The Political Situation (11/14)
Blair is just a continuation of the conservative social-democracy of early Thatcherism, and of John Major. Before Blair, the same ideology is seen in the US in the form of Bill Clinton. It is the same ideology promoted by George Bush, and then by Obama, continued by Hillary Clinton, and by Joe Biden. It is the same ideology of Macron, in France, which essentially follows on from Hollande. But, it is based upon a delusion. Conservative social democracy represents the interests of the owners of fictitious capital, and, as such, it suffers all the same delusions of that class.
The owners of fictitious capital – shares, bonds, property and their derivatives – believe this capital to be real capital. They see real capital itself – industrial capital – only as a collection of commodities mobilised by entrepreneurs. In other words, they are simply factors of production, which produce an appropriate revenue for the owners of them. The workers provide labour, and get wages, and the entrepreneurs/managers merely provide a specific form of labour in organising the factors of production, so that the profits produced are simply a form of wage paid to those entrepreneurs/managers. The real source of wealth, in this delusion, comes from the ownership of capital, and capital is now identified as being the fictitious capital. It is the ownership of money, and of other bits of paper in the form of shares, bonds and so on. It is this which is also seen as the source of expanding value and wealth, which is now seen as being the interest/dividends that these assets produce, in the same way that pears are the natural fruit of the pear tree. The question of where this interest comes from is never asked. More significantly, it comes to be seen as the inflating prices of the assets themselves, whether it be inflating bond and share prices, or inflating property prices, even as these inflating bubbles bear increasingly remote connections to the underlying revenues produced by those assets, so that the yield on the assets continually shrinks, and, eventually, even reaches the point where it becomes negative, not just in inflation adjusted terms, but even in nominal terms. In fact, as these capital gains from rising asset prices arise, the capital gain comes to be described itself as “profit”.
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| In the delusion pf the magic money tree, things are reversed. Its the inflation of asset prices (in the centre) that drives wealth, and provides revenues, which are spent, which enables the factors of production to be employed. |
This delusion of wealth from simply inflating asset prices also finds its equivalent in the Magic Money Tree (MMT), which, like John Law and the Pereire Brothers, believes that the question of creating new additional value can be resolved by simply printing more of this paper and throwing it into circulation. The delusion works on the basis of the following mechanism. Real wealth/capital exists in the form of what is actually just fictitious capital. This capital produces interest/dividends, in the same way that a pear tree produces pears. It is its natural fruit and no more question as to where this additional value comes from need be asked. With these revenues, the owners of these assets are able to consume. This consumption then enables businesses to produce goods and services, so that the workers thereby employed can be paid wages, and the entrepreneurs/managers of these businesses, obtain their own wages in the form of industrial profits. In addition, national wealth is increased as a result of the prices of these assets increasing. And, this increased wealth is also a source of increased consumption, particularly of large, high value consumption, on the basis of borrowing against the increased “value”. Government itself sees the potential for such borrowing, or to cover the cost of long-term expenditure, such as provision of capital projects like schools and hospitals, via PFI, or to cover the costs of elderly social care. MMT, simply cuts out the initial element of this process, of rising asset prices, and goes straight to printing money to provide liquidity to be used for consumption.
For a while, like all Ponzi Schemes, this delusion appears to be real. In the 1980's, house prices quadrupled. Anyone who owned a house, or even who was buying a house on a mortgage, saw their paper wealth increase massively. Of course, it was a delusion, because if you bought a £5,000 house in the late 70's, which became a £20,000 house by the late 80's, when you came to want to move up the housing ladder, the £7,500 house of the late 70's, was now a £30,000 house. Where, if house prices had remained constant, you could buy the better house with just an additional £2,500 of savings, now it required £10,000 of additional savings, and whilst house prices had quadrupled, wages certainly hadn't. But, what it did do, was enable you to remortgage your existing house, so as now to swap a £5,000 mortgage for a £20,000 mortgage. It created the illusion of greater affluence, whereas the reality was that you had simply become more impoverished, having swapped £5,000 of debt for £20,000 of debt!
But, this illusion was important for conservative social-democracy in the 1980's, and 90's. As wages stagnated along with the stagnation of the economy, this illusion of wealth and affluence founded on debt, collateralised on inflating asset price bubbles, enabled consumption to continue, rather than collapsing. Large amounts of the commodities being consumed were now produced in China, or other parts of Asia, but as consumption even rose, funded from this debt, vast new cathedrals of retailing opened across the country, and provided, largely, low paid employment for shop workers. Many of them arose on the former sites of collieries or steel works, being a totemic manifestation of the way in which stable, permanent, well paid employment had been replaced by precarious, temporary, low-paid employment. Along with it went a mushrooming of warehousing, and transportation, to keep the retail leviathans fed.
But, the money raised by going into additional debt did not have to be used in that way. It could be used to buy shares, for example, or to put into mutual funds, in search of similar capital gains from inflating asset prices. At least, when you sell them, you are not compelled to buy more, in the same way that if you sell your house to realise a capital gain, you still have to buy or rent another! And, for those who had bought houses in the 1950's, and 60's, or even early 70's, inflation in the intervening period had reduced the original capital sum of the mortgage to nearly nothing, which meant that, even without remortgaging, they did have increasing disposable income that could be used to accumulate these other kinds of assets.
So, it is no wonder that when, in 1987, global stock markets crashed by 25%, overnight, and looked to be going into permanent meltdown, it created severe panic and prompted central banks to intervene for the first time on a massive scale to bring the crash to a halt. The 1987 crash had been sparked by events that really make clear the underlying reality, and the nature of the delusion. In the United States, Ronald Reagan had adopted the ideas of flaky economists like Art Laffer, and Larry Kudlow, the latter, today, being in Trump's government. Laffer is responsible for the Laffer Curve, which suggests that lowering taxes actually increases tax revenues. Reagan cut taxes, but instead of increasing tax revenues, and shrinking the US budget deficit, it ballooned. At the same time, the increased consumption in the US, financed out of all the expanding debt, collateralised against inflating asset prices, resulted in huge amounts of imports, so that the US trade deficit also ballooned. It paid for all of these imports not by a large expansion of its own production, but simply by rapidly increasing levels of debt. The financial markets looked at these twin deficits, and realised that this was unsustainable. So, they sold off hard and fast. In fact, after central banks intervened, the panic subsided, and a year later, stock markets had not only recovered the losses, but ended significantly higher. But, the reasons for the crash had not changed. What had changed was another element of the delusion, the idea that if asset prices fall, they can be reflated by printing money, QE, so that the paper chase can continue.
But, it breeds increasing instability. It drives money-capital out of the real economy, and into financial and property speculation, where capital gains appear to be guaranteed by the state. In so doing, it holds back the normal process of capital accumulation, and expansion of value and surplus value that goes with it. That undermines the production of profits out of which the payments of interest/dividends are actually derived. For shares, that is countered by continually increasing the proportion of profits used to pay dividends rather than going to capital accumulation. For bonds, it means that, as the prices of them rise, the yields continually decline, even eventually becoming negative. The bursting of the bubbles becomes a regular occurrence, and on each occasion, the state and central banks have to intervene on an ever larger basis.
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