Quite what is actually happening over the Eurozone I can’t actually tell you: it’s not that things change too fast to write about them, it’s that things change to fast to read about them. Berlusconi still PM? Italian bond yields over or under 7 per cent? That changes as often and as fast as Berlusconi does condoms. France to go bust or not? Greece still bust?

However, what I can give you is a quick guide to what will solve the problem.

Nothing.

Well, nothing that’s actually possible or legal, anyway.

We’ve two different things going on here: insolvency and illiquidity. Insolvency is Greece: they’re bust, that’s all there is to it. It just doesn’t matter how much austerity (read, firing people) Greece does, how heavy they get with tax evaders and the structural changes they make. They simply cannot pay the debts they already have. They’re as bust as someone on £10k a year with a £50k credit card bill.

People who are bust should default, pay back a bit but not all of what they owe, and start again. Finally, 18 months after this was obvious to the financial markets, the politicians have deigned to notice. So Greece will default: unfortunately, the deal isn’t good enough. Only the private sector is going to take the 50 per cent “haircut” and most of the debt is now owned by various public sectors that won’t. So Greece will still be bust and will have to default again in the future. Better to do it once and do it right but the politicians haven’t come around to that yet.

But insolvency is nothing new: Greece has been in default on its foreign debts for 50 per cent of the time since it declared its independence in 1822. It’s also not a large default, we’re talking about the entire financial system losing £100bn or so: sure, real money but it doesn’t bankrupt everyone or melt all the banks. Painful and tiresome but it can be done.

The other problem is illiquidity: this is Italy’s big problem. They’ve a huge debt, like Greece. However, as long as the interest they have to pay on it stays low enough, they can manage to deal with it. Most Italian government debt is owed to Italian households anyway. However, if those interest rates rise then they can’t pay the interest on the debt and thus they’ll go the Greek way.

You expect me to default? No bonds, I expect you to die

This doesn’t happen overnight of course. For the debt is bonds, bonds that were issued years ago. The interest that must be paid was set when the bonds were issued, the current market price of the bonds doesn’t change that. Except for one little thing. Governments almost never pay off debt (the UK has done so three times since 1945, a couple of years each time, under Atlee, Lawson/Thatcher and Blair/Brown when they were still following the previous Tory budget plans), when an old debt becomes due they issue new bonds and pay off the old with the new. And, of course, the new bonds have to be issued with the interest rate set by the market.

That’s the problem Italy has: their old bonds might be paying 3 per cent or 4 per cent, they’ve €300bn they must refinance this coming year and the new interest rate is 6.9 per cent (7, 7.4, 7.1, erm, take your pick by the nanosecond) and if all of their outstanding €1.9 trillion in debt has to be refinanced at these higher rates over the years then they’re all Greek. But they’re not bust yet: they’re only bust if they do have to pay those higher interest rates. Thus they’re not insolvent, they’re illiquid.

Our problem is that they’ve got to refinance debt each week or so, with some coming up that must be financed. And each week that they’ve got to pay these higher rates makes the move to insolvency more likely. So of course, each week that the high interest rates persist means more people sell the old bonds and the higher the interest rates go (bond prices and bond yields move inversely) and so we have a horrible positive feedback. Note that this is nothing to do with short sales, speculation, CDS or even bankers being bastards. It’s very simply people saying: “I’m not buying that shit, they’re going to go bust.”

We all thought that it was going to be Spain that went this way next but no, Italy it is.

Surely there’s something we can do?
So, what can we do about it? We could try what is being tried. A rescue fund: let us go and buy lots of Italian debt, drive the price up, the yields down and we’re dandy. Great, OK, let’s do that. So, now we’ve got this money pot called the EFSF (don’t worry, boring acronym) which is to do just that. Except, in some fit of absentmindedness, no one actually put any money into the EFSF. There’s a few billion in there but that’s just the spare change of the beggar priming the collection cup. The EFSF is to go and borrow the trillion to buy the Italian debt. Everyone promises, cross my heart, to guarantee the EFSF but no one has been willing to cough up the cash.

This causes the occasional problem: it didn’t take long to work out that the guarantees France has made would, if they ever had to make good on them, drive France into being Greece. The other problem is that having primed the collection plate they went off to ask people to lend the EFSF money. Err, no, said China, Brazil, the US and Russia. They did manage to borrow 3 billion this week: but the interest rate on the EFSF bonds is now rising just like it is on the bonds of France, Italy, Spain and so on. In part because it is France, Italy and Spain, among others, actually guaranteeing the EFSF and in part because the Japanese, who bought 20 per cent of the last EFSF bond issue, have already lost money on it.

This whole process has been called “The Mother of all CDOs”: yup, CDOs being those things that tanked the American financial system as they went down with the housing market. That system worked for a decade but the attempt to recreate it in Europe seems to be failing after a few weeks.

We’re mad as hell and we’re not taking any more
So, we could do what is being done but it’s not going to work. Could we actually do something that would work? Sure we could.

We could just make new money. The European Central Bank (ECB) can do that, just like the Fed in the US and the BoE in the UK. This is very much what quantitative easing (QE) is. Print new money, buy government debt with it, prices of govt debt rise, yields on govt debt fall. Exactly what we want to happen. ECB prints up a trillion euro (creates it on a computer actually but…) buys Italian bonds and we’re done.

Sure, we get a bit of inflation out of this: but that’s actually good at this point. It makes all the other adjustments much easier, like grease on an axle. We’re not in fact doing this though: this simple and obvious thing that could and should be done. The reason we’re not is because it’s illegal. This would be the ECB acting as a “lender of last resort” and the ECB isn’t allowed to act as a lender of last resort. This is, believe me, from an economic point of view, really a quite remarkable fuck up.

It isn’t just that cramming 17 wildly disparate countries into one currency for entirely political reasons was a bad idea (the “optimal currency area” argument) it’s that when they did it, they set it up so that the central bank couldn’t perform the most important task of a central bank: be the lender of last resort. The ECB just isn’t allowed to print money and bail Italy (or whoever) out.

Sadly, this means that there isn’t actually any solution to what is going on. Waffling about on the subject of austerity, of working back into competitiveness, this doesn’t work because it won’t work quickly enough. Faffing around about treaty changes and more Europe and joint economic monitoring won’t work because it won’t work fast enough. The EFSF won’t work because no one will lend it the money to make it work. And finally, the one thing that would work and would work fast (within a week if it was actually done), the ECB printing money and buying bonds, is illegal.

I’m afraid we’re all stuffed!

(Note. This article is originally from TheRegister.co.uk)

On Monday night, the banner had gone. There was still the banner saying “This is what democracy looks like”, and the one saying “Corporate greed is a health & safety issue”, and the one saying “Capitalism: it’s crucifying the public purse”. But the banner I’d seen the day before, the one at the foot of the steps of one of one of the most magnificent buildings in London, the one saying “What would Jesus do?”, had gone.

You can sort of see why. Jesus, apparently, would have had a frantic fortnight. Jesus, in fact, would have been knackered. Jesus, according to the protesters, would have been with them, nursing decaff soy lattes in Starbucks, chatting to journalists, chilling out in the music tent, or maybe chanting in the “meditation and prayer tent”, in front of the Buddhist shrine. He’d have been taking part in the “general assembly”, which is a kind of discussion group that takes place on the steps of the cathedral, and seems to go on all day.

Jesus would also, apparently, have told police to go away and stop harassing the protesters, but then got a bit worried by what the lawyers were saying, and then got a bit spooked by a health and safety report, and then decided that it was better not to take risks and close, for the first time since the Second World War, the cathedral. And then He might have felt a bit bad about that, and worried that He wasn’t looking welcoming, and so He might, not being anywhere near the garden of Gethsemane, have sat on a bench in the grounds of the church and, after praying for some guidance, decided to resign, and announce it in a tweet.

Jesus, according to a vicar on the Today programme yesterday, would have opened the doors of St Paul’s, and turned the cathedral into a kind of giant Glastonbury. Jesus, according to other vicars, including, apparently, the Bishop of London, would have wanted things to be calm and orderly, and for everyone to co-operate with the authorities, and for parishioners to be able to come to a quiet place to pray. Jesus, according to journalists who don’t normally worry themselves too much about Him, would have been very, very cross. He’d have seen the dog’s dinner that men in cassocks were making of what could have been a brilliant PR opportunity, and He’d have wept.

There weren’t, it has to be said, too many tears among the protesters on Monday about the three clerics who had resigned from their jobs, after what started off as Local Hero turned into something a lot more like The Life of Brian. “They’ve got their class interests,” said one. “Their board of trustees is 70 per cent bankers,” said another. “We’re sick of everyone talking about the Church,” said another. “This isn’t about the Church.”

No, the protests outside St Paul’s aren’t about the Church, but for something that isn’t about the Church, there’s been really quite a lot of talk about it. There’s been really quite a lot of talk about Jesus, about what He might do, or not do, or have changed His mind about doing, and there’s been quite a lot of talk about an institution that most people think only ever gets worked up about whether men in frocks are allowed to have sex with other men. An institution whose services are attended by less than a tenth of the population. An institution, let’s be honest, which most people think is a joke.

But one man I spoke to was impressed. “I have the utmost respect for people like Giles Fraser,” said a man called Jow on the steps of St Paul’s, a man who, it turned out, was losing revenue from his freelance secretarial work in Edinburgh to join the protests. Here, it’s true, was a man who appeared to do what he thought was the right thing, and then do something else he thought was the right thing, but later thought was the wrong thing, and who decided, before anyone asked him, to take responsibility for the wrong thing. Here was a man who clearly had what the people who caused the economic crisis didn’t seem to have: something called a conscience.

“The events of the last couple of weeks,” said the Archbishop of Canterbury on Monday, when the Dean of St Paul’s followed the example of the Canon, by announcing his resignation, “have shown very clearly how decisions made in good faith by good people under unusual pressure can have utterly unforeseen and unwelcome consequences.” This may be another way of saying that it’s a God-awful mess, but it’s also true. Most of the things that go wrong in the world are created by people who mean well, but make a mess of it. Most of the politicians who failed to regulate the banks meant well, but made a mess of it. Gordon Brown, for example, wanted the jobs, and tax revenue, and growth. But he didn’t, like pretty much everyone else in the world, know what he was dealing with. We mostly don’t, until it’s too late.

We don’t actually know what Jesus would have done about “light-touch regulation”, or if He would have thought that little packets of debt sold on were a bit like loaves and fishes. We don’t know if He was pro-tents, or pro-lawyers or pro-police. We do know that He was quite keen on shaking things up, but He wasn’t always all that good on the detail that would replace them. He also didn’t stick around to see it through.

People who think they do know what Jesus would have done, or what God thinks, about sex, or clothes, or financial policy, tend to be the people who call for the silence of people who don’t agree with them, the people, in fact, who start wars. Since we seem, in this country, to have to have the nonsense of a state religion, we’re lucky to have one that doesn’t tell people what to think, or who to hate, or how to vote. If the result is a bit of a muddle, well, which ethical issue isn’t? It was St Paul who said that we see the world “through a glass darkly”. He knew that it was the people who see it with brilliant clarity you should distrust.

Yesterday, St Paul’s decided to suspend its legal action against the protesters, and to start a new “initiative”, headed by the Christian investment banker Ken Costa, “reconnecting the financial with the ethical”. The doors of the cathedral, said the Bishop of London, were “open to engage with matters concerning not only those encamped around the cathedral but millions of others in this country and around the globe”. It had, he said, “the opportunity to make a profound difference.”

Maybe it will. Maybe it won’t. But maybe what it will do is remind us of what that freelance secretary on the steps of St Paul’s called, in an email he sent me from his tent, “the need for a commitment to moral restlessness”. The need, he said, to “never rest secure in the knowledge that you have, you know, nailed it.”

By Christina Patterson- First Published in The Independent 02/11/11

The study’s assumptions have attracted some criticism, but complex systems analysts contacted by New Scientist say it is a unique effort to untangle control in the global economy. Pushing the analysis further, they say, could help to identify ways of making global capitalism more stable.

The idea that a few bankers control a large chunk of the global economy might not seem like news  anti-capilaist protestors but the study, by a trio of complex systems theorists at the Swiss Federal Institute of Technology in Zurich, is the first to go beyond ideology to empirically identify such a network of power. It combines the mathematics long used to model natural systems with comprehensive corporate data to map ownership among the world’s transnational corporations (TNCs).

“Reality is so complex, we must move away from dogma, whether it’s conspiracy theories or free-market,” says James Glattfelder. “Our analysis is reality-based.”

Previous studies have found that a few TNCs own large chunks of the world’s economy, but they included only a limited number of companies and omitted indirect ownerships, so could not say how this affected the global economy – whether it made it more or less stable, for instance.

The Zurich team can. From Orbis 2007, a database listing 37 million companies and investors worldwide, they pulled out all 43,060 TNCs and the share ownerships linking them. Then they constructed a model of which companies controlled others through shareholding networks, coupled with each company’s operating revenues, to map the structure of economic power.

The work, to be published in PloS One, revealed a core of 1318 companies with interlocking ownerships (see image). Each of the 1318 had ties to two or more other companies, and on average they were connected to 20. What’s more, although they represented 20 per cent of global operating revenues, the 1318 appeared to collectively own through their shares the majority of the world’s large blue chip and manufacturing firms – the “real” economy – representing a further 60 per cent of global revenues.

When the team further untangled the web of ownership, it found much of it tracked back to a “super-entity” of 147 even more tightly knit companies – all of their ownership was held by other members of the super-entity – that controlled 40 per cent of the total wealth in the network. “In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network,” says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.

John Driffill of the University of London, a macroeconomics expert, says the value of the analysis is not just to see if a small number of people controls the global economy, but rather its insights into economic stability.

Concentration of power is not good or bad in itself, says the Zurich team, but the core’s tight interconnections could be. As the world learned in 2008, such networks are unstable. “If one [company] suffers distress,” says Glattfelder, “this propagates.”

“It’s disconcerting to see how connected things really are,” agrees George Sugihara of the Scripps Institution of Oceanography in La Jolla, California, a complex systems expert who has advised Deutsche Bank.

Yaneer Bar-Yam, head of the New England Complex Systems Institute (NECSI), warns that the analysis assumes ownership equates to control, which is not always true. Most company shares are held by fund managers who may or may not control what the companies they part-own actually do. The impact of this on the system’s behaviour, he says, requires more analysis.

Crucially, by identifying the architecture of global economic power, the analysis could help make it more stable. By finding the vulnerable aspects of the system, economists can suggest measures to prevent future collapses spreading through the entire economy. Glattfelder says we may need global anti-trust rules, which now exist only at national level, to limit over-connection among TNCs. Bar-Yam says the analysis suggests one possible solution: firms should be taxed for excess interconnectivity to discourage this risk.

One thing won’t chime with some of the protesters’ claims: the super-entity is unlikely to be the intentional result of a conspiracy to rule the world. “Such structures are common in nature,” says Sugihara.

Newcomers to any network connect preferentially to highly connected members. TNCs buy shares in each other for business reasons, not for world domination. If connectedness clusters, so does wealth, says Dan Braha of NECSI: in similar models, money flows towards the most highly connected members. The Zurich study, says Sugihara, “is strong evidence that simple rules governing TNCs give rise spontaneously to highly connected groups”. Or as Braha puts it: “The Occupy Wall Street claim that 1 per cent of people have most of the wealth reflects a logical phase of the self-organising economy.”

So, the super-entity may not result from conspiracy. The real question, says the Zurich team, is whether it can exert concerted political power. Driffill feels 147 is too many to sustain collusion. Braha suspects they will compete in the market but act together on common interests. Resisting changes to the network structure may be one such common interest.

The Top 50

The top 50 of the 147 superconnected companies

1. Barclays plc
2. Capital Group Companies Inc
3. FMR Corporation
4. AXA
5. State Street Corporation
6. JP Morgan Chase & Co
7. Legal & General Group plc
8. Vanguard Group Inc
9. UBS AG
10. Merrill Lynch & Co Inc
11. Wellington Management Co LLP
12. Deutsche Bank AG
13. Franklin Resources Inc
14. Credit Suisse Group
15. Walton Enterprises LLC
16. Bank of New York Mellon Corp
17. Natixis
18. Goldman Sachs Group Inc
19. T Rowe Price Group Inc
20. Legg Mason Inc
21. Morgan Stanley
22. Mitsubishi UFJ Financial Group Inc
23. Northern Trust Corporation
24. Société Générale
25. Bank of America Corporation
26. Lloyds TSB Group plc
27. Invesco plc
28. Allianz SE 29. TIAA
30. Old Mutual Public Limited Company
31. Aviva plc
32. Schroders plc
33. Dodge & Cox
34. Lehman Brothers Holdings Inc*
35. Sun Life Financial Inc
36. Standard Life plc
37. CNCE
38. Nomura Holdings Inc
39. The Depository Trust Company
40. Massachusetts Mutual Life Insurance
41. ING Groep NV
42. Brandes Investment Partners LP
43. Unicredito Italiano SPA
44. Deposit Insurance Corporation of Japan
45. Vereniging Aegon
46. BNP Paribas
47. Affiliated Managers Group Inc
48. Resona Holdings Inc
49. Capital Group International Inc
50. China Petrochemical Group Company

The writing is spidery, the occasional ink blob suggesting an old steel nib that had seen better days and the grey unlined paper might have been ripped out of a cheap notepad.

The title is uninspiring too: Social Insurance and Allied Services. This could be the workof a rather sloppy civil servant, too junior to qualify for a secretary of his own, jotting down a few thoughts that might one day impress his boss.

But when I took it from its dog-eared folder I felt like a Shakespearian scholar handling a rare first folio. Of all the documents stored away in the library of the London School of Economics, none has had a greater impact on the way we live our lives than this. There is scarcely a soul born in this country over the past 70 years whose life has not been affected by what resulted from this scruffy piece of paper.

When it was published, a year after these original scribblings, it had a slightly snappier title: Beveridge Report. Its author, Sir William Beveridge, had said he wanted a revolution and that’s what he got: the creation of the welfare state. What, I wondered as I scanned the pages, would he have made of the way his revolution turned out.

His ambition was immense: to slay what he called the five evil giants of society. Want. Disease. Ignorance. Squalor. Idleness. The first four may not have been slain but, given how grim life had become for all but the privileged few, their malign power has faded. It’s the fifth he’d have a problem with today and the great irony is that so many people believe it was his own creation that is at least partly to blame.

Idleness takes two forms today, one enforced and the other voluntary. One is the result of unemployment made worse by recession, cutbacks, growing competition from abroad and other economic factors. The other is the predictable effect of a dependency culture. A sense of entitlement. A sense that the state owes us a living. A sense that not only is it possible to get something for nothing, but we have a right to do so. This, 70 years on from the Beveridge Report, is the charge many people level against it.

I have spent the past year making a documentary for BBC2 in which I have tried to deal with that charge. In the process I have talked to people who are desperate for a job — any job — and to people for whom idleness is a lifestyle choice and who are quite happy to admit to it. I have talked to assorted academics who have studied the subject for decades and arrived at entirely contradictory conclusions. I have been to the United States, where they had their own welfare revolution a few years ago, and have witnessed some of its outcomes in the soup kitchens of Manhattan. And we commissioned our own opinion poll to test the mood of the nation. Do we still want the benefits system that the welfare state has spawned, and if not why not?

Inevitably our opinions (our prejudices, maybe) are influenced by our childhood. I was born in a working-class district of Cardiff called Splott. My father was a self-employed French polisher and my mother had been a hairdresser and still managed to do the odd home perm in our kitchen for friends and neighbours in between bringing up five children.

We were often broke but probably neither much better nor worse off than most other families in the street. All the parents seemed to work as hard as my own — with one exception. The father in question had lots of children and no job, nor did he seem to want one. He was happy living on the dole. Because of that he was treated with contempt.

That was more than half a century ago. When I went back to my old neighbourhood we found others like him. In the words of an old lady who lived opposite my house when I was born and who lives there still: “If they can get money without working, they will.” Times have changed, she told me sadly, and the “pride in working” has gone.

The statistics seem to suggest she may have a point: one in four people of working age in this area is now living on benefits. But maybe that’s because there are no jobs to be had.

I went to the jobcentre, a smart modern building where bright young staff smile a lot and there are plenty of computer terminals to display what’s on offer. Last month there were more than 1,600 jobs advertised in Cardiff. Rosemary Gehler, the manager, agreed with the rather brutal verdict of my former neighbour.

“There is undoubtedly less of a stigma to being on benefits and I don’t think anyone would argue with that,” she told me. “Benefits became fairly easy to access … too easy, probably, in some cases … and people taking them didn’t see themselves getting back into work. That situation has built up over the years.”

http://www.thesundaytimes.co.uk/sto/newsreview/features/article803855.ece Page 2 of 6

Shameless Britain | The Sunday Times 23/10/2011 22:51

Back in my old street I talked to Pat Dale, a single mother of seven children. She was most indignant about the “people who’ve never worked in their life … they don’t even know what a job is”.

When did she last work? Twenty years ago. The older children don’t have jobs either. The problem, she says, is that the jobs on offer don’t pay enough. “If I worked for the minimum wage, I’d get paid £5.50, right? That means I’d lose out on my rent benefits and I’d be working for nothing. I think it’s disgusting. Honestly, it is really, really disgusting.”

Her figures were slightly inaccurate — the national minimum wage is £6.08 an hour — but she’s right about losing some benefits, depending on how many hours she worked. That is the problem. I came across it again and again as I travelled round the country.

On a pleasant housing estate outside Middlesbrough I met Steve Brown, as calm and mild-mannered as Dale was defiant and angry — but equally dependent on benefits and equally unapologetic about it.

He and his girlfriend live with their three children in a comfortable rented semi. Their household income is about £20,000 a year without, of course, any deductions for tax. Brown told me that before he could take a job he’d “have to sit down with them and work out whether it’s acceptable to go to work or not”.

Had he considered that some people on the minimum wage might reckon working is better than not working? “No, no, no … not at all. I just don’t want to be going out to work for 40 hours and missing my kids if I’m only going to receive a few quid extra for it, d’you understand? I’d be missing my kids growing up.”

I’m not sure I did understand, but I’ve never had to try living on the minimum wage.

There are about 250,000 people in this country today who have been out of work for more than a year and are claiming jobseeker’s allowance. The total number of unemployed is now 2.57m. But that’s only the half of it. Literally. There are another 2.5m people who do not work and claim sickness benefits of one sort or another.

That figure was much smaller until governments in the 1980s set about hacking back the number of people on the dole by the simple expedient of transferring vast numbers of them onto sickness benefits. So the dole queues grew smaller and the number of people on the sick list went through the roof. Now it works out at roughly 1 in 11 of the entire British labour force.

I talked about this to Dr Sharon Fisher, a GP who left her native South Africa 10 years ago to practise in this country. Her surgery is in Tower Hamlets, one of the poorest boroughs in London.

She told me the system is harming her patients: “I tell some patients it’s actually not in their best interests to be off sick, but sometimes they’re really adamant. They say their previous doctor signed them off, or they’ve been off for a very long time. They say, ‘What’s different now, doctor? Why aren’t you giving us the time off?’ As a clinician I know that the longer a patient is off sick, the lower the chance of them ever returning to work.”

What does she think of the statistics that say there are 2.5m people too sick to work? Unbelievable, she says. Literally unbelievable.

David Cameron has another word for it. “Conned by governments” was the phrase he used at this year’s Tory party conference. And not just by governments, apparently, because he went on: “It turns out that of the 1.3m people who have put in a claim for the new sickness benefit in recent years, 1m are either able to work or stopped their claim before their medical assessment had been completed.”

The long-term unemployed and people on sickness benefits make huge demands on the welfare state. There’s one other group — a group that Beveridge did not target because it barely existed in his day: single mothers. Today 590,000 lone parents are on out-of-work benefits.

Professor Paul Gregg of Bristol University calculates that the level of support a single mother receives for a child today is about three times the amount it was 20 years ago. It was raised, he says, in a deliberate attempt to reduce child poverty. But the other side of the argument, he told me, is that “the very creation of the safety net encourages people to exist on it longer than they otherwise would”.

Barack Obama in a soup kitchen. Many have sprung up since benefits cuts (Jim Watson)

So we’re back to perverse incentives. When Beveridge wrote his report in the 1940s he saw a nation in which there were vast numbers of people who were desperate to work if only they could get a job. Now there are many who have no incentive to get one because they are better off on benefits. The Centre for Social Justice, which was set up by Iain Duncan Smith, the welfare secretary, calculates that the number of households in which no one works has doubled over the past 15 years.

Gavin Poole, its director, told me it shows there is something wrong with a system that enables part of the population who could work to choose the option to live a life on benefits. Does he want to force people to work? He preferred to talk about “mentoring” and “encouraging” people, but conceded that if all else fails some form of sanctions might be needed.

So that’s it, then? The solution is right there, staring us in the face. You cut the benefits and people who don’t want to work will have no choice. It might be tough but why should hard-working taxpayers (every politician’s favourite phrase) have to work even harder to keep others in their idleness — especially when we’re all feeling the pinch these days?

It’s not as if every other European country takes the same approach. I talked to a group of Polish building workers on the south coast, all of whom said they couldn’t find work in Poland and it was impossible to live there on benefits. They told me you can just about survive for one week on what the state pays out for a month. So they left Poland several years ago, came here and stayed.

What happens in a rich country when the government decides the benefits system is too generous? When Bill Clinton was president of the United States he said what no British politician would dare to say: America would “end welfare as we know it”. He declared a revolution. Instead of welfare, Americans would have “workfare”. Instead of the state paying its citizens to be idle, the citizen would Americans would have “workfare”. Instead of the state paying its citizens to be idle, the citizen would have to find work. If not, the state would find something for them to do. And if they didn’t like what was on offer — sweeping up leaves, perhaps — then that’s just too bad. No work, no welfare.

The first American state to raise the banner of revolution was Wisconsin. Other states followed. The number of people on benefits dropped by as much as 80% and the revolution took hold. Many British politicians beat a path to the revolutionaries’ door and returned, having seen the light, with shining faces. That was 15 years ago.

I went over to New York to see if the light is still shining as brightly. Robert Doar, the city’s welfare commissioner, told me: “Our system had developed a sense of entitlement in people who expected cash benefits without having to do anything in return. The benefits without work were greater than the benefits of going to work. We said, ‘We expect you to work’.”

Sound familiar? Elaine Huitt, the manager of the Manhattan jobcentre, told me what happens if someone doesn’t want to do the job the city offers them or, in the official lingo, “fails to co-operate with our guidelines”. That, she said, “results in a denial”. And that means? “No more assistance.”

If workfare has a godfather, his name is Professor Larry Mead. He says the figures prove it’s working. About 60% who were on benefits before it was introduced have taken jobs. And what about the other 40%? “There is some debate about whether they are worse off or not because they are not working and they are not on welfare, but it is still clear that the overall economic effects of welfare reform are positive.”

To which the obvious answer is: not if you’re one of the 40%. I talked to some of them queuing outside the soup kitchens and “pantries” of Manhattan where people go when there’s nowhere else left. The manager of one, a fiery Irish New Yorker called Aine Duggan, described the welfare reforms as an “atrocity”. She said: “We have used welfare reform as an excuse to cut and cut and cut and to push more and more families out of the welfare system.”

Many of the people in her soup kitchen were professionals who lost their jobs at the start of the recession and have become “ninety-niners” — people who have passed the period when they are still eligible for the most basic benefits. Now they are on their own.

Yvonne Fitzner, an articulate, neatly dressed middle-aged woman, told me her payments had “run out” more than a year ago. When her modest savings ran out too, she’d had to sell her television, most of her jewellery and furniture and was sleeping on a mattress on her kitchen floor. She has lunch at the soup kitchen seven days a week and a church has started serving free dinners. She said: “I can’t imagine how I’m going to keep paying my rent or phone. I’m scared. I’m just hoping for a miracle.”

Mead was invited to Downing Street last year to talk about welfare reform. Since then the coalition government has been putting some flesh on its own proposals.

The plan is to combine jobseeker’s allowance with other benefits into one personal allowance called universal credit. As with workfare, the aim is to encourage the jobless, particularly the long-term unemployed, to return to work.

Duncan Smith uses tough language: “This is a two-way street … We expect people to play their part … Choosing not to work if you can work is no longer an option … We are developing sanctions for those who refuse to play by the rules.”

What he and every other politician knows, though, is that fundamental reforms to the benefits system will come about only if there is public will. It happened in the United States because of what was called at the time “moral panic”. The politicians detected that taxpayers were no longer prepared to tolerate a system under which they worked hard to pay the dues of those who chose not to.

What is the mood of Britain 70 years after Beveridge? The first conclusion from an Ipsos Mori poll would have gladdened the old man’s heart. Fully 92% agreed that we must have a benefits system that provides a safety net for everyone who needs it. In polling terms, that’s as close as you get to unanimous approval.

We got a different response when we asked whether people think the present system is working effectively. Only two-thirds think it is. Even more think there are some groups claiming benefits who should have those benefits cut. They were particularly suspicious of people on sickness benefits: 84% wanted stricter tests to make sure claimants were really incapable of working.

They were pretty hawkish on housing benefits, too: 57% said people who get higher benefits because they live in expensive areas should be forced to move into cheaper accommodation.

Of course, public opinion changes. When a relentlessly rising benefits bill collides with the national coffers running dry it would be surprising if the public mood did not turn sour. But talking to so many people caught in the welfare trap against their wishes, I’d like to think it was as simple as people such as Mead seem to suggest.

The problem is that for every claimant who makes you want to scream in frustration because they’re happy to live off the state, you meet one who makes you want to weep because they are so desperate to find work. And can you blame youngsters who can’t see the point of working if their parents have never bothered?

At the City Gateway charity, which tries to get young people into apprenticeships and off benefits, I asked a group of about two dozen who’d volunteered for training how many had a father or mother in work. Not a single hand went up.

For every single mother pilloried by the tabloids for deliberately getting pregnant so she can claim the benefits and live rent-free, you meet young women like Gemma, who lives in Knowsley, the Merseyside town where the number of single mothers is nearly twice the national average. Yes, she got pregnant when she was still at school and, yes, when I first met her she seemed to fit the stereotype. When I asked about her benefits she stormed out of the interview.

Later we talked at length. Her eyes filled with tears when she told me she’d been doing well at school. Then she started taking drugs because everyone else was and then she got pregnant and was “trapped”. She didn’t look like a tough young woman who’d set out to milk the system and was enjoying it. She wanted a different life from the one she had but couldn’t see how to get there.

Trapped was the right word. How does a young woman with a small child and no qualifications find a job that will pay the rent and all the other bills, in a depressed area, when there are close to 1m other young people out of work and living on benefits across the country?

It may be that we really are on the brink of another welfare revolution. I have never seen the sort of political consensus on the benefits system that we seem to be approaching now and our poll suggests the politicians are reflecting a changing public mood. But that consensus has yet to be converted into hard policies acceptable to the nation as a whole.

Beveridge tried to slay the fifth evil giant and, in the process, helped to create a different sort of monster in its place: the age of entitlement. The battle for his successors is to bring it to an end.

John Humphrys presents The Future State of Welfare, BBC2, Thursday, at 9pm

http://www.thesundaytimes.co.uk/sto/newsreview/features/article803855

As a side-effect of the financial crisis, more and more people are starting to think Karl Marx was right. The great 19th Century German philosopher, economist and revolutionary believed that capitalism was radically unstable.

It had a built-in tendency to produce ever larger booms and busts, and over the longer term it was bound to destroy itself.

Marx welcomed capitalism’s self-destruction. He was confident that a popular revolution would occur and bring a communist system into being that would be more productive and far more humane.

Marx was wrong about communism. Where he was prophetically right was in his grasp of the revolution of capitalism. It’s not just capitalism’s endemic instability that he understood, though in this regard he was far more perceptive than most economists in his day and ours.

More profoundly, Marx understood how capitalism destroys its own social base – the middle-class way of life. The Marxist terminology of bourgeois and proletarian has an archaic ring.

But when he argued that capitalism would plunge the middle classes into something like the precarious existence of the hard-pressed workers of his time, Marx anticipated a change in the way we live that we’re only now struggling to cope with.

He viewed capitalism as the most revolutionary economic system in history, and there can be no doubt that it differs radically from those of previous times.

Hunter-gatherers persisted in their way of life for thousands of years, slave cultures for almost as long and feudal societies for many centuries. In contrast, capitalism transforms everything it touches.

It’s not just brands that are constantly changing. Companies and industries are created and destroyed in an incessant stream of innovation, while human relationships are dissolved and reinvented in novel forms.

Capitalism has been described as a process of creative destruction, and no-one can deny that it has been prodigiously productive. Practically anyone who is alive in Britain today has a higher real income than they would have had if capitalism had never existed.

The trouble is that among the things that have been destroyed in the process is the way of life on which capitalism in the past depended.

Negative return

Defenders of capitalism argue that it offers to everyone the benefits that in Marx’s time were enjoyed only by the bourgeoisie, the settled middle class that owned capital and had a reasonable level of security and freedom in their lives.

In 19th Century capitalism most people had nothing. They lived by selling their labour and when markets turned down they faced hard times. But as capitalism evolves, its defenders say, an increasing number of people will be able to benefit from it.

Fulfilling careers will no longer be the prerogative of a few. No more will people struggle from month to month to live on an insecure wage. Protected by savings, a house they own and a decent pension, they will be able to plan their lives without fear. With the growth of democracy and the spread of wealth, no-one need be shut out from the bourgeois life. Everybody can be middle class.

In fact, in Britain, the US and many other developed countries over the past 20 or 30 years, the opposite has been happening. Job security doesn’t exist, the trades and professions of the past have largely gone and life-long careers are barely memories.

If people have any wealth it’s in their houses, but house prices don’t always increase. When credit is tight as it is now, they can be stagnant for years. A dwindling minority can count on a pension on which they could comfortably live, and not many have significant savings.

More and more people live from day to day, with little idea of what the future may bring. Middle-class people used to think their lives unfolded in an orderly progression. But it’s no longer possible to look at life as a succession of stages in which each is a step up from the last.

In the process of creative destruction the ladder has been kicked away and for increasing numbers of people a middle-class existence is no longer even an aspiration.

As capitalism has advanced it has returned most people to a new version of the precarious existence of Marx’s proles. Our incomes are far higher and in some degree we’re cushioned against shocks by what remains of the post-war welfare state.

But we have very little effective control over the course of our lives, and the uncertainty in which we must live is being worsened by policies devised to deal with the financial crisis. Zero interest rates alongside rising prices means you’re getting a negative return on your money and over time your capital is being eroded.

The situation of many younger people is even worse. In order to acquire the skills you need, you’ll have to go into debt. Since at some point you’ll have to retrain you should try to save, but if you’re indebted from the start that’s the last thing you’ll be able to do. Whatever their age, the prospect facing most people today is a lifetime of insecurity.

Risk takers

At the same time as it has stripped people of the security of bourgeois life, capitalism has made the type of person that lived the bourgeois life obsolete. In the 1980s there was much talk of Victorian values, and promoters of the free market used to argue that it would bring us back to the wholesome virtues of the past.

For many, women and the poor for example, these Victorian values could be pretty stultifying in their effects. But the larger fact is that the free market works to undermine the virtues that maintain the bourgeois life.

When savings are melting away being thrifty can be the road to ruin. It’s the person who borrows heavily and isn’t afraid to declare bankruptcy that survives and goes on to prosper.

When the labour market is highly mobile it’s not those who stick dutifully to their task that succeed, it’s people who are always ready to try something new that looks more promising.

In a society that is being continuously transformed by market forces, traditional values are dysfunctional and anyone who tries to live by them risks ending up on the scrapheap.

Looking to a future in which the market permeates every corner of life, Marx wrote in The Communist Manifesto: “Everything that is solid melts into air”. For someone living in early Victorian England – the Manifesto was published in 1848 – it was an astonishingly far-seeing observation.

At the time nothing seemed more solid than the society on the margins of which Marx lived. A century and a half later we find ourselves in the world he anticipated, where everyone’s life is experimental and provisional, and sudden ruin can happen at any time.

A tiny few have accumulated vast wealth but even that has an evanescent, almost ghostly quality. In Victorian times the seriously rich could afford to relax provided they were conservative in how they invested their money. When the heroes of Dickens’ novels finally come into their inheritance, they do nothing forever after.

Today there is no haven of security. The gyrations of the market are such that no-one can know what will have value even a few years ahead.

This state of perpetual unrest is the permanent revolution of capitalism and I think it’s going to be with us in any future that’s realistically imaginable. We’re only part of the way through a financial crisis that will turn many more things upside down.

Currencies and governments are likely to go under, along with parts of the financial system we believed had been made safe. The risks that threatened to freeze the world economy only three years ago haven’t been dealt with. They’ve simply been shifted to states.

Whatever politicians may tell us about the need to curb the deficit, debts on the scale that have been run up can’t be repaid. Almost certainly they will be inflated away – a process that is bound to be painful and impoverishing for many.

The result can only be further upheaval, on an even bigger scale. But it won’t be the end of the world, or even of capitalism. Whatever happens, we’re still going to have to learn to live with the mercurial energy that the market has released.

Capitalism has led to a revolution but not the one that Marx expected. The fiery German thinker hated the bourgeois life and looked to communism to destroy it. And just as he predicted, the bourgeois world has been destroyed.

But it wasn’t communism that did the deed. It’s capitalism that has killed off the bourgeoisie.

From the BBC.
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The therapeutic post-Diana world is obsessed with happiness. The thing that drives human beings is, fundamentally, discontent.

- David Starkey, historian

The paper discovered what amounts to an alternative geography of the United States, a Top Secret America hidden from public view and lacking in thorough oversight. After nine years of unprecedented spending and growth, the result is that the system put in place to keep the United States safe is so massive that its effectiveness is impossible to determine.

The investigation’s other findings include:
* Some 1,271 government organizations and 1,931 private companies work on programs related to counterterrorism, homeland security and intelligence in about 10,000 locations across the United States.
* An estimated 854,000 people, nearly 1.5 times as many people as live in Washington, D.C., hold top-secret security clearances.
* In Washington and the surrounding area, 33 building complexes for top-secret intelligence work are under construction or have been built since September 2001. Together they occupy the equivalent of almost three Pentagons or 22 U.S. Capitol buildings – about 17 million square feet of space.

The US’s controversial new weapon the Active Denial System is being tested in Afghanistan Blank Mag can reveal.

Dubbed “the Pain Ray” the non-lethal weapon uses microwave energy to cause intense pain but no physical damage.

Although not yet being used operationally Defense Department officials today confiemd that wepon was being tested in Afghanistan.

How does the Active Denial System work?

The weapon works by transmitting a beam of millimeter waves  (the highest radio frequency band) at the speed of light.

The spot size is large enough to cover the whole body.

Upon contact the ray heats the water and fat molecules in the skin.

The ray penetrates less than 0.04cm into the targets therefore avoiding any damage to the skin layer where the nerve endings and blood vessels are found.

It ceases when the body moves out the way or the beam is switched off.

The beam shows no marks.

The Active Denial System is designed to limit collateral damage and civilian deaths in crowd control and combat situations.

A controversial nonlethal weapon that uses microwave energy to create intense pain is being considered for use in, AOL News has learned.