Eurozone needs a pre-nuptial

By Reuven Brenner

French President Francois Hollande has announced that he will be pushing for mutualizing European debt, which Germany, the Netherlands and Finland oppose. [1]

While there are historical precedents for mutualizing debts - Alexander Hamilton 1790 assumption of states' debts - there are significant differences between that situation and the one Europe is facing now. While the US eventually managed to shape an "American tribe" - though 70 years after Hamilton, a civil war was fought that shaped eventual features of this new tribe - the notion of a European "tribe" is not on the horizon.

The Balkan tribes are as divided as they have ever been; the Scots want to separate from the rest of the United Kingdom; Italy seems to be almost as divided between south and north as it was in Garibaldi's time; and the chances of Greeks, Italians, Spanish, French intermingling with Germans to shape a European tribe do not seem much closer today than they were in preceding centuries.

The above does not imply that crisis might not make for strange bedfellows, resulting in mutualizing some debts. If that happens, the problems raised with the demutualizing of the national debt during the 1995 referendum when Quebec almost separated from Canada (there was just 1% difference in the votes which prevented it) suggest what certain clauses should appear in the potential Eurozone debt offerings and prevent crises that lack of such anticipatory clauses would bring about.

Paragraphs in the draft bill of the Quebec government tabled on December 7, 1994, in the National Assembly, indicated ways in which constitutional, territorial issues, as well as those linked with currency, debts would be settled in case of separation. The document though never addressed the question how an independent Quebec would assume responsibility for its share of Canada's public debt. Yet these were questions raised then:

How do you credibly transfer responsibility for the debt in case of demutualization? What will Canada's creditors say about the transfer? What will be the price paid for it? Quebec had the following options: 1. The Quebec government convinces Canada's creditors to release Canada from their fraction of the debt, exchanging it for bonds issued by Quebec's government (or equities in enterprises); 2. Quebec issues bonds and deposits them with the Canadian government. The Canadian government continues then to bear responsibility for payments. In the European case, the countries that would not implement the policies agreed upon when the bonds are issued would also be facing these two options. If the eurozone bonds are issued, clauses in the bond contracts would have to deal with these two questions. Answers to them would indicate creditworthiness in case of mutualization, and potential demutualization. Let examine these answers. A public debt is backed by the government's right and ability to tax. The proposed euro-bonds would be backed by expectations that European Community's citizens can create sufficient taxable wealth. I highlight "taxable" because both Greece and Italy create wealth, just much of it does not pay taxes. Assume then that with the potential euro-bonds issue, Greece, Spain and Italy ("Club Med") would agree to a clause that in case of secession due to lack of performance, the bonds would be exchanged for those of the three national governments. Would creditors buy these new issues at lower interest rates that the Club Med countries are now trading? The answer is no. After all, the new paper would be backed by exactly the same thing that any governments' outstanding debt is backed by: governments' right and ability to tax. What happens with such clauses in place is that the European Community gives up the right to enforce payment on the seceding members, and that right is transferred to the seceding national governments. This is the core of the issue: Under what political umbrella can the debt be serviced more credibly? Is it under the European community umbrella, with its ability to speed up changes in fiscal, regulatory, monetary and immigration policies? Or are the Club Med countries separately, outside the European umbrella, more creditworthy in changing their fiscal, regulatory, monetary and immigration policies so as the service the debt? With these clauses in the proposed Eurozone bond, it is not clear that the issue would fly. The price buyers would pay would reflect the option that the Club Med countries would not change their policies, end up seceding, in which case the eventual national governments would be standing behind the debt. Now what happens if Germany, the Netherlands and Finland agree that the new public debt remains an obligation of the European countries, with some separate side agreements between the countries? In 1995, the assumption was that Quebec would remit to Canada the funds necessary to service the interest and the principal on the negotiated portion of its debt with a "Promise to Pay Agreement" for every issue, whatever the interest rate or the maturity. Could this work for Europe today and lower interest rates for the Club Med countries? The answers is again no. If Quebec was unable to convince lenders of its ability to service the debt under the federal umbrella, why wouldn't the rest of Canada have not the same doubts? After all, we are talking about the same amounts of money exactly. If Club Med countries are unable to raise funds now, why would the solvent European countries believe that if they back the Eurobonds now, the Club Med countries would pay them back in timely fashion? And if they do not, what are their options? To send in tax collectors, backed by armies? Thus we are back at the point where we started. Creditors know that government bonds are backed by governments' recognized rights and abilities to tax. If all Europe is held responsible for the additional debt, a credible promise that the debt will be serviced without interruptions or without imposing more taxes on Europe's solvent members, would mean that the stronger European countries would have sufficient influence on the weaker countries' fiscal and regulatory policies so that they would be changed in time and prevent default on payments. If solvent Europe does not have the stomach and ability to do this, its creditworthiness diminishes with the proposed euro-zone bonds. Briefly: no matter which of the two options is chosen, creditors must know that the entity who is responsible and held accountable for the debt is also the entity who has the right to tax and regulate. If the two are not the same, the eurozone bonds idea loses credibility. Either clauses in bond covenants or the side political agreements - if enforceable - are ways to increase such credibility. The above analyses is similar to "pre-nuptials" adapted to national levels. Such agreements are by now a common feature of marriage contracts in the United States. In France, they have a longer history. French novelist Honore de Balzac's classic Marriage Contract (1835) is dedicated to them, with perfect insight into human behavior and with broad implications relevant to today's Europe. The story is about Paul de Manerville, a wealthy gentleman who decides, against the advice of his friends, to get married at the age of 27. He marries the Spanish Natalie Evangelista, whose financial assets have been declining since the death of her father - the banker who nature furnished her with at birth. He does not see either that Natalie's loyalty is to her "tribe" - her mother, that is - and that outsiders, her husband among them, are way down the pecking order; that Natalie's mother is desperate to assure for her daughter the lavish lifestyle she believes to be her "right"; or that the various marriage intermediaries negotiating the marriage contract are trapping him. Paul ends up in an unhappy and childless marriage - with his wife happily playing the field. Reads like a good allegory for today's childless Europe; brought into a union by politicians blinded by a non-existent European "democratic ideal," misleadingly traced back to Greece (whose present population has nothing to do with Ancient Greece, except occupying the same real estate); and whose politicians sold every possible rights to their constituents - without requesting obligations. Although Germans and Dutch - not French - pay the bills, and the International Monetary Fund (IMF) and central banks play the roles of the intermediaries, reminding one of Balzac's self-interested negotiators, whom he despises, and whose wile he describes with devastating perfection. If Paul's friends had only managed to convince him to put some enforceable clauses in his marriage contract, linking "secession" to measures of future "productivity" - children, in his case (after all, that's the only source of future productivity) - perhaps Balzac's story would have had a happier ending. Perhaps German, Dutch and Finnish leaders could distribute the book before the next Group of Eight gathering, instead of dealing with IMF intermediaries' Keynesian nonsense and mindless statistics. Then they could discuss the aforementioned clauses in the mutualized debts contracts, and debate if they have the guts to enforce them, knowing that some Club Med countries would sure raise the specter of "Occupation". Note 1. Mutualizing debt involves guarantees whereby each member state not only pays for itself but also meet the obligations of any other country unable to meet its liabilities. Reuven Brenner holds the Repap Chair at McGill University's Desautels Faculty of Management, and serves on the Board and the Investment Committee of McGill's Pension Fund. He was appointed to be one of a seven member commission dealing with consequences of the 1995 potential secession of Quebec. The article draws on his Financial Options for Countries Wanting a Divorce (1995) and his Force of Finance (2002). (Copyright 2012 Reuven Brenner)

Auditors must be held to account

The shareholder spring is the perfect time to challenge the poor performance of unscrutinised accountancy firms

• 
• • Prem Sikka
  • guardian.co.uk, Thursday 31 May 2012 15.04 BST

'KPMG, PricewaterhouseCoopers, Deloitte and Ernst & Young, collectively known as the Big Four accountancy firms, audit around 99% of FTSE 100 companies.' Photograph: Action Press / Rex Features

Shareholder spring is in the air, with increasing numbers voting against fat-cat executive rewards for failure and mediocre performance. However, the same scrutiny is not being applied to the business advisers and consultants implicated in headline failures. They continue to receive huge financial rewards. Company auditors are good example.

PricewaterhouseCoopers (PwC), Deloitte, KPMG and Ernst & Young, collectively known as the Big Four accountancy firms, audit around 99% of FTSE 100 companies. These firms audited all distressed banks. At the height of the banking crisis they gave the customary clean bill of health to Northern Rock, Abbey National, Alliance and Leicester, Bradford & Bingley, HBOS, Lloyds TSB and Royal Bank of Scotland (RBS). Bear Stearns and Lehman Brothers went bust shortly after receiving the all-clear. A subsequent inquiry by the House of Lords economic affairs committee accused auditors of "dereliction of duty" (para 161) and "complacency" (para 167) and basking in a culture of "box ticking" (para 6) rather than delivering meaningful audits. Despite the damning criticisms, some partners in audit firms still charge over £700 an hour for their services.

In 2011, Barclays, the bank that forced the government to introduce retrospective legislation to combat its tax avoidance schemes, paid £54m to its auditors PricewaterhouseCoopers, including £15m for consultancy and advice on tax matters. PricewaterhouseCoopers, which once audited Northern Rock, collected another £48m from Lloyds Banking Group , including £10m for consultancy. HSBC has paid a whopping £56m, including about £8m for tax and consultancy services to its auditors KPMG, the firm that audited HBOS and Bradford & Bingley. RBS has paid £41m, including £7.4m for consultancy to Deloitte, the firm that audited Abbey National, Alliance & Leicester and Bear Stearns. Ernst & Young, the firm that audited Lehman Brothers, earned £36m in audit and consultancy fees from BP and another £28.5m from Aviva. At major companies, the fees paid to accountancy firms are larger than CEO salaries, but rarely attract sustained media attention. The auditor dependency on companies for vast fees neuters any impulse to deliver an independent opinion on company accounts. No one at any accountancy firm is ever promoted for blowing the whistle on dubious practices of companies and losing a client.

At company AGMs auditors are appointed often without any discussion. The resolutions on auditor appointment are not accompanied by any information on the composition of the audit teams; time spent on the job, audit and consultancy contracts, information obtained from directors, list of faults found with company accounts, regulatory action against auditors or anything else that might shed light on the quality of audit work or conflict of interests. With weak accountability measures, auditors deliver little of any social value.

The charges of "dereliction of duty" and "complacency" have not led to any worthwhile UK reforms though there is plenty of spin about encouraging auditors to be sceptical and tweaking auditing standards. There is no scrutiny of the basic auditing model which requires entrepreneurial accountancy firms to somehow invigilate giant corporations. The success of auditors is measured by private profits and they have no obligations to the state, or the public, which eventually bears the cost of bailouts and fraud. This mutual back-scratching has been a key factor in the debacles at Enron, WorldCom, Lehman Brothers and the banking crash. Yet no real change is in sight.

The EU is proposing minimalist reforms to check the collusive relationship between auditors and companies. These include a ban on the sale of lucrative consultancy services to audit clients and forcing companies to regularly change their auditors. At present, FTSE 100 companies change auditors every 48 years on average. Inevitably, major firms are using their financial and political resources to oppose even these modest proposals.

Major accountancy firms have got used to collecting mega fees for failure and mediocre performance. Shareholders should check that by turning the spotlight on them and demand refunds for poor performance. The government should sharpen liability laws so that auditors are forced to make good the damage done by their silence.

Viswanathan Anand shows the heart of a champion in winning Fifth World Title

They trash-talked him, ridiculed him, and wrote him off. They said he had slowed down, lost his flair and chutzpah, and become conformist and traditional in his play. But Viswanathan Anand took on everything the Russian-Israeli chess mafia and his growing band of critics threw at him and emerged on top yet again on Wednesday, winning the world chess title for the fifth time, and shutting up detractors for now.

For sure, they will carp and crib at Anand's struggle to retain the title, the same way critics put down Sachin Tendulkar when he's going through a lean patch, or plays conservatively. But these two heroes of India have set such stratospheric standards for themselves that any hint of a slowdown or downturn in form is enough for detractors to write finis to their careers.

However, 42 is not 24; even the greatest don't have the same reflexes and mindset they when they push 40 -- much less in the twilight of a career -- that they had in their teens and twenties. But when it comes to the crunch, great champions find a way of winning. The flesh and bones might have sagged a little, but a lifetime of experience and a capacious heart comes into play. That is pretty much what Vishy Anand summoned on Wednesday to win the world title in a tie-breaker after Boris Gelfand, an Israeli challenger from the Russian stable of chess greats, held him to a 6-6 tie in regulation play.

The stakes were enormous. Anand has not been in top form for several months now; he's given up several titles he routinely won on the chess circuit. He's also the happy father of a year-old son who is more important than anything on the board. And to top it all, the Russian chess mafia has long been smarting at the loss of the chess crown to the genial Indian after the Karpov-Kasparov combine dominated the game for decades.

Anand has taken on everything they have fired at him from since 2000, including a divided and discredited world title. But since 2007, he had been the undisputed world champion, defeating the Russian Vladimir Kramnik, whom Moscow regarded as the heir to the two Ks, and the Bulgarian Veselin Topalov in 2010.

In each instance, Anand has had to battle not just his opponent, but also a mighty chess establishment, and sometimes even forces of nature. In 2010, he had to drive from Spain to Bulgaria, a distance of nearly 3000 kms across Europe, after the volcanic ash disrupted flights and the (challenger's) host country refused to delay the start, citing TV rights issues. He got to Sofia just in time -- and went on to win.

This time too, the biases were evident. After the two players were tied 6-6 in regulation play, the Russian news agency Ria Novosti ran a preview that, citing ''Russian pundits,'' said ''Boris Gelfand is the favorite to dethrone India's world champion Viswanathan Anand now their title match in Moscow has gone to a rapid chess tie-break.'' This, despite Anand's well-known prowess in rapid and blitz chess.

So even the most cerebral of all sports was not exempt from mind games. In Tel Aviv, Israeli Prime Minister Benjamin Netanyahu had a giant screen installed in his office to follow the live telecast of the games, often conferring with his former cabinet colleague Natan Sharansky, a chess player himself, about the moves. In Moscow, Sergei Smagin, the Moscow chess federation vice-president, described Anand as being "in terrible shape, which forced him not to play to win, but to struggle all match long," demonstrating "a tremendous lack of confidence and lot of mistakes.''

The situation is likely to be the same at a tie-break, giving the Israeli better chances to win provided that he copes with nerves, Smagin added.

Smagin hadn't factored in the heart -- the heart of a champion.

How to Adapt to the 4 Types of Attacking Batsmen

From Pitch Vision Academy

http://www.pitchvision.com/how-to-adapt-to-the-4-types-of-attacking-batsmen

Sometimes your bowling spell doesn't go to plan and the batsman is the one on the attack.
Now it's time to adapt our plan to take into account how and where the batsman is hitting the ball.

One option is to move a fielder or two around to cut off his favourite shot, and try and force him to play a shot he isn't so comfortable with. This will often lead to his dismissal.

Another option is to leave the field as it is. Instead back ourselves to dismiss him by adjusting our bowling strategy itself. Here we look at how to counter-attack four types of aggressive batsman:

1. The batsman who is playing aggressively against the spin
The batter is cutting and cover driving the off spinner, or playing across the line against the leg spinner. Here the percentages are with you, so simply keep spinning the ball as hard as possible to try and beat the bat. Probe for an error. Work in some simple variations and find the hole. Keep spinning the ball as much as possible. Eventually, he will make a mistake.

2. The batsman who is consistently playing with the spin
Here the batter is cutting and cover driving the leg spinner, and working the off spinner into midwicket. He has now left himself vulnerable to the ball moving in the opposite direction. The killer blow will come from beating the opposite side of the bat to the direction of turn. To do this, use either a googly to bowl him through the gate or an arm-ball to find the leading edge.

3. The batsman who is attacking with cross batted shots
Sweeping and pulling in the order of the day with this batter. The wrong ‘un or a big spinning stock ball will have little effect against the cross batted shots. In this case, we need to vary our flight - especially using topspin and backspin - to get the ball over or underneath the horizontal swing of the bat. A backspinner will get us a bowled or LBW. A top spinner will result in a top-edge or a nick behind.

4. The batsman who is charging down the track or slogging.
These two can be dealt with in the same way. You're looking for a stumping or an aerial shot resulting in a catch. Changes of pace are key here, so that batsman is unable to time his shot. Top spin will also create extra dip and bounce and make the ball more likely to go in the air. If you can make the ball move away from the batsman, you will also have a better chance of a stumping.

About the author: AB has been bowling left arm spin in club cricket since 1995. He currently plays Saturday league cricket and several evening games a week. He is a qualified coach, and his experiences playing and coaching baseball often gives him a different insight into cricket.

The ART of Flight to deceive the batsmen

What spin bowler hasn't heard these clichés in his cricketing career?

"Toss it up" the young spin bowler is so often told. "You've got to flight the ball, give it some air, and get it above the batsman's eye line".

The problem is that experience soon teaches that simply lobbing the ball up in the air does not suddenly make a competent batsman turn into a tail end bunny. Whilst the advice may be well meaning, it completely misses the point. Flight is about deception. There is nothing deceptive about simply bowling the same ball but slower and with a higher trajectory.

 

So what is flight then?

 

The art of spin bowling is the art of deceiving the batsman as to what the ball will do. This comes in two parts: we are able to confuse him when the ball pitches by making it turn. It might turn a small amount, it might turn a large amount or it might turn the other direction entirely.

We are also able to use the same set of techniques to deceive him as to where the ball will pitch in the first place.

This is flight: the art of deceiving the batsman as to the exact location where the ball will pitch.

How do we do this?

Well, first and foremost we use the same technique we use to make the ball turn: by spinning it hard. In the case of flighting the ball, this primarily means using topspin and backspin.

These make use of the Magnus effect to change the trajectory of the ball as it travels towards the batsman.

• Top spin will make the ball drop more quickly and land further away from the batsman than expected. Imagine a tennis player playing a top spin shot with his racquet, hitting over the top of the ball. You can apply this same spin on a cricket ball. How you do it will depend on whether you are a finger spinner or wrist spinner but the effect of spinning “over the top” is the same.

• Back spin will make the ball carry further and land closer to the batsman.  Our tennis player would slice underneath the ball to make the shot. Again your method for doing this will vary but think ‘slicing under the ball’ to create the effect.

Using the two in combination makes batsman completely clueless as to whether to play forward or back to any given delivery.

Tahir trains with Qadir in Lahore

	Abdul Qadir: "He [Imran Tahir] sought my guidelines regarding the finger googly and using flight as a weapon." © AFP Enlarge
Related Links Players/Officials: Abdul Qadir | Imran Tahir Series/Tournaments: South Africa tour of England Teams: Pakistan | South Africa

Umar Farooq in Cricinfo

Abdul Qadir, the former Pakistan legspinner, has said he rues the fact that the Lahore-born Imran Tahir went on to play for South Africa and not Pakistan. Tahir had met Qadir in Lahore on Tuesday, and will remain in Pakistan for the rest of the week, for personalised training sessions in preparation for South Africa's tour of England in July. 

The pair had worked on increasing the variations in Tahir's bowling. "He is here to enhance his variations, and sought my guidelines regarding the finger googly and using flight as a weapon," Qadir told ESPNcricinfo. "He is very keen to learn more and I love to help him, because he applies what I teach him. I have only shared the googly information with him and Shahid Afridi."

Qadir is confident of Tahir making an impression in England. "England [have always] struggled against spin bowling a lot, but once it comes to their home conditions, they are good. I have shared my past experiences with Tahir, told him how to counter English batsman in their own conditions … I am optimistic that he will make an impact with his improved bowling."

Tahir, who has played seven Tests for South Africa, played cricket in Pakistan from 1996 to 2006. "My relations with Imran aren't something new," Qadir said. "I've know this boy since he was playing in the Under-19 team here; he had tremendous talent and I was urging the [Pakistan] board to try him. I still regret not having this boy in Pakistan colours, but I am proud of him."

Tahir was once part of the Pakistan A team and was one of the popular legspinners on the Pakistani domestic circuit in 90s. He was team-mates with Shoaib Malik and Abdul Razzaq in 1996, in the Under-19 squad that played against England and Australia.

"He has played an ample amount of cricket in Pakistan, it's unfortunate that we couldn't have him playing for Pakistan," Qadir said. "He was so hardworking and a good learner, and always wanted to play cricket on the big stage. He eventually got there, where he always wanted to get.

"This is not the first time he has come up to me for tips, he was consistently in touch with me and always visits me when he is here in Lahore."

Umar Farooq is ESPNcricinfo's Pakistan correspondent

Feeds: Umar Farooq

© ESPN EMEA Ltd.

Pritish Nandy - My separated at birth twin

The pleasures of being a bore

Pritish Nandy
29 May 2012, 12:03 AM IST

I am an itinerant presence on Twitter. I am not on Facebook. I rarely trawl malls and try out new brands, new restaurants. I avoid pulp fiction and Hollywood blockbusters don't excite me overmuch. Dating a celebrity is not exactly my idea of a great evening out. And no, I don't go to Ibiza to party or Bahrain for F1. I don't even own a Blackberry or an iPad. I haven't worn a watch in years but am almost always on time. And no, I don't consider myself famous, never did.
Now doesn't this make me the perfect bore?

I write for my livelihood, paint for my pleasure. I make movies because they are fun. I work out because it makes me feel good. I yoga because it wakes me up early and allows me to watch the city come to life. I tweet when I feel like and I enjoy the response of others to what I say, even when they are not always polite. The interplay of ideas sharpens my thoughts. I walk into bookshops, sit in a corner and read. I travel a lot because it allows me to escape the ennui of routine. You can recognise me anywhere by my faded jeans and white shirt. A grey waistcoat and sneakers complete the ensemble. I never dyed my beard which greyed in my thirties. I shaved my head by accident and liked it so much I never grew my hair back.

I listen to all music, enjoy them all. From Elvis to Gangubai Hangal to Nusrat to Adele. But yes, I love music where the words touch my heart. I love Sahir and Kaifi. I re-read old classics. But I enjoy watching The Simpsons too. It bothers me when Inception tests my intelligence, and my patience. But that doesn't mean I watch Houseful 2. I would rather watch ZNMD or Kahaani. My idea of a perfect date would be in a tiny café in a place where I have never been with someone I have never met and am unlikely to ever meet again. Mystery and magic are what I seek from life, and the occasional miracle of love.

So rarely do I go to parties that people have stopped inviting me. The company of one beautiful or intelligent person excites me far more than people in the collective trying very hard to enjoy themselves. I find the world a charming place, best savoured on one's own or with someone you love. Group celebration is as unexciting to me as group sex. I find both tedious. Sex, like love, is at its best when you experience it with someone of the opposite sex, which makes me doubly boring in a world where almost everyone is bisexual or (in Samantha's memorable coinage) trysexual. I really wouldn't know what to do with a naked man. Only women exist in my sexual universe.

Even there I am deadly boring. S&M doesn't titillate me. Mozart may. I passed on drugs when I passed out of school. Alcohol makes me drowsy. And the current obsession over food I find gross. I eat little, speak less, grab the passing moment. Neither greed nor gluttony excite me. I wouldn't notice if Gordon Ramsay was in the kitchen. It's the person I am with who makes it happen. I never eat alone. The only food I miss is what I don't get. Ergo, nostalgia food. A meal I had on a steamer in Bangladesh. My mother's cooking, even though it was never great. I miss food from little known places that have shut down. I remember a city by what I ate there, usually happenstance street food.
I believe our hearts teach us how to react. A book, a film, a song may move me to tears at a special moment. On another, they could leave me untouched. That's why it's so tough being a critic. You have to carry your moment with you. Trees, dogs, cats, birds, flowers, squirrels running on the fence, the sound of laughter work any time for me, and the delight of walking through unknown streets, empty fields, unseen dreams. I love them all and wish I could pass on the memories to those I care for instead of the trinkets we gift each other and so easily forget.

Why economics needs to be seen not as a science but a moral philosophy

Michael Sandel: 'We need to reason about how to value our bodies, human dignity, teaching and learning'

The political philosophy professor on his new book, What Money Can't Buy, and why economics needs to be seen not as a science but a moral philosophy

• 
• • Decca Aitkenhead
  • guardian.co.uk, Sunday 27 May 2012 20.01 BST

'What is a good hospital?' … Michael Sandel Photograph: Felix Clay for the Guardian

 

Something curious happened when I tried to potty train my two-year-old recently. To begin with, he was very keen on the idea. I'd read that the trick was to reward him with a chocolate button every time he used the potty, and for the first day or two it went like a breeze – until he cottoned on that the buttons were basically a bribe, and began to smell a rat. By day three he refused point-blank to go anywhere near the potty, and invoking the chocolate button prize only seemed to make him all the more implacable. Even to a toddler's mind, the logic of the transaction was evidently clear – if he had to be bribed, then the potty couldn't be a good idea – and within a week he had grown so suspicious and upset that we had to abandon the whole enterprise.

It's a pity I hadn't read What Money Can't Buy before embarking, because the folly of the chocolate button policy lies at the heart of Michael Sandel's new book. "We live at a time when almost everything can be bought and sold," the Harvard philosopher writes. "We have drifted from having a market economy, to being a market society," in which the solution to all manner of social and civic challenges is not a moral debate but the law of the market, on the assumption that cash incentives are always the appropriate mechanism by which good choices are made. Every application of human activity is priced and commodified, and all value judgments are replaced by the simple question: "How much?"

Sandel leads us through a dizzying array of examples, from schools paying children to read – $2 (£1.20) a book in Dallas – to commuters buying the right to drive solo in car pool lanes ($10 in many US cities), to lobbyists in Washington paying line-standers to hold their place in the queue for Congressional hearings; in effect, queue-jumping members of the public. Drug addicts in North Carolina can be paid $300 to be sterilised, immigrants can buy a green card for $500,000, best man's speeches are for sale on the internet, and even body parts are openly traded in a financial market for kidneys, blood and surrogate wombs. Even the space on your forehead can be up for sale. Air New Zealand has paid people to shave their heads and walk around wearing temporary tattoos advertising the airline.

According to the logic of the market, the matter of whether these transactions are right or wrong is literally meaningless. They simply represent efficient arrangements, incentivising desirable behaviour and "improving social utility by making underpriced goods available to those most willing to pay for them". To Sandel, however, the two important questions we should be asking in every instance are: Is it fair to buy and sell this activity or product? And does doing so degrade it? Almost invariably, his answers are no, and yes.

Sandel, 59, has been teaching political philosophy at Harvard for more than 30 years, and is often described as a rock star professor, such is the excitement his lectures command. In person there is nothing terribly rock star about him; he grew up in a middle-class Jewish family in Minneapolis, studied for his doctorate at Balliol college in Oxford as a Rhodes Scholar, and has been married for decades to a social scientist with whom he has two adult sons. His career, on the other hand, is stratospheric.

Sandel's justice course is said to be the single most popular university class on the planet, taken by more than 15,000 students to date and televised for a worldwide audience that runs into millions. His 2009 book Justice, based upon the course, became a global bestseller, sparking a craze for moral philosophy in Japan and earning him the accolade "most influential foreign figure" from China Newsweek. If you heard a series of his lectures broadcast on Radio 4 in the spring you would have glimpsed a flavour of his wonderfully discursive approach to lecturing, which is not unlike an Oxbridge tutorial, only conducted with an auditorium full of students, whom he invites to think aloud.

In keeping with his rock star status, Sandel is currently embarked upon a mammoth world tour to promote his new book, and when we meet in London he has almost lost his voice. His next sleep, he croaks, half smiling, isn't scheduled for another fortnight, and he looks quite weak with jetlag. Understandably, then, he isn't quite as commanding as I had expected. But although I found his book fascinating – and in parts both confronting and deeply moving – in truth, until the very last pages I didn't find it quite as persuasive as I had hoped.

This may, as we'll come on to, have something to do with the fact that its central argument is harder to make in the US than it would be here. "It is a harder sell in America than in Europe," he agrees. "It cuts against the grain in America." This is truer today than ever before, he adds, for since he began teaching Sandel has observed in his students "a gradual shift over time, from the 80s to the present, in the direction of individualistic free-market assumptions". The book's rather detached, dispassionate line of inquiry into each instance of marketisation – is it fair, and does it degrade? – was devised as a deliberate strategy to "win over the very pro-market American audience" – and it certainly makes for a coolly elegant read, forgoing rhetoric for forensic examination in order to engage with free market economics in terms the discipline understands. But I'm just not entirely sure it works.

If, like me, you share Sandel's view that moral values should not be replaced by market prices, the interesting way to read What Money Can't Buy is through the eyes of a pro-market fundamentalist who regards such a notion as sentimental nonsense. Does he win you over then?

He certainly provides some fascinating examples of the market failing to do a better job than social norms or civic values, when it comes to making us do the right thing. For example, economists carried out a survey of villagers in Switzerland to see if they would accept a nuclear waste site in their community. While the site was obviously unwelcome, the villagers recognised its importance to their country, and voted 51% in favour. The economists then asked how they would vote if the government compensated them for accepting the site with an annual payment. Support promptly dropped to 25%. It was the potty-and-chocolate-buttons syndrome all over again. Likewise, a study comparing the British practice of blood donation with the American system whereby the poor can sell their blood found the voluntary approach worked far more effectively. Once again, civic duty turned out to be more powerful than money.

However, a true believer in the law of the market would surely argue that all this proves is that sometimes a particular marketisation device doesn't work. For them it remains not a moral debate but simply one of efficacy. Sandel writes about the wrongness of a medical system in which the rich can pay for "concierge doctors" who will prioritise wealthy patients – but to anyone who believes in markets, Sandel's objection would surely cut little ice. They would say it's a question of whether or not the system is fulfilling its purpose. If the primary purpose of a particular hospital is to save lives, then if it treats a millionaire's bruised toe while a poorer patient dies of a heart attack in the waiting room, the marketisation has clearly not worked. But if the function of the hospital is to maximise profits, then treating the millionaire's sore toe first makes perfect sense, doesn't it?

"I suspect that you have – we have – a certain idea of what a hospital is for, such that a purely profit-driven one misses the mark; it's deficient in some way; it falls short of what hospitals are properly for. You would say, wouldn't you, that that hospital – that market-driven one – is not a proper hospital. They've misidentified, really, what a hospital is for. Just as if they were a school that said: 'Our purpose isn't, really, primarily, to educate students, but to maximise revenue – and we maximise revenue by offering certain credentials, and so on,' you'd say: 'Well, that's not a proper school; they're deficient in some way.'"

I would, I agree. But a rabid rightwinger wouldn't. They would say the profit motive is in itself blameless, and pursuing it by mending people's bodies or expanding their minds is no different to making motor cars, as long as it works.

"My point is that the debate, or the argument, with someone who held that view of the purpose of the hospital would be a moral argument about how properly to understand the purpose of a hospital or a school. And, yes, there would be disagreement – but that disagreement, about purpose, would be, at the same time, a moral disagreement. I'd say 'moral disagreement', because it's not just an empirical question: How did this hospital define its mission? It's: What are hospitals properly for? What is a good hospital?"

I don't think that would convince a hardliner at all. Similarly, I imagine a hardline rightwinger might read Sandel's chapter about the practice in the US of corporations taking life insurance policies out on their staff, often unbeknown to the employees, and think: what's the problem? Sandel writes about the "moral tawdriness" of companies having a financial interest in the death of an employee, but as he doesn't suggest it would tempt them to start killing their staff, these policies would strike many on the right as a rational financial investment.

At this point Sandel begins to peer at me across the table with an expression of mild disgust and disbelief. Is this woman really, I think I can see him wondering, from the Guardian? So I explain hastily that I tried very hard to read his book wearing Thatcherite glasses.

"You tried a bit too hard," he says wryly. "You shouldn't have tried so hard. You should have gone with the flow a bit more." Which feels like a disappointing answer.

The irony is that I think Sandel would have written a more powerful book had he not tried to argue the case on free-market economists' own dry, dispassionate terms. It is, as he rightly points out, the language in which most modern political debate is conducted: "Between those who favour unfettered markets and those who maintain that market choices are free only when they're made on a level playing field." But it feels as if by engaging on their terms, he's forcing himself to make an argument with one hand tied behind his back. Only in the final chapter does he throw caution to the wind, and make the case in the language of poetry.

"Consider the language employed by the critics of commercialisation," he writes. "'Debasement', 'defilement', 'coarsening', 'pollution', the loss of the 'sacred'. This is a spiritually charged language that gestures toward higher ways of living and being." And it works, for the book suddenly makes sense to me. His closing elegy to what is lost by a society that surrenders all decisions to the market almost moved me to tears.

"Does that mean I should have just started and ended with the poetry, and forgotten about the argumentative and analytical part?" he asks. "I want to address people who are coming to this from different ideological directions." But funnily enough, I think the poetry might well do a better job of persuading those very sceptics he's trying to convert.

A fascinating question he addresses is why the financial crisis appears to have scarcely put a dent in public faith in market solutions. "One would have thought that this would be an occasion for critical reflection on the role of markets in our lives. I think the persistent hold of markets and market values – even in the face of the financial crisis – suggests that the source of that faith runs very deep; deeper than the conviction that markets deliver the goods. I don't think that's the most powerful allure of markets. One of the appeals of markets, as a public philosophy, is they seem to spare us the need to engage in public arguments about the meaning of goods. So markets seem to enable us to be non-judgmental about values. But I think that's a mistake."

Putting a price on a flat-screen TV or a toaster is, he says, quite sensible. "But how to value pregnancy, procreation, our bodies, human dignity, the value and meaning of teaching and learning – we do need to reason about the value of goods. The markets give us no framework for having that conversation. And we're tempted to avoid that conversation, because we know we will disagree about how to value bodies, or pregnancy, or sex, or education, or military service; we know we will disagree. So letting markets decide seems to be a non-judgmental, neutral way. And that's the deepest part of the allure; that it seems to provide a value-neutral, non-judgmental way of determining the value of all goods. But the folly of that promise is – though it may be true enough for toasters and flat-screen televisions – it's not true for kidneys."

Sandel makes the illuminating observation that what he calls the "market triumphalism" in western politics over the past 30 years has coincided with a "moral vacancy" at the heart of public discourse, which has been reduced in the media to meaningless shouting matches on cable TV – what might be called the Foxification of debate – and among elected politicians to disagreements so technocratic and timid that citizens despair of politics ever addressing the questions that matter most.

"There is an internal connection between the two, and the internal connection has to do with this flight from judgment in public discourse, or the aspiration to value neutrality in public discourse. And it's connected to the way economics has cast itself as a value-neutral science when, in fact, it should probably be seen – as it once was – as a branch of moral and political philosophy."
Sandel's popularity would certainly indicate a public appetite for something more robust and enriching. I ask if he thinks academia could do with a few more professors with rock star status and he pauses for a polite while before smiling. "That's a question I would rather have you answer than me, I would say." That someone as unflashy and mild-mannered as Sandel can command more attention in the US than even a rightwing poster boy academic such as Niall Ferguson must, I would say, be some grounds for optimism. On a purely personal level, I ask, is there any downside to engaging with the world through the eyes of moral philosophy, rather than simple market logic?
"None but the burden of reflection and moral seriousness."