Understanding the New Planned Economy

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I know you have heard the phrase ‘Planned Economy’ many times before, probably as a term of political abuse. ‘Planned economy’ as propaganda conjures up images of unaccountable faceless bureaucrats in anonymous offices malignly controlling the way ordinary people live their lives.

Most well known in this context would be the Five Year Plans which were implemented after the Slav takeover of the Russian state in 1917.

Communism and the Five Year Plan is associated in ‘western’ politics with wealth redistribution from rich to poor, deciding what can or cannot be made and most iconically deciding what consumer goodies will be available on the shelves.

Whether you agree with these policies or not, the point is that they are are planning objectives, rather than planning itself. In contradistinction to the Five Year Plan of the Russian Revolution, it is entirely possible to implement a planned for redistribution of wealth from poor to rich. This is what has been happening in the western economies for the last decade or so. But it is a more complex and subtle process than previous government supervised transfer of wealth.

MARXISM – MORALITY = MONETARISM

The basic idea of planning is far from alien to western capitalist economies. What do you think all those people in government offices are doing all day long? Government spending is usually a little less than half the total economy in the average advanced capitalist nation. What the government does affects everything. Given this state of affairs would you seriously want or expect the Government not to have a plan of some kind?

 And those who would would like to see the size and influence of the state shrink have to admit that since the Credit Crunch any idea of the permanently smaller state is something of a long shot. Since 2008 there has been a permanent ’emergency’ regime of the lowest interest rates and forward guidance from central banks to make sure no nasty surprises pop up. Even if this control were to be dialed back, we would still be living in a control economy- after all you can’t reclaim your virginity once you have lost it…

But the truth is that it was not 2008 that brought this state of affairs about but the economic crises of the 1970’s four decades before. After systematic capitalist collapse, right wing thinkers conceded that it was untenable to support a Free Market any longer on any terms. As Karl Marx had predicted, capitalist economies had become increasingly reliant on their respective states to bail them out of the effects of periodic crises, resulting in a state of permanent crisis management.

Milton Friedman conceded this argument with the creation of Monetarism. Monetarism argued that from then on the state would have to permanently intervene to control the amount of money in the economy, instead of only intervening when there was an overt crisis. Permanent management and intervention was the end of so called free markets. Monetarism was only intellectually innovative in that it openly advocated a state run economy for the benefit of a minority.

 After Monetarism there could be no more economic solutions in the way they had been understood up to that point, because there was no independent economy in which to implement them. Everything would now be under control of the Monetarist state, including all political and intellectual activity. There are no mainstream political parties in the Saxon world that are not Monetarist parties. There are no mainstream economists that are not Monetarist economists.

Since the Western world had swapped a permanent economic problem for a permanent political one, it follows that it would have to define a permanent political solution. The possibility for this lay in the political definition of centralised planning

It is possible for Monetarists to argue that they are not really against a system of planning per se but rather against a centralised ‘politicised’ system of planning. (Commissars telling us what to do.) So Monetarism champions a specific decentralised system of planning. And that system is Planning Through Credit.

The groundwork for this planned credit economy began in the period immediately after the second Germanic war. As I have explained elsewhere, widespread support for western (Germanic), civilisation such as it is, was devastated by the spectacle of the death camps and the atomic bomb.

By the 1950’s this was reflected in the fact that most of the worlds territory was controlled by ideologies that openly repudiated capitalism (and Germanic culture!), in whole or in large part. Even in those areas capitalism was nominally the economic system it had become more of a political totem than an economic reality. Economies were still mobilised for the war effort. The idea that they could magically revert to a pre-war mode the moment peace was declared is obviously nonsense.

The ‘consumer society’ was ushered in to build support for a supposedly rehabilitated Germanic system. This was to be a cult of discretionary spending, where ordinary people were to enjoy the fruits of economic freedom to spend as opposed to an alien, ‘planned’ economy. Ironically, underpinning this post war ‘freedom to spend’ was the most comprehensive system of control there had ever been in the advanced economies. State supply of education and health underpinned the entire consumer society.

Now the period of discretionary spending; of ‘economic freedom’ for the mass of people, is coming to a close. This process is reaching its climax in end of the consumer society.

Because You’re worth it?

Over the past couple of decades the introduction of a Permanent Credit Economy has replaced the consumer society in the Anglo Saxon economies. This has occurred through a vast expansion of loans for higher education and for housing. A permanent credit economy is one where credit is required to provide not just discretionary commodities but the necessities of life.

It is important to understand that this permanent credit economy is not simply a matter of actual earning power. By way of illustration, customers are often required to produce a credit card as a ‘deposit’ for hotels or hiring a car etc. By doing this the customer agrees to an ongoing financial relationship over and above the actual hiring relationship. The relationship is more complex than a simple one time agreement to undertake a transaction as in cash payment.

Entering into ongoing relationships of this nature has a number of consequences both for individuals and for economies in general.

For individuals, the extent and size of loans required to purchase a house or an ‘advanced’ education has exploded. This increasing need for credit has been a fundamental plank of governmental policy in advanced economies for more than a couple of decades. The necessity for loans for housing and education is justified by the idea of personal investment, in the sense of investing in yourself and your family as a ongoing enterprise.(see ongoing financial arrangements)

The political project of making sure that the idea of ‘personal investment’ sticks, means it is necessary to create the conditions where this investment will pay off. In effect, it has become a political necessity to make houses more expensive and jobs more scarce to justify the time and effort necessary to get them. As a consequence it is becoming harder for the average citizen to move from one housing bracket to another and from one employment bracket to another. More accurately, orderly progression up the income and housing scale more is more difficult.

Think about the familiar routes from the bottom of society to fame and fortune – start a dot com company, win the lottery, become a financial trader, they all have in common that there is no orderly progression to the top. The mythology of modern wealth in the mass media actually celebrates this fact! There is increasingly less of a logical, orderly route to becoming rich, powerful and influential in society. We live in a planned economy defined and dominated and justified by the worship of chance. We are living in a hierarchy of chance.

General consequences of the permanent credit economy

The general consequences of of permanent credit economy can be seen most clearly in credit gearing.Money obtained as credit is worth less to the borrower than real money since you have to pay the principle and the interest on top. If you were to buy a washing machine worth £100 over a year with 10% interest then you would in fact, pay £110. If the participants an economy were to buy all the things they wanted and needed, (as in the Permanent Credit Economy) on credit what would the effect of this be?

A good analogy would be trying to start a car in third gear or a start off a bike on a hill. Since the Permanent Credit Economy is a planned economy it is by definition designed to be resistant to outside change (the brand name for this is ‘resilience’). This ‘resilience’ has the same effect that inertia does on the car in third gear or the bike on a hill. It requires that much extra effort just to get an initial start.

But this effect is then magnified by extra costs of credit, since a portion of what is paid for this or that service or commodity is siphoned off to pay interest, administration costs and credit insurance. This means that the direct effect of a transaction is diminished.

It is the difference between a strong jet of water from a hose or a fine spray. In a cash deal money and information is transferred directly from buyer to seller. The buyer gets the most efficient price (there is often a cash discount). The seller gets the money information- knows how much the buyer is willing to pay, in other words has the best information to decide whether to continue making the commodity). This is the equivalent of a forceful jet of water.

In a credit transaction the seller does not know how much the buyer is willing to pay- that information is now hidden within the ‘credit matrix’ which determines how much the buyer is willing to lend. In truth the seller does not even really know if he has sold the goods since they are now collateral for a loan and effectively in an intermediate state of ownership.This is the same as a fine spray of water that does not have the force of a jet.

The net effect of this is to weaken the force of the information that is transmitted and received in market transactions. The market becomes increasingly blind and deaf to its own information flows. This is a fundamental cause of the sluggish recovery, or lack of it, that has dogged so many economies.

 The recent discussion of ‘secular stagnation’ suggests that western economies are in for a prolonged period of slow growth and recovery from the Credit Crunch. The permanent credit economy explains why this is inevitable, since the majority of spending that will reinstate the economy will come from credit it will be subject exactly to ‘starting the car in third gear’ problems.

Conclusion: Selling the Soul of Capitalism

If capitalism had a soul it is inevitable that it would sell it.

The central idea behind capitalism, it’s soul, is supposed to be that anyone can become rich and correspondingly anyone can become poor. This risk factor is a benefit to the existing poor and a dis-benefit to the existing rich. The system is supposed to be fluid and opened to change. If however, the economy is planned and not open to change (‘resilient’/’sustainable’), this benefit to the poor goes. This is essence of the wealth transfer from poor to rich I mentioned at the beginning- Capitalism is closing the door behind itself. Capitalists don’t want anything to do with risk anymore.

As societies we can look forward to policy tailored to keeping things on an even keel and persuading the population of the dangers of anything like dynamic growth or change.

 As individuals we can look forward to increasingly being corralled within any particular social economic group with only the solace of the odd media celebrity who seemingly pops out of nowhere to become the latest billionaire to distract us from our lot in life.

John Lennon famously remarked that life is what happens when you are making other plans.

In this world, planning is what happens to you when you are trying to make a life…

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