Since the Budget in the middle of this week, the media have been vociferous about the desperate prospects for British lining standards in the coming decade, all emphasising the predictions [based on recent past records] of low economic growth which is primarily ascribed to low productivity.
I have several times in this blog - as in my book - emphasised that low productivity follows from the low productiveness of the British economy: which is the direct consequence of underinvestment linked to the leeching of wealth from industry and commerce.
Share prices are high because the payout from businesses to their shareholders and bondholders is high. The payout comes in three forms: dividends on shares, interest on bonds and share buybacks whereby the company uses some of its income to buy some of the shares from the shareholders [which it then cancels, so that there is notionally more capacity of the company to pay even higher dividend per share on the reduced number of shares]. The consequence of this massive flow of payments to the owners of companies is that the companies retain very little income for investment. The long-term consequence of this dearth of investment is that the products will become out-of-fashion, probably on the same timescale as the factories, shops and other installations owned by the company become decrepit due to lack of investment in their maintenance. Future income for shareholders will be shrunk: but by then the shareholders who have enjoyed the high dividends and the share buybacks will have sold their shares in the failing company.
While this process is going on the executive directors can be paid massive salaries to keep the show on the road. As the company is not progressing to the next stage of technology in either products or the plant with which they are made, the workforce needs to be maintained in high numbers [relative to the number of people who would be employed in up-to-date plant] so a large workforce is retained on low wages. There is no mystery here.
There are, of course, many companies that have not succumbed to this depressing slide into decay, which contribute positively to the expansion of national productive capacity and higher-paid employment; but they are no sufficiently prominent in the economy to be dominant.
There is a huge cultural issue here, which can be tackled by education and by adjustment to the tax system. But so long as our pathetic politicians and misled by the Econocracy, that process cannot begin.
Showing posts with label economic growth. Show all posts
Showing posts with label economic growth. Show all posts
Saturday, 25 November 2017
Wednesday, 13 September 2017
People and Political Economy Versus Econocracy
Yesterday a Times leader-writer who frequently writes an Economics column for the paper recognised the Manchester action group that created the Post-Crash Economics Society, and the related movement that has spread around the world [as frequently mentioned in this blog]. He noted that a very few university teachers have cobbled-together courses that give an introduction to the different approaches to the subject that have been taken over the last couple of centuries; and that the vast majority of the established teaching cohort - the Econocracy - have adhered rigidly to the pseudo-mathematical formularies that are their only stock-in-trade. That stock is being demonstrated to be putrid. I was a university teacher, specialising in the History of Economics, for a couple of decades until 1988. During that time I assiduously researched the question of how Economics was taking an increasingly perverse approach to the world; and meanwhile my colleagues selected me to be Dean of the Faculty and eventually Pro-Vice-Chancellor, which I like to think indicates that I was taken seriously as a person.
By 1988 it was clear that common sense and Economics were becoming implacably opposed. The Thatcherites were busily destroying industry, blinded by the mantras of open competition and monetarism that undermined the traditional support from the state budget for the economy [which was repaid as economic growth produced the tax revenue that increased the state's capacity to spend on infrastructure developments, research and product development, and popular welfare]. So I bailed out of academic life, into one of the great support organisations that underpin the skills on which the City of London depends for its unique depth of resources which constantly renew its role as the world's leading financial centre. I have continued to watch the consolidation of Thatcherism into 'austerity', which in turn gives the government the ludicrous notion that state spending [on almost anything] is a 'bad thing'.
There are, of course, the glaring exceptions: of which the most conspicuous are HS2 and Hinckley Point, where the state is in for tens of billions of pounds of useless and unwanted spending. Otherwise, spending by the state is a bad thing: especially on peoples' welfare.
Today's News on the BBC is headed by the facts disclosed in a report on tower blocks that has become critical in the light of the Grenfell Tower tragedy. Sixty-eight per cent of the tower blocks in the UK have only one staircase, almost 40 per cent have some form of cladding [of which a yet-to-be determined proportion are flammable], and only two per cent have sprinkler systems. Sprinklers have been proven as a valid means of quenching fires, and thus preventing their spread, for centuries. When Britain had extensive factories and warehouses, the insurance companies employed inspectors who had the right of entry to premises to check that the sprinklers were installed and operational: if they were not, the insurance was immediately cancelled. Factory Inspectors also had to duty to check on the effectiveness of spinkler systems, and could close units that were non-compliant; and in most local authority areas buildings were only licensed for use if certified as compliant with local specifications by the Fire Brigade. The present shoddy government have made it as clear as they clarify anything - which is not very far - that they will expect local authorities to use their own resources, to the extent of using up all their reserves to begin to introduce measures to address the fire hazard in the blocks that they control.
The Econocracy supports the government line: state spending, bad. Occupiers should pay competitive prices for their flats; and if they want safety measures built in they must pay more for that assurance. If their earnings or benefits or pensions will not cover the higher rents, they must move their homes; or get better jobs. For myriad reasons, such as access to schools and hospitals, proximity to relatives who need or provide care, lack of skills or lack of drive, millions of people cannot get better jobs or pay higher rents. The Econocracy has no patience with such people: they clog up the system and prevent the 'model' from functioning as they think it should, in all its clockwork simplicity.
We need a new Political Economy, that takes account of people as they are, and has their development and the welfare as its highest goals. The housing situation - with hundreds of thousands of households outside the tower blocks effectively homeless - is a perfect example of the Econocrats' model economy not working: because it is utterly out of kilter with the realities of human existence.
By 1988 it was clear that common sense and Economics were becoming implacably opposed. The Thatcherites were busily destroying industry, blinded by the mantras of open competition and monetarism that undermined the traditional support from the state budget for the economy [which was repaid as economic growth produced the tax revenue that increased the state's capacity to spend on infrastructure developments, research and product development, and popular welfare]. So I bailed out of academic life, into one of the great support organisations that underpin the skills on which the City of London depends for its unique depth of resources which constantly renew its role as the world's leading financial centre. I have continued to watch the consolidation of Thatcherism into 'austerity', which in turn gives the government the ludicrous notion that state spending [on almost anything] is a 'bad thing'.
There are, of course, the glaring exceptions: of which the most conspicuous are HS2 and Hinckley Point, where the state is in for tens of billions of pounds of useless and unwanted spending. Otherwise, spending by the state is a bad thing: especially on peoples' welfare.
Today's News on the BBC is headed by the facts disclosed in a report on tower blocks that has become critical in the light of the Grenfell Tower tragedy. Sixty-eight per cent of the tower blocks in the UK have only one staircase, almost 40 per cent have some form of cladding [of which a yet-to-be determined proportion are flammable], and only two per cent have sprinkler systems. Sprinklers have been proven as a valid means of quenching fires, and thus preventing their spread, for centuries. When Britain had extensive factories and warehouses, the insurance companies employed inspectors who had the right of entry to premises to check that the sprinklers were installed and operational: if they were not, the insurance was immediately cancelled. Factory Inspectors also had to duty to check on the effectiveness of spinkler systems, and could close units that were non-compliant; and in most local authority areas buildings were only licensed for use if certified as compliant with local specifications by the Fire Brigade. The present shoddy government have made it as clear as they clarify anything - which is not very far - that they will expect local authorities to use their own resources, to the extent of using up all their reserves to begin to introduce measures to address the fire hazard in the blocks that they control.
The Econocracy supports the government line: state spending, bad. Occupiers should pay competitive prices for their flats; and if they want safety measures built in they must pay more for that assurance. If their earnings or benefits or pensions will not cover the higher rents, they must move their homes; or get better jobs. For myriad reasons, such as access to schools and hospitals, proximity to relatives who need or provide care, lack of skills or lack of drive, millions of people cannot get better jobs or pay higher rents. The Econocracy has no patience with such people: they clog up the system and prevent the 'model' from functioning as they think it should, in all its clockwork simplicity.
We need a new Political Economy, that takes account of people as they are, and has their development and the welfare as its highest goals. The housing situation - with hundreds of thousands of households outside the tower blocks effectively homeless - is a perfect example of the Econocrats' model economy not working: because it is utterly out of kilter with the realities of human existence.
Wednesday, 26 July 2017
The Enervated Economy
When I was a schoolboy the immensely tall Canadian economist, J K Galbraith, produced a book called The Affluent Economy, which had huge success. It gave a message that both North Americans and west Europeans wanted to receive: that the traumas of the Second World War and [in the case of Europe] of post-war reconstruction were pretty well over. The British had re-elected Harold MacMillan's Conservative government with their slogan "You've never had it so good!" The French were coming to a settlement under deGaulle after the traumas of losing their south-east Asian colonies and Algeria [which had been accounted part of metropolitan France]. The Federal Germans were proud of the 'economic miracle' that had been achieved under Chancellor Adenauer and economy minister Erhardt, and of their country's rehabilitation within the western alliance. Life did seem good, society seemed stable and politics were - broadly - honest.
Now, in 2017, we Brits agonise over economic growth figures as they weaken, and accept that the economy is likely to 'slow down' as wages rise more slowly than prices, and as millions of households reach their debt ceilings [especially as the banks are being urged to lower the headroom] and are thus unable to prolong the false economy in which consumer spending has been the 'driver' of the economy. Exporters are maintaining their earnings by raising the sterling prices of their products, so that they get an approximation to the pre-Brexit real-world price in external markets, rather than significantly increasing the volume of exports. This is disappointing, because in historic experience when a currency is devalued relative to others [as the pound has been since the Brexit vote] exporters from that country have been able to maintain a price advantage over their alien competitors to gain to greater share of the export market for their produce; and thus maintain employment for their factories and their employees. Indeed, in several post-devaluation periods Britain's exports have grown significantly, enabling firms to pay overtime wages to employees and sometimes to take on more staff and expand their investment plans.That is not happening now.
British industry has very few current schemes of major capital expenditure actually coming to fruition, whether the produce would be aimed at domestic or export markets. Yet, as is often mentioned in this blog, British firms are at least as innovative as at any time in history, but they are prone to alien takeover because there is a dearth of imaginative investment support in the country.
The media are celebrating the decision of BMW to keep production of the mini in the well-worn Oxford factory where it was first introduced six decades ago; but the electric engines for a new version will be imported from Germany. The innovatory element will not be British: typical of the international firms that use established plant in the UK. Even though manufacturing in Britain is continued, a foreign-owned firm can gather its cash reserves for use anywhere in the world while the UK factories are run down. So long as British labour is cheap, and the factory can be patched up, it can carry on. This is a dispiriting view, and not wholly typical of British plant today, but there is enough of it about to be worrying. The economy is increasingly enervated: lacking in energy, vigour or drive.
The announcement that new petrol and diesel cars are to be phased out completely by 2024 is no surprise; but one automatically sets beside that announcement the lack of any coherent policy to generate the necessary cheap electric power to enable the masses to run their own vehicles in 2041. In virtually every aspect of the economy a lack of vigorous innovative energy is apparent. Even the Brexiteer ministers who are supposedly planning a bright future for the UK "outside the EU" show all the signs of physical exhaustion and intellectual stagnation: of enervation.
Then, today, we get the headline news that the male human sperm count has declined catastrophically, with the prediction that reproduction may become difficult to achieve by the time petrol cars are banned. That is a cheerless prospect!
Now, in 2017, we Brits agonise over economic growth figures as they weaken, and accept that the economy is likely to 'slow down' as wages rise more slowly than prices, and as millions of households reach their debt ceilings [especially as the banks are being urged to lower the headroom] and are thus unable to prolong the false economy in which consumer spending has been the 'driver' of the economy. Exporters are maintaining their earnings by raising the sterling prices of their products, so that they get an approximation to the pre-Brexit real-world price in external markets, rather than significantly increasing the volume of exports. This is disappointing, because in historic experience when a currency is devalued relative to others [as the pound has been since the Brexit vote] exporters from that country have been able to maintain a price advantage over their alien competitors to gain to greater share of the export market for their produce; and thus maintain employment for their factories and their employees. Indeed, in several post-devaluation periods Britain's exports have grown significantly, enabling firms to pay overtime wages to employees and sometimes to take on more staff and expand their investment plans.That is not happening now.
British industry has very few current schemes of major capital expenditure actually coming to fruition, whether the produce would be aimed at domestic or export markets. Yet, as is often mentioned in this blog, British firms are at least as innovative as at any time in history, but they are prone to alien takeover because there is a dearth of imaginative investment support in the country.
The media are celebrating the decision of BMW to keep production of the mini in the well-worn Oxford factory where it was first introduced six decades ago; but the electric engines for a new version will be imported from Germany. The innovatory element will not be British: typical of the international firms that use established plant in the UK. Even though manufacturing in Britain is continued, a foreign-owned firm can gather its cash reserves for use anywhere in the world while the UK factories are run down. So long as British labour is cheap, and the factory can be patched up, it can carry on. This is a dispiriting view, and not wholly typical of British plant today, but there is enough of it about to be worrying. The economy is increasingly enervated: lacking in energy, vigour or drive.
The announcement that new petrol and diesel cars are to be phased out completely by 2024 is no surprise; but one automatically sets beside that announcement the lack of any coherent policy to generate the necessary cheap electric power to enable the masses to run their own vehicles in 2041. In virtually every aspect of the economy a lack of vigorous innovative energy is apparent. Even the Brexiteer ministers who are supposedly planning a bright future for the UK "outside the EU" show all the signs of physical exhaustion and intellectual stagnation: of enervation.
Then, today, we get the headline news that the male human sperm count has declined catastrophically, with the prediction that reproduction may become difficult to achieve by the time petrol cars are banned. That is a cheerless prospect!
Sunday, 16 July 2017
Economics - Again
A few days ago, I had a brief discussion with a student of History about my views on Economics and the Econocracy, referring him to the website of the Post Crash Economics Society where I first saw the very apposite term, Econocracy. On our next encounter [in the pub where he earns a crust as a part-time barman] he told me that he had mentioned my stance to a friend who is studying Economics; and the friend had vehemently disagreed with me. Perhaps we will be able to have a face-to-face discussion some time. In the mean time, I will post here today the briefest summary of my views.
I had the great good luck to go up to university when classes were small - my year in Politics and Economics comprised just 12 students - but teachers were good and libraries well resourced. The era of electronic access to data had not yet arisen, so we had to read: and we read voraciously.
At that time what we now call neo-Keyesianism was in the ascendancy, and models of the entire economy had been constructed in the National Institute for Economic and Social Research [NIESR], in the Treasury and in various universities. Given the state of development of computers at that time the models were crude and simplistic, and they could only be manipulated laboriously. Nevertheless, estimates could be made of the impact on the modeled economy of the policy options that were available to governments. These options came in two categories, monetary policy and fiscal policy. Monetary policy involved the creation of money; implicitly by the Bank of England on behalf of and with the authority of the government that owned the Bank. Banning the creation of money was a means of limiting the rate of growth of the economy; and encouraging the Bank to create money to lend to the trading institutions in the economy was a way of stimulating the growth of the money supply more generally. It was taken as a sign to the commercial banks that they could risk making more loans of their own money [deposited by their customers] whenever the Bank of England was stimulating the money supply; thus the amount by which spending could increase was very much greater than the amount by which the Bank increased the supply. Any commercial bank could borrow money from the Bank of England at a 'bank rate' [later called the 'base rate'] which was publicly announced; and lending by commercial banks was made at rates higher than the bank rate. The banks charged their customers rates of interest that varied according to the perceived riskiness of the loan. When the Bank of England had the nod from the government, it lowered bank rate; which was a clear indication to all the banks that they could drop the rates they charged to their customers, and perhaps risk extending the range. Thus a drop in bank rate, accompanied by an increase in the Bank of England's willingness to lend, signaled that banks and their customers should invest to expand the economy; thus expanding trade generally and stimulating economic growth and job opportunities in many sectors of the system could be increased.
However, at that time there were major constraints on the expansion of credit extended by banks. Their customers were required to pay cash deposits on durable consumer goods, and were only allowed to borrow a set percentage of the purchase price. Thus the spread of TV sets, washing machines and other desirable consumer goods was slowed down by the legal requirement for would-be buyers to save up for the deposit before they could enter into a hire-purchase agreement under which [having paid the deposit] they could pay off their borrowing while they had the use of the device. The firms that made the television sets were protected from foreign competition by import tariffs and controls on the amount of foreign currency that businesses could buy: so the system of monetary policy operated within a physically controlled system of protection. The present situation, where consumers can borrow huge amounts of credit and thus create the 'consumer demand' that 'drives' the economy was unthinkable. The world in which neo-Keynesiansim appeared to thrive was utterly different from the world in which we live now; and over the next few days I will outline how that change happened.
I try to keep my blogs at a modest length, and hope that anyone who becomes interested in my ideas will word-search through the archive.
I had the great good luck to go up to university when classes were small - my year in Politics and Economics comprised just 12 students - but teachers were good and libraries well resourced. The era of electronic access to data had not yet arisen, so we had to read: and we read voraciously.
At that time what we now call neo-Keyesianism was in the ascendancy, and models of the entire economy had been constructed in the National Institute for Economic and Social Research [NIESR], in the Treasury and in various universities. Given the state of development of computers at that time the models were crude and simplistic, and they could only be manipulated laboriously. Nevertheless, estimates could be made of the impact on the modeled economy of the policy options that were available to governments. These options came in two categories, monetary policy and fiscal policy. Monetary policy involved the creation of money; implicitly by the Bank of England on behalf of and with the authority of the government that owned the Bank. Banning the creation of money was a means of limiting the rate of growth of the economy; and encouraging the Bank to create money to lend to the trading institutions in the economy was a way of stimulating the growth of the money supply more generally. It was taken as a sign to the commercial banks that they could risk making more loans of their own money [deposited by their customers] whenever the Bank of England was stimulating the money supply; thus the amount by which spending could increase was very much greater than the amount by which the Bank increased the supply. Any commercial bank could borrow money from the Bank of England at a 'bank rate' [later called the 'base rate'] which was publicly announced; and lending by commercial banks was made at rates higher than the bank rate. The banks charged their customers rates of interest that varied according to the perceived riskiness of the loan. When the Bank of England had the nod from the government, it lowered bank rate; which was a clear indication to all the banks that they could drop the rates they charged to their customers, and perhaps risk extending the range. Thus a drop in bank rate, accompanied by an increase in the Bank of England's willingness to lend, signaled that banks and their customers should invest to expand the economy; thus expanding trade generally and stimulating economic growth and job opportunities in many sectors of the system could be increased.
However, at that time there were major constraints on the expansion of credit extended by banks. Their customers were required to pay cash deposits on durable consumer goods, and were only allowed to borrow a set percentage of the purchase price. Thus the spread of TV sets, washing machines and other desirable consumer goods was slowed down by the legal requirement for would-be buyers to save up for the deposit before they could enter into a hire-purchase agreement under which [having paid the deposit] they could pay off their borrowing while they had the use of the device. The firms that made the television sets were protected from foreign competition by import tariffs and controls on the amount of foreign currency that businesses could buy: so the system of monetary policy operated within a physically controlled system of protection. The present situation, where consumers can borrow huge amounts of credit and thus create the 'consumer demand' that 'drives' the economy was unthinkable. The world in which neo-Keynesiansim appeared to thrive was utterly different from the world in which we live now; and over the next few days I will outline how that change happened.
I try to keep my blogs at a modest length, and hope that anyone who becomes interested in my ideas will word-search through the archive.
Sunday, 23 September 2012
'Fair' taxation
In the United States, Britain and France - in particular - there is a debate about 'fair' taxation which is on the verge of reaching crisis proportions. In all three countries, there is deep concern about the need for economic growth to lead the economy out of recession. Growth comes from investment. A minority of the population directly contribute to investment by putting their savings and some of their income into shares and bonds that provide funds for commerce and industry; and a diminishing proportion of the population make indirect investments in shares and bonds through collective savings funds such as voluntary pensions schemes and insurance reserves. The inept extension of taxation of pension funds by Gordon Brown in the UK [combined with the disastrous ineptitude of the actuaries] has devastated the value of pensions, and thus has destroyed public confidence in the merit of saving through such funds, which have a much lower take-up than in previous decades. A compulsory state scheme will not correct this situation: it will merely produce pension 'pots' that are so small that they will have no impact on the growing disaster of pensioner poverty.
Investment by richer individuals has always been essential for economic growth to occur in any free society. In centrally planned authoritarian states, much of investment is wasted because a small cohort of bureaucrats cannot have the sensitivity to economic possibilities, and to adverse trends in productivity and the desirableness of products, that a wide range of personal investors can achieve. The optimisation of investment is only achieved by personal decision. There is now a hugely powerful intellectually-led movement to increase taxation of the rich - and thus to reduce the quantum and the selectivity of investment - on the idiotic ground that higher and higher taxation of the relatively 'rich' is intrinsically 'fair' and therefore appropriate. Some advocates of such taxation regard widening and intensifying the ruinous taxation as the most important cause in politics. The Obama Democrats in the USA and the Liberal Democrats in Britain and the Socialists who have quickly become querulous with their new president in France are all devotees of the doctrine that the investable funds should be grabbed from the relatively 'rich' and disbursed as immediate spending-power to the relatively 'poor'. This is an intensification of the ruinous policies that have helped to bring their economies into a condition of low growth and high 'welfare' spending. As long as this nonsense is prevalent, real economic capability will be destroyed and the potential of the economies to give their people real welfare will continue to decline.
There is also a socially divisive component to this issue. Class conflict is being promoted, with the classes defined in terms of tax-bands applied to incomes or to assets. People who do not declare earnings large enough to be required to pay tax on them are to be more explicitly defined as 'disadvantaged' or 'deprived' and [according the British Liberal Democrats] 'the rich' who earn more that £50,000 a year are to be taxed to transfer money to the 'deprived'; and then their assets will be valued and subjected to a further levy. If that levy is met from income their income will doubly have been diminished: their consumption and their potential to invest will be reduced - both inflicting direct damage on the economy; and if the levy is met by asset sales, leading to a mass sell-of of a range of assets [both material and financial assets] their prices will fall with further detriment to the economy. To this idiocy the same politicians are adding the notion that young people should be able to enter the housing markets by having the deposits on their houses secured by their parents' and grandparents' 'pension pots'. The funds that people hold in their pension funds are vastly reduced by the crass policies of the past two decades; and now they are being challenged to risk the loss of those funds altogether - and to face old-age poverty - if they take up the new scheme. If they decline to do so, there will be serious discord in families: if they do comply, they will be constrained in how much pension they can draw by the contractual form of the guarantee; and if there is another house-price slump they may loose their pension assets when the property is repossessed. Even if the housing market holds up, it is obscure as to how many years the guarantee [and therefore the restriction on the pension fund] will be maintained. None of this looks like constructive social engineering: it would be crude exploitation of the relatively-thrifty, leading to massive destruction of accumulated wealth.
Investment by richer individuals has always been essential for economic growth to occur in any free society. In centrally planned authoritarian states, much of investment is wasted because a small cohort of bureaucrats cannot have the sensitivity to economic possibilities, and to adverse trends in productivity and the desirableness of products, that a wide range of personal investors can achieve. The optimisation of investment is only achieved by personal decision. There is now a hugely powerful intellectually-led movement to increase taxation of the rich - and thus to reduce the quantum and the selectivity of investment - on the idiotic ground that higher and higher taxation of the relatively 'rich' is intrinsically 'fair' and therefore appropriate. Some advocates of such taxation regard widening and intensifying the ruinous taxation as the most important cause in politics. The Obama Democrats in the USA and the Liberal Democrats in Britain and the Socialists who have quickly become querulous with their new president in France are all devotees of the doctrine that the investable funds should be grabbed from the relatively 'rich' and disbursed as immediate spending-power to the relatively 'poor'. This is an intensification of the ruinous policies that have helped to bring their economies into a condition of low growth and high 'welfare' spending. As long as this nonsense is prevalent, real economic capability will be destroyed and the potential of the economies to give their people real welfare will continue to decline.
There is also a socially divisive component to this issue. Class conflict is being promoted, with the classes defined in terms of tax-bands applied to incomes or to assets. People who do not declare earnings large enough to be required to pay tax on them are to be more explicitly defined as 'disadvantaged' or 'deprived' and [according the British Liberal Democrats] 'the rich' who earn more that £50,000 a year are to be taxed to transfer money to the 'deprived'; and then their assets will be valued and subjected to a further levy. If that levy is met from income their income will doubly have been diminished: their consumption and their potential to invest will be reduced - both inflicting direct damage on the economy; and if the levy is met by asset sales, leading to a mass sell-of of a range of assets [both material and financial assets] their prices will fall with further detriment to the economy. To this idiocy the same politicians are adding the notion that young people should be able to enter the housing markets by having the deposits on their houses secured by their parents' and grandparents' 'pension pots'. The funds that people hold in their pension funds are vastly reduced by the crass policies of the past two decades; and now they are being challenged to risk the loss of those funds altogether - and to face old-age poverty - if they take up the new scheme. If they decline to do so, there will be serious discord in families: if they do comply, they will be constrained in how much pension they can draw by the contractual form of the guarantee; and if there is another house-price slump they may loose their pension assets when the property is repossessed. Even if the housing market holds up, it is obscure as to how many years the guarantee [and therefore the restriction on the pension fund] will be maintained. None of this looks like constructive social engineering: it would be crude exploitation of the relatively-thrifty, leading to massive destruction of accumulated wealth.
Monday, 5 March 2012
China: More Good News
China's Premier has announced his expectation that economic growth this year will fall below the amazing 8% average of the past 25 years: to about 7.5%. Behind the raw number - which is still massively greater than the world's average rate of growth - is the important fact that this is a period of consolidation and change in patterns of consumption.
In the terms of Personal Political Economy the great shift is that there is an increasing number of empowered consumers each year: people with greater disposable income [and in some cases borrowing power that enables them to make bug purchases] are able to move from subsisting only on marcoms [basic commodities that meet needs] t being able to enjoy the experience of consuming quons. Just a few western Economists, including notably Harry Johnson, recognised in broad terms the difference between quons and marcoms. Johnson called quons 'positional goods' but he did not live long enough to develop any significant theory; and it remains probable that the mainstream of his 'profession' would not have accepted the concept. In the decades since that aborted airing of the issue, naive Economists have continued to treat 'goods' as a whole; while Chinese economic planners - in particular - have recognised the significance of the differentiation and the importance of fostering a shift of consumption from having more 'essentials' [which in excess can make people obese] to being able to acquire quons which embody consumer experiences that invoke a different sense of satisfaction.
As Chinese consumers gain flexibility over spending their increased wages they acquire the power to make a different sort of choice. In their millions they have opted to acquire different sorts of meat as well as computer games and, more recently, a whole range of 'aps'. Higher up the income scale, people have bought hundreds of thousands of quintessential quons: new apartments. Financing the boom in property has led to a huge extension of borrowing, both overt and illicit, and the authorities have not been completely successful in controlling that expansion. In periods when restraints on funding property purchases have really bitten, the market has lost momentum; then measures have been found for expanding credit again and restarting the building and the sales - and confounding the western Economists who have seen the 'property crunch' as evidence of the fundamental instability of the Chinese economy and an imagined 'need' to move to a neo-marginalist market model.
China is a much more rational system than those Economists can understand. People rising from abysmally low standards of living have been brought in their hundreds of millions into a market economy, where at first they receive subsistence wages [which a majority of urban workers still receive]. Then their productivity rises to enable them to be paid enough to become highly selective consumers of quons. The first little luxuries are the most highly prized, as they open up a new horizon for the individual. The payment made for them is sacrificial, and the satisfaction received is incalculable. Of course, if the buyer is cheated and receives consumption that is not what they had been led to expect, the anger and disappointment experienced by the consumers is also incalculable: which justifies significant control of products and markets.
The best way to raise workers' productivity in an already-industrialised country is by adding quon production to marcom production. If China can produce the majority of the quons that spread over the country from its own industries, that is the best way of combining the dissemination of quons with spreading around the incme that enables more people to consume more quons. This is precisely what is happening: and the slight reduction in reported economic growth while an increasing commitment to quon .is implemented will be followed by a period of rapidly rising productivity and then of incomes. Once Chinese quons are well proven in the home markets they will be ready for export: often under established western trade marks, which the Chinese have assiduously been buying over recent years.
Those who choose not to recognise what is happening will suffer when the development of the Chinese economy faces them with further reductions in their western standards of living. The sadness is, that Economists will not bear the brunt of the impact: that fate, as usual, falls to the poor who have been so appallingly deceived by the politicians who remain deluded by market models.
In the terms of Personal Political Economy the great shift is that there is an increasing number of empowered consumers each year: people with greater disposable income [and in some cases borrowing power that enables them to make bug purchases] are able to move from subsisting only on marcoms [basic commodities that meet needs] t being able to enjoy the experience of consuming quons. Just a few western Economists, including notably Harry Johnson, recognised in broad terms the difference between quons and marcoms. Johnson called quons 'positional goods' but he did not live long enough to develop any significant theory; and it remains probable that the mainstream of his 'profession' would not have accepted the concept. In the decades since that aborted airing of the issue, naive Economists have continued to treat 'goods' as a whole; while Chinese economic planners - in particular - have recognised the significance of the differentiation and the importance of fostering a shift of consumption from having more 'essentials' [which in excess can make people obese] to being able to acquire quons which embody consumer experiences that invoke a different sense of satisfaction.
As Chinese consumers gain flexibility over spending their increased wages they acquire the power to make a different sort of choice. In their millions they have opted to acquire different sorts of meat as well as computer games and, more recently, a whole range of 'aps'. Higher up the income scale, people have bought hundreds of thousands of quintessential quons: new apartments. Financing the boom in property has led to a huge extension of borrowing, both overt and illicit, and the authorities have not been completely successful in controlling that expansion. In periods when restraints on funding property purchases have really bitten, the market has lost momentum; then measures have been found for expanding credit again and restarting the building and the sales - and confounding the western Economists who have seen the 'property crunch' as evidence of the fundamental instability of the Chinese economy and an imagined 'need' to move to a neo-marginalist market model.
China is a much more rational system than those Economists can understand. People rising from abysmally low standards of living have been brought in their hundreds of millions into a market economy, where at first they receive subsistence wages [which a majority of urban workers still receive]. Then their productivity rises to enable them to be paid enough to become highly selective consumers of quons. The first little luxuries are the most highly prized, as they open up a new horizon for the individual. The payment made for them is sacrificial, and the satisfaction received is incalculable. Of course, if the buyer is cheated and receives consumption that is not what they had been led to expect, the anger and disappointment experienced by the consumers is also incalculable: which justifies significant control of products and markets.
The best way to raise workers' productivity in an already-industrialised country is by adding quon production to marcom production. If China can produce the majority of the quons that spread over the country from its own industries, that is the best way of combining the dissemination of quons with spreading around the incme that enables more people to consume more quons. This is precisely what is happening: and the slight reduction in reported economic growth while an increasing commitment to quon .is implemented will be followed by a period of rapidly rising productivity and then of incomes. Once Chinese quons are well proven in the home markets they will be ready for export: often under established western trade marks, which the Chinese have assiduously been buying over recent years.
Those who choose not to recognise what is happening will suffer when the development of the Chinese economy faces them with further reductions in their western standards of living. The sadness is, that Economists will not bear the brunt of the impact: that fate, as usual, falls to the poor who have been so appallingly deceived by the politicians who remain deluded by market models.
Monday, 31 October 2011
Jobs and Wages
There is a great deal of talk - and much less action - from government about the need to create jobs in the economy to produce growth. There is also a recognition that any sustainable increase in jobs should focus on 'manufacturing': a series of sectors that have been continually in decline and in default throughout the careers of most working retail bankers, setting up institutional and psychological barriers to lending for any such development. There is also a very emphatic policy from the Department of Work and Pensions to push benefit recipients into employment.
Most bar-room conversationalists, through the length and breadth of the Kingdom, take it as axiomatic that that there are 'no jobs' that have any attraction for many of the British unemployed. There is huge resentment about the plain fact that there is still a torrent of immigration into unfilled existing jobs as well as of benefit-hunting immigrants. In the high-earning employment categories, British graduate doctors, scientists and engineers migrate to North America and Australasia; and their places in the UK are filled in the NHS by Europeans, Asians and Africans, and in science and technology by Europeans and Asians. Thousands of British engineers, physicists and mathematicians are also lost to the 'real ecnomy' when they take employment in casino banking. In middle remunerated ranks, plumbers and builders from East Europe have supplanted much British recruitment. In hourly-paid jobs with some 'unsocial hours' working Brits are conspicuously less abundant among applicants than are migrants.
If the country is to avoid Islamisation by mass immigration, British people have to fill the jobs that are available in Britain: but the second-and third-generation non-employed population show no inclination to work. Hitherto they have been able to show how much benefit they would loose if they took jobs: they could surrender 38 or 40 hours a week of their time to the discipline of the workplace and receive only a few pounds a week in higher nominal income. So the glib answer is to say that their benefits must be reduced. This supposedly would provide a stick and a carrot: the individual would have a lower standard of living if they did not work, and would have the opportunity - perhaps - to buy more if they did get work.
But if such people have children, an ages-old problem arises. It appeared first in its contemporary form in the eighteen-seventies when Poor Law Guardians began to put up workhouse orphans for fostering by working families. Tables were drawn up of the clothing, food and other necessities that each such child would need: and it was immediately evident that the sum of money required to deliver that subsistence each year was very much more than any lower-paid working family had for each of their children. The same arithmetic applies today: the cost of keeping a child in care or in state-sponsored fostering is far more than the portion of millions of parental earnings that they can make available for each child. This recognition is carried forward in the 'tax credits' that governments give to families. If wages are reduced in real terms the 'needs' of children will have to be provided for in increased credits. This is axiomatic, because it is pretty well universally accepted that nobody can expect seriously deprived children to grow into good citizens. So if tax credits [or their successors] are to keep pace with prices, any incentives or penalties on parents to 'make them work' will largely be rendered nugatory.
Of course parents are only raising children for part of their lives: but many, many people think in terms of short-term living rather than of lifetime earnings, or career progression [when many jobs offer no prospect of promotion]. So the conundrum of 'childrens' needs' set against rates of parental remuneration will not go away. Hence much of the government's talk about employment, pay rates and benefits, is nonsense. Deeper thinking in this, as in other crucial issues, is urgently needed.
Most bar-room conversationalists, through the length and breadth of the Kingdom, take it as axiomatic that that there are 'no jobs' that have any attraction for many of the British unemployed. There is huge resentment about the plain fact that there is still a torrent of immigration into unfilled existing jobs as well as of benefit-hunting immigrants. In the high-earning employment categories, British graduate doctors, scientists and engineers migrate to North America and Australasia; and their places in the UK are filled in the NHS by Europeans, Asians and Africans, and in science and technology by Europeans and Asians. Thousands of British engineers, physicists and mathematicians are also lost to the 'real ecnomy' when they take employment in casino banking. In middle remunerated ranks, plumbers and builders from East Europe have supplanted much British recruitment. In hourly-paid jobs with some 'unsocial hours' working Brits are conspicuously less abundant among applicants than are migrants.
If the country is to avoid Islamisation by mass immigration, British people have to fill the jobs that are available in Britain: but the second-and third-generation non-employed population show no inclination to work. Hitherto they have been able to show how much benefit they would loose if they took jobs: they could surrender 38 or 40 hours a week of their time to the discipline of the workplace and receive only a few pounds a week in higher nominal income. So the glib answer is to say that their benefits must be reduced. This supposedly would provide a stick and a carrot: the individual would have a lower standard of living if they did not work, and would have the opportunity - perhaps - to buy more if they did get work.
But if such people have children, an ages-old problem arises. It appeared first in its contemporary form in the eighteen-seventies when Poor Law Guardians began to put up workhouse orphans for fostering by working families. Tables were drawn up of the clothing, food and other necessities that each such child would need: and it was immediately evident that the sum of money required to deliver that subsistence each year was very much more than any lower-paid working family had for each of their children. The same arithmetic applies today: the cost of keeping a child in care or in state-sponsored fostering is far more than the portion of millions of parental earnings that they can make available for each child. This recognition is carried forward in the 'tax credits' that governments give to families. If wages are reduced in real terms the 'needs' of children will have to be provided for in increased credits. This is axiomatic, because it is pretty well universally accepted that nobody can expect seriously deprived children to grow into good citizens. So if tax credits [or their successors] are to keep pace with prices, any incentives or penalties on parents to 'make them work' will largely be rendered nugatory.
Of course parents are only raising children for part of their lives: but many, many people think in terms of short-term living rather than of lifetime earnings, or career progression [when many jobs offer no prospect of promotion]. So the conundrum of 'childrens' needs' set against rates of parental remuneration will not go away. Hence much of the government's talk about employment, pay rates and benefits, is nonsense. Deeper thinking in this, as in other crucial issues, is urgently needed.
Tuesday, 18 October 2011
Price Inflation: the Peak?
Today sees the publication of a figure reporting the increase in prices between September 2010 and September 2011. Even on the scaled-down index that government now prefers shows this to be in excess of 5%.
The only significant segment of the population whose incomes will at least have increased to match price increases are the elite at the top of organisations who are able to negotiate bumper increases: senior executives in companies and the owners of successful businesses. It is notorious that their incomes have increased by more than inflation [on average] usually as a 'package' of a generous salary combined with a bonus linked to an easily-changed performance target, generous expenses and large contributions to the 'top hat' personal pension fund. Despite the envy and anger that many people express about this disparity, it is notable that many jobs exist in luxury shops, restaurants and other services that supply the rich: the British super-salariat and the many rich foreigners who resort to London as a place to spend parts of the year. If that trade was reduced dramatically unemployment would rise as activity declined in London and around the major racecourses and golf clubs, and in the many firms and farms that supply the luxury trades. The great majority of employees have accepted static wages, or just slight increases, rather than try to force their employers to pay them more that might lead to a reduction in the number of people employed. Even so, there is a growing apprehension that in the absence of rising demand firms will begin to shed labour that they have 'hoarded' over the past couple of years in order to keep their skills base intact.
Economic growth is negligible, consumer demand is declining for many everyday products, and there is no sign that this pattern will change. Just now, the Bank of England has begun to extend the pattern of quantitative easing by which the money supply is expanded. While there is a vigorous debate on how far this activity will assist growth in the 'real economy' there is very little doubt that it will cause devaluation - a further drop in the value of the pound against other currencies - so imports to Britain will become more expensive and that will add more to the pattern of price rises in this import-dependent country. There is no sign of an end to the grim round: and the government has no plan to change policy.
The only significant segment of the population whose incomes will at least have increased to match price increases are the elite at the top of organisations who are able to negotiate bumper increases: senior executives in companies and the owners of successful businesses. It is notorious that their incomes have increased by more than inflation [on average] usually as a 'package' of a generous salary combined with a bonus linked to an easily-changed performance target, generous expenses and large contributions to the 'top hat' personal pension fund. Despite the envy and anger that many people express about this disparity, it is notable that many jobs exist in luxury shops, restaurants and other services that supply the rich: the British super-salariat and the many rich foreigners who resort to London as a place to spend parts of the year. If that trade was reduced dramatically unemployment would rise as activity declined in London and around the major racecourses and golf clubs, and in the many firms and farms that supply the luxury trades. The great majority of employees have accepted static wages, or just slight increases, rather than try to force their employers to pay them more that might lead to a reduction in the number of people employed. Even so, there is a growing apprehension that in the absence of rising demand firms will begin to shed labour that they have 'hoarded' over the past couple of years in order to keep their skills base intact.
Economic growth is negligible, consumer demand is declining for many everyday products, and there is no sign that this pattern will change. Just now, the Bank of England has begun to extend the pattern of quantitative easing by which the money supply is expanded. While there is a vigorous debate on how far this activity will assist growth in the 'real economy' there is very little doubt that it will cause devaluation - a further drop in the value of the pound against other currencies - so imports to Britain will become more expensive and that will add more to the pattern of price rises in this import-dependent country. There is no sign of an end to the grim round: and the government has no plan to change policy.
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