Not many stock market investors will have come out ahead this year. At the time of writing, the FTSE-250 is down 17.5% over the past year, the FTSE-AIM index is down 30% and the FTSE-100 scraped in a small rise of 1.8%. The last one was driven by rises in commodity prices which benefited oil/gas companies and big miners which dominate the index.
With war in Europe, political turmoil at home, inflation that grew out of control, strikes by nurses, train staff, postmen et al, the country is grinding to a halt. Interest rates are rising to levels not seen for years meaning mortgages will soon be a lot more expensive and house prices therefore forecast to fall killing off the buy-to-let market. And taxes are rising sharply to pay for pandemic costs and wage inflation.
It’s all very depressing. But before the gloom overwhelms you here’s a reminder that the country has been in a far worse position in the past but did recover.
I have mentioned the book “The Stock Market” by John Littlewood before and have just finished reading the first few chapters that cover the years 1945-1960.
In 1945 the country was hugely in debt due to paying for the Second World War. From a position of having massive overseas investment assets they were wiped out and more by debts incurred. The country was effectively bust and was only rescued by loans from the USA. Then surprisingly a Labour government got elected with a very socialist mentality. Company dividends were anathema and companies were persuaded not to raise them under threat of legislation. Any increases in company profits were discouraged by an “excess profits tax” on any rises. With income tax and surtax, the wealthy could be paying 95% tax on their incomes.
The Government then proceeded to nationalise whole swathes of the economy including coal mining, railways, gas and electricity distribution, and the steel industry. The country ran a massive balance of trade deficit as imports exceeded exports and rationing of basic commodities was in place for years as a result. Petrol was rationed and the ration for private motoring was nil. The pound was eventually devalued making exports more competitive but raising the price of imports.
Borrowing by individuals was severely limited and foreign exchange controls meant foreign holidays were effectively constrained. Stamp duty was doubled to 2% which damaged the stock market.
Nationalisation actually strengthened the unions because they had to combine to negotiate with the new company owners as opposed to the previous fragmented company and union structures leading to two decades of strikes and restrictive working practices that damaged industrial competitiveness.
A good film on this subject is “I’m all right Jack” which is a satire on the lunacy of UK industrial relations. When I was a student at Birmingham University I lodged with a landlady whose son was a toolmaker. He got a new job at the Longbridge car factory. When he turned up for work on the first day he found he was on strike.
In 1946-47 there was a very cold and snowy winter. The country was heavily dependent on coal for all heating and electricity generation and supplies ran low plus distribution on railways was disrupted. Power stations shut down and many industries were disrupted or moved to short-time working.
Unlike today the Labour Government chose to keep Bank interest rate at 2% despite the run on the pound and rising inflation, preferring to use taxation to limit personal expenditure and dampen inflation.
There were some popular moves including the foundation of the NHS to provide universal health care, effectively nationalising hospitals, but in reality it established a very large and bureaucratic organisation that formed the basis of our current problems in the NHS. As in other nationalised businesses, targets and controls managed by many thousands of bureaucrats became the norm instead of the profit motive being used to incentivise people.
Reading the book “The Stock Market” makes you realise how our current economic problems are not nearly as bad as they looked in the post-war years. But it does show how damaging socialist dogma was in that period while other countries rapidly recovered from the war.
It’s a very educational book which helps to put our recent difficulties into perspective.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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