12 November 2012

I need you as you need me

TWO THOUSAND euros featured as a suggested withdrawal selection at the airport cashpoint. That's a lots of euros. And this is in Greece. The airport? Mykonos, not so surprisingly.

I've recently been to Greece for the first time in a few years, certainly the first time since the debt crisis has threatened the future of this beautiful, if volatile, land (and sea). It all feels very poignant. While in the Cyclades I completed Nicholas Gage's enthralling but harrowing semi-autobiographical 'Eleni'. A Greek friend, but I can't remember which one, had urged me to read it ages ago. Eleni recounts how a family, or really an entire country, tore itself apart during the post WWII Greek civil war. Like most I imagine, I had little previous idea of the extent of the tyranny that raped Greece from within, commencing just after the Axis forces had (often murderously) withdrawn. I certainly hope that Greece does not turn on itself again - and I am in no way indicating that presumption in my extolling of Eleni, although it's hard to avoid such inferences when evidence of collusion between the police and fascist organisations comes to light. However, now just as then, I think we are witness to another mass exodus of Greeks from the territory that has been so bitterly fought over since pre Ottoman times. A new wave of Greeks are leaving, or will leave, just as previous ones have created an unusual situation in which as many people who call themselves Greek are non-resident in Greece (about 11 million) as those that are. Many that can are leaving or plan to. I think every single seasonal worker I met in Mykonos had that intention as they look to dire prospects in a winter in Thessaloniki or Athens. I know others who are securing their non-Greek residency papers with urgency. Greece, like other places, is abandoning itself. I say this with no accusatory overtone. Yet at the same time it has of course the capacity to make matters worse. Of those precious €2000 imports to the island of Mykonos, how many of them would eventually remain in Greece?

                                                   ******************************

With departing citizens, we have departing capital; capital in all its forms. Entirely understandably, many Greeks are exporting themselves and also their money in order to protect it. However, such moves are ultimately based on a fallacious logic. The fundamental misconception we all have with money relates to only one of its functions - that as a store of value, i.e. an asset. Once we have money in our possession, obtained through whatever means, we have a conviction - entirely but imperceptibly false - that the value stored in that money is entirely under our control. In other words, naturally, we believe we own our own money.

The problem is, it's just not true.

Whether you stash cash under the bed or invest it elsewhere, the value of your money depends entirely on what everyone else is doing, or maybe I should say on how they are doing. Everyone in your street, your city, your state, your currency area, your world. Money as an asset is an intrinsically social-economic entity. Like any other asset, its value depends on what everyone else thinks it’s worth. Hence you are only a vanishingly small part of the machine that controls the future value of what you own. The control of your own wealth is a total illusion.

Key to this is cooperation. And cooperation for mutual good is sorely lacking. The received wisdom, as ever unverified and incomplete, around our particular form of post-Reagan/Thatcher/after-Mao mismanaged capitalism, something I would argue is not true capitalism at all, is that it has performed well in encouraging society to put terrestrial and intellectual resources to good use and create wealth. Although in some parts true, it has however, despite some failed attempts, neglected to convince the individuals that form a society that they are interdependent - at every level - from neighbourhood to international. This disastrous and feeble-minded world view was perfectly encapsulated by Thatcher's infamous "there is no such thing as society". How wrong that is. Interdependence is woven into the very fabric of economic existence. It is an inescapable axiom. It's lacking cannot be hedged. No matter how 'exotic' the derivative. As this incarnation of capitalism has purposely neglected to educate for, protect and promote interdependence, it has naturally evoked its self-destruction.

In a fundamental, but entirely ignored, nutshell, if you want to sell, you depend on your buyers' future wealth. And there is no other way to create wealth than to sell. (Any forecasted wealth on an unrealised transaction is tantamount to astrology – not an insignificant comment on the whole credit crunch, in fact). These basic facts of life seem to have been forgotten in the 'MBA' revolution. If your buyers, be they neighbours, inhabitants of other countries, or, importantly, their or your future children, have no future buying power than you can have no future wealth.

The hardest thing to grasp, I believe, is that the value of money - including yours - is arbitrary. It is an abstraction.

If whatever you are trying to sell has no buyer then the value of your assets decreases. Housing crashes are the most evocative example, but recessionary unemployment is no different; just that here no-one can afford to buy your time. As well as your house or skills and labour, this apples also to the money in your bank account. No asset you own has any value unless someone else can afford to buy it or pay to borrow it. If no-one can afford to buy your time to work, or in that job no-one can afford to buy what you intend to produce, or no-one can afford to borrow the money off you in your savings account, or no-one can afford to buy your house (whether you want to sell it or not), then your wealth decreases. Summed up over an economy, over a society, then the value of that economy decreases.

There's another level of abstraction making things even harder to grasp; the value of your money depends not only your buyer's wealth, but more pertinently on your buyer's ability to borrow. To recap: your wealth depends on your trading partners' (your employer, your house buyer, Greece) buying power. More often than not, this has depended on the size of their interest payments. This is why it's all such a disaster. The international private (companies) and sovereign (countries) debt crisis did not materialise overnight. Actual debt levels of countries do not change quickly. But we're not operating there. We're operating in a world where your buyers' remainder pocket money is very much defined by what's left after the interest payments - and it's these that can change (and did change) very rapidly. Ok, it’s very easy to say that if the debt wasn’t so huge (or didn’t exist even) then the interest on that debt would not be a problem. However credit-driven ‘development’ or ‘growth’ has been the modus operandi of the whole world ever since at least the Medici’s introduced bonds in Florence donkey’s years ago. Whether credit itself is more beneficial than maleficent is hopefully the subject of further writing.

It is at best fatuous for current western politicians (it's a misconception to call them leaders) to rant on about national debt levels. They didn't give a damn about them before. Note the gargantuan national debt frivolously amassed during the – ermm –republican presidency of the world's most capitalist economy. They should rant on however about their nation's interest payments. Connected yes, but different. So who defines the interest rate? Whoever wants to make money by lending (selling the right to use) their money. For national economies, that's known as the bond market. And this is why national treasuries are, for right or wrong, at the mercy of 'the market'. There is a very interesting potential side note here on the challenge to representative democracy by the consequent power of the bond market (itself just a large collection of investors and their trader agents) over heavily indebted (oh, that’s nearly all of them) countries.

So, from a transnational to a household level, your wealth (as and only as a seller) is defined by your buyers' purchasing power, which is in turn defined by how confident their lenders' are that they can pay them back. In some cases, 'you' may be the lender. As I said, interdependence is woven into the very fabric of economic society.

A further level of abstraction is added to the value of your money by central banks’ monetary policies. If national rates are lowered, net asset holders lose value and debtors gain value. I say net as many citizens are a mixture of both. If central banks ‘print money’ (explanations elsewhere) to boost economies then they also reduce the value of all prior existing money.

So, market interest rates (yours, your buyers'), central banks and also inflation control the value of your money. The important conclusion is that society certainly does exist and every seller should have regard for every buyer (and vice versa) as they certainly need each other. When Jesus said, as some may believe, 'love thy neighbour', he really meant it. If pressed, he may have even said 'unless you love your neighbour then na├»ve capitalism has an inevitable tendency to self-destruct and ruin both the rich and the poor, leaving this beautiful earth to all non-human creatures’.

In post-industrial England's case, much of the local market of buyers has long been abandoned and in its place has surfaced an in-my-lifetime unprecedented level of social division and demonisation of the marginalised. I don't care if things have been worse in Victorian times. That's no excuse. They are getting much worse now and that is wrong. According to KPMG's recent report nearly 5 million or about 20% of British workers is paid less than required for a minimum basic standard of living. Whether you frame it morally or economically, the conclusion remains the same. It's wrong, unwise and stupid. I recently overheard someone referring to people on 'the other side' as 'povvo's'. My aghast expression at this new low in castigation brought forward an attempted justification of the term, an explanation that it derives from 'poverty'. What, the new, more acceptable term for 'chav' at London dinner parties? I wouldn't mind, but the povvo's in question were skiers in Val Thorens as opposed to, presumably, those in Courchevel. Horrific. And a sign of a crumbling society if I've ever seen one. And how, exactly, can any skier be associated with poverty? Much of this horrible nonsense is explained because the overindividualist illusory version of capitalism with which we have all been brainwashed measures societal wealth only on financial capital. And it forgets that financial capital is dependent on all the other forms of capital. Hence teaching is viewed as a 'rubbish' job compared to being a lawyer. Imagine explaining that one without blushing with shame to some advanced extraterrestrial.

England's social problem (it's far from alone) is that the labour buyers have made too much of a false economy in buying labour overseas. What society and its representative government should have foreseen however is that as a result they have reduced the purchasing power of the local market by refusing to buy their labour. As is typically the case, the tunnel vision economics of the British 'right' justifies a large long term economic cost with a myopic short term gain. The net result is a semipermanent economic exclusion of wide swathes of society - open your eyes, you can see it everywhere - and therefore also a serious diminution of any local buying power. This means everyone's future wealth is now much more dependent on overseas buyers (and present and future unborn taxpayers) than before, a riskier and more fragile position for anyone to be in.

Profit motives, often self-righteously but sometimes correctly a.k.a. greed, are vitally fundamental to economic welfare. But their benefits shortly expire if they are not accompanied by a holistic economic altruism. If you are of the sort who bathes in a self-satisfied tory/neocon outlook, even that doesn't work; economic structures that break down interdependence in a society only offer a fleeting benefit to the small number practising them at that time. Later on, absolutely everyone suffers. But maybe that is your point? Asset owners are naturally protectionist and capitalists become extraordinarily anti-competitive. They cannot see that they need to support and protect everyone else otherwise their own assets will wither and die; leaving them to wallow, rather than bathe. They don’t see beyond five years at the most. That's why society (and in that, representative government) must make sustained economic interdependence intrinsic and unavoidable. The UK tories are international experts in this misguidedness. They actively erode interdependence between different parts of society. In fact they also do this as generally they don't want the competition to the persistently rancid English class system, of which they preternaturally inhabit predominantly one sector. What other logic could explain enforcing ever more locally-funded education? How exactly can Hackney compete on a level playing field with those game rules? But even the tory status quo is ever more fragile as they unwittingly and inexorably undermine the value of the wealth that it is built upon. They simply cannot countenance the reality that is the fundamental necessity of looking after their buyers, chav or not. A nation of scientists, engineers and manufacturers has been antidiversified into a 70% service economy all in the name of an irrational obsession of buying too much cheaper labour overseas.

This interruptible natural cycle of overconcentration of wealth, leading to its eventual destruction, has been repeated countless times since we started economic specialisation in the Fertile Crescent. We have had enough practice to be able to better at avoiding it. The problem is, a seriously antiprogressive characteristic of human society starts to kick in as soon as inequality crosses a certain level: tribalism. Camps are divided and lines are drawn. 'Leaders' tend to take advantage of tribalist feelings and fuel the fire and further the diminishing interdependence, simply making everything much worse. There is much of this demonisation in Britain at present. Religion is often abused to further such divisions, of which again there are countless examples in history. Of course that does bring my mind back to Greece. Just how much would Greece's current nightmare be reduced with the kind of economic interdependence with Turkey that you would really expect from neighbouring advanced countries in 2012?

No comments: