Cracks deepen as 'recovery' proves a myth

New figures from the Office for National Statistics confirm what most people know only too well: living standards are falling sharply as a result of the recession. And the Con-Dem Coalition’s budget measures will ensure that things get a whole lot worse.

Real household disposable income – the total income of Britain's working and unemployed populations after taxes and adjusted for inflation – dropped by 0.8% in 2010, according to the ONS. The slide signals the first drop in real incomes since 1981, also during a recession, and the biggest since 1977, when there was double-digit inflation. The decline is set to worsen sharply to about 2.0% this year as the biggest public spending cuts since the second world war begin in earnest.

Incomes are being held down or falling, whilst prices of basic necessities including food, clothing and transport are soaring. Despite historically low interest rates and falling property prices, housing hasn’t got any cheaper apart from a lucky few with short-lived tracker deals.

Chancellor Osborne has learned something from the family wall coverings firm of Osborne and Little. He’s adept at papering over the cracks, or trying to, using faint praise from the Organisation of Economic Co-operation and Development – the club of rich countries – which said: “While this budget includes hard measures, we are convinced they are unavoidable in the short term to pave the way for a strong recovery,"

The trouble is there’s no chance of a strong recovery. Trying to bring one about just makes things worse. Despite adopting a series of unprecedented changes, the list of bankrupt European countries is growing rapidly.

Food price inflation brought on by the tsunami of credit that followed the 2008 financial meltdown triggered a wave of simmering revolutions in the Middle East and North Africa that is spreading throughout the region to Syria and Saudi Arabia sending oil prices to record levels despite slowing demand.

In America, the strengthening of financial services regulation is already making a bad crisis worse. According to Alan Greenspan, former chairman of the US Federal Reserve, the legislation “fails to capture the degree of global interconnectedness of recent decades which has not been substantially altered by the crisis of 2008”. Greenspan should know about these things as he presided over the growth of the credit bubble in the first place.

Greenspan, an arch-defender of unbridled capitalism says the modern economy is far too complex for regulators to understand, and to meddle is dangerous. He’s a much more old-fashioned kind of “hands-off” guy, seeing crises as unfortunate exceptions to the normal functioning of the system.

He says: “Today’s competitive markets, whether we seek to recognise it or not, are driven by an international version of Adam Smith’s ‘invisible hand’ that is unredeemably opaque. With notably rare exceptions (2008, for example), the global ‘invisible hand’ has created relatively stable exchange rates, interest rates, prices, and wage rates.”

There is a truth in what he says, of course, in that market forces are pretty much uncontrollable. But in arguing against regulation, Greenspan is forced to open the can of worms that bedevils every one of the capitalist camps – the post-war relationship between growth and ever-expanding credit:

“The vexing question confronting regulators is whether this rising share of finance has been a necessary condition of growth in the past half century, or coincidence. In moving forward with regulatory repair, we may have to address the as yet unproved tie between the degree of financial complexity and higher standards of living.”

Like Osborne’s wallpaper, this thinly-veiled threat fails to mask the reality. Regulation or not, the majority of us will either have to live with the devastating and worsening consequences of the great crash that inevitably brought 50 years of credit fuelled growth to an end, or organise ourselves to replace the capitalist system with a sustainable, not-for-profit alternative.

Gerry Gold

Economics editor

Revolt heading your way sometime soon

When the wave of revolutions and resistance reaches Europe from North Africa and the Middle East, as it surely will, what happens in Britain depends on how we prepare for the eventuality.

The Coalition government is clearly in some disarray and its longevity is unpredictable. A crisis government from the off, and one without a mandate for most of its policies, it is even incapable of organising the repatriation of its citizens from Libya in a timely fashion.

Prime minister Cameron was too busy boosting arms sales to sheikdoms while foreign secretary Hague was preening himself for his trip to Washington (now cancelled). They are self-evidently political lightweights in an increasingly heavy situation, with Nick Clegg more like a tailor’s dummy than a deputy prime minister.

Now the economic crisis has taken a turn for the worse, with the release of figures today showing that the contraction in the economy in the fourth quarter of 2010 was sharper than at first thought.

It can only get worse as public spending cuts made in a desperate attempt deal with the gargantuan budget deficit take their toll. Councils all over Britain are reducing their workforces and services, led in the cities by Labour-controlled authorities.

Households are on living on a knife edge. Families' disposable income dived by a record £9 a week during January as inflation continued to outstrip wage growth, research by supermarket giant Asda shows.

The average family had £174 a week left to spend after meeting all of their essential outgoings, down from £183 a week in January last year. It was the 13th consecutive month during which people suffered a year-on-year fall in their disposable income, well before the last election.

Rising prices outstripped wage increases and it’s only the start. The research does not take account of last month’s VAT rise, while gas, electricity and petrol prices will continue to rise, driven in part by the revolts in the Middle East. The Bank of England is considering interest rate rises that could prove the final straw for people with mortgages.

With a million young people are out of work, record numbers of people working part-time and, according to the TUC, doing unpaid overtime to keep their jobs – 5.26 million workers are missing out on almost £5,500 a year – the conditions for a social explosion are rapidly maturing.

At that point, the obvious political options are extremely limited (and even dangerous).

Labour is committed to the same market capitalism that led to the present crisis, while its own policies on tuition fees, business involvement in the NHS and academy schools led to a Cameron-Clegg government. Green MP Caroline Lucas today described Coalition policies are the “logical conclusion” of Labour’s. It’s hard to disagree with her.

Add in a parliamentary system which is a sham and a façade behind which corporate power is exercised, you can see there is a problem. It’s not free speech or the right to vote that is the issue, either in Britain (and now not in countries like Egypt either). It’s about who owns and controls the country’s resources and for what purpose.

The global economic crisis is so deep that one-off taxes on the banks and attacks on corporate tax-dodgers, the TUC’s policies for the March 26 anti-government demonstration, come nowhere near a solution.

Capitalism isn’t working and it isn’t sustainable. Trying to fix it or make the banks and corporations change their spots is futile. The preparation we need to make can be not limited to simply challenging existing economic and political power but directed towards actually taking it out of their hands altogether. And that will require leadership, organisation and a revolutionary strategy.

Paul Feldman

Communications editor