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The Economy Cannot Be Saved: It Was All A Mirage

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http://www.guardian.co.uk/commentisfree/2009/oct/01/deborah-orr-economy-labour

The economy cannot be saved: it was all a mirage

The boom years never really happened – but Labour won't accept it

Deborah Orr

The Guardian, Thursday 1 October 2009

I could have attended the Labour party conference. But I thought: why squander a trip to the seaside? Yet I am still amazed by the timid mendacity of the event. There they all were, still hoping against hope that they'd soon gain full credit – and another term in power – for "saving the economy", while at the same time promising earnestly to tackle the social problems that they were voted in to curb 12 years ago.

First, why don't Labour politicians grasp that the "economy" they fostered is not worth "saving", because it exacerbated the very social problems that they are presently wringing their hands over (again)? Second, why don't they grasp that the "economy" they fostered can't be "saved" anyway? It is all over, because it was a mirage.

The transition from a manufacturing to a skills-based economy, started under Thatcher in the 80s and continued so enthusiastically by New Labour, has been a failure. Its triumphs would be rubble were it not for the scaffold of bail-out support that has been erected around it.

It's no use crying that the crash was caused by "international conditions". Not long before the financial meltdown, Labour was thrilled to observe that London had recently overtaken New York as the most powerful financial centre in the world. Britain played a huge part in setting those international conditions, under a chancellor who thought he could harness the cash generated by a free-market economy to deliver on public services and make everybody happy.

Everybody isn't happy, as the polls show only too clearly. Yes, we are pleased that the NHS has improved, albeit patchily. No, we are not sure that new school buildings make those institutions better able to cope with the multiple problems some pupils arrive with. And, anyway, does the construction of such edifices, under private finance initiatives, really qualify as "fixing the roof while the sun was shining"? John Maynard Keynes wouldn't have said so. But he wouldn't have claimed that boom and bust could be banished either.

Keynes, now, would be advocating the use of government money for home-building and railway-investment programmes, two things Britain needs very much but cannot afford, precisely because Brown was – and is not – a Keynesian. If those very things had been attended to years back, we probably wouldn't be in quite the mess we are in now.

The big growth areas in the boom were real estate and its support services, wholesale and retail, and the financial sector itself (all massively dependent on the housing bubble). Otherwise, there wasn't that much growth, except in good old manufacturing – which has proved quite resilient to efforts to outsource it. Without house-price hyperinflation caused by a supply and demand problem, there would have been no boom to speak of.

That so-called economic wonder carried a huge social price. Those locked out of the housing boom – people on wages too low to compete in an aggressive ownership market, or on benefits – did not feel they were part of this miracle, for the good reason that they were not. During the summer, the news that around 60% of council tenants got their rent paid by the state was greeted as some kind of judgment on the sort of people who "got" social housing. Instead, it is an illustration of how ghettoised Britain has become.

Did people on benefits "swing" their council flats because of the good schools and hospitals in the area? I don't think so. It is in economic black spots that improved public services have penetrated the least. But somehow, despite their ill health, their low life expectancy, the misery etched on young faces laid waste by hard lives, the poorest and the most destructively, nastily angry are pointed out as the people who are spoiling a lovely paradise for no good reason that any politician can think of.

For social capital has also been squandered in the last 12 years. Labour got its landslide victory in a rejection of Conservative ideas that the poor, the ill-housed, the addicted, the depressed, the ignorant, brought it on themselves. People had experienced the effects of public service cuts and job losses within their own families, and they understood what havoc was wreaked.

Now, our society is atomised, and the most cursory glance at the bottom quintile is enough to justify contempt and repulsion. They are bad – bad parents, bad kids, bad lots, just bad. Yet their biggest problem is that the jobs they would once have had are now done by people in China. The skills-based economy has passed them by. They are not equipped to be part of the service industry. They are, economically, non-people.

The sad thing is that the western political classes do understand that the financial crisis has been a game changer. They know they cannot maintain control of globalisation. That's why they acquiesced so politely to the notion of the G20 as the primary generator of economic policy. The idea that China could be an industrially colonial outpost, meekly making the things that we couldn't afford to buy if we made them for ourselves, is history. The west owes China too much money to remain its economic master. Brown himself realises all this, although he is unable to talk of anything more specific than: "The first Labour government of this new global age."

The political classes understand that the socio-political transition to this new phase of globalisation is going to be extremely painful. That's why the G20 nations are in agreement that fiscal stimulus must continue. The west is keeping things ticking over, and hoping that human resilience and ingenuity will find a way back to the norm of perpetual economic growth, like it always does.

But the idea of perpetual economic growth, even if it can be massaged back to life in the short term, has had its day. Even if it were sustainable on its own terms, it would still annihilate us. Just over 160 years ago, John Stuart Mill was musing on the possibility of the "stationary state", warning that the consequence of unlimited growth could only be environmental destruction and a reduced quality of life. "It is only in the backward countries of the world that increased production is still an important object," he wrote. "In those most advanced, what is economically needed is a better distribution." But for Brown, the dream of revitalised growth is still ravishingly seductive. It's his only model for political success.

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Good article, as is this one from Paul Mason (a similar message, but a different emphasis):

Paul Mason

But the bank crisis and the fiscal crisis are only half the story. Because, on the ground, after 60 quarters of growth, there are parts of Britain that look poor, are poor - and given a squeeze on benefits and rising unemployment - the prospects for such places are bleaker still

By the end of our longest post-war economic upturn one out of six households in Britain are without work; £390bn pounds had been spent on welfare benefits; and the prison population was 23,000 higher at the end than the beginning. Britain had become hugely unequal - and all this in the good times.

Britain now faces a strategic question: where will growth come from, how big should the finance sector be? The new bank regulator said much of what the City does may be socially useless; and its size may be preventing Britain's economy from finding a role in the 21st Century economy. When the regulator of the City asks questions like this you get a sense of what a massive shock - financially, politically and ideologically Britain suffered a year ago.

For the best part of two decades, in the Anglo-Saxon countries, growth has been driven by credit. In the US this has been almost a pure trade-off with wages: American median male hourly wages were lower in 2007, in real terms, than they were in 1972; the amount of debt in the economy 2.5 times higher.

In the UK there has been a third factor, standing between this wage stagnation and credit growth: wages at the bottom have been stabilised around the minimum wage; but large numbers of people are in the benefit and tax credit system. The state has been the guarantor of incomes for the poorest families, and employs around 40% of the workforce. Graham Turner explains the dilemma:

"We've been squeezing wages and allowing credit to be the main driver of economic growth: take away credit and where are we going to get a sustainable recovery? I can't see where its coming from at the moment."

There will be social problems ahead, with no "growth" to ameliorate them,

Peter.

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Guest DissipatedYouthIsValuable

Probably the most lucid piece of journalism I've seen in ages.

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http://www.guardian.co.uk/commentisfree/2009/oct/01/deborah-orr-economy-labour

The economy cannot be saved: it was all a mirage

The boom years never really happened – but Labour won't accept it

Deborah Orr

The Guardian, Thursday 1 October 2009

I could have attended the Labour party conference. But I thought: why squander a trip to the seaside? Yet I am still amazed by the timid mendacity of the event. There they all were, still hoping against hope that they'd soon gain full credit – and another term in power – for "saving the economy", while at the same time promising earnestly to tackle the social problems that they were voted in to curb 12 years ago.

First, why don't Labour politicians grasp that the "economy" they fostered is not worth "saving", because it exacerbated the very social problems that they are presently wringing their hands over (again)? Second, why don't they grasp that the "economy" they fostered can't be "saved" anyway? It is all over, because it was a mirage.

The transition from a manufacturing to a skills-based economy, started under Thatcher in the 80s and continued so enthusiastically by New Labour, has been a failure. Its triumphs would be rubble were it not for the scaffold of bail-out support that has been erected around it.

It's no use crying that the crash was caused by "international conditions". Not long before the financial meltdown, Labour was thrilled to observe that London had recently overtaken New York as the most powerful financial centre in the world. Britain played a huge part in setting those international conditions, under a chancellor who thought he could harness the cash generated by a free-market economy to deliver on public services and make everybody happy.

Everybody isn't happy, as the polls show only too clearly. Yes, we are pleased that the NHS has improved, albeit patchily. No, we are not sure that new school buildings make those institutions better able to cope with the multiple problems some pupils arrive with. And, anyway, does the construction of such edifices, under private finance initiatives, really qualify as "fixing the roof while the sun was shining"? John Maynard Keynes wouldn't have said so. But he wouldn't have claimed that boom and bust could be banished either.

Keynes, now, would be advocating the use of government money for home-building and railway-investment programmes, two things Britain needs very much but cannot afford, precisely because Brown was – and is not – a Keynesian. If those very things had been attended to years back, we probably wouldn't be in quite the mess we are in now.

The big growth areas in the boom were real estate and its support services, wholesale and retail, and the financial sector itself (all massively dependent on the housing bubble). Otherwise, there wasn't that much growth, except in good old manufacturing – which has proved quite resilient to efforts to outsource it. Without house-price hyperinflation caused by a supply and demand problem, there would have been no boom to speak of.

That so-called economic wonder carried a huge social price. Those locked out of the housing boom – people on wages too low to compete in an aggressive ownership market, or on benefits – did not feel they were part of this miracle, for the good reason that they were not. During the summer, the news that around 60% of council tenants got their rent paid by the state was greeted as some kind of judgment on the sort of people who "got" social housing. Instead, it is an illustration of how ghettoised Britain has become.

Did people on benefits "swing" their council flats because of the good schools and hospitals in the area? I don't think so. It is in economic black spots that improved public services have penetrated the least. But somehow, despite their ill health, their low life expectancy, the misery etched on young faces laid waste by hard lives, the poorest and the most destructively, nastily angry are pointed out as the people who are spoiling a lovely paradise for no good reason that any politician can think of.

For social capital has also been squandered in the last 12 years. Labour got its landslide victory in a rejection of Conservative ideas that the poor, the ill-housed, the addicted, the depressed, the ignorant, brought it on themselves. People had experienced the effects of public service cuts and job losses within their own families, and they understood what havoc was wreaked.

Now, our society is atomised, and the most cursory glance at the bottom quintile is enough to justify contempt and repulsion. They are bad – bad parents, bad kids, bad lots, just bad. Yet their biggest problem is that the jobs they would once have had are now done by people in China. The skills-based economy has passed them by. They are not equipped to be part of the service industry. They are, economically, non-people.

The sad thing is that the western political classes do understand that the financial crisis has been a game changer. They know they cannot maintain control of globalisation. That's why they acquiesced so politely to the notion of the G20 as the primary generator of economic policy. The idea that China could be an industrially colonial outpost, meekly making the things that we couldn't afford to buy if we made them for ourselves, is history. The west owes China too much money to remain its economic master. Brown himself realises all this, although he is unable to talk of anything more specific than: "The first Labour government of this new global age."

The political classes understand that the socio-political transition to this new phase of globalisation is going to be extremely painful. That's why the G20 nations are in agreement that fiscal stimulus must continue. The west is keeping things ticking over, and hoping that human resilience and ingenuity will find a way back to the norm of perpetual economic growth, like it always does.

But the idea of perpetual economic growth, even if it can be massaged back to life in the short term, has had its day. Even if it were sustainable on its own terms, it would still annihilate us. Just over 160 years ago, John Stuart Mill was musing on the possibility of the "stationary state", warning that the consequence of unlimited growth could only be environmental destruction and a reduced quality of life. "It is only in the backward countries of the world that increased production is still an important object," he wrote. "In those most advanced, what is economically needed is a better distribution." But for Brown, the dream of revitalised growth is still ravishingly seductive. It's his only model for political success.

A creative writing degree and a load of cods = Debbie.

How can she be so blind? Has she seen even what a little of what she wants gives us?

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http://www.guardian.co.uk/commentisfree/2009/oct/01/deborah-orr-economy-labour

The economy cannot be saved: it was all a mirage

The boom years never really happened – but Labour won't accept it

Deborah Orr

The Guardian, Thursday 1 October 2009

snip...

The big growth areas in the boom were real estate and its support services, wholesale and retail, and the financial sector itself (all massively dependent on the housing bubble). Otherwise, there wasn't that much growth, except in good old manufacturing – which has proved quite resilient to efforts to outsource it. Without house-price hyperinflation caused by a supply and demand problem, there would have been no boom to speak of.

I stopped reading about here...

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I find this article well written and straight to the point. She's right on the chavs and poor people.

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I stopped reading about here...

ther was a supply and demand problem....buyers demanded, and the banks supplied...simples.

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Now, our society is atomised, and the most cursory glance at the bottom quintile is enough to justify contempt and repulsion. They are bad – bad parents, bad kids, bad lots, just bad. Yet their biggest problem is that the jobs they would once have had are now done by people in China. The skills-based economy has passed them by. They are not equipped to be part of the service industry. They are, economically, non-people.

Anyone with half a brain could see this would be the end result of a 'knowledge economy'. How the politicians miss it?

The sad thing is that the western political classes do understand that the financial crisis has been a game changer. They know they cannot maintain control of globalisation. That's why they acquiesced so politely to the notion of the G20 as the primary generator of economic policy. The idea that China could be an industrially colonial outpost, meekly making the things that we couldn't afford to buy if we made them for ourselves, is history. The west owes China too much money to remain its economic master. Brown himself realises all this, although he is unable to talk of anything more specific than: "The first Labour government of this new global age."

What we have been saying here for years...

But the idea of perpetual economic growth, even if it can be massaged back to life in the short term, has had its day. Even if it were sustainable on its own terms, it would still annihilate us. Just over 160 years ago, John Stuart Mill was musing on the possibility of the "stationary state", warning that the consequence of unlimited growth could only be environmental destruction and a reduced quality of life. "It is only in the backward countries of the world that increased production is still an important object," he wrote. "In those most advanced, what is economically needed is a better distribution." But for Brown, the dream of revitalised growth is still ravishingly seductive. It's his only model for political success.

I can recommend this book:

http://www.amazon.co.uk/Growth-Illusion-Economic-Impoverished-Endangered/dp/1870098765

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Yet their biggest problem is that the jobs they would once have had are now done by people in China.

I think we'd do well on here (and I'm including myself) to remind ourselves of this. Most of the wreckage and social problems that we see around us stem from this one simple fact. Still, as Paddy Ashdown stated on Question Time a few years back, manufacturing industry is a worthwhile sacrifice if it keeps the City going.

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I thought the article was excellent. Debora focuses on the point that many on this forum miss -- namely that far from being radical or socialist, the Blair/Brown cabal have been in thrall to the City.

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I stopped reading about here...

It wasn't an article about HPI, and "supply and demand" is close enough, and is something most people understand, or think they understand. Yes, low interest rates and lax lending, etc. are significant, but there's a reason why you don't get speculative bubbles in masturbation (or any other widely available but desirable commodity).

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Growth is a substitute for equality of income. So long as there is growth there is hope, and that makes large income differentials tolerable."

This is from one of the replies to paul masons article. It's not religion that's the opiate of the people- it's hope.

I heard a radio 4 show about six months ago and there was a guy on saying that America was one of the few places where the rich were genuinely liked by the poor- his explination being that almost everyone in the US belived that they too might one day be rich- the 'american dream'

If it becomes clear to too many that there is no hope- and that this situation has in part been brought into being by the rich- the consensus that allows the two groups to peacefully co exist may break down.

Interestingly, the guy who made the comment about the tolorance of the americans to large income differentials was moving out of the exclusive suburb he lived in- his reason? "These are the areas that will go up in flames first"

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