A GOOD ACCOUNT

I’m no accountant nor bookkeeper.  Apart from having a brother-in-law who is an accountant, the nearest I’ve got to them is having mine produce our annual financials and tax return, and to address a group of chartered accountants at their dinner at the RACV Building in Melbourne about five years ago on the subject of the coming financial collapse.

Since Boxing Day, however, I’ve been thoroughly enjoying Jane Gleeson-White’s “DOUBLE ENTRY:  How the merchants of Venice shaped the modern world—and how their invention could make or break the planet”.

Gleeson-White’s research into the founder of double entry bookkeeping, Luca Pacioli, is as admirable as the genuine homage she pays to the fifteenth century Franciscan friar for his clever and dogged approach to improving the system of recording financial dealings.  Pacioli broke with tradition to write in the vernacular to capitalise, in every sense of the word, on the invention of the printing press to get his message out.

But it was to where Jane Gleeson-White then takes the book that grabbed me most.

Yes, Pacioli’s system of double entry has served the world well, she notes, but practitioners have not been beyond abusing it, as did the recently departed Arthur Anderson company in Enron’s grand fraud.  (I’ll long have the memory of the bastard at his monitor, crying “Burn, Baby, burn!”)

It’s still a matter of garbage in, garbage out, or maybe hiding the nasties by cleverly taking them off balance sheet. (Why am I reminded that Paul Keating’s 9% superannuation guarantee levy couldn’t possibly be a payroll tax by stealth because it is compulsorily directed into non-government funds?)

Gleeson-White notes that we’ve improved the national accounts since Keynes’ first applied Luca Pacioli’s principles to them, but says the state of the planet and of economies attests to the fact we’ve still got a long way to go.

The author comes tantalizingly close to seeing economic rent’s relationship to people and the planet! (I like to think of natural resource rent as the glue that holds society together.)

Maybe the problem is not the limitations of GDP as a measuring stick—i.e. that it underestimates the true costs involved in the making of a Big Mac, or the real value of trees—but by so obviously failing to break incomes down into earned incomes and (unearned) natural resource rents, we don’t expose those shysters who continue their destruction of the planet?

And as it’s little known that ‘super profits’ (especially land and natural resource rents) make up close to 50% of GDP—and are mainly captured by the 1%—what a great follow-up that might make, Jane?

“Opening the tax act is like entering the door to a parallel universe.”

– Chief Justice of the Federal Court of Australia, Patrick Keane, January 2011.

Stephanie Gardiner has done Australia a great service in exposing these parasites – because there are many others like the Wakils.

The tax system – the lack of any significant annual charge on the holding of land values – makes them do it.

That’s just another reason  Australia needs to heed Ken Henry’s call for reform of its aberrant taxation system …. quickly.  Like many other nations, taxation’s deadweight is rapidly bringing the country to its knees.

…. we’ve got a dud in Melbourne who believes Melburnians should partake in the extraordinary game of bidding taxi license prices up into a massive Golden Egg that doesn’t deliver an efficient service.

Seems land and natural resources aint the only government-granted privileges capitalised into bubbles?

And, for goodness sake Professor Fels, don’t be stood over by M’lud Robert Doyle. I reckon he’d want all those whose property prices are going to crash over the next few years to be compensated, too.  After all, they purchased their properties in good faith?

THE TELEGRAPH

Monday 19 December 2011

EU crisis: The Frogs do love us – they’re just hopping mad with Germany

Our entente with the French is still cordiale, but they badly need someone to shout at, writes Boris Johnson.

By Boris Johnson

There is a scene in Monty Python and the Holy Grail that captures the current dialogue between Paris and London. One evening King Arthur arrives with his knights at a darkened castle. He tells the figure on the battlements that he has come to recruit noble knights in his quest for the grail. For some reason the guard turns out to have a heavy French accent.

In fact, the whole castle is occupied by French knights, and they treat the English king with disgraceful rudeness.

First, the guard tells Arthur that he has no interest in obtaining a Holy Grail, since they already have one in the castle. When Arthur says he would like to have a look at this marvel, the French knight refuses, and concludes: “I don’t want to talk to you no more, you empty‐headed animal food trough whopper. I fart in your general direction. Your mother was a hamster and your father smelt of elderberries.” The French then cry “fetchez la vache”, and use a trebuchet to bombard the Knights of the Round Table with a dead cow.

If you cut out some of the raspberry blowing and bottom‐flashing, that is just about the level of the current diplomatic broadsides from Paris. David Cameron goes to the dark castle in Brussels in his quest for common sense, and ever since they have been peppering us with dead cows. Various French ministers have queued up to say rude things about Britain and the British economy. In an amazing breach of diplomatic convention, the French prime minister has called for Britain’s credit rating to be downgraded and announced that he would much rather be French than these so silly British.

In a bid to calm things down, Nick Clegg has been forced to ring the French up and ask them to stop being so jolly insulting.

“This is quite unacceptable,” the Liberal Democrat leader is supposed to have fumed at the French government.

I don’t know if the French have been chastened by this rebuke, but I think we should urge Nick to relax. Look at the polls. Anyone would think that Nicolas Sarkozy and David Cameron began that summit with a secret meeting, at which they agreed to help boost the other’s domestic ratings. “I’ll bash you if you’ll bash me,” they said. “Our voters will love it!” And hey presto. The Prime Minister takes a principled opposition to plans for a Fiscal Union (FU), and shoots ahead of poor old Ed Miliband in the polls.

Sarkozy bolsters his own election hopes as he launches an ever‐popular tirade against les rosbifs and their appalling belief in free markets. It’s win‐win. That is the point about the pantomime xenophobia between the French and the British: it is essentially innocent — or more innocent than almost any other form of xenophobia; because in our hearts, au fond, neither side really believes it.

We have to admit there are times when we enjoy a good old orgy of gratuitous Frog‐bashing. There are times when we are all prepared to read how our continental cousins are a bunch of garlic breathing Strauss‐Kahns with a deeply suspect interest in structuralism and gloomy films. In this stereotypical world, their women fail to shave their armpits, they have a weird obsession with suppositories and a fanatical lust to eat our children’s ponies.

As for the French view of the British, I am afraid that there are times when they can be heard to say that we have terrible food, that we prefer hot water bottles to sexual intercourse and that most of the men in our ruling class (this was a tart observation by former prime minister Edith Cresson) were not the marrying kind. This is the kind of cheerful abuse that we have been directing at each other for generations, and ever since the battle of Waterloo it has not been meant very seriously.

Deep down, all reasonable English people know that the French have an extraordinary culture, that their understanding of cheese‐making is god‐given, that they have high‐speed trains of a kind we are still trying to imitate and that it is a shame that we (and our children) are so feeble in our mastery of their beautiful language. You can tell that the British secretly love and admire the French by the sheer numbers who go to France for their holidays, and who make their homes in the Dordogne.

As for the French, they know in their hearts that for all the 20th‐century misunderstandings between us — Verdun, Mers‐el‐Kebir, Suez, de Gaulle’s “non” — we remain indispensable allies; and all civilised French people understand that we also have our good points: humour, gardens, custard, pubs, democracy, the theatre and everything else that makes this country great. That is why so many hundreds of thousands of French people have moved to England in the past 20 years, and that is why London is now the sixth or seventh biggest French city on Earth. In fact, there are now so many talented French people living in the English capital that a special MP has just been appointed for outre‐manche.

Victor Hugo said something about how the French and the English needed each other, because they both did well from the competition — and he was right. And the final reason to be cool about the gall of Gaul is, of course, that we are not the real object of French wrath. It isn’t Britain whose dithering is causing the continuing and growing uncertainty over the euro. Downing Street is not responsible for the failure to reassure the markets with a credible plan to guarantee the sovereign debt of the peripheral euro nations.

The French are really disappointed with Germany; and it is a golden rule of European politics that when France is angry with Germany, Britain gets the blame. That is because a rant against Germany is a very different thing, with a much heavier charge. Sixty‐seven years after the war, the French are facing up to the reality that the European experiment has failed to contain German economic might, and that the Germans are unwilling and unable to help other countries cope with the agony of the euro.

That is what is really making them angry — but that is taboo.  Much better to chuck a cow at les Anglais.

If anything’s worth saying, it can be said simply and without humbug.  One hundred years ago, the Canadian cartoonist JW Bengough had a lend of economists and monopolists by lampooning in words of one syllable their sophisticated defence of thieving from the people.

Economic Primer <– Why not save it and enjoy it at your leisure?

The cause of this recession? Economic pundits ignoring history’s voice

As long as factional interests like bankers or economists override common sense, there will be another crash.

• Simon Jenkins
• guardian.co.uk, Thursday 15 December 2011 22.00 GMT

Illustration by Noma Bar

The Queen, reported the Daily Mail, was wearing a speckled cream suit and matching hat. Her Majesty was at the London School of Economics, listening to a professor, Luis Garicano, talk about the credit crunch. “It’s awful,” she said suddenly. “Why did nobody see it coming?”

For three years I have pondered the Queen’s question, and the answer. (LSE was institutionally flummoxed; a year later, it gave her a waffly reply, that “everyone thought they were doing the right thing,” and that “wishful thinking was combined with hubris”.) It resurfaced last Tuesday with the publication of the Financial Services Authority report into its own conduct of the 2008 collapse of RBS and the attendant chaos. It is like expecting the Cosa Nostra to investigate the mafia. We are all sinners, ruminated the FSA, and need forgiveness, but no one was really to blame. It is a rough old world.

Had the banking fiasco been a Russian invasion, nuclear meltdown or outbreak of plague, every expert would have faced inquisition, damning or being damned. Soldiers would have been cashiered and scientists ruined; doctors would have choked, blaming government cuts. Yet from the profession of economics and its gilded acolytes in the City, nothing but silence. The Queen’s question remains on the table, its acid quietly eating into the woodwork.

The world economy is in a mess. At such times we take refuge in familiarity and choose metaphors that fit our prejudices. Last week we either opted for the slow lane of Europe’s great future, or carefully declined a luxury berth on the Titanic. Britain was a dog slinking miserably from the top table, or walking proud into the sunset.

I prefer to seize the apron strings of history, following a series of articles in the New York Review of Books by the American Nobel economist Paul Krugman. For two years he and his colleague, Robin Wells, have been seeking to set current economic woes in the context of the past. They have studied previous crashes and distilled what was ordered at the time by such pundits as Keynes and Friedman. From the cliff of economic history, Krugman hacked nuggets of wisdom, many sane, most alarming. They should be wrapped in vellum and delivered to Buckingham Palace.

A year ago Krugman wrote up Reinhart and Rogoff’s history of financial crashes – with the ironic title, This Time Is Different. Every crash was unpredictable because everyone thought it was unlike the last one – until found in crucial respects to be the same. Then came Jeff Madrick’s The Age of Greed, with its eerie narrative of how each crash since the war had been worse than the one before and nobody noticed, and Roubini and Mihm’s Crisis Economics – with Krugman admitting “outrage fatigue” amid a crescendo of gloom.

At each turn the financial gurus assert that a recession will be temporary and “different”. Over the past two years each prediction, including from Britain’s Office for National Statistics, has been wildly optimistic. Mathematical models have proved as useless to economics as leeches and blisters once were to medicine. As Krugman notes, whatever the evil tidings, “things have turned out considerably worse … and are running fairly close to the historical norm”.

The western world is in the grip not of a blip or retrenchment, but of “the second great contraction” of modern times. It matches that of the Great Depression of the 1930s, out of which the west climbed only with the spending spree of Hitler’s war. Its roots lay in the same cause, a speculative bubble (this time in housing) linked to reckless bank lending to individuals and states. That lending concealed wide imbalances between national economies.

The fact that no remedy has seemed to work has had remarkably little impact on policy. During the Depression Milton Friedman’s call for an increase in money supply proved ineffective when that increase was merely hoarded by stricken banks. Thus pumping up the banks is exactly what the Bank of England is doing today: to the same minimal effect.

Likewise in the 1920s and 1930s governments that forced national budgets into balance through austerity saved their banks, but exacerbated stagnation and slump. Krugman accepts that deficit finance is more acceptable today than in the 30s, but it is as yet insufficient to stimulate real growth. Equally disastrous was forcing nations to sustain overvalued currencies in deference to the gold standard. Yet the EU is still trying to shackle the weaker European states to an overvalued currency.

There are lessons in smaller crashes, such as the 1982-3 boom in Latin American debt, the Swedish crash of 1991, or the 1997 downturn in the so-called Asian tiger economies. Latin America descended into depression and hyperinflation. Japan has yet to recover. Some things worked. Korea rescued itself by halving the value of its currency, leading to an export-led boom. Sweden nationalised, divided and recapitalised its banks.

Krugman holds strongly to the thesis that indebtedness is no enemy of growth, as creditworthy Britain showed for much of the 20th century. The task for government is to make the trade-off: how much credit to risk for how much growth. The argument between George Osborne and Ed Balls is old as the hills. Now that Osborne has established his bona fides on the credit front, the message of history is probably tilting Balls’s way, towards more aggressive stimulants to demand.

The question is not what history says but who is listening. The relaxation of global regulation in the 1980s arose from the influence over government of a profession that was becoming both rich and arrogant. Bankers paid lobbyists and courted politicians. Their influence is vividly narrated in Madrick’s Age of Greed, as they moved their lending into sovereign debt on the thesis that “countries don’t go out of business” and were “too big to fail”. It was a phrase they deftly applied to themselves when disaster struck.

This week Britain’s bankers likewise persuaded David Cameron that “the national interest” required a refusal to accept or even participate in a new regulatory regime, despite such a regime being palpably needed. The same lobby resisted pressure to reduce bonuses, erect Chinese walls or adopt the recent Vickers report on bank restructuring. History is clear: as long as sectional interest overrides prudence or common sense, there is another crash.

This repeats the awful lesson offered by Seymour Hersh in his book, The Target is Destroyed. Describing events after the Russians accidentally shot down a Korean airliner in 1983, Hersh accused Washington of refusing to believe its own clear intelligence that the shooting was in error. In the grip of the cold war, the most sophisticated surveillance on earth was useless because no one wanted to believe it. Reagan’s White House needed an excuse to hurl threats at Moscow. The message of economic history is similar. It can scream as loud as it likes, but if power is not listening it might as well be mute.