Trifecta

One bit I’m confused on, in the Jacobin piece you argue:

“A prerequisite for any positive program is a comprehensive attack on the power of financial markets, including the breakup of all “too big to fail” institutions….”

But in the National Interest:

“It is true that such actions would bring an end to the financial system as we know it today. To bring the system back under control it would be necessary to break up the big global banks, and in particular to separate retail and investment banking. But this would do no more than restore the situation that prevailed before the financial deregulation policies of the 1980s and 1990s, policies that have produced nothing but disaster.”

From (the little) I’ve read on this topic views seem to be mixed on whether breaking up the big banks would have any meaningful positive effect. What’s the solution here if even breaking up the too big to fail banks and separating retail and investment banking is only reliving ‘policies that have produced nothing but disaster’?

(NB: I haven’t read the second Aeon piece yet or the 2004 article so if it’s in there feel free to just point towards that. Also if this has been covered before, I’m misreading the point etc)

And, at The National Interest, a piece with the self-explanatory title, Will Banks Finally Be Brought to Heel?

Does the entire article consist of “Not a chance.”?

They were found guilty of not running a good enough verification system to show that they were not laundering money.

“Found guilty” only technically true because the prosecutors specifically refused to bring the criminal charges of money laundering. But they were, per the Senate report, found to have actively taken part in money laundering for the Mexican drug gangs, and they settled with OFAC over Iran.

@ Tim Worstall
if you are desperate to defend HSBC surely a better and more `libertarian` response would be, so what? So what if HSBC facilitates drug selling? What is wrong with drug selling? And what is wrong with helping Iran bust American sanctions? The real problem with the HSBC prosecution (as Matt Tabibi has pointed out) is that it shows clearly the total utter farce that the `war on drugs` has become.

There is a magazine stand just down the street from me in Los Angeles.

@ Tim Worstall – re. ICE. I missed that one – thanks for pointing it out. Fixed now.

Yeah, Tim, HSBC actually advised people on how to set up their payment instructions so they wouldn’t show up to OFAC. That’s actively colluding in sanctions evasion – not just not having a good enough checking system.

Rich world economic growth is around zero. Global economic growth is 5% or so.

That’s not “redistribution”.

UBS is a Swiss bank but it has very large operations in the UK and the US. It’s also well-connected; Phil Gramm, for example.

Too bad that Aaron Schwartz didn’t get those prosecutors.

Then again, I guess ‘If you can’t afford the bribe, you’ve got to do the time’.

Tax evasion via Swiss banks is still very much socially acepted by large parts of the population and almost the entire elite in Germany. If people get caught on rare ocassion, they usually face no criminal charges at all. If they do, no one ever ends up in prison. The Suiss themself would never think about doing anything for a second anyway. So i dont see anything happening to the UBS core business anytime soon. They can get out of the US tax evasion market which was never important to them anyway.

I really liked your Aeon article. Like Tim I think you skipped the last big piece of the renewable energy puzzle — storage — but overall I found it well informed and inspiring. Too much writing about economic trends and the future unconvincingly projects current trends to envision the future as Today, Only More So. So the optimistic school thinks that the Dow industrial average will hit 30000 in a few years and hunger will be eradicated by a magic rising tide of markets. The pessimistic school thinks you should trade in your car for a horse and guns in preparation for Peak Oilpocalypse. Neither of these schools pictures people doing things together in the future; for optimists that’s irrelevant and for pessimists other people are just dangers that you need to keep from taking your stuff until they die off.

Tax evasion via Swiss banks is still very much socially acepted by large parts of the population and almost the entire elite in Germany. If people get caught on rare ocassion, they usually face no criminal charges at all. If they do, no one ever ends up in prison.

True, though some people end up in psychiatric hospitals – via the Yorkshire Ranter, the extraordinary story of Gustl Mollath, who claimed that his ex-wife (who worked at HVB) was involved in money-laundering, and as a result was declared legally nuts (to use a technical term) and locked up.

http://www.guardian.co.uk/world/2012/nov/28/gustl-mollath-hsv-claims-fraud

I can’t understand how bankers, especially as individuals, exert the influence they apparently do. Under any obvious political calculus for Western politicians, pushing prosecutors to go after lots and lots of banking scalps would have been wildly popular in any of the last 4 years, but it’s not happened

1. generic money -> power mechanisms (from illegal activity such as bribes, through legalised corruption e.g. patronage, to various ‘legitimate’ use of corrupt institutions such as ability to buy more skilled, ruthless and attritional legal representation, PR, etc).

2. regardless of what the electorate might prefer, they can in the end only choose the lesser evil from the menu of options they are offered. Politicians have that ‘bounded competition’ thing going where none of the major parties will (be the first to) touch certain things like breaking the financial system, and this is common knowledge. Actually it’s so entrenched and internalised, it’s more like a taboo. I recall feeling both disappointed and entirely unsurprised when Gordon Brown failed to fully nationalise a bank or two when for a brief moment he appeared to have the chance.

3. given that There is No Alternative to finance capitalism, banks as a group have the rest of us by the short and curlies

4. bankers and financiers are among those at the top table of Western Capitalism. For example they meet with senior (and select up-and-coming) politicians, spooks, media moguls and senior journos, other major business figures, etc etc at the annual Bilderberg conference. But that can only be mentioned with an apologetic snigger (another taboo), as comedian Charlie Skelton, the only Bilderberg reporter I know of in the MSM, has been known to complain. Apparently they just play golf, or mumble…tinfoil hat, or something. (NB it’s only thanks to ‘tinfoil hatters’ that some of the layers of secrecy have been peeled away – it’s not that long ago that even its existence was unacknowledged by VSPs.)

5 Bankers and banks also have a (very) bounded competition thing going on – in the UK, for example, the British Bankers Association speaks for them all with one voice, and bank spokespersons have been known to say without apparent embarrassment, things like ‘no-one wants to start a price war’ – by which they mean seriously compete (the latter need not even be conspiracy, just standard oligopolistic interated-Prisoners’ dilemma coordination. But there surely is explicit cooperation on strategic matters too. I Remember when Northern Rock popped up in the UK it actually looked for a while like it was engaging in some real competition, but needing a lot of accumulated wealth was an effective, if delayed, barrier to entry – and I’m sure the big banks were not exactly heartbroken when they found they had no choice but to cut off its credit.

These factors are of course all related.

Unfortunately there’s a bit of a somebody-else’s-problem field around this kind of stuff, at least as far as going into any detail is concerned. Professional Journos are afraid of the tinfoil stigma, while academics tend to see it either as too obvious to bother with or too far fetched to look into. In particular, it’s too specific for sociologists, not sufficiently formalisable for polsci-ists or public choice theorists, too current and too light on official documents for historians, too contingent for pol philosophers, too much like hard work for critical theorists, etc.

—–

Thanks to ajay – and via him Yorksranter – for the Mollath story, which I’d missed.

(I meant to cut the bit about Northern Rock as it was based on vague impressions and certainly not adequate knowledge.)

And what is wrong with helping Iran bust American sanctions?

I’ll be happy to hear your defense of sanctions against Iran, but I consider them a crime against humanity – not that this would be HSBC’s primary concern.

Reduced working hours made sense when workers were more or less interchangeable. One lug nut turn is as good as another. Now that a lot of work has shifted to offices, it’s a lot harder to reduce working hours. Knowledge is a lot more specialized. Having three people share the same knowledge and do the same job at the same time is a lot harder to coordinate and get answers from: worker 1 does something wrong in an urgent matter but isn’t in the office today. Worker 2 is only in the office 3 hours today and hasn’t worked on the matter, has to figure out what worker 1 did wrong. And then you have the problem of meetings. I think the coordination problems would be extremely tough. (Menial service jobs would work fine, though.)

I like the optimism of the green anti-poverty world, but the numbers are hard to square: France uses about 0.3 barrels of oil per person per day. Scale that to 9 billion, and you get 2.7 billion barrels a day, about 30 times current oil production. In a world of 80 million barrels of day production, slightly higher than right now, 8 billion people can only use 1/100th of a barrel apiece: about 1.5 liters. That would mean a drastic reduction in the First World standards of living, even among relatively efficient oil users. Good luck running on that platform.

Oh hell, I got my decimals wrong in the second paragraph. France actually uses about 0.03 barrels per person per day. Much more feasible.

Also note that oil consumption is only a crude proxy for development or wealth. The Bahamas consume nearly 3 times as much oil as the United Kingdom, per capita, but the UK has 20% higher GDP per capita. The high oil consumption in the Bahamas is due in large part to their great and very expensive diesel use for electrical production. None of that oil is produced domestically. High oil consumption is actually a drag on the standard of living and balance of trade. It is similar to Hawaii in this regard, which has very high oil consumption among US states due to diesel electricity, but is seeing rapid uptake of solar power for the same reason.

“One lug nut turn is as good as another.” This could only be said by someone who has never ever turned a lug nut .

“The Light on the Hill”

Wouldn’t it be better to be constructive rather than critical? Your objections seem to be rather trivial.
1: do not nationalize. Buy as things are sold at a pace that seem appropriate. Sweden had such a policy proposal once, but the social democrats lost the vote.
2: Once again, don’t nationalize. If people don’t want to sell, or think that they can create a bigger payoff by keeping the ownership private, let them. Buy when they want to sell.
3: Giving the CEO the same salary as they presently have would be one of many options for a company where the workers owned the equity – but I do not think it would be the outcome. And if it was – well – it would be because the workers now realized that the CEO in fact did a amazing job.

PS: Wren-Lewis at “Manly macro” recently had a post on market socialism – even if he never used that term:
http://mainlymacro.blogspot.se/2013/01/the-long-run-government-debt-target.html

“I agree with all John Q.’s criticisms of the Jacobin market socialism piece.”

Would you object to Wren-Lewis negative debt target as well?

Would you object to Wren-Lewis negative debt target as well?

No; but that’s answering a very different question.

*If* we start from the existing capitalist economy, and ask whether state ownership of financial assets should be added to the tools the state has to exercise claims on the private economy, then sure, there are contexts where that might make sense. For instance, if private demand is such that the economy is at full employment with a balanced budget, but financial stability would benefit from increasing the share of public debt on private balance sheets, then having the state issue new debt in order to buy private assets could make sense. (Think of this as precautionary QE.) I don’t think it’s a big addition to the existing tax and regulatory options, but it’s worth exploring.

But if you are starting from where Seth is, and asking whether the goals of socialism could be substantially achieved by transferring ownership of financial assets to the state (or quasi-state entities like public banks) while otherwise preserving the private economy as it currently exists, then the answer is clearly No. It’s the subordination of social life to the logic of profit maximization that defines capitalism, and that socialism opposes, not the particular identity of the profit recipients.

” It’s the subordination of social life to the logic of profit maximization that defines capitalism, and that socialism opposes, not the particular identity of the profit recipients.”

Not for me. For me, economic socialism = worker control. Whether that is combined with democracy or dictatorship, a planned or a market economy, etc., is important questions but orthogonal to the capitalism/socialism dimension. If firms are controlled by the workers, and they choose to maximize profit, I am okay with that – but of course they wouldn’t, unless profit max = utility max, which never applies.

And simply being part of a group that together make the important decisions concerning the place where you spend most of your life will probably change people in very significant ways as well.

JWM @44:

Umm… if Walmart increased its U.S. workers wages by $5000 per capita, then that would cost it $7 billion, compared to $15.7 billion in net profit. If rather than foregoing profits, it would raise prices, then assuming 70% of revenues are U.S.-derived, that would require about a 2.2% across-the-board rise in prices. That’s hardly a revolutionary proposition, but it also wouldn’t amount to competing retailers eating Walmart’s lunch. More like blunting Walmart’s capacity to eat its competitors’ lunch. (Just another proleptic remark about economists abstraction from the actual specific details of business practices, let alone ignoring the specific mechanisms of rent-extraction).

More generally, measures of productive surpluses are still required, if profits are to be replaced as a prima facie measure of productive efficiencies, as too distortive and exploitative. The real distributable surplus product is the total product minus that portion of it that is used up in the process of its production, and under capitalism, it is divided up in inverse proportion between profits and wages. (Of course, that abstracts from the role of money and finance, which one can’t quite do, and there are other payment streams such as interest, taxes, rents, etc. though those could simply be put down on the side of profits. And the conceptual reduction is still too static). But it is only a small further tweak of abstraction/reduction to say that the surplus product, whatever the procedures and criteria for investment and distribution, must be divided in inverse proportion between that part that goes for current consumption, “wages”, and that part which goes to the replacement or improvement of the technical means-of-production, “capital”, for future production. And needless to say, the problems of the realization of long-run productive investment and of inter-sectorally balanced re-production remain, together with cyclical dynamics, in any advanced “mode of production” involving an extensive division of labor and technical specialization, with the productive efficiencies and thus “standards of living” that they afford, (as well as, more roust and flexible sustainability and the realization of human potentials and responsibilities). But there is no prior reason why the exercise of institutional and policy imagination can’t arrive at plausible proposals. (I might add as a task the development of multiple indexes of resource utilization, human and natural, beyond strictly monetary measures, to get at questions of “value”, as opposed to nominal prices, which mainstream economists through mathematical abstraction attribute entirely to the “magic” of markets).

It might be nice work, if you can get it.

As Ajay sort of points out, for most of their history investment banks (like law firms, advertising agencies, architecture firms, and many other thoroughly capitalist enterprises) *have* been employee-owned.

Well, they’ve been partnerships. Might be worth making a distinction between that and true employee ownership. A law firm has non-owner employees; John Lewis, which is owned by all its employees, does not.

I think dsquared had a piece on this (now locked) pointing out which sectors in the UK are still dominated by partnerships – anything involving not much capital and a lot of reputation. The best example was undertakers.