Thursday 24 July 2008

Moral hazard

There is a consensus among pretty much every mainstream politician from every party in the UK and most other countries in the West (no counting the Greens as mainstream) that the financial system we use is the best one available. Which is to say, there are not many Marxists left, besides good old Tony Benn.

Obviously the system has its problems – the two of the greatest concern to me being income inequality and environmental impact – but most would argue the system can be adapted to meet those challenges. I have my doubts – especially in the former case – I see no evidence that anyone has thought of a solution to the growing disparity between the poor and the rich. The “rising tide lifts all boats” argument is all well and good, but when you see the social degradation that seems to be an inevitable consequence of financial success you have to wonder whether things can keep going as they are.

But there is another well known problem with capitalism: moral hazard – the idea that capitalists, risk takers, the people with the money get paid to take risk and, in many cases, make a load more money, while when things go spectacularly wrong, (when it is the shirts off our backs they lose, not just their own) it is the taxpayer who bails them out. This is obviously an especially pertinent issue at the moment with what is going on with Fannie Mae, Freddie Mac and potentially dozens of other financial institutions in the US and Europe.

This problem inevitably leads to calls for greater accountability for these capitalist fat cats running the world’s banks, energy companies, mortgage lenders and others who put the system at risk. “Lock them up and throw away the key,” people cry with righteous indignation. It is a nice idea, in many ways: we are not asking for every bad executive decision to be met with a prison sentence, but for those taking excessive risk, knowing full well that they will be bailed out if things go wrong, to think twice about it.

Except we might as well hope for George Bush to be tried for war crimes in front of a jury comprising Iraqi widows. Because neither is going to happen. And what's more, it can’t really happen. There are too many executives from too many companies representing too large a proportion of the business world implicated in said excess. Letting them fail would do more harm than good, so you have to concentrate on trying to get it right before it happens again (in the next cycle). Sadly, by then people will find ways to argue things are different and the good times will lull people into forgetting all about this. It is how economic cycles work.

Apologists would also argue that, taken on a net basis, the system still works. It is high unlikely that more will be lost in this downturn than was earned during the bull market. If you look at the stock market since its inception, over practically any 20 year period the equity market has failed to make money – one notable exception being one 20 year period straddling the Depression (which goes to show that what is unlikely is not impossible).

At certain times things go wrong and the government has to step in. But for the most part the system generates wealth for people and governments alike. The trick will be to restrain the excesses - to create that magic wand that will allow the markets to be free on the upside and the down, but without putting the whole system at risk. But nobody – to my knowledge at least – knows how that can be achieved.

Who knows, this might even go some small way to redressing the inequality question: if the rich are allowed to lose all their money when something goes wrong, and the taxpayers’ money is spent more on bettering the lot of the poor than on reimbursing investors who lose their money in these financial crises, that can only be a good thing. It might also be an amusing spectacle, watching the rich lose all their money. Who knows, if someone can think of a way of turning it into a reality TV show, it might even happen.

Wednesday 16 July 2008

Falafels in Regent's Park

The green movement is defined by the people who are most convinced by it.

A month or so ago there was a green festival in Regent’s Park. It was a classic green event: organic bean burgers, veggie fajitas and falafels, flanked by homeopathy and acupuncture stalls. There were some displaying the gleaming marvel of the hybrid car. There was a bandstand with live music, which was going down well.

It was a good laugh – we went down as a family, met some friends and had some lunch, before having a wander and buying the odd hand-made wooden item from one of the many craft stalls. There was a good turn out and a reasonably diverse range of people – though the majority, of course, wore canvass shoes and hemp shirts. No harm in that.

Except.

Of course I have no problem at all with people having different tastes and lifestyles. I don’t even consider myself really different from them, except for our taste in clothes. In terms of outlook on the world I imagine we are closer than we are to many other people you would walk past on a busy street.

But that is the point. There are a lot of people out there who have very different outlooks and lifestyles. And a lot of these people regard global warming as just another way of fleecing people out of more money, via slightly-more-expensive energy-saving bulbs or organic food.

These are the people this event did not speak to. In fact, some people who happened to be walking in Regent’s Park that day might have come to the conclusion that organic veggie sausages and global warming are one and the same thing. Which they are not.

Of course they are linked. There are all sorts of problems associated with meat consumption and the farming required to cater to our gargantuan meat eating world population. I am an enthusiastic meat eater but this is something I am aware of. I would be prepared to pay more for meat for something that was, shall we say, environmentally kosher, though I acknowledge I am in the privileged position of being able to afford to do so. In my heart I think probably people should probably eat less meat in their diets but this is a bridge I am not prepared to walk over yet. I seem to be making fine progress on this side of the bank.

But I digress. The real point is that the whole environmentalist cause is closely associated with a kind of Glastonbury / Woodstock crowd that scares off a lot of other people. Worse still, to some it makes the issue look like a trend – like flares – rather than something of substance. In a way it is funny: one group see it as the young finding their cause – their Woodstock – while others see it as a great political con imposed from the top. (Despite the fact George Bush – who you would imagine would be in on any global conspiracy – was one of the last people to be persuaded by it.)

Lumping them all together (as they invariably are) means many see global warming as synonymous with joss sticks, spiritual healing and herbal ecstasy. It makes it seem a joke to people who are generally cynical and don’t believe in spiritual healing – and therefore, by extension, global warming.

(Again, if spiritual healing could take on the pharmaceutical companies I would be all for it, but sadly I am pretty sure it can’t. As a substitute, spiritual healing is no match for the veggie sausage – which has come on a long way in recent years.)

Perhaps more important though was the huge consumer element to the event. (And for more on why that is bad see the post I wrote a couple of days ago.) It seems it is impossible to have a gathering of people without people wanting to sell you something you don’t need. Or others – myself included – wanting to buy it.

It goes to show what a formidable force consumerism is. Changing that seems impossible – and is probably not desirable if it can instead be conducted in a more sustainable way. Consumerism is freedom, and freedom is consumerism. It needn’t have been, but it is now and it is hard to see how it can go back.

One final thought about that day in Regent’s Park: there was a Tory stall. They were handing balloons out to children. I know one father who was secretly delighted when his son’s balloon burst. I found the site of that stall astonishing (I don’t know why, in retrospect) and revolting in equal measure. You could take the view that it shows the breadth of appeal this issue now enjoys. I think there is a great deal of truth in that, but in this particular instance I think a wolf in sheep’s clothing is more what springs to mind.

Sunday 13 July 2008

One Perfect Sunrise

To listen to One Perfect Sunrise by Orbital is to realise you have reached a very important landmark in your life; equal in importance to how Jesus' disciples felt when they heard the sermon on the mount. It’s a bit like: hang on a second, nothing will ever be the same again. But for the better.

At its best music transports you from wherever you are, away from everything but the song itself. Different types of music transport you to different places. Some are angry or indignant. Some are euphoric. Some are harder to put into words, other than to say they are heavenly – which is to say they conjure up the image of what heaven would be like. One Perfect Sunrise is certainly one of those. Orbital do those kinds of songs well. There are four or five others in a similar mould: Halcyon; Dwr Budr; Belfast. But One Perfect Sunrise is special for being the last song on the last album Orbital made.

I can’t think of another example of a band declaring its intention to disband and producing a final song so fitting of their legacy. It is a work of art equal in grace and beauty to the Sistine Chapel or The Hanging Gardens of Babylon. Mona Lisa is a hag in comparison.

I often think about modern artists – be they musicians, DJs, rappers or whatever – in the pantheon of artistic greats over the ages. Of course Mozart is always going to be held in higher esteem than the Hartnoll brothers. And of course I am not seriously refuting that. But I do wonder what Mozart would be about if he was alive today. I can’t help but think he would be in the Orbital / Aphex Twin school of music. I think he would have had a crack at DJing too. (I can’t mix.) Sasha is the closest to what I think he might have been like, composing something unique, even though you are actually using other peoples’ music, by creating later upon layer of sound. That is why Northern Exposure is my favourite single album. Sasha and the Hartnoll brothers would have taken 1700’s European courts by storm.

The Kingdom

I watched a film tonight that I had been really looking forward to. The Kingdom could have been really good. In the first fifteen minutes of the film I was struck – as I have been plenty of times before – by what a fascinating place Saudi Arabia is. I was well settled on the sofa, hoping for some insight into the lives of Saudis, political intrigue in the halls of power and some thought provoking hypothesising about the relationships between the extremists and members of the royal family.

There is very little of that in The Kingdom: what you have here is your average US action movie. And there is a place for that. As far as fairly formulaic terrorism films go, it was enjoyable enough. I liked the cast – there were a lot of people in it who I have enjoyed in other things (Michael out of Arrested Development, Lyla from Friday Night Lights and Ari from Entourage, for example).

The problem with formulaic, self-congratulatory, flag-waving American terrorism films is the complete focus they have on the highly moral, remarkably capable FBI agent, fighting to make the world a better place and get back to his loving family. It is not that I don’t believe in those characters – I’m sure there are plenty of them around, (though there are some less capable ones too – more films about FBI ineptitude please) – it is just that there are so many films about them.

To reiterate my original point, what I really wanted to know about was the lives of the Saudis. But far from revealing anything about them, they were dismissed, effectively, as utterly incompetent, one-dimensional characters, to a man. One Saudi policeman, charged with babysitting the Americans who visit the kingdom, comes good in the end. He also has children and wants to see an end to the violence, and in a touching exchange, the main American bloke proves he has grown fond of his Arab companion by asking his name. A real tear-jerker.

The Saudis, it seems, are incapable of investigating a terrorist strike themselves. But was it a cover up? A crippling lack of experience among the police and National Guard? There were certainly elements of both, but it was all rolled in together and portrayed as a demenour of generic uncooperativeness.

I know very little about the quality of the Saudi security services, and of course I would expect the US to have far more ability in this area. But I found it incredibly patronising that they were portrayed as so utterly hapless they hadn’t bothered to interview witnesses, examine evidence or do anything else at all by the time the US contingent had been flown in from Washington.

That observation, and resentment about the absence of any depth to the Saudi characters in the film, played on my mind throughout the film. Instead of an exposé of the highly complex and deeply fascinating world of Saudi politics, (or a film speculating intelligently about what those relationships might be in what, Ill admit, is a very secretive society), we got that formulaic, self-congratulatory, flag-waving American terrorism film. It could have been in New York, Los Angeles or London. The only difference would have been less frequent subtitles.

Saturday 12 July 2008

Are environmentalism and capitalism compatible?

OK on the one hand the two are desperately trying to coexist, via carbon trading, the development of renewable technologies and – although this one is accidental – the massive rises in the price of oil.

There are plenty more areas, however, where the two forces are in opposition. Capitalism is synonymous with consumerism: capitalism works on the basis that people get paid to work in companies that produce things to sell. Regardless of whether they actually need them. Demand, where it does not occur naturally, has to be manufactured through ever-more sophisticated and invasive marketing. If the aim was to ensure every family had a car, that would not provide enough work to the masses of people who currently work for car companies. So the aim has to be for everyone to have a new car. So the world keeps making and making and making things and the old things have to be thrown away to make room for the new ones.

It is often said: “They don’t make things like they used to.” I wonder how many people consider the implications of this. People used to be made to last, because consumerism was in its infancy, and companies had not considered the possibility of reaching a point of saturation in their markets. So manufacturers were not concerned about whether they could sell a car to a family that already had one, because there were plenty of families without one to target.

Now items are made with a very limited shelf life. It is a balancing act: maintaining brand credibility through the perception of quality, while ensuring the need to replace products relatively frequently. And it is not only through things breaking down, and becoming “cheaper to replace than to fix.” It is through the holding back of innovations that have already been thought up in order to sell lesser innovations first. Don’t think that Gillette haven’t already had the idea of a razor with eight blades (for the closest ever shave). It is just that before that they have to surprise us with offerings with six and seven blades.

Everything is geared towards selling and consumption. And consumerism leads to the rapid consumption of the world’s finite resources. It makes any plans to curb energy consumption look largely fanciful: can efficiency gains offset the elevation of emerging economies to the same level of consumerism the West has enjoyed in recent decades? It is hard to see.

I have long counted myself as an economic liberal. I have been convinced of the case for free markets as a force for poverty reduction and the elevation of living standards around the world. (When emerging markets get stiffed by the West it is rarely free trade per se causing the problem, but the lack of its consistency in application. In essence, rich countries want free trade when it suits them, but protect their own workers when it doesn’t.)

But if the environmentalist agenda is to be taken seriously it is increasingly difficult to justify this view. The difficulty comes in settling on a viable alternative to the current political and economic system. Capitalism is too comfortable for people to relinquish it easily. It is system that rewards greed and channels it into productivity. There is no reason to suspect that a system that puts the planet above the individual will fare any better than one that tried to put society’s interests first (communism).

Following this line of thought, however, perhaps the next stage in history’s development will see the outbreak of environmentalist revolutions in countries particularly concerned about, or affected by, global warming and/ or resource depletion. Followed, presumably, by the emergence of environmentalist dictatorships. These would descend, over time, into the inevitably self serving and power hoarding cradles of corruption that is the fate of all but a handful of dictatorships, no matter how ideologically sound they were at the point of conception.

(This is not to say that democracies are not self serving or power hoarding, but that, when they work well, they recognise this trait in themselves, and seek to offset this tendency by diversifying the power bases in a system of checks and balances.)

Can democracy evolve away from unfettered capitalism towards environmentalism? Socialism wove itself into the fabric of democracy so that, in the main, it rose above party politics, so that in the UK we have a consensus that the state has to look after workers. Marx would presumably feel a little placated: the rich still get richer on the backs of the poor, but at least the poor get sick leave, paid holiday time and some oversight in the quality of their conditions. It is a lot less than he hoped for, but a vast improvement on what he was confronted with in his day.

And it is on this same trajectory that we are currently moving. Not a radical rethink of the system by which we live, but a moderation of the existing system in the right general direction. The question is: will this be enough? Will carbon trading, a few dozen windmills dotted around the country and, as Brown would remind us, a cut down in wastage be enough?

There is a definite generational divide in this debate and it is obvious treating the environmental situation as an impending cataclysmic event alienates many people – people of all ages, though the younger generation certainly see it as more serious. The older generation have lived through various threats to civilization and fancy this is just another issue that mankind will muddle through – like the Cold War or the Millennium Bug. And that is quite possibly true. But that is not to deny the problem: just as the Cold War left us with a legacy of problems around the world, so too will “The War on Carbon.”

A better analogy is probably the Industrial Revolution (in this context it is probably more helpful to think of it as the first stage in an ongoing revolution – or evolution). It became obvious the pollution caused by those early factories and mills had to be brought under control when London was caked in black soot. Industry cleaned its act up. The same with early urbanisation and hygiene, after plagues made it obvious city life demanded higher standards. We need to replicate those efforts, and perhaps once the full extent of the problem becomes clear it will be possible to adapt the system sufficiently to resolve the fundamental problems we have with our system.

Friday 11 July 2008

Political engagement

I've just been watching Question Time - one of the television highlights of the week. Amazed to hear the level of congratulation from some members of the audience, and self congratulation from Douglas Alexander, the Labour politician in attendance, about the G8 discussing the world food crisis.

Why should they deserve even the slightest bit of praise for that? They are politicians of the world’s richest countries; it is their job to discuss these issues. If they solved them they would deserve some credit. Talk about setting the benchmark low for political achievements.

It strikes me as being as damning about the level of engagement and expectation of the public with politics and its puppets as typical election turnouts. The former certainly helps explain the latter: if you are only voting for which face is going to turn up to a conference and talk about something (without making any progress towards actually doing anything useful, you understand) then why bother taking the time out of your day?

It isn’t quite as simple as that, of course. Either that or I am more optimistic than many. I am enormously frustrated by politics and the inability of politicians to resolve the problems that face them. But it doesn’t stop me being interested in it.