Sunday, 9 February 2014

Oppression, liberation, and judgement

I struggle with passages on the bible that speak of violent judgement by God. This can be against those seen as his people of in the case of Nahum against those who oppress others. Nahum seeks to liberate his people but in order for liberation to occur, the bonds of the oppressor need to be broken. This means that oppressor will feel judged and to some extent broken.

I can see that in a violent world where oppression is through force or violence that judgement may also appear as coming by force or violence. This is not absent from our world. Some would argue that Iraq and Afghanistan have been set free from oppressive regimes by invasions led by western armies. However, we have also seen forceful oppressors defeated by peaceful means or civil disobedience. In these cases the oppressors have fought back but been humiliated by the growing support for the push for freedom. I am thinking specifically of the civil rights movement or the downfall of apartheid in South Africa.

My focus isn't against obvious slavery but against a system of economic interaction and thought that enslaves to paid work. In this case the oppressors to some extent like the slave owners argue that the generation of wealth will be harmed by a change to the system and the setting free of the oppressed. So often our language is too timid and in order to highlight the system for what it is, we need to talk of oppression and slavery.

I see our political leaders increasingly as the oppressors. They argue for an educational system that seeks to enslave children to a system of work from an early age. Through the measurement that they put in place, they destroy freedom of thought, innovation, and critical thinking. The children need to learn to conform (be indoctrinated in the ways of the system) so that they will become the new slave workforce or the new oppressors who are blinkered to alternative solutions or ways of thinking.

The wealthy are seen as the saviours and shouldn't be oppressed even though they increasingly take from others their wealth and condemn the wage earners to poverty or slavery. To many, the wealthy should not be condemned and that all have the opportunity to be wealthy if they will work hard, that is be enslaved to work. However, the escape from the grind of hard labour only comes through being the owner of the idea or production. But even this doesn't work if you are just part of the supply chain.

How will this system be overthrown? What will be the impact of it being overthrown? Clearly the overthrow of capitalism could come through violence such as invasion or riot. The outcome of this type of overthrow tends to be oppression by the victor and destruction of the previous oppressors. This is the type of vision that Nahum speaks of.

The second type of overthrow is through peaceful disobedience. This still embodies judgement of the oppressors and the ultimate loss of their status and power. They may seek to fight back with force but increasingly it will crumble leaving them at the mercy of those seeking change.

Liberation will come and the oppressors will be laid low but I fear that we still have not learnt that true peace comes from cooperation and sharing of resources. As long as we seek to protect what we believe to be ours, we will continue to have oppression and a struggle for freedom. True freedom will come through caring for others and willing releasing some of our own wants and assets for the use of others. Our rights have to be tempered by our responsibilities to others. Our actions have consequences that we need to accept and consider carefully.

Prophecy and Judgement

My interest in prophecy has less to do with ancient prophecy and whether it has been fulfilled. I am more interested in how we can communicate the demise of our current economic system and the growth of a more just and equitable system.

There is a clear cycle of economic recessions brought on by the systems need for growth and human greed, the desire to gain more for self and to ensure others do not benefit from the assets and resources we control without us being rewarded. Some would go as far as to say the west seeks to exploit resources of other nations to satisfy its own economic and social ambitions. There is token gesture to the poor and exploited people through aid schemes but not a redressing of the operation of the system from self preservation and advancement to a focus on real need and a sustainable world.

I believe I understand some of the situation that we are in and at lest some of the solution. We need to move back (if we were ever really there) to local sustainable communities. That is communities focussed on the quality of life for all creation. Communities that seek first to ensure all in the community have what they need to live and that the bulk of those resources are local. The current monetary focus has to vanish as does the accumulation of resources for selfish use. The drive to build wealth destroys the very resources needed to sustain life.

Where will our current path take us? Scarcity of resources will become more prevalent with more of the land becoming unproductive. The removal of natural vegetation will see increased natural disasters as the balance of the planet is increasingly destroyed. Nature will fight back. Actually, the weather patterns will continue but because of the life that they used to sustain not being there, the consequences will be more disastrous.

But it isn't just nature that will slowly destroy the human lifestyle. Increasingly, there will be unrest against leaders who work to increase their own wealth at the expense of the people. The nations currently holding power and appearing to be stable will find it increasingly difficult to choose winners who will not continue the conflicts. Their own increasingly unstable economies will increase the resistance and internal instability leading some to collapse. The economic environment seen as the sustainer of the quality of life will fail and communities because they have lost the ability to thrive without external input will fall apart.

Is any of this God's judgement or is this simply the inevitable path of our current political and economic system? Some who understand this are building alternative communities that seek to be more self sustaining but I fear that those who seek to build an alternative future will be brought down with the fall of the wider society.

The message of how to avoid such disasters remains the same. We must learn to show more compassion for the poor and less concern for our own status and wealth. We must understand more how to live and die sustainably rather than seek continued growth and consumption of resources.

There is a message here for the modern prophet and the prophet needs like the prophets of old to use the words that the audience will hear and understand. Yes, the message will sound of judgement but it should also express hope of a new future built of compassion and the welfare of all.

This may seem heretical but we seek to blame someone for the problems that we create. As Jacques Ellul (2010) argues that sin entered the world through human questioning and action against God, so judgement is the result of human action and not the response of a loving God. We contend God must have created evil or sin and so we see actions or the consequences of our actions as those of a judging God rather than simply the consequences of what we do or the evil which is uncovered in the light of love and compassion.

A loving God cannot protect us from the stupidity of our own actions just as a loving parent cannot save a child from the consequences of all of their foolish actions.

Reference:

Jacques Ellul (2010) On freedom, love, and power. Toronto: Toronto University Press.

Sunday, 2 February 2014

Justice and Silence

We read Micah 3 during this week. Micah in this passage speaks out against the the injustice in Judah's society. He speaks out on three fronts. These are the absence of justice in the courts, absence of justice in the popular prophets, and absence of justice in the government. It challenged me as I thought of things that are happening around us. There are many things that are happening that represent injustice in our society. Like Micah's society, there is injustice in the legal system, in the commercial environment, and in government. Those who are the closest equivalent to prophets seem to carry a message that this injustice is what needs to happen because it is the only way to make our economy work.

The question for me is whether injustice can ever be justified. If injustice cannot be justified and our economic system depends on unjust practices then it is time for us to stand up and speak out against it. This view is reinforced by a quote supposedly from Martin Luther King Jr. which says that says “Our lives begin to end the day we become silent about things that matter.” If we are aware of injustice, we need to speak out.

Why do I say there is injustice in our legal system? Protesters at the arms fair are now appearing in court because they obstructed entry of arms dealers to the fair. However, no arms dealers were prosecuted even though they sell illegal weapons. Likewise we see no bankers prosecuted for their activities that where seen to cause the economic crash. It seems that some people are above the law.

What in my view is a greater injustice is the political decisions that through having bailed out the banks now sees the poorest in society paying the price for the actions a few rich bankers. The government is reluctant to do anything that would upset those who possess the wealth and instead makes judgements about those on benefits. The consequence is greater numbers of people being dependent on foodbanks and other charities for survival. The government claims that “we are all in this together” but the reality is that we are not. There is increasing inequality with wealth moving up from all areas of society to the wealthiest one percent.

This is further reinforced when members of parliament, chief executive officers, and other senior managers receive more in pay increases than workers. The argument is that in order to retain the best people in these roles, they need to be rewarded so that they don't move on to other organisations. The same doesn't apply to the lowly workers. These are seen as replaceable and therefore don't need to be paid a competitive salary. If one leaves, you simply employ someone else. The consequence is that the top income people continue to receive salary increases that exceed the increase in the cost of living while the workers receive a token increase that is less than the cost of living. Over time, more and more people move toward the poverty line. The workers who are in this situation aren't just the labourers, it includes some fairly highly qualified people that are seen as the traditional middle class.

With increasing pressure put on the financial resources of most workers, there is less willingness to protest workloads or work conditions. Employment options decline during recession periods. Workers are increasingly becoming economic slaves.

Are these decisions just? Should we allow them to continue to happen? Are they the only injustices that exist in our society?

Saturday, 1 February 2014

Economic Consequences

This chapter, “Economic Consequences of the current system” (Jackson and Dyson, 2012, Chapter 4) deals with some of the standard assumptions of economic theory and how it relates to what happens in the economy. We shouldn't be surprised that economic models do seem to reflect observed patterns. After all the models are built based on observation of economic behaviour and patterns. What possibly should be asked is why these models failed to predict what happened in the crash?

Interestingly as I prepared to write this blog, I picked up a book that I brought years ago on the quantity of money (Visser, 1974). Since it is a book on monetary theory, I wanted to see whether it also used the formulae used by Jackson and Dyson. The answer was “yes.” However, in quickly browsing the text, I found that Visser when talking about the supply of money (chapter 2) accepts that banks create money when they issue credit in exactly the same way that Jackson and Dyson argue (chapter 2). Visser also has a lot of formulae for working with the money multiplier but I won't bore you with the details here. Visser says that he wrote his book to provide “students who already have some knowledge of economics” an introduction to monetary theory. He says “It is aimed at giving a coherent treatment of monetary theory, which should enable students to follow theoretical discussions of monetary problems and to place these in the wider context” (p ix).

Velocity of money

Let me return to the issues raised by Jackson and Dyson. There first section is about the “Economic Effects of Credit Creation” (pp 116-128). The key formula used here relates to the “classical quantity equation of money” (p 117). The formula appears fairly simple.

MV = PT

This formula “sets out the relationship between money, prices, and the number of transactions in the economy” (p 117). In this formula, “M stands for the quantity of money in circulation, V for the velocity of money (the number of times money is used for a transaction in a given time period), T for the number of transactions in that period, and P for the average price level of the transactions” (pp 117-118). Jackson and Dyson say that MV “represents the total effective money supply for a given period” and PT “shows the total value in monetary terms of the number of transactions for the same period” (p 118). Visser says MV is “the total amount of payments during the period considered” (p 55). Visser also contends that “For an economy in which all transactions are made against money, the right side of the equation is identically equal to the left hand side.” Jackson and Dyson say that “The quantity equation simply states that the total revenue from all goods and services sold in a given time period must equal the amount of money spent on goods and services during the same time period” ( p 118).

Anyone who has been in a property purchase chain understands how the same money can be used to complete a series of purchases. The completion of a purchase chain relies on the first buyer putting the money into the chain. When the first purchase is completed, the second house purchase can be completed. This continues down the chain until the last house purchase is completed. Each house purchase in the chain is dependent on the settlement of the previous sale. To some extent, this is easy to see because downstream purchasers assume that they will receive money from the sale of their existing house in order to purchase their next house. The velocity is the rate at which this money moves along the chain. It is also possible to see here that velocity isn't going to change much in these transactions. There is a minimum amount of time required to complete each transaction.

However, this same principle applies to the consumer economy. This is possibly at a slower velocity than for the house purchase chain. A consumer buys a product at their local shop. The shop owner doesn't immediately use that money but does use that money to buy product and to pay their workers. The question is just how quickly can the money circulate in any given time period and what limits the velocity.

You can simulate this easily with a simple game. Get some play money and some objects to represent products. How much money is needed in your simulated economy to make it work? It may be surprisingly less than what you expect. Some economists argue that there is no need to be concerned about money creation because the velocity of money deals with issues of supply.

Jackson and Dyson say that there are a couple of problems with these formulas. They say Werner separates the equation into two parts. These are the real economy which represents “the part of the economy that produces goods and services” (p 118) and the financial economy which represents transactions on assets that do not contribute to GDP. House purchase transactions belong in the financial economy while production and consumption transactions are part of the real economy.

Why use these equations?

If the economy is running at full employment (p 123) then any increase in the money or credit creation will cause a corresponding increase in prices. However, if there is still the ability to increase production then an increase in money or credit creation could cause an increase in the number of transactions but the prices can remain stable. In theory, if the velocity varies, the prices or production can vary but the evidence appears to suggest that there is little change in the economic velocity. It should be noted that there is no discussion about the issues of demand with respect to these formula although there has to be money in the system in order to stimulate demand.

Returning to the concept of a game, try adding money into the system without increasing production. Either the additional money remains unused or the prices will increase. Increase production without increasing the money supply and then you have to either increase the velocity or prices have to fall. To some extent, these are the standard arguments for a market driven economy except the market economy talks of demand rather than money.

If we were to inject money creation as debt with an interest cost, what would happen? Would the impact change if we were to scale up the number of economic units in the system? I suspect not. Surely interest adds to the price side of the equation so there is pressure on the money supply or the velocity.

Although Werner separates the equations for the consumer economy from the financial economy, people use their asset values to enable them to purchase consumer products. The separation is not as clean cut as the equations might imply.

Housing Boom

As I reflect on this equation and house prices, I recognise that there needs to be some type of demand for houses for the number of sales to increase but I have no evidence that the increase in demand is caused by new people wanting to enter the housing market or that the driver is really a lack of supply of houses. The demand issues to me seems more complex than what I have heard in debates and I haven't seen evidence of a population increase rising faster than the availability of houses. Housing preferences or availability of work in an area may also influence demand in specific areas leaving some houses unoccupied in other areas. This is not what this equation attempts to show.

What this equation does suggest is that in order to get a house price boom, there needs to be a greater increase in the money supply for house purchases than in the increase of houses available for purchase. That is there has to a credit boom to match the price boom. According to Positive Money, this would appear to be what the evidence is suggesting with a huge increase in credit for house purchases while there has only been a moderate increase in the number of houses supplied.

In the present situation in the UK, the government is attempting to stimulate the housing market through incentives for new home buyers but in order for the purchases to be completed, there needs to be a much larger increase in the supply of credit to these new buyers. Mortgage lenders are more confident in an environment where house prices are increasing and since their earnings are based on interest from the advancement of credit, they have an incentive to not only supply the credit but to ensure that prices continue to rise. There is no stable state conditions for a housing market.

Financial Instability

The issues of financial stability are the focus of the next section of this chapter. They base their discussion on Minsky's “Financial Instability Hypothesis” (pp 128-134). Minsky describes three different types of economic units. These units are defined in terms of their ability to meet their financial commitments. They are:

Hedge Units: These are conservative in their operations in that they work to minimise risk and as a consequence they are able to fully meet their economic commitments (i.e. principal and interest) from their income alone. As a consequence they are only vulnerable to changes in demand. Regardless of the state of the economy, these economic units survive provided demand for their product remains at an appropriate level.

Speculative Units: These are able to cover the interest on their economic commitments from income but have to refinance to cover the principal. This means they require continued access to finance in order to continue operations. In a fairly stable or growing economy, these units are not at risk and may migrate to becoming hedge units but in a recession or an environment where access to credit is tight, they may find themselves at risk and can easily become ponzi units.

Ponzi Units: These are unable to cover principal or interest. To survive, they incur an increasing debt burden or sell off assets. They rely heavily on rising asset prices in order to survive. If asset prices fail then they are also in danger of collapse.

Minsky argues that following a recession, companies are risk averse and are conservative in their economic borrowing. As a consequence organisations tend toward being hedge units. As confidence grows, lenders begin to finance more speculative units since the evidence suggests that loans will be repaid and economic growth will ensure their survival and maybe even help them to become hedge units. Also in a stable economy, asset prices will tend to increase because few assets are up for sale.

This positive indication of growth leads to more risk taking and a willingness to finance ponzi units especially where they are speculating on asset price growth. The increase in ponzi units begins to increase the number of assets up for sale causing a reduction in prices with a corresponding increase in the risk of failure.

Economic confidence encourages risk taking but at the point where more assets come on the market and there is a reduction in asset prices, there is a revising down of expectations. The ponzi units find it more difficult to sell off their assets to cover their debt liabilities and begin to fail. The money supply begins to shrink and asset prices decline further causing more economic units to fail.

Although Jackson and Dyson do not talk about the role of growth and profit on these economic cycles, it is clear that these help fuel the move from being a hedge unit to a speculative unit and finally a ponzi unit. Competitors who are taking more risks appear to be making huge profits and there is pressure from investors for the economic unit to do the same.

Consequently, during boom cycles, hedge units become speculative or even ponzi units only to find all that they had worked for has vanished as the bubble bursts and they are no longer able to satisfy their economic commitments.

Government Intervention

Jackson and Dyson now turn their attention to government intervention (pp 134-139). The consider three cases.

If there is a recession during a period of high inflation then government intervention is not required. Rising asset prices enable economic units to cover the debts even though it may mean a downsizing of their assets. As long as asset prices remain high, the system will slowly balance itself out although some economic units may have shrunk in size.

If the recession is during a period of low inflation then there is a increase in distress selling in order to cover debts which causes a further decrease in asset values further exacerbating the recession. Lenders will favour organisations with market power forcing many smaller economic units out of business. Once recovery begins, the organisation with market power will again increase prices since the level of competition has been reduced.

The third option is the government intervening during a low inflation recession. The first issue under the current system of money creation is that the government implements austerity measures in order to control the increasing debt incurred through intervention in the economy. This can remove crucial services causing further difficulties and failures within the economy. The alternative is for the government to increase taxes but this puts more stress on economic units and may harm the rate of economic recovery.

But intervention through monetary policy can have other unintended consequences. The lower of interest rates benefit borrowers but hurts savers (i.e. pension funds). This puts pension funds at risk of not being able to meet their future commitments so they seek to increase contributions reducing the available spending power in the economy.

With the decreasing return on bonds there is an increase in the desirability of other assets. This causes their prices to rise. If the government had intervened to maintain asset prices then this may give investors a false sense of stability causing them to take more risks.

Minsky concludes that “booms and busts, asset price bubbles, financial crises, depressions, and even debt deflations all occur in the normal functioning of a capitalist economy. What is more, periods of relative stability increase the likelihood of instability and crisis by increasing returns and thus the desirability of leverage” (p 139). The conclusion is that the capitalist system is inherently unstable.

My Evaluation

It would seem that regardless of how you analyse a system based on debt and profit making, it is going to run into boom and bust cycles. From the “quantity equation of money”, too much money or credit being injected into the system is going to push rising prices. Too little causes prices and possibly transactions to drop. Although economists argue that the velocity of money smooths out the excesses and shortfalls, the evidence seems to suggest that the velocity is fairly static. Minsky with “Financial Instability Hypothesis” seems to show that a capitalist economy is by design unstable and will go through boom and bust periods.

Positive Money's proposal may address the debt side of the equation and consequently reduce the level of debt and instability but will it really solve issues of inequality? That will depend on how new money is spent into the economy.

So far the alternatives to capitalism have not delivered either nor have they endured as long as capitalism. But are the options only capitalism with minimal government intervention or communism with total government control. Are there alternatives that do not fall between those two extremes but come from alternative ways of thinking about how we work together and utilise resources?

I am increasingly seeing the solution as not just repairing the way money is created and injected into the system but one of changing the focus of our economy from personal gain, protection of assets, and growth to an economy focussed on meeting needs. When I talk of needs, I don't simply mean the needs of people, I include all of the planet. We can no longer afford to keep enslaving people and our natural resources to a money focussed economic system. Real change has to come from communities that operate in a sustainable way and that ensure that all needs are satisfied. As long as money is used as the primary measure of success, there will be exploitation of natural resources and people for the desires and greed of those in control of the key resources. The change in focus has to be across the whole system but a key is the local community and the way local communities interact to share and satisfy needs.

So why do I support the Positive Money proposals? We need to start somewhere and unless we break the enslavement to debt and boom and bust cycles, it is going to be difficult to usher in other alternatives.

Reference:

Andrew Jackson and Ben Dyson (2012) Modernising Money: Why our monetary system is broken and how it can be fixed. London: Positive Money.