ECONOMIC ANALYSIS: Sooner or later, the consumer will be sovereign once more.

Banks are getting richer, citizens are getting poorer, and governments are going broke. But this is not the blueprint for the future.

I have posted before on the idiocy of calling this ‘the jobless recovery’. Such oxymoronic thought is part of a mindset that thinks shareholder value, Bourse levels and bank profits might be indicators of a happy culture. Now the spinners have changed tack and started to trumpet 0.1% increases in employment as the waters parting to allow entry into The Promised Land. How quickly those who spout about the market deciding choose to ignore the market doing just that.

Most Friedmanite economics is an artful combination of wishful thinking and statistics – just about the worst combination of selfish denial you could wish for. But one market rule going back to the Stone Age still applies: the law of supply and demand. And if the employer supply of jobs falls well short of employee demand, wages must fall. This is precisely what’s happening, in two ways. First, a falling rate per hour; and second, a falling number of hours per worker.

To a great fanfare last Friday, the US Bureau of Labor Statistics announced 192,000 new jobs in February – 220,000 new jobs in the private sector and a drop in government employment – and thus a drop in the overall unemployment rate from 9 to 8.9%. (By the way, to get the unemployment rate down to nearer 6% by 2014, America would need over 300,000 new jobs every month between now and then.)

However, 8.3 million Americans are now working part time, and many of them (research has indicated) would rather be working full time. The same trend has been evident in the UK for some time.

But it’s the hourly rate being paid that suggests the most important trend. In the US, the National Employment Law Project shows that most of the 1.25 million new jobs created since February 2010 paid far lower wages than the jobs lost (8.4 million) between January 2008 and February 2010. A typical rate mix of  $19.05 to $31.40 an hour has been replaced by a very different one – $9.03 to $12.91 an hour.

In the UK too, although small falls are apparent in unemployment, real living standards are projected to fall still further. Already, we are experiencing a rare period of falling wage values. Nominal wages are growing by 2.2%, but we are experiencing CPI inflation of 3.7% (RPI is even higher). Therefore real wages are effectively falling by 1.5%.


Some of this is down to the East-West equalisation that we are told is inevitable. It’s only inevitable, in my view, if we all lie back and watch it happen to us, but even then the equalisation excuse is merely another bit of social balm being applied by those busily funking the future. Were we to switch with great determination to producing high-value goods for sale to Asia, growing more of our own food, and putting speculative investment banking back in its box, the falling wage and employment trends would be reversed within a matter of 5-10 years. The truth is that, both here and in the States, the wealth disparities are also growing: both our societies are turning into ones where the many make a little money and the few make a fortune – but almost nobody makes anything for sale abroad any more.

The ludicrous overdependence on banking is the biggest single factor in all this. To hear the Wall St and City clowns pontificate, you’d think the human race had moved onto a higher plane of existence where physical products were no longer required. But all they seek is more and more leeway – with less and less regulation – to ensure that what they like doing (bankrolling mergers and acquisitions to increase shareholder value and reduce jobs) can continue…..even though it is patently antithetical to the social good.

It is fashionable at the moment, among sane radical capitalists, to see the eventual absolute power of Eastern manufacturers and Western bankers as an unstoppable historical force. I don’t agree: without new forms of wealth in the West, Asia cannot simply sell to itself forever; and without consumers to grow multinational markets, banks cannot simply continue this deadly game of ascribing notional wealth to worthless paper.

We are going to go through a very nasty period of high-voltage reality shocks. But those selling something of tangible value will recover lost share. You cannot build a viable economic tomorrow on junk electronics and junk bonds.


Mergers that reduce headcount, beancounters that move employment centres into Asia, shareholders that demand higher and quicker returns, and derivatives that create fantasy money: this is the investment banking business in the West today. It contributes nothing whatsoever to the creation of new jobs and new sectors –  the powerhouses of tomorrow that can put our culture back on its feet.

Sure, it has helped Asian economies get started – although at an enormous social cost and at pitiful wage levels. But from here on, neither China nor India needs that assistance: if anything, they resent Western producers diversifying into Korea and Thailand, where pay rates can be even lower than theirs.

We in the West must never again price ourselves out of world markets. But we must stop – right now – pretending that we can compete any longer in low-cost supplier mass markets. We must go upmarket, add value and suggest prestige – in order to market successfully to the burgeoning middle classes sprouting up all over the East. And our governments must stop – right now – running scared of the banking community. As I posted last week, you can see (given the accelerating wealth of these Raubrittern) why the Camerons and Obamas of this world are fearful of them.

Economic power and wealth isn’t only going from West to East. It’s also being drained out of national government exchequers and consumer pockets. Once they divest themselves of retail outlets (and this is the obvious aim of Bob Diamond for example) the bankers will depend on neither for their funds: they will retreat into a narrow, onanist world of paper-swapping. The way some of these guys see it, by around 2030 they’ll be running everything and have risen miles above the law. Can you imagine what that kind of world would be like?

It can’t happen, of course. Most investment bankers I’ve known (cue more emails and comment threads from the thin-skinned and easily offended apologists) are as narrow as the average idiot savant. They understand models and projections, flow charts and valuations, currency movements and fiscal digests: but very few could run a bath let alone a retail network. Like our politicians, they see no consequences or ramifications, only bonuses and pissing contests. They can’t grasp First Year social anthropology, neuroscience, market reasearch, level playing fields or indeed any of the things that go to make up an understanding of who we are, and why we do the things we do. Very, few few of them are entrepreneurs: they take risks sure enough, but only with other people’s money. Were they to help new, small enterprises get off the ground, that would put their own money at risk – and we couldn’t possibly have that now, could we? For the investment banker, taxpayer money is very good, and client money is good. Their own money is for squirreling away…although to what purpose remains unclear: cryogenic research, perhaps.

In other words, when the next screw-up arrives, they will bottle out again. Perhaps America will be mad enough to give them yet another chance – but I doubt it. As for the UK and Europe, they don’t have the money (outside of Germany) to do such a thing. It won’t, next time, be a game of bluffing poker: governments will simply fold, and then the Masters of the Universe won’t know what to do. In more patriotic Japan, they will do what’s necessary for the good of Nippon. In Germany, they will bankroll real, expansionist manufacturing. In China, they will do what the Party tells them.

I genuinely believe that fifteen years from now, Bob Diamond, Fred Goodwin and Lloyd Blankfein will be a similar memory in our psyches to that of Arthur Scargill and Vic Feather today. In the intervening period, there will be much hardship, massive change, and very probably some violence. But by the end of it, we will all be making more stuff, and using safe retail banks in a radically different – perhaps more mutualist – form. And we will have more economic power per citizen, not less – as soon as we, as individuals, wake up to the power of the internet to change policy.

We will be making stuff we didn’t expect to. We will be doing it on a very different basis to today’s globalist and supranational model. And in the light of the shrunken States that will emerge from the broken economies, we will be shouldering far more personal responsibility. That can only be a very good thing.