Newsletter No. 11 - December 2006

Links to other Newsletters can be found here.

CONTENTS

1. Two Celebrated Economists in the News:

1.1 Milton Friedman

1.2 Adam Smith

2. Climate Change

2.1 The Stern Report

2.2 Carry on Polluting

2.3 A Better Alternative

3. Towards a Reconstructed Money System

3.1 Monetary Reform

3.1.1 The American Monetary Institute - news

3.1.2 Prosperity - news

3.1.3 The Money Reform Party

3.1.4 Debt Threatens the Future

3.2 Basic Income Studies: a New Journal

3.3 Mary Mellor: Down to Earth Economics

4. Book Reviews

4.1 Fred Harrison, RICARDO'S LAW: Why Tony Blair's Project Failed: House Prices and the Great Tax Clawback Scam

4.2 Bruce Nixon, LIVING SYSTEM: Making Sense of Sustainability

4.3 Herbert Girardet , CITIES PEOPLE PLANET: Liveable Cities for a Sustainable World

 

1. TWO CELEBRATED ECONOMISTS IN THE NEWS

1.1 Milton Friedman died on 16th November 2006 aged 94. In his time he had played as important a part in shaping the prevailing economic doctrine as Keynes had done earlier in the 20th century.

Friedman's 'monetarism' supported world leaders like Reagan and Thatcher in their opposition to 'Keynesianism'. TANSTAAFL ("there ain't no such thing as a free lunch") encouraged them and many others to rely on a 'free market' to create prosperity, rather than on 'interventionist' social spending and aid to keep economies going and help poorer people and countries.

Now, however, it is becoming more widely understood that, as the economy works today, it provides massive free lunches for rich and powerful people and businessesand countries at the expense of poorer ones; in other words it allows the rich and powerful to profit from more than their share of the value of natural and publicly created resources in ways that impoverish the poorer and weaker.

Friedman's death is prompting the idea that the 'free market' era may be ending and the pendulum may be swinging back towards 'interventionism'.

Routine practitioners and commentators in mainstream politics and economics find it hard to question the conventional either/or of that swinging pendulum. How to escape the unsatisfactory choices it offers is what this website is mainly about.

1.2 Adam Smith was not an economist; he was a moral philosopher; economists had not been invented in his time. But economists have co-opted him posthumously as the father of their discipline.

On 29 October 2006 Mervyn King, Governor of the Bank of England, gave this year's annual Adam Smith Lecture called Trusting in Money: from Kirkcaldy to the MPC in Kirkcaldy, Smith's birthplace in Scotland in 1723.

Please read it; it's very interesting. It reminded me of being enlightened and moved by James Buchan's short life of Adam Smith published earlier this year.

The lecture focused on the social institution of Money. Discussing the importance of social institutions in a market economy, the Governor said

"self-interest explains many economic decisions. But a market economy also requires social institutions .. [which] we choose to build as a framework for collective decisions that constrain individual behaviour".

Although we haven't yet developed money as a democratic social institution systematically designed to provide a constructive framework of incentives for our economic behaviour, the Governor's recognition that the market economy necessarily has to be framed by social institutions of one kind or another is important.

In Kirkcaldy, Mervyn King also announced that new £20 banknotes next spring would show the head of Adam Smith, the first Scot and the first 'economist' to adorn an English banknote. (I felt some sympathy with the leader of the Scottish National Party who commented that Scottish £50 banknotes already carried Adam Smith's head, which was a reflection of the difference between Scottish and English values!).

2. CLIMATE CHANGE

2.1 Stern Review on the Economics of Climate Change

I can't pretend to have read all 600+ pages of this report, published by the UK Treasury on 30 October and given widespread media coverage - click here for background and texts. But I have two brief comments at this stage.

First, the report is important for one simple fact. Although the Treasury's terms of reference limited the review to the specific problems of climate change and "the economics of moving to a low-carbon global economy", Stern provides confirmation of what many of us have understood for many years: our present path of development threatens terminal catastrophe for our species and many other species on our planet.

Partly because his findings are couched in the jargon and superstition of conventional economic analysis, and support tackling climate change as "the pro-growth strategy for the longer term", Stern has at last persuaded mainstream professional and public opinion to accept that effective responses are urgently needed.

For example, on 29 November a local government council made headlines by rejecting the proposal to expand Stansted airport. It did so because it took seriously the contradiction between UK government policy to more than double the number of airline passengers by 2030 and the need to reduce carbon emissions drastically.

My second comment is that at least some of Stern's specific proposals are more debatable. Emissions trading is an example.

He suggests that three elements of policy are required for an effective global response. "The first is the pricing of carbon, implemented through tax, trading or regulation. The second is policy to support innovation and the deployment of low-carbon technologies. And the third is action to remove barriers to energy efficiency, and to inform, educate and persuade individuals about what they can do to respond to climate change."

So far so good. But he then identifies emissions trading as the first of the key elements of future international frameworks: "Expanding and linking the growing number of emissions trading schemes around the world is a powerful way to promote cost-effective reductions in emissions and to bring forward action in developing countries: strong targets in rich countries could drive flows amounting to tens of billions of dollars each year to support the transition to low-carbon development paths".

Despite Stern, and despite the fact that carbon emission trading has been put at the heart of international schemes like the Kyoto protocol, an overwhelming case can be made against them, compared with the two alternative approaches - tax and regulation. See the following item at 2.2 - click here to find previous references on this website to the corruptibility of 'carbon trading'.

However, the main sequel to the Stern Report so far as been its overshadowing by the Chancellor of the Exchequer's Pre-Budget Report to Parliament on 6th December. His environmental proposals were widely seen as disappointing, and Sir Nicholas Stern announced his retirement from the Treasury the following day.

2.2 Carry on Polluting

This article was published on 2 December 2006 in New Scientist. Its author, Larry Lohmann of the Corner House, edited Carbon Trading: A critical conversation on climate change, privatisation and power, a report published on 28 September by the Dag Hammarskjold Foundation in partnership with the Durban Group for Climate Justice and the Corner House.

The message is that emissions trading schemes don't work.

These privatising schemes are based on giving big polluters a free share of the Earth's capacity to absorb carbon. The result is that the polluters are positively rewarded and encouraged to carry on as before. "Under EUETS (the European Union's Emissions Trading Scheme), some of the worst greenhouse offenders, such as the German utilities group RWE, have earned hundreds of millions of euros in windfall profits just for pursuing business as usual".

Letting them buy cheap 'offset' credits from energy projects in developing countries makes matters worse. It not only encourages the big industrial polluters to continue polluting; it has also damaged energy efficiency projects in developing countries.

"There are better ways of tackling climate change than by privatising the Earth's carbon-cycling capacity. Public investment, shifting subsidies away from fossil fuels and toward renewables, conventional regulation, support for the work of communities already following or pioneering low-carbon ways of life, requiring that businesses pay the costs their competitors incur in developing green technologies - all these are stronger and more direct ways of bringing about the structural change required."

The report was published as a new issue of the Dag Hammarskjold Foundation's Development Dialogue, and as the second report of the What Next project - which will interest readers of this newsletter who don't know of it already.

2.3 A Better Alternative

Here is a summary of a better alternative outlined by Paul Metz in his recent newsletter at www.integer-consult.com:

3. TOWARDS A RECONSTRUCTED MONEY SYSTEM

Other parts of this newsletter, particularly the book reviews in section 4, bear on the need to understand how the system of money works now and how it should be changed. Here are some specific recent developments.

3.1 Monetary Reform

3.1.1 The American Monetary Institute held its annual conference in September in Chicago.

The texts now available on its website of a draft American Monetary Act, a pamphlet introducing that act, and a draft Monetary Transparency Act are notable steps towards legislation to implement monetary reform. A story is unfolding here of potentially great significance.

3.1.2 Prosperity UK includes in its October 2006 issue the transcript of a lecture (see following paragraph) by Alistair McConnachie on 3rd October in Dublin as part of Feasta's course on 'Understanding the Economics of Sustainable Development'.

'Stopping the Debt Driver: Why Reforming the Way our Money is Created Holds the Key to Halting Unsustainable Growth' was very timely. What a pity Sir Nicholas Stern (2.1 above) was unaware that 95% of the money we use is now created as profit-making debt by commercial banks, which helps to compel the poor and encourage the rich to turn the resources of the planet, including its limited capacity to absorb carbon emissions, into money as fast as we can.

You can order the new DVD (47 minutes) from Canada on 'Money as Debt' (£10 a copy including p+p) from Prosperity UK (contact details here). One of the aims of its creator, Paul Gignon, is to show environmentalists and advocates of social justice that monetary reform is essential to the causes they hold most dear. I have a copy, and recommend it as a good way of spreading the word.

3.1.3 The Money Reform Party offers a political opportunity "to educate the British people and their politicians about the money system and to campaign for the abolition of a money supply that is created by the private banks". The damaging results of the present "crazy" system "could be very easily remedied, if a publicly-owned body, such as the Bank of England, was responsible for creating ALL of Britain’s money, and if this money was spent into circulation as part of the government’s normal spending pattern". Further information from Anne Belsey.

3.1.4 Debt Threatens the Future is a very interesting blog article. Thanks to Peter Challen of the Christian Council for Monetary Justice for circulating its internet address.

3.2 Basic Income Studies is a new journal launched in August by the Berkeley Electronic Press. Its editors are Rafael Pinilla-Pallejà (Ministry of Public Affairs, Spain), Jurgen De Wispelaere (Trinity College Dublin), and Karl Widerquist (University of Oxford).

The launch of this first peer-reviewed journal devoted to basic income and related issues of poverty, relief and universal welfare indicates the steadily growing importance of the subject to academics and the wider policy-making community.

3.3 In Down to Earth Economics in the Autumn 2006 issue (No. 34) of Soundings, Professor Mary Mellor (see Item 5 in Newsletter No 10, July 2006; click here to contact her) identifies a "clear need for an approach to economics that combines both socialist and green insights": on the one hand, a recognition of ecological limits can strengthen the socialist critique of capitalism; and, on the other hand, "green economics without a socialist analysis has no argument to offer against.. the kind of thinking that in the UK makes common cause between aristocrats [e.g. Prince Charles] and greens".

To simplify greatly, she refers to LETs, time banks, local money, and co-operatives and other forms of personally directed work as ways that point towards how a sustainable economy might be organised.

But she concludes that they cannot challenge the dominance of the market economy which is typified by the facts that:

Her paper identifies two major concerns about the current way of issuing money. First, this money is a national resource and how it is put into circulation should at least be under democratic control. Second, the way the newly issued money is spent helps to determine the priorities of the economy.

The following are among the specific points Mary Mellor discusses:

4. BOOK REVIEWS

4.1 Fred Harrison, RICARDO'S LAW: Why Tony Blair's Project Failed: House Prices and the Great Tax Clawback Scam, Shepheard-Walwyn, 2006, 314pp, £18.95, hardback.

One of the questions underlying this book is:

"What is the agenda beyond Blair? Blair intuitively understood that coming to terms with market economics was imperative, but he could not formulate the rules that would define the relationship between the individual and the state, the public and the private sectors" (p210)....The key concept is the obligation to pay for the benefits one receives (p213)."

Harrison explains how the present relationship between the individual and the state, and between public and private sectors, conceals the fact that certain groups in society avoid paying for the benefits they receive:

Along with Harrison's two other recent books (see Newsletters No 9 and No 7), this one makes an overwhelming case for treating land values as a major source of public revenue, with equivalent offsetting reductions in today's economically damaging taxes.

If the government were to carry out its revenue-raising function intelligently and fairly by replacing the revenue from more damaging taxes with revenue from land value taxation (LVT), the changed price structure would enable the market economy to operate more freely and efficiently. That would go far to eliminate some of the problems that conventional economists now call 'market failures'.

It would clear a way forward on many important social and economic problems that conventional politicians, government officials, economists, social scientists, and other academics and commentators have found themselves impotent to resolve.

That includes thinktanks. Among Harrison's targets is the Joseph Rowntree Foundation (p137). It's founder's aim was, in today's soundbite, to 'make poverty history'. But his foundation has failed to respect his explicit written emphasis in 1904 on "the supreme importance of questions connected with the holding and taxation of land", and has ignored his instruction that large sums could appropriately be spent on collaboration "with competent investigators and workers upon these questions".

Now for a couple of reservations. In spite of Harrison's store of fascinating, wide-ranging references to history, political philosophy and current political concerns, he doesn't bring out the relevance of his theme to related issues like green taxation and climate change (see Item 2 above). That's a pity.

In terms of basic principle, the rule that everyone should pay for the value they enjoy from common resources applies more widely than just to owners of land. Like land, the environment's capacity to absorb carbon emissions is a limited resource, from which rich nations and businesses and individuals now profit extortionately.

In terms of tactics, failing to get it across that the case for LVT has a common ethical base with the better understood case for green taxation is to miss a trick.

I hope Fred will also forgive a small niggle about £23.5 trillion. He calculates (p257) that the proposed shift to LVT would help the British economy's gross domestic product (GDP) to grow to £23.5 trillion in 100 years' time, which would be £14 trillion more than without that tax shift. I doubt if this will persuade many people to campaign for LVT. Does anyone think it's possible to forecast GDP 100 years ahead? More to the point, does anyone expect that endlessly maximising currently measured GDP will still be accepted then as a meaningful objective?

In spite of those reservations, I enthusiastically recommend this book. Apart from everything else, it makes a splendid read and a wonderful quarry of relevant information. I have pencilled reminder notes to myself on many pages of my copy.

I should perhaps add this postscript. My own view is that land value taxation will certainly be one, but only one, indispensable part of the wider reconstruction and development of the worldwide money system needed for a sustainable world - see the first, third and fourth items on this website's Articles page.

Active citizens need to insist that the framework of money values and incentives created by governments carrying out all their own main financial functions - for providing the national money supply and for managing public spending, as well as for collecting public revenue - is designed to bring democratically approved economic, social and environmental strategies into harmony with one another, not lead to conflict between them.

4.2 Bruce Nixon, LIVING SYSTEM: Making Sense of Sustainability, Management Books, 2006, 184pp, £14.99, paperback.

To pick up on my niggle above about GDP, it's good to see that Bruce Nixon questions "the myth of Gross Domestic Product as a measure of progress" and doubts if it helps to meet human needs in a sustainable way (p108). The need for alternatives to GDP is one of many practical points in his courageous and perceptive book.

It's courageous because, as a consultant with a business background in human resources and management development in the Caribbean, North America and the UK, Nixon is publishing the book, like his last two, in a 'Leadership' series with Management Books; and, although business managers should see themselves as leaders concerned with creating a better world, timidity could tempt them to shy away from his message that the present values of business must change radically. I hope not.

His book speaks, in fact, as much to people not in management as to people who are. Its "final challenge is to everyone: realise we are all leaders and can take our power in changing the world... Discover your purpose - why you are here. Follow your heart! Your passion will be your source of energy".

It discusses business as a major source of good and harm, making sense of globalisation, and the present crisis of confidence for big business and political leadership. At the root of the crisis are values, including the need for a better balance of male and female energies (pp93-99), and what to do about psychopathic and narcissistic leaders "who suffer from toxic masculinity that leads to war, the conquering of new markets, and the destruction of the earth" (Jane Fonda).

It's good to see a book of this kind recognising that many aspects of the way the man-made money system works today are obstacles to the urgently needed shift to a new ecologically and socially sustainable path of development (p103).

And I liked the relevant little rhyme by Hans Blix:

"The noble art of losing face will one day save the human race."

Living System puts forward a new agenda for the 21st century, and suggests how to change things for a better way of living for everyone. Summing up, its last chapter lists strategic priorities for global, national and local government and big business, and 35 practical "actions for individuals like you and me". Those range from "Reduce, reuse, recycle and repair" through "Think before you drive or fly" to "Follow your heart, know yourself and live in a way that reflects your values".

The book prompts a number of points that could be further discussed and debated, e.g. on matters of strategy and tactics.

For example, will it really always be best to proceed step by step, starting with small changes, creating common ground and not focusing on issues where there is major disagreement (p115)?

Won't it sometimes be necessary to grasp the nettle, and override or outflank opposition from people and organisations whose financial interests, career prospects or psychic investment in self-esteem are inextricably bound up with the status quo, and who will suffer badly from the shift to a better future?

The paradigm to be shifted runs so deep and wide that shifting it will affect almost everyone. Although enlightened leaders must try to bring along as many people in the world as they can, even gifted and committed "servant leaders" (pp121-122) will not be able to wait for ever in order to avoid some of us feeling betrayed by what we are being asked to give up. Jesus didn't get the money-changers to agree to leave the temple; he threw them out.

4.3 Herbert Girardet, CITIES PEOPLE PLANET: Liveable Cities for a Sustainable World, John Wiley and Sons, 2004, 304pp, £24.99, paperback.

Herbert Girardet is an internationally recognised authority on a sustainable future for cities. Among his many clients as a consultant have been UN Habitat and the cities of London, Adelaide and Vienna. He is a visiting professor at a number of universities. He has a long list of books and other publications to his name.

Currently he is helping to plan the world's first purpose-built eco-city - Dongtan, in China (click here for details). The Shanghai Industrial Investment Corporation (SIIC) has commissioned Dongtan to be built in the Yangtze River Delta on an area three-quarters the size of Manhattan Island.

By 2010 it will be a city of 25,000 people; by 2030 the population will reach some 500,000. It is designed to be a beautiful and truly sustainable city with a minimal ecological footprint - a template for future urban design. As China is planning to build no less than 400 new cities in the next twenty years, its success is of crucial importance.

Girardet's book is clearly a 'must read' for anyone professionally concerned or personally interested in urban planning and management. That should be a lot of us, at a time when, on the one hand, further continuing worldwide urbanisation on a massive scale seems inevitable and, on the other, it is urgently necessary to limit consumption and destruction of the world's natural resources.

The main questions the book explores are (p3):

Three fascinating historical chapters about cities from prehistoric times to the present are followed by chapters on globalisation and megacities, cities as ecotechnical systems, transport, liveable cities, solar cities, zero waste, using water efficiently, and relearning urban agriculture. They lead up to the last chapter, 'Building Ecopolis'.

Girardet's upbeat conclusion is that "if we get things right in the coming years and decades, cities will become the beacons of a culture of sustainability". The evidence assembled in the book shows that "we can create a revolution in urban problem solving - for the benefit of city people themselves as well as to reduce their impacts on the world. A wide variety of innovative approaches to urban planning and management are available to us".

However, it is a bit disappointing that the book's index contains no reference to money, taxation, public spending, subsidies, banks or investment. There are just two short references to London's congestion charge; and a rather longer summary of how three cities - London, New York and Tokyo - now have unprecedented power as global financial centres, with others such as Hong Kong, Singapore, Seoul, Taipei , Shanghai and Mumbai coming up in the second rank.

Surely the future sustainability of cities will depend on changes in how the worldwide money system works. Otherwise continuing to fail to tax land values, and continuing to allow banks to create new money for speculative property investment, will continue to fuel the rise in city land values. This will continue to promote a self-reinforcing cycle of ever greater wealth concentration in big cities at the expense of other places. Won't that frustrate sustainable development both in cities and elsewhere too? Won't that have to be changed?

James Robertson

18th December 2006

The Old Bakehouse, Cholsey
Oxon OX10 9NU, UK
Tel: +44 (0)1491 652346
e-mail: james@jamesrobertson.com

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