Monday, October 13, 2008

Fluffy's verdict on the financial crisis's going to get a whole lot worse for the better.

The flee from capital invested in stocks and dodgy derivatives is not a temporary slip in trust - this is a systemic shift in how people use their money. With banks nationalised, hitherto profligate highly leveraged practics will no longer be possible, politicians will remind banks just how much they owe them (ie the public) their lives.

Why are people fleeing high finance and what will replace it?

We're moving into an economy that no longer wishes to be decoupled from the world's real goings on. People are very much in anguish at what they see the current system is doing to the Earth and their fellow humans. Financial instruments will have to more closely track the movements of not only resources but also values and this is why the nationalisations are so important (and they will become more complete as it is found that this round of measures has not worked).

People are looking for values to be dealt into their economy. Witness the boom in Fair Trade, Organic produce, CSR in just the last FIFTEEN YEARS and you'll see how folk desire to do good with their dollars. But they don't want a return to socialism. They relish the freedom the market brings, socially and economically, but are getting wise to the fact that it only deals in the values that are built into its infrastructure by the powers that be (ie the players and institutional rules).

So the new market economy is going to look a lot shinier. Governments will less likely reign in financial practices but make sure they run along friendlier lines.

A large part of the change will come from the people that run these companies - a more socially, environmentally and globally aware generation there has never been and board rooms, governments and populations worldwide will see very different complexion in the next 10-15 years as baby boomers die, become less politcally relevant.

I can't say what these changes will be like but we can imagine stocks traded with an environmental, social component rolled into each one. These latter two will be assessed and priced just as the market does today and the very act of doing this will increase knowledge in these areas which is still painfully thin (see how much the credit crunch has attracted column inches compared to the food crisis which has thrust 44 million more people into malnourishment taking the world total to just under one billion).

The key is that wider concerns are dealt in to every transaction. We're not going back to mud huts but neither will people tolerate the run away recklessness of the last 28 years since dear Reagan came to power. Making sure the market economy continues to function by including as much of what we value as possible will go a long way to bring the benefits of its efficiency to a wider social and environmental base.


Anglefish said...

Very interesting. I like the sound of what you're saying even though as yet I feel I lack a full enough understanding of what's actually happening in the world to say whether I fully agree. But my initial response to more taxpayer control of runaway banks is a positive one. Also I fully agree with your desire to put attention on the real economy (food and commodity production) rather than the fantasy one (credit markets).

Where I perhaps disagree is with the capacity of credit markets and markets in general to adequately price and regulate such things as social values, natural resources and ultimately human welbeing.

In my view it is the role of governments, social enterprises and civil society to promote these goods, and to this end governements should control credit markets and markets in general to the extent that responsible, constructive and sustainable use of these resources is facilitated. But I think we agree that we can't let the run away investment bankers make these decisions for us on their own.

Brown and Darling's turn to Neo-Keynsianism is to say the least very interesting (

But it isn't clear to me how spending on new aircraft carriers and nuclear weapons is going to revive the economy since the multipier effect in these cases can only be short term since they will have no overall effect on productivity. Inflation seems likely to me, especially since they've busted both the Golden Rule and the Sustainable Investment Rule.

Personally, if you're going to be Keynsian I'd rather the money was not spent building weapons to kill people but paying people to dig holes in the ground- and then plant trees in those holes to sequester carbon.

Simon said...

Thanks for the comment AF.

Absolutely spending prioties are out of whack and essentially nepotistic (there's an excellent coment on this by Andrew Bartlett at one of the spots below).

"In my view it is the role of governments, social enterprises and civil society to promote these goods"

- I agree though would hope this was extended to all human action, not each operating in a vacuum.

- I differ however on the role of finance. It can have a huge benefit, indeed underpinning developing economy growth. Just as long as it doesn't lose touch.

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