The Enervated Economy

When I was a schoolboy the immensely tall Canadian economist, J K Galbraith, produced a book called The Affluent Economy, which had huge success. It gave a message that both North Americans and west Europeans wanted to receive: that the traumas of the Second World War and [in the case of Europe] of post-war reconstruction were pretty well over. The British had re-elected Harold MacMillan's Conservative government with their slogan "You've never had it so good!" The French were coming to a settlement under deGaulle after the traumas of losing their south-east Asian colonies and Algeria [which had been accounted part of metropolitan France]. The Federal Germans were proud of the 'economic miracle' that had been achieved under Chancellor Adenauer and economy minister Erhardt, and of their country's rehabilitation within the western alliance. Life did seem good, society seemed stable and politics were - broadly - honest.

Now, in 2017, we Brits agonise over economic growth figures as they weaken, and accept that the economy is likely to 'slow down' as wages rise more slowly than prices, and as millions of households reach their debt ceilings [especially as the banks are being urged to lower the headroom] and are thus unable to prolong the false economy in which consumer spending has been the 'driver' of the economy. Exporters are maintaining their earnings by raising the sterling prices of their products, so that they get an approximation to the pre-Brexit real-world price in external markets, rather than significantly increasing the volume of exports. This is disappointing, because in historic experience when a currency is devalued relative to others [as the pound has been since the Brexit vote] exporters from that country have been able to maintain a price advantage over their alien competitors to gain to greater share of the export market for their produce; and thus maintain employment for their factories and their employees. Indeed, in several post-devaluation periods Britain's exports have grown significantly, enabling firms to pay overtime wages to employees and sometimes to take on more staff and expand their investment plans.That is not happening now.

British industry has very few current schemes of major capital expenditure actually coming to fruition, whether the produce would be aimed at domestic or export markets. Yet, as is often mentioned in this blog, British firms are at least as innovative as at any time in history, but they are prone to alien takeover because there is a dearth of imaginative investment support in the country.

The media are celebrating the decision of BMW to keep production of the mini in the well-worn Oxford factory where it was first introduced six decades ago; but the electric engines for a new version will be imported from Germany. The innovatory element will not be British: typical of the international firms that use established plant in the UK. Even though manufacturing in Britain is continued, a foreign-owned firm can gather its cash reserves for use anywhere in the world while the UK factories are run down. So long as British labour is cheap, and the factory can be patched up, it can carry on. This is a dispiriting view, and not wholly typical of British plant today, but there is enough of it about to be worrying. The economy is increasingly enervated: lacking in energy, vigour or drive.

The announcement that new petrol and diesel cars are to be phased out completely by 2024 is no surprise; but one automatically sets beside that announcement the lack of any coherent policy to generate the necessary cheap electric power to enable the masses to run their own vehicles in 2041. In virtually every aspect of the economy a lack of vigorous innovative energy is apparent. Even the Brexiteer ministers who are supposedly planning a bright future for the UK "outside the EU" show all the signs of physical exhaustion and intellectual stagnation: of enervation.

Then, today, we get the headline news that the male human sperm count has declined catastrophically, with the prediction that reproduction may become difficult to achieve by the time petrol cars are banned. That is a cheerless prospect!

Price Inflation: the Peak?

Today sees the publication of a figure reporting the increase in prices between September 2010 and September 2011. Even on the scaled-down index that government now prefers shows this to be in excess of 5%.

The only significant segment of the population whose incomes will at least have increased to match price increases are the elite at the top of organisations who are able to negotiate bumper increases: senior executives in companies and the owners of successful businesses. It is notorious that their incomes have increased by more than inflation [on average] usually as a 'package' of a generous salary combined with a bonus linked to an easily-changed performance target, generous expenses and large contributions to the 'top hat' personal pension fund. Despite the envy and anger that many people express about this disparity, it is notable that many jobs exist in luxury shops, restaurants and other services that supply the rich: the British super-salariat and the many rich foreigners who resort to London as a place to spend parts of the year. If that trade was reduced dramatically unemployment would rise as activity declined in London and around the major racecourses and golf clubs, and in the many firms and farms that supply the luxury trades. The great majority of employees have accepted static wages, or just slight increases, rather than try to force their employers to pay them more that might lead to a reduction in the number of people employed. Even so, there is a growing apprehension that in the absence of rising demand firms will begin to shed labour that they have 'hoarded' over the past couple of years in order to keep their skills base intact.

Economic growth is negligible, consumer demand is declining for many everyday products, and there is no sign that this pattern will change. Just now, the Bank of England has begun to extend the pattern of quantitative easing by which the money supply is expanded. While there is a vigorous debate on how far this activity will assist growth in the 'real economy' there is very little doubt that it will cause devaluation - a further drop in the value of the pound against other currencies - so imports to Britain will become more expensive and that will add more to the pattern of price rises in this import-dependent country. There is no sign of an end to the grim round: and the government has no plan to change policy.