Wednesday, 8 March 2017
A status quo too big to fail
From a report in The Independent, "Britain’s economy is being kept afloat by an “unsustainable” spending binge last seen just before the crash, the Treasury watchdog has warned. The independent Office of Budget Responsibility (OBR) highlighted the danger of the ‘savings ratio’ going “negative for the first time since the middle of 2008”. It means people are spending beyond their means on credit cards and by dipping into their savings, to cope with an incomes squeeze.
Earlier today I painted a picture that things outside the bubble were not so rosy and indeed we see some other unwholesome signals that familiar problems are returning. Meanwhile, though we still see signs of anaemic growth, UK productivity remains stubbornly at a standstill.
For a while I have has the impression that we are in a period of stagnation. For all the government's boasting of boosted numbers in jobs, there is an air of unreality to it all as people are shunted into insecure work and increasingly pushed into "self-employment". The fundamentals are not sound. The middle class is being propped up by massive government spending on defence and energy and soon HS2.
It seems to me that our woes are snowballing and that Brexit might just be the thing that tips us over the edge. It doesn't seem like it will take much. Given the government's approach to Brexit, it will be more through luck than by judgement that we avoid a recession. I think when the shit does hit the fan, all of it will hit all at once.
I take the view that successive governments have failed to take the necessary radical action to revive UK dynamism and in part I think the EU has stood in the way of that kind of economic realignment. Too much policy is set in stone without the possibility of reform. That is why we are so vulnerable.
I am also a believer in the virtues of capitalism. Capitalism reinvents and replenishes by killing off zombie businesses and making room for new innovation. It runs like a forest fire, clearing away the deadwood so new growth can occur. In fear of the short term consequences, no government has been in any rush to let capitalism do its thing so we have been on a knife edge for some time, throwing everything including the kitchen sink at preserving the status quo. The status quo, it seems, has become too big to fail so we keep bailing it out.
Remainers would have it that the Brexit voting majority are slobbering simpletons who read a lie on the side of a bus and voted accordingly. This is a slander. What we see in the actual result is pretty much the whole country turning on London and demanding change. Some argue that Brexit is a little drastic but when you have places like Huddersfield and Newport which remain similarly depressed regardless of the economic weather, radical is perhaps what it takes.
Had we voted to remain in the EU, the referendum would now be a distant memory. Ukip would still be grunting away in the background and the same old issues would continue to fester. We would not though see any change of course. Our political class would have taken a remain vote as permission to resume business as usual. That is insufficient. For sure there are plenty of other things we could do to other than leave the EU, but the bottom line is that nothing was going to change unless we forced our political class to do something they don't want to do.
And what choice did we have? A Labour party with nothing to offer but for the same old unfunded spending and a Tory party entirely bereft of any real ideas. The best we can expect from them is semi-competent managed decline. It may well be the case that the British public are more willing to look the facts in the face than the politicians.
We were told that the EU underpins our prosperity but that is a weak message for those in the north watching the vitality drain from their towns. With so little to lose, why not take a gamble on something radical? We know that there is short term chaos from Brexit and we know there is a price to pay but a reordering of the economy could well open up avenues nobody predicted. A healthy economy is one where money is on the move. Presently we are seeing stagnation with asset hoarding and very little dynamism. Brexit blows it all wide open.
In the meantime, as established systems and trade patterns break down it is more than likely we will see new movements in politics, sweeping away the incompetents who brought us to this pretty pass. There is no longer any place for the Labour party and the Tories are about to be exposed as monumentally inept. If Brexit clears out the rot in that regard then we really do have little to lose - and much to gain.