[EDIT 24/3/14: This blog entry’s comments now include a short debate with financial expert and ex-banker Frances Coppola and myself, and information about a new blog entry of mine containing my critique of a new, much more serious, argument by MoneyWeek entitled “What Osborne didn’t tell Parliament“, which was actually written by financial experts and aimed at serious investors. In contrast, “The End of Britain” was written by MoneyWeek’s advertising department, leading to it being widely criticised by economists and others who have not been fooled by biased graphs and a huge dose of propaganda. I strongly recommend reading #Budget2014 What Osborne didn’t tell Parliament: critique of new MoneyWeek End of Britain argument – need revolution! which is currently being censored by Google due to the importance of the arguments.]
The financial magazine MoneyWeek is continuing its slick advertising campaign, with its prediction of “The End Of Britain” (inevitable social and economic chaos in the UK), with a video (viewed preferably on YouTube since the video on their website doesn’t allow rewinding or fast-forwarding, a sign of untrustworthiness) or in text form (with graphs) as a “letter” at http://moneyweek.com/endofbritain/. I argue below that, while some of their arguments are false or biased, socialists should recognise the validity of some of their other arguments and be prepared for the opportunities that will open up.
Two critiques in January, by the ex-banker Frances Coppola at http://coppolacomment.blogspot.co.uk/2013/01/the-end-of-britain-not-yet.html and a socialist called Tom Clark at http://anotherangryvoice.blogspot.co.uk/2013/01/moneyweek-and-their-end-of-britain.html, demolish some of MoneyWeek’s arguments and show its dishonesty (perhaps due to it being written by MoneyWeek’s marketing department to sell their magazine), in particular measuring debt in billions of pounds (rather than in real terms, taking inflation into account). The bias in blaming the welfare state for the debt problem, rather than tax avoidance by the rich (something they encourage), is predictable and unremarkable.
[I particularly recommend reading Tom Clark’s blog post, because all but one of the graphs on Frances Coppola’s blog are now failing to load on my computer, and due to him making some good points about the Icelandic people refusing to pay the debts of its banks when they collapsed (something that scares investors of course) and warning that if investors follow MoneyWeek’s advice and invest money in tax havens, they may not be able to access that money if the chaos they warn about comes to pass.]
The national debt has been far higher as a percentage of gross domestic product (GDP) – 240% in the mid-1940s (according to Tom’s blog) than the June 2013 level of 75% (according to http://www.cityam.com/blog/uk-has-joint-seventh-highest-national-debt-gdp-ratio-eu-spain). If that figure is correct, the graph on yet another “End of Britain” advert showing the ratio at 90.7% for 2013 is a lie (at http://www.tradingeconomics.com/united-kingdom/government-debt-to-gdp).
The very high level of combined debt (government, financial sector, corporate and personal) of 900% of GDP quoted by MoneyWeek is misleading due to it counting future public sector pension liabilities (306.3%) as part of the debt – but the 238.9% financial sector debt (the assets they hold to offset the debt is strangely ignored) and financial sector interventions, presumably bailing out the banks in the 2007-8 credit crunch, at 71.1%, are very significant.
With very low interest rates, the government can easily afford to keep going (and indeed, invest in the infrastructure, taking advantage of such rates, rather than wasting money on keeping people languishing on the dole which takes money out of the economy). However, I do think that MoneyWeek’s assertion that if interest rates go up significantly (they say to 5%) the country will go bust, is basically correct. The main reason this hasn’t happened already is the massive use of quantitative easing (QE, “printing money”) by the Bank of England, keeping interest rates low and hurting savers and pension funds.
The Fleet Street Letter, which is linked to MoneyWeek, is predicting “The biggest financial bubble in British history is about to burst” (entailing “a brutal FTSE 100 correction”, “House prices set to drop £60,000”, “private pensions to fall 40%”). The bursting of the house price bubble is a prediction shared by many analysts, contributed to by the coalition government’s “Help to Buy” scheme, whereby they guarantee 15% of the 20% deposit people need to get on the housing ladder. It made much more sense when just applied to new homes, as a way of encouraging home building, but this is a very reckless way to buy votes and could considerably add to the national debt as well as plunge homeowners into the perils of negative equity. [The argument that the banks pay the government to cover the risk is disingenuous since it’s only 1.5% of the total property price.]
It seems to me that the sort of economic and social chaos predicted by MoneyWeek (and implied by the Fleet Street Letter) would be most likely to happen as a result of a global capitalist crisis, particularly by the USA defaulting on its debt, or perhaps due to a further crisis in the eurozone where individual countries cannot use QE, rather than a crisis confined to the UK. [QE is probably the main reason the US economy has sustained itself for so long, but it has to end sooner or later.] The outcome could be relatively worse for capitalism in this country, due to the importance of the City of London for the economy (and the small leverage ratio between liabilities and assets of 3% required by banks which have caused the Co-op and Barclays financial problems will surely not be enough).
I am writing this shortly after the US Congress came within an hour of defaulting on its debt. The Republican Party tried to wreck Obamacare despite the fact that it had already been voted into law (how cruel to try to deny the poor access to healthcare in order to deny Barack Obama any sort of positive legacy). The markets knew that the politicians of both US parties would come to some sort of agreement to avoid an “End of Britain”-type scenario around the world (as they showed by being very stable)! However, decisions on the unsustainable debt have only been put off until the new year.
So should revolutionary socialists welcome the US agreement to avert economic catastrophe? The reality, here in Britain, is that the far left (those in parties to the left of the Labour Party plus a small number of revolutionaries within Labour) are too weak and divided at the moment to take advantage of the opportunities that would have arisen if the US did default this week, and there is a big danger that the far right (including UKIP) would have gained instead. in Greece, both the far left (in Syriza) and the far right (in Golden Dawn) have made gains (although the latter has lost a lot of support after one of their members/supporters murdered a Greek rapper; they had previously restricted assaults and murder to immigrants and the police let them get away with it). I am a member of Left Unity, which will have its founding conference on 30 November – and a broad socialist party that reflects revolutionary as well as reformist views is essential (as I argue for in this blog entry). Socialist revolution in an advanced capitalist country could quickly spread around the world (particularly if we reduce immigration controls or perhaps open the borders completely as I argue for in this blog entry, encouraging foreigners to experience socialism and later return to their own countries to launch revolutions there).
DISCLAIMER: The above arguments are largely speculative – I don’t claim to be an expert on economics of either Marxist or capitalist varieties, and certainly wouldn’t recommend my advice to be used in financial speculation. However, perspectives for the British and world economy are important for socialists to discuss, and this is a contribution to this discussion. I have also set up a Facebook page “End of Britain?” – comments are welcome here or on that page.