16 December 2008

New Labour's Economic Mis-management

New Labour promoted a regime in which capital flowed into Britain, bolstering the value of sterling, to fund working class spending. The houses, cars, etc. were paid for in part through wages, but consumption was hugely supplemented by unsustainable borrowing. One effect of this high level of expenditure was to inflate the economy and drive up house prices leading many to re-mortgage in order to fund further expenditure, which in turn drove up house prices further. (In the early 2000s, 40 percent of mortgage advances were not to purchase property but to fund consumption)

This credit-fuelled boom was marketed as New Labour’s success. Yet, credit for consumption makes little sense unless the consumer believes that his or her income will continue to rise. The myth of eternal economic growth was peddled by New Labour in the 90s and early 2000s who argued that a flexible workforce and low wages were boosting the economy. What in fact was boosting Britain just as much was the inflow of capital to finance consumer credit.

The boom ended in 2008 when finance capital saw the value of its security (the house, earning potential of the worker) could not guarantee the credit advanced. The inevitable withdrawal of credit plunged Britain into recession: spiralling unemployment, collapsing property prices and wide scale bankruptcy. Workers face mortgages and other credit bills they can't pay as their income and assets devalue. The end of the road is re-possession and destitution. The few palliatives from the Brown government hardly make any difference.

In 2007 Britain’s income per head was USD 44 000. The real pain is not caused by even a ten percent in that figure, but by the effects of Britain’s vast social inequalities. Those once surviving on stream of credit which has now dried up now have nothing but debts. Today and in the coming years many working people have, and will continue to have, absolutely nothing, or less than nothing.

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