Tuesday, 13 March 2018

Hammond's Statement

Philip Hammond's Spring Financial Statement was full of lies, spin and blather. But, the real content was disclosed in a short section in which he referred to Labour's spending plans “squandering” the sacrifices that the country had made over the the last seven years of Tory imposed austerity. For Tories like Hammond, money spent on vital public services, such as health and social care, education and so on is “squandering” resources. And, of course from their perspective it is. It is squandering money that otherwise could have been handed out to their friends and supporters amongst the landed and financial oligarchy, whose vast wealth enables to be able to provide for all those kinds of services, privately, out of what amounts to them to only petty cash. Its only to ordinary workers that those public services are vital.

While the Tories have told us that austerity was necessary, and workers have
seen their wages and jobs cut, the Tories friends in the landed and financial
oligarchy have seen their paper wealth more than double, as share prices
doubled, and property prices have soared.  This was the same credit fuelled
Tory delusion that led to the 2008 Financial Meltdown, that the Tories
have expected workers to pay for.
And who was it that undertook all of these sacrifices over the last seven years that Hammond referred to? It was not the Tories, sitting smugly on the front bench, nor all of their friends and supporters amongst that landed and financial oligarchy. They are not the ones who have seen their incomes reduced, or the services they rely on cut. On the contrary, they have received large tax cuts; they have seen the combined policy of austerity and QE massively inflate the asset prices (shares, bonds, property) that constitute the vast majority of wealth for those classes, to levels even way beyond the astronomical and unsustainable levels they reached in 2008, that led to the financial meltdown.

Its not the Tories and their friends that have made these sacrifices, but ordinary workers. It is the teachers, doctors, nurses and other public sector workers who saw their wages frozen, their pensions cut and so on, as well as all of the millions of workers who depend upon those public services, because unlike the Tories and their friends they do not have the wealth or the income to be able to pay privately for those needs. Hammond talked about having eliminated the budget deficit and the need to live within our means, but the truth is that Hammond and his predecessors have only eliminated the government's budget deficit, by making it harder and harder for every ordinary family in the country to be able to live within its means. The Tories have simply shifted the government's debts and borrowing on to the shoulders of ordinary families. The Tories have reduced government borrowing for education, for example, by whacking up University Tuition Fees to £9,000 a year, which means that debt is then transferred to ordinary families who now have to go into debt to cover those fees; and that is replicated in a myriad of small ways across the economy, as the government has withdrawn from provision, thereby forcing ordinary families to pay for things directly themselves, where they can afford to do so out of their income, or to borrow to finance it where they can't. Its no wonder that once again private household debt has soared. And, austerity and the squeeze on wages has made that need to go into debt just to get from one end of the month to another, has further increased the extent to which the government has simply switched its own public debt on to the shoulders of ordinary families.

As is usual, for Tories, Hammond's statement is founded upon, lies and historical myths.  In particular, it repeated the lie that the 2008 global financial meltdown was the fault of Labour profligacy. It isn't true that there was any Labour profligacy, or that it was responsible for any financial crisis in Britain, let alone responsible for what was a global financial crisis that started in the US! But, the Tories are not ones to let a simple thing like the truth stand in the way of them telling a convenient story.
  • the average ratio of deficit to GDP for the period of Tory Governments from 1979-1997 is 3.48%. For several years, after 1997, Labour actually ran a budget surplus! But, even after 2001, when Gordon Brown is supposed to have opened the spigots of public spending, in a mad frenzy of profligacy, the ratio does not rise above that during the period of Thatcher's austerity! Taking the period up to 2008, when the financial meltdown occurred, and when, therefore, Labour, like all other governments, responded to bail out the banks, the average ratio of the deficit to GDP was just 1.57%, or less than half the average ratio under Thatcher and Major. Even if this figure is extended to take into consideration the whole period up to 2010, the average only amounts to 2.85%, still well below the average of the Thatcher/Major years.
  • Indeed, right up until 2010, Cameron/Osborne were promising to spend more than was Labour!
  • The other Tory myth is that Labour wrecked growth. In fact, UK growth rebounded sharply in 2009. In the last quarter that Labour was responsible for, UK growth rose by 1%, a figure the Tories have never matched since. In fact, under the Tories, the economy is struggling to grow as much in a whole year, as it grew in that single quarter under Labour!
  • In 2010, the insane claims by the Tories that the UK was in the same state as Greece, and their threats to impose austerity were enough to bring the growth in the economy to a halt, and the actual measures in their 2010 budget sent the economy actually into reverse. It is the Tories policies of austerity that killed UK growth, not Labour. In fact, the Tories were forced to reverse some of their cuts, in respect of capital spending, to prevent the economy going further into recession, which is why it began to grow again in 2014.
In fact, the Tories like their co-thinkers elsewhere did not want the economy to grow too fast, because slow economic growth, constrained by austerity, was what they needed to prevent the rise in wages that had been happening in the period around 2007, and which threatened to squeeze profits, and cause interest rates to rise, which sparked the collapse of asset prices, in 2008, and thereby decimated the paper wealth of the landed and financial oligarchy. The austerity imposed since then has been a clearly politically driven choice to destroy the lives of millions, and to destroy the real economy, including real capital accumulation, purely for the purpose of reflating the prices of fictitious capital, and thereby protecting the paper wealth of the parasites of the landed and financial oligarchy.

For all of the hype ahead of the statement about how it was going to show light at the end of the tunnel, its clear that no such thing exists. The UK economy's long term trend rate of growth is between 2-2.5% p.a. That 1% quarter growth under Labour in 2010, was the equivalent of around 4% p.a. growth, which is the kind of performance that would be expected in this phase of the long wave cycle, and coming out of a recession. But, since 2010, the economy has come nowhere near that. Ed Balls was quite right, during all of that period when he sat on the opposition benches to keep signalling a flatlining economy, because that is exactly what we have had. The OBR have only predicted 1.7% growth for 2017, but even on the basis of the over-optimistic assumptions about Brexit that the government has given them for the period ahead, the OBR have UK growth falling next year, and in subsequent years to only around 1.3% p.a. growth, which is essentially a condition of stagnation. Moreover, the economy continues to suffer from inflation, as the Pound has fallen, due to the effects of the Brexit vote. That is likely to assert itself again in the next year, contrary to the predictions of the OBR, as the Brexit effect intensifies.

The government have also crowed about the pickup in productivity in the last few months, but even the OBR point out that it's wrong to base yourself on just that period, especially when UK productivity is at such a low level, and lagging other economies by such an extent. And, of course, the low productivity goes along with the low wage/high private debt economy that the UK has built over the last 40 years. The pundits often talk about higher productivity being the basis of higher wages, but that is essentially false. Higher levels of productivity, in the longer-term, do facilitate higher real wages, but in the short term, higher productivity leads to lower wages, because the higher productivity is brought about via the introduction of labour-saving technology, which replaces labour, pushes up unemployment, and thereby acts to push down on wages.

Britain's low productivity is a result of 40 years of low wages, which gives no incentive for firms to seek out new labour-saving technologies. It is always the case that high wages provide the incentive for businesses to invest in such technology, not vice versa. If Britain wants to raise its productivity levels the starting point is a significant rise in wages, which then provides the incentive for innovation and capital investment, which is the lesson that industrialising economies in Asia learned more than 20 years ago. The Tories will not go down that road, because their eyes are set not on the real economy, not on real capital accumulation, but only on inflating the prices of shares, bonds and property, so as to inflate the paper wealth of the landed and financial oligarchy, whose interest they represent.

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