thinking: relating- celebrating :-)

The parliamentary elections in NZ last year will be remembered for having the lowest voter turnout since 1887

At the time a lot of commentators opined that this was the result of Labour Party voters staying away in droves because they knew they couldn’t beat John Key & the Nats.

“A total of 3,070,847 people were registered to vote in the election, with over 2.2 million votes cast and a turnout of 74.21%^[4] – the lowest turnout since 1887.^[5] The incumbent National Party, led by John Key, gained the plurality with 47.3% of the party vote and 59 seats, two seats short of holding a majority.”

Except that low voter turnout and “too close to call” elections are also happening in the UK, Australia and other places. Political parties now are so au fait with focus groups and polling that they have swapped a genuine passion for change and inclusive public policy thinking for facsimile results and so end up holding cardboard elections.

Many voters see through the card board characters and have lost faith in the voting process.

Somehow PM John Key has interpreted this as a big win* and is now proceeding on an idealogical path of asset stripping and other exploitation of natural resources.

Have a look at Partial privatisation numbers ‘don’t add up’

“Sustento director and economist Raf Manji said. It was admirable for the Government to lower debt, but the numbers around selling stakes in energy firms to do so did not add up, he said.

New Zealand debt servicing was at record lows and the energy firms were trading well, returning between 5 and 11 per cent, he said. It looked like the nation was heading into a prolonged period of low interest rates, he said.

“It’s never been so cheap for the Government to borrow money and the demand for Kiwi debt has never been higher. If the New Zealand Government was a business, there would be absolutely no reason why it would be selling.”

Diluting the public’s hold on the firms would risk lower investment in power generation infrastructure and higher prices, he said. No more important public good existed than energy, as it was essential to people and businesses, so it was dangerous to raise the firm’s focus on profits.”

Rafs Sustento website is over here and he is on twitter here @rafmanji

One Big Voice would be very useful in helping to change the governments mind about those asset sales. I’m old enough to remember Capital Markets and the BNZ fiasco / bailout.

Shortly after that the heroes scurried off to Switzerland to roll around in the cash they got from the NZ government. It is another story for another day but please excuse me when I say John Key is a former money market trader and a leopard does not changes its spots.

“1989: Government reduces its share to 51% by selling 34%; with 30% sold to Capital Markets Ltd, and the remainder to the general public”

It is time to make politicians accountable.

What to do about this?

A local Grey Lynn based project is helping to make it easier to to make your elected representative more transparent, accountable and responsive to you, the people that put them in power. It is called One Big Voice and it represents a new way for citizens to show politicians what we really care about.

“Have you ever felt you weren’t being listened to?

Governments have vast economic and political resources which means they set the agenda. The average citizen on the other hand has one vote, no real voice and few other ways to exert any influence over what goes on in the world. In short, if you don’t have the means to make yourself heard your needs are often overlooked or ignored altogether.

That just doesn’t seem fair to us so we’re on a mission to help place the power to shape the world back into the hands of the people. Yep, we know it’s a ridiculously grandiose ambition but we really want to help make the world a better place to be for everyone.

To get the ball rolling we’ve chosen to focus on improving the quality of communication between voters and their elected representatives.”

or you can watch the video below.

The team says

“We’ve researched our idea, figured out how to make it work and finally we’re at the stage where it’s ready to build. So far we’ve donated our time for free, that’s what you do with love projects, but to develop it further and start coding in earnest we need financial support.”

Pop on over the One Big Voice page on indiegogo and login with your Facebook id to get involved.

You can find OBV on twitter at  @oneBIGvoice or on http://www.facebook.com/oneBIGvoice

P.S Your question is- OBV looks just like Standup which is another excellent changemakers project They also would love your support as they need to find a new name for Standup.

“we believe we can come up with an even more descriptive and unique name for our organisation using ‘the power of the crowd’ Feeling creative? Suggest some other names for us>>> Help us choose a cool new name ”

Last year a couple of big finance stories caught my attention. I had just seen the movie Inside Job .

What was very interesting to me was the idea that economists and other academics in the finance world had been utterly compromised by the global financial meltdown.

The other story concerned Wachovia bank laundering $400b of blood money but more on that one later.

In fact they (academic economists) have been completely implicated in the demise of the system yet those very same people were reappointed to high ranking roles by the Obama administration. So point 1 – same old, same old means the same results which is privatise assetts – socialise losses and that bailout was US$700b.

(Add both numbers together and that is $1100b and that is thought to be a tip of the iceberg read of that problem.)

Follow the money. $700b is a very big honeypot and what has happened to that money?

The Four Horseman Film attempts to answer these questions and more. Accountability and public policy results?

“Four Horsemen is the debut feature from director Ross Ashcroft which reveals the fundamental flaws in the economic system which have brought our civilization to the brink of disaster.

23 leading thinkers –frustrated at the failure of their respective disciplines – break their silence to explain how the world really works.

The film pulls no punches in describing the consequences of continued inaction – but its message is one of hope. If more people can equip themselves with a better understanding of how the world really works, then the systems and structures that condemn billions to poverty or chronic insecurity can at last be overturned.

Solutions to the multiple crises facing humanity have never been more urgent, but equally, the conditions for change have never been more favourable.”

Update: In NZ? – listen to this interview from Kim Hill show today (5th of May 2012)

The Four Horseman is currently showing in New Zealand at the Docu Edge Film festival

Ann Pettifor interview is 30 mins but well worth watching. It is not in the film. Key answer from Ann: “We have to regulate & control the banks” – Keynes & Roosevelt had the right tactic back in the 30′s.

Another related story from April last year

“How a big US bank laundered billions from Mexico’s murderous drug gangs As the violence spread, billions of dollars of cartel cash began to seep into the global financial system. But a special investigation by the Observer reveals how the increasingly frantic warnings of one London whistleblower were ignored”

That large banking group in the paid $US150 m in fines recently for money laundering something like 400 billion $ of drugs money. $150m is a large fine but compared to $400b & all of the other similar cases that didn’t get prosecuted – it is a slap on the hand with a wet bus ticket. ( My calculator can’t cope with that but as a percentage $150m/400b – its a rounding error!)

‘More shocking, and more important, the bank was sanctioned for failing to apply the proper anti-laundering strictures to the transfer of $378.4bn – a sum equivalent to one-third of Mexico’s gross national product – into dollar accounts from so-called casas de cambio (CDCs) in Mexico, currency exchange houses with which the bank did business.

“Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations,” said Jeffrey Sloman, the federal prosecutor. Yet the total fine was less than 2% of the bank’s $12.3bn profit for 2009. On 24 March 2010, Wells Fargo stock traded at $30.86 – up 1% on the week of the court settlement.

The conclusion to the case was only the tip of an iceberg, demonstrating the role of the “legal” banking sector in swilling hundreds of billions of dollars – the blood money from the murderous drug trade in Mexico and other places in the world – around their global operations, now bailed out by the taxpayer.’

Another version of that story is over here - Cocaine smugglers laundered billions through Wachovia bank

“Somehow, the major banks in the United States have gone from serving as the main bulwarks of credit and entrepreneurial pluck to the moral equivalent of a James Bond villain.”

Turns out the GFC was an opportunity for some big finance houses to rort the public finances as well as actively engaging in eye-popping financing of criminal activities. In little old New Zealand I don’t remember any of these stories even making the news.

I can remember the Savings & Loan crisis of the 80′s but these more recent stories are much more significantly disturbing. The finance system is completely broken and the sooner we change it the better.

Of course there is more to the story;

“By 2007 the trade in derivatives worldwide was one quadrillion (thousand million million) US dollars – this is 10 times the total production of goods on the planet over its entire history,” says Stewart. “OK, we’re talking about the totals in a two-way trade, people are buying and people are selling and you’re adding it all up as if it doesn’t cancel out, but it was a huge trade.”

The Black-Scholes formula had passed the market test. But as banks and hedge funds relied more and more on their equations, they became more and more vulnerable to mistakes or over-simplifications in the mathematics.”

Tim Harford writes Black-Scholes: The maths formula linked to the financial crash

“The equation is based on the idea that big movements are actually very, very rare. The problem is that real markets have these big changes much more often that this model predicts,” says Stewart.

“And the other problem is that everyone’s following the same mathematical principles, so they’re all going to get the same answer.“*

….

“Not all of those subsequent technologies, says Scholes, were good enough. “[Some] had assumptions that were wrong, or they used data incorrectly to calibrate their models, or people who used [the] models didn’t know how to use them.”

Scholes argues there is no going back. “The fundamental issue is that quantitative technologies in finance will survive, and will grow, and will continue to evolve over time,” he says.

But for Ian Stewart, the story of Black-Scholes – and of Long-Term Capital Management – is a kind of morality tale.”

*According to a friend this idea about finance models being trapped in their thinking mode is a key one. ( Thanks to Raf Manji for comments below) Raf’s site is Sustento go there for more smart insights 

“The problem with all these models is they don’t price in liquidity (i.e.. the ability to shift volume at a certain price). When everyone wants to exit the building at the same time, there is a crush!

It’s very similar with financial policy making. They work from theoretical models, which might have some validity on paper or in small, closed situations but don’t hold up amidst the rampaging and unpredictable hordes of humanity.

This is what I meant by saying policymakers are operating out of the same toolbox and, therefore, can never find or consider solutions that might actually work.”

As promised I finished reading Jeffrey Sachs – “The Price of Civilization” – Economics and Ethics After the Fall. The book was an easy read but at the end of it left me feeling somewhat underwhelmed. Rebooting the US economic and political system is a tough dream to even think about.

Yes it confirms what we suspect about US politics – that it is monumentally dominated by big money and completely broken in a systemic way. The book argues for more government and better government in the economy which has also been hamstrung by the idea of low Federal taxation over many decades.

We already know that Obama’s administration has not been able to break away from the finance sector who helped cause enormous economic mayhem on the US and global economies. Sachs argues in favour of a new 3rd party. Or better a new movement (the millennial generation?) who will clean up politics. On page 249 Sachs tells this story

“The bad old joke complains about the lousy restaurant where the food is terrible – and the portions are small. Arguing for a larger role of government feels about the same. Yes, the federal government is incompetent and corrupt – but we need more, not less, of it.”

Fundamental generational change might be the answer but  actual voting behaviour in Western style democracies appears to be down rather than up. In New Zealand we had an election less than 3 months ago and only about 74% of registered voters (down from 79.4%) bothered to even vote. This was down on previous elections for a range of reasons including a very pointed lack of faith in the system.

I’d suspect that saying the US political system is “incompetent and corrupt” doesn’t get voters excited to vote for more of the same. The paradox is many politicians and citizens alike share this view and yet remain optimistic about the future of our economies. We want to be optimistic, that is part of human nature – but how to transition towards a more positive future when the mainstream news is still high on doom and gloom.

Sachs thinks we can do it – I hope he is right and that Presidential elections in the US produce some real systemic change but I suspect that view is too rose tinted and too much of a long shot to believe in.

This is despite a Paul Krugman OpEd in NY Time Today

“That said, our economy remains deeply depressed. As the Economic Policy Institute points out, we started 2012 with fewer workers employed than in January 2001 — zero growth after 11 years, even as the population, and therefore the number of jobs we needed, grew steadily. The institute estimates that even at January’s pace of job creation it would take us until 2019 to return to full employment.

And we should never forget that the persistence of high unemployment inflicts enormous, continuing damage on our economy and our society, even if the unemployment rate is gradually declining. Bear in mind, in particular, the fact that long-term unemployment — the percentage of workers who have been out of work for six months or more — remains at levels not seen since the Great Depression”.

Who knew the US was in such dire economic straits? Clearly whatever the US government is doing now the policy settings have no significant effect on the top line job numbers.

Let’s say for arguments sake that there are a group of new emerging leaders who might organise and promote change where would these people be found? The green movement in NZ often gets criticised for having economic ideas and policies, but perhaps other green movements around the world might be the place to look for new leaders.

After finishing this book I wanted to learn more about Sach’s past history as an economic adviser.  It seems like he has glossed over some really terrible work in Bolivia, Poland and the Russia* where he was part of grand experiment in radical shock therapy style economics that had more in common with Milton Friedman and the Chicago School of Economics than his current views.

*Sachs was in Russia in 1992 and appears to have been genuinely caught out by cold war thinking by the U.S who (were) largely happy about Russia’s economic collapse. That failure seems to have been a turning point for Sachs. Naomi Klein (on page 250 of The Shock Doctrine) describes Jeffrey as sounding

“like a boy scout who has stumbled into an episode of The Sopranos“

Clearly in The Price of Civilization Sachs has a much more Keynesian view of the world that values mixed economies and sees a place for governments to mediate against free market failures of which there have been many.

On page 186 of the book are 8 goals and targets covering 2010-2020. Why the goals themselves look eminently sensible and specific e.g – Raise employment and quality of life, reduce poverty, improve governance and so on I doubt that any 2 politicians or economists would agree on how to do any of them. Therein lies the real problem for the rest of us.

I’ve been reading Paul Ormerod for years ( waiting 2 years for his next book Positive Linking: How Networks and Incentives Can Revolutionise the World) conflicting reports on what has happened to Iceland – Jon Danielsson says that the IMF programmes in Iceland were not successful or sustainable.

To top it off we are constantly told Japan is an economic failure which does not seem true at all The Myth of Japan’s Failure. At least part of the problem seems to be the different ways that GDP is measured and some cultural spin.

Luckily I also got Daniel Kahneman’s book Thinking Fast and Slow which so far seems to offer a more insightful view of behavioural economics than anything  else I’ve read. More on that and Naomi Klein next time.

Further reading – here are some stats and economics from 2009  from Juan Enriquez. These numbers are different from the ones that Sachs proposes but useful for comparison. Enriquez also

“covers the profound changes that genomics and other life sciences will cause in business, technology, politics and society”