Prediction 3 – Populism Is Put In Retreat
Populism is merely the political reflection of a rise in the social weight of the petty-bourgeoisie. That process began in the 1980's, as a consequence of de-industrialisation in developed economies. On the one hand, a lot of large-scale industrial capital moved into developing economies, which also saw a growth of small businesses on the back of it. At the same time, the undermining of large-scale industrial capital in developed economies, saw a consequent increase in the relative social weight of the petty-bourgeoisie. Thatcher was a classic manifestation of it. From the 1980's onwards there has been a constant battle between a rising petty-bourgeoisie, and the interests of large-scale industrial capital, and of the owners of fictitious-capital dependent on it for their wealth and power. Thatcher, herself, mirrored the evolution of that battle, during the 1980's, starting out as a pro-European, and steadily shifting further to the nationalist Right, as the 80's progressed.
I forecast, several years ago, that, as the new long wave upswing got underway, large-scale industrial capital would be strengthened, and, along with it, also, the working-class. The social weight of the petty-bourgeoisie would be relatively weakened. The 2008 financial crash intervened in that process, and governments everywhere introduced austerity to slow economic growth, so as to restrain the demand for capital, and thereby interest rates, in order to reflate asset prices. The lengths they have been prepared to go to do that, including printing money tokens solely to buy up worthless paper assets, to bail out the top 0.01%, to an extent that central banks now own about a third of such paper, whilst having pushed yields on it so low that a large portion of it is now producing negative yields, has been incredible.
That only means that, when they can no longer plug the holes in the dyke, the resultant deluge will be that much greater. Despite all the measures taken to slow economic growth, and divert money into financial and property speculation, the laws of economics have continued to operate, and have resulted in continued economic growth, and a continued growth of the working-class. But, the global responses to COVID19, and the astronomical level of borrowing to fund unproductive consumption, let alone the borrowing required to cover for falling tax revenues, not to mention to fund the bail-out of core and strategic industries yet to come, which will dwarf the borrowing already undertaken, simply puts rocket boosters under the economic processes already occurring.
Borrowing on this scale cannot avoid causing interest rates to rise. The idea that that can be avoided by resort to the Magic Money Tree is absurd. That caused hyperinflation of asset prices when the money was being used only to buy assets, whilst money was diverted away from the real economy. Printing money tokens to pay for consumption, would simply result in a hyperinflation of commodity prices, and that would prompt sharp rises in interest rates, and require central banks to sharply contract money-supply to rein it in. Those rises in interest rates will cause asset prices to crash. For some of those petty-bourgeois elements, that would be catastrophic. Whilst the main beneficiaries of the hyperinflation of asset prices has been the top 0.01%, the inflation of property prices created a new class of petty-bourgeois, buy-to-let landlords. The large number of elderly, Tory, homeowners, also deluded themselves into the idea that the rising price of their house, somehow gave them access to the upper ranks of society. A collapse in asset prices, including property prices will shatter those illusions, and undermine that section of the petty-bourgeoisie.
But, such a collapse in asset prices, whilst inevitably having a short-term knock on effect to the real economy, will create a sharp reversal of conditions that have existed for the last 8 years, and which existed from around 1980 until 2000. In 2008, governments were forced to engage in Keynesian fiscal stimulus, to stabilise the economy, alongside the monetary stimulus introduced to end the credit crunch, and to bail-out the speculators who saw the prices of their assets collapse. Having stabilised the global economy, by 2010, conservative governments across the globe introduced austerity to prevent economic growth from causing asset prices crashing again. But, those measures have already reached a level of absurdity, with widespread negative yields on assets, alongside austerity that has dragged on for a decade. Even the Tories were led to promote the idea of introducing fiscal stimulus, and now, with the debt to GDP ratio over 100% and rising, they are also led to admit that they cannot rein it in, by introducing tax rises or fiscal tightening.
The coming crash in asset prices is not going to be quickly reversed, as it was in 2008, because central banks are already the owners of much of the worthless paper, whilst, unlike the last ten years, when austerity meant that additional debt supply was constrained, and companies bought back shares, rather than issuing new ones, the amount of new debt issuance is going to rise sharply and massively, causing the prices of all these assets to fall hard. Yet, with herd immunity likely to have arisen by the middle of next year – with or without a vaccine – economies are going to reopen. Demand from consumers is going to be high. A look at what has happened with US consumers buying online, causing shipments from China to rise sharply, to an extent that shipping rates have risen sharply, shows how quickly a rebound in the real economy can happen. With share prices crashed, and staying down, the current preoccupation with using profits to buy back shares will be reversed, with profits being used to ramp up production, so as to avoid losing market share to competitors will take its place.
In short, big industrial capital will be in a position to use money left on its balance sheet to ramp up production; it will be able to borrow in capital markets, or else to go cap in hand to the government for funds to get production started, in a way that small business cannot. Indeed, given the large number of zombie businesses, the sharp rise in interest rates will kill off many of those that do not just go bust as a result of lockdowns or Brexit anyway. In the 1980's, many workers who lost their jobs, were pushed into self-employment, as a result of not being able to get permanent employment as workers. Now, that process will be reversed. As large scale capital expands, the demand for labour will draw in many of those formerly self employed and the other small capitalists, whose businesses go bust. The social weight of the petty-bourgeoisie will decline, and their political influence will decline along with it.
But, other short-term factors are at play. Brexit has shown itself as a delusion leading to disaster. All of the lies of the Brexiters, and other populists and nationalists have been exposed. Support for the EU, even in Britain, has never been at such high levels. With the 27 countries of the EU standing clearly, now, against an external opponent – Britain – it has had a uniquely unifying effect on the components of the EU itself. The economic consequences of lockdowns has also had a unifying effect on the EU. Not only has the ECB as the EU's central bank had a role to play in printing money tokens for the benefit of the whole of the EU, but, for the first time, the EU has been led towards fiscal integration, by the creation of a €750 billion fund to respond to the economic consequences of lockdowns across the whole EU. It is undoubtedly only the first such response, as the EU has to bail-out core and strategic industries such as airlines, aerospace, and so on. It is the start of fiscal integration, and centralised debt issuance, which means an increasing centralisation, and development of the EU as a state.
The other short-term factor is the election of Biden and the Democrats in the US. They will seek to undo the damage done by Trump, who acted as the charismatic leader for global populism, even if he was being worked like a puppet, with Putin's hand up his backside. US and EU interests are steadily diverging, which means that the EU will increasingly seek to develop its own European Army, for example, though, no doubt, initially, still inside NATO. But, Biden and the Democrats, for now, will want to draw back old allies that Trump alienated, as both the US and Europe confront a rising Chinese superpower. They will also want to squash all of those populist forces such as Farage, le Pen, Wilders, Orban and co. that were a thorn in the side of those allies, as they allied with Putin et al.
In the US, Trump will undoubtedly face criminal charges soon after leaving the White House. It will open a Pandora's Box of revelations not just about him, and his close associates in the US, but about their international collaborators; the links to Russia, the role of organisations like Breitbart, of Cambridge Analytica, and so on, some of which also lead back into the heart of the Tory Party and its Brexit supporters, itself. Many big names will be pulled down by these revelations in a climate much like that which engulfed the Tory party sleaze scandals of the early 1960's (Christine Keeler), and the 1990's (Neil Hamilton et al), but now on an international scale.
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