The Half-Per-Cent Solution.

February 26, 2014

A few people have worked out that the Reserve Bank Monetary Policy Committee should not have raised interest rates recently, but have usually done this for the wrong reasons, and without much intelligent debate on the subject.

Why did this happen? The Reserve Bank’s mandate is to control inflation, which, according to its economic theory, is the greatest problem in macroeconomics. This was considered too vague a mandate, so it was made specific; the mandate was to restrict inflation to less than 6% per annum. Interestingly, however, the decision was also to keep inflation higher than 3% per annum. It might seem surprising that a terrible demon like inflation should be considered so evil when it is over 6%, but also evil when it is under 3%. The first question should be not “Why inflation targeting?” (inflation targeting being setting limits to inflation) but “Why should moderate inflation be acceptable, if inflation is evil?”.

The answer to this question is a bit complicated. Inflation simply means that the amount of money in circulation is increasing faster than the rate of production of goods and services. Actually, this is inevitable in a growing economy, because money will be borrowed to finance investment, but not all of that investment will succeed; therefore there will be some spare cash circulating which has no counterpart in the real productive economy. The only way to stop this happening is to put the brakes on economic growth. That’s why the favourite tool against inflation is interest rates; raising interest rates discourages borrowing, at least borrowing for productive purposes, and therefore slows down the growth of the productive economy, and therefore raising interest rates curbs inflation.

Ta-ra! You can have economic growth, or you can have low inflation, but you can’t have both. According to this theory, then, the best way to curb inflation is to promote recession or depression. Which is actually true — during a depression there is an oversupply of goods and prices fall, and the circulation of money slows down and so the money becomes more valuable because there’s less of it to go round. (This is why monetarists call the Great Depression the “Great Contraction”; they pretend that the shortage of money was the cause of the depression rather than a consequence of it.) So putting a lower limit to inflation restrains the Reserve Bank from wrecking the economy and putting us all out of a job. They have only put a third of us out of a job (unless we started looking for a job ten years ago, in which case it’s more like half to two-thirds). Hurray for the Reserve Bank!

Why, however, should inflation itself be such a problem? Obviously, for people who don’t have much money in the bank it is no problem at all because salaries will have to rise to keep pace with inflation — otherwise people would stop being able to buy stuff and the result would be depression. Obviously, for people who spend their money on durable consumer goods and fixed assets it isn’t a problem because the value of those things goes up in step with inflation; inflation does not harm the value of your house. Again, if you have money in the bank, interest rates are generally factored in to be above inflation in real terms, so your money continues to grow in real terms. The real inflation rate in South Africa is something like double what the official inflation rate purports to be, but none of our billionaires are crying into their platinum-label Johnny Walker.

If inflation isn’t really a problem, however (unless it gets well into double digits, in which case it becomes really inconvenient) why has it been made the be-all and the end-all of the Reserve Bank, as it has been made the cardinal goal of all other major central banking institutions? Someone must benefit from this mad focus on an irrelevancy — someone for whom it isn’t mad at all. Why, then?

The answer, presumably, is to distract attention away from the need for investment in meaningful productive infrastructure which generates employment, a distraction known as monetarism which serves the policy known as financialisation. According to monetarism, the government should not concern itself with anything more than the money supply (which is why the government pretends to know how much money is in circulation, although it actually does not); doing anything else interferes with the proper functioning of the markets within which money circulates. Therefore, all that can and should be done is to raise or lower interest rates, which supposedly controls the money supply (though it does so only crudely and partially).

Therefore, the government does not attempt to direct capital away from investment in financial speculation, and in speculation in financial speculation, the latter being called derivatives, the famous “financial weapons of mass destruction” which ruined so many banks a few years ago. Therefore the financial speculators are free to make a lot of money and nobody will criticise them — because financial speculation is much more profitable than investing in manufacturing or extraction or agriculture, especially if you can control the environment in which the speculation takes place.

So, it would seem, for the sake of the enrichment of a tiny minority and the vanity of their hired pseudo-economists, governments have decided not to take effective action to promote economic development, but instead to focus their efforts on a foolish ideology which leads to destructive consequences. Nothing really new there. Also, this helps to explain why there is so little intelligent discussion on the matter.

But in that case, is it a problem that the interest rates have gone up? Well, there is another reason why they have gone up, one which has nothing directly to do with monetarism — but indirectly everything to do with the need for the rich to make a killing out of the misery of the rest of us. This is the lack of exchange controls, which permit the free flow of finance capital across South Africa’s borders. This is completely unnecessary for the development of the South African economy, but it is very convenient for people who a) want to pay as little tax as possible, and b) want to send their money wherever the investment is most profitable. In other words, for people who don’t want to develop the South African economy, at least not with their own money.

Since money can flow out of South Africa, there is the danger that we might be drained dry of capital. To prevent this, we have to be “attractive” for investors, meaning that they can temporarily stash their money in this country (so that we can use their temporarily stored money as virtual collatoral, borrowing money on that basis to pay our real debts) and make cash out of it. The money they make out of it is made through interest rates. Therefore, our bond rates have to be high — we have to pay out a lot of the money invested here. Therefore our interest rates need to be not too low.

What has most recently happened is that the United States has declared its intention of slowing the flood of money they are pouring into their own bond market. They have been doing this for six years in order to save the banks from the consequences of their profligacy and incompetence — essentially the banks are insolvent but refuse to change their policies to promote solvency, while giving the banks money directly would cause a confidence crisis, so the money is placed in the bond market and the bonds are then used by the banks as collateral for more lending and borrowing.

Unfortunately, this entails trillions of dollars which should mean that US inflation should be increased — over and above its current rate — by about 6%, which would be disastrous, in monetarist terms. Hence it is important that the bonds are never cashed in so that the flood of fabricated cash washes over the American financial system and causes another crisis. But “tapering” the flow of cash might lead to the bonds being cashed in out of panic. (This is yet another example of how utterly demented and suicidal the financial system is.) So in order to avoid this, the U.S. is cashing in its foreign bonds — meaning that all foreign currencies outside the Eurozone, Britain and Japan are falling against the dollar (and even more against the pound) and the rand is no exception.

How to combat this? Raise interest rates! Encourage people who aren’t Americans to buy our bonds! But of course everybody else is doing the same, and the consequence is likely to be a race towards the ceiling. As things stand, the modest rise in interest rates is not affecting the currency much and we can expect another fall soon. In which case there will have to be another rise, which will not work, and then there will be another one, and so our interest rates will inch upwards towards the relatively high levels of interest which we saw under the Mbeki government.

There are two problems with this. Under the Mbeki government we had twice the level of economic growth which we have at the moment, and we had less than half the level of state debt. Therefore, we are spectacularly poorly placed to counteract high interest rates. If those rates do indeed slow the rate of economic growth a little by discouraging investment borrowing, the consequences will be to push us towards recession. Meanwhile, raised interest rates will hit at the endebted people and the endebted government, leaving less money available for public spending (encouraging a recession) and less money for consumer spending (encouraging a recession). All in all, the stage seems to be set, thanks to the Reserve Bank, for a reprise of the economic crises South Africa saw in the 1990s, and meanwhile, with the lack of regulation displayed by both Reserve Bank and wider government, our banks are much less well equipped to deal with a financial crisis than they were in 2007-8, when they had not run up the kind of collateral-free loan books which they have been encouraged to run up by the current government.

The amusing thing is that this will be happening in Zuma’s second term, during which he has promised to generate six million jobs. We can assume that this will make the ANC unpopular. Unfortunately, these policies are wholly supported by the DA (insofar as the DA has any policy at all, rather than a set of disparate slogans drafted by brain-damaged neoliberal journalists and advertising executives). So we cannot possibly expect to escape the worst effects of the crisis which is plainly coming and which is being prepared before our eyes.

Woza Julius, woza!


Disaster II: The Bills Come Due.

November 29, 2010

There has been a very enthusiastic response to the latest Medium-Term Budget Framework issued by the government. There are good reasons to be suspicious of anything which attracts an enthusiastic response from the crooks, fools and toadies of plutocracy who constitute our opinion-forming class. There are especially good reasons to be suspicious of praise for the present government, which has a very solid track record of lies, dissimulation and breaking promises. Possibly this enthusiastic praise derives from the assumption that what is being done will be beneficial for the corrupt layabouts who infest South Africa’s boardrooms. Possibly it derives from sheer habit, since those corrupt layabouts have been commanding enthusiastic praise for their Cabinet catspaws ever since the Week of the Long Knives in September 2008, when Zuma and his criminals were installed in positions they were comically unfit to sustain.
So let us look at this Budget Framework.
There are a few serious problems with the South African economy. Employment is declining due to lack of investment. The distribution of wealth is terrifyingly unequal and growing more so continually — has been since a few years before Zuma took over, but certainly Zuma has made the situation worse. State expenditure massively exceeds state revenue. We import far more than we export. Infrastructure is in a state of decay and the socio-political systems intended to resolve the problem at municipal and provincial level are utterly inadequate to meet the crisis. Economic growth is sluggish at best. Meanwhile, the state has committed itself to a gigantic but overpriced electrical generation programme which bleeds the fiscus of resources to ameliorate any of these problems.
So — let’s see what the Medium Term Budget Framework entails. The assumption is that in the near future growth will be around 3% per annum, although the pretense is that at some time in the future it will, for no obvious reason, zoom up to 7%. There is no plan to increase investment; on the contrary, exchange control for corporations is being further relaxed to encourage them to invest abroad. There is no plan to increase employment; the plan is to phase out the puny subsidies paid to corporations to discourage them from sacking workers. There is no plan to redress the skewed distribution of wealth. There is no plan to increase state revenue. There is no plan to increase exports or decrease imports.
This cursory survey shows us that the MTBF offers no solutions to any of our problems. On all the major issues, the MTBF thus is relying upon the market to solve the problems, or is assuming that the problems, in some other way, will disappear all by themselves. It is worth pointing out that these problems have arisen partly because the Mbeki administration neglected to deal with them effectively or was distracted from dealing with them by the growing political instability after 2004, and partly because the Zuma administration has done essentially nothing about any of them. In other words, the experience of the last few years suggests that all these problems tend to grow more extreme if the government refuses to address them. Hence the neoliberal argument that not doing anything is good (because governments only mess things up) is manifestly false. However, this argument may lie at the root of the praise for the MTBF, since governmental inaction makes it easier for rich people to loot the system and thus they naturally pay their praise-singers to endorse this.
Well, what are we going to do with this 3% growth, assuming that it happens? The MTBF proposes to use this growth to reduce the budget deficit. This is not necessarily a bad thing. The current budget deficit is somewhere between 6% and 7%, down from somewhere between 7.5% and 8% last year. This 1% reduction has taken place due to a massive increase in revenue from company taxation; baldly speaking, company tax derives from company profits, and companies made very little profit in 2009, whereas in 2010 they are making a much more substantial profit and hence there is more to tax. This is, in short, an extraordinary increase in revenue due to the fact that the economy has stopped contracting and begun to expand a little. It won’t happen again.
Now, notice another annoying point. A few years ago we had a budget deficit comfortably below 2%. Under Zuma it has risen well above 6%. This is not simply due to Zuma’s mismanagement; it is due to a shortfall of income together with an excess of expenditure, and only the excessive expenditure is due to mismanagement. However, now that the income is up again, note that the deficit is still huge — immensely greater than it was under Mbeki, for instance. The plan of the MTBF, in fact, is to restrain expenditure sufficiently to reduce the budget deficit to 5.2% of GDP in 2011, which is approximately what the budget deficit was when GEAR was launched in 1996.
Things need to be said about this budget deficit. According to the ideas of John Keynes, one should spend loads of money during a recession. The reason for this is that during a recession, people stop buying stuff, so the manufacturers of stuff stop making stuff, so they lay off workers who then stop buying stuff, so the manufacturers of stuff stop making stuff, and so on until stuff production virtually ceases and everybody’s on the dole, if there is one. Spending loads of money encourages people to buy stuff, which means that manufacturers continue making stuff and retain workers, who continue buying stuff, and so on until stuff production picks up with the end of the recession. That’s all quite simple.
However, this requires that one should spend money in areas which encourage people to buy stuff. In other words, use the capitalist market to sustain the capitalist market during a capitalist market failure. If you spend money in areas which don’t encourage people to buy stuff, you are actually making the situation worse, because that’s money which could have been used in the economy, but instead the money is being wasted. Instead of spending R20 billion on solid gold hats for all municipal councillors, you should rather cut VAT by 1%, because then the public will have more to spend. (Cutting income tax is much less helpful, simply because only a tenth of the population pays income tax whereas everybody pays VAT.)
The problem with our budget deficit is that it is a business-as-usual deficit rather than an expansionary deficit. It is therefore quite hard to get rid of. The US or British budget deficits will decline sharply now that the US and British governments have stopped borrowing money to give to their banker friends and instead are simply printing it, out of homage to their mentor Robert Mugabe. (Not decline enough, however.) Our budget deficit will be more intractable.
If the current deficit is in the vicinity of 6.2% (it is probably more; the statistics have become increasingly implausible in the last few years), then reducing it to 5.2% seems easy enough. After all, if we have 3% economic growth then that still leaves us with 2% in hand, doesn’t it?
No, unfortunately not. That is a 1% reduction in gross domestic product — the whole economic bang-shoot. What you are reducing is state expenditure, which is about 40% of gross domestic product. What is happening is that expenditure is at 40%, but revenue is at 33.8%. Somehow, that gulf has to be reduced so that expenditure is at 40% but revenue is at 34.8%.
Well — how about that 3% increase? A 3% increase in 33.8% raises the level to 34.8%! Hurrah! Problem solved! We just have to spend exactly the same as we spent this year, and in a year, the revenue will catch up to the level at which our budget deficit is satisfactory! Indeed, if we carry on doing this for two more years, the following year the budget deficit will reduce to 4.2%, and the year after that to 3.2% — and that’s exactly what the MTBF is predicting over a three-year period! All we have to do is not increase our expenditure at all for three years, and sustain an economic growth rate of 3% per annum, and we will attain the MTBF’s goals!
It looks very much as if someone in the Ministry of Finance has spent five minutes with a pocket-calculator and that this was the gist and sum of the intellectual efforts behind the MTBF.
Look, this is not possible. Population growth alone means that expenditure has to increase if service delivery is to remain constant. (In fact, everybody agrees that service delivery is inadequate and must improve, which will take an increase in funds.) The government is committed to a National Health Insurance system which will mean an immense increase in funds which will be only doubtfully affordable and has not been costed yet, although it will kick in around the third year of the MTBF. Historically, large projects almost always have overruns and we must assume that the energy generation programme, which has had a cost overrun every year since 2007, will continue to do so — and here we are talking about tens of billions of rands. 1% of GDP is 25 billion rands, and the cost overrun of the energy generation programme in 2008 was twice that. The MTBF is a fantasy.
It’s even more of a fantasy if you consider that under this proposal, state salaries cannot increase faster than the rate of inflation. Unfortunately, they have been increasing faster than the rate of inflation every year for ten years, so this means that somehow the public service has to be told that it will have a slower rate of wage increase for the next three years than in the past ten. Given that this year many middle-class public servants got an increase 2.5% higher than inflation, and have been screaming the house down because they didn’t get 3.5% and are going around telling everyone that they have been cheated, are they likely to welcome an inflation-constant salary next year, and the year after that, and the year after that? Are we going to see COSATU happily refusing to exploit an opportunity to exploit their members by telling them that they ought to rise up and defy their evil employers? No way. State salaries amount to a vast chunk of state spending (in some departments, more than 70%) so when they get increases higher than the rate of inflation, the bill goes up fast.
What that means is that expenditure is likely to increase substantially. Probably we are talking about a 1.5% increase in expenditure, at a minimum. Let’s tabulate that.

Revenue (at 3% growth) Expenditure (at 1.5% growth) Deficit
2010 33.8% 40% 6.2%
2011 34.8% 40.6% 5.8%
2012 35.8% 41.2% 5.4%
2013 36.9% 41.8% 4.9%

As you can see, that’s not enough. Now, it isn’t bad, but it isn’t enough. It isn’t anywhere near where the MTBF hopes it will go. Please note that in 2013 the budget deficit is still 163% of the economic growth rate, meaning that the national debt will be growing like a house on fire. In those four years the national debt will have grown by 22.3% of GDP. And that assumes that we do not have any serious global economic downturn which reduces our economic growth below 3%. (If economic growth averages 2.5%, here’s how the table looks:

Revenue (at 2.5% growth) Expenditure (at 1.5% growth) Deficit
2010 33.8% 40% 6.2%
2011 34.7% 40.6% 5.9%
2012 35.6% 41.2% 5.6%
2013 36.5% 41.8% 5.3%

And that’s a problem left out of the equation. Various countries are starting to put up their interest rates and if they do, we will have to, in order to attract capital to balance out our trade deficit. In that case, having a massive debt will become a problem, because you pay interest on that debt. If the interest is only 5%, then an extra 22% of GDP means an extra 1.1% of GDP is being paid servicing that debt. Which means that as of 2013, the expenditure would have to be in the vicinity of 42.9% to accommodate this. Which means that the deficit would be 6%, or virtually where you started. Alternatively, you would have to slash real expenditure back still further in order to make room for debt servicing costs. But then where does the cut come from?
The MTBF is a fantasy, but it is a dangerous fantasy. COSATU is correct to suggest that it is a neoliberal plan, because it valorises (and reifies) spending cuts and ignores the responsibility of the government to resolve the problems faced by the nation. Of course, COSATU has also endorsed this plan, so they are as responsible for it as anyone else.
It seems that we are in even bigger trouble than we knew before. But we should have guessed that from the newspapers. Every positive headline received by Zuma’s team suggests that we are a step nearer damnation.

Why We Are Doomed.

July 19, 2010

For two years, the global economic system has been systematically plundered and asset-stripped in order to conceal the catastrophic state of the global economic system.
This may seem bizarre, but it makes perfect sense. In essence, for thirty-five years Western capitalism demanded the right to commit theft and fraud, and over that period Western governments increasingly granted that right. Meanwhile, the West, since it dominated the world, was free to steal and cheat everywhere, with the backing of its governments.
There were two problems with this. One was that, since theft and fraud were increasingly profitable, Western capitalism naturally increasingly devoted itself to these pursuits (known colloquially as “finance capital”) and stopped making stuff, or investing money in any actually productive activity of any kind. Another was that since theft and fraud were so rampant, the biggest thieves and hoopla artists became the richest, and this set off a cycle promoting the system and steadily increasing social inequality within Western societies.
As a result of the death of productive activity and the dramatic fall in consumer incomes, the Western economies should have come to a complete standstill. They did not, because part of the fraud entailed pretending that the West had enormous amounts of money to pay to poor countries. Therefore poor countries happily set up manufacturing industries (and all the ancillary support services) on their territories, exporting goods and services to the West in exchange for paper which was supposedly worth something. The problem was that when these goods and services arrived in the West, someone had to buy them, despite the fall in working-class and middle-class incomes. Since the rich were not prepared to share their money with anyone else, the solution was, once again, to pretend that the West had enormous money to pay to its own citizens, and the banks were encouraged to lend at preposterous rates and levels of risk, so that the poor could pretend to be rich.
In short, the whole system depended on lies and cheating, which existed to legitimate ruling-class theft.
Obviously this couldn’t last forever. The first place where it blew apart was in the Western banking system, which suddenly revealed that it couldn’t honour its pledges to the poor. Unfortunately, the poor now had no money, including money to pay the interest on its debts, and so every bank in the Western world was now bankrupt, a situation last seen in 1932. To solve the problem, Western governments had to give the banks vast amounts of money — but unfortunately there was not enough money in the world to pay off the banks’ real debts. Therefore, the immense amounts of money the West gave to its banks were not enough to make the banks solvent, and thus the banks were unable to lend more money.
Meanwhile, of course the ruling class was not prepared to contribute to solving the financial mess which it had caused. It demanded that the middle class and working class pay the bills, but every government in the West knew that if they tried to do this, they would lose the next election on their ears; what was also obviously the case was that the middle class and working class did not have the money. Furthermore, if the middle class and working class were driven into ruin (as happened in 1932) then there would be catastrophic depression of demand, and this would expose the West’s inability to fund its imports, which in turn would cause the collapse of the only economically productive region in the world, namely Asia. So they borrowed the money they gave to the banks.
This staved off the banking collapse for a while and covered up part of the economic crisis. What couldn’t be covered up was the collapse of employment, for every rich person responded to the economic crisis by firing employees. The surge in unemployment meant that the economy wound down; even successful countries have 10% unemployment, and in the Mediterranean it’s more like 20%. Nothing like this has been seen since the 1930s. The problem is that under such conditions a recovery is almost impossible, for with such high unemployment it’s impossible to create the demand to kick-start the economy. Obviously a Keynesian solution would be to borrow vast sums and put the unemployed to work, but unfortunately those vast sums have already been borrowed and given to the rich. Besides, the rich would be very unhappy to see vast sums borrowed and given to anyone but themselves, and since Western governments are completely controlled by the rich, there is no prospect of a New Deal, or of the kind of redistributive project undertaken by China to prevent depression there.
Now, the problem is that governments are running out of money to fund the facade of economic stability created by the “bailouts”, and sustained by the well-trained cheats and confidence tricksters known as government and corporate economists. Most governments are deep in deficit, and while this does not seem to be a short-term problem, it is a long-term problem particularly because it is so universal. The United States could run up absurdly high deficits so long as its trading partners did not do the same, but now everybody is in deficit, and the economic consequences of borrowing immense amounts and using them unproductively are rapid inflation and collapse of confidence in the banking system. Why we aren’t having inflation is uncertain, but is probably a product of the fact that the money is disappearing as fast as it is borrowed. The global ruling class are a gang of Scrooges; they don’t even blow their dosh on drugs and whores, let alone on anything useful.
The money to sustain current policy has to come from the poor. However, taking money from the poor will slow down the economy further. There will be less cash floating around to pay for goods and services, and the global economy will fall further into depression and overproduction; more people will go out of work and be unable to buy stuff, and a vicious cycle of collapse will begin. One of the side effects of this will be that the money being pumped into global stock exchanges to keep them artificially high will vanish, and global stock exchanges will crash harder than they did in 2008, eradicating global pension funds and destroying supplementary middle-class income. If this happens, 2012 will make 1932 look like the Summer Of Love. (Maybe the Mayan prophecies were actually drafted by economists?)
But they wouldn’t do anything so dumb, would they? Our global leaders are surely not suicidal sociopathic imbeciles . . . may the Creator present you with your wake-up coffee? Sorry it’s laced with cyanide.
Yes, they are doing that. What’s worse, they are all doing it at once. You will have noticed the so-called Greek crisis, which is really a European crisis, which is why it became an Italian, Spanish, Hungarian and Irish crisis, but definitely not a British or French crisis because that can’t be mentioned. All these crises had the same factor in common: the government could not meet its debts. The promise was that Greece would be bailed out (on the understanding that everyone would pretend that Greece was the only country facing crisis). The “bail out” meant giving tens of billions of Euroes to the Greek ruling class in exchange for the Greek working and middle class being reduced to poverty. However, when this happened, understandably the ruling classes all across Europe decided to expose the real calamitous state of their economies so that they, too, could trouser away tens of billions.
Of course, there wasn’t enough money in Europe to perform such a “bail out”, so the whole system failed. Immediately, the European countries who had pledged money they didn’t have to save the Greek ruling class from itself, reneged on the pledges and left Germany holding the bag. Everybody bailed out of the bail out. No surprise there, it has happened everywhere else that Europe has pledged vast sums to help somebody.
But the Germans got grumpy. Germany is the country with the lowest budget deficit in Europe. Suddenly they realised that if they behaved towards Europe the way Europe has behaved towards them, and stopped splashing cash about but instead pulled in their horns, they could slash their deficit to manageable levels in a few years. Then they could be the only financially stable country in Europe and could dictate terms to everybody else. Angela Merkel stuck on her pickelhaube and her toothbrush moustache (both of which suit her admirably) and all but proclaimed the Fourth Reich.
Of course, that will only work if everybody else is not in deep recession, but continues staggering along in perennial crisis, like now. The risk was that Germany cutting back on spending would throw the rest of Europe into crisis. Unfortunately, the British had just elected a government pledged to cut back on spending (on the poor, naturally; the rich will still be getting the usual bungs). Recently it turned out that they would have to cut spending much more savagely than they thought if they wanted to reduce the budget deficit. (Unfortunately the budget deficit is due to low tax revenue, which is due to the depression, and slashing spending will exascerbate the depression, thus reducing tax revenue, so this kind of behaviour is chasing after your own shadow in the hope that it is carrying a pot of gold.)
Meanwhile, not to be left out, the cretinous Sarkozy government has announced plans to cut back on French pensions. In other words, all three major European economies which pretend not to be in depression (unlike the Mediterranean and Eastern European countries which are undeniably basket cases) have developed plans to undermine their economies. What this means is a race to see whose economy will collapse first, last person standing wins, until they collapse, which would probably happen a second after the victory ceremony.
Oh dear.
Meanwhile in Japan, as is well known, those inscrutable Orientals are feverish imitators of our Western ways. Sometimes it pays dividends. In this case, however, the Japanese invented the crisis we are in; their economy hit the buffers in 1989 (by which is meant, concertinaed in a bloody wreck and burned to ashes) and they have been running on credit ever since. Now they have decided to stop running on credit. Unfortunately they are spending so much of their income on servicing debts that they can’t afford to stop running on credit. Guess what — they are going to cut back on spending on the poor. Phew — just in time! Who knows, perhaps the Japanese economy and the British economy will collapse simultaneously, and perhaps their Prime Ministers will commit seppuku in unison after a mutual tea ceremony.
Just to make everything absolutely certain, the Chinese have run out of money for their Keynesian stimulus package. Not wanting to get into the same difficulties as everyone else is in by borrowing vast sums of money, China is stopping redistribution of wealth. That would be fine assuming that the global economy were on the mend. If it isn’t, however, China will be in a little difficulty if its exports collapse when Europe and Japan stop buying manufactured goods. It would have to turn to the United States, but the United States is tied closely to Europe and Japan. China is economically healthy almost entirely because the United States owes it vast amounts of money. Unfortunately, the United States cannot afford to pay that money. If China ever calls in its debts, it will discover that the banker is as broke as bankers everywhere else are.
So what we face is both an exascerbation of the global depression, and the collapse of the international financial system, which will exascerbate the global depression. The whole world faces what happened to Europe when the Credit-Anstalt and Ivar Krueger collapsed, except that in 2010 it looks as if the collapse of financial institutions is going to be far more severe. And meanwhile governments are much more completely under the control of rich people than they were in 1932 (which is saying something) and will therefore enforce the asset-stripping of society at gunpoint, if necessary. (The Australian Prime Minister has just been deposed in an internal coup which probably relates to his floundering attempts to gain revenue by taxing multinational mining companies; the Labour government is about to fall and be replaced by a Liberal government which will do the right thing, namely, save money by cutting back on spending on the poor. And, meanwhile, in South Africa, our economy is soaring like a stuffed eagle, so beautifully that we lost a hundred thousand jobs in the first quarter of 2010.)
But don’t worry. Everything is going to be all right. The press and pundits paid by the plutocrats say so. What could possibly go wrong?

Zimbabwe’s Ruination

March 4, 2008

Two recent reports over the South African Broadcasting Corporation. One report indicated that the unofficial rate of inflation in Zimbabwe may have reached an annualised rate of 100 000%. Another indicated that the dissident ZANU(PF) candidate standing against Mugabe in the forthcoming elections, former finance minister Simba Makoni, expressed his willingness to hand Mugabe over to the International Criminal Court at the Hague. Such things make one think.

How does one manage to get an inflation rate of 100 000% if one isn’t actually trying to do so? This is the unofficial rate, the rate governing what kind of paper you get when you change money on the street as opposed to at a bank. It’s ten times the last figure, which was given only a few months ago. What’s going on?

Inflation is the discrepancy between the amount of currency circulating and the actual value of production. So if I print a trillion rands and get them circulating, given that a trillion rands are intrinsically worth nothing (they are worth only what someone will give you in exchange for them — as paper they are only good for firelighters) then since there are only a few trillion rands around (probably less — the whole GDP is only about a trillion and a half) the value of the rand will drop because there is more currency around, in proportion to the goods to be exchanged.

Does this mean that someone in Zimbabwe is this year printing a thousand times as much money as there is value to provide for it? It seems difficult to believe. The problem is that Zimbabwean currency cannot be officially exchanged for any other currency. Show up at your local bank with a wheelbarrow laden with Zimbabwean million-dollar certificates and they will kick you down the steps.

It is possible to buy foreign currency with Zimbabwean currency inside Zimbabwe. You can go into the country with a bundle of rands, exchange them for Zimbabwean dollars at the current rate of something like a million to one, and have yourself a party. (The use-value of Zimbabwean dollars lags behind their exchange-value, so foreign currency constantly appreciates in value.) The point is that whoever bought your rands can then use them as hard currency. So far as it’s possible to tell, this is how Zimbabwe got it together to pay off its debt to the International Monetary Fund; it kept the printing-presses humming and swapped Zdollars for rands, USdollars, pounds, kwacha, euroes, yuan, yen and anything else they could scrape together until at last they had the moolah to hand over in a form that the IMF would accept. In doing this they pushed inflation up to the then-skyrocketing level of 600%, which back then, a couple of years ago, was the highest in the world.

But now it’s just plain silly. 600% is still inflation and you can imagine bringing it down. 100 000% and you don’t have a currency any more. This is along the lines of the hyper-inflation in Germany in the early 1920s, which seems to have been largely caused by a deliberate decision to make the mark worthless; all those billions of marks which Germany owed the Western Powers in the reparations clause of the Treaty of Versailles could happily be handed over under such conditions, because they would barely buy the Western Powers a pint of beer. How the hell did this happen in Zimbabwe?

Zimbabwe is, certainly, in a bad way economically. After it reneged on repaying its International Monetary Fund loan in 1997 (after the disastrous failure of the IMF’s Economic Structural Adjustment Programme under which the loan was granted) Zimbabwe couldn’t borrow money abroad (except maybe in South Africa, and at that time the interest rates in South Africa were ruinously high). Zimbabwe got a bit of foreign currency from the Congo war, in exchange for pouring out its soldiers’ blood — but far less than it expected, and in the long run Zimbabwe didn’t have the capacity to invest in the Congo to provide infrastructure required for economic development, so there, as in Mozambique, Zimbabwe paid the price and South Africa scooped the profit.

But then the internal problems for ZANU (PF) couldn’t be delayed any longer. The consequences of the IMF’s catastrophic plans drove prices through the roof and kept wages low; Morgan Tsvangirai became a national figure leading workers to struggle against these conditions. He then set up a political party, the Movement for Democratic Change, dedicated to bringing back the IMF’s catastrophic plans — as if the doctor should diagnose anaemia and recommend slitting the patient’s throat. It was apparent that Tsvangirai was in the pocket of rich Zimbabweans who had profited by the ESAP (it didn’t become clear until later how much he was also in the pocket of foreigners), but Tsvangirai was persuasive, had strong media support, and had no scruple about drawing on grievances such as the Matabele-Shona divide.

ZANU (PF) had a trump card to play; dislike of Zimbabwe’s whites united all black Zimbabweans, and dislike of the rich white farmers, especially. The long-standing unresolved land issue was brought into play; the government orchestrated land invasions to drive most of the white farmers off the commercial farms, paying derisory or nonexistent compensations. ZANU (PF) called this the “Third Chimurenga” (the First having been the war against Rhodes’s settlers in the 1890s and the Second, the war against Smith’s settlers in the 1970s). It was a famous victory.

Unfortunately it was a victory over itself. The commercial farms had provided Zimbabwe with its meat and its surplus grain, as well as with the tobacco which was Zimbabwe’s big foreign exchange earner. With the farms split up into small subsistence plots at best, or at worst seized by politicians or businessmen and held fallow for future exploitation, no tobacco, no commercially-available meat and very little surplus grain was available. The commercial farms had also provided employment which no longer existed (stopping an injection of cash into the economy) and had assisted neighbouring subsistence farms when times were tough. All this vanished.

Suddenly Zimbabwe had lost about half its saleable agricultural crop (and had also shattered all hope of seeing any investment in agriculture; luxury crops like cut flowers and pepperdews disappeared, the market taken up by South Africans in Limpopo instead). Furthermore, because of the decline in grain and meat production, Zimbabwe could barely feed itself; most of the time it had to import food to keep the cities alive, but unfortunately the loss of export revenue meant that it couldn’t afford to pay for the imported food. Half the time it couldn’t afford to import fuel for its vehicles or electricity for its cities, or even spare parts for its machinery and medicines for its hospitals. Everything deteriorated.

Just to add to the problem, Zimbabwe’s tourism industry depended almost entirely on white South Africans and white Britons. The British government, however, declared Zimbabwe a kind of international public enemy, making a huge fuss about the stolen 2000 Presidential election (which would have been more credible had they also broken relations with the United States’ government, but never mind cheap shots). They whipped up fear of Zimbabwe, and British tourism to Zimbabwe collapsed. Much the same happened in South Africa (where the media, largely controlled by British and Irish businessmen, followed the British line) and where the country was flooded with new white Zimbabwean exiles with sad stories to tell; again, tourism collapsed as people feared going into the country; it’s never hard to arouse racism amongst white South Africans. Zimbabwe’s foreign currency reserves suffered.

So, it’s easy to see how Zimbabwe’s economy should face a crisis of inflation. On the one hand, since the value of the gross domestic product fell steeply, and since there were shortages, there was a discrepancy between the value and the amount of money around. Prices therefore shot up, accelerated by speculation. To keep things looking normal, Zimbabwe printed more money, which kept the economy functioning but made inflation even worse. The collapse of the Zimbabwe dollar made it even harder to import things even from neighbouring states; what could you pay with, when Zimbabwe needed its coal for electricity and its grain to feed its cities?

Speculators, especially within the government, began hoarding foreign currency, further fuelling inflation. The rural population, unable to feed itself in bad times, could no longer receive food from a benevolent government which had no reserves, and there were no rich white farmers to distribute largesse, so they flooded to the cities, overstraining the infrastructure (and there was no money to reconstruct it). Eventually the government resorted to forced removals along the lines of the old South African apartheid government’s policies (the West condemned these removals much more stiffly than they had done over the apartheid removals).

All this is pretty bad. And yet . . . why 100 000% inflation? The economy has certainly weakened, but it is not falling to a thousandth of its value in the course of a year. Nor is the Zimbabwean government printing a thousand times the currency this year that it printed last year. Economically it makes no clear-cut sense. The Ivory Coast has suffered calamities on a comparable scale, and over a comparable period, to Zimbabwe’s — split in two by a civil war with a demagogic President demanding pogroms against his enemies while the infrastructure collapses from lack of investment. Burkina Faso doesn’t have any of Zimbabwe’s advantages. The DRC and the Republic of the Congo barely exist as states. Why don’t these countries have economic problems anything like the economic problems of Zimbabwe? Is the Zimbabwean government uniquely evil and corrupt in Africa? Surely not.

One thinks, first, of Morgan Tsvangirai and his death-defying double-somersault from populist to neoliberal propagandist. One notices the way he was worshipped in the West and worshipped the West in return, shunning the ANC in South Africa and instead chumming with the white DA, and the way in which a very particular, narrow, West-friendly press evolved at the same time as his rise to power, under Trevor Ncube. Was this accidental? Then one notices the good Mr. Makoni, who previously strove to resolve the economic problems of the country, but now wants to ship the President he served so faithfully off to suffer the corrupt whims of the International Criminal Court, the judicial arm of international neoliberalism. Why should he mention that? One thing Zimbabweans are suspicious of, and that’s right-wing white foreigners with questionable agendas. Obviously Makoni isn’t trying to win support in Gweru. He’s talking to London and Washington. Is he seeking backing there, or does he already have it?

In which case, as in the case of the MDC, it seems likely that Western interference in Zimbabwe is continuing. Now, if there’s one thing which the West has with which to interfere, it is money. It would probably be possible to mess with the Zimbabwean economy quite effectively, especially given an unofficial exchange rate which would theoretically allow a quite modest US dollar millionaire to buy up the whole country. Is something going on there? Is the West deliberately damaging the Zimbabwean economy in order to bring down the ZANU (PF) government and install one or other of its clients in charge of the country.

Heavens, no, the West wouldn’t do a thing like that, would they?

The Magic of the National Budget

March 4, 2008

Every year for the last thirteen years the South African Finance Minister, Trevor Manuel, has presented a Budget to Parliament. This follows the British pattern; the Budget is worked out by the Ministry of Finance and although it is presented to Parliament, Parliament has no say in changing it. However, unlike the British pattern, the South African Budget is known fairly well in advance, because it is calculated over a three-year period (what is called medium-term expenditure) and so there is not the kind of secrecy fetish which in Britain has Chancellors of the Exchequer photographed holding suitcases which allegedly contain the mighty secrets of wealth and power.

The Creator is in possession of two responses to the Budget for 2008, one from the Daily Dispatch and one from the Mail and Guardian. Both are special supplements to the newspaper. You can either assume that the Budget is such an important part of everyone’s annual ritual that it is worthwhile providing people with detailed information on it, or you can assume that consumerism has reached such a pitch that people are ready to make money out of the most insignificant pretext.

Take the Dispatch first. Its 8-page Budget special’s cover bears a portrait of Manuel holding his two spread hands out before him like a magician conjuring up something. The portrait overlays images of RDP houses and electricity pylons against the background of an African sunrise which all makes Trevor look a little like an airbrushed Chairman Mao. This illustrates the news that the budget for the Eastern Cape increases to R35,9 billion, an increase of R7,5 billion, meaning that the previous budget was R28,4 billion, meaning a 26% increase. (18% allowing for 8% inflation.) However, a great deal of this seems to be expenditure on issues related to the Coega industrial development project around the Ngqura harbour, so the increase will not mean a 26% increase on all expenditure.

Then we are told there is to be R35,8 billion spent on housing over the next three years; there is the acknowledgement that 2,4 million homes need to be built (approximately what has been done in the past 13 years) and meanwhile R2,2 billion is to be spent on “upgrading informal settlements” — presumably, providing shanty-towns with amenities like toilets, water-taps and electricity connections. The 2007-8 house-building target was 220 000, meaning a 10% increase in the rate of building under the 1994-9 RDP, although the population is up and the economy has grown by considerably more than 10%. In 2010/11 this is supposed to increase to 265 000, which, if it is met, is a little more like it. However, the Minister of Housing has argued that the rate needs to be doubled.

Manuel admitted that the price of a bag of mealie meal had increased by 35% in 2007-8, but resolved to do nothing about this. An article on education revealed that per-pupil education spending in the province was R554.

Safety and Security, a perennial problem, rose by about 10% (i.e. 2%) from R36 billion to R40 billion. It was expected to rise to R49 billion by the 2010 budget — that is, increases were expected to stay much the same.

Only then did the page come which dealt with tax cuts which “keeps public smiling” — that is, the part of the public which pays taxes was happier. The article, by the newspaper’s Business Editor, revealed that R7,2 billion would go in tax breaks for what were called “salaried workers” — about 33% of this money would be returned to those earning below R150 000 a year (about five times the national average wage). 28% went to those earning between R150 000 to R250 000 a year (five to eight times the national average). Presumably, the remaining 38% of tax breaks went to those earning more than R250 000 a year, meaning that the breaks were extremely regressive, but the writer wisely did not mention this. Admittedly, no tax would be paid by those earning R46 000 or less. Corporate tax went down from 29% to 28%, a 3,4% cut which, the author said, would somehow lower the cost of capital for new investment. (If the company did no investment, it was presumably extra Mercedeses all around the boardroom.) Exchange controls for “institutional investors” (which sounds like a big break for loonies) were completely eliminated and the “rand futures market” opened up — which sounds in the real world like a big generous hand for capital flight and speculative traders.

Manuel attempted to make the Public Works Programme sound more impressive by talking about “a further R1 billion over the period ahead”, and the newspaper fell for this. However, the actual increase was from R3,7 billion to R4,1 billion, an increase of just under 11%, or 3% really. The sleight of hand was undertaken by confusing the medium-term budget with the annual budget, and for the reason that public works are popular, so hiding the fact that the programme absorbed only a tenth of the police budget was a good idea.

HIV spending, oddly, was around R2,2 billion, although it was supposed to be R6,5 billion by 2010. This did not make much sense. The Eastern Cape alone was getting R2,1 billion over the next three years. However, according to Manual 418 000 people (or about 0,8% of the population) were currently on antiretrovirals, with another 500 000 scheduled to come in later). So while the figures did not add up (probably because the newspaper was confused) the data was at least reassuring.

The rest of the supplement — two pages — dealt with political speculation that Manuel might be fired by Zuma, and with denunciations of the Budget, mostly by the SA Municipal Workers’ Union, who felt that it was a rich person’s budget (which was not totally unfair), by the DA (which felt that the Budget was unfair to the rich, which was ridiculous) and, best of all, by the Tobacco Institute of South Africa, which felt that the Budget was unfair to lung cancer promotors.

So this supplement, while often fooled by the complexities of the Budget (or perhaps willingly participating in the fooling) did at least manage to tell us something worthwhile. But note an absence: no table telling us how much was spent or what proportion of the Budget was spent on what. Well, what can you expect from a small-town paper? Better, one would think.

One would think that the Mail and Guardian‘s 12-page budget special should be 50% better than the Daily Dispatch.

However. On the cover is a small photo of Manuel (no gigantic pylons dominating the rosy skyline) and articles talking about “chin up” and “holding the line” against the Deputy Minister for Trade and Industry who wants a genuine trade and industry policy which would actually promote manufacturing. (Well, we can’t have that!) Another article, also on the cover, asks if Manuel is to be sacked or not, and another compares him with Barack Obama, the US Presidential candidate (which is an insult to Manuel on a par with dumping a bucket of diarrhoea over his suit).

Praise for spending on education, where spending rises from R105 billion to R121 billion, an increase of 15% (7% really). Higher education gets a rise from R13,3 billion to R15 billion, an increase of 13% (5% really), so once again, a lower slice of the budget (from 12,7% of the budget to 12,4%). Health-care increase was not mentioned in the article on health care budgeting, because the article was written by Belinda Beresford who does not approve of the government. She did — unprecedentedly — mention that the government had an antiretroviral policy. (Incidentally, she quoted the entire provincial budget allocation, possibly thinking that this was about health care.)

The next page saw some criticism of the Budget — naturally, from a financier from Metropolitan Asset Management, who didn’t like the tax levy aimed at raising money for electricity generation (no doubt financiers can more easily pick peoples’ pockets in the dark). In fairness, she also complained about the static level of social grant spending, and she pointed out, as the Dispatch didn’t, that the tax breaks tended to go to the rich.

The section on transport did not say what was being budgeted for transport, although it wittered about various cities spending loads over the medium term. However, on the next page the Minerals and Energy section revealed that R8,2 billion would be spent. The claim was that the energy budget would be “greener”, a concept which the Mail and Guardian, a great greenwasher, lives. Again, there was no mention of what the Minerals and Energy budget actually was.

Then came the page dealing with what the budget means for you. The author said that those earning less than R46 000 a year would not be taxed, which was true, and that this saved “R540 a year”, which was false. Those earning R100 000 a year saved R540 a year (0,54%), whereas those earning R200 000 a year saved R1 955 a year (0,97%) and those earning R500 000 a year saved R4 655 a year (0,93%). So richer people got roughly double the tax break that poorer people got. That was helpful, though the page didn’t put it like that. The corporate tax break was described as a “welcome relief” which “put R5 billion back into corporate profits”, which at least helps explain what the author’s agenda was. The author admitted that individuals pay 40% while companies pay 28%. (Very interesting, that the Mail and Guardian journalist was more enthusiastic about capitalist inequality than the financier was!) On the next page, an article explained that all restraints on mining companies encouraged mining companies to go elsewhere, so there should be no such restraints.

Thereafter came a page on defense spending, claiming that an average 6,1% increase over the next three years was in line with inflation (actually 2% lower than inflation, so this meant regular cuts) — and the article did not mention what defense spending was.

After an advertisement came a page on the ending of exchange control, saying that it was a positive message (for whom, not stated) and also that it would not encourage foreign investors (who would expect more from the government). The author said, with apparent pleasure, that more money would flow out of the country. Another article complained that child support grants were too low (but did not say how much was spent on them) whereas an article in land reform noted that the spending on land reform went up from R4 billion to R6,6 billion (a 65% increase).

Another article explained a 16% (8% in real terms) increase in provincial spending, up to R238 billion, giving a breakdown of what each province got, and — that was it.

So the remarkable point here is that the “quality weekly” did not provide significantly more information than the small-town daily. Another remarkable point, however, is that neither newspaper provided an actual breakdown of the 2008 budget and how significantly, if at all, it differed from the 2008 budget. It’s as if readers are really not intended to see the forest; we are all supposed to gaze in awestruck wonderment at all those beautiful trees. Conventional news comment was restricted to how much the tax cuts were and how much more people were paying for beer and cigarettes. Apparently this is all that the rest of us are supposed to care about.

And a favourite complaint from press and politicians combined is that the public doesn’t get involved enough in real issues . . .

Lovin’ Can’t Pay My Bills

February 19, 2008

Here in South Africa we supposedly have lots of problems. We have the problem of AIDS and the problem of Satanism. We have the crisis of a totally incompetent government, and the fact that the next man in line to run the country is worse. (How can you be more than totally incompetent? Oh, we also have the problem of people making stupid statements and preventing anyone from challenging them.) We have the problem of moral decline and of the need for the privatisation of all major industries. We have a lack of commitment to revolutionary praxis, and of the failure of muscular liberals to meet the high, demanding standards of Peter Marais. We have a high crime rate (though, to be fair, they have arrested the chief of police, which surely shows progress). Oh, and Afrikaners are oppressed, terribly, too. Not to mention a brain drain, a grain strain, and a plain blame game.

No, we won’t mention those things, or any others either, because those things are trivial in themselves. They are symptoms of the disease. Often they are symptoms because they are presented, deliberately, by people trying to promote the disease, to distract and fool us from dealing with the disease. What is the disease?


The love of money is the root of all evil. If this is true (and who would deny it?) then capitalists are demonic and should be exorcised. No, discussion won’t get very far when based on particularly shallow platitudes. Let us seek slightly more profound platitudes.

There is a thing called the GINI coefficient, which supposedly measures how unequal wealth distribution in a society is. It is based upon the assumption that such things are measurable, and indeed that they are accurately measured, which they are not. GINI leaves out vast amounts of important things which makes it a very poor gauge of equality. However, just like Gross Domestic Product, which is an extraordinarily dim way of measuring such things but is the only one taken seriously by anybody, GINI is the best available tool. Like having to dig a trench with a tuning-fork, but there you are.

Well, according to the figures, South Africa’s GINI coefficient is about 0,66. 0 is the best equality, 1 is the worst inequality, in terms of which one person has all the wealth and everybody else staggers about with no clothes on. 0,66 is pretty high. It is apparently one of the highest measured, and we are up there with Brazil and Guatemala.

Does that tell us anything?

Yes and no. Yes, it is blindingly obvious that the inequality of our society’s wealth distribution — or, more accurately, the cause of that inequality — is responsible for a huge variety of social ills — the obvious ills of poverty and malnutrition and unemployment, the less obvious ones of crime and the collapse of social cohesion and civic responsibility. No, it tells us nothing, because the people who are most involved in that inequality are not prepared to listen, or if they listen, they hire people to tell us that the inequality is the fault of someone else.

How bad is it? This year the country is expected to generate about R1,5 trillion. We have about 50 million people. Working the math, that divides up to about R30 000 a head. If you are getting less than R30 000 out of the system this year, counting everything, and remembering that you are probably part of a family in which not everybody is earning, then you are losing out.

A lot of people are earning a lot more than that. There are people who earn R100 million in a year. Tens of millions are pretty standard fare for chief executive officers of companies. Such people are earning several thousand times the average. Sleazebags.

To free up money for this elite, we have an unemployment rate of — duh. The actual unemployment rate is unknown. The figures are routinely fiddled. However, let’s take 30% for argument’s sake. 30% of those people who could be employed are not being employed, are not earning anything at all from their labours. A substantial number of these are on subsistence farms in Limpopo, the Eastern Cape and a few other areas, basically outside the money economy altogether. Others are crowded into shanty-towns or mud-hut villages.

But of those actually earning money, a lot don’t earn very much. The minimum wage about which rich people complain so much is way below the average (meaning, of course, that it should not discourage employment, although rich people hire economists to pretend that it does). People selling little bags of mouldy tomatoes on the sidewalks of small rural towns are self-employed entrepreneurs and thus don’t count as unemployed, but how much do you think they are getting?

Meanwhile the people going on strike last year, whose struggles were defended by the media as opposed to the evil rich politicians who were oppressing them, the nurses and teachers and so on — they earn several times the average. Their strike was to demand that they should earn a good deal more than the average instead of just a little bit more. You can, if you like, argue that they are entitled to this (although the performance of our schools and hospitals suggests otherwise) but you can’t deny that they are an elite, and increasing their salary increases the GINI coefficient instead of reducing it. (This is probably why the media was so enthusiastic, given that the media loves elites.)

Wow. So the people whom we consider workers are not necessarily good guys, and the people whom we consider wealth creators are not either. OK. Who are the bad guys? The government, right? Everybody agrees that this is all their fault. They’re in charge, aren’t they? Why don’t they make it all better?

They can, of course. They can send in the police and the army to confiscate all wealth above R30 000 and hand it around. The confiscation part is easy. The handing around is more difficult, as was discovered in Cambodia under the benevolent rule of Angka Loew in the 1970s. This kind of policy is tacitly advocated by some left-wingers (usually ones living in agreeable houses a long way from where any problems might arose) but generally it will not work and nobody knows how to make it work.

Take a slightly closer look at the problem. Where did it come from? There was (you may have heard) a little problem called colonialism a few years ago, and subsequently, a modest hassle arising out of that called apartheid. These were basically techniques for concentrating wealth in a few hands. You divide the country into two categories (don’t call them rich and poor, please) and ensure that one category has political power and the other not. Then you make the ones without the power work for the ones with it. Similar techniques were used in Ancient Rome and Classical Greece, with very excellent results if you weren’t a woman, a slave or a barbarian. It was very profitable for rich, powerful people for a long time — in fact, it still is.

That is where the inequality came from. However, it grew worse towards the end of apartheid, partly because of high-value, capital-intensive manufacturing. This meant that we didn’t need to make lots of cheap stuff to pay for the salaries of the elite. Instead we only had to make a small amount of expensive stuff. We didn’t need to hire so many labourers to keep the rich, rich. Hence the rich stayed rich, but the poor got poorer because more of them lost their jobs. This process continued from the last decades of apartheid until now. It’s not a process that is easy to reverse.

Meanwhile, if you are rich, you tend to want more. The rich really do get richer. They invent sophisticated ways of getting richer, like the futures market on the stock exchange. They have more political power than the poor, so the economy becomes ever more skewed in favour of the rich. They can also stop the poor from getting their own back. That’s why the inequality gets worse.

The government can do a number of things. It can tax the rich and hand the tax money over to the poor. In fact, that’s exactly what it does. Most government spending helps the middle class as well as the affluent class; a substantial chunk of government spending, such as social grants, goes directly to the poor. Spending on infrastructure promotes employment and is theoretically good for economic growth. In theory, spending on schools and hospitals also goes to the poor, though in practice so much of the money goes on salaries for middle-class government employees that this is moot.

It can persuade the rich to be nicer to the poor — no, it bloody well cannot. One of the dumbest policies of the present government has been the blind belief that the problem was that rich people are bad whiteys, and if only good darkies were in charge of all the money, the problem would disappear. The fact is that wealth overrides skin colour; if you are a rich black person you have immensely more in common with a rich white person than with a poor black person. Hence black economic empowerment has definitely not improved anybody’s lives; it has merely perpetuated the problem. (On the other hand, contrary to the ridiculous propaganda of rich white people, black economic empowerment has not made anything worse for the country as a whole; just because there are black sleazoids as well as white ones earning a hundred times more than they deserve, does not change anything.)

It can prevent the rich from sending their money out of the country, through what’s called exchange controls. This seems smart. If you can’t get your money out, you might as well invest it. Maybe some of that investment will be productive and lead to someone getting hired. (Alternatively you might put all your money into derivatives on the stock market, meaning that it does nothing useful to anyone except you and your financial consultants.) So it’s not a reliable way of solving the problem — although lifting exchange controls was one of the dumbest things the ANC has done in its terms of office.

It can prevent the rich from wasting their money on imported goods, forcing them to buy locally manufactured goods instead. This is the best possible solution. If things are locally made, someone locally has to make them, has to hire people to make them, has to obtain resources locally, and so on. This is brilliant. The only problem is the first sentence in this paragraph. It isn’t true. The World Trade Organisation prohibits governments from making decisions of this kind. You are not allowed to slap tariffs on imported goods, nor are you allowed to hand subsidies to domestic goods. Why do they do this? The World Trade Organisation is run by rich people — go figure.

So what can the government do to make things more equal? The answer invariably given by economists working for rich people (that is, virtually every economist alive and quite a lot of dead ones) is, promote economic growth. A little bit of economic growth, say between 3% and 4% a year, does not encourage equality. This they say, and we know it is true, because we had that kind of growth all the time when inequality was increasing. So instead they say that what we need is economic growth of 6% and then inequality will decrease.

There is absolutely no evidence for this. It is, however, an argument endlessly made, because the rich are in a position to get a better share of economic growth than the poor. In other words when the economy grows faster, the rich get richer, faster. However, the poor also get a little bit richer, because employment goes up and sometimes wages rise faster than inflation. Therefore, for the poor, the extra crumbs falling from the table feels like manna from heaven. It’s easy to persuade them that this is a sign of equality growing, and to tell them that this is because the rich are doing such a splendid job, unlike the government, which is always doing a bad job.

So, basically, economic growth is a snow-job (at least as a means of wealth redistribution, which is not to say that economic growth is a Bad Thing). This helps to confirm that the rich are not interested in wealth redistribution. They could do it, but they don’t want it. The poor are interested, but they don’t have the power. The government has the power and might have the will (although they are easy to bribe or fool) but what are they supposed to do to solve the problem?

Anybody got any ideas?