It feels like the lull before the storm. Summer's here; people are gearing up for their holidays, shopping as usual, having barbeques, watching endless dull matches broadcast in glorious HD live from the World Cup . . . and endless edited 'highlights' of these low-scoring, tedious, defence-dominated affairs. England are crap. Scotland, Wales and the Irelands aren't even there. Wimbledon fortnight starts tomorrow. The weather forecast is good.
Except on the economic front, which most people recognise and experience as the financial and personal wellbeing front. We're talking here about people struggling to stay in jobs and striving to keep up with household expenses. People with no savings; people with large debts. The cold front is approaching, with gale force winds likely throughout Britain, and much of Europe.
The economic storm is going to begin on Tuesday, with the coalition's first 'emergency' budget. You weren't aware there's an emergency? Do try to keep up.
It's an emergency conjured into existence by right wing politicians and their media friends who seem to be winning the battle to convince gullible people that governments can no longer maintain spending on public services at current levels, even though the loss of thousands of public sector jobs will deflate demand in the economy and throw even more people out of jobs in the service sector and what's left of the manufacturing sector. And so on, in a downward spiral. It's the Shock Doctrine, which thrives on 'emergencies'. It's Disaster Capitalism.
It's the same old Thatcherite/Chicago School remedy of slashing public spending on decent public services - all dressed up as "necessity" because of what the "financial markets" might do to us. Voodoo economics still rule, OK?
There was a time, when the financial crash first happened, that Keynesian economics looked likely to regain predominance, but that was before the European Right (including those in Germany now) began to see a way to keep on keeping on, with the banking sector permanently bailed out, guaranteed and subsidised by we, the people, and no-one even demonstrating against it.
In this we begin to look like post-Soviet Russia, with the people only too happy to keep schtum provided there's 'stability' in the country under a recognisable and somewhat 'legitimate' political elite who seem to know what they're talking about. It's a kind of heads in the sand politics, under a Westminster coalition of public schoolboys and Oxbridge graduates doing all the things they've been taught to do by their Chicago School trained professors in their PPE lectures, seminars and tutorials.
Will Hutton continues to shed light on all of this in his Observer columns. Here are some extracts from last week's column, which focuses on banking, posted here in the hope that the reader will hyperlink to Will's column and read it in its entirety:
http://www.guardian.co.uk/commentisfree/2010/jun/13/will-hutton-banks-crash-refuse-reform
The banks have refused to mend their ways. Beware the next crash[In other words, the fucking banks have got us over a barrel, and there's nothing we can do about it. The Masters of the Universe have got planet Earth right where they want it.]
After the crisis there were cries of 'never again'. But the glacial pace of reform leaves us all in imminent danger
It was the biggest bank bail out in British history, and it came with scarcely believable costs. A trillion pounds of tax-payer support; a trillion pounds of lost output. After a disaster of this magnitude you might have expected some collective soul-searching by both banks and government. There has been far too little. Instead we risk a repeat – our banking system is as disconnected from real wealth generation as ever.
The return to business as usual – bonuses, trading in derivatives, the organising of banking as an exercise in which money is made from money – is breathtaking and depressing. And so, given the recent buoyant profit figures reported by our banks, is the easy money.
Labour delivered the minimum reform it could get away with, subcontracting responsibility to the Financial Services Authority. As the crisis broke in May 2008 it commissioned an inquiry populated entirely by industry insiders, chaired by the now chair of Lloyds, Sir Win Bischoff, to examine how the City could become more internationally competitive. When it reported a year later, it recommended little or no change. The conclusions were tamely accepted by the most risk-averse group of senior politicians in the Labour party's history.
The poverty of action is inexcusable.
Without substantial and far-reaching reform a second crisis is almost inevitable within 10-25 years. And next time we would be overwhelmed as a country.
Most industries that had undergone such a near-death experience – along with such a high probability of a recurrence – would be taking precautions. Not banking. Instead of building up its reserves aggressively, it is carrying on paying salaries at pre-crash levels.
As worrying is the lack of reform to the business model of banking built up over the last 10 or 15 years. Barclays, RBS and HSBC each boasts more than 1,000 subsidiaries – most of which are secret vehicles created to warehouse lending or direct financial flows in artificial ways, whose purpose, as one official told me off the record, is essentially deception – to avoid tax or regulation or whose complexity is designed so that in an emergency all a government can do is write a blank bail-out cheque.
The IMF don't say it, but it would just take a market rumour and there would be panic. British banks have £1 trillion wrapped up in derivatives – a business that Nouriel Roubini, the economist who predicted the crash, thinks should be as closely regulated as guns because they are no less dangerous.
But progress on financial reform – nationally and internationally – is glacial. Part of the reason is the fiendish complexity that western governments allowed their banks to create, and part is the jealous defence of alleged national banking interests by governments. But nobody should underestimate the banks' own powerful interest in resisting reform – and their lobbying is powerful and well-financed.
The status quo is bad news not just because of the risk of another crash. British banks shamefully neglect enterprise, entrepreneurship, investment and innovation. Only 3% of cumulative net lending in the decade up to the crash went to manufacturing; three quarters went to commercial real estate and residential mortgages. Lord Adair Turner, chair of the FSA, says that collectively manufacturers borrow no more than they deposit with banks. De facto, it is a sector from which the banks have largely disengaged. The result – devastated industries and sky-high property prices.
Reform has to be multi-pronged. Almost everybody accepts that banks need to carry more capital, except getting international agreement on how much is close to impossible.
Britain needs more banks, transparent banks and safer banks that really contribute to the British economy – and it needs to have the chutzpah to go it alone if necessary. The coalition government, Cable says, is committed to change, and a banking commission to investigate what and how is about to be announced. The question is whether anyone will have the courage to do what needs be done.
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Will's column in today's paper says:
There is no logic to the brutish cuts that George Osborne is proposing
The chancellor constantly cites Sweden and Canada as models, but at least they tried to energise their economies
http://www.guardian.co.uk/commentisfree/2010/jun/20/budget-cuts-george-osborne
This week's budget brings on an awesome economic and political moment. The former Labour government had already committed to a greater and faster reduction in the budget deficit than any British government in modern times. The coalition government wants to do more; to nearly eliminate a structural budget deficit of 8% of national output – some £116bn – in five years. Moreover, it wants spending cuts to take 80% of the load. No country has ever volunteered such austerity. It is as tough a package of retrenchment as the IMF imposed on Greece, a country on the brink of bankruptcy. It is twice as tough as the famously harsh measures Canada took between 1994 and 1997. It is three times tougher than Sweden's measures between 1993 and 1995. In British terms, it is immeasurably tougher than what we did after the IMF crisis in 1976 or after the ERM crisis in 1992.
If we are going to embark on such a course, there has to be a national consensus that it is right. What is proposed, if we are to believe the pre-budget speeches and leaks, is the closest to an economic scorched earth policy we will ever have lived through. If it is to work, we have to be prepared to accept not just enormous economic sacrifice, but to regard it as legitimate. There has to be complete honesty about why the measures are being taken. The reasons have to be unanswerable. The economics must be unimpeachable. The measures themselves have to be extremely skilfully implemented and seen to be fair.
This is not the case just now. Of course the structural deficit has to be eliminated. But Britain has time to make the change. Sweden took 15 years to lower some departmental spending by 20%, not the five years the government plans. We are not in the position of Greece. Britain has a diversified economy. Our cumulative national debt is not large by international standards. Uniquely, the term structure of our debt is very long – around 14 years. Most of this year's debt will be sold to British domiciled individuals and companies, so the international sovereign debt crisis has much less impact on us. The level of interest on the national debt in five years' time as a share of national output is more than manageable. These are the truths about the situation; to claim otherwise creates distrust.
I don't think either coalition partner is aware of how high the stakes are being raised, the degree to which they are unnecessarily backing themselves into a corner, and how much the ground has to be prepared before launching the country on the unprecedented path they plan. For example, each of the counter-arguments I have raised needs to be carefully argued against, not shouted down by hysterical remarks about the sovereign debt crisis or references to private lectures from the not infallible governor of the Bank of England.
The lack of necessity over what is planned could knock the Lib Dems back to where the Liberal party was in the 1950s – a party of the margins – and irredeemably rebrand the Conservatives as the nasty party. The revival of liberal conservatism and the hopes raised by this unique experiment in coalition government will collapse.
George Osborne's aggression is hard to understand. The forecasts from the Office for Budget Responsibility show that the outgoing Labour government's plans were both credible and more than tough enough to arrive at budgetary sustainability. To go beyond them with between £24bn and £50bn of extra spending cuts and tax rises, as is rumoured for Tuesday, is unconscionable and will rightly be challenged. The ground has not been laid; the economics are dubious even for deficit hawks; the support tiny; the implications dire.
It is not too late for a change of course or, at the very least, to reproduce the best of what the Canadians and Swedes did. In neither country was deficit reduction portrayed as a necessity to keep a triple A credit rating on government debt, nor as a vendetta against a "bloated" public sector, as the coalition has suggested. Rather, the measures were sold as a vital period of pain in order to create a platform for much-needed public spending growth in the future.
Osborne is said to have studied the Canadian experience, hence his call for a period of national consultation between Tuesday's budget and the autumn's spending review, copying what was done in Ottawa. The trouble is that the terms of the consultation preclude any genuine consultation; the assumption is that spending is bad, the state needs to be smaller, nothing is more important than a triple A credit rating, and the British way of life has to change.
It is folly. Not every penny of public spending is well spent. There has to be restraint and the deficit must be lowered. Wages, pensions and welfare transfers must take a short-term hit, as they did in Canada and Sweden. But the government should also be investing in our future. It should be raising taxes on those best able to contribute. Every department should share in the pain.
I am surprised at the Liberal Democrats. They have an obligation to their party, their tradition and the coalition to argue more fiercely for a better presented, fairer, more legitimate and more balanced approach to deficit reduction than the one that is promised. And what is proposed is no good for the Tories either. Number 10 and the Treasury believe the worst can be offset by aggressively low interest rates and more quantitative easing. They will work to a degree. But what is proposed still risks everything. Politicians pay the price with lost office. Millions of British will pay a higher price – the needless squandering of their lives.
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Back on the football front, Terry Eagleton wrote this for the Guardian,
http://www.guardian.co.uk/commentisfree/2010/jun/15/football-socialism-crack-cocaine-people
Football: a dear friend to capitalism
The World Cup is another setback to any radical change. The opium of the people is now football
If the Cameron government is bad news for those seeking radical change, the World Cup is even worse.
If every rightwing thinktank came up with a scheme to distract the populace from political injustice and compensate them for lives of hard labour, the solution in each case would be the same: football. No finer way of resolving the problems of capitalism has been dreamed up, bar socialism. And in the tussle between them, football is several light years ahead.
Modern societies deny men and women the experience of solidarity, which football provides to the point of collective delirium. Most car mechanics and shop assistants feel shut out by high culture; but once a week they bear witness to displays of sublime artistry by men for whom the word genius is sometimes no mere hype. Like a jazz band or drama company, football blends dazzling individual talent with selfless teamwork, thus solving a problem over which sociologists have long agonised. Co-operation and competition are cunningly balanced. Blind loyalty and internecine rivalry gratify some of our most powerful evolutionary instincts.
In a social order denuded of ceremony and symbolism, football steps in to enrich the aesthetic lives of people for whom Rimbaud is a cinematic strongman. The sport is a matter of spectacle but, unlike trooping the colour, one that also invites the intense participation of its onlookers. Men and women whose jobs make no intellectual demands can display astonishing erudition when recalling the game's history or dissecting individual skills. Learned disputes worthy of the ancient Greek forum fill the stands and pubs. Like Bertolt Brecht's theatre, the game turns ordinary people into experts.
Like some austere religious faith, the game determines what you wear, whom you associate with, what anthems you sing and what shrine of transcendent truth you worship at. Along with television, it is the supreme solution to that age-old dilemma of our political masters: what should we do with them when they're not working?
Over the centuries, popular carnival throughout Europe, while providing the common people with a safety valve for subversive feelings – defiling religious images and mocking their lords and masters – could be a genuinely anarchic affair, a foretaste of a classless society.
With football, by contrast, there can be outbreaks of angry populism, as supporters revolt against the corporate fat cats who muscle in on their clubs; but for the most part football these days is the opium of the people, not to speak of their crack cocaine. Its icon is the impeccably Tory, slavishly conformist Beckham. The Reds are no longer the Bolsheviks. Nobody serious about political change can shirk the fact that the game has to be abolished. And any political outfit that tried it on would have about as much chance of power as the chief executive of BP has in taking over from Oprah Winfrey.
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Any diehard readers who have come this far can now enjoy Sabine Rennefanz's column on Merkel's Paralysis:
Germans are awaiting the fate of their hopeless coalition with resignation. The obituaries are in.
http://www.guardian.co.uk/commentisfree/2010/jun/15/angela-merkels-coalition-paralysis
All the hopes of the German government now rest on Mesut Özil and Thomas Müller. They aren't members of the cabinet, they're the new stars of the national football team. If anybody could, they might turn the destiny of Chancellor Angela Merkel's hopeless coalition.
If they win the World Cup in South Africa, the whole country will party relentlessly and nobody will worry any more about the disastrous government. At least that's a possibility. It has worked before: poor governments have carried on thanks to a wave of football fever. "Drink beer, watch football," said one Christian Democratic Union member of parliament the other day, when he was asked by a journalist how to survive the following weeks.
Germany has a similar coalition to Britain's: an agreement between the conservative CDU and the liberal Free Democratic party.
There has been constant infighting, disagreement – chaos. Cabinet members refer to each other as "Gurken" (cucumbers) or "Wildsau" (wild boar). Merkel's once ideal partner, the pro-business FDP has turned out to be a nightmare.
While the CDU has become a modern conservative party with a strong interest in social equality, gay rights and environmental protection, the FDP is stuck in the 1980s and is a single-topic party: it wants to cut tax, or at least block tax rises. Under the guidance of its erratic leader, Guido Westerwelle, the foreign secretary, its members happily ignored the pressing problems of the international financial crisis.
And up to now, the coalition has managed to disagree on everything – the budget, health reform, how to help the struggling carmaker Opel.
The most recent low point was last week, when Merkel and Westerwelle presented what they called a "saving package". They want to save E80bn by 2014, mainly by cutting social spending, and support for poor parents and the long-term unemployed. It read like the wish list of the FDP. There was an immediate cry of outrage – and not only from the opposition. CDU members found the package socially imbalanced, they said, claiming that wealthier people do not contribute at all. About 20,000 people demonstrated at the weekend against the proposed cuts in Berlin, and the papers published obituaries of the coalition government. "Aufhören!" ("Stop!") reads the cover headline this week of the German news magazine Der Spiegel, above a picture of a troubled-looking Merkel and Westerwelle.
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