KH: Where have you been? I wanted to talk about Obama’s victory.
AA: India, Brazil and South Africa. You’ve heard of IBSA? We are looking to invest in South-South economic co-operation. I’ll tell you about it some time. So why are you so keen on a US election post-mortem?
KH: Well, I wanted to tell you that I won my bet. In the summer I put a thousand pounds with a London bookmaker at 5-1 on an Obama win by more than 150 electoral votes. It ended up with me wanting one of the last three states to declare — North Carolina, Indiana and Missouri. He won two of them and I was well clear.
AA: Why were you so sure he would win by a landslide?
KH: First, I think any Democrat would have beaten the Republicans big after eight years of Bush. The mid-term elections of 2006 showed that the tide had turned. It’s a simple matter of jobs, housing, the war, health, education, the greedy and uncaring rich. Unlike many American liberals, I actually believe in the good sense of most Americans. Then I appreciated the power of Obama’s machine for getting out the vote, the first really to take advantage of the internet; and his political team hardly put a foot wrong. I have been studying American politics for half a century now and I knew that the narrow Bush wins of 2000 and 2004 were exceptional. The electoral college system exaggerates differences in the popular vote: thus Obama won by a bit more than 5% of the vote, rather less than his lead in the tracking polls, but his electoral college margin is almost 200.
AA: So what are you going to do with the money?
KH: Go on a holiday with my family, maybe Spain, I’ve never been there and I always fancied Andalusia. But it’s never been about the money for me. I started betting on the horses when I was 12 years old and I financed my time at university that way. Now I think that it was all training to be a seer, an oracle, a prophet. I love second-guessing the future. In fact, I’ve been playing at writing a novel for years. It’s called “Futures”, a pastiche of the western novel — I call it a science fiction murder mystery, featuring elements of Cervantes, Goethe’s Faust, Mann’s ‘Magic Mountain’, Gibbon’s ‘Decline and Fall’ and Star Trek. Don’t ask me to summarize the plot… I’ve never been happier than during this economic catastrophe because it allows me to be a prophet. I have always been interested in Karl Polanyi’s ‘The Great Transformation’ as a work of prophecy that failed, since he didn’t foresee the postwar economic revival under US leadership. I’m giving a talk at a Montreal conference on Polanyi this December. I came up with the title long ago — “Economic revolutions are always monetary (Mauss). Karl Polanyi and the breakdown of the neoliberal world economy”. People write to me asking how I knew. But I’ve been waiting for this crash since 2004. The similarities with the 30s and what led up to it are so strong that Polanyi could be in for a big revival and I want to be part of that. I (almost) share a birthday with John the Baptist. I fancy being a warm-up act for the big-time politician. Maybe there was something of that in my bet on Obama.
AA: Well, the only crystal ball-gazing I was doing on election night was figuring out how to offload a bunch of sterling that came up when I found a buyer for a property in London’s West End. I put it all immediately into dollars and yen. I made 11% on the yen in ten days and 7.5% on the dollars. We are in for a rough ride on the currency exchange markets, especially now that the G-20 failed to come up with anything substantial to stabilize exchange rates. It’s funny how the media identify the Bretton Woods institutions with Keynes, when the IMF and World Bank were not his idea.
KH: Have you been following the political row about George Osborne talking down the pound?
AA: Yes, I can’t believe it. I read three articles yesterday and today. First Will Hutton says we have to join the euro since it’s the only viable reserve currency with the dollar and the UK is a ‘small country’ (like Iceland or Ireland). Then Anatole Kaletsky says the opposite and, when sterling gained a cent early today, they all piled in to say that Osborne is useless.
KH: For what it’s worth, I think Kaletsky is right. When I came to live in Paris over a decade ago, I wanted very much for Britain to join the euro, if only to minimize exchange transaction costs, but also because the idea of European union was attractive then. But when Blair and Brown stayed out, for whatever reason, it eventually dawned on me that they had stumbled onto a better alternative. No-one in Britain, especially businesses or tourists, has any problem using euros; but the continuing existence of sterling gives them two currencies to manipulate rather than just one. Maastricht was a huge mistake, insisting on countries replacing their national currency with the euro. They should have followed the route once advocated by the Tories, a hard ecu run by a European Central Bank along the lines of the Bundesbank and politically managed currencies floating alongside it to find their own level.
AA: Yes, Brown would be crazy to join the euro now and get mired in the political collapse of the European Union. While I was visiting the South, we talked a lot about which parts of the world are most vulnerable at this time and the Indians and the Brazilians all picked Europe for the big fall. The South Africans, black and white, are different. They still haven’t weaned themselves from the old idea that they are an offshoot of western imperialism with closer connection to the North Atlantic than to anywhere nearer home.
KH: What do you mean, Europe is for the jump?
AA: Look at them all. They are worried sick about their precious little national sovereignty. They are growing old and they hate the young foreigners who come to do the work that pays for their pensions. They have depended on American muscle for so long, they have forgotten how to fight. They can’t fix a constitution to organize their economic union. They are going down, no question about it. I doubt if the euro will survive much longer. They will never agree on a common strategy. The only good thing about recent events is that the strong dollar has saved Europe from an overvalued exchange rate.
KH: So it looks as if sterling could make a comeback quite soon, if the euro becomes shaky and British exports can take advantage of the 30% devaluation. I read today that Asian students are already signing up in droves for British universities because of the relative price when compared with the US. We shouldn’t forget that services are still the fastest-growing sector of the world economy.
AA: So I guess Europe could get some benefit for tourism if they join the raise to the bottom of the currency charts.