Last night the hapless Keir Starmer said that Boris Johnson has no plan for dealing with COVID19. True, but, as with the other main issue of the day, Brexit, nor does he. As with Brexit, Starmer has simply acted as Johnson's political hod carrier, facilitating him building the house of Brexit and now the house of lockdown, whilst continually bringing more and more bricks, urging him on to build faster and higher. Labour's position on both issues has been thoroughly opportunist, seeking to have cake and eat it. On neither issue has Labour put forward an independent working-class position that pushes forward the interests of workers. It has been based purely on an opportunistic, short-term, parliamentary cretinism that sought to present a view that Labour was being constructively supportive, whilst actually carping from the sidelines, and whose only real difference with the Tories, therefore, was a criticism that the Tories were not moving far or fast enough in the given direction, and were being incompetent. The Tories are certainly incompetent, but a bad policy performed competently does not turn it into a good policy. Everywhere, across the globe, wherever lockdowns have been pursued, competently or incompetently, they have failed miserably in their stated objective, whilst bringing even worse problems in the form of economic chaos. For millions of the world's poorest it is that which poses the main threat to them, immediately, not COVID. For them, it is economic chaos, caused by lockdowns, that is the existential threat. But, everywhere, as soon as lockdowns are relaxed, the virus necessarily reappears. They failed to resolve the problem they were supposed to cure.
As Johnson proposes unfathomable local lockdowns that seem to be as arbitrary as the decision to close pubs and restaurants at 10 p.m., Labour can only respond by saying “jump higher”. In place of local lockdowns that local Labour politicians are being forced to oppose, because their local economies are being destroyed, and local populations are starting to rebel, Labour's national politicians seek to distinguish themselves from Johnson, merely by calling for a national lockdown rather than local lockdowns! In other words, local Labour politicians complain that even partial lockdowns are crucifying their local economies, whilst Labour nationally responds by demanding that they be crucified more efficiently by an even harsher total lockdown.
But, Labour can't argue for a total lockdown of the type it insisted on earlier in the year. It knows that people will not wear it, and that the call for such a lockdown would merely emphasise the fact that the previous lockdown they demanded was a miserable failure. They know they can't call for a total lockdown again, because the first one caused the biggest economic slowdown in 300 years, with all of the long-term economic damage that implies. Yesterday, saw unemployment rise to 4.5%. But, that is the tip of the iceberg. Around 3-4 million jobs are existing only because of the government's furlough scheme. As that ends, those 3-4 million people are likely to be heading for the dole queue in the run up to Xmas. That means that the unemployment rate is likely to soar to closer to 9-10%.
Labour will no doubt call on the government to continue the furlough scheme, but it is simply unaffordable. UK debt is already soaring (already projected to rise to 110% of GDP compared to only 80% after 2008), and along with soaring debts across the globe, not only of governments, but also of businesses, and, as unemployment rises, households, means that interest rates are going to rise sharply too. That means that all of this debt becomes completely overwhelming.
The idea that it can be paid for by picking the fruit of the Magic Money Tree, is ridiculous and economically illiterate. Massive money printing for QE has already caused a hyper inflation of asset prices, leading to serial asset price bubbles over the last 30 years. Asset prices have risen during that period by literally thousands of percent. It worked by deliberately draining money from the real economy, facilitated by policies of austerity to slow economic growth. So long as the money printed went directly to buying financial assets and property, the hyperinflation could be contained within that sphere (indeed they wanted it contained in that sphere where the ruling class now owns all its wealth in the form of these assets), with the austerity, and drain of money from the real economy keeping inflation in that real economy subdued.
But, now government's are borrowing money to directly finance unproductive consumption! Businesses are borrowing money not to buy back their shares or other financial assets, so as to inflate their prices, but directly to shore up their collapsing balance sheets, and to pay their own bills, as their receipts fall!! Printing money to finance that will not cause interest rates to fall, it will simply cause inflation to rise, with interest rates rising alongside it, and even more, as savers draw down their savings to cover disappearing incomes and rising prices, and lenders demand protection against falls in the capital value of their loans due to rapidly rising inflation.
Already, real measures of inflation are rising fast everywhere. The official inflation figures have been shown to be false. A recent academic paper – Inflation with COVID Consumption Baskets, by Alberto Cavallo, Edgerley Family Associate Professor at Harvard Business School, academic partner of State Street Associates and Co-Founder of PriceStats – found that one core measure, the consumer prices index (CPI), does not “reflect current spending patterns during the Covid crisis. In fact, they overweight current spending on segments like transportation, airfares, eating out and lodging, all of which have non-trivial weights in the CPI calculation”. I've recently cited a UK paper published by the IFS which came to similar conclusions. As I indicated recently, even taking official inflation data, as currently measured, but projected forward, you get inflation in the year ahead of around 6% in both the US and UK. But, money printing to finance consumption, to pay for furlough schemes, and so on, will push that much higher, combined with all of the additional costs that are being incurred. In Britain the huge costs of Brexit will make that worse still.
In the post war period, Britain had a higher level of debt to GDP, but two things were different. Firstly, although a large part of that debt was to do with the war, another part was due to the investment the Labour government undertook on behalf of British capital. It invested in the core industries that had been run down by private owners in coal, steel, transport, energy and so on; it also built the welfare state that provided the health care and education required to produce the labour-power that a rapidly growing capital required, without that capital itself having to pay for it. Instead, it was paid for by a compulsory deduction from worker's wages, in the form of tax, but which was actually a huge Truck System, implemented by the capitalist state on behalf of all capital. The consequence of this investment was that a corresponding value was thrown back into circulation. And, all of this investment raised productivity, which benefited capital as a whole, raising the rate of profit. The debt was sustainable because, in this post-war period, the economy grew rapidly, and the tax receipts from that growth enabled the debt to be paid down.
Today, that is not the case. The borrowing is not being used to finance investment so that a corresponding value flows back into the economy; it is being used to finance consumption that sucks value out of the economy, thereby shrinking it and reducing growth. Sine 2010, governments have been actively slowing the growth of economies, because they feared that the kind of growth seen between 1999-2008 would again cause interest rates to rise, which would cause a repetition of the collapse of asset price bubbles such as that of 2008. So, instead of this borrowing going to investment its going to consumption, instead of it facilitating a rise in productivity and expansion of the economy, so as to be able to repay the debt, it is going to suck value out of the economy, at a time when governments are holding back growth for fear of rising interest rates and another crash. But, the conditions mean that interest rates will, therefore, rise inexorably anyway, and so another crash in financial assets and property is also inevitable.
So, Labour could not call for a total lockdown, and instead, opportunistically, called for a three week national lockdown, to distinguish its position from the Tories. Labour says that it bases this position on the advice of scientists, but in reality it is based on the advice only of some scientists. It is based on the advice of the government's advisors in SAGE. But, of course, SAGE has a vested interest itself in promoting the idea of lockdowns as the solution, because it was its advice to implement lockdowns rather than a programme of “focused protection”, as proposed by the tens of thousands of scientists and medical practitioners that have signed the Great Barrington Declaration, that guided the government into the full lockdown in March. It is its policy of full lockdown that has so spectacularly failed over that period. For them to change tack now, as indeed with the WHO whose performance during the pandemic has been abysmal, would be to admit that they got things completely wrong, in the first place, and that it is their strategy that has led to over 40,000 people dying, and simultaneously the economy being crippled, meaning that now we have the potential for mass unemployment, and poverty, and for an economy that is so damaged that any potential, even for financing the NHS on its current basis, let alone anything more, has been completely undermined.
But, if the six month lockdown of the economy did not eradicate the virus what sane person thinks that a three week lockdown will do the trick? The only point in going along with that would be to illustrate just how pointless it was! But, of course, once back into such a full lockdown, the fact that it didn't work would not cause those proposing it to recant. After all the 6 month lockdown, started in March, was originally, also only going to last for a few weeks!
And, as that lockdown proceeds to screw the economy, its obvious that the government could not continue to pay to bribe people not to work, via the furlough scheme, because it was totally unaffordable. At the same time that it handed out increasingly worthless banknotes to people it wanted them to use those worthless bits of paper to go and buy the goods and services that it was bribing them not to produce! This is as insane as having a world in which the inflation of asset prices by money printing leads to negative yields on assets. Of course, therefore, the government was going to effectively scrap the furlough scheme, by reducing its own commitments to a level, whereby, with lockdowns in place, many businesses would shut their doors rather than themselves pay people not to work. So, its no wonder that we have seen hundreds of thousands of redundancy notices put in the pipeline for the next few weeks.
And, as those job losses cascade into the economy, it will inevitably cause a sharp reduction in aggregate demand, which will, in turn, lead to further job losses. That means that the increase in the level of unemployment is likely to rise way above the additional 3-4 million already in the pipeline. And, of course, that in itself means longer term borrowing by the government to pay for that unemployment, as well as a big reduction in its tax revenues. They will undoubtedly try to blame this on the virus, but the truth is that its not the virus that will have caused this, but deliberate political policy decisions. The decision to implement lockdowns. Sweden, did not do so; it has not faced the same problems with the virus or with its economy that those that have implemented lockdowns have done. It has effectively reduced its new deaths from COVID to zero, and the damage to its economy has come only from the fact that, as part of a global economy, it has necessarily suffered from the knock on effects of a purely man made economic crisis, resulting from political decisions that were based upon flawed analysis, and hysterical projections.
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