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There is a familiar storyline in classic European novels, in which a young man from a wealthy family wastes his inheritance through foolish behaviour.  In Russian examples this generally involves running up massive losses at gambling tables, whereas in the most famous German example – Thomas Mann’s Buddenbrooks – it occurs when the northern virtues of diligent labour and prudent trading are abandoned in favour of the southern vices of impulse and the cultivation of an artistic temperament.  The reckless squandering of great wealth that had been carefully accumulated by one’s ancestors is presented to the reader as an evident sign of personal irresponsibility and, more widely, social decline.  It is far less common to read of older people of modest means, whose ethical failing consists in indebting their great grandchildren.  I find this surprising, since duties, presumably, should run in both directions, up and down the family tree.

One of the many achievements of the welfare state, which became the dominant socio-economic model in the Western world in the second half of the twentieth century, was that it replaced the lottery of family inheritance with a safety net that guarantees a minimum of goods and services to all citizens, regardless of what might be passed down by their families.  Irrespective of what kin supplied, kith ensured a decent standard of living for all.  That was the basic idea.  Lately, as the cost of goods and services continues to rise – due in part to a steady expansion of expectation as to what might be included in the baseline package – and widespread resistance to higher taxation grows, Western societies have all – to a greater or lesser extent – decided that their welfare state should be partly funded by future citizens.

Public debt is deferred taxation; spend now, pay later.  There are all sorts of reasons for thinking that this a sensible way of managing the mismatch between the appetite for services and the willingness to pay for them through the tax system.  Spreading costs over time has long been understood as a good strategy for individuals – using mortgage payments to buy a house, or insurance premiums to cover the risk of having to replace a major item that might be lost – and using borrowing to fund investments that will improve future profitability is well understood as a rationale for corporate leverage – the increased productivity achieved by upgrading machinery or premises, or the improving sales that follow from a large marketing campaign –  so it should come as no surprise that a similar approach has been adopted by governments.  The national debt exists, so it is said, not to burden future generations but to increase their inheritance: it should not be thought of as a liability that we pass on, but as a mechanism for increasing the size of the legacy we leave behind.  Well, maybe.

Continue reading “No taxation without representation”

In 49 BC, on a cold winter night, the advanced guard of the 13^th Legion of the Senate and People of Rome reached a small stream that flowed towards the Mediterranean.  This was the Rubicon, a waterway of such little geomorphological importance that today no-one really knows where it ran from and to: its location has been lost.  Minor in physical terms, it was nonetheless major in symbolic terms, for the Rubicon formed part of the frontier between Italy and Gaul, between Rome’s domestic territory and its foreign dominions.  It the 13^th Legion crossed the Rubicon, they were in effect declaring the start of a civil war, a repudiation of the republican form of government that had existed in Rome for almost five hundred years, its traditions, its laws, its aversion to monarchy, and the clear separation between the violence used to suppress enemies abroad and the electoral process used to settle arguments at home.  The commander of the 13^th Legion – Gaius Julius Caesar – paused at the stream, contemplating the potential consequences of his next steps.  

Caesar was aware of the likely immediate impact of his actions, but perhaps not even he could fully understand the historical significance of the symbolic act that he was about to undertake.  A contemporary British historian notes that, in Europe, because of Caesar’s action, a thousand years of civic self-government were brought to an end, and not for a thousand years and more, would it become a living reality again.  (Tom Holland, Rubicon, 2003.)  Caesar overthrew the Roman republic and inaugurated two millennium of monarchic and imperial government, the legacies of which remain today in Europe: the designations ‘Kaiser’ and ‘Czar’ are both derivations of Caesar’s name, and while he might call himself the President of Russia, it seems clear that Mr Putin considers himself an heir to the form of militarist dictatorship that Gaius Julius established at Rome. 

Continue reading “Crossing the Rubicon”

Ms Mary Elizabeth Truss is now the United Kingdom’s Prime Minister, and godspeed to her in that role; it will not be a simple one. She has many challenges, of course, but all of them are coloured by the fact that she has less than two years before she is required, by a law passed by her predecessor David Cameron, to call a general election in 2024, just less than two years from her own elevation to the post. Along with her new Chancellor of the Exchequer, Kwasi Kwarteng, who introduced on her government’s behalf an anything but mini-budget last week at the Commons, she’s going to ride a very interesting, and very quick, ride in macroeconomics. Meanwhile, Andrew Bailey, of the Bank of England, has unhelpfully said that their supply-side stimulus plans will lead to higher interest rates: an observation which academically is uninteresting, but from a PR perspective, seems to indicate Bailey wants to be a jerk.

President Biden is riding a similar roller coaster, although he has the advantage of having been in office for a little less than two years. He continued the now-long-forgotten fiscal stimulus bills of his predecessor, Donald Trump, and managed to get a capital expenditure bill through Congress which – unlike the spending giveaways of the early days of the pandemic – just pay for long-deferred maintenance of US infrastructure. But with inflation now at 8% (depending on the metric), he’s also hanging on for dear life.

There’s an entertaining game on the Federal Reserve website which allows people to see how good they are at changing base rates. You start in (interestingly) an interest rate environment which is completely foreign to anyone who has been an adult in the last thirty years; this is a Laffer Curve game, so you would need to ask your parents or grandparents for help, and even then, if they don’t know who Arthur Burns was, you should just give up and go back to tracking the Kardashians on Instagram. In any event, the game starts with a random inflation rate and a random Fed Funds rate, and you – as the omnipotent Fed chair – change the Fed Funds rate in response to macroeconomic data (unemployment – remember, the Fed has to minimise that!) and fiscal spending and exchange rates and blah blah blah… I’ve played it multiple times, and the point of the game seems to be to convince you that the Fed governors have a really tough job and you, sad citizen, will never be up to the task. They never ask whether the Fed governors are up to it either, but hey, I get it, this is their website.

I’ll bring up one last item before getting to the point. I am a willing victim of the Wikipedia default mainpage, at en.wikipedia.org for those of us who are most comfortable in English. Today, there was a link for a climate scientist named Chip Fletcher, who makes the blindingly obvious observation that “our communities are scaled and built for a climate that no longer exists”. But the observation clearly is interesting because it made the front page of Wikipedia’s daily update: someone on their staff thought “wow, people out there probably haven’t made this connection before, this might be interesting.” And of course it is interesting, but only because so few people understand time dynamics in complex systems.

I cut my teeth in macroeconomics a long time ago, but one of the fundamental observations of Volcker, Friedman, et al was that any given change in base rate policy by a central bank – that is, any fundamental change in the cost and carry of a fiat currency set by the institution designated to grant access to said currency – has at least an eighteen month lag before the broad economic impact is fully absorbed. I also learned ecology – oddly – for the first time at the hands of a slightly crazy biology teacher at Cape Elizabeth High School, who used to throw small black balls representing hydrogen atoms at us when we failed to properly model organic molecules. He used to say that environmental systems never change overnight – they change over decades, or centuries, and he brought up as an example our local Presumpscot River, which was not much different than an open sewer in the early 80s, but was getting better, because the Clean Water Act in the 1970s was almost fifteen years old, and every year, the river was getting better. He told us that maybe our kids would be able to fish or swim there (he probably missed it by a decade, but hey, that’s prediction), but he also said that just because it would take 50 years to make up for 300 years of waste and ignorance, we shouldn’t turn back.

So now I’m at my point.

Climate change is happening, and yes, it’s human caused – even though the timing of our human intervention over the past three centuries of industrialisation may be coincident with other astronomical rhythms of sun activity etc. that serve to emphasise the effects. But humanity has caused much, if not all, of the change in our climate of late, and we’ve spent centuries creating it, and while we’re decelerating the pace of change, we’re still not actually reversing it. That means we’ll have centuries – at least – of reacting to the impact. Bill McKibbon, who keeps saying “we have No Choice but to stop our behaviour or else the world will change irrevocably” is thus an idiot, and ignorant of systems behaviour. He is roughly as old as my father, born in the late 1930s; even when he was born, the planet had long since passed the point of no return for being burdened by the impact of human actions on climate. What we can do now is be responsible – reduce our carbon output, optimize our energy consumption where possible, think carefully about consumption and materialism – but what we can’t do is reverse what had started when England, France, Germany, Japan – hell everyone – started burning coal and oil and natural gas back 200 years ago. And it would be deeply hypocritical of us to tell India and China and Africa “hey, you guys have to stay poor, because we already harmed the atmosphere with the carbon we burned to get good stuff” when we already know we have a couple of centuries of downstream impact which haven’t been felt yet.

Climate change is hard because frankly, we’ve already cursed our grandchildren, and their grandchildren, and we’re now relying on us – who grew up enjoying hydrocarbons – to somehow curtail our addiction, and to develop a picture of rational chemical energy consumption (while we’re still trying to perfect fusion and solar power) for our children and their children that will make the future maybe, possibly, sustainable. In the interim, though, get over it: get used to the forest fires, and the smoke infecting cities on the West Coast, and the floods in Pakistan, and the step function in tropical storms affecting Canada, and the droughts everywhere, and the floods everywhere else. It’s over, people: the world has changed and it’s our fault and no one alive today, even if we do everything right, will enjoy an optimized planet in their lifetimes, because even if humans might possibly live to be 150 years old if narcissists like Elon Musk pull off their pipe dreams, the environment as a complex system is going to take at least the 300 years it took for us to carbonise it to resume normal operations, and more likely, will take a factor multiple of those 300 years to truly work out the impacts we’ve created.

And so we get to the economy, which is no different. In the US – which issues the numeraire currency of all human societies, having replaced gold and its semi-humorous proxy, the pound sterling, back in the 1940s as the core representation of temporal and instantaneous value among individuals independently choosing to engage in trade to take advantage of the differences in productivity, access to primary inputs, and possibilities of creation that exist across all however many billion of us there are on this planet – the Federal Reserve from time to time changes both the quantity of central bank money, and the price paid for that money. But because all seven or eight billion of us transact, at a basic level, in dollars, and we create our personal and corporate value over longer time spans than the instantaneous rate at which the Fed changes interest rates or ceases or starts creating central bank money, it takes awhile for those changes to take place. Paul Samuelson gave me the rule of thumb in, I think , the seventh edition of his classic textbook of economics, of eighteen months lag being a good assumption. That is, the Fed changes rates (or reserve requirements), and roughly eighteen months later the impact fully is absorbed by the broad economy through credit creation or destruction and the impact that has on economic activity. Friedman didn’t seem to disagree with him when I read his and Anne’s treatise in high school.

The economy is complex, and while we endow certain players with outsized power, their power is not instantaneous. Inflation in the US will be here for awhile, no matter how fast Powell and his ilk observe the lessons of Volcker. At least he has a term of office that outlasts the president in office; Liz Truss has barely two years to see if her fiscal policies can reverse the international trade insanity that was Brexit and the monetary expansion that Bailey and others knee-jerk installed in response to a small virus that made all of us go temporarily insane. All complex systems respond with various degrees of delay – no matter what we observe in the Dow, or the cable exchange rate.

And that should give us pause when thinking about the most complex system of all in which we live, that of our planet. We’ve spent 300 years polluting it – but not so much intentionally as unconsciously, as we’ve experimented with this marvellous thing we have which is our own capacity for exploration. We’re actually quite lucky that within only 300 years – maybe eight or ten generations – we’ve realized the self-reflective capability to think hey, maybe what we’re doing is really bad for water, and for soils, and – holy crap – maybe for the entire planet’s atmosphere and weather structure. Maybe we should dial back – but because our impact took awhile without our being conscious of it, we built into our society structures which now depend on pollution, and destruction, and bad things, just to make sure we have food on shelves at the Aldi on the A13 in Southend-on-Sea that sustains thousands of people who never, ever, could have lived there in 1722, when there was a farm there that barely sustained a village of ten or fifteen people. Those structures cannot be deconstructed in a day, regardless of Bill McKibbon’s exhortations – but even if they could, it still wouldn’t affect the world of our children.

My son, and his friends, will live in a world that’s already locked into place. It’s warmer, harsher, more complex, and probably harder to work with. But there’s nothing we can do about it now, at least for their direct benefit, except to help them get ready for the task which will be at their hands to manage, which is simply to survive this new and crueler world which we, and our ancestors, have gifted to them. We can use resources better today, sure, but we need to be blunt and honest: our kids, and their kids, and probably their grandkids, are going to suffer through an Outward Bound exercise the likes of which we never had to contemplate.

Delayed responses are the reality of complex systems. For those who would deny the long term consequences of our actions, I have no patience: their ignorance and stupid attraction to linear consequences is demonstrably worthy of contempt. For those who would somehow claim what we can “make a difference for our kids”, though, I share a similar contempt. My job is to help my son, and his friends, prepare for a bruised and cratered world that wasn’t my own at his age, and to help him think beyond an election cycle, or the time until he’s middle aged, or the time until his children are middle aged. Our job as human beings – members of the first species on earth that seemingly combines sentience, with self-awareness, and with the capacity to project forward the consequences of our choices – is to arm our children with the knowledge that their event horizon is beyond their own lifetime. Eternity is not for the blessed; it is for the as-yet unborn who will choose their path on a planet we cannot imagine.

Shoreditch – where I happily live – attracts large crowds on Friday and Saturday nights, dressed in a variety of colourful but wholly impractical costumes, spilling out onto the streets from the cocktail bars, clubs, and restaurants: clothes for show: circus wear.  Early the following morning the streets are cleaned by men and women in heavy boots, overalls, and thick gloves, who remove the vast amounts of debris – glasses, bottles, discarded food containers, and nitrous oxide canisters – and sweep-up and wash the pavements and kerbsides.  The Sunday morning crowd is dressed for work, not pleasure: function trumps style: industrial wear.   

Our attire is a sign of our standing, of our place in the world.  If I were to wander through an art museum, looking at figurative paintings from, say, Bruegel onwards, it would be easy to distinguish those who must work to live from those who lived off the work of others.  It is said that the clerical class in ancient China grew their fingernails long, to make it obvious to others that they worked at desks rather than by manual labour.  In Hans Holbein’s portrait of Erasmus, painted in 1523, the nails are short but the fingers inky: scholarly hands.

If the style of our clothes tells a story about who we are and how we live, the fabric from which our clothes are made tells a different but equally important story about the trade in raw materials and manufactured goods.  Whereas once most people wore clothes that were made locally from materials that were gathered locally – whether animal skins or plant products – today’s clothes are manufactured in places where labour is cheap and transport links are good, from a wide range of natural and synthetic materials that are often sourced far away from where the garments are sold.  What we wear today reflects our position in a complex global trading system.  While economists tend to focus on the processes of manufacturing and distribution, quantifying the financial value of goods made, transported, and sold, it is artists who are best able to help us think about what this means for both makers and buyers, to consider the symbolic value of the fabrics within which we wrap ourselves.

Continue reading “Art and commerce”

There is a beautiful passage in Anna Karenina (part III, chapters 4 and 5) which describes the pleasure to be found in demanding physical work.  Konstantin Lévin, a landowner, spends a day with a group of forty muzhiks – peasants who work for him on his land – harvesting the summer grass.  They work in a long row, each man with a regularly sharpened scythe, cutting a swathe through the meadows under the heat of the sun. The day is long and hard, especially for Lévin who is unused to hours of repetitive physical work, but he finds happiness in belonging to this collective endeavour, seeing the large fields of his property transformed around him.  At some moments, he loses all sense of time and place, the rhythmical movements of his arms and legs becoming automatic, his mind at ease, as if his blade acted upon its own will: In this hottest time the mowing did not seem so hard to him.  The sweat that drenched him cooled him off, and the sun, burning on his back, head and arm with its sleeve rolled to the elbow, gave him firmness and perseverance in his work; more and more often those moments of unconsciousness came, when it was possible for him not to think of what he was doing.  The scythe cut by itself.  These were happy moments.  

Agricultural workers around the world would have cut grass together each year in a similar way for hundreds of years.  However, in 1877, when Tolstoy’s novel was published, machines were routinely supplanting human labour: the novel ends – famously – with a woman’s suicide assisted by a train.   The process of automation of work has continued ever since.  The modern farmer no longer has need of forty men to cut the grass of her fields: instead, she will have a tractor driven perhaps by a computer.  She will have other machines to bale the hay and transport it to where it will be stored for the winter.  Today, work is more about controlling machines than swinging scythes, which means much less sweat but much greater productivity. 

Continue reading “Hard work”