Economics: The Dismal Science

Here‘s a book review that begins to spell out what I’ve been calling economics: a ‘pseudo-science’.

The author argues that his fellow economists’ enthusiasm for the market is unwarranted and ignores the corrosive effects market relationships have on communities.

My analysis definitely says, too: money separates. You learn that when you use ‘green money’ or LETS (Local Exchange Trading Systems} and experience how that kind of money connects!

Tremendous Accolades for Austin Mitchell MP

Barbara Panvel, who created the Attwood Award in 2002, had said that it might be wise not have any expectations of the meeting.

Well, thanks to her remarkable efforts in the background I was over the moon! Kelvin Hopkins MP read messages from MPs’ and other well-wishers. John Johansen-Berg gave a most comprehensive overview of Thomas Attwood as a ‘historic model’ for monetary reform as an issue. He was followed by Patrick Baird from the Public Service for Archive and Heritage at Birmingham Central Library.

Then I showed these slides to illustrate the history of Early Day Motions which Austin addressed in his acceptance speech. I have never heard Austin Mitchell MP talking about the subject as animated before. He called money the ‘unseen manager’ and will definitely put an EDM down relating to the ‘credit crisis’. He had seen the ‘10 ways out of the credit crisis‘ in The Independent.

Lord Sudeley with his family’s bankruptcy and the fraudulent execution of his grandmother’s will represented the most prestigious historic ‘bank victim’, echoed by Lord Ahmed more recently. Elfyn Llwyd MP expressed his admiration before Dr. Molly Scott Cato, Economics Spokesperson of the Green Party in the UK, encouraged us not to be disheartened.

Other MPs as well as Baroness Uddin were in the audience and after a break we heard input from the followings speakers:

Andrew Lydon, Localise West Midlands

Colin Hines, the Green New Deal

Mike Grimsdale, former Bank Manager of Lloyds

Mike Croft, Founder of the-coop.com and The Caleb Group.

Dr. Lilly Evans, co-organiser of Dr. Muhammad Yunus at St. James’s Piccadilly.

We ended up in the tea room as an animated group of 12 until it closed at 5.30pm. Saying good-bye took ages in the sun lighting up the gold touches of the Palace of Westminster.

Coincidentally, a debate of the Economic Research Council on the Welfare State was the evening event For the first time I was not alone but took with me William Shepherd who has published the History of Usury.

A discussion of the Welfare State where John Bird MBE, the founder of the Big Issue, impressed me tremendously. He embodies what Muhammad Yunus advocates: social business.

Thomas Attwood Returns to Westminster

Austin Mitchell MP
to receive the 2008 Attwood Award

To honour his continued commitment to monetary reform, Austin Mitchell MP will receive the 2008 Attwood Award on April 22^nd 2008 in the House of Commons, Committee Room 10.

Since 2002, Austin Mitchell MP has tabled seven Early Day Motions and supported an eighth one tabled by David Chaytor MP. In total, they were signed by 70 MPs from 7 parties. Ann Cryer, David Drew and Alan Simpson have also signed all eight EDMs.

The current EDM 265 is entitled Green Credit for Green Growth and was tabled by Austin Mitchell MP on November 11^th, 2007. It is accompanied by two related issues also tabled by Austin Mitchell MP: the increase in interest of Student Loans (EDM 263) and the Tax Avoidance practised by big accountancy houses (EDM 219).

Furthermore, Green Credit for Green Purposes is a 19-page report that Austin Mitchell MP submitted to the Treasury Select Committee in response to its inquiry into the economics of climate change and the Stern review. The report was published on February 5^th, 2008 and contains the full submission.

The Attwood Award was established in 2002 and has honoured local, regional and national initiatives that contribute to the promotion of a new economics grounded in social and spiritual values.

Angela Shaw, a young descendant of Thomas Attwood, will present the 2008 Attwood Award to Austin Mitchell MP, celebrating his advocacy of public money for public needs. John Johansen-Berg, chairman of the Fellowship of Reconciliation and a founder member of the Bromsgrove Group, will give a short introduction to the history of the Award and Thomas Attwood, Birmingham’s first MP who advocated monetary reform.

The event will be chaired by Sabine McNeill, Organiser of the Forum for Stable Currencies, who received the Award in 2003.

The Eleventh Chinese Way

With thanks to Campaigner Frank Taylor from Shropshire, a letter to the Editor of the Independent, in response to 10 ways out of the credit crisis:

Sir

Re: The Eleventh Chinese Way

Your lead article (Wednesday 16th April) recommends ten, largely palliative, measures to stem the credit crunch hemorrhage. May we, the undersigned, offer an eleventh by way of a more helpful cure?

Many might wonder how it was that the post war Attlee government was able to embark on such an ambitious programme of social and industrial reform in a country so recently bankrupted by war, whilst maintaining full employment and keeping government debt and inflation under control.

The answer is quite simple. In that era as much as 40% of the broad money supply was issued in the form of notes and coins. This was inevitably so in a time when far fewer people had bank accounts. Importantly such government currency created no debt and paid no interest.

Today less than 4% of the broad money supply is created by government. The remainder is created by private banks in the form of interest bearing debt. This is commonly called ‘credit’ although the Chinese, call it ‘quasi money’. China is also one of the few remaining states to maintain a high level of state money, the results of which are being poured into infrastructural investment, on an audacious scale, in the form of ‘soft loans’.

You cannot run an economy by piling debt upon debt upon debt forever. Current problems are caused by bank created quasi money feeding a debt-asset bubble. Throwing even more interest-bearing money in the form of central bank credit at such a situation is like curing an alcoholic with a truck load of whiskey.

Perhaps the most toxic of modern myths is that infinite growth is possible within a finite system. Such logic applies to debt as much as it does to pollution, population, production and resource consumption. All that the palliatives so far proposed can achieve is to stave off events for a few more years until we reach the stage when the mathematical limit of how much interest bearing debt the world can repay is reached. The longer that goes on the bigger the ultimate crash.

The only hope, as an alternative to economic depression, is to restore the government’s share of the money supply to at least the levels prevalent in the post war era, together with associated controls such as special deposits and reserve ratios. If it works so well in China, it can work here.

Yours sincerely

Frank Taylor, Monetary Campaigner, Shropshire

Sabine McNeill, Organiser, Forum for Stable Currencies

Alistair McConnachie, Editor, Prosperity UK

James Gibb Stuart, Convenor, Bromsgrove Group

Brian Leslie, Editor, Sustainable Economics

Mary Fee, Coordinator, LETSLINK UK

Anne Belsey, Leader, Money Reform Party

10 ways out of the credit crisis

The Independent UK
10 ways out of the credit crisis

Slash? Spend? Guarantee? Co-ordinate? We analyse the options for Gordon Brown as he heads for US talks on the credit crunch

Analysis by Sean O’Grady
Wednesday, 16 April 2008

1. Call urgent summit of banks

2. Cut interest rates again… and again

3. Slash stamp duty for first-time buyers

4. Force the Bank of England to lend more to banks

5. Co-ordinate a global fightback

6. Guarantee or buy surplus mortgage-backed bonds

7. Relax all the rules on lending

8. Bail out, don’t repossess

9. Order banks to reveal losses

10. Spend, spend, spend!

Financial markets tax could aid world’s poor

The Tobin Tax has long been advocated as one possible solution to aid the problems of capitalism. But there would be other and more effective ways, if only the institutions wanted to solve problems effectively. Do they?

Financial markets tax could aid world’s poor

http://www.ft.com/cms/s/0/9ea4923c-0b0e-11dd-8ccf-0000779fd2ac.html

By Harvey Morris at the United Nations

Published: April 16 2008 22:23 | Last updated: April 16 2008 22:23

A tax of one-hundredth of a percentage point on global financial transactions could provide hundreds of billions of dollars for developing countries facing the challenges of soaring commodity prices and climate change, the United Nations heard this week.

The food price crisis that has sparked unrest in some of the world’s poorest countries also spurred mainstream interest in the concept of micro-contributions from the financial markets when UN officials and experts from the World Bank and IMF gathered for a special session in New York.

Philippe Douste-Blazy, the former French foreign minister appointed by the UN to find new ways in which private business can help support development, said he would work with proponents of a tax on all securities and derivatives trades to find a solution that would not upset the balance in world markets.

The latest proposal was put to the session on Monday by Stephan Schulmeister of Austria’s Institute of Economic Research and a former Austrian government adviser who said a global micro-tax would raise around $230bn a year that could be made available to meet development goals threatened by soaring commodity prices.

Ban Ki-moon, UN secretary-general, this week echoed a warning from the World Bank that an escalating global food crisis had reached emergency proportions and threatened to wipe out seven years of progress in the fight against poverty.

Outlining his institute’s micro-tax plan, Mr Schulmeister said: “Given the enormous trading volumes in financial markets, the revenues of an FTT [financial transaction tax] would be substantial even at very low tax rates. These revenues could be used to finance development aid and other supranational projects or institutions.”

The concept of a tax on financial transactions was advanced more than 70 years ago by John Maynard Keynes to curb speculation in stock markets. In the 1970s, similar ideas were put forward by James Tobin, American Nobel-prizewinning economist, to cool speculation in currencies.

More recently support for “Tobin taxes” has come from international aid charities and has also been associated with an anti-globalisation movement determined to make the markets pay for the perceived damage the opening of world financial markets has done to the world’s poor.

However, with the world’s richest countries falling behind on pledges to eradicate poverty in the developing world, the idea of transactional taxes has re-entered the mainstream and gained support from parliamentarians in Europe, Latin America and Canada.

“The instability of financial markets together with their global interdependence . . . have reignited the debate over the pros and cons of a currency transaction tax,” Mr Schulmeister said. He said such proposals had received support in the Belgian, French and Austrian parliaments.

His proposal went further, to embrace securities and derivatives markets. He said this had the added advantage of increasing the tax base and making the proposed tax rate correspondingly low.

The proposal would principally affect very short-term trades that contributed to the volatility of the markets. “A general FTT would render transactions the more costly the shorter is their time horizon. Hence, it would dampen technical trading, which is increasingly based on intraday price data,” Mr Schulmeister said.

Mr Douste-Blazy, appointed this year as UN special adviser on innovative financing for development, said he had shared the scepticism of economists, bankers and traders who believed such a tax was unworkable and would destabilise markets. “If some do it and some don’t, there could be an effect on the market economy.”

However, he said technical innovation made the idea more feasible and made it worth considering moving towards a global accord on micro-contributions. He said the Austrian proposal had shown that a general tax would not have a negative impact on international markets.

“Others are also working on these micro-contributions and I will work with them very soon on behalf of the UN secretary-general . . . on the most painless solutions so that there is no market warping,” he said.

=

Retailing Chains Caught in a Wave of Bankruptcies

Thanks to Nadia McLaren:

RETAILING CHAINS CAUGHT IN A WAVE OF BANKRUPTCIES

By Michael Barbaro

New York Times

April 15, 2008

http://www.nytimes.com/2008/04/15/business/15retail.html

EXTRACTS

The consumer spending slump and tightening credit markets are unleashing a

widening wave of bankruptcies in American retailing, prompting thousands of

store closings that are expected to remake suburban malls and downtown

shopping districts across the country.

Since last fall, eight mostly midsize chains — as diverse as the furniture

store Levitz and the electronics seller Sharper Image — have filed for

bankruptcy protection as they staggered under mounting debt and declining

sales.

But the troubles are quickly spreading to bigger national companies, like

Linens ‘n Things, the bedding and furniture retailer with 500 stores in 47

states. It may file for bankruptcy as early as this week, according to

people briefed on the matter.

Even retailers that can avoid bankruptcy are shutting down stores to

preserve cash through what could be a long economic downturn. Over the next

year, Foot Locker said it would close 140 stores, Ann Taylor will start to

shutter 117 and the jeweler Zales will close 100.

The surging cost of necessities has led to a national belt-tightening among

consumers. Figures released on Monday showed that spending on food and

gasoline is crowding out other purchases, leaving people with less to spend

on furniture, clothing and electronics. Consequently, chains specializing in

those goods are proving vulnerable.

Retailing is a business with big ups and downs during the year, and

retailers rely heavily on borrowed money to finance their purchases of

merchandise and even to meet payrolls during slow periods. Yet the nation¹s

banks, struggling with the growing mortgage crisis, have started to balk at

extending new loans, effectively cutting up the retail industry¹s collective

credit cards.

Because retailers rely on a broad network of suppliers, their bankruptcies

are rippling across the economy. The cash-short chains are leaving behind

tens of millions of dollars in unpaid bills to shipping companies, furniture

manufacturers, mall owners and advertising agencies. Many are unlikely to be

paid in full, spreading the economic pain.

When it filed for bankruptcy, Sharper Image owed $6.6 million to United

Parcel Service. The furniture chain Levitz owed Sealy $1.4 million.

In September 2007, Bombay filed for bankruptcy protection. The highest bid

for the company came from liquidation firms, who quickly dismembered the

33-year-old chain. Bombay, which once employed 3,608, now has 20 employees

left.

……………………………………………………….

Sovereign Wealth Funds: Power vs Principle (March 5, 2008)

Authoritarian states use their Sovereign Wealth Funds (SWFs) to undermine US hegemony, argues this openDemocracy article. To protect the Western model of global capitalism, the US seeks to stem the fall of the Dollar. The Gulf States [and China] are offering help by dispensing their SWFs – but investment from these state-owned savings entities is help in disguise. Where nations offer SWF resources to the US, they seek, for better or for worse, to challenge US international influence in the midst of a financial crisis.

http://www.globalpolicy.org/empire/challenges/general/2008/0305swfpower.htm

……………………………………………………….

If we were not now seeing the meltdown caused by

other absurd theories – such as that Wall Street

would be self-regulating if it were just left

alone – I might reject this article as sour

grapes. But we are now witnessing one of those

moments in history that seem sent to remind us

that neither intelligence nor education offer any shield against folly.

Dave

The Economist Has No Clothes

Unscientific assumptions in economic theory are undermining efforts to solve environmental problems

By Robert Nadeau

http://www.sciam.com/article.cfm?id=the-economist-has-no-clothes&sc=rss

The 19th-century creators of neoclassical economics-the theory that now

serves as the basis for coordinating activities in the global market

system-are credited with transforming their field into a scientific

discipline. But what is not widely known is that these now legendary

economists-William Stanley Jevons, Léon Walras, Maria Edgeworth and

Vilfredo Pareto-developed their theories by adapting equations from

19th-century physics that eventually became obsolete. Unfortunately, it

is clear that neoclassical economics has also become outdated. The

theory is based on unscientific assumptions that are hindering the

implementation of viable economic solutions for global warming and other

menacing environmental problems.

The physical theory that the creators of neoclassical economics used as

a template was conceived in response to the inability of Newtonian

physics to account for the phenomena of heat, light and electricity. In

1847 German physicist Hermann von Helmholtz formulated the conservation

of energy principle and postulated the existence of a field of conserved

energy that fills all space and unifies these phenomena. Later in the

century James Maxwell, Ludwig Boltzmann and other physicists devised

better explanations for electromagnetism and thermodynamics, but in the

meantime, the economists had borrowed and altered Helmholtz’s equations.

The strategy the economists used was as simple as it was absurd-they

substituted economic variables for physical ones. Utility (a measure of

economic well-being) took the place of energy; the sum of utility and

expenditure replaced potential and kinetic energy. A number of

well-known mathematicians and physicists told the economists that there

was absolutely no basis for making these substitutions. But the

economists ignored such criticisms and proceeded to claim that they had

transformed their field of study into a rigorously mathematical

scientific discipline.

Strangely enough, the origins of neoclassical economics in mid-19th

century physics were forgotten. Subsequent generations of mainstream

economists accepted the claim that this theory is scientific. These

curious developments explain why the mathematical theories used by

mainstream economists are predicated on the following unscientific

assumptions:

* The market system is a closed circular flow between production and

consumption, with no inlets or outlets.

* Natural resources exist in a domain that is separate and distinct

from a closed market system, and the economic value of these

resources can be determined only by the dynamics that operate

within this system.

* The costs of damage to the external natural environment by

economic activities must be treated as costs that lie outside the

closed market system or as costs that cannot be included in the

pricing mechanisms that operate within the system.

* The external resources of nature are largely inexhaustible, and

those that are not can be replaced by other resources or by

technologies that minimize the use of the exhaustible resources or

that rely on other resources.

* There are no biophysical limits to the growth of market systems.

If the environmental crisis did not exist, the fact that neoclassical

economic theory provides a coherent basis for managing economic

activities in market systems could be viewed as sufficient justification

for its widespread applications. But because the crisis does exist, this

theory can no longer be regarded as useful even in pragmatic or

utilitarian terms because it fails to meet what must now be viewed as a

fundamental requirement of any economic theory-the extent to which this

theory allows economic activities to be coordinated in environmentally

responsible ways on a worldwide scale. Because neoclassical economics

does not even acknowledge the costs of environmental problems and the

limits to economic growth, it constitutes one of the greatest barriers

to combating climate change and other threats to the planet. It is

imperative that economists devise new theories that will take all the

realities of our global system into account.

—————————————————————-

Peace is not won by those who fiercely guard their

differences but by those who, with open minds and

hearts, seek out connections. Katherine Paterson

Success for Campaign Against Arms Trade

The Corner House and Campaign Against Arms Trade WIN BAE-Saudi corruuption judicial review.

Court rules UK Serious Fraud Office termination of investigation illegal.

Thursday 10 April 2008

This morning at 10 o’clock, the UK High Court ruled that the Director of the Serious Fraud Office (SFO) acted unlawfully when he stopped a corruption investigation into BAE Systems’ arms deals with Saudi Arabia.

The judgment was handed down in response to a judicial review brought by Campaign Against Arms Trade (CAAT) and The Corner House.

The judges described the SFO Director’s subsequent termination of the investigation on 14th December 2006 as a ‘successful attempt by a foreign government to pervert the course of justice in the United Kingdom’.

They were scathing about the arguments given in court for ending the investigation:

‘It is obvious . . . that the decision to halt the investigation suited the objectives of the executive. Stopping the investigation avoided uncomfortable consequences, both commercial and diplomatic.’

Both groups would like to thank all those who have supported us throughout the past 16 months in bringing this court case. It wouldn’t have been possible without you!

As we said in our statement read out at the press conference: ‘This is not just CAAT’s and Corner House’s case. It is yours too. It belongs to everyone who is troubled by corruption, by the arms trade, and by the misuse of national security arguments to protect the powerful’.

We’ll post the judgment, press release, statement and analysis up on our website as soon as we’ve recovered . . . We’ll also send you a selection of the media coverage.

But if you can’t wait — or would like to see pictures of today’s press conference — please go to our dedicated judicial review website:

or that of our solicitors, Leigh Day:

Speculation and collapse: enough!

A European petition by ATTAC:

The petition was published Thursday March 27 by

L’Humanite

Le Monde Diplomatique

Politis

Flamman (Sweden)

Trybuna Robotnicza (Poland)

Publico (Spain)

Il Manifesto (Italy)

Tageszeitung (Germany)

The Economist has No Clothes

From the Scientific American – thanks to Chris Keene

The Economist Has No Clothes
Unscientific assumptions in economic theory are undermining efforts to solve environmental problems TEXT SIZE: Decrease font Enlarge font

By Robert Nadeau

Photograph courtesy of Robert Nadeau; Illustration by Matt Collins

The 19th-century creators of neoclassical economics—the theory that now serves as the basis for coordinating activities in the global market system—are credited with transforming their field into a scientific discipline. But what is not widely known is that these now legendary economists—William Stanley Jevons, Léon Walras, Maria Edgeworth and Vilfredo Pareto—developed their theories by adapting equations from 19th-century physics that eventually became obsolete. Unfortunately, it is clear that neoclassical economics has also become outdated. The theory is based on unscientific assumptions that are hindering the implementation of viable economic solutions for global warming and other menacing environmental problems.

The physical theory that the creators of neoclassical economics used as a template was conceived in response to the inability of Newtonian physics to account for the phenomena of heat, light and electricity. In
1847 German physicist Hermann von Helmholtz formulated the conservation of energy principle and postulated the existence of a field of conserved energy that fills all space and unifies these phenomena. Later in the century James Maxwell, Ludwig Boltzmann and other physicists devised better explanations for electromagnetism and thermodynamics, but in the meantime, the economists had borrowed and altered Helmholtz’s equations.

The strategy the economists used was as simple as it was absurd—they substituted economic variables for physical ones. Utility (a measure of economic well-being) took the place of energy; the sum of utility and expenditure replaced potential and kinetic energy. A number of well-known mathematicians and physicists told the economists that there was absolutely no basis for making these substitutions. But the economists ignored such criticisms and proceeded to claim that they had transformed their field of study into a rigorously mathematical scientific discipline.

Strangely enough, the origins of neoclassical economics in mid-19th century physics were forgotten. Subsequent generations of mainstream economists accepted the claim that this theory is scientific. These curious developments explain why the mathematical theories used by mainstream economists are predicated on the following unscientific
assumptions:
Also in the article

* Overview Essay: Brother, Can You Spare Me a Planet?

* The market system is a closed circular flow between production and consumption, with no inlets or outlets.
* Natural resources exist in a domain that is separate and distinct from a closed market system, and the economic value of these resources can be determined only by the dynamics that operate within this system.
* The costs of damage to the external natural environment by economic activities must be treated as costs that lie outside the closed market system or as costs that cannot be included in the pricing mechanisms that operate within the system.
* The external resources of nature are largely inexhaustible, and those that are not can be replaced by other resources or by technologies that minimize the use of the exhaustible resources or that rely on other resources.
* There are no biophysical limits to the growth of market systems.

If the environmental crisis did not exist, the fact that neoclassical economic theory provides a coherent basis for managing economic activities in market systems could be viewed as sufficient justification for its widespread applications. But because the crisis does exist, this theory can no longer be regarded as useful even in pragmatic or utilitarian terms because it fails to meet what must now be viewed as a fundamental requirement of any economic theory—the extent to which this theory allows economic activities to be coordinated in environmentally responsible ways on a worldwide scale. Because neoclassical economics does not even acknowledge the costs of environmental problems and the limits to economic growth, it constitutes one of the greatest barriers to combating climate change and other threats to the planet. It is imperative that economists devise new theories that will take all the realities of our global system into account.