.html
Radical solutions
Progressives do have answers to the current economic crisis, they just haven't been given the attention they deserve

Movement towards an economy which is better aligned with progressives' moral aspirations is impossible until we escape a number of assumptions. First, that private individuals are entitled to appropriate the economic rent which accumulates in land values; second, that the creation of money should be left largely in hands of privately-owned banks; and third, that the already wealthy should be able to create and exploit markets in financial devices to the detriment of the majority of citizens.But instead of targeting these fundamental assumptions which underpin the unjust outcomes and chronic instability of the current economic order, progressives focus on the wrong things.

Tags: Markets, Capitalism, Progressivism