Why Trump? Why Brexit? Capital Myopia and Inequality in Society

There are three types of inequality in society, one is the natural way some people are able to engage in economic and highly productive activity more than others, the second is the distribution of ownership – those who own more by inheritance or gross fortuity, and the other is how some people are exploited and get less than they ‘deserve’. Historically that latter group could equally be  millionaires who had punitive taxes levvied against their income and productive investments,  as  much as it could be the poor who find the basic costs of living difficult to cover with what income they can scrape. A millionaire gets less than they ‘deserve’ for the risk and effort they have put in to making a productive business, a marginalised worker cannot make ends meet.

Governments are the referee in all this and also have to invest in society. The Neo Conservative movement (so called Neo “Liberals”) have encouraged more freedom and lower taxation for the very richest in society, for better and for worse. They have decided that market mechanisms should be promoted as the means of dragging people out of poverty. However they have also chosen to view poverty as the absolute bread line, and not take into account the personal risk and monthly repayments people take up in debt just in order to function at a base level in society. To house themselves, to travel to work and to pay for fuel and energy. They have turned a blind eye to the effects of what they actually invest huge sums into – real estate, fuel and utilities. Economists in their payroll, need to go along with this orthodoxy in order to keep their jobs these days. So we have developed a ‘capital myopia’ to the real effects of what actual inflation in living costs means for the ordinary worker on or below average wages and with average debt in home owning or with outgoings in rent.

Neo Conservatives argue that the market will sort out the balance between wages and the cost of living, and interference with this natural set of checks and balances creates instability, dissatisfaction amongst workers (jealousy, idleness) and dissincentive to invest. This is pure ideology, just as much as Leninist Marxism is. In practice we see what the net outcome of it all is in taht voters in the most Neo Conservative orthodox countries have just voted their establishment out of power. Enter Trumpanomics and Br-exit stage left!

There are two main reasons why Neo “Lib” ideology is not borne out in practice. Firstly, for a free market to operate we need perfect competition and perfect, endless supply. Wihtout those two we do not have the condition for market economics. In the housing market we have seen that supply is restricted by a major factor – metropolitisation. There are more jobs centralised in the major cities, many of them incidentally public sector. To have a job which covers the cost of living, and reflects modern educational ethos, more people have to move to the larger, more influential cities. It can be argued that capital collude to restrict the supply of real estate to a level at which their return on investment, income from rents or liquidation value is sustained at unusually high levels. This is poking at corruption, so for legal reasons let us not rummage into any masonic hall discussions,  paying local politcians ‘consultancy fees’, colluding with green belt protection and so on.

Secondly to why Neo Conservatives keep only half of society happy at any point in time, is that workers are not actually free, existential entities who can have those ‘flexible portfolio careers’ Tony Blair talked of.  Our behaviour is on average conservative with a small c, we avoid risks and seek stability. Also we lock ourselves into some handcuffs which means we are often not in a position to negotiate wages ie we cannot threaten to withdraw our labour, or we do not have time to attend interviews and so on. We own property, we have things we really want to save for or fund, we get sick. We as employees are not in a good postion to negotiate better wages, the employer is in a position to say no or offer just what will reduce turn over of staff.

Of course some workers gain rare and sought after skills,  are recognisably hyper productive, can find better paid jobs near where they live.  Others become self employed and can then negotiate a wage if you like, more realistic in the market as the case may well be. Others exit ‘earned income’ and become rentier owners. All these people do more for society all but the oldest or maddest lenninist marxist or budhist monks would assert. Taxes disincentivise them, and bottom end price fixing further does this  and erodes the values they have earned by making a percentage ‘worhtless’. Only that is not really the truth as you can see in Germany, France and Scandinavian countries, where incidentally it seems they are more truthful about their true unemployment rates too.

Oh but Scandinavia has a high suicide rate because people are so bored, the beer is ridiculously expensive (temperance movement in there somewhere people) , there are no private businesses left, loads of people are “sick” on the state. Germany has 5.8% unemployment they say- ahm, no that is if you average figures out from 1948. It is reported as 4.1% in 2016.  Germany also has a skills gap and generation time bomb for highly paid jobs in production and service industries and probably a wider inclusion of some ‘under-employed’ in that unemployment figure which the UK and US systems dare not include.

Very many of the above average employee (non owner) worker are still in unionised industries, many are directly in public service and many ar indirectly paid for by predominantly public funding, such as doctors and pharma researchers in the USA, people who work for defence or NASA suppliers. When you start to slice and dice the economy and where the high value workers are outside the financial machine, there are not that many in fact who don’t rely on state funding to make their jobs economic. The private sector pure and simple, primary extraction, retail, competitve manufacturing does not employ that many high paid workers. Yet that sector is always the one we should not interfere with because it would devalue the sectors above it.  Evne in those sectors, a degree of income in sales comes from of course, public employees.

As Liberal Billionaire Nick Hanauer, hardly a ‘socialist’, says one issue with the highest paid workers who are in investment and the finance sector these days is that they cannot spend enough of their money in the consumer economy– it is not physically, chronologically possible and not in human nature for we shom are not shopaholics. They use their large surplus income over and above what they need for fairly lavish lifestyles,  and capital gains in things like share options and swanky first appartments, to them build little family empires like the Trumps. They build a secure future for their offspring and their retirement, and they worry about tax and inflation erroding that value which is no longer gernated from ‘working’. However they in doing so they move into property and that ‘earned money’ does not recirculate in the consumer economy, it contrributes to the errosion of those workers worth and net spending power.

The errosion of workers worth realtive to their real costs is the big issue at the lower third end of the scale, and in the USA, even up to average wages where a half of America are only two pay cheeques or less away from bankruptcy. Also it spills downward into what is now ‘under employment’ instead of unemployment. This is where of course there are only part time jobs available, in retail and personal services most often, to the unskilled or those with hugely superfluous skills living there.  Both the US and the UK government actively support this status quo and supply of cheap labour with welfare-in-work and free labour via work-fair style programmes. More than half of average households in the UK receive more in ‘benefits’ (including family tax credits ) than they pay in tax.  That is not a result of bad socialism, that is a result of hidden capital subsidisation to a dysfunctional economy where governments still want to wryly keep people off the streets with their ‘pitchforks’ with their  cries of liberty, fraternity, democracy when there is not bread on the table.

In the propaganda machine which is the right wing media, jobbing economists in the securities and capital markets and surreptisiously paid for economic “think” tanks and movements like the Tea Party, the message is this: More freedom for capital and less taxation on capital makes for more jobs. The examples are often given as jobs ordinary working class people relate to – construction, manufacturing and the like. These jobs only make up 20-30% of western economies now and less than 25% of GDP. Financial services are the biggest single part of the economy now, and guess what most of that (as we saw from the collapse of Fanny Mae and so on) is based on consumer debt, pensions and insurance as income fuel. What we are actually being asked is to give more freedom to capital to invest in those structures which take more money from us in our daily necessitites.

Property by ownership via mortgage or by renting, has become the largest single expense for average workers and is often disproprtionately higher for those on lower incomes.For these groups Travelling to work has become more expensive due to deregulation of busses and trains, and that people have to drive further to work in order to have an affordable roof over their head. All this inflation is hidden from what economists use on a daily basis to make currency trade rates or national credit ratings.  In fact those forms of inflation are good for the ‘headline’ inflation they like to use – the consumer-price index (formerly the RPI)based on mostly food and some other items. People are more price sensitive on food because they have high and variable costs just to have a roof over their head, a warm lving room a hot shower, and a ride to work. Another example within this ‘Capital Myopia’.

The net outcome of this is that ownership gets more and more concentrated in fewer hands. That is the nature of capitalism. Ownership in this context means not only new supply of real estate and rental appartments, but also of banks who lend mortgages. As Robert Reich (love him or lothe him) points out we have a ‘suspension bridge’ graph which neatly bounds a peak in accumulated wealth (national capitlization) in 1928 and 2007. The two years before the great crashes of the global financial system.

Now comes the great hipocrisy of Neo Conservativism and the head in the sand that Liberals have: from 1929 it took both the ‘new deal ‘ (oh yes it did, look at the figures and not the right wing BS) and the war to turn mass poverty around. Almost two decades before a new normality and prosperity in peace time began. This time though in 2008-2012, public money  came quicker – we had in effect crypto-Keynsianist policy in immediate bail outs and “qauntitative easing” which by in large worked to fix the finance industries insecurity, but of course did nothing to address the real problem- too much of the US and UK economy is based on consumer debt and rentier economics.

 

Part II – Inequality in Scotland

I read read with some disdain, the rather patronising  critique by Michael Fry in our Scottish Independent Paper, The National on how  a free Scotland will struggle to deliver greater equality and address poverty without dire consequences for the economy. That was of course written from the ‘economically correct’, Neo Liberal ideological stand point, a system of political economic doctrine which will go on to deliver only more inequality.

Neo “Liberals” are very quick to point to the dangers of wage-inflation, and forms of controlling prices and supply of things like housing. There is a natural way of things they say. The market will solve all problems, from cradle to grave, if only allowed to do so. Poverty can always be worked out of. What they turn a blind eye to when espousing their propaganda is the actual inflation in the costs of living, how this compares to to the nominal consumer price index, and the realistic ability of employees to negotiate wages or change jobs.

If we think about two simple economic factors, income and outgoings and plot them on a graph – and as you like, look at individuals, couples or families– we get a truer picture of what is going on in the ultra orthodox Neo Liberal dominated economies with Westminster and Washington as their seats of government. At the low income end, where basic cost of living crosses the curve of income, we have a point of absolute poverty a.k.a. the bread line. Take a third curve – credit- and think of necessary repayments to service this people have- we then see more visibility for people who are being dragged downwards into the area of poverty and over the bread line.

We in the majority 2/3 rds of the income and wealth scale, spend an increasingly higher proportion of our income on the basics of life – housing, energy and getting to work. Servicing credit and using credit to cover basic costs is also on the rise as a proportion of our outgoings. However Scots experience wages which do not keep up with this inflation,  or are even stagnant under ‘austerity’ policies. Those in the top third of society of course,  gain an increasingly higher proportion of their wealth from our basic needs,  our ‘pay to play’ in the economy. Hence the crash of 2008 and why it will happen again.

The Neo Liberal agenda has become a platform for wealth apology and poverty denial. What we see in housing, utilities and transport is inflation and more earned income in the econony being converted into ‘unearned’ landlord or “rentier” income. This imbalance between wages and costs has driven the dissatisfaction with this political-economic epoch of the last three decades. Clinton and Blair in their time, tacitly accepted most of this model. The unrest in society has lead to two monumental events this year – voters choosing the  voodoo economics of Trump and Brexit.

Voters in England & Wales, and the great ‘rust belt’ of the USA feel the pressure on their standard of living and experience poverty in their communities. They have chosen the little 3 – 5% (recent) immigrant population as their scapegoat, while embracing the notional ‘taking back of control’ in their new leaders’ rhetoric as offering some hope for in turn,  better control over their personal economy. I am pleased to see the Scottish majority of voters choosing a different direction.

In much the same way as in Russia, where Leninist Marxism was thrown out by the people as being an unworkable doctrine, voters have through these two political earthquakes in 2016, discarded the net outcome of Neo Liberalism. They reach for new alternatives from new and quite unsound principles, Neo Liberalism has run its’ course. Indeed if you care to read Thatcher’s bible ” a Constitution of Liberty” and other works of this ideology you will understand how similar to the communist left and nazi-ism Neo “Liberal”ism is. It is a cold, extreme and often perverse philosophy which is unsustainable when we see dogmatic adherence to its teachings, and ‘capital myopia’, (blindness to the realities for ordinary people),  from economists who worship it.

To paraphrase firstly Churchill – free market capitalism is the worst of systems, except for all those ever tried before. In policy we need to see the difference between investment in productive, value creating capital and that which wants to sit on the rent from our housing, utilities, transport and debt-interest. The former needs freedoms and a degree of pandering to by government, the latter needs to be seen for what it has become – rentier exploitation of the lower third of earners in society. We need to understand that the true inflation in cost versus income is a ‘fulcrum effect’ which hits those on lower income hardest. To paraphrase a second time  what Dennis Healy said “squeezing them until the pips squeak” with dogmatic economic ideology is not the answer. 

 

 

 

 

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