The Banana Monarchy and Voodoo Economics - Part 6 of 9

In the 1980's, therefore, capital required no incentive to invest in labour saving technologies, because it was precisely the squeeze on profits which gave it the incentive to do that. What could not be generated, in conditions of stagnation – a stagnation itself resulting from the replacement of labour by capital – was an incentive for that investment to be geared to expanding the economy itself. It was only geared to expanding net output at the expense of gross output, by expanding profits relative to wages, and to achieve that by making workers redundant, and cutting their wages.

In the 1960's, the fiscal expansion, first of Maudling, and then of Wilson (and much the same could be said of JFK and Johnson's policies in the US), in conditions of tightening labour markets, and extensive accumulation, was not to encourage innovation in production – if it had any effect on innovation, it was in the realm of consumer goods, not production – but simply to heighten further the demand for labour, and so accelerate the process of creating labour shortages and the eventual squeeze on profits to the point of an overproduction of capital. And, that is the same conditions that exist today.

In many ways, it simply replicates the idiocy of the lockdowns, and the accompanying printing of money tokens, and borrowing of money to finance the payment of incomes. Lockdowns reduced supply, whilst the continued payment of incomes to those who had not produced, using borrowing and the printing of money tokens, inevitably led to a) aggregate monetary demand exceeding aggregate supply pushing market prices higher, b) the printing of money tokens on a vast scale devaluing the currency, and creating inflation, c) the additional borrowing causing interest rates to rise, d) the inflation causing nominal interest rates to rise further, with a concomitant fall in asset prices, and e) the surge in monetary demand for goods and services, causing a surge in demand for labour, and concomitant rise in money wages.

As in the 1960's – and the same was seen in the early 2000's, leading up to the crash of 2008 – the end result will have to be that wage share will rise, and profit share will fall. Its only a question of how, and at what speed that happens, given the response of central banks in facilitating price rises via additional liquidity.

The speculators are seeking a recession to prevent that happening, but the cat is out of the bag. They can no longer use lockdowns, as China is doing, and central bank policy rates are so low, in real terms, that they would have to rise massively to cause a recession, and would cause a crash of financial assets long before they achieved that aim. Even orthodox economists are now latching on to this idea that I have been describing for years, as they discuss R** as against R*.  In other words R*, the supposed natural rate of interest, above which rates must rise to slow economic growth, is higher than R**, the rate of interest which causes financial instability in markets.

High energy prices, caused by NATO boycotts of Russian oil and gas, were seen as a means of draining household disposable income so as to prevent further increases in consumer demand, but it came in the Summer, in conditions when households still had accumulated savings from lockdowns, and in conditions where newly confident workers decided to respond to the higher prices, by joining unions and taking strike action for wage rises to compensate!

Its not that the Brexitories' recently announced plans actually reduce output in the way that austerity, Brexit and lockdowns did, but they do pump up monetary demand in a period of already high levels of inflation, and aggregate supply not rising fast enough to meet aggregate demand.

In the current conditions, its not that firms have not wanted to expand to be able to meet increased demand, but that they have not been physically capable of hiring the workers they require, and, in some cases, not being able to get the materials and so on required to increase their output. Anyone who has tried getting anyone to do work in recent months is aware of the problem, whether its getting hold of a plumber, electrician, builder or whatever. It is reminiscent of the early 2000's, but then, the Polish plumbers and 2 million other EU workers came in to fill the gap and keep the economy functioning.

Giving tax breaks to firms to do what they already want to do, but physically can't does not resolve the problem, because it does not increase the supply of required labour, which is also required to resolve all of those supply bottlenecks too. The Brexitories commitment to Brexit, and to deliberately picking a fight with the EU, runs entirely counter to the means of resolving that problem. Brexit also means that Britain will face additional costs that other countries will not have to bear, and so limits its ability to “go for growth” in the way the Brexitories desire. The lack of any chance of a trade deal with the US, whilst UK-EU trade, which dominates, has itself cratered, added to the fact that the UK has acted as poodle to US imperialism in promoting economic war against China and Russia, means that any hope of growing the economy via trade is doomed from the start.

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