Apologies in advance. This is another dry and unamusing entry via the serendipity of my private reading and google. Just one of those things that if I don’t do right now, I will never do.
The earlier entry ruminated on the derangement of imaginary money that is not offset by actual capital creation, and the modern heresy of debt default – drilled into us as an unmentionable evil we are prohibited from even thinking about by the Mandarins of Globalisation.
I found some rather relevant blog posts, all revolving around the writings of one of our finest, and appallingly undervalued, contemporary minds, John Ralston Saul (website). This is to extend the previous discussion. These items expand far more competently than I could hope to and I have little to add –
Unsustainable Levels of Debt by John Ralston Saul
(via Les Stewart)
Stewart digs out some earlier works by Saul. These are the key observations to ground us back in reality –
- The building up of unsustainable debt loads is a commonplace in history. There are several standard means of resolving the problem: execute the lenders, exile them, default outright or simply renegotiate to achieve partial default and low interest rates.
- There is no example of a nation become rich by paying its debts.
- There are dozens of examples of nations becoming rich by defaulting or renegotiating. This begins formally in the sixth century BC with Solon taking power in debt-crippled Athens. His organization of general default – “the shaking off of the burdens” – set the city-state on its road to democracy and prosperity. The Athens which is still remembered as the central inspiration of WESTERN CIVILIZATION was the direct product of a national default. One way or another most Western countries, including the United States, have done the same thing at some point. Most national defaults lead to sustained periods of prosperity.
Apart from the suggestion to shoot or exile (unrealistic in a globalised world unless you send them to Sudan) the scumbags that have created our quagmire, the key point to note is that, unknown to most people, the United States has defaulted previously, and has done so on many occassions. The world did not end and, as Stewart notes, the process of default usually led to an envigorated economy. Stewart proceeds to point out how the relation between public debt and personal property has effectively been flipped on its head by the collusion between financiers and politicians obsessed with “economic rationalism” over the last half century –
The question of national collateral was fully addressed in the eighteenth century when it became clear that an indebted people could not owe their national rights (their land and property) to a lender. The citizen’s natural and concrete rights took precedence over the lender’s abstract rights.
One of the most peculiar and insidious aspects of twentieth-century CORPORATISM has been an attempt to reverse this precedence. The managerial imperative suggests that national debts can be indirectly collateralized in several ways. Governments can be forced to sell national property to pay debts (PRIVATIZATION). They can also be pressed to transfer ownership of national property to lenders, as has been done in the Third World. — from Saul’s The Doubters Companion
These are the “austerity measures” being forced on those that can least afford them and our steadily disappearing pension funds – this is collective wealth being stolen from all to pay for imaginary interest generated by the continuous bailout processes. Essentially, institutionalised theft. Remember, unlike the days of the gold standard and similar equivalents that limited the issue of currency, the ever mounting debt burdens and accelerating interest rates generate money that is not offset by any real world wealth. It has to come from somewhere. Money is simply being printed, and the short term interest costs are financed by squeezing the public itself. Blood from a stone.
The next item revisits the history of early Athens, the cradle of our modern democracy, and how it came to be what it was by the Judgement of Solon, the original debt defaulter –
(via Heresy Corner)
Even more interesting is the lesson Saul draws from Athens in the days of Solon. Athens in his day was in the midst of… I’m tempted to say a Greek-style debt crisis, but that would be doubly anachronistic. But yes, a Greek-style debt crisis. Archaic Athens was controlled by a financial elite, the Eupatridae, landowners who acted as bankers, lending money to poor farmers who, unable to pay it back, lost their land. “This debt situation spun further and further out of control.” Austerity and Draconian repression — Draco being the lawmaker responsible for the clampdowns — didn’t work. Faced with the final collapse of Athenisan society (and their rule) the Eupatridae sent for Solon:
Solon’s first act on taking power was to redeem all the forfeited land and to free all the enslaved citizens. This he did by fiat. That is to say, he legislated immediate default. The Athenians called it the shaking off of burdens, but in practical terms what he had done amounted to simply ripping up the debt papers.
Having released both the people and the nation from their paper chains, he was able to re-establish the social balance. From there he went on to create a code of fair laws (in place of Draco’s) and to lay the foundation for a democratic constitution. Athens immediately began its rise to glory, spewing out ideas, theatre, sculpture and architecture, democratic concepts and concrete riches.
This is largely a forgotten snippet of history, and one I suspect the technocrat snake oil merchants applying various “fixes” to the mess they created in the GFC don’t want widely known. But consider the vast amount of money disappearing into the void of the credit/debt market that is never seen again – money that does not generate any corresponding wealth via capital, but only devalues itself via the cancer of arbitrary interest rates – and consider what the result would be if that wealth were used instead to rebuild economies on a clean slate. Is default really that bad? Of course it is – it is heresy. So say the gurus.
The last item I want to share is an essay from the great man himself, largely a concise preview of his 2005 book The Collapse of Globalism: And the Reinvention of the World, from Harper’s Magazine March 2004 –
January 16, 2012 at 9:01 pm
“2. There is no example of a nation become rich by paying its debts.”
I don’t think you’ll find that many (if at all) historical examples of nations paying their debts anyway, when these debts amount to a substantial amount of, or exceed their GDP.
(The only one I can think is a very special case: Haiti, who bought its independence from France with a colossal annual indemnity that left it broke for centuries.)
January 16, 2012 at 9:54 pm
I don’t think you’ll find that many (if at all) historical examples of nations paying their debts anyway
I think that’s more or less his point. The problem is that now, government malfeasance has effectively handed over control of these debts to private institutions that don’t really have a geographic home base. They have lost all control and there are parasite middlemen everywhere; the debts are no longer distinct, but split and bundled into “derivative” packages, often linked with things like food production futures. It is a mess that has no clean resolution. Individual countries defaulting is not much good. They whole system really does need to be wiped. Its beyond repair.
January 17, 2012 at 12:18 pm
Well, our (the world’s) present economic system needs sustained ‘growth’ to thrive, and even survive, but ultimately this growth depends for a large part on resources (ores, oil, CO2 sinks, etc.) that we only recently realized are finite, and (for some) largely depleted. So the only way left to generate infinite growth seems to be just that – betting on national debts, devising more and more complex financial packages that are more and more remote from the ‘real’ economy (goods and non-financial services), and so on. It’s all artificial growth but growth nonetheless – a kind of placebo for our economic deciders, until the bubble bursts. Ack, I read somewhere that this ‘real’ economy amounts to only 6% of the sum of financial transactions worldwide at the moment (and most of the remaining 94% was generated in the last 20 or 30 years.) That’s a crazy world we live in.
By the way, I just read Naomi Klein’s last newsletter (Capitalism vs. the Climate), which is somewhat related to this. Her point is that we need a serious paradigm shift in global economics to cope with climate change, that the Right realizes it way too well but opposes it on ideological grounds, and that that’s why climate change denialism is on the rise. Just another facet of the Big Picture.
January 17, 2012 at 6:26 am
An interesting little side note here. During the end of the Clinton years in the US there was a very large surplus coming into the Federal government. Spending was way down due to the end of the cold war and reduced Federal programs. Revenue was way up because the economy was booming. What to do?
Seriously, may economists were really worried about the US eliminating all its debt. What this would mean is that the government would have to find something to invest in. Here is the problem. This would create a government possibly pumping billions of dollars into private investment. The government would be picking winners and losers in the market and competing with private equity. This could trash the markets because of the huge influx of money.
The surplus never materialized, but what this suggests to me is that governments might not be best off without at least some debt.
Here is an interesting speech from the man I love to hate and hate to love…. Alan Greenspan, from 2001.
http://www.federalreserve.gov/boarddocs/testimony/2001/20010125/default.htm
January 17, 2012 at 11:33 am
Oh, I never said all debt is bad, nor has Saul or the other bloggers. It is a necessary component of the economy. Our situation is that debt has become the backbone of the entire economy – at the expense of actual production. This is the issue – and its hard to see any way of resolving it other than the ultimate bullet-bite, the Solon solution.
January 17, 2012 at 11:57 am
Yeah – I was not claiming too much debt is good either. It is just interesting to ponder a surplus. These surpluses make a mess. One could argue that part of the real estate bubble was fueled by Chinese surpluses and the fact that they had a currency that is not traded. They needed to find investments for all their cash and flooded the real estate market (at least this was one contributor).
January 17, 2012 at 12:15 pm
Putting on a red wig and glasses, “don’t take this the wrong way…”
I’m amazed that it does not occur to you what to do with a surplus. It is definitely an American thing. In “socialist” regimes in Europe and Asia-Pacific, surpluses are generally pumped into public works, or even tax rebates.
In my travels in the US, the one thing that stands out is how run down many places appear – basic things like ancient traffic lights hanging on wires, old roads, lack of public transport infrastructure. Then there is the ultimate heresy – a health system for those who need it. For fucks sake, look at the increasing frequency of gas explosions you have. Surely the surplus could have been applied to upgrade gas services when you had it if nothing else.
It is disturbing that you consider a surplus a “problem” when there are so many obvious things that need maintenance.
January 17, 2012 at 12:20 pm
Yeah… it has to be spent. A government can’t really “invest.” But…. some politicians were suggesting the government invest in private companies so they could “earn” money to pay for expenses in the future. Not a good idea. Don’t get all fucking pissy. shit!
January 17, 2012 at 4:40 pm
“In my travels in the US, the one thing that stands out is how run down many places appear”
We have new and shiney predator drones though.
Who cares if our bridges are crumbling.
/sarc
January 17, 2012 at 6:44 pm
We have new and shiney predator drones though.
Who cares if our bridges are crumbling.
Yeah, well this is where the absurdity goes into overdrive. All the Teabaggers and neocons screaming about government waste – whilst all ignoring military expenditure. Proves the old adage you can’t see an elephant with a microscope.
January 17, 2012 at 1:11 pm
Speaking of gold standard…
January 19, 2012 at 12:32 am
I’d like to ask Paul if he -really- thinks a “clean market environment” ever existed, or is even achievable. And the problem with the Fed is not really the Fed per se, [t]he problem is that the banks can now borrow money from the Federal Reserve more or less free and then make money by lending it.
Funny, I never undesrtand economics as well as when it’s explained by physicists. Also, see note #1 – it made me laugh out loud: if we want to rid ourselves of derivatives, the surest way might be to just abolish money.
January 23, 2012 at 10:00 pm
the surest way might be to just abolish money.
Zeitgeist calling. Or maybe Trekkies.
January 18, 2012 at 11:46 am
Somehow unrelated Franc/Sasha,
Possibly one very rare gem of honest logic…the kind that Becky despises:
It would be great if you could write one article on this particular female, so that the baboons react as usual…
January 23, 2012 at 8:10 pm
Mahalo,
Astro found her and linked to her brilliant blog post here: https://greylining.com/2011/12/16/goodbye/#comment-5553
I sent it to The Amazing Atheist and he tweeted about it, so she should be getting some traffic. A deconstruct of the clear logic backing her, in order to make it easy for the baboons to comprehend, would be a good thing, not that it will change their minds, as we know in light of clear evidence to the contrary, most people dig in their heels even deeper to hold on to their beliefs.
Those that her blog post may sway, are the ones who are on the fence, or do not have strong convictions, or are those who are true skeptics and change their view in light of evidence to the contrary.
It is quite an interesting view and one that I spent time thinking about after reading it. It does deserve another mention.
the oligarchy, not “the patriarchy” creating the structure of the social system makes sense, and she articulates it well.
January 23, 2012 at 9:03 am
Great post. Just for clarification, the second block of quoted text is also directly from The Doubter’s Companion by John Ralston Saul rather than the blogger Stewart.
January 23, 2012 at 11:46 am
Yes. Clarified, thanks.
February 22, 2012 at 6:35 pm
“There is no example of a nation become rich by paying its debts.”
This is almost too absurd to refute.
Nations default sometimes. Guess what ? The rest of the time, THEY PAY THEIR DEBTS !
Welcome to the world of logic. You’re welcome.
February 22, 2012 at 7:09 pm
This is almost too absurd to refute.
That implies you should be able to refute it. I’m all ears…
Otherwise, contemptuously claiming something to be “absurd” as a refutation in itself, and that elucidation is beneath you… well, sorry, that makes you sound like PZ Myers.
February 22, 2012 at 10:13 pm
Guess what ? The rest of the time, THEY PAY THEIR DEBTS !
You’re mistaken. The rest of the time, they pay INTERESTS on their debt, but the debt itself lingers on.
February 23, 2012 at 1:20 am
Oh ffs.Fine, You’re all ears, and I’m not PZ. Let’s start from there.
You need a change of perspective :
Now, in the middle ages, a lot of kings and nobles took out huge debts to pay for their luxurious court. When they turned on their their creditors (Jews, Lombards, Knight templars), refused to pay and accused them of ills, everybody sees this behaviour as nothing but self-serving and irresponsible. Noone forced them to make debts.
Plus, today government debt is often help by the middle class, because the rich prefer higher-paying investments, like stock.
I hope that helps you find a way out of your beloved Oppressor/oppressed dichotomy. What else is feminism ? You’re the PZ.