A close friend, far richer and better-informed than I (not difficult) sent me some completely speculative global economic notes, which he admits depend upon force majeure and all that. See how many you agree with. I personally think the oil price drop is overstated, since  China, India, parts of SE Asia some parts of Latin America but particularly Brazil are still growing. If India and China descend into full blown recession, then the world is in terminal trouble and we had better get used to austerity, if we’re not already there.

• Complete and fairly permanent reduction of bank credit globally, with certainly 3 and possibly 10 years or more of credit limitation. Absolutely no chance of inflation in the UK, USA or Western European Euro nations for the next 3 – 5 years at least. 

• Big potential arbitrage play between € and $.

• Swiss franc and US dollar the only worthwhile currencies for the next 24 months. Sterling to be back at 1.35€ – 1.50€ within 3 years, due to the relative economic weakness across the Eurozone. US dollar to be 1.05 – 1.15 against sterling by 2010 / 2011 (it currently stands at 0.68).

• Oil to bottom at between $16.00 and $19.00 per barrel over the next 12 months (currently $51.00).

All bets are off if the US adopts protectionism, apart from currency levels, which will be about the same and the oil price which will be even lower. If protectionism were to take hold in the USA the downside will be greater in the UK, Europe and China. (This last one I agree with, wholeheartedly).

Happy Easter, John J Kelly

Global financial model. 1. Find rainbow. 2. Borrow against expectation of finding crock of gold.

Writing in Wilmott, Rudi Bogni argues that banker-bashing may be a convenient way to mask the inconvenient truth that the demands on our financial systems are unsustainable. Western productivity was not up to the task of generating sufficient wealth to fuel perpetual growth, nor is it likely to be. It required a collective suspension of disbelief to maintain the illusion that the global financial ecosystem could sustain rates of growth dependent upon credit supplies which far outstrip rates of GDP growth. When reality intervened, the rainbow evaporated, leaving behind a crock which contained anything but gold.

Governments, markets, institutions and scorekeepers – OECD, IMF, World Bank, EBRD – have long measured progress using the Key Performance Indicator (KPI) of percentage GDP growth. From the 1950s, 1 dollar of GDP growth required 1.5 dollars of credit expansion, a figure which was more or less stable until the late 1990s. By 2007 this had grown to 4.5 dollars of credit for every dollar increase in GDP. Real GDP equates to goods and services generated. Increasingly, in the US and Britain, the growth came from ‘financial products and derivatives.’ The real work was done elsewhere. Bankers worked tirelessly and notoriously lucratively to ‘create’ the debt mountain needed to prolong the illusion of perpetual growth. Low inflation, another KPI in the league of progressive nations, requires a reasonable assumption of fair value in the exchange of goods and services. Credit expansion was the ‘doped money’ which turbo-charged overheating economies, some of which didn’t necessarily print money, but instead wrote IOUs, maintaining the illusion of low inflation. This experiment in creating something out of nothing ended in hubris when the financial institutions ran out of ideas and the realisation dawned that the global economy was being run on a spreadsheet with fatal circular references.

A typical 1920s US banker

Bogni’s nightmare is that throwing more ‘doped money’ into a failed system will restore the illusion of legitimacy to this global Ponzi scheme. He need not worry. Thus far, banks have consumed billions in restoring their balance sheets to ‘allow’ them to lend. However, under new solvency constraints, they are frightened to lend against this ‘new money,’ provided in the form of ‘quantitative easing‘ – doped money with a different parentage. Contraction of credit on as dramatic a scale as its precipitate expansion will cause stagflation, a slump or both. We know from the Japanese experience of the 1990s that central bank intervention won’t work unless root causes are addressed and even if it did, the effects will be temporary at best – witness Japan today, back in the same trough. Over to Rudi Bogni:

” What a sorry mess! I am not sure what scares me more: the fear that all measures taken may not work and that the financial system as we know it may collapse, or the fear that they may work and that in a year or so we shall be busy building up the next bubble. At the root of it all is the idea that greedy bankers are solely responsible for this disaster and that it is the financial system failure which is now threatening the real economy. I put it to you that it might be exactly the opposite: that an unstable Western economic system, built on excessive social and political expectations, was buttressed for too long by the financial economy through the magic of ever-increasing leverage, until they both cracked under the sheer weight of it. I am convinced that until we come to terms with that, no real remedy will be possible and we shall continue to dope both our finance and our “real” economy, switching periodically from “cold turkey” treatment, as in October 2008, to a never ending supply of methadone to prevent us from facing the truth. The truth is that Western productivity is not sufficient to fund the social system we created and the expectations thereof, and that we cannot continue to stake a claim on the world’s resources well in excess of our contribution to the global economy. Does anyone expect German socialists or French conservatives to accept such a truth? Not in a million years. Why face the truth when a good prejudice is freely available? So, our politicians will just look for scapegoats like hedge funds or offshore financial centers, which had very little to do with our present crisis. It certainly beats self-examination. Where has all the money gone? Where bankers thought you wanted it!” (Rudi Bogni, Wilmott Magazine).

Conspicuous consumption was the KPI of progressive Western society. Bankers created mechanisms for consumers (individuals, cities, countries) to buy products and services before they could afford to pay for them. The cost of credit grew steeper as money stocks diminished in step with classic laissez-faire principles. Governments borrowed ever larger sums to finance modernisation, fight wars (the US spent upwards of a trillion dollars in the past eight years alone) and provide the means to keep people employed (profitably or otherwise) to give them money to spend on more things they couldn’t quite afford. The US Bush government lowered the rates of taxation for the rich, while the UK allowed hedge funders and other flim-flam men to treat their vast profits as capital gains, taxed as low as 10% at one stage. As money bled from the economy, they borrowed further to finance the debt. A vicious cycle became a toxic vortex.

A typical 2009 Scottish banker

Whoever is to blame – itself an unproductive exercise – the victims were, are and always will be the spectators at the dance – those at the bottom of the pile who make the products, mine the resources and provide the services which are sold and resold at inflated prices to maintain the illusion of progress. Some of the intermediaries were criminals, some were hedonists, some were selfish and others were deluded – the UK Prime Minister saved the world, of course, (Thus passim) but not so as you’d notice. But the bankers, including pantomime villain, the remarkably thick-skinned Fred Goodwin, were by and large ‘creating’ wealth in a game of virtual reality, ‘Grand Theft Planet’. The ‘great unwind’ may indeed be our first real encounter with planetary constraints.

John J Kelly (the good bits came from Rudi Bogni and Hamid Hakimzadeh).

When the Food and Agricultural Organisation says that another 40 million were pushed into hunger in 2008, what images spring into your mind? Is it possible to imagine that many people starving? Well imagine it or not, we had better get used to it. Because the other thing that the FAO announced was that to bring the truly mind-boggling 973 million people who are starving now into the land of plenty, we need to double food production by 2050. Quite a challenge, bearing in mind we also have to totally rejig our energy systems in the meantime.

Global food markets are effectively trade in water. Tony Allen coined the phrase “Virtual Water” to point out that water mainly travels around inside other things. And these other things are mostly food: a tonne of which takes 1000 tonnes of water to make. Another thing the food trade uses a lot of is oil. We are talking (in 1974) a calorie of oil to grow a calorie of food, and then you have to ship it. And even though a thousand times lighter than the water it embodies, food is still bulky. Think about the heaviest things that regularly come in and out of your house. It is lugging food shopping in and waste out that breaks up our sedentary lifestyles.

All that bulk gets moved around, a sample shopping basket of 26 imported organic items having travelled a total of 150,000 miles, or six times around the Earth. The US food system alone uses  as much energy as France and 80% of this is used outside the farm in transport and processing. This huge oil-driven industry is a way of redistributing water across the globe, albeit guided by purchasing power. The dry parts of the world rely on the food trade to a very great extent, and as it gets harder to grow food in the tropics under climate change, this dependency is likely to increase.

The IEA now forecasts that the production of conventional oils is likely to peak around 2020. That’s only 12 years away, and is likely to drive the price of energy up sharply across the board, as people try and substitute on type of fuel for another. This is bound to affect the food trade, partly because of the oil that goes into food,  but also because it makes it ever more tempting to use land for growing fuel.  The food price rises in 2008 were 75% caused by the increased demand from bio-fuels. It all adds up. The extra 40 million hungry in 2008 was with an oil price peaking around $100 a barrel. But the coming oil peak, dubbed “The last oil shock”, could raise the price to $300 a barrel. So this international trade in food (AKA water) is likely to get a lot more expensive. We could be seeing a lot of inflation (Thus Passim).

Countries will find it increasingly expensive to buy in the food they need. This will mean an increasing need, in the tropics especially, for countries to rely on the water they have in order to grow food. If you combine this with population growth in places like India, you get a worrying picture of massively declining amounts of water available per person even as you need more of it.

As if this were not enough to put you off your muesli, take a look at industrialisation. The US uses as much water for industry as it does for agriculture, and the EU uses twice as much. These are both areas with tight environmental regulations, particularly in relation to water pollution: This was the original cause celebre of the environmental movement, with the publication of Rachel Carson’s “Silent Spring.” And let’s not forget Erin Brokovich.

In many tropical countries there is not much water to spare. In India 80-90% of the water demand is already from agriculture. Whilst there are a lot of good environmental laws on the books, the enforcement is weak, what with all the corruption. In 2006, pushed on by the World Trade Organisation, the Indian government rushed through 2 new laws. The first allowed major sections of Industry to self-certify their environmental impacts, which is a bit like asking them nicely for a confession, pretty please . The other was a directive that all natural resources should be exploited to the maximum benefit of “the people”. How the people will get a slice of the profits is not made clear.

This all seems a bit schizophrenic, because the same government is so concerned about water shortage that it is proposing the largest development project in the history of humanity. This is a 1 billion US$ proposal to link all of India’s rivers together.  The joke being that without enforced environmental regulations, this is likely to turn into a national pollution network. So what to do? Buy food from abroad? Fat chance.

Well one thing is to get the existing environmental regulations enforced. This is a global problem, as the food-oil-water link indicates, so a global treaty about the enforcement of environmental regulations in international trade looks ever more urgent. Otherwise international organisations will keep on lobbying to weaken the laws that protect the increasingly scarce water in the tropics.

The other way is from the ground up. There are plenty of traditional crops in Asia and Africa that have been displaced by markets for “modern” “luxury” food. Millets and Ragi in India have suffered this fate, replaced by water-guzzling rice paddy. Promoting these crops, which can get by on 5 times less water than wheat, is one way towards food security. Another is to reduce oil dependence in food production, especially in poor countries like India, where farmers already face huge problems with debt.

However, until international policy-makers wake up to these issues, and moderate the market fundamentalism that got us into our current mess, these types of solution are likely to remain drops in the ocean. Doing things mainly by markets and purchasing power means it is cheaper to let the poor starve. So don’t you know, we’re talking about a revolution.

Economists, governments and central banks have grown increasingly worried about the level of consumer indebtedness, which is especially high in the US and the UK. In the UK, mortgage lending on residential properties is now over £1,200 billion. Unsecured debt adds another £230 billion, with credit card debt running at more than £57 billion per month. Mortgage affordability has deteriorated steadily since 2000, with 2007′s first-time home buyers using a third of net household income to make mortgage repayments. Repossessions are rising fast, as are defaults on consumer debt.

Everyone understands the linkage between spending and debt, and few dispute that a healthy economy depends on consumer spending. But the increasing cost of servicing and repaying household debt is now the biggest drag on the economy. The ‘credit crunch’ has forced politicians and monetary authorities to turn on the taps, using methodologies such as quantitative easing, to prevent a catastrophic spending freeze, which will result in deflation, as evidenced in Japan in the 1990s, or an increase in the rate of inflation. The worst case scenario would be stagflation, the toxic combination of monetary inflation and economic stagnation which occurred in the UK after the 1973 oil price shocks and which laid the foundations for the ongoing fixation with curbing inflation at all costs. In an ideal world, prices remain relatively stable while economic growth proceeds apace. Today’s crisis has largely arisen because the supply of credit has dried up. To avoid stagflation, we may be obliged to embrace inflation. And this may have the effect of reducing the real value of the debt mountain and freeing up consumer spending power.

This argument in favour of the beneficial effects of inflation is supported by the case for inflation as a mechanism for reducing the state’s own burden of debt. By 2012, total UK government debt is likely to be about £800 billion or 60% of GDP. Repayment of this debt will require a larger slice of government revenue, which will mean less schools/hospitals/services or higher taxes. Inflation will soften the blow. An inflation rate of 5% for five years would cut £200 billion from the real value of UK debt and make it much easier for politicians to pursue their social and political aims.

Policymakers obsess about inflation in the form of rising prices, but generally ignore the way a reasonable rate of inflation erodes debt. For example, the effect of one year’s inflation at 5% on the UK’s £1,400 billion of consumer debt is a real write-off of £70 billion, more than the tax cuts in all of Gordon Brown’s Budgets combined. Over five years, 5% inflation would cut the real value of debt of all the UK’s indebted households by an average of about £20,000.

Baby boomers made money from home ownership in the 1970s not so much from the rise in prices – the average rise in house prices from 2000-05 was greater than that of any five-year period in the 1970s in real terms – but from the inflationary devaluation of their debts. For example, the real value of my mortgage halved over five years from 1973-8. Like most people’s, my earnings rose roughly in line with prices, so mortgage repayments accounted for a shrinking proportion of my earnings, and I carried on spending.

We know from the experience of the 1970s that people are much happier with house prices rising at 4% a year and inflation at 8% than they are with inflation at zero and house prices falling by 4%. After a long period of relatively stable prices, it will take several years of rising inflation before consumer behaviour adjusts to the ‘money illusion’ (we tend to treat tomorrow’s pound as equal in value to today’s even though it will buy less). Five years of inflation at about 5% could make housing affordable again for first-time buyers as well as releasing substantial spending power for homeowners as mortgage repayments absorb a declining fraction of income.

Higher inflation rates will have another major benefit: it will partially reverse the huge transfer of wealth that has taken place over the past decade from the young and poor to the old and rich, partly through the rise in house prices and partly through rising income inequality. Inflation transfers wealth in the opposite direction, from the old and the rich to the young and the poor. However desirable it may be, such a transfer is politically impossible if it has to be accomplished through taxes in a no-inflation environment. The young, who must save more towards their retirement, need to raid the piggy banks of the old. Inflation enables them to do this quietly and without confrontation. Meanwhile, the one big category of potential inflation losers – the old poor – are the easiest to protect through inflation-linked state benefits.

These arguments are even more applicable to the US, which I expect to be the first to endorse inflation as the ‘least bad alternative’. The UK, then mainland Europe, will – at first reluctantly – follow the US lead. When it is embedded, economists will tear up their anti-inflation tirades and start to write treatises about why it is a Good Thing.

About the author:

Chris Gilchrist has 30 years’ experience as a financial journalist, editor, author, lecturer, TV and radio broadcaster and commentator. He launched a series of monthly financial magazines and has been involved in programme series for Channel 4, BBC1 and BBC Radio 4. He is currently a director of investment advisers Churchill Investments PLC.

Fat Controller

The iniquity of the UK train operators’ stranglehold on a captive traveller since the botched 1993 privatisation, when a patchwork of mini-monopolies replaced the monolithic British Rail is well-documented. The network itself – tracks, stations, signals, overhead electric cables and all the costly stuff needed to run a railway – collapsed accordingly and was taken back into state ownership by none other than Alistair Darling, then pretending to be Transport Secretary. The engines, carriages, freight cars and profitable things that people pay money to sit in or send stuff round on, remained in the hands of many of the same fat controllers who had previously mismanaged the nationalised version. The novel twist was that they were paid lottery sums to take on this ‘burden’, and given generous ‘subsidies’ with no penalties for failure other than a ticking-off every now and then from an independent Ombudsman who used to work for Virgin Trains, one of the main operators, but not the worst. (Suggestions, please . . .)

The trains are largely leased- many from a division of Royal Bank of Scotland – recently part-privatised by Alistair Darling, now pretending to be Chancellor – so we’re paying for somebody to borrow from ourselves to charge us too much money. On November 21 2008, the fat controllers yet again announced planned fare rises of 6-8% from January 2009, undermining government plans to keep the country working, its citizens from despair and reduce road traffic congestion. It is an ecological imperative to move 80% of people and freight off the roads and out of the air onto rail, but unless train surfing catches on, this will be unlikely.

Recession-busting transport solution

UK passenger rail numbers have more than doubled over the last decade, despite charging some of the highest fares per mile in Europe, running a Ruritanian cross-country service and playing cruel tricks on passengers’ weekends. Privatisation was intended to iron out inefficiencies, make the system at least self-sufficient over time and keep fare increases in line with cost of living rises. The taxpayer is subsidising the ‘investment’ in service improvements while paying an uneconomic price – uncompetitive with road and air transport in almost all cases. There is no asset payback for the subsidy and precious little service guarantee. The dysfunctional greed of the operators is an outcome of rewarding failure. These carpetbaggers need to be forced to travel on their own trains, on a Sunday evening.

You may deduce that I travelled by rail this weekend. I took a very adequate train from the magnificent new St. Pancras International terminal to a kennel with a W.H Smith kiosk in Leicester. I was duped into thinking the journey would cost £43.00 return, mistakenly took the return train 30 minutes earlier than I should have and was obliged by what looked like an unshaven Didicoy with face jewelery and tattoos in a Star Trek costume to pay an extra £63.00 for a journey of 93 miles. This graduate of the RyanAir school of customer service refused to comment except for the classic refrain: ‘it’s all in the small print.’ I wonder why I missed it. Surely not by design?

Russian oligarchs used violence and coercion to rob the workers of stakes in privatised state assets in the 1990s. Their UK counterparts have rooked the customer for too long. UK citizens are tired of the ‘jam tomorrow’ argument that once the investment phase is complete, prices and subsidies will fall. Nix these oafs now. We have nothing to lose. Kafkaesque announcements such as: “I repeat: First Class passengers can expect completely different tea and coffee,” and “there will be no sausages for twenty minutes” will continue to disconcert. They should add: “Service will be random. Inclement weather will paralyse the network. The buffet car will be a mirage. We’ve got your cash. Resistance is futile.”

The next Tory government should atone for their sins and give us back our rail monopoly. Then at least we are robbing Peter to pay Paul, instead of Richard.

Wilkins Micawber, new Labour economics guru

Before spreadsheets enabled geeks to assume they could manipulate the economic weather, we knew that if we spent too much, we’d run out of money. If we ran out of things to sell or do in return for more money, we’d be in trouble. If we borrowed money at unrealistic interest rates, we’d be in even more trouble. If we borrowed money with no intention of paying it back, we’d be beggars and pariahs.

If we intend to borrow money for a ‘fiscal stimulus package’ when most of the developed economies are scrabbling to do the same, we will need to demonstrate that we’re a better bet than the other guys, offer a higher yield to the lenders or form an international syndicate – effectively what Brown is trying to do. Going it alone is risky. According to the IMF, British external debt is hovering around £UK 6 trillion. Net assets are around £350 billion. Gross domestic product (GDP) is around £357 billion and falling.

Gordon Brown is hassling the part-nationalised banks, tied to a 12% interest rate, to repay their government bailout loans, to start lending to businesses without further ado before it is clear where the backstop cash is coming from. They are ignoring him: losers don’t lend to other losers. Meanwhile, who does he strong arm to lend to UK Plc? The Americans have £13 trillion debt and troubles of their own. They might need to turn a tad protectionist. We’ve been routinely horrid to Europe over the past eight years, even though we’ve been net EU contributors. Unsurprisingly, the majority of our trade is with the Eurozone.

Back to the syndicate idea. The European Central Bank is sort of a pompous mutual savings and loan organisation. The once-stern criteria for entry into the Euro – sound fiscal policy and limits on public spending as a proportion of GDP – have probably been breached by the majority of its members of late. Regardless, as a result of Eurozone membership, Greek bonds are likely to be more attractive than those offered by the UK and even the US. (Thank you, Stilpon Nestor, late of OECD, for this insight. We had lunch today. Thank goodness we didn’t drink or this would be even more mazy).

This might be a good time to start thinking about how to get back into the Euro club. It may require a degree of grovelling and scraping. Labour still has an outstanding election pledge to give the electorate a referendum vote on the Constitution (‘Treaty’) but the Irish have given us all a breather. Europe should be a big ticket item on the forthcoming election agenda. The Tories have a recent history of Europhobia, which is ironic, since Ted Heath took us into Europe and the Iron Lady signed the 1992 Maastricht Treaty. The UK took part in European Monetary Union from 1990 until recession and George Soros forced an undignified exit in 1992. Incidentally, Britain was the fifth, not the first currency to be forced out. It is a mistake to compare EMU, an exchange rate mechanism, with a merged currency such as the Euro and it was an accident waiting to happen to peg our exchange rate, at an all-time high, to a falling Deutschemark. But no such problems now. Sterling is so low we could enter with ease. They might even welcome us back, prodigal style. We are a big, if obese, economy with Europe’s best financial markets.

The alternative is to carry on pretending we have a special relationship with the US. The problem with this approach is that it implies continued reliance on a busted economy and a falling dollar. Or we can go cap in hand to the IMF. Remember 1979?

We will need to have some sort of ‘fiscal stimulus’ unless we want to do a Hoover (the president, not the failed vacuum cleaner company, although there are similarities) but to do that we need allies, since we’re basically skint. There is an obvious mutuality with our European neighbours, and the Euro makes for a better spread bet than a single national currency. Labour and Tory will need to be explicit about their respective positions. Both have been suspiciously tight-lipped. Make sure you ask them what they think about Europe when and if you are called upon to vote, which I think will be next November, by crisis more than design.

Feel free to tell me if some or all of this is wrong. I’m not proud. I’m not an economist, but I’m Irish and was educated by Jesuits. It’s what I’d do.

We agreed that Brown would lose the next election whenever he called it, unless the economy miraculously turned round in the next month. The chances are that it won’t do anything like that before 2010, and will almost certainly get worse as the Polonium cocktail of tax cuts, increased borrowing and increased public spending takes hold. Brown might narrowly win a snap election, but he is not a gambler and will have to be pushed off the diving board into the deep end. We agreed that Cameron had finally done the right thing in abandoning a fudgy Middle Way in favour of a straightforward alternative: no tax cuts and a curb on public spending in order to balance the books. It gives the public a straight choice.

The room, by a tiny margin, didn’t agree. They thought that Gordon would call an early election and would probably win on the basis that public perception still held him to have been a sound Chancellor, if not an inspiring leader. Cameron was an untried entity. I disagreed that Brown’s audacious economic strategy was a ‘new paradigm’ but agreed that lowering taxes while increasing public spending and expecting the bond markets to back Britain in a global credit crunch was unusually fruity for a son o’ the Manse.

To survive, Brown needs to convince a battered and cash-strapped electorate that he was responsible for the ‘good’ times but that ‘global economic conditions’ were to blame for the mess that the UK economy finds itself in. He might also tell us why he was obliged to sell our gold reserves and tax pension funds into the Stone Age during these halcyon days. He will also need to explain why and how we intend to pursue and persist with a costly and impossible policy of ‘liberal intervention’ in Afghanistan and Iraq and how we expect to pay for the crazy Private Finance Initiatives and Public Private Partnerships, which will haunt public finances for decades. I’m not a Tory, but I can’t vote Labour under the present lunatic circumstances. We’ve given this gang too many chances. They have widened the wealth gap and given us the highest levels of national debt for 50 years.

Don't sup with Russian sailors, George.

Whether or not I like it, the next election is for the Tories to lose. Labour can’t and shouldn’t win on their record. The Tories may need to redeploy their accident-prone Shadow Chancellor and keep his replacement away from Matthew Freud, oligarchs and yachts. Ken Clarke’s too old. William Hague would be a sound choice: he knows about making money and has a regional accent, even if it’s a bit spooky and, like me, he’s a slaphead.

Postscript: I’m not a Tory – tell me I’m not a Tory – but on the Andrew Marr TV show at 9 am yesterday Cameron said more or less the same thing as my Friday blog about ‘fiscal stimulus’. He said nothing about Europe, though.

One concept that has been leaving me speechless recently is how many people will die due to resource shortages if we keep on with this free-market stuff. How do you put this kind of thing into a word or phrase? Well, I entered “genocide by economic means” into my trusty dictionary and the first result was: Supply Side Economics. Who would have thought it? A dictionary with a sense of humour.

I also have to admit to being a wonk (though hopefully not a wonker). But this issue is so huge, it really bears explaining, and also a word of its own. Jared Diamond pointed out that there are a few things that often characterise civilisations on the brink of Collapse. Generally there is a party going on at the top, because this is the point on the exponential curve of resource usage where consumption is maxing out. But at the same time, as basic resource shortages bite, people at the bottom are starting to feel the pain, as basic neccessities start to run short. The problem that Diamond identifies, the one that is a killer risk for civilisations, is that those at the top do not pay attention to the problems of those at the bottom, because they are having such a great time. They  are too consumed by hubris to address the emerging problems. It all sounds eerily close to home doesn’t it?

But here comes the really deadly bit. What happens to the price of a resource in shortage?  Economics 101 says it tends to go up.  What does trying to implement a global free market do? It tries to make prices the same for everyone everywhere, free from distortions. What does this do to people with little purchasing power (the poor) as basic resources run short? It kills them, efficiently.

Now this could be the most efficient killing machine ever invented by human kind, so surely it deserves a name? Genocide is not quite it, because, as people endlessly argue, it implies a deliberate intention to mass murder, and this particular form of wipe-out seems unplanned. We could go from the idea of manslaughter, which is applied to such unplanned or accidental killings by negligence, and generalise it out: mass humanslaughter perhaps? However it is, at least to begin with, a selective kind of killing, so how about mass poorslaughter?

None of these phrases really trip off the tongue, so perhaps we should use the words of Jean Zeigler, the UN special rapporteur for the Right to Food, who described biofuels, which turn land over from food to energy production, as an “Agricultural Crime Against Humanity.” Although I think there is an even snappier way of summing all of this up. Stupid.

Miliband quoted Indian Economist Amartya Sen when explaining New Labour’s ideas on equality. I was surprised, not because it was untrue: – I had done the paper chase already through Antony Giddens via Stephen Lukes – but because he was happy to admit that we had outsourced our thinking about progress to the intellectual powerhouses of the subcontinent. In this slightly scary vision of progress we are all seen as “Human Resources.” The Human Development Report, published by the UNDP, which bases its numbers on Sen’s work, largely describes us in those terms. We are told that humans should be happy to be seen as a form of national wealth, because this is better than seeing progress as only being about money. Indian politicians, with the 1.13 billion people they serve, welcome this message, since it answers the question of what to do with all the poor people. Indeed, the politicians have so much taken this to heart that the Department of Education is now a sub-section of the Ministry of Human Resources.

But a tricky detail in the concept of progress throws this rosy vision of ‘useful’ human beings into question. If you are making progress, presumably it is towards a purpose. Some, such as Francis Fukuyama, see this as a quaint notion. He argued in The End of History 2003  that we were no longer making progress because we had already arrived. Hegel had called time early. 19th Century Prussia wasn’t Shangri-la. USA Neoconcon free market capitalism was the pinnacle of history. Then came the credit crunch. Fukuyama is not so sure any more.

This brings us back to the question “what should we be so useful for?.” In his introduction to the Happy Planet Index, Andrew Simms observes that Economics tells us an awful lot about the transactions in between, but almost nothing about the ultimate ends and means of development. The questions “where does wealth come from?” and “what should we do with it?” are hardly touched upon. Since the environment is the ultimate means for development, we should be aiming to use it efficiently to sustain as many long, happy lives as is humanly possible. All blindingly obvious. So how – and why – did we all lose our sense of purpose?

Now I hate all the guilt and the wringing of hands as much as the next person, partly because I think it’s displacement activity, if we are not going to do something about it, then we may as well stop pretending and get on with enjoying ourselves. But there is an issue of political imagination in all of this. Every time we make statements about the planet, or about “life” or being human, we are also making statements on behalf of these people. People who probably don’t speak English and so don’t have any access to our elite discussions.

We depend upon these people, they make our cheap Chinese goods possible, and fuel the service boom in India. In many ways they manage inflation on our behalf, since they are, well, so cheap. Since we depend on these people, if we want to chart a political future for ourselves that is stable, then we need to take into account the realities of their lives. Take the food price crisis: How much have we spoken about the price of milk in Tesco? And yet how little have we discussed the possibilities of food riots? The last trade round fell on this point: The developed world just could not get their heads around the developing world’s insistence that their population had to eat, come what may.

In order to have an accurate political imagination, to help us chart our way through the turbulence of climate change, and avoid crunching on the rocks of natural resource shortage, we need to think beyond our discussions where we mostly talk about Us. We also need to get beyond the current war-time mentality where we think about Them as terrorists or usurpers. We really do face tests that are way beyond what our current mentality is geared up to. Thus we need a new political imagination that is beyond Them and Us.