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Bad Economics: Ann Pettifor on how economists led us astray

Internationally renowned UK economist Ann Pettifor talks global finance, property speculation and debt forgiveness ahead of her upcoming public lecture series in New Zealand.

Ann Pettifor is an international expert on sovereign debt. She is well known for correctly predicting the Global Financial Crisis and was a leader in the Jubilee 2000 debt campaign which succeeded in getting wealthy nations to write off $100 billion of debts owed by 42 of the world’s poorest countries. Her latest book is Just Money: How Society Can Break the Despotic Power of Finance (2014).

She’s coming to New Zealand this week as a guest of AUT’s Policy Observatory and delivering public lectures in Auckland and Wellington on 15th and 20th September respectively. More details here.

Ann Pettifor

Ann Pettifor

On why economic experts are falling out of fashion…

I think economics has been so high-brow, so beyond ordinary human comprehension, that, in a sense, people don’t know what they don’t like about economics. What they do know is that there’s something terribly wrong with the way that the system is working and they’re very angry about it.

On the state of finance today…

The problem with the financial system now is that the authorities whose role it is to maintain the system’s ethics underpinned by society’s values – those who should monitor and manage it to avoid corruption and abuse – have instead taken an arms-length approach. Instead regulators have allowed banks to create credit willy-nilly with virtually no regulation. And they’re still lending crazy money. Pre-crisis, they lent money, for example, to pole dancers in Florida on precarious incomes, and encouraged them to take out more than one mortgage. Since the crisis they’ve been lending money to corporations: corporate debt is going through the roof both in the US, in Europe, but also in China surprisingly. And this at a time when demand is depressed, and deflation looms.

On the priorities of finance and what this means for the property market…

What we find in London – and I’m sure this is true also in New Zealand – is that banks are very willing to lend for speculation on property, but very reluctant to lend to SMEs [small and medium-sized enterprises] and others for productive activity that’ll generate income over the long-term and create employment. And central bankers are doing very little to guide commercial bankers, to address this continuing flaw in the management of the monetary system.

On why running a national economy isn’t like running the family finances…

On the one hand… the government is like a household: it has to collect taxes to pay for everything and if it doesn’t have enough tax revenues then it can’t pay for a decent national health service or any of society’s other real needs. On the other hand, these same governments and their central banks were able to produce trillions of dollars out of thin air – nobody knows how much money was raised – to bail out the banks. While the public may not understand monetary theory, they can nevertheless see that central banks did somehow find trillions of dollars to bail out the banks – yet apparently there isn’t enough money to upgrade the railway system, or to support farmers, [or to tackle climate change], or to do the other things that we as a society think are really important. […] So the public get that there’s something really fishy going on. And they’re angry. Hence the rise of populist parties in Europe and the US.

On why insecurity breeds insecurity in politics…

I’m a great Karl Polanyi fan. He was prescient in understanding that ultimately people will demand to be protected from the predations of “free” market forces – and this is what’s happening across the world. He was also correct in saying that they wouldn’t necessarily turn to progressive parties for that protection: they’re more likely to turn to right-wing parties who promise protection. They would prefer a strong man or woman – Mr Donald Trump or Ms Marine le Pen – to protect them from immigration, who will protect jobs, who will protect their culture, who will protect their economic interests. The Donald Trumps of this world assure us that they know how to do that, how to take on the big bad forces of “globalisation” that are hurting.

On how to produce money out of thin air…

l like to tell the story of Ben Bernanke’s first TV interview in 2009 as Chairman of the Federal Reserve during the Global Financial Crisis. He was on 60 Minutes and the interviewer asked where he got the money from: “Is that tax money that the Fed is spending?” [Bernanke] said: “It’s not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. It’s much more akin – although not exactly the same – to printing money than it is to borrowing.” Of course, AIG had to offer collateral, sign a contract and agree a rate of interest on the US$85 billion bailout it received in September 2008. Nevertheless that was how that sum was created. […] If we all understood that, we would know that it would be possible tomorrow to finance and begin the transformation of the economy away from fossil fuels.

On the principle of jubilee and the campaign to write off third world debt…

I’m not particularly religious – but underlying the jubilee principle is the notion that you cannot perpetually extract debt from the poor. There has to come a point where there is, in the words of the Bible, “forgiveness” – or we would say debts are “written off” or “cancelled”. This idea that periodically one must correct imbalances is fundamental to Christianity. It’s why we have Sunday as a day of rest. It’s why we have sabbaticals in universities. […] Without those periodic corrections, imbalances – both financial and environmental imbalances – will simply become unsustainable.

On why forgiveness is not what every debtor deserves…

One of the reasons I don’t like the word “forgiven” is that it implies the debtor is the sinner and that the creditor is the do-gooder. But that is not at all the case. In many cases, debts came about because the creditors were going to make a considerable gain from those loans. When British governments backed the lending of money by private banks to Nigerian dictators in order to buy British armoured cars, there was a great deal of vested interests. So then to blame the Nigerians for the corrupt dictators who borrowed from British banks is to not see both sides of the story. In the Jubilee 2000 campaign we exposed both sides of the story: we called for both creditors and debtors to be held accountable for their loans. And that’s partly why were so successful.

For the full unabridged interview, visit the Policy Observatory website.

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