First Drafts - The Prospect magazine blog

30 Responses

1. Gifts to Chennai says:

   December 18, 2008 at 11:12 am

   Whatever next come…lets welcome New year.
2. dickie says:

   December 18, 2008 at 11:38 pm

   thanks for an excellent article. i would go along with all of skidelsky’s analysis of how we got here, and i would note nationalism and islamic extremism as 2 examples of understandable but profoundly unhelpful reactions to globalisation. american christian fundamentalism is presumably another reaction born out of a need to find a solid reference point where there are none.

   i wish however i could summon up the optimism to believe that we could ram the genie back down into the bottle, and let the pendulum swing back towards a more humane social democracy. now that our innate greed has been so comprehensively released by thatcher, reagan etc, will short term individualised economic advantages ever fail to trump longer term moral concerns?
3. sceptic says:

   December 21, 2008 at 5:46 pm

   Again and again Robert Skidelsky talks about re-dressing imbalances (between labour and capital, the decree of economic efficiency and other aspects of a “good life”, etc) which have led to the present global crunch, so that in the end “well-behaved markets” can be established. The question is who is going to do the rebalancing act?
   National parliaments will certainly have to play their role. At the moment quite a few of them come up with massive fiscal stimulus packages and infrastructure projects. Isn’t there the danger that this offers colossal opportunities for corruption and wasteful spending?
   Why? Because for this not to happen and thereby to regress to the cycle – or vicious circle - of liberalism/social democracy versus conservatism, politicians would have to think beyond their own terms in office or aspirations to either get or stay there. I.e. they would have to give up short-termism in the same way as banks and their employees have to and devote their energy and abilities to conceptualizing and then implementing sustainable societies.
   But do we have such leaders in the true sense of the word?
4. john henry says:

   December 22, 2008 at 3:15 pm

   Pretty unfair to economics. Economics does a good job on market failure from externaities, public goods, and reasons why financial markets are different and need regulation. The success of ideological “”free” market policy (ie the Laffer curve) was based on a political coalition of culture wars. The effect of these “true believers was the same in the Soviet Union and US. The only difference was which long dead economist became a “God”.

   The transfer of wealth back to the upper class was based on intergenerational theft– easy because future generations have no vote. These government deficits cause trade deficits (econ 101) and thus the loss of manufacturing jobs. Ignoring basic economics seems to be the real problem.
5. Dan Federkevic says:

   December 22, 2008 at 5:47 pm

   I appreciate the article, however must question Mr. Skidelsky when on page 3 he states:
   “Neo-conservatism has… promoted… the rape of nature”.
   Environmental laws and protection have been improving significantly since the 1970’s. One could argue that “raping of nature” is/was at its worst in Communist States (former Soviet Bloc and China)
6. Tom Miller says:

   December 22, 2008 at 8:58 pm

   Great article. Economic rebalancing is certainly needed. Social upheaval and unrest is usually the result when the middle class of a nation is squeezed by the elites.

   One way to level executive pay without the heavy hand of government is to require all executive pay packages to be approved by shareholders. They are the best source for determining whether they are receiving value for their money and I would expect top level pay to come down as a result.
7. Mick says:

   December 22, 2008 at 9:38 pm

   You are conflating free market and Keynesian concepts, which are discrete and utterly opposed economic concepts.

   The housing bubble was created by monetary expansionism, a form of government market control. The Federal Reserve lent money to banks at below market rates and they in turn were to loan money to Americans who otherwise could not afford the credit. The people who could not afford the credit bought it and used it on assets and the banks flipped those assets into their own loans, expecting them to have value as real assets do.

   The problem is the Fed created inflated asset prices with the newely pressed money and eventually they stopped trading for other goods and services (once people realized the trend was unsustainable).

   The only way out, of course, is for the Fed to print even more money to compensate for the loss. Of course this will not make the assets any more exchangable for other goods and services and the result will just be more stagnation, and more inflation. This may sound historically familiar…

   Now strangely enough many blame the crisis on the free market. If the free market had reign over banking and currency (which are currently federal fiefs) then interest rates would be set based on **gasp** expected returns in the real world. Check that idea out, money with value based on the value of the goods you trade and interest rates based on returns of that money.

   It may sound like a pipedream, but its what made all this wealth that leftists have been hacking at for the last 70 years. Remember, you have to make rich people before you tax them.
8. Jake Peachey says:

   December 22, 2008 at 10:33 pm

   I veiw that mother-of -all Ponzi scheme — that archaic and historical fractional reserve banking practice — as the primary source of cyclical instability. It multiplies money and builds value during credit expansion and then does the exact opposite during credit contraction, with a velocity of money factor playing an enormous but secondary follow-up role. During credit contraction phase, both money and value literally disappear into thin air. And then what’s left behind is a lot of non-performing debt that can seriously threaten the financial system and subsequent economic performance.

   Cheap debt capital inveigles financial gold rushes that always end badly. And every time this happens, it gives the opportunity for big government political class to push regulations and governmental control of the private economy, with sundry folks excitedly proclaiming the end of capitalism.

   There needs to be a major shift in the management of money supply from traditional monetary policy to fiscal policy.

   If you’re interested in why and how it could be done —– http://economics102.blogspot.com/
9. Sue says:

   December 23, 2008 at 4:26 am

   This profoundly conservative, and at the same time profoundly radical (meaning going to the root) set of essays sets out in stark detail what comes next—and how we got to here.

   1. http://www.ispeace723.org/gcfprinciples2.html
10. sparkles plenty says:

    December 23, 2008 at 11:00 am

    What we call “the economy” is nothing more than a measurement (of some specific activity).

    Look at today’s economy. Why would anyone want to stimulate loss of savings, or hunger and homelessness?

    Let’s say a carpenter does attempt to stimulate his personal economy, and that he attempts it the way Barack Obama plans to try to stimulate the nation’s economy: by throwing money at it. What can the carpenter be doing, when he throws his money…except hoping to see his 25-ft Stanley measuring tape begin to dance.

    If anything needs to be stimulated, it is the instinct for self-preservation that lies within the members of Congress and others who would spend whatever time and money any of us has left. This stimulation could be affected by the uttering of two little words: Recall, impeachment.

    Let failing businesses fall. Fluttering down to those at the bottom, who could otherwise only dream of building good businesses, will be the raw materials (and tons and tons of tax breaks).
11. Glenis Devereux says:

    December 23, 2008 at 12:29 pm

    “The enquiry must start with economics” - This I agree with. But I think the attack on economics needs to be a lot deeper than the author suggests. At http://www.worldnews.blog-city.com there is an free Excel model of a the economy that you can download called financial_scenarios.xls that shows how the problems we now arose. The instructions for using it is on the site’s lead article on NEFS. It shows how the financial bubble has been a good thing - otherwise we’d have been in this mess 20 years ago -and it offers a solution. Other articles attack MV = PT - it’s a tautology, another attackes Ricardo - Ricardo’s theory says that when UK Steel workers get sacked due to Chinese Imports - they get new jobs making Rolls-Royce engines. My theory says they re-main unemployed or do job creation stuff - History matches my theory. I attack the linguistics of Economics that uses works like ‘Capital’ and ‘Investement’ - Capital and Investment can mean the stuff both at the bottom of a balance sheet and at the top - I listen to economists and try to translate their sentences into the double entry bookkeeping they should be talking about - I get lost - and I think they are lost as well but don’t even realise it - they use words like ‘money’ as if it’s something other than transerable bank debt. Their sentences are grammatically correct but bookkeeping does not work like they seem to think it does. By playing round with the Excel model you will be able to be as confused as me. I attack the charts of economics that do not dimension their axis. The ‘Law of Supply’ says to produce one more item is more expensive than the previous one - yet shops will supply the 4th can of larger at a lower price than the first - One of Economics’ basic charts - the supply curve - is goes the wrong way ! Instead of using the warped sect like language of Economics, I use the quadruple entry bookkeeping in the Excel model so there is no ambiguity about the meaning of the words. We haven’t run out of ’stuff’ - so we are not poor - it is just that some plonker has messed the accounts up - http://www.worldnews.blog-city.com is a starter for 10 as to where the problem lies and how to fix it.
12. jj says:

    December 23, 2008 at 3:35 pm

    The logic of this article is horrible. I’ve not read anything this bad in a long long time, and I read a lot online.
13. eric in switzerland says:

    December 23, 2008 at 4:39 pm

    this crisis was NOT produced by the market system. it is a result of serious misbehaviour of leading figures in the financial system, particularly in the US and of the recipients of their money in government and congress.the checks and balances did not work.Including the media.
14. Mike Dolan says:

    December 23, 2008 at 5:26 pm

    Great article. The great lessons of this current is that while central government should not own the economy it should perhaps go back to managing it.
    It should come as no surprise that when we elect a government that is fixated with belief that government doesn’t work and is fundamentally bad~~~ that we end up with a bad government that doesn’t work! Go figure.
15. Glenis Devereux says:

    December 23, 2008 at 7:06 pm

    For those of you not familiar with internet debating parlance a quick translation of jj’s “The logic of this article is horrible. I’ve not read anything this bad in a long long time, and I read a lot online.” to plain English might be required - “I have to opportunity to show what is that I disagree with about this article but I can not think of anything” - how can he think of anything ? - Skidelsky has a standard pulpit moan about the moral bankruptcy of “system built on debt” - ‘debt’,as you can see from http://www.worldnews.blog-city.com, is a term for one side of a bookkeeping entry - the other side is called credit - and the word debt it’s meaningless without it’s other half.
    Credit is what you might call money - we are short of money - so we are short of debt (there is no money that is not someone else’s debt) - the linguistics of economics is daft - how could he say it wasn’t ? Add to the mix Skidelsky’s ‘moral’ tone and the sentence is doubly meaningless - you may as well moralise physics ! The quadruple entry bookkeeping at http://www.worldnews.blog-city.com/financial_scenaios_quadruple_entry_bookkeeping.htm is a first attempt to introduce some rigour into economics so that when someone says something about economics a) they know what they are talking about and haven’t forgotten the other side of the double entry and b) the person listening to it knows as well - so when for example the word ‘money’ is used they don’t start thinking of a shekel in a medieval purse but see the four bookkeeping entries that is modern money… and this is the daftest thing he as ever read online ? - how’s about all the online articles he read last year telling us how well and sound the economy was ?
16. Harry Hillman Chartrand says:

    December 23, 2008 at 7:13 pm

    Excellent and well reason with one gap, however. The bottom line of Keynes’ Chapter 12 on Long Term Expectations is the distinction between ‘enterprise’ and ’speculation’. Long term versus short-term gain is the problem. The stock market as a roulette wheel has become a favoured image and money is made not by investing in ‘enterpise’ but rather speculation on the short-run value of that enterprise’s stock value - often as Keynes not in a single day.

    This too is a major source of instability that requires a re-think. Should government tax speculative profits more than enterprise profit?
17. yarrrrr says:

    December 23, 2008 at 7:37 pm

    “”"”"”
    He was an Aristotelian, who believed that vices are virtues carried to excess. This is a good philosophy for today.
    “”"”"”

    http://en.wikipedia.org/wiki/Nicomachean_Ethics#The_Golden_Mean
18. ian says:

    December 23, 2008 at 11:23 pm

    an excellent overview of a complicated economic situation. It is difficult to try to mix a humane concept like morality with a purely intellectual and amoral concept like economics. Economics should never be confused with an exact science and free market economics certainly has no room for morality. The world of globalisation is a domain for the cold hearted and leans its teachings towards efficiency and greed at the expense of societal welfare. Globalisation is the final refuge of greed and Keynes had it absolutely right. Capitalism, left unchecked and unregulated is possibly more dangerous than any form of communism ever imagined. If the current economic crisis shows us anything, it is the danger of greed and the propensity of unfettered capitalism to promote it.
19. P. Wentworth says:

    December 24, 2008 at 10:33 am

    Skidelsky and all these posts! Talking of axes being ground fine. “Capitalism is far more dangerous than etc etc”! I have to say any article that refers to Maynard Keynes as LORD Keynes has my undying lack of respect -no good thing for Maynard either being lumped into the same set as people like LORD Mandelson et al. Unfortunately Maynard wanted to be a Lord and so that shows you precisely his value.
20. Apuleius says:

    December 24, 2008 at 4:00 pm

    Despite all the defences the system has failed-it produces Madoff’s because its basic premiss is Ponzi. The production of “”value”" held to mean the exchanging of financial instruments which themselves produce more “”"value”"”. Pure Ponzi and well quantified!!!
21. Alastair (London) says:

    December 25, 2008 at 9:07 am

    Interesting article although I believe it is inaccurate in stating that Free Markets have been and are the best way for poor countries to pull themselves out of poverty. This is not borne out by historical cases. All countries choosing or (more commonly) being forced to adopt the Neo-liberalism agenda (free trade, floating currencies, privatisation) have suffered the same fate: namely a strong movement of wealth to the few and loss of control of their countries natural resources.
    Look at the Asia tigers, grew due to protectionist policies and expenditure on healthcare and education. Come the 1997 crisis, the West forced them to sell off their hard earned businesses.
    In fact, the Soviet Union was actually pretty good for economic growth (but appalling socially and politically). Took an impoverished agricultural country to a world power in only 60 years through authoritariatism and central planning despite two devestating world wars.
    The fact is we need to recognise that we need to measure success by many other factors (such as elimination of hunger & poverty as well as impovements in human wellbeing & environment) rather than over-simplistic high level numbers often quoted by economists. Left to itself, Wealth moves up not down. Until we measure the real aspects of success, we cannot hope to find models that work for all peoples.
22. Walter P. Komarnicki says:

    December 26, 2008 at 1:40 am

    so maybe Honore de Balzac was right after all, when he says in ‘Old Goriot’:

    “Behind every great fortune there lies a great crime.”
23. JBC says:

    December 29, 2008 at 12:30 am

    There is no such thing as a “well-behaved market.”

    Markets begin and end with actors. How about talking about “well-behaved” actors?

    I fail to see how an “intellectual edifice” toppled. The present crisis is certainly not a market failure.

    The market has resulted in outcomes that are very much in line with expectations.

    The failures have been with the actors. Not the market.

    The above is not a defense of the free-market system, mind you. However, we need to be clear about what the problem is when thinking about solutions.
24. JBC says:

    December 29, 2008 at 12:33 am

    Alastair seems to go to early 1970s textbooks for his take on Soviet economic history.

    Wow.
25. JoeBlow says:

    December 30, 2008 at 5:00 am

    This is a great attempt to encapsulate where we are. It is the essential first step in deciding where we want to go. I think the author might extend his view to the role of employment. I suspect, if employment was brought to an end and self-employment substitututed for it, we would discover the basis to happiness as well as commercial success.

    The disincentive is that the chaps who run the economy today fundamentally depend on employment and on the variety of concessions in Companies Law for the maintenance of their positions. If the Master/Servant laws and the Companies Acts were thrown away, they would not be able to maintain themselves against the genuine competition of a free people.

    These are important aspects of the way our species organises itself and should be included in the author’s review.
26. dpend says:

    January 1, 2009 at 6:48 pm

    The article is very informative and offers a much wider analytical viewpoint and poses more fundamental questions concerning the current crisis than most of the mainstream news media. What puzzles is me why has there has not been a groundswell of opinion calling for much more radical reform than the current measures utilised by governments?

    Given the very recent current human impulse, within the global markets for profit, business and improvement of self, irrespective of cost risk or responsibility to the general public/marketplace ,there is every chance crucial learning will be missed and the markets though somewhat chastened will soon return to business as usual.

    One reform that might be a useful piece in reconstructing or harnessing the basic profit motive, to more moral objectives This would be to reform the essential character of corporations through revising the corporate charter to reflect the interconnected, interdependent, globalised micro-world we now live in.

    We will need innovative healthy markets and economies to improve the well being of the all people on the globe, however profit and growth for its own sake viewed in isolation from all its impacts, is proving to be a defective model. Technology and creativity and the current crisis have proven the inability of the current systems to regulate itself and to operate purely on its own terms.

    Rather than making the corporate entity simply accountable only to shareholders. Why not redirect the core accountabilities so corporations are equally responsible to and for environmental and social concerns. This will put an end to the ‘externalise the risk and privatise the profit’ mentality that gives rise to social and economic disasters. Triodos Bank makes reasonable not excessive profit and benefits social enterprises enormously for example.

    In summary re-engineer the profit impulse not to simply benefit the few but to improve the lot of the many. Any other model will repeat the same mistakes of the past.
27. George - from Canada (Sweeney) says:

    January 1, 2009 at 9:55 pm

    A recent Canadian who wanted to be a Lord is in trouble (C. Black) but In Keynes’s day this may have been more fashionable. More usually reading science (I think that excludes economics) I found Skidelsky fascinating and a generous dollop of thought-food. The past 4 decades of globalization have seen Canadian manufacturing gutted. Partly because of our relation to the US, partly because of China’s predatory economics and not least because Canadian society is uncompetitive. Fortunately we can rape the land for oil, gas and trees.

    I hope recent events will cause all three problems to be re-thunk!
28. Anna Mercurio says:

    January 2, 2009 at 5:55 pm

    The use of the term “natural,” “naturally” and the like by economists of any stripe is preposterous. Markets etc. are not organisms. They are human creations and do not “naturally” do anything. I’m with the writer who says there are no badly behaved markets or anything else, only bad actors.

    I am *so* done with biological metaphors for economic processes and phenomena. Let’s get to the heart of it: it’s people doing things, and yes, those things can be moral and immoral.
29. Norm Wheatley says:

    January 5, 2009 at 1:54 pm

    We need to know what it is we are talking about and what we are dealing with. Here’s a start.
    Money and wealth are absolutely different things but we have completely confused them and allowed our servant, money (or more precisely money manipulators), to be our master.
    Wealth is power to determine behavior (capacity to do things) so it is finite and limited to what we can do. Money is evidence of debt (including a promise/contract to pay) so it is infinite since there is no limit to promises.
    An examination of the fundamental differences between money and wealth is essential and illuminating. We can be wealthy without money whereas unlimited money will not guarantee any wealth. e.g. Zimbabwee.

    The economy is the life of the community - the exercise of community wealth. To confine the economy to financial considerations is to invite money to be king.

    Civilisation is the generation and sharing of community wealth and is dependent on mutual trust, cooperation and the implementation of laws constraining “uncivilised” behavior. Civilisations have historically been destroyed by conflicting laws and usurpation and our current civilisation is now threatened by inadequate global laws and because we have allowed trustees of community wealth to usurp and misuse that wealth and thereby undermine the trust essential for civilisation.

    n particular the trust has been betrayed and the wealth usurped by corporate chiefs and it has been done largely by financial confusion and the confusing of share holders with share owners (who have been sidelined). Most public corporation shares are held in trust by corporate chiefs able to exercise the voting power of the shares in secret for their personal benefit.

    But in the final analysis every citizen is a trustee of the common wealth and because not only our wealth and civilisation but life on earth is threatened by human activity we now urgently need global laws preventing corporate wealth usurpation and also over population which is causing pollution and destruction of our environment and generating conflict and competition instead of cooperation.
30. Belittled says:

    February 27, 2009 at 9:01 am

    The allusion at the start to “selfish nationalism” contrasts with the “liberal nationalism” attributed to Keynes at the end. (Rod O’Donnell has described Keynes’s position as “liberal socialist”, by the way, but Robert S. may be uncomfortable with the term.) Is there anything wrong with “social democrat” as a means to label Keynes?

    “Market economy yes, market society no”? Not quite. I’d say “Liberal society yes, liberal economy no” fits Maynard better.

    About Keynes’s homespun nationalism, in 1946 (I think) he did praise free trade, in its place. As ever, Keynes does not fit into our small boxes.

    I don’t detect much of a realisation that the author has shifted his views a bit. Wasn’t there a time (not so long ago) when he regarded Keynes as being a most insightful observer of the social and institutional conditions of his time, but that of course the world had moved on again leaving Keynes somewhat behind?

    I did not live in England in the 1970s, but I thought that the failure of wage and price controls also had something to do with wildcat strikes and Trotskyist-inspired unrest.

    Why a new Keynes? The old one was and is pretty spot-on. He rejected efficient asset markets long before it was formally proposed. A blend of Aristotle and Keynes may be “a good philosophy for today”, but why confine it to today?