2022 was not a great year. It may go down as memorable because of war and all is consequences. But that's not a reason to think it good. Reflecting on this I thought four words stood out for me that summarised the year.
Chaos
Few, myself included, really thought Putin would invade Ukraine. Those that did had little doubt that Ukraine would crumble in the face of the onslaught and before any assistance might be provided to it.
But, Putin did the unimaginable and launched a war of aggression in Europe. In the process, he showed that he, like almost everyone else, got all his calculations wrong. His army was much weaker than he thought. Ukrainian resistance was much stronger than he expected. The demands of the war on Russia were much bigger than he anticipated. As I write the war continues. No one wins from that. Almost universally the demand is that Russia withdraw.
One reason for that is Putin's rediscovery of economic warfare. He might have underestimated the power of the human spirit when faced with tanks, but he did appreciate the dependence of the west on Russian oil. The result has been economic chaos.
After Covid and the lessons it imparted, Russia's behaviour has provided a stark reminder of three things. One is that dependence on those who are not political allies is dangerous. The second is that extended supply chains are easy to disrupt. The third is just-in-time capitalism is deeply vulnerable to deliberate disruption. Chaos resulted from the realisation of these essential truths. That in turn suggests that globalisation has decided limits.
This war will end. I hope it does soon. I hope Russia is forced to withdraw. Re-creating sustainable supply chains with resilience built in will take a lot longer. Economic chaos is not over yet.
Incompetence
2022 will go down in history as the year the Conservative Party melted down. The supposed most effective political organisation in democratic history proved it was not just life expired but utterly incompetent.
There is a relatively simple explanation for this failure. After centuries of making compromises in order to pursue power whatever the circumstances the Tories have in recent years forgotten the need for compromise within a broadly based coalition of interests and have succumbed to intolerant extremism that has too often felt neo-fascist. This has attracted fanatics, but almost no one with any talent. Instead, those with ability have been expelled from the party.
The consequence has been clear for all to see. There have been so many ministers that it has been almost impossible to be sure who is in office. Those who are as the year closes are utterly incompetent. Their only plan is to see their term out. They otherwise are bereft of ideas, and have outsourced economic policy to the Bank of England, with dire consequences.
In the face of this total failure, which the public very obviously understands and blames on the government, Labour, should be riding high on ideas that could transform the country for a generation to come. It isn't. No one really doubts that it will win the next election. The sane hope the majority is small because this is a party as wedded to economic orthodoxy, austerity and the outsourcing of power to the private sector as any in the neoliberal era.
Meanwhile, people will suffer as a result of an economic policy consensus that only appeals to Westminster and Threadneedle Street and which offers high-interest rates, high taxes on the low-paid and reduced government spending when we need the exact opposite. Politics does not get more incompetent, or much more cruel, in this country than this.
Inflation
I admit I did not see this coming in the way that it has. But then I did not foresee the shift from Covid lockdown to Covid denial that happened in 2021 and which led to supply chain issues, or war, as noted above.
Covid reopening started the inflationary cycle and had worked through now (shipping rates, second-hand car prices and other indicators are all beginning to prove that).
War created a massive exogenous shock. That was inevitable. In inflationary terms, it was glaringly obviously a singular event, with it being inevitable that the impact was likely to last no more than a year. That is already being seen, although the decline in inflation that will become so apparent in 2023 does not mean prices will fall; they will merely stabilise at higher levels.
Around the western influenced world the economic reaction to inflation has been wrong. It has been assumed to arise because of excess demand when the most cursory glance at the real world would prove this assumption to be wrong.
It actually arose because of an exogenous shock to which most people had not got the means (in the form of a financial buffer, commonly called savings) to react.
The application of the policy instruments designed to tackle inflation caused by excess income when the reality was that incomes were, for most people, too small to cope with this shock, will probably go down as the worst policy mistake of this year. High-interest rates and higher taxes are penalising people also being penalised by way below inflation wage settlements, meaning real incomes for households have tumbled when they were already struggling to survive.
There can be no forgiveness for getting something as basic as this wrong. Those pursuing these policies need to be swept from the economic policy-making arena, never to return. Their callous indifference to the suffering they are causing may be on a scale not seen since 1916, even considering the failures of UK health ministers in 2020. Only class warfare can explain it as banker-led policy seeks to re-establish strong, positive interest rates in the economy to enhance the ever-upward flow of money to those already wealthy. Nothing about this can be described as economic policy as a result: it is a massive attempt at eugenically inspired social engineering underpinned by the belief that wealth must flow to those who already have it as they must be entitled to more.
As a result, this inflation creates a febrile cauldron for discontent. The current pay disputes are only the first response to a situation where class war by the few against the many is becoming more brazen by the day.
Long-Covid
This one is personal. The second half of my year was plagued by long-Covid. But Covid also impacted the well-being of millions of others, left many unable to work and reduced the NHS to its knees, given its chronic underfunding. And through all this, the government said we had learned to live with Covid.
We haven't. Nor have we learned to live with strep A and various respiratory diseases as well as Covid, both short and long.
There is an easy answer. It is fresh air. Just as clean water transformed Victorian Britain so might clean air transform the UK now. It would be cheaper, simpler and more effective than any medical treatment. Engineers almost always solve public health problems. It could be delivered quickly, too. So why has that not happened? Blame chaos, incompetence and inflation that have between them reduced the ability to think of those who believe they are competent to govern to collective jelly.
2022 was not a good year. I will look at 2023, soon.
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Exciting milestone on the tradingecon web-site: the price of gas in Europe is now back to where it was before the Russian invasion. This means that the inflation print 12 months from now will I believe be zero from reading your anal ysis.
https://tradingeconomics.com/commodity/natural-gas
Well spotted
I used it in a tweet
I think you’ve linked to the US natural gas futures market there sir.
Some small portion of US gas does come to Europe but the European futures market is more relevant shirley: labelled “TTF gas”
Ultimately there is a world market
And the trend (but not price, I agree) is similar
See https://tradingeconomics.com/commodity/eu-natural-gas
Now your point is?
This week I learnt about the “Minsky moment”, as a possible contribution to the demise of the government’s policies.
From Wikipedia: A Minsky moment is a sudden, major collapse of asset values which marks the end of the growth phase of a cycle in credit markets or business activity. https://en.wikipedia.org/wiki/Minsky_moment
I thought that Truss and Kwartang were lulled into a false sense of security before unleashing their devastating budget.
It could happen….
Welcome Back, I hope you had a nice Christmas.
I agree with all your comments. It was another ‘fantastic’ Neo-liberal year for me – yet another nail in the coffin for this credo in a world of no new ideas. The result? Zombie-land.
Putin’s Russia needed to be handled like unexploded ordnance or a dodgy firework. Instead, because of the West’s love of money and not Russia itself, we totally mismanaged Putin. We let him get his financial tentacles into the West whilst not taking him seriously like we have hundreds of despots previously for our own gain. And we failed to think strategically about energy in the long term. Don’t get me wrong here – Putin is a dangerous character but the West has a huge part to play in this debacle. Essentially because it confused capitalism in Russia with democracy in Russia. The West saw a reflection of itself when it looked at Russia and thought that that was good enough. ‘Congratulations’ is all I can say. Now the war will be pursued to save Putin’s face. Which means a worse war. I dread to think how that will play out.
In terms of incompetence, the Tories since 2010 have been the worst government ever. It has reified how good they are getting into power as their only talent. But even that is over-generous as it is not talent that has got them there, it is money – lots of money. And it is the anti-democratic use of money for this party that is still too mis-understood and under-reported. You cannot write them off until they are gone I’m afraid. And not even then. The evil that was BREXIT has proven that dirty tricks are the new normal in politics because if you are Tory and have no moral or human basis or argument for your ideology (and they don’t) then playing dirty is normal. Unfortunately, progressives are going to have to learn to play dirty too.
In terms of inflation, I’ve nothing to add except to say that it was a good year for the ossified orthodoxy driven by Neo-liberalism. I hoped that the epiphany would be that people would at last see that the use of increasing interest rates to curb inflation (using inflation to fight inflation) was just a means for rentiers to get a cut of inflation through their previously agreed loan rates but I’m not sure that this has sunk in yet. Interest rate use is now just a knee-jerk reaction based on greed – not well considered policy.
As for Covid, I succumbed just before Christmas for the first time. It was very unpleasant – especially for two days where I experienced pains in my head, shoulders and arms I had never experienced before – and I’d had a booster jab in October. I learnt how it might kill people. Basically it turns your mucous membrane into jelly. No wonder it kills the weak and those with impaired health. I caught it at work. I was told that it was good to be exposed to it to build up my immunity – the phrase ‘herd immunity’ was mentioned. As a manager with a very vulnerable member of staff whom I know would probably die from it, you can imagine that my response was far from seasonal! The only herd I could see I said was the one that went ‘Baaaa’!
My sense of smell and taste are slowly returning but it is muffled; my arms and shoulders still ache after any exertion. The worst thing over Christmas though was what happened to my son’s best mate. His Mum came downstairs on a Thursday morning to find his Dad unconscious on the kitchen floor (he was a postman). In hospital it was found that he’s had a massive brain haemorrhage. He died with his wife beside him on the Saturday – a week before Christmas. It was very close to home – he was an amiable Scotsman and the same age as me – 57.
It reminded me that life is hard enough without a bunch of incompetent, out of touch Neo-liberal fascist thugs making it worse. I shall not miss the Tories when they eventually go – which is not soon enough.
Thanks for letting me contribute BTW.
PSR
Sobering, and another almost certain Covid death. So sad.
Christmas was good, I have been made progress with some books. Last family event of Christmas about to happen. Son back to university to prepare for exams tomorrow. Normality is creating back but I did several days of not a lot.
Keep going….
Richard
“Sobering, and another almost certain Covid death. So sad.”
PSR said it was a brain haemorrhage. How can you call it a certain as in covid death? Bizarre
You clearly know nothing about Covid
I hope that you are feeling better PSR but doubt that the outlook for neo-liberalism is a promising as you suggest.
In the last month, our Chancellor has been repeating the erroneous line that households and governments face the same spending constraints – a precursor to austerity – the Labour Party has followed suit and the Europeans are talking about reintroducing flawed fiscal rules. Macro policy here and in many, if not most, advanced economies remains driven by flawed macro thinking. The coffin is wide open and the spectre remains at large….
..oh and rates will be going up further in the U.K., euro are and the US in 2023. Central bankers have the bit between their teeth are are more likely to over- than under-tighten.
Agreed
Well, petrol is down by about 30p/litre – or 20% from the summer high which suggests that energy prices are on the way down
Colin
I’ve not suggested the the outlook for Neo-liberalism is ‘promising’ at all in my view. I think that the Neo-liberal Tories are in trouble though and badly exposed. Keir Stymied’s Neo-liberal Labour might be better at walking the NL tightrope and attracting swing voters.
We are indeed though in ‘zombie land’ and everything you have mentioned is zombie economics – the policies of a dead ideology still twitching because betters ideas are not allowed, so the bad ones endure.
How long this will go on for I have idea. It could very well live on in Labour as you suggest. And if it lives on in Europe – something I have not considered – then we can expect the far right to expand or consolidate there.
None of it looks promising does it?
PSR, I think it is a mistake to equate NL with the far right. That would require you to ignore that it is the “accepted wisdom” across a wide spectrum of political views.
It is simple the economics that dominates all/most political debate today and in the near further. One of the easiest bets to make is that the next election will be fought on the basis of a NL view of government spending and how it is funded, for example.
It Is not that better ideas are not allowed, far from it. They are available to all. It is because these ideas are held by a very small minority and understood by an even smaller one….
What is that NL view?
“What is that NL view”
In the context of government spending, it is the widely held and still taught view that government spending is funded by taxation and borrowing. Or as Kelton likes to simplify it
(TAB)S
Hence, when we approach the next election the Labour Party will explain how their spending plans are fully costed, debates will take place over the “correct” level of taxation and some may even argue that we need higher taxes to ensure a better health service…
Basically in terms of NL and fascism – it’s all joined up – they are interlinked Colin.
I refer to Philip Mirowski’s ‘Never Let A Serious Crisis Go to Waste’ (2013) – particularly Chapter 6 ‘ The Red Guide to the Neo-liberal Play Book’ (pp. 325- 358) and also pp.83-88 and others.
Mirowski can be a real pain to read (this book is badly edited in my view), but if you stick with it you get there and his conclusion that Freidman and von Hayek’s primacy of markets theories were based around the assertions by Nazi philosopher Carl Schmitt is very compelling. Both von Hayek and Friedman condemn themselves just by being quoted by Mirowski. They did not want NL to be troubled by facts to the contrary.
Schmitt’s assertion ‘Sovereign is he who makes the exception’ was basically a green light to both fascism and neo-liberalism to create their own realities even if evidence to the contrary exists.
Both fascism and neo-liberalism get by on the propagation of ignorance.
The same ploys of disinformation about Jews to turn the German population against them, is used in the disinformation wars about any alternatives to neo-liberalism, so that when something new comes along it is greeted by scepticism by the very people who need the change.
The Nazis legitimised their filthy ideology by making it into science and law using the university system as part of the mechanics. Neo-liberalism and libertarianism do exactly the same.
Fascism is deeply undemocratic and authoritarian. It turns out that so is Neo-liberalism. Both work toward a mono-culture for their own narrow benefit.
Think about Chile Colin, and what is still going on there today.
It is not just that there is a war of ideas; it is that it is a very unfair and dirty war of ideas. It is the output of this war that is available to everyone I’m afraid and not just facts and why this blog and others are so important.
I think it is unwise to assume that the Tories will be defeated at the next general election.
The huge collective sigh of relief that Trumpism in America looks to be in serious decline has tended to drown out the worrying statistic that nearly half of the American population still vote for him.
Rather like all those Vox pops reported from Russia, that there are lots of Russians that still pine for Stalin, for many the brainwashing is permanent.
Don’t underestimate the power of the British media and the still sizeable numbers of Brexit voters. Currently they are humiliated, bruised and ridiculous but if nothing else Cameron, Johnson and Truss demonstrated that there is no sewer into which they will not descend to hang on to power.
Hang on, Trump supporting candidates did badly in the mod terms and Biden is ending the year on a high
I am as relieved as anybody by the failure of the Red Wave. Right now Old Sleepy Joe and the Democrats appear to be doing a good job of defending American democracy and that is good for democracy everywhere including the UK.
But never underestimate what can be achieved in the UK as a result of dominating the news agenda of all the mainstream media. You end up as we did in 1979 and 2010 with the insanity of the Guardian supporting the Tories.
Even more worrying is how easy it is to brainwash people by the use of misinformation on Social Media.
In both cases we are talking about the power of money and if the ever increasing number of UK billionaires is a good indicator, the far-right certainly don’t lack for money.
“Even more worrying is how easy it is to brainwash people by the use of misinformation on Social Media”
And worrying how easy it is to brainwash people by the use of misinformation in the British press. “Democracy” at its best?
Paul
Let’s just cast our minds back to how we ended up with his bunch of idiots – the Conservative government – from 2010.
We’d known I think for some time that the Tories were not very good. Think about Michael Howard, Iain Duncan Smith and my favourite ‘not very good’ William Hague (what a gift to any opposition). Under John Major (not a bad bloke), serious splits had made themselves known which already meant that they were not fit for office. Those splits were Thatcher’s parting gift to the party that tired of her – factionalism and an intolerance of any other POV – Fascism in other words.
The Tories only got in in 2010 because people were angry about the crash of 2008. Somebody had to pay and the ‘wise’ voter took it out on New Labour. They did not vote the Tories in for their sagacity or ability. They were just pissed off that’s all. And you can’t blame them voting for a bloke who was talking about hugging hoodies and worrying about global warming too (or pretending to as it turned out, but it was effective – I wonder if Keir Stymied remembers this point?). Once they’d got rid of a party that slashed VAT to help people cope with the ensuing recession, they voted in a party who whacked it up to 20%!! And increased taxes and expanded them too whilst withdrawing funding/money from public services and state assistance!
Why do I mention this? Because we might just be at another ‘pissed off’ point again as were were in 2010. But this time the boot is on the other foot.
And there’s a lot to be pissed off about isn’t there Paul – relatives of badly protected Covid victims, NHS waiting lists, a CoLC, the emerging cost of BREXIT (even before there has been a thorough examination of Covid or BREXIT), strikes and their consequences that have seen the end of Labour governments previously.
As long as we don’t delude ourselves that ours is the ‘most sophisticated electorate in the world’ (the biggest load of bollocks I’ve ever read about this country) we should expect the Tories to get a thick ear at the next election. It’s very simple because the British electorate are very simple too. The Tories could be out.
However (Ha ha!)…………the question is really now with Stymied’s Labour.
Basically, the next election is there for Labour to lose. And this is THE possibility. By not fighting back and enabling people to realise that it was private banking that blew up the global economy in 2008 and not New Labour, Stymied might not be the automatic choice that many might think he will be. And this might help the Tories to win – not because they are better or any good. It’s just maybe that people don’t see a difference really at the end of the day between Labour and the Tories.
What I’m saying is that our politics is in a parlous condition. And given the rather dim-witted way people choose to vote (because they conflate voting with Big Brother – it’s all about personality!!!) does not help either. It’s a FPTP tragi-comedy of the highest order that’s for sure and time is ripe for proportional representation.
Labour will win the next election and will proceed with very similar policies to the current government and governments before them. It will take some time for a new economic and political era to establish itself. As for PR…..
Excellent post that many will blank because it doesn’t fit in with their ‘short term thinking’. The police and armed forces are totally controlled by Establishment figures that will not hesitate to act in the interests of the Establishment.
The majority of the UK population is terrified at the thought of taking responsibiilty for their actions – just look at the popularity of Johnson – to a rational person he is a completely corrupt, incompetent egotist but that’s not how the mass of people see him.
As always the Nasty party will use ‘fear’ as the basis of their election campaign and as nearly always it will work. The rank and file Labour supporters don’t trust Starmer the BTL landlord and a lawyer (who in their right minds trusts lawyers?).
Paul is right – the next election is not certain by any means.Sadly the vast majority of people in the UK are ‘consumer junkies’ and junkies don’t vote for Christmas.
“Sadly the vast majority of people in the UK are ‘consumer junkies’ and junkies don’t vote for Christmas.”
Err, isn’t that exactly what they vote for?
Can’t be bothered to think about economics at the moment.
Yesterday I saw my son and his family for the first time since 16th December, They all came down with covid on 17th, my daughter in law’s birthday, and we were determined they were not going to give it to me again. My son had said the week before that he couldn’t understand why he and his son had never had it before. He thought they might have some in-built resistance to it. Now they know they haven’t.
Yesterday was the first day they all tested negative, so I went to their house for a birthday takeaway and to give them their presents.
For some reason my energy company works on Christmas day. They sent me an email with my latest monthly statement.
Having nothing else to do I checked it with the same month last year.
My bill this year would have been £460.00 without government help, even though I used 25% less gas and 10% less electricity. Government help was £200 so my bill was still twice as much as it was last year.
Last year I had a balance on my account of over £300 which went up to £390 in September. That balance is now £4.
God knows what is going to happen in April when government help is taken away.
Hope you all had a better Christmas! I really know how to enjoy it, don’t I?
Good luck…..
Thanks. Given up counting the number of years I’ve said that next year must be better.
I really hope it is for all of our sakes. The problem is what will be better?
Hopefully someone finds a cure for Long Covid and we can all get out health back.
I gave one of my granddaughters a book called NHS under Siege, and told her it’s up to her generation to make sure they save it.
Good wishes
On the subject of the NHS – the obituary of my late neighbour (who’d ended up as a senior journalist) included a headline he’d written as a junior reporter back in the 1940s: “700 beds were closed, 400 more nurses needed and 2,000 people waiting to enter hospital” – seventy-five years of progress, and we’re back to the same 🙁
To revert to Colin’s post at 10.10 am
“In the context of government spending, it is the widely held and still taught view that government spending is funded by taxation and borrowing.”
I’ve spent some time on an ‘older persons” forum over the past 2 or 3 years attempting to explain MMT and the fact that taxation doesn’t fund spending (they’re very worried that the cost of all this ‘borrowing’ will fall on their children and grandchildren) .
One or two people agree with me, for the rest the question is ‘Why are we taxed, then?’. One can explain about the other functions of taxation, but I think that underlying their scepticism is the feeling that taxation gives them some agency (and heaven knows, the ordinary citizen has little enough of that). It makes them feel that they are making a positive contribution to the country and appearing to say that their taxes ‘aren’t needed’ for spending to happen makes them feel powerless.
Perhaps I’m sadly lacking in imagination, but I don’t know how to work round that. Others might have suggestions?
Let me muse on that
They need to read Richard’s ‘The Joy of Tax’ – in fact you should read it as it lists a nice little number of reasons why tax is good and sets you up nicely to answer the question with confidence.
Overall, what I ‘ve learnt though is that in a modern economy that is awash with money (but not in the right places) and with a substantial part of that money being credit, we tax to destroy money to curb inflation. Or so we think.
If we don’t remove money from circulation, it’s like watching a bucket over fill with water because we’ve not emptied it. The water that spills out – lets call that inflation (not the best metaphor perhaps but I’m no poet).
This then sets you up to dig further into what is taxed and what isn’t. In my view we under tax credit, huge profits and really high pay and also wealth which creates pressure on inflation and over-tax elsewhere where the money is not really inflationary.
Just my thoughts – Richard is the Tax Don here though, and make no mistake.
You get it PSR
It doesn’t help that HM Treasury specifically says that one of its priorities is “spending taxpayers’ money responsibly”.
Is it being deliberately misleading, or does it genuinely not understand the process?
https://www.gov.uk/government/organisations/hm-treasury/about
It is standard neoclassical misrepresentation of the truth
Cyndy – my mistake, I meant to say that consumer junkies are like turkeys and turkeys don’t vote for Christmas ergo any party that proposed to destroy the completely irrational and destructive consumer society would never get any votes. The American economy totally depends on consumer consumption, without it, it would collapse. The UK habitually runs a deficit in import/export ratios and that was before Thatcher wilfully, gleefully destroyed the manufacturing base. What percentage of consumer purchases serve no rational use whatsoever. How much better to educate people to invest for their future instead.
My pennyworth of thoughts:
The relationship between tax and (government) spending is the same as between chicken and egg.
‘Conventional’ thought is that chicken = tax and will produce egg = expenditure, hence service. One half of the circle.
‘MMT’ says that egg = service requiring expenditure, and so money, which produces chicken = money used to pay taxes. The other half.
The great debate is over which comes first…
And that production of public, state, money (and all the rules that go with it) is one of the great public services that the state provides, and like all the rest of them has to (by the magic of double-entry book-keeping) be paid for (through taxes).
I do sometimes feel that the great unmentioned, but fundamental, feature of the monetary economic system we have is the state’s ability to create, by fiat, debt, in the form of tax liabilities: just as important as its (much more widely stated) creation of money by fiat.
That metaphor is dubious I think