The Design of The Crisis
Wilson probably represented the high point of progressive social-democracy, in the last long wave cycle. Something similar could be said about Scandinavia, or Germany under Schmidt. In the 1970's, as the crisis phase takes hold, he is unable to move forward for fear of unleashing “the wrong forces” that could reel out of control. Unable to move forward, social-democracy moves backwards. Conservative social-democratic forces openly confront the Left. Unable to fulfil its side of the social-democratic bargain, that had held since WWII, the workers respond in like manner. It's not that workers shift their allegiance to Thatcher and the Tories; they simply begin to leave the field of battle, and that is enough for Thatcher to win. Similar political forces come to government in the US, and across Europe. These forces that Paul calls Neo-liberal, I call conservative social-democratic.
Whether it is Thatcher, Reagan, Kohl or Chirac, they all recognise that the economy is dominated by the huge corporations. Their well-being is synonymous with the well-being of the economy, and thereby the state. But, where, for progressive social democracy, the well being of those corporations is viewed from the perspective of the actual business, of the productive-capital, for conservative social-democracy it is viewed from the perspective of the shareholders. The technocratic and class roots of progressive social-democracy condition its perspective, just as the rent-seeking class roots of conservative social democracy condition its perspective. For conservative social-democracy within conservative parties, it also faces a tension that the coalition of forces that these parties represent, also pulls in a reactionary direction, towards less developed forms of capital, as has been seen with the Tories and Brexit. It is in a constant tension between the reality that it has to deal with the state as a social-democratic state, reflecting the needs of socialised capital, as the dominant form, and the other reality that its core support, and membership, comprises a plethora of small capitalists, and those who share that mindset. These conservative parties are being pulled in a reactionary direction by their mass base, whilst attempting to also protect the interests of the dominant section of the bourgeoisie amongst the rentier class, whose fortunes became increasingly identified with rising asset prices.
In the post-war period, up to the 1980's, the difference between the interests of the rentiers and the socialised capital was not significant. The fortunes of the corporations were also the fortunes of the shareholders and bondholders, who saw their dividends and interest receipts increase accordingly. From the 1980's onwards, the difference becomes increasingly apparent. It becomes apparent in the form described earlier, of the rise in the proportion of profits going to dividends, as set out by Haldane, and also by Hillary Clinton, who spoke about Quarterly Capitalism. Haldane spoke about capital consuming itself.
And, as the 1980's progressed, the idea that the bits of paper, the shares and bonds, were themselves capital, which, like Jack's magic beans, could somehow produce additional wealth, took hold. Who could be surprised, as Thatcher and Reagan deregulated financial markets, in the Big Bang of 1986, which, with large-scale rises in money-supply, and credit, caused asset prices – be it shares, bonds, or property – to soar. UK house prices quadrupled during the 1980's, amidst a period of mass unemployment and economic stagnation.
As I wrote in a series of blog posts a decade ago, orthodox economics itself is the basis of that view. It proposes, as I illustrated from the University Economics textbook of Alchian and Allen, that value is created, not by production, but by exchange. And, given the influence of the Austrian School of economics, in the realm of the financial market traders, is it any wonder that the idea rapidly spread abroad that all of the affluence and “loadsamoney” culture was all absolutely real, and the consequence of these speculators all exchanging these worthless bits of paper amongst themselves, at ever higher prices, thereby creating money from nothing. As I described it in my novel 2017, of the situation in 1999,
“At around this time of day, the same people could usually be seen occupying their own traditional seats in the bar. They were a group that stood in marked contrast to all those stock market traders and other yuppies, who, at the same time of day, frequented the designer pubs and wine bars, in other parts of the capital, where they showed off their designer stubble, alongside their designer clothes, and designer watches, which, at the end of the day, they checked, before getting into their designer sports cars, to drive home to their designer apartments, where they entertained their designer girlfriends, and their designer vaginas. And, despite their multi-million pound bonuses, much of it was paid for by designer credit, which reflected the superficial and ephemeral basis upon which it all rested.
The regulars in the bar, at the Red Lion, had nothing that was designer, other than the odd bargain they had picked up at the charity shop. There was nothing designer about the stubble on their face. It was just the result of lives spent in hard work, lives which now had nothing much to show for it, nothing much to look forward to, and no pressing reason, therefore, even to shave every day.
John knew many of the regulars. He had hung around the streets and youth clubs with them, as a teenager. There was a strange symmetry between their lives and those of the city traders. They had worked hard all their lives, producing real things that real people needed for their real lives. Now, the industries they had worked in had disappeared, and, for all the wealth they had created, over those years, they personally had very little of it.
The city traders were a complete opposite. They produced nothing. Their whole world revolved around trading worthless bits of paper, which increasingly were being replaced by virtual bits of paper, stored only as binary digits in a computer. But, having created no wealth themselves, they enjoyed a significant amount of the wealth created by others. Yet, even that wealth was not enough. They enjoyed an even more extravagant lifestyle, which led to a huge inflation of London property prices, by borrowing even more massively, financed on the basis that the swirl of paper would continue for ever, taking the fictitious prices and fictitious wealth, of those involved, ever higher. It created the process of gentrification whereby, just as the industries that employed workers, producing real wealth, had been demolished, and replaced by gleaming office blocks that traded worthless paper, or retail cathedrals where workers were encouraged to worship at the altar of consumption of goods now produced elsewhere in the world, so now the workers' communities were taken over, and the prices of houses inflated to levels the workers could never afford.
The city traders, every day, gambled billions of pounds on whether their worthless bits of paper could be sold for more or less today than yesterday. Their frantic activity, which resembled the scramble of lemmings, was fuelled by Bollinger and lines of cocaine. The regulars in the Red Lion gambled coppers on their games of crib and dominoes, fuelled by pints of beer, the occasional pain killer, to relieve the rheumatic and arthritis, caused by the years of hard work, and repeated drags on cigarettes, whose corpses were piled up in mass graves, in the large ashtrays that sat on each table.”
It was, of course, all a coke fuelled illusion, which the 1987 financial crash should have revealed. But the die was cast. Those addicted to the increasingly debt fuelled, speculative frenzy were not ready to go cold turkey. So began the Greenspan Put, and the thirty years war waged by central banks to cut official interest rates, relax credit, and print money, in whatever measure required, to keep those asset prices inflated, on behalf of the top 0.01%, and at whatever cost to the real economy, and real capital accumulation. Here are the foothills of the climb towards the crisis of 2008, and the even bigger crash that is now imminent and inevitable.
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