As I have set out in a number of recent posts, the current levels of borrowing by states are nothing compared to what they are going to be as they find themselves having to bail-out core and strategic industries, whose balance sheets have been decimated by the effects of government imposed lock-outs, which saw them deprived of revenues, at the same time as continuing to have to meet costs. Some of those firms will be able to go to the market to borrow to raise the capital they require to restart their operations, but many will require assistance from the state. Either way this represents huge amounts of new borrowing that is going to be required, so that the additional demand for capital, at the same time that the new supply of money-capital from realised profits has been decimated, means that interest rates will inevitably rise sharply. Yet, Paul wants the government to engage in yet further borrowing, on the false belief that it can finance this borrowing simply by printing more pretty coloured bits of paper.
What we have now represents a completely different set of conditions to those that have existed for the last thirty years. Every few years, the reality has burst its way through, as growth began to rise, and interest rates began to rise with it, causing asset prices to crash. For the last thirty years, central banks have been able to respond to it, by reflating asset prices, diverting liquidity into those markets, and slowing the pace of economic growth. But, that has itself led to lunacy as the existence of negative yields on debt attest. But, now the sluice gates have been opened wide. Liquidity is flooding into the real economy, rather than into speculation in assets. Across the globe, inflation is rising.
Governments are having to borrow to finance consumption. If they print more money tokens to finance that borrowing then, even if central banks use that new liquidity to buy up the government debt, the new money tokens will go to the government, and then into the pockets of consumers who will now use it to push up the prices of consumer goods and services. But, as has already been seen with global oil prices, copper prices and so on rising by 50%, it also means that the prices business has to pay rises too, so that the additional liquidity, instead of causing interest rate to fall causes them to rise, because business has to borrow even more money to cover these higher costs.
That is a completely different scenario to where liquidity was used simply to buy up financial assets so as to inflate the prices of those assets. As inflation rises, so lenders will demand higher rates of interest. As the economy grows, and the demand for capital rises relative to supply, again, so interest rates will rise. The US government has just passed its $2 trillion fiscal stimulus package. Its stimulus into the US economy now amounts to 25% of US GDP. So far, the stimulus in the UK and Europe is not on that scale, but as things unwind, they will end up in a similar situation. Thinking that these levels of stimulus and of borrowing are not going to lead to inflation and rising interest rates is unsustainable.
Paul says, in answer to the question who will pay for all the borrowing,
“There is a very simple answer: the people of the future will pay it back, if and when we discover a form of capitalism that boosts incomes and productivity, instead of stagnation and inequality, and once we have stabilised the planet’s climate.”
Again, at the level of generalities, the idea that the debt will be paid back in the future is tautologically true. That is the nature of debt. But, why does Paul assume that Britain's creditors are going to allow it the indefinite time he seeks in this sentence to be able to do that? The first response of those creditors is going to be to demand higher rates of interest, especially if they see Britain trying to pay them back with funny money created by ever rising amounts of inflation. And, the more it faces those higher rates of interest, the greater the proportion of its GDP will it have to set aside for that purpose, rather than having it available for the kind of real capital accumulation required to produce that “form of capitalism that boosts incomes and productivity” that Paul desires. Sooner or later, people who go into increasing amounts of debt find that, no matter how long they work, the income they get is no longer enough to live on after they have paid even the interest on their loans, let alone thought of being able to make any savings so as to pay them back.
If Britain – and the same applies to other countries – were borrowing to finance capital accumulation, which would result in higher levels of productivity that would be a different matter, but a large part of the borrowing that is being undertaken, let alone that to come, is simply to finance consumption by people whose incomes were stopped by the introduction of government imposed lockouts. It is borrowing to restore the balance sheets of companies that have been decimated by those same lockouts, and so simply to cover the financial damage which those lockouts themselves induced.
Most of the proposals that Paul puts forward, for example, in relation to building no-carbon homes, whilst laudable, are of this same type, requiring additional borrowing but adding nothing to productive capacity or the raising of productivity.
Then we come to the familiar Stalinoid policy responses to the recognition of where all this leads. Paul says,
“But business income taxes are not the only, nor even the main tool a left social democratic government would use to trigger massive redistribution. It would have to tax assets, it would renationalise the central bank and — if subject to co-ordinated runs by the global financial markets — it would need capital controls.”
Its not a question of “if” such a government faced coordinated runs by global financial markets, but when it faced such runs. And, it would be doing so at the same time that it faced internal opposition from the capitalist state itself to such policies. Unfortunately, Paul does not seem to understand the difference between the state and the government, a failure that led to the ending of the Allende government in Chile, with a bullet in the head of Allende himself. Any government attempting to implement such policies, amid growing economic chaos as businesses closed their doors in a rolling capital strike, as the Tory media, day after day, rammed home the incompetence of such a government that had created such chaos and disruption, with the fascists out on the streets demanding the downfall of the government, along with the mobilisation behind them of millions of petty-bourgeois, and lumpen proletarians demanding a range of other reactionary policies such as the forced repatriation of non-whites, and so on, would find itself increasingly forced into a bunker, and needing more and more repression just to stay in office. Paul is about to publish a book on how to fight fascism, but these policies would be the best recruiting material that fascists could wish to have provided for them.
But, without a huge social movement behind it, without the possibility of bringing behind it millions of mobilised workers across Europe, a Labour government would have no such possibility. But, there is nothing in Paul's agenda that takes us from here to there. On the contrary, his acceptance of Brexit cuts us off from all those workers across Europe whose support would be vital, and his descent into support for rallying around the flag, only gives further encouragement to all those reactionary, nationalist sentiments, the supporters of whom would be the foot soldiers of our opponents not the Left.
And what use does Paul think that the effect of capital controls would be in such conditions? They would not stop, but would only encourage the financial markets to put the Pound deep into the trash can, making Britain's imports prohibitively expensive, and causing its interest on debt to soar further. For a country like Britain, heavily dependent on trade, and on imports of food, energy and raw materials that would be devastating, only adding to the economic chaos it would face. The idea that it would in these conditions, pursue
“an active industrial strategy pouring money into the ex-industrial areas, a left-wing Labour government would squash property speculation and tax the assets of the rich: through capital gains tax, inheritance tax and a massive clampdown on offshore finance. It might well also incentivise high-value and productive businesses through targeted tax reliefs and business rate cuts.”,
is pie in the sky.
Trotsky, in his writings on Britain set out that Britain's position as an island, highly dependent on trade made it extremely vulnerable. He pointed out that any radical left-wing government in Britain, unless supported by workers across Europe, would face being blockaded. The experience of the Nazi blockade by U-Boat of Britain, in WWII, shows just how prescient Trotsky was. At that time, Britain was able to rely on support from the US to break that siege, but in the conditions Paul is describing, the US would be a main contributor to any such blockade.
Paul's approach is similar to the economic nationalist approach that was taken by Syriza in 2015, and which relied on top down bureaucratic solutions rather than the necessary political groundwork of building a movement of opposition across Europe in preparation for the inevitable confrontation. Again that is similar to the bureaucratic centrist approach of the Stalinists as they sank into the reactionary policy of building Socialism In One Country, rather than promoting international revolution.
There is one final point on which I would agree with Paul. He says,
“If you don’t like what Starmer’s doing, then at least go beyond the details and set out a full left alternative — and campaign for it on the doorstep, independent of the party apparatus.”
In fact, for now, simply building an alternative to the right-wing Starmer leadership, an alternative that enables free and open discussion of all topics, and that builds an active rank and file membership of the Party, that brings about the necessary democratisation of the Party that enables us to remove all of the existing pro-capitalist, careerist MP's and bureaucrats, would be a good start. That is more important than any discussion on policies which, for now, can only be undertaken in the abstract.
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