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Highlighting news stories important to the Civic Republican
particularly those that are overlooked or little covered in the main media.
Watching one or two political roundups of the year 2015, the event that kept coming up was the Tory win in the General Election. Hardly surprising. With that victory went wipe out for the LibDems, success in Westminster for the Scottish Nationalist Party and the demise of Ed Milliband and Labour.
It was reiterated that “no one”, but no one, foresaw the Tory majority. Not only that, the mystery remains as to how it happened. Factors cited included the unelectability of Ed to leading the country or the electorate being fearful of a coalition of Labour and the SNP.
These may have been enough to account for the lack of success by Labour but no one put their finger on the reason why the Tories succeeded in gaining a fairly workable majority.
Your humble correspondent at the Newsletter did, regular readers will recall, predict the Tory victory in Newsletter No 145 of the 4th of April , five weeks before the election took place when I wrote
Nick Robinson, BBC politician correspondent, clearly missed out by not reading this newsletter, reporting the day after the election that -
"No pollsters, no pundits, no political leaders saw it coming. Even David Cameron, himself did not see it coming. This was a day no one expected. No one could take it in."
Having had seven months to reflect on the result, none of the highly paid pundits have been able to figure it out. They are still thrashing around. Much like the causes of the First World War (which I explained in Newsletter No 137 Sunday 09 November 2014 ), it is an historical event without explanation. It represents an inevitable lacuna in our historical knowledge.
Well, the true mystery is in how people, who spend their lives observing and analysing political events, can miss the factor that guaranteed a Conservative majority.
In addition this was not something that arose by chance - that was caused by Harold Macmillan’s “events, dear boy, events”. It resulted from a deliberately engineered policy to divide the nation and leave a significant percentage of voters fearful of change. These voters saw how Tory policies had benefited them and sought protection for their gains by voting for the Conservatives.
The Tory strategy for dismissing their coalition partners and continuing in government alone began almost soon as they gained power in 2010. George Osborne, Chancellor of the Exchequer (Finance Minister) was probably the brains behind it, as David Cameron has shown himself to be rather inept at times. But once Osborne spelt it out to Cameron, it must have appealed immediately to all his Tory instincts. The path was set.
The policy was obscured to a degree by the constant preoccupation of all parties and commentators on the cuts being made to government services and spending.
But to the beneficiaries it was obvious what was happening.
The government in 2010 was faced with a truly dreadful situation – a declining economy, a large government deficit and a lot of unemployment. Orthodox economics was no help in addressing these problems for its solutions for such eventualities are always the same – we need to liberalise the market, cut government expenditure and just wait and see with fingers crossed.
But governments and central banks have long since discarded orthodox economics as being of any help in achieving their aims. They haven’t told the economists themselves, or the universities that teach economics, and so these fools just continue spouting the same misguided rubbish.
Their theories are completely unable to account for the events visibly before them, but this failure has been evident in various different ways for 200 years. It has never persuaded them re-evaluate their theories before. It is certainly not going to do so now.
The particular howler that is relevant here is the so-called “quantitative theory of money”. I have written before about this before at length and so I will just summarise it now for our present purposes. This theory tells us that, if there is more money in the economy, prices of consumer goods will go up. So, according to this standard text book law, when the central bank swelled the amount of money in the US and British economies during the period 2009 to 2015 through “quantitative easing”, prices in the shops should have gone up dramatically.
But they did not go up. There was even talk of deflation of prices – prices actually falling. The BBC’s economic expert, Evan Davis, now fronting Newsnight, referred many times to the “dog that didn’t bark” shaking his head in his genial way. He, as an orthodox economist, did not get it.
But George Osborne and the Bank of England did.
When you increase the amount of money in the economy this has no effect on consumer prices. The increased supply of money all goes into asset prices – and all asset prices go up as people chase assets into which they can place the new money. This, of course, includes house prices. And this was the Tory strategy.
By increasing the value of houses, house owners were richer and felt richer. So house owners were more inclined to support the policy of increasing the money supply than others. They may not have fully understood how this was being engineered but they would know that is was something to do with Osborne’s jiggery-pokery, with the Bank of England supporting him.
So the Tories created a whole raft of people who were benefitting from their policy of making house prices go up. These people would form the back bone of electoral support. Why would they trust Ed to look after them when Osborne had the proven track record of doing so?
But Osborne was not satisfied only with the policy of raising house prices by increasing the money supply. He wanted more to ensure the triumph of his party in the 2015 election. And so he displayed his hand by actually subsidising first time buyers to buy houses. This was a blatant case of using public funds to engineer a situation favourable to the government.
And it worked beautifully, perhaps, a little too beautifully, as the news was full of reports of house prices escalating to unknown heights.
But he had still another trick up his sleeve aimed at pushing up house prices even further. He decided to allow people to cash in the value of their pensions for a lump sum. This applied to the whole value of your pension so people would be left very vulnerable to unseen shocks. The usual Tory slogans about this giving people freedom to organise their own financial affairs were paraded but the sole aim of this policy was to flood the economy with more liquidity to further ramp up asset prices.
And, as always, mainstream economists and commentators were unable to see the real strategy. In his quiet moments Osborne must have had a big grin on his face. He had everyone fooled except those house owners who were benefitting from his engineering.
But the beauty of the scheme was that people don’t like to be thought greedy and so not all would own up to supporting the Tory manipulations. Hence, the opinion polls were totally wrong.
Even the Tories themselves seemed genuinely surprised at the success of their strategy. But then, of course, they are constantly following polls and ratings which distort the reality.
Nothing, I repeat nothing, else was as crucial to the Tory win as the policy of inflating asset prices by enormous injections of cash into the economy. It was awareness of this factor that enabled me to predict the election result. I have not heard of a single other commentator who has rumbled this.
But the government definitely has. It was its covert policy all along.
Another beneficial effect of the house price upwards spiral, as far as the government is concerned, is that, because house owners felt richer, they increased their spending in the economy and, low and behold, the recession seemed to be ending and employment went up. The fact that most of the new jobs were not, and are not, quality jobs is easily disguised by concentrating on overall figures.
So where do we go from here?
Can the government simply continue this policy with a view to another good result for them in 2020?
Well, this strategy, by its nature, must be temporary as you cannot increase the money supply ad infinitum and you cannot make house prices so expensive that the few new entrants into the market, that there are, cannot afford to pay their way. You can squeeze them and drain them and demand that they be ever more “hard working families”, to use one of George Osborne’s favourite phrases, but there has to be a limit.
However, if house prices just continue as they are the house owners will want to maintain their advantage and so will be reluctant to risk voting for another party which may take a different view of their concerns.
The danger is a shock which could well arise. Interest rates going up is the obvious one. So what you will see over the next five years is a government and its lackeys at the Bank of England bending over backwards to keep interest rates on the floor.
What about the other parties?
Whatever his virtues, Jeremy Corbyn is definitely unelectable, just as Ed was, although for different reasons. So he won’t be Prime Minister.
Whatever the result of the EU election, the issue of European membership will not be a live issue dealing a major blow to UKIP’s hopes.
The SNP, following the Scottish referendum, has been shorn of the toxic policy of Scottish independence and so will entrench its position in Scotland shutting out both Labour and Conservatives.
And the LibDems are finished for a generation or more after Nick Clegg, to use Diane Abbot’s expression, “trashed their brand”.
It is difficult to see where the challenge to the Tories will come from.
Unlike Cameron, who can be a ditherer, Osborne is cold-bloodedly ruthless and we will see this quality displayed towards his party colleagues, as well as his economic policies, as the Tory leadership approaches in 2018 or 2019.
He looks unstoppable for leading his party into the 2020 election