Money As Debt 2 (Promises Unleashed): a homely ramble through the global financial system

Paul Grignon, “Money As Debt 2 (Promises Unleashed)” (2009)

Where the first episode in Paul Grignon’s “Money As Debt” series is a general overview of the global financial system and the problems associated with it, the subsequent episodes delve into more detail of how this system operates and the alternative economic and money systems that could replace it. The second episode “Promises Unleashed” explains more fully how banks work, starting with an everyday experience that most viewers born before 1985 would be familiar with: earning money from odd jobs like delivering newspapers around the neighbourhood or mowing the lawn for the elderly lady down the road, a child fills its piggy bank and with the help of mum and dad takes the piggy bank to the local bank and opens a savings account with it. Everyone in the family thinks the savings account is a record of the money the child owns and puts into the bank. Far from it: the account is actually a record of what the bank promises to pay the child in the unlikely event that the youngster will suddenly want to pull out all the money – in other words, the savings account book is just a listing of transactions of money the bank owns. From this misconception of the function of a deposit account – that it’s a record of the money owned by the child – develops the film’s deconstruction of myths surrounding money, its supply and creation, and the revelation of who actually does create and circulate money and why debt is so central to the continued circulation of money.

Using simple, easy-to-follow computer-generated animation and graphs, narrator Bob Bossin leads viewers through the distinctions between creating counterfeit money and creating real money, and pointing out that there’s not much difference between crooks making money and banks making money: the difference is that where the victims of the crooks can be identified, the victims of the legally fraudulent way of making money are harder to find because the way in which they are affected is so indirect. (They turn out to be the real world resources and the owners of those resources and the labour that go into making and supplying products that are paid for with loans from banks.) We then go through various topics arising from the debt-based system of money creation and circulation: how business cycles are made up of overlapping individual loan cycles which themselves incorporate a life cycle of inflation in money, a plateau and then a deflation as the principal and interest are steadily paid off. From this concept of the business cycle, we can see how business cycles are inherently unstable especially when crossed with aspects of human social psychology.

Bossin’s homely voice-over belies the seriousness of some issues dealt with: the narrative touches on how the Great Depression of the 1930s, caused by a series of events which included an economic boom in the US resulting in an oversupply of goods and an overheated stock market among other things, leading to a share price crash, panic resulting in a run on banks as investors tried to cash in on their shares all at once, bank failures when banks couldn’t pay out and declared themselves bankrupt, leading in turn to more panic, more withdrawal attempts, further reductions in bank lending and business investment, and subsequently loss of jobs, high unemployment, lost savings and reductions in consumer spending. This in turn led to even more reduced business investment and a vicious cycle was in place. Although President Franklin D Roosevelt attempted to kick-start the US economy out of the Depression with his “New Deal” package, it was with a boom in jobs making armaments and military hardware and increased government spending during World War II plus the Marshall Plan that revitalised war-devastated Europe after 1945 that the Great Depression ended. This had the unfortunate effect of linking war with a booming economy; war became profitable for banks. From 1945 onwards, the world was at war in one way or another: for 45 years the Cold War allowed governments to build up their military forces and armaments; and after the Soviet Union fell, the United States found new enemies to replace its old foe to justify continual arms spending.

The film digresses to explain the history of bills of exchange and how they facilitated overseas trade. Legislation enacted by the Parliament in England from 1664 to 1699 legitimised bills of exchange and encouraged the rise of stock exchanges. In the last few minutes, the narrative calls for returning the function of creating and supplying money to governments and offers alternative financial systems based on economic conservation and sustainability to the present debt-based one which is premised on unending economic growth.

Although the film has a relaxed pace and explains the concepts and issues associated with our flawed financial systems in a gentle and straightforward way, some viewers may need to see the documentary at least twice to get a full grasp of the issues and what is at stake when banks deliberately encourage or at least appear indifferent to people’s misconceptions of what banks do and don’t do. Grignon’s narrative points out the ultimate effects that debt-based finance has on society, culture, the way resources are allocated and used (or misused) and the environment: the results certainly aren’t pretty at all. The film does not go into all the details of the tyranny exercised over all aspects of life by debt-based finance; a fuller picture can be found in books like Michael Rowbotham’s excellent “The Grip of Death”.

Where the film falls flat is in not providing a fuller historical context to the way in which banks have seized control of Western economies and societies, and how governments now collude with banks or dance to their tune. Although the film does a good job of explaining the phenomenon of spiralling debt, in which debt is paid off only with more debt and that ends up snowballing into bigger debt, it has little to say on how banks have forced individuals, households and businesses to take on more debt and how this has warped the ethical fabric of business transactions and ultimately the societies in which the transactions take place. There is no mention of how US governments in particular (because the documentary is aimed at a US audience) have removed regulations on the financial industry since 1980 at least and how such removals have gradually led to recurring financial crises. There is also no mention of the close links that banks have with companies manufacturing and selling armaments and military equipment.

Nevertheless for its faults and controversies, the film is a much-needed introduction for the general public into the workings of the global financial industry and how it has brought global civilisation to its current crisis where it must now choose between endless cancerous economic growth leading to environmental crisis and breakdown on the one hand, and economic contraction to preserve planetary environmental systems.

What the Heck is a Bail-Out? – a very brief, simplified exposition of how debt-based financial systems lead to collapse and ruin

Paul Grignon, “What the Heck is a Bail-Out?”

Part of a body of work investigating the role of money in modern society and how banks came to exercise so much psychological and financial power over the world, this 9-minute film is a quick introduction to the debt-based monetary system that operates in most countries and especially in Western countries. Using cartoon-styled animation with some action, centring around one character, Grignon explains how current Western financial systems have brought economies to the brink of collapse and ruin by accumulating huge amounts of debt. In doing so, he destroys a number of common myths and perceptions about how modern banks operate.

Grignon begins by explaining the concept of legal tender and banks’ obligations to the public with regard to holding sufficient legal tender to pay out depositors. From banks’ point of view, depositor accounts are money they owe us so they are listed as part of bank liabilities. (And cheques and other money transfers are bank promises to supply legal tender on demand by depositors.) On the other hand, loans that banks make are their assets. Since at any time when a balance of accounts is undertaken, assets should equal liabilities plus proprietorship, it follows banks might be eager to maximise their assets and minimise their liabilities.

Since in practice depositors do not often demand the money in their accounts, and usually demand small amounts, banks can lend the same amount of money again and again (under a system known as fractional reserve banking) without having the legal tender to back up the amounts. The result is that much money in circulation is only backed by a promise to pay out legal tender and since we don’t know when depositors might have to recall ALL their money, banks cover current debts with new debts. For those having trouble understanding this, imagine taking out a second mortgage on your house to cover the outstanding debt of your first mortgage plus interest, then take out a third mortgage to cover your second mortgage plus the interest the SECOND mortgage incurs! Once this notion is grasped, one can see an endless chain of more debt covering previous debts plus all the interest these incur.

Viewers quickly see how debt creation drives money circulation and banks’ business: if banks aren’t lending money, they risk losing business and face closure. With an endless and escalating chain of debt creation, the situation is soon reached where banks have issued enormous amounts of debt, often to borrowers who can ill afford to pay back the debt, and entire financial economies now stand to collapse with deleterious effects to the real economies that produce and supply goods and services, people’s living standards and even people’s ability to plan for their long-term futures. As I write this, I am mindful of news I have seen that the government of Greece has sold off or is selling off important institutions and infrastructure and is closing down universities in violation of the Greek constitution that guarantees free publicly-funded education.

In a 9-minute video, the full complexity of the current state of Western financial systems can’t be conveyed: in particular the history of how governments allowed banks to take over economies and rule them and entire nations with their rapacious ethics is absent. The film ends with Grignon urging viewers to visit his Money As Debt website to view the “Money As Debt” film trilogy.

This mini-documentary is an informative if very simplified sketch of how societies have come to be dominated by the activities and sociopathic thinking and behaviour of banks.

Money as Debt: global finance and banks explained in easy-going and colourful documentary

Paul Grignon, “Money as Debt” (2006)

While looking for something else on Youtube.com, I found this very informative video on how the modern US banking system operates. With an easy-going voice-over narrative, courtesy of Bob Bossin, and colourful, educational animation stills the film explains how banks in most countries, and in particular the United States, have come to dominate economies and economic thinking to the extent that they have become central to the functioning of society, politics and modern culture, and how they control individuals, households, businesses, corporations and governments.

The documentary starts with a brief explanation of how banks arose and originally functioned, and how banks discovered that they could create money by lending it using gold, silver or another precious commodity to back it. In time, banks were lending more money to borrowers than they had gold to pay back the original depositors and eventually fractional reserve banking, in which banks had to keep some deposits as ready liquid assets to pay back sudden demands from depositors for their money, was born. Along the way the film exposes as myth common perceptions about how money is created and this exposure leads into an explanation of the relationship between money creation and debt creation, and how debt has become essential to modern financial systems.

The film then leads viewers gently into a discussion of the consequences of debt-based financial systems: they encourage inflation, distort economies into emphasising economic growth with resultant resources wastage, environmental pollution and destruction, shoehorn people into wage dependence and deny them their rights as workers and choice as to what work they want to do and what life-styles they would prefer, and transfer power from individuals, businesses, corporations and governments to banks and their owners. Not all the problems caused by debt-based financial systems are identified; only those that directly affect the general public as consumers and citizens are pinpointed. The banks’ role of imposing interest on loans, supposedly to reward risk-taking, but leading to usury is examined.

Finally the film calls attention to proposals to reform financial systems and alternatives to replace them. Different ideas about replacing debt-based systems and returning economic and financial power back to governments are evaluated as to how much power is returned to the people. In particular, the film advocates a financial system in which governments create money backed by the necessary infrastructure society needs, such as bridges, roads and public transport and the supply of money could rise or fall depending on the levels of goods and services circulating in economies and whether there is too much or too little money already in the system chasing goods and services.

Friendly and humorous cartoon figures drawn simply and visually colourful and equally simple graphics help to illustrate the concepts described. The film’s pace is leisurely though depending on the audience and its understanding of economics, the film may need to be repeated a second time. Bossin’s narration deliberately uses easy and plain English to explain the concepts. Inserted at various points throughout the film to drive home its message about the horrors of debt-based financial systems are quotations from past politicians, bankers and other significant figures.

The need to educate a wide and general audience perhaps explains why the historical context of debt-based finance systems is so general and vague as to disappear. Viewers who remember a time when banks were firmly under the control of governments using an array of regulations and laws to rein them in might wonder why, how and when governments decided to loosen controls on banks and other financial institutions. This is my main objection to the film, that it is silent on explaining the politics and ideologies involved in governments’ decisions to deregulate their respective countries’ financial industries and to sweep away the legislation that kept the banks in check and prevented them from raiding other banks.

The film is an excellent introduction to the workings of the global financial system and how it has become one of the greatest evils of modern civilisation, enslaving hundreds of millions of people around the world, threatening economic and environmental collapse and undermining social and cultural institutions by handing over vast power over resources and people’s lives to a small coterie of self-interested and often sociopathic financial specialists. The film is the first of a trilogy about money and banking. Those viewers interested in more information about “Money as Debt” and other videos Paul Grignon has made should visit his website.

Masters of Money (Episode 3:Marx): failing to challenge and question important economic and political issues

Will Yearsley, “Masters of Money (Episode 3:Marx)” (2012)

The third and final episode of this rather so-so series on significant economist / philosophers who influenced 20th century politics and economics focuses on a 19th century philosopher, Karl Marx, more usually thought of as the father of Communism, with all the historical, political and cultural baggage that followed in its wake: the aim is to find if Marx’s writings have anything to say about the Global Financial Crisis of 2008, what caused it and what will follow afterwards. Presented by Stephanie Flanders, the episode is a fairly broad summary of what Marx had to say about capitalism, what he thought its problems and prospects were, and whether he might be right or wrong.

Turns out that Marx indeed had a lot to say about capitalism and, moreover, had a great admiration for its dynamism and capability as a system of organising society and generating culture in the way it directs the production and distribution of goods and services. At the same time, Marx realised that this system has an essential weakness: it is a system that lurches from one economic crisis to the next. The system is inherently unstable and is only as good as the current temporary fix. The problem is that money is central to the way capitalism operates: the price mechanism depends on money as a measure of value and determines what goods and services are produced and how they are distributed. The production, distribution and sale of goods and services generate profits for the capitalists, the owners of the means of production, distribution and pricing. At the same time, the capitalists are loath to pay more wages to the workers, whose brains and hands produce, distribute and sell the goods and services, as higher labour costs will eat into the capitalists’ profits. The problem is, who buys the goods and services? … well, it’s none other than workers. The result is that capitalism constantly moves towards a state in which capitalists seek as much profit as they can from the surplus value of the workers’ labour (the value of the goods that is over and above the cost of labour in producing the goods) but because the workers don’t earn enough from what they make, they can’t buy the goods. This sets up a situation in which too little money chases too many goods and services (deflation) and, as Keynes recognised, this will depress consumption which in turn depresses business confidence, leading to a contraction in production which in turn forces capitalists to sack workers. Unemployment shoots up, prices of items might slump (or they might not), people have nothing and become desperate.

Marx’s theory, when applied to the current global economic scenery, has quite a lot to commend it. Since 1980, when economic and financial deregulation became the trend to break the previous decade’s economic fug, workers’ real wages (as opposed to money wages) have fallen, capitalists’ profits and incomes have risen, social-economic inequalities have widened. The demise of Communism and the opening up of new economies in eastern Europe and Asia, especially China, have brought in new workers into global capitalist systems leading to outsourcing of work from First World countries to Second and Third World countries, depressing wages and standards of living in the First World while raising them in Second and Third World nations. First World economies attempted to stave off discontent by the relaxation of controls on credit and banks, exhilarated with the freedom and power that financial deregulation brought, were only too happy to oblige; the result was a series of financial bubbles, starting with savings and loan financing bubbles, various other Ponzi schemes, the subprime mortgage bubble, the dotcom bubble and currently (in the US anyway) the student loan bubble and the shale oil bubble and other related fossil fuel bubbles. All this activity in its essence follows Marx’s prediction.

Marx correctly saw that capitalism itself was the problem and the solution was to get rid of it; unfortunately he was unable to propose an alternative system of determining and organising the institutions, the structures, networks and relationships needed to pinpoint people’s needs and wants, find the raw materials and create and produce from them the items and services to serve those needs and wants, and then distribute them in ways that would fulfill or at least satisfy those needs and wants quickly and without wastage. As presenter Stephanie Flanders observes, Marx was no more able to predict our present world than a mediaeval peasant could have predicted Marx’s world. The program concludes that, for now, capitalism will continue to muddle along, lurching from one economic or financial crisis to the next, patching up leakages here and there, and somehow satisfy most people’s needs and wants. There may be talk of revolution but current political and economic institutions and structures remain firmly in place.

The impression that comes to me is that the program, like Marx in his later years, suffers from a failure of imagination. The system may not be perfect, the program seems to say, but it’s worked fine in the past, it brought wealth and decent standards of living to huge numbers of people across the planet so it must have done some good – all it needs is the right adjustment and the next temporary fix that comes along hopefully will last a lot longer than the previous technical fixes. Look at food production: capitalism, thanks to private companies, has brought fresh food from all over the world to people in First World countries – or so says the program. The problem with this though is that, as Marx realised, capitalism creates society and culture in its image, and the society and culture it produced was a rapacious one that in its extreme manifestation was economic imperialism during the nineteenth and twentieth centuries. So much of what we enjoy is possible because governments and the private companies have often worked to deny other people’s needs, wants, rights and freedoms and taken land and its bounty away from them to produce goods to sell to us for profit. The fresh food we enjoy is food that could have fed its rightful owners first. In addition, what freedoms, rights and luxuries we enjoy or take for granted often turns out to been things our ancestors fought and died for in the form of protests, demonstrations and industrial unrest. Any trickle-down of wealth from private companies and corporations (the modern capitalists) to workers is something that had to be legislated for by governments pressured by voters and lobby groups on their behalf.

Capitalism survives because the society it creates keeps people in competition against one another, helping to create what Marx called anomie, and enables capitalists and those who work for them (governments and armed forces in the main) to exercise soft power over workers through culture. The program itself and many of the people Flanders consults and interviews in the program are examples of the exercise and maintenance of soft power. Technology also is another form of soft power that enables capitalism to survive. What will overthrow capitalism will either be capitalism continuing down its own cul-de-sac, becoming in the process a sociopathic parody of itself, cannibalising its children perhaps; or a completely new system of organising production and distribution of goods and services, underpinned by values that encourage co-operation instead of competition, diversity and tolerance of opinion and creativity instead of a polarised view of the world (capitalists versus workers), and a standard of measuring people and the objects they produce and consume that encourages the preservation of life on its own merits instead of its exploitation for the benefit of a few.

In particular, a system of exchange of goods and services that does not rely on debt in order to create money and circulate it is needed in a post-capitalist society; as some commentators have argued and still do, the use of debt in driving the flow of money forces individuals, groups and many businesses, even large companies, alike to give up power to banks and other financial institutions. The financial economy usurps the real economy in determining what is produced and who consumes it. Interestingly, debt was something that Marx failed to incorporate in his analysis of capitalism.

While the “Masters of Money” series can be interesting at times, it works best as an introduction to the work of the three economists / philosophers featured but that is really all that can be said for it. I sense a distinct lack of interest on the BBC’s part in exploring and questioning issues deeply. To me, that squares with the BBC becoming more of a mouthpiece for global plutocrat interests.

More to tiny houses than size in “Beyond Curb Appeal: Jay Shafer and the Politics of Tiny Houses”

George Packard, “Beyond Curb Appeal: Jay Shafer and the Politics of Tiny Houses” (2011)

While cruising the Internet (as you do), I found this little film about Jay Shafer, an architect and director of Tumbleweed Tiny House Company, who specialises in designing tiny houses. The interview was conducted with Shafer in his own tiny house in February 2011: he talks about the political, psychological and economic aspects of living in small houses and the freedom and luxury they offer as opposed to larger houses and the restrictions those impose on their inhabitants.

Why did Shafer decide to live in a tiny house? First reason, and one that impressed me, is that in many parts of the United States, there are municipal zoning codes that actually prevent people from living in houses below a certain floor size (minimum required size in many zoning jurisdictions is 750 square feet and rises to 1,000 square feet in areas where land is expensive): Shafer reveals that many zoning codes regarding residential requirements originated with insurance companies and the building industry. Presumably the larger your home, the more “stuff” you collect and pack into it, the more housing and contents insurance (or what passes for such) you might require and the more expensive and complicated your housing and contents insurance policy might be. In addition, many safety codes set as minimum requirements levels of safety that far exceed what’s needed in homes and might require the owners to spend far more on meeting these minimum safety levels than they otherwise would. In larger houses, such minimum safety requirements might have a bigger impact on the owners’ hip-pockets than small houses would: there are bigger and more rooms to heat or wire for electricity, and warm air might dissipate more quickly in larger spaces than in smaller spaces so the rooms need even more heating to compensate for the greater heat loss than might be expected for their size. Shafer also notes that local government councils even prohibit people from doing certain things in their homes – for example, some councils won’t allow people to camp on their own properties, even if the camp is temporary, but will allow people to keep recreational vehicles in their backyards – and suggests that, though the intention may be good, the municipalities may be infringing on people’s Fifth Amendment rights.

Shafer notes that the banking industry is biased in favour of large houses: large houses cost more and might require larger loans to finance them. A large mortgage will be a millstone around the house owner’s neck and the bank can exercise great psychological control over the owner. Shafer suggests that a large house can be a virtual debtor’s prison, forcing the owner to slave away just to make the mortgage payments, and limiting the owner’s options to exercise choice in other areas of life such as employment: a person with mortgage obligations will be very reticent to change jobs or careers even if s/he doesn’t enjoy the job or has reached a career dead-end and needs a sea-change.

Shafer talks about his educational background in art, design and architecture, and about the various places he lived in: dormitories, a large 4,000 – 6,000 square foot house, even a truck. He discusses the aesthetics of his architecture: the proportions of the houses he designs, where the inspiration for particular proportions, forms or designs comes from, the almost instinctive feel that humans have for structure, balance and form. Even a seemingly trivial issue such as whether to add a porch or not to a house becomes significant: a porch signifies a transition zone from the public to the private and this can be very important to an owner or tenant going in and out of the house; likewise a transition zone alerts people inside that there are strangers coming in. The issues of community and individuality, and of communal space and individual privacy are also briefly discussed.

Late in the film, Shafer takes his interviewer, Joan Packard, and director / cameraman George Packard on a tour through his 96 square foot house, explaining how his house has been designed for efficiency and maximum use of space. The entire bathroom is a shower and Shafer explains how he keeps the toilet dry while showering. The one bedroom is placed in the roof space and Shafer shows that the bedroom window is large enough for him and a partner to squeeze through in case of fire.

Last, Shafer discusses how useful his tiny houses might be for ageing baby boomers as alternatives to living in nursing homes or in large houses long since vacated by children and grandchildren. He does not suggest other groups who might find his houses convenient: temporary boarders, teenage or college-age children, university students from overseas living on campus, people needing urgent emergency accommodation or temporary / casual workers who have to live on their employers’ properties for some reason. People running bed-and-breakfast operations who might need extra accommodation for guests would also find such houses useful. The houses would also be useful in areas where natural disasters have destroyed buildings and left many people homeless; they would also be good for people who have some mild physical or mental problems or are only able to hold part-time jobs yet can live independently.

In some ways, this film was quite an eye-opener: it had never occurred to me to think that the type of housing we live in, and the kind of houses advertised to us, their design and styling, could be deliberately slanted towards forcing us to spend more money and keeping us in thrall to a political / economic ideology that restricts our freedoms and denies us choice. Since houses are reflections of our culture, what we value or don’t value, and influence the way we interact with family members, or even the kinds of family structures we have, then forcing people to live in larger houses than they need or can afford, in conditions that might isolate them from others at great personal cost or cause strains that could result in misunderstandings, even domestic violence or divorce, extreme though those issues are to consider, is shockingly cruel and might well infringe on people’s rights.

Shafer is an affable interviewee and the film is well-made for its budget and ambition. It doesn’t probe very deeply and challenge Shafer in the issues he talks on, and some background information on the history of housing in the US since 1945 would have been useful, so the film perhaps appears as an oversized advertisement for its subject and his company.

The film is available for viewing on Youtube.com or at George Packard’s Curiously Local blog. It really is worthwhile watching and some people may be inspired to design and build their own small houses or to find out more about them and whether their own councils allow them to build tiny houses.

Masters of Money (Episode 2: Hayek): a breathless race through the life and work of a defender of classical economics

Tristan Quinn, “Masters of Money (Episode 2: Hayek)” (2012)

Using a mix of interviews with former politicians, economists and academics together with a voice-over narrative by Stephanie Flanders of his life and times, this second episode in the “Masters of Money” series dwells on the influence of the Austrian-British economist / political philosopher Friedrich Hayek on global economics and politics in the 20th century. A major theme of this series is whether the work of the economist-philosophers featured is still relevant to economics and political philosophy and can offer ideas or solutions to the current malaise affecting Western economies. Affable presenter Flanders gives a chronological run-down of Hayek’s early life in Austria-Hungary against a background of middle class wealth and comfort, World War I and its aftermath, his arrival in the UK in 1931, his rivalry with John Maynard Keynes and the period of ideological wilderness he endured from the 1940s to the 1980s when his ideas and work defending classical economics were resurrected by the US and UK governments under President Ronald Reagan and Prime Minister Margaret Thatcher respectively.

The program is stronger delineating Hayek’s early life and the ideological underpinnings of his work than it is dwelling on his later life. The structure of the program seems quite muddled and hinges very heavily on following Hayek’s fortunes over the decades. The essential ideas of Hayek’s work – that economies should be completely free, that money flows should be completely free and allowed to achieve their own equilibrium, that centralised control through government institutions such as a central bank or regulated exchange rates or interest rates can be dangerous – are present. A theme emerges very strongly from this episode: Hayek’s distrust of government and its control over a nation’s economy (and ultimately society and culture, politics and the level of freedom allowed to citizens)  through monetary and fiscal policies. Influenced by Charles Darwin’s theory of natural selection, Hayek believed markets were best left alone by governments to regulate themselves and governments should be content to provide the rule of law and a social safety net (as opposed to instituting a cradle-to-grave welfare state) and ensure the proper flow of information to enable markets to function on their own effectively. Throughout his life Hayek opposed political systems that were premised on centralised government control. (Curious to think that in his own way, Hayek was something of an anarcho-capitalist.) His rivalry with Keynes centred on the problem that if the economy was in trouble and in recession, whether governments should step in and try to solve the problem: Keynes believed governments should spend to stimulate the economy, Hayek was in favour of leaving alone and letting the economy sort itself out.

Hayek’s ideas were attractive up to a point to the US and UK governments and private business interests but even the most laissez-faire elements in those agencies still wanted some power and control in and over economies. Hayek himself wasn’t immune to contradictions in his own behaviour and thinking vis-a-vis the implications of his work and ideas: he admired Pinochet’s rule of Chile, accepting awards and honours from the military government there and went so far as to recommend Pinochet’s restructuring of the Chilean economy to Margaret Thatcher. Though opposed to dictatorships, Hayek decided that a dictatorship creating a liberalised, deregulated economy in the short term (with the expectation that the dictatorship would give way to a democracy) was to be preferred to a country, whether democratic or not, that had a regulated economy.

There’s very little critical examination of Hayek’s work in the program which on the whole is quite breathless and fawning in its race through Hayek’s ideas. Hayek’s own interpretation of Darwinian natural selection might be problematic: if his interpretation is based on a belief that such evolution is based purely on competition and the competitively based survival of species (a view popular in the late 19th and early 20th centuries), then his work may not allow for co-operation and it will be flawed in that respect. Nearly the whole edifice of his economics teeters on that interpretation! Another possible problem is that Hayek misunderstood the natures of fascism and Communism and how these political ideologies came to the fore; conflating the two together, he failed to see that his work could be corrupted by governments and private interests and turned into a tool of political and economic control. Hayek’s belief that the free flow of information would enable money to flow efficiently to where it’s most needed and is most useful falters against what we know of human behaviour and the phenomena of groupthink and herd psychology in markets: in some situations, too much information about money flows, combined with time restraints on decision-making and awareness that time and money are being wasted with delays in decisions, can lead to a wrong decision being taken, and everyone blindly following that decision. A small action can lead to disequilibrium in money flows which in turn compound the problem by shutting off options and alternatives and forcing investors down paths in which they might make worse decisions.

It’s ironic that Hayek, in setting out to do what he believed was good for human society, might have come to flawed conclusions about human psychology, economics and the behaviour of markets that have had adverse impacts on societies across the world, increased social, political and economic inequalities and made our world more insecure, more prone to fascism and more enslaved to a global power elite in whose hands economic and political power has become more centralised, not less.

Masters of Money (Episode 1: Keynes): good introduction to the work and ideas of a major 20th century economist

Martin Small, “Masters of Money (Episode 1: Keynes)” (2012)

This is the first episode of a three-part series by the BBC on significant economists / philosophers who thought and wrote on the role of money or capital in Western societies, with a view to applying these people’s insights and work in solving economic and financial crises as exemplified by the Great Depression of the 1930s and the Global Financial Crisis of 2008 whose effects are still reverberating in many countries across the world. Episode 1 deals with the British economist John Maynard Keynes and his ideas and contributions to the theory and practice of macroeconomics, and running economic policy. The episode links the economist’s background and historical context, in particular significant historical events such as the two World Wars and the Great Depression, to his thought and the development of his ideas.

The episode emphasises in particular some of his most significant ideas in running and controlling economies: that market economies are not self-correcting and can stay sunk indefinitely; that governments must understand how economies work and must stimulate under-performing economies by spending on public works; that economic actors such as employers in labour markets and investors in financial markets do not always behave rationally; and that a global institution is needed to oversee international trade and money flows. These ideas are demonstrated to be rooted in Keynes’s experiences as an economist and investor and in other work he did for the British government, in the mistakes he made and the successes he had, and in his efforts to create and obtain acceptance for a radical system of managing international currencies which would include an international currency, a world central bank and an international clearing-house to regulate trade and balance of trade and balance of payment surpluses and deficits.

In about 50 minutes, the episode explains the basic ideas and concepts for which Keynes is famous, and how they might be used to solve the problems and issues underlying the Global Financial Crisis of 2008, how it came about and the continuing stresses that arose from it and which continue to plague countries like Greece, the United States and the United Kingdom among others today. The episode also touches on the issue of financial bubbles in markets such as the stock-market, the property market and other areas of investment (such as college student loans in the US) and the phenomenon of herd psychology which Keynes also addressed.

As an introduction to Keynes’s work, the episode fulfills its remit well, pointing out the economist’s innovations that are now taken for granted by high school economics students as well as university students and those academics and economists still keen on Keynesian economics. Where Keynes’s ideas are still applicable and the pitfalls in his economics and the assumptions that underlie them are also indicated. While Keynes was no doubt familiar with corruption, greed and the slippery thinking that distorted his ideas and economic tools among the politicians, economists, industrialists and academics of his day, he could have had no idea that his entire economic philosophy might end up being abused by a future generation of ruling elites for their own benefit; hence, the present-day predicament in which governments can no longer apply Keynesian solutions to stimulating under-performing economies as those economies are already heavily in debt as a result of bailing out large banks for past abuses of the public trust by profligate lending and various sharp practices in a context of financial and economic deregulation. This shows up a short-fall in Keynes’s thinking: for all his innovation and breakthroughs in areas such as behavioural economics and finance, and the control of flows in money and goods and services in global markets, he failed to grasp the relationship between money and debt, and how debt drives the creation and movement of money in the financial and real economies. At the very least, the kinds of financial and economic institutions to mitigate the more extreme effects of global trade and the money flows associated with it that he envisaged (and which were adopted either in adulterated form or in ways that benefited the US government and corporations) when he attended the United Nations Monetary and Financial Conference in Bretton Woods on behalf of the UK in 1946, could be applied at the microeconomic level too, weakening and softening the impact of debt and the power of banks over borrowers, and he should have realised that.

The episode might have delved more into Keynes’s early background and the upper middle class culture that informed it and his thinking. Ultimately Keynes was a creature of his upbringing and social class, and I believe this was a brake on the way he thought about economic practice and what governments should do to support their economies.

The next two episodes in the BBC series focus on Friedrich Hayek and Karl Marx as significant influences on 20th century economic practice.

 

Sharia Money (Episode 2: The Price of Paradise): easy-to-follow documentary on Islamic banking and finance

“Sharia Money (Episode 2: the Price of Paradise)” (2011)

In the wake of the Global Financial Crisis of 2008 and people’s realisation that the global finance industry, dominated by Wall Street, New York City, in the United States and the City of London in the United Kingdom, was a law unto itself (and lawless at that), new interest in alternative forms of banking and finance is spreading across the world. One such alternative form of banking and finance is Islamic banking and finance. This program, the second in a two-part series, looks at Islamic banking as practised by individuals, small traders and businesses and larger companies in three countries: Indonesia, Malaysia and Singapore. It’s scaled to a pragmatic level easy for the general public to follow and though the documentary is dominated by voice-over narration, there are interviews with several people from different walks of life who explain what Islamic banking means to them, why they believe in it or not, what it has done for them and how they believe it benefits them and their families.

Coming across as an extended news or current affairs / travelogue program, the documentary is easy to follow with much attractive  scenery: the skylines of Kuala Lumpur, Jakarta and Singapore feature throughout and the camera takes viewers on little trips through cities and towns with bustling markets, streets crowded with commuters in both Western and Islamic dress and sleek skyscrapers with their plush, neutral-toned furnishings and glass barriers. The program explains what Islamic banking concepts are and money is regarded as a means of exchange bringing together suppliers and consumers of goods and services, and not as an end in itself as a repository of wealth. Speculation in money and the charging of interest are frowned upon: the ultimate aims of Islamic banking are ensuring the equality of actors engaged in a financial transaction and achieving social justice for less fortunate and more vulnerable members of society.

The program goes to some length explaining how shari’a-governed banks and Western banks grapple with the concept of Islamic banking and how it forces them to rethink and change the products and services they offer to customers. The growing demand for shari’a financial products has generated a huge demand for Islamic scholars and researchers who can advise on and check shari’a-compliant products, and has led to universities in the Southeast Asian region offering courses teaching Islamic banking. An example of a large foreign coporation, Nomura Securities, joining a Malaysian financial corporation in a venture to sell aeroplanes using Islamic financing is shown in the program.

Calm in tone, even-handed and sympathetic to the idea of Islamic banking and finance, the program does not say if there are aspects of Islamic banking that can’t compete with Western banking. Since Islamic banking abhors speculation for its own sake, naturally it would be weak on the kinds of financial products developed in the West since 1990, in particular financial derivatives (a type of financial contract in which two parties stipulate the conditions such as dates, notional amounts and values of the underlying variables, hence the name) and semi-prime mortgages carrying large interest rates. On the other hand, Islamic banking favours loans made at fixed rates and partnerships and joint ventures in which the lender and borrower are equals in the financial transactions involved. This would suggest that lenders and borrowers communicate their needs and requirements well to each other and that lenders show a keen and active interest in the business of the borrower and ensuring that it succeeds.

No figures or statistics are given so viewers have little idea of how sophisticated Islamic banking can be and of the large amounts of money that circulate through Islamic banks. One interviewee gives his opinion that Islamic banking is most suitable for small traders and businesses. The impression viewers may get is that however good and ethical Islamic banking might be, the system cannot cater for the supposedly more advanced banking and finance needs of Western corporations. It should be understood though that the so-called “sophistication” and “complexity” of Western-style banking and finance are what got the West into deep economic shit in the first place and that a system of banking which is easy to understand, which treats lenders and borrowers alike as equal partners and which does not countenance exploitation of borrowers and other weak and vulnerable agents should be one the West should follow.

I get the impression that the program, being an SBS TV program, is trying to be all things to all people, not specifically advocating one banking and finance system over another but suggesting the two can co-exist together, in spite of the possibility that one system definitely does look better than the other. That’s called “balance” in the world of contemporary Western news media.

 

Outsourced!: small-scaled film offers a resigned look at call-centre work outsourcing

Anna Cater and Safina Uberoi, “Outsourced!” (2006)

An interesting and pleasant personalised film revolving around eight call-centre workers in India and Australia, “Outsourced!” examines the effect of the offshoring of call-centre jobs from First World countries like Australia to developing countries like India on both Australians and Indians alike; in particular, the impact of call-centre work on Indian society and attitudes towards working women, gender relations, marriage and life-styles. The film tackles these topics by following four female call-centre workers in Gurgaon, a burgeoning hi-tech satellite city on the outskirts of New Delhi in northern India. To a much lesser extent, the film also looks at how the outsourcing of call-centre jobs and similar white collar jobs will affect the Australian workforce and Australian people’s attitudes towards Indians and other people in countries where Australian industry and the jobs associated with them are flying to.

Through interviews and a voice-over narrator, the film itself flies back and forth between its Indian interviewees and Australian interviewees, contrasting the very different attitudes of Indians and Australians towards call-centre work. In Australia, call-centre work carries lesser prestige than most other white-collar jobs and many workers are employed on a casual or temporary basis; no special qualifications are thought necessary to apply for a call-centre customer service job. In India on the other hand, working in a call centre is considered highly prestigious and many people with impressive university qualifications – one of the Gurgaon-based women featured is a medical professional – hanker and compete for such work though it is stressful and tiring and makes considerable demands on Indian workers. Indian employees spend a great deal of training time perfecting their accents in speaking English so they are not suspected by Australian callers of being foreigners. Many Indians also have to unlearn what they were taught about saving money and only buying what they need and/or if they can afford it: buying things on credit and taking out a mortgage on a house are not only unusual and unfamiliar activities for these workers but the very nature of these activities may strike them as unethical and morally suspect.

The effect of working in call-centres on Indian women is dramatic: a generation of young female call-centre workers is discovering financial freedom and independence, and this discovery is generating a demand for goods and services which in turn leads to a rise in retail jobs and businesses, construction of shopping malls and an accompanying rise in the value of commercial real estate as more land must be made available to build shops and other businesses. (Nothing is said about how such results might be having an adverse effect on slums and slum-dwellers, farms, wildlife reserves and areas where tribal peoples live.) Call-centre workers work in groups and teams, forcing young men and women of different ethnicities, religions and social levels to rub shoulders: Western work habits and values must be learned and adhered to, distinctions of caste are breaking down, traditional ideas about how unrelated men and women should interact are falling away, people no longer care what religion their boyfriends and girlfriends belong to, women are putting off marriage and starting families at a later age, and a new youth culture based on a fusion of Western youth culture and native Indian culture is developing in new night-clubs and other places frequented by the workers in their free time with cash to spare. Just to watch these young Indians, men and women, boldly negotiating a new path for themselves and their families, confronting old ways of thinking and behaving, defying family and cultural traditions, and contemplating and relishing personal ambitions and goals hitherto alien to their families and culture, can be very dizzying and uplifting; imagine then, what effect this generation of youngsters might have on Indian society in the future. (This is assuming that current trends in global offshoring of jobs to India will continue, and that assumption cannot be taken for granted.)  At the same time though, a new Indian youth culture might end up having a homogenising effect on Indian society and much about traditional Indian cultures that’s seen to be incompatible with Western and fusion Western / Indian culture may well be lost forever to our detriment.

Back in Australia, call-centre workers ruefully accept that they can’t stop jobs going off to developing countries. Some are happy that Indian people who’d otherwise live in poverty are able to earn money and live comfortably. Australian employers interviewed talk about how Australia must develop more highly skilled work for IT and other white-collar professionals but this depends on universities and TAFE colleges being able to educate and train people to the standard required. Obviously if the Australian government continues to cut funding to higher education and does nothing about the working conditions and job security of Australian university and TAFE teachers – about two-thirds of Australian university academics are employed as sub-contractors and have no job security or holiday and sick leave provisions – then the highly skilled hi-tech professionals required will become very scarce and this will be Australia’s loss. As for India, some people there are already concerned that countries like China and Sri Lanka will compete with India for call-centre work and some such jobs in India will flow to those countries; in the not too distant future, countries like South Africa, Kenya and Nigeria will also join the competition with even cheaper English-speaking labour.

No statistics are offered in this program and the documentary doesn’t look at any trends likely to affect globalised call-centre work or whether it will even last well into the 21st century. Rapid changes in technology could all but make call-centre work redundant in the next 10 or 20 years. The film accepts that call-centre work in its present form, migrating to whichever country can offer the cheapest, most compliant labour and cutting a swathe through traditional society and ways of thinking and acting wherever it goes, is here to stay: no challenge or alternative ways of working are offered. For that bleak and unsatisfying outcome, I leave the film in some despair.

The World According to Monsanto: hard-hitting documentary about the infamous agribusiness corporation

Marie-Monique Robin, “The World According to Monsanto  / Le Monde selon Monsanto” (2008)

At issue in this informative documentary directed by the investigative journalist Marie-Monique Robin is Monsanto’s astounding record of environmental and food safety thuggery across the world and its collusion with and manipulation of governments, scientists and scientific research, not to mention the extraordinary extra-legal (and plain illegal) tactics and practices used, to dominate global agriculture. Robin opts for a hard-hitting approach with voice-over narration, interviews with US government officials, scientists, farmers, lawyers, activists and people affected by Monsanto’s activities and occasional animation and diagrams to detail the long history of Monsanto’s destructive practices in the pursuit of profit and domination of agriculture and food supply. Robin herself makes frequent appearances in the film.

Various examples of products made and promoted by Monsanto provide the meat, potatoes and structure of the documentary. Robin speaks to various people about the effects of Monsanto products such as polychlorinated biphenyls (PCBs), Roundup herbicide, transgenic crops and recombinant bovine growth hormone (rBGH): the results can be horrific and include cancers affecting the prostate gland and women’s breasts and ovaries among other things. Robin goes into great detail investigating each and every case study of a Monsanto product and some of the information she uncovers is astounding: Monsanto-produced Agent Orange (a brand-name for dioxin) was used as a defoliant in Vietnam to flush out Viet Cong fighters. The methods the company uses to get its way and to deceive governments and the public verge on the criminal: one interviewee describes the lax procedures Monsanto researchers used to determine that Agent Orange was safe for people to use; another interviewee tells of how a whistle-blower at Monsanto who questioned the veracity of Agent Orange studies and the results achieved ended up being bullied and harassed by Monsanto management.

The promotion and spread of GMO or transgenic crops and how their increased use promises more profits to Monsanto through intellectual property law in US get special attention. False advertising and claims of working with farmers to ensure fair treatment when the contrary is true are par for the course; the only difficulty Monsanto seems to have is in how low the company can go scraping the bottom of the ethics barrel. US farmers growing conventional soy crops are visited by the so-called “gene” police from Monsanto who check that the farmers aren’t growing crops with Monsanto-invented genes in a way that intimidates and frightens the farmers. In addition Monsanto buys up seed companies so as to be able to control the gene pools of non-transgenic crops (and perhaps convert them to transgenic crops). In India where transgenic cotton is grown, government officials admit that farmers cannot NOT grow transgenic BT cotton due to seed dispersal; at the same time, farmers must buy transgenic seed from Monsanto at huge prices, forcing them to borrow money from money-lenders at exorbitant rates. Many farmers fall so deeply into debt that they commit suicide.

Ranging across so many Monsanto outrages against farmers and communities, Robin does miss a few issues: the destructive effect Monsanto’s products and GMO crops must have on soil quality, water and ecosystems, and ultimately on the water cycle itself with troubling consequences for the oceans that receive water contaminated with GMO herbicides or crop waste containing genetically modified bacteria; the possibility that GMO crops may permanently cripple people’s health and immune systems when eaten; and the reduced genetic diversity that GMO crops brings to food crops, making global food supplies vulnerable to even small climatic changes and potentially threatening food insecurity and food shortages across the world. One particular issue that’s probably beyond Robin to cover is Monsanto’s political clout with the US politicians themselves: though she documents the revolving door between Monsanto and the US Food and Drug Administration staff, she doesn’t address the possibility that Monsanto may be a significant lobbyist on Capitol Hill and contribute money to politicians during election periods. There’s some investigation into the potential transgenic crops may have for altering land ownership patterns that favour large landowners and agribusinesses at the expense of small farms and the rural-to-urban flight that may cause with consequences for the future of cities in many countries, already bursting at the seams with slums and the social problems that often accompany them, not to mention the loss of agricultural knowledge and practices and the destruction of rural communities.

Robin makes no claim to impartiality, piling on one Monsanto offence on top of another relentlessly, to the point where it all seems too unreal. Except of course, this is one very real nightmare that’s gone on far too long and which tragically many people like those Indian farmers who have taken their lives in despair have never been able to wake up from.