2010 The Inquest Other works by Fred Harrison include: THE PREDATOR CULTURE (2010) THE SILVER BULLET (2008) WHEELS OF FORTUNE (2006) RICARDO’S LAW: Housing & the Great Tax Clawback Scam (2006) BOOM BUST: House Prices, Banking & the Depression of 2010 (2005; 2nd edn 2010) THE CHAOS MAKERS (1979, with Frederic J. Jones) THE POWER IN THE LAND (1983) 2010 The Inquest Fred Harrison Copyright © Fred Harrison 2010 This first edition published in Great Britain in 2010 by DA Horizons 978-1-905108-82-4 The right of Fred Harrison to be identified as the Author of the Work has been asserted by him in accordance with the Copyright, Designs and Patent Act 1988 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means without the prior written permission of the Author Available from Discovered Authors Online – All major online retailers and available to order through all UK bookshops Or contact: Discovered Authors Suite 6 37 Great Russell Street London WC1B 3PP 0844 800 5214 [email protected] www.discoveredauthors.co.uk Typeset by Alacrity, Sandford, Somerset. Printed in the UK by BookForce Distribution BookForce Distribution policy is to use papers that are natural, renewable and recyclable products and made from wood grown in sustainable forests wherever possible www.bookforce.co.uk About the Author FRED HARRISON studied economics at Oxford – Ruskin, the college for “mature students”, and University College, where he read Politics, Philosophy and Economics. His MSc is from the University of London, and his doctorate is from the University of Hard Knocks while enjoying the golden days of Fleet Street. There followed 10 years of learning lessons in Russia, after the collapse of communism, during which he fought the advance guard of the Washington Consensus. Boris Yeltsin wouldn’t listen, and the Kremlin capitulated to the oligarchs. For Fred Harrison’s latest views on the global economy, read his blog on: fredharrison.com v Media Assessments “Frankly, when we first saw Harrison’s ‘Cycle 18’ discovery in the MoneyWeek office back in 2005, we thought it was too good to be true. Then we checked the facts. Everything added up. Then we quizzed Harrison ourselves. Again, everything added up. Then his 2008 prediction came true. And we really sat up and paid attention. It really is an extraordinary discovery – a potential landmark moment in our understanding of the property markets, and our ability to make money from them” MoneyWeek “Economist Fred Harrison proved to be the canary in the housing market… Nostradamus could scarcely have been more accurate” Ross Clark, Spectator Business vi Media Assessments “…those warnings were not of the ‘boy who cried wolf’ variety, but well thought out and calculated” Marc Coleman, Irish Independent “[Harrison] does make a case for the existence of an 18-year business cycle, which he links to speculation in the property market” Samuel Brittan, Financial Times “So far, Harrison’s predictions have been eerily accurate” Lee Jones, Money Marketing “…there are some fascinating insights into cycles, property and rents” John Calverley, Economic Affairs vii When we look back at the 1990s from the perspective of say 2010, the nature of the forces currently in train will have presumably become clearer. We may conceivably conclude from that vantage point that, at the turn of the millennium, the American economy was experiencing a once-in-a-century acceleration of innovation, which propelled forward productivity, output, corporate profits, and stock prices at a pace not seen in generations, if ever. ALAN GREENSPAN 13 January, 2000 Contents PART I IT’S THE POLITICS, STUPID 1 “I’m Your Worst Nightmare” 3 2 The Indictment 32 3 The Wealth Wipe-out 51 4 The Repetitive Syndrome 67 PART II SOCIAL PSYCHOSIS AND THE PRICING MECHANISM 5 The Economic Black Box 95 6 The Politics of Split Personalities 120 7 They Treat Us as Imbeciles 140 8 Statistics Calculated to Deceive 163 PART III BEYOND CAPITALISM 9 A Bankrupt Paradigm 179 10 From Séance to Science 199 11 The Last Chance Frontier 219 12 Blueprint for Growth 235 Epilogue 263 References 274 Index 279 ix PART I It’s the Politics, Stupid —1— “I’m Your Worst Nightmare” ILL CLINTON’ S winning election slogan made its mark on the minds B of American voters: “It’s the Economy, Stupid!” As a guilt shifter, that was a shrewd piece of political hyperbole. A gift for politicians who need to direct people’s anger at a faceless target. The truth, how- ever, is that our major social and economic problems are almost entirely the result of bad governance. It’s the Politics, Stupid! If I am correct, we need forensic exam- ination of the politicians who exercise the 3 power of the state, if we want to under- stand why and how Britain – and the rest of the world – fell into the severest econ- omic crisis since the Great Depression of the 1930s. As I write, in February 2010, Britain has suffered 18 months of negative growth. A recession is defined at six months of declining national income. The pain of that downturn was felt not just by those who lost their jobs and homes. Even the people who managed to cling onto employment suffered a reduction in wages, as the price of continuing to receive pay packets. And those who managed to get back into work, after a gut-wrenching spell in the dole queue, suffered an average pay cut of 28%.1 Britain was on a life support system as New Year fireworks flared over London at midnight on December 31, to celebrate the arrival of 2010. Banks, car dealers and retailers were receiving financial support from taxpayers, in the desperate bid to resuscitate the economy. It need not have happened. Because, as far back as 1997, I alerted Tony Blair and 1 The estimate is by the Chartered Institute of Per- sonnel and Development. Monaghan (2010). 4|2010: THE INQUEST his New Labour government to the fact that they had a full 10 years to prepare for the next catastrophe. I had lived through three recessions, beginning with the Barber boom/bust of 1972/74. That was when I embarked on my autopsy: I wanted to know why the people of Britain were forced to suffer these repeated bouts of mass unemployment. I published my findings in 1983: The Power in the Land. This explained why the capitalist economy was subject to violent swings, and what could be done about it. And I explained that it was simple arith- metic to work out that Britain would go into recession at the end of the 1980s (what would turn out to be the Lawson boom/ bust), hitting the bottom in 1992. The economic engine of Britain – the first industrialised country in the world – has suffered such cardiac arrests on a regular basis. Graph 1:I below registers the movement in national income back to 1830. The fluctuations appear to be random. And unstoppable. So how could I know, ten years in advance, that the economy would suffer one of its worst crises for a hundred “I’M YOUR WORST NIGHTMARE” |5 6| 2010: THE INQUEST THE 2010: ———————–——— Graph 1:I ————–——————— 1830 1838 UK GDP (1830-2010) 1846 1854 1862 1870 1878 1886 Source: Angus Maddison1894 (http://www.ggdc.net/maddison/). 1902 1910 1918 1926 1934 1942 1950 1958 1966 1974 1982 1990 1998 2006 years? And how could I be so sure that it could be prevented? My warnings were specific. In The Chaos Makers, published immediately after New Labour’s election victory, I described the economic trajectory that was pushing Britain towards the following crunch points. • Property prices would peak in 2007: they did. • The crisis would be triggered by break- down in the housing market: it was. • The economy would hit the bottom in 2010. Output of national income went negative in the second quarter of 2008, and flattened out in the three months running up to Christmas 2009. Anaemic growth restarted with the Christmas sales that were dragged out into February 2010. The historical evidence on which I based my forecast is overwhelming. But there was something unique about the cycle that ended in 2010. The real estate sector of every country in the world was integrated into the same timetable. That meant one – terrible – prospect: a freefall in the global “I’M YOUR WORST NIGHTMARE” |7 economy of depression proportions. And so, I predicted that prospect in 2005, in Boom Bust. Through newsletters and per- sonal communications, I kept the Treasury and Downing Street fully briefed on the terrible events that were on the horizon. Those warnings went back to November 1997. Boom Bust: The Alert TONY BLAIR reincarnated the Labour Party as New Labour, in a bid to come out of the political wilderness. Labour’s poli- ticians had been in opposition for 18 years. The suave, slick-talking barrister from the back benches took control and ditched his party’s constitutional commitment to nationalise the means of production. He won the election in May 1997 by not only reforming his party, but promising to rejuvenate Britain. I also had an agenda. I was determined that the Blair government would be held accountable, if it failed to guide the UK through the implosion of the global economy at the end of the first decade of the 21st century. 8|2010: THE INQUEST I wrote to the Prime Minister on November 4, leaving him in no doubt about the primary source of Britain’s problems. I wrote: “With every passing month, Britain loses more than £10bn in goods and ser- vices, money that could be shared between the public and private sectors to finally solve all the problems that will otherwise be with us when you seek re-election in 2002.” My letter to the Chancellor of the Exchequer, Gordon Brown, was dated November 1.