Saturday, November 8, 2008

KeynesALesson

In looking for potential solutions for our economic woes we could do worse than look back at possibly the greatest modern economist of them all; John Maynard Keynes, the British genius who can show us, from beyond the grave, the route to the Promised Land.

Like all great men, Keynes was capable of mistakes and errors of judgment in many small ways, but was also to make some very wise forecasts that, had he been listened to, could have changed the future of the world. He correctly insisted that the Versailles Treaty at the end of the First World War was too punitive on the defeated nation and would lead to a dreadful reaction by Germany. He was right, the Treaty gave Hitler and his Nazis the argument against this national humiliation as an excuse, which led directly to the Second World War.

According to Keynesian economics the state can, and in my opinion should, stimulate economic growth and improve stability in the private sector - through, for example, interest rates, taxation and public projects. This, in general terms appears to be the course being followed by Gordon Brown in the UK, and now, might well be what the USA does.

In 1936 Keynes published these theories that formed the basis of Keynesian economics in The General Theory of Employment, Interest and Money. In this theory, micro-level actions by individuals and firms can lead to aggregate macroeconomic outcomes in which the economy operates below its potential output and growth.

The majority of Keynes contemporary classical economists had believed in Say's Law, which stated that supply creates its own demand, so that a "general glut" would be impossible.

Keynes argued convincingly that aggregate demand for goods would prove to be insufficient during major economic downturns, and this would lead to unwarranted high unemployment and consequential losses of potential output. He was convinced that government policies should be used as an instrument to increase aggregate demand, thus increasing economic activity and reducing high unemployment and deflation.

Although Keynes's macroeconomic theories were mostly a direct response to mass unemployment in 1920s Britain and in 1930s America they are no less appropriate in today’s situation.

Keynes stated that the solution to economic depression was the stimulation of the economy through a variable use of two approaches; the first of these being a reduction in interest rates and the second, Government investment in infrastructure.

The injection of income results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. The initial stimulation sparks a cascade of events, whose total increase in economic activity results in a multiple of the original investment.

A central conclusion of Keynesian economics is that in some situations, no strong automatic mechanism moves output and employment towards full employment levels. This conflicts with other economic theories, which assume a tendency towards equilibrium. The 'neoclassical synthesis', combines Keynesian macro concepts with a micro foundation, the conditions of General equilibrium allow for price adjustment to achieve this goal.

In the corridors of power of Whitehall were many bureaucrats who either didn’t understand or appreciate the financial genius of Keynes.

Perversely Keynes never saw his ideas fully utilized in his own country. Instead it was President Franklin Roosevelt who partially bit this bullet in his effort to get America out of the Great Depression.

More strangely it was the UK that came out of that depression first, in about 1935, and it was not due to any of the Keynesian ideas, but more the result of the UK being de-coupled from the gold standard, that up to then had meant that there was literally gold held centrally in exchange for every pound or dollar.

America’s economic salvation was a mixture of FDR led intervention by big government in addition to the country meeting the huge production demands of the Second World War.

Keynes himself, worn out by his efforts on behalf of the world economy at Breton Woods, and more particularly that of his own country, was to die within one year of the end of the war after successfully raising a huge loan from America to rebuild England from its near bankruptcy. Keynes was a liberal, not socialists, and perhaps this was humorously proven by his last words; when asked whether there was anything he regretted, he answered, “I should have drunk more champagne.”

Whichever way we find our way through this period of economic turmoil it will all be OK as long as we remember to revert to less government intervention the very minute we can, so we can all drink a little champagne again.

Friday, November 7, 2008

TheCalvinCoolidgeExample

President Calvin Coolidge was very different to the more talkative modern politicians with whom we are currently familiar. There was something very appealing about Coolidge, he used a minimum of words to express himself, and thus it was clear what he meant, and he meant to be clear.

One day at a public meeting a man walked over to the President and said that he had made a bet with his friend that he could get Coolidge to use three words, to which the response was, “You lose.”

One Sunday Coolidge went to his church and returning home his wife asked what did the preacher speak about in his sermon; “He talked about sin,” he responded, “what did he say?” she persisted, “He’s against it.” Coolidge answered.

We could do with more of this kind of directness in our political figures. President elect Obama is eloquent, but I think I’m not alone in wondering what he really means to do. I believe that’s why the market isn’t bouncing upwards with joy at the news of his election.

In general I am no fan of UK Prime Minister Gordon Brown, but it is hard to escape the conclusion that this taciturn, dour man has managed to be reinforced by the economic problems assailing every country, rather than be destroyed by the awful news.

This is interesting because Brown was in charge of the British economy for the 10 years prior to his becoming Prime Minister a little more than a year ago. He has managed the neat trick of following the original Teflon man, not being contaminated by the bad problems, but getting credit for the good stuff.

Yet, in yesterdays Scottish by election Brown’s Labour Party candidate won a comfortable majority, against the odds and despite all the pundits predicting that this constituency was a shoo in for the Scottish Nationalists.

Gordon Brown achieved this morale-boosting victory in the Glenrothes by-election early today after Labour comfortably fought off a concerted challenge from the Scottish National Party who had mounted a determined campaign to inflict a humiliating defeat against the Prime Minister in his own political backyard. But Lindsay Roy, the Principal at the Prime Minister's old school delivered Labour's first by-election win for more than a year.

This is beginning to look like the beginning of an historic comeback for Brown and his party. They were previously thought so unelectable for the next general election that there were elements in the Party who were plotting to throw Brown out before the election.

Now Brown is looking like a potential winner and this is due to his appeal in a crisis. He looks like he can handle himself in the economic clinches, and in fact that might be the case. I have lost count of the number of people I have been in communication with who have said that they don’t like Brown at all, but they do think he’s the right man, maybe the only man to lead the country during the present crisis. That might be true.

As long as we are in this mess I think Brown can look like a leader with a future, but as soon as the crisis lessens he will be thrown out, just as Prime Minister Winston Churchill was summarily dismissed by the electorate after his victorious, almost miraculous war.

It will be a matter of timing and luck for Brown, as it will be for the people he governs, and the world that appears to be shadowing his every economic move.

President Calvin Coolidge was "distinguished for character more than for heroic achievement," wrote his Democratic admirer, Alfred E. Smith. "His great task was to restore the dignity and prestige of the Presidency when it had reached the lowest ebb in our history ... in a time of extravagance and waste...."

Let us hope that Barack Obama and Gordon Brown are similarly inspired.

Thursday, November 6, 2008

AfterTheParty

After the party usually comes the hangover. On this particular occasion the party was for the general celebration for the victory of Barack Obama and the problem remains mainly the economy.

Today in the UK The Bank of England’s Monetary Policy Committee unexpectedly voted to reduce the official Bank Rate paid on commercial bank reserves by 1.5 percentage points to 3%.

This is the lowest since 1955 as these crucial U.K. policy makers attempt to put the brakes on the worst banking crisis since the Great Depression.

This huge cut was not predicted by any of the main quoted economists.

``It's absolutely staggering and deeply impressive,'' said the director of economic research at Societe Generale in London, Brain Hilliard. ``They are clearly grasping the nettle and taking deep action. Boy, this is going to have an impact.''

The seizure in credit markets has helped push Britain to its first recession since 1991, which created the need for the initial 50 billion-pound ($80 billion) bank rescue package from the government and a half-point emergency rate cut on Oct. 8.

The British government immediately stepped up its already intense pressure on commercial banks to speedily pass on these rate reductions to their businesses and consumers.

As for us common folk, here are some of the exchanges between myself and some of my readers overnight. I have removed personal details and edited for space. Many thanks for the many contributions; I’m sorry I couldn’t use them all. They are in reverse time order, the most recent at the end.

From: Steve
To: Tony
Sent: Thu, 6 Nov 2008 11:01 am
Subject: DOW down

So the DOW dropped 500 pts on Wednesday. The biggest post election drop in history. Do you think this is a sign of what's to come? I pray not.

Date: Thursday, November 6, 2008, 5:11 AM

My guess is that it gets worse before it starts to get better. Breton Woods Mk 2 might begin to start up some new confidence, but I think there's a lot else needs to be done before the free market begins to look free and attractive again. Personally, if I had spare cash, and I am working on that, I would be investing it in the market right now. But that shows I am probably just as big an idiot as the rest of them.

Tony

-----Original Message-----
From: Steve
Sent: Thu, 6 Nov 2008 11:27 am
Subject: Re: DOW down

You’re not an idiot. Warren Buffet advises to do exactly that. I too wish I had some "spare" cash to invest, as I would follow suit. Good luck to you. I enjoy our little chats.


Steve,

Thanks for the vote of confidence, which is probably undeserved. But I did predict the collapse nearly 2 years ago and was laughed at by my academic and consultant peers, especially those in banking!


Tony


From: Brad
Sent: Thu, 6 Nov 2008 11:50 am
Subject: Re: [tonybeingcreative] EverythingisPossible

Tony:

I have a friend who is opening a restaurant in Ohio (he used to have one here in town). All vendors want cash within a week of delivery. No credit whatsoever is being extended on equipment--with the upside that everything is radically slashed in price. This is the microcosm, but it's the same in the big international picture--credit is not moving at all--the pyramid scheme has folded.

Having said that, it's the first day of the 21st century.


Brad.


Brad,

You're in serious danger of becoming quite eloquent in your dotage, and
also accurate. It's a whole new world out there, and there are some
very bad aspects to that, and, let's hope, some really good bits to come!

The economy is seriously in the toilet, but after the toilet comes the flush!!

Tony

Wednesday, November 5, 2008

EverythingisPossible

America has resoundingly elected its first black President proving, that in America anything is possible. That’s the headline around the world, which generally celebrated the election of President Barack Obama. The world loves it when America rediscovers its normal spirit of optimism and this election represents a new hope in the eyes of those who have long been in opposition.

Whether you like him or not, whether you support or oppose him, Obama is seen as the agent of change, a phrase he has repeatedly uttered on his own behalf. The media had conspired to elevate Obama to almost Messianic status whilst, against him, McCain ran a sometimes very uninspired and strategically inept campaign.

It became apparent that Obama was seen as the future and McCain the past, and once that had become the common perception the older, whiter man had no real chance. Ironically Obama is more a product of Hawaii and his half white parentage than he is the normal African American urban black experience of his adopted hometown, Chicago.

However, what really killed McCain’s chances were two facts; the first that he was a Republican contender trying to follow on from President Bush and he is the most unpopular holder of that office, ever. Bush is more unpopular than Nixon was at his nadir and that is difficult to achieve. The second, and possibly even more decisive factor against McCain is the financial tsunami that has undercut and eroded the foundations of the American economy. During the election campaign every time the Dow Jones went down so did McCain’s popularity, and it has gone a long way down.

The electorate of the USA voted in record numbers to put Obama in the White House and, amid emotional scenes in many American cities and these were echoed around the world. Obama’s resounding success was celebrated with widespread and deep emotion bordering in some places on mass hysteria.

McCain accepted his defeat with the typical good grace of a true American hero, and the country now need to gather together behind Obama, because to rally to his cause is to be patriotic.

This column has repeatedly argued that Obama, if elected, will be tested by the leaders of America’s enemies, such as Russia and Iran and, of course, Al-Qaeda. I see no reason to change that view; and if that was not enough he also has to deal with the incredibly difficult economic problems facing the country and the world and let’s not forget Iraq and Afghanistan. I am also sure that there are crazies who will want to harm America’s new President before he even assumes office in January, since that is the way of the country’s extremists when confronted by agents of change.

The difference now is that there will be no acceptable excuses or blame attaching to anyone else. Now the American people will expect, in fact, demand, that their man Obama can change everything for the better.

The situation reminds me, emotionally, very much of Tony Blair with a tint, when he first came to power in the UK. It is hard to remember that at that stage Prime Minister Blair was thought by his supporters to walk on water, he could do no wrong. Blair walked on water until it was discovered that there were holes in his feet. Then we witnessed how supporters turn against their heroes when they feel let down by them. The very people who were so thrilled by his initial victories now loathe Blair. I am sure that Obama is aware of unrealistically high expectations that can and probably will haunt his term in office.

Obama does look and sound good, and projects a new and positive image for America and as a world citizen I truly hope that he can live up to his promise. He won this election against huge odds when many thought it was impossible, and I don’t mean his fight against McCain. No, when he overcame Hillary Clinton, he beat an opponent who had the money and the political machine behind her and that was a remarkable achievement. Now President Obama faces seemingly impossible odds again, this time in his new job, and I have my doubts, but then again, I didn’t think he could beat Clinton.

Change has come to America; Barack Obama will soon be in the White House. Many now say that they are again proud to be American. I believe Americans should have always been proud. We all pray for President Obama to enjoy every success but let’s hope that his countrymen don’t expect miracles, their new leader has an almost impossibly difficult job ahead of him.

Tuesday, November 4, 2008

VotingDiscuss

During the current American election I have received a pretty big electronic postbag. Here is a sample for you to share. These flowed from my blog of yesterday where I implored my American friends to vote, whatever their preference. I have edited for space, but kept the intent, typos and even my own errors, for which I apologize!

Many thanks to my contributors.

Tony, I could not disagree with you more. America is stock full of
idiots who have no knowledge of candidate platforms and will vote
blindly..

To which I responded,

Hi Steve,

If voting was just decided on IQ, it would be down to just me and you
and a couple of friends in MENSA who, I must be the first to state,
can't find their own ass in the dark. If voting was based on knowledge
then George W could not have stood let alone voted! The man's entire
foreign travel experience before becoming President was one trip to
Mexico. It used to be decided by your wealth, or land, in different
countries, and yet, in democracies it (the right to vote) is supposedly decided by universal suffrage. To be universal it should be mandatory, not because we all know so much, or are so clever, or rich or are men, but because everyone has a voice in a democracy, even the bloody idiots!


Steve’s answer;

I tend to agree with you but I still hold to the notion you should at
least know something about the candidate your voting for. The Howard
Stern radio show did a skit where an interviewer went to Harlem NY
and asked the "man on the street" questions such as who are you voting for. To a man/woman they said Obama. Then the interviewer went on to ask if they agreed with "Obamas" policies and proceeded to recite McCain policy and everyone agreed. Proving they had absolutely no knowledge of either candidate. Then the icing on the cake came. The interviewer asked if Obama wins will they be okay with Sarah Palin as the V.P.? Everyone said it would be fine.... go figure. Anyway it's sad that people don't take a more active role in educating themselves but it is what it is.


Next is one from Dick, to which there can be no response.


Let's hope that the next two days are among the happiest in history and that the crucial corner is turned. Will somebody please advise Howard Dean that he has two friends in Malibu who will celebrate his genius, dedication and compassion in the highest when those numbers roll in, Karl Rove's best efforts to steal history notwithstanding. Interesting that Rove spells his first name the same way any self-respecting Nazi might but... don't tell McPain this because it will inspire a new Palin speech... he also spells it the same way Karl... are you sitting?... MARX did. Does that make him a Marxist or merely a socialist?

Dick also wrote me another e-mail,


Tony, thanks... I'm not sure I go along with the Australians. I think
people who are too sloth to educate themselves about the candidates and the issues are better off left out of the count. I think every citizen who feels himself informed should vote.

From concerned citizen Marjorie there was this,


We're already having some insanity starting over the voting. There's a Republican guy on the overpass of the 101 in Santa Barbara with army fatigues and a gun screaming obscenities about Obama. I suppose tomorrow all hell may break loose! Aren't you glad you're in London? This may be politics answer to the West Hollywood Halloween celebration on Santa Monica Blvd. Stay tuned.........


And indirectly, via Stevie, what Ms. Brigitte Bardot think of it all;

French film legend-turned-activist Brigitte Bardot took a swipe at Sarah
Palin on Tuesday, saying the US vice presidential candidate was a disgrace to women.

"I hope you lose these elections because that would be a victory for
the world," Bardot wrote in an open letter to Republican John McCain's
running mate in the November vote.

"By denying the responsibility of man in global warming, by advocating gun rights and making statements that are disconcertingly stupid, you
are a disgrace to women and you alone represent a terrible threat, a true
environmental catastrophe," wrote Bardot.

The screen icon from the 1960s, who now heads an animal rights foundation, went on to assail Palin for supporting Arctic oil exploration that could jeopardize delicate animal habitats and for dismissing measures to protect polar bears.

"This shows your total lack of responsibility, your inability to protect or simply respect animal life," Bardot wrote.

In a final salvo against Palin, the 74-year-old ex-star picked up on
Palin's depiction of herself as a pitbull wearing lipstick and said she
"implored" her not to compare herself to dogs.

"I know them well and I can assure you that no pitbull, no dog, nor any other animal for that matter is as dangerous as you are," Bardot wrote.

My considered response it to ask what can you write when faced with such words, voiced by such a level headed champion of all things fluffy that bark?

I received this from Don,

Well said. It's a shame you don't have the e-mail address of every
American!

Perhaps I should have just featured Don’s message? Whatever way you look at it America, VOTE!

Monday, November 3, 2008

VOTE

I want to add my two cents worth to the great election debate in the United States. My message is very simple, but terribly important. Please, all my American friends, I don’t dare tell you how to vote, but I can ask you, as a concerned friend of your country to make sure you get off your bums and VOTE!

It could not be a more important election and every vote could be vital. Remember that it was just a few spoiled ballot papers in Florida that stopped us experiencing President Al Gore, and the world might have been a very different place right now. I’m not saying better or worse, you’ll draw your own conclusions on that.

It looks like it might be an Obama landslide but stranger things have happened and bigger odds overturned. When the pundits all nod their heads in unison and say it’s a foregone conclusion you had better be prepared for big shocks.

As a friendly observer all I will say is that democracy demands that you get out and vote, and make sure as many of your friends and family are similarly encouraged and energized. The world deserves of your country’s best, and that means your vote counts.

Personally I support the Australian voting system in which it is, I understand, illegal not to vote. That way you don’t get sloth and failure to launch as apathetic excuses. This world needs you America, so vote!

So if you’re a desperate McCain supporter you need to keep going that extra few yards, and if you’re an Obama fan you must not take anything for granted, it isn’t over until every vote has been counted.

Sunday, November 2, 2008

TheDemocraticRepublicofCongo

There is always something awful happening in Africa, it seems as if that wonderful continent is cursed with trouble. Currently there are terrible massacres, pillaging and rapes being inflicted on vast numbers of innocent people in the Democratic Republic of Congo.

There is always something undemocratic about any country that labels itself as Democratic. It’s also suspect and dangerous when countries change their name. I remember some visits to Zaire, now the Democratic Republic of Congo, and it doesn’t sound like anything has changed for the better. This is a personal story from my past of just how unpredictable and dangerous equatorial Africa can be.

It was in the mid 1970’s, I was line producer of a film called Shout at the Devil, being partly filmed in South Africa. We had a deal with a French airline UTA, and they routed their jets from Paris via Kinshasa, the hub of that country. I became used to stopping over in the then shanty type airport, or around the equator a bit, in the equally hot and humid Libreville, capital of another former colonial country, Gabon. Both were not fun places and I could fill a book with my experiences in Gabon, but we’ll focus on DR Congo.

On this particular trip I was with my wife and the airplane was scheduled to stop at Libreville, which was about half way down Africa, and, although an annoying interruption of our flight to Johannesburg, would give us the chance to stretch our legs. As we were descending the pilot announced that there had been a change of plan and we were diverting to Kinshasa. It didn’t make much difference to most of the passengers, but the man sitting one row ahead of us, and to our right in the first class cabin became very agitated. He was a black man, dressed smartly in a Saville Row suit, and I could see the perspiration break out on his face. He spoke quietly to the stewardess who smiled prettily and shrugged with Gallic dismissal that said, “what can I do about it?”
The plane touched down and I vividly remember that there was a change of normal arrangements. At that time, in those places it was unusual for all the passengers to disembark but on this occasion we were ordered to de-plane. We saw the sweating passenger say that he refused to alight but two men in uniform escorted him off a couple of minutes ahead of the rest of us.

I noticed that the man’s passport and personal possessions were still on his seat as we walked down the stairs of the plane. We felt the terrible suffocating heat hit us like a wet towel as we shuffled into the breezeblock building, which then served as the terminal. We entered an area where the ground staff handed us room temperature soft drinks and we sat on rickety wooden slated seats. Next to us, just a few yards away was a partition wall that finished a few feet shy of the ceiling, it was partially topped by some corrugated iron. You could see a single bulb light and, some half obscured shadows of people in the room were visible. We could certainly hear some raised voices that were muffled by the wall, that and the sound of the occasional punch and slap and the moans of a man in pain and discomfort.

No one did anything; to be honest we were all too scared of the armed guards who were watching us all too closely.

After a pause of about fifteen minutes we were instructed to return to the plane, which we did. Every passenger could hear the continuation of the beating of our fellow traveler. Back on the plane we noticed that the man’s personal possessions were still on his seat and we pointed this out to the cabin crew. We asked that they do something to get him back, after all wasn’t the captain responsible for his passengers. Our question was met with another of those Gallic shrugs and we were told to return to our seats, which, to my shame, I did. I don’t know what else I could have done, and I have no idea what happened to the man.

After the flight I did make an enquiry to the airline and initially they blandly told me they didn’t know anything about the incident. When I became a little more insistent they told me I had misunderstood and the passenger in question had simply changed his travel arrangements and had decided to stay in Zaire. Leaving his papers had been a mistake.

I have no idea what was really happening but I do know, for sure, that the man was a very reluctant visitor to Zaire and that his fate was terrifying.

The likelihood is that all sides of the political, tribal and racial equation are equally in the wrong. The central perception our Western leaders need to grasp is that these problems will continue to unravel because they are tribal and embedded in long and bitter historical disputes that transcend borders and nationalities. And, before we climb on our high horse of Western superiority let me remind my readers of our own tribal conflicts between Jews and Muslims in the Middle East and elsewhere, Christian and Muslim in the Sudan and elsewhere, Serb and Croat and Muslim and Christian in former Yugoslavia and, nearer to home, Protestant and Catholic in Northern Ireland. So, let’s not throw stones, and see if we can help.