Saturday, 6 May 2017

Lessons of The Local Elections (1) - The Economic Foundations Of the Political Crisis

There are a number of lessons to be drawn from the local election results. Firstly, British politics is again a contest between Labour and Tories. Secondly, the 30% of the population who are bigots, are firmly now in the camp of the Tories, some having moved from UKIP. Thirdly, any talk of a “Progressive Alliance” is a dangerous fantasy and a diversion. Fourthly, the division between nationalism and internationalism is now a significant divide in all political discourse. Fifthly, the conservative wing of the Labour Party is prepared to destroy the party, for their own narrow interests. Finally, the rank and file of the Labour Party, much as with the rank and file of the French Socialist Party, along with the advanced sections of the working-class, must begin to organise and mobilise now for the fight, whoever wins the General Elections in their respective countries.

The Economic Foundations of The Political Crisis

No one expected that Labour would do well in the local elections to County Councils, and for Metropolitan Mayors, held on Thursday. For the last seven years, there has been an unprecedented campaign by the Tory media against the Labour Party. After 2010, it sought to tell lie after lie about the nature of the 2008 financial crash, blaming it on Labour public spending, rather than on the fact that for thirty years, from the time of the big financial deregulation under Thatcher and Reagan, huge amounts of private debt were built up, as workers wages remained stagnant, and at the same time, the other side of this debt, was the inflation of massive speculative bubbles in stock, bond and property markets.

Where Labour did go wrong, is that they organised the bail-out of all the owners of the shares, bonds and property, after the crash of 2008, just as their counterparts across Europe did, as that crisis re-emerged with the Eurozone Debt Crisis of 2010. Having done so, the Conservative governments that followed them tried to fill the hole in public finances this bail-out of capitalism had caused, through insane policies of austerity, alongside yet more money printing to reinflate asset price bubbles, which simply sucked money out of the real economy, and into more and more speculation.

Had those bubbles been allowed to burst, back in 2008, without any attempt to reflate them, workers and the global economy would be in a much healthier position than today. But, the reason that did not happen, is quite simple, the dominant section of the ruling class today holds the vast majority of its wealth in the form of these paper assets. The global rich do not own factories and capital per se, they own fictitious capital in the form of shares and bonds, and they own vast tracts of landed property.

None of these assets have any real value. The only value they have is as a claim to receive revenue in the form of dividends, interest and rent. And, yet, although these assets have no real value, they are traded on markets, where their prices have soared over the last thirty years, due almost entirely to speculation. That was what was behind the 2008 financial crash, and it is because the global rich have no intention of seeing that paper wealth, upon which their power and significance depends, seriously eroded, that they used their power, and their political representatives to protect it, even at the cost of destroying the real economy, and prolonging its recovery from the crisis.

Part 2


George Carty said...

Isn't it difficult for Labour to convince people of the truth behind the 2008 crash because so many people (especially in midland and southern marginal constituencies) have themselves enjoyed the fruits of mortgage equity withdrawal, and are therefore complicit in the build up of private debt that caused the crash?

I suspect the real problem is that Britain's current account deficit has mushroomed since the Thatcher era, since her pro-land policies (the repeal of the Rent Acts and the sale of council housing) made property speculation far more attractive than productive investment. This caused most of the British SMEs equivalent to Germany's Mittelstand to be destroyed by asset strippers so that their sites could be converted to residential use, and more recently has contributed to the current account deficit as (for example) foreign oligarchs bought up property in prime Central London.

Boffy said...


Yes, see future posts. Back in 2005, just before I stood down as a County Councillor, I had a discussion with the Labour deputy leader of the Council, in the pub at lunch time, which a friend of mine reminded me about a while ago.

I had spoken several times in Council meetings about the disaster that was coming from the build up of private debt, and the reliance on cheap credit and asset price inflation. The deputy leader who was an estate agent was quite indignant at my argument that millions of people were being deluded, and led into disaster. The low interest rates he said had enabled millions of people who otherwise would not have been able to afford to buy houses, and the massive rise in house prices had increased peoples wealth.

That was 2 years before Northern Rock collapsed, and before the US sub-prime crisis broke out, leading up to the 2008 financial crisis. The tragedy is that the measures taken since then have intensified the situation, so that when it blows up this time the effects will be far, far greater.

George Carty said...

Yikes! I knew that roughly 40% of English councillors were estate agents by trade, but I imagined that they'd be overwhelmingly Tories (with perhaps a few Lib Dems)! If Labour councillors include a fair number of estate agents too...