Friday, Feb 13, 2009
Opportunity for a new politics
New Statesman: This is not just a devastating recession: this is the New Depression
Blunt speaking from the New Statesman: "For what we seek - and the country demands - is new ideas, urgent alternatives to the failed politics of the post-Thatcher consensus."
Posted by letthemfall @ 10:50 AM (1372 views) Add Comment
45 Comments
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1. flashman said...
In 1973 inflation was roughly 600% higher than it is now and unemployment was 50% higher than it is now. Qualifying for a mortgage was ridiculously hard and you were lucky to get a mortgage rate of less than 15%. People in 1973 didn't claim to be in a depression. Were they all harder than us or did the Bay City rollers cheer everyone up?
2. stillthinking said...
I find articles like these rather distressing, particularly placed in New Statesman. The implication is that the financial politics of the right have failed, and by implication, the free market. The left have failed. Completely and utterly failed and have led us to ruin. We all know what the origins of the Labour party are, ostensibly to promote fairness in society by allowing the bulk of the population to keep more of the products of their own work.
However, in recent years New Labour have moved further and further away from their origins, and more into a public sector movement representing only those of the public sector. For me, this is the establishment of a regime, and we are beginning to see the appropriation of wealth by this regime.
Already in the UK the public sector comprises 50% of the workforce, and when Mervyn King talks of an economic reduction of 4%, lets face it, he does not mean equally spread. He means that the private sector will shrink disproportionately.
This is dangerous ground. The population will be desperate soon for work, whether in the public sector or not, and now we find a consensus shifting finances towards state control also. The links between the heads of banks are quite incredible.
We all know the outcome for "socialist", "centralist" states. Poverty and corruption. When you read the media this is the untold story. I have no doubt that eventually this recession will end, however, the political landscape will be with us for a very long time and it is starting to look very ugly.
3. flashman said...
stillthinking, you are reading way too much into NuLabour actions:
"However, in recent years New Labour have moved further and further away from their origins, and more into a public sector movement representing only those of the public sector. For me, this is the establishment of a regime, and we are beginning to see the appropriation of wealth by this regime".
NuLabour wanted to be a popular government so they spent enormous sums of money on improving health and education etc. Like all socialist governments they spent too much and didn't achieve anything. There is no despotic plan. They are just a bit useless
4. inflation is eating my savings said...
In paradise, it matters not whether we are socialist or capitalist.
The Bay City Rollers were Number One when I was born- it was a different time with different values. It is highly possible that people were happier. An existence closer to hand-to-mouth has surprising results on the psyche.
5. letthemfall said...
flashman:
As you say, inflation was high in the 70s. In a true depression one would expect deflation as economic activity becomes severely constricted. In recent years getting a mortgage became ridiculously easy, but this, as we are seeing, is not to say conditions were worse in 1973. They may turn out to be a lot worse now. We'll see.
stillthinking:
I agree that Labour have moved a long way from their origins, although I don't see what you mean about it being a party of the public sector, unless you mean they have upped public spending, sorely needed in my view. Given the transfer of wealth into the hands of bankers, CEOs, etc and the static wages of many of the lower paid, one could equally say it is the party of the bosses. In this sense it has become similar to the Conservatives. The "third way" has been shown to be just an empty slogan.
Socialist is not the same as centralist, as in the state holding total power. I don't think the NS is suggesting the market has failed so much as the unregulated or lightly regulated free market as initiated and promoted by the Thatcher govt. Given that we have effectively had economically right wing govts since 1979, I would say that it is the right which has comprehensively failed.
6. flashman said...
letthemfall,
Depressions take many shapes. Is Zimbawe not in a depression because they have inflation? In the 70's, if you had no job and there was run away inflation, you were in your own personal hell. When people suffer badly there is a depression. It doesn't matter what the economic definitions say
7. mrmickey said...
I read somewhere the way to look at politics is on the far left you have total government such as the fascists & communists and on the far right no government and anarchy. The only difference between the communists and fascist was their approach to the ownership of business, the Communists owned all business whereas the fascists allowed business to held in private hands although they still dictated to business what to produce. Therefore you have to ask yourself which direction are we heading in, towards total government of the left or less government of the right. I think even if the conservatives, a so called right wing party, are voted in we will continue to lurch towards the left away from personal freedom and towards more state control.
8. letthemfall said...
flashman:
Zimbabwe is not so much in a depression as in a dictator-inflicted collapse. A depression is not defined by suffering, even though it causes plenty. Anyway, the situation in the 1970s was different, and mainly the consequence of the oil crisis. Now we have a debt crisis, and its magnitude may well lead to depression - many years of economic contraction.
9. flashman said...
We have more personal freedom that almost any other nation on earth. Our level of moaning to personal freedom ratio is however pretty bad. Wake up and look where you live. Would you prefer to be tortured or have the congestion charge? Yes, NuLabour are a bit nannyish but we have a vote. Kim Jong is a bit like AIDS. He'll have to die before he's gone. Brown is more like Chlamydia
10. letthemfall said...
mrmickey: I imagine the bankers would wholeheartedly agree with you.
11. stillthinking said...
Hopefully I am reading too much into it, and I agree with you flashman, borrowed too much money and useless.
However,
1) the public sector is expanded and expanding
2) the banks are moving towards nationalisation
3) a larger percentage of private income will have to be appropriated by the state in the future
4) the ability of people to save is being replaced by the hope that the state will provide
5) (a killer IMO) people are starting to see government work as more attractive, better paid, nicer conditions etc than private sector
6) private sector housing provision is in a mess, people want social housing (same as 5 in some ways)
Probably using the word regime seems too strong, but this is a lurch towards a "socialist" central planning system. What else does it look like? The media are currently portraying our economic crisis as a failure of the market, but there is no market, insolvency doesn't lead to insolvency, making a loss doesn't lead to closure...
It is not a good trend irrespective of how the UK arrived in this position, hapless or cunning plan. What is worse is that the general population are starting to look at working for the government in a totally different way. I am. I consider a well paid government job to be ideal. This is obviously terrible for the country.
This is more than a trend IMO.
12. techieman said...
Flashman too much shang a lang singing. Its all relative isnt it - please dont go further back to the 3 day week and the inkspots!!!
We arent in one yet [D word] but am thinking we will be and because its "off the top" it will feel much much worse.... come back Woody!
13. techieman said...
stillthinking - im a bit copnfused by your comments " insolvency doesn't lead to insolvency, making a loss doesn't lead to closure..."
1. Depends how big the loss is and how long its perceived to occur for before demand contraction results in cost saving resulting in owners losing staff.
there is contagion because insolvency leads to consumers being laid off which leads to contraction in the aggregate demand if this effects all sectors of the ecomony.
2. Therefore insolvency does lead to insolvency just a bit more quickly than one. If there is the ability to rtetrain / substitute jobs and industries then at worst the micro local economy suffers - eg coal mining BUT if this affects all sectors as the switch is tripped then we are talking about spiraling contractions.
OR have i misinterpreted your post.....?
14. mrmickey said...
Stillthinking your spot on, I'm working in the NHS at the moment and the salaries they pay management are comparable to industry, why would you work in industry busting a gut trying to make a profit if you can get a nice job in the public sector on the same money plus job security and a nice lumpy pension at the end of it. They never sack anybody in the NHS they just move them sideways the reason given being that it would cost to much to get rid of them.
15. flashman said...
stillthinking, I agree with almost everything you say but I personally see working for the state as a ticket to hell. The growth of the state is best viewed as a bubble. It is unsustainable and you don't need to worry too much about it. This recession is providing wonderful opportunities. I bet almost everything I had into a house price/market crash and boy am happy now. I see Gordon as my accomplice. Saddly he'll be replaced soon but then with any luck there'll be another idiot
16. stillthinking said...
techieman, what I mean is that companies must be allowed to fail. The banks should have failed. The Indian car company should have failed. Forest fire for green shoots. Insolvent companies need to be closed, not rescued. Unprofitable companies should be closed, not helped to limp along.
We should not be looking to "rescue" RBS, because that only hampers the creation of new banks. Pretending that depositors money is not at risk but shareholder capital is, is a false distinction IMO. Banks should be run like Lloyds.
Your argument about contagion, as a loss making company goes under then aggregate demand lowers and perhaps an otherwise healthy company also goes under, doesn't stand up. The otherwise healthy company obviously isn't healthy if dependant on a loss making enterprise. You suggest swapping the contagion of lower demand, and the ultimate health resulting from a recession, for the much worse contagion of unviable companies all burning through UK real wealth courtesy of the government!
I think you are being pernickity as I am previously aware from your posts that you advocate for the banks "Default and yes a relatively quick pain".
17. letthemfall said...
I suspect that allowing banks to fail - a large number would if state support were withdrawn - would result in economic collapse. All remaining banks would experience a run and credit supply would fall to zero. It is difficult to imagine an orderly transition while new banks are set up and the old go to the wall. Correct me if I'm wrong, but some of the views here seem to suggest that the public sector is bad, so should be shrunk to an arbitrarily small size; private sector is intrinsically far more efficient so should be given free rein; and the present govt are more incompetent than any previous govt and should be hounded from office. As simple as that?
18. J. Wilson said...
Stillthinking- I agree with your perspective. Here, here.
I'm right behind you; should the question be asked by some government agent... then I am perhaps a LONG way behind you!
I though your comment about "insolvency doesn't lead to insolvency" was aimed at the "socialisation" of losses. Again a good point.
Sadly, many of us dont have access to that arrangement. We will have to suffer the consequences of our actions.
19. techieman said...
ST - I am talking at a macro level. I didnt say they were healthy i am just saying that the collapse of one company can and does lead to the collapse of others when this occurs throughout the economy. I am not saying its good or bad - just that it happens. Im not suggesting that they (the companies) be allowed to contniue regardless. I am saying that if you lay off someone then that person must cutback (particularly if he is indebted) so his demand diminishes which results in the sale of less goods and less income to the company that produces things he used to buy etc etc.
I have always agreed that we shouldnt bail out manufacturers and have been shot down - essentially my view is if you cant sell your product at a high price... lower it! But I said that we should bail out the (retail) banks. My reasoning is that one mans deposit is another man's loans and therefore because of massive contagion throughout all sectors the collapse of the banking system would create a meltdown. I have said that the debt needs to be expunged from the system, whether by default or liquidation. I still think that and that creates debt or credit deflation, which is obviously where the problem for the banks and an economy built on debt lies. I accept that i might be wrong on that - i think one or two banks can fail (like they have in the Us and like B&B has here) BUT in terms of retail banks i really do think they are too big too fail.
I am not one for CONTINUALLY "punishing" the people that work there for there mistakes - they can be and have been sacked but lets not do a witchunt. They have "paid" enough (save perhaps for some of the fat cats- The Hornby's of this world are , some would say, beneath contempt).
20. techieman said...
Letthemfall - i didnt have the benefit of your post while drafting my latest... but i agree with you (blimey this is getting to be a habit!).
21. flashman said...
stillthinking, your 'forest fire for green shoots' idea is a little harsh. There will be definitely be contagion to otherwise sound business and an unnecessary number of people will suffer. If the UK enacted this policy of total abandonment then we would permanently lose a large portion of our GDP. There would be no coming back. Our competitors would gleefully pick up the slack. A pragmatic approach should be adopted to pruning duff business. The human suffering caused by Pol Pot style re-births should also be given serious consideration
22. J. Wilson said...
Let,
"I suspect that allowing banks to fail - a large number would if state support were withdrawn - would result in economic collapse".
Have they failed already?
Which banks?
Large number....please tell me how many.
Economic collapse? What do you mean and how can you know this?
I fear this is bank spin (which we are all told).
Why not start a few fresh new banks and see what happens?
Ultimately, the gov control bank licenses, they wont issue new ones because there will be a run towards the new unencumberred banks.
Having new banks set up would prevent the "collapse of the economy", but not the collapse of the bank/state.
Mexican stand-off.
But dont believe the spin.
23. techieman said...
ST - sorry about there and their and "too fail" - was in a bit of a jennifer!
24. stillthinking said...
The only assets a bank has are either the labour or the assets of a debtor. There is no real money to move. A run on the bank means that there is insufficient paper money to supply people who want to withdraw funds. Moving your money to another bank doesn't change the source of the wealth, your wealth however long you want to stretch the chain comes down to your originals banks debts due. So the only run would be on the currency itself as people attempt to exchange assets from a broken bank to a viable foreign bank. So the only control needed would be foreign exchange controls, which we have had before.
The money that has been made by those who STR is not there, if the people who bought into the housing bubble can't pay their debts then those savings/deposits are not honoured. Simple. Fake honouring them by printing money is meaningless because the real value will fall anyway.
As an aside, that is another lie, the supposed "recapitalisation" of the banks. They are not being recapitalised. Their losses are being covered. For recapitalisation to occur then all losses would have to be covered and then -additional- money put in.
The savings are not there. A default whether through absolute loss or collapse of value is inevitable. So better to accept the honesty of default.
But my main point was that the political expectations of the UK are moving for entirely the wrong reasons towards state expansion, which we have seen in many countries leads to poverty and corruption. I hope that New Labour will lose the next election, but I am not so sure because they have garnered such a self-interested voting bloc that maybe impossible to dislodge.
25. bellwether said...
Disapointed to have missed out on this post. Anyway, Flashman agree that our perspective as to what amounts to a eco disaster is totally skewed. Mind you Bay City Rollers were sht and Chlymadia is the silent killer.
Kind of agree with ST on Labour although some of the most distrubing controls on liberty have come from Europe eg Proceeds of Crime Act is a horrorific piece of almost orwellian legislation. Actually I don't normally ever buy conspiracy bs but what's been deemed necessary in light of the threat of terror is an abortion.
All said tho I don't think it matters what the governments do and don't do now, economically matters are out of their hands.
26. stillthinking said...
my reply was for lethemfall 17 if it seems out of context. Of course everything should be gently done. Nothing drastic. Gentle hand on the tiller...
I do agree that healthy companies are at risk and should be protected. My -only point though, was that we are moving in an undesirable political direction which has been tried before and has always failed to provide real wealth for the population, and the current crisis, is starting to be viewed as a failure of free market enterprise, which it is not. And you may well say Flashman, that government employment is a bubble, but how on earth to pop it? Breaking union demands is difficult, half the population are involved.
27. flashman said...
stillthinking, the political expectations of the UK are categorically not moving towards state expansion. It is almost universally expected that once the financial panic (whenever that might be) is over, there will be a reduction in state spending. The markets or (perhaps the IMF if it comes to it) will insist on a reduction of government debt.
28. letthemfall said...
techieman: We even know the same Bay City Roller songs!
29. stillthinking said...
I hope so flashman. We shall see I suppose.
30. techieman said...
yep LTF - ode to british economy "Bye Bye Baby"...
31. stillthinking said...
"Chancellor to rescue public works projects with billions in bridging loans..."
...!
32. bellwether said...
It is odd that the financial cisis is seen as too little state intervention when it was in fact state supported and endorsed. There are layers to this (including Browns crowing (I can't mention Brown and not think of sh!t) about record quarters of growth) but the credit boom was caused by a premeditated loose fiscal policy,IR'ssupported by artificial CPI measures and neglect,in fact,celebration of the housing boom.
To watch the panto of Goodwin etc in front of committee of MPs was indeed fcking laughable
33. letthemfall said...
stillthinking:
What you say about bank assets is true, but to make savers pay for borrowers mistakes (or misfortunes if you like) would be not only unfair, but politically unacceptable, provoking riots and, as I've said, collapsing the economy. Yes, the banks' losses are being covered, but with the idea of making them good - eventually. That is the idea of extending credit, is it not? The losses are so great that many will stand as losses, but heaping the losses on savers would be catastrophic and guarantee depression.
I would be surprised if Labour won the next election; I would be depressed if the Conservatives did because their policies are just the kind that caused all the trouble in the first place. A coalition would be my preference, with the handful of deep politicians like Vince Cable as leading members. I've no great expectations though.
34. stillthinking said...
If you sell something to somebody who can't pay for it, and the only insulation you have is the abstraction of the banking system, which is broken, then you won't get your money. Maybe the government can reassign wealth. Maybe the government can change the laws about debt recovery.
If I sold a nearly broken car for 3 million to some gubbins who turns out to be incapable of paying anything, then I will have done worse than if I had accepted a reasonable price of fifty quid. I completely take your point though. It isn't fair, but it also isn't fair to take others money to support such an insane deal.
As it now turns out, houses have been sold at prices above the capability to repay, with the added sauce that foreign loans dwarfing our own petty housing market are also unviable. This means that the savers deposits are unbacked and don't exist, probably why so many have dumped the pound on another sucker over the last year.
Hence the governments attempts to reduce the real value of savers wealth through below inflation rates, and apparently through printing. You can have your savings, but they will be printed.
This whole thing makes me depressed because the damage has been done over the term of New Labour, and is too late to avoid now. The only successful couplet was STR and get out of sterling. Which, IMO, shouldn't be possible in a well managed productive economy because the implication is to concentrate your efforts on taking a slice of an ever diminishing pie off your idiot fellow countrymen, instead of working.
Maybe it is our noble duty to feed off the less capable and then emigrate.
35. bellwether said...
ST I'm not with you here. Land and Property is plumenting in price, the stock market stands on the precipice, commodities similar, unemployment is rising and labour getting cheaper - in absolute terms currency has never been a better a bet. I don't see these conditions changing. I don't see anything the govt can do being remotely enough beyond printin a outtrance. What is your apprehension here?
36. letthemfall said...
I certainly agree with you about our largely unproductive economy, exemplified by the house price nonsense, though I suspect the losers are not so much idiotic but less avaricious, or just plain unfortunate. But I disagree with you on the public sector, which I think is probably more productive than the private sector in many ways, although it cannot be measured in profit terms. I''ve seen some big improvements in public services in my time and feel that adequate public spending promotes a healthy and fair society. The greatest damage to our economy has been delivered by the private financial sector, in the face of the apparent helplessness of the govt. I think most of us can agree on that.
37. bellwether said...
lettemfall i've never been a fan of the public sector maybe because in my experiece (usually councils) they are spoilt lazy and inefficient. Maybe it is different with essential services.
The financial mess was critically (as above) a state phenemenon, set up, sponsored and endorsed by GB etc
38. letthemfall said...
bellwhether
The financial mess is manifestly a banking phenomenon. The govt is culpable insofar as it allowed it to happen. You can blame it all on one person if you like, but note that all govts since the War (or before that?) have failed to deliver a stable economy.
39. stillthinking said...
My apprehensions are the permanent devaluation of sterling being reflected in the purchasing power of my wage, higher council/income taxes and import inflation, an inability to go on holiday and an unnecessary lengthening of high unemployment as the UK pretends we don't have to restructure, even though the restructuring will take years. Further, what I see as wealth redistribution occurring from the poor to the rich sticks in my throat (guess which group I am in) on a daily basis.
Small boxy unpleasant flats in gangland London becoming more affordable does not cheer me up. Although I will not be in the situation as those who bought at the peak, I will be poorer than necessary as a result of all this.
40. bellwether said...
Lettemfall we have a difference in opinion on this but not a major one I suspect. Although now wondering if we crossed a few weeks back over the cause of the crisis. I was thinking it was strictly and ultimately about land and you, I think, were stating it was to do prinicpally with banking epherma.
ST you are sounding pessimistic today! If everything is falling in value against currency and I did list the things that unquestionably are that must be a cause for some optimism. I am not rich but kind of middling and actually see this as an opportunity to become relatively wealthier. You have foresight which is a lot more than most and the rules of the game have changed substantially over the last year.
41. Alphabetzoo said...
Willem Buiter (amongst others) has addressed the 'financial catagion/too big to fail' issue through his proposals for a good bank (not bad bank). His blog is very readable.
42. sold out said...
ltttthemfall@3.23pm
"But I disagree with you on the public sector, which I think is probably more productive than the private sector in many ways, although it cannot be measured in profit terms. I''ve seen some big improvements in public services in my time and feel that adequate public spending promotes a healthy and fair society."
Not sure i understand your love in with the public sector.Productive maybe, but not from a financial perspective.
I have no doubt that everyone appreciates the services they provide and agree that they promote a healthy and fair society.
However without the private sector, the real engine of any economy where will all the Tax receipts come from to pay the public sector?
As the private sector contracts then its obvious that the public sector will also, unless they are going to be paid out with all the New QE money.
A coalition Government is probably as you say the best we can hope for to steer us thru this mess created by tories and nulab.
43. letthemfall said...
sold out:
Love in!! Sounds very sixties - before my time don't you know.
Well, blaming the public sector is an old chestnut and it really has little to do with our current problems. And money is just an exchange for work done, so what public sector workers do contributes to the wealth of the country too. And they pay taxes. In some ways the public sector is little different to the private these days, in that both provide services - not so much manufacturing about now. Public conditions of employment are generally better, something to aspire to rather than denigrate. Mind you, councils annoy me too sometimes.
44. Letthemfall said...
sold out:
Love in!! Sounds very sixties - before my time don't you know.
Well, blaming the public sector is an old chestnut and it really has little to do with our current problems. And money is just an exchange for work done, so what public sector workers do contributes to the wealth of the country too. And they pay taxes. In some ways the public sector is little different to the private these days, in that both provide services - not so much manufacturing about now. Public conditions of employment are generally better, something to aspire to rather than denigrate. Mind you, councils annoy me too sometimes.
45. Whathpc said...
What a miserable bunch you are on this website - complain about this and that, when those nice bankers and property developers have tried to add value to all our lives. As you are so miserable, I would like to introduce you to a new game -- it really is an awful lot of fun - it is called the Gordo Game.
Objective of the game is very simple. Whatever savings / assets / hard-earned cash ('fraid those speculative gains on property don't really count in this category) - get them all into one convenient place... and here is the good bit -- find one of those very deserving bankers / developers and leave those assets in their front garden..... preferably in a wheel barrow -- you don't want them to strain their backs!! This game is really good fun and will save you the utter exasperation of the Government taking every penny off you to subsidise those that have already filled their pockets. The winner is .... well I will let you work that out !