established 1828I
t is easy to mock the most strident crit-
ics of capitalism, like Bernie Sanders
and Jeremy Corbyn. It’s harder to ask
whether they might actually have a point.
Consider the past ten years of evidence.
Since the collapse of Lehman Brothers,
wages for ordinary workers have been on
the floor — even today, the average pay
packet in Britain is lower than it was before
the crash. The main response to the crisis
has been to print money, through quanti-
tative easing and ultra-low rates. This arti-
ficially inflates assets. And who benefits?
Those who have the most assets: in other
words, the very rich.
Since the crash, the amount of wealth in
Britain has risen by more than £4 trillion —
almost half of which has accrued to the rich-
est 10 per cent of households. The prices of
the assets typically owned by the ultra-rich
has risen even faster. Vintage Ferraris have
quadrupled in price, as have similar collect-
ibles. This is the magic of quantitative eas-
ing: Bank of England figures suggest that it
has increased the assets of the richest house-
holds by £125,000 while reducing the lot of
the poorest by £300.
And now, at long last, there are signs of
this era coming to an end. Worldwide eco-
nomic growth is back, stoked by the largest
tax cut in the recent history of the world’s
largest economy. It has long been hard to
justify rock bottom interest rates; now it is
impossible. The markets are adjusting to this
fact, and volatility is back.
As Liam Halligan points out, the trigger
for this week’s wobble in world stock mar-
kets was the news that US workers’ wages
are rising fast. Donald Trump’s tax cuts are
having quite an effect: companies are paying
bonuses to their staff and hiring more peo-
ple. The US economy is stronger than it has
been at any point since 2005, perhaps before
that. Trump’s tax cut represented bold, uni-
lateral action — and it may well move the
dial of the world economy. The market sus-
pects that inflation might follow these pay
rises, and that central banks might respond
with interest rate rises. When this happens,
savers tend to move money away from risky
stock markets and back into safer bank
accounts — provided they offer some kind
of interest. As they used to, before the world
went crazy.
The craziness explains why 1970s-style
socialism is making a comeback. It is a per-fectly logical form of protest against an econ-
omy that has indeed been rigged in favour of
those at the top. Thomas Piketty’s Capital in
the 21st Century was based on the idea that
returns on assets (or capital) grows faster
than those on wages (or labour). It under-
lined an idea that there is no point trying to
earn your way to the top, because in equality
is hardwired into the system. It was a mani-
festo for the kind of high-taxing policies pro-
posed by the new hard left.
When Piketty’s theory is tested, it col-
lapses — as researchers at the IMF demon-
strated. But this didn’t lessen the impact of
the argument. Piketty’s book was persuasive
because the phenomenon it described tal-
lied with the experience of many: the idea
that the world of assets was spinning away,
and that lots of young people had no hope of
being able to buy a house. It is not surprising
if those with no capital are not particularlykeen on capitalism. This is why the Germans
are right to be so suspicious of government
manipulation of money markets: it has all
kinds of unexpected political side effects.
Even many at the top have been aghast at
this. If a pensioner’s house trebles in value,
it’s of no real use to him — unless he plans to
downsize. It is of use to those who inherit his
estate, but only after he dies. The main finan-
cial concern of the elderly is that their grand-
children now find it harder to work their
way up the system. The asset bubble has, in
theory, made a few people richer — but as a
country it has made everyone poorer. It has
helped to destabilise politics, sowing a sense
of despair, and it has given Britain the very
real prospect of a far-left prime minister and
a Marxist chancellor.
That’s why the stock market turbulence
is good news. It is high time that blue-col-
lar workers received a boost, given that the
asset-owning classes have enjoyed such huge
returns for so long. When employers in Brit-
ain moan that it’s harder to find workers,
there is a clear response: pay more, and offer
more training. Perhaps a few US-style tax
cuts in Britain would also allow companies
to offer bonuses to staff, or to invest more in
training them.
The stock market is not a barometer of
the economy. For the past decade, shares have
jumped on bad news — as investors expect a
panicked government to respond by print-
ing money and manipulating markets. This
crony capitalism must now end; power needs
to shift away from capital and back towards
labour. Central banks worldwide will have to
manage this process carefully, and investors
can expect more hair- raising weeks. But it’s a
price worth paying for the repair of the free
market and a return to normality.A return to normality
It’s time blue-collar workers received
a boost, since the asset-owning classes
have enjoyed huge returns for so long