The peak of the economic roller coaster
While most of the establishment media look only at the headline economic figures, it is always worth turning to the data itself. When we do, we discover a far more nuanced picture than the headlines suggest. Far from the picture of labour shortages driving up wages which (together with a pinch of “Putin’s oil and gas cuts”) result in higher prices, real wages are falling and activity in the domestic economy is already in decline.
Inflation – the expansion of the money supply during the pandemic – is already over. The growth of M2 money supply has already slowed to a recessionary rate. The job vacancy crisis which was all over the headlines a year ago is coming to an end – vacancies are falling and lay-offs are increasing. Bankruptcies and voluntary insolvencies have risen above pre-pandemic levels. Retail sales data is mixed because people are buying less but paying more. But both consumers and retail businesses have a very negative confidence rating for the economy in the immediate future.
Despite this, there is little indication in the published data – which is months, quarters or even sometimes a year old – to indicate that rising wages and rising prices are driving inflation even higher. Which is why, for example, the central bank is talking tough about raising interest rates even higher, while supposedly more level-headed politicians argue against potentially inflationary tax cuts.
Why the mixed picture?
One reason is that politicians and central bankers always look backward (which is why, incidentally, none of them saw the 2008 crash coming either). Investors on both sides of the Atlantic are currently looking at inverting yield curves as a reliable indication that markets are already pointing to a recession… and very likely a deep one. A few can also see the growing shortages of energy and commodities whose real-world effects are spilling over into the banking and financial sector. We mere mortals though, can also see indications of things to come just by looking at people’s changing habits. If you, or people you know, have cut down on non-essential car journeys, you are far from alone. The trend has been pronounced across the UK. The fact that local media are now publicising the cheapest petrol stations, and that this results in queues miles long, is another real-world indicator that things are not going well. But change like this can take months to filter through into the official data.
This is even more true of lay-offs and business closures. Having only just survived the labour shortages of Autumn 2021, businesses are unlikely to lay off workers just because sales have dropped. Nor are they likely to declare voluntary insolvency just because their cashflow has fallen. Instead, they will soldier on in the hope that something turns up. Perhaps the central bank will blink and cut interest rates. Maybe the government will cut the right kind of taxes or issue more grants to beleaguered households. And so, the headline insolvency and employment data is likely to continue to look positive even as businesses are stretched to the limit and as tens of thousands of workers are at risk of redundancy.
An analogy for the situation we are in – and I believe it applies to the current moment – is of a roller coaster slowly cresting the big curve at the start of the ride. Small business owners and commuters who have to pay ever more for fuel to get to their jobs, are the passengers in the first car, the establishment media and a large part of the public that they misinform are in the middle cars, and the politicians and central bankers are at the back of the last car. Those business owners and hard-pressed commuters are looking into the massive disinflationary economic collapse which is just beginning. But to the central bankers and politicians, the situation continues to look like a 1970s-style price-wage spiral which demands that even more currency is sucked out of the system in order to provoke the very recession which, in reality, has already begun.
This, of course, has always been the conceit at the heart of monetary and fiscal policy – the unfounded belief that central bankers and politicians can engineer an economic soft landing by turning the monetary spigots on and off with precision. In reality, they end up turning economic downturns into full-blown crises… wild roller coaster rides indeed! And this time around, with the banks now too big to save, they may well engineer the destruction of the post-war international dollar currency system itself.
A return to soup kitchens
If you were looking for a single indicator of what has been happening in the UK since the 2008 crash, you could do a lot worse than to look at the growth in foodbank use:
With real incomes for the bottom half of the population declining, some growth in foodbank use was inevitable. But it was the assault on what remained of Britain’s social safety net by the Conservative-LibDem coalition which caused real damage, pushing the number of users up over a million by the time they left office. A further seven years of Tory rule has done nothing to slow that growth – the number of users rising above two-and-a-half million during the pandemic and remaining above two million after the Covid restrictions were removed.
The trouble is that foodbanks were designed as an emergency stop-gap measure operating within an otherwise stable economy. They were not intended as an ongoing solution to food poverty and particularly not in an economy which is close to freefall. And this means that sooner or later the model is going to fail.
Foodbanks are classic charity insofar as they involve better off people and companies donating food which is then distributed to those in need. And as with all such charitable models, they fail at precisely the point when they are most needed because inflation and recession result in far fewer well-off individuals and companies donating far less food. As Dan Whitworth and Rob England at the BBC reported this weekend:
“UK food banks have seen a rise in demand since the start of the year coupled with a drop in food donations… More than 100 organisations that run 203 food banks from the anti-poverty campaign group Independent Food Aid Network (IFAN) were contacted. Almost all said more people were coming to them for help, while more than half reported fewer food donations. Organisers said the trend was ‘unsustainable.’”
Ironically, Tory MP Lee Anderson was (sort of) correct on one point he raised in a widely slated story about his local foodbank forcing people to undergo budgeting and cooking classes prior to being given food. Batch cooking is something that impoverished people learn pretty quickly because it is less wasteful. This is one reason why soup kitchens emerged around the world in response to the depression of the 1930s, and why a network of “British Restaurants” – Churchill refused the proposed name “community kitchens” – were developed to feed the nation during the dark days of 1940 and 1941:
“Communal feeding centres were originally created to assist the working poor but rapidly gained a broader appeal. For example, to those who did not have access to cooking facilities in their homes because of bomb damage, those who did not have access to a workplace canteen, men affected by the evacuation of women, and women undertaking war work outside the home. Not requiring coupons, they offered people the opportunity to supplement their meagre food rations through the purchase of a nutritionally balanced meal.”
With no let up in the shortages caused by lockdown policies, and with the war in Ukraine threatening to add to our woes, Europe – including the UK – faces serious food shortages this winter. And at a time when energy and fuel bills are spiralling out of control, it is not hard to imagine demand for foodbanks spiralling up to perhaps five or six million. But with foodbanks already struggling to meet today’s demand, it is equally obvious that large numbers are going to go hungry to an extent not seen since the 1940s.
The obvious way of preventing this would be for government to restore the £20 removed from benefits after the pandemic, and then to raise this in line with inflation. The currency to pay for this could, perhaps, come from a tax on the banks, who have been given extra billions for no additional work solely as a consequence of the central bank raising interest rates. In the meantime, a return to soup kitchens might make the best use of falling food donations.
Britain to be a third rate 1980s tribute act
As Britain sweltered in the highest temperatures on record, and as Outer London burned, Tory MPs completed the arcane process of selecting the finalists in the contest to become the next Prime Minister. Among MPs, former Chancellor Rishi Sunak led the field, but the contest now goes out to 160,000 or so Tory members who, polling suggests, much prefer Foreign Secretary Liz Truss, who struggled to take second place among MPs.
Neither candidate is known for their burning intellect or their grasp of the various crises gradually overwhelming Britain. But Truss does manage to do a third-rate impersonation of former PM Margaret Thatcher, which goes down well with the larger, Brexiteer wing of the Tory membership. And so, barring any scandals or bear traps over the coming six weeks, Truss will most likely emerge as our next Prime Minister just in time for the recessionary S to really start HTF.
While what is coming is unlikely to be pleasant, having a 1980s tribute act as a Prime Minister may at least provide some comic relief as we shiver in the dark during future winters. Not least because Keith Starmer does a passable impersonation of 1980s opposition leader Neil Kinnock… albeit without the ability to inject fake passion into his speeches. Indeed, even the crises we are facing have an early-1980s feel to them:
- (Not so) Cold War with Russia
- Prices rising out of control
- Rising fuel and energy costs
- Waves of workers’ strikes.
While the establishment media credits Thatcher with solving these problems and, as it were, making Britain great again, the reality is that they all persisted well into Thatcher’s second, 1983-1987, term. And rather than the kind of monetarist economic policy apparently favoured by Truss, it was only the arrival of large volumes of North Sea oil and gas which temporarily restored Britain’s economic fortunes. John Major and, especially, Tony Blair were the inheritors of that oil wealth, and as with most oil producing states around the world, they squandered it by underwriting a mountain of unrepayable debt instead of rebuilding the productive economic base that Thatcher had allowed to close or be offshored.
This time around, of course, there will be no North Sea oil and gas to save the day. And without a productive base from which to pay our way in the world, the Westminster Punch and Judy clown show will become ever more detached from the reality of declining living standards that we are now doomed to experience… to the point that the faux conflict between Keith and Liz will increasingly look like a parody of the first series of Spitting Image, which was, of course, a parody of the Margaret and Neil show.
Starmer the real loser
The chattering classes in Versailles-on-Thames are concerned that Tory members will elect a right-wing mirror image of Corbyn – popular with the base, but unelectable among the wider electorate. This line of attack will no doubt be used by the Sunak campaign and will likely be amplified by an establishment media desperate to maintain the crumbling neoliberal order. However, even if the Tory membership opts for Truss, they may still count on Starmer to save the Tories from their self-inflicted unpopularity.
This is not immediately obvious, because Labour is currently basking in a 15 percent lead in the polls. But much of that lead is ethereal and owes more to the public’s desire to see Johnson gone than it does any desire for a Starmer-led government. Moreover, while Starmer has been able to use Johnson’s self-inflicted apolitical personality flaws to mask the policy vacuum at the heart of the Labour Party, it is doubtful that either Truss or Sunak will provide that opportunity going forward. And that means that Starmer’s party will have to develop an alternative economic policy aimed at tackling the serious economic collapse washing over the UK.
The experience of the past two-and-a-half years does not bode well. Throughout the period the entire Parliamentary Labour Party could just as well have been replaced with a placard reading, “We’d do the same as the Tories… only more/sooner/better.” And even on the few occasions when Labour backbenchers goaded Keith into announcing something constructive – raising taxes to fund the NHS, a windfall tax on the energy companies, etc. – the Tories were easily able to copy and extend the idea.
Whether either party has a viable policy response to the fuel, food and energy shortages coming this autumn is doubtful. Nevertheless, the new Tory leader will use the apparatus of government to develop a response and to make it appear plausible. And unless the opposition can offer a credible alternative, a Tory defeat at the next election is far from certain.
As you made it to the end…
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