The inability to make half an argument

The startling thing about the death spiral currently engulfing the UK economy is that the medicine prescribed to deal with it – austerity and tax rises on ordinary people – will only make the economic pain worse. And yet they are seen as the only conceivable option.

Jeremy Hunt soberly tells us we must “pay our way in the world” as he ordains £30 billion in spending cuts and £24 billion in tax rises. Meanwhile the ‘Labour’ opposition rules out taking “risks with public finances” and or “getting its big government cheque book out”. Given that Hunt’s public spending cuts will take place in 2025 – after the next general election – and that the Labour party will almost definitely, following Blair’s example in 1997, not dare deviate from Tory spending plans in a bid to appear economically ‘credible’, it is an odds on certainty that austerity mark 2 will happen regardless of which party is in power.

That that party is the Conservatives, is dependent, we are told, on the unlikely event of them recovering their reputation for “sound money and sound public finances” lost in the Liz Truss debacle. But the incredible thing is that following the Cameron/Osborne years they had it in the first place.

The twin disasters of Austerity Mark One

It is established, if not universally known, that the original version of austerity was a disaster in social terms. The 40 per cent cut in funding for public services, most apparent in huge reductions in local authority social care budgets (for home visits, help with dressing, washing etc.), translated to 335,000 excess deaths and falling life expectancy .

But austerity was also a disaster economically.  GDP per head only reached an average of 1.2% between 2010 and 2018, lower than the previous decade (which was already low). Despite a mania for selling off public assets, which raises revenue in the short-term, public debt rose from 65% of GDP in 2010 to 79.1% in February 2020, and then mushroomed further because of the Covid lockdown.

Under ‘Osbornomics’ all this pain for masses of people was accompanied by an unconditional bounty for the super-rich in the form of quantitative easing, a state subsidy which raised the value of financial assets like shares. In the Eurozone, a mirror-image – ‘Draghinomics’ (after Mario Draghi former head of the European Central Bank) – likewise dispensed the suffering and largesse to, respectively, the undeserving poor and the undeserving rich, resulting in similarly comatose economic growth.

That there is a connection between falling real wages, lacklustre GDP growth, rising government debt, and austerity (which cuts the public sector workforce and reduces spending power and thus has ripple effects in the economy, and therefore on government revenue) can only be denied by an ideologically-induced blindness, which handily our government and its handmaidens in the media have in abundance.

Nonetheless, the barely contested response to projections that government revenue will be reduced in future, in the context of even larger falls in personal income, is to reintroduce austerity, the effect of which will be to further reduce government revenue.

It must have been this kind of iron-clad logic that earned the Conservatives their reputation for economic competence.

Don’t cut your cloth according to your measure

It shouldn’t take a PhD in economics to see through it. Despite the tenacity of home-spun wisdom that the government is like a household and must budget for hard times accordingly, cutting its outlays to take account of lower income, it isn’t and shouldn’t*.  The government’s spending – on for example enhanced salaries for nurses and other public servants – will multiply through the economy by being spent by individuals, and eventually turn into income for the government paid through tax. As economist Anne Pettifor points out:

Once earned, individuals, households and firms spend and invest their new, higher income. They spend on goods, on rent, on food, and on services provided by for example, football clubs, lawyers, accountants, musicians, artists etc. That spending generates additional tax revenues for government, this time paid by football clubs, firms, shops, landlords, farmers, lawyers, musicians etc.

This anti-austerity insight that the government is not like a household and shouldn’t behave like one essentially comes from John Maynard Keynes, who famously said in 1931, “You cannot balance the nation’s books by cutting its income”. That this perception, which comes from a man who explicitly wasn’t a socialist, is now indelibly associated with the Left and non-mainstream economists is an indication of how far to the Right politics and economics have shifted in the West in the last four decades.

The economic limits of shopping

Because in the context of 2023, not 90 or so years before, there’s something wrong with it. It, and its contemporary proponents, are making half an argument.

Resuscitating what economists call “effective demand” – a virtuous circle that ensures people have more disposal income so they go out and buy consumer goods, thus stimulating production to keep up and, through increased tax, shrinking government debt – is not the panacea for the economy because it doesn’t get to the root of what’s fundamentally wrong with it.

For decades the economy has become more dependent on profits from finance and speculation for the prosaic reason that more money can be made that way than from expanding production. This is despite unrelenting efforts to sustain demand in the form of escalating personal debt. And as a profits are made, more capital is inevitably produced, conditioned to seek profitable outlets of one sort or another. Curiously, governments in the West in the last decade responded to this surplus of capital but creating even more of it through Quantitative Easing.

There is no realistic way of expanding demand quickly enough to absorb this ever growing mass of capital. Even if the UK government miraculously saw the light and stopped suppressing demand through austerity and holding down public sector pay.

In this financialised economy, government progressively becomes more indebted as it has to support a weak private sector through bail-outs, tax cuts and subsidies to low pay. Meanwhile private sector debt escalates because being “highly leveraged”, in technical parlance, is seen as the way to increase exposure to financial products and thus bring in future profits.

Theoretically, the route out of this conundrum is strong economic growth which enables the gradual amelioration of debt, private and public. In its own rather pathetic way this is what the short-lived Truss administration was trying to do through its “investment zones” and scattergun tax cuts, which would supposedly have ‘paid off’ after a few years. That the ‘markets’ quickly pulled the rug from under Truss’s feet is an indication that no-one really believes revived economic growth is possible. With Sunak and Hunt, we’re back to stabilised misery.

Socially it is imperative that the RMT and others win their pay disputes. It is vital that the NHS is properly funded and re-nationalised. It is essential that Sunak’s attempts to force workers to continue working even if they want to go on strike – reminiscent of the Fascist regimes of the 1930s and one continuity with Liz Truss – are defeated. But we shouldn’t pretend that these victories – should they happen – will bring about an economically sustainable system.

*The idea that the government should ‘trim its sails’ in hard times, much like a sensible household, has proved to have a tenacious hold on public opinion, since it was first outlined by the conservatives and their allies in the media in the wake of the 2008 financial crisis. But not only is the analogy wrong, it is belied by the fact that most people don’t take any notice of it in their own lives, in that personal debt goes on rising year by year.

 

 

 

 

 

 

 

Corporate Socialism and the Capitalist Underclass

 

Politics now – witness Keir Starmer’s neo-Blairite recapturing of the UK Labour party – seems to inhabit a mental universe of its own creation rather than trying to deal with the inconvenience of reality. And occasionally the dissonance reaches comical heights of absurdity.

Boris Johnson, for example, when asked recently to justify the ending of the £20 uplift for Universal Credit recipients in October – which the government’s own internal modelling concedes will have a “catastrophic” effect – replied that it was his “strong preference” that people saw their wages rise “though their efforts” rather than through the taxation of other people.

Effort you say. Leaving aside that most people on Universal Credit are actually in work – and thus already are making an effort – the preferences of conservatives don’t seem to stretch to the most glaring welfare dependence affecting society today – the mammoth no strings giveaways to corporations and the immensely wealthy. Which curiously aren’t ending next month and necessitate about as much effort as turning a computer on.

Austerity in reverse

In the aftermath of the Great Financial Crisis of 2008, the world’s central banks (state banks like the Bank of England or the US Federal Reserve) literally created $10 trillion. In response to the Covid-19 pandemic, they created a further $9 trillion. For the past 18 months, central banks have generated $834 million an hour. This goes by the innocent sounding name of Quantitative Easing (QE for short).

QE is initiated by the central bank bringing into being a batch of new money (often called ‘fiat money’ i.e. money without the backing of gold – from the Latin meaning ‘let there be money’. Don’t picture a Fiat 500, that doesn’t capture its size). This is used to buy assets, usually government but also occasionally corporate bonds (debt), from banks, insurance companies or pension funds.

This has two main effects. One is to force interest rates down to very low levels, thus enabling heavily indebted institutions to survive. And the second is to create – by the buying of the assets – a huge mass of money ($13.9 million each minute) seeking investment opportunities and which is incentivised by the low interest on government bonds to go into other assets such as shares, property or commodities. As a result of this influx, their price increases.

QE is invariably presented as “pumping” money into the economy. In reality it involves pumping huge amounts of money into the financial system. Banks are not inclined to lend to the ‘real’ economy, which is the official story behind QE, if returns from buying and selling other assets (such as company shares) are higher. Corporations are not motivated to invest in plant or equipment if they can make more money from buying back their own shares, whose value is guaranteed by QE. Mergers and acquisitions – buying a company, asset-stripping it and selling it on – are also fuelled by the vast funds created by QE.

In theory, QE can be an emergency measure, helping the economy through a rough patch, and then being reversed so that ultimately no new money is created. But this is not how it turns out in practice. The Bank of Japan is still engaging in QE 20 years after it pioneered the policy. In 2018, the Federal Reserve started ‘quantitative tightening’ – the selling or retiring of assets on its balance sheet – but had to call a halt to the process less than a year later because of a negative reaction from markets. This was, it should be stressed, before the pandemic.

Rich bono

Unsurprisingly given how it works, QE has a hugely regressive effect on inequality. It’s not rocket science to understand that if the value of shares goes up, the prime beneficiaries are rich people because they are most likely to own shares. Additionally, banks and corporations benefit because they own shares in each other. “Owners of property have made out like bandits,” said hedge fund owner Paul Marshall in 2015. “In fact, anyone with assets has grown much richer. All of us who work in financial markets owe a huge debt to QE”.

The latest, Covid-inspired, rush to QE has massively exacerbated this inequality. Five million more millionaires were created during the pandemic, while the number of people worth more than $50 million increased by a quarter. Stock markets have hit record highs despite precipitous drops in GDP. In Britain, contrary to all previous recessions, property prices have continued their upwards trajectory. “The world is awash with central bank money,” says economist Grace Blakeley, “and it’s all flowing up rather than trickling down”.

Take from the poor and give to the rich

The QE reflex exposes just how right-wing – across the political ‘divide’ – our politics is, notwithstanding ephemeral lapses like Jeremy Corbyn’s Labour party. In 2019 the China-based economist Michael Pettis mused over two different ways to stimulate an economy – “giving to the rich” and “giving to the poor”. Giving to the rich involves tax cuts for business and the wealthy and policies such as QE “which tend to cause a rise in the prices of assets, most of which are owned by the rich.” Giving to the poor, in Pettis’s description, entails cutting taxes on the not wealthy, funding social safety nets, creating jobs or “setting minimum basic income policies”.

It’s revealing that the response of the British government – and other western governments – to the financial crisis and the Covid pandemic has almost exclusively centred on the first option. In addition to endless QE, corporation tax has fallen from 28% to 19% (it is slated to rise to 25% in 2023 but whether that will happen is a moot point). The top rate of income tax was also cut by George Osborne in 2012 and, if that wasn’t enough, capital gains tax (the tax you pay when you sell shares) was slashed by the soon-to-be newspaper editor in 2016.

As for the second option, it is not a question of giving to the poor but rather of taking from them. Taxes which affect poor people the most, such as VAT and now National Insurance, have been hiked. Social safety nets, by contrast, have been cut – witness the benefit freeze, sanctions, and the £30 cut in weekly payments to disabled people. Creating jobs has been left to the tender mercies of the private sector, and as for basic income policies, I think there’s been a pilot project in Finland. In Britain, destitution and food banks are the preferred course of action.

Boris Johnson’s “strong preference” for people to see their incomes rise “through their efforts” strangely only applies to folk without share portfolios. “The imbalance is unbelievable,” says Robert Reich, former labour secretary under Bill Clinton in the US, “Socialism for the rich, corporate socialism, but the harshest form of capitalism for most working people and the poor.”

The whimper of capitalism

 Of course, the notable feature of “corporate socialism” – apart from its colossal unfairness – is that it’s not capitalism anymore. QE is a massive distortion of the fêted free market. The theory of capitalism is that asset values are based on economic fundamentals – if stock prices rise that is because people believe, maybe mistakenly but genuinely, that the companies in question will generate profits in the future. Under the QE regime, they are rising because the state, in the guise of ‘independent’ central banks, is injecting huge amounts of money into markets.

Former Greek finance minister Yanis Varoufakis sees this as a momentous change. Pre-financial crisis capitalism (before 2008) may have been based on “daylight robbery” – the extraction of rent from a market controlled by Coca-Cola or General Electric – but it was still rooted in some kind of market and driven by private profits. That is no longer the case:

Then, after 2008, everything changed. Ever since the G7’s central banks coalesced in April 2009 to use their money printing capacity to re-float global finance, a deep discontinuity emerged. Today, the global economy is powered by the constant generation of central bank money, not by private profit.

To be more precise, the pursuit of private profit is still at the heart of the system – we haven’t socialised hedge funds – but the profit urge does not ‘make the world go round’. Central banks do.

 Market society, not economy

The supreme irony is that while the economic summit of society is changing into something that is not capitalist, capitalist values are penetrating ever more deeply into the texture of life. Economic and monetary values dominate politics and morality and we seem unable to value non-economic realms without assigning them a financial status, such as “natural capital”.  Individual endeavours, such as learning, physical fitness, volunteering, or nurturing ‘mindfulness’ are frequently seen in terms of their effect on our employability and careers, and undertaken for that reason.

In the 1980s, the social ecologist Murray Bookchin pioneered the idea that we don’t just live in a market economy, but also a market society. By the middle of the 20^th century, he said, “large-scale market operations had colonised every aspect of social and personal life.” The prognosis in the second decade of the 21^st century is that we seem to live in a market society without the concomitant market economy. Or possibly an irredeemably rigged market economy.

How long will it last?

The ultimate question is whether this regime of corporate socialism is sustainable. Japan, “the petri-dish” of Quantitative Easing, been following the policy since 2001 – several years before the rest of the advanced capitalist world followed in its wake. Indeed, it has deepened the practice considerably, coming to own around half the company shares quoted on the Tokyo stock exchange. “If this trend continues it is evident that the Japanese state will become the de facto owner of the bulk of what has been the hitherto privately owned enterprise sector,” wrote economist Harry Shutt in 2019.

However, from the point of view of the powerful and wealthy in Japan, the discernible effects don’t appear catastrophic. Profit has continued to be extracted, well-known corporate forms have endured and, if there has been a quiet revolution in ownership under the surface, it hasn’t resulted in a shift in power. In fact, inequality, low growth, ferocious competition for jobs and little prospect of pay rises, have, far from inculcating a spirit of rebellion, fuelled a culture of conservatism among Japanese youth.

The rulers of our society don’t have, despite the propaganda, a fervent ideological commitment to the free market, but merely a belief in private property. If that endures, they are satisfied.

The lingering question is, if Japan has indulged the QE fixation for two decades without presaging economic Armageddon, are western economies free to follow its example and practice QE for years, decades even, and emerge basically unscathed? Or are we preparing the ground for a financial collapse of mammoth proportions?

I want to address this question in the second part.

 

 

 

 

 

 

 

 

 

 

People-hating ideology let off the leash - A review of I, Daniel Blake

Before you write anything, if you choose their words, they have won half the battle. What Britain possessed in the past was a social security system – something you paid into through National Insurance contributions and then received benefits from as of right when you were unemployed or sick. Slowly, inexorably this social security system has been transformed into a ‘welfare’ state, which dispenses financial assistance from ‘hard working taxpayers’ to those unfortunates who run into hard times. Unemployment benefit has morphed into Jobseekers Allowance (don’t spend it all on sweets children or we’ll take it away). These people inevitably become a burden borne by the majority. Think of that enormous ‘welfare bill’ or the ‘welfare cap’.

But even here words tell lies. As I Daniel Blake demonstrates (a fictional film which distils the real life experiences of hundreds of thousands of people) to describe the system administered by the Department of Work and Pensions as a welfare state, is rather like dubbing the Russian military a befriending service*. A more accurate depiction of it is a ‘punishment state’ or ‘fuck you state’ or a ‘please die quietly and don’t disturb us state’. The last thing this system does is to look after the welfare of its ‘customers’. If you don’t have a mental health problem before you enter this hellish world, you probably soon will.

“They’ll fuck you around and make it as miserable as possible,” says one character in I, Daniel Blake. Therein speaks the voice of experience that a thousand newspaper pundits seem unable to grasp. That’s the entire point – to humiliate you so you accept any conceivable work, or drop your claim altogether (which the lead character in I Daniel Blake does), so they can trim the figures and tell the media how well they are combatting ‘worklessness’.

‘Can you help me fill in the form because I can’t write?’ I asked a JobCentre ‘greeter’ after they had twice lost my application for Employment and Support Allowance I submitted with the help of a friend following a stroke in 2010 which made handwriting impossible. ‘No, we can’t do that because it involves money,” was the answer. A few weeks later came the farce of a work capability assessment which declared me fit to work, when I was barely fit to go the bathroom. But for any future employers out there, I can assure them it’s been categorically proved beyond a shadow of doubt that I can raise my hands above my shoulders at least once.

I know what the reaction of many people to I, Daniel Blake will be. The story is an extreme one based on anecdotal evidence, they will protest – most people who go through the system can’t have these experiences. But, if anything, the tale of 59 year old Daniel Blake, a carpenter who suffers a heart attack and applies for Employment and Support Allowance, is restrained. He goes through a work capability assessment, and is found (surprise, surprise) fit for work, a decision confirmed by a ‘mandatory re-assessment’. He appeals but is forced to claim Jobseekers Allowance in the meantime as his only source of income. He is sanctioned (all his money is stopped) for not being able to prove he is looking for work which his doctors have told him he’s not meant to do. Eventually, he drops his claim, and lives on nothing.

I, Daniel Blake seems filmed almost entirely in close-up. I only remember one wider city-scape shot. There is a reason for that. The claustrophobic style mimics the perception the protagonists themselves for whom the outside world gradually loses all meaning. Everything becomes focussed on the next thing you have to do – filling in that form, getting that GP certificate, proving you are looking for work, phoning the DWP. You live in a state of permanent anxiety.

You could be forgiven for thinking that should Daniel Blake win his appeal and be judged retrospectively unfit for work, he’d be safe (this doesn’t come to pass for reasons I won’t spoil). But you’d be wrong. To be unfit for work, you need to be awarded 15 points in a work capability assessment. He originally gets 12 and, if he won the appeal, most likely he’d have ended up with 18 or 20. This would have placed him in the Work Related Activity Group of Employment and Support Allowance (ESA). As the name implies these people still have to look for work and if they don’t do so to the satisfaction of the JobCentre they can be sanctioned. In first three months of 2014, there were nearly 16,000 sanctions imposed on this group - people who have been found, to the satisfaction of the DWP, unfit for work. These are, just to be clear, indisputably sick people left with nothing or virtually nothing to live on.

Daniel befriends a single mother of two, Katie, who is sanctioned herself for arriving a few minutes late at Newcastle JobCentre when she had just moved up from London. Even if you are the sort of automaton that thinks this is justified, her young children are inevitably hurt too. At this point you realise you are in the presence of an ideology that has been let off the leash and knows no bounds. This is zero tolerance taken to an extreme. It, quite plainly, hates human beings.

How on earth did we get to this point? I have read several lamenting reviews of I, Daniel Blake pinning their anger on Tory austerity. If only it were that simple. Yes, the Tories have made the system Daniel Blake encounters more callous. In 2013, they abolished the right of people appealing against an incorrect fit to work decision to receive ESA while they waited (a process that can take months and months). This was an ‘incentive to appeal’ you understand. Thanks to the Conservatives, people in the work related activity group can only claim ESA as of right for 12 months – after that point if their partner earns £16,000 or more, they are screwed. Most recently, they changed the law so that new ESA claimants would receive only the same weekly amount as Jobseekers Allowance claimants - £30 a week less. This is all part of the plan to transform sickness into a personal failing of the claimant, in the same fashion that unemployment has been, where ‘work is abstracted from the material conditions of paid employment and inequality’.

But the basic rudiments of the system that awaits Daniel Blake when he has a heart attack were firmly in place when the Conservatives gained the keys to the car in 2010. It was New Labour who introduced work capability assessments as part of the 2007 Welfare Reform Act. It was New Labour who introduced sanctions for benefit claimants, including disabled benefit claimants (although, the length of sanctions and their conditionality were both intensified by the Coalition and the Conservatives). And the work capability system was actually harsher under Labour. According to the DWP’s own research over half (55 per cent) of people found fit for work after the WCA system was first introduced, were neither claiming benefits nor in work 15 months later. In 2012, this figure had been reduced to 30 per cent.

All mainstream politicians, who cleave so fervently to the fabled centre ground, support the system exposed in I, Daniel Blake. These centrists have carefully constructed it after all. It took that extremist interloper Jeremy Corbyn to finally commit the Labour party to scrapping the work capability assessment.

There is only one element of I, Daniel Blake I found remotely jarring. That is when Daniel Blake, driven to exasperation by the requirements of ‘benefit advisers’ that he can’t, indeed shouldn’t, fulfil, calmly walks out of the JobCentre to spray paint a protest on its outside walls. While he does he is cheered on by a gathering crowd across the street. I don’t know Newcastle that well, but I can’t help feeling that in many towns and cities of this country, he would not have been cheered. According former deputy Prime Minister Nick Clegg, ex-Chancellor George Osborne (a man convinced he had created the ‘new centre ground’) would relish any chance to reduce or restrict benefits “because focus groups had shown that the voters they wanted to appeal to were very anti-welfare, and therefore there was almost no limit to those anti-welfare prejudices.” That’s the tragedy of I, Daniel Blake – the realisation that the inhumanity it exposes doesn’t produce revulsion from many of your fellow citizens but applause.

*There is, actually, an uncanny resemblance between the cuts imposed on disabled people by Vladimir Putin in Russia and the policies of the British government under David Cameron and Theresa May.