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Highlighting news stories important to the Civic Republican
particularly those that are overlooked or little covered in the main media.
On Newsnight this week on Tuesday, there was an interesting piece entitled “Secular Stagnation”. The object of the discussion was a vital one and congratulations are due for highlighting the problem. The discussion raised some perceptive and relevant points. However it is was marred - as is every media economic discussion of today - by a total misunderstanding of the basic principles of economics.
The headline subject of the discussion was the new low UK inflation rate announced by George Osborne of 1.2% - somewhat lower than the minimum deemed desirable of 2%. So – a problem.
The background subject was the fact of low inflation rates virtually worldwide. The average for the Eurozone is a mere 0.3% with some countries below zero, that is in deflation, and even Germany has only 0.8%. Outside Europe the Asian economies are hardly better with only the USA looking not so bad, due mainly to the cheap oil it obtains from domestic fracking.
So we are living in a worldwide almost deflationary environment.
Why is deflation bad? Because if prices fall people delay purchases and so demand falls. This leads to lower production and so more unemployment and less investment and the economy goes into a vicious spiral of depression. Usually there is some economy somewhere in the world that bucks the trend and so provides a way out of the crisis. Today this is not the case. Everyone is in the deflationary boat.
Now most orthodox economics is bunk but on this one they are right. Deflation is a disaster. What orthodoxy is less interested in is that it is a disaster only for wage earners and productive companies. For the global financial class that sit on vast piles of assets, deflation is good for deflation of goods and services leads to inflation of asset prices.
Further, inflation of asset prices means lower yields, so to take the case of your pension pot, you will get less for the amount you saved. So another kick in the teeth for people who work for a living and keep the productive economy going – insofar as it is going.
That is the “stagnation” bit of the title of this Newsnight piece – what about the “secular” bit?
This is an economist’s use of the word that has nothing to do with the normal meaning. To understand what they mean you have to try to enter the peculiar prism through which orthodox economists see the world.
For them the economic state of the country and the world does not result from initiatives by individuals, governments and companies but rather is subject to abstract economic laws that have little or nothing to do with the way human beings behave. It follows that we have little or no control over the economy.
So currently where you and I can understand the idea of “permanent stagnation” economists add their little word “secular” and this means it is ingrained and will not yield to policy initiatives.
This is why the discussion took on such a worrisome aspect for apparently we are helpless. Because economies operate according to abstract laws when those abstract laws create something bad there is nothing to be done. We just suffer and this is (don’t forget) “secular” suffering. It is permanent, ingrained and inescapable. Happy days!
But this problem is human made. And so humans could get out of it – if only they had the wit and determination. The problem is in the economic theory and also in the fact that the country is run in the service of the global financial class not the participants in the productive economy – that is wage earners and normal companies.
For the pernicious economic theory, that our governments work under and that all the Newsnight panellists espouse, we have Adam Smith, author of The Wealth of Nations (1776) to thank. Smith put forward the scurrilous idea that economies are driven by selfishness and greed and nothing else. And the more greed there is around, the better the outcome.
This is a kind of theoretical Faustian pact. You embrace bad or evil as a means of delivering good. Smith’s Faustian pact has lead to the same place as all such pacts – misery and hell. That is, where we are now – or where we are heading.
The whole of Smith’s construct is flawed but I will focus on one aspect of it that is especially pertinent to the present situation of the immoveable “secular” depression and misery. This concerns the movement and value of capital. This was the elephant in the room of the Newsnight discussion but all were too dumb to see it.
The principle here is extremely simple. Economies prosper and living standards go up when the savings and profits of the economy are retained within the economic unit, that is, the nation. This means that investment takes place within the home industry, employment and wages go up enabling people to buy more and save more and so a virtuous upward spiral results.
Henry Ford put this very simply. He said “I pay my workers well so that they can afford to buy my cars”.
But what if you do not sell your cars to your workers?
What if your workers are a whole bunch of other people in a different country?
And what if the profits generated leave the country and are invested elsewhere?
The domestic labour market does not benefit by more employment. But there is a further vicious effect on the home wage earners. The exported capital is used to produce cheap goods abroad which are then imported to the home market leaving the home workers competing against cheap imports. This further drives down their wages in another turn of the vicious downward spiral. Meanwhile the financial class benefit from the free movement of capital and from the cheap home labour available.
I say they benefit from this. But they only do so in a temporary superficial way for a depressed economy at home will ultimately not benefit them – unless of course they quit the country for one of Her Majesty’s tax havens and insulate themselves from the problems at home living on a giant private yacht. As we know, this is exactly what happens.
Smith linked his theory of greed driving the economy to the need for maximum freedom of movement of capital - for restraints on freedom would not allow greed its full vent. Since Smith’s horrible interpretation of humans and human society was published in 1776 more and more capital flight has been encouraged from Britain.
This was, for instance, the primary driver of the construction of the British Empire. Possession and control of foreign lands provided bases for placing exported capital and followed by the re-importation cheap goods to undermine the domestic labour market.
This is why you see in the nineteenth century the obscene contrast between a nation that internationally was rich and dominant whilst at home ten year old children worked out their pitiful short lives in fourteen hours shifts seven days a week in underground mines
Let me be clear this is not a criticism of capitalism as a system. Capitalism as originally conceived by the Revolutionary English Whigs around 1700, under the guidance of the great John Locke and others, is one of humankind’s great inventions.
Of course, what they created was not perfect but the basic building blocks were right. The Revolutionary Whigs were the Founding Fathers of modern capitalism.
My criticism is of the Smithian perversion of capitalism which enabled it to revert to something that in many parts of the world (including parts of Britain) reassembled feudalism. Politicians and economists have remained in thrall to Smith which is why, for instance, under Thatcher controls on capital movements were almost completely abolished.
Smith of course is loved by Tories - meaning all present Westminster Parties.
This is the real reason for secular stagnation. The reason why the Newsnight panel could not see a way out and why they see that stagnation is now ingrained and permanent is that their Smithian mindset prevents them from seeing that the problem is generated by giving all priority to freedom of capital and the operations of the super rich global financial class.
The solution, which they would never even countenance, lies in taking control of our own national economy. Tax breaks and quotas on capital movement will encourage investment at home. And we must repatriate government debt – that is, all government debt must be domestically owned. We cannot be in hock to foreigners any longer. A nation that only owes itself money, in a sense, does not owe anything.
People will say this is a “Little Englander” approach. But it will lead to “greater England” or greater Britain.
At present we are “little England” being buffeted by world events, refusing to develop our economy for future prosperity, in debt to foreigners, giving away our sovereignty, our precious national treasure (that is our savings and capital) shoved abroad so that it benefits only the financial class and no one else and with all doors open to domestic capital flight and (just as bad) rogue capital coming in from abroad looking for a quick buck
To stand tall as a nation we must drive the Smithians and their “secular” ignorance and stupidity away from any further influence on us.
They do not even begin to understand that we are in fact already an incredibly rich nation. But this wealth is not used for the benefit of the citizens. The nation is rich. But the people are poor. And becoming relentlessly poorer
For all the faults of our democracy, it still is a democracy and if we stood up for our own nation, our people and our economy we would succeed.
Your only hope, our only hope, is in this party, the Democratic Republican Party. This is the only place you will find a sophisticated analysis of our problems and viable a solution – that will work
In your gut you know that. So, for God’s sake, support us. Join the party. Send a donation so that we can make some kind of impact in the 2015 Election. We cannot do it on a shoestring.
The alternative is in the title of this piece - secular economic ignorance and misery.