The Green Budget
The Institute for Fiscal Studies thinks the chancellor is right not to start moving to a Plan B. Though borrowing could come in slightly lower than expected this year, the Institute's "Green Budget" says that "having set out his fiscal consolidation plan, it is important that Chancellor George Osborne resist the temptation to engage in any significant net giveaway in the Budget".
"While last week's growth figures were disappointing... any fiscal loosening aimed at helping the economy could be ineffective if it prompts an offsetting monetary tightening, and risks undermining investor confidence..."The macroeconomic parts of the report were put together with senior economists from Barclays Wealth. They are quite gloomy about the economy's long-term potential growth rate, which they think could be lower than the Office for Budget Responsibility (OBR) has estimated (though the OBR is less optimistic on this front than the Treasury was under Alistair Darling).
On the broad economic outlook, the authors broadly endorse the government and the OBR's position - but with gloomy caveats. They think the downside risks are probably greater than the chancellor suggests. But, depressingly, the authors don't seem to think the government can do much to offset these risks - or mitigate the effects.
For example, they think there is a risk that consumption will disappoint this year - as households respond to declining real pay rates and, amongst other things, falling house prices. And they don't expect companies to rush to the rescue, with big increases in investment, even though - as I have mentioned many times here - many companies are sitting on plenty of cash. Most troubling, they worry that companies could start shedding labour in a serious way in 2011 and 2012, to raise productivity after several years when it has not risen at all.
All or any of these negative shocks could throw the government's borrowing numbers off track - with the Bank of England not necessarily able to respond. In other words - Plan A could be even worse than we think. But there may not be scope for a Plan B. They think there's a roughly 1 in 5 chance of a double dip recession in 2011.
However, the report gives the lie to the suggestion that the government's cuts are similar to the consolidation plans being undertaken by other countries. Out of 29 industrial countries, only Greece is planning a sharper decline in structural borrowing between 2010 and 2015. And only Ireland and Iceland are planning a larger reduction over this period in public spending as a share of GDP.
Update 1140: There is a tension in the IFS report on the vexed question of a Plan B. (Some would say there's the same tension inside the Treasury.)
As the quote I referred to earlier suggests, the IFS and their co-authors believe strongly that the chancellor should not change the fiscal strategy as a result of the recent disappointing growth numbers.
But, in the press conference launching the report, the IFS deputy director, Carl Emmerson, has now made clear that the IFS does think the chancellor needs a Plan B - and he needs to tell us all about it. He needs to explain clearly what he would do, if the economic outlook turned out to be worse than expected.
The folks at IFS and Barclays Wealth do not think that this would be damaging to market confidence - or the chancellor's standing in financial markets. Possibly it would help.
The chancellor seems to disagree - he thinks it's risky to even mention a possible back-up plan. But they can all agree, apparently, that Mr Osborne's credibility would be hit if he was seen to actually tone down his spending plans at only his second Budget.
~RS~q~RS~~RS~z~RS~50~RS~)
I'm 
© MMXI
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They say: Since 2008, public sector workers seem to have been paid more, on average, than their equivalents in the private sector even after taking account of the higher qualifications among public sector workers. The planned two-year public sector pay freeze should, therefore, not lead to widespread recruitment problems, but some public sector vacancies, especially in London and the South East, will be hard to fill. Public sector pensions remain much more generous than those in the private sector.
Given the other things they say in that paragraph and the general state of unemployment, isn't that a bit of a non sequitur ?
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The only source of additional govt revenue that is now available is in the contentious area of 'modern selective protectionism' (MSP) ... which none of of our gutless politicians seem able, willing and competent to discuss ... never mind even think of pursuing.
The choice is stark ... take the tens of billions of £'s that are easily available in MSP and effect strong rebalancing forces in the UK economy, as a result... or watch the country grind to a halt and the anarchists come out on the street ... and plan the date for the next general election as political strife makes the Coalition govt unworkable as Lib Dem politicians resign as the economy nose dives... and a pattern of economic stagnation becomes further entrenched.
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No plan survives completely intact beyond the first attempt to implement it. It is guaranteed that he will have to adjustments to his propsals as he goes along, the rumoured dropping of the fuel duty increase is a good example. What is the point of making an alternative plan before you've even got the numbers back from the first stage of implementation?
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Whilst the IFS is right to point to the problems they utterly fail to address the real issue. With mortgage rates at historic lows there are real benefits to long term economic stability to "locking in" these rates for the long term in excess of 10yrs. With a "mobile mortgage" taking the debt at that level with you when you move.
The benefit is that it would mean interest rate rises need not directly reduce incomes as dramatically but at the same time could be used to manage discretionery expenditure.
Without this type of approach any rise in interest rates will have a catastrophic effect on growth.
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This blog does not seem to follow good news for the UK economy and seems determined to keep focusing on the bad official GDP figures from last week. Yesterday and today some better figures have emerged according to a the notayesmanseconomics web blog which I saw recommended on here.
"So the UK manufacturing sector which represents approximately 13% of our economic output appears to be doing well and this will influence other sectors of our economy which depend on it...This morning has seen the purchasing managers report for UK construction for January and it too reports an improvement."
So there is some better economic news being reported elsewhere although it is also coming with reports of higher inflationary trends and higher market interest-rates.If so why are we talking of a back-up plan?
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"The Institute for Fiscal Studies thinks the chancellor is right not to start moving to a Plan B."
...maybe that's because they know he doesn't have one?
I mean moving from planA at the moment without a planB would be......falling into the abyss?
"if it prompts an offsetting monetary tightening, and risks undermining investor confidence"
It seems the IFS is being run by Gok Wan now (it's all about the confidence) - lets hope everyone gets confident soon so we can re-invigorate these giant Ponzi schemes littering the world of finance and once again pass all our financial troubles to the next generation.
Speaking of which, isn't it great to see the Egyptian people changing their Government, not for themselves, but for their children - a stark contrast to the people of this country who are currently dumping from a great height on theirs because they cannot face up to the reality of the situation and have employed a number of magicians and confidence tricksters to 'solve the economic problem'.
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This government is not for turning?
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The IFS Green Budget observes that :'The recession therefore had a substantial impact, particularly on emissions generated by power stations (which fell 13% between 2008 and 2009), business emissions (down 15%) and emissions from
industry (down 19%).'
I am delighted that recession can have such a positive effect on the environment and therefore look forward to the double dip.
But if we were really bothered by carbon emission we would build passive houses. Does anyone you know live in one?
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A thought on the 0.5% drop in GDP. This is very simplistic but there are about 90 days in a quarter so each day yields say 1% of economic output for that quarter. The OBR says we lost about 0.5% due to the weather which on my admittedly simplistic figures equates to half a day. If you do the sums on 60 working days in a quarter you get about a third of a days lost output. I run a small business and can say my experience is that we lost a hell of a lot more than half a days economic activity because of the weather. The country was virtually at a standstill for several days at least. I appreciate theres more to economic activity than people getting to work but I still reckon half a day lost in December is an underestimate.
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Any politicians credibility is going to take a big hit if they trumpet one thing and are then subsequently seen to drastically change drection.
Here is a tip for young Osborne, when the Brown/Balls tripartite system started to unravel at its first real test (Northern Rock), Brown batted away any criticism by stating 'all systems need some fine tuning from time-to-time'.
As a systems engineer, who would probably never work again if I'd screwed up as badly as Brown/Balls did with the tripartite system design, I found that particularly hard to swallow, but in politics, it seems you can actually get away with that sort of statement despite the actualite.
So there it is Osborne, when it starts to come unglued, simply state that the plan needs a little fine-tuning and all will be well.
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Surely any course of action has to be given some time to take effect - panicking after one set of figures is not the way to go. All this talk of plan B is coming from the same idiots who were panicked into overreacting to swine flu, the Millenium Bug and into invading Iraq!
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Can someone help me?
The government are saying that they plan to continue with their deficit reduction plan even if is doesn't work?
That coming at this with only one solution and no back up plan is the key to maintaining market confidence?
And that, even if GDP shrinks, and the deficit actually increases, they will carry on regardless?
Anyone else filled with confidence?
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The BIG PICTURE is much more important concerning how this country of ours evolves. This government is
slowly creating a new workforce with lower expectations of pay levels and pensions which will enable us
(in time ) to compete with the rest of the world. Banking and other service industries (while important in the
short term,) cannot create long term employment for future generations. We must evolve and compete with
the rest of the world . This government, l believe,has set us on the correct course. A course we must hold fast to
or suffer a slow decline.
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We shall see what happens. Someone will be right and someone will be wrong. The important thing for the Tories is to make sure they are not crippling normal people on normal salaries unfairly. It does now seem they are between a rock and a hard place! People have been commenting about the good news but all I have seen for me this year is no pay rise (in the private sector) and my expenditure rise and looking to rise further, I personally don't consider that an improving situation.
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6. At 12:28pm on 02 Feb 2011, writingsonthewall wrote:
"Speaking of which, isn't it great to see the Egyptian people changing their Government, not for themselves, but for their children"
Let's hope it is for the better - but I have a feeling that Egypt could be in for years of turmoil and strife only to emerge with a new but equally corrupt regime. That's the problem with any system creafted and implemented by us (humans)- however fair in principal there will always those who take advantage - may be the many or just the few.
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Why is there in every blogpost shameless spam of notayesmanseconomics?
Isn't there a rule against this?
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"2. At 12:06pm on 02 Feb 2011, nautonier wrote:
The only source of additional govt revenue that is now available is in the contentious area of 'modern selective protectionism' (MSP) ... which none of of our gutless politicians seem able, willing and competent to discuss ... never mind even think of pursuing."
I agree but it's not going to happen - well not until it's too late..........
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Any 'Plan B' or 'Green Plan' will be scuppered by the private debt bubble. It must be tackled!
The reality is that the underpinning of 'wealth' by over-valued assets is unsupportable and unstable. We have to get the Nation's assets back down to internationally competitive levels or we will just continue declining.
Consider the case of farm workers - that backbone of the ability of the UK to feed itself. It is unlikely they earn much over 20K a year. so they can afford to live in a family home priced at no more than 60K say 70K with a 10K deposit. But in much of the country this price does not buy a garage! In fact most modest family homes in the SE countryside (where farm workers must live due tot he nature of their work) cost a minimum of 250K About 4 times what can be afforded. So house prices must fall by 75%!!!!!!! (Did I hear that this will bankrupt the banks - then the banks are already bankrupt!)
We cannot ignore this problem if the economy is ever to recover!
[Of course, this problem is directly the result of diabolically bad regulation and control of interest rates by the Bank of England - yet we still have yet to fire Mervyn King!]
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'Out of 29 industrial countries, only Greece is planning a sharper decline in structural borrowing between 2010 and 2015. And only Ireland and Iceland are planning a larger reduction over this period in public spending as a share of GDP.'
And out of 29 industrial countries, how many have a higher deficit than we do? Let me guess... Greece, Ireland and Iceland.
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The first thing to do would be to scrap all subsidies for wind power and to scrap those eyesores still standing as they are so inefficient, cause problems on the National Grid with their random power generation. Also scrap any carbon trading/tax as we need carbon dioxide to live and the more we have [within limits] the better our plants grow and thus produce more food. Finally scrap all bio fuel production as it is using too much land and is much less efficient than good old petrol [and more expensive!]. Thorium based power generation should have started 40 years ago. Safe, incredibly efficient with very low waste levels it is the way to go.
Google Thorium Power and be staggered at what we have been missing.
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The whole thing is trivial to work out, we currently have 30% of the working age population not working and the ONLY way to fix our economy is to sort out that problem so...
a) The bank of England must state with no reservation that the base rate is NOT going to rise for at least 2 years. This is the ONLY way anyone will invest any money in improving their company and employing more people.
b) The government should change the rules on purchasing to include costs of lost taxes, increased unemployment and lost strategic advantage in the UK caused by buying anything abroad. This will ensure that (within all the current EU and global regulations) we will buy British with British tax payers money.
c) The government should tell (note not ask) the two banks we own that business bank charges will be zero AND that interest rates on business loans are no more than 1% above BofE base - this will encourage business to borrow and invest while preventing banks ripping off the most important part of our economy (real business).
d) In order to offset the large amounts of money released by these factors increase taxes - this won't be popular but will keep a lid on government debt.
Note, in no place do I care about inflation - frankly this is a global problem created - by and large - by gambling by banks and hugely rich individuals (CEO's and banks who get paid massive sums regardless of their failures). We can do nothing about this because this government, and the labour opposition, along with other governments in the world are personal friends with the rich.
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Why are the IFS and Barclays Wealth being allowed to make policy recommendations, when they were among those who imploded the economy in 2008?
Being serious is no longer enough. Considering that many ordinary people called the meltdown well before the financial industry did, why is the financial industry still getting this preferential treatment, while ordinary people are being excluded from the debate?
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@13. At 12:54pm on 02 Feb 2011, signoff wrote:
So you've bought into the 'we can only compete by being cheaper than anyone else' arguement.
That may be so, but in that case we also need to have housing, clothes and food that are the same price as the cheapest.
I also don't see why the CEO of a company made of the cheapest possible workers should walk away with several million pounds a year - even when they fail. The CEO of my last failed company (Symbian) was on over a million a year during its decline and closure, he is now working as CEO of another IT company - rewarded for failure - and not for the first time. We can spin similar stories of bankers who sink banks and now run a high street chemist... the list goes on.
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@12. At 12:53pm on 02 Feb 2011, newblogger wrote:
Can someone help me?
The government are saying that they plan to continue with their deficit reduction plan even if is doesn't work?
Totally, the same as Thatchers 'not for turning', the ill advised attempt to stay in the exchange rate mechanism and the Brown/Blair spend spend spend (even if it is on foreign goods which support not one single British job).
All politicians are basically thick, stupid, moronic and unable to grasp the basics of common sense. Worse the media back this up by critising if the politician (normally by accident) does an about face when a policy is clearly broken. Worst of all is that the voter has even less intelligence because they keep putting the same failed, cheating, disreputable bunch of no hopers in power time after time (for heavens sake, reelecting people already being tried for fiddling expenses because 'my dad voted...... so I must vote the same because I am too thick to think'
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7. At 12:30pm on 02 Feb 2011, stillpuzzled wrote:
This government is not for turning?
---------------------------------------------------
There are some wonderful and/or worrying links to the recent past. I hear echoes of the days of my youth .....
The lesson Dave, GO & Co could learn from the Conservatives in the period 1979 to 1985ish is to throw away the blinkers, not take too narrow a view. We could debate for hours how great was the UK share of the blame for the 1981 world recession (usually just attributed to the USA) but the way the global economy is stacked now, it is possible we could tip the world into a recession.
If we are not careful ...
Hey! etc.
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when is a trade policy not a trade policy?
When it's a devaluation!
YES we need to expand manufacturing, cut imports and boost exports.
YES "allowing" Sterling to fall by a third improves our terms of trade making exports cheaper and imports more expensive.
BUT because we have such a high level of imports of energy, food and manufactured goods, the fall in the Pound is VERY inflationary, cutting living standards and effective demand in the economy.
Devaluation is in effect an import tax and an export subsidy - but it is a VERY blunt tool indeed.
That's why a much more effective solution is selectively applied import taxes and investment in exporting businesses that create jobs here and those that replace imports.
You only have to look @ OPEC or the Chinese currency regime to see that markets are rigged - yet we go on with globalised trade for ideological rather than practical reasons.
And it's not as if the Indians & Chinese etc don't have trade policies that involve protecting their own industries - they do.
GO doesn't have a plan A in terms of growth & job creation - the CBI said so last week - they only have a spending & taxation policy.
So an effective Plan B would be to create a taxation system to DETER imports and PROMOTE exports, so INVEST in productive businesses that reduce our dependency on imports AND create jobs.
We were promised a White Paper before Christmas - WHERE IS IT?
Answer - if you're ideologically opposed to government involvement in the market, you are powerless to do anything due to your own dogma.
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Summary: We will continue to do what the bankers tell us to do.
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Why does anyone think Osbourne needs a plan B. All he needs to do is modify his plan A by stealth. Already the petrol price increases are causing concern so he will modify the structure of road pricing by increasing the Road Fund License by £100 per year and stop the planned increase in fuel duty. He can in 2014 claim success if the deficit is not completly wiped out but within pre 2008 levels ie less than 3% of gdp.
Where the politcal fall out will be is the pre election budget, he will want to cut the 50% tax rate but will he be able to.
Is the onus on Osbourne, or is it with Cameron. If in 2013 the polls are still against the coaltion will Cameron act and invite Danny Alexandre to be chancellor, that would be a clever move the Lib/Dems would get most of the blame. Osbourne would do what Norman Lamont did go home and sing in the bath.
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20. At 1:18pm on 02 Feb 2011, Beejay wrote:
The first thing to do would be to scrap all subsidies for wind power and to scrap those eyesores still standing as they are so inefficient, cause problems on the National Grid with their random power generation. Also scrap any carbon trading/tax as we need carbon dioxide to live and the more we have [within limits] the better our plants grow and thus produce more food. Finally scrap all bio fuel production as it is using too much land and is much less efficient than good old petrol [and more expensive!]. Thorium based power generation should have started 40 years ago. Safe, incredibly efficient with very low waste levels it is the way to go.
Google Thorium Power and be staggered at what we have been missing.
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Agree about the eyesore factor (why didn't we stick turbines on shopping centres, industrial estates and industrial sites? - nothing to spoil, lots of wind, customers nearby ...) but why waste money scrapping them now? Wait until they fail and take them down then.
The carbon market disgrace is just starting to become public knowledge, there may be more to come. Unfortunately, dismantling it will take international agreement.
A lot of land that can be used for crop production is unused in the UK. Crops for biofuels are a good idea. They can provide a useful income for farmers when other problems arise. They can be used as part of land rotation. They may have some benefits for wildlife.
Biofuel tends to be used as a mix with highly taxed fuels. The Treasury, at present, probably wouldn't want it sold on its own at its true cost plus reasonable profit. Reform of our tax system, taking tax from fuels and placing it on income, would have greater benefits. It would make UK farming a lot more viable and reduce the level of imports. There would be health benefits (and hence savings) from greater UK arable production.
I am generally pro-nuclear and alternatives but there are problems. Not least all sorts of vested interests, unwillingness of Government to really invest for the future, etc.
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#21 anotherfakename and anotherfakesolution. Banks are not lending because there is a lack of credible (i.e. viable) investment opportunities. This should tell everyone something, but apparently it doesn't.
The fact that the banking system is systemically insolvent doesn't help much.
Inflation (this time around) is caused by grotesque money printing. The money still can't find any investment home so it goes into blowing huge bubbles in commodity prices. You may find the price of petrol a moderate annoyance but many millions of people are finding the price of food to be something much worse.
So Tunisians, Egyptians and others take to the streets. Where it will end we know not, but it began with the pathological hatred of truth so close to the hearts of the enlightened western citizenry. "My house price must rise forever and without end, and if the price for my ever rising house price is either starvation or insurrection in some far away land, well...that's a price I'm more than happy for someone else to pay."
Get real. Get ready for full spectrum meltdown coming soon to an expensive neighborhood near you.
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2. At 12:06pm on 02 Feb 2011, nautonier wrote:
The only source of additional govt revenue that is now available is in the contentious area of 'modern selective protectionism' (MSP) ... which none of of our gutless politicians seem able, willing and competent to discuss ... never mind even think of pursuing.
The choice is stark ... take the tens of billions of £'s that are easily available in MSP and effect strong rebalancing forces in the UK economy, as a result... or watch the country grind to a halt and the anarchists come out on the street ... and plan the date for the next general election as political strife makes the Coalition govt unworkable as Lib Dem politicians resign as the economy nose dives... and a pattern of economic stagnation becomes further entrenched.
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The big question is:
How long do you think the revenues from those MSPs would be available for?
And when would the retaliatory measures from the rest of the world (in a globalised economy) take to kick in?
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Why do we need an expensive Quango to come to the conclusion that cuts will cause less consumption leading to a dip in the economy.
My 7 year old granddaughter could tell you if people have less money they will spend less. Obvious really. Osbourne is more stupid than I thought if they don't realise that they are risking another recession.
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Interesting that Stg has shown a good improvement today.
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#6 writingsonthewall. You really do look at the world through rose tinted spectacles. No perversion of reality is too great provided it allows you to stay true to the (assumed) teachings of the great Marxist in the sky.
Egyptians are not engaged in some act of purity whereby the common man frees himself from the chains of captivity. They are simply responding to commodity price bubbles blown by the financial fanatics of the Fed and Threadneedle Street.
Similar stuff has been going down in Mozambique and other places - but that doesn't seem to attract the attention of bleeding heart liberals. Now I wonder why that could be?
But don't worry there will be a lot more of this kind of stuff. I wonder how long it will be until the bleeding hearts suddenly discover all manner of problems with Wahabbism.
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34 armagediontimes
You say:
"Egyptians are not engaged in some act of purity whereby the common man frees himself from the chains of captivity."
but then kind-of contradict yourself by saying:
"They are simply responding to commodity price bubbles blown by the financial fanatics of the Fed and Threadneedle Street."
Maybe I'm wrong.
Kind Regards
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29.
What is the carbo footprint of a nuclear power station?
No doubt you think its zero as it doesn't emit CO2..
But think about all the concrete and steel that goes into it....
It takes 15-20 YEARS to generate enough electricity to equal the amount of CO2 a similar sized fossil fuel power station would emit...
And the fuel is running out - only 20-30 yrs of uranium left.
Nuclear isn't such a good bet - clean up costs, security issues and such a poor carbon performance - better off with renewables, cutting fuel use and geothermal.
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"While last week's growth figures were disappointing... any fiscal loosening aimed at helping the economy could be ineffective if it prompts an offsetting monetary tightening, and risks undermining investor confidence..."
The macroeconomic parts of the report were put together with senior economists from Barclays Wealth
___________________________________________________________
Hello ?
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30. At 2:05pm on 02 Feb 2011, armagediontimes wrote:
#21 anotherfakename and anotherfakesolution. Banks are not lending because there is a lack of credible (i.e. viable) investment opportunities. This should tell everyone something, but apparently it doesn't.
The fact that the banking system is systemically insolvent doesn't help much.
Inflation (this time around) is caused by grotesque money printing. The money still can't find any investment home so it goes into blowing huge bubbles in commodity prices. You may find the price of petrol a moderate annoyance but many millions of people are finding the price of food to be something much worse.
-----------------------------------------------------------------------
Do all the Ms indicate this?
I would have said our current inflation is ALSO caused by:
1. Rising cost of commodities,
2. Taxation,
3. Bonus culture, and
4. Our Government's response to Global Warming {not the tax element} and its effect on essential costs.
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@26
BUT because we have such a high level of imports of energy, food and manufactured goods, the fall in the Pound is VERY inflationary, cutting living standards and effective demand in the economy.
True BUT the answer to the problem of high levels of imports is a VERY low REAL interest rate that allows people to invest in the plant, machinery, design and people required IN THIS COUNTRY to replace those imports. This is how Germany manages to invest and grow. Even now when the Bof E interest rate is low the loans to business, especially small business, are offered at eyewatering and ursurous interest rates. Barclays can turn round and claim most of its business loan applications are approved, but to be honest they don't have many because the interest rates and charges are so astronomical that no one is borrowing to invest. The government can fix that using the two banks we own and a simple instruction - a 5 minute phone call is all it would take.
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13. At 12:54pm on 02 Feb 2011, signoff wrote:
The BIG PICTURE is much more important concerning how this country of ours evolves. This government is
slowly creating a new workforce with lower expectations of pay levels and pensions which will enable us
(in time ) to compete with the rest of the world. Banking and other service industries (while important in the
short term,) cannot create long term employment for future generations. We must evolve and compete with
the rest of the world . This government, l believe,has set us on the correct course. A course we must hold fast to
or suffer a slow decline.
----------------------------------------------------------
It never ceases to amaze me this argument by the capitalists that if we get poorer through either a) lower expectations of wages and pensions or b) devalue the currency then this will somehow achieve economic "recovery".
So the choice is either: lower wages or suffer a slow decline?
It looks like lose/lose to me to be honest.
As Orwell said: Poverty = Wealth!
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This comment was removed because the moderators found it broke the House Rules.
37 EconomicsStudent
"While last week's growth figures were disappointing... any fiscal loosening aimed at helping the economy could be ineffective if it prompts an offsetting monetary tightening, and risks undermining investor confidence..."
The macroeconomic parts of the report were put together with senior economists from Barclays Wealth
___________________________________________________________
Hello? indeed - surely if the fiscal tightening included not increasing or reducing indirect taxation, then there would be no real pressure to tighten monetary policy, given the economy is operating well under full capacity.
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Do you ever get the impression that no one really knows what to do about the economy?
Loosen, tighten?
Barclays Wealth vs. the Office for Budget Responsibility (OBR).
"Depressingly, the authors don't seem to think the government can do much to offset these risks - or mitigate the effects."
This type of stuff really confuses people...Well, it confuses me, and I'm a person.
Of course consumption will decline! Last time I looked people were getting unemployed, salary-reduced, Vatted, and otherwise made poorer. If these negative shocks throw the government's borrowing numbers off track, then I can only ask: What did they expect? An avalanche of spending during a time of spending cuts and increased taxes?
And after all these statements, what do we get as the conclusion?
The IFS and their co-authors believe strongly that the chancellor should NOT CHANGE the fiscal strategy as a result of the recent disappointing growth numbers.
Wait, not quite:
The IFS deputy director, Carl Emmerson, has now made clear that the IFS DOES THINK the chancellor needs a Plan B.
Media speculation over the facts is seen by many, including me, as part of the problem in ensuring that the public has an understanding of what is happening. (Cough, cough!) Then comes the best of all - Chote's quote: “By and large the media is a force for good in helping people to hold governments to account for the decisions they take in their name.”
How?
Most of the time, the poor, ignorant people don't know what's going and for whose good, but they know something isn't right about the economy.
My recommendation, you and most Brits are going to hate:
Stop sitting on the fence and fully commit to the Eurozone IF for no other reason than several economic brains are better than what I'm seeing out of Britain. Get your best & brightest economic minds into key EU positions. Be part of the solution and not part of the problem. Share the benefits. In case you didn't notice, the Euro is beginning to settle very very nicely; it has turned the corner.
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11. At 12:53pm on 02 Feb 2011, StartAgain wrote:
"Surely any course of action has to be given some time to take effect - panicking after one set of figures is not the way to go. All this talk of plan B is coming from the same idiots who were panicked into overreacting to swine flu, the Millenium Bug and into invading Iraq!"
Too early for Mr.Osborne`s policy to affect the economy,the concern has to be a conjunction of forces which come together in 2011 and terminally interact to produce a spiral of decline.
Firms are sitting on piles of cash,not investing because of uncertainty.The immediate danger comes from a sharp decline in consumption resulting from higher fuel and food prices,high inflation,VAT increase,growth in unemployment and part time work.
Interesting that the scale of Mr.Osborne`s cuts puts us in the same economic family as Greece,Iceland and Ireland.Should we be there?, or has he exaggerated the scale of the crisis because our deficit was so large,or is pursuing an ideological agenda of small state and Big Society?
Plan B is just the British way,cautious,empirical,proceeding by trial and error.To march behind a banner of fixed principles is a throwback to the age of ideology which ended recently with the defeat of Hitler ansd collapse of communism.
It is happening here accompanied by nostalgia and victimhood,(Our children will pay).This is an indication of the depth of the capitalist crisis rather than the merit of the proposals.
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I agree with the comments that we shouldn't have lower expectations for ourselves. Whats needed is more balance in pay across all jobs and to not reward or pay off failure with millions of pounds of golden handshakes! Having lived elsewhere in Europe I can say I really appreciated getting paid more for fewer hours with better working conditions and stronger Unions. I don't see these countries (Norway and Germany) having so many problems now! So having lower expectations of what i should be paid - no thanks! Anyway - if I was paid less I couldn't afford to work as Im priced out of the local property market so have to travel :)
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@38. At 2:49pm on 02 Feb 2011, Up2snuff wrote:
"Banks are not lending because there is a lack of credible (i.e. viable) investment opportunities. This should tell everyone something, but apparently it doesn't."
I dispute that. Barclays are currently advertising that they approve almost every loan request - so it is not the case that banks are being choosy, but the case that people aren't asking. People aren't asking because the loans are infeasibly expensive.
"The fact that the banking system is systemically insolvent doesn't help much."
Again its not making any real difference, the banks are being greedy on interest rates so people are paying off debt rather than borrowing - they are not even borrowing to invest. Look at the interest rates being offered, and then the additional costs of the application - frankly its frightening. When base rate is 0.5% mortagages are mainly about 5%, business loans 6-10%, personal borrowing and credit cards upto 30%.
"Inflation (this time around) is caused by grotesque money printing. The money still can't find any investment home so it goes into blowing huge bubbles in commodity prices. You may find the price of petrol a moderate annoyance but many millions of people are finding the price of food to be something much worse."
Frankly the price of food is more than an annoyance as well. Certainly though you are right - money has been printed, paid in bonuses to over paid bankers, spent (sorry 'invested') in commodity bubbles which is **** the rest of us over. Raising interest rates (as the BofE are threatening) will take MORE money from the poor and give more to the rich and make the bubbles so much worse. A raise in interest rates might cause a temporary raise in the value of the pound but it will add to commodity prices, further stifle investment and in the medium to long term cause further deterioration in the pound, further rises in unemployment and a worsening budget deficit - this has been the situation since the early '70's.
"-----------------------------------------------------------------------
Do all the Ms indicate this?
I would have said our current inflation is ALSO caused by:
1. Rising cost of commodities,"
And this is global, stopping ALL UK demand will not affect this, thus raising interest rates is not an answer.
"
2. Taxation,
"
This causes a temporary spike which will be massaged away.
"
3. Bonus culture, and
"
The infeasibly rich paying themselves more than they earn and then needing to find something to do with it - stuffing it into commodoties and property.
"
4. Our Government's response to Global Warming {not the tax element} and its effect on essential costs.
"
The governments response to everything is clearly without proper consideration. Apart from yelling pointless and mindless abuse like school kids in a playground the 'professional politicians' have no ability to think, debate or consider the effects of 'policy' and because of this no ability to be swayed from their mistaken paths.
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As I read it, it has already dawned on our great leaders that there are two major holes in Plan A. The first is that they may be able to generate a 5+% increase in tax revenues this year through tax increases but for their deficit reduction figures to match they are going to have to create similar revenue increases year on year until 2015.
That means economic growth of the order of 5% a year (hence the sudden interest in a growth policy -which they don't have).
Alternatively, it could mean inflation boosting tax revenues (and thereby inflating away the debt): but that requires inflation in incomes (and so income tax) and spending (and so VAT revenues). However, as Mervyn King observed wages are not inflating and people hav eless spending power. And so it is gradually dawning on people that this is a squeeze and inflation offers no easy escape (without a spiral of wage inflation leading who knows where).
Plan A will not work. Plan B will require a massive investment in productive sectors (manufacturing etc) that will generate the wealth to pay off our debts and support our standard of living. At present, this is not happening - because those with money to invest see a better/safer return in commodity speculation and the Far East: because people have become accustomed (and eductated) to a lifestyle based on consumption rather than production; and because anything we might want to make is already being made somewhere else and it is cheaper to import it than to build a plant to make it.
Here is the legacy of the decisions taken in the 1980's to let so much of our manufacturing base go to the wall.
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Nationalise protected benefits from everyone's contracted out pension funds - the government (us) paid them so return the sum , I reckon worth £300billion.Give everyone the universal pension as compensation.
This off the national debt will save say £15billion in interest per annum - use this to boost the economy.
National debt reduced , boost to GDP and jobs.Just a thought.
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Commodities and energy are inflating rapidly in price for the simple reason of demand and supply. Additionally we are forced to extract ever more expensive fossil fuels due to depletion of the cheap readily available stuff and the same goes for mineral and metal ores. Economists and politicians have to face the reality that a rising world population, and in particular a rising aspirational and more affluent population in the BRIC countries and OPEC countries will pace ever more pressure on these globally traded commodities.
This will lead to a reduction in availability of such basics for everyone including us in the West who must suffer a reduction in our living standards as a result.
Until the world plans seriously to reduce the population growth and turn it negative and live more sustainably and simply which means trade more locally and on a smaller scale we risk nature choosing harshly for us.
We may not like the idea that one day growth of consumption has to come to an end but not liking it doesn't change the reality of our finite world.
When economists and politicians start to talk about societies based on less consumption and growth and tackle the urgent thinking on job sharing that will be required to prevent massive social breakdown in the real finite world we live in the better for us all.
Exponential growth is only possible until you hit the limits of finite resources to empower that growth. This we are doing right now and the sooner we wake up and accept it the better.
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@43 My recommendation, you and most Brits are going to hate:
Stop sitting on the fence and fully commit to the Eurozone IF for no other reason than several economic brains are better than what I'm seeing out of Britain. Get your best & brightest economic minds into key EU positions. Be part of the solution and not part of the problem. Share the benefits. In case you didn't notice, the Euro is beginning to settle very very nicely; it has turned the corner.
I think the best option is entirely the opposite. The eurozone brains appear to be little better than ours (and frankly my goldfish has more brains than our entire house of commons combined). The reason to pull out of europe entirely is the money it will save us. First in the money we annually sink into the sorry mess - most of which finds its way to organised crime, second because of the extra costs we impose on ourselves in eurolegislation that everyone else routinely ignores and finally because from outside we can trade on at least as favourable terms without any of the pointless paperwork (China trades very well with the EU as just one example).
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BEWARE OF ASSET DENYERS!
HMG owns UK Financial Investments - which is now worth £75 Bn - this comes from its share and loan portfolio to the UK banks.
As last year's UK borrowing was £110 Bn, the NET position is that UK PLC borrowed only 5% of GDP last year when you count in the £75 Bn ASSET of UKFI which can be sold off to repay the debt when it is the right time.
Unlike Greece, Eire or Portugal, we have this MAJOR ASSET and the market knows that shares in the UK's leading banks are valuable - so our credit worthiness is fundamentally different - and the market sentiment reflects this.
I am not a "Deficit Denyer" - but neither am I an "Asset Denyer" - yes we need to do something about the deficit, but to claim that a major reduction immediately is an essential pre-requisite to economic growth is simply not true.
"Ordinary" government borrowing is to bridge the gap between tax income ad public spending - you cannot claim that a huge investment in shareholding and loans is "ordinary" it is a unique event that should be seen as such.
To take £110 Bn out of the economy on top of the falling living standards we already have and then to predict growth is economically illiterate and the idea that hacking back public spending will stop it "crowding out" the private sector which will then grow is also economically illiterate because this would only work if the spending cuts were then redirected into the private sector through tax cuts - this is not the case.
Therefore GO doesn't have a creible Plan A let alone a Plan B - and the people in the OBR that go on claiming there will be 2M new jobs, £400BN investment in industry and UK exports up by a third are looking pretty isolated as the CBI says there is no viable plan for growth and the IFS is sounding the warning bell.
Job loses in both the public and private sectors are accelerating rapidly and consumer confidence and spend is going into reverse - this will shrink tax take and drive up welfare payments, causing UK PLC to go further into debt as has happened in Eire - it is self-delusion on a grand scale by the ConDems - never let reality get inthe way of a good political dogma!
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6. At 4:18pm on 02 Feb 2011, anotherfakename wrote:
2. Taxation,
"
This causes a temporary spike which will be massaged away.
----------------------------------------------------------
This is a misconception about tax originated - and even any originated - inflation.
Because a tax spike drops out of inflation indices after a year, people think it's OK, it's gone. Uh uh, it's still there in an inflated economy. The only way of massaging away inflation is deflation. Or, as I prefer to call it in the present economic climate - negative inflation.
But with some taxation it's actually worse than that. Both NI and the Fuel Duties have unpleasant circulatory effects, especially in the public sector. For example, both have an effect on Council Tax.
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40. At 2:59pm on 02 Feb 2011, Reticent_Trader wrote:
13. At 12:54pm on 02 Feb 2011, signoff wrote:
The BIG PICTURE is much more important concerning how this country of ours evolves. This government is
slowly creating a new workforce with lower expectations of pay levels and pensions which will enable us
(in time ) to compete with the rest of the world. Banking and other service industries (while important in the
short term,) cannot create long term employment for future generations. We must evolve and compete with
the rest of the world . This government, l believe,has set us on the correct course. A course we must hold fast to
or suffer a slow decline.
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It never ceases to amaze me this argument by the capitalists that if we get poorer through either a) lower expectations of wages and pensions or b) devalue the currency then this will somehow achieve economic "recovery".
So the choice is either: lower wages or suffer a slow decline?
It looks like lose/lose to me to be honest.
As Orwell said: Poverty = Wealth!
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The reason that it can lead to economic recovery is that it leads to a measure of lower costs for business. However if you have raging, or even more modest, inflation at the same time that will cancel out lower labour costs. In addition, if you have to support increasing numbers of unemployed and an increasing group of pensioners with benefits you have to raise taxes which can have a negative effect on recovery.
This was the big lesson of the 1980's but the Petroleum Revenue Tax Cavalry rode to the rescue of HM Treasury and we did not have to really learn it. That will not happen again. The rescue bit, that is.
And where there is some scope for increasing taxes by fiscal drag, stealth or new taxes, the Government/Treasury can prompt the recovery to take place. One of the many motives for the introduction of the Fuel Duty Escalator in 1992/93, I suggest!
That is why Dave & GO make me nervous. I have not seen any sign that they know about the lessons of the 1980's and '90's, let alone have learnt them.
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The budget will be very green and consumption will decrease as I won't be using my car, buying petrol, taking it to the garage, paying road tax or reinsuring. And I'm over the moon.
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#38 Up2snuff. Sure rising commodity prices add to inflation, but ask why commodity prices are rising.
Look at oil 1873-2002 long term average oil price USD 17/bbl (in 2002 money). What happened for that price relationship to breakdown so sudddenly and so completely?
Look at rice futures at or near limit up pretty much every day. Ask why. Surely it cannot be a load of fat cat bankers suddenly starting a rîce eating competition.
The UK has its own particular idiosyncracies, but none of that explains raging commodity price inflation. That is explained by excess money printing which will soon leave large amounts of people unable to afford food.
The money printers know all this, yet still they print. Ask how John Paulson raked in a modest 5 billion last year. Yeah that¨s right, he was fully invested in commodities.
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what a load of rubbish..all osbourne and the rest of them are worried about is screwing us for the maximum possible, all this green stuff is garbage.
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At 1:53pm on 02 Feb 2011, richard bunning wrote:
"Allowing sterling to fall by a third improves our terms of trade making exports cheaper and imports more expensive”
I assume that the use of “terms of trade” was an error and should have been “balance of trade”. This however does provide the opportunity to address the often neglected cost to the economy as a wholw of a currency depreciation. A fall in the exchange rate means a deterioration in the UK’s terms of trade because the same slice of our national cake exported will now earn less foreign currency than before and will therefore pay for fewer imports. If we wanted to maintain the same level of imports we would have to give up via exports a much larger slice of our national cake. This can be likened to the effect of my accepting a cut in wages to stay competitive in the labour market because this will lead to a deterioration in my own household “terms of trade”. This is because every hour of labour “exported” from my household would now pay for fewer “imports” of goods and services into my household. This would mean a deterioration in my standard of living unless I was able to “export” more labour by working much longer hours to maintain my “imports” of goods and services at their original level.
So a fall in the exchange may eventually improve the balance of trade but in the meantime the deterioration in the terms of trade will impact on living standards. As we know the cost in terms of falling living standards are unlikely to be evenly distributed. Of course a higher volume of exports will hopefully increase total employment but only if the extra jobs exceed those lost through cuts in government spending and falls consumer spending.
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Green budget?
Is that what they're calling this,they need to get this global warming nonsence out of their head its all lies! wind turbines are being pulled down because they cost more money than they save,carbon credits is a scam why not introduce mandatory co2 scrubbers on chimneys if your that bothered. I cant even afford to run my car now with all these increases Insurance,TAX which doesnt even get spent on roads I think it goes to offset our emissions? thats what i can work out because a smaller less polluting car is FREE.
Anyway the route of our money problems lies with the BOE why does the government LEND money off them? thats right all our income taxes go on feeding the ever growing INTEREST to their own bank becuse it went from private to public ownership in 1946? so are we paying interest to ourselves or is it still really private shareholders? WHERE IS ALL THE INTEREST GOING
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51. At 5:22pm on 02 Feb 2011, richard bunning wrote:
------------------------
May I add a small point please,
The BoE has about 24% of the current debt on its books. All the interest paid is re-circulated to the Treasury.
To scare us into submission, GO quotes the largest gross figures that he can. Never, the real figures. Its misleading
It would seem sensible to me for the BoE to stop taking on debt in any other currency than the £ sterling as they are. Its utter madness to borrow in other currencies.
Also you write "...the idea that hacking back public spending will stop it "crowding out" the private sector which will then grow is also economically illiterate because this would only work if the spending cuts were then redirected into the private sector through tax cuts - this is not the case."
I broadly agree that there is no chance of crowding out over most of the economy with such a high level of unemployment and underemployment. The country has a lot of unused capacity. The private sector will invest and grow when it sees it has a market somewhere for its output. The banks will lend the money when they see low risk propostiions before them. Stephanie stated "even though - as I have mentioned many times here - many companies are sitting on plenty of cash." My interpretation is that current policies from the condems is such that industry see investment as a risk and the banks see making loans in many cases as too high a risk, even if there is collateral. All points to there being difficult times ahead.
Really rather worrying!
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Perhaps we could experiment with becoming a green eco-communist country? But instead of enduring years of sabotage and ridicule from the capitalist world we could just negotiate ourselves the freedom to be different ...and other countries could take our current population who don`t fancy the idea?
No rushing about selling chinese rhubarb high on coffee while neglecting your kids...lots of recreation time..what`s not to like...comrades?
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31. At 2:07pm on 02 Feb 2011, Up2snuff wrote:
2. At 12:06pm on 02 Feb 2011, nautonier wrote:
The only source of additional govt revenue that is now available is in the contentious area of 'modern selective protectionism' (MSP) ... which none of of our gutless politicians seem able, willing and competent to discuss ... never mind even think of pursuing.
The choice is stark ... take the tens of billions of £'s that are easily available in MSP and effect strong rebalancing forces in the UK economy, as a result... or watch the country grind to a halt and the anarchists come out on the street ... and plan the date for the next general election as political strife makes the Coalition govt unworkable as Lib Dem politicians resign as the economy nose dives... and a pattern of economic stagnation becomes further entrenched.
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- Good questions -Uptosnuff
The big question is:
How long do you think the revenues from those MSPs would be available for?
.....................
Depends on which ones of the thousands of British import items that the MSP is applied to ... some for a matter of months or seasonal such as the import of in-season food that is available in Britain ... 5-10% tariff on the importer/importation. Remember that not eveything is tariffed ... requires very careful targeting to get the maximum desired benefits.
4 x 4 and other high end fuel guzzling vehicles ... permanent - say 20-25%% tariff on the importer/importation
Basic foodstuffs such as meat, poultry, milk ... 10-20% on the importer/importation
Finished electrical goods ... 20% + whereever possible
Every product imported to the needa looking at and not every import should be tariffed and some tariffs on many items can be zero or even just 2-3% where it is economic to tariff.
Obviously, those imports such as commodities and where demand is such that there are no UK alternatives due to e.g. patent restrictions etc need not be tariffed as their tariffing might be inflationery in the UK economy... obviously to be avoided and be left alone.
......................
And when would the retaliatory measures from the rest of the world (in a globalised economy) take to kick in?
.......................
ANSWER ... they already have ... the UK is already paying rigged prices and export tariffs from the producer on some products and some products are pushed at us through currency subsidies in the country of origin.
We pay rigged prices on imported fuel and energy and supermarket food on basic dairy foods as the price creep supermarket cartels rip us off every time we go shopping.
If the UK can play the game and not over do it and bring in fair trade arguments and principled protectionsism on e.g goods produced cheaply overseas with e.g child labour and zero employment right conditions ... then tariffs can persuade importers to import less, retailers to buy British and British businesses to spot the new margins and banks to lend to them as they never miss a real opportunity.
So the 'retaliatory fears' that the frightened rabbit syndrome attitude naysayers throw around is unproven and unfounded ... because selective tariffing has never been applied in the UK as far as I know and the world trade organisation is a complete waste of time and their are thousands of protectionist breaches occuring globally every day ... probably 30% - 50% of world trade is not fair trade or free trade and is therefore protectionist with currency and subsidy props etc.
Tariffs, if well chosen can be immensely powerful if say 80% tariff on all imported electrical private road vehicles by 2018 and 50% of UK private road vehicles to be electric by 2018 ... what do you think would happen to the UK vehicle manufacturing of electrical vehicles during the next several years?
Some countries might retaliate but so long as the UK protectionsim is proportionate and not unduly discriminatory and is not excessive ... no one will bat an eye and the markets will just adjust and swallow the tariffs and behaviours of e.g. importers, retailers and consumers would be changed.
It will be difficult for many to retaliate against Britain as foreign countries like some of the things that Britain does actually produce ... armanents/ordnances, RR vehicles, RR engines etc. Some of Britain's trading partners might object and some might not want a global review of their own human rights abuses in their manufacturing processes ... Britain might have to make some new friends and do less trade with others and look for alternative energy sources and technologies which would be a good thing for UK jobs, if sourced in the UK.
If we wish to have a completely open UK where only the global spivs and vested interests prosper - keep Britain open and exposed and unprotected.
If we want a new stronger Britain with less choice in the shops but with a new stronger identity, where domestic aggregate demand is very high and innovators and new businesses are busy filling demand gaps and industry is training UK citizens for nee technologies, producing new vehicles ... then we become much more selective about our imports and start taxing what we should be finishing, assembling, designing and building, growing, making ourselves.
Retaliation is not the issue ... it is cowardice and self interest from the UK establishment that is the problem and prevents the UK from reinvesting itself.
We get smart and learn how to play and start the playing the game which is global trade and how to protect ourselves from its negative effects ... or we continue with the current economic decline (short medium and long term).
Now who was it? ... Who in 2007 said that Britain had a new economy based on services and finance?
Modern selective protectionsism need not only apply to trade ... it could also apply to e.g. finance ... credit card racketeering e.g. Uk consumers pay a lower interest rate on products 'made' in the UK
The effect on our domestic economy would be massive and imeediate and the revenue stream would be worthwhile in atime of budget costs ... this kills several vultures with one stone:
1) tariff revenue
2) rebalancing effects and redistributive forces and new UK business opportunities
3) changes behaviour
4) TARIFFS PAID BY THE IMPORTER AND NOT BY THE CONSUMER
5) immediate effects
6) etc etc etc
A completely open border Britain has brought our country to near catastrophe ... hard choices need to be made if Britain is not to become a very unpleasant place to be for those low earners/ earning less than say 120% of an average UK income.
There is no evidence or history of MSP having any serious negative issues with it if handled competently as it has never been tried/applied... everything needs 'competence' ... Is that now 'too big an ask'?
Britain can't just sit and do nothing choices have to be made ... we have very little in the way of natural resources ... our biggest export is now 'human rights' ... shove it down their throats and tell them all to make things properly and fairly and recognise the employment and other rights of workers or pay our higher import tariffs!
Other countries exporting to the UK do not treat and pay their workers properly and so their exports are cheap compared to our own high cost production ... we must level the playing field ... this is difficult, risky, etc ... but we have no choice unless the 'UK haves' and 'have nots' divide is going to get much, much wider in th UK and be huge problem going forward that makes the UK very near completely 'un-manageable'.
Our UK establishment are self interest cowards and bullies and things need to change.
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The economy cannot be balanced until property prices return to realistic levels, so I second previous suggestions for a property tax; NB: tax goes with the property, owner has to pay it irrespective of their nationality/domicile/cosy tax arrangements.
Probably best to go for a simple % of land+building(s) value, lets say 1% per year.
Discount/exemption for specific land uses such as commercial arable & livestock.
Target should for 3-bed semi-det house prices in an area to be ~4x average salary in that area, which I reckon is ~50% to 60% of current prices in most of the country.( yes, I do own a house )
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Why do people insist on using phrases like 'exponential growth'? The word exponential only matters if you decide to define growth in terms of a repeating number for a given discrete time period occuring again and again.
If the economy doubles over the next 20 years (doubtful) then I can express that as an exponential annual growth or otherwise - its just a way of describing the growth.
The important point is sustainability of any growth - how would we sustain a doubling of our economy based on current resources? What capacity is their to grow responsibly, fairly and sustainably.
Picking up on Richard Bunning's point on the £75bn asset with respect to nationalised bits of banks. That would save around £3bn in interest (based on 10-15 year borrowing costs) - thats quite a lot more than the difference in gilt yields compared to a year ago is saving us, although George O would have you think he's saved us from financial ruin (£200-£300m per annum based on 20-30bps difference on say £100bn of new borrowing).
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#32. My 7 year old granddaughter could tell you if people have less money they will spend less. Obvious really. Osbourne is more stupid than I thought if they don't realise that they are risking another recession.
Well it depends where you look. The other day Sky announced record numbers. Now surely if you are short of money you don't spend £60 a month just to watch extra TV channels? And why do I not observe any real difference in the speed of motorists on the motorway, when you can get 10%-15% better fuel economy by slowing down to closer to 60mph?
The answer is that our country is splitting apart at the seams. There are millions to whom £60 a month for Sky is loose change. And millions for whom £60 extra is needed just to provide the basics of existence.
Much is made of the very extreme end of incomes (like the footballers), but the real challenge in this country is that a family with 2 professionals in it can live in the same neighbourhood as another family, with such difference in standard of living it is almost as shocking as what is seen in 3rd world cities. In the one family they have 2 new cars every few years, foreign holidays, and all the rest of the middle class trappings, and the other is near destitution, with almost no prospects for a better future.
This is why I am so frustrated at all the media focus on meaningless stuff like "we grew by 1%, or shrunk by 0.5%". Both these growth figures are pitiful when you consider we are borrowing at least 9% of our GDP. So we are killing our futures and that of our children, for very very little return.
I see practically no actions being taken to stop the splitting of our society into the desperately poor and the comfortably well off. The first step must be to stop the outsourcing of jobs to factories in eastern europe. It must be worthwhile to give tax incentives to make it worth creating local employment.
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Do you remember prime minister John Major's fateful speech in 1993? He boldly claimed then that the Pound Sterling was set to become the 'strongest currency in Europe'. Because of the resolute Tory policy!
That hilarious claim sparked the City revolt that devalued that so-called 'strongest currency' as investors all over world sold off sterling - because they thought the Tory Government had finally lost its marbles.
Cameron was the Chancellor's adviser then - his only proper job outside being a Party hack - and he may still have bitter memories of those disastrous times. He ought to think on that disaster because that's where we're going.
It's the same old obstinacy. Because it's hurting, they think it must be working. Well it is hurting. And the people are reacting to that. Loads of people are alarmed by their rhetoric and are paying down their debts as a defence against their expected drop in income and/or loss of employment. Companies are not investing. Instead they're building cash reserves to survive the recession they sense is coming. As a result, consumer spending and business investment are spiralling downwards with serious consequences for jobs and tax revenues.
But only here in Britain. Because only here, have we got the same myopic rulers that made such a mess of economic policy throughout the 1980s and early 1990s. And that left us with rapidly declining essential services and massive interest pay-outs on government debts almost twice what we pay even today. Unemployment exceeded three million and the cost of supporting that army of unemployed and early retired was staggering.
As in the early '70s and in the early '90s, this Tory Government is trying to change to their ideological aim of less public services and re-balanced taxes onto spending and away from income taxes. But it's far too quick a prescription, and the policy's abrupt disruption to normal economic transactions is already showing up in our declining GDP whilst all other countries are already into expansion of trade and tax revenues. British policy failure will soon show up in falling tax revenues and mounting debts. That's why British families and businesses are cutting back!
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57 the dreaded Wiki defines "terms of trade":
"terms of trade or TOT is (Exports)/(Imports), or (Price Exports)/(Price Imports). In layman's terms it means how much is exported per import. "
To amplify what I said, for the ConDems a fall in sterling "impoves" our terms of trade because it means the UK could sell more overseas and afford less imports which they would see as a "good thing" because it would lead to an improvement in the UK's balance of trade - i.e. the net amount comparing exports to imports - at the moment significantly negative.
You quite rightly go on to point out that it's anything but "good" for ordinary people who find their money doesn't go so far and they must either cut back or find more cash from elsewhere to support their consumption.
So Mr Cameron's real proposition was this:
I will cut your living standards by allowing the Pound to lose a third of its value and hold wages down whilst making deep and proufound cuts to your public services which will significantly reduce your standard of living and quality of life.
I will do this on the false premis that the current level of UK borrowing is entirely due to the excessive spending of the previous government when actually I know that there is a massive asset in UKFI that balances most of this borrowing which was caused not by general public spending but by the credit crisis in the USA, that drove UK banks to the brink of collapse, leaving the previous government no choice but to intervene, borrow the money and recapitalise the banks.
Even though I can see that following this policy has driven Eire to the point of meltdown, I am going to do the same in the UK because this is too good an opportunity to implement our policies of rolling back the state because we are ideologically committed to private enterprise and shrinking the public sector.
Now - how many of us would have voted for this?
Nick Clegg, I suppose.....
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Richard @ 66
Nick Clegg would have held a placard with your DC proposition with the word NOT after every I WILL, in front of all the voters in the weeks running up to the election.
Then he would have voted for Cameron (again).
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67
I stand humbly corrected...
...he's too clever for me by 'alf, g'vnor.
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PLAN B
The oil tax.
It has been decided that our dependence on oil is a threat. Not only does the energy we need require a significant outflow of wealth, it funds societies that we fundamentally abhor. From America to Saudi Arabia, our oil money is blood money.
Let us stop this.
Within a time frame of two years we want a complete migration of our heating and transportation energy requirements from oil to wind, solar, and wave power.
This will be accomplished under the ambitious, and righteous, banner of a "War on Oil".
We will transform our entire energy infrastructure, our nation will be propelled from the 20th century to the 22nd century, and we will do this at any expense. Half our nation will be employed building this infrastructure, and the results will be complete self sufficiency and technology exports that few will be able to do without. The end result will be a transformation that will be the envy of the world. From poverty to science fiction fantasy, as Japan achievied in the '80's, a quantum leap such as this will not be repeated for decades to come.
We will suspend the usual methods of finance and accounting, just as we did in 1939, and we will emerge victorious.
THIS IS PLAN B.
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Although Plan A may not be popular, it is at least a plan. Deficit reduction makes perfect sense, so give it time (not just a few months)and Plan A will almost certainly have the desired efect.
But it is far too early to pass judgement on Plan A at the moment, other perhaps than on its popularity....
What we actually need, is for the Government to publish the National Deficit on a weekly basis, so we're all aware of how big it is and how much it has grown over the last few days.
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66
I agree with you. The whole thrust of Tory policy is to drive down wages of the mass of the population, sell-off state services in order to provide new areas of profits and so enable the govt to cut taxes on business and allow individuals to pick up the tab for their services and needs.
The Tories do not fear Ireland's example, they want to emulate it. It's a rehash of the policy in the 1980s.
as something else wrote above, this will only fuel more bubbles. People will have less money so are they to buy or rent houses, educate children, and provide a decent standard of living. only through credit, so the whole cycle starts again.
I wrote about it here last week after the gdp figures came out http://tinyurl.com/5toyusr
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#29 - crops for biofuels are a good idea.
NOO - they are a very BAD IDEA. They take up valuable space which could be used to feed a growing population - not to mention that they are horribly inefficient. The only real workable solution is algea based biofueld - which takes up about 1/5 the space of crop biofuels for the same amount - and they acutally produce OIL instead of ETHANOL (the difference in energy is hughe). And we also have a perfect space to grow algea biofuels - all the disused oil rigs that will come
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Stephanie,
when are you going to acknowledge something that has been going on for a while now, but the mainstream has only just picked up on. That is the size of things shrinking while the price staying the same.
I have mentioned before that inflation in the USA and the UK ignores the fact that quantity is shrinking!
Now even newsbeat have picked up on it:
http://www.bbc.co.uk/newsbeat/12346546
Yes according to inflation the chocolate bar is the same price. According to price per gram it is not. So now a chocolate bar has inflation of about 10%.
Now apply that to other products that are shrinking in quantity. Then apply the fact that GDP accounts for inflation.
Not only are the banks using accounting tricks to cook their inflation so are the worlds largest economies.
The USA GDP accounting for real inflation is hugely negative. I mean c'mon how can they say inflation is near 0 in the USA? What are they including housing prices?
Keynesian policies working well I see. Everything is the same price! They must be! Maybe in 2000 years time economists will understand the concept of relativity.
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70
What isn't being revealed is the profits flowing into UKFI that owns the UK's stake in the bailed out bank that makes up the majority of our current borrowing.
As the telegraph recently reported:
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8290819/Profit-rebound-for-UKs-big-lenders.html
UK banks are projected to turn in £24 Bn in profits, of which UKFI will get a large slice from RBS, Lloyds TSB etc.
THIS INCOME WILL OFFSET A LARGE PROPORTION OF BORROWING COSTS FOR UK DEBT!
The rebound of the banks will also mean UKFI will show a good profit on the investment, which can then be sold and the borrowing unravelled to reduce our debt dramatically.
UKFI is worth IMHO at least £75 Bn - our borrowing is £110 Bn - so if you discount this from the total, we are borrowing just 5% of GDP - so why is everyone banging on about debt?
You've been conned - there is no serious debt problem - it's a smokescreen to justify politically motivated spending cuts.
Oh, and the debt will grow because this slash & burn approach to public spending has damaged consumer and business confidence and will send the UK into another recession, so driving down tax receipts and driving up welfare payments - a totally self-defeating economic policy.
If you want to see the future, take a look at Eire - that's where we're headed.
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Why are we not investing enough in a "Green" future? Renewable energy including wind and solar is the future and the UK needs to be part of it. It will create new jobs, secure energy supply, ensure we dont pay for expensive oil and gas in years to come. It is the least cost option long term. So please let us see some political leadership and see the right policies for our future.
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74. At 10:34pm on 02 Feb 2011, richard bunning wrote:
If you want to see the future, take a look at Eire - that's where we're headed.
------------------------------------
Absolutely agree with this and many of your other points. Condem policies are going to be a disaster IMHO, even though the figures at the moment don't look too bad. I suspect they are going to turn sour over the next 6-9 months. The current policies are not going to help us, the people of this country. We all got mad at the politicians for their expenses. Perhaps we have run out of fury, because we should be feeling even more strongly about the disaster that is coming. Part of the problem is the media in general - they do not seem to see the downside at the moment. The only exception I have seen or heard was Paul Mason at the turn of the year on Newsnight who was very very gloomy, and nothing has really changed since then. Perhaps he has been asked to cheer up a bit!
I'm sure some in the city know what is coming, another recession; an open secret, not to be admitted out loud. Mustn't scare the masses, they might revolt........
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63. At 8:29pm on 02 Feb 2011, TheGingerF
Are you sure you understand the meaning of exponential?
I think you will find this: “The word exponential only matters if you decide to define growth in terms of a repeating number for a given discrete time period occuring again and again.” Is not correct!
“If the economy doubles over the next 20 years (doubtful) then I can express that as an exponential annual growth or otherwise - its just a way of describing the growth.”
ERRR…..No!
Try thinking about it this way:
I am a Gardener and I grow carrots. The first year I grow 1 carrot, in the second year I grow 2 carrots, in the 3rd 4 carrots, in the 4th 8 carrots and in the 5th year 16 carrots. If this was then plotted it would show an upward curve over time, with the slope of the curve increasing during time. So over 5 years I have had an exponential growth of carrots.
I may get this bit incorrect because it has been 30 odd years.
If you now transfer this exponential line on to log paper you get a straight line and hence you can project it forward as a function of time and predict your expected growth of carrots. Then along comes a speculator and says I’ll buy that predicted growth off you for £x and then bets (hedges) that I will not make the expected yield.
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This is not at all how the BBc reported the IFS report at 1800 or 2200 hrs tonight - they seemed more interested in reporting the critisism of the Government not having alternate plans, or not explaining them well enough. This sort of selective reporting happened all the time with the last Government too:
1. If you cannot report a balanced story, why report anything at all?
2. If you cannot report without political bias, then we don't need you; or need to pay the entertainment/information tax you demand, do we?
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...so if 70% of the UK workforce is in the Public Sector (which is paid for by Taxes), and 30% of the UK workforce is in the Private Sector (which pays those Taxes into the economy), it appears we are completely stuffed.
Apparently if every house in the UK was sold it would not repay the national debt, so is worrying about the minutiaea of a possible "Plan B" even relevant to the economy?
The UK Economy seems to be a completely closed debate between the bankers (who's only interest is their profit) and politicians (who's only interest is self-aggrandisement), with no relevance to UK productivity, Employment levels or Export potential, and this article appears to illustrate that, the author having simply copied verbatim the comments and reports of others, with no diagnosis or questioning at all, in fact it reads like the minutes of an an AGM.
No wonder the World Economy is stumbling, if it is supported by simple "Yes People".
Production and Export is the mainstay.
Look at China, for example.
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#79 Katsu999,
Your workforce calculations are very simplistic and are in fact wrong. If 70% of the UK workforce is in the Public Sector and 30% in the Private Sector then we would have achieved the holy grail of full employment - yipee!!! Did you forget about the 2.6 million unemployed (soon to rise dramatically) and the estimated 7 million 'economically inactive'?
You then assume that the Public sector workers are merely a cost in tax terms on the private sector employees. Trouble is the majority of public sector workers are engaged in activities upon which the private sector employees require (directly or indirectly) to perform their work and living activities. So your simplistic 'cost' calculation is again misleading in its simplicity.
I fail to see the relevance of the value of UK housing stock in relation to the National Debt. Can you please be more specific?
"Production and Export is the mainstay.
Look at China, for example."
Here again your statement is just too simplistic. Whilst productive employment is one of the keys to future balancing of the economy, that is a very different objective to mere bald production. The requirement for the future wellbeing of the UK economy is to completely re-evaluate what we mean by productive activity ie the very essence of work. Is it really feasible to increase volumes of output with fewer workers?
As for China then we are now starting to see the cracks appear in the supposed invincible model. Perhaps you would like to consider the G20 thinking about surpluses. You may also like to look at the latest comments about Chinese inflatioary bubbles.
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Thank goodness for some cautious rationality from the IFS to offset the codswallop from Balls and Blanchflower.
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69. Oblivion: A nice sounding idea but think of the ramifications and the lack of abilty of "alternative" fuel sources to replace oil for transportation, plastics, fertiliser etc. Electric cars are a non starter. The materials used in batteries are even more rare than oil and much more expensive. Then you've got to handle the huge costs of recycling their toxic contents after 5 years or so of use.
No our whole leveraged society (in terms of population and the industrialised agriculture and distribution that supports it) is enthralled to oil.
I challenge anyone to explain thoroughly an energy source that can viably replace oil whilst maintaining anything like our stated requirements for economic growth year on year (avoiding the word exponential).
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#44 bryhers
...To march behind a banner of fixed principles is a throwback to the age of ideology which ended recently with the defeat of Hitler ansd collapse of communism.
It is happening here accompanied by nostalgia and victimhood,(Our children will pay).This is an indication of the depth of the capitalist crisis rather than the merit of the proposals.
..or perhaps it's indentical to the German and French approach - 'We will defend the euro at any cost' to a far greater economic crisis with potentially far greater consequences.
In other words, it is to engender confidence that the politicians really do believe in the solution. Confidence being a prime market commodity.
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At 9:06pm on 02 Feb 2011, richard bunning wrote:
57 the dreaded Wiki defines "terms of trade":
"terms of trade or TOT is (Exports)/(Imports), or (Price Exports)/(Price Imports). In layman's terms it means how much is exported per import. "
Sorry to be pedantic but I’m not quite sure why Wiki is using (Exports)/(Imports) as a measurement of the terms of trade. If this is referring to the respective total values of goods exported and imported then if the answer is greater than 1 then it simply tells us that the total value of exports is greater than what we pay for imports i.e we have a surplus on our balance of trade and the size of that surplus in relation to the import bill.
It is (Price Exports)/(Price Imports) or to be more precise (export price index)/(import price index) x 100 that is used to measure movements in the UK’s terms of trade. The depreciation of sterling would have reduced export prices in terms of foreign currencies while raising the sterling prices of imports already being pushed up by the boom in world prices for commodities, energy and basic foodstuffs. So a fall in the “export price index” combined with a rise in the “import price index” will mean a fall in the terms of trade index and more has to be exported to pay for imports.
Unfortunately there is no guarantee that this worsening in the UK’s terms of trade and the subsequent fall in living standards will achieve the prize of a significant improvement in the balance of trade. It all depends upon how sensitive is the overseas demand to our lower exports prices and the UK’s response to higher import prices. Given the make up of the UK’s imports the demand for them is likely to be relatively insensitive to higher prices while non-price features will also be important in supporting the export opportunities provided by the fall in sterling.
Any major turn around in the UK’s balance of trade will come mainly from rising unemployment, falling real incomes and consumer confidence that further deflate the economy. The state of the domestic market will also force UK producers to devote more resources to developing export markets. However I suspect this particular aspect of rebalancing the economy via belt tightening will take considerably longer than the government anticipates and the price in terms of falling living standards will be considerable.
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#82 Sage_of_Cromerarrh
...Electric cars are a non starter. The materials used in batteries are even more rare than oil and much more expensive. ...
Perhaps not ...the Chinese have managed to push battery technology in a different direction. Most batteries currently use lithium ion which is both expensive, rare and not particularly green. BYD have developed battery technology that uses ferrous ion, which is both plentiful and cheap...
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#80 foredeckdave
...Trouble is the majority of public sector workers are engaged in activities upon which the private sector employees require (directly or indirectly) to perform their work and living activities....
'The majority'... Then why do we need the others ?
I work in the public sector, lest you think me biased.
At last count there were 6 million or so (http://www.statistics.gov.uk/pdfdir/pse1210.pdf) public sector workers - counting local council; civil servants; NHS, etc. You think we need them all ?
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69. At 9:41pm on 02 Feb 2011, Oblivion wrote:
PLAN B
The oil tax.
----------------------------------------------
One of the annoyances to the major Gulf oil producers is the way the UK Government 'milks' their oil for tax. For a particular reason they consider it unfair and hypocritical. Some of the extreme ones would like to use it as an excuse for cutting off supply to the UK.
The current prices of oil and the near availability of electric cars that can be used between, not just within, cities will mean a major jump to personal electric vehicles in this decade. The oil tax source from transport could dry up very quickly.
The UK as a small country can support a gas network for heating and your proposal could create a new 'dash for gas' that may have difficult consequences. And make us more vulnerable to supply problems.
As for renewables, we do not yet have an acceptable way of dealing with much of these and merely insist on big, highly susbsidised schemes for turbines (needing more money from the taxpayer) that spoil our countryside and coastline.
So, dumping a load of extra tax on oil (we did that in 1992 and look at what happened) would mean that not only would your PLAN B became instantly obsolete, PLAN C - PLAN Y would not work and we would be on to PLAN Z ...
..... ZZZzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
I would suggest as a way of getting our economy moving:
PLAN A - PART2: Cutting tax avoidance schemes severely, making it much harder for UK resident high-earning workers to avoid tax or avoid paying at the set rate - with - existing avoidance schemes such as ISAs maintained and enhanced to encourage saving among the lower paid.
PLAN A - PART 3: Cutting fuel duties steadily to cut inflation (helps to maintain Council and other employment, makes business profitable, etc., etc.,) adding the tax lost to higher tax bands further up the income scale
PLAN A - PART 4: Wholesale tax reform. For example, scrapping NI (especially Employers NI) and rolling it into income tax. Moving the total tax burden a little further up the scale with extra bands and some adjustment to help the 'squeezed middle'.
There is no reason why GO could not make a start on this at the next Budget.
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82. At 07:36am on 03 Feb 2011, Sage_of_Cromerarrh wrote:
69. Oblivion: A nice sounding idea but think of the ramifications and the lack of abilty of "alternative" fuel sources to replace oil for transportation, plastics, fertiliser etc. Electric cars are a non starter. The materials used in batteries are even more rare than oil and much more expensive. Then you've got to handle the huge costs of recycling their toxic contents after 5 years or so of use.
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The next generation of electric cars are due next year. The present ones start. Why shouldn't the new ones?
The other problems with using transport fuels as a tax sink are inflation, unemployment, depressed business growth and, eventually, a rush into an alternative. Whereupon the tax take from that source disappears. Currently we only spend about a sixth of transport taxes on transport in all its forms. There could be a £50bn+ black hole starting to appear in the UK Government budget in this decade.
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#86 Clive Hill,
"You think we need them all ?"
Just like you, I don't know. However, merely by privitising their activities so that they become private sector workers is not the answer.
As I go on to say in my earlier post, we need to look at the whole world of work and the value that the work has to the economy.
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"They think there's a roughly 1 in 5 chance of a double dip recession in 2011."
Really? I doubt if I'd be able to find a bookie who would give me odds as long as 4-1 on a double-dip. If I could I'd bet my house on it - if I had a house of course, which I don't, due to the ludicrous house price bubble which got us here in the first place.
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" 87. At 08:47am on 03 Feb 2011, Up2snuff wrote:
There is no reason why GO could not make a start on this at the next Budget."
Other than the small matter of political dogma.......
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"90. At 10:40am on 03 Feb 2011, davidbrent wrote:
"They think there's a roughly 1 in 5 chance of a double dip recession in 2011."
Really? I doubt if I'd be able to find a bookie who would give me odds as long as 4-1 on a double-dip. If I could I'd bet my house on it - if I had a house of course, which I don't, due to the ludicrous house price bubble which got us here in the first place."
I don't think we will see double dip - there may be the odd quarter here and there that turns negative but not consecutive - bumping along the bottom going nowhere that's the UK for some time.
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This comment was removed because the moderators found it broke the House Rules.
"While last week's growth figures were disappointing... any fiscal loosening aimed at helping the economy could be ineffective if it prompts an offsetting monetary tightening, and risks undermining investor confidence..."
Well we must keep these ‘investors’ happy at all costs! What more can we do?
- Withdraw all remaining forms of ‘welfare’ for working, or unemployed people, who have ‘net’ worth less than £250K (so that this can be more ‘effectively’ used instead to provide more ‘suitable’ levels of corporate welfare instead, for the Banks. So much for a ‘free market’ eh?)
- Abolish the NHS, the entire 'Public' Sector and state backed statutory education COMPLETELY etc and then offer this, from now on, to only those who can pay handsomely for it in the ‘magic’ of the ‘marketplace’… (After all it’s only ‘the super rich’ and the seriously well off who are ‘deserving’ and morally upright aren’t they?)
- Officially model the UK on the super doopa Authoritarian Chinese model (is it Communist? Capitalist? Corporatist? Dictatorial? Delete as applicable!). That model is just oh-so appealing and ‘growth friendly’ for our wonderful ‘investors’ to feast on some more. Anyone up for ‘work’ paying the princely sum of a dollar a day?
- Sacrifice the first born of every working class serf…
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Common_man @ 77
I am well aware of the mathematics of it all and how it can be applied in many walks of life.
In Economics its not a particularly good way of doing so.
Look back - if we have achieved a doubling of the economy over say the last 30 years - is that exponential? It is if after plotting the graph you then interpret it and communicate it in a certain way. Equally it could be shown to be a totally different progression altogether.
Anyone who decides to buy something based on exponential growth (unless of course there's an attaching guarantee) and prices accordingly has almost certainly misinterpreted their data.
We shouldn't buy into a view of the world based on some mystical definition of exponential growth.
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79 and 80 are very wrong.
Only 21% of our workforce is employed in the public sector. Not 70%.
Gracious, let's not build any more myths!
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#96 leftie,
I never said that 70% did work in the public sector. The label attached to work is unimportant. It is the value of the work that really matters and this is not being addressed.
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95. At 12:19pm on 03 Feb 2011, TheGingerF
Unfortunately my post 93 seems to have been moddied which could have help me to explain what I was trying to get across in post 77 but that’s life.
Would you agree with this statement:
Banks had to create more activity year on year to pay for the previous years plus profits?
If you do not then ok I have lost the argument, if you do then this is a good explanation of exponential increase.
So if in 2002 we projected this forward (which is the crunch of the original discussion) the crisis should have been foreseen. And if it was foreseen, why was it allowed to happen?
Curved line graphs can be plotted on different types of graph paper and they then produce a straight line (or best fit within a spread of results) this line can be project forward. I sell my carrots for a fixed price to a speculator, if the price of carrots goes up then I lose out, if the price of carrots goes down then I win. The speculator to protect his losses now takes insurance out against his losses. The speculator receives his bonus for the future activity. simples
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96. At 12:21pm on 03 Feb 2011, leftie wrote:
79 and 80 are very wrong.
Only 21% of our workforce is employed in the public sector. Not 70%.
Gracious, let's not build any more myths!
~~~~~~~~~~~~~~~~~
Back in September, someone posted these figures, with a reliable source.
I forgot the source. But the numbers make stark reading.
there are 62 Million people in the UK (refer to Government web site ONS) only 36.6 Million are of a working age.
7.7 million of these are economically inactive
7.2 Million work part time
6.65 million work in the public sector
That leaves 16.7 million in full time employment in the private sector.
i.e. 26% of the population are providing the profit to pay for the other 74%.
Is it still a myth?
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86. At 08:37am on 03 Feb 2011, Clive Hill wrote:
#80 foredeckdave
...Trouble is the majority of public sector workers are engaged in activities upon which the private sector employees require (directly or indirectly) to perform their work and living activities....
----------------------
'The majority'... Then why do we need the others ?
I work in the public sector, lest you think me biased.
At last count there were 6 million or so (http://www.statistics.gov.uk/pdfdir/pse1210.pdf) public sector workers - counting local council; civil servants; NHS, etc. You think we need them all ?
-----------------
Clive, I think we need EVERYONE employed. If the private sector will not employ them, then the government needs to be 'Employer of Last Resort'(ELR). I don't want to assume too much about your opinions about this, so I'll just make some statements which you may or may not agree with.
Long Term unemployment not only has devastating affects on those individuals who experience it, but significantly reduces the long term potential growth of the economy through "structural" unemployment. This can be resolved through a "Job Guarantee" scheme providing temporary work, paid at a reasonable minimum wage by the government, for anyone who wants the work - this keeps people in an employable state.
Further, the work does not need to be "profitable", only productive to achieve its aim. It can be accompanied by further training and eductaion - something the private sector is not willing to do normally.
Private sector 'employers' are often (though not always) the opposite of this, as they try to employ as few people as possible for as low a wage as possible - this is a perverse incentive inherent in the capatilist approach which must be off-set by government policies.
Kind Regards
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97. At 12:30pm on 03 Feb 2011, foredeckdave wrote: 96 leftie,
=========================================================================
In Northern Ireland the figure of direct employment by the public sector is over 30% however the combined direct and indirect is well over 50% and accounts for more than 70% of the GDP.
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#89 foredeckdave
Just like you, I don't know. However, merely by privitising their activities so that they become private sector workers is not the answer.
I didn't tell you the whole story. I am being privatised. Next month, I will be outsourced.
The private sector organisation put in a bid for our work (about 350 people are being outsourced) based on reductions in cost and numbers.
Now, I have my doubts about the efficacy of the whole plan because it seems to me the public sector cannot write a good contract.
Nevertheless, I welcome the prospect of becoming more efficient. I worked 36 years in the private sector and the last 6 in the public sector. The people I work with are like any others. We all pull together and we work well. The senior management are hopelessly inefficient, however.
To state the obvious - if private sector management is very poor, the company generally goes bust. The same is not true in the public sector and nor has it ever been. It shows.
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98 Common_man
Yes, I think I get it and I think it meets your point and mine. The latter - ill-defined exponential growth is unsustainable and so is destined not to work. It highlights the extreme dangers of short-termism over long-term planning.
Please believe me when I say I'm not trying to argue this in terms of a purely mathematical approach.
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#100 Charles Jurcich
Clive, I think we need EVERYONE employed. If the private sector will not employ them, then the government needs to be 'Employer of Last Resort'(ELR). I don't want to assume too much about your opinions about this, so I'll just make some statements which you may or may not agree with.
Long Term unemployment not only has devastating affects on those individuals who experience it, but significantly reduces the long term potential growth of the economy through "structural" unemployment. This can be resolved through a "Job Guarantee" scheme providing temporary work, paid at a reasonable minimum wage by the government, for anyone who wants the work - this keeps people in an employable state.
Further, the work does not need to be "profitable", only productive to achieve its aim. It can be accompanied by further training and eductaion - something the private sector is not willing to do normally.
Private sector 'employers' are often (though not always) the opposite of this, as they try to employ as few people as possible for as low a wage as possible - this is a perverse incentive inherent in the capatilist approach which must be off-set by government policies.
Before my current employment, I was unemployed for 2 years. It was certainly horrible. I could act as though I was retired because I still had a mortgage. For one reason or another there was little prospect of selling my house and the situation got more and more financially desperate.
So - in principle I agree that we should have paid employment for everyone if it is possible.
The problem seems to be in the magic word 'flexibility'. It seems to be difficult for people to move rapidly between, say, contract work and unemployment benefits. That is vital because in the modern world a lot of work is ephemeral.
It is also a strong belief of mine that the public sector is inefficient. As far as possible, those employed in this way should be employed in the private sector.
Of course, the private sector will try to exploit this for financial gain and that must not be allowed to happen.
I believe Iain Duncan Smith is an innovative thinker in this area - as is Frank Field - so I hope they come up with something good.
This seems to be an intractable problem but I hope it gets resolved.
People work for money, yes, to a certain minimum. Mostly they work for job satisfaction. It is important to the well-being of all of us.
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101. At 1:09pm on 03 Feb 2011, you wrote:
97. At 12:30pm on 03 Feb 2011, foredeckdave wrote: 96 leftie,
=========================================================================
In Northern Ireland the figure of direct employment by the public sector is over 30% however the combined direct and indirect is well over 50% and accounts for more than 70% of the GDP.
Sorry I should have made it clear that these are based on the total population and not those of working age.....
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#80 it about time we had a blog on the 7 million economically inactive and the millions of non UK nationals that are here doing that work at slave labour rates and what that REAL cost has been over the last 10 years. Then take that out of the Debt figures and see how better placed we would have been, to fact the recession , ah but alas the BBC does not like to talk about that having any negative impact
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#92 for another 10 years at least
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95. At 12:19pm on 03 Feb 2011, TheGingerF wrote:
We shouldn't buy into a view of the world based on some mystical definition of exponential growth.
-----------------------------------------------------------------
Right on. I suggest steering a wide course around any web-sites that purport to be on economics but use, in all seriousness, the term 'exponential growth'.
Other than purely as an expression of speech, that is. ;-)
Do you agree, John-from-Hendon?
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91. At 11:11am on 03 Feb 2011, StartAgain wrote:
" 87. At 08:47am on 03 Feb 2011, Up2snuff wrote:
There is no reason why GO could not make a start on this at the next Budget."
Other than the small matter of political dogma.......
---------------------------------------------------------------------
True. Very true.
First clues in seven weeks time, less a day ...
Time for some lobbying, methinks!
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#102 Clive Hill,
"To state the obvious - if private sector management is very poor, the company generally goes bust. The same is not true in the public sector and nor has it ever been. It shows."
If only that were true. There are very many sectors in which poor management is the norm.
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re #99
Stillpuzzled old thing, it's much worse than that:
Out of 62million, half are too mean to pay.
Out of 31 million half are too poor.
Out of 15.5 million, 15,499,998 are in need of benefit themselves.
So to earn and pay tax - that leaves just thee and me ...
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103. At 1:14pm on 03 Feb 2011, TheGingerF
One of the problems is that it is not purely mathematical and relies on judgement and interpretation and not all interpretations are equal which depend upon some ones bias of a given situation.
But if it be seen that the trend as a given direction then this should start ringing some bells and you are correct in saying “It highlights the extreme dangers of short-termism over long-term planning.”
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104 Clive Hill,
I agree with the bulk of what you said, though in my experience many private sector companies are also very inefficient too.
Referring to your comment:
"The problem seems to be in the magic word 'flexibility'. It seems to be difficult for people to move rapidly between, say, contract work and unemployment benefits. That is vital because in the modern world a lot of work is ephemeral."
The Job Guarantee scheme already takes account of the ephemeral nature of work:. Anyone who makes an appointment to work an assignment, and shows up for that assignment - even if they normally have a part-time job - gets paid the minimum wage to do that assignment. This includes contract workers with no current contract, and people who are not working enough hours. If the government fails to find work for you, then they would also be obliged to pay you the minimum wage.
A Universal Credit is also helpful, but excessively coercive systems are a failure to treat adults as adults, I think.
Kind Regards
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#111 Up2snuff,
I pay tax as well so that now makes 3 of us :)
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It's not wage levels that make the UK uncompetitive. It's the costs and barriers created by strictly national legislation. Our north west european competitors face the same EU legislation we do, have higher worker living standards and less worker protection. Yet they compete.
Put the blame where it lies, legislation that is out dated and/or gives "something for nothing" to important sections of the electorate and/or is the underpinning of business models of small but loud sectiors of the UK economy.
Planning, employment agency law, etc.
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114. At 2:00pm on 03 Feb 2011, foredeckdave wrote:
#111 Up2snuff,
I pay tax as well so that now makes 3 of us :)
----------------------------------------------------
Wahaaay. A 50% increase! Whoopeeee!
Who else can we recruit? Let's go 'exponential' ...
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106. At 1:29pm on 03 Feb 2011, IR35_SURVIVOR wrote:
#80 it about time we had a blog on the 7 million economically inactive and the millions of non UK nationals that are here doing that work at slave labour rates and what that REAL cost has been over the last 10 years. Then take that out of the Debt figures and see how better placed we would have been, to fact the recession , ah but alas the BBC does not like to talk about that having any negative impact
...............
Or the need for an 'equality audit' on the abuse, discrimination and contempt shown by most towards the 'category of persons' ... generally the 'UK unemployed' and the lack of training programmes enabling their fair competition in respect of the number of available jobs in their own native country of their birth.
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116. At 3:04pm on 03 Feb 2011, Up2snuff wrote:
114. At 2:00pm on 03 Feb 2011, foredeckdave wrote:
#111 Up2snuff,
I pay tax as well so that now makes 3 of us :)
----------------------------------------------------
Wahaaay. A 50% increase! Whoopeeee!
Who else can we recruit? Let's go 'exponential' ...
~~~~~~~~~~~~~~~~~~~~~~~~
:)
no...that would be an inverse function (y = A * 1/n) and we would get a "law of diminishing returns".
Oh no...I'm coming over all pedantic...what have you done?
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to even it up a bit
I do not pay Tax! NO! I am not a banker
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"110. At 1:40pm on 03 Feb 2011, foredeckdave wrote:
#102 Clive Hill,
"To state the obvious - if private sector management is very poor, the company generally goes bust. The same is not true in the public sector and nor has it ever been. It shows."
If only that were true. There are very many sectors in which poor management is the norm."
I would agree with the latter point - but in my experience in general it seems worse in the public sector. My take on it is usually down to the prevailing cultures as much as the individuals themselves and why they end up where they are.
There seems to be little reward for applying logic and solving problems in the public sector for fear of recrimination if something goes wrong even if it was being tried for the right reasons. In public sector procurement no one seems to challenge the cheapest option default - I know that many hide behind the 'well we went for the cheapest option' in the knowledge that it will protect them from criticism even if it turns out to be a bad choice.
Changing this culture would be a start and perhaps silence those who say the only option is to privatise everything.
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#120 StartAgain,
I have to agree with you. It amazes me that we continue to make such a hash of negotiating contracts in the public sector. MOD procurement in particular has been a classic example of how not to negotiate or manage contracts.
I do however, have some sympathy for those in the public sector when they are asked to negotiate contracts the aims and objectives of which are described in very loose terms. It really does require a culture change.
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120. At 3:56pm on 03 Feb 2011, StartAgain
I have had little experience with public sector management so I can only relate to private sector management.
A chargehand/supervisor/foreman in general is not seen as ‘management’ and in the majority of cases are promoted because they have the biggest mouth or fists as well as some knowledge. I have seen this time and time again. And in many respects the workforce expect this?
Most of the time management training is reserved for middle management and I split these into two categories 1) promoted one level above their optimum level or 2) new recruits. Both of these carry their own baggage, been there done it, I don’t need showing or I’m qualified so I can do it? There is a third section which crosses 1 & 2 and it is those that see it as a few days out every couple of months or so, a bonus if you like.
Upper management are so preoccupied that they cannot see what’s going on?
I have had some dealings with head teachers/care home/NHS bottom management and as yet I still cannot discover the criteria for promotion, speaking the spiel seems a prerequisite. I will add that school management training is becoming the norm.
A radical reform is not required. What is needed is Education particularly with regards to responsibilities that come with the role.
Management training was becoming important until funding was removed by GB and placed in other sectors as new money.
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re #118
You may wish to invert your function and are at liberty to do so but I was thinking ...
2+1 then +2+4+8+16+32+64 ... and so on, therabouts-ish.
At the present time we are taking people (VAT + indirects excluded) out of tax while making others pay more than their due while yet again letting others have too much of an easy ride.
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Clive Hill and Up to snuff: The batteries used by the Chinese still require lithium (expensive and not plentiful). They are good for about 1500 recharges (five years typically) and then they are a pain to get rid of afterwards. If we try to scale this technology up to the volumes of petrol and diesel cars (or even 20% of it) worldwide we won't be able to for the reasons of cost and availability of the raw materials to make the batteries. Hence my comment that as a substitute for oil in transportation it is a non-starter.
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123. At 5:06pm on 03 Feb 2011, Up2snuff wrote:
re #118
You may wish to invert your function and are at liberty to do so but I was thinking ...
2+1 then +2+4+8+16+32+64 ... and so on, therabouts-ish.
~~~~~~~~~~~~~~
Sorry, I was having a lighthearted day. No smilies in Beeblogs.
==============
At the present time we are taking people (VAT + indirects excluded) out of tax while making others pay more than their due while yet again letting others have too much of an easy ride.
~~~~~~~~~~~~~~~
Totally agree. Squeezing the middle is bad for the UK. It kills aspiration for teh majority of the population. (The famous benefit trap)
However, given the numbers above, even if we re-jig the domestic taxation, how are 26% supposed to pay for the other 74%?
I like your suggestions that we reduce the cost of doing business through re-balancing taxation, but where is the demand going to come from to pull a larger proportion of people into profitable work?
Maslow etc.
Demand in the UK is quite close to satiation.
Rest of World plc either do not need or want or else they cannot afford what we make.
This is why I don't think "full employment" can ever be a sensible Government directive. Nor do I share the enthusiasm for "Job guarantee schemes. I have been on one of those a long time ago, and it was just as demoralising as being unemployed.
Spending one's day in the government's employ, making things that we were not allowed to sell, for fear of being "unfair competition" with the private sector was no fun at all.
Night Night
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stillpuzzled,
"Demand in the UK is quite close to satiation."
No, "demand" means demand backed by cash!
The "demand" is there, it's just not backed by cash.
Demand in the UK is restricted by the fact so many people cannot afford the things they used to buy, as they have either incomes that are too low, or they have no job. Another primary reason is that so many of them are paying down their debts that they have little cash left over to spend. The deficit has to be maintained to fill the spending gap whilst the private sector pay-down their debts.
Do you actually think that evryone has everything they need and feels "satiated"?
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stillpuzzled,
"This is why I don't think "full employment" can ever be a sensible Government directive. Nor do I share the enthusiasm for "Job guarantee schemes. I have been on one of those a long time ago, and it was just as demoralising as being unemployed.
Spending one's day in the government's employ, making things that we were not allowed to sell, for fear of being "unfair competition" with the private sector was no fun at all."
You clearly did not get the support and additional training that Job Guarantee is intended to provide - yet presumably you found it easier to get another job, given you had had work experience recently - perhaps you would have rather have been unemployed.
Back then of course, when you went on this scheme, presumably in the 70's there were actually more jobs then.
Yes, lets just leave people to long-term unemployment (not), so that whenever they go for a job, there will always be someone with more recent experience than them - being eternally stuck at the back of the queue!
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126. At 6:02pm on 03 Feb 2011, Charles Jurcich wrote:
Do you actually think that evryone has everything they need and feels "satiated"?
-----------------------------------------------------------------
Dear Charles,
Yes. It is possible. For some. For many, even.
Yours,
Snuffy
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#121 foredeckdave. No-one "makes a hash" of negotiating contracts in the public sector.
These contracts do what they are designed to do - namely transfer wealth from the many to the few. Principal recipients of such largesse include arms manufacturers, big pharma, IT and business consultancy providers.
It just suits the purposes of the oligarchs to have a cadre of second rate "public servants" handing over public money to oligarchs. That way they neatly avoid being fingered and their paid lackies in the media can generate a snowstorm of misinformation and misdirection.
As with most things it is very simple - follow the money and you will find the lie.
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What are the priorities for 'training' people in the UK:
1) Foreign students who have no right or need to be here
2) Rehab criminals who have been on drugs or have committed serious or lesser crime.
...
...
Somewhere down at the bottom ... well at the very bottom ... well actually most of them get no training at all ... are the millions of British workers without employment.
Equality audit? Where's me equality audit ... where are the loudmouths screaming 'equality audit' when they are really needed?
Some local councils are sacking refuse collectors so that their jobs can be given to rehab criminals!
I'm not sure about a green budget ... it sounds like we may be in for another 'Psychadellic budget'.
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#126
Exactly, but it seems the US is seeing some growth..
http://www.bbc.co.uk/news/business-12360031
Mastercard chief executive Ajay Banga said that in the US, spending on necessities like groceries was above pre-recession levels.
But spending on big-ticket items such as furniture and white goods did not show much improvement.
.................
The UK will no doubt follow, but this 41% increase for Mastercard is the opposite of recovery. Inflation is now forcing people back into using credit cards, scarily for day to day living as the increase in grocery spending confirms.
Whatever the UK does it will in be in vain. The US economy is collapsing and it will take ours with it.
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nautonier,
"1) Foreign students who have no right or need to be here"
Foreign students are being used to fund our universities (well the legit ones are), but there is no reason the government cannot fund higher education entirely. Yes, I suspect they are sucking up alot of the available seasonal work at the very least.
Charlie
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#108. Up2snuff wrote:
"Right on. I suggest steering a wide course around any web-sites that purport to be on economics but use, in all seriousness, the term 'exponential growth'."
Language is wonderful thing where words often mean entirely different things to different people!
Economics has always been 'grounded' in fantasy, to a certain degree. (Real!) economists do not use the term 'exponential growth' if they have any grasp of the meaning of the mathematical concept - but so many haven't. I believe that it is possible that in certain schools of economics it is even frowned upon to understand number at all!
Many economists do live in a fantasy World - it is our present tragedy that so many of these have secured safe jobs as regulators! (Sticking the bayonet in and twisting!)
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132. At 7:38pm on 03 Feb 2011, Charles Jurcich wrote:
nautonier,
"1) Foreign students who have no right or need to be here"
Foreign students are being used to fund our universities (well the legit ones are), but there is no reason the government cannot fund higher education entirely. Yes, I suspect they are sucking up alot of the available seasonal work at the very least.
Charlie
............
Hi Charlie
Yes - its a moral question of fairness but also one of economic efficiency for British human resource... if a British person has lost his/her job through the downturn and is wondering whether he/she can fund ALL of their son/duaghters costs at college and university ... the least our govt can do is give their children the same help that many of my generation received from state education in funding our University training as in the 1970's.
Many of the 'education deniers' are from highly privileged backgrounds and went to independent schools (although one or two of them might have received an old fashioned 'LEA grant' of some sort) and for one reason or another - these kind of concerns do not seem to register with our current political class?
The other answer is less University places but with more apprenticeships and corporate training IT, engineering etc for British citizens as a legal requirement on UK plc (and with tax and other subsidies in compenation)?
Cheers
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134. At 9:10pm on 03 Feb 2011, nautonier wrote:
----------------------------------
I fail to understand the government's logic on education. We need an educated workforce. It needs high skills as required by industry for the jobs they have to do. It is the governments responsibility to ensure that industry has access to the recruits it needs. The government should be listening to industry to identify skill shortages now and those coming in the future over the next 30-40 years. It should be planning to ensure these needs are met.
The government accepts the need to train and educate children up to the age of 18, but tertiary education seems to be different in their mind; but why? 50 years ago many of industry's needs could be met by children leaving the education system from the age of 15. Times having changed, meaning that children need to get further qualification. So why shouldn't the government pay at least the tuition fees and support the centres of further education? Many will argue that it cannot be afforded. I suggest to all that we cannot afford to exclude anyone because of finance at this critical age. They must be afforded if this country is to have the skills needed.
It does not seem to me to be an accident that so many from other countries are now running British companies. Those coming out of education in the 1980's should be in line for these jobs now. It suggests that the education system changes, started in the 1970s and accelerating in the 80-90s are to some extent responsible. The deficiencies of education then are now being felt by our industry. Little has changed to improve things.
By being educated by the state we will maximise the human part of our country's productive potential by ensuring that all children have the choice, and are not limited by their lack of finance. All governments have failed in this vital area. This is the real intergenerational effect. We are ensuring our country's future under-performance. This ensures we are poorer than we should be, both now and out into the long term future.
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Seeing that the IFS is getting a plug, how me adding an extract from a recent mailing from them about a forthcoming lecture.
....
Policy Analysis with Incredible Certitude (a Leverhulme Lecture by Charles Manski)
....
Analyses of public policy regularly express certitude about the consequences of alternative policy choices. Yet policy predictions often are fragile, with conclusions resting on critical unsupported assumptions or leaps of logic. Then the certitude of policy analysis is not credible. I develop a typology of incredible analytical practices and gives illustrative cases. I call these practices conventional certitude, dueling certitudes, conflating science and advocacy, wishful extrapolation, illogical certitude, and media overreach.
Paper: http://faculty.wcas.northwestern.edu/~cfm754/policy_certitude.pdf
....
The paper by Charles Manski, in the above link, is probably worth a read by our learned contributors.
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#135, SleepyDormouse,
Sleepy,
"The government should be listening to industry to identify skill shortages now and those coming in the future over the next 30-40 years. It should be planning to ensure these needs are met."
The government is listening and has reacted. It has produced countless millions who work part time contracts in supermarkets and other retail sheds - exactly what industry and commerce have demanded a compliant, low wage/low skill workforce.
Industry should also take a long hard look at itself when it comes to skills training. Where are the apprenticeships and day-release programmes sponsored by employers. In fact where is the investment from our major exporters? Let's face it they have had the biggest inducement of any sector with the 25% devaluation of sterling but chose not to seek new markets or penetrate existing markets (thereby increasing job opportunities) but chose in the main to protect margins.
We really need a combined effort of industry and government.
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Hi everyone, Thanks for getting me interested in macro economics here are some thougts about the current situation. Sorry they are a bit long but look forward to hearing opinions.
The current government financial situation requires reduction of the fiscal deficit in order to prevent public debt from getting out of control.
A significant amount of the money borrowed to contribute to the debt was used to bail out (purchase) RBS and Lloyds which the government currently holds and can be considered an asset.
One of the major contributors to the fiscal deficit is loan interest repayments to foreign countries and institutional investors.
It is therefore important for the government to keep the interest rate (yields) on these bonds as low as possible.
Over the past 12 months headline rates have fallen to below those of the USA and other developed economies, David Cameron cited this as evidence in support of the government’s fiscal policy. The recent publication by the IFS states that this reduction in interest rates is due in main part to historically low national interest rates as set by the BoE. However rates have not fallen by as much as would have been expected given how low interest rates have been. Despite the government’s commitment to public spending cuts investor confidence in government bonds has actually decreased.
Despite this the IFS states that the governments overall financial stability is relatively good in that overall it is ranked average in relation to other countries. Two areas of weakness were indentified. Firstly, the high level of the deficit which undoubtedly needs to be reduced along with public spending. Secondly the reliance of the UK on external debt, interestingly of the four countries highlighted – Greece, Ireland, Iceland and the UK the UK had the lowest government reliance on external debt and a proportionally high reliance of UK banks on external debt at 225% of GDP. Contrasted with government debt at 70% of GDP.
From this publication by the IFS (and Barclay’s capital) the banks balance sheets are actually proving a downside risk to the economy and increasing the interest rate which the government has to pay on its debt. Despite this the banks continue to benefit from the implicit taxpayer guarantee for any excessive losses (as well as creaming of a large amount of money in bonuses)
BoE monetary policy has increased the monetary supply with the hope of providing money for investment in the economy and growth. However this has not yet happened, a year since QE. Companies seem to have access to cash however lack any credible direction for investment and most of the money created by QE has not trickled down but been invested in commodities, building up bubbles (with possible influence on global political stability). There is low and decreasing consumer demand in the economy and lack of transport infrastructure and housing mobility to allow skilled labour force movement to areas of growth. Skilled workers are often older with families and home owners making movement through the economy difficult.
In the meantime there is little sign of increasing demand in the economy as most people are spending more money on essentials due to high inflation, no wage increases and paying down mortgages in the face of continuing uncertainty over their financial and employment futures (Government rhetoric doesn’t help with this!). Despite historically low interest rates much of the population below the age of 45 are recapitalising the banks through paying for the vastly inflated housing market over the past 15 years. This is true both of mortgage holders and young people forced to pay ever increasing rents to landlords.
The only people with any money to spend to create demand are those with the top 10% of wealth in the country however the wealth of the top percentile is so much greater than that of the rest of economy it is impossible for them to inject as much money into the economy as say the top 30% of earners spending 5% more. There is in effect a limit on how much money one individual can spend and these individuals tend to spend large amounts of money on things that do not trickle through the economy but tend to go to other high net worth individuals. This reduces the prospect of any consumer demand led recovery. This increases the upside benefit from any government spending on capital spending projects (building schools??)
There is therefore a need to complete recapitalisation of the banks, reduce banks dependency on external capital, reduce the fiscal deficit (principally through holding down public sector wages) but improve infrastructure and improve mobility of the labour force within the country to facilitate private sector investment and create jobs. If there was ever a case for government to invest in capital infrastructure projects and act to reduce the cost of housing to improve workforce mobility it is now.
Without this mobility and infrastructure we risk never generating any further jobs, an L shaped recovery with increased unemployment and the final result of no net reduction in the deficit. The downside to this is that anything that reduces property prices will severely damage banks balance sheets with increased risks of future bailouts.
The government has to act to encourage investment and if this does not materialise then it must increase capital project expenditure to generate some jobs (and subsequent consumer demand) within the economy in order to restore investor confidence in the recovery both in terms of private sector companies investing to create jobs and in terms of international markets confidence in the governments ability to avoid a liquidity trap. In order to reduce the deficit this may necessitate further tax rises.
Alternatively interest rates should rise, the housing market must collapse and hence a bank may fail. We are led to believe that the second possibility is apocalyptic due to the interconnectedness of banks.
The other factor is the assets the government holds in terms of the nationalised banks. The governments preferred outcome for this will be to sell them off prior to the next election to reduce the debt and generate some political goodwill at a politically expedient time however this requires enough voters in middle England ( who would be targeted for this windfall) to have the ability to buy shares in these banks. Hence the government is front loading the cuts in order to (hopefully) generate some recovery in time for the next election. If the next election was in ten years would this government be pursuing the same cuts agenda now??
The chancellor however has nailed his colours to the mast of continued cuts with reduce capital expenditure and very little room for manoeuvre. If a plan B is deemed necessary I wonder if the Chancellor may find himself going down with the ship whilst Captain Dave continues with his reform agenda.
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#138 l33ds
All very interesting. You made a number of assertions in there, like:
Companies seem to have access to cash however lack any credible direction for investment and most of the money created by QE has not trickled down but been invested in commodities, building up bubbles (with possible influence on global political stability). There is low and decreasing consumer demand in the economy and lack of transport infrastructure and housing mobility to allow skilled labour force movement to areas of growth. Skilled workers are often older with families and home owners making movement through the economy difficult.
Do you have any references to back those assertions up ?
You also said:
Two areas of weakness were indentified. Firstly, the high level of the deficit which undoubtedly needs to be reduced along with public spending....
...and...
...If there was ever a case for government to invest in capital infrastructure projects and act to reduce the cost of housing to improve workforce mobility it is now.
If the government is to spend on capital infrastructure projects - which I agree would be a good thing - what should it cut to do it ? Or do you think there should be more Quantitative Easing ?
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#138. l33ds wrote: a long description of he current situation....
lest me look at some parts of your piece...
"Alternatively interest rates should rise, the housing market must collapse and hence a bank may fail." and earlier "BoE monetary policy has increased the monetary supply with the hope of providing money for investment in the economy and growth." and "There is therefore a need to complete recapitalisation of the banks."
If the monetary policy of the 'Fools' (giving the bank the right name) was right it would have worked in the couple of years they have been trying it, wouldn't it? So one has to reasonably conclude that it has failed and should be stopped. That means that the alternative must be what is left than we have to encourage (by raising interest rates) the housing market to fall to internationally competitive levels before economic recover can begin. So we have to look at resurfacing the banks, yet again - all the previous refinancing having been lost because the wrong monetary policy was being pursued by the Fools.
Interesting thing about growth and economic recovery: it needs those with money to feel safer and to get more from their savings before they spend - or at least that the outlook for savings and investment, but mainly savings, is more secure - this may explain why the Fools and HMG are both dismally failing to generate an economic recovery.
So what MUST happen is that interest rates rise.
(I've not been through the technical arguments that money needs to be worth a positive amount for either fiscal or macroeconomic policy to work - but I have previously presented a detailed analysis of this so I will not repeat it here.)
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#124 Sage_of_Cromerarrh
The batteries used by the Chinese still require lithium (expensive and not plentiful). They are good for about 1500 recharges (five years typically) and then they are a pain to get rid of afterwards.
You must be talking about different batteries from those I cited in the earlier reference. That reference says:
Most batteries currently use lithium ion which is both expensive, rare and not particularly green. BYD have developed battery technology that uses ferrous ion, which is both plentiful and cheap.
On recycling, if you look at this - which is about Warren Buffett investing $230m in this Chinese electric carmaker, it says (some way down the article) When David Sokol toured BYD's operations last summer, Wang took him to a battery factory and explained that BYD wants to make its batteries 100% recyclable. To that end, the company has developed a nontoxic electrolyte fluid. To underscore the point, Wang poured battery fluid into a glass and drank it. "Doesn't taste good," he said,
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#110 foredeckdave "To state the obvious - if private sector management is very poor, the company generally goes bust. The same is not true in the public sector and nor has it ever been. It shows."
If only that were true. There are very many sectors in which poor management is the norm."
#120 StartAgain
I would agree with the latter point - but in my experience in general it seems worse in the public sector. My take on it is usually down to the prevailing cultures as much as the individuals themselves and why they end up where they are.
You should understand that I start from the place where all people are pretty much alike. They may have different cultural backgrounds and so forth but they are broadly alike.
So the people I work with in the public sector are pretty much like those I worked with in the private sector. The difference is the way the system works.
There is a strong Darwinian influence in the private sector which I have seen close up many times. I have worked for two companies where annual waves of redundancies - typically among middle managers - were the norm. It was the only way they could survive in a competitive market.
By contrast in the public sector I have witnessed - for the first time in my long working life - departments actually working against each other. By that I mean that some departments had procedures to try to do things and another department had procedures to stop them. It is gobsmacking.
Now, I have a saying 'ambition replaces talent' so senior managers in both the public and private sectors are frequently lamentable. The difference is that in the private sector either the company goes bust or survival instinct kicks in at the director level and the manager is binned.
In the public sector, it appears, they move sideways or upwards after miserable failures. That brings me on to recruitment training - I am trained in recruiting - which is also gobsmacking.
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137. At 00:34am on 04 Feb 2011, foredeckdave wrote:
-----------------
Given things are as you say, then I agree with your post. However, it is the a sad reflection on industry and government for the way they are steering the economy and the type of workers they are producing. Its very short-sighted.
Given your points, I suspect that we are now in some sort of feedback loop in which the UK is seen, in the main, as a milk-cow. How do we break out of this?
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135. At 10:49pm on 03 Feb 2011, SleepyDormouse wrote:
134. At 9:10pm on 03 Feb 2011, nautonier wrote:
----------------------------------
I fail to understand the government's logic on education.
....................
I understand it ... it is the abject betrayal of millions of British 'have nots' by sucessive govts ... by those privileged education deniers ... the globalised, vested self interest rotten UK establishment ... champagne socialists included ... married to heirs of supermarket chains etc.
I find it quite disgusting.
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138. At 00:44am on 04 Feb 2011, l33ds wrote:
Hi everyone, Thanks for getting me interested in macro economics here are some thougts about the current situation. Sorry they are a bit long but look forward to hearing opinions.
...................
Besides the deficits ... Britain has several trillion quid in liabilities ... infrastructure, ageing, net immigration costs, defence, roads, sewers, energy & fuel issues, weak agriculture ... even fresh water is a problem going forward.
How does the IFS account for any of that? Where is the money going to come from without a dramatic decline in living standards for the 'have nots.
Big picture?
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re #133 With you there!
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#140 John_from_Hendon. On what basis do you conclude that monetary policy of the past couple of years has failed?
Current monetary policy is an essential tool of the policy aim to transfer wealth from the poor to the rich on a scale never before witnessed in human history.
The UK is only a bit part player in all of this, but the continued aggregation of wealth goes on unabated and, for the moment, mostly unnoticed by the indoctrinated masses.
Don't believe me? Take a look at commodity prices and ask why they are reaching all time highs. Ask why Jim Rogers now sees more profit in agricultural products than in precious metals. Ask how John Paulson reaped a modest $5 billion in the last tax year. Take a look at what is happening in Tunisia, Egypt, the Sudan, the Yemen and other places and ask why and why now. Take a look at the latest Standard Chartered report (hardly wild eyed commies are they) and ask if they know, how is it possible for Bernanke and his mates not to know.
There is no purpose in going on about interest rates. They are what they are and they will not change. Yes ultra low interest rates will result in a range of consequences that most people will consider negative or very negative. But that is not the point; the point is that those with their hands on the levers of power do not share this viewpoint and they do not care as to consequences.
The only way out is to save yourself. You don't like high house prices? Simple don't buy a house, or if you own a house sell it (after all you will get more than it is worth). You don't like low interest rates? Simple don't save any money in the form of cash.
You don't like the price of food? Grow some of your own.
There are plenty of ways out, but none of them have anything to do with complaining about things you cannot possibly do anything about.
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why after 13 years of education * 3 are we still "importing" many skills people to do the roles that the education * 3 should have provided.
Seems that there was another waste of vaste amount of tax payers money by New Labour.
There has been a survey of the effects/opions of the massive level of non Uk national and the effect on this country.
SF its about time we have a blog on the real effects of this in the last 14 years and how mouch this has had on the national debt in that 14 years and also on the social cohesence issues that will have cost a large amount too.
for example there are many HGV companies from aboard that are working over here with cheal labour and also ignore many camera prohibit areas
as the fine are not followed up because they are from aboard.
Yet a UK based company has to obey there or staff start to get many point etc and then cannot drive. Just an area where there are many problems. Also the UK recieves no Road Tax from these operators unlike the UK HGV firms
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A green economy will never flourish under a system of capitalism because the motive of profit is never going to be there.....and when it is reflected in a 'cost' - then it will be too late.
(by that I mean when production is impacted by severe weather patterns caused by climate change)
What I expect to happen (if we continue with capitalism) is some 'nice and meaningful words' will be said, but nothing tangeble will happen. Then when it's all too late the Government will need to 'take control' and impose restrictions on people's consumption, production and pollution. These measures will be severe and vastly unpopular - and they will need to be imposed from the barrel of a gun.
This is because self interest ensures that people won't take climate changes seriously until they can 'touch and feel' it - but by then it will be irreversible.
I don't know the timeframe for all this - but I certainly hope it's after I die as the world will not be a nice place. However it's a real shame that a future generation will be probably be the last on this planet and they will know that we had the power to prevent it and did nothing....simply because it didn't affect us at the time.
...it makes me think that earth, man and everything is all a giant experiment by some alien force who want to see if "this time the little people get it right" - maybe venus is the previous attempt at this, which we failed, and now we're being tested again.
A bit fantastical - but at least it gives me hope that the self indulgence of the majority will only end the human race....and not all life in the universe!
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There are no options left to save the economy. Capitalism is failing before our very eyes. Just look at todays business news stories....
Mastercard 41% increase in profits, due to increase on grocery spending but not white goods or electronic goods. This alone proves the debt bubble is inflating again as expendable income is eroding.
Personal insolvencies in England & Wales at new high. Cadburys downsizing. Car sales fell by 11.5%. One in five workers fear the sack....all bad news, all evidence that our so called recovery is faultering even before the austerity measures have kicked in...
However we do have positive news
0.8% rise in house prices screams the headline, then you read the story and see how headlines are misleading. Infact since last year there has been a 2.4% drop and has only increased 0.8 on the previous month but is expected to dip.
LMVH - The luxury goods company sees record revenues in 2010....so the plutocracy that our economic system supports is spending some of OUR money on luxury items. I suppose they are doing their but by supporting trickle down economics. I fail to see how rich people spending money in rich shops, whos owners aspire to be rich themselves, expect this money to trickle down. All it means is this money stays locked into the rich economy of the city.
Roseneft (Russian oil company) profits jump 64%. Similar story yesterday with Shell, and apart from BP expect all the oil companies to post records profits.
The only companies making money are the monopolistic ones controlling the energy, the monopolistic ones controlling the money and the suppliers of luxury goods to the employees of these parasitic industries.
The rich getting richer and the poor getting poorer cannot go on forever. Egypt and Tunisia are only the beginning and that unrest will spread here.
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142. At 10:20am on 04 Feb 2011, Clive Hill
I would make the point that there is a massive amount of inefficiency in sacking staff (especially managers) - anyone who has taken over from someone else knows that it takes some time to imprint your own way of doing things.
...during this time the inefficiencies are rife.
As a lot of people do not stay in private sector jobs more than 2 years (my record is a mere 4 years, but I've never stayed anywhere else longer than 2.....and from my choice, not the companies) then the inefficiencies caused by the lack of continuity is frightening....and usually denied.
Although I don't condone people retaining their job when they are not up to scratch (in any sector) there is a lot of 'forgotten analysis' when comparing the two areas - this is because the public sector is accountable, to the public, usually through the press or Government.
However the private sector is almost totally unaccountable - or how else do you explain the disaster that is the finance sector where many people who led these companies into near-collapse are still operating at the top. Shareholders accountability is diluted, staff accountability is suppressed, consumer accountability is reduced through monopoly and the Government won't hold it to account because of it's own political fears about freedom.
I mean look at Lloyds - what have their shareholders done to show the board is accountable for the total destruction of earnings - absolutely zero (except for a few small fish who are treated as a bit of a joke)
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