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I’m going to irritate you by starting my summer reading list with a set of books that you probably can’t get hold of before your flight leaves, and you wouldn’t want to carry anyway.
It is the three-volume set of Constitution and Finance of English Scottish and Irish Joint Stock Companies to 1720 by William Robert Scott. I referred to this two weeks ago when I wrote about the great treasure and diving bell bubble of the 1680s, but have been absorbed in it pretty much ever since.
This was a time of extraordinary speculative spirit, the era of the South Sea bubble, the development of Tontine loans, Scotland’s nutty Darien scheme, and the innovative use of lotteries to fund the state.
It is also fascinating for the stories it tells of the way the state regulated the various financial adventurers: everything was done by charter or warrant. You may also be amused to find that the whaling industry of the 1600s was almost as regulated then as our nuclear industry is today.
It’s good stuff — take just one of the three volumes, and I promise you will never run out of conversation over your holiday dinners. I have also ordered (but not yet read) Treasure Hunt: Shipwreck, Diving, and the Quest for Treasure in an Age of Heroes, by Peter Earle. It is on the same subject, and I gather there is slightly more verve to Earle’s writing than to Scott’s.
My next suggestion, Caught: The Prison State and the Lockdown of American Politics by Marie Gottschalk, is rather less fun. It is about the 2.2 million people currently being held in America’s “vast archipelago of jails”. Yes, 2.2 million people. The US makes up 5% of the global population, but, according to Gottschalk, incarcerates almost one-third of the women and girls in prison globally.
It doesn’t work out well for minorities either: one in four black males born today can expect to spend some time in prison, and, thanks to endless immigration raids, Hispanics now make up 35% of the locked-up 2.2 million.
Overall, 65 million Americans have a criminal record. That matters because prison rarely ends on release. There is also the prison beyond the prison, “the far-reaching range of penal controls and punishments that lie in the never-never land between the prison gate and full citizenship”. More than eight million people (one in 23 US adults) are under some form of state control at the moment (probation, parole, community sanctions, immigration detention and so on). And even those who are supposedly done with the justice system are often “enmeshed in a series of rules, regulations and controls about working, voting, residency and personal behaviour that severely limit their political and civil rights and that tightly control their daily lives”.
In various states, ex-offenders can’t serve on juries, must forfeit pensions or disability benefits, have no eligibility for public housing or (crucially) student loans and grants for higher education, and are ineligible for licences for many occupations and professions. They are also routinely discriminated against when they apply for the jobs they are allowed to have: for black applicants in particular, having a criminal record is an “insurmountable barrier” to getting a proper job.
That could be one more thing to add into the mix of explanations for rising inequality in the US. But it is almost certainly one of the reasons why unemployment is so stubborn there: if 64 million people have criminal records and it is hard to get a job with a criminal record, some 20% of the US population must find it hard to get a job.
Add it all up, says Gottschalk, and it is clear that the US penal system is no longer just one of the results of the way the US works. It is one of the significant forces that shapes how it works (or not). Caught isn’t an easy read (bit wordy, lots of footnotes), but if you still think the US is the ‘land of the free’, you need to read it.
More on how we aren’t as free as we could becomes from Andrew McNally in his short book Debtonator. In this, he contends that the advantage of debt over equity conferred by most tax systems (that offer tax relief on debt interest), as a result favouring corporate financiers, is not only hugely destabilising, but another of the sources of wealth inequality seemingly hard-wired into our financial system. Look at just how much debt there is. You will often hear about how the world’s big companies have huge cash piles – they do, but they have rather more debt. In 2007, global corporate debt was $33trn; now it is $58trn. That’s a problem.
Those who are in debt are hostage to the demands of their creditors when the bad times roll (just ask Greece). Companies that could easily survive a crisis without debt don’t survive with it. But even those businesses that look healthy with debt have their behaviour changed by it, McNally says. The constant need to pay creditors means they are less likely to experiment, to write off old assets, to invest in new technology or for that matter to let their wages bill expand.
Debt is unproductive stuff. It could also be a nasty driver of wealth inequality. Business equity, McNally says, is the “only way to buy a stake in new wealth creation, the kind of wealth creation that goes hand in hand with human progress itself”. If companies won’t issue equity when they want to raise money, any wealth creation accrues only to those already holding equity, something that concentrates rather than distributes wealth.
And if they use today’s super-low interest rates and tax relief to finance more debt to buy back shares, they compound the problem. The US buyback boom “has focused ownership of yet more productive assets among fewer people… it has taken out of the American financial system another slice of its capacity to redistribute the returns of productive wealth”.
So by incentivising debt over equity have we turned debt into not just a symptom of our system but one of its shaping forces? Indeed we have. It’s another of our prisons. That can change, of course: if governments started refusing to allow debt interest to be set against tax liabilities, it would be a pretty quick business. With that in mind, keep an eye on George Osborne. Perhaps his restriction on the debt relief on offer to buy-to-let investors last week was a warning shot?
Finally on the matter of freedom I would suggest that now is a good time to return to Bernard Connolly’s book, The Rotten Heart of Europe. Connolly told us back in 1995 that trying to force politically and culturally different countries into a rigid currency union would end badly. He was right.
If you need more on the EU (it isn’t that long until our own referendum), pack Roger Bootle’s The Trouble With Europe. However, if you are choosing just one of my super-serious books and deciding (quite rightly) to fill the rest of your bag with entertaining novels, make the one you choose McNally’s. The ideas in it are important. But Debtonator is also very short and, crucially, the lightest of the lot.
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