Both main parties have big flaws in their understanding of the landscape of modern economics. This impedes their ability to formulate policies which will empower the working class and lift our nation out of its current diminished, debt dependent and low productive state.
We have done some work on exposing Labour’s 19th and 20th-century parochial simplicities in the face of massive global forces. Now a short but productive journey in Lincolnshire gives us a chance to explore the 21st-century failings of the State and its lazy wizard of Oz-like economics.
Somewhere between Louth and Lincoln in the UK, there is a field on the outskirts of a small town. A large Estate Agents board proclaims “development opportunity/shops/hotel/restaurant”. Nothing too sinister about this of course except that developments like the one proposed here are what has replaced a “real” economy of production, extraction and manufacture which used to support the financial and other sectors. The “productive” energy of the modern economy is the financial sector. The Tories claim that penalising the financial sector will reduce the number of “good jobs”. That may be true.
However if “good jobs” depend on financial engineering as opposed to real engineering then this might be a sacrifice worth making in the short to medium term. These are the kinds of discussions governments should be having with their people as whatever happens real people will be more affected than governments.
The economic model upon which our current ‘growth’ is based is a throwback to Blair and Brown in the UK and in the US the Clinton and “W” Bush years.
This economic model has been described as “post-neoclassical endogenous growth theory”. Essentially the government spends money to stimulate economic growth, investing in education, the public sector and infrastructure projects. To fund this programme governments borrow. To give its early political advocates credit they did believe it would stimulate economic growth. What they failed to grasp was the link between ‘growth’ and personal and government debt, and the global context within which all this borrowing was going on!
For desperate politicians who had collapsing ‘real’ economies, post-neoclassical endogenous growth theory offered the tonic the nation needed. The “cool Britannia” hubris was a reflection of nieve certainty this was the end of “boom and bust”.
America was ahead of the game on the same diet of debt based stimulation. Clinton and his economists also allowed such a poor framework of regulation, adopted in the UK that banks were printing millions of dollars to lend to subprime borrowers who were like an x-factor wannabe convinced they were millionaires in the making. All it needed was a lot of borrowed cash plus that blend of skills that can only be honed eating in fast food outlets and dreaming in front of the mirror and everyone could be a winner! The bankers got the commission, as the whole system shuffled towards collapse.
We all know the fallout both sides of the Atlantic. The banking crisis of 207/8 and bank bailouts to keep the economy alive and supplied with debt or rather liquidity and demand. How did we all end up here?
In simplistic terms, the financial sector in the 1980’s went from being a petit-bourgeois servant of the economy to its very effective master and by the 2000’s was effectively in control of the global economy. The success of financial sector engineering has prevented the collapse of the economies of the Western world due to its ability to mix asset value inflation, debt and confidence in an ever-expanding and planet consuming vortex of consumption and waste.
This is the world we live in today, cars, jobs, houses, holidays, gadgets and consumables. This model forged on the 1980’s hasn’t changed at all. Governments borrow and it flows into the domestic and the global markets, students borrow and after a brief sojourn in the UK it flows into the global markets. People borrow and it flows into global markets. The bigger the government the more it can borrow hence the markets love of the EU and the market’s seduction of the “Remainers”. The EU is a big beast of borrowing.
So what has this to do with a field in Lincolnshire, this borrowing and spending, “Alice in Wonderland” economic model?
Well, our farmland will give up producing food value and be sold creating wealth as the farmer makes money from the land as opposed to off the land. This he or she will bank helping bank profitability. They will also spend it, perhaps abroad, maintaining a bit of the aggregate demand the system needs whilst also fuelling the global markets.
Before the farmers gain in banked, a bank will lend money to a borrower so they can buy and develop the land. This will allow a business to be constructed in bricks and mortar employing local tradespeople and service sector workers. The business will achieve profitability allowing debt to be serviced and taxation paid. Its existence in a small town may possibly force the closure of other similar businesses putting those properties back on the open market, so the financial sector can turn the crank again, releasing more equity perhaps. Debt from elsewhere in the economy (government borrowing transformed into public sector wages for example) will provide the demand for this business and its profits will be taxed to benefit the government.
What has gone on here? Well just like in the 2000’s nothing very much. Some confidence based financial jiggery-pokery has allowed some land to be equity released, making a farmer very rich. Debt is used to build and run a business employing people and debt makes it profitable. Oh and according to the Conservatives this process creates “high-quality jobs” which is probably correct in the financial and construction sectors. This whole process is going on all over Europe, America and the West in general and it has nothing to do with creating real economic value. We know it is a caricature, but we believe it is broadly right.
The question for us all is; where does this “economy” finally end and what will the world look like when it does end up somewhere? A planet exhausted by pollution and ecological abuse. A western population who have come to rely on ecological destruction to maintain a lifestyle of debt and alienation. Cultures of faith or ideological simplicity may be ready to step in and force the return of humankind to a sustainable but gender binary harsh and essentially by modern standards abusive existence. The goose and the golden egg spring to mind!