An Economy that Works for the Econocracy

In my obligatory reference to the Brexit movement yesterday, I reported how Mrs May stressed the need - as she sees it - to build an economic and social system for 'everybody': in this generation and the next. No democratic leader has deliberately offered economically and socially divisive programmes in the past half-century; though the consequences of many well-meaning notions have been economically disastrous and socially sub-optimal: so she is saying nothing new, though she seems to think that she is saying it in a new way.

I went on yesterday to express the view that the Brexit negotiations are from now on - at best - the second-most important issue facing the British government. The most important issue is the dire state of the economy, which gets more precarious by the day. The economy does not 'work for everybody'. The general standard of living, taken across the whole population, is still lower than it was in 2006: Britain and Greece are the only EU states of which that depressing fact is the case. The only people who benefit from the prevailing economic policy are the Economists who get a living from providing the dogmatics, the policy details and the superficial 'explanations' whenever targets are not met or policies fail.

As frequently has been mention in these pages, the government's one great claim to economic 'success' is that 'economic growth' is higher than in most other formerly-industrial countries. This is impure fantasy. The 'growth' of the British economy is calamitous, because it reports the quintessential fact that consumers - ordinary people, who have squeezed real incomes - collectively borrow more money to maintain their spending power week by week. More and more of the borrowed money each month is spent on imported goods, so it does nothing to raise industrial employment in the UK; while it increases the balance of payments deficit. To cover the deficit, Britain as a whole has to borrow from the rest of the world, and individuals and companies have to sell their assets in the UK to foreigners. The result is that foreigners own more material and financial assets in the UK than they did before.

Economists and journalists blithely write about consumer spending as the 'engine' that drives economic growth [most of the time, carefully ignoring any reference to what actually is growing]. The latest figures issued by the Bank of England showed that total borrowing by British consumers in February 2017 was 9.3% higher than the total in  February 2016. This was after a more modest increase in debt between January 2016 and January 2017, at 8.6%. The February, 1917, figure showed the highest increase in 11 years - the period since the height of the financial bubble that ended in the crash of 2007-8. Households put £600 million more on their credit-card debt in February, so that at the end of the month the total that they owed was £10 billion more than it had been in August 2014. The credit-card debt total had risen to £63.7 billion by 1 March 2017. The Bank of England's Financial Policy Committee is becoming scared by these figures, and the Bank's Prudential Regulation Authority is being set the task of checking that the banks are being rigorous in applying their own rules to avoid customers over-extending their borrowing; relative to their ability to service their debts.

Meanwhile the banks and other credit-card providers seem to be confident that they can continue the current rate of credit expansion, and are competing with each other to attract customers by offering them several months of interest-free credit if they will transfer their 'balances' to new providers; which encourages them to borrow more during the interest-free period. As the number of mortgages approved by the lenders for house purchase continues a slow decline, people show no disinclination to slow down the rate at which they stuff their wardrobes and their bellies with mostly 'unnecessary' consumer items. This can only end in catastrophe.