Feeding the Beasts of the Economy

Modern western economies have made an odd transition away from production industry and over to the realms of funny money and the whole mortgage and real estate pyramid. The amounts which were used to subisdise production and innovation in industry are a fraction of the bail outs of the banks have recieved in the last decade post crash of 2008. Now it is apparent the recovery in this new era,  is really all about feeding the same beasts again.

Wealthy countries of  notable populus, have by in large significant natural resources and  effective, private primary extraction and agricultural sectors. This underpins a certain stability and certainty in the economy and the currency. Above this though, there was always a tacit acceptance that the tertiary service economy would grow to overshadow the production sector, the secondary economy, post the period of hyper inflation in the 1970s in western countries. Even in China, that industrial Mega factory, services now outstrip production industries as a proportion of GDP.

We are now locked  into feeding a tertiary economy, mortgage debt fuelled escalator to sustain growth in the economies of a large proportion of western countries. Every house owner’s goal is that of building captial value in property well above the rate of currency inflation. It is a self fulfilling economic prophecy, fuelled by growth in the population, metropolisation and by a reluctance to sell if the return on investment is weak, yet the mortgage repayments are still afforded.  This is the new, seemingly inescapable beast, but it is a monster which is diseased deep to the bones and vital organs, and fundamentally unsound in its cerebral processes. When it rages, there will be a new financial crisis.

This  beast is made of pure rentier based economics – we all need a roof over our heads and in other tertirary services like transport, we need to get to work. There is no coincidence that  the costs of commuting and parking are now largely privatised, and largely free from price control. The rentier beast feeds from our need to exist and be economically and culturally active as is our human condition.  In our unavoidable sickness and old age, Health services are also on their way to being fully private, with either a direct to consumer franchise or the government tendering processes we see being rolled out today in the UK.  Privatised and in the realms of profiteering yet with restrictions  placed on supply, such as monopolies, and resrtictions placed upon the consumer’s ability to choose and arrest price rises,  and create a true free market.

Like Leninist Marxism, the Free Market is a utopian vision, in reality it is subject to monopolisation, price parity and  worse than this, outright collusion and political corruption. At its’ fringes of supply chain in the third world, its’ ends are served by slavery and child labour.

Privatised services such as health and transport,  become highly inflationary to government and consumers as demand rises, yet mysterioulsy this does not by in large translate to inflationary pressure on currency. There has been was is called the great moderation in the consumer price index as the old RPI is now called. Are then production based, secondary based economies with unions and internal inflation bound to collapse then, and we must all pray to the pyramid-selling, mortgage beast ? This vision for a utopia of small, weak government and corporate freedom?

The answer to the question of a production based economy being doomed to inflation and diminishing returns, is  both yes and no. Contradictory to the inevitability,  you can see fairly clearly that the (western) German economy has thrived on manufacturing in a land with relatively limiting natural resources since entering  this new century.  They have focused on qaulity engineering, high value products and niche technical business and consumer market sectors. On the flip side of the tiger industrial nations in the post war era,   Japan has reached some natural limits on resources, and is in a period of ‘de-growth’, yet ironically this has not seen an actual reduction in standard of living, in contrast to austerity UK and US where average employees have seen their spending power eroded in the decade post the great casino crash.

Moderate growth, and moderate inflation are two of the keystones of the Neo Conservative economic policy, but another fundamental had been the mantra of global free trade. This has become the other great beast and has lead perhaps inevitably to the vast trade deficit between the USA and EU economies and Asia, following the rush to Low Cost Countries, mainly meaning China.

This is where the vast hipocrisy of the Neo Conservative era has come home to roost, and lead us to the Post Neo Conservative agenda, which we will come back to. We see very clearly that in the most ultra Neo Conservative countries, UK and USA, this so called ‘free trade’ with a command capitalist country run by the communists, has lead to the rust belts and resulting sentiment which ushered in the concurrent farces of Trump and Brexit. More on that Alt Right later as well.

China and to some extent the other asian tiger economies, have become the new production sites for even advanced, innovative products which we were promised by Neo Conservatives in the 1980s,  would be enabled in our home lands. By freeing ourselves from the heavy industry and unionisation of the past, we could realise new super productivity in the knowledge based, production economy.

The Beast from the East arose instead of a science based secondary economy. Even companies making reasonable profits in the west, are relocated to China by their boards who pander to investor demand for higher profit margins from lower production cost, via of course cheap labour. China , where of course the economy is almost a Tito Market Socialism, or Neo Keynsian model where the banks print money yet inflation is tagged by price controls and means of increasing supply via government steered national and global supply chain strategies.

Neo Liberal poltical-economies rely on cheap consumer items subject to low inflation and high competition in order to keep workers satisfied with their spending power on those meagre and often stagnant wages, and to fuel that other great monster of course the credit card beast, and for larger purchases, the remortgage / equity release credit supply.

However what is interesting here is that the secondary sector has remained constant yet if you look at its’ sources of income, government has in some countries become the biggest direct buyer or first link away customer, funding these industries via purchasing. This is in areas of pharmaceuticals, medical equipment, military, transport, IT where the government is a major buyer. Secondary demand to this are things like Medicare where the government is either directly paying employees contributions, or a large source of income is from public employees.   That is what was acceptable to investors upon privatisation. Further  we  then branch over to the keynsian nature of services, recylcing money from a very great deal of public sector spending and wages, and of course the primary sector is moved to rentier services such as commuting, and housing. So for example commuting for governmental employees to the metropoles,  which now is by in large in fact along monopolised transport corridors, or subidised roads for personal cars.

So we have these Beasts, we accept them as if they are necessary evils, and know that they are always hungry. No one can make them go away, because that would be upsetting the cosey way things work.  The way it all works, yes. That an upper third of society in terms of wage income and multiple property ownership,  feel they are free from oppressive tax regimes, while the middle third would like to be that top third, but have such high medical insurance and educational costs that they never will, and the lower third are just proletariat service sector and unemployables who are useful due to their aggregate demand as a portion of society.

All the time a top few percent in society can perpetuate their greed in actually owning the means of extracting wealth, and evading taxation,  from national economies.  While in the UK many hourly wages have stagnated for a decade and take home pay for many is reduced, the wealthiest 2% have been able to triple their capital value since 2008. Pure Marxist comment? Yes but you play the game in the economy where you will in full knowledge of this is how it works, and you just accept that this is all as said, necessary evil. Beasts we must live with and can never change.

If we dont feed the beast of property and capital values, then the whole economy breaks. If we don’t reap the benefits of cheap, inflation free products from China – the beast from the east – then we get retail inflation. Most of all if the beast of consumer credit is not fed by a rising population, then economic growth stops up.

The last point is the back to basics core of the whole rentier philosophy behind Neo “liberal” Economics. That industry is no longer important in the west when the lowest common denominator in labour costs can be found globally, and that very lowest is subsistance living and indeed slavery. That capital value, and in particular real estate, can grow without creating currency inflation, in fact the reverse, currency can gain value offsetting other consumer and supply side driven inflationary pressures. Capital can then do nothing in particular which is more than living off our existence, our basic needs. Or rather it does very much indeed to ensure some key drivers are in place for this.

Firstly metropolitisation driven by government policy of centralising services and administration, and awarding contracts to larger players in the metropoles. Hence demand for housing can be focused, and the ladder of escalation of value exploited more efficiently at a lower risk to investors.  Secondly the privatisation is not in fact reducing inflation as far as the government or consumer is concerned. The best examples of this are in power and railways in the UK, where price rises have risen ahead of underlying inflation yet subsidies to infrastructure and innovation are also higher than three decades ago when adjusted for CPI inflation. Thirdly the removal of irksome legislation – worker’s rights to organise as unions and associations, and collectively bargain ; environmental protection laws which add costs; freedom of speech which leads to demonstrations against corporates. Just this week we see the Scottish Police’s Special Branch have labelled Anti Fracking Demonstrators as ” domestic extremists”  .

The term ‘rentier’ used to have its’ own Wiki entry, but not has been subverted to being soley associated to Karl Marx, in an attempt to marginalise its’ meaning by adding the long term negative sentiment about ‘Marxism’. You can eqaully well call Margaret Thatcher a ‘Marxist’ because she understood how the mechanisms of capitalism can be used to explout a work force and render the ‘entitles’ richer while wages could slow in growth and stagnate for even average workers.

https://rcooley123.wordpress.com/2018/08/19/we-now-live-under-the-rule-of-a-rentier-capitalism-by-paul-street/

There were two inevitabilities from feeding the beasts of the western rentier economies. Once was the massive trade deficits, the other was the crash of 2008. Eventually such a crypto keynsian cycle of private debt stimulating demand, would collapse due to some small bugs along the way which would reveal the corruption in the credit pyramid and erode confidence. The consequence of these inevitabilities is the disaffection of the the lower third of society and the realisation amongst mid income earners that their prospects for personal capital were being threatened.

The political answer to this was the end of Neo Liberalism. The end to small government, rather a new form of big, corrupt government serving the corporates. A new ultra arrogant political era came to be with that old chesnut, xenophobia as the rallying call to the disaffected. Blame immigrants. Blame assylum seekers. Use fear of terrorism, of cultural conflict, of overpopulation diluting wages. Build a wall to keep the people out who have been giving you cheap gardening, house building harvesting, and food processing for years.

Brexit is finally looking like the farce many warned it would be, but it is not until the little Britain , or rather sleeping electorate, start to see that their pockets are being drained of money while the rich just move their capital over borders. In polls amongst the highest brexit stronghold constituencies, it was immigration which was the major concern, yet those self same north of england places had the lowest levels of immigrant workers living there. Xenophobia, fear of the unknown, and scapegoating – blame some other poor sod just not the rich who are so pleased to feed all the beasts. It was an assylum seeker who forced you into a zero hours contract.

Even ultra social democratic Norway is at the beginning of a slow journey towards realising a Neo Liberal political economy. The cuts in budgets to local authorities and now hospitals, plus the senseless competitive tendering betweeen one state’s rail company and another, are moves along the way, with the 30 billion Euro series of tax cuts to the wealthiest in Society being the gold rush.

But the trouble is that you can’t feed all the beasts all the time, and when you actively call those beasts, as Trump and Brexit have, then you start to play with fire. The key driver of that rather dull but secure economic growth in the UK has been a rising population. Demand for the necessities of life increase, and capital value grows on a multiplier due to the loan-thrice-income escalator.

In the UK though, hat steady growth is not coming from indigenous Britons. They are not anywhere near having that stereotypical 2.4 kids, they were by the early 00ies down at 1.7 and some believe it is now as low as 1.4 per arbitary couple . That means the UK population would decline, and in the course of two generations be half of that it was in 2000. However immigration has abated this, especially from the EU, and in particular eastern europe. They bring with them too a culture for women having children earlier, having over two on average by age 32 when married, and focuising on motherhood and not career.

Why hasn’t the economy crashed as those terrible Remoaners would have had us believe? Well Brexit has not YET happened and all the signs are that this week, the chicken run has begun in earnest. Banks are bowing to the laws on capital holding in main trading zone, ie EU not UK, and moving jobs to the continent. Major companies are moving their HQ out. Inward employee migration is halting.  Warnings about supply chain disruption and resulting factory closures and food infaltion are abounding. The threat of an Irish veto on any hard border or fake open border is present. The most pro EU member state representatives may want a more restrictive and therefore  punitive deal, like that between Canada and the EU. Those trade deals with ‘over half our exports outside the EU’ are now so desperately needed by politicians, that concessions and poorer terms than the current EU umbrella deals offer. Also a great deal of that trade, both export and import,  is linked to supply chains and logistic centres in the EU.

The average conservative MP is now a very wealthy person, with  both capital interests and strong connections to corporates which will offer them a career post parliament. Most don’t have to worry about a crash in the pound, they can transfer much of their liquid wealth to other currencies or assets abroad. Their inland capital wealth, in homes and estates, is a relative wealth which barring complete catastrophe, will remain relatively high value when seen outside the international context. You either own a bit of Belgrade or you don’t darling.  They don’t have to care about the short term effects of Brexit, they play to international corporates who are looking to gain a fifty first state of the USA where they can extract value without having the difficulties of ‘restrictive’ democratic policies in employment, environment and off shore profit exporting ie tax evasion via ‘loan and import’ mechanisms. They are securing the privatisation of the NHS in England as the brexit farce plays out, a long term major gain for their silent corporate sponsors.  Distraction politics.

In effect the Neo New Right, the Alt Right and its’ normalised political power in the UK, Hungary, Spain and of course the USA, have been able to divert a potential class war which was brewing, into a Race War.

 

Immigrants are a very visible force in a local economy, when they are the ones who go knocking door to door at employers and work long hours with little if any time off for sickness. They come with practical skills often in short supply as the culture for a (often useless) University education rolls throughout society. They work cheaper sometimes, but often they go self employed and soon are competing with their old employers on building sites for supplying labour and whole contracts.

 

 

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