Deficit Disaster

It is a fundamental proposition of rational Political Economy that a country must aim over any run of a few years to have an equal balance of imports and exports. Britain has a regular annual surplus on trade in services: insurance, banking, legal services, hosting film-makers and offering a reliable market in stocks, shares and bonds routinely make a profit for the country.

But the national appetite for imported goods considerable exceeds the rest of the world's demand for British goods. The figures that have just been published by the Office for National Statistics show that the deficit in June increased to £9.4 billion; the highest this year. The main component in this worsening picture is the drop of £400 million in material exports: this reflects a declining demand for oil [of which Britain is still a small net exporter], but a much bigger factor is the rise in the exchange rate of the pound for other currencies. This makes British goods dearer in exports markets; while foreign goods are relatively cheaper in this country.

In turn, the weakness of export sales discourages British firms from investing in new machinery and developing new products; despite the fact that many companies have large holdings of cash. Many boards of directors have  decided to cheer up their investors by buying-back shares from the existing shareholders at higher prices than have recently been offered on the stock market. The shareholders who have sold have been inclined either to buy shares in more dynamic foreign companies [adding to their working capital] or to buy imported consumer goods or to invest in property - often buy-to-let homes. Thus there is a net diminution in the circulating capital available for investment in British economy: yet again!

The government and most commentators are oblivious to this disaster; and the main opposition party, Labour, plans to make this disinvestment worse by taxing productive businesses and individuals even more to give greater handouts to the beneficiary consumers who buy imports; and to compel employers to increase basic wages, which will make millions of marginal jobs non-viable, forcing the occupants of those jobs into the benefits system.

This entirely predictable [and predicted] tragedy is not inescapable, but the wasted half-century when the need to accumulate circulating capital and convert it into productive capital was ignored has established a very poor basis for a real recovery to begin. The pointy-heads still fail to understand the difference between productivity [the cash-per-job that is generated by firms] and productiveness [whether or not jobs add to the circulating capital of the country, that can be applied to increase future production]. Jobs can have high productivity in terms of each employee bringing in millions of pounds from retailing highly desired imported brands, while their negative contribution to national productiveness is massive in terms of the purchasing-power that is exported to the firms that own the brands. Until the incredibly simple basic truths are recognised and adopted as the basis for policy, the economy will fester and the stench of decay will eventually reach the nostrils of foreign investors who have hitherto been duped by postkeynesian statistics: they will then cease to buy British state debt and the vultures will come home to roost.

I will continue to do my bit to point to reality and realism.