Tuesday, 25 January 2011

Tory Stagflation Returns

The News and Business channels are describing the fact that the UK economy went into a double-dip in the last quarter as a “shock” or “unexpected”..
It wasn't a shock or unexpected to me. Its what I have been predicting for months. In my blog Economic Theory & The Cuts, I wrote,

“...I expect the economy to contract or be flat in the Fourth Quarter.”

The Liberal-Tories for the last year have been blaming Labour at every opportunity for every bit of bad news. But, the reality is that Labour's fiscal stimulus was working, and had created a modest, but developing economic recovery. That Keynesian Fiscal stimulus was mirrored in the US, which has been arguing against the kind of austerity measures being pursued by right-wing populist Governments in Europe, and argued for by the Right-wing populists of the Tea Party.
In contrast, in the US, the Republican leaders joined with Obama and the Democrats to inject a further $2 trillion fiscal stimulus into the economy only a few weeks ago. In the same way that Labour's fiscal stimulus was working, and similar policies had worked in Brazil, China and elsewhere, the US is now showing clear signs of reaching the stage of self-sustaining growth, with the employment and unemployment data beginning to turn round.
That is in stark contrast to the equivalent data for the UK, and other European economies suffering from illiterate economic policies, which as the head of the British Bosses organisation, Richard Lambert of the CBI, correctly described as the triumph of politics over economics.
It is yet another example of the reality recognised long ago by Engels, and which I have been describing over recent months, which is the extent to which Social Democracy (not necessarily what would be termed Social Democratic parties) better represents the interests of Big Capital than does the right-wing, populist “Conservative” parties, who are based upon, and reflect the limited, narrow minded concerns of the small capitalist, and of the middle classes, and backward reactionary elements within society.

In the UK both the Employment and Unemployment data are already deteriorating, as I set out in my blog Misery Index Set To Rise. But, as I set out in that post, and as I have been arguing for some time, this rise in Unemployment, fall in Employment, and sharp slow down in economic activity is being accompanied by rising levels of inflation. In other words we have a return to the kind of stagflation that has accompanied the economically illiterate policies of most previous Tory Governments, as I pointed out in my blog Answering Cleggy's Questions.

Unable to blame Labour for the sharp deterioration in the economy, the Liberal-Tories instead blamed the figures on the weather. Germany had even worse weather, but did not suffer the same economic collapse.
But this data is only a flash reading. It essentially misses the December data, which would have been most affected by weather. Its likely that when the actual data for December is included the degree of the slowdown will be even worse that this figure suggests. According to the ONS, even attempting to strip out the effects of the weather would result in a figure that was stagnant compared to the previous quarter. Given that Labour's fiscal stimulus had resulted in a growth figure of 1.1% for the second quarter, and 0.7% for the Third Quarter, the change even from plus 0.7 to zero, shows a huge change of direction for the economy.

But, in a discussion on the BBC's “Daily Politics” today, where Ed Balls decimated Tory Minister Justine Greening, he put his finger right on the spot.
He essentially made the point I have been making for several months, which is that this sharp reversal is not yet even a consequence of the Tory Cuts, and tax rises. In fact, the latest data shows that Public Spending under the Liberal-Tories has actually risen compared to the situation in the previous year – a point I have previously set out in describing the Liberal-Tory incompetence, because although their Cuts are back loaded towards the last three years of the four year programme, the effects of their narrative begin to be felt immediately – which mirrors the reality under the Thatcher regime, where there was a lot of rhetoric about the small state, but under who the size of the Capitalist State grew, and in certain areas such as the power of the police, and in the building up of the other “bodies of armed men”, grew considerably.

As Ed Balls said, the decline in the economy, which began with the slow down of growth seen in the Third Quarter data, and is now reflected in this collapse in economic activity is down solely to the damage that the Liberal-Tories have done with their continual talking down of the economy from early last year, their ridiculous comparisons of the UK with Greece, their dire warnings of national bankruptcy, and their claims about the need to deal with the deficit above all else, which even David Laws admitted had been hyped up purely for political purposes.
Just on that basis the Liberal-Tories have succeeded in tanking the economy. In coming months, as the momentum now established unfolds, as confidence and the “animal spirits” take hold, and cause people worried about losing their Public sector job, losing the business of Public Sector workers, losing their home, and so on begins to take hold in an environment of diminishing employment prospects, falling house prices and rising evictions, and increased business failures, the economy risks sinking into serious recession if not Depression.

Up to yet, the concerns of Big Capital have been expressed in coded terms such as those used by Richard Lambert in his speech yesterday. But, as this avoidable crisis unfolds, its likely that those messages will become less coded, and more forthright.
In a report out from Begbies Traynor, that is already becoming more obvious. The BBC in their coverage of the report say,

“Almost 148,000 firms had serious problems in the final three months of last year, the first year-on-year rise in the past seven quarters, said insolvency specialist Begbies Traynor.

Government cuts were exacerbating the problem, it said.”

The IT, business services and construction sectors in particular were feeling the pinch, it found.

"The figures demonstrate that the sectors most reliant on government spending are already feeling the impact of public sector cuts," said Ric Traynor, chairman of Begbies Traynor.

"With the full implementation of budget cuts only starting to show through in these figures, public sector-exposed sectors are likely to face significant increases in the level of corporate failures over the course of 2011."

But, recent events within Europe demonstrate the point I have made over recent months, that this is more a political crisis than an economic crisis.
The events in Ireland over the last week have been reduced almost to farce. In Europe, we now see the Spanish Government only half accepting the reality of its economy, and the situation in respect of its property and financial sector. The situation with the Spanish Cajas, the small regional banks, which are responsible for most of the lending for property development, purchase and speculation is now forcing the Government to look for a solution. It is forcing them to merge, and to privatise themselves. But, despite some falls in the Spanish property market, it remains largely a fiction, maintained by a series of interested parties, from property owners themselves, to the Cajas, to the Estate Agents, to the national Banks who own much of the Cajas debt, to the Government itself. In a situation reminiscent of the sub-prime crisis in the US, all of these people have a vested interest in keeping ridiculously high property prices on paper. The Government has said it needs 20 billion Euros to recapitalise the Cajas, which it is now being forced to accept will have to be accomplished by nationalising them. But, from what we have seen in the US sub-prime crisis, and what we have seen in Ireland, this figure is probably out by a factor of ten.
It almost certainly requires more like 200 billion Euros, and that kind of sum, on top of the existing sovereign debt crisis facing Spain, could only be met by some significant developments. Its likely that the Government will try to get the Spanish banks to step in. At the moment those banks based on their activities in a growing Latin America, appear quite sound, but the experience of the Credit Crunch shows how quickly that situation can change when even sound banks are persuaded to take on the liabilities of other banks, whose real assets are a fiction.

The only real solution to this, is as I have been saying for nearly a year, for the EU to issue EU Bonds to raise the money on global Capital Markets. Its now being proposed for the EFSF to issue its own Bonds, and to buy the Bonds of peripheral economies, and the first of those Bonds issued by the EFSF was 9 times oversubscribed today, which shows how much demand there would be for an EU Bond. Yet there is continued resistance to the idea of issuing an EU Bond. The reason for that is again political. In an interview with CNBC, French Finance Minister, Christine Lagarde, said that EU Bonds could only be issued once their was fiscal union. Germany, which would bear most of the cost of all this, basically holds the same position. In other words, we have political manoeuvring leading to political inactivity, which in turn is creating an unnecessary economic crisis.

That is the situation a described in my blog A Momentous Change. At a time when Capital is developing rapidly in the Asian Economic bloc centred on the China-Japan hub, and in Latin America, the Middle East and parts of Africa, which is being pulled along by the developments in Asia, and the demand for primary products, and is even growing in North America as a result of the fiscal stimulus, the ability of the US to use its position as provider of the reserve currency to engage in a currency war, and the internal resources of the US economy itself, the economic bloc to lose out will be the EU including the UK, and will do so for wholly avoidable reasons.
The question becomes whether Big Capital can exert the necessary pressure upon the political process to change that.

Whether it can or not should not change the tactics and strategy of the working-class. Here and now we have to make the case that the right-wing populist policies being advocated by the Tories and others are economically illiterate, and leading to disaster. The policies of Keynesian fiscal stimulus being advocated by US Big Capital, and Social Democracy can and are providing an immediate solution in the current context of a global Long Wave Boom. But, those policies are policies designed, as they always have been, to rescue Big Capital, not to benefit workers. They can work now only because of the economic circumstances of the Long Wave Boom. In neither the short term, nor the longer term do they provide a solution for workers. That solution can only come from workers themselves becoming the bosses. Immediately, that means workers creating and developing a worker owned Co-operative sector of the economy. It means those Co-operatives acting together in a planned, co-operative manner to further their joint interests through national and international Co-operative Federations. It means workers refusing to accept responsibility for a Capitalist crisis, and putting forward the conversion of Private and State Capitalist property into worker owned Co-operative property whenever the State or private Capitalists fail to meet workers needs. It means that Co-operative sector acting as a permanent bulwark for workers in the Private and State capitalist sectors, setting a minimum standard for wages and conditions, for control over the work process, for democracy and efficiency. It means them providing practical support for workers everywhere in struggle against State and private capital, and providing them with a credible immediate alternative to their current situation. But, ultimately it means the extension of such a worker owned Co-operative economy to a national and then international level, a process which the Capitalists will not watch happen passively. It will require an ideological, political and industrial struggle by workers to defend and extend their property, their productive relations, their social relations, and their interests over those of the Capitalists. It will mean that the Social Revolution accomplished by means of the rising power of that Co-operative economy will have to be supplemented by a Political Revolution, to establish the Political regime of the workers in place of the political regime of the bosses.

We are a long way from that here. But even the longest journey begins with a single step, and the return of Tory Stagflation along with the economic and social, and personal misery being created by their co-thinkers shows how urgent it is that the journey be commenced.

No comments: