What Happens If Greece Defaults?

Its possible that we are approaching the end game in the long running debt crisis in Europe. On any rational basis, Greece is already in default. It is almost wholly reliant on the bail-outs it has received from the EU, and IMF just to cover its current running costs, including the costs of paying the interest on its existing loans. Its private sector creditors have already agreed to write-off 50% of the loans they have made, and now the current discussions are about increasing that figure to 80% plus. The question is not really about what happens if Greece defaults, but about what kind of default it is. But, the other question is, if Greece did have a disorderly default would the consequences for workers across Europe, be as catastrophic as is being portrayed?

In his blog Paul Mason, writes,

“I understand the IMF believes a "sustainable" settlement needs an 80% plus write off - and the IMF rules do not allow it to sign off deals that are unsustainable.”

In a sense, this shows the nature of the real problem. If Banks and Finance houses can write off more than 80%, of what they are owed by Greece, then it shows that in the big scheme of things, those debts in themselves are not that significant. What is significant, is the fact that if Greece has a disorderly default, then that will trigger claims by Banks and others on the Credit Default Swaps they have bought with other Financial Institutions, which are a bet that Greece WILL default. The amount that these institutions might have to pay out on these CDS bets, could be many times what the actual Greek debt is. That creates massive instability and fear because, no one knows who is liable to pay out, on these bets, how much those bets are, and so who themselves might become insolvent. It is what led to the Credit Crunch after the collapse of banks like Northern Rock in 2007, and particularly after the collapse of Lehman Brothers in 2008. Already, the exposure of European Banks, and the fear that, unlike US Banks, which were nationalised and recapitalised in 2008/9, those Banks do not have sufficient Capital to withstand such an event. Already, that has caused interbank rates in Europe to rocket, many foreign Banks will not lend to them, and other global businesses will not deal with them. It was to deal with that situation that the ECB, with help from the federal reserve and other Central Banks, made available €0.5 trillion a few weeks ago to provide the European Banks with liquidity. So, the problem is not a Greek default as such, in fact, a lot of the Greek and other peripheral debt that was on Banks Balance Sheets, has been transferred to the Balance Sheet of the ECB over the last few months, because the ECB has been printing money to buy peripheral Bonds in the secondary markets, and the sellers of those Bonds, will have been the European Banks. The problem is a disorderly default.

The problem is that the actions of EU politicians, particularly German politicians, seems to be driving inexorably towards such a disorderly default. It was obvious more than a year ago that under current conditions, austerity measures could only have a negative effect. Perhaps the biggest problem for a country like Greece is not the debt, but its inability to generate the income to pay it off. The same cause is what leads to the debt in the first place, the inability to cover your expenditure from your income. In the new global economy, that is a problem for all developed economies, as they confront the expanding power and competitiveness of China and other new, dynamic economies. Austerity can only act to contract the economy, and create the conditions under which businesses are loathe to invest, because they can see no possibility of selling what they produce. What Greece really needed was a massive injection of new Capital in the same way that West Germany provided for East Germany, and other East European economies after 1990. But, with a growing European recession, it is not just Greek businesses that will be reluctant to invest. That is why we see around the globe, not a crisis of overproduction of Capital, but a massive hoarding of Money, which does not re-enter the Circuit of Capital, but sits in Bank deposit accounts earning low rates of interest, but whose owners are happy to take it, because they have become concerned with return OF Capital, not return ON Capital.

Paul Mason continues,

“Numerous hedge funds are reported to have bought Greek debt so as to operate in the space of uncertainty this opens up, much as a gambler operates next to a roulette wheel. If the "haircut" is 80%, I am told, many of them lose money and are prepared to trigger credit insurance contracts that will then torpedo the entire deal. They will not lose money as a result, but the European banking system will go into crisis.”

The actions of Germany's politicians, at first sight seem perverse. Almost every global economist, almost every organisation representing the interests of the global Capitalist class – IMF, World Bank, OECD, NIESR, S&P – as well as numerous think tanks, and business groups, have pointed out that the policy of austerity is not working, and that measures to stimulate growth are vital. Yet, Merkel continues to echo the views of Cameron and Osbourne that yet more austerity is needed! But, as I showed recently in relation to Cameron, thinking about this in Marxist terms, rather than crude Economic Determinist terms, makes this not at all difficult to understand. Economically, Germany has every reason to desire stimulative measures in Greece, and other parts of Europe. Germany's economy, and the prosperity of its workers have been built on being able to export to these European economies, and the existence of these other economies in the Eurozone, has meant that the value of the Euro has been lower than would have been the Mark, providing German exporters with a competitive advantage.

But, the picture that has been painted across Europe, is that the crisis in Greece was caused by a profligate government, and workers who retired too early on too high Pensions etc. That was never true. The real problem for Greece, as with other economies in Europe, including Britain and Ireland, is that low interest rates encouraged investment not in productive activity, but in blowing up speculative bubbles in shares, property etc. The cause of Greece's problems is not Greek workers, but Greek Capitalists. However, having established this narrative, just as the Tories have established the narrative that Britain's problems are due to overspending by Labour, and high wages and pensions for workers in the State Capitalist sector, it creates its own dynamic. Any attempt by the Tories now to reverse course will undermine their narrative, and mean that people will quickly catch on to the fact that they were conned by the Liberal-Tories. In Germany, with elections due, Merkel faces a similar problem. The SDP and Greens, who look set to win in the next elections, are both in favour of the creation of EU Bonds, and of the ECB acting as lender of last resort to stand behind it. If Merkel wants to have a chance of winning, she has to have a different narrative. Given that the CDU appeals to that same kind of strata in Germany, that the Tories appeal to in Britain, it is quite clear that to maintain electoral support, she has to be seen to be demanding fiscal responsibility by those who Germany is bailing-out. Of course, there is another reason for Germany to push this line. When a new European State is established, Germany will be the economic power at the heart of it. Ultimately, it will have to be the force that provides the financial ballast for that State. It has to ensure that other economies will not simply leach off it. That is why Germany is insisting on a level of fiscal responsibility that is unlikely to be maintained once such a state is established – the Maastricht criteria were not adhered to, and Germany was one of the first countries to breach its requirements.

But, if Germany continues to push in this direction it may well push Greece over the edge, making all of those plans redundant. Paul Mason writes,

“Not free are Merkel, Monti - because constrained by politics in Italy - and the Greek government. The latter have, off the record, briefed that the IMF's proposed austerity programme means "civil war". The most likely outcome of next week is they accept a fudged austerity programme that then does not work. One Greek commentator put it to me like this: "the people who sign a deal that gives away Greek sovereignty over debt that then goes wrong have to be prepared to be court-martialled". He wasn't joking.”

He may be right. Much of what has happened over the last year or so has been for public consumption. Many of the deals were done on the basis that an agreement to undertake various austerity measures would provide the justification for agreeing the latest bail-out, without any expectation that the measures would be fully implemented. That has bought time during, which the Banks and Financial Institutions were able to off load their Bonds to the ECB, and other Central Banks. Money Capitalists have been busy off-loading their potential losses on to workers and productive Capitalists, whose taxes will be expected to cover the losses. That is why they have been pulling money out of not just Greece, not just the peripheral economies, but even out of France.

So, what if Greece does go through a disorderly default? It would mean that money would be withdrawn on a huge scale from Ireland, Portugal, Spain and Italy overnight, with probably France, and other potentially vulnerable economies following suit. Claims on CDS's would escalate, probably bankrupting huge numbers of European banks, which would inevitably have a knock-on effect on US and other international Banks. It would create a Credit Crunch much more severe than that of 2008/9. Of necessity, such a credit crunch means that money stops being made available for businesses, consumers, homebuyers etc. As in 2008, it would mean that share prices crashed, and along with it house prices, as all asset prices are revalued, Banks raise mortgage rates severely, and begin a firesale on all properties where there are arrears, to prevent a capital loss in a collapsing market. Given the scale of the property bubble in places like the UK, and Spain (still) it could see property prices fall by 90%. The stopping of credit to business would inevitably lead to a sharp contraction of economic activity.

But, its important not to get too carried away by all this. There is a general misconception that the Great Depression was caused by the 1929 Wall Street Crash, and that a similar Financial Crash now would have the same result. But, the Great Depression was NOT caused by the Wall Street Crash. It may have acted as a trigger, but the real cause of the Depression lay with the ending of the Long Wave Boom that ran from the late 1880's, to 1914-20. It was that, which led to the onset of a period of low growth for Europe, which saw a number of economic crises during the 1920's, and 1930's, of which the Great Depression of 1929-33, was merely the worst. In 1987, when there was an even sharper sell-off on the Stock Market, it did not lead to a more severe economic crisis than had already existed from the late 1970's. So, the fact of a financial crisis and a revaluation of assets is not at all the same thing as an economic crisis, based upon an overproduction of Capital, particularly one associated with the termination of a Long Wave Boom.  And, today we are in the first half of a Long Wave Boom, not downturn.

A Credit Crunch does not affect all aspects of economic activity in the same way. For example, the drying up of credit is important if you are a small business dependent upon credit for working capital on a day to day basis. But, nearly all big companies have huge cash balances out of which to finance working-capital. It may lead to a drying up of consumer credit, but under current conditions, where households have huge amounts of private debt, and they are attempting to deleverage, that should be less of a problem, because, the demand for credit itself should decline. One means of that deleveraging may well be that large numbers of people themselves default on their private debts in the same way that countries might be led to do. In that way, the real burden would fall on those Money Capitalists who have been lining their pockets for the last 30 years, during the period of Neo-Liberalism, and who are largely responsible for the current debt crisis.

Of course, it is always portrayed that such a crisis will have terrible consequences for ordinary workers. But would it? If small businesses go bust, because of lacking working capital, its possible they might be taken over by a bigger company, which tends to provide better conditions for workers. If not, with a large scale devaluing of Capital Assets, it would be easier for the firm's workers themselves to take it over, and run it as a Co-op. Such a derating of Capital is always portrayed as meaning big losses for workers in their Pension Funds, but is it? The Value of the Fund might fall sharply, but Pensions are mostly paid out of the income the Fund receives not from Capital Gains made by the Fund. As a consequence of what is called “Pound Cost Averaging”, massively falling share prices, will mean that workers contributions into their Pension Funds, will buy many more shares than they did previously. Moreover, as the price of shares falls dramatically, the Yield on those shares, the percentage of dividend to share price, will rise sharply. Because, Pension benefits tend to be paid out of this Dividend Income, the potential arises for being more able, rather than less able to cover future pensions. The same is true with Pension fund investments into Bonds.

At the moment, the fear in the global economy means that owners of large amounts of Money are prepared to put it wherever they think it is relatively safe. That means that the price of Bonds in countries like the US, the UK, Japan who are able to print money to cover their debts are unsustainably high. Moreover, it is the actions of those States in printing money with which they buy their own debt, in order to pump liquidity into their economies, which also forces the Yields on those Bonds down, whilst at the same time, pushing inflation up. Once the event that is causing the fear has gone, the basis of that will disappear. The owners of Money will be able to look at investing it where it might bring in a reasonable return. Once the fear has gone, after the debt crisis explodes, businesses will once again be able to plan on investing, and be able to utilise some of those vast stores of Money – at least $15 Trillion in the US alone – waiting to be invested.

The real losers in such a process will be the Money Capitalists who over the last 30 years have rule the roost, and who have drained Surplus Value away from productive capital, both directly, and through the turning of workers into debt slaves. The Money capitalists through the links they have, and the power they exercise over right-wing parties like the Tories have been able to protect themselves from that denouement. Workers should not be conned into believing their interests are served by a continuance of that. In fact, were workers to obtain control over the funds in their pension Funds, such an event that put Money Capital in its place, could be highly beneficial to workers, who would be able to pick up huge amounts of productive capital at low prices. And a fall in house prices of 90%, would go a long way to resolving the current housing problems by making houses once again affordable for first-time buyers.

In 2008, the International Co-operative Alliance put out a statement arguing that none of the Co-operative and Mutual Banks across Europe had been affected in the way the Capitalist Banks had. If huge swathes of Capitalist Money Capital was wiped out, it would open the door for a huge expansion of those Co-operative Banks. And, as I argued a year or so ago, over the collapse of the Irish Banks, rather than the Capitalist State bailing them out, the State should have just protected the deposits of savers, whilst the Banks were allowed to go bust, and their workers take them over to run as Co-ops, taking over the assets of the Bank.

Rather than being a threat to workers, properly armed with the idea of workers taking over bankrupt capitalist property and running it themselves as worker owned Co-ops, a Greek default, and the subsequent devaluing of Financial and other assets, could provide workers with a golden opportunity.

Northern Soul Classics - Cheyenne - The Promised Land

Top Northern instrumental dancer from the days of the Torch.

Northern Soul Classics - Seven Day Fool - Etta James

To the late, great Etta James, who died yesterday. Also check out the snippet of the uptempo Northern Soul "The Love Of My Man" by Etta at Pat Brady records here

Horizon

Last night's Horizon on BBC2, was an fascinating programme for anyone interested in Science and Economics. The programme, titled “Playing God”, looked at developments in biotechnology and genetic engineering. It began by visiting a University Farm in the US, where the gene from a spider had been merged with the DNA of a goat, so that the protein, which creates the spider's silk, could be produced on an industrial scale. The silk, which is stronger than any such material that can be made synthetically, has numerous potential functions from industry to medicine. But, this was just the beginning of the kind of developments that are taking place.

Why is this science interesting from an Economists perspective? For the reason described above. Biotechnology, nano-technology and genetic engineering are now making possible the production of whole new ranges of materials, machines and products. These developments have largely been made possible because of previous developments in other areas, particularly that of microprocessors, which have brought about regular and massive increases in computing power. Without that computing power, the sequencing of DNA, for example, would have taken decades. Today, it can be done in weeks if not day. Without the ability to sequence DNA, and isolate the functions of particular genes and sets of genes, genetic engineering would not be possible. Now it is possible to not only sequence the DNA on a computer, but to construct new DNA via a computer model, prior to its actual manufacture in the test tube. There are already moves in the other direction. Computer technology in the future will not be based upon silicon chips, but will be built from organic material capable of repairing itself like any other organism.

But, the reason this is so fascinating from an Economists perspective is this. There area a number of factors which create the conditions for a Long Wave Boom, as opposed to the period of the Long Wave Downturn – which is actually a period of below average growth rather than actual negative growth. One of the most important of these factors is that there has to be the potential for the development of a range of new industries, producing a range of new products, using a range of new productive forces, and new production methods. As Hobsbawm points out in his “Industry & Empire” had the British Industrial Revolution been based solely on the revolution in textile production, it would have failed. Exchange Value is precisely that. It is the value a commodity has in exchange with other commodities. If there are no other commodities, against which some particular commodity can be exchanged, or if there are too few of these commodities, then the Exchange Value, embodied in the particular commodity, cannot be realised, and therefore, the Circuit of Capital (Money – Commodities{Raw Materials, Machines, Labour Power} – Production – Commodity1 – Money1) is broken. The necessary Exchange Value in Money cannot be realised to allow the purchase (reproduction) of the raw materials, Labour Power etc. used up in production, to allow production to continue. In other words, there has been a crisis of overproduction.

What enabled the Industrial Revolution to proceed, and to create a Boom was that, not only was there a Revolution in Textiles, but also there was a revolution in Agriculture, which meant that manufactured textiles could realise their Exchange Value (including the Surplus Value embodied within it) against increased supplies of food. There was a revolution in Iron & Steel production, which meant that Textile manufacturers could realise that Exchange Value in Exchange for machines, that consumed some of this increased supply of metal. There was a revolution in transport, which meant that some of the textile Exchange Value could be realised in Exchange with the owners and builders of canals and railways and so on.

The conditions for the end of the Boom are set in place when the production of all these existing industries, and the products they are responsible for, reaches such a level that much of the potential demand for them has been satisfied, and where no new industries, no new products, have been developed, into which Capital can be diverted, creating new linkages through which Exchange Value can be realised. Under these conditions, it is not just Capital in one industry, which is over produced, which is unable to find sufficient buyers, willing or able to buy its products, at a price that would enable reproduction to take place, but all, or the majority, of industries that find themselves in this position.

Every Long Wave Downturn has ended, and a new Boom started, once these conditions are met, when technological developments make possible a sufficient range of new products and industries, in which Capital can be profitably invested to meet unmet wants and can be realised via exchange with existing commodities. The Long Wave Boom from 1949 to 1974, was a clear example of that, as new types of production such as cars, consumer durables, electronics, chemicals, which had begun to be developed in the 1930's, became major new industries, and in the process created new production methods, new productive relations, and new social relations upon them. That once again confirmed Marx and Engels theory of Historical Materialism, which posits precisely this relationship.

And, in fact, as this new Long Wave Boom develops, we are again seeing exactly this pattern. Much of the old manufacturing commodity production has been relocated to where large supplies of cheap unskilled labour is available. During the period of downturn, the Capital and Labour did not move into new areas of commodity production, because they did not exist in sufficient scale. Unlike the 1930's where that led to mass unemployment, this time it led to Capital and labour moving into various forms of Service production, and into Merchandising (vast excesses of retail developments, large numbers of warehouses on newly developed “industrial” estates) which was financed on the back of huge amounts of private debt. But, during this period, in the background, the same process seen in the past, of the development of new productive forces (microprocessors and the things it made possible such as industrial robots, personal computers, mobile communications, biotechnology and nano-technology) were being put in place. These things are called base technologies. They are the new productive forces that make the new products, industries and production methods possible. Sometimes they are not new, but new applications of old technologies. For example, the ancient Greeks first recognised the ability to use the power of expanding steam to do useful work, but it was James Watt, and Matthew Boulton, who resurrected that technology, and applied it to make the Steam Engine! As increasingly, it has become intellectual production that is the source of new high value commodity production, it is not surprising that much of this development of new base technologies has been done on University Campuses, and in the new Science Parks attached to them.

In the first decade of the new Long Wave Boom, we have only seen a fraction of the application of these new base technologies, and yet anyone older than 40 will recognise what a huge transformation they have brought about during that time. As late as the mid 90's, those who had a personal computer at home were a small minority. Mobile phones were virtually unheard of, and no one had heard of the Internet. The average Long Wave Boom lasts for 27 years, which means that in the remaining 15 years of this one, the scope for the expansion of yet further new industries, products, and production methods is vast. That is so, because the productive forces unleashed by this Boom in the form of the microprocessor, are qualitatively different from all previous developments, precisely because it acts as a huge adjunct to human brain power. The developments in biotechnology and genetic technology, as well as nanotechnology are a clear example of that.

The presenter of the Horizon Programme, Adam Rutherford, described how some of the things that were being done today as a matter of routine, took him years of study, and months of application to do in the University Science Lab, just five years ago. That is the pace of development. One example he showed, I found particularly exciting. He went to visit a Community Centre in the US, where local people from pre-teen kids, to retired people, were learning science by doing it. They were combining DNA to create new life forms. One combined a luminosity gene from sea creatures with the E-Coli bacteria so that it could be seen. This kind of self-organised education, which breaks free of the constraints of State education, is precisely the kind of education that Marx described. But, it is also the kind of development that encourages creativity rather than conformity to established ideas and norms. Those involved, in fact described themselves as “bio-hackers”.

As Rutherford said, what it was reminiscent of was the period during the 1960's and 70's when small groups of teenagers in the US and elsewhere got together in their garages, bought bits of electrical equipment off the shelf from Radio Shack, and began to assemble the first Personal Computers. They turned into Apple, Microsoft and so on. The fact that a lot of this development was once again taking place in the US, should give pause for thought to anyone who thinks that its economy is in a state of rapid, and inevitable decline.

Incredible Indices

For some time the House Price Indices put out by the Estate Agents and Building Societies have been of questionable merit. For one thing they all focus attention on the Asking Price of houses rather than the Selling Price, when, in fact, it is only the latter, which is meaningful. What buyers want for their houses, and what they actually get for them when they sell are two completely different things. Even the BBC has carried a report showing that this difference on average is around 40%!!! But, looking at the latest indices even at Asking Prices, seems to show a glaring disparity with what you can see with your own eyes in the real world. Given that the indices are put out by the Estate Agents and Building Societies, both of whom have a vested interest in juicing the market, it would not be surprising to see them put out figures that flatter to deceive. In turn that makes the issuing of the indices a farce.

The BBC's Ian Pollock, wrote in December,

“For the past few years there has been a phenomenal gap between asking prices and actual selling prices.

The gap, depending on which measure of selling prices you use, has suggested that homes put up for sale by their deluded owners or estate agents have been as much as 40% over-priced.”

He quotes Housing Economist Johnathan Davis, who in the past has questioned the usefulness of the House Price data. The difference between Asking and Selling prices comes from the figures released by the Nationwide and Halifax, which show an average UK Asking Price of around £230,000, and the average selling prices of houses as recorded by the Land Registry, which shows an average UK House price of around £150,000!

But, even allowing for this stark variation, which is never brought out by the newspaper or TV News presenters, even the data on Asking Prices seems highly questionable. In their latest report, Rightmove say, the average asking price of a house increased by 0.4% during 2011. Even allowing for the distorting effects of London prices, this seems unsupportable as against what you can see all around . For example, in the West Midlands, prices are recorded as being down by just 7.9%. As someone who keeps a keen eye on what prices are doing, and benefiting from my wife who keeps an even keener eye on prices, this just doesn't seem at all realistic. I was looking at the possibility of buying an old terraced house recently. A number are coming up for auction, they have central heating and double glazing, and on offer for £20-25,000. That is a huge reduction compared with prices a few years ago, and yet a friend of mine tells me that even at these prices they are not selling at auction.

Rightmove have a response to this. They say,

“In areas where there is a lot of property up for sale, buyers are looking hard for properties that tempt them with something really special in terms of value, potential, location or quality of finish. If it doesn’t shout ‘special’ then they are unlikely to overpay for the privilege of buying an average property in these mortgage-constrained times. In locations where there is little stock for sale, they appear to have become online junkies, ready to pounce on fresh property coming to market to see if it will satisfy their housing need.”

The trouble being that there is plenty of evidence of all these “special” properties falling massively in price too! I live in a small village in a rural area near to the Shropshire border. There are only about a dozen properties in the village, and local planning controls prevent even extensions, that would enable additional residency, let alone any new houses being built. It is probably the most expensive area of Staffordshire to live. Most of the other people who live in the village are either current or former medium size business owners, company executives, university professors or lawyers. Many of the houses have their own tennis courts. The bloke who lives across the field from me recently traded in the helicopter he used to go to work in, and now settles for using his new Bentley.

I hasten to add, at this point, should anyone get the wrong idea, that the house I am renting, although it would not be cheap to buy, is probably the cheapest property in the village, by several orders of magnitude. The house opposite me came up for sale about six months ago, with an asking price of £430,000. Its a three bedroom detached house in an acre of ground, with great views. Two people got to the stage of putting down deposits but pulled out, my guess is because they found they would not be able to build on the acre of land that comes with the house. The house has now been reduced to £360,000, a reduction within a matter of months of around 16%. Its not because it was mispriced compared to other similar properties in the area. The house next door but one to me, a seven bedroomed semi, again with about an acre of land sold two years ago for £500,00, though even this was a 10% reduction from the asking price.

Within about a mile from where I live there are a number of “special” large houses in huge tracts of land. They were put up for sale in the last year for £1.5 million. Each of them have now been reduced to under £1 million, or about 33%. Another house that was up for sale for just under £1 million has now been reduced to just over £600,00. But, around the area there are many other houses that were up for sale for prices between £250,000 and £400,000 that have been reduced by similar large amounts. Its clearly not just isolated instances of mispricing. But, despite these large falls, many of the houses still remain unsold, having been up for sale for as much as a year.

Rightmove also say,

“As well as less property coming to market there is less available stock already on the market compared to the same period last year. Average unsold stock per estate agency branch is 66, the lowest we have measured since February 2010.”

But, a look at their data shows that this figure of 66 compares with a figure of only 68 for the same month last year. And from there on the figure rose sharply over the next months to reach record high figures! But, to be honest, I find that figure hard to believe too, because everywhere I go, I see a forest of for sale signs, and most of them have been standing there for a very long time. That is true whether I drive through urban or rural areas, low priced areas or high priced areas.

Commenting on the latest figures they say that asking prices fell by 0.8% compared to the previous month. But, their account stresses that according to their figures asking prices rose by 1.4% in the first week of January – included in this month's figure. They repeat this several times in their analysis. But, on that basis it must also be true that prices fell by almost 2.5% in the other three weeks! Why not emphasise that, rather than the one week's figure, which could easily just be a fluke figure?

This all reminds me of the way, in which those with a vested interest in maintaining an asset price bubble, be it the Technology Bubble of 2000, or the Property Bubbles in the US, Ireland, Spain etc. attempted to massage the data until the last minute, when everything simply collapsed, and it was no longer possible to hide the truth.

Banks and Building Society's have a vested interest in presenting a picture in which house prices only ever rise, or only fall moderately, just as Government's have an interest in minimising the real figure for inflation. It shows why we need Committees of Workers to provide accurate figures of changes in prices.

Ed Balls It Up

Ed Balls speech to the Fabian Society today, and his other statements elsewhere are a complete dog's dinner. In an article in Left Foot Forward, Shamik Das writes that it is, “a move that will wrong-foot the Right”. What utter nonsense.

In the speech and his Guardian Interview, Balls says that Labour cannot promise to reverse the Tories cuts when they come to power, and says that they support the attacks on workers wages and pensions, in the State Capitalist Sector, which they would also continue. This latter statement, which would rationally also have to be extended to a pay policy for private sector workers, confirms what I said long ago about the Populist demands being raised by “Compass” and others, and now picked up by the Liberal-Tories. For several years now the Bank of England has been printing money to buy up UK Government Debt. The consequence has been to reduce the value of the pound, and push up inflation to almost treble – even on official measures – its target rate. It does that, because it keeps official interest rates low, because it keeps the property and share price bubbles inflated, and because it inflates away a part of the Government debt. But, several years of high inflation, which despite the BOE claims are likely to continue, because of more money printing, risk causing workers to begin to demand compensating wage rises, which then leads to an inflationary spiral. The populist demands for control of High Pay, (which for the reasons I've set out would never be effective) are merely a cover for introducing extensions to the existing wage freezes to cover all workers, and thereby boost profits.

Its ironic that Balls should capitulate to the Liberal-Tory argument over austerity at this moment, because only yesterday, the bastion of Neo-Liberal orthodoxy – Standard & Poor's – came out in its statements detailing why it was downgrading the Credit Rating of nine Eurozone economies, essentially repeated Balls old mantra that austerity “was hurting but not working”! S& P point out what I have been saying for some time, and indeed what many economists have been saying for some time, including economists within the IMF, OECD etc., which is that austerity measures in many of these countries were going to simply drive down their potential for growth, and thereby make it more difficult, if not impossible for them to cover their debts.

Its obvious why Balls has come out with this statement. Opinion poll after opinion poll has shown that Labour are not breaking through in the argument over austerity. But, Balls new position will if anything have the opposite effect. Were I a floating voter I would read the new position like this. Labour has now capitulated to the truth that the Tories have been speaking for the last few years. That is there is no alternative to austerity. They have not yet admitted culpability for creating the debt in the first place. So, I would conclude that on this basis I may as well vote for the Party that has been honest about the need for austerity, and which has shown in the past that it will introduce the necessary Cuts, however, painful they might be i.e. the Tories.

Were I a Labour voter, or a worker in the State Capitalist sector, I would conclude that there is no difference between Tory and Labour, and so there is no point bothering to vote. Already, the Tories are picking up on the nonsensical position that Labour has now put themselves in. How on Earth can Balls stand up with a straight face in the Commons and say you the Tories should not be implementing these Cuts, which are “too far and too fast”, whilst at the same time saying that he will not only not reverse those Cuts, but will be forced to continue them, and wage curbs in any new Labour Government???

Now, I do actually understand what Balls is saying. He's saying if the Tories didn't introduce Cuts that are “too far and too fast”, then the economy would not go into a nosedive, the effects of that in terms of rising Unemployment creating even bigger deficits, would be avoided, and so a future Labour government would be in a better position to finance Public Expenditure. But, that argument is highly nuanced, and it is very unlikely that anyone who is not an economist would grasp it. Rather than making it easier to argue Labour's position against the Tories, it makes it much harder.

But, of course, there is another response that Labour could have made to their lacklustre performance in the polls. In 1981, when Michael Foot was Labour Leader, he responded to Thatcher's programme of proposed spending cuts, and the high level of unemployment, by leading demonstrations in London, Liverpool, Manchester, and Birmingham to oppose those policies. Thos demonstrations mobilised tens of thousands of people. More than that, Labour's Opinion Poll rating went to 51%! It looked as though Thatcher was going to be out at the next election, if not before as the Wets, and others in her Cabinet took fright, and considered dumping her. She was only saved by the Falklands War.

The Tories continually repeat the mantra that the debt and deficit, which they claim they have to deal with via austerity, was all due to Labour profligacy. It is not true! In the period after 1999 up to 2002/3, Labour was actually paying down the debt. Under the Thatcher and Major Governments, between 1979 and 1997, borrowing accounted for 3.4% of GDP, whereas between 1997 and 2005 it averaged just 1.2%. Moreover, even when Labour did begin to act counter-cyclically, under Brown, the increase in the deficit was nothing extraordinary. It is clear from the data that the significant change DID come in 2008/9, when, even excluding the amounts pumped into the Banks, net debt rose from 36.5% of GDP, to 43.2%, a bigger cumulative rise than in the previous 7 years combined! In other words, the debt and deficit rose only because of the Financial Crisis caused by the Banks.

The reason that increased spending was compatible with such lower levels of borrowing in that earlier period, was precisely because of the economic growth that was taking place, economic growth that was largely due to the global economic environment of strong and increasing growth. But, Labour are unable to get this message across. There is a good reason for that. In the past, for example in 1981, Labour had huge numbers of members who were grass roots activists. I don't want to glorify that, there have been many more periods when the Labour Party has been moribund with its Branches being mere shells. That was the case for much of the 1960's and 70's. But, in the later 70's and early 80's, it was possible for those activists to get these messages across to their workmates, their neighbours, their friends in the Pub or Club.

Labour does not have that kind of Party any more. Much of the membership is passive. Its no longer even necessary to be a TU member, and some LP members I have known, at a rank and file level, have even been opponents of unions! New Labour did not see the rank and file membership as having any role to play in that regard. In fact, there would be too much chance of such members being “off message”. Instead they preferred to rely on spending money on focus groups and so on to find out what they needed to say to win votes, to rely on the mass media to get that message across, which is why they built up close contacts with Murdoch, and why they employed journalistic hacks to present their positions. But, of course, when the media is almost exclusively talking the orthodoxy of the Liberal-Tories, there is no chance of being able to change the national discourse by such means! Changing the discourse, requires a mass membership Party arguing day in day out with members of the class. That is also the reason the sects will never change anything, because if even the largest of them were ten times bigger than they are, they would still be way too small to be able to do that on an effective basis.

I have recently been re-reading Marx's The Eighteenth Brumaire Of Louis Bonaparte Marx's analysis of the events in the years after 1848, and leading up to the coup of Louis Bonaparte, provide an excellent example of how, and why bourgeois parties in a crisis always give ground to those parties to their Right. In doing so, they always undercut the ground that stands beneath their feet, alienating themselves from the class on which they are based, and whose support they need. That is what is happening here with Labour, and Balls' speech, and it will likely have the same consequence, shifting the narrative Right, and bolstering the Liberal-Tories position. Yet, ironically, as Marx sets out there, in this process the positions that bourgeois parties find themselves adopting, in this process, are not those, which in reality benefit the Bourgeoisie. In France, as Marx sets out, the Party of Order, which like the Tories combined the representatives of Big Landed capital, and of the Aristocracy of Finance, was led into describing even those ideas and measures that are fundamental to bourgeois society as “Socialistic”. As this process moved ever rightward, it was the supporters of Bonaparte, who was based on the reactionary elements of the peasantry and petit-bourgeoisie, just as are the Tories, who took that to heart, and began to attack the bourgeois themselves. To add to the complexity, despite the fact that Bonaparte was the representative of these petit-bourgeois elements, it was again them that were destroyed economically, through the rising interest and inflation on the debts they had been encouraged to take out to buy property etc.

C'est plus ça change, plus c'est la même chose.

Northern Soul Classics - The Horse - Cliff Nobles

Another dance craze embodied in a classic Northern dancer.

Defend Scottish Democratic Rights

The Liberal-Tory Government are trying to limit the right of Scots to determine their own future. Like previous British Governments, they are very good at advocating bourgeois democratic freedoms for people in far flung parts of the globe - so long, of course that they were not part of the British Empire, whose subjects were kept in abject slavery - including as recently sending British troops to fight and die for them, but very poor when it comes to allowing those rights to its own citizens. The Scottish people like every other nation has a right to self-determination, including separation from the rest of the UK if they so choose. That is no less a right than many in the Tory Party, or in UKIP or the BNP advocate in relation to Britain leaving the EU. The Scottish people have the right to choose the time, place and manner by which they decide if and when to leave the UK. Cameron and all other British Governments and Parties should keep their nose out of that.

The Scottish people have their own Parliament, and they have a right, to determine the timing and nature of the referendum on leaving the UK, through that Parliament. All British socialists and consistent democrats should insist upon that basic democratic right of the Scottish people, and should insist that the British Government, does not interfere with it in any way. When, Norway and Sweden separated, as Lenin says, the Norwegian Parliament simply passed a resolution saying that it was no longer a part of Sweden. All that should be discussed, after a decision to leave, are the terms of relations between the two sovereign states, and the settlement of outstanding affairs.

But, of course, a Marxist does not desire that Scotland should separate from the rest of Britain, any more than a Marxist desires that the UK separate from the EU, and for the reasons that Lenin sets out. The reality is that, more now than when Lenin was writing, small states are reactionary, and increasingly unviable, just as is the case with small Capitals against large Capitals. In the same way that Marxists are opposed to the break up of Monopolies and Trusts, and see in the latter a progressive development, so too we are against the break up of larger states into smaller states.

Larger Capitals, Monopolies and Trusts, represent a more mature stage of Capital, a step closer to its ultimate demise and replacement with Socialism. They also facilitate within them the collective organisation of the workers, their Co-operative production, the greater planning of output. In other words they begin to presage socialistic production. We do not want workers brought together in such ways to be broken apart, only for the Capitalists once again to be able more easily to divide them against each other. The same is true of the bringing together of workers within larger state structures.

Marxists defend the democratic rights of the Scots in determining their own future. Marxists, however, should argue that the Scottish workers should determine their future within a single British State, within a single European State alongside their British and European comrades, rather than by lining up alongside their own bosses.

High Pay, Capital And The Tories

Reality is complex, or as Lenin put it, “The truth is always concrete”, which is the basic principle of the dialectic. For many things in normal life, its possible to get by with superficialities and generalisations. This is the stuff of formal logic, where the world is black and white, rather than a spectrum, whose colours blur into each other. So, Marxists who operate with the view of class sketched out by Marx and Engels in “The Communist Manifesto”, for propagandistic purposes, in which society increasingly divides into two hostile camps, Bourgeois and Proletarians, are no Marxists at all, because as Engels makes clear in his letter to Bloch, their view of class is far more complex, far more nuanced than that. Similarly, it is an easy piece of shorthand to say something like, “The Tories are the Party of the Bourgeoisie; Labour is the Party created by the proletarians, but whose ideas were always based on the needs of Capital, and whose leaders long ago sold out to the Capitalists, whereas the Liberals can't even make their own minds up about themselves.” All of these general ideas have some validity, but they can hardly tell us anything really useful about any of these parties in general, let alone about their particular actions. Using this schematic, it would be almost impossible, for example, to understand why the Tories should now be proposing what appears to be an attack on their class interests, by proposing limitations on the high pay of Executives. In fact, a Marxist analysis has no difficulty in explaining it.

Just as classes are not monolithic, homogeneous blocs, so too with mass political parties. It has been said, for example, of the US Republican Party, that its current round of Primaries has shown that it is basically made up of three major constituencies. Firstly, there is the Libertarian wing, which favours small government, balanced budgets and so on, and whose figurehead is Ron Paul. Secondly, there is the Republican Establishment, whose main concern is not any particular point of political principle other than to win elections. They are, therefore, prepared to bend with the wind in order to pick up sufficient middle ground voters to go with their core support to ensure victory. They are represented by Mitt Romney. Finally, there is the Religious Right, which is concerned with banning abortion, and even contraception and so on. It frequently supports the small government agenda of the Libertarians, but unlike the Libertarians, it wants the State to intervene in people's lives to tell them what their morals should be. The Tea Partiers tend to be divided between the Religious Right, and the Libertarians. The Religious Right have attempted to put forward several candidates to act as their figurehead, in order to oppose Romney, but all have crashed and burned. But, the Republicans are not unique, these and other kinds of divisions are a feature of all mass political parties, including the Tories.

The Tories, as Marx describes, began as the Party not of the bourgeoisie, but of their enemies, the old ruling Feudal Aristocracy. In fact, during the 19th century, when that class saw itself being usurped by the Bourgeoisie, a section of it, and of its Party, attempted to win over the workers to its cause. Marx describes it as Reactionary Socialism. Some of them, like the Countess of warwick, even found their way into Hyndman's Social Democratic Federation. The Tories also, as Engels describes, even financed Keir Hardie's election campaign. It was frequently, the Tory representatives who were the ones advocating various forms of social reform, who put forward the legislation on working-time etc. It was Manchester Liberalism, which was the red in tooth and claw representative of the industrial bourgeoisie. But, rather like the workers in the Middle East today have allied with their new enemies in the bourgeoisie, against their old enemies, in the Bonapartist State, so in the 19th Century, the British workers lined up with their new enemies in the industrial bourgeoisie against their old enemies within the Feudal Aristocracy. After all, at the beginning of that century, Peasant life, and the oppression of that old ruling class was within living memory of many workers, or for their parents or grandparents, who had been forced off the land by the Enclosure Acts, and more open robbery by that Aristocracy.

As Marx, sets out, it was not that the Tories changed their class affiliation, it was that the class they represented itself became bourgeois!!! That meant that all of the contradictions which go along with that became entrenched within the Tory Party. Those contradictions continue until today. They were shown vividly at the beginning of the 1960's in the division between the old Patrician Wing of the Party, and that wing represented by people like Heath and Thatcher, the embodiment of the Grammar School educated, offspring of the up and coming middle classes. It persisted when Thatcher was Prime Minister, many of her opponents coming from within the Patrician wing of the Party. Eton educated Cameron, and his cohort are part of that wing of the Party.

In the 19th century, many of the old Aristocracy, where they did not extend their family business of land-owning, into Capitalist farming or mineral extraction, or into vast Colonial estates, used their accumulated Capital to move into Banking and Finance. They saw engagement in industrial or other commercial activity as beneath them, and the function of the nouveau riche bourgeois. Not for nothing are they referred to as the Financial Aristocracy. Most of the British Banks obtained their initial Capital from the activities of the Aristocracy in the Triangle Trade, whereby they brought slaves from Africa to their plantations in the Caribbean, bringing the products of those plantations back to Britain. It is not surprising then that a section of the Tory Party have always had a close connection with this Aristocracy of Finance, as well as their continued links with the large landed estates. The Tories links with the bourgeoisie proper, the industrial bourgeoisie, developed out of the failure of the Liberals.

The Liberals sought to reconcile the contradictory interests of the workers and the industrial bourgeoisie. The idea, borne out of the notion, put forward by Adam Smith, Ricardo and others, of both being part of the producing class, as against the non-productive landlords, and founded in practice in their joint struggle against Landlordism, was bound to founder, because of the inherent contradiction of interests between these two classes. The Liberals in Britain, filled the same function essentially as the Bourgeois Republicans in France, who aligned with the workers in the Montagne. But, as I set out in my post At Last The Liberals Commit Hari Kiri, this basic contradiction within the Liberals was bound to blow them apart, once the workers themselves began to organise a Party of their own. Once that happened, the Tories became the natural Party for the bourgeoisie as a whole, with all of the contradictions, which that itself entailed.

Whenever the actions of the Tories are analysed, it is important to remember that, even aside from the minor limitations, placed upon them by their Coalition with the Liberals, these contradictory influences are continually at play. But, more than that. Just as with the Establishment Wing of the US Republicans, any mass, bourgeois-democratic Party has one main concern, and that is to be elected. There tends to be an attitude amongst some on the Left, which virtually sees bourgeois democracy in conspiratorial terms. In part, that comes from Lenin, who on occasion seems to see the election of Governments as being controlled by the ruling class. Trotsky also talks, for example, about Social Democracy, even left Social Democracy being a final choice for the ruling class to pacify the working-class, before it is forced to resort to Fascism. This assumes that the bourgeoisie are themselves able to determine that choice of Government. Undoubtedly, they can, via their control of the media etc., influence the outcomes of elections, but it is almost certainly marginal. The Sun might have proclaimed “It was the Sun What Won It”, when Neil Kinnock lost the election, but Labour Party internal polling and research showed that it was Kinnock, and the Labour Leadership that had lost the election, not the Sun that won it for the Tories. Nor, in fact, could all of the media support, for the Tories, in the last election, win a majority for Cameron, despite the unpopularity of Gordon Brown, and Labour.

It is the need to be elected and maintain electoral support that is the main dynamic for bourgeois-democratic political parties. That means that Right of Centre Parties have to address the concerns of their core supporters, and tack sufficiently to the Centre to pick up the additional votes needed to be elected, whilst Left of Centre parties have to do the same thing from the other direction. How successfully they can do that depends upon where exactly the Centre is at any one time, and how polarised the support of each Party is. That is part of what is causing the Republicans such problems in the US at the present time, with much of its base looking to choose a candidate that would be so far to the Right as to be unelectable, but with much of that base potentially deserting if the Establishment is successful in getting Romney selected, who is seen by many of the Republican Right as a socialist no different to Obama!!!

It is also what explains the attitude of the Right of Centre parties in the US, in Britain and in Europe in relation to the debt crisis and austerity. For, 30 years the dominant approach has been that of Monetarism, and of control of deficits – even if it was practised more in the exception than the rule. But, when it reaches a situation where it is seen as a crisis, Right of Centre parties are led to reach for orthodoxy straight away, in order to distinguish themselves from their opponents. That is why the Tories, went from saying they would match or exceed Labour's spending plans until just months before the Election, and then switched to claim that Britain was a basket case like Greece that could only be saved by drastic austerity! But, it is also why in the US, the Democrats, who occupy a position similar to that, which the Liberal Party held prior to the establishment of the Labour Party, has instead ignored the massive debt and deficit, and has engaged in large scale fiscal stimulus, to haul the economy away from the danger of recession, which would both damage the interests of Big Capital in the US, and damage the Democrats chances of ensuring that US Workers come out to vote for them.

The same factors can be seen lying behind Cameron's recent actions. The Tories are thoroughly divided over Europe. Part of the Party, which represents the interests of Big Capital is pro-Europe. Another part, which instead represents all of those small minded, reactionary ideas of the small capitalist, the frightened middle classes, and backward workers is anti-Europe. Big Capital sees its main profits coming from a large powerful Europe, a Europe that is modern and forward looking, that operates like a fully fledged state, and is able to counter the US State, the Japanese State, Chinese State etc. within the global economy, within the international quasi state bodies established by Capital to regulate its activities on a global basis. For Big Capital, the excesses of Eurocrats, the costs of improving workers conditions via the Working-Time Directive, Health & Safety regulations and so on, are minor issues, part of the faux frais of production as Marx describes them. But, for the frightened Middle Class, that sees a danger, a threat to its way of life around every corner, and for the Small Capitalists for whom these concessions to civilisation are seen only as an intolerable burden, there is every reason to object, to insist on control being kept at a national level and so on.

So, it is no wonder that Cameron, besides seeking to look after that bastion of the Patricians, the City of London, also sought to accommodate the views of the Tory base, in his EU walk-out, despite the threat it placed upon UK industrial Capital, and its relations with its European partners. Ironically, even the UK Financial Capitalists spoke out about the threats that Cameron's actions had posed for their own activities.

Similar factors can be seen in relation to Cameron's populist campaign in relation to the High Pay of Executives. Who exactly is threatened by Cameron's proposals? Certainly Big Capital is not threatened by these proposals. On the contrary, to the extent that they reduce the salaries of Executives, employed by Big Capital, it will increase Profits! Big Capitalists do not accrue their wealth by the payment of income, but via the increase in value of their assets, shares, Bonds, and other investments. As I pointed out in my post Who Are The Middle Classes?, someone like Lakshmi Mittal, who owns Mittal Steel, is worth £20 billion. Simply putting that in the bank at 2% interest would bring in £400 million a year. But, in fact, with average dividends of around 5%, the actual figure would be more like £1 billion a year, even without any Capital Gain on the share holdings. But, Cameron's proposals say nothing about limiting this unearned income. Similarly, there is no restrictions to limit the earnings of footballers, pop stars, writers, actors and so on, which can frequently exceed those of Executives.

The proposals will not affect many of the Tories core supporters and members either. The frightened Middle Classes, with their incomes of £100,000 and above no doubt look on as much in askance as ordinary workers at the salaries of £1 million and above that some of these Executives take away. Many of the small Capitalists too, probably look on with some envy at Executives taking home such payments without risking their own Capital, in the way the small Capitalist has to do. Its to these voters, and to any workers they can pick up, that Cameron's latest piece of populism is addressed.

Yet, in reality, most of these Executives themselves are closer to the small capitalists than they are to Big Capital. Indeed, many of the Executives have either been, or go on to become, small Capitalists themselves. In reality, they form a part of the bureaucracy of Big Capital, in the same way that the Labour and Trade Union Leaders form a bureaucracy of the Labour Movement. Their position is likewise contradictory. It is also why, the representatives of this strata, people such as John Cridland, of the CBI, frequently represent the interests not of Big Capital, but of the Small Capitalists and Middle Classes upon whom the Tories are based. As Marx says in “The Eighteenth Brumaire of Louis Bonaparte”,

“Only one must not get the narrow-minded notion that the petty bourgeoisie, on principle, wishes to enforce an egoistic class interest. Rather, it believes that the special conditions of its emancipation are the general conditions within whose frame alone modern society can be saved and the class struggle avoided. Just as little must one imagine that the democratic representatives are indeed all shopkeepers or enthusiastic champions of shopkeepers. According to their education and their individual position they may be as far apart as heaven and earth. What makes them representatives of the petty bourgeoisie is the fact that in their minds they do not get beyond the limits which the latter do not get beyond in life, that they are consequently driven, theoretically, to the same problems and solutions to which material interest and social position drive the latter practically. This is, in general, the relationship between the political and literary representatives of a class and the class they represent.”

If we assume that the average Executive achieves their top pay of say £5 million, for around 20 years, then, even were they to accumulate all of it, they would have only a tenth of the increase in wealth of Lakshmi Mittal in just one year!!! In fact, as actual UK earnings, they would be more likely to pay half of it to the taxman, whereas Big Capital can largely avoid paying Tax at all. But, Cameron knows that he is safe in making such proposals. He will not lose the votes of these Executives, and if he did, it would be more than compensated in additional votes from elsewhere. But, he knows he is safe, because he realises that these Executives know why he he has proposed it, and also know that in practice no such proposals will be capable of effective implementation. The only way to control the pay of executives is if it is set by the workers in the Company, and the only way that will happen is if workers themselves own the Company, as happens in the many worker owned enterprises, that currently outperform the FTSE 100 by around 10% a year.

But, with increasing fears about rising wage claims as inflation continues to climb, there is another reason for Cameron's proposals. It is that, which I set out in my post, Beware Of Greeks Bearing Gifts. That is it can act as a trojan horse to implement more general pay controls, extending those already applied in the State Capitalist sector. With the workers at Unilever, showing the way, and standing up to strike against cuts in their pensions, the Tories must be worried that it could presage more wider worker resistance in the coming year.

A Timely History of Briefs

(With appropriate apologies to Prof. Stephen Hawking)

In the beginning there was a great nothingness. For a long time the idea that something could appear from nothing was inexplicable without resort to the intervention of some supernatural being. However, modern science and mathematics have shown how this can be. In particular two theories are of particular relevance to the phenomena of briefs. Wantum Theory and the Theory of Relativity will be referred to extensively throughout this history.

It is now widely accepted that the appearance of briefs can be explained by Wantum Theory. All available evidence suggests that briefs appeared on the plains of North America one particularly cold Winter when Chief Oohmegoolies said, “Wantum something to keep goolies warm.” This is the first known application of Wantum Theory but there is some debate over whether Chief Oohmegoolies actually existed or was just a theoretical construct.

Relativity Theory has been used to explain both the general existence of briefs (General Relativity) and their appearance at different times in different locations (Special Relativity). Special Relativity says briefs appeared in some places faster than others due to relative disparities in temperature and is therefore an aspect of Wantum Theory. General relativity came into play when Mrs. Neanderthal, wielding a rather large club, announced to her husband, “and you’d better get those goolies covered because my Mum and dad are coming round tonight and I don’t want any of my relatives having to look at that over hors d’ouvres."

So, this brings us to a number of laws and formulations as basic premises. The first Law of Wantum Theory states that briefs will spring into existence based on probability. The higher the probability of a cold snap or observance the greater the probability of the appearance of briefs.
This can be postulated as more c = more b where c equals the degree of coldness and b equals the probability of the appearance of briefs.

In addition more m = more b where m equals the probability that goolies may be observed. This is a well known peculiarity of Wantum Theory whereby the act of observation actually affects the outcome. The above two postulates have been combined in the well known formula of Relativity Theory - E = MC2 - where E equals Extra large briefs an is the result of a combination of a high probability of cold weather combined with high probability of obervance.

As with all natural laws the possibility of opposite reactions has been identified. In particular the possibility of observance has been noted in some instances to promote the disappearance of briefs. Such occurrences are rare and short lived appearing as streaks.

From the first appearance of briefs on the North American plains things changed rapidly. From this singularity an explosion of briefs spread throughout the continent in what has been referred to as the Big Bang. As briefs spread from their origin they began to take on a variety of forms – jockeys, Y-fronts, knickers, and boxers to name just a few of the better known.

The size of briefs also seems to change in direct relation to age and appears to be an effect of gravity. The phenomenon is particularly marked in the area of the knicker form. Here a number of stages can be identified. First is what has been referred to as the panty stage where everything is fairly tightly contained. During hot weather this may be transformed into the G-string or thong stage reflecting yet again the influence of relativity theory. In the final stage, where gravity has played its full part, has been described as the Granny’s bloomers or Cotton Cons stage and is marked by an extensive expansion of the briefs to a magnitude of two or three times the original size.

This is the Third law - more a = more bcb where bcb equals big cotton bloomers and a equals age.

The phenomena of male briefs also follows a number of physical laws which can be identified using relativity theory. Again temperature and observance play a key role. Generally, speaking, there is an inverse relationship between the degree of coldness and the looseness of the briefs. It is a well known scientific fact that increases in temperature cause expansion and this principle applies here. This expansion allows for a free flow of air around the goolies thereby providing a compensating cooling effect to the higher temperature. This is the fourth law which states less c = more bs where bs equals boxer shorts.

Special relativity comes into play in relation to male briefs. A low possibility of observance is likely to result in the appearance of the first pair the wearer can lay their hands on in the morning even where these are the ones from the previous night. However, where there is a high chance of observance resulting from the gravitational phenomena known as “pulling” the latest fashion of brief is likely to appear even where this contravenes the fourth law. In addition the appearance of the brief is likely to occur as close to the anticipated observance as possible in order to minimise the risk of a feature identified in some briefs that has been labelled in the literature “skidmarking”.

This is the fifth law which states more secs = more fun, where secs equals the chance of the briefs being seen even during a cold snap and fun = fashionable briefs used near to observance.

Northern Soul Classics - Its Gonna Be A Big Thing - Yum Yums

What can I say! Absolutely classic bit of Northern. Roll back the carpets, and groove to this.

Keynes Has Won Hands Down

In an interview on Bloomberg, today, former MPC member, and professor of Economics at Dartmouth College, David Blanchflower, declared that, in the debate between Hayek and Keynes, Keynes has won hands down. He bases this assessment on the experience of the last few years between the US and Europe. The US has adopted Keynesian stimulus, and its economy has recovered from the recession caused by the Credit Crunch. Europe has adopted Hayekian austerity, and its economy has not only failed to recover, but is in danger of going, once more, into recession, possibly a deep one.

Blanchflower is not alone. Many economists, particularly those on the left of centre, believe that the austerity measures being undertaken, by a number of Governments, across Europe, are counter-productive, even for Capital. A similar argument is put forward by Ann Pettifor in an article at Left Foot Forward. She writes,

“My humble and not very cheering view is that because of the vast unpayable debts of the global private banking sector; because policy makers will not address the private banking crisis; and finally, because politicians wrongheadedly persist with austerity – we can expect things to get a lot worse...

In Britain, private debts make up about 400 per cent of UK GDP – and public debt only about 65 per cent of GDP. (I am guessing that politicians’ blind spot for Britain’s huge private debts is not accidental, but then I may just be a touch cynical.)

It’s the disorderly de-leveraging (‘liquidation’) of those private debts that is the cause of Britain’s double dip, and of global financial instability. The failure of the global investment bank/brokerage MFGlobal and the downgrading of various banks, is the canary in the global financial gold mine.

The problem is not the UK’s or Eurozone’s public debts or budget deficits. They are both simply a consequence of private sector failure. Because of this wrong-headed analysis, politicians in all three political parties have been driven down the dead-end of austerity...

As the year draws to an end, I simply speculate, and may be wrong. After all, George Osborne’s autumn statement represented a small, but significant u-turn: a belated recognition of the scale of the crisis and an attempt at fiscal stimulus to finance infrastructure investment...

Politicians, advised by deranged and culpable economists, will hasten, and intensify this global private banking collapse by accelerating austerity. It is those policies that will prolong and deepen the global economic crisis.

It’s time now to address the solution: first, subordination of the private banking sector to the interests of society; and second, policies for employment. Only jobs can now generate the income needed to revive the economy, to pay down private debts, and to stabilise the global economy. “Look after employment” said Keynes, “and the budget will look after itself.”

Blanchflower and Pettifor are both right, and they are not alone in making this argument. Economists and bureaucrats, within the ranks of the international state bodies, established by Capital, have also argued along similar lines. And, of course, as Blanchlower correctly points out, the US, over the last three years, has been following a policy of fiscal and monetary expansion, which it has been seeking to persuade its European counterparts to follow. Chief Economist at the IMF, Olivier Blanchard, argued, some time ago, that Europe would need to utilise a degree of inflation, in order to deal with its debt overhang. He is now arguing that European Banks should deal with the need to be more robust by increasing their capital rather than deleveraging i.e. reducing their loan book. Its obvious why he should seek such a solution.

Because banks lend many times their actual deposits, and other assets, deleveraging requires the amount of their loans to be reduced by many times the amount of additional Capital they would need to raise. In fact, its estimated that they would need to reduce their loan book by around €1.5 trillion. Such a reduction of loans, to European businesses and consumers, would certainly cause a recession. But, the problem has been demonstrated, in the last few days, in relation to one of Italy's biggest Banks, Unicredit. It needed to increase its Capital, and decided to do so by a new share offer. During the last year its shares have fallen by around 75%. They have fallen by 30% in the last few days. In order to be able to sell shares in this new offer, it had to sell them at a 43% discount!

But, Unicredit is lucky. It is the first in line to try to raise Capital. The other banks, that come after it, will have to try to find investors who have not already taken up earlier offers. If they are able to sell their shares at all, it will likely be at even larger discounts than those that Unicredit had to provide. In fact, as Pettifor sets out, its likely, at some point, that many of these Banks will, effectively, have to be nationalised, in order to provide the necessary liquidity and Capital, just as the US and UK did three years ago. European states will do that not in the interests of European workers, though they will, as the US and UK states did in 2008, phrase it in Pettifor's words as being in “the interests of society” i.e. of Capital.

Blanchflower and Pettifor are both right, as against those on the Left, who see in the austerity measures, of the UK and European politicians, the implementation of the desires and interests of Capital, because it cannot be in the interests of UK and European Capital for there to be a serious European, let alone wider, recession or Depression. It is not in Capital's interest for there to be a dislocation in the process of Capital Accumulation, and the huge reductions in profits, and destruction of Capital that would go with it. It was not in Capital's interest for there to be such dislocations during the last Long Wave Boom that ran from 1949 to 1974, which is why it used Keynesian intervention on each occasion, during that period, to cut short recessions. It was not in Capital's interest in 2008, which is why it was prepared to countenance significant intervention, and action against the Banks, to bring the crisis under control. It is not in Capital's interest now either.

The proof of that is not just to be seen in the actual economic facts, that contrast the economic recovery in the US with the increasing recession in Europe. It can be seen in the real views of the capitalists themselves. Over the last year, the US Stock Market has risen, particularly in the last few months. The surveys of business confidence continue to show increasing optimism amongst the business community. In Europe, the Stock Markets have barely flinched, even in Germany. Meanwhile, the same surveys, of business confidence, continue to fall, and, each time some new austerity measures are announced, they fall even further. If, as some of those on the Left, who have a catastrophist view of Capitalism, insist, the austerity measures are at the behest of Capital, why is that?  If they were right, then, on the contrary, Business Confidence should rise with each new announcement of austerity, it should be in Europe where the Capitalists are cock-a-hoop, and eager to invest, not in the US!!!

But, increasingly, the economic facts show that it is the other way around. The US has created 1.6 million new jobs in the last year. It created 200,000 new jobs in December alone, above the estimates. The Unemployment Rate has been on a steady downward path for several months, and survey data suggests that growth is beginning to take hold. More importantly, the employment data shows that the bulk of the new employment growth has come amongst those people with College degrees, and into new higher value production. If anything, the data suggest that unemployment amongst those without College degrees may still be growing, which shows the need for the US to increase its expenditure in education. The nature of this employment growth is important. Not only is new employment in higher value production important, because it is in these areas that the US has an international comparative advantage, helping to cover, if not reduce, its trade deficit, but a higher percentage growth, in higher wage employment, means that a proportionally larger sum feeds back into the economy via, consumption out of those wages, in higher tax receipts to the Government etc.

In essence, we have a fundamental division. In the US, as Blanchflower sets out, we have increasing, if not spectacular, growth that appears to be taking hold. Of course, its not just in the US. As Jim O'Neill set out on Newsnight yesterday, it is only those who fail to recognise that western economies are not now the dominant players in the global economy, who have not noticed that the world economy is growing, based on significant growth in Brazil, China, Russia, India, Indonesia, and many other parts of the globe. China, which has deliberately slowed its economy, to prevent inflation, is itself about to engage in another round of Keynesian stimulation. But, at the same time, those economies, which are about to go into recession, in Britain and Europe, are instead hamstrung with “wrong-headed” solutions that were appropriate for different times.  In fact, most economists believe that China itself will, before too long, have to develop its own Welfare State, in order to reduce the large amounts of personal savings that Chinese workers currently build up as protection against Unemployment, Sickness, Health Care, and Old Age.  That will be necessary as a means of diverting those savings towards consumption, in order to develop the domestic market.

Blanchflower is wrong to say that, in the debate between Keynes and Hayek, Keynes has won hands down. The Keynesian solution is the appropriate Capitalist solution for current conditions i.e. those of the Long Wave Boom. But, in different conditions, say the conditions of the 1970's, when the Long Wave Boom ended, Keynesian solutions did not work hands down. Instead, they led to stagflation. Interestingly, then as now, bourgeois politicians and state bureaucrats, and many of the economists who advised them, continued, however, to see only Keynesianism as the way out. Why wouldn't they? It had been orthodoxy for as long as most of them has been adults. Even in the early 1980's, when Thatcher was advised by Hayek himself, and his followers at the LSE, the adoption of his ideas, and later those of Friedman, was not without a struggle. As, unemployment rose, and the economy tanked the Tory “Wets” continued a guerilla struggle, and it was touch and go whether Thatcher would survive.

In the end, neither Keynesianism nor Misean, Neo-Austrian orthodoxy, nor Monetarism can provide a lasting resolution for the contradictions of Capitalism. Each is the most appropriate technical solution, for Capital, to its problems, at different times of the conjuncture, in order to overcome a particular crisis. But, none can overcome the constraints, placed on Capital Accumulation, represented by the Long Wave downturn, just as, ultimately, none of them will prevent a more rapid period of Capital Accumulation, during the Long Wave Boom – though wrong-headed policies can cause or lengthen or deepen a particular crisis, and, thereby, worsen the position of Capital in one country/region as opposed to some other, in the same way that is happening in the UK/Europe today, as against the US, China, etc. These technical solutions, at best, can only enable Capitalism to live another day, and thereby for the contradictions, that are inherent within it, to heighten, only to be manifest in a further, larger crisis somewhere down the road. Ultimately, the only solution to Capitalist Crises is the replacement of Capitalist ownership of the means of production with worker ownership of the means of production, and the development thereon, over time, of a Co-operative Commonwealth, based on planned production for need rather than for profit.