Record city bonuses and a new Recession?
As wise men said a very, very long time ago, radix malorum est cupiditas, and most modern tycoons and multi-national corporations bear testament to their notion that money is the root of all evil. Others might argue that money is neither good nor evil, but simply that money is as money does. If we look at the state of the world today the truth is not altogether difficult to fathom. Crippling levels of bad debt are forcing international banks to borrow from their governments at punitive interest rates, high street fashion chains are thriving on the produce of a global network of slave mills, and record city bonuses are causing the price of luxury goods and property to sky-rocket. This general financial malaise is fuelling inflation and driving more ordinary families from affordable housing and into poverty (set at below half the national average income). Public sector workers are being forced to accept wage deals below the level of inflation, whilst those within the financial sector have never had it so ‘good’. An influx of cheap immigrant labor is driving the indigenous masses of Western countries to accept wage cuts or face unemployment, while their employers are enjoying the fruits of rising profits and industrial output.
What is the real root of the looming crisis? In a nutshell, human nature in combination with the gravest of human errors – we have in effect uncoupled our innate desire to create wealth from the need to work for it.
Neolithic economics were simple and pure in their essence, forming the basis of all of modern inter-national trade. A region blessed with the soils, climate and technology to produce arable crops (e.g. Egypt) could exchange their surpluses for goods and foods which they lacked, or else were unable to produce (i.e. silks, scents, & spices). Indeed, one of the oldest known trade routes, which may date back to before 1500BC, was the ancient Silk Road that led from India to Egypt. However, it wasn’t just overland trade that flourished in pre-Biblical times. Cocaine and nicotine have been found in Egyptian mummies that are 3,000 years old, suggesting that trade flourished between the sea-faring nation of Egypt and South America thousands of years before Columbus ‘discovered’ America (after the native Indians, Egyptians and Vikings of course). The story does not even begin there, as the Dingo is now believed to have descended from Asiatic wolves which were first introduced to Australia by merchants from South-East Asia more than 4,000 years ago.
So international trade is nothing new, and trade between tribes and adjacent nations is as old as humanity itself. However, such trade was based upon the fundamental economics of barter, with a variable exchange rate for goods determined by the laws of supply and demand, and also by those twin forces of necessity and opportunity. Then, as now, there was slavery, rustling and the thefts of war, but these likely occurred when ‘shared’ territory or resources were disputed, or else when a gross disparity arose in terms of wealth and prosperity between trading neighbors. However, the quid pro quo of the fundamental exchange of one commodity for another kept nations largely honest and the economics of trade essentially ‘pure’ (i.e. two parties traded goods at a variable exchange rate which was determined by relative need and affluence).
Trade flourished in ancient times, and as a consequence so did enterprise, culture and technology. As economies became more complex, so the inevitable need for administrators, accountants and regulators arose. The earliest known writing and banking systems appeared in Mesopotamia some five thousand years ago, and around 2,200 BC the rulers of ancient Cappadocia (modern-day Turkey) guaranteed the quality of their silver ingots, an act which led to their broad acceptance as currency. However, it was not until c.640 BC that the first true coins were produced in Lydia, conquerors of Cappadocia. As with any good idea, the introduction of money spread like wildfire across the ancient world to China.
The concept of paper money did not however materialize until the 9th century AD in China. It was not too long before such ‘promissory notes’ and checks came to dominate global commerce, as they were safer and more portable than gold or silver. Of course most modern money exists only in the form of integers, zeroes and decimal points on a computer hard drive, and this has created a new global economy which is run by the financial services sector - the mandarins of the 21st century. In fact in the UK, the earnings of the financial services sector now match those of the manufacturing sector (both around 14% of UK GDP, with the remainder largely derived from retail and tourism). These modern ‘mandarins’ invest, speculate and gamble the wealth of others, and in doing so have created a virtual economy – a service sector which is based upon siphoning income from investments. As these people eat as well as the investors they ‘serve’, this aptly illustrates how prosperity breeds prosperity. In fact, bonuses in the financial services sector of the city of London increased to a record £14bn last year (up 30% on April 2006). Disparity between rich and poor has never been greater, as has the inequality in income between the highest and lowest paid members in the corporate sector. This simultaneous boom and bust comes at a time of record debt, rising bankruptcies, and soaring home repossessions within the USA and UK.
Wealth begets wealth, and poverty begets poverty, and this has severe social consequences. If the people within the financial services sector of Manhattan all collectively decide that they are able and willing to pay $3,000 a month in rent for a small apartment, then they simply price the rank and file off the island. This happened in the 1990s, when Manhattan’s thriving communities of artists and musicians were driven to the affordable rents of the outer boroughs, transforming the mood and culture of the city overnight. This might at first appear to be a fair outcome of the laws of supply and demand within a thriving economy. The truth is somewhat more sinister, as landlords conspired to mothball many of their properties and to take them out of the market. This was simply because it was more profitable to maintain a smaller number of apartments at an inflated rent than it was to renovate and maintain larger numbers of properties with a lower rental value. Free market economics therefore remains a domain of theoretical science, as patronage, protectionism and regulatory interference conspire to manipulate prices and to plunder markets, as they have done for centuries.
Society has always been ruled by dominant hierarchies, or social elites. Their acquired wealth is defined in terms of their assets, servants and disposable income, and modern society delights in estimating their many millions (however arbitrary these estimates may be). This creates a major flaw in the social fabric, wherein an individual’s value to society is reduced to the acquisition of pure wealth, and issues of community contribution and achievement are reduced to the occasional parade or low key award. After all, how many minor awards for community service did the Queen confer last year (as opposed to medals, knighthoods and peerages for the leaders of sport, industry and politics), and how many people actually remember any of their names? In this day and age, wealth is status and power, whether it was inherited, acquired through industry, or won on the lottery. Therefore, if wealth is now defined as the number of zeroes on a bank account, it then follows that the age old exchange of goods and services for money has been usurped by the acquisition of digits on a computer hard drive. As befits the new rules of the game, many individuals now seek to acquire wealth by any means possible, removing the need to provide any worthy enterprise or product in the pursuit of money. This has created a culture of ‘middle men’, pirates, corrupt regulators, and con artists, all dedicated to the activity of funneling as much money into their accounts as they can, entailing as little work as possible.
Wealth is the new status, and the rules of 21st century society are simple – winner-takes-all, always take a percentage, invoice at every opportunity and, above all, don’t get caught. Accountants sign off on unaudited company returns in exchange for heady invoices, corporations create bogus companies to boost profits and hide losses, and solicitors frequently bill for hours they have not actually done. If digital economics allows the enterprise of acquiring money without any meaningful or substantial product, is it any wonder that so many have become devoted to doing just that? Money is the ultimate nutrient, one that can be converted into almost anything, and the sole purpose of many modern city dwellers is simply to acquire as much of it as possible. The essence and fundamental principals of trade and currency are dead, and the black market now dominates our economy.
Actual money (whose supply is naturally restricted) has evolved into virtual currency. A virtual currency means that unlimited investment or lending may be proffered, as there is no theoretical limit to how many promises may be made. This is aptly demonstrated in today’s market, as huge corporate takeovers are effected against massive borrowings. We live under an economy in which speculators gamble on future share prices (so-called 'options' and 'derivatives') without putting down more than a token proportion of their worth as a deposit. Taken together, this means that money can be routinely invested or promised before it is even earned or realized, and such borrowings of virtual money against anticipated future earnings certainly cannot increase the stability of an economy.
It stands to reason that any virtual currency is based upon confidence, and that no investor will commit without the belief that their capital will grow more strongly in the hands of a third party than it would under the mattress or within a bank vault. Thus all economies must be seen to be in constant growth, or else they will not attract investment. If there is no inward investment then it follows that there will be a reduced flow of wealth back into the economy, and hence no new jobs will be created and there will be a decline in spending from the top to the bottom of the income spectrum. Less spending means reduced consumption, lower industrial output, fewer jobs and, in turn, a further reduction in inward investment. Corporate misbehavior (e.g. Enron & World.com), the rise of virtual money, and a massive overextension of borrowing by companies, individuals, and even governments, has forced government banks to intervene to restore investor confidence and to underwrite our rotten financial structure. If they succeed in their intervention, the economy will be given a temporary reprieve and the guilty parties will carry on much as before, and if they fail, then a long period of depression and war may result.
The logic of this argument is plain for all to see. International banks have overextended themselves in their haste to lend money to unreliable markets, credit card companies have lent to the poor and the insolvent at punitive interest rates, and the rich have priced the poor from the property ladder. How ironic it would be if our invention of digital currency proved to be the cataclysmic seed of the downfall of Western civilization.
What is the real root of the looming crisis? In a nutshell, human nature in combination with the gravest of human errors – we have in effect uncoupled our innate desire to create wealth from the need to work for it.
Neolithic economics were simple and pure in their essence, forming the basis of all of modern inter-national trade. A region blessed with the soils, climate and technology to produce arable crops (e.g. Egypt) could exchange their surpluses for goods and foods which they lacked, or else were unable to produce (i.e. silks, scents, & spices). Indeed, one of the oldest known trade routes, which may date back to before 1500BC, was the ancient Silk Road that led from India to Egypt. However, it wasn’t just overland trade that flourished in pre-Biblical times. Cocaine and nicotine have been found in Egyptian mummies that are 3,000 years old, suggesting that trade flourished between the sea-faring nation of Egypt and South America thousands of years before Columbus ‘discovered’ America (after the native Indians, Egyptians and Vikings of course). The story does not even begin there, as the Dingo is now believed to have descended from Asiatic wolves which were first introduced to Australia by merchants from South-East Asia more than 4,000 years ago.
So international trade is nothing new, and trade between tribes and adjacent nations is as old as humanity itself. However, such trade was based upon the fundamental economics of barter, with a variable exchange rate for goods determined by the laws of supply and demand, and also by those twin forces of necessity and opportunity. Then, as now, there was slavery, rustling and the thefts of war, but these likely occurred when ‘shared’ territory or resources were disputed, or else when a gross disparity arose in terms of wealth and prosperity between trading neighbors. However, the quid pro quo of the fundamental exchange of one commodity for another kept nations largely honest and the economics of trade essentially ‘pure’ (i.e. two parties traded goods at a variable exchange rate which was determined by relative need and affluence).
Trade flourished in ancient times, and as a consequence so did enterprise, culture and technology. As economies became more complex, so the inevitable need for administrators, accountants and regulators arose. The earliest known writing and banking systems appeared in Mesopotamia some five thousand years ago, and around 2,200 BC the rulers of ancient Cappadocia (modern-day Turkey) guaranteed the quality of their silver ingots, an act which led to their broad acceptance as currency. However, it was not until c.640 BC that the first true coins were produced in Lydia, conquerors of Cappadocia. As with any good idea, the introduction of money spread like wildfire across the ancient world to China.
The concept of paper money did not however materialize until the 9th century AD in China. It was not too long before such ‘promissory notes’ and checks came to dominate global commerce, as they were safer and more portable than gold or silver. Of course most modern money exists only in the form of integers, zeroes and decimal points on a computer hard drive, and this has created a new global economy which is run by the financial services sector - the mandarins of the 21st century. In fact in the UK, the earnings of the financial services sector now match those of the manufacturing sector (both around 14% of UK GDP, with the remainder largely derived from retail and tourism). These modern ‘mandarins’ invest, speculate and gamble the wealth of others, and in doing so have created a virtual economy – a service sector which is based upon siphoning income from investments. As these people eat as well as the investors they ‘serve’, this aptly illustrates how prosperity breeds prosperity. In fact, bonuses in the financial services sector of the city of London increased to a record £14bn last year (up 30% on April 2006). Disparity between rich and poor has never been greater, as has the inequality in income between the highest and lowest paid members in the corporate sector. This simultaneous boom and bust comes at a time of record debt, rising bankruptcies, and soaring home repossessions within the USA and UK.
Wealth begets wealth, and poverty begets poverty, and this has severe social consequences. If the people within the financial services sector of Manhattan all collectively decide that they are able and willing to pay $3,000 a month in rent for a small apartment, then they simply price the rank and file off the island. This happened in the 1990s, when Manhattan’s thriving communities of artists and musicians were driven to the affordable rents of the outer boroughs, transforming the mood and culture of the city overnight. This might at first appear to be a fair outcome of the laws of supply and demand within a thriving economy. The truth is somewhat more sinister, as landlords conspired to mothball many of their properties and to take them out of the market. This was simply because it was more profitable to maintain a smaller number of apartments at an inflated rent than it was to renovate and maintain larger numbers of properties with a lower rental value. Free market economics therefore remains a domain of theoretical science, as patronage, protectionism and regulatory interference conspire to manipulate prices and to plunder markets, as they have done for centuries.
Society has always been ruled by dominant hierarchies, or social elites. Their acquired wealth is defined in terms of their assets, servants and disposable income, and modern society delights in estimating their many millions (however arbitrary these estimates may be). This creates a major flaw in the social fabric, wherein an individual’s value to society is reduced to the acquisition of pure wealth, and issues of community contribution and achievement are reduced to the occasional parade or low key award. After all, how many minor awards for community service did the Queen confer last year (as opposed to medals, knighthoods and peerages for the leaders of sport, industry and politics), and how many people actually remember any of their names? In this day and age, wealth is status and power, whether it was inherited, acquired through industry, or won on the lottery. Therefore, if wealth is now defined as the number of zeroes on a bank account, it then follows that the age old exchange of goods and services for money has been usurped by the acquisition of digits on a computer hard drive. As befits the new rules of the game, many individuals now seek to acquire wealth by any means possible, removing the need to provide any worthy enterprise or product in the pursuit of money. This has created a culture of ‘middle men’, pirates, corrupt regulators, and con artists, all dedicated to the activity of funneling as much money into their accounts as they can, entailing as little work as possible.
Wealth is the new status, and the rules of 21st century society are simple – winner-takes-all, always take a percentage, invoice at every opportunity and, above all, don’t get caught. Accountants sign off on unaudited company returns in exchange for heady invoices, corporations create bogus companies to boost profits and hide losses, and solicitors frequently bill for hours they have not actually done. If digital economics allows the enterprise of acquiring money without any meaningful or substantial product, is it any wonder that so many have become devoted to doing just that? Money is the ultimate nutrient, one that can be converted into almost anything, and the sole purpose of many modern city dwellers is simply to acquire as much of it as possible. The essence and fundamental principals of trade and currency are dead, and the black market now dominates our economy.
Actual money (whose supply is naturally restricted) has evolved into virtual currency. A virtual currency means that unlimited investment or lending may be proffered, as there is no theoretical limit to how many promises may be made. This is aptly demonstrated in today’s market, as huge corporate takeovers are effected against massive borrowings. We live under an economy in which speculators gamble on future share prices (so-called 'options' and 'derivatives') without putting down more than a token proportion of their worth as a deposit. Taken together, this means that money can be routinely invested or promised before it is even earned or realized, and such borrowings of virtual money against anticipated future earnings certainly cannot increase the stability of an economy.
It stands to reason that any virtual currency is based upon confidence, and that no investor will commit without the belief that their capital will grow more strongly in the hands of a third party than it would under the mattress or within a bank vault. Thus all economies must be seen to be in constant growth, or else they will not attract investment. If there is no inward investment then it follows that there will be a reduced flow of wealth back into the economy, and hence no new jobs will be created and there will be a decline in spending from the top to the bottom of the income spectrum. Less spending means reduced consumption, lower industrial output, fewer jobs and, in turn, a further reduction in inward investment. Corporate misbehavior (e.g. Enron & World.com), the rise of virtual money, and a massive overextension of borrowing by companies, individuals, and even governments, has forced government banks to intervene to restore investor confidence and to underwrite our rotten financial structure. If they succeed in their intervention, the economy will be given a temporary reprieve and the guilty parties will carry on much as before, and if they fail, then a long period of depression and war may result.
The logic of this argument is plain for all to see. International banks have overextended themselves in their haste to lend money to unreliable markets, credit card companies have lent to the poor and the insolvent at punitive interest rates, and the rich have priced the poor from the property ladder. How ironic it would be if our invention of digital currency proved to be the cataclysmic seed of the downfall of Western civilization.
posted by The Angry Man at 9:23 AM
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