By James Clark
The Thatcherite legacy has remained ingrained in the centre right consensus of mainstream political politics for decades. The Winter of Discontent hammered the final nail of stigma into the British Trade Union movement. Whilst a crisis of supply side inflationary pressure eat away at pay packets, strikes were the only reasonable means of maintaining a decent standard of living for the average public sector worker.
Thatcher’s response in countering these external supply shocks was to obliterate workers pay, collective bargaining rights, and the nations productive capacity alike. To deflate the British economy, in response to an inflationary pressure caused primarily by external supply shocks, but also by domestic capacity constraints in need of investment not the utmost neglect.
The fabled Thatcher legacy? A tripartite economic model of a consumerist culture of imported produce, a reliance on a financial sector based around the interests of a minute minority of the population, and a speculatory housing market. And behind it all a mere foundation of private debt to prop it all up.
In the meantime the chronic structural problems of the British economy continue to fester under the neoliberal and Conservative rhetoric of fiscal constraints. Reliance upon sectors where nothing grows in any sense of the word, the “financial innovation” that enable profits to be reaped outside of the means of production, a housing market based upon private liabilities of 90 per cent leverage supported through nothing more than asset inflation, the sound pillars of a “dynamic conservative economy”.
Productive capacity, the availability of affordable housing, and wage rates all linger in the doldrums whilst the centre right politicians continue to pull out the stops to ensure the legitimacy of the bull markets of the city of London. The political support of the ability to continue to be able to speculate and embezzle bereft of growth in the real economy, the ability to shower the consumer markets with indebtedness to cover the chasm created by flat lined wage rates. All to enable the purchase of imported consumer products and the financial “products” of the city bloating the external deficit and private debt levels alike.
The Conservative rhetoric continues to this day to prescribe against any form of “hand out”, that hard work pays. The rhetoric that unfortunately ran true to many in the election campaigns of May. Back to the realm of reality and what we can see is a system akin to little more than corporate welfare, socialism for the corporate magnates, if you prefer. Whilst savings are bled out of the welfare system, corporation tax is cut (despite being the lowest in the G20) and vast corporate subsidies remain present, both to the cost of billions to the central government “budget”.
There is no fiscal constraint present here, merely a political choice. Much like the choice made regarding North Sea oil revenue, the choice to dish out tax cuts to the rich and monopoly capital whilst allowing investment levels in infrastructure, industry and the real economy to stymie.
The government will of course do anything in the policy making range to aid large corporations, for they are the innovators. But to what extent can the competition state model truly be catering for the needs of tomorrow through innovation, whilst over 70 per cent of corporate profits are distributed to shareholder interests? Innovation, if it does exist, must be locked in the quarterly domain.
The “restraint” narrative remains equally hypocritical in regards to the monetary side of affairs. Mark Carney, hand picked by the Chancellor, operates the loosest monetary policy seen in history. Based on the bunk belief that the availability of loanable funds and liquid assets, will suffice in restarting a deflated, stagnant and structurally imbalanced economy. Government Bonds, again at their lowest interest rate, continued to be used by market movers to hedge their money in gilt edged assets, the finances of the sovereign controller of the pound sterling. A savings mechanism inaccessible to you or me, whilst millions of corporate pounds sit vacant in the bond markets.
Quantitative Easing, is again an equally convoluted area of policy response. Dubbed as an injection into the markets, what occurred in reality was a bookkeeping exercise of interest paying government securities being switched for liquid reserves. An asset swap on the banks balance sheets played as both a stimulus, and a solution to the sovereign debt problems.
If this process of “recapitalizing the banks” had actually done what it was prescribed to do the same inflationary myths applied to “people’s quantitative easing” would have been thrown the way of the central bank in 2009. The reality however has been the swashing of bank reserves that have promptly found their way into corporate stock buybacks or back to the sovereign bond markets now paying less in interest than the ones artificially “matured” in the first place. All of course while we teeter on the brink of deflation, as effective demand bottoms out and spare capacity is left unemployed.
Of course David Cameron, even finds a way to play disinflation as beneficial to the untrained ear. More value for your money he exclaims. Whilst in the realm of economic competence deflation, in the context of vast private debt levels, provides little more than a one way path to an investment and consumption strike. As the value of debt is bolstered, the tendency to slash expenditure and outlay in favour of paying down ever more precarious debt, becomes strong once again.
Inflation, a process in which demand outstrips supply in the context of fully employed and thus a lack of resources and capacity is, laughably as I hope it may appear, spouted in opposition to government expenditure. Whether it be borrowed or “printed” any steps by government to fiscally bridge the gap in which the private sector cannot cover, intervention is on the whole vehemently opposed.
Zimbabwe and Weimar Germany are cited time and time again, in ignorance of the fact that in both examples productive capacity had been essentially wiped off the face of the earth through failed agrarian reforms and a French occupation of the Rhineland and the Ruhr respectively. Of course the printing of money and the expansion of nominal GDP will cause inflation here, in the context of the demand deficient and structurally imbalanced UK, it is somewhat more unlikely.
So let us be clear, the Thatcherite consensus bought into by both sides in the “median voter” battleground alike has engendered continual myths of strong “economic growth” and fiscal constraints. While in the political reality it becomes apparent that fiscal constraints seem very limited in certain areas, whether it be in defence expenditure, or corporate handouts, for example. And that in the real economy, growth is somewhat limited with wage growth and productive output on its knees. That, is the true and continuing legacy of Thatcherite economics.
