Stimulation or austerity: the catataxic debate

Gold CoinMost Western countries are having the same economic debate at the moment: austerity or stimulus? Britain’s coalition government, Germany and the Tea Party in the USA want more austerity. The logic is simple. If you have too much debt then you should stop spending. But the counter argument goes like this: government cutbacks depress the economy, recessions mean less tax revenues which mean more cutbacks. The result is an ever decreasing spiral like the one in Greece where the economy is shrinking 5% a year. So governments should be spending to stimulate the economy and worry about balancing the books later when the private sector is booming again. Rubbish, say the fans of austerity, you can’t spend your way out of a debt crisis…

This “stimulus versus austerity” debate can be recast as an example of catataxis. It hinges around the fundamental concept of money which has three main functions: a medium of exchange, a unit of account and a store of value. These three functions form three different “levels” and the stimulus vs. austerity debate is a conflict between these levels. Let’s look at each of the three in turn.

The first function of money is as a medium of exchange. It acts as a physical token that is exchanged when a transaction takes place. In this sense, money can be cowrie shells, gold bullion, coins or notes. In a prison, cigarettes are often a medium of exchange. It also does not need to be that ‘physical’. If you transfer money between two bank accounts through a BACS transfer, then some digital tokens are being exchanged between two computer systems. Likewise, air miles are a form of money which can be exchanged for seats on an airplane.

The second function of money is as a unit of account. It acts as a common yardstick for measuring the value of different things. In a barter economy, you can exchange two sheep for three goats. In a monetized economy, you might say that both were worth six shillings. Money as a unit of account tells you what things are worth. In our example, a sheep is worth three shillings and a goat worth two.

The third function of money is as a store of value. This arises because you don’t spend money the instant you get it (unless you are my daughter, Flora). There is a timing difference between transactions. Having sold your sheep for six shillings, you may not spend the money for a couple of weeks. While it is in your pocket (or under your mattress) it is a store of value. The money is worth something while you hang on to it.

These three different functions give us the three different levels. The first is physical, the second is conceptual at a mathematical or accounting level. The third is at conceptual level one higher than that. The store of value is not about numerical equations but about the crystallization of confidence; the distillation of belief. Catataxis is level confusion: the conflict between these different interpretations of money.

If you view money at level one as a physical medium of exchange, then you want your economy to have as much of it as possible. That means that more physical exchanges can take place. In other words, more trade and more growth in the economy.

If you view money at level three as a store of value, then you want your economy to have as little of it as possible. The less there is, the more valuable it is. By restricting the supply of money you keep its value.

A good illustration of the difference between these two views is the “shopping in Vietnam” example. You can pay for your goods in a shop in Vietnam in US dollars, but you will get your change in Vietnamese dong. The shopkeepers would prefer to hoard the dollars as they see them as a better store of value but the medium of exchange is dong – that’s how you get the change.

Some would argue that the US dollar is not a very good store of value. When Nixon broke the link between the dollar and gold in 1971, gold was worth $35 an ounce. Once the link was broken, the US government was free to create as much money as it liked. This “freeing up” of the physical medium of exchange led to a period of spectacular global economic growth. More money, more exchanges (more trade). But now, 40 years later, gold is worth $1,900 per ounce. In other words, the dollar has declined in value by 98% (many currencies have fared worse) so its role as a store of value has been damaged.

The stimulus vs. austerity argument, in effect a debate about whether the money supply should be expanded or contracted, is a catataxic debate. A conflict between the level one and level three views of money. It is also a debate between creditors and debtors. Creditors (people who are owed money) favour level three. They are concerned with the store of value and want their money to be worth something when they are paid back. Debtors (people who have borrowed money) favour level one. They want a lot of economic activity so they can earn the money to pay back their debts. If the value of money falls in the process so much the better – that means less to pay back in real terms.

Normally, the debtors are many and the creditors few. So the populist position is to be on the side of the debtors and let the money lenders take the punishment. This was true when the economy first began to be monetized in 1190 with the terrible massacre of the Jews at York (see the novel Holy Warrior for a graphic description of this appalling event). It is still true today. Maybe the current trend for “banker bashing” is a reflection of this.

Phillip Coggan in his excellent book Paper Promises points out an interesting irony in US politics this time around. The Tea Party is a populist, grass roots movement that is pro-austerity. They favour level three and are concerned about the store of value. Wall street bankers, who would normally be level three advocates, are the ones calling for stimulus at level one. So the traditional positions of the banker and the populace have recently become inverted in the USA.

Apocalypse (not right) now

Harold Camping, an 89 year old televangelist, has spent the last 8 years preaching that the end of the world will occur on 21st May 2011. He spread his message through the Family Radio network in the USA. His followers sold all their positions to raise more than $100m in assets to fund a media campaign. On that day of judgement, true believers would ascend to heaven in “The Rapture” with everyone else dying in a cataclysmic wave of earthquakes. Of course, on the day nothing happened. Shamefaced proselytisers returned to their place work the next day. The world carried on as normal, beset by the evils of globalisation and the rising threat of terrorism which can be taken as a sign of God’s displeasure.

Globalisation and the rising threat of terrorism? We have all been here before. Cast your mind back to 1900. The world’s economy is truly global with little hindrance to the flow of goods and people. Western investors are pouring money into emerging markets: Brazilian rubber plantations, Chinese railways and African mines. Passports do not exist and emigrating just means catching the next ship to anywhere in the world to seek your fortune, whether you are an Irish farmer, an Indian shopkeeper or a Chinese labourer. This globalisation exists because most of the world is under the control of European empires.

At the same time, many heads of State are being killed by anarchists or, as we call them today, terrorists. In a few short years around the turn of the century the Austro-Hungarian Empress Elizabeth, King Umberto I of Italy, the King of Serbia and the US President McKinley are all assassinated. A decade later, the assassination of Archduke Franz Ferdinand of Austria triggers World War 1, a nationalistic war between empires.

Recognising the dangers of nationalism, the first supranational organisation, the League of Nations is set up in 1919. Sadly, this is too weak to prevent the even more destructive nationalistic conflict of World War 2. The second attempt in the form of the United Nations has a longer shelf life. It still exists today, as do other supranational organisations such as the EU, the IMF and the International Court of Justice. But consider this. If it took the horrendous, destructive conflict of World War 2 to create these dysfunctional, toothless, supranational paper tigers, just how bad must things get before sovereignty is passed up to an entity that can really fix today’s problems.

Take global warming or the depletion of the world’s fish resources. Although international organisations exist that theoretically address these issues they have no power. Sovereign states rarely wish to pass up their sovereignty to a higher entity. It is possible to coerce them. The last time this was attempted was the US Civil War. The northern states forced the southern states to join the club and submit to a higher federal government. Higher level entities are forged in the furnace of conflict. The carnage of the US Civil war was hot enough to fuse the United States together. Unfortunately, World War 2 was not ferocious enough to make a powerful United Nations, despite the death of 60 million people. It created something, but it was something too weak to properly address global issues.

In the late 1940s, most of the world was impoverished and happy to follow orders after years of war. Today we have TV, the internet, sexual liberation and the consumer society. There is far less chance of citizens doing what they are told voluntarily. Just think how hot the fire would have to be to sinter those disparate citizens together into a common purpose.

So there might be one good thing that could arise from a forthcoming apocalypse. It could give birth to a global institution capable of solving our environmental problems. As the Vietnam general said “ It may become necessary to destroy the village in order to save it”

Mistletoe in Winter Trees

As I was driving to the hospital the other day I saw this

Mistletoe in winter trees

Those round things high up in the trees are not nests. That is mistletoe. You can understand why the Celts thought it had magical properties. It is part of the tree that is still green (sorry my photo does not show that so well) and so in the depth of winter  holds the promise of spring. That is the reason why it is used in Christmas and New Year celebrations.

Mistletoe is also a symbol of male fertility. The berries if you squeeze them give off a sticky white juice that looks similar to semen. This sticky juice is the mechanism that the plant uses to propagate itself. Mistletoe is a parasite. Its roots are not in the soil but the branches of its host tree. So unlike other plants (but like Onan), if its seed falls to the ground it is barren. The seeds can only germinate if they are attached to the branch of another tree.  Birds do this when they eat the berries.  They wipe their beaks clean on another branch and the sticky juice attaches any uneaten seeds to a new host.

Anyway, when I saw this out of my car window I was struck by the thought that mistletoe  is also a metaphor for catataxis. Mistletoe has its roots not in the ground but in the sky. As a parasite, it is a second order plant. A sky borne floating plant that belongs at a different level and follows different rules.

Nestle and the Sugarbabes

Jelly baby playtime #2 front focus

In 1988 Nestle bought Rowntree, the UK confectionary company famous for its fruit gums and jelly babies. It paid £2.5 bn which was three times more than the market thought it was worth. Nestle then had a big problem with its accounts.

Traditionally,  accountants would only look at the value of tangible assets; physical things like equipment and buildings. The difference between what you paid for a company and its tangible assets was called goodwill and had to be written off. Rowntree at the time had tangible assets of £0.5 bn. So according to the accounting principles of the day, Nestle had just blown £2 bn on intangible assets that had no true recognised value.  It faced having to declare a huge loss.

Nestle argued this was nonsense. The intangible assets were not worthless, in fact they were very valuable. They were consumer brand names that had cost many millions in advertising  investment to build up. Moreover, they were more valuable than physical equipment. Machinery wears out  and breaks down in the end; it depreciates in value. Brand names don’t. They last for ever.

This debate about accounting policies ran on for over a decade. The proper accounting treatment of brands was not settled until 1999 in the UK and 2002 in the US. Nestle’s view won out. Brands do have financial value and don’t depreciate.

Brand valuation is an example of catataxis. It’s the value of a concept rather than a physical object. Beauty is in the eye if the beholder. Brand is in the mind of the consumer. So accountants are now valuing things one level higher than the physical.  They are pricing emotions in your head. How you as a consumer feel now has a recognised monetary value. That is catataxis.

The ultimate expression of a brand is a pop group. Rowntree’s jelly babies is a physical product with some warm consumer associations. But a pop group is not a physical product at all. Its pure concept. So a band is the ultimate brand. It can exist without its physical parts. Forget jelly babies, look at the Sugarbabes.

The Sugarbabes formed in 1998 with three members: Siobhan Donaghy, Mutya Buena and Keisha Buchanan. One by one, all three of the original members have left the group. The line up in 2010 is Heidi Range, Amelle Berrabah and Jane Ewen. The constituent parts are completely different from ten years ago, but the band is still the same. It is still selling out big arenas so clearly the fans don’t mind. The band is not its members. It exists at a higher level. A catatactic success story.

Cynics can point out that this is a manufactured girl band. It is run by Crown Management, so of course the members are mere interchangeable components. This view is unfair. Organically formed bands who write their own material have similar problems.  The Rolling Stones as a band (and brand) is still as strong as ever. But the solo albums by the members are embarrassing flops. Mick Jagger released a solo album in 2001 which sold only 954 copies on its first day. A few years later the Stones “Bigger Bang” tour played to 3.8 million people and grossed $500m. So when Mick writes songs and releases them under the Stones banner its completely different from releasing them on his own. That is catataxis.

Consider Pink Floyd. This band lost its creative mainspring  not one but twice. Syd Barrett left in 1968 and Roger Waters left in a very acrimonious breakup in 1985. Roger Waters wrote almost all of the The Wall which has sold 20m copies worldwide. His first solo album was “The Pros and Cons of Hitchhiking”. This is very similar to The Wall, even down to the artwork by Gerald Scarfe. It was written at the same time as The Wall and at one time could have been recorded by the band. It was an embarrassing flop.

A big dispute followed about the ownership of the Pink Floyd name.  Roger Waters lost out and the remaining three band members kept ownership of it. They have since released two successful albums and had three sellout tours. Roger Waters is touring “The  Wall” right now – though not under the Pink Floyd name. Is it any good? I’ll tell you next year. I am lucky enough to have tickets to his May shows in the UK….


( the show was great by the way – and I had seats right at the front – see pics below) 

French Roma catatactic sandwich

Gypsy catataxisFrance has deported more than a 1,000 Roma in the last month, after President Sarkozy  decided that 300 illegal gypsy camps should be disbanded. He views the camps as sources of illegal trafficking , child exploitation, prostitution and crime. The decision was triggered by a riot in the town of St Aignan. Dozens of Roma attacked a police station after a gendarme killed a 22 year old from their community.   Cynics believe Sarkozy’s hardline but populist stance is an effort to raise his low approval ratings in the polls.

However, the EU Justice Commissioner Viviane Reding has called the French actions “a disgrace” . She has urged the European Commission to take legal action against France since EU law bans discrimination against any ethnic group or nationality.  Inevitable comparisons have been drawn with the round up of Jews and Gypsies by  the Vichy government in the Second World War.

This is a catatactic sandwich. There are four hierarchical levels involved: citizen, nation, state and supranational entity. In this, the Roma are a ‘nation’ in its traditional sense: a group of people who share a culture, language and ethnic origin. The Cherokee nation is another example. Though the words nation, country and state are often used interchangeably they have distinct meanings. A country is the land that belongs to a nation. The State is the government of the nation and the country. We are habituated to think in terms of the sovereignty of the “nation state”, where the nation and the state are a single entity. The more multicultural we become, the more inappropriate this is. There are now many nations in each state.

The Roma are unusual in that they are a nation with no country. They are believed to have left north-west India  a millennium ago and migrated throughout Europe. They are most concentrated in Romania, Bulgaria, Macedonia and Turkey but have communities in every part of Europe.

The French government claims it is acting against citizens who are in the country illegally. The EU believes France is discriminating against an ethnic group or nation. So level 3 thinks it is fixing a level 1 problem while level 4 thinks laws are being broken on level 2. That is the catatactic sandwich.

Its one step more complicated because the EU also has laws about the free movement of EU citizens. In other words, level 4 also has oversight at level 1. Unlike Britain, France requires citizens of Rumania to have special work permits.  This special exception to the EU rules expires in 2014. So in three years time, Bulgarians and Rumanians will be free to work anywhere in France. Any deported Roma can legally come straight back again.

It seems the future will be one of united nations and disunited states.

Kyrgyzstan and Winston’s Hiccup

The recent unrest in Kyrgyzstan looks like a Balkan crisis.  Gangs of masked thugs have started a campaign of ethnic cleansing of the Uzbek minority in the south. Almost half a million Uzbeks have been displaced from their homes in an orgy of rape and murder. Their homes have been looted and torched to stop them coming back. Its a strategically important country for Russia and China since it is on both their borders. It is also important for the USA who have an airbase outside the capital Bishkek, which supports their efforts in nearby Afghanistan. Just like the Balkans, it is a geopolitical hotspot with a mismatch between the patchwork quilt of ethnicities and the national borders.

This is catataxis. It is a conflict between two levels: a nation and a State. I mean nation in the old sense of the word. It is s a group of people sharing a language, culture or ethnicity. So we can still talk about the Cherokee nation, or the Roma who are a nation without a country. A State is a sovereign territorial unit. It is a political and geographical entity. So there is a hierarchy of levels like this:

1) Person
2) Family – a group of related people
3) Community – a group of families
4) Nation – a group of communities with the same ethnicity and language
5) State – a sovereign territorial unit composed of one or more nations. A Geopolitical entity.

So the unrest in Kyrgyzstan is a catatactic friction between levels 4 and 5. So was the war in the Balkans in the 1990s and many of the post colonial African conflicts. The ethnic borders don’t match territorial borders.

The drawing of territorial borders is often arbitrary. The most famous example is Winston’s Hiccup. Its a huge zig zag on the border between Jordan and Saudia Arabia. Legend has it that Winston Churchill had a long liquid lunch on a Sunday afternoon in Cairo. When he came back to his desk, he hiccuped while drawing the new border for Transjordan. Hence the dramatic twist in the line.Since it was mostly desert no one really cared.

In fact it is an apocryphal story. The border takes account of ancient incense trading routes and Britain’s need at that time for an air corridor to India. But the notion that State borders are an arbitrary higher level intrusion into a complex ethnic landscape is valid.  It is catataxis: a confusion between levels. It has always been a source of conflict and remains so today.

Water – the catatactic commodity

Coal was the key commodity of the 19th century. It powered the Industrial Revolution. In the 20th century it was oil. The wars in the Middle East in the latter part of that period were clearly oil based conflicts. But oil played a significant part in both of the World Wars in the first half of the 20th century. In the First World War, oil first demonstrated its importance. It powered the British Navy. The internal combustion engine in the form of the tank and the airplane created the decisive breakthroughs to end trench warfare. My grandfather was wounded in the ill fated Mesopotamian Expedition. They were fighting to protect British oil supplies in modern day Iraq.

In the Second World War, Japan’s attack on Pearl Harbour was in retaliation to the USA’s oil embargo. Japan’s invasion of South East Asia was an attempt to capture the oil fields there. Likewise, Rommel’s war in North Africa and Hitler’s invasion of Russia has the ultimate goal of securing oil supplies. Hitler diverted his tank divisions from the doorstep of Moscow south to the Caucasus. He viewed the oil fields there as the more important prize. That led to Stalingrad and his eventual defeat. It is easy to see why some historians view all conflicts in the 20th Century as “Oil Wars”.

So what of the 21st Century? Some pundits believe water will replace oil as the key commodity. Water resources are finite. Demand is increasing dramatically. This is not just because of the drinking and washing requirements of a population growing exponentially. Both agriculture and industrial manufacturing consume a lot of water. It takes xx litters of water to produce a cheap cotton T shirt. Limited supply, voracious demand. Will the price of water skyrocket?  It is already an investment theme. There is a good selection of Water funds you can buy, and a matching Dow Jones Index.

And now the chance of the first Water War. Five nations near the Nile’s source have recently signed an agreement to share the river’s water between them. Uganda, Tanzania, Ethiopia, Kenya and Rwanda want to use Nile water for their own irrigation and hydroelectric schemes. Egypt is sabre rattling in response. Anwar Sadat, when making peace with Israel in 1979, said ” The only matter that could take Egypt to war again is water” . Maybe he will be proved right.

Egypt and Sudan use 90% of the water in the River Nile but only make up a quarter of the population along its banks. Around  80% of the water that ends up in the Nile falls first as rain on the Ethiopian highlands. Half of the population of Ethiopia is close to starvation and there is a chronic lack of water for irrigation. So why shouldn’t they use some of the water for themselves? Eqypt’s reply is that it has hardly any rainfall so the Nile is literally its lifeline. Any attempt to divert that water is a serious threat to national security.

The problem is this. Water is not like any other commodity. Oil fields stay put, so there is not much dispute about who owns it. It belongs to whoever owns the land above it. You could sneakily try to drill in from the side.  (Please see the movie “There will be Blood”. Only Daniel Day Lewis could make the line “I’ll drink your milkshake…”  sound so terrifying). In practice, you have to own the land to own the oil. That’s not true with water. Water does not stay put, it flows. And half the time its not on the land anyway. Its in the sea, or in the sky. So its not really a commodity, its an ecosystem. A meta commodity. How can you use 19th century territorial laws to define the ownership of a cloud in the sky? That is catataxis.

General McChrystal’s catatactic blunder

General Stanley McChrystal, the most senior military commander in Afghanistan, was summoned to the White House last week and  sacked by President Obama following a candid interview in Rolling Stone magazine. What does this demonstrate? Well, one conclusion is all is well. Here is proof that the military is subordinate to politics, just what a healthy democracy needs. Another conclusion is they are both subordinate to the media. This is also probably healthy. But its not new. Journalists got the President sacked in the Watergate scandal. Rolling Stone Magazine are probably very happy though. Its a triumphal moment for the leading counter cultural monthly to take a general’s scalp.

What did General McChrystal do wrong? Is it really news that a bunch of soldiers when relaxing in a bar bitch about politicians? Is the public really shocked? There has been a scene like that in almost every war movie. Its so commonplace that it can’t be news. A soldier fighting a war thinks the politicians on the other side of the world are out of touch. Thats such a cliche…

So what did he do wrong? It was a catatactic blunder. It was a level confusion. It was a breaking of the barrier between the private man and the public role. There is no problem with an individual having those thoughts. There is a problem with the leader of the armed forces disagreeing with the President in public. Rolling Stone is also guilty here. General McChrystal did not call a press conference and announce to the world his misgivings. His aides were making in appropriate jokes getting drunk in a bar in Paris. We have all done that. It was Rolling Stone who took it across the barrier from the private to the public.

You may say it is foolish to air your true feelings when there is a journalist lurking around. Its only a small step from there to believing that public officials should routinely lie to the press. That is not a good result. The real fault lies with us – the reading public. We are not able to hold in our minds the difference between the private person and the office he occupies. Those two are one for us. We collapse the one into the other. That is catataxis.