Turning Into The Skid

Is it possible to chart a way through the interesting but wholly predictable debate over policy prescriptions to deal with our present crisis?

I noted some similarities of the recent panic on the stock markets to the panic of 1819 a few days ago. Panics, like Tolstoy's unhappy families, are different in their upbringing and circumstances but identical in their progress. That of 1819 was caused basically by speculation in Indian land, but also by inflated credit and the rise of domestic trade. When cut short, it turned into a crisis that had profound political effects, not least the Missouri Compromise. (The link attached, by the way, is to a downloadable book).

The comparison did not just occur to me alone. Much as I would like to pretend to some Marvel Comics 'Watcher Savant' status, most of my observations run on tramlines. Other trains have been on that track, particularly those of the libertarian Ludwig Von Mises Institute. Their thoughts are as ever stimulating, but ultimately a product of a very clear ideological view of what might be called the 'equilibrium price cult'. I am naturally and deeply suspicious of most ideologies.

In their clarity lies a pearl. They note the problem, as I have done, of vastly inflating our way out of a recession when there is already so much money around. The British and American governing classes have, over the years, put lots of cash either through the repayments on borrowing, or spending, or trade deficits, into the economy, foreign and domestic. This has clearly lowered the value of the money. There are therefore two ways to dodge the cannonball that is heading our way in consequence.

One is to cut spending, raise taxes, and go for a balanced budget--what is sometimes mistakenly seen as the Herbert Hoover solution. This might be accompanied by some sort of reconstruction corporation such as Hoover presided over, but with better PR; but it will fail. It will fail because problems are several and systemic, and not just connected to money. I found this interesting article on the wind-up of the system in 1953 which historian-readers may appreciate.

Another obvious solution is to strategically expand government so that long-term growth might outstrip inflation, and to accompany this in the short term with a mild deflation and a rearrangement of government finances. This rearrangement would involve a four-pronged strategy. I'd lay it out in the following manner.

First, cut unnecessary spending. This to my mind would involve a diminution of the size of government. In this country, that would mean the end of the Department of Culture, media and Sport, the re-merger of the Department of Education from its successors, and the removal of around one hundred members of parliament and a third to a half of all councillors.

I would also seek to take advantage of the crisis to renegotiate PFI contracts, which this week the British government has done, to lower the private profit from them. Ultimately, I would want to see them so unattractive for the private sector that they simply become a way of turning over capital or lowering taxes, before diminishing to obscurity as a policy option. Currently, they are a form of legalised theft from taxpayers which cover up government indebtedness.

Secondly, I would tackle one of the central problems of the crisis. That is the under capitalisation of banks. Banks have become the only major investors and lenders apart from the stock market in both Britain and America. This is to my mind not sensible. The production of tools, like, say, tanks, is best generalised; but ecosystems, as a general rule, should not be monocultural. Banks are more like ecosystems than tanks.

There are five obvious sources of funding in Atlantic society; universities, governments, retained business profits, small investors, and mutual societies tied to land values.

Legislation to allow major universities to float away on their endowments, to promote cooperatives, and to place public goods and social utilities in social ownership, will, sooner or later, have to be brought forward. A fifth source of funding could be small-denomination bonds bought by service users, who will switch away from housing assets as an investment in the coming years.

The solutions are there. We are spinning. We should turn into the skid.

Thirdly, a strategic decision should be taken to target government cash at three energy concerns; nuclear fusion, nuclear power stations, and coal. This week, the climate change bill was being propounded in the House of Commons. It is enormously silly, and seeks to restrain Britain for fifty years on the basis of unproved science.

At the same time, it is becoming clear that temperature sensing stations and statistics were flawed; that the world has not heated for ten years; that La Nina and El Nino type effects are extremely important in temperature; that the interaction of the sun and solar winds may be intimately connected with temperature, and that the sun is less active than it has been; and that every find-an-enemy life hating fraud and troubled person on the planet has bought into green politics in recent years. Even the global warming 'skeptic response' sites are having trouble with this dawning realisation.

These people should just not be listened to, especially given their tendency to encourage narcissistic therapy disguised as planet salvation in a religious fashion. I was very struck by this characterisation of Greenpeace as the world's biggest de-industrialisation lobby, and I think it makes sense.

It is also the case that none of the underlying arguments for the reality of peak oil have gone away. I often think of peak oil as a sort of 'Big Cat' story. It is perfectly believable that, following the passage of the Dangerous Animals Act 1976 that various big cat 'pets' were let into the wild. It is also the case that steelworks (and I once spent a summer in one) and other such places used to employ ferocious near-feral creatures to look after the rats. So it isn't unbelievable that they may be running around the moors of England. Because, however, cheerful, alien-plesiosaur hunting pyramidiots say so, much like the very nasty BNP, and the pointless Greens talking about peak oil, men and women of reason aren't meant to acknowledge it.

To come back to the topic, there is an obvious solution to both the recession, the energy problem, and the illogic of environmentalism. We should reverse the climate change bill and bring in co-operative based collieries, whilst throwing money at nuclear fusion enterprises such as this one. It makes sense. These would be intelligent ways of guaranteeing future energy before we need to, and avoiding dead ends.

The Germans, giving their manufacturing base and foresight, are already at the forefront of solar power research and will probably remain so; Britain and America should adapt. This would blunt and possibly even forestall the stagnation seen as inevitable by the likes of Nouriel Roubini.

The fourth suggestion I have is more by the way of a self-limiting ordinance. I agree with Paul Krugman. There has been too much dependence by governments and corporations on foreign debt. In Britain, this has been taken to a ludicrous extreme, where foreign companies have been handed natural monopolies like airports, water and power companies, and the entire nuclear industry. This is all very well when things are cyclically good, and parallels governments getting the Asians to pay for spending schemes that keep demand up so we can all buy Asian products. But it will end in tears and ultimately destroy jobs.

Are there practical ways to stop government getting beyond itself? I've suggested a few. An absolute government commitment to the national insurance and (in the US) social security fund, coupled with a linkage of lending to land-based assets and a rule that businesses need to maintain pension funds at all times might help in concentrating minds. Sometimes it makes sense to shoot arrows at the moon, if one is training as an archer.

The main lesson I take, however, is that there are ways out. Policies are in the air which an intelligent political class could run with; the difficulty is that the quality of our politicians is so debased that the common sense-based, pragmatic melding of solutions would in itself be surprising. Most democratic politics is now a play of interest-groups and lobbies. Yet even in our hollowed-out states, a reinvigorated Labour movement, and a renewed American politics, may show a way.

Things do not have to be as they are. The alternative, of course, is just to run and let the various temporarily discombobulated financial parasites surfing events have the run of things. Here's Amy MacDonald singing about that....