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All
at sea
The indications are
that the economy
is heading
for a recession, which no government can prevent.
The idea that the market
economy can
progress steadily, providing for ever-rising levels of growth, trade
and employment, is a fantasy dreamt about by every Chancellor of the
Exchequer and most politicians generally. This was never more the
case than with the former Chancellor Gordon Brown who claimed
repeatedly that year-on-year economic growth was the unique product
of his prudent and circumspect economic management of British
capitalism.
The prudence of the
erstwhile
Chancellor – and now Prime Minister – is suddenly in doubt as the
economy, according to most commentators and analysts, heads towards a
recession his government seems powerless to prevent. No longer in
command of everything he surveys, Brown’s frailties are suddenly
all too apparent, even to many of his former supporters. Indeed, it
is interesting that many of the commentators who saw little to
question in Brown’s outlandish claims over the last ten years were
also most often the cheerleaders for a housing market bubble they
said would never burst, and which now provides them with endless
column inches of hard-hitting prose now that it finally has.
Before the housing market
crash began
and when the politicians and mainstream press were still in denial,
we had, in the May 2007 Socialist Standard, a different
perspective: ‘past history demonstrates that sooner or later, the
current housing bubble will end in tears. When asset prices become
completely disengaged from what is happening in the real economy
where wealth is produced and value created, and are only sustained by
ever increasing amounts of indebtedness, it cannot last –
capitalism just does not work that way’. According to the Financial
Times (9th August) this debt has now risen from 100
per cent to 170 per cent of household income under New Labour (the
highest in the G7 countries) and 80 per cent of this has been secured
on property, a perilous situation for the housing market in
particular but also for the economy as a whole.
Business cycle
Growth in the market economy
(in the
housing sector and more generally) does not proceed in the manner of
a straight upward line as imagined on a Treasury graph. Its general
direction is upwards over the long-term, but growth tends to be
uneven, unpredictable, and prone to periodic wild gyrations. For very
good reasons this is the way it has always occurred in capitalism and
there is nothing about the system, or the politicians who oversee it,
to suggest it will happen any differently in future.
In the nineteenth century
the concept
of capitalism’s ever-recurring trade cycle was well-known, the most
coherent and in-depth analysis of it being developed by Karl Marx. As
prescient now as it was then, Marx summarized his view in the
following terms:
‘The factory system’s
tremendous
capacity for expanding with sudden immense leaps, and its dependence
on the world market, necessarily give rise to the following cycle:
feverish production, a consequent glut on the market, then a
contraction of the market, which causes production to be crippled.
The life of industry becomes a series of periods of moderate
activity, prosperity, over-production, crisis and stagnation’
(Capital, Volume 1, p.580. Penguin Edition).
There are two related
factors which
drive this boom/slump cycle. Firstly, the fact that production takes
place with a view to realising a monetary profit. Without this
prospect of profit, production will not take place. Needs without the
ability to pay are left unrecognised, whether that be housing for
those unable to get a mortgage or food for those unable to pay for
it. Secondly, this profit-seeking is conducted by hundreds of
thousands of competing enterprises whose ultimate aim is to increase
market share, increase production, and through doing so increase
profits. The problem is that the drive to compete for these
enterprises is their only tangible reference point to one another.
What they do is not co-ordinated and planned, and not linked to the
demands of other companies and industries. Instead, there is an
anarchy of production which periodically leads to key sectors of a
booming economy over-expanding in relation to existing market demand.
That this situation occurred
in the US
housing market from 2006 onwards, and has since been transmitted to
many other property markets including that of the UK, is now obvious
even to most of those who vehemently denied it
would happen...continue to next page 10
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