Government scientific advisors are gradually coming out to say what I have been saying from Day 1. That is that the lock down policies, implemented by governments around the globe, have had no real scientific basis. They have been ineffective in stopping, or even seriously slowing, the spread of coronavirus, and, even if they had slowed its spread, that would have been counterproductive, simply slowing the development of herd immunity, and meaning that such lock downs would have to remain in place for an indeterminate future, causing untold damage to the economy and society. The scientists are now confirming what should have been obvious, and what I said from the start, which is that there has not been one COVID19 epidemic, but three. There is the epidemic that is devastating hospitals, there is the epidemic that is running wild through the care home sector, and there is the epidemic that is affecting wider society, but where the mortality rate is a tiny fraction of the first two. That is because, although the media, as part of its creation of a moral panic, has focused on the tiny minority of deaths of people who are not part of the at risk 20%, the reality is that COVID19 is a killer of the old and the infirm. The average age of people dying from it is 81. Less than 1% of deaths are amongst those who are less than 60 years old, and who have no underlying medical condition. Yet, the lock down has not protected those in hospitals or care homes, quite the opposite. Nor has it protected those at risk who rely on care in the home. Moreover, by closing down the economy, it has caused untold damage that will take years to undo, with a large part of the damage impossible to repair, as capital and productive capacity itself is destroyed.
As governments are forced to recognise the reality that their response to COVID19 was idiotic, and a response to a moral panic, which has unnecessarily caused massive damage to their economies, which cannot be allowed to continue, without causing widespread destabilisation, they are quickly looking to save face, and begin to lift the lock-down. That has happened in China, and is happening across Europe. The fact is that, everywhere, COVID19 has become entrenched in the healthcare and social care sectors, in a similar way to what happened with MRSA, and C-Dif in previous years. A failure to have adequate levels of isolation for patients and residents, and a failure to provide adequate levels of PPE, means that its unlikely that the virus can be cleared from the healthcare and social care system quickly, other than by the gruesome reality that it will simply continue to kill thousands of the most vulnerable, trapped in those environments. That is why I said, right from the beginning, that the focus should have been on protecting that 20% of the population most at risk, the majority of whom are themselves concentrated within the health and social care systems. The attempt to isolate 100% of society, by closing it down, was a foolhardy and Utopian exercise that was neither necessary, nor could actually work. As with all Utopian ventures, it was, in its effect, therefore, thoroughly reactionary. It has had reactionary consequences for the economy, and for the economic position of the working-class, and it has had reactionary political consequences, strengthening the position of tyrants, Bonapartists, and authoritarians; it has led to the biggest restriction of civil and human rights seen since the bourgeois revolutions of the 19th century; it has strengthened the position of the economic nationalists who want to end free movement, and to close borders, and to end the globalisation process that has rescued hundreds of millions from the idiocy of rural life, and brought about a rapid increase in their living standards over the last thirty years.
But, despite the moral panic, created by the media, which has taken its lead from social media, there is no evidence that the virus has the same effect in the general population, where the demography is completely different. All of the studies of actual deaths, are now showing that the real mortality rate is at most a tenth of the initial projections of 1:100. In fact, there is every reason to believe that the actual figure will be closer to 1:10,000, or 0.01%. The original predictions, as with the initial predictions provided by the same people in 2009, over Swine Flu, were inflated, because they were based on number of reported cases, rather than infections, and the populations where these reported cases were identified were ones in the areas described above, primarily hospitals, where those dying were overwhelmingly, and inevitably, people who were elderly or sick, who were hundreds of times more likely to die from the virus than someone from the general population. Where COVID19 really differs from flu is this, all of those old and sick people, who are dying from COVID19, would similarly die, in at least the same kinds of numbers, from flu, were it not for the fact that, each year, they get a free flu jab that vaccinates them against it. With no vaccines available, the only possible equivalent is to have the young, healthy members of society, not at serious risk from COVID19, obtain herd immunity so that it does not run rampage. The lock down of the economy, and of the general population, was both unnecessary, and grossly counterproductive and damaging. That is being seen by the fact that countries like Sweden that did not impose such a lock down have not seen any greater number of reported cases, and have actually seen fewer deaths per capita, from COVID19, than countries that did impose a lock down.
Sweden, which has had no lock down, has had 1,000 deaths from COVID19. Its population is a sixth that of Britain, so its deaths are equal to 6,000 deaths in Britain, but actual deaths in Britain currently stand at 12,000, or double the per capita number of deaths in Sweden. And, the number of deaths in Sweden is growing at a declining rate. All of the evidence is now clear, as I have said from Day 1. If the at risk 20% had been properly isolated, the number of deaths could have been minimised, and the rest of society could have continued to function normally. Indeed, in order to properly protect the at risk 20%, having the rest of society continue to function normally was essential, because, without it, there is no provision of the goods and services required by everyone, including, and, particularly in a condition of lock down, the at risk 20%. Provision of PPE, of ventilators, and so on would have been greatly facilitated if the general economy had not itself been put in a self-induced coma; the ability for everyone to get the goods and services via online shopping and so on would also have been greatly facilitated.
Now, the world is slowly beginning to make steps at lifting the idiotic lock down, but that too presents problems that workers need to be aware of, and prepare for. The reality is that although society and social contact has been locked down, there was never any real lock down of the economy. Small shops other than food shops closed down, as did many of the small service businesses where close contact was inevitable. But, many, even, of the larger service businesses continued to function. The other night I saw an AA van come out to change the wheel on a car, for example. Most of the firms on the industrial and commercial estate near to me, have continued to function; the animal feeds mill is in full operation, as was the brickworks, and lorries continue to stream every twenty seconds in and out of the Fedex depot. But, its clear that production levels have fallen, and some pent up demand clearly exists. The pent-up demand is increased by the fact that the government has put itself in the position of being the national employer and paying everyone's wages, as well as doling out vast amounts of other payments.
As and when the lock down ends, there are some fairly obvious consequences that will unfold. First of all, this pent-up demand will be unleashed. It will be unleashed in conditions, where profits have been devastated. The basis of capital accumulation is those very profits, both in terms of the realised money profits obtained by companies, used to buy the required means of production, labour-power and so on, and in terms of their physical equivalent, the surplus product, produced by firms, that forms the physical basis of the additional means of production. The fact that the production of the latter has been curtailed, and is, therefore, in short supply, means that, as the demand for these items – machines, materials and so on – rises sharply, their market prices will also rise sharply. The sharp rise in demand for these items will come from the unleashing of the pent-up consumer demand, as people are once more allowed to leave their homes for purposes other than work. This unleashing of demand will cause consumer prices for goods and services to rise sharply, as supply tries to catch up, and as supply tries to catch up, input prices will also rise sharply. All of this is fuelled by the vast amounts of liquidity that central banks and governments have introduced recently, which has added to the oceans of liquidity that central banks have been flooding into the global economy over the last 30 years.
But, to finance this additional investment, which each firm will be forced to undertake so as not to lose market share to its competitors, at a time when profits have been decimated, and many businesses will have made losses, will require huge amounts of borrowing. We have already seen hundreds of billions of Dollars of borrowing by large corporations, just to finance their working-capital, as they seek liquidity to pay their bills. Millions of other smaller companies have had to resort to bank loans, maxing out credit cards, or borrowing against houses and so on. Hundreds of millions of workers, across the globe, even if they have had a large part of their wages paid by governments, have still seen their incomes drop, and had to make up the difference with their own household borrowing, or if they were lucky, by drawing down on any savings they had. Even banks were told to give mortgage payment holidays, so that their revenues have been declining. All of this means that the demand for money and money-capital has been rising, and will rise much faster as the economy restarts, whilst the supply of money-capital (profits, savings) has been declining.
But, on top of that government borrowing across the globe has grown astronomically. Governments have become the national employer, paying a large part of worker's wages. But, normally, wages are paid out of the revenues that workers create by their labour. In other words, a worker produces goods and services, these goods and services are sold by their employer, and the money the employer receives then pays the workers' wages. But, if workers are not working, and so not producing any goods and services to be sold, they are creating no revenues out of which their wages, or the profit of their employer can be paid. For the government to pay these wages, and other incomes, therefore, can only be done out of even further borrowing. This huge rise in the demand for money-capital, at a time when the supply of money-capital from profits and saving is being hugely diminished, can have only one consequence, and that is a sharp rise in the rate of interest.
Governments think this is no problem, because they can get over this problem by using the Magic Money Tree (MMT), and simply print money to finance all this borrowing, without causing interest rates to rise. They can't. Over the last 30 years, they printed money, and used it to buy bonds, which caused the price of those bonds to rise, and thereby caused the yields on those bonds to fall. In the process, it caused the price of other assets to rise, and the yields on those assets to fall. This created the delusion that printing money could reduce interest rates. It can't. It only had the effect of reducing these specific yields, and the cost of it – or the benefit if you were the owner of such assets – was an hyperinflation of asset prices, be it shares, bonds, land or property, and then also of other assets such as gold, art, wine, Bitcoin etc. It only worked by creating bubbles in these asset prices, and by draining money and money-capital out of the rest of the economy, including constraining the growth in that real economy by ten years of austerity. Those conditions have been fundamentally reversed. They were temporarily reversed in 2008, which is what sparked the global financial meltdown, as rising interest rates caused asset prices, across the board, to crash. But, this reversal is more permanent.
Governments undoubtedly will print lots more money, but, in the conditions that now exist, that money will go more or less straight into general circulation, where it will cause money prices of goods and services to rise. That means that everyone seeking to borrow, be it government, businesses or households, will find the prices of the things they need to buy, with that borrowed money, will rise, so that the amounts they need to borrow, to pay for them, also then rise. Indeed, as speculators see inflation rising sharply, they will calculate that the real value of the bonds they buy, and the interest paid on those bonds, will be continually falling in real terms, and so they will offer much less money to buy those bonds, and they will demand much higher rates of interest on them. Where, over the last thirty years, the prices of bonds, shares, land, property and other assets have been hyperinflated by the printing of money, solely to buy these assets, now that process will be sharply reversed. Liquidity will go into the purchase of commodities, and as firms respond to that, by having to accumulate additional capital, so any additional liquidity will go into such purchases, causing the money prices of goods and services to rise, and so causing the amounts of money borrowed to pay for them to also rise, causing interest rates to rise, and asset prices to fall.
Governments are already having to begin to issue large amounts of bonds to raise the money they require to pay for all of the spending they have committed to. That increased supply of bonds reduces their price, and, thereby causes the yield on them to rise. Large corporations are not only borrowing hundreds of billions against credit lines, but also will need to start issuing additional bonds and shares to obtain the money-capital they require to finance expansion.
So, we have returned, with a vengeance, to the kind of situation I described back in 2007. That is we are going to see a surge in the prices of goods and services. We will also see a surge in the rate of interest, and consequent crash in asset prices, as soon as economies are released from the vice they have been placed in by the lock downs. In the short term, we will have had a sharp rise in unemployment, but much of this is simply previously disguised unemployment and underemployment that has been brought out in the open by the lock down. As economies respond sharply, many of these workers will be absorbed into real jobs, paying real wages. Much of the zombie capital that has dragged on for the last twenty years will disappear, and be picked up on the cheap by larger capitals in the normal process of concentration and centralisation of capital, with a consequent rise in the rate of profit.
As inflation rises, trades unions and the Labour Party should demand that workers and benefits recipients be protected against it via a Sliding Scale of Wages, Pensions and Benefits. All of these should be increased, on a monthly basis, in line with inflation, and we need workers to be the ones calculating the index of prices not government, so that we ensure that it is the cost of living of workers that is being considered, not some fake index of prices of goods and services consumed by the rich.
We also need to ensure that capital does not take advantage of temporary high levels of unemployment to simply have existing workers be even more overworked. We need to demand that Labour's halfhearted commitment to a 32 hour week in its 2019 Manifesto, be made into a concrete demand. Trades Unions should militantly oppose the use of overtime working, instead demanding that additional work be done by hiring additional workers.
As costs and prices rise, Labour should demand that no artificial inflation of such costs be imposed, and that means demanding that the disastrous policy of Brexit be scrapped so that the free flow of goods and services can continue across the EU.
Individuals can attempt to protect themselves in the way I suggested back in 2007. As inflation rises, with the oceans of liquidity flowing into general circulation, it makes sense to begin to stock up on vital necessities that can be stored for the longer term. As I said back then, buy baked beans. Back then, I also recommended buying gold. But, back then, gold was still fairly modestly priced. It was only in the following years up to its peak in 2011, when it reached $1970 per ounce, that it saw its price treble and quadruple. Gold is now back at around $1800 an ounce. Its also difficult to get hold of unless you have several thousand pounds to spend on buying a large ingot. The price of gold has been inflated along with other speculative assets, and as the prices of assets fall, the price of gold may also fall, or at least not rise relative to other commodities.
Better, if you need to buy a car, to be doing that. The things that need to be sold are assets, be they shares, bonds, mutual funds, or property, because as interest rates rise, these asset prices will crash, and given that they have been hyperinflated, even compared to 2008, they have a very, very long way to fall. And, as interest rates are set to rise, it makes sense to clear any debts you can, and where possible to increase your savings, both to benefit, in the short term, from higher interest rates on deposits, and so as to have cash available to buy commodities before their prices get inflated, and, later, so as to pick up assets whose prices, by then, will have crashed massively from current levels. In 1929, after the Wall Street crash, asset prices from shares to property fell by 90%, and anyone who had cash could pick up those assets at once in a century bargain prices. That once in a century crash in asset prices, and consequent buying opportunity is nearly upon us again.
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