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Why the economy is in far worse shape than Osborne admits

Osborne as PinnochioOsborne’s portrayal of the British economy as having “the fastest rate of recovery of any advanced nation in the world”, which he again repeated yesterday, is sheer poppycock. He continues to boast that GDP growth can be expected to average some 2.5% per annum over the period ahead, but on every key economic indicator that is wildly optimistic, not least when the latest quarterly growth figure was just 0.3%. There are several good reasons to believe Osborne is blowing into the wind.

Since growth depends on investment, it is troubling that private investors, who clearly don’t believe Osborne’s claims about sustainable growth, are effectively on strike. UK Investment at only 14% of GDP is now one of the lowest in the world, and if depreciation is netted off (as it needs to be), we are down to about 2.5%, which is not even enough to keep up with the rising population. This means our capital stock in light industry, a vital sector for growth, is actually decreasing. That of course also explains why productivity has been flat for the last 5 years.

Second, Thatcher’s de-industrialisation means we no longer produce enough to pay for our imports.Manufacturing amounted to 40% of our economy in 1948, and even by 1970 it was almost a third. It is now hardly 10%, which is a disaster when productivity increases are much more easily achieved in manufacturing than in services, high-quality jobs are much better spread by manufacturing than services, and Britain’s very serious weakness in manufacturing is now producing a huge visible trade deficit of £120bn a year, far more than the £86bn surplus on services.

Third, the balance of payments is deteriorating alarmingly, not only because of this trade deficit, but because another component of the overall foreign payments deficit is getting stubbornly worse. Instead of a large surplus of £20bn a year on net income from abroad, it is now a £40bn a year deficit because of the loss of profit, dividend and income resulting from the huge sale of UK assets sold off to finance our previous balance of payments deficits.

Fourth, as a result of these chronic foreign payments deficits, the UK is getting deeper and deeper into debt. Financing this deficit has to be paid for by both selling assets and borrowing from abroad. The strain has had to be taken on the government deficit, which was why at £95bn last year it was almost the same as the balance of payments deficit. That exposes two key facts – Osborne’s hypocrisy in claiming that the only way to cut the budget deficit is to cut public spending rather than tackling the real cause, the ever-widening balance of payments deficit; and that the budget deficit can be eliminated by 2018-9 which is sheer fantasy.

Fifth, such meagre increases in growth as we have had have been generated, not by productive growth in the economy, but by massive increases in the money supply which has led inevitably to asset inflation, thus once again profiting the rich and exacerbating inequality still further.

5 Comments

  1. swatantra says:

    Very appropriate. It was said, when I was studying the Law, that the Decisions and Opinions of the (Lord) Chancellor depended on the size of his nose! If Osborne fell under a bus tomorrow, I honestly don’t think the fate of the economy would be affected much. It all depends on world Markets and the Price of Commodities.

    1. Mukkinese says:

      To an extent you are right, he promises things he has little or no control over, but if he actually invested money in say housing, an industry where the international markets have little influence, we could create high quality jobs here, assets that cannot be taken to off-shore tax havens, remove people from benefits, stabilise and stimulate the housing market and create wealth among the sector of the population that investors would rely on for a return. This would encourage more investment and more jobs, less benefits etc.

      Seems simple way to improve things doesn’t it? Unfortunately Osborne believes that private investors will risk their money when people have less and less cash in their pockets.

      Our economic “saviour” does not know his arse from his elbow…

  2. Mervyn Hyde says:

    Whilst agreeing with the content in the article, we really need to understand that the economic cat is now out of the bag.

    like Greece we are artificially trapped by constraints that are designed to push us backwards, and unlike when Labour came to power after the war, there is no excuse for ignorance any longer, we can afford our public services.

    When politicians tell us our country is broke, that we have run out of money, they are actually lying to us.

    It is quite literally impossible for the Bank of England to run out of money, we are controlled by the private Banks and they are given free money by the Bank of England every time they make a loan.

    There is absolutely no need for austerity and we as a nation are being held back by the whole financial sector who want us all trapped in debt so that they profit.

    We can and should put money that only the Bank of England can issue directly into the economy to create jobs with real wages and pay for our public services.

    Not only that of course but research, free education, the nationalisation of core industries and utilities so that we can really control the economy.

    Not as we do today having to wait for those businesses sitting on mountains of cash, to provide jobs, which they are not now doing, because they don’t see a profit in it.

    There is so much that needs doing in this country and our economy is stagnating because those with the money are not using it.

  3. Barry Ewart says:

    Yes big business is sat on £800b which it will not invest (scope here for windfall taxes to get some of our wealth back) and over a trillion of quantitative easing in the UK as only bought off the financial crisis for a few years.
    Neo-Liberal cheap labour has reduced tax contributions and £11b of taxpayers money subsidises poverty pay (£1b of this alone goes to the major supermarkets) and consumption of commodities has only been sustained by the credit card (over a trillion of personal debt) which is unsustainable.
    Read a good piece in the latest excellent New Left Review (NLR) even Germany’s economy is not as strong as they make out – it has mainly been sustained by the export of productive i.e. engineering equipment to the likes of China and whilst pay in this sector is very high in the rest of Germany’s economy pay has been suppressed.
    Of course whilst the Neo-Liberals try to break a left wing Greek Government for trying to challenge impoverishment the hypocrites have all bailed themselves out with quantitative easing (and not allowing Greece to) and Germany has broken the Maistrict rules, funny how the top dogs seem to do what they want- so we need to challenge Neo-Liberalism in the whole of the EC.
    An EC Financial Transaction Tax of 1% would be a good start (better than the piddling 0.1% Robin Hood Tax) and to get the talked about Common EC Corporate Tax law passed.
    Streeck in NLR previously argued that the rich and powerful haven’t a clue what to do.
    Just before the election a Marxist argued that a section of capital (oil) was willing to take a temporary hit (and people felt a little better without demanding large pay rises which would have upset the Tories friend the bosses) but was such a hit a deal I.e. to allow the likes of Saudi to later bomb Yemen in return?
    Or was it a chance outcome of the battle between mainly Saudi oil and US Fracking companies (the cause claimed by the financial pages and fracking companies need 80 dollars a barrel to survive – or is the latter a ruse – such is the power of hegemony?)
    But funnily enough oil fell to 50 dollars a barrel before the election and after the election it is now up to just over 60 dollars.
    The right may be running out of policy tools in the Neo-Liberal toolkit whist many of us on the left may know what to do – windfall taxes big business, tax rich & land, EC taxes, more democratic public ownership then state-led public investment (and the private sector will pour in behind to feed the chain).
    Yours in hope & solidarity!

    1. Mervyn Hyde says:

      Barry:

      An excellent resume’; What should be clear to any thinking person who follows politics is that the agenda is real, it is comprehensive and has spread from the US throughout the world.

      That the west is no longer the workshop of the world and regular work can’t be relied on. Capital has the means at it’s disposal to give and take away at will, and that power politics is all that matters to them.

      That is why we have to educate the masses into understanding that the feral elite are manipulating crisis management as a means to control us. We are to them a commodity that can be bought and sold and if we want to get our dignity back we have got to take that control back.

      My view of modern politics is that the political system has been high-jacked, it is most significant that all the major decisions in the world are now held in secret. TTIP being the latest and I think the final part of the jigsaw that enshrines corporate power into law.

      As you point out Greece is being driven back because they dare to challenge the Neo-Liberal agenda and what is clear to me, at every stage the US is dictating the terms, as we see the IMF now rejecting the latest proposals that allow Syriza a breathing space, in other words the left have to be crushed and seen to fail; as the whole pack of cards will fall down in Europe if they succeed.

      I really do hope, (and listening to a member of Syriza last night on RT, who said he realised things would be tough in the short term should they default, but not half as bad as if they continued with the austerity proposals that the EU stipulate) that they break away from the EU and set up their own sovereign currency.

      In essence we all need to understand that as people we do not fit in with the Neo Liberal agenda, we are there to serve the interests of the few, but whereas in the past and the secret was kept to the few, we now know money is not a problem for us as it is for the members of the EU. That is the key to liberating people from the yoke of oppression.

      We can turn our backs on capital, they become utterly irrelevant as we can direct finance, create it and destroy it at will, whenever it is required.

      We also need a new perspective, not of seeking world dominance or competing, but how we control our own destinies within and co-operate with those outside.

      Wars are not necessary, unless you introduce competition, we can develop means to recycle everything as we must in a finite world, develop free energy, control the means that deliver a safe and efficient society.

      We are being held back by capitalism that is strangling the life out of our economies, we either take back democratic control, or become an economic wasteland with the advent of the modern day serf and history repeating itself as before the last war.

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