Wednesday, June 18, 2008
The double squeeze posted by Richard SeymourWhen the economy tanks, prices are supposed to go down as demand slumps. The trouble is that prices are soaring, particularly in the commodities that people most need. I expect many people will, like me, have noticed the weekly food bill going up. Food prices have apparently risen 20%. Alongside food prices, the latest news is that energy prices are set to go up by 40% this winter. This compounds already existing rises in fuel prices, and it also comes at a time when New Labour has scrapped the winter fuel allowances for pensioners. At the same time, the Bank of England is determined the keep interest rates high and even considered raising them this month. The tight credit market drives up the real cost of borrowing as it is. One effect is to drive would-be home buyers off the market and force them to seek rented accomodation. That's driving up rent already, with an overall rise of 6% (a figure that conceals even sharper rises in particular locations). The Bank of England raises interest rates to curb inflation, but the theory is that such inflation results in normal circumstances from an overheating economy or 'excessive' wage demands. This inflation, however, is the result of speculators moving from riskier margins to blue chip stocks, as the subprime collapse undermines the allure of high-risk, high-profit investments. So, what the Bank is actually doing is knowingly restricting consumption when times are already tough. The signs are that they will drive interest rates up further. So, we're being hammered from every direction.
The only hope is the kind of collective resistance that will be displayed in the public sector pay strikes this summer. Note that the Shell fuel tanker workers won a 14% pay increase as a result of their strike, causing the CBI to worry that there will be a summer of discontent. In the last year alone, strikes in the public sector have risen by 25%. That's a trend that is likely to continue, although those calling for tougher militancy will face the argument from New Labour supporting union leaders that they have to scale back the action in order to do least harm to the government given the prospects of a Tory victory in 2010. The unions have got precious little from the government for previous acquiescence, and the Brown administration has moved far enough to the right to given an opening to its Left for David Davis of all people - he, who would restore the death penalty and isn't too hot on gay rights. What is more, when people feel helpless and desperate they can very easily swing further to the right - inaction on the part of organised labour may actually help hand the Tories a victory. Nonetheless, the argument will be made and heard, and the contest will then be between loyalty to Labour - eroding rapidly, but still quite strong among some - and the desperate need to pay the bills.