Joseph E. Stiglitz: Towards a General Theory of Deep Downturns @ Economist's View 17Ago2015 by Mark Thoma

This is the abstract, introduction, and final section of a recent paper by Joe Stiglitz on theoretical models of deep depressions (as he notes, it's "an extension of the Presidential Address to the International Economic Association"):

Towards a General Theory of Deep Downturns, by Joseph E. Stiglitz, NBER Working Paper No. 21444, August 2015: 

Abstract This paper, an extension of the Presidential Address to the International Economic Association, evaluates alternative strands of macro-economics in terms of the three basic questions posed by deep downturns: What is the source of large perturbations? How can we explain the magnitude of volatility? How do we explain persistence? The paper argues that while real business cycles and New Keynesian theories with nominal rigidities may help explain certain historical episodes, alternative strands of New Keynesian economics focusing on financial market imperfections, credit, and real rigidities provides a more convincing interpretation of deep downturns, such as the Great Depression and the Great Recession, giving a more plausible explanation of the origins of downturns, their depth and duration. Since excessive credit expansions have preceded many deep downturns, particularly important is an understanding of finance, the credit creation process and banking, which in a modern economy are markedly different from the way envisioned in more traditional models.

Introduction The world has been plagued by episodic deep downturns. The crisis that began in 2008 in the United States was the most recent, the deepest and longest in three quarters of a century. It came in spite of alleged “better” knowledge of how our economic system works, and belief among many that we had put economic fluctuations behind us. Our economic leaders touted the achievement of the Great Moderation.[2] As it turned out, belief in those models actually contributed to the crisis. It was the assumption that markets were efficient and self-regulating and that economic actors had the ability and incentives to manage their own risks that had led to the belief that self-regulation was all that was required to ensure that the financial system worked well , an d that there was no need to worry about a bubble . The idea that the economy could, through diversification, effectively eliminate risk contributed to complacency — even after it was evident that there had been a bubble. Indeed, even after the bubble broke, Bernanke could boast that the risks were contained.[3] These beliefs were supported by (pre-crisis) DSGE models — models which may have done well in more normal times, but had little to say about crises. Of course, almost any “decent” model would do reasonably well in normal times. And it mattered little if, in normal times , one model did a slightly better job in predicting next quarter’s growth. What matters is predicting — and preventing — crises, episodes in which there is an enormous loss in well-being. These models did not see the crisis coming, and they had given confidence to our policy makers that, so long as inflation was contained — and monetary authorities boasted that they had done this — the economy would perform well. At best, they can be thought of as (borrowing the term from Guzman (2014) “models of the Great Moderation,” predicting “well” so long as nothing unusual happens. More generally, the DSGE models have done a poor job explaining the actual frequency of crises.[4]

Of course, deep downturns have marked capitalist economies since the beginning. It took enormous hubris to believe that the economic forces which had given rise to crises in the past were either not present, or had been tamed, through sound monetary and fiscal policy.[5] It took even greater hubris given that in many countries conservatives had succeeded in dismantling the regulatory regimes and automatic stabilizers that had helped prevent crises since the Great Depression. It is noteworthy that my teacher, Charles Kindleberger, in his great study of the booms and panics that afflicted market economies over the past several hundred years had noted similar hubris exhibited in earlier crises. (Kindleberger, 1978)

Those who attempted to defend the failed economic models and the policies which were derived from them suggested that no model could (or should) predict well a “once in a hundred year flood.” But it was not just a hundred year flood — crises have become common . It was not just something that had happened to the economy. The crisis was man-made — created by the economic system. Clearly, something is wrong with the models.

Studying crises is important, not just to prevent these calamities and to understand how to respond to them — though I do believe that the same inadequate models that failed to predict the crisis also failed in providing adequate responses. (Although those in the US Administration boast about having prevented another Great Depression, I believe the downturn was certainly far longer, and probably far deeper, than it need to have been.) I also believe understanding the dynamics of crises can provide us insight into the behavior of our economic system in less extreme times.

This lecture consists of three parts. In the first, I will outline the three basic questions posed by deep downturns. In the second, I will sketch the three alternative approaches that have competed with each other over the past three decades, suggesting that one is a far better basis for future research than the other two. The final section will center on one aspect of that third approach that I believe is crucial — credit. I focus on the capitalist economy as a credit economy , and how viewing it in this way changes our understanding of the financial system and monetary policy. ...

He concludes with:

IV. The crisis in economics The 2008 crisis was not only a crisis in the economy, but it was also a crisis for economics — or at least that should have been the case. As we have noted, the standard models didn’t do very well. The criticism is not just that the models did not anticipate or predict the crisis (even shortly before it occurred); they did not contemplate the possibility of a crisis, or at least a crisis of this sort. Because markets were supposed to be efficient, there weren’t supposed to be bubbles. The shocks to the economy were supposed to be exogenous: this one was created by the market itself. Thus, the standard model said the crisis couldn’t or wouldn’t happen ; and the standard model had no insights into what generated it.

Not surprisingly, as we again have noted, the standard models provided inadequate guidance on how to respond. Even after the bubble broke, it was argued that diversification of risk meant that the macroeconomic consequences would be limited. The standard theory also has had little to say about why the downturn has been so prolonged: Years after the onset of the crisis, large parts of the world are operating well below their potential. In some countries and in some dimension, the downturn is as bad or worse than the Great Depression. Moreover, there is a risk of significant hysteresis effects from protracted unemployment, especially of youth.

The Real Business Cycle and New Keynesian Theories got off to a bad start. They originated out of work undertaken in the 1970s attempting to reconcile the two seemingly distant branches of economics, macro-economics, centering on explaining the major market failure of unemployment, and microeconomics, the center piece of which was the Fundamental Theorems of Welfare Economics, demonstrating the efficiency of markets.[66] Real Business Cycle Theory (and its predecessor, New Classical Economics) took one route: using the assumptions of standard micro-economics to construct an analysis of the aggregative behavior of the economy. In doing so, they left Hamlet out of the play: almost by assumption unemployment and other market failures didn’t exist. The timing of their work couldn’t have been worse: for it was just around the same time that economists developed alternative micro-theories, based on asymmetric information, game theory, and behavioral economics, which provided better explanations of a wide range of micro-behavior than did the traditional theory on which the “new macro - economics” was being constructed. At the same time, Sonnenschein (1972) and Mantel (1974) showed that the standard theory provided essentially no structure for macro- economics — essentially any demand or supply function could have been generated by a set of diverse rational consumers. It was the unrealistic assumption of the representative agent that gave theoretical structure to the macro-economic models that were being developed. (As we noted, New Keynesian DSGE models were but a simple variant of these Real Business Cycles, assuming nominal wage and price rigidities — with explanations, we have suggested, that were hardly persuasive.)

There are alternative models to both Real Business Cycles and the New Keynesian DSGE models that provide better insights into the functioning of the macroeconomy, and are more consistent with micro- behavior, with new developments of micro-economics, with what has happened in this and other deep downturns . While these new models differ from the older ones in a multitude of ways, at the center of these models is a wide variety of financial market imperfections and a deep analysis of the process of credit creation. These models provide alternative (and I believe better) insights into what kinds of macroeconomic policies would restore the economy to prosperity and maintain macro-stability.

This lecture has attempted to sketch some elements of these alternative approaches. There is a rich research agenda ahead.

Read more @ EV blog 

Alex Callinicos and Joseph Choonara: HOW NOT TO WRITE ABOUT THE RATE OF PROFIT: A REPLY TO DAVID HARVEY - 21 May 2015

Alex Callinicos and Joseph Choonara
HOW NOT TO WRITE ABOUT THE RATE OF PROFIT: A REPLY TO DAVID HARVEY

Read more @ thenextrecession.files

It is hard to think of any living writer who has made a greater contribution to Marxist political economy than David Harvey. We can see this in his broad attempt to widen Marxist social theory to take space properly into account, forming a new “historical-geographical materialism”; in his work, The Limits to Capital, one of the most important products of the 1960s and 1970s generation’s engagement with Marx’s Capital; in his hugely influential critical return to the classical Marxist theory of imperialism in The New Imperialism; and, finally, in his online lectures and book commentaries on Capital.

So it is a real pity that he has chosen to write so negatively—and, to be frank, so poorly—about the tendency of the rate of profit to fall (TRPF) in different versions of a paper that is due to be published but that is already making the rounds online (Harvey, 2015a). Harvey is intervening in a debate that has been going on among Marxist political economists for some time but that appears to be hotting up. There seem to be two reasons for this. First, the publication of the manuscripts of the third volume of Capital in the Marx-Engels Gesamtausgabe (MEGA²) has given rise to the entirely spurious argument that Marx abandoned the theory of the TRPF after writing the main text in 1864-5 (it is typical of Harvey’s scattergun approach than he welcomes this argument while declaring his ignorance of German prevents him from taking a stand on the scholarship: Harvey, 2015a: 5). 

Second, and much more importantly, we have a (continuing) crisis to explain. Marxist political economists are divided over whether the profound, systemic crisis of capitalism that exploded in 2007-8 has to be understood starting from the TRPF or, typically, through some combination of underconsumptionism and the kinds of theories of the financialisation of capitalism that have become current in recent years. One reason why this debate is so important is that even the more intelligent bourgeois economists acknowledge that the recovery from the Great Recession has revealed that something has gone badly wrong with capitalism. (...)

Read more @ Michael Roberts :: HERE

La via di fuga. Storia di Renzo Fubini di Federico Fubini con l’autore dialoga Massimiliano Panarari @ I teatri / Reggio Emilia, 15 febbraio 2015

La via di fuga.

Storia di Renzo Fubini

di Federico Fubini

con l’autore dialoga Massimiliano Panarari

Chi sono i personaggi ritratti in quella foto di famiglia ingiallita che li immortala nella notte di fine anno del 1929, tutti in posa e gerarchicamente collocati intorno a una trisavola e al bisnonno Riccardo Fubini? Parte dalla curiosità suscitata da quell'immagine la lunga ricerca dell'autore sulle vicende che hanno coinvolto i suoi parenti e in particolare il prozio Renzo Fubini, allora venticinquenne, durante gli anni del fascismo e della Seconda guerra mondiale. Renzo, laureato "cum laude" in economia con Luigi Einaudi, grazie a una borsa di studio della Rockefeller Foundation è appena stato a Londra e a New York, dove si è ritrovato catapultato in pieno nel crash di Wall Street e nella grande depressione degli anni Trenta. Due eventi che Renzo guarda e commenta non solo da economista. Gli interessa scoprire come reagiscono le persone di fronte al crollo del loro mondo. Se lo chiede anche Federico Fubini, suo pronipote, davanti alla crisi attuale che ha gettato la Grecia nel caos risvegliando i germi di un fascismo latente, e che morde l'Occidente e l'Italia in particolare. Si reagisce con tre possibili scelte, sosterrà nel 1970 l'economista Albert Hirschman, ex allievo di Renzo all'università di Trieste: "exit", "voice", "loyalty", defezione, protesta o lealtà al sistema in declino.

F. Fubini, La via di fuga, Mondadori, 2014

Federico Fubini

(Firenze, 1966), inviato speciale di Repubblica, si occupa soprattutto di economia internazionale. Ha pubblicato il libro di reportage Destini di frontiera. Da Vladivostok a Khartoum, un viaggio in nove storie (Laterza 2010) e Noi siamo la rivoluzione (Mondadori 2012).

Massimiliano Panarari

Insegna Comunicazione politica e Linguaggi del giornalismo all'Università di Modena e Reggio Emilia e collabora con l'Università Luigi Bocconi di Milano e la School of Government dell'Università Luiss Guido Carli di Roma. Si occupa di mass media e popular culture ed è consulente di comunicazione politica e pubblica. È commentatore dei quotidiani La Stampa, Il Piccolo, Europa e Giornale di Brescia. È autore del libro L'egemonia sottoculturale (Einaudi, 2010) e coautore (con F. Motta) del libro Elogio delle minoranze. Le occasioni mancate dell'Italia (Marsilio, 2012).

Federico Fubini

La via di fuga

(Mondadori)

• Chi sono i personaggi ritratti in quella foto di famiglia ingiallita che li immortala nella notte di fine anno del 1929, tutti in posa e gerarchicamente collocati intorno a una trisavola e al bisnonno Riccardo Fubini? Parte dalla curiosità suscitata da quell'immagine la lunga ricerca dell'autore sulle vicende che hanno coinvolto i suoi parenti e in particolare il prozio Renzo Fubini, allora venticinquenne, durante gli anni del fascismo e della Seconda guerra mondiale. Renzo, laureato cum laude in economia con Luigi Einaudi, grazie a una borsa di studio della Rockefeller Foundation è appena stato a Londra e a New York, dove si è ritrovato catapultato in pieno nel crash di Wall Street e nella grande depressione degli anni Trenta. Due eventi che Renzo guarda e commenta non solo da economista. Gli interessa scoprire come reagiscono le persone di fronte al crollo del loro mondo. Se lo chiede anche Federico Fubini, suo pronipote, davanti alla crisi attuale che ha gettato la Grecia nel caos risvegliando i germi di un fascismo latente, e che morde l'Occidente e l'Italia in particolare. Si reagisce con tre possibili scelte, sosterrà nel 1970 l'economista Albert Hirschman, ex allievo di Renzo all'università di Trieste: exit, voice, loyalty, defezione, protesta o lealtà al sistema in declino. Come hanno dunque risposto i protagonisti di questa storia sfaccettata, che rimbalza di continuo fra gli anni bui delle persecuzioni razziali e della guerra, e quelli di oggi nella Grecia di Alba Dorata o la Catanzaro del mercato dei voti comprati? Renzo, rendendosi conto di rischiare la vita, cercherà di espatriare chiedendo l'appoggio di Einaudi per un incarico all'estero. Altri, in Grecia o a Catanzaro, faranno scelte simili o diverse. Ma sotto la lente di ingrandimento dell'autore un'altra opzione sembra farsi strada, a ben vedere molto più allarmante: «Oggi, certo, viviamo in un mondo fondamentalmente diverso. Eppure le persone che avevo visto in Grecia o a Catanzaro ... mi fecero sospettare che Hirschman si sbagliava. Non c'erano solo la defezione, la protesta o la lealtà. C'era anche una quarta strada aperta di fronte al declino del proprio paese o del proprio sistema: il rifiuto della realtà».

Rareș Iordache: An interview with Tony D. Sampson about Crowds vs publics, Ukraine vs Russia, the Gaza crisis, the contagion theory and netica – a dialogue with Tony D. Sampson @ #hibridmedia Magazine, 19Aug2014

Rareș Iordache: Crowds vs publics, Ukraine vs Russia, the Gaza crisis, the contagion theory and netica – a dialogue with Tony D. Sampson (19Aug2014)

@ #hibridmedia Magazine + Read more

Crowds vs publics, Ukraine vs Russia, the Gaza crisis, the contagions and the anomalous objects in cyberspace, netica/ (n)ethics or a kind of ethics of information and the viral phenomena. All these are provocative themes for discussion. #hibridmedia magazine gives you all these in one fantastic dialogue with Tony D. Sampson. 

Rareș Iordache: After EuroMaidan to the conflict between Ukraine and Russia. This event increased his covering and it transformed into a genuine war. When I think at EuroMaidan I make a comparison with Indignados, the protests in Spain. There are several distinctions, but the contagions and their spreading caught my attention. Tell me, what do you think that were the contagious objects in this case? Another interesting thing is epidemiography, a term used by John Postill. This one is also in connection with viral phenomena and the contagious objects.

Tony D. Sampson: What is the difference between Spain and Ukraine? What tips the contagiousness of one protest into revolution and civil war while the other fizzles out? Although there have been analogous patterns emerging in recent years – beautifully portrayed in John Beieler’s big data application (despite its obvious weaknesses) – I’m not sure there’s one concrete object or set of viral objects determining what goes viral.

In Virality I asked what we might learn from Gabriel Tarde. In terms of revolution we need to look beneath the spreading of mere belief systems (ideologies) to how desires are given release or inhibited by invention. The object of desire is always belief; meaning that the biological and social mingle at the point where desires are appropriated by social inventions. We perhaps need to think through the interwoven relations established here between the desire for change and inventions of old hierarchies, revolutionary crowds, mobs, mass protests alongside mediated publics and electronic networks.

Tarde’s proto-media theory also provides us with a familiar distinction between publics and crowds. Crowds have been progressively usurped by mediated publics. On one hand, crowds have something of the animal about them. They are not easily led. If you want to win a revolution you probably need an animal on your side. On the other hand, the new publics are appear to be better informed by the new media, but are in fact more easily controlled; mainly as a result of the distances the increasingly mediated flows of information open up between connected subjects. There is, I suppose, less need to join a crowd as a source of information. This marks the beginning of press baron power and manufactured mass audiences.

Old crowd theories suggested that the violent irrationality of crowd power was just about enough to prevail over old aristocratic hierarchies. Prevailing revolutionary movements have historically relied on some level of violence – the muscle of the mob; usually spilling out of the poorer neighbourhoods and storming the palaces.

So what difference can a network make? Take Beieler’s protest map again. A tipping point may well correspond with the wide-scale uptake of the Internet. Indeed, there are echoes of crowd theory evident in some of the popular ideas about network contagions today. The BBC broadcast a documentary a couple of year’s back fundamentally claiming that Facebook caused the Arab Spring. Governments take these claims seriously too. They see social media as a threat.

But is a network like a crowd? Things are complex. There are networks in crowds and crowds in networks, but a network only seems to have revolutionary potential if it can tap into the violence of an actual crowd; a crowd prepared to put its life on the line for the cause. Indeed, I am growing a little sceptical about the threat posed by social media. The problem for protesters in most western European countries is that they are still countered by a docile public led by corporate media and bourgeois politicians. When the students got out of hand during the fees protests in the UK most of the public seemed to turn against them, welcoming their suppression. Others remained blissfully distracted by their diet of celebrity gossip, football transfers, and TV talent shows.

Social media provides an alternative; it acts as a vent for protest, of course. It has an influence on discursive formations and interacts with the actions of crowds. But it’s a distraction too. The extreme police violence played a role in the demise of the student movement, but they didn’t close down their accounts. The stuff that generally trends on these networks does not appropriate the desire for political change, but rather indulgences a craving for joyful encounters – entertainment, sex, love, scandal, and fun, or as Olga Goriunova argues, utter idiocy. Perhaps there’s revolutionary potential in this stuff, but how that works I’m not sure. For every FB posting encouraging action on the streets there seems to be thousands of stupid cat pictures.

It’s also important to note that contagions are not inherently radical. Contagions can be very conservative. As Barbara Ehrenreich points out, the only English ‘revolution’ was founded on the spreading of a Calvinist belief system that opposed the kind of festivities and carnivals that we might usually associate with the animality of radical protests. As Beieler’s map problematically illustrates the contagion could be an Occupy or Tea Party protest…

Perhaps networks are a hybrid crowd-public or ersatz crowds that lack the animality of actual crowds. We cannot storm the Bastille with tweets alone! The crowd needs to become the brutal muscle that intertwines with network sloganing.
So yes, any attempt to produce epidemiographs of protest movements studying the interaction between network and crowd is very welcome.

R.I.: I try to establish a triad between media – archaeology, cyber-intelligence and philosophy of information. We can start this discussion from the particular case of network archaeology. At this moment, beside the impact of flow information and of his transgression, I can talk about a kind of ethics of information. In fact, how we use the information in cyberspace. This issue will give his quality. We are able to set up a balance between the quantity and the quality of information via Luciano Floridi. I define this ethics as (n)ethics because all is about his functionality. In reality, Netica is a software program developed by Norsys Software Corporation. Its purpose is to make a network more intelligible to us. Everything relies on a set of algorithms. So, what are your first thoughts about this triad and his rethinking based on (n)ethics?

T.D.S.: Media archaeology is very appealing; not least because it helps us to think up ways by which we can rummage through the archives of media invention without placing the constraints of a discipline on the researcher. As Erkki Huhtamo and Jussi Parikka put it, media archaeology needs to go against the grain of almost everything. It’s a nomad. So I think any attempt to triangulate it needs to keep this in mind. If it’s to work well then the archaeology needs to perhaps loosen up the ethics. 

This is what Parikka’s mapping of noise and Genosko’s fairly recent book on communication theory do. Most technical histories of Shannon and Weaver regard them as having brought noise under control, but there is of course an archive of accidents captured in, for example, collections of computer viruses and glitch music. So perhaps one ethical stance would be, in this case, a treatment of noise not simply grasped as the enemy of information, but something that has communicative potential beyond fixed ethical positions.

Netica looks like a fascinating example for media archaeology. Thanks for pointing it out. It would be really interesting to know how Bayesian networks integrate noise in logical circuits of a belief diagrams. For my part I’d also be interested in the extent to which these predominantly cognitive decision-making diagrams cope with the emotions, feelings and affects involved in reasoning? Is there a line of flight between Netica type programs and the concerted effort to integrate emotions into machine learning? I assume there is.

R.I.: The conflicts between Israel and Gaza. Any discussion about this event is a viral phenomenon, it is clear, and it is a form of manipulation. An informational one. Where are the affections, where are the contagious or viral objects?

T.D.S.: What kind of viral phenomenon is this? There is a swelling of the protest movement resulting from emotional engagement with this horror. There is a crowd forming. The death of innocent people, many of who are children, will act as a powerful emotional contagion. We can barely dare to watch this cruelty unfold. But what influence are these protests having on governments? There were a million stop the war protesters before the invasion of Iraq. I can only think that the hitherto failure of the government here to halt arms sales or more strongly condemn Israel’s asymmetric slaughter of innocents exhibits a kind of political autism at the heart of the establishment here. To prioritize arms sales and support the blockade of Gaza in favour of this slaughter is obscene.

The most effective contagion will most likely be the spreading of revenge in the Middle East for the death of so many innocents. The actions of the IDF and their arms suppliers in the west are producing an epidemic of avengers. This will be a crowd that will be willing to put its life on the line. It will be networked too.

R.I.: You wrote Virality: Contagion Theory in the Age of Networks, a book which transposes the virality in the social field. You rethink Tarde’s ideas mixing this spectrum with deleuzo-guattarian structures. It’s more than a Tardean recovering. Besides these influences, which is your theoretical support for your research?

T.D.S.: The project began with an interest in the potential of computer viruses – how these anomalous codes might provide an open alternative to the type of closed information spaces we find within proprietary software systems. In many ways that remained part of the focus, but it expanded outwards to look at virality in relation to social theory and the history of crowd theory in particular – moving through Tarde, Le Bon, Freud, Milgram, Deleuze and Guattari and ending up with network science, affective contagions and marketing. The open system of the viral electronic network was in some ways transposed to the openness of the contagious self-other relation of a more generalized social network. Instead of finding a new age of contagion, I found that contagion had always been there.

If I am to look back at it now and summarize I would say that the project’s main philosophical point was to collapse technological, social and biological distinctions. It tries desperately not to side with deterministic thinking. It focuses on the insensible degrees between conscious and nonconscious states, affective and representational states, volition and mechanical habit… I’m not sure how successful that effort was though?

R.I.: You are in connexion with Romanian project Bureau of Melodramatic Research? What do you think about Romanians researchers and projects? 

T.D.S.: My visit to Bucharest was a fantastic experience – one of the best invites since publishing Virality. The discussions I had there with various people provided me with lots of new ideas about my next project on neuroculture. I still follow BMR’s work and was luckily enough to meet up with Alina and Florin in London last year. Indeed, one of the most valued books in my collection is their little pamphlet called End Pit. It’s a great read. Knowing that the project coincided with the protests in Turkey at the time makes it all the more fascinating. Protest art as interference or accident; a mixture of performance, affective art and politics.

R.I.: The cyberspace is filled with anomalies, contagious objects, viruses and viral phenomena/ objects. So, in this context, are media ecologies the most important things for our cyberspace? At the same time, what do you think about an ecology based on semantic web?

T.D.S.: Well, yes, it’s these objects, processes and inventions, as Matt Fuller argues, that make up the world, synthesize it, block it, and make new worlds available. To discount the anomaly from this world is senseless, as we argued in The Spam Book. There might be many attempts to introduce intruder detections and immunological nets, to weed out the weeds, but the potential of the anomaly to spill out and infect is always there.

I’m not sure about the semantic model of the web. I wonder how much of the anomalous will figure in automated machines reading of data? What threat does it pose to anonymity too? I suppose going back to what I have said already, it is the anomaly that might help actualize the network into a crowd; its becoming animal. The tendency is, it seems, to always drift toward a conservative stability founded on the fear of the other (human and nonhuman). What we need is nomadic novelty to take hold and deterritorialize these territories of prejudice.

R.I.: Tell me a few words about your current and future interests, research or writings.

T.D.S.: I’m on sabbatical at the moment working on a few projects. I’m writing a book on neuroculture. This will explore the rise of the neurosciences and the impact it has on nomadic thought through various essays on the brain in relation to control, work and art.

I’m also collaborating with various people. Along with the performance artist, Dean Todd, I’m developing on what I’m calling dystopian media theory. I’m also working with Jairo Lugo from University of Sheffield on a project that revisits Tardean media theory. We are interested in the extent to which the contagions of social media affect editorial decisions and content.

Dr Tony D. Sampson is a Reader in Digital Culture and Communications within the School of Arts and Digital Industries (ADI). Tony works with PhD, MA and UG students from across ADI on related projects, including the digital media design degrees, visual cultures and the fine arts doctorate programme. His teaching focuses on developing student research projects. Tony’s latest book on contagion theory uses the ideas of Gabriel Tarde, Gilles Deleuze and others to develop a contemporary alternative to the meme, encompassing digital, affective, financial, political and cultural contagions.

His current teaching and research interests explore aspects (and critiques) of human computer interaction (HCI) and subsequent trends toward a third paradigm (or post-Taylorist mode) of HCI, including user experience design, ubiquitous computing, and a focus on emotions, feelings and affect.

He is currently writing a new book (Neuroculture) in which he explores the “interferences” between brain function (as understood in the neurosciences), and philosophy, politics and culture. More

Mathew D. Rose: It is Not a Eurozone Crisis, but a European Union Crisis @ Naked Capitalism 06Jan2015

Mathew D. Rose: It is Not a Eurozone Crisis, but a European Union Crisis

By Mathew D. Rose, a freelance journalist in Berlin

@ Naked Capitalism blog + Read more

The austerity policy dictated to the Eurozone by Germany has failed to generate a recovery. The news goes from bad to worse – and even worse. Nowhere is that more tangible than in Greece. Just to repeat the otherwise well known facts for the German readers of Naked Capitalism, who are withheld such facts in their own media: 1 million people have lost their jobs (approximately 25 percent of the working population); youth unemployment is well over 50 percent despite massive immigration; a third of business have closed, salaries have sunk almost 40 percent; pensions have been reduced almost by half; the economy has contracted by a quarter; there has been a 43 percent increase in child mortality and the health system has broken down; the Greek economy is in deflation; and, since the imposition of the austerity programme in 2010 the public debt has increased from 130 percent of GDP to 175 percent. 

All these figures hide the most important fact: What is occurring in Greece is not so much an economic crisis as a humanitarian disaster. That the Greeks have raised the question of the appropriateness of austerity by precipitating elections is proof that democracy has survived these pernicious times and deserves our greatest respect. I sincerely do not believe that German democracy would have survived under similar conditions. 

The democratic process in Greece is a threat for Germany and its allies, the political elites in Europe. They have a serious problem with democracy. When in 2011 the then prime minister of Greece, George Papandreou, announced a referendum to determine if the Greek people wished to adopt the imposed austerity programme, he was forced from office by the Germans and EU and replaced by a hand selected EU bureaucrat, a former vice-president of the European Central Bank. With the balance sheets of German and French banks in danger due to their extensive exposure to Greek bonds, that was no time to be consulting the Greek people.

Helping the Greek people in their time of need has never been an issue for the Germans and the EU. We know from Timothy Geitner’s book “Stress Test” that at the inception of the Greek crisis “EU leaders were obsessed with crushing terrible Greeks” and Germany’s finance minister, Wolfgang Schäuble was just as obsessed with throwing Greece out of the Eurozone (which he still is).

We further know from files leaked to the Wall Street Journal that within the IMF in 2010 Argentina, Brazil, India, Russia and Switzerland all argued that a portion of Greece’s debt owed to private banks should be cancelled before any bailout from the IMF. They knew all too well that the planned Troika (European Central Bank, EU Comission and IMF) “bailout” was intended to rescue the European banks, predominately those of Germany, France and Britain, with their high exposure to Greek government bonds, leaving the Greek people in an even direr situation. The head of the IMF, the French politician Christine Lagarde, denied this the existence of this dissent for years. Two years later Greece’s debts were reduced by half, but by then most of the debt lay with the EU and IMF, the banks and other financial institutions having exited the Greek bond market.

There has been no tangible solidarity or compassion shown by EU leaders during the Greek crisis – except with their banks. Today the Troika pertinaciously demand increasingly destructive “reforms” from Greece, but have neglected the two most important: a purging of the corrupt political elite of Greece that was responsible for the crisis and clamping down on the systematic tax evasion of Greece’s oligarchy. 

The two parties that have dominated Greek politics since the demise of the dictatorship in 1974 and are responsible for the crisis, New Democracy and PASOK, are still in power, enjoying support from the predominant EU parties, who are no less corrupt than their counterparts in Greece. There has been little progress in pursuing major tax evaders of the past and present. The head of the General Secretariat of Public Revenue responsible for tax compliance comes from PwC, a firm that has recently found itself in the middle of the affair concerning corporate tax dodging in Luxembourg. 

Germany does not want change. It is more interested in keeping its Greek Quislings in power. No wonder that in Germany there is currently a campaign by the political elite and their media bullying the Greeks and falsely mobilizing public sentiment against a potential Syriza government. The German government is threatening to throw Greece out of the Eurozone, although such a procedure is not foreseen in the laws regulating the common currency. This is the prerogative of the stronger, claiming that Greece is bound by contract to repay its debts to the EU, but on the other hand not in the least interested in the regulations of the Eurozone contract. 

What the Germans seem to have in mind is a financial blitzkrieg against Greece should Syriza win, reducing the land to economic rubble and dust, an example for other potential refractory Euro nations. This has been justified by claiming that Syriza is blackmailing Germany with a default, but then Germany claimed its invasion of Poland in 1939 was also an act of self-defence. Things do not change.

This sort of rhetoric has not issued from other Euro nations. In fact we are hearing nothing with the exception of the French President Francois Hollande, who stated in an interview: “The Greeks are free to choose their own destiny. But, having said that, there are certain engagements that have been made and all those must be of course respected.” This has little in common with Germany’s threats of “awe and destruction”.

Germany’s current policy has little to do with the Euro, but is a reaction of a challenge to their hegemony in Europe. The idea behind the European Union was to extirpate cataclysmic wars within the continent. Now it seems that such practices have returned – using economic means, much like we are seeing with Russia. 

Should Syriza win the elections later this month, and a government is formed that wishes to renegotiate the so-called bailout imposed upon the Greek nation, then it is the responsibility of the Eurozone members to negotiate. Should a compromise not be forthcoming and all sides agree that Greece’s exit from the Eurozone is necessary, then it is still the responsibility of the member nations and those of European Union to see that this is done in an orderly and humanitarian fashion. Greece is part of the “European family”, as the union has been labelled in more auspicious times, and has no intention and no reason to leave the European Union, even if it should withdraw from the Euro. 

Germany’s threats are certainly not in the spirit of the EU, but reflect its rekindled dreams to dominate the continent, signaling the return of the same brutal nationalism and large nations throwing their weight about that has plagued Europe for centuries and almost led to its destruction in the Second World War.

Admittedly Germany does have a number of serious issues to deal with. 

First, any sort of rebellion against Germany’s hegemony in Europe could easily spread. Europeans are increasingly fed up with austerity and German financial – and unsuccessful – dogmatism. 

Second, Syriza is a leftist party and that is anathema to a politically reactionary nation like Germany. 

Third, should Greece default activating German government guarantees, Germany’s much heralded balanced budget for 2015 could be in jeopardy. 

Fourth, the European perception of Germany is increasingly that of a bully dragooning small nations. Furthermore, having to negotiate with Greece will domestically appear to be a sign of weakness and would be grasped upon by the up and coming rightist, anti-EU party “Alternative for Germany”, which is drawing voters from Chancellor Merkel’s Christian Democrats.

There is a further question: Is Germany simply trying to influence the Greek elections with its threats and posturing? Forty years ago as the dictatorships in Greece, Portugal and Spain collapsed; to prevent the success of leftist parties, the German government channelled large amounts of money to parties on the right. To do this, they used the dubious publically financed foundations of the German political parties: the Konrad-Adenauer-Stiftung, Friedrich-Ebert-Stiftung, Hans-Seidel-Stiftung and Friedrich-Naumann-Stiftung. The funds were surreptitiously provided by the Foreign Office (Auswärtiges Amt), packed in suitcases and the couriers from the foundations provided with diplomatic passports. From the foundation offices in the above mentioned nations the suitcases could be inconspicuously given to a member of a sister party of the foundation. These German foundations had closed their offices in Greece many years ago, only to reopen them in 2012. It could well be that suitcases full of cash are once again travelling south from the Foreign Office in Berlin to Athens.

What is especially fortunate for Europe is that this challenge to German hegemony and the corrupt political class of Europe is coming from the Left. To leave this issue to the rising ultra-right and neo-fascist parties would have been calamitous, giving them the reputation as champions of democracy in Europe. A new force seems to be rising in Europe, once again giving a voice to a European perspective of social justice and peace. One can only hope that prosperity will follow – should Germany not instigate a second Götterdämmerung for Europe. You never know with the Germans.

DAVID HARVEY: CRISIS THEORY AND THE FALLING RATE OF PROFIT (This is a draft of an essay to be published in 2015 in: The Great Meltdown of 2008: Systemic, Conjunctural or Policy-created?)

DAVID HARVEY:
CRISIS THEORY AND THE FALLING RATE OF PROFIT 

Read more @ thenextrecession

This is a draft of an essay to be published in 2015 in:

The Great Meltdown of 2008: Systemic, Conjunctural or Policy-created? 
Editors: Turan Subasat (Izmir University of Economics) and John Weeks (SOAS, University of London); Publisher: Edward Elgar Publishing Limited


In the midst of crises, Marxists frequently appeal to the theory of the tendency of the rate of profit to fall as an underlying explanation.1 In a recent presentation, for example, Michael Roberts attributes the current long depression to this tendency.2 
The tendency/law operates as follows:
1) Competition forces capitalist producers to invest in labour-saving technologies in order to preserve market share.
2) The value of the means of production consumed (c, the constant capital) tends to outstrip the value of labour power (v, the variable capital) employed.
3) The ratio of constant to variable capital employed (the productivity or value composition of capital, c/v) rises. If the rate of exploitation (s/v, the ratio of surplus value produced to variable capital employed) is unchanged, then the rate of profit, (s/c+v) will fall.
4) There are, however, counteracting tendencies. The rate of exploitation of labour power can rise. Constant capital can become cheaper with increased productivity in the sectors supplying machinery, raw materials and intermediate products. But these counteracting tendencies are insufficient, it is held, to offset the downward trend in the profit rate in the long run. “Thus,” Roberts concludes, “profitability tends to fall and capitalism tends towards crises, a movement interrupted only by short periods of growth.”  (...)

(Read more @The Next Recession blog)

Notes

1. 1  Among others see Carchedi, G., Behind the Crisis: Marx’s Dialectics of Value and Knowledge, Brill, Leiden, 2011; Kliman, A., The Failure of Capitalist Production: Underlying Causes of the Great Recession, London, Pluto Press, 2011; Shaikh, A., “The First Great Depression of the 21st century,” (see http://homepage.newschool.edu/~AShaikh/); Moseley, F., The Falling Rate of Profit in the Postwar United States Economy. New York: St. Martin’s Press, 1990; Maito, Esteban Ezequiel, “The Historical Transience of Capital: The Downward Trend in the Rate of Profit since XIX Century,” unpublished paper, University of Buenos Aires, Argentina, n.d.
   
   
2. 2  Power point presentation: Michael Roberts, “The Nature of Current Long Depression,” Marxism 2014; 11 July 2014 
   

Mikhail Khazin's interview by Saker Community @ The Vineyard of the Saker blog 27.11.2014

Khazin's interview courtesy of The Vineyard of the Saker blog : : Read more

Mikhail Khazin was born in 1962 in Moscow. He completed his comprehensive study of mathematics in Moscow. For the next 10 years he ran mathematics workshops in various schools and taught students of math-stream classes. After failing to gain admission to the Mechanics and Mathematics faculty at Moscow State University (due to ethnic profiling existing at the time), he enrolled in the Mathematics faculty at Yaroslavl University. In 1980 he transferred to the Probability Theory Department of the Mechanics and Mathematics Faculty at Moscow State University. 

After graduating from the university in 1984, M. Khazin worked in the Laboratory of Computational Mathematics at the USSR Academy of Sciences’ Institute of Physical Chemistry. In 1989 he was employed at the USSR Central Statistical Directorate’s Institute for Statistics and Economic Research. In 1992, together with his friends and former students, M. Khazin worked as a head of Analytics Department in one of the then-biggest banks of Russia, ELBIM-Bank. 

In 1993 M. Khazin entered public office. He worked first for the Labour Centre for Economic Reforms, created by Yegor Gaidar with the purpose of theoretically justifying the reforms, then in the Russian Federation’s Ministry of Economy under the ministers A. Shokhin and later E. Yasin. Meanwhile, divisive issues with the so-called Gaidar-team started emerging, in that there was increasing evidence of embezzlement of government funds, sabotage and unabashed corruption on the part of the Gaidar team. 

In March of 1997 M. Khazin became a Deputy Chief of the Economic Directorate at the Presidential Administration. In June of 1998 he was discharged from public service for attempting to fight corruption during the privatization (in other words, for standing up against the Summers-Chubais team) and to avert governmental policies that led to the default of 1998. Khazin was unemployed for 2 years and for the next 10 years he was not permitted to leave Russian territory. 

Since the summer of 2000 Khazin has been employed as a consultant. On September 10, 2001, when participating in the Expert journal’s forum and analyzing the economic situation in the United States, he foresaw a high likelihood of large-scale terrorist attacks organized by the U.S. authorities to explain the deterioration of the economic situation in the country. M. Khazin and his associates at the time elaborated the theory of modern economic crisis. At the beginning of 2002 Khazin published a paper dedicated to the basics of structural crisis in the USA which outlined the scale of the current crisis. 2004 saw the publication of the book ‘The Decline of the Dollar Empire and the End of Pax Americana’, written in 2003 in collaboration with A. Kobyakov. 

Since 2002 M. Khazin has been the President of the consulting company Neokon, which mainly specializes in strategic crisis planning. He actively investigates economic theory within a framework of enhanced understanding of modern economic mechanisms that are figuratively and collectively referred to as neoconomics. At present M. Khazin takes a principal interest in studying the structural proportions of post-crisis economics and prices. A number of his articles and interviews about economic problems have been featured in various media.

• Central Bank, Banking

Questions

Pertaining to the Russian Central Bank. Who owns it and who controls it and who profits from it?  Do foreign interests have a role to play within it and the bank's ability to inject liquidity into the Russian economy? Can the Russian government instruct the Russian central bank in policy decisions? Can they create an alternative to western based financial institutions like SWIFT, Visa etc. to a system based on rubles?

How is Russia’s national money supply structured presently and Why is the Russian Central Bank still depending on accumulation of US dollars before issuing Ruble’s and if this policy will change in the future, how will that affect financing of the Russian national economy from domestic sources like from Sberbank instead of relying on foreign investment?

T1, Princeton NJ

Malcolm Donald

James, Canada

Vic, Northern Ireland

Roxz, Sweden

Colin McKay Australia

Answer

There is a law that states that the Central Bank is independent of the government. Theoretically, the Central Bank has the right to set its own monetary and money creation policy. However, there are two limitations. The first is the IMF policy. Since the Russian Federation signed an agreement with this organization, the Central Bank sees itself as the main instrument for the implementation of the agreement. Of course, it is largely determined by personalities - while the head of the Central Bank, Gerashchenko, was indeed a distinguished banker and statesman, the Central Bank's policy was relatively independent of external sources; with Ignatiev and Nabiullina the situation has changed and the latter leaders try not to argue with the IMF.

The second limitation is the National Banking Council, which includes several representatives from the President Office, government and Parliament. A longstanding Russian Finance Minister, Alexei Kudrin, who is not only a personal friend of President Putin but is also close to the IMF Russian expert, played a key role on the Council until recently.

Today, the situation is gradually beginning to change. It is already clear that the old policy of the Central Bank (that reflects the vision of the IMF in its most orthodox form) does not produce the desired effect and there is a growing criticism in the country of the policy of the Central Bank and the government. However, so far, the leadership of the Central Bank is withstanding this public criticism and does not intend to change its policy. At the same time, the government keeps pressure on the Central Bank to achieve specific results for itself. In particular, the devaluation of the ruble in the last two months is largely due to the fact that the government has too optimistically promised economic growth, which is clearly not there. An attempt was made to stimulate it with the Central Bank agreeing to go against its core mandate, which requires ensuring stability of the national currency’

The Central Bank’s investment policy is similarly pulled by the opposing forces of IMF rules and the country’s economic needs. During Gerashchenko’s tenure, the Central Bank was actively increasing domestic capital (from late 1998 until 2003, the money stock M2 increased approximately 10-fold relative to GDP, from 4% to 40%, and about 15 times in absolute terms). The post-Gerashchenko Central Bank has been pursuing a strict policy of keeping the ruble from becoming an independent investment vehicle (in compliance with the principles of the Bretton Woods system, in which the dollar should be the only investment source). It has become clear today that there won’t be foreign investment in Russia at a significant scale and therefore it is necessary to stimulate the ruble investment process. However, the current leadership of the Central Bank refuses to take any steps in this direction. Thus there is a reason to believe that the management of the Central Bank will change in the medium term.

• Gold, Gold currency

Questions

Distinguished Western economists have pointed out that for years naked gold short selling through manipulation of paper contracts have been used to prop up the United States Dollar and Western allied-currencies against the threat of greater depreciation versus gold. Can Russia and China break the West's gold shorting scam? 

Would this be an effective way for Russia to retaliate against the Western-Saudi economic warfare that is driving down the ruble and oil price?

In particular, is there any serious likelihood Russia and China could coordinate to take delivery of large quantities of physical gold at the newly opened Shanghai Gold Exchange in order to create an arbitrage between the fake, naked short created paper gold price on the COMEX London market and in Shanghai, resulting in the end of the COMEX as a serious vehicle for gold price discovery that the central bankers can manipulate? (In other words, breaking the West's quasi-monopoly on 'price discovery' in the precious metals market, of which Russia and China are the world-leading producers).

For many years gold analysts like Dr. Jim Willie and 'King World News' have suggested Russia and China have been willing to tolerate the Western manipulation of gold because this has created a fantastic buying opportunity for Russia and China to stockpile the strategic metals at a huge discount. But with the COMEX price being below the Russian if not Chinese mining cost of production at what point do Moscow and Beijing defend their long term gold mining interests (e.g., Magadan miners in Russian Far East) and corporations from predatory undercutting? 

Does the Moscow economic elite see the gold price as an Anglo-American weak spot, to hit back at the West for trying to drag down the ruble and the oil price?

What chances are there of the BRICS nations using a debt-free or gold-backed money system? 

Will gold replace the USD as the world reserve asset and unit of settlement for international trade?

James, USA

Corto, Netherlands

Mcbuffalo, Arizona

NotRelevant, The Netherlands

James Bond, Australia

bob kay

Answer

It had been clear to many economists for a long time that the role of gold in the world will grow and, most likely, will return to its position as a single measure of value. In particular, we wrote about the current crisis back in 2004 in our book "The decline of the dollar Empire and the end of the ‘Pax Americana’.” There's a whole Chapter devoted to the role of gold and its manipulation. However, Russian economic leaders close to the IMF ignored this position at the time. This only began to change in the last couple of years. China has been serious about gold for almost the entire last decade and is now actively preparing for a potential transition to a "gold standard," at least in economic relations between the so-called "currency zones," which, in our opinion, will emerge after the single world dollar system falls apart.

But Russia and China cannot stop these manipulations, because the price of paper gold is determined on the speculative dollar markets. They can’t provide "leverage" that would be comparable to that of major U.S. banks that have access to an unlimited issuing resource. The only thing they can do is increase the gap between the price of "paper" and "physical" gold by constantly buying the latter on the world markets. Of course, this increases the instability in the global gold market and creates potential losses for the main "gold dealers" who work with the Federal Reserve on leasing programs, but the degree of imbalances has not reached a critical value yet. It seems to me that the sharp rise in gold prices will start after the burst of the next "bubble" in the US stock market.

With regard to the potential price of gold, as I wrote back in the early 2000's, it is determined by a “fork,” the lower limit of which is the gold price in 1980, when it had its local peak after the dollar was decoupled from gold (USA default) in August 1971, and the upper limit of which is the purchasing power of the dollar in the early twentieth century, when gold was actual money. Today this “fork” (in current dollars) is seen somewhere at the level of $ 4,500 - $ 15,000 per Troy ounce.

• Industry

Questions

American industry is currently oriented chiefly towards weapons production. What danger do you see for Russian industrialization to take the same precipitous path? 

It will be interesting to see if Russia can solve this modern riddle of the Sphinx: how to fold the economic surplus back into the economy, while the oligarchs are doing everything in their power to prevent such a thing. What safeguards Russia may have against the aggrandizement of power corporate entities, especially militarily oriented ones, as has been achieved in the USA?

Who are the groups participating in the discussions to promote the development of Russia industrially and culturally, is it the RAS, Valdai Club, think-tanks, etc? What are the main elements being considered for the proposal? Are foreigners somewhat allowed to participate at some point in the proposal?

Canada shares important features of Russia’s new economy such as growing dependence on resource extraction. Both countries are becoming petro-states, more or less rapidly. My question concerns the extent of de-industrialization in Russia. Is it fair to say that industrial development is now geared to servicing the extraction industries and to what extent is this a trend or not? 

After the savage destruction of Novorossiya by the ATO an investment in the hundreds of millions, if not billions, will be required just to get the region back to where they were before they were attacked. On top of the money required for infrastructure, when separation occurs, Novorossiya will be billed, with some justification, their portion of the national debt. Where will the money come from? What role do you think Russia should play in the financing of the rebuild?

juliania New Mexico, USA

12 chair fan

from Patagonia

Da Ric Edmonton, Alberta, Canada

rrell Rankin Canada Winnipeg, Manitoba

Answer

The situation with industry in the US in the past couple of years has somewhat improved. There are two reasons: changing energy prices in the US (and here we must say good words for the Obama administration), and the rising cost of production in China. However, the main factor for long-term growth - private demand – is in decline. This suggests that growth in the US does not even have a medium-term prospect. The drop in private demand is the main impact of the economic crisis, which has continued since 2008. Nothing can be done here, because the main mechanism of its stimulation - the refinancing of private debt in an environment of a decline in the cost of credit - is no longer working. Recall that the discount rate of the US Federal Reserve, which was 19% at the beginning of the “Reaganomics” policy (the main tool of which was increasing lending to households), declined almost to zero by December 2008. It’s impossible to raise the rate now, because it will bring down the whole pyramid of debt around the world. 

Today US households consume every year about $3 trillion more than they earn. The situation in the EU is not much better. This means that aggregate demand in the world will be sharply decreasing. In other words, continuing to keep the trading and financial infrastructure of a global system of division of labor won’t be cost-effective. The world will most likely return to regional systems of division of labor. Each such system will have to provide domestic production of basic consumer and investment goods. The territory of their self-sufficiency will be regional, with high enough inter-zonal trade barriers. In this scenario the WTO has no prospects.

An investment source for creating (or restoring) the relevant industry will be the issue of regional currencies (in our 2004 book these regional systems of division of labour are called “currency zones”). In this sense, Canada is very different from Russia. Russia, most likely, will be one of the leaders of the “Eurasian” currency zone and will actively participate in the development strategy of the division of labor and emissions in the zone. Canada will be a part of the “dollar” zone with its strategy prescribed by Washington. So if our description of the development strategy in the short-term is true, then Russia and the US will restore their industrial production. In the US, due to a significant fall in demand and the loss of many foreign markets, it will be much easier to do this. Canada, however, will remain a “resource extraction” economy.

In general, how the “currency zones” will be configured after a sharp reduction in the global aggregate demand is a very interesting question. In particular, I did not believe the independence referendum in Scotland would result in separation from the UK. However, if the elite of Britain decided to enter the dollar currency zone, then Scotland would almost certainly separate because it is obviously attracted to continental Europe. Canada can see the intrigue with the separation of Quebec revived and its subsequent accession to the renewed EU. But I repeat, all these issues will become relevant only after the sharp fall in aggregate demand.

It seems to me that Novorossiya (and Ukraine, like many other countries in Eastern Europe, after the configuration change of the European Union), will be restored using the ruble as the issuing resource. The ruble may remain the national currency of Russia or become, perhaps under a slightly different name, the Eurasian Economic Union currency, which theoretically can include (out of major countries) Turkey, Japan, and United Korea. The last two countries, which are highly oriented towards external markets, will have no other options for regional economic cooperation after the U.S. returns to a policy of isolationism, without which they will not be able to recover their economies.

The Russian expert institutions are divided into three large groups. The first comprises the fragments of the ex-Soviet system of the Academy of Sciences. They partly have lost their quality, but until recently were able to maintain a relative independence. It is this independence, especially in the economic sphere that has infuriated the liberal crowd, which tried to completely destroy the Academy of Sciences as an independent public and expert institute. It is possible to work effectively with some institutions within the group; in particular, some of its representatives were among the Russian participants at the recent XVIII Dartmouth Russian-American conference in Dayton.

The second group is created and funded, either directly or indirectly, by Western grants (the most famous in the economic sphere is the Higher School of Economics, in Russia known as the “Russian Economic School”). Organizations within this group represent the interests of the grantors, and their authority has lately fallen rapidly.

The third group comprises people who try to address the real problems with the money that they can find, bypassing the State. I, for example, am among these people. Among the members of this group are independent (from the international heavyweights) consulting companies and research institutes that were created by real producers, and so on. They have done quite a lot in recent years (in the early 2000s we, for example, created a theory that describes the current crisis), but their “weight” within the framework of the State is quite limited. These institutions or individuals can be very interesting from the point of view of purely informational and even non- monetary interaction. Their influence in Russia will grow strongly.

• Ruble, Currency

Questions 

In contrast to the US Dollar, how is the Russian Ruble supported by the Russian economy? and its flexibility in working together with the basket of other currencies forming the next world trade mechanism outside of the US Dollar.

There has been some talk about giving the Russian state the right to issue currency to fund public infrastructure development and to give low interest loans for business in the productive sectors.  What are the chances of such a thing happening and in a timely manner in the near future? 

Why don’t Russia revise contracts from countries that sanctioned Russia – so that all future transactions for Russian Gas & Oil have to be made in either Gold Bullion and/or Russian Ruble’s? 

Christian Witting Mandal, Norway

Blue Northern Illinois, US

Catrafuse, Timisoara Romania

zerone Germany

André Montreal Canada

Ricardo Valdivia Chile

JH Québec

Julian, Melbourne

Answer

As I have written elsewhere, today’s economic leadership of Russia - the Government and the Central Bank - consider the ruble exclusively within the framework of the Bretton Woods system; as secondary to the US dollar. Accordingly, they hold the economy of Russia open to the world financial system, constrain investment opportunities for the ruble (by overstating the value of dollar-denominated loans) and rely on foreign investment.

In this situation, the stability of the ruble is determined by purely speculative factors of global markets: a price of crude oil, capital outflows, foreign investments, and a foreign capitalization of major Russian exporters. However, the situation can change if we establish a domestic ruble investment system, create development institutions that will provide cheap ruble credit to the real sector of the economy, change the tax system from pure raw materials (with high value-added tax) to industrial, and begin to stimulate small and medium businesses engaged in innovation and production.

While the ruble is seen as secondary to the US dollar, all the above-mentioned suggestions are highly controversial. As long as a main objective of any business in Russia is to increase its dollar capitalization, get a large dollar loan, place shares on the New York or London stock exchanges or sell something for export, the idea of selling oil for rubles will not be greeted with enthusiasm. First, it is necessary to create a ruble-denominated financial infrastructure, then build a business that is oriented on this infrastructure, and only then start a strict policy for its separation from the dollar system. This in any case will require a major change of personnel of the Russian political elite.

• Oil

Questions

Will the oil-price war currently being waged seriously damage the Russian economy, or is the Russian economy sufficiently diverse to “weather the storm”? Do the falling price of oil AND the falling value of the Ruble effectively offset each other? Is Russia able and/or willing to take retaliatory measures and what might they be? Is the Russian oil industry dependent on Western technology for its operation?

Michael Schaefer Schwerin, Germany

teranam13 from N. California

Ric Edmonton, Alberta, Canada

Dick Lenning Canada

jc Southern California

Answer

The oil topic is always very complex. There is a huge number of factors, comprising the short-term (increasing the oil production from Libya and partial lifting of sanctions against Iran), medium-term (development of new, more expensive oilfields, and shale “revolution”, etc.) and long-term (change in economic structure and in energy technology). No concurrent view about this problem exists, so it is needless to talk about long-term trends, which, undoubtedly are present, but barely known. The short-term trends, including the recent downturn in prices, will cost the “organizers” quite a lot if they develop against medium- and long-term trends. 

From the macroeconomic prognosis (it has been revised many times within the past 10 years, but the core components were set at the beginning of 2000s, that is why we trust it) the main macroeconomic trend of the next decade will be the division of the world into currency zones. Each zone will have its own price formation mechanism (as was the case in the 70-80s in “Western” and Soviet economic zones). Therefore the drop in oil prices prepares Russia’s economy for different day-to-day realities rather than merely damaging it.  

I’d like to point out that Russia invested surplus profit from the sale of oil into assets in the West. Therefore the decrease in profits will rather bring problems to the US, in whose treasuries the oil money was being allocated. Our budget, even accounting for capital outflow, is in surplus. There are problems with investment resources, but they could be overcome if the economic policies are changed. Retaliatory measures are rather political. By the counter sanctions Russia shows that this is not the way to treat allies. And if they are not allies, then are they enemies? In other words, does the US push Russia into an anti-American union with China? Certainly, the union with China is a disputable matter, but if there is nobody to talk to in the European Union (where the situation can change, just look at Marine le Pen in France and Viktor Orbán in Hungary), if the political elites of the EU are subservient to Washington, and if the U.S. behaves inappropriately, then what are the options?

Sanctions have shown that the US these days is impossible to negotiate with. It means that the matter is not whether Russia can do without American technologies or not; in fact, it is about how it needs to proceed without them. If the economy were healthy, then while Russia would resolve all her current problems, the US would go forward, but amid sagging demand… The US will likely go backwards; this is a standard expectation amid long crises. Sure, the problems of Russia won’t be resolved on their own, it is necessary to update the economic policy. On the whole, sanctions do not constitute a critical matter for the time being. They even can be increased, but there is no guarantee that it will not precipitate a crisis in the US. 

• Sanctions

David Northern Californi

Tom Mysiewicz Reedsport, OR

Rhysaxiel Bordeaux, France

Paul from Tokyo

R-27 ER/ET Santiago, Chile

Question

What effect will sanctions have on the Russian economy over the next few years? Will they lead to better integration with the BRICS economies and other non-Western countries and how could this help Russia to deal with the sanctions regime? Will the sanctions ultimately provide the catalyst for the development of an alternative reserve currency?

Answer

I’ve already addressed part of this question so I’ll take the opportunity to refine what I’ve said before. Regarding the use of a different currency, this is already decided – There will be one, probably more than one. There is no other way to support investment, apart from by issuing regional currency and it should go without saying that ‘Whoever pays the piper calls the tune’ To put it another way, If and when regional these regional currency issuing centres appear it will quickly become clear who are ‘patriots’ and who are ‘collborators’. It’s all quite straightforward: If you export capital, the destination country will receive the investment. It will become clear quite quickly 

It’s a completely different matter why the United States chops off the branch on which it is sitting (ie. stimulating the creation of alternative reserve currencies). The answer is similarly straightforward. They simply can’t conceive of their own collapse. However this belief is not simply a matter of idealistic ‘American Exceptionalism’ (We are the dominant, thus we shape history, not the otherway round), but it is also a belief held by the elite, as it forms a critical tool of social governance. Furthermore, if we admit that the official economic doctrine simply doesn’t acknowledge the crisis (To be more exact, it is impossible for the theory to recognise the crisis as the theory lacks the terms of reference to describe the cause) then the crisis actually becomes inevitable, if not inescapable: The economics are themselves founded on axioms which themselves are impelling the economy to catastrophe. There is nothing more to say here. ‘Those whom the gods want to destroy, they first make mad’

The BRICS, moreover is a pretty artificial phenomemon, dreamt up by Goldman Sachs, the famous investment bank for purely commercial reasons. (In fact to issue new securities onto the market). From our side the BRICS countries look like the leaders of regional economic zones (Brazil and South Africa in one (‘Southern’). Russia (‘Eurasian’), China with its own Chinese and India with its own national zone, given its huge population. It looks likely that the Indian zone will most closely follow the Eurasian Zone. In these zones co-oporation will increase as will the attempts of the United States to solve their internal problems by forcing other countries to pay their debts, using the institutions and frameworks set up under the Bretton Woods which established the dollar as the sole reserve currency. These efforts of the United States are only likely to speed up the process of regional integration.

Question

In the absence of exchange controls, has consideration been given to creating a split domestic-foreign ruble to support the currency and minimise the impact of sanctions and of commodity and currency speculators?

Answer

Russia has a whole collection of legislation to regulate its currently which are simply not ative at the moment because their activation would contradict the ideology which drives the financial elites. There is the mechanism of enforced conversion of foreign revenues (Set at zero percent at the moment). There are limits on declared FX positions and other FX regulations which are similarly not active. I am not at all sure that new legislation is required, those which exist are wholly sufficient should the will be therr to activate them.

I have a suspicion that the government and the Central Bank (and this refers a united ideological, commercial and political ‘team’ which are labelled by the media as ‘Liberals’, although the term potentially misleading), who promised the national political leadership economic growth although were unable to maintain it, have decided to resolve the situation by devaluation. However they simply don’t understand economics, rather they do not understand that devaluation will only benefit GDP in teo specific cases: Either there is a large amunt of idle capacity (like in 1998), or there is a large amount of freely available credit. At the moment there is neither. FX investments are not profitable and no one will invest. As for the ruble the central bank has simply refused to open up the credit market. This means that there can be no positive consequences from devaluation only negative ones. The most obvious will be a collapse in living standards amongst the normal population as the majority of consumer goods are imported. This brings us to the hypothesis that the governance of the central bank is in cahoots with Washington with the shared aim of subverting Putin. The hypothesis is already mainstream in the Russian Media.

Question

Is there enough political will and influence inside the Kremlin and the Russian Government to launch agricultural modernisation and improvement projects given that sanctions have been imposed on agricultural imports?

Answer

At the moment the Kremlin is making demands regarding the state-led modernisation of agriculture which contradict the Governments ideology. Naturally this leads to open sabotage. This is absolutely clear both in the investment environment (The government directly is responsible for the flow of investment but actually plays the opposite role at the moment) and in the implementation of the Russian payments system as just one example of many. If the kremlin has the political will to change the government then the situation will improve and with that, agriculture. If not the situation will continue to deteriorate.

Question

In your recent appearance on TV with Sergei Glazyev, you suggested that the use of sanctions by the US was a sign that the current system was breaking down. Can you elaborate on what you mean? 

Answer

I have shown above that the current political situation in the United States will lead to the intensification of problems for the United States itseld, most obviously in the destruction of the dollar as the global currency. If you see that in order to sustain one of the ‘rules of the game’ that this can only be done at the expense of other rules then it is abundantly clear that the rules are no longer relevant and that they need to be changed.

Question

It appears that the economies of some countries that have followed the US lead in sanctions are being affected. Do you believe the US has promised to subsidize the losses of its allies? Why do you believe these countries have been willing to risk their economies?

Answer

No, the US will be giving money to no-one. Those countries that have acted against their own interests have done so as their elites have been effectively captured by the US. It’s no secret and in fact many write in the independent European media that it is impossible to make a career in politics with support from the US. The only ones therefore who can have a career are those frimly ‘on the hook’. Often the United States will create that hook themselves (Profitable contracts, grants, sometimes bribes and even blackmail). It’s not surprising that they control the entire extent of the EU, eavesdrop on all telephone call etc etc. It just needs the exposure of an affair, a few hundred euros of income hidden from the tax authorities or a recording of an indiscrete telephone call (maybe criticising the Gay Parade) – they would all be enough to, when exposed to the national press, to deprive an individual of his social status or a significant part of his income. Who would go against that?

There were a lot of scare stories in the 90s about the ‘Stasi’, who allegedly held records of every citizen of the German Democratic Republic. We now understand that, in comparison with the practices of the United States now that this period was actually an unexpected utopia of personal freedom. To give examples, The Stasi may have known who slept with whom, but it did not have recordings of discussions held during these intimate rendezvous. Ask yourself: Is it pleasant to think that there are people who can, without oversight, scrutinise recordings directly relating to your personal life? Furthermore are their many people on this earth who would not be vulnerable to blackmail in their personal life? And how many people are there really who would refuse to the the bidding of the United States knowing that such information is not only in their hands but ready to be used against them?

Question

What could be the response of Russia if the situation with the oil prices, sanctions, economic warfare and military pressure becomes critical? How will it mobilize its allies and how could it strengthen its economy and military, especially the air force and missile defense?

Answer

Well Russian has practically no allies, if we think of them in the sense like there were in 1939. Belarus, Kazakhstan and maybe a couple of other small countries. However there a lot of countries that understand that the United States is single handedly destroying the world order and with it global security (This is exactly what Putin said in his ‘Valdai’ speech in Sochi). There are also people in the United States who understand this. Morover the recent mid-term election results, a week ago, in the United States clearly showed that there are people, especially in the older generation, who without having a deep knowledge of the particulars feel that the current elites in the US are leading the world to catastrophe. We would simply hope that the world will not be led to catastrophe.

• Trade

Vic, Northern Ireland

Song, Canada

Gagarin Thespaceman Cape Town, South Africa

Question: Eurasian Union

What do you foresee in terms of the evolution of the Eurasian Union, both in terms of internal economic/political dynamics and its relations with other states (and in particular the US/NATO/EU bloc)? Does it have the possibility to expand outside of the former Soviet Union? Are other regional cooperation organizations such as the CIS and CSTO still relevant?

Answer

As I have already said, according to our theory the world could split into several monetary zones – more or less independent systems of divisions of labor. The Eurasian Union is one such zone. In a long-term outlook it may include such prominent countries as Turkey, Japan and United Korea. The last two have no choice: the U.S. and the EU won’t purchase their produce, and they don’t want to be friends with China. So, the Eurasian Economic Union has a promising future, but it also means that we need to work hard to achieve positive results.

Questions: European Trade

In the past much has been made of a “Lisbon to Vladivostok” trade zone. What do the parameters of such a zone look like, and given the current hostility of the EU towards Russia, is there any realistic prospect of making it a reality in the near- to mid-term? What circumstances could make this more viable in the future?

Answer

I think there is no such prospect as of today. The situation in Ukraine has shown that the current EU leadership will not take Russia’s interests into consideration. Any attempt to discuss these interests causes a torrent of statements blaming Russia for “imperial politics”, “restoration of the USSR” and so on. We can argue about Germany and France being outright blackmailed by the Baltic states and Poland, the role of Washington etc., but the fact is that in its current configuration the EU and Russia cannot be “friends” (in the broad sense of the word). We can resume such discussions if a reconfiguration of the EU takes place and the Eastern European countries leave the EU.

Question: Payments/SWIFT

One of the purportedly heaviest weapons in the US/EU sanctions arsenal would be to cut Russia off from the SWIFT payments settlement system. Much has been made of efforts to create an internal system or to link with China’s system. What are the challenges facing Russia as it seeks to end its reliance on this particular Western system, and what is a realistic timeline for implementation?

Answer

This could have been implemented promptly, but the Central Bank has sabotaged all the efforts. As of today, nothing has been done, so we will have to return to this topic when the Central Bank has new leadership. The current leadership won’t do anything in this direction.

• Geopolitics & Foreign Relations

Question: Russia and relations with BRICs/Emerging Markets

Russia has been very clear that in light of the West’s aggression that it would redouble its efforts to form an alternative geopolitical grouping, both among emerging markets generally and China specifically. Can you comment on:

Which countries (particularly among the BRICs) are likely to support Russia going forward?

China is probably the most critical relationship for Russia going forward – however given the often strained relationship between the two, many are skeptical of the ability to form a true partnership. Why is today different?

Russia has been actively seeking to expand its trade links with Emerging Markets generally and the BRIC nations specifically. Where do you see the best opportunities for Russia in terms of expanding trade links with these nations or even creating more formal/multinational trade structures? Along these lines, do other EM nations share Russia’s interest in potentially de-dollarizing global trade? Is there any chance Russia and/or others actually de-dollarize and, if so, what are the potential benefits and risks to Russia?

Emmanuel from Ames, Iowa. USA

Anand from India

NotSoFast from Luxembourg

Answer

I’ve already said something about it. All the questions above imply the preservation of the present Bretton Woods system and describe possible (or hardly possible, if not impossible) scenarios for developments in the world. However, according to our concept Russia and China won’t form a single alliance, they will be leaders of two different regional alliances – one is the more centralized (China) while the other more democratic. Today’s convergence between China and Russia is not due to the fact that they foresee their common future, but for the reason that they consider existing model unsustainable. The U.S. tries to describe the Russian and Chinese policies from the perspective of sustaining of the current order. This results in a fairly contradictory picture. Once seen from the right point of view, the picture becomes clear. By the way, according to this worldview the U.S. becomes a regional leader just like Russia and China or, let’s say, Brazil.


Question: Europe

Even if Russia turns towards Asia and the Emerging Markets, Europe will remain a critical part of Russian geopolitical strategy. In light of Europe’s current stance, is there anything Russia can do to improve relations (short of unacceptable concessions)? How does Russia manage around the virulently anti-Russian bloc led by Poland, the Baltics and (Western) Ukraine?

David Vienna, Austria

Corto Netherlands, Serb origin

123abc Germany

Answer

I’ve already explained that friendship between Russia and today’s European Union is impossible as long as the U.S. likes it, but this is just for a while, because as soon as safety considerations become the forefront concerns, the U.S. will most likely change its position. What happens to the current elites of the main anti-Russian countries seems to be interest to no one; they [elites] will have to go away, because they won’t be able to change their rhetoric, which will make it impossible for Russia to deal with them. For the time being Russia has nothing to talk about with the European Union for various reasons. The first one is rather obvious: trying to find a consensus whithin the framework of the European Union, the general position of this organization will always be strongly anti-Russian. The second one is that Brussels doesn’t have an independant position; it pursues the Washington’s policy. The third reason is that the current European Union has no future. We need to discuss this issue in detail. 

If we place the current European Union on the USSR’s timescale, it can be compared with the period of 1989-1990. The problems are the same. Certain rules were adopted in the context of certain historical, financial and economic situation, and then later codified. Today economic and historic conditions have changed, but it’s nearly impossible to amend legislative policies. Each specific issue might be settled, although it’s unclear when, but there are tens of thousands of those issues and the time is extremely limited. The only chance to accomplish something is to abolish all them at once or, in other words, to dissolve the European Union. It can be assembled again, but the re-assembling will be done according to new regulations. 

In particular, it can be said that Eastern Europe won’t be part of the “new” European Union. That’s for sure. It has no industry and thus presents no value. There was a political need to “tear them off” from the USSR/Russia and then feed them (to smooth the negative effect from renouncing socialism). Today’s youth doesn’t remember socialism, it means that it is okay to just dump those people and let them survive on their own. They are not of any interest. As we know from the European history of the nineteenth century, they will sink into extreme poverty. But, I repeat, those are their problems. 

Coming back to the original question… It’s foolish to make arrangements with the European Union in such environment. That’s why it’s necessary to build our own system of labour division without taking into account the interests of the European Union. If Russia has decided to start building import substitutions, it is simply needs to introduce counter sanctions to a relevant commodity group, since the EU and the U.S., by pursuing sanctions policy, have burried all the norms of the World Trade Organization.

Question: Russia

Given the lack of popular support domestically for the liberal/Atlantacist agenda, how do they continue to retain a power bloc within Russian politics? On the other hand, how do the Eurasian Sovereigntists envision ensuring economic growth, with so many autarkist/state capitalist models having shown severe weakness in recent years? What factor are Great Russian nationalists likely to play going forward, in particular the more radical/national socialist types?

Kermit Heartsong San Francisco Bay Area, Author, Ukraine:

ZBig's Grandchessboard & How The West Was Checkmated

Answer

First of all, these people (“liberals”) control a considerable part of Russia’s property; second, they are under the protection of the USA; and third, from the point of view of the political elite, they undertook important tasks such as making agreements with the world’s financial system, investments, and economic growth. Today it has become clear that there is no economic growth, there will be no investments, and the USA are not treating us as partners. It means that the “liberals” have lost the political support and will be forced out of the political arena. The main question is: how fast this process is going to be.

As for the USA, they have already realized that they did something wrong. The problem is that the Russian “liberal” team has emerged from the privatization that was a grand theft. Today in Russia the words “liberal” and a “thief” are synonyms. In this sense, for instance, a European court ruling on “Yukos” to exact $50 bln is a grave political mistake on the part of the West because everyone in Russia knows beyond doubt that “Yukos” was stolen. The people, who bought it, were fully aware that it was a stolen property and thus no one owes them anything. In other words, for the vast majority of the Russian public the court decision is the clear evidence that the only interest of the West in relation to Russia is to take away (to loot) the assets that belong to the people (the government). That is, the western elite, including its legal system, deliberately make decisions that favor “their own”, even though those people are professed thieves. This is a hard blow to the trust towards the USA and EU; the blow is even harder than the sanctions.

As far as the nationalists are concerned, there is a colossal difference among them. There are three large nationalist groups in Russia: Russian nationalists (in a way, they are similar to Ukrainian Galician nationalists, although, of course, they are more decent so far as methods and slogans are concerned); the national and religious nationalists (including Muslim nationalists in the ISIS style), and imperial nationalists (the ones who want to revive the great state and who don’t care about national differences among its citizens). The latter are divided into monarchists, communists and “neoliberal” capitalists who want to build a “true” capitalism that is independent of the west. 

It is impossible to understand who will win considering the complex processes that are going on in the country. Some of them can form local alliances, but they all have different objectives. That means that a separate set of relationships need to be build with each of these groups. At the same time, there is no point in counting on liberals, in spite of their current power – they have no electoral potential, they will at most receive 3-5 % of votes. They had illusions that a new generation would grow up not remembering the privatization. But the new generation faced the situation when all the “upward paths of vertical growth” are chock-full of children of those liberals and of “siloviki” (national security) they have raised. This is why it is inevitable that new political powers in Russia will be anti-liberal, or anti-West. “Navalnys” have no chance – they defend wrong positions. The West, if they want to have relations with Russia, has to become aware of this situation and correct it. Right now they don’t want to do that, which means that there are no positive prospects.