The UK economy: Observations from Mars.

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What the proverbial Martians might report back to superiors about the state of the UK in the weeks following 19th March 2012.

We began with our customary flight over the British Isles and were again struck by the vast tracts of largely uninhabited land with the occasional large house.  It remains the case that the overwhelming majority of the people are squeezed into densely populated areas known as towns or cities.

158,000 families own 41 million acres of land, while 24 milion families live on the four million acres of the urban plot (6% of the UK).

It seems to be ‘a nation eviscerated by inequalities — where 40 per cent of all the wealth is owned by 5 per cent of the population and 70 per cent of land is owned by less than 1 per cent of the population.’ (1)

We questioned why this disparity in wealth seems to be so little resented by the majority of the population and came to the conclusion that they are, for the most part, unaware of its existence.  The big houses and estates are largely situated away from public view.  Furthermore, a British journalist (2) indicates that the power elites collude in maintaining a web of silence.  These power elites extend beyond the super-rich, the large transnational corporations and the City of London, to include the judiciary, the police, politicians and much of the private and state media.

Little information is therefore available as to which individuals comprise the 1% (3).  Information collated from the Sunday Times Rich List and forecasts from the Office for Budget Responsibility indicates that ‘1,000 people, just 0.002 per cent of the population, all have [individual] wealth in excess of £70 million… there are 73 billionaires…. Over the past 13 years, their collective wealth has ballooned fourfold from £99 billion in 1997 to £396 billion now… In 2009-10, the wealth of the ultra-rich soared by £77 billion. In 2010-11, it continued to rise by a further £60 billion.(4)

This was a particularly interesting period for our survey as there was a ‘budget’ which is an opportunity for their ‘Chancellor’ politician to vary and amend the economic strategy.  As reported after a previous visit, it seems likely that the UK is being used as a ‘real world’ or ‘ecologically valid’ experiment. Various hypotheses are apparently being tested which are central to the prevailing ‘Neoclassical economics’.  Further such economic experiments, known collectively as ‘austerity’, seem to be underway in the EU.  In particular, an even more extreme form of ‘austerity’ is being trialed in Greece, where malnutrition amongst children is now being reported.  A slightly different model seems to be under test in the US, which will facilitate comparison.

Using our economic activity sensors, we again viewed the giant vortex, enclosing the Earth, sucking-up the wealth produced by the 99% ordinary people, and re-distributing it up into the hands of the few, who lock it safely away in property, assets and ‘tax havens’. We observed how current wages are lowest for those who actually produce the wealth and that, not only have those wages not increased in real terms for the last 40 years, but also the lower incomes are actually being actively reduced.  Curiously, it is not just current wages that are swallowed up into the chain but also future earnings. This is because there are high levels of household debt which mean that a proportion of the worker’s future earnings are already earmarked to pay back the interest on their loans. These debts look likely to increase over the immediate future.

The vortex is fuelled by the activities of the banking/financial sector which can be loosely described as a rather complicated form of ‘gambling’ together with many aspects which resemble a ‘ponzi’ scheme.  At every stage, the gambles are ‘hedged’ or insured against losses, and strangely, assets which are not owned, or do not even exist, can be traded.  Further research must be carried out to evaluate the usefulness of these activities but at present, no function can be determined other than to permit the redistribution of wealth up through the vortex.  However, it should be mentioned that these activities also confer considerable political power. It should also be noted that the majority of the population are unaware that loaned money is created from thin air by the banks. (5).  Hence, the debt is able to considerably exceed the total wealth produced by the nation, and this creates a constant pressure to increase and accelerate the power of the vortex.  This system is inherently unstable and unsurprisingly ‘crashed’ in 2008. Furthermore, lack of banking reform means that the system continues to teeter on the brink of another banking crisis.

Again, there seems to be a conspiracy of silence, and the perpetration of spurious explanations (6).  For example, the ballooning of ‘sovereign debt’ which resulted from the 2008 banking crisis, is constantly ascribed to government over-spending on public services (7).  However, this is demonstrably untrue and seems to be simply a ploy to justify creating highly profitable opportunities for transnational corporations by privatizing public services such as the NHS (8).

We found this intriguing description of the global interplay of the financial sector, governments and the super-rich/transnational corporations.  It appeared in the Comment’s thread of a UK newspaper:

1. Create a toxic banking system full of sub-prime debt.

2. Insure against it failing and pocket the profit when they do.

3. Pay the credit agencies to give your bank an AAA rating.

4. On-sell some of the toxic debt to unsuspecting banks.

5. Credit ratings immediately downgrade their rating on account of this debt.

6. Have governments buy the rest of the debt as the banks are “too big to fail”.

7. This virtually bankrupts the governments.

8. Credit agencies downgrade governments now on the verge of bankruptcy.

9. The IMF insist governments sell national assets to clear debts.

10. Those who caused the crisis smack lips as they line up to buy assets.

11. Some plonker* writes article and misses the point. (9)

* We were unable to determine a definition for the word ‘plonker’.

Some of the hypotheses apparently undergoing testing in the UK, are:

1) ‘Trickle down’ – The notion is that cutting tax for the richest will result in benefit to the rest of the population in higher productivity and growth.  Currently it appears that the only things that have increased are the salaries of FTSE 100 directors who have seen salary hikes of on average 49%, but productivity and growth have stagnated or fallen.

It is suggested that the ‘capitalists have gone on strike’. (10)

 2) The Laffer curve – This is the idea that cutting rates can increase tax yields or stimulate economic growth and was used to justify cutting the top rate for the rich in the UK ‘budget’ (whilst at the same time announcing another 10 billion to be cut from the welfare budget).  According to Earth blogger, Richard Murphy, the Laffer curve ‘has always been a statement of right wing dogmatic belief for which, like much else in the right wing economic lexicon, (there is) no evidential support.’ (11)

3) Cutting Corporation Tax – The eventual aim of the ‘Chancellor’ is to reduce this tax to 20% (and possibly to 15%) with the justification that it will stimulate investment.  However, Earth’s Tax Justice Network note that:

“British corporations are awash with cash: according to Deloitte, non-financial companies held £731.4 billion in the third quarter of 2011, the highest ever. . . The U.S. is in a similar situation to the U.K., with corporates there sitting on an estimated US$1.7 trillion cash pile.”

They liken the impact of cutting corporation tax, to ‘pushing on a piece of string’ as an incentive to invest, , and a prize winning Earth economist, Joseph Stiglitz, writes that:

“[It is a myth] that lowering [the] corporate income tax rate across the board will stimulate investment in the United States. No evidence of that. … If you want to encourage investment, what you do is lower taxes on firms that invest and you raise taxes on firms that don’t invest. You can restructure the taxes to provide incentives to invest.” (12)

 4) ‘Crowding out’ – This is the theory that the public sector adversely affects the growth of the private sector. As a result, a quarter of a million public sector jobs have been cut, the gap being supposedly filled by the creation of new private sector jobs.  However, this has not happened and ‘what job increases that have been created have been largely part-time or temporary.’  (13)

American observer of the UK, John C Dyer, concludes after 2 years of the current UK government:

Despite the advice or public concurrence of numerous “experts,” the Bank of England, the OECD, and the IMF, UK’s austerity and privatization have failed both to appreciably claw back the deficit or dig the economy out from its hole. In fact, austerity seems to have only made it worse.(14)  

In summary, the five hypotheses undergoing testing do not work, and frankly were always unlikely to work as proposed.  On Mars, if something makes no sense, then we are taught to suspect that there is another agenda at work.  We need to ask the question of who would benefit and usually that involves ‘following the money’.  In the case of the UK, the answer is quite simple.  All the policies enacted by the UK government increase the wealth of the super-rich, the financial sector and the transnational corporations.  The experiment, rather than testing the mythologies of neoclassical economics, seems to be testing the limits to which populations of the developed world can have their standards of living reduced without provoking mass opposition, rioting and even revolution.

Three major problems faced by the UK population are unaddressed by the budget. These are unemployment, climate change and oil dependency.  Unemployment currently stands at 2.7 million, approximately 1 million being unemployed youth (aged 18 to 24 years).  Government policies have exacerbated unemployment, and is inadequately addressing climate change and oil dependency.  

As mentioned, the US has adopted a different approach which approximately corresponds to that of the UK’s previous New Labour government.  However, the US experiment whilst being more considerably more successful in growing their economy than the ‘austerity’ trials, is described as ‘lopsided’ with again almost all the gains having gone to the top.  ‘American consumers, in short, are hitting a wall. They don’t dare save much less than they are now because their jobs are still insecure. They can’t borrow much more. Their home values are still dropping, and many are underwater – owing more on their homes than the homes are worth.’ (15)

In his new book, Thomas Palley notes, that there has been a marked difference in the growth paradigms before and after 1980 in the US. This date marks the dramatic adoption of globalisation and neoliberal capitalism across a majority of the Earth’s economies.

‘Prior to that date, when the economy grew so did the incomes of the American middle class. Everybody gained from productivity improvements, and in the good times manufacturing employment rose and the trade deficit was negligible. After 1980, the gains from productivity were monopolised by those at the top, manufacturing employment fell even during upswings, while the boom of 2001-07 was the weakest in postwar history….  the post-1980 growth paradigm “involved squeezing worker incomes, squeezing household saving rates, raising debt levels, persistent asset price inflation in excess of consumer price inflation, and reliance on ever lower nominal (ie not adjusted for inflation) interest rates”.  (16)

It seems that in spite of the evident failure of ‘neoliberal capitalism’ or monetarism, governments are unable or unwilling to radically change the globally prevailing economic system, even though it is clearly detrimental to the overwhelming majority of the Earth’s population and the environment.

UK Labour politician Michael Meacher writes:

Thus the UK and the Eurozone are being crucified on a cross of unrelenting monetarism.   The alternative, which screams out for attention .. is ignored by every supposedly left-wing party in Europe (so blinded are they by the power of the right-wing financial hegemony). (17)

These findings substantially vindicate our own leading theorist, Mar-X, in his assessment of capitalism.  For example:

- Daniel Kahneman’s work on cognitive biases can be read as corroboration of Mar-X’s theory that capitalism generates an ideology which prevents people seeing its injustices.

- A lot of work in public choice is quite consistent with the Mar-X-ian view that “the executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.”

Of course, Mar-X got some forecasts wrong. Capitalism has not (yet!) collapsed – though it might yet – but in forecasting this he was largely elaborating upon the stationary state discussed by Smith and Ricardo.

But the fact is that, viewed from a narrowly empirical basis, Mar-X-ism scores rather well – and (arguably) quite possibly better than a lot of mainstream or neoliberal economics. Which raises the suspicion that the appeal of the latter over Mar-X-ism might rest on considerations other than empirical fact. (18)*

The final sentence of this assessment confirms many of our team’s tentative findings.

There seem to be many ‘considerations’ for governments which bear no relation to the ‘smoke and mirrors’ which constitute their public statements.

For example, John C Dyer questions why the US, ‘through its involvement in the IMF’, has been promoting the European Plan adopted also by the UK’ .  He questions ‘not only the wisdom of the plan but of the hypocrisy of the US promoting that plan for Europe while rejecting it for the US’. 

More overtly, Dyer suggests that:

‘The last thing the US needs is for Europe and the UK to one day conclude that the US sandbagged their economies in order to preserve its own.’ (14)

The Martian UK survey 2012 concludes that it is perverse of the UK government to implement ‘austerity’ policies which act against the interests of their citizens and the environment.  However, the advantage of perpetuating neoliberal capitalism for a minority of extremely rich and powerful people, is very clear, and western governments seem determined to preserve this system.

This was spelt out by the global financial conglomerate Citigroup in  their 2005/6 reports in which they coined the term ‘Plutonomy’.

Citigroup believed that we had moved in to a new kind of macro-economy, where growth was primarily driven by the rich and enjoyed by the rich.  Everyone else was fairly irrelevant, as was the global imbalance in trade between the US and everyone else and the strength of the dollar.  The fact that inequality was massively widening was not seen as a big issue – the important thing was to keep the rich and their stocks, getting richer.’

“Plutonomy refers to a society where the majority of the wealth is controlled by an ever-shrinking minority; as such, the economic growth of that society becomes dependent on the fortunes of that same wealthy minority.” (19)

These reports correspond to our observations and currently underpin our explanation of the otherwise irrational behaviour of the UK government and other governments across the Planet Earth.

Addendum:

As, we flew away from Earth, we felt gloomy at the prospects for this small planet surrounded by a narrow vulnerable layer of atmosphere, in which only the first 5 miles of the miniscule 90 mile layer, provides a breathable atmosphere upon which all human beings depend for life.  We were alarmed by the appalling risks that some human beings are taking with both their fellow humans and their own essential life support system.

Recommended Link:  New Left Project – A short history of neoliberalism.

http://www.newleftproject.org/index.php/site/article_comments/a_short_history_of_neoliberalism_and_how_we_can_fix_it?utm_source=twitterfeed&utm_medium=twitter

(1) http://www.newstatesman.com/blogs/the-staggers/2012/03/income-tax-rate-budget-poor

(2) http://www.guardian.co.uk/media/video/2011/jul/07/news-of-the-world-phone-hacking-nick-davies-rupert-murdoch-video

(3) http://www.michaelmeacher.info/weblog/2012/03/who-are-the-super-rich-beneficiaries-from-this-budget/

(4) http://www.michaelmeacher.info/weblog/2012/01/camerons-on-the-run-over-corrupt-capitalism-keep-him-there-ed/#more-3372

(5) http://think-left.org/2012/03/27/positive-money-how-to-fix-the-banking-system-and-make-it-less-socially-harmful/

(6) http://www.golemxiv.co.uk/2012/02/propaganda-wars-our-version-risk-weighted-lies-1/

(7) http://think-left.org/2011/12/21/gordon-brown-did-not-spend-all-the-money-the-banks-did/

(8) http://think-left.org/2012/03/05/transnational-corporations-have-not-let-a-good-crisis-go-to-waste/

(9) http://www.guardian.co.uk/commentisfree/2012/jan/15/dont-blame-ratings-euro-turmoil

(10) http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2012/03/capitalists-on-strike.html

(11) http://www.taxresearch.org.uk/Blog/2012/03/29/hmrc-now-subscribes-to-la-la-laffer-and-to-the-idea-that-companies-dont-pay-tax/

(12) http://www.taxresearch.org.uk/Blog/2012/03/26/could-a-new-consensus-emerge-on-corporate-taxes/

(13) http://www.michaelmeacher.info/weblog/2012/03/osborne-has-at-least-shown-every-right-wing-myth-is-false/#more-3555

(14) http://whirledview.typepad.com/whirledview/2012/03/as-the-earth-beneath-their-feet-begins-to-crumble.html

(15) http://www.guardian.co.uk/commentisfree/cifamerica/2012/apr/07/america-hall-mirrors-recovery-robert-reich

(16) http://www.guardian.co.uk/business/economics-blog/2012/mar/25/bernanke-us-recovery-federal-reserve

(17) http://www.michaelmeacher.info/weblog/2012/04/325bn-down-the-drain-still-no-growth/#more-3608

(18) http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2012/03/marx-was-right.html

(19) http://www.neweconomics.org/blog/2011/08/22/“plutonomy”-guaranteed-by-the-tax-payer

* With apologies to stumblingandmumbling.typepad.com