Economy, Brexit, K-Waves & Stuff

This is a rambling post on the state we’re in now and some underlying economic theory (as I understand it) which might help us think through the challenges posed by the Brexit vote.

 

NeoLiberalism – it’s what’s going on

But to start, let’s look at where we are – here’s a video clip where a top economist pretty much tears apart the system we’re living with.
https://www.theguardian.com/business/video/2016/aug/11/owen-jones-talks-to-ha-joon-chang-austerity-is-based-on-lies-video-interview

The way everything is being done now doesn’t look like a sustainable way for the future.   There’s not much doubt that we’re living through a massive transfer form the people to the elite  ( ireally don’t much like thes terms, but can’t think of any alternatives.)  NeoLiberalism isn’t new, it has been going since the days of Pinochet in Chile  (’73-90)  and we can look back at his rule and see how it impacted on the people of Chile.  It was fine for the 1%, but very bleak indeed for the rest of the population.  And this is the same economic system, pretty much, as Reagan and Thatcher imposed on the US and the the UK.  And it’s still going on…..  Our UK Government seems to be stuck with Thatcher’s mantra of “There Is No Alternative”.  TINA can’t be true though.  Everything in life has alternatives so logically there must be alternatives to NeoLiberalism.  It’s just that NL has been the in vogue economic framework for so much of the world for so long, almost a generation, that it has become so deeply ingrained that it’s hard for any alternative to be thought of in the mainstream.  Here’s a little graph showing the changes in household income over the past decades (there are many like this which look the same).  Sorry it’s not got a source on it, I picked it up from Prof David Bell at University of Stirling.  I trust he wouldn’t be using it in public if it wasn’t accurate.

household income.JPG

This is what NeoLiberalism has done and is continuing to do.  Can you tell I’m not a fan?

 

Long Waves

There’s an interesting underlying theory of long waves of economic activity.  It was postulated by Nikolai Kondratiev  back in 1925.  It continues to attract attention because it still seems to fit what’s going on in the global and national economies.  If you’re interested in the theory of this, then look up Kontratiev, Schumpeter and yes, Karl Marx.  What you read might surprise you.

Here’s a representation of  Kondratiev Waves.  As you can see, it;s a kind of 45 year to 60 year cycle.  We’re at an interesting point where, according to this economic theory, we ought to be entering a cyclical downturn.  Maybe this theory is correct?  There’s certainly plenty of people who respect the underlying theory of these long waves of economic activity.

520px-Kondratieff_Wave.svg.png

Source : By Rursus – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=7833300

So my thoughts are that it looks like the UK is moving to the point of diminishing returns for NeoLiberalism. The UK economy is already one of the most open in the world with much of the national infrastructure being owned by non-UK businesses.  As the UK goes to negotiate it’s Brexit it’s not starting with a very strong hand.  Negotiations are about give and take, about ‘if you do this, we’ll do that’.  What has the UK got to offer to prospective trading partners?  Thanks to the decades of NeoLiberal economics being followed by successive UK Governments of all colours, the bargaining chips have already been sold.  What can David Davis offer?  If there’s one thing which is critical to the UK it’s the preservation of the ‘Passport’ rights for the financial services sector in London.  What can Davis actually offer up to the EU to preserve this?  Sure the other countries and companies will want to sell their goods into the UK. But at what cost to the UK?   And if the Kondratiev Wave is right, doing all this when we’re about to enter a period of economic downturns isn’t going to make it any easier.
The graph below shows the value of trade flows to/from the UK, Germany and China.  (source Prof Bell, and the ONS)  Germany sells a lot more to us than we do to them.  Germany sells a lot more to China than the UK does. (Must be all the BMW’s, Mercedes and Porches. If only the UK still had a car industry it owned…….. <tongue firmly in cheek> ) The UK sells a lot more to Germany than we do to China.  Our exports to Germany are facilitated by our membership of the single market.  If that changes, if any form of trade barriers emerge post Brexit, it will hurt. Looking on the bright side, maybe we could sell more stuff to China.  Now what do we make that they might want to buy?   Oh I know, we could flog them the rights to build our new nuclear power stations………….

trade flows.JPG

 

 

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