The News: A User's Manual

M2 and Utopia

South Korea’s M2, a narrow measure of the money supply, rose 4.6 percent on-year to 1,827.3 trillion won in October, slowing from a 5.2 percent on-year gain in September, according to the Bank of Korea (BOK). On a seasonally adjusted basis, the country’s M2 grew 0.2 percent in October from the previous month, picking up from a 0.1 percent on-month gain in September. South Korea’s liquidity aggregate, the broadest measure of the money supply, grew 7.8 percent in October from the previous year, down from the 8.9 percent on-year gain in September, the BOK added.

Yonhap News, Korea

1.

IN ITS MORE serious moods, the news seeks to explain the world to us, which means attempting to sift through the dramas, hyperbole and clamour of every new day in order to direct our attention to the handful of developments that could turn out truly to matter. There is so much we might find engaging (a couple has jumped off the Golden Gate Bridge; several bits of Tasmania are on fire; a Mexican industrialist has shot and killed a rival), but what in the news is really worth focusing on?

We are the inheritors of an idea, endorsed by both the right and the left wings of the political spectrum, that the most fundamental reality of nations is their financial state – and that economic reporting should therefore be recognized as the most important facet of all news output.

2.

IN THE MORE ambitious news outlets, our eyes are regularly directed towards a variety of key indicators on the economic dashboard, including the money supply (M1, M2, MZM), central bank reserves, factory orders, the consumer price index (CPI), building permits, jobless claims, the deficit, the national debt and, most significantly of all, the GDP.

The numbers can be disorientating. To assess a nation through its economic data is a little like re-envisaging oneself via the results of a blood test, whereby the traditional markers of personality and character are set aside and it is made clear that one is at base, where it really counts, a creatinine level of 3.2, a lactate dehydrogenase of 927, a leukocyte (per field) of 2 and a C-reactive protein of 2.42.

Like blood to a human, money is to the state the constantly circulating, life-giving medium in which some of the most telling data about the future is carried in encoded forms. Sampling it is the task of the great government financial labs: the Office of National Statistics in Britain, the Department of Commerce in the United States, L’Institut National de la Statistique et des Etudes Economiques in France and the National Statistical Office of South Korea. Every week, their statisticians will survey the economy; in the UK alone, taking in data from 6,000 companies in the manufacturing sector, 25,000 service firms, 5,000 retailers, 10,000 construction businesses and 4,000 government projects in agriculture, energy, health and education. With gigantic computers helping them to process their harvest of information, the statisticians will publish some astonishingly abbreviated yet deeply resonant findings. The GDP figures might, for example, inform us that the financial value of all work done across the entire country over the previous quarter had risen 1.1 per cent or (heaven forbid) dropped 0.5 per cent, figures beneath which will lie tens of thousands of meetings, anxieties, quandaries, ploys, boardroom discussions, early morning commutes, sackings, initiatives, launches and disappointments, all now harnessed to and confined within a mere two digits.

Distillation is familiar from other areas of science – the discipline to which economics aspires. In chemistry, too, we are invited to look beneath the confusion of physical reality to uncover a mere 118 elements which underlie matter and can, with an almost artistic grace, be ranked according to their chemical properties, atomic numbers and electron configurations into the columns of the periodic table.

Everything out there (the trees, your spouse, the office) is, at heart, this.

3.

ECONOMIC DATA CAN rupture the sense of scale we ordinarily rely on to make our lives feel meaningful or hopeful. Our sense of purpose can be crushed by the unimaginable dimensions of the system in which economics reveals us to exist: one where world GDP stands at $70,000,000,000,000, where the global bond market is worth $100 trillion and the derivatives market $791 trillion, where world debt is measured at $50 trillion, EU debt at $17 trillion and US debt at $16 trillion (spending a dollar a second, a trillion dollars would take 31,000 years to run through); where a billion people live in poverty while an elite made up of the wealthiest 2 per cent owns more than half of all wealth. Such figures have some of the numbing quality of the statistics of astronomy, when it informs us that the Milky Way contains 400 billion stars or that it would take 93 billion light years to cross the universe. Our minds are not well fitted to contemplate our condition from such perspectives. Our aspirations become laughable, if not absurd, played out against such a canvas. We grow newly humble and supine before a sense of our utter nothingness.

4.

IT ISN’T ONLY the scale of the economic machine that can silence us, but also its complexity. Only a minuscule percentage of the populations of developed economies have any solid understanding of the workings of the economic system they exist within. Most of us will struggle to grasp quite what might be going on within essential terms like arbitrage, Basel 1 and 2, cyclically adjusted current budgets, price/earnings ratios or quantitative easing. As we follow financial events in the news, we may ask, and not for the first time: ‘What is the growth rate of money?’ ‘How do hedge funds operate?’ ‘What does the LIBOR rate determine?’ ‘What is liquidity?’ ‘How does inflation targeting work?’ ‘How can a government “print money” and what are the long-term consequences?’

Those kindly commentators occasionally employed by news organizations to help us with our confusions certainly try hard to offer us explanations, but perhaps because the concepts that dizzy us lack connection with anything in our day-to-day lives, their explanations have a habit of leaching from our minds just hours after we have heard them.

If we really want to take matters in hand and educate ourselves about the details, we must have steady nerves. Consider, for example, the rationale normally given for the equation of exchange, a concept that is situated in the gentlest foothills of economic science but that already asks us to contemplate a scenario in which

and where:

p_i and q_i are the respective price and quantity

of the i-th transaction

p^T is a row vector of the p_i

q is a column vector of the q_i

– by which point most of us will be itching to run away, perhaps back to the tragic news story of the couple who jumped off the Golden Gate Bridge.

In certain moods, we may feel almost agreeably small before the majesty and intricacy of economics. In their field, theologians sometimes describe a feeling of awe that can result when the tiny human ego is confronted by the divine presence and experiences what is termed in Latin the mysterium tremendum, the mystery of the divine. There may be comparable moments of mysterium tremendum when the mind comes up against a dispersion output graph:

Dispersion output graph.

5.

WHILE WE MAY sometimes willingly defer to the greater intelligence of economics, in other moods it can be hard to quell certain rebellious questions which arise when we contemplate the economic arrangements of the planet as they are relayed to us by the news.

Lying awake at night, for instance, some of us may wonder, in a sincere and yet inarticulate way, why it is that the world built by capitalism is not (bathos intended) nicer. Why is there still so much suffering all around? Why do some have so much and others so little? Why are most jobs mindless? Why can’t there be more security and leisure? Why do anxiety and fear persist almost everywhere? Aren’t we destroying the planet for no particular reason or reward? (By this time it may be getting very late, and only a stubborn few will continue to press on.) Couldn’t we start again in some new way, rejig things, perhaps pass some laws and experiment with bold new ideas in order to create a freer, less anxious, happier world?

6.

WE KNOW WELL enough that these aren’t serious questions; they are the sorts of things that fourteen-year-olds write poems about or argue with their parents over. In the morning, we’ll put them firmly away. They don’t belong to the standard narrative of economics in the news. We may blanch to think of what any properly intelligent and sensible person might make of them – someone like, say, the chairman of the Federal Reserve, the most powerful economist in the world today.

If our questions seem immature, it is because we associate maturity with a sober acceptance of a great many things that are painful but necessary for the functioning of economic life, whereas our musings sound like the reality-denying ravings of a utopian dreamer. Adulthood involves learning to conclusively bury a great many of our hopes. Standard economics honours this process of growing up and the accompanying masochism required; it is mostly a story of pain, teaching us a lot of complicated but sound reasons why a great many nice things aren’t possible: why we can’t wave a magic wand and make poor countries rich; why competition and therefore anxiety are necessary in a market economy; why total job security makes people lazy; why a country has to reward its winners and punish its losers; why rich people can’t be proportionately taxed; why we can’t all live more simply yet still with dignity; why governments can’t limit the free market in the name of higher values; why inane consumer goods are an indispensable part of a flourishing economy; why it’s good for growth if people don’t generally share and recycle their belongings and why we can’t afford too intense a concern for making the world beautiful and clean.

7.

WE END UP with the following situation: on the one hand, we have a news agenda dominated by reports of the workings of a highly complicated social science that wrestles with problems of near cosmic scale and incomprehensible difficulty, upon which it periodically delivers pronouncements at once pessimistic and resigned; and on the other hand, we have a host of inchoate, naive, innocent, impassioned but powerful longings that are carefully concealed and mostly go unmentioned for fear of sacrificing claims to decency and adult seriousness.

8.

OCCASIONALLY, THE TENSIONS get too much and there are explosions. A group of people collectively declare that they’ve had enough, paint some placards, buy megaphones and take their positions outside the central bank, the fast-food concession or the oil company headquarters. A few weeks later, after some moments of exuberance and struggles with heavy-handed police, the makeshift camps are hosed down and the news moves on.

These explosions are undermined by a fatal naivety: that is, by a set of the best possible intentions to improve a problematic situation – combined with a lack of any effective or forensic knowledge about what has caused it in the first place. A complaint that might have occasioned an intricate political argument instead ends up as a primal scream.

9.

THE NEWS IS partly to blame for this incoherent rage; it is the news that helps to raise audiences that cannot make sense of and feel hopeless about their condition and that are fed a diet of economic analyses that skilfully crushes ambitious considerations of how to create a more equitable world.

Occupy Wall Street, New York, September 2011.

(picture credit 9.1)

The protesters rightly recognize that there are things wrong with the economic system, but they find it hard to zero in on the specifics of the difficulties. It would take concentrated periods of guided interrogation and study to understand the mechanics of the financial machine – as well as to lay a finger on the realistic options for its reform. Tantalizingly, there are a great many very sensible options out there – which, non-coincidentally, we never hear about in the news for very long.

Most news is disinclined to provide a proper economic education equipped with a robust political dimension, either because it is itself confused and distracted about or because it benefits from the status quo.

It isn’t the task or within the power of news to solve economic conundrums by itself. Its power is more secondary, and yet still it is considerable: the news has the ability to define the agenda, by leading the attention of an audience to what it believes to be the issues of importance, and then it can deliver an interested and knowledgeable constituency to governments and corporations.

At present, mainstream news organizations chiefly track the day-to-day activities within the economic establishment. They tell us what is going on, but not with any conviction of what might or should happen. In so far as the news creates an agenda, it is a limited one: whether one should intervene to bolster the labour market or not, leave or join the currency union, remain strict about inflation or be less vigilant. The economic ‘debate’ as it is seen through the lens of the news does not stray beyond tightly defined lines which restrict both an audience’s expectations and its sense of what might be possible. Depart from the agenda (ask about reconceiving what a shareholder is and should be, for example, or question assumptions about growth and well-being) and, with bewildering speed, one ends up in territory deemed ‘radical’ and therefore ridiculous – even if most of what we now take for granted (a minimum wage, child protection, environmental legislation) started off by seeming entirely radical, if not insane, to ‘sensible’ opinion.

A perfect news service would analyse current events, but also convey a bold sense of the economic principles that should ideally underpin society. It would be guided by a sense of where one should be going, operating with an economic Utopia in mind, a community both prosperous and civilized, concerned as much with money as with its proper ends: fulfilment, fairness, generosity, beauty and kindness. It would be doctrinaire only about the destination, while remaining empirically flexible about the means of getting there – unlike right- and left-wing analyses that grow brittle and tiring through their axiomatic support of predictable means.

10.

WHILE CONTINUING ITS regular routine of analysing derivatives, yield ratios and the state of M2, economic news should not forget its ultimate responsibility to a larger quest for a world capable of sustaining less anxious and ruinous, more secure and more meaningful working lives.

Such an agenda, however fey it sounds within the context of classical economics, is at this point in our history too significant to be stumblingly raised only in private in the middle of the night or else shouted in a hoarse voice from a megaphone seconds before a police charge.