Painful birth of a new epoch of simplicity

Tony Curzon Price

7 June 2008

Tony Curzon Price says the current surge in prices signals the beginning of a new 40-year economic cycle

In economic terms, 2008 has the feel of 1973. Bank lending has been inflating the money supply and building up pressure for a good ten years; assets all look very expensive; and commodity prices are exploding. But there is a huge difference in the climate of ideas. US-inspired cowboy individualism is in the dock this time: inflation is coming from the public-sector blank cheques that are made out to cover a financial sector collapsing under unrestrained greed unleashed by the 1980s cult of the market. All the while, demand pressures of gas- guzzling lifestyles make for real price increases as the newly rich try to live an American dream that would need six planets to sustain it. The Rawlsian market fluffed its historical chance, and it won’t be back soon.

So how should we understand the current crisis, and where will that understanding take us for the next 40-year cycle of political economy? There are two components to the new inflation: let’s call them ‘Malthus’ and ‘Milton’ for short.

Malthus inflation — named after the Revd Thomas Malthus, the 18th-century economist whose concern was the overall capacity of the world to carry an ever-increasing human population — is about real supply constraints coming up against the rising expectations of the newly rich. As huge parts of the world grow out of poverty, humanity eats grain-intensive meat as never before. At the same time, food acreage is reduced because of drought (Australia and Ukraine) or diversion to ethanol production (USA, Brazil). Watch food prices rocket.

The vulnerable — pensioners on fixed incomes, the one billion people who survive on less than a dollar per day — are suffering already, while those with power are squaring up to defend their turf: road hauliers are first in line. The merger of Unite, the union that brought the Grangemouth refinery to a standstill, with America’s United Steel Workers, is an attempt to consolidate market power in an era of low income growth. Remember, the high tide of UK union activism in the 1970s came after the commodity price increases, not as a precursor — naturally, since it is once growth has stopped that the wage fight turns zero-sum.