I wrote what follows below in May 2020. The coronavirus was then developing – but the reality of lockdown, social distancing and much else was still unknown to us, although it was apparent that they were coming.
The focus of my commentary at that time – which came to 4,000 words in all – was to suggest that the government would have to make a decision on whether it was to be jobs and work that were to survive the crisis or the financial system, underpinned by over-valued stock markets and property prices, that was to do so. My suggestion, which is clear in what follows, was that it had to be jobs and work that should be prioritised. Thankfully, for a period that was the case: the furlough scheme was the clearest indication of that.
However, it would seem as if we are now in a different era. It was almost bizarre to hear Kwasi Kwarteng say recently that the UK economy is currently transitioning from one equilibrium, based on high immigration and low wages, to another based on low immigration and high wages as if he, first of all, thinks that the concept of equilibrium actually exists, and secondly that this is the only transition that we are facing.
The reality is that we are facing a transition much more profound than this. A financial edifice based upon the exploitation of natural resources is coming to an end. It is no longer possible that we can pay a return to the owners of the world's natural resources, whether they be raw materials or the land on which the properties in which we live and work are located, or those banks who create the money that many must borrow to facilitate their access to these resources, and simultaneously meet the costs that will arise as we undertake the only transition that really matters now, which is to a sustainable economy.
That there are enormous pressures on households at this point of time is becoming very clear. Fuel prices are increasing, largely because of mismanagement. Supply chains are being disrupted, largely because of political incompetence, but will now have an inflationary consequence, even if it is temporary. Tax increases at this moment are malevolent, but happening. There is talk of stagflation, although I think it unlikely as there is insufficient coordination in current workforces to demand compensation for consumer price inflation.
What that, however, suggests is that there will be other forthcoming pressures if, as seems likely, the cost to consumers of some items increases as the transition to sustainability progresses. In that case the trade-off between jobs, work and personal incomes as opposed to the interests of rentiers and the financial system is still one that has to be decided upon by any politician, but which almost all are ducking at present, or not even foreseeing as a decision that they will have to take. In that case, the commentary that I made, reproduced below, in May 2020 seems to be as relevant now, so I share it again as the basis of discussion at this point in time given all that we have learned since I first wrote it.
Looking forward
Let me be a little more forward looking. There will be a time to restore value after this crisis and the shockwaves it creates are dealt with.
The problem that this crisis will have eventually highlighted is the fact that we have focused our attention on what has, in effect, been the creation of balance sheet wealth during the course of the last 40 years. This has not been generated from work, or from the investment of resources in the creation of real value. It has instead been generated by encouraging the flow of ever-increasing sums of money for what has been called investment (but which has actually been saving) towards a limited range of financial and property assets whose availability has been shamelessly restricted in supply, so guaranteeing almost perpetual increases in value. That sham, for that is what it has been, has now been shattered. The genie cannot be put back in the bottle. And nor can anyone now seriously believe that value can be created in this way, ever again.
We have, then, to understand that value creation does not come from for financialisation, or balance sheet manipulation of the type we have got used to. It does, instead, come from work, which produces value as a consequence of the inherent worth of the activities undertaken. And, if (as most societies think desirable) one generation is to look after its predecessors when they reach old age then what I have long described as the fundamental pension contract must be respected. This contract, which is implicit within society, and not legal, is that one generation (the older one) will through its own efforts create capital assets and infrastructure in both the state and private sectors which the following younger generation can use in the course of their work. In exchange for their subsequent use of these assets for their own benefit that succeeding younger generation will, in effect, meet the income needs of the older generation when they are in retirement. Unless this fundamental compact that underpins all pensions is honoured any pension system will fail.
This fundamental pension contract does then also respect that value comes, not from financialisation, but from the creation of value through work which is not transferred between generations through the transfer of ownership of savings products, but is instead transferred through the creation of real added value resulting from actual investment activity.
We can rebuild society. It can be sustainable if we respect the constraints that our planet puts upon us. We can transfer value within it. We can sustain populations. But we can only do these things if we simultaneously recognise that there is no magic way to do so: financialisation as a source of value creation was, and always will be, a myth. It is work, and work alone, that generates value, and even then it can only do so if we respect the constraints that nature imposes upon us.
The crisis that coronavirus can has created will be fundamental, and could be existential, quite literally. But it need not be the latter if we take action now. What it does require is that we accept that it is not a few working in financial markets that create value in our society, letting them claim that they are the masters of the universe. That is not true. Instead what we have already learned from the coronavirus crisis is that it is care that is the most valuable commodity that we can create, whilst friendship and community are the things that we value most. Each requires effort and so too does all value creation. Nothing can shortcut this, but we've been sold the myth that there was a fast-track, and that has proved to be untrue.
To survive our government now have to make a choice. They can seek to preserve the myth. They can pretend that the asset values that the myth created are still real and seeks to preserve them. Alternatively, they can face reality. They can give up the pretence that there are assets of worth left within very large parts of the financial system. They can take the necessary steps to deal with the consequences. And they can, as a result, seek to preserve jobs and the businesses that help create them whilst building an entirely new basis for banking and pension provision.
Alternatively, they can crash what remains of the economy that provides us with work in a vain attempt to preserve the interests of the rentiers who have dominated our economy for decades. That attempt would, however, be in vain: there is now nothing left to save.
The only difference between the two routes is that one preserves some value, and the other preserves none at all. Whatever we do we face the most staggeringly difficult economic decisions, but some at least have good outcomes, and others have none.
What will our government do? Who knows……
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The government is longing to get back to the protection of asset holders and rentiers that has held sway for 40 years. Pretending that the economy is on the verge of getting back to “normal”. The end of furlough and the reduction in Universal Credit has put paid to any pretence they are concerned about people and work. They think that because there are labour shortages in certain key areas and wages may go up a bit this will be seen as “levelling up” and they don’t have to bother about the bigger economic picture. On the pension side, again they are not bothered – already reimposed TV licences and abandoning the triple lock to guarantee a decent pension.
Bill and others are right. But it must be emphasised that this government HAS ALREADY DECIDED. They are ideologically committed and have always been so. A different political/ economic approach will only be considered by a different, political party. The super rich will get richer and the majority (including the “middle classes”) will have less surplus income available after their required spending on housing, health, education and transport. A poorer and more dangerous environment, corrupt police force… what does the Conservative Party represent apart from misery for the majority? But where are the Opposition Political Parties on all this? General statements are not enough. Specific and radical policies for changes to create a fully working welfare state which is environmentally friendly would be.
In summary, it is not by creating another “Arab Spring” that virtuous, political/economic changes takes place but by clear and fully worked out political visions supported by strategy and action.
The Citizens of Manchester should be laying siege to the Tory party conference.
Putting the NHS supporters and staff as a lead cause – just like we did in the 90’s when demanding pay rises for nurses.
Here we are again – history stuck in a groove for two generations.
200,000 Covid Excess Deaths is certain now.
Winter approaches and the bodies piling high.
The NHS is being hollowed out and sold off just as was promised and revealed by the leaked agreement at the last General Election that Starmer did NOTHING with – the great Knight dupe , as he is now fully confirmed to be a agent of the anti democratic Crown and its evil clowns. He only attacks the membership that demands the return to the hard won post war covenant – that set up the best public services in the world paradigm – just like Kinnock did; that let the NeoLib con merchants and Brittannia Unhinged cackling monsters run riot aided and abetted by the quisling NuLabInc and its current spawn; young scion Blair enjoying his parents betrayal of the country and his dynastic rewards, becomes richer than his mummy and daddy, with some pathetic business model launch and funding by the usual Banking Dynasties, paying out for delivering our public services and students into their grasping hands with debt from before they are out of their teens!
The engineered fuel shortage and abattoir crisis along with turkey pluckers shortage and hgv drivers failure to be tested is reminiscent of the green goddess fire trucks distributed under Thatcher – it is simple emotional button pushing by the same old Crown that rules us with its rusty iron claws and diversion as they rob us blind with aggravated force.
– I expect inevitable fuel tanker accidents by use of such amateurs on our public civilian roads.- it is careless and dangerous.
As the fascist state moves from crushing independent journalism and these who would point at our masters invisible economic lies to attacking actual university professors with fake AS accusations the press and MSM being simple guards against gathering of protest – there is simply only one way to resist – ON THE STREETS – by physical storming of their castles and gaols and their neo-Nuremberg rallies.
Fighting the Brown and Black Shirt idiots who bought into the racist lies that allowed the direct attack on the EU and our happy part of a peaceful Europe for this century thrown out with our Welfare and Public Services.
So let’s start with the Tory conference, then with our controlled Opposition and this centuries new Jarrow before they trick us into another wasted generations whilst the rich get richer again.
I agree.
The idea of higher wages is just spin – a convenient justification for the pain of BREXIT but also an excuse to stop furlough and the £20 universal credit removal.
We are going to be ‘nudged’ (well, actually, whipped financially) back into work.
And as the rentier question has not been addressed, lets watch the wage levels reduce shall we over time as the rentiers do what we know they do – come back for more of their share of the output, time and time again.
I hope I’m wrong BTW, but I don’t think so. Enjoy the wage increase whist you can BTW – which will of course be eaten into by higher energy costs and NI amongst others.
Strange that where the Government has the power to increase wages significantly (and pensions) it refuses to do so. How much did they offer nurses? Other public servants? What about the triple lock? The minimum wage? All ways of levelling up the Government can do directly, and all rejected as if poison by this Government (and the official Opposition).
Well, we now have it; the essence of the priorities of Conservative Neoliberalism, delivered with complete candour by the Prime Minister:
“I’ve given you the most important metric – never mind life expectancy, never mind cancer outcomes – look at wage growth.”
No doubt in the Conservative Press Office will now be making an unstinting effort to interpret that observation as meaning exactly the opposite of the plain meaning that everyone can see, and the whole of Britain knows is both accurate – and chilling.
Agreed
I tweeted it
Very chilling
And not even true….
Given the prediction of 100000 homeless families after the end of furlough and the £20 universal credit increase I suggest that landlords might find themselves rather unpopular as might their perceived political allies.
I am bemused by any discussion of the FUTURE emphasis of government policy. The clarity of its direction could not be more stark. A long time ago, I read something about a 40 40 20 electorate. Two fingers to the 20 (UC and food bank scroungers who mostly don’t vote), one finger to the second 40 (hard working families stupid enough to soldier on with low wages and insecure homes, but whose votes can be split by xenophobia, culture war and flag waving), leaving you with the 40 that really matter. Tories get that, especially the ideologues currently in charge. Starmer gets it too and of course he doesn’t really believe he can take the votes of more than a handful of them. He can make sure the nebulous UK ‘left’ is reeling and disorganised and that will satisfy his real employers and ensure his knighthood.
Now, I entirely accept I’m a touch short on detail here, but readers of Tax Research don’t need me analysing the poverty machine of this government. The crudity of the strategic plan I have just outlined is precisely at the level Johnson and his ideologues operate. It’s vicious and focussed and the fact that precise policies are frequently incompetent and the product of breakfast meetings nursing hangovers or chats at the club should not obscure the conscious drive at the source. The terminology of class war may be unfashionable, but the waging of it is relentless.