Breaking the cycle

In case you haven't noticed, I am more than a little sceptical about the coalition governments plans to fix our economy. More than this, I am not convinced that any current political party - or coalition thereof - understands what our economy needs long term for real growth based on wealth rather than pseudo growth based on debt.

I believe that we are set for a decade of, at best, stagnation and inflation - stagflation they used to call it - and, at worst, a full blown, full on depression that will have profound and long term consequences for this nation, its people, their living standards and prosperity. Nothing I have seen from government or read in the media has changed my mind about this - indeed, I've read various articles from various sources which tend to support my view.

However, even if I am wrong and this coalition does manage to stave off the worst case scenario in the short to medium term there remains the problem of what happens in the future when we are back to where we were - say - in 2000?

This coalition - from both the Lib Dems and Conservative flanks - have made much of how they are a "progressive" government. Both the Prime Minister and his Chancellor have claimed that they are progressive politicians and dedicated to the causes of progressivism - and, by implication, the fallacies that ideology is based on.

Consequently, there is no reason to believe that once the economy is "fixed", they will not resort to throwing money into schemes and ideas which progressivism favours - and all that entails. For me there are two major problem areas with this - welfare and manufacturing.

The problem regarding welfare is perhaps the most obvious. Progressivism insists on certain universal "truths" which are either uncertain or patently wrong. For example, the belief that crime is linked to poverty and that if you give people enough money they won't commit crime is clearly daft - but it is considered a "truth" by progressives.

Hence they pour billions of pounds every year into "supporting" criminals and their lifestyles in the vain hope this will solve the problem. It doesn't, of course, because crime is not caused by poverty but by greed, avarice and laziness - and welfare supports all of these traits.

That's just one example of many, but the point I'm trying to make is that to genuinely have a hope of fixing Britain's problems in the long term we need a government committed to breaking the cycle of dependency which so many people in Britain have fallen into. That needs a government that is tough and, above all, socially conservative - because any government that subscribes to the social liberal position is going to fall into the same traps as previous social liberal governments.

There isn't a hope in hell that this coalition will have either the will or the strength needed to break that cycle so the only conclusion that can be reached is that, even in the unlikely event that they do sort out our current problems, they will only make the same mistakes as Brown, Blair and Major.

Remember, before the "credit crunch" struck and the reality of our "economic miracle" was exposed, Cameron and his party backed the Labour government spending plans completely. It was only after the dire situation was revealed that the Tories decided to change tack - and then only marginally.

They do not have the answers. They don't even understand the questions. All they have is the same misguided beliefs that Brown and Blair had and the result will be exactly the same.

Disaster

The storm is brewing

David Cameron is expected to announce that the scale of Britain's economic crisis is worse than expected and that Britain faces cuts, austerity measures and tax rises which will effect the country for decades.

OK, maybe he won't mention the tax rises, but they're coming. My point is, though, that my claim that this "recession" - far from being nearly over - was merely the precursor to the deep depression that is going to effect our nation for the next ten years or so.

While all this is going on we will be expected to stump up more and more to assist the other EU nations who are going through the same problems - including those eurozone members - and this will probably mean the end of what is left of the rebate.

This deep depression is going to effect most of the developed world, but the nations that will fare best will be those who retained their manufacturing and production capability and who have the sense to protect it - Germany and Japan for example. The nations that will struggle most will be those who rely on imports the most and make the least effort to protect their industries - and that, I'm afraid, means Britain.

Further still, until we wise up to the basic fact that a service industry needs a strong manufacturing base to service then we will continue to struggle - and as we can not compete on level terms with developing nations that means using protectionism.

There is no alternative - we have a choice now between protectionism or a completely failed economy for decades. It's not a hard choice is it?

Beware of Greeks bearing gilts

Yes, I know Greece doesn't issue "gilts" - but I like the pun! OK?

I am, of course, referring to the decision to downgrade Greece's credit rating to "junk" status meaning that they are now paying the sort of interest on their borrowing that you or I might face on our credit cards - bad enough when you owe £1000, but a total disaster when you owe £1000 billion.

This will, of course, make borrowing prohibitively expensive for Greece and they will have to rely on handouts from the rest of the EU and the IMF to meet their financial commitments - and they'll have to slash public spending massively at the same time.

Greece is not going to be a nice place to be for the next few years - they are, effectively, in a deep depression which is going to last for a decade or more and it is only a matter of time before other European nations join them (including us). It wouldn't be so bad if they could rely on tourism - but what with the euro, Greece is just so damn expensive when compared to Tunisia or Turkey.

Anyway, my post isn't really about bashing Greece, but bashing their decision to join the euro - after all, it is that choice which has shackled Greece's ability to do anything about their debt and finance problem - and has hamstrung, Portugal, Spain and Ireland too - and made the country a much more expensive place to visit.

It also demonstrates just how wise a decision it was for Britain to keep out of the euro - a fact which most of the euro supporters have not mentioned over the last couple of years for some reason - particularly the Liberal Democrats who were once pushing for Britain to join as soon as possible, something which that nice man and financial genius, Vince Cable, seems remarkably reticent to talk about these days.

And let's be honest, here - the only reason the Tories and Labour parties didn't take us into the euro was because they didn't think they could get it past the British people. The truth is that they both favoured the idea privately - and some of them publicly - but knew that it was pushing the people too far too soon to make them ditch the pound.

Of course, all three main parties remain committed to our membership of the European Union and remain determined to take us into the euro as soon as they practicably can.

Just bear that in mind when you listen to them discussing how they would deal with this economic crisis (which hasn't even really started yet) in the run up to the election. They don't have any answers - so they'll just lie - but don't be fooled. If the politicians of all three of our main parties had had their way we would be as deep in the mire today as Greece.

The future delusion

You've got to admire the Labour party's sense of timing. Just as Corus shuts down the plant in Redcar thus ending 150 years of steel production there, the Labour party unveil their election slogans which includes a promise of "future industries".

I'm sure that's going to be a great relief to the newly unemployed steelworkers of Redcar - knowing that some unspecified industry will come along at some unspecified date to provide them with jobs and security. Although, it's funny that there has been nothing to come along before to provide jobs for the considerable number of unemployed already in that area.

Whenever I discuss the decline of British manufacturing, I get people telling me that we will develop "new industries" to take their place. They keep saying it even though there is absolutely no evidence whatsoever to support these claims - and the same applies to Labour.

What new "future" industries?

And even if these industries exist, what on earth makes anyone think that Britain can be competitive in them - especially given the weakness of our education system compared to the strength of certain developing nations who are churning hundreds of thousands of high calibre graduates equipped with the skills that these future, technology based industries require.

Even if Britain has the brains to develop these industries (debatable), where is the investment going to come from to take the idea into a production facility? And why would they locate this production facility in Britain where costs are high, regulation is tight and bureaucracy is stifling?

This blind faith in non-existent "future" industries is delusional. It's about time the people of Britain understood the real implications of a globalised economy - that either wages in the developing world rise to match those that we earn ...... or ours fall to the level that they earn. I know which is more likely - what do you think?

There isn't an alternative - a global free market doesn't just mean cheap goods. It also means cheap labour - and that includes what you do. Even if you think you're protected, you are not - thanks to immigration nobody is safe from the effects of this phenomenon.

Labour doesn't know what these "future industries" are. Those who support the global free market don't know what these "future" industries are.

I do.

It's called "subsistence farming".

The fragile "recovery"

Over the last few weeks there have been a number of reports suggesting that the worst of the recession is over and we are on the road to recovery. As I am sure you are aware, this is not my view and represents - in my opinion - an almost desperate clutching at straws.

Our own Prime Minister is set to confirm my views today as he addresses world leaders.

Gordon Brown will today warn international leaders that sharp and unpredictable rises in oil prices risk "choking off" the global economy and pushing the world into a second recession.

A second recession? We haven't got over the first "recession" yet! But here is the clincher ...

At the Group of Eight summit in Italy, the Prime Minister will sound a pessimistic note about the economic outlook and suggest the limited recovery now under way is weaker than had been hoped.

Weaker than hoped - things are so bad even Gordo is pessimistic about the future. I'm afraid that says it all. Despite the billions spent - trillions worldwide - the "recovery" is, at best and if it exists at all, weak. Our economy is in a dire state and unlikely to be able to cope with a second wave of recessionary pressure. The cupboard is bare, the tank is empty and the reserves all gone. There isn't anything left except more and more debt.

Depression looms large, people - and with that will come a spectacular fall in the living standards and wages we have gotten used to. This is not going to be pretty.

A glimmer of understanding

At last, someone over on The Telegraph is starting to think for himself! Edmund Conway breaks from the "blame the banks" rank and finds that the cause of the economic crisis isn't quite what it seems.

The financial disaster was the ultimate manifestation of a far deeper problem – a wholesale malfunction of the global economic system.

Ah well - close but not quite. The "global economic system" hasn't malfunctioned - it is working exactly as one would expect it to.

For decades, we in the Anglophone West borrowed too much, while the other half of the world saved too much. It was the tectonic collision of these imbalances which caused the crisis, which brought about the worst recession since the 1930s, and which could trigger another bust decades in the future.

That's more like it! There was a massive market "imbalance" - and what does the market do with imbalances? It finds a way to correct them - that is exactly how the market works. It hasn't malfunctioned - it has performed entirely according to the theory.

The history of economics over the past two centuries revolves around this quandary over international trade imbalances, and the series of crises they have caused.

Yep - and we thought we'd found a way around it choosing to ignore the history of economics. Arrogant or stupid? I'm betting on arrogant AND stupid.

To try and get around this imbalance we relied on debt. To fund this debt we relied on rising property values resulting in a huge distortion in the housing market - both here in the UK and in the USA .... and in Europe to a lesser extent (Europe isn't so hooked on property ownership as the UK and USA).

You can not buck the market. It will always, eventually, find a way to correct an imbalance and that is what it is doing now. Our governments are desperately firefighting to prevent that causing a complete and utter economic crash in the west, but ultimately the market has to correct.

The only way for any nation to withstand that is to protect its economy - that is the ONLY way any nation can cope with a market imbalance. Anything else is just so much hogwash. History proves this.

Smoke and mirrors

I'm not going to pretend I know what the Budget has in store, but I'm pretty certain it won't be giving much away. Most pundits are predicting that Darling will admit to the worst recession since the end of WW2 as well as various measures relating to housing, VAT and car scrappage.

They are probably right - not because these pundits are geniuses, but because they've been briefed beforehand about what to expect. I actually find this a bit sad - just about the only thing that made the budget interesting was the fact that nobody knew what was going to be announced. These days the whole thing is usually revealed piecemeal in the weeks leading up to the speech. Usually the Chancellor keeps one or two aces up his sleeve, but something tells me they may be in short supply this year.

What most pundits are suggesting is that Darling is set to announce plans to revitalise the economy by going down the "green route". To be honest, I'm not entirely sure what that means in detail - but I doubt that anybody else really has any idea either as it is very much unexplored territory. If the Budget were an old map then following the green route would lead to an area marked "Here be dragons".

What I am certain about is that the various news items over the last few days suggesting that there are signs of recovery are not coincidental. They've been carefully planned and leaked to distract from what is likely to be one of the most austere Budgets in living memory - one that will hit the average man in the street very hard in his pocket.

I'm not convinced by these signs of recovery. The Great Depression followed the same pattern - including a slight recovery shortly after the crash first struck in the late 1920's - but it was brief and insubstantial. Within a year it was clear that the fundamental problems were still there and that depression was all but guaranteed. I believe we'll see the same thing this time around - only it will hit Britain far harder than the Great Depression did.

All the talk about recovery in 2010 is just smoke and mirrors designed to hide the elephant in the room - massive corporate, government and personal debt. Don't be fooled by it. Debt is the symptom of prolonged economic depression - just as it is for any household. Debt is the symptom, the credit boom is the driver and globalisation is the cause.

Always has been - always will be.

A universal truth

Here are some basic facts about market based capitalism.

1) You can not sell product X for £50 when someone else is selling it for £10.
2) You can not ask to be paid £10 for making product X when someone else will do it for £1.

The whole point of markets is that they find a level through something called supply and demand.

When you have a national based economy, this is fine. You can have free markets and prices and pay will find levels which are largely based on the average wealth of the nation - per capita GDP. Because it is all kept within the national context there is no distortion.

When you take the economy out of a national context and globalise it you immediately create market distortions. As a nation you counter these distortions by implementing trade barriers and tariffs to prevent your economy collapsing, but if you don't then you will have to accept the law of markets which will dictate that your pay and prices must be roughly the same as other competing nations.

This is what causes depressions. A depression is nothing more than the markets correcting themselves - same as a recession - but on a global scale. And because the disparities are greater, the market corrections will be amplified too.

Unless checked by protectionism, this recession will turn into a depression. It has to because the markets have to find a level. That depression will last until that level is reached - a point where pay and prices are roughly the same across the whole of the market. If that is a global market then that means you can not be paid more for doing the same thing as someone in India.

With per capita GDP being somewhere around £30,000 in the UK and around £3000 for India there is someway to go before that level is reached. The per capita of India will rise slightly, the per capita GDP of Britain has to fall significantly.

Even when that level is reached it will not mean the end of the depression for Britain. Other countries will still be making things while we don't. We'll have to try and rebuild our manufacturing economy virtually from scratch - and with very little income this will be a monumental task. Perhpas even impossible (I doubt very much that China and India, once they have established their dominance as producers will let their dominance slip the way we did!).

Globalists can shout and scream all they want - they can not stop that happening. In an unrestricted market, the markets will dictate - not economists. Gordon Brown and Barack Obama can pour trillions more dollars down the drain, but they won't change anything as long as markets are given free rein - they must find a level and they will.

The west believe they can avoid this happening by concentrating on high technology, high value goods. That won't work either. For a start, high value goods require strong prosperous economies to buy those goods - and that is the west - and it is the west that will be in depression.

The other thing is that it assumes - with incredible arrogance - that developing nations do not have the education or skills to produce high value, high technology goods. I'm afraid they are every bit as capable as we are and, what is more, with education systems turning out hundreds of thousands of high calibre graduates every year they are already overtaking us.

So, left unchecked, there is nothing to stop us going into a long and very, very deep depression. Seriously, the Great Depression will seem like boom times compared to what this one will be like.

The second thing I want to remind you of is government because a globalised economy requires a globalised government to manage it. Yes - they need managing. You see, there is no such thing as "free trade" whatever anyone might tell you. It simply does not exist. It is regulated by governments, but - like markets - there are distortions in regulation globally.

Unlike markets, these regulatory distortions will not correct themselves - they require a government to correct them. So, with a global based economy it is essential to have a global based government to regulate it. This global government will not be elected by the people - for a start, there isn't a single "people" but a number of different peoples. You can not have democracy unless you have a demos to start with - so the government will be made up of appointed bodies stuffed with the "great and the good" as decreed by the ruling elite.

In other words, a corporatist government of appointed bodies - much like the USSR. Or the EU.

Then and now

I loved the seventies - but I was nine when they started and nineteen when they finished so I didn't worry too much about politics, economics or employment, but they were defining times for kids growing up back then.

I don't remember the fifties - being born in 1960 - but I do seem to recall that back then kids didn't have their own identity. They tended to have hair cuts like their mums and dads, dressed in mini versions of their parents clothes and listened to the sort of music their parents listened to - until rock'n'roll came along.

A generation later and things have swung the other way. Now we have parents who dress like their kids, wear their hair like fifteen year olds and listen to Girls Aloud. Things are not totally different, though - with eight year old girls encouraged to wear things designed for thirty year olds with no sense of shame.

But for me, the seventies were MY time. We had our own music - glam rock at first, then punk later. We had our own sartorial elegance - different from my parents, different from my older brothers and different again from the next bunch of teenagers with their New Romantic look. We even had our first experience of the freedom that your own form of motorised transport could bring with the rise of the sports moped. People forget that, before we got our hands on Yamaha FS1E's, Suzuki AP50's and frantic Fantics, the only form of transport available to 16 year olds were pushbikes, buses or the crappy mopeds with baskets on the front.

Even so, I was well aware of the problems of the time. The power cuts in the early seventies were actually quite exciting and fun for kids my age, but I was well aware of the problems they caused for my folks - as well as the high inflation, cost of food and industrial strife.

According to official figures, our public sector today isn't much larger (maybe even smaller?) than it was back then, but the big difference is that the majority of our public sector back then was producing something - something which they don't do any more.

The irony of all that is that if we had a public sector today like the public sector of the seventies - but without the union power and militancy - we'd be far better placed to come through this economic crisis than we actually are simply because we still produced things. Sure, the car industry would still be in dire straits as it is now, but our coal industry would have been flourishing (as, indeed, our current coal industry is - but it's too small to make much difference now).

I keep hearing so-called economic "experts" telling us that the government have to keep spending to "create" jobs - but jobs doing what? Spending more money on an unproductive public sector isn't going to achieve anything except even more massive levels of debt for our children and our children's children to deal with. It's a great way to bankrupt the nation, but other than that I can't see what it will achieve.

Our governments - both Tory and Labour - have hitched us to the services industry and, as I've said before, this is a mistake. Services do not lead an economy - they are supporting structures to a manufacturing industry. That is why they are called "services" - they service something.

The only way out of this crisis is to produce something which we can sell to the rest of the world - even if it costs you money to make it. At least you get some revenue back. If you spend £400 billion quid on a public sector and get nothing for it, that still costs you £400 billion. If you spend £400 billion and get £200 billion in return it is costing you half as much. A £200 billion loss isn't great, but it's still better than a £400 billion loss!

So I'm all for the government spending money IF they spend it on producing something. UK Coal are struggling to find investment to open up new pits - give them the money! GM are threatening to shut down Vauxhall Motors - buy it off them! Corus are closing down steel plants - take them over!

Nationalisation, in the short term, is the way to go. It shouldn't be reserved for banks - indeed, I'm not sure that it is even sensible to support banks that way - it can work for industry and it is only by producing something that we will get out of this mess.

The public sector is the key to our future. We have to cut out the unproductive chunks and divert the cash we spend into producing something. There is talk of cutting defence spending - how ridiculous is that? It is the right time to actually increase defence spending - but only if you spend the money buying things made in Britain. Get those aircraft carriers going - but not with French contractors. Get new trucks and patrol vehicles for our soldiers - but not German or South African ones. Get new aeroplanes (ones we actually need rather than expensive and largely useless Eurofighters) and transports for the RAF, but find a way to build them here.

The public sector has to move from being unproductive to productive. The government has to cut the current public sector by a half and divert the money - plus more - into nationalised industries with a longer term aim of selling those industries back to the private sector once we are through this mess (but with a provision that those industries remain British owned and located in Britain.

Production is and always has been key to economic survival. The USA will recover quicker than us because it makes things still. Germany, France and Italy will survive better because they make things still. A nation that makes nothing is worth nothing.

Professional meltdown

The Times reports that the government are to introduce schemes to help unemployed professional "white collar" workers who are losing their jobs in unprecedented numbers as this recession bites deeper.

White-collar workers visiting Jobcentres will be redirected to specialist recruitment agencies or offered new three-month college courses to refresh their skills, The Times has learnt.

Although I think that the idea to provide "specialist" help to the professional classes is quite probably correct, I also believe that the true significance of this is being missed. Professional, white-collar workers pay more in taxation. A significant decline in professional employment will lead to a considerable drop in the government's tax revenue.

In previous recessions the numbers of job losses were similar, but they were predominantly workers at the lower end of the wages scale. Although this was still a catastrophe for those workers, it was less of a problem for the government. First, because the drop in tax revenue was more manageable and secondly because when recovery begins re-employment starts with the lower paid - so a government can "ride out" the drop in tax revenue knowing that an equilibrium will soon be re-established.

This is different. Even assuming that this is just a recession and not a depression (unlikely in my opinion), if the recovery starts, for example, towards the back end of this year (extremely unlikely in my opinion) then even with an increase in employment there will not be enough of an increase in tax revenue to make up the loss of revenue from the professional classes.

Add on to that the massive debt liability that Gordon Brown has saddled us with and I think we can expect a rough few years.

The waiting game

Another day, another globalist whining about "protectionism".

The “Buy American” dispute really matters. At stake is whether the world economy retreats into protectionism and economic nationalisation, setting back recovery from the recession.

The base assumption there is questionable to say the least - that economic nationalism would set back recovery from recession - and Riddell compounds that by comparing Obama to FDR.

Yet FDR was an economic nationalist, believing that the answer to the depression lay at home, not overseas. Originally, he backed an economic conference in London to “supplement individual domestic programmes for economic recovery, by wise and considered international action”, the same aims as now.

As we all know, FDR didn't back "wise and considered international action", but decided that the answer really did lie at home. And who is to say he was wrong? By the time that economic conference took place in London in June 1933, the 1929 recession had turned into a full blown depression that had already lasted four years with no sign of ending in sight. Hitler had already come to power and the world was heading towards a world wide conflict.

Riddell also misses the fact that 1933 is considered to be the turning point in the depression - it certainly was for the USA - after which production began to rise sharply and, with it, the economy and confidence. It took a few years for that to filter through the rest of the world, but there is no doubt that 1933 was the point at which recovery began and that recovery was US led and that was due to FDR's policy of economic nationalism.

The root causes of the thirties depression are exactly the same as they are today. Globalisation creating a credit boom and huge, unsustainable corporate and personal debt that eventually led to the collapse of the banking system and subsequent massive intergovernmental debt. Sound familiar?

By the time of the London conference, the world had already gone through four years of depression hell - affecting the USA as much as anyone - there had been major political upheavals across Europe and Japan, strongly protectionist before the depression started, had been largely unaffected by the economic upheavals and thus emerged as a major political and military power pursuing an aggressive Imperial expansion programme.

All that happened in just four years. Are we going to wait that long again and watch the world dissolve into chaos once more or should we do something now?

What are we waiting for?