UK Inflation Continues To Rise

Following the surge in US Producer Prices, the UK is the latest developed economy to show that inflation persists, as central banks have continued to provide liquidity to enable firms to raise prices, to avoid cuts in their profits. UK consumer prices, as measured by the CPI, rose by 3.8%, in July, compared to the previous year. That compared to 3.6% in the previous month, and expectations of a rise of only 3.7%. The Bank of England, has never brought inflation back to its 2% target level, since the spike in inflation following the tsunami of liquidity pumped into circulation during lockdowns, and this figure stands at nearly twice that target level. Yet, in the UK, as in the US, as the speculators clamour for cuts in interest rates to boost asset prices, the central banks are complying with those demands.

Its worth summarising what prices are. They are the exchange-value of commodities as measured against the general commodity/money commodity, or, as Marx describes, in countries with fiat currencies, against the standard of prices/unit of currency. Like any other exchange-value, therefore, it depends on the value of the thing being measured, but also on the value of the unit of measurement. Just as with length, where a field may remain the same length, but can be expressed as, say, 100 or 1,000, dependent on whether its measured in metres or centimetres, so too with prices. The value of commodities, in aggregate, may be unchanged, or even be reduced, which is what happens as a result of continually rising social productivity, and yet prices, in aggregate, may rise, if the unit of measurement, for example, the Pound, is itself reduced in value. For a unit of currency, this reduction in its value is the result of an excess of it being thrown into circulation - inflation.

That is what happened with the surge in inflation following lockdowns, but the same thing was seen in the 1970's, and early 1980's, it was seen in the Weimar Republic in the 1920's, as well as in the USSR at that time, and in numerous other economies, from Argentina to Zimbabwe, where the state has simply printed money tokens in excess, and caused the value of those tokens to be shredded. But, its also worth examining why states do that. One basic reason, from the time they began issuing currency, they have debased it is that they thought they could pass off bad coin to pay for their debts. As with MMT, they confuse money with these money tokens/currency, which is like confusing a cow with the picture of a cow. They thought that they could simply “create” money, by simply printing more of the tokens, which are, in fact, only a facsimile of it. Its like thinking you can produce more cows, by simply photocopying a picture of a cow used as its representation.

As Marx describes, when economies had currencies which were redeemable in gold or silver, which acted as the money commodity, this was limited, because, if the value of the coins/tokens fell below their nominal or face value, i.e. the amount of precious metal they were supposed to represent, holders of the coins/tokens would simply redeem them for the precious metal. The excess was taken out of circulation. In practice, this is what happened in 1971, when France demanded to be able to redeem its Dollars for gold. When the US printed excess Dollars, from around 1962, to pay for its military spending on wars in Vietnam and so on, and to finance its domestic welfare programme, so causing a devaluation of the Dollar, its creditors/trading partners, eventually, decided enough was enough, and demanded to redeem their Dollars for gold at the official exchange rate of $35 an ounce. That official exchange rate was over stated the value of the Dollar, by a factor of ten at that time. Of course, the US, at that point, simply refused to honour its obligations, and ended convertibility of the Dollar for gold.

During the 1960's, the US in printing these excess money tokens, that became increasingly worthless, but which continued to pass them off, across the globe, at their nominal value, simply extracted tribute from the rest of the world, and, in the process, as these excess Dollars circulated in the world economy, created a growing inflation in global prices. It was that which became manifest in the inflation/stagflation of the 1970's and early 1980's. By 1980, the price of gold had risen from the official price of $35 in 1971, to $800 an ounce!  The same happened with lockdowns, as governments printed money tokens to cover the payments they made to households and businesses to replace the revenues they lost as a result of being locked out of their workplaces.

But, of course, there is another side, as set out above. The price of a commodity may rise if its own value rises. But, that requires that productivity must fall, whereas, generally, productivity rises by an average of around 2% p.a. Having the value of commodities rise, therefore, is not something easily accomplished. The most obvious cause of a rise in value is, for example, if there is some kind of crop failure, or equivalent that causes raw material values to rise. But, even then, these raw material prices only constitute a fraction of the value of the commodities they are transformed into. If some reduction in the cotton crop causes the value of cotton to rise, it would pass through into the value of cotton thread, and, thereby, into the value of cotton cloth, and so on, into the value of all those things that cotton cloth is used to produce from shirts to sails. But, cotton may comprise only 10% of the cost of producing cotton yarn, so that, generally rising productivity will reduce the value of other inputs, as well as reducing the value of yarn itself. There may be no rise in the value of yarn, therefore, and even if there is, yarn will comprise only a fraction of the cost of cloth, which in turn comprises only a fraction of the cost of shirts, sails, etc.

To cause a general fall in social productivity, leading to a rise in the value of all or most commodities, therefore, requires some big social change affecting all production. Globalisation, and the reduction in trade restrictions, created such a large change, in the opposite direction. It hugely reduced the value of all commodities, but the ending of that process, and its reversal in the form of Brexit, of Trump's trade wars, and so on has caused some values to rise. The rise in UK consumer prices is partly a consequence of a devaluation of the currency, i.e. inflation, and partly a consequence of a fall in social productivity resulting from Brexit, and all of the frictions it has brought.

In the case of the US, and its tariffs the situation is different. Tariffs, of themselves, like any other tax, do not increase values. If the government puts a 10% tax on cars, that does not increase the value of cars. It simply reallocates the revenues into which the value of the car resolves. As I described recently, exactly how that plays out depends, but, ultimately, that 10% tax is paid out of surplus value, i.e. out of profits. But, that brings us to the other reason that states devalue their currencies, and why central banks were created at the start of the 20th century, and why economies moved to fiat currencies. That is that if currency values are maintained, the consequence of the overall rise in social productivity is that commodity prices should fall. One of those commodities is, itself, labour-power, and workers resist falling money wages, even if their real wages are rising. Its easier for states to devalue the currency each year, so as to cause some inflation, with prices rising, despite falling values, so that nominal wages rise. Whether those rising nominal wages go along with rising real wages depends on the extent of the growth of productivity.

In the case of Trump's tariffs, the tariffs themselves do not result in a rise in the value of commodities. The value of commodities, in the US, may rise, indirectly, for the simple reason that if imports to the US fall, and are replaced by US produced commodities, the value of those commodities may itself be higher. In other words, it has the effect of an import quota. But, when US workers, then, have to buy these higher value US produced commodities, that raises the value of their own labour-power, resulting in higher wages, which, in turn, means lower US profits. Its to avoid that that central banks increase liquidity to enable companies to raise prices to protect their profits in the short-term, leading to inflationary spirals.

Bank Of England Rate Cut Is Irrelevant

Last week's 25 basis point cut in the Bank of England's overnight lending rate is irrelevant window-dressing.

In terms of the real economy it is insignificant and meaningless. The stated argument behind such a measure is that it encourages consumers to spend rather than save, and encourages firms to invest (actual investment, i.e. buying additional machines, labour-power etc., rather than speculation, i.e. buying shares and other financial assets). The fallacy of that can be seen in the fact that, during the 1980's and 90's, interest rates were falling, but the consequence was not to stimulate such real economic activity, but to encourage speculation. Cheap credit meant that asset prices rose, and as asset prices rose, be it share prices, bond prices, or property prices, that simply encouraged even more of that cheap credit to flood into the purchase of those assets for fear of missing out. It created the asset price bubbles of the period after 1987, and their consequent bursting.

In the last 20 years, following the 2008 financial crash, we have had not just low interest rates, but near zero interest rates, and even negative real interest rates, when the effects of inflation are taken into consideration. Did that lead to a rush of consumption spending, and real capital accumulation? No, it led only to a further diversion of that liquidity into the purchase of existing financial and property assets, blowing up those asset price bubbles all over again. The only time we have seen increased liquidity go into a stimulation of actual consumption and real investment, is during lockdowns, and that was not a consequence of a reduction in Bank of England rates, but of the state physically handing currency to households. The further reason that led to a stimulation of economic activity is that, during lockdowns, those households could not spend money on various forms of consumption, and when that changed with the ending of lockdowns, they saw a consequent inflation - just as previous liquidity had created asset price inflation – which led them to try to buy before prices rose further.

Even then, the main effect in that last regard was in relation to larger purchases, such as cars. The reality is that for the vast bulk of day to day consumption, households rely not on credit, but on their own revenues, i.e. wages, rents, interest, profits. Although many households may use a credit card as a convenient way of paying for the weekly shop, the reality is that its not borrowing, because a large part of that is simply paid off, in full, at the end of the month, thereby, just taking advantage of a month of free credit, rather than using a debit card, or cash. Its unaffected by interest rates. For those who are in such desperate conditions that they do need to borrow just to pay for day to day consumption, they are already paying usurious rates to do so. Just look at the rates on credit cards, if you don't pay it off each month. If you are so desperate that you are paying 30% plus to buy necessities using a credit card, a 25 basis point cut by the Bank of England is not going to encourage you to buy more, and nor is it going to have any material impact on your debt payments. And, of course, other forms of credit are even more usurious than that.

If the state wanted to encourage additional consumption, the more effective means of doing so, therefore, would be to raise wages, in particular the minimum age. Its out of those wages that the vast majority pay for their day to day consumption, not from borrowing. A rise in the Minimum Wage, particular setting a Minimum Weekly Wage, would increase the revenues of specifically those workers who will use it to fund their day to day consumption, rather than them having to rely on food banks, or usurious credit. It would, also, facilitate a reduction in government spending, because with such higher minimum wages, the state would have less need to pay out benefits, such as Housing Benefit, and so on.

Of course, the state does not like to go down the road of such solutions, because higher relative wages means lower relative profits. Higher household incomes from higher wages, creates higher demand for wage goods. As Marx sets out in Value, Price and Profit, this higher demand for wage goods, then, means that firms, competing for this increased demand, have to increase their own spending, to increase their supply. They must buy additional machines, materials, and employ additional labour-power. The latter acts to push wages higher still. And, although these higher wages mean that firms' rate of profit falls, they still have to invest or lose market share. Indeed, although their rate of profit and relative profits overall, may fall, the increase in the mass of capital, results in a greater mass of profit.

What it does mean is that as firms invest to meet this rising demand, at the same time that relative profits fall, a greater proportion of their realised profits are retained to finance this investment. Less of them go into the money market, so the supply of loanable money-capital relatively declines, at the same time as the demand for it rises, to finance capital accumulation in general. Interest rates would, then, rise. But, that rise in interest rates would cause asset prices to fall. Falling asset prices, mean that the incentive to buy those assets, for fear of missing out, disappears, and so the dynamic of the last 40 years, in which liquidity has been sucked out of the real economy into that speculation, in order to inflate the paper wealth of the ruling class, which, today, owns its wealth in that form, would be undermined. Instead of realised profits going to buy back shares, and so on, the money would go to buy new factories, machines, materials and employ additional workers, stimulating real economic growth.

But, that is precisely why the state and central banks resist such a solution, because their goal is not economic expansion, but a protection of the interests of the ruling-class, and currently, that interest is inextricably tied to a maintenance, and preferably an inflation of the price of assets. The Bank of England's rate cut has nothing to do with stimulating economic activity, but only with trying to maintain asset prices. Even, in that regard it is irrelevant. As set out earlier, borrowing is only relevant in terms of larger purchases, such as cars, and notably houses. Its unlikely that this cut is going to stimulate domestic car demand in any meaningful way, and certainly not enough to offset the reduction in UK car exports to the US, resulting from Trump's tariffs. The best way of offsetting the effects of the latter, is via an expansion of the European domestic market, but Britain is also cut off from that, as a result of the idiotic Brexit decision, and the even more idiotic insistence of Starmer and Blue Labour to persist with it.

The consequence in relation to houses has been described previously. Cuts in interest rates do not act to stimulate additional supply of housing and construction. Lower interest rates cause asset prices to rise, as a result of capitalisation. In addition, lower interest rates that lead to lower mortgage rates leads to higher demand for existing houses. It is existing houses that account for around 85% of all transactions. The higher demand causes the prices of those houses to rise, and that forms the basis upon which builders then set the prices of the houses they build, even if the actual costs of building houses (materials, labour costs and so on) fall. That means surplus profits, which are extracted by landowners as rents/higher land prices. So, ironically, the effect of lower interest rates is to reduce the potential for increased house building and supply, even as it causes the demand for houses to rise!

But, in fact, the 25 basis point cut is unlikely to have any impact on demand either. Many house-buyers, now, have fixed rate mortgages, so a cut will not impact them. Others who have fixed rates that are coming to an end, fixed them five years ago, potentially at lower rates than they will now face.

All in all an irrelevant event.

The Resilience of UK Demand

Pundits continue to be surprised that demand in the UK economy remains strong, despite rapidly rising prices. That resilience, is not what the ruling class of speculators, or its representatives in the state and financial media want to see. They want to see at least a slow down, or even recession. In the US, Larry Summers has been open about wanting to see unemployment rise to over 5%. They hoped that high prices, particularly for things like energy would quickly soak up households' spending power, so that they would spend less on other goods and services, slowing the economy, once more, as fiscal austerity had been used to do, in the past, so that the pressure on the labour market would ease, wages would fall and profits rise, whilst, also, interest rates would fall, and boost the price of the financial assets that are now the form in which that ruling class owns its wealth. There are a number of reasons why their hopes have been dashed.

The pundits point to the fact that prices are rising by more than the rise in hourly wages, meaning that real wages are falling. That would suggest that workers have less money to spend, and so should reduce their consumption levels, slowing the economy. But, as I've set out before, there are a number of problems with this idea.

Firstly, if you think prices are going to rise, there is a good reason to bring your spending forward, on all those things you can buy, now, and which are durable, even if you consume them later. For example, you might buy in large amounts of tinned goods, now, consuming them over the next few months, or if you were going to be thinking about buying a washing machine, TV, or car, you might bring that decision forward a few months, to buy it, now, at today's lower prices. And, that doesn't apply just to households. It applies also to businesses, especially, given that, as a result of a combination of Brexit, lockdowns, and so on, supply chains became dislocated, and so firms need to hold larger inventories than they did previously, to ensure continuous production.

With rising interest rates and falling house prices, where households might reduce demand is for property, which has been seen, both because they may find they can't afford properties at their currrent prices, and because, as property prices fall, there is a clear incentive to wait for them to fall further, so as to buy at those lower prices. That process is at an early stage, but it means that there is still a lot of money in the possession of households that might have gone to house purchase that is now available to fund other types of consumption. The pundits tend to associate lower property and asset prices, with a negative wealth effect, causing consumption to fall, but, as set out above, and as I have described elsewhere, in looking at how liquidity flows from assets into the real economy, in reality, when asset prices fall, it creates a release of capital and revenue available for consumption, both personal and productive.

Lower land prices means farmers or builders have a release of capital to be used to employ more workers, machines and so on. Lower share and bond prices, mean pension funds can buy more of these assets to fund future pension liabilities, meaning firms have to use less of their profits, and workers less of their wages, to fund pensions, leaving more profits and wages for consumption, both personal and productive, and so on. The higher interest rates that have gone along with higher inflation, have brought about that shift from assets to consumption, but its still at an early stage.

Secondly, although prices are rising faster than hourly wages that doesn't mean that household incomes are rising slower than household expenditure. There are a whole series of reasons for that. The rise in hourly wages does not, for example, take into account the payment of numerous other bonuses, allowances and so on. In the 1990's, local councils found that they could not retain or recruit a number of types of workers such as environmental health officers. However, they were restricted in being able to raise wages. What they did was to introduce a number of other incentives, such as the provision of lease cars, on favourable terms, to employees in those jobs.

As firms have found difficulty in retaining and recruiting workers following the ending of lockdowns, there have been a plethora of signing on bonuses and other such ad hoc payments, and non-wage benefits that contribute to incomes. In the current wage bargaining rounds, we have seen nurses offered a one-off lump sum pay rise, in addition to the smaller increments to hourly wages, for example. The purpose of these payments, is also not just to recruit and retain workers in those spheres.  By massaging the hourly earnings figures in a lower direction, it adds to the ruling class propaganda that workers are still in a weak bargaining position, that wages are failing to keep up with prices, and so on, and so presses down on all other negotiations. The advantage, then, also of the one-off payments, such as that offered to nurses, is that the employer can try to ensure that, in future negotiations, it, indeed, is not integrated into the wages of the workers.

There is another reason why the hourly wage data doesn't reflect the position of household incomes, and that is a compositional effect. If we take the wages of a series of types of workers, such as brickies, bakers, bus drivers and bin men, it may well be that the hourly wages of each of these groups of workers rises by say 5%, but suppose we take a series of other types of workers such as cleaners, cooks, care workers and cab drivers, whose hourly wages also rise by 5%, does this mean that household incomes from all these workers rise by an average of 5%? The answer is no, because it depends on the absolute level of wages of each group, and the number of people employed in it. Suppose the average hourly wage of the first group is £10, and of the second group £8. If 20% of the workers in the second group, get jobs in the first group, then their hourly wage will rise, not by 5%, but by 25%!

Given that, with an increasing shortage of labour, workers have been able to move to better paid jobs, the rise in the hourly wage for different types of jobs, becomes a distraction and distortion. And, indeed, as I've set out before, the average increase in wages for someone simply moving jobs, is around 14%. That clearly does not apply to the whole workforce, who do not move to better jobs, and who remain in their same job, but for a sizeable proportion of the workforce, it is the case, and represents a significant increase in income, over and above inflation, and so income available for additional consumption. That also, over a period, puts pressure on hourly wages too, because employers seeing that their workers are able to move to other better paid jobs, face increasing problems recruiting and retaining labour, unless they also raise wages. For all those types of business that have relied on poorly paid workers, they have to, now, become more efficient, usually meaning that large numbers of such small zombie companies go out of business, and a consolidation takes place of their capital.

And, looking at household incomes, as against individual hourly wages this is also important, because most households are not comprised of single individuals. If, just a third of households see someone within that household move to a better paid job, paying on average 14% more, that is the equivalent of all households seeing a rise of around 5%, on top of the overall rise in hourly wages, so that this represents a rise in overall household earnings above the rise in household expenditure due to inflation, enabling additional consumption.

The most obvious and dramatic form of that is where households see one of their members go from unemployment, or part-time employment, to full-time employment. A household that had one member earning £30,000 a year, and now has one earning £31,500, plus another earning £20,000 a year, has obviously seen an increase of household income of around 66%, way in excess of the 10% increase in their household expenditure due to inflation. Whilst, its true that employment levels have only got back to those preceding the lockdowns, the point is that they have risen dramatically compared to those during lockdowns, giving an immediate and significant boost to current household incomes available for consumption.

But, the ability to fund consumption is not solely down to the rise in incomes either, but is affected by savings, and, during lockdowns, because expenditure was artificially curtailed, whilst incomes were maintained via furlough and other such payments, household debt was reduced, meaning that balance sheets were put in a position to finance current consumption, including also from savings. Here also is a further factor, arising from rising interest rates. Although a large proportion of UK households have little or no net savings (about 25%), a considerable proportion do, and as interest rates have risen, so have rates on deposits. Again, the fact that these rates are negative in real terms, compared to inflation, does not tell the whole story.

If you have £100,000 of savings, which now pays you 3% interest, compared to near zero in the last few years, that is still £3,000 of interest you now have that you didn't, and which you have to spend, in addition to what other increase in your income you might have received. Again, overall, the rise in interest rates will act to reduce demand for property, leading to falling property prices, but is not likely to reduce demand for consumption goods much, if at all, as they are bought out of income not borrowing. The fall in asset prices releases capital and revenue for consumption, and the rise in interest rates leads to higher revenues for savers, who then have money to also spend on additional consumption. One of the areas where this is significant is in relation to the large number of pensioner households, especially as these have a higher proportion of their wealth in financial assets.

The government's triple lock means that state pensions have been indexed linked to inflation, so, unlike hourly wages, these incomes are, at least, rising in line with prices. But, again, the devil is in the detail. Suppose you are a pensioner household of two, with combined state pensions of £15,000, and expenditure of £12,000. With a 10% increase in both that means that pension income rises to £16,500 and expenditure to £13,200, so saving rises from £3,000 to £3,300. If, however, your expenditure was £16,000, you go from needing to dip into savings, borrow, or do additional work amounting to an additional £1,000, to being short of £1,100. In general, pensioner households do not have mortgages, or if they do, they will be relatively small, and consequently, they are not hit by the rising interest rates. On the contrary, having paid off mortgages and so on, they are most likely to have accrued savings, and so benefit from the rise in interest rates on savings. They do not, however, generally, benefit from the other effects listed earlier, of having household members going from unemployment to employment, and so on. However, as labour shortages persist, that remains also a further potential for such households to boost incomes and so expand consumption.

In Britain, a large proportion of workers are employed by the state. The NHS is the largest single employer in all regions of the country. But, the state accounts for around 40% of economic activity, with large numbers employed as civil servants, local government workers, teachers, police and so on. These workers also have inflation linked pensions, and that contributes to the protection of those pensioner households, from the effects of inflation on their consumption. If we take the pensioner household example above, and now add in this works pension, so as to obtain a household income of £30,000, the effect becomes fairly obvious. With expenditure of £15,000, and 10% inflation, savings now go from £15,000 to £16,500, and if such a household has £100,000 of savings, with 3% interest, now on those savings, that is an additional £3,000 available for consumption, or an additional £4,500 a year, in total.

In the 1950's, and early 60's, which is the equivalent of the period we are in now, the growing economy did not initially manifest itself in rapidly rising hourly rates of pay. The same has been seen in other periods, as described by Marx in Capital, and Theories of Surplus Value. Marx described, how, as capital required more labour, and having used up reserves of peasants, and others thrown off the land, it turned to employing women and children. If to reproduce labour-power, a male worker previously needed to earn a wage of £10 a year, to provide for a family including their wife and four kids, as the demand for labour rose, the capitalist could actually reduce the male worker's wages to, say, £6 a year, whilst employing his wife and two kids, paying them £5 between them – though often the money was just paid to the male worker for the employment of the family labour. The consequence, however, was that the household income rose by 10%, from £10 to £11.

After WWII, this was seen again. Male workers saw overtime rise significantly, but also married women again entered the workforce, with this same effect that, hourly wages did not rise rapidly at first, whilst household incomes did rise substantially, funding the big rise in household spending on the new ranges of consumer durables such as washing machines, TV's, fridges, vacuum cleaners and so in, and also later motor cars and foreign holidays. Only in the 1960's, as the potential to increase the workforce and social working-day further, by such means, ran into barriers, did hourly wages start to rise, leading to wages squeezing profits, and, in the 1970's, thereby a crisis of overproduction of capital.

Although the lifting of lockdowns has seen a surge in demand for labour, the actual rise in demand as against supply of labour has been taking place since the start of the new long wave upswing in 1999. I've previously referred to the rise in the US Quit Rate as an indication of that in respect of the US labour market, and in both the US and UK, it is seen in the fact that the number of vacancies in proportion to the number of unemployed workers is historically high. But, a look at the total number of jobs to total workforce, for the UK, also illustrates this point, as seen in the following graph.

(Source John Authers Points of Return Blog)

As can be seen, available jobs remained slightly below the available workers, up to 2008, when the global financial crisis led to a sharp drop in available jobs. But, by 2016, that gap was back to its earlier level, and starting to close noticeably. By 2020, the gap had nearly closed entirely, prior to lockdowns, when it opened again, but following the ending of lockdowns, has not just closed, but has seen the number of jobs exceed the number of available workers, creating the current labour shortages, and pressure on wages. That is also exacerbated by Brexit, and the ending of free movement of labour, but was a process already underway.

So, the expectations of the ruling class of speculators and their representatives, of a significant drop in consumption by households, leading to a drop in capital accumulation and hiring by firms, leading to a drop in the pressure on wages and interest rates boosting profits and asset prices is still unlikely, and as employment continues to rise, and wages do begin to squeeze profits, central banks will continue to make liquidity available so that firms can raise prices to mitigate that profits squeeze, leading to a more persistent level of inflation. Already, we saw the Bank of England do more QE, when it should have been doing QT, in the face of a number of pension funds being threatened by the sharp rise in bond yields, last Autumn, we have seen the Federal Reserve do the same following the failure of SVB, Signature and problems for its regional banks, and we saw the SNB get involved in bailing out its banking system, as Credit Suisse went bust.

The reality is that, despite all the talk about tightening liquidity, vast oceans of it are still swilling around the global economy. Looking solely at additional liquidity created by central banks again gives a false picture. That is being reduced, other than for the examples given above, but that is not the only source of liquidity. As Marx describes, capitalist firms themselves create additional liquidity, via the extension of commercial credit. As economic expansion continues, firms simply invoice more, taking payment for what is sold later, and as each of these transactions cancels out others, so less actual currency is required in circulation to fund any given level of transactions. But, in addition to that, there is a huge stock of liquidity that has been created, most of which was tied up in the purchase of assets, and which can flow out of assets, as asset prices drop, and into the real economy, as I have previously described.

This graph illustrates, beautifully, what I have described on numerous occasions. The expansion from 1959 to 1979, follows a very gradual upward trajectory, as would be expected with the growth of the economy itself. From 1979, there is a marked increase in the slope, which flattened again during the 1990's, but then rises in a pronounced manner, after 1999, as liquidity is injected in response to the Tech Wreck of 2000, and the potential for further falls in asset prices, and again pronounced in 2008/9. The curve steepens further, particularly following the onset of lockdowns, and the introduction of various income replacement schemes by the government. The reduction, now, from QT, is put into perspective, by the tiny dip, compared to the huge preceding upward curve.

In the following charts, we see the further effect of this prolonged increase and accumulation of liquidity, in terms of stock and flow, this time in relation to M2, rather than M3. The huge rise in liquidity in 2020/21, is shown in relation to the left hand chart showing year on year growth, whilst the accumulation of liquidity as a stock, is shown in the right hand chart, again emphasising the previous points about the extent to which this phenomenon is one that has arisen in the last 40 years.

Britain has different conditions to the US, and EU, of course. It has Brexit, which has caused its costs of production to rise, and its rate of profit to fall, slowing its potential for growth. Brexit was the project of the petty-bourgeoisie, and, of course, they were not concerned by such factors, based on their interests, and experience of the last 40 years. On the contrary, their inefficient small capitals are threatened both by competition from larger capitals, and by the minimum standards, that the larger-scale capitals, operating at an EU level, take for granted. Brexit protectionism, meant those small British capitals could sustain their higher prices, required to eke out a profit, and they assumed, on the basis of workers' weakness over the last 40 years, that they would simply pass on these higher prices to workers without workers being able to raise wages to compensate. In that they were not alone, because the ruling class speculators, also assume the same thing, not just in Britain.

But, Brexit also simply compounded a problem that capital was facing in that regard, as described above, which is that material conditions have been changing since 1999, and only held back by the effects of fiscal austerity, QE, and lockdowns. That is the using up of the relative surplus population, a slowing of productivity growth, as the effects of the last innovation cycle wane, and so the ability of workers to obtain higher wages. The ending of free movement by Brexit, both increased costs, and reduced the rate of profit, putting further pressure on prices, but also, exacerbated the shortage of labour, and meant that workers were in a stronger position to demand higher wages to compensate for those higher prices.

That is a variant of what has been seen in both the US and EU. In the EU, the effects of the NATO/G7 boycott of Russian oil and gas, looked set to cause it to go into recession, last Winter, but a mild Autumn and Winter seemed to enable it to dodge that bullet. However, the massive rise in EU energy prices to consumers, also led to workers taking to the streets, in protest at that self-inflicted injury, at a time when workers were facing high levels of general inflation, to which they were responding with corresponding wage demands. The protests against the energy boycotts, were often led by the far right, again indicating the bankruptcy of both social-democracy, and sections of the centrist Left that had tied itself to NATO imperialism against Russia~China, in preference to defending the interests of EU workers. The EU, was, however, led to respond, by introducing a wide range of energy price caps, faced with this rising revolt, as did the UK government. That again, was not what would have been anticipated, and acted to keep money in workers pockets to spend on other consumption.

Indeed, the EU has not only avoided recession, but appears to be seeing upward revisions for economic growth in coming months, again dashing the hopes of the speculators. Whilst Britain, has additional problems due to Brexit, it does not stand in isolation, and an increase in EU economic activity will also impact the British economy. However, the other factor is China, which came out of its lockdowns following widespread revolts from its own workers, at the end of last year. Already, that has seen Chinese GDP rise by an annualised 4.5% in the first three months of this year. Much of that growth has also been derived from a rise in Chinese domestic consumption, as against its previous dependence on exports. That also looks set to continue to grow in coming months frustrating all of the predictions of global recession.

UK Inflation Rises Sharply Again

The UK's core inflation rate has risen sharply again, according to data released yesterday. It moved up from 109.685 in September to 109.9 in October. If projected for the next year that is equal to a core inflation rate of 2.35%. However, as described in previous month's this figure is an underestimate. 

Firstly, the figures for the last few months have been distorted, because government subsidies such as Eat Out to Help Out, resulted in lower figures for August that were then caught up in September, so the increase from September to October looks smaller, by comparison. Compare the current reading of 109.9 to the August reading of 109. for example, and you get 4.95% as the year ahead figure. Looking backwards, yesterday's reading represented a core inflation rate of 0.7% as against October 2019, whereas the September figure was 0.5% higher than September 2019, so that this represents a 40% rise, in the rate of increase. 

But, the main reason that the figures significantly understate the real rate of inflation is because they do not take into account the effects of lockdowns on spending patterns. The existing baskets of goods and services used to calculate core inflation, are heavily weighted towards things like petrol, and spending on things such as entertainment, eating out and so on. But, all of these are things that people were not allowed to do during months of lockdowns of one form or another. The cratering of demand for them resulted in their prices falling, but it makes no difference how much the price drops for something you can't go out to buy anyway! During lockdowns the proportion spent on these things fell sharply, but the amounts spent on other things increased, and its amongst these other areas of expenditure that prices rose, both as a result of this higher level of demand, and because of higher costs resulting themselves from the measures that had to be introduced to cover physical distancing and other measures. Yet, these forms of expenditure are not picked up in the core inflation measure. 

A number of studies to produce a COVID adjusted measure of inflation have been undertaken in the US and UK, each showing a rate of inflation between 6% and 9%. If and when lockdowns are lifted, it seems inevitable that this underlying rate of inflation will manifest itself, especially as many of the increased costs will continue to apply, and as so called “revenge spending” kicks in, its inevitable that the first response of firms will be to raise prices, because, even if they try to increase supply, by hiring additional workers and so on, they will not be able to do that immediately. For example, after the first lockdown was introduced, car producers closed down, as showrooms were closed. Existing stocks of cars were cleared, as production stopped. When lockdowns were lifted, car dealers had no sizeable stocks to meet the resurge in demand, and with car producers needing to restart production, new car supplies were inadequate to meet demand, resulting in prices rising. 

Britain is facing further rises in prices because of the effects of Brexit, and in the event of a crash out Brexit, the prices of some commodities could rise very sharply. Indeed, some commodities may disappear completely. That is a problem that will most notably affect Northern Ireland. Rising inflation in the year ahead will compound the effects of massively increased borrowing to cover the economic effects of lockdowns, of furlough schemes, increased benefit payments and lower tax revenues, as far as government is concerned, as well as increased borrowing by firms to make up for lost profits, and the need to invest as demand resumes and increases, and borrowing by households who have lost wages. In short rising inflation, and rising interest rates are ahead in the next year, potentially combined with rising unemployment, as many zombie businesses go bust. 

Rising interest rates means falling asset prices, for things like shares, bonds, and property. Combined with rising unemployment, that is a situation similar to 1990, when many people who had been sucked into a rapidly overheating and overpriced property market, found that they could not pay their mortgages, and became dispossessed, with house prices falling by 40% in a matter of months. Again, we have seen the government goosing the housing market in the last few months, to inflate prices, which given the circumstances is almost certain to end in tears. 

Mass Testing and Other Scams

The government, last week, introduced a mass testing scheme, for COVID19, in Liverpool.  The scheme is supposed to offer fast - 20 minute - testing for the city's half million people.  The idea is that, by also testing people who are asymptomatic, it will be able to identify many more people who are carrying the infection, and so be able to trace those they have been in contact with.  But, as with all the other measures introduced in relation to supposedly dealing with COVID, it is really just a load of smoke and mirrors.

First of all, according to BBC, the number of tests done on Friday was 12,000, or about 2,000 per test site.  A further 8 sites were being established, which, if the level of demand remained the same, would mean around 30,000 tests per day being undertaken.  But, 30,000 tests, whilst seeming a lot, is less than 10% of the population of Liverpool, and that assumes that the demand for tests shown on the first day, was maintained, which is probably unlikely.  Assuming that was the case, however, it means that, in a week, 200,000 tests would be done.  Even at this level of mass testing, it would then take three weeks to test the population of Liverpool.

That, however, assumes that people only need to be tested once.  With testing only to see whether people are currently infected that cannot be the case.  The fact that someone is tested at 9.a.m. on a Monday, and shown to be negative, does not mean that by 10 a.m. they don't get infected.  In fact, turning up to public locations with lots of other people, many of whom might have some reason to think they might be infected, is probably the most certain way of ensuring that you do get infected!  On any one day, only 10% - at best - of the city's population are being tested, and that means that the other 90%, might have the virus, and spread it to those who only hours before had been given the all-clear.  That can only spread a false sense of security.

In reality, its necessary to test everyone, at least, once a day to be able to get the kind of level of confidence that you have identified all of those infected.  Even then, that would not be adequate, because, in practice, many people would not get tested, and, because Liverpool is not a closed city - thousands of people move into and out of it each day, each one being a potential carrier of the virus.  Moreover, the indications are that, because of the test being a rapid test, it does not pick up low levels of the virus in infected people, and those that are asymptomatic are known to tend to have such low levels of the virus in their body.  So, the tests may be pointless in themselves, and again give a false sense of security, if they even just fail to pick up infections amongst those tested.

Allyson Pollock, Professor of Public health at Newcastle University, said “searching for symptomless yet infectious people is like searching for needles that appear transiently in haystacks”.  And, noted, “The potential for harmful diversion of resources and public money is vast. Also of concern are the potential vested interests of commercial companies supplying new and as yet inadequately evaluated tests.”

In other words, here we have, again, an example of the medical-industrial complex milking the public purse to the tune of billions, for no discernible real benefit to the public.  Boots are charging £120 for a COVID test, and its unlikely that these tests are being supplied by profit hungry companies for less.  Even if everyone in Liverpool was tested just once, that is a cost of £50 million, let alone the cost of providing the test centres, and staffing them up.  The mass testing in Liverpool is part of the government's proposal for a "moon shot" to test 10 million people per day, nationally.  That would amount to a cost of around £1 billion per day, going straight into the coffers of the drug companies, and much more into the pockets of the medical-industrial complex.  Its more like moonshine than moon shot.

Angela Raffle, a public health consultant in Bristol, quoted in the Guardian, said she had looked carefully at the Liverpool proposals and concluded they were not fit for purpose.

“Experience with screening tells us that if you embark on a screening programme without having carefully evaluated it first, without a proper quality-assured pathway, without certainty of test performance in field settings, without full information for participants, and without the means to ensure that the intervention needed for those with positive results does indeed take place, the result is an expensive mess that does more harm than good,”

The real purpose of this test and trace nonsense is purely as smoke and mirrors to persuade a gullible public that something is being done to deal with the virus, whilst all the time it is ineffective, other than as a means of channelling billions of pounds into the pockets of the medical-industrial complex.  It strings people along for a while longer with the deception that the policies of lockdowns are all required and necessary, in order to provide the breathing space for such testing and tracing to take place, whilst, in the meantime, a vaccine might be developed.  Well, the prospect for a safe vaccine being rolled out, on a widespread basis, is at least 6 months away, and given that it usually takes around 5 years to produce such a vaccine, who is going to want to be one of the guinea pigs for one rushed out in just a year?  Certainly if you are one of those in the vulnerable category - who are really the only ones who would benefit from it, as against everyone else who could safely obtain natural immunity for free, simply as a result of infection - you could be forgiven for being wary about voluntarily exposing yourself to it.

Its all a bit like the role of the medical-industrial complex in persuading mothers to buy bottled milk for their nursing infants, rather than breast-feeding them for free, and, thereby, also more safely, and with all of the benefits of natural feeding.

But, test and trace is not the only case of smoke and mirrors.  The Labour Opposition has been marked by the extent to which it has reduced itself to being merely cheerleaders for Boris Johnson, whether in relation to Brexit or to lockdowns.  Starmer has criticised Johnson for not having wrecked the economy more, by introducing harsher lockdowns sooner.  Of course, the idea that some three-week lockdown was going to achieve what a six month lockdown had failed to achieve was ludicrous.  And, in fact, we don't have to speculate on that.  We can look at the success of where the strategy was implemented, by the Labour government in Wales.

It introduced such a lockdown when Starmer proposed it, and the three week period has now been completed.  Did it work?  Absolutely not.  At the start of the three week lockdown, he number of reported positive infections, in Wales, was around 8,000, whilst at the end of the period, it was more than three times as high at around 26,000.  Rather than reducing the amount of new infections they have risen during the period!  Officials and politicians have tried to pass this off as being merely due to the fact that it takes 2-3 weeks for infections to work their way through.  That is an explanation for why mortality rates or hospitalisation rates do not fall until 2-3 weeks after infection rates have been reduced, but it is no explanation as to why infection rates themselves increase rather than decrease!

Again, ineffectual lockdowns are being sold to a gullible public to pacify them, and get them to accept these restrictions for longer, in the belief that something will turn up, whilst the truth is that neither governments nor oppositions have any credible plan for dealing with the virus.  The only credible plan for dealing with it is that of focused protection set out in the Great Barrington Declaration, but neither governments nor oppositions will admit it, because to do so means admitting that the lockdowns they imposed did not work, have unnecessarily sent the economy into the worst slowdown in 300 years, created astronomical levels of debt, whilst having caused the deaths of tens of thousands of vulnerable people, in care homes, hospitals and elsewhere, who should have been isolated and protected, but who were instead exposed to the virus, in what can only be described as an act of gratuitous recklessness, carelessness and abandon.  It is similar to the MRSA, and other scandals in the NHS several years ago, but on a much, much larger scale.

Yet, the Welsh government, despite the abject failure of its short sharp shock treatment for COVID has lifted it anyway, showing, if any proof were needed, that it was all for show, because if you really believed it could actually work, why would you lift it, at a time when the number of infections is greater than when you started it???  Its all smoke and mirrors.  The only actual effect of the lockdown in Wales has been to crater its already faltering economy even more.  With a crash out Brexit still hanging over the economy like a thunder cloud  over the valleys, the last thing the Welsh economy needed was yet more self-inflicted damage from such lockdowns.  What Welsh Labour has offered its people, just as Starmer would be offering the rest of us, if he had the chance, is not any real solution to COVID, but simply economic catastrophe - from his pro-Brexit stance as much as his lockdown stance - that will devastate the lives and livelihoods of millions of workers for decades to come.

COVID19 & The Government's Irrational Response

The government's response to COVID19 is irrational. Its statements and policy are contradictory, and unclear. It has responded to a moral panic in the way that governments often do, by conceding to demands that “something must be done”, by introducing measures that are large and visible, but which contradict its underlying strategy, and are themselves damaging. Its another version of the populist response to the demands for Brexit, and to stop immigration. 

The government's scientific advisors came up with a two stage strategy. The first stage was containment. That means identifying those that have the virus, isolating them, treating them, and thereby preventing the virus spreading amongst the population. That is the policy that China has adopted along with South Korea and elsewhere. China implemented it rather late, after large numbers in Wuhan were already infected. To implement it required the kinds of measures that only an authoritarian regime can apply. South Korea implemented it earlier on, and devoted a lot of resources into testing so as to quickly identify carriers and isolate them. A containment strategy is unlikely to work. Neither China nor Korea can survive in a state of permanent lock down. In China, hundreds of millions of people have no immunity to the virus. Its virtually impossible to ensure that everyone in China who is a potential carrier has been identified and contained. As soon as the containment ends, the virus is almost certain to re-emerge, and spread amongst that vast unprotected population. As one virologist put it, its like trying to fight a forest fire by means of containment, it only requires that you have missed the odd ember, and a gust of wind will reignite the entire forest. 

In a forest fire, the fire services have to decide what is their main goal. Is it to stop the forest burning down, or is it to prevent nearby residential areas, and the people in them being destroyed? Hopefully its the latter. That means that resources have to be focused on protecting those residential areas. It means water is used to dowse down the properties; it means that fires may be deliberately lit so that firebreaks around those properties are created, separating them by a safe distance from the forest fire, and so on. That is essentially what needs to be done in the case of coronavirus. The main goal should not be to limit the spread of the infection, but to minimise the number of fatalities and serious illness. With a forest fire, its spread means that trees are destroyed, and if possible that would be avoided, but only after the risk to nearby residents had been addressed. But with coronavirus, not even this analogy applies. The equivalent of the forest here is the 80% of the population who suffer either no symptoms or only very mild symptoms as a result of contracting the disease. And, having recovered from the disease, these people have the benefit of then being immune to it, and so no longer being carriers of it. It would be like if a tree in a forest fire, only suffered surface charring, and as a result became immune to further fire. 

And, in fact, this is essentially what the government's scientific advisors have told it. In the absence of a vaccine against COVID19, the best protection against it spreading, and affecting those in the population at risk of death or serious ill-health from it, is from the rapid build up of herd immunity. This is, in effect, only what vaccination achieves artificially and on an industrial scale. The government's scientific advisors have said that if even 60% of the population achieved this herd immunity, it would mean that the virus would be unable to spread, and pose a danger to the population as a whole. Its the same reason that its necessary to get a large number of people vaccinated against things like measles. But, this wholly rational strategy of building up herd immunity has been attacked by some from familiar quarters, who portray it as being some kind of conspiracy by dark forces. Its portrayed either as being a covert strategy of social Darwinism to kill off unproductive sections of society, or else as being some kind of strategy to cause the NHS to collapse. Its all chem-trails, and tin foil hats kind of stuff, from the same kind of people who also spread lies and conspiracy theories about MMR and other vaccines. 

But, in an age of populism, especially populism driven by social media, which is reinforced by a mainstream media which knows good sensationalist headlines when it sees them, and has created a moral panic surrounding it, its not surprising that a government that itself came to power on the back of Brexit populism finds itself again having to respond to the demand to “Get Something Done”, even if that something, as with Brexit, is itself totally irrational and damaging. To its credit, the government had not fallen into the same capitulation to that moral panic that the Irish government and others have done. Ireland has already closed down a large part of its economy; something that is likely to lead to far more deaths and bad consequences than COVID19 itself, whilst also being a bonkers means of dealing with the virus. But, it is buckling and beginning to fall into the usual trap of ending up falling between two stools. 

The Irish strategy of, for example, closing schools, is bonkers because, for one thing, children appear to be either immune to, or have no effects from, the virus. So, what purpose does closing schools serve? Even in China, the strategy of closing everything down essentially meant closing everything down in Hubei Province, but it meant that it could still be supported by the rest of China. Just taking the closing down of schools, in Ireland, the obvious immediate consequence will be that all those kids parents also have to stay home to look after them. Some of those parents will be health and social care workers. That means that the health and social care that those actually suffering severe consequences of the virus need, will not be available! Some of those parents will be employed in other vital services, which will then also shut down. After all, an effective strategy of closing everything down, means that its not just schools that close. Add in the strategy of social distancing, of anyone with a cough or sniffle being told to stay off work for a fortnight, or even just if they think they might have had contact with someone who might have been infected, and before long the entire economy shuts down. 

So, for example, the electricity supply industry could be shut down, because of social distancing, even though energy supply workers might have slight symptoms and so on. But, then without electricity COVID19 starts to look like a minor problem. No electricity, even for a couple of days, would cause major problems. Millions of lives would be at stake because of heating systems not working, electricity for communications systems disappears, electricity for hospital equipment, including the ventilators required to keep COVID19 patients alive stops working. And, why on Earth would you want to do that, when at least 80% of those workers are amongst those that will suffer no or only mild symptoms, even if they contract the virus? 

The government has rightly identified that the most important thing is to protect those in the community in the at risk groups. That is those over 60, and/or who have some underlying medical condition. But, they have not said that those in this category should immediately self isolate. Why not? Its like saying to someone with a nut allergy, at some point we will be telling you not to eat nuts, but not yet! If you are in the at risk group, as I am, you will self isolate now, if you have any sense, because otherwise you are likely to come into contact with someone who has the virus long before the government tells you to. For one thing, its a good bet that the actual number of people carrying the virus is several times the official numbers. Failing to tell people at risk to self isolate is a dereliction of duty. 

The government couples this by saying that its current strategy is to delay the spread of the virus. The argument behind this is that it needs time to be able to build up capacity in the NHS, and stop it being swamped with patients. But, again this makes no real sense. If 80% of the population have no symptoms or only mild symptoms, why would they swamp the NHS. They could carry on life as normal. And, if the government, now, told the other 20%, and specifically those in the at risk category to self isolate, then they would not be infected, and so they too would not swamp the NHS. Its the government's own failure to tell people in the at risk group to self isolate that is the only reason why it should not want to see the virus spread as rapidly as possible, and thereby build up the required herd immunity as quickly and efficiently as possible! Of course, the lack of readiness of the NHS is itself the consequence of a decade of austerity measures introduced by Tory and Liberal-Tory governments since 2010. It is further hindered by the reactionary Brexit decision, which is denuding the NHS and social care of the EU migrant labour on which it depends. 

So, the government says that, at some point, it will tell those in the at risk category to self isolate. In the meantime, it has responded to the criticism of its scientifically sound strategy of building up herd immunity, by denying that that is part of its strategy. Instead, it says it wants to delay the spread of the virus, which is the opposite of what you would want if you wanted to build natural immunity amongst the population. The consequence of that strategy of delay is that, instead of the virus being spread quickly and immunity being developed over a matter of weeks, the virus is only spread slowly, and immunity takes many months to develop in a sufficiently large proportion of the population. A rapid development of herd immunity means that those in at risk groups only need self isolate for say 2 months at most, but a strategy of delaying its spread means that those in at risk groups would have to self isolate for 4, 6 or more months, which begins to look difficult to achieve. 

This illustrates other contradictions and irrationality in the government strategy and statements. The government says at some point it will advise self-isolation. Indeed, if everything was closed down that is equivalent of everyone self-isolating for a couple of weeks or so. But, to self isolate means that you need to have the necessary supplies on hand to last through the period of isolation. Yet, the government is also telling people not to hoard! Its impossible to do both at the same time. Either its necessary to hoard supplies to last through a period of isolation, or you can't effectively isolate. The longer the period of isolation, the greater the degree of hoarding required. Given that the government is now talking about self isolation lasting 4 months and more, that is a considerable amount of hoarding that is required. 

Last year, I bought a new house that came with a large built in fridge and large built in freezer, along with large amounts of cupboard space. It meant that my existing fridge/freezer could be set up in my garage. So, I have plenty of opportunity to hoard the necessary supplies to last me through my voluntary self isolation that I have already embarked upon. When the government gets around to telling others in the at risk group to self isolate they will have to do something similar. Of course, many do not have the advantage I have in that regard. But, the government is saying nothing about the support it will give to enable them to do so. In the meantime, if the government does get pressured into closing everything else down, then, of course, my additional fridge/freezer will be of little use, because with electricity supply disappearing along with electricity supply workers, every such appliance will cease to work. 

Heathrow - A Good Decision Made Badly

The proposed third way for Heathrow has been thrown out by the courts.  That is a good decision, but having unelected judges strike down laws made by elected politicians is bad.  Bad political decisions should be overturned politically not by the courts, who will be a first line of defence of the ruling class should a Workers Government, or even a radical social-democratic government begin to make laws that challenge the power of capital.

The decision against the third runway is good, because far too much economic power and influence already resides in London.  London is massively subsidised by the rest of the country in meeting its needs for labour, although the revenues created in London, and appropriated by the capitalist state, in turn subsidise the activities of the state, including the provision of welfare, in the rest of the country.  But, vast amounts of that welfare are also expended wastefully in London itself.  The government spends an astonishing £22 billion a year on Housing Benefit.  The average per person is around £5,000, with 4.6 million recipients, but the majority of those recipients are in London, and the average payment per recipient in London, is much higher than in the rest of the country, because of the exorbitant costs of housing in London.  The government has to make these payments, because otherwise, the cost of living for millions of workers in London would be just too high, and businesses in London would not be able to recruit the workers they require without paying far higher wages than they do now.  That would be a big incentive for those firms to relocate their activities elsewhere, including elsewhere in Britain, though with Brexit they are increasingly likely to relocate to Dublin or other centres in Europe. 

But, Housing Benefit, which pours these billions of pounds into the pockets of landlords that could otherwise have been spent on capital investment, is only one of the subsidies given to London employers.  Commuters to London complain about the cost of rail fares, but the fact is that those fares are themselves massively subsidised by the taxpayer, i.e. by all of the other workers in the rest of the country who do not commute to London, or even use the trains.  The reason again that the government has to subsidise these rail fares is, because, as living costs in London have soared uncontrollably, businesses could only recruit the labour they required, at wages they were prepared to pay, by drawing in workers from further and further away from London, where living costs are lower.  The subsidies given to the private rail companies are today far greater than any support the state gave to British Rail.  But, without the huge subsidies to rail fares, commuters to London would need much higher wages to cover their cost of working in London, and that would mean that employers in London would again be incentivised to relocate their business.  The HS2 decision is just the latest huge subsidy being given to London employers, to enable them to draw in cheaper Labour from the rest of the country, which again will act to the detriment of the economy outside London.

If the government really were committed to rebalancing the economy in Britain it would scrap all of these subsidies that go to employers in London, so that economic development could be encouraged elsewhere.  If all of that £22 billion handed to landlords as Housing Benefit were instead used to invest in infrastructure in the rest of the country, it could go to producing well paid employment for workers.  In the process, providing well paid employment would be the best way of removing the need to spend billions on welfare payments.  Its all well and good saying that London is the hub that draws in all of this revenue, which is then used to finance welfare elsewhere in the country, but if the subsidies to employment in London were not there, so that the true cost of labour in London had to be borne by capital, it would encourage employment to shift to other parts of Britain, so that the requirement for welfare was reduced to begin with.  Workers in the rest of Britain don't want a life of welfare dependency subsidised by rich Londoners, we want proper, well-paying, permanent and secure jobs!

If you want to rebalance the UK economy, though good luck with that in the context of Brexit, and the governments intention to undermine workers rights, and to introduce further distortions via the introduction of freeports and so on, then the decision not to go ahead with a third runway at Heathrow is a necessary start.  Instead we need a huge expansion of airports outside London, so that the rest of the country can have a direct and quick connection to the rest of the world, without it all being channelled through London.

Early this morning, I spent three hours taking my son to Manchester Airport, because he's flying off to the Canaries, giving appropriate disregard to the ridiculous moral panic going on over coronavirus.  Normally, I'd take him to Crewe Station to go by train to Manchester, but in the middle of the night, there are no trains.  But, its ridiculous to have to spend three hours to get to Manchester Airport and back.  That's longer than the flight to the Canaries.  Indeed, its ridiculous to have to drive from Stoke to Crewe and back to be able to get a train, so as then to get a flight.

But, many flights still are only practical from London, which at best means a two hour train journey prior to the flight.  In the past, when we used to go to the Canaries every Christmas on last minute Ceefax deals, I've driven as far as Newcastle on Tyne, and even Glasgow to be able to get the available package.  Every major conurbation like North Staffordshire should have its own regional airport, so that the economies of these areas can be directly linked to the world outside.  That is a fundamental requirement for balanced regional economic development.

Environmentalists will undoubtedly complain, because restricting air travel has become a latest hobby horse, but the benefits for balanced and increased economic growth, and for reducing all of the waste of energy, time, as well as pollution caused by journeys to more distant airports, more than offset it.  In any case, the answer to pollution caused by air travel is not to ban air travel, but to impose greater restrictions on aircraft makers, in order to encourage them to produce cleaner, and more efficient engines and aircraft, including a more rapid development of electrically power craft.

Unemployment Then and Now

I keep hearing young, conservative economists and pundits favourably comparing unemployment today with that in the 1970's. To be fair, they were not even born in the 1970's, and, for many of them, even their parents would have been, at best, only toddlers. They only know that the 1970's were a very long time ago, and that today's unemployment rate has eventually fallen to what it was then, after decades of high unemployment. But, were they to do what any economist or pundit should do, which is to read some books, and obtain the data, for these earlier periods, they would know what those of us who actually started work in the 1970's, and lived through the economic chaos, created by Thatcher, in the 1980's, already know, which is that a comparison with the 1970's is nothing to write home about. The 1970's was the point at which the long postwar boom came to an end. It is the point, when a new period of crises of overproduction erupted across the globe. Those of us who started work in the 1970's are aware that it was a time when there was shock and horror that, for the first time since the 1930's, unemployment exceeded the 1 million mark, bringing with it all of the memories that went with it. 

Economists talk about two types of unemployment – frictional and structural. Frictional unemployment is when people are unemployed for only a few days, weeks, or at most months, whilst they are moving between one job and another. At a time when the economy is growing faster, and jobs are easier to obtain, with wages also tending to rise due to a relative shortage of labour, the proportion of frictional unemployment to total unemployment tends to rise, because workers seek out better paid jobs, and move more quickly from one to another. There is always some level of frictional unemployment, which is why economists never set zero unemployment as being the definition of full employment. Structural unemployment is what happens, however, when people lose their jobs, because certain industries, in the economy, go into decline, laying off workers, and where the capital released from those industries does not get employed elsewhere, to provide alternative employment for the workers laid off. That is what happened in the 1920's, and 1930's, and again in the 1970's, and 1980's. 

In the 1950's, the postwar boom meant that there was not enough labour to meet the needs of capital. Workers were encouraged, if not required, to work Saturdays and Sundays, and to work overtime during the week to compensate. Millions of married women workers were drawn into the permanent workforce, themselves having been freed from domestic labour by the introduction of new labour saving domestic equipment such as vacuum cleaners, washing machines, spin dryers, TV's, and so on, as well as the socialisation of many domestic responsibilities such as childcare, elderly care, and so on that was taken on by the welfare state. The individual value created by this female domestic labour was greater than the value of the equipment required to replace it, so that it became an obvious choice for workers to obtain wages for the sale of that labour-power, and to use those wages to buy the machines that replaced it, along with other enhancements to workers living standards. 

But, even this additional supply of labour, from these latent reserves was not enough to satisfy the demands of capital. So, immigration was encouraged. Similar things happened across Europe and North America. This was, of course, a period before any immigration controls existed in Britain. Immigrant workers were encouraged to come to Britain from the Caribbean, the Windrush generation, as well a from other parts of the Empire, to fill these jobs. In the immediate aftermath of the war, and, with living standards rising, despite the continuation of food rationing, the so called Baby Boom occurred, but this new generation of workers could not add to the required supply of labour until 1960, at the earliest. 

The lowest unemployment rate in Britain in the post war period was 1%, recorded in the mid 1950's. It remained between 1-2% for the rest of the 1960's, a level of around 600,000 people. This was nearly all frictional unemployment, at a time when relative labour shortages meant that workers could move freely from one job to another in order to obtain higher wages, and better conditions. Moreover, this definition of unemployment was based on the claimant count, i.e. the number of people who actually registered as being unemployed, to seek benefits. In the 1980's, when unemployment under Thatcher soared, as the period of crisis intensified, and then gave way to economic stagnation, her government changed the basis of calculation 20 times, in order to massage the figures downwards, as well as encouraging elderly workers to remove themselves from the job market, and encouraging others to register for sickness and disability benefits rather than unemployment benefit. The unemployment rate had soared to 14%, under Thatcher in 1982, and the level of over 3 million, equal to that in the 1930's, has been estimated to be the equivalent of something like 6 million, if measured on the earlier basis. 

Unemployment rose in the early 1970's, after the Heath government came to office. Heath's government responded with the traditional Keynesian measures to stimulate the economy, showing that this was nothing to do with a cruel Tory government deliberately raising unemployment to harm workers, but was simply the normal functioning of the capitalist economy over its long wave cycle. In fact, the same thing was happening across the globe, as the postwar long wave uptrend came to an end. Similarly, it is ridiculous for governments, be it Trump or Johnson, to claim credit for unemployment levels falling, because by far the greatest determinant of that is the normal functioning of the capitalist system over its long wave cycle. Particularly idiotic government policies can make things worse, but no amount of government government policies can make things anything other than marginally better, even in the short-term. 

Heath's Keynesian intervention in the early 1970's, acted to moderate the ill-effects, as they had done on every previous recession in the postwar period, but, now, the effect was not to return the economy to its earlier growth path, as happened during the uptrend, but only to cause inflation to rise. The policies of Heath's Chancellor, Anthony Barber, in also increasing money supply, led to the short lived Barber Boom, that saw the first major upward twist in the house price spiral – though there had been an earlier similar spike caused by a previous Tory Chancellor, Reggie Maudling in the early 1960's. But, by 1974, the dynamic of the long wave cycle imposed itself again, with another, deeper crisis made worse by the oil crisis that sent oil prices soaring. Now, there was a combination of high levels of unemployment due to the crisis, along with high and rising levels of inflation – stagflation. 

Harold Wilson's government coming in in 1974, saw the unemployment rate fall, marginally, as the immediate effects of the oil crisis dissipated, and as his Social Contract put a bureaucratic lid on the level of wages and prices. But, the fundamental problem facing the system, as with all such points in the long wave cycle, was that extensive accumulation had led to labour supplies becoming scarce, and wages rising, with productivity growth slowing. As Marx describes in Capital, and Theories of Surplus Value, this is the manifestation of an overproduction of capital. Capital has expanded faster than the available labour supply, so that the mass of surplus value cannot be expanded by either absolute surplus value or relative surplus value, at the same pace as the growth of capital. So, the rate of profit is squeezed, as Glyn & Sutcliffe had shown in Britain, and Thirlwall and others had shown in relation to the US and elsewhere. Eventually, any increase in capital causes the demand for labour to rise to a level, whereby wages rise at a pace that causes the mass of surplus value itself to fall, creating an absolute overproduction of capital, and consequent crisis. 

Particuarly idiotic government policies, in the 1980's,
deindustrialised developed economies, whilst inflating
 huge asset price bubbles.

The solution to that problem is for capital to introduce new labour saving technologies that remove the shortage of labour, cause wages to fall, productivity to rise, and for both absolute and relative surplus value to rise, creating a rise in the rate of surplus value and rate of profit. It requires a technological revolution to bring it about. That is what happened in the later 1970's and 1980's. Whatever government had been in office, the result would have been higher unemployment, as this effect means that labour is pushed out by technology. It is just that Thatcher's government in the UK, and Reagan's in the US encouraged that to an even greater degree. Moreover, coming back to the point earlier about particularly idiotic government policies making things worse, that is also what Thatcher's and Reagan's governments did. Both, in their policies, encouraged deindustrialisation of their economies as part of an ideological war on workers and organised labour. Both encouraged the development of asset price bubbles by their policies of inflating the money supply, and deregulating financial markets, which encouraged borrowing, and the use of borrowed money for property and financial speculation. It was the root cause of the bubbles that erupted in subsequent decades, that has created the current housing crisis, and led to the 2008 financial crisis. 

The only reason that today's unemployment rate looks good is by comparing it to the high levels of unemployment that existed under Thatcher, and her successors.  However, going back to the point made earlier, after the new long wave uptrend began in 1999, Britain as elsewhere saw the demand for labour again rise sharply, despite the labour-saving technologies introduced from the 1970's onwards.  The chart above shows the steady fall in the unemployment rate under Blair and Brown, alongside the 2 million migrant workers that came into the economy to help deal with the labour shortage.  Moreover, again emphasising the point that this is almost exclusively down to the operation of the long wave cycle, and not government policy, Blair and Brown rand budget deficits that were only half what they had been under Thatcher and Major, and Blair managed four years when there was a budget surplus, compared to just two years for Thatcher.

Compare the unemployment rate of around 4% today, with the 1% of the 1950's, or the 2% of most of the 1960's, and it looks nothing special. Moreover, that is before considering the different methods of measurement now compared to then. The most obvious being that today's measure only includes those actually in receipt of benefit, not all those who might otherwise have been entitled to register. It does not take into consideration the large numbers of people, today, employed on zero hours contracts, or who are in fake self-employment, who are employed casually, or part-time and so on. If all these other factors were taken into consideration, the real rate today would be more like 6%, or about 6 times the rate in the 1950's, and 3 times the rate in the 1960's, and still about 50% higher than the rate during the crisis era of the 1970's. 

This is nothing for a government to be bragging about. However, facing the problems that arise from Brexit, and with the need to appease the bigots that voted for it to “Get Brexit Done”, by imposing arbitrary limits on immigration, it does still mean that the government will find itself constrained by rigidities to the labour market that it has itself imposed. Already, we see in today's data that the inflation rate has risen by more than a third since last month, from 1.3% to 1.8%. That is an obvious indication of the effects of Brexit, and is likely to get worse in coming months, particularly if markets feel that Johnson may box himself into a corner and have to implement his ridiculous No Deal threat. Any sign of that will cause the Pound to sell off rapidly, causing import prices to spike.