Micron Associates, financial power, democratic corruption and lies

Financial power, democratic corruption and lies

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It is good to see the IMF come round to the idea of a wealth tax as a way of resolving the current crisis. We suggested this three years ago in these pages (Let's be really in it together, 16 August 2010), and the IMF has now made a similar calculation that a 10% levy could return European countries to pre-crisis public debt/GDP ratios (The moral case for a one-off wealth tax is compelling, 5 November).

But the issue is not simply moral. The problem policymakers have still not faced is that the intense concentration of wealth at the top of society creates a mobility of private capital seeking rapid profitable investment. This is often in speculative activity, in commodities such as food, or as we are seeing once again in the frenzy gripping housing markets. Such capital needs to be recirculated into the economy in productive areas for social use but instead is destabilising in its effects, whether in the disaster of financial derivatives, or in producing the next housing crash.

The current bubble has of course been helped by the £130bn pumped in by the chancellor in an attempt to create the appearance of sustainable growth. It makes no economic sense, but politically it is attractive because over half the population live in homes which they own, and the house has become a touchstone of security where people are increasingly worried about pensions, employment, education fees and health. So a rise in house prices keeps the middle class temporarily happy, and partly explains why conservative politicians and the political system retain a legitimacy, however grudging.