Saturday, 21 March 2020

Government Policy Is Leading Quickly To Economic, Financial and Social Disaster

UK government policy, in relation to COVID19, is leading quickly to economic, financial and social disaster on a scale not seen for at least a century. The UK government is not alone in that; the same is true for the policies being introduced in France and other EU countries, as well as in the US, Canada and elsewhere. It is a populist response to a mass panic, and as with all such responses, it is ill-thought out, irrational and counter-productive. It is like the moral panics that have arisen in the past, for example, when crops failed or cattle died, which blamed it on witches, or failure to appease the appropriate gods, and thereby led to witch hunts like those at Salem, or led to increasing numbers of human sacrifices to appease the gods. 

Every day that passes illustrates the ill-thought out, idiotic and contradictory nature of the government's response. We had the announcement that schools would close, which means that children, who the government's own scientific advisors admit suffer no, or only very minor, symptoms from the virus, are now not only denied education and the right to take the exams they have spent years preparing for, but that, now, those children are at home, requiring their parents to also be off work looking after them, so that yet more production and supply of goods and services stops. Otherwise, the children have to be looked after by grandparents, thereby putting at risk a group of people, the elderly, who really should be self isolating. Of course, the government says that some children can go to school if their parents are “key” workers, but they do not define clearly who “key” workers are. Are they, for example, electricity supply workers, without whom electricity supply shuts down, and then life as we know it, including the energy required to run hospitals, respirators, traffic lights, trains, fridges and freezers, and heating systems comes to an end? Are “key” workers local authority refuse collectors, or sewage workers, without whom rubbish and sewage will begin to pile up in streets, with rats running rampant, and diseases like cholera that killed millions, in the 19th century, returning to haunt us? 

Yesterday, for example, we had the government announce that pubs, restaurants, gyms and so on would close. The argument being that people – usually the young, healthy people not at risk of serious ill-health from the virus – congregate in these places, where they may spread the virus amongst themselves. But, the government has not closed down other places where people similarly congregate. It has not closed down hairdressers, for example, where people sit in warm humid atmospheres, for long periods, in close contact with each other. Indeed, it has not closed down shops, where people are unavoidably in close contact with each other. Last night, it was announced that driving tests are to be cancelled, but driving lessons are not! The reason for these last inconsistencies is that it would destroy the livelihood of self employed people, and every day that passes shows that the government has no idea how to go about effectively compensating the self-employed for loss of income in the way it is now proposing for permanently employed workers. It is the nature of the UK's casualised labour market coming back to bite the government. 

Image result for He's lounging at home why aren't you cartoonBut, in the same way that the government first asked people not to go to pubs and so on, before then eventually capitulating to the moral panic and officially closing them down, so too it has been advising people not to go to work, and to self isolate, but has not acted to force them to do so. The logic of the government's position is that every worker should stay at home, and self isolate for a fortnight, because the major source of social interaction, where the virus can spread is in the workplace. If the government really believes in its own argument about the need to stop the spread of the virus amongst the 80% of the population that, in reality, are only likely to suffer mild, or even no, symptoms from it, then they should close down every workplace for at least a fortnight, and impose a curfew, ensuring that everyone stays indoors. They can't, and won't, because they know it would lead to disaster within 48 hours, but the government's policy will result in the same disaster just over a more protracted period. 

Next week, that will increase more noticeably, as larger numbers of workers stay away from work to look after their kids, now off school for an indefinite period. That will quickly begin to cause further dislocations, and stops in production causing the supply chain to face an even more rapid rupture than is already happening, as food and other vital supplies begin to disappear from shops. Already, as I said yesterday, its becoming impossible to get online deliveries from most supermarkets, and even when you can book a delivery, for a week or so hence, the number of items that are now showing as being unavailable is rising by the day, and the prices of items is already rising, as demand outstrips supply. One way of that manifesting is that supermarkets are showing cheaper items and own brands as not being available, forcing shoppers to have to buy the more expensive branded products, but, even with those, as production slows down, with workers staying home, those supplies are drying up too. Its impossible to get online deliveries from Sainsbury's, and their decision to have special opening hours for pensioners is idiotic. It means those pensioners have to break their self-isolation to get to the shops, travelling, in many cases, on public transport or by taxi to do so. When they get to the store, they will inevitably be in contact with other people, the probability being that at least one of whom is carrying the virus, thereby spreading it within a concentrated group of the most at risk! That is precisely what has led to mortality rates in Italy being so high. 

Another reason that online deliveries are drying up appears to be that the delivery drivers are heeding the governments advice and staying away from work so as to self-isolate. Usually, I would have one delivery a week, but currently that looks like being spread out to one delivery every three weeks. Yet, what I have also noticed is that, where I would see several supermarket delivery vans come down our road each day, the same van also making deliveries at several houses, in the last week, I have not seen any! That suggests to me that the difficulty in obtaining such deliveries is not just because of more people wanting online deliveries, but an actual reduction in the number of available drivers. 

The idiocy of the government policy is that, as production and supply is unnecessarily brought to a halt, and as online deliveries cease, those of us in the 20% of the population who are actually at risk of serious consequences from the virus, and who would, therefore, place a burden on the NHS were we to be contaminated, are being forced to have to break our self isolation, in order to go to the shops to try to find food, and other vital supplies, as our own stock disappears! I have been in a better position than most to have prepared for self isolation, because I did have a stock in advance, but that stock is quickly dwindling. I expect that many pensioners, are already having to break any self isolation they might have wanted to exercise, simply in order to get the food they need to be able to live from day to day. 

Yet, the government could have prevented that situation. The government, via the NHS, knows who most of the at-risk 20% are. They are all of us who for years have been contacted to get our annual flu jabs; they are everyone in receipt of state pension, or sickness and disability benefits; they are pregnant women. So, the first thing the government should have done was to put in place a mechanism to ensure that the households of anyone in those categories self-isolated, and they should have done that a month ago. They should have contacted all those people a month ago and told them to self-isolate, and they should have put in place the means to ensure that these households were provided with the means to self-isolate, by ensuring that they could receive home deliveries of all essential items, in a safe and efficient manner. Had they done that, and so protected the lives of everyone in that 20% of the population at risk from the virus, they would also, thereby, have prevented the NHS being overrun. 

Sky News, in its tracker of who is being infected, and who is dying, has shown that all those that have died, in the UK, have been people in that at risk 20%. The NHS is not helped by the fact that it has only 6.6 intensive care beds per 100,000 of population compared to the 29.2 per 100,000 in Germany. It really should not be collapsing an advanced national health service to be able to cater for the nearly 3,000 COVID19 patients that have been admitted. That figure is 50% higher than the 2,000 a year, on average, admitted as a consequence of severe effects from flu, which, for the vulnerable, also leads to severe respiratory dysfunction, pneumonia and other life threatening conditions. But, in absolute terms, 3,000 is only 1,000 more than that average figure, and as with all averages it is misleading. The average number of deaths from flu each year, is 8,000, whilst, last year, the figure was only 1,600, whereas, in 2018, it was 17,000. The number of deaths is proportional to the number of admissions, and so it would be expected that the number of admissions for flu, in a bad year, would be more like 4,000. So, the fact that the NHS is being overwhelmed is not an indication of the particularly rampant nature of COVID19 infections, but is a direct consequence of the fact that the NHS itself is not fit for purpose, and compares badly with the socialised health care systems of much of Europe. It is top heavy, bureaucratic and inefficient with far too much money spent on expensive prestige projects, and not enough spent on primary care, and on medical and nursing staff and equipment, which is being demonstrated now in relation to the lack of ICU beds, of respirators, and of the staff to operate them. It has been made worse by 10 years of austerity, just as the NHS was laid low by 18 years of Tory government in the 1980's and 90's. 

But, there would be no basis for a dramatic surge in the number of people needing hospital treatment if people in the at risk 20% of the population had been isolated in the way described earlier, because, if that had been done, they would not have become ill in the first place. This is, in fact, typical of the arse about face way in which the NHS, and healthcare in general, under capitalism, including state capitalism, works. In other words, it does not focus attention on the prevention of illness, and promotion of good health, but instead focuses attention on treating people only after they have become ill. Of course, that is no surprise. There are no profits to be made from ensuring that people work in healthy environments, or that they live in good homes. There are profits to be made by cutting corners on health and safety, and in squeezing as many houses into as small a land area as possible. There are no profits in ensuring that people live healthy lifestyles, but there are profits to be made from selling them fast food, encouraging them to lounge in front of the TV or games console, as well as from building the large expensive hospitals to treat them when they do get sick, and to sell the drugs required to treat them, and so on. As Brecht put it,

When we come to you
Our rags are torn off us
And you listen all over our naked body.
As to the cause of our illness
One glance at our rags would
Tell you more. It is the same cause that wears out
Our bodies and our clothes.

The pain in our shoulder comes
You say, from the damp; and this is also the reason
For the stain on the wall of our flat.
So tell us:
Where does the damp come from?

A Worker's Speech To A Doctor – Berthold Brecht

But, instead of isolating the 20%, the government is telling the 80% to isolate! Of course, its not following through logically on that attempt, because if it did society would shut down in short order. As I have said previously, if the government arguments and advice are taken seriously, then every worker should stay home for at least a fortnight, but that would mean that electricity supply would immediately shut down leading to death and disease on a phenomenal scale. But, all that the government policy, currently, means is that that death and destruction, instead of being immediate, is spread out over a longer period, simply extending the period of misery. Its just like Brexit, immediate disaster from a crash out, or extended misery as a result of some kind of negotiated deal. 

A look at what happened with schools illustrates the point. The government was under pressure, from the media, to close down schools, even though all of the scientific evidence showed that not only was that not necessary for the safety of students, or for the large majority of school staff, but the consequences of doing so would be immediately detrimental. The government held out, backed by that rational scientific advice. But, the government's own rhetoric has fuelled the moral panic. It has also failed to get out the message that COVID19 poses no real threat to 80% of the population, and that the best means of defeating it is to quickly build up herd immunity within that 80% of the population, which would then stop it spreading and kill it off. Instead, faced with media condemnation, which ignorantly picked up on the optics of the term “herd immunity” as a means to get cheap headlines, the government itself disavowed that strategy, thereby hanging its own scientific advisors out to dry. Its no wonder that subsequently, those advisors have themselves been cautious about saying things they know are right, but which may ignite the ire of the media hacks. 

But, the government's economic response to the crisis is also idiotic. The basic economic facts are these. The total output of any economy, whether it is one of individual independent small producers, as under feudalism, or capitalism, or a socialist economy comprises three separate components. Firstly, there is that component that comprises the raw and auxiliary materials, as well as that which needs to replace fixed capital that has worn out. A portion of the physical total output must always be directly withdrawn so as to replace this component, or else production itself will contract. If a farmer, instead of taking a portion of their output of grain, to replace the seed used to grow that grain, instead consumes all of their output, they will have literally eaten their seed corn. Without that seed, they can produce no grain the following year, and they will face disaster and starvation. The same is true for the whole economy. The second component, is that which replaces the goods and services consumed by the producers, and without which their labour-power is not reproduced. Unless the physical amount of goods and services required to reproduce that labour-power is set aside, then workers die, or their labour-power deteriorates, and so again production in the following period is reduced, or collapses. Finally, a portion of the total output is a surplus product. It covers the accumulation of additional means of production required for a growing population, to be able to improve the means of production so as to increase productivity and so on; it also provides an insurance fund against accidents and disasters, and covers the needs of those in society unable to work. In class societies, it also provides the means of consumption for the exploiters. 

The government's policy of telling workers to stay away from work, means cratering the total product. In China, in the first quarter, GDP has fallen by 14%, in the US it is forecast to fall by a similar 14%. GDP is not a measure of total output for the reasons I have described elsewhere. It is only a measure of the total new value that workers have created in the current year. The value of total output will then have fallen by a smaller proportion, because the largest proportion of total output value is comprised of the value of raw and auxiliary materials replaced directly out of production, and the value of wear and tear of fixed capital, likewise. However, that fall in GDP is an indication of the cratering of production of goods and services itself. It simply means that, therefore, a large part of that value comprising means of production, has also not been transferred to final output. The nature of much of this production is that if it is not productively consumed it deteriorates, i.e. it suffers depreciation. Foodstuffs if not processed rot, materials left in warehouses rot, machines rust and become out of date, and so on. 

The 14% drop in GDP is just for one quarter, but the government is talking about the possibility that the virus will be with us for at least another year. That, of course is the implication and the consequence of its own measures to slow the spread of the virus, and thereby to prolong the period during which immunity to it could be developed. The government has, in fact, proposed implementing emergency powers for two years, which is a more likely time period given its policy of extending the period during which the virus is at large, and given that its likely to be 18 months before a vaccine can be produced, and rolled out to the population at scale. In that case, the economy's total output itself is also likely to fall by much more than 14%. 

Assume that we measure total output in standard commodity units, and it comprises 1000 for means of production (c), 10 for means of consumption for workers (v) and 90 for surplus product (s). Now, if production for the year falls by 50%, it would fall from 1100 standard commodity units to just 550. The government, supported by the opposition, and others (who want the government, in fact to go further) is, proposing that workers, at the same time as being encouraged to cease production, should continue to receive something approaching their full wages, and so be able to continue to consume at the same level. Because of the influence of money illusion, its thought that this consumption can be funded from the products of a magic money tree (MMT), by printing money tokens and handing them to workers. If we assume that, because production grinds to a halt, a large proportion of the fund of means of production is not consumed in production, it remains as stocks to be used in the following year. 

But, consideration of the situation of the farmer illustrates the point. If the farmer plants the seed, but then closes down their production, the seed has already been consumed. It has effectively been wasted, because its product does not get harvested, and so the seed is not replaced. That applies to large amounts of raw materials from agricultural production. Once produced, if not productively consumed within a short period of time, they simply rot. They cannot be effectively stored for long periods as stock to be utilised when production resumes. Let's assume that this applies to just 20% of the 1000 units of means of production, so that 800 units remain available as stock to be used when production resumes. On a proportional basis, then, with output for the year reduced by 50%, half of these 800 units have been consumed, so that only 400 remain available for the next year's production. However, even to have production at the level of the previous year, requires not 400 units, but 1,000. Even if all of the surplus product of 90 units could be used to make up for the capital loss (tie-up of capital) it would not be enough to ensure production on the scale of the previous year. Out of 550 units of output, 600 units are required simply to make up the deficiency of means of production, leaving a deficit of 50 units. But, the government proposes also keeping consumption for workers at more or less the same level, so that 10 units are required to meet the consumption needs of workers. That means that there is then a deficit of 60 units, even if we assume that no part of total output goes to the surplus product. 

But, the surplus product, as stated above does not just go to enable capital accumulation, and provide for the consumption of capitalists and other exploiters. It also goes to finance the consumption of people who do not produce additional new value, but whose labour is still necessary. It goes to enable the functioning of the state, and so on. 

If out of total output of 550 commodity units, we assume no surplus product, which implies a devastating reduction in the size of the state, whilst we set aside 10 units for workers consumption, that means that, even adding in the 400 units of means of production held in stock, means of production for the following year amounts to just 940 units available as means of production for the following year. That represents an actual reduction in the physical capital of 6%. However, in reality, the situation is much more dire than this. The payment of wages to workers is not, in reality, paid out of some stock of commodities stored up by capital, but is paid out of production that is occurring continuously and simultaneously - contemporaneous production as Marx calls it following Hodgskin. The bread consumed by workers in their breakfast is not bread that has been stored up to cover the year ahead, but is bread that was baked by other workers that morning. The wages paid to workers in McDonald's is not paid out of a pot of capital set aside by the company for the year, but is paid out of the money they receive every few minutes across their counters. So, closing down production means that the money paid as wages to workers requires a much greater advance of capital than the above example would suggest, because the rate of turnover of capital would collapse.  In reality, if the rate of turnover is approximately 50 - almost certainly a gross underestimation - then it would mean that instead of the capital advanced for wages being 10, it would actually be 500, creating massive losses, rather than surpluses, and a consequent massive tie-up of capital that would lead to a huge contraction of capital and production in the subsequent period.  It would require huge draw downs of the potential money-capital currently tied up in the form of fictitious-capital, to finance the reproduction of this capital, and a consequent collapse of the prices of assets

The government's strategy means not just a severe reduction in output, it means a severe destruction of physical capital, and thereby of the potential for production in future years. But, the implications of its economic measures are also financially disastrous. It proposes subsidising wages to the tune of 80%, up to a maximum of £2,500 a month, per worker. That means that unless employers make up the other 20%, there will still be a significant deficit for many workers, who already have maxed out credit cards, inflicting 30% p.a. interest charges on them, or worse still are reduced to taking out pay day loans charging up to 4000% interest. As Paul Mason notes, again, the government has hung out self employed people to dry, because it is not enabling them to access this support. Instead, it is forcing them to apply for other benefits, which means that they have to jump through all of the same bureaucratic hoops, but who are also finding that if they or their partners have any, even minimal, savings, they are not entitled to claim! The government is, however, likely to change that, because it is amongst the self-employed and small business class that its core membership and voter base is found. 

If the government then pays out £2,500 a month to every worker and self employed person that amounts to 31 million x £2,500 = £77.5 billion a month. For a year, that is £930 billion. Now remember, that this is a government that attacked Labour for its impossible spending plans. This is a government that was elected by Tory voters who claimed that Labour's spending plans, based upon increasing productive investment in the economy, by providing free high-speed broadband to every home, expanding investment in research and development, building additional schools and hospitals, increasing training in skills, bringing about a Green Industrial Revolution and so on, were impossible to achieve, and could not be funded. Yet, Labour's spending plans pale into insignificance compared to the amount the Tories are proposing to spend, not for investment, but simply to keep workers sitting at home twiddling their thumbs!!! This is the same kind of Tory madness that they inflicted in the 1980's, when Thatcher used the golden opportunity presented by North Sea oil revenues to beat down workers such as the Miners, and to destroy whole industrial areas, turning them into industrial wastelands, and monuments to Tory failure that live with us to this day. The idiocy of people in those areas today, in voting in a Tory government once more has quickly come back to bite them in the arse. 

But, they will have far worse to come, just as the Tories policies to bail out the bankers after 2008 was paid for by those same workers via ten years of irrational austerity. Bailing out the banks and financial institutions cost only £2 trillion. As someone once said, a trillion here, a trillion there, and before you know it you are talking about serious money! Except, at that time, in 2008, they were talking in billions not trillions. That in itself simply shows how far down the rabbit hole 12 years of money printing has sent us. But, today, to bail out the whole economy, rather than just the banks, which is essentially what the government is talking about, will cost not £2 trillion, but more like £20 trillion. It is the equivalent of ten years GDP. In the US, which is talking about a similar course of action, even Trump is talking about nationalising whole swathes of the economy, by taking an equity stake in the companies it bails out.  But that alone should tell you that this nationalisation has nothing to do with socialism.  Wit a need to screw workers even more harshly to restore profits and rebuild capital, this kind of nationalisation and state intervention will be like that introduced by Mussolini, Hitler, Franco and others of that ilk.

By comparison, Labour's proposals to nationalise water, power and rail look remarkably timid and minor. Borrowing on that scale will take UK government debt to levels around 1,000% of GDP, even putting the 250% of Japan in the shade. The UK has had debt to GDP of around 250% before, for example, when it was preparing for the Industrial Revolution. But, that was when it was preparing for a period of rapid growth, such as would, and did quickly erode the debt as revenues increased. That is not the case today, if the government's policies are followed through. Instead, as described above we will be facing the actual destruction of capital and productive capacity, and the capacity of the economy to even reproduce itself let alone produce surplus from which to grow, or to pay the exorbitant levels of interest that such debt implies. 

Its no wonder, therefore, that bond prices are selling off wholesale, that there is a rush for the exits, as everyone tries to dispose of liquid assets and turn them into cash, because in these conditions cash is king, and when asset prices collapse by around 90%, as they did in 1929, then anyone with cash will be able to pick up those assets at once in a century prices. It will bring about the kind of financial crisis I have been predicting was inevitable, and it will mean a massive destruction of the paper wealth of all those who have spent the last thirty years speculating in the delusion that the prices of shares, bonds, and property will go up by unsustainable amounts year after year.

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