Bread for brains

THE STANDING ORDER, EDINBURGH – It almost feels like things are getting back to normal here. Almost.

The streets are thronging with folk. Not so many as pre-WuFlu, but it’s damn busy nonetheless. There are enough tourists on the Royal Mile for the pipers to come out in full Highland regalia, sweating and puffing through the sunshine for the loose change of passers-by.

The pubs are packed – the restaurants too. And you’ll have plenty of company lazing on the grass in the Meadows, or Princes Street Gardens.

I loved coming down to Edinburgh when I was a kid. It was always warmer here – the blue skies and sunshine made quite the contrast from Aberdeen.

I feel similarly upbeat today as I did back then, but I wonder what the future holds for Edinburgh, and cities like it. While Edinburgh has many talents, it is a large haven for what my colleague Nickolai Hubble would describe as “the clerical class” – administrators and academics. The capital of Scotland is of course home to all its politicos, not to mention four universities. And contrary to recent history, Nickolai reckons the clerical class will be in for a rough decade…

We’re currently writing up this month’s issue of The Fleet Street Letter Monthly Alert, where we’re exploring the effects of sustained inflation – how it might change industry, society, and market trends. It’s not out yet, but I can share this little snippet from Nickolai with you now:

Clerical class wipeout

We live in the information age. The most valued skills and assets are those tied to technology, data and brainpower.

But as inflation has emerged as a concern, tech stocks have underperformed. I expect much the same for what was known as the “clerical classes” in Weimar Germany and post WWI Austria. Those who used their brains and administrative skills to earn their bread suddenly couldn’t earn their bread. This middle class was the one most hurt by inflation.

I was aware this was the case in terms of lost wealth. The wealthy are good at protecting or even profiting from inflation. While the clerical classes were those far more likely to trust financial assets – those denominated in money. Bonds, pensions and savings in the bank.

But, upon reading When Money Dies by Adam Fergusson, I realised the effect is much deeper. Usually, those who suffer from recessions face unemployment. But in an inflation, when government funding appears limitless and a recession is kept at bay by government spending, it is the purchasing power of certain sectors of the employed which suffers instead.

Because items of real value withstand inflation, while services do not, it is those in the service sector which lose their purchasing power.

Academics, for example, were extremely badly struck by hyperinflation in both Austrian and Germany because their skills were simply useless during a severe economic crisis and their bargaining power for wage increases was weak.

Similarly, as Modern Monetary Theory proponents argue, public sector wages seem to have an important effect on inflation. But under the Weimar and Austrian hyperinflations, the public sector administrators were amongst the worst off as the government tried to keep their wages under control. It hired vast legions of workers and underpaid them to keep them from being unemployed. The same for the military and former military, who had previously been at the pinnacle of German and Austrian society.

One of the (many) reasons the Weimar hyperinflation surged out of control was the French insistence on Germany paying reparations it couldn’t afford. This demand was partially fuelled by evidence of the booming German economy under early inflation. Unemployment was incredibly low, especially compared to the UK. This created the illusion of prosperity and the dismissal by the French of German claims that they could not pay the due amounts.

But the prosperity was one unleashed by government spending financed by the printing press. It created vast amounts of what David Graeber calls “bullshit jobs” today. These jobs are overwhelmingly “clerical”. They were to do with information and administration.

There is a huge number of such jobs today. And a large number of people are employed in them. These people may manage to stay employed, but their purchasing power won’t hold up.

If you are in such a profession, it is important to prepare for this.

I note that there’s a bar on George Street called The Printing Press. Given our interests here at Capital & Conflict, I think I’ll have to pay it a visit…

More to come,

Boaz Shoshan
Editor, Capital & Conflict

Category: Economics

From time to time we may tell you about regulated products issued by Southbank Investment Research Limited. With these products your capital is at risk. You can lose some or all of your investment, so never risk more than you can afford to lose. Seek independent advice if you are unsure of the suitability of any investment. Southbank Investment Research Limited is authorised and regulated by the Financial Conduct Authority. FCA No 706697.

© 2021 Southbank Investment Research Ltd. Registered in England and Wales No 9539630. VAT No GB629 7287 94.
Registered Office: 2nd Floor, Crowne House, 56-58 Southwark Street, London, SE1 1UN.

Terms and conditions | Privacy Policy | Cookie Policy | FAQ | Contact Us | Top ↑