Wednesday, 30 June 2010

The coming economic collapse

OK, I'm sticking my neck out here. I predict that the deficit reduction measures applied in the UK and endorsed by the G20 on Monday will lead to a global economic collapse (depression) in the next couple of years or so. This will be followed by at least a decade of economic stagnation. Reducing the deficits by half is a crazy idea at a time when we are still in the biggest economic crisis since the Great Depression. Yes, we are still in it. The mountains of 'toxic waste' created during the 'credit crunch' which lead to the collapse of Lehmans and many other banks, leading to the bailout, haven't just evaporated. They're still there. Governments worldwide spent $17 trillion on the bailout, £1.4 trillion here in the UK.

There is also the massive amount of 'toxic waste' from the collapse in the commercial property market estimated at £50 billion in the UK alone which has been swept under the carpet. The likelihood is that there were banks that were insolvent before the bailout but that this was hidden from us and many may be insolvent now. Now we have a report that the stock markets are falling because of new fears that European banks are insolvent - see here. But there is no more money to bailout these banks again. When the crunch comes there will be nothing to stop the slide.

The assumption of the 'free' marketeers has always been that the private sector will pick up the slack. But America, long the engine of the world economy, is bust. Japan is still mired is economic stagnation. It has been assumed that growth in China will help to lift the world's economy but there are sign of a downturn there now and increasing unrest from workers who are organising. In any case, the China's economy still isn't big enough to pull the world economy out of recession.

Many people think the Great Depression was about the market crash in 1929. There was much more to it than that. It was followed by further decline in the markets until 1932. The world economy only recovered due to massive American spending on the Second World War, which lead to prosperity in the 1950s as European economies recovered from the War.

No one likes a doom monger, and I'm hoping that history doesn't repeat itself. But the lesson of history is that you can't cut your way out of an economic crisis. That is what Keynes taught us. Ironically he was ignored during the Great Depression and his contribution was only really recognised after the War when things had improved economically. Then, as now, the deficit reduction hawks were in control and that lead to a decade of economic misery which was only relieved by a catastrophic war. History may well be destined to repeat itself. Not as a farce, but as a tragedy.

Monday, 21 June 2010

Government for the rich - by the rich

Tomorrow we get George Osbourne's cuts budget. There has been plenty said about this in the past few weeks, and we have been prepared for swinging cuts. It's been estimated that the cuts could create 750,000 job losses in the public sector - but this doesn't take into account the knock on effects which will mean thousands of job losses in the private sector. Of course, its not just jobs which are under attack but benefits and pensions. Once again we have been hearing the lies about how the public sector have 'gold-plated' pensions when the average pension is just £4,000 and the Local Government Pension Scheme is well funded.

The CBI has been in full class war mode, urging Osbourne to make savage cuts in the public sector and now stating that it should be made more difficult for workers to strike - to ensure that they are powerless to resist. These cuts will not help us to revive our battered economy and may not help in deficit reduction. Why? Because Keynes was right - you can't cut your way out of a recession. The same mistake was made in the 1930s leading to more than a decade of misery with the world economy in a slump. Only the massive boost given to the US economy by the Second World War was able to lift the global economy out of depression.

There is an alternative to all this - it was laid out in the Green Party manifesto. We can reduce the deficit and stimulate the economy be creating more than a million jobs without cutting public services. The answer is a mixture of green taxes and fair taxation with those who benefited most from the boom years bearing their fair share of the burden.

In a press release, Caroline Lucas the Green Party leader said: "Cuts are not an economic inevitability but an ideological choice. Politicians of all parties are now sharpening their axes to slash public spending, forcing those on lower incomes, who depend on public services the most, to pay the highest price for the recent excesses of the bankers. There is a choice. We should ask those best able to pay to foot the bill through fairer taxation. That’s the challenge I’m issuing: for that political choice to be made. It must be clearly asserted that we are not all in this together: that some had more responsibility for this crisis than others, and some benefited more from the boom that preceded it. Those who enjoyed the largest benefits must pay up now. For that to happen, fair taxes, not cuts, must become the new big idea to replace today’s callous and uncaring cuts fanaticism.”

Its important to understand that the cuts agenda is political - not economic. This is where we get to pay for the mistakes of the bankers and their chums in the market. We have a choice also. We either vote for people who are out to screw us or we opt for a real political alternative. The only party with any alternative to offer is the Green Party.

Sunday, 13 June 2010

BP is not British and its not profitable

Lets just shatter a few illusions here. Firstly, BP is not British. It is a global corporation and like any global corporation it has no loyalty whatsoever to the UK. The only loyalty BP has is to it's shareholders - around a third of which are American anyway. So when Christopher Meyer starts banging on about how BP is a 'vital British interest' he is talking bollocks. Of course, BP can play at being British if it is advantageous to do so. Equally, if BP doesn't get what it wants here it will, like every other global corporation, threaten to leave - in other words subject the UK government to economic blackmail. BP, therefore, gets to have its cake and eat it - so much for being British!

Secondly, the oil catastrophe in the gulf is not just down to BP. Lets not forget that it was inadequate regulation of oil companies in the gulf which contributed to this disaster. Where have we heard that before? Does it sound familiar? The American government and regulators must share some of the blame - just as they were partly responsible for the collapse of the banks, and hence the economic crisis we are now suffering from.

Finally and most importantly its crucial to understand just how BP and other corporations do make profits. Most people think that corporations make profits by selling stuff - like oil. Well they do, but in making or extracting and selling stuff they incur costs. The maths are simple. If they bring in more money than they have spent (in costs) they make a profit, and they are entitled to pass on that profit to shareholders - right? Wrong! Its wrong because most if not all capitalist 'enterprises' never pay all the costs that they incur. What they do is dump those costs onto society and the environment. In the case of BP the costs avoided by BP were brilliantly summed up by George Monbiot in this article - I recommend you read it. Economists have a word for these costs - they call them externalities.

The avoided costs are usually in the form of inadequate wages and environmental pollution. Corporations are able to pay staff wages on which they cannot afford to live because of subsidies in the form of welfare payed for by the taxpayer. In this country Tax Credits are just one example of this kind of subsidy. Inadequate environmental regulation here, and around the world, means that corporations are literally able to dump their toxic waste into the environment. The taxpayer picks up the tab for clean up and the local population pays in ill health and disease. One of the worst examples of this is in Nigeria where oil companies have devastated the landscape whilst making huge 'profits' - see this link.

The 'profits' of capitalism are the poverty of individuals, the devastation of communities and the degradation of the environment. Capitalism is little more than a racket which governments turn a blind eye to. The people who suffer are us, and the people who pay for it are us. Just as we are being made to pay for their economic crisis.