Economic Dead End 71

We have had a “natural rate” of economic growth of around 3% for a couple of hundred years. There have of course been peaks and troughs, but the trend has been consistent. If anyone wants to quibble with the precise 3% figure, that does not affect my argument.

With the economy stagnant following a stark decline, there is much discussion how to “kick start” economic growth gain, either by tax cuts or higher public spending. The terms of so-called debate have been very limited, taking it for granted that substantial growth will resume again as soon as we get the engine turning.

But of course, that is not necessarily true. Civilisations do go into absolute economic decline. Never forget Ozymandias.

There are reasons to imagine life may never be normal again. We have lost a great deal of our manufacturing base. The presumption is that it is fine for low earning manufacturing to be carried out in the BRICs, while we get much higher margins for providing banking, insurance, design and marketing services.

But why should that last for ever? The banking crash was a result of the fact that so much of the financial services sector, on which we depend so heavily, has no more relationship to the real economy than the passing of cash inside a casino. It is a miracle of the brutality of power that taxpayers were made without violent revolution to give up much of their individual wealth to bail out rich bankers. The incredible pain of this is what we are just beginning to suffer, because our pockets are being lightened very very substantially but regularly, spread over a long period.

The banks have not really been reformed and western taxpayers actually no longer have the cash or credit to bail them out on that scale again. The house of cards could tumble any moment, and the Euro crisis and dollar deficit impasse are winds buffeting that card house.

But the Euro crisis and US deficit struggle are much more important than their immediate effects. The brinkmanship in the US will be resolved and, even if the US defaults, the immediate fallout will not be Armageddon. The real damage is already done. The BRICs nations have been reminded forcefully that they are supplying their goods in unbelievable quantities to the west, in return for bits of paper of extremely dubious value. The medium term consequences of the banking crisis and the currency crises will be drastic indeed. Do not expect the BRICs to put up with this forever. It is not going to take them long to work out they can do their own banking, trade in their own currency, finance their own research and marketing, and insure themselves. Then what will we do? Staff call centres for them?

The same is true of commodity suppliers, who are also wondering right now about the value of the bits of paper they receive in exchange. Watch gold mining shares.

Commodity supply is the other reason we cannot automatically expect to resume economic growth. We already face huge upward demand pressure on commodity prices, particularly from China. It is a truism that mineral resources are finite. There is a whole lot of mystic nonsense talked about “Peak oil”. The simple truth is that of course oil is a finite resource, and of course at some time production will go down. What is nore relevant is that, thanks largely to China, we have already passed the point when growth in supply of oil will ever exceed growth in demand. Rising commodity prices will also hamper UK economic growth in the medium term.

The little argument between Balls and Osborne over whether tax cuts, or lower or higher public spending, will make a difference, is largely irrelevant. The world has changed. Everyone seems to accept we will be in economic decline relative to emerging economies. They have to get into their heads that we could be in absolute economic decline – permanently.

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71 thoughts on “Economic Dead End

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  • de Quincy's Ghost

    What is this magic about the letters “LOL”, that they make people act as though they’re back on the primary school playground ? It’s very odd.

  • mary

    Bakersfield. Calif. USA.

    I cross the Mojave by night and get to Bakersfield at midnight.

    The bar at the hotel is full of oilmen and military guys. The economy of Kern County, where the Joads ended up, is dominated by the Air Force, naval weaponry, big oil and private healthcare.

    But there is still 15% unemployment here. The town grew by 25% in the past decade but now the property bust is here, 156 homes in every thousand are repossessed.

    In the morning, the car valet – a Mexican – tells me the agricultural work is drying up. The farmers sold their fields for property. You can only earn the minimum wage.

    I go in search of the spot where Steinbeck must have seen this – “They drove through Tehachapi in the morning glow, and the sun came up behind them and then suddenly they saw the great valley below them…”
    In Steinbeck’s footsteps: America’s middle-class underclass
    By Paul Mason Economics editor, Newsnight
    Paul Mason’s journey can be seen in the UK on Newsnight, Thursday 28 July 2011 at 10.30pm on BBC Two.

  • Canspeccy

    Hey Glenn,
    “We cannot compete with child labour, third world sweatshop labour, or prison labour in China.”
    Why not? We had sweatshops before, why can’t we have them again?
    This is the whole point,to bring about global wage equilibration though a combination of mass migration of third world workers to the West and outsourcing and offshoring of production and services from the West to the third world, while making huge profits in the process. Apple Corp., which employs ten times as many people in Asia as in the US saw its stock price increase 3000% (yes that’s right three thousand percent) since 2000.
    That’s what Liberals believe in: globalization, unrestricted free trade, destruction of the nation state, destruction of trades unions, destruction of the nations of the world — their racial, religious and cultural identities. They want a global workforce comprising a homogenous, deracinated helot race of interchangeable worker units.
    That’s why Jon is gunning for me. He doesn’t want to discuss these things. No, its easier to dismiss those who oppose the destruction of the nation as racists, a basically meaningless but contaminating term as used by the politically correct.
    But who are the racists? The globalist destroyers of the nation, or those who seek to prevent its destruction?
    But of course you’re right. The Western workforce could be protected, the capital accumulated by the western nations through the sweat of generations of workers could be retained or repatriated to the West. That was standard policy of the European states in the 60’s.
    But you got welfare: the crumbs from the bankers’ tables. The Liberal front-men for the plutocracy think that to provide anything more would be totally unreasonable.

  • Canspeccy

    Good stuff, Ingo,
    Scope for energy conservation is massive. Why do I need a 200+ horsepower living room on wheels, complete with leather arm chairs, to haul my arse across town to my office each day? Obviously I don’t. An electric bike would carry me the same distance in roughly the same time using about one thousandth of the energy.
    But in a very competitive world, neither Britain nor any other western nation can afford to return to statist solutions to economic problems. It is vital to maintain a free and competitive domestic market economy. Here are some ways in which the British economy could be revitalized along those lines.
    A carbon tax: the most economically efficient way to reduce energy consumption, promote development of energy conservation technology, and alternative energy sources.
    Eliminate corporate income tax to promote the local investment necessary to create jobs. Corporation tax generates 9% of national revenue. This could be recovered with a capital tax, as applied in Switzerland, at a rate of around 1%. A slightly higher rate would permit the elimination of estate duty, which would be a worthwhile reform, since estate duties discourage investors and wealthy expatriates from moving to Britain, where they might otherwise deploy their cash to the benefit of the local economy.
    Eliminate minimum wage laws, and institute a negative income tax to insure that (a) everyone, however slight the economic value of their labor can find employment, and (b) that British employers are no longer necessarily at a wage disadvantage with employers in Asia.
    And most important, apply anti-monopoly laws with teeth to insure vigorous competition within the home market.
    And, yes, infrastructure: basically the total reconstruction of the urban environment for greater energy efficiency and better human health.

  • Canspeccy

    “the global business ethos is ‘profit today and fuck the future”
    That’s right. And nothing with divert the plutocracy from using the money power over the political process and the communications media in its smash and grab for global ownership and control of everything, unless there is a countervailing power. Do you know of one?
    Globalization has destroyed the power of the trades unions. Political correctness has addled the brains of the middle class intellectuals. The full spectrum global dominance of the US-NATO military/intelligence apparatus is the process of destroying the independence of the nation state.
    What do we do!

  • mary

    State theft.
    Public-sector workers to pay for Osborne’s blunders
    Thursday 28 July 2011
    by Will Stone
    Public-sector workers are being asked to pay up to £3,000 more into their pensions every year to plug a Treasury deficit hole, unions argued today.

    As ministers set out details of increased pension contributions faced by millions of teachers, civil servants, doctors and nurses, documents indicate that while 750,000 of the lowest paid staff face no increase as many as five million will be hit by the rise.

    And unions delivered a barrage of criticism of plans that they say make “a mockery of ongoing negotiations.”

    The increases in 2012/3 will be the first of three planned annual increases.

    Those earning over £100,000 will pay up to £3,400 a year for their final-salary pension schemes, with those on £100,000 to pay around £2,000 extra.

    Staff on £50,000 will need to pay close to the £700 mark, those on £35,000 will need to fork out an extra £516 annually and staff on £21,000 will have to find another £108 a year in order to keep their pensions.

    The increases bring overall contributions to almost £3 billion and amount to an average of 3.2 per cent of each worker’s gross salary before tax.

    For senior civil servants, the increases represent a near-doubling in contributions, while doctors and teachers face increases of around 30 per cent and 50 per cent.

    Unions have already warned the government of mass industrial action this autumn if it presses ahead with Lord Hutton’s pension reforms and have accused it of bulldozing through its plans and shutting its ears to negotiation.

    ++++British Medical Association chairman Hamish Meldrum said the figures represented a Treasury cash grab from public-sector workers to try to fill gaps in the ministry’s finances.

    ++++Unison general secretary Dave Prentis said: “Extra contributions won’t go back into the pension schemes but straight to the Treasury to pay off the country’s deficit – effectively a tax on public sector workers to pay for the bankers’ mess. That is totally unjust.”

  • PhilW

    Indefinite growth of GDP is possible, but it wont make us better off.

    What you all seem to miss is that growth of GDP is only loosely related to making stuff or providing services. GDP is a measure of the flow of MONEY.

    If I invite a group of friends to my house for a meal, then later they invite me, there is no contribution to GDP. If I call my house a restaurant and CHARGE them to come, and then they charge me to go and eat with them, then GDP has incresed by the amount of those charges.

    If, instead of sharing garden produce with neighbours, we set up a market and SELL to each other, we increase GDP.

    If, instead of caring for aged parents or children myself, I PAY someone to do it, then GDP increases.

    If, instead of maintaining your house, you pay someone to knock it down and then pay someone else to build you another one, then you increase GDP.

    And just because some third world nation has seen its GDP double in five years does not mean the people are better off, it probably means that self-supporting groups of farmers have been forced off the land and left to starve while agribusinesses grow flowers to airlift to Europe.

    You dont necessarily need extra material resources to increase GDP – just increased alienation.

  • ingo

    Congratualtions to all those who can now sue the MOD for being cagey, devout of empathy and any feeling for its ex soldiers. tell your brother Mary, they’ve done well, despite the long time it took. The MOD’s spurious reasoning, made even more spurious by the factual information one can derive from nuclear isotopes these days, has landed them in the dog house where they belong. They can overspend and loose asstes and and to their hearts content, now they can spent some money on looking after their ex soldiers, scrap some nukes for all I care.

    They should not come clean, explain their mistakes, pay up and ensure that soldiers are not contaminated by their military aboritions, whether its dangerous first tests without any protection, as then, or with DU ammunitions sold/given out to soldiers like smarties today in Iraq and Afghanistan.
    Iraq shows shows the full extent of our bad examples and their subsequent negative effects on health. Mark G. can vouch for it, that DU ammunitions have destroyed the lives of many unborn and born children.
    Somebody tell this misguided and pre occupied Lib Dem minister Huhne about it, before he generates more of the stuff with his ten new nuclear powerstation, what bad mistakes these idiots get up to.

    Right, that said, I shall have a little break from this blog, it is getting a bit too testy for me. take care everyone.

  • mary

    Thanks Ingo. I will tell him. He met some good people yesterday and heard some terrible stories. He did me tell me how many tests the UK carried out in the region but I will to check to make sure it is correct. It is no wonder that cancer rates are increasing with all that ionising radiation moving around in the atmosphere and stratosphere with a half lives measured in billion years. A sick joke here in the light of nuclear weaponry {}

    One interesting story. Before one test, all the Christmas Islanders were taken off by boat only to be returned straight afterwards. At another test Sir William Penney chief honcho at the AWRE and then at the UKAEA flew out beforehand. He knew the danger.,_Baron_Penney

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