The Banana Monarchy and Voodoo Economics - Part 7 of 9

I wrote this series of posts, before Kwarteng was sacked, and his budget overturned, but the contents show why that happened.  (By the time this appears, Truss may also have gone).  But, it  also shows the problems with what is left of that strategy, and similar policies proposed by Blue Labour.  What the fiscal boost does, as with the Voodoo Economics of Reagan, is to promote unproductive consumption and speculation. So, it will lead to a ballooning of the trade deficit, even as the £ collapses to parity with the $, and possibly worse, promoting even higher levels of inflation. But, most of the fiscal stimulus goes to the most affluent. Their marginal propensity to consume is much lower than that of other workers on median or lower wages. So, a large part of the increase in their disposable income will go into speculation in property and financial assets, encouraged also by the more or less scrapping of Stamp Duty. That is almost certainly one of the main drivers of these polices, in conditions where asset prices are already crashing, and where continued interest rate rises, over the next year, will cause them to crash even harder, as I have been predicting for the last year.

In fact, the Brexitories' (including Blue Labour Brexitories) policies stand in contradiction to the interests of the ruling class and its state, as expressed via central banks and the media. The latter's narrative has been one of recession, and a squeeze on real wages due to rising living costs, primarily the rising cost of energy. The purpose of that narrative was to scare workers into consuming less and saving more, worried about how they would pay for energy over the Winter. Those higher energy costs, of course, are a direct consequence of NATO's policy of boycotting Russian oil and gas, for example, the cancellation of Nordstream2. They sought to have a large part of workers' disposable income absorbed in those energy costs leaving them less to spend, thereby, slowing economies that had been romping away following the ending of lockdowns.  Will Starmer propose extending the price cap/subsidy beyond next April with the massive cost of that to the budget, which would again cause the £ to sink, and interest rates to surge?

The global ruling class seeks slower growth, for the reasons outlined, i.e. to lower wages and interest rates to protect and inflate asset prices.  Some of their representatives, like Larry Summers, make no bones about saying US unemployment needs to rise to 5.5% for at least a year to achieve that.  The central banks' policy of raising their policy rates is designed to slow economies, and raise unemployment, not to reduce inflation.  They have to use these methods, because they can no longer use lockdowns for that purpose.  In China the use of lockdowns via the ridiculous zero-Covid policy makes clear its used for that purpose, but the Chinese Stalinists are also using their equivalent of the NHS App to tell people in certain areas, where there have been protests, that they have been in contact with COVID, and must stay in doors!  That is just the Stalinists being more blatant in their use of lockdowns for economic, social and political control than have the increasingly Bonapartist regimes in the West, but its only a question of degree.

Slowing demand would then slow economic growth and the demand for labour, and that would stop rising wages, and interest rates, so slowing, or even stopping, the crash in asset prices. That is why those speculators, and financial markets have demanded the UK government not only reverse the fiscal boost, including the open-ended energy cap, but impose renewed austerity.  The Tories are unlikely to be able to do it in the face of a working-class now with the bit between its teeth, but that is why the speculators may, now, look to Blue Labour to be able to impose that austerity instead.  Those who shout "Tories Out", without consideration of what comes next, ought think twice, just as shouting "Boris Out", didn't produce the consequences they envisaged, to the extent they bothered thinking about consequences at all!

Every sign of the recession the speculators have been demanding has been greeted with delight, and hopes that what was only a bear market rally in financial markets was the start of a new bonanza for the speculators. But, they failed to account for the fact that this is not the 1980's or 90's, and workers, sensing firmer ground beneath their feet, as labour shortages are apparent across the globe, responded by demanding higher wages to cover these costs, engaging in strikes to back it up, and forming unions, where none existed, and joining unions in greater numbers where they do exist.

Seeing that rising revolt, the EU responded by putting a price cap on energy bills, and the UK has followed suit. But, of course, it doesn't resolve the problem they have created. That problem is the high price of energy resulting from NATO's boycott and blockading of Russian oil and gas, and the EU's decision to block its own necessary imports of energy from Russia. So, all the price cap does is transfer that cost from household energy bills to state tax bills, in the form of massive subsidies, paid directly into the pockets of energy supply and distribution companies, subsidies that will have to be paid for by households once more, in the form of higher taxes, as well as higher interest rates, as the additional borrowing by states, in conditions of already soaring borrowing, causes global interest rates to rise sharply.  It represents huge unproductive rather than productive consumption, paid for either by taxes, which further limits investment and increased supply, borrowing, which raises interest rates, also reducing investment and increased supply, as well as crashing asset prices, or increased printing of money tokens, which leads to yet higher levels of inflation.

But, part of the ruling class strategy was to limit household disposable income, so as to dampen demand, and so demand for labour and capital. That would, as in the 80's, enable prices to rise, whilst wages are held down, so that profits rise, the supply of capital rises faster than demand for capital, interest rates fall, and asset prices rise. The strategy was doomed, and already failing anyway, but the Brexitories (including Starmer's Brexitories) huge fiscal stimulus, operates in the opposite direction. It increases household disposable income if massively biased towards the more affluent, and so operates against a slowing of the economy, in terms of demand. Like Maudling's boom of the early 60's, it exacerbates a problem for capital that already exists.

A Starmer Blue Labour government will not change that reality.  It would be forced to scrap the price cap, and impose huge austerity, or face the same kind of run on the £, and sharp rise in interest rates, seen over the last week to force it to comply.  The kind of Brexitory, nationalistic policies being pursued cannot succeed, especially combined with more radical social-democratic policies of fiscal expansion.  To resist the opposition of capital at home and in the global markets that will come only an international socialist programme, based upon the ideas of permanent revolution, spreading the revolution across the globe is, now adequate, but we lack the level of class consciousness, and a communist international required for its success.

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