Andy Crow suggested why neoliberal austerity might end in a comment posted on the blog overnight. He said:
Businesses need customers with money to spend. They are getting thinner on the ground by the day.
He's right. They are. And not just in the UK. That's true pretty much everywhere.
This is going to hurt. New money gets its value from markets. And markets get their value from the belief that there will be future profits which people (call them pensioners and others whose funds are directed by witless pension companies) will buy into now in the hope of securing a share of that profit at some time in the future when they might need to live on it.
New money has, however, been heavily associated with neoliberalism and all that goes with it. Including austerity.
But neoliberalism and austerity have downsides. One is that, as Andy notes, people don't have enough to spend. And, second, they don't have enough to save. The deregulation of pensions was exacerbating this. The sole reason for enforcing new pension contribution payments in the UK was, in my opinion, to defeat this trend for the gain of capital markets, again in my opinion. Pension provision has nothing to do with it.
And if Andy and I are right then all we need to know about the reasons for neoliberalism collapsing, as any Marxist will predict it should, are laid out before you. That's not because of a rising proletariat: it's because neoliberal economics has sucked the life and the income out of too many markets and too many lives.
The result is that the husk that is left is based on a belief that the system can continue as it has and yet the foundations that made exponential growth to date possible are being dug out by the very politics that this system promoted.
The creation of value has been substituted by the desire of the wealthy to secure a rent that exploits others. That is what is sucking the life out of neoliberalism.
But remember, neoliberal economists are just hired hands. They have shaped politics, the economy and austerity. I do not for a moment pretend otherwise. But let's also be clear: they were funded to do so. As Nancy MacLean has suggested in Democracy in Chains, the Koch brothers funded neoliberalism to suit their own goals. And now neoliberalism is going to fail its paymasters.
What then? In a world where the paymasters realise that they need prosperous people, to what creed will they then subscribe?
Or will they give up on the pretence of supporting democracy at all, and simply ignore the need for consent?
I don't know. But I do know that the absence of customers with money to spend, let alone save, is going to change the economic order.
We are in for an interesting ride.
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“… the absence of customers with money to spend, let alone save”. Why do we need people to save?
We don’t
Neoliberalism does require it though
It’s what supports their wealth models
I think the symptons are wrong. After all, population, nominal money supply, and GDP are at an all time high.
When businesses trading services with customers for the customer’s money, both should gain. But that’s not happening to the extent we would like when in the High Street because of high rents, regulation, and an interventionist government which decrees that a lot of activity that consenting adults might wish to engage in is illegal. And don’t get me started on other barriers to trade such as stamp duty.
The diagnosis though that neoliberalism is to blame is spot on Jimmy Hill
WTF?
This post (above) is talking about the effect that poverty and inequality have on aggregate demand.
Marco, have you been to a Toby carvery?
Peter,
No, I have not (as may be apparent) and had not thought about their existence until now. I take your point though. Thanks for reminding me.
@ Toby Carvery
TC says, “I think the symptons are wrong. After all, population, nominal money supply, and GDP are at an all time high.”
The mysterious ‘They’ say that a candle burns brightest before it gutters, splutters and dies. Perhaps neo-liberalism is fast approaching the gutter/splutter stage? I live in hope!
The mysterious ‘They’ also say, “Each disease contains within itself the seeds of its own destruction.”
Given that the word disease is made up from dis – meaning away, apart from, anti – and ease, and further given that neo-liberalism causes an awful lot of unease in an awful lot of quarters then maybe its well on the way to destroying itself? Here’s hoping that’s the case before it destroys a good deal more than just itself and its acolytes.
TC also says,”But that’s not happening to the extent we would like when in the High Street because of high rents, regulation, and an interventionist government which decrees that a lot of activity that consenting adults might wish to engage in is illegal.”
I take it that by illegal activity you’re referring to the oldest profession and probably the oldest pastime activity of drug taking? And perhaps the ‘Cash under the Counter’ culture so beloved of Del Boy from Only Fools and Horses?
If so, then these activities might still be illegal (or at least soliciting, dealing and dodgy trading are) but didn’t George Osbourne include them as part of GDP during some Autumn statement about three/four years ago?
If so, then that just showed how desperate he was to dick around with GDP figures trying to make them look better than they actually were. After all, by definition of being part of the Black Economy, nobody actually knows just how much those activities add, or detract, from any economy be it black, white or any of 50 shades of grey.
I could be wrong, but it was my understanding at the time that this was the first time that a so-called chancellor saw fit to include illegal proceedings in GDP. Now that’s what I call raging hypocrisy and then some. Talk about don’t do as I do, do as I say…. What a two-faced twonker GO was/is!
Henry Ford was a man with some wacky ideas, but one of them was to increase his workers pay so that they could buy his cars.
That’s called communism in the minds of neoliberals
https://www.theguardian.com/news/2018/feb/15/why-silicon-valley-billionaires-are-prepping-for-the-apocalypse-in-new-zealand
They are off to New Zealand.
You have put your finger on the heart of two related issues which lie at the heart of Western decline :
1) Having supposedly won the cold war, we are now all becoming more Russian
At the Hay Festival, Kate Raworth higlighted that economoies can either be extractive or creative. The creative model needs social and international cooperation, investment, eduction, sustainability, and support for innovation at every level of society. But the in the extractive model the owners of wealth (including pension funds) seek only to extract as much short term gain as they can from the system, regardless of any future consequences for the environment, for society, and even for future economic growth.
There is a prime example of an extractive economy in Russia, where the entirely corrupot ruling system has only one goal – to maintain control so that they can extract as much personal wealth as possible from looting the state. The neo-liberal economic model, led by UK and USA is taking us further down this path every day. When companies spend many times more on share buybacks (extractive) than on research and development (creative), and bribe the political system to give ever greater tax cuts to the owners of business (extractive), instead of investing in education, healthcare, housing and infrastructure (creative) then we can clearly see we are becoming more Russian every day.
2) The consequences of an extractive economy, indeed its main aim, is to take an ever greater share of economic growth for the elite, at the expense of ordinary citizens. This transfer of economic power has been gathering pace for 30 years, only by greater government transfers by European Governments, until austerity hit, and propped up by massive increases in consumer debt. The inevitable decline in household spending power is hollowing out our communities, taking away incentives for creative investment, and leads to structural stagnation of the economy. The fact that this is a market problem is usefully illustrated by these charts from Branko Milanovic which contrasts GINI inequality trends for Germany and USA. The three lines are calibrated for Market Income (earned income) only, then Gross Income (after social transfers) and finally Disposable Income (after transfers and taxes).
https://pbs.twimg.com/media/DbLtZMKXUAInOcJ.jpg
The charts clearly show how unconstrained neo-liberal market forces are causing rising income inequality in all countries. It is only the redistributive effects of social transfers and progressive taxation which are holding back the tide in some European countries. Redistribution can help mask the symptoms, but we will not solve this problem without addressing the imbalance beteween the power of capital and of labour. The bad news is that things are going to get a lot worse in the next decade unless we can discover the political will to implement a Universal Basic Income. This is the only practical way to give back labour market power to ordinary citizens, and frees them to create and invest in local and sustainable economic growth.
Maybe the .1% just expect the rest us to die off, being deprived of both land and money and thus life support, leaving them and their descendants alone in a planet rich with resources, as is suggested in Quigley’s Tragedy & Hope.
Good article. I’ve been preaching it for years. The end result will be that one man has all the money but what good will it do him? The effect occurs across all the sciences and one aspect is called Ostwald Ripening. Another might be St Matthew – to those that hath shall be given … I love the example of two unequal sized soap bubbles linked by a straw where the large bubble grows and the small one shrinks. It can’t be stopped, it’s basic science. In life we need rules and regulations otherwise it will end in bloodshed.
There’s an even more apt historical example, the “seisachteiah” reforms instituted by Solon (see https://en.m.wikipedia.org/wiki/Seisachtheia)
Solon cancelled all landed debts – what was effectively bonded slavery for the serfs – because the whole economy had locked up, so there was no liquidity in the economy
Does Andy have any data to explain his comment? The ONS figures here show a growth in consumer spending of 0.3% in Q4 2017
https://www.ons.gov.uk/economy/nationalaccounts/satelliteaccounts/bulletins/consumertrends/octobertodecember2017
Also – there’s some useful data here:
https://tradingeconomics.com/united-kingdom/consumer-spending
0.3% is almost insignificantly different from zero
Marx and Keynes had it right:-
“Each capitalist, Marx noted, has an ambiguous relation to the workers. On the one hand, she wants the workers she employs to have low wages, since that makes for high profits. On the other hand, she wants all other workers to have high wages, since that makes for high demand for her products. Although it is possible for any one capitalist to have both desires satisfied, it is logically impossible for this to be the case for all capitalists simultaneously. This is a ‘contradiction of capitalism’ that Keynes spelled out as follows. In a situation of falling profit, each capitalist responds by laying off workers, thus saving on the wage bill. Yet since the demand of workers directly or indirectly is what sustains the firm, the effect of all capitalists’ simultaneously laying off workers will be a further reduction in profit, causing more lay-offs or bankruptcies.”
https://larspsyll.wordpress.com/2018/02/19/marx-and-keynes-on-the-contradictions-of-capitalism
A variation on the paradox of thrift
I thought it was the fallacy of composition;o)
All three….
The retreat of Marks and Spencers is a warning that the middle class is disappearing into the ‘precariat’ who must spend everything they earn on food and rent, and can never build up savings.
That’s the end of the consumer economy, as far as consumer durables, mid-range luxuries and deferable purchases are concerned.
It’s easy to see why this is happening but, sometimes, it’s a shock to see one of the concrete steps.
Here’s one of them:
https://www.crowdjustice.com/case/indentured-labour-is-happening/
Tgat link is for Jolyon Maugham’s crowdfunded legal action to help IT graduates out of their indentures. Not their student loans: their indentures.
And, this being the 21st century, their employers have no reciprocal obligation to provide them work within a three-month period; they have a discretionary exclusivity clause – and they are using that discretion: and they can unilaterally terminate the indenture for any reason or none, and recover (in the case of Capita) the Fifteen Thousand Pounds of ‘training fees’ immediately and in full.
I have pointed out that the market rate of labour has now dropped below zero – not just below the minimum dietary calorific input to sustain an adult in good health – and here we are, with graduates so desperate for work that they are paying an employer for the opportunity and accepting indentured servitude.
I look forward to the replies from neoliberal economists, explaining how this is ‘creating wealth’.
It is absolutely not creating middle-class consumers.