The regular reader will have quickly realised that this post will be about economics – a discipline usually considered by mathematicians to be little better than hand waving (but given the state of the economy and the attempts at improvement this may be better equated with drowning).
I revealed that the somewhat maligned play, If you don’t let us dream etc, had made me think and this post is the fruit of that thinking made flesh. I should point out that I have not yet read the book on economics I purchased and the delay in producing this post does not indicate mature reflection – just a backlog (backblog?) of posts to send out into the aether.
The play made reference to Sovereign debt, in particular that of Ecuador (which probably doesn’t count as it as achieved at altitude), and who should be responsible for it. This made me think of the case of the oppressive, kleptocratic regimes which are all too common in the world today. When a people finally manage to dispose of such a poisonous form of governance – whether by revolution or a combination of patience and the ageing process – they are often left with huge debts run up by their former oppressors. It does seem, to me at least, somewhat iniquitous to expect them to spend the following decades (or longer) repaying those who helped to fund the rape and oppression of their country and its people. Rather, I might expect them to be entitled to significant compensation from these same financiers who had assisted their erstwhile rulers in their murderous rapine. Sadly, this does not seem to be the case in international law – if it were, I should imagine there would be some truly massive shifts in funds between the developed and developing world and quite possibly new impetus to responsible lending and good governance the world over. Somehow I can’t see vested interests letting this happen, but I would love to see at least one country sue those who funded their oppressors for damages (and win, obviously).
Following this thought, I went on to ponder states rather closer to home and that are nominally democratic and so govern for the benefit of a slightly larger share of their citizens. Even in such states, I do have to wonder what benefit some of the spending in our name gives to the citizenry at large – how exactly do we benefit from Trident or its replacement (for example)? It enables our political masters to feel important on the world stage but does seem an awfully expensive way to massage their delicate little egos – surely counselling to enable them to come to terms with the UK’s diminished importance since the glory days of the 1890s would be cheaper? I can’t help feeling that with a few more lasses in parliament, we wouldn’t be wasting quite so much money on dick-swinging – but I am digressing (hard to believe, I know).
The big complaint here is the cost of “bailing out the bankers” who seem to have been holed below the water line. This was not debt run up by the State, but by commercial entities operating within the State (though probably not paying much in the way of tax to it). Their size and embedded nature meant that government felt obliged to fund their debts, i.e. the State was providing an implicit corporate guarantee to the Banks. I say, let’s make it explicit! The provision of corporate guarantees (or irrevocable letters of credit) to stand behind a corporate entity is a normal part of “the market” – and can attract very significant fees, especially if the entity in question is indulging in risky business. I say we charge the Banks for the guarantees that the State is offering them at the going market rate. Clearly, we can’t trust the existing rating agencies to measure risk as they only seem to recognise the patient is sick some months after the corpse has been buried ‘neath the clay – but there are a fair few States with the issue, so funding an independent agency should be feasible (we can probably fund it from the guarantee fees anyway). Banks can either choose to pay for a guarantee or they can survive on their own, but in such circumstances they may be restricted from taking deposits from the retail and smaller commercial side of the business (or if they can, such investors would have to be made aware that their investment was highly risky – as should already be the case for existing high-risk investments). The “market” can then decide how much demand there is for very risky banks and how much for their safer brethren. Banks that want to attract investment from the more risk-averse would pay for the sovereign guarantee and manage their business accordingly. Any future bail-outs should have already been funded and the State will not end-up trying to run troubled Banks, plus the country will have made a nice income to pay for less sexy items like libraries, decent support for the disabled and the Arts.
Hey, this is turning into a manifesto – albeit a rather unachievable one if I only control a single nation state, I think I need to be aiming for world domination (or at least a decent chunk thereof). Does anyone know of a hollow volcano (preferably extinct) coming up for sale (I would consider a long-term rental) in the near term?