Welcome to the Metaeconomics website, which is a continuation of the New Society strand in my website www.frankparkinson.co.uk.
The overarching purpose of both is to raise evolutionary awareness, and the particular purpose of this website is to show you the viewer that the global economic system is in terminal breakdown and argue the need for radical new economic thinking – in a word, the need for a new economic paradigm.
In 1993 I wrote a discussion paper “The End of Economics”, later reprinted in my 2002 book Jehovah and Hyperspace. One section of it was entitled ‘The Genie Escapes the Bottle’, the genie being the power of governments to print money at will once it had been detached from the backing of gold. Such a conclusion was widely regarded at the time as reactionary, but events are now proving its truth, for the financial catastrophe which started to unfold in summer 2007 can be traced back to the unlimited amounts of dollars created in the United States and the greed and deception in high places that has grown along with them.
The website could be entitled “Economics at the Crossroads”, and I offer on the last page a signpost to a sustainable future. The body of the site is made up of information, historical and current, to support my case. Some of the information is hardly more than simple economic logic, some is rather technical, and this has created a difficulty in identifying and writing for a target audience. While I hope that professional economists may find here something of value, the website has been designed largely for those who know less economics than I do. I should apologise at this point for the amount of text on the website. It has grown way beyond the original plan and has ended up halfway between a website and a book - an unhappy compromise. Reading so much from the screen is tiring, and I am well aware that many viewers will give up long before the end. In this dilemma, I decided not to compress the material any more than it has already been compressed, but to issue it later as a book more or less as it stands, with additional material, as current forces reshape the economic landscape. The book, probably with the same title, will be published by Foursquare Press, as planned, late in 2012.
The blindspot in all current theory is the way in which American economic policy, which affects the whole world, is driven by greed, deceit and fraud on a scale which most find incredible, despite the evidence in full view. Much of this website is devoted to looking at the evidence. I think it is true to say that no mainline economist takes it into consideration. Niall Ferguson’s television series The Ascent of Money, launched just before this website, takes the view that what is now going wrong in the global financial system is just the latest of many such historical corrections, and George Soros’s The New Paradigm for Financial Markets, published in May 2008, attributes the current breakdown to lack of psychological insight and poor regulation. If economic policy really is driven by fraud on a strategic scale and at governmental level, as I argue, to ignore or deliberately blind oneself to the fact must lead ultimately to an economics of delusion and, more to the point, much human misery.
Metaeconomics is, broadly speaking, the study of the foundations of economics, and differs from economics proper in that it examines elements that we take for granted, such as money, banks and corporations, with a view to radical change. Fritz Schumacher popularised the term metaeconomics by defining it as “economics as if people matter,” but since his time we have become aware of the need for an, “economics as if the planet matters.” There is ample material on both aspects available in books and on the Internet, from which this website has drawn, but my particular aim is to focus on economic developments which impact on human evolution. In this the website goes beyond economic reform movements such as The New Economics Foundation and Resurgence, and while it supports almost all their ecological goals, its aim is more radical, to show, firstly, that orthodox economic theory has lost touch with reality and, secondly, that the world’s major economic institutions are driven by greed and criminality on so great a scale that economic theory and practice is acting as a regressive evolutionary force – literally changing human nature. This may sound melodramatic, but the important thing is whether or not it is true, and one of the aims of this website’s aims is to provide evidence.
There are always hidden dimensions in economics – historical, spiritual, political, ecological – and we need to bring these to the surface before engaging in economic theory. It is a huge agenda, and two principles may be taken as a thread to guide the viewer through a mass of economic information. They are:
If you agree strongly with these two assertions, you will, I hope, find that this site says something important. In effect, they turn Marxism inside out, for while he too believed in economic evolution and predicted the collapse of capitalism which we are now living through, he was blind to the two assumptions that are central to the argument here presented: firstly, to rebuild society with a new economic system but the same selfish, ignorant and power-hungry individuals running it will also end in disaster and, secondly, the most significant truth about evolution is the unique ability of the human species to reinvent itself. This means that every individual has the potential for radical change, for self-transformation. It also means that we must decide what we, as a species, want to be, and awareness of that obligation changes almost everything in economic theory and practice.
Isaac Newton famously said that if he could see further, it was because he stood on the shoulders of giants, and no one can write seriously about economics without the same feelings. It goes without saying that one must be grateful to Adam Smith, Ricardo and Marx, the great founding figures, for doing the heavy intellectual lifting, and to Keynes a century later for giving us “modern” economics, which made balancing the national budget a rather quaint old-fashioned idea. But all these were in a sense prisoners of the self-regulating machine model that has been the basis of economic theory. Marx, of course, was the exception in condemning free market economics, but still believed that economies worked like machines if directed from above by expert socialists.
My greatest debt is to those theorists who, while not rejecting the principle of competition or the free market, worked more on the margin where economics overlaps with sociology and ethics, and who were as much concerned with social justice or ecology or political theory as with economics in the narrow sense. Much of what I normally take to be my own insights is usually forgotten wisdom learned from Mill and Bagehot who wrote for an earlier age, from Schumacher, Silvio Gesell and Barbara Ward in the more recent past and a host of contemporary writers who are alerting us to the need for a global economics that is sustainable, ecologically sensitive and socially just. In this they are at odds with most mainstream economics, and sometimes seem to inhabit a parallel universe. My indebtedness to them would call for too long a list, and though it is really invidious to single out names, I feel I should mention Lester Brown and Colin Hines for their passionate and informed work on the effects of globalisation, and David Korten, William Greider and William Engdahl for their professional sleuthing into the nefarious Realpolitik that drives it. For insight into monetary theory and community I acknowledge my debt to Thomas Greco, the late Ferdinand Lips, Bernard Lietaer and Richard Douthwaite.
I owe ongoing thanks to a score of economic analysts, who are by no means giants, but who are well informed and alert and use the Internet to disseminate their research into knowledge of current events, and judgements about where the world is going. As is common with the new medium, the inspired and the rubbish rub shoulders, and hence if I mention particularly the websites Financial Sense University, 321gold and Counterpunch, which I have found of great value, I by no means endorse all the opinions that can be found there, and I know that their editors would understand. All I would say is that I value the topical and historical nuggets that can gleam for the discerning eye.
Last, but not least, I would like to thank Jennie Dawson, of Lakeland Web Design for her professional help in constructing this website, finding solutions to many technical difficulties, and helping to shape a theme that has constantly overflowed its boundaries.
The obverse to Newton’s famous saying is that if one stands on the shoulders of giants, one should be able to see further, and that, I hope, justifies this website. From where I stand I see a world which is calling for a revolution in economic theory and practice, with new forms of banking, new forms of money and not-for-profit communities integrated into the wider scene. I hope that you, the viewer, will see something of the same.
It is now two and a half years since the website was launched, and during that period the global economic scene has changed dramatically and continues to change at a bewildering rate. The destructive economic momentum which the website sets out trace continues to build up and its direction becomes clearer. There have been some changes in the cast of characters: Timothy Geithner has replaced Henry Paulson as the US Secretary of the Treasury, George Osborne has replaced the ill-fated Gordon Brown as the British chancellor of the exchequer and Dominique Straus-Kahn has resigned as the Director of the International Monetary Fund. Creeping inflation is silently filching everyone’s savings and as it accelerates, the theft will eventually be as complete as in Germany in the 1920’s, described elsewhere on the website. The endgame is proceeding and the civil unrest in what has been called “the Arab spring” gives every indication of being the first breeze of what will prove to be an economic and social hurricane. If such statements seem over-dramatic, objectors must put forward a more likely scenario, based on the present facts and the arithmetic.
To get any bearing in the present confused situation one must start with two certain facts, the first being the looming default of many of the sovereign states of the West and the devaluation of the US dollar. Almost all countries in the world have borrowed inordinate amounts of money from a global syndicate of monster banks, using the Keynesian pretext that the national books will be balanced when economic circumstances improve. The UK and the European Union have started tacitly on a path of devaluation, through quantitative easing, a smooth phrase which means no more than issuing government cheques in lieu of money but cheques with nothing to back them. The collateral for government borrowing has always been the tax-paying powers of the citizenry, and it is probably fair to say that in this respect a state of denial has settled over the whole economic scene, for when it comes to the US, the UK, Greece, Ireland, Portugal and Spain, etc., etc., the simplest of economic logic shows that even if the debts are “renegotiated” – i.e., spread out over three generations of taxpayers - the figures simply do not add up. What cannot be repaid will not be repaid. Ireland, at the time of writing, is the saddest of cases, for its citizens are slowly awakening to the fact that their government has sold them and their children and grandchildren into slavery to a banking syndicate. The word “slavery” is, in fact, starting to appear in economic literature, to indicate a situation in which citizens will have a minimal amount of disposable income and they and their grandchildren will spend their lives labouring for the banks.
In a hugely complex and ever-changing economic world, a comprehensive account would call for a large book, which would be out of date before the ink was dry, and in this situation, I have chosen to update the website by giving four snap shots. Together these will, hopefully, at least indicate the broad direction in which global economics is heading. They are the simple figures of US national debt, the Strauss-Kahn affair, the economic enslavement of Ireland and the weird phenomenon of China’s empty cities. These might be seen as dimensions along which current developments may be projected into a discernible future, but it would hardly be wrong to say that predicting the future is as frustrating as working out an equation where every term turns out to be a variable.
The national debt of American now stands at over $14 trillion - $14,000,000,000,000 – far beyond the ability of its taxpayers to service, let alone repay the principle, and beyond even the comprehension of most people. To this must be added unfunded liabilities in various welfare payments of at least $50 trillion, and some authorities put it at over $100 trillion. At this mind-numbing level of counting, the difference hardly matters. The US government has kept doomsday at bay so far by quantitative easing, that is, by issuing IOU’s or treasury bonds, which the world still takes to be on the whole a secure form of investment. As with Greece, however, where government bonds have to pay 23%, since no one will accept less than this to balance the risk of default, the United States will eventually have to raise the interest on its Treasury Bonds, from its present level (around 4%) until they are at junk bond status and then go beyond that. The economic consequences are looked at elsewhere on the website but are worth repeating here: the American government can massively devalue the dollar, perhaps to a third or less of its present value, thus reducing at a stroke the value of other governments’ reserves across the world, innumerable pensions funds and individual savings. The UK’s reserves will be devastated, since the treasury has sold almost all its gold and invested heavily in US Treasury bonds, no doubt in the interest of the “special relationship” Alternatively, the US government can wait for inflation to tip into hyperinflation and destroy the dollar completely. The first option assumes, without any good reason, that America can rebuild its economy on the foundation of a properly valued currency. The reality is that in the past half century the American economy has become increasingly driven by the “military-industrial complex”, far beyond the fears expressed by President Eisenhower. It is hooked on war and the deficit spending required to fight its wars and maintain its military presence across the globe. Thus a notional devaluation would be merely a minor pause in the policy which has taken America and the world into its present economic predicament. Whatever else may be said, its current and unavoidable future deficit will ultimately be the end of the American dollar, the American empire and the international financial structure established at Bretton Woods in 1944. America is unlikely to retreat quietly and, if history is anything to go by, may well attempt to confuse the issue and prevent an emerging Chinese hegemony by starting wars of distraction on the pretext of a “global terrorist threat”.
The economic significance of Dominique Strass-Kahn’s arrest on charges of sexual aggression is that he was forced to resign as head of the International Monetary Fund, where he was instrumental in shaping policies that were antagonistic to American interests. They were, in fact, a dagger at the heart of the American empire and the dollar hegemony. What DSK had proposed was an alternative global currency of Special Drawing Rights issued by the IMF, in which the US dollar would be only one of a basket of currencies and gold that gave value and backing to the SDR’s. Elsewhere on the website the point is made that the privileged status of the American dollar has the unseen effect of taxing everyone on the earth, to the benefit of America. Though it would be impossible to quantify, and would vary greatly from country to country, we are probably talking of at least £50 per person per year in the West. The reason for this is largely that commodities, especially oil, are priced in dollars, and so no transaction can take place without those dollars being purchased from the Federal Reserve. The cost to the Fed is no more than the cost of printing – indeed, far less, since money can be created with a keystroke as a digital ledger entry. The powers that benefit from this thinly veiled extortion were not likely to let the IMF take away the privilege without some countermove, and it appears to have been a “honey trap” to ensnare DSK, notorious already as a womaniser, smear his name and force his resignation. To have him paraded before the media in handcuffs, with three days stubble, sleep-deprived and in a scruffy raincoat (the symbolic garment of perverts) was effectively judgement before the trial. It was a foregone conclusion that he would have to resign from the IMF, thus giving the US a chance to reverse the policies he was steering through.
Collapse of the Irish banking system in 2008-9 was headed off by two desperate measures. The Irish government was moved to guarantee all deposits in the major Irish banks (notably Anglo-Irish, Allied Irish and Bank of Ireland) and thus commit the nation’s taxpayers to keeping the banks solvent. Despite the common illusion that governments have endless funds at their disposal, the reality is that they have only what can be raised in tax from their citizens. There are exceptions to this, such as royalty income from oil and mineral resources, but Ireland has no such resources worth mentioning.
The stopgap measure of guaranteeing all bank deposits stabilized the situation temporarily and prevented a run on the banks, but as the smoke cleared, it became obvious that, despite this unprecedented action, enormous bad loans for property development would soon bring the banks down. In this situation the only solution would be for the banks to obtain long term loans from the market. These loans would, of course, also be guaranteed by the Irish government. In the normal way the IMF would be called in as “the lender of last resort”, as happened in the UK in 1976 when Denis Healey was Chancellor of the Exchequer. However, as a member of the Eurozone, Ireland is no longer a free agent in the matter, and it was the European Central Bank that had to be called in. From this point a whole new economic scenario starts to unfold and how it will eventually play out remains to be seen. The Irish government has in effect offered to act as an enforcer for the ECB and the private banking entities from which the ECB is inseparable. These international banks lent money to the Irish banks during the great property expansion which is at the root of the ongoing crisis. The Irish banks are not able to pay it back, because so many of their customers cannot pay back their borrowings, being either bankrupt or unemployed. It is a vicious circle, since government austerities have caused most of the unemployment, especially in the public sector. Applying its own version of the notorious “IMF medicine”, the Irish government has not only slashed public spending by wage cuts of 15% across the board, not sparing education and health services, but is now looting personal retirement savings. Going beyond Gordon Brown’s clever wheeze in taxing pension funds, it passed legislation in May 2011 allowing it to take 470 million euros from private pension savings. It requires only simple arithmetic to work out the ongoing individual loss in a country of only 4.4 million inhabitants of whom perhaps a million are pensioners.
Satellite photography of China reveals a phenomenon unique in the history of man, literally dozens of purpose-built but uninhabited empty cities, complete with tower blocks of flats, parks, theatres, shopping malls and sports stadiums, all connected to motorways that are almost entirely free of traffic. This massive building programme has been underway for over ten years and is currently creating twenty such new cities every year. The government does not issue statistics, but it has been estimated that in total they contain 64 million empty homes. Words do not convey the reality of this so much as pictures and there are several sites on the Internet where roaming cameras and commentators bring home the scale of this strange phenomenon.
Its roots lie in the decision made by Deng Xiaoping, the head of the communist party, to embrace capitalism, with his ringing endorsement that “to become rich is glorious” (shades of Gordon Gecko!). From this arose the programme to build the infrastructure on a massive scale that would be needed for China to compete globally. The new cities and roads were planned to house migrants from rural areas in manufacturing complexes. That seems very logical, and could only happen in a centrally planned and well-funded economy, but something clearly has gone wrong with the master plan. Quite what has gone wrong is difficult to analyse in detail, but it appears to stem from a disjunction between the developers’ bank borrowings and the average worker’s ability to buy or rent the empty apartments. Without affordable houses for its workers, no business can relocate to these ready and waiting, turnkey cities. The economic consequences that can be foreseen from this state of affairs would not be cause for concern if it had happened on a smaller scale, but a wet finger estimate of the value of the whole enterprise might put the housing stock at a trillion dollars, with perhaps twice as much invested in the highways and shopping malls, etc. Chinese banks now have non-performing loans of this magnitude on their books, and without doubt are technically bankrupt, or would be in a Western context. It is the Irish catastrophe writ large, and indeed the American catastrophe, if one considers the millions of mortgages in the US that are now foreclosed or “under water”.
Taking all this together, one can sense, if not see clearly, that the global economy and the very science of economics is now in crisis and at the heart of the crisis is the concept and nature of banking and of money. Once money is detached from collateral value, which traditionally has been gold and silver, and once banks can slip any restraining leash in fractional reserve lending, all economic activity is built on quicksand. The higher and more imposing the structures are, the greater the risk, and the more obvious the certainty, that they will buckle and crash. The purpose of this website is to join the dots and make logical projections. The conclusion it reaches becomes an assumption in new economic thinking, namely that economics as single-minded profit-making is ultimately self-destructive, for there is no obvious way of stopping the process of money-making from becoming cancerous or preventing credit-creating institutions from becoming parasitic upon society and ultimately destroying its host and themselves.
It is only to be expected that mainstream economists avert their gaze from the collapse that is built into the figures, for no one can envisage, let alone plan for, what comes after. It is a failing of humankind that when we cannot see the answer to a problem, we deliberately avoid looking at it. This website argues that a clear-eyed and honest analysis of present developments must conclude that a new paradigm is now being forced into existence, and it is in the nature of true paradigms that they appear at first ridiculous and arouse very emotional objections. What follows from the collapse of the global financial system is the need for rebuilding on a different principle, going way beyond Schumacher’s “small is beautiful” thesis. That new principle is the creation of not-for-profit communities in a mirror image of the incorporated joint stock company that took over economics in the nineteenth century. A not-for-profit company may sound quaint or unreal, but only because economic science as we know it has never dealt with structures of this kind, and offers no clue as to how to create them and on what scale. It still thinks mostly within the frame of “the wealth of nations” set out by Adam Smith over two centuries ago, but the world has moved on since then, and economic thinking must move on. The sort of enlarged imagination and logistical reasoning that is now called for is what metaeconomics is all about, but few professionals can think outside the box within which standard economic theory is contained and creative imagination restrained.