[No, but seriously guys] The Economy.
Jul. 23rd, 2010 10:28 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
davywavyI haven’t written much about the new government. The problem they’ve presented me with is that although the last incumbents were horrifyingly awful they were at least a comedy goldmine and in terms of sheer laughs Brown, Prescott, Blair, Blunkett and pals were just the gift which kept on giving, so with the recently election we’ve gone from having Barry Chuckle in charge of the economy to someone who appears to actually understand the use of a calculator and the guffaws have dried up somewhat as a result.
Anyway, I was on the way home from work the other night when I saw Vince Cable go past in his ministerial car. It’s one of those London moments when you become aware that you’re close to the heart of government and the world is busily going on around you – I don’t expect people living in Edinburgh get the same, if any, thrill from seeing Alex Salmond – and it also got me thinking.
Vince looked his usual grim self. I used to think that his expression was an indicator of how well the coalition government was going, but I’ve changed my mind now and just think that he pulled his worried face one afternoon and the wind changed. I don’t know where he was zooming off to, but he certainly looked jolly serious about it; presumably he had his metaphorical mop and bucket in the back of the car with him and was off to clear up a tiny bit more of Gordon’s Mess.
I’d been talking to clients earlier in the day and the dreaded words double-dip came up. The idea that the any recovery might be short-lived and the UK economy will slip back I to recession. For my part, I think any signs of growth have been massaged and we never came out of recession in the first place. Any suggestion that we did was a useful political fiction for all concerned because if it hadn’t then whoever was in government would have had no choice but to admit it was definitely, absolutely a depression – and that wouldn’t help things at all.
For me, the big fear before Browns inevitable defenestration at the election was George Osbourne. The Conservatives had kept him in a cupboard for the two years previous and the only conclusion I could draw from that was that he was such a colossal liability that they didn’t dare let him out. In this I’ve been subsequently surprised, or perhaps relieved, in that he’s thus far been not utterly hopeless and so several orders of magnitude better than his recent predecessors. Certainly the budget sent the right sort of messages to the global economy and forestalled the Chinese from calling in our debt for the time being, which was what was needed at the time, but for Osbourne, Cable and their various gnomes attached the treasury the work really has only just begun.
There’s something I tend to boast about. Back in 2005, way back when The Guardian was describing Gordon Brown as “Economically Aware and Business Friendly” and there was a legion of his cheerleaders on LJ only too willing to shout me down, I predicted the crash for pretty much the reasons it ultimately happened. Although in retrospect I’d rather have been wrong, I’m pleased I did because seeing it coming allowed me to make provision by clearing all my personal debt and essentially putting my head down to wait for the bang - and the unrealistic overconfidence in my own economic abilities which that prediction gave me meant I got to thinking about the economic hole we’re in, and what might be done to overcome it.
If you read the usual commentators on the economy, the left wing ones are calling for bigger taxes on the rich and the banks, and the right wing ones are calling for a slash and burn policy on the public sector as if either of those courses of action are some kind of magic bullet which will make the future a bright and glowy one for all concerned. Of course, it’s that sort of economic short-termism on both sides which let the crash happen in the first place. For the taxing the evil rich and bankers crowd, the big problem with their idea is that it just doesn’t seem to be possible. By way of example, no UK government has ever managed to raise more than about 40% of GDP in tax. Even in the high-tax-happy days of the 95% tax rate the take never once inched over that magic 40% rate, and by rights Gordon’s taxation system should have generated 43% but never got anywhere close to that number as it just becomes more costly than it generates to enforce tax rates over a certain level. This is especially a problem as we’re currently taking 40% of GDP in tax and spending 49%, which is about as unsustainable as it gets without turning into Zimbabwe.
On the other hand, slashing the public sector is only possible to a certain point; Cameron has denied that his ‘Big Society’ is a method of telling people there’s no money. In truth, it doesn’t matter if it is or not as there isn’t any money and there’s no more forthcoming whatever the truth is. Moreover, just to get back within our means will entail 20% lower government spending and the trimming in the most recent budget is just that – trimming.
The biggest problem is that the Elephant in the room isn’t being addressed – sorry guys, but the welfare state is rapidly becoming unaffordable. It was a great idea when the wealth of three continents was pouring into the treasury, everyone died pronto at 65 and there were only 4 people unemployed in the whole country, but these days it has become unsustainable. Right now we’re paying something like 6.5 million people to sit round doing nothing at a cost of getting on for a hundred and fifty billion quid a year, and the options for changing that are slim: employing them in the public sector just reduces the treasury reserves even faster. Keynesian stimuli during a downturn is a fantastic idea but it is predicated on running up a surplus when times are good, which is something that spectacularly failed to happen and that means the resources for spending our way out of trouble are limited to say the least.
The big problem is one which was predicted by Freidrich Hayek more than fifty years ago – combined a welfare system with open immigration and you sow the seeds of your own destruction, as welfare provision in one place is always going to be more generous than working conditions in another and this will result in skilled migrant labour and a rise in the numbers supported on the welfare system. Add to this a minimum wage which effectively makes it illegal to employ anyone whose work is worth less than £6.20 an hour and you end up in an economic hole and a rise in Nationalistic politics by people who blame immigrants for their being on the dole - say hallo to the BNP and their one million votes in the last election.
All that the above results in is the people whose work isn’t worth very much either being unemployed or employed in the public sector, where paying people more than their work is actually worth can be better hidden right up until the economy hits the buffers.
What needs to happen is to get those people on benefits off them and into the private sector and fast, but the chance of doing that is limited as well…
Reducing the state take of the economy to stimulate private sector employment is the preferred solution of the right and probably stands the best chance of getting us out of the hole, but there seems to be a considerable amount of willful blindness about the scale of the budget deficit and just how much it is possible to lower taxes without defaulting on the debt. Cutting Employers NI payments and Corporation tax sent a nice message, but it was a drop in the ocean and doing more than that simply isn’t possible.
This is the problem which faces the coalition; the choice between the devil and the deep blue sea. Raise taxes and stifle real recovery rather than make-believe government stimuli which just postpones the problem and makes it ultimately worse, or cut public spending hard and risk civil disorder. I expect George Osbourne and Vince Cable to age very badly over the next five years. I don’t envy them. More later.
Anyway, I was on the way home from work the other night when I saw Vince Cable go past in his ministerial car. It’s one of those London moments when you become aware that you’re close to the heart of government and the world is busily going on around you – I don’t expect people living in Edinburgh get the same, if any, thrill from seeing Alex Salmond – and it also got me thinking.
Vince looked his usual grim self. I used to think that his expression was an indicator of how well the coalition government was going, but I’ve changed my mind now and just think that he pulled his worried face one afternoon and the wind changed. I don’t know where he was zooming off to, but he certainly looked jolly serious about it; presumably he had his metaphorical mop and bucket in the back of the car with him and was off to clear up a tiny bit more of Gordon’s Mess.
I’d been talking to clients earlier in the day and the dreaded words double-dip came up. The idea that the any recovery might be short-lived and the UK economy will slip back I to recession. For my part, I think any signs of growth have been massaged and we never came out of recession in the first place. Any suggestion that we did was a useful political fiction for all concerned because if it hadn’t then whoever was in government would have had no choice but to admit it was definitely, absolutely a depression – and that wouldn’t help things at all.
For me, the big fear before Browns inevitable defenestration at the election was George Osbourne. The Conservatives had kept him in a cupboard for the two years previous and the only conclusion I could draw from that was that he was such a colossal liability that they didn’t dare let him out. In this I’ve been subsequently surprised, or perhaps relieved, in that he’s thus far been not utterly hopeless and so several orders of magnitude better than his recent predecessors. Certainly the budget sent the right sort of messages to the global economy and forestalled the Chinese from calling in our debt for the time being, which was what was needed at the time, but for Osbourne, Cable and their various gnomes attached the treasury the work really has only just begun.
There’s something I tend to boast about. Back in 2005, way back when The Guardian was describing Gordon Brown as “Economically Aware and Business Friendly” and there was a legion of his cheerleaders on LJ only too willing to shout me down, I predicted the crash for pretty much the reasons it ultimately happened. Although in retrospect I’d rather have been wrong, I’m pleased I did because seeing it coming allowed me to make provision by clearing all my personal debt and essentially putting my head down to wait for the bang - and the unrealistic overconfidence in my own economic abilities which that prediction gave me meant I got to thinking about the economic hole we’re in, and what might be done to overcome it.
If you read the usual commentators on the economy, the left wing ones are calling for bigger taxes on the rich and the banks, and the right wing ones are calling for a slash and burn policy on the public sector as if either of those courses of action are some kind of magic bullet which will make the future a bright and glowy one for all concerned. Of course, it’s that sort of economic short-termism on both sides which let the crash happen in the first place. For the taxing the evil rich and bankers crowd, the big problem with their idea is that it just doesn’t seem to be possible. By way of example, no UK government has ever managed to raise more than about 40% of GDP in tax. Even in the high-tax-happy days of the 95% tax rate the take never once inched over that magic 40% rate, and by rights Gordon’s taxation system should have generated 43% but never got anywhere close to that number as it just becomes more costly than it generates to enforce tax rates over a certain level. This is especially a problem as we’re currently taking 40% of GDP in tax and spending 49%, which is about as unsustainable as it gets without turning into Zimbabwe.
On the other hand, slashing the public sector is only possible to a certain point; Cameron has denied that his ‘Big Society’ is a method of telling people there’s no money. In truth, it doesn’t matter if it is or not as there isn’t any money and there’s no more forthcoming whatever the truth is. Moreover, just to get back within our means will entail 20% lower government spending and the trimming in the most recent budget is just that – trimming.
The biggest problem is that the Elephant in the room isn’t being addressed – sorry guys, but the welfare state is rapidly becoming unaffordable. It was a great idea when the wealth of three continents was pouring into the treasury, everyone died pronto at 65 and there were only 4 people unemployed in the whole country, but these days it has become unsustainable. Right now we’re paying something like 6.5 million people to sit round doing nothing at a cost of getting on for a hundred and fifty billion quid a year, and the options for changing that are slim: employing them in the public sector just reduces the treasury reserves even faster. Keynesian stimuli during a downturn is a fantastic idea but it is predicated on running up a surplus when times are good, which is something that spectacularly failed to happen and that means the resources for spending our way out of trouble are limited to say the least.
The big problem is one which was predicted by Freidrich Hayek more than fifty years ago – combined a welfare system with open immigration and you sow the seeds of your own destruction, as welfare provision in one place is always going to be more generous than working conditions in another and this will result in skilled migrant labour and a rise in the numbers supported on the welfare system. Add to this a minimum wage which effectively makes it illegal to employ anyone whose work is worth less than £6.20 an hour and you end up in an economic hole and a rise in Nationalistic politics by people who blame immigrants for their being on the dole - say hallo to the BNP and their one million votes in the last election.
All that the above results in is the people whose work isn’t worth very much either being unemployed or employed in the public sector, where paying people more than their work is actually worth can be better hidden right up until the economy hits the buffers.
What needs to happen is to get those people on benefits off them and into the private sector and fast, but the chance of doing that is limited as well…
Reducing the state take of the economy to stimulate private sector employment is the preferred solution of the right and probably stands the best chance of getting us out of the hole, but there seems to be a considerable amount of willful blindness about the scale of the budget deficit and just how much it is possible to lower taxes without defaulting on the debt. Cutting Employers NI payments and Corporation tax sent a nice message, but it was a drop in the ocean and doing more than that simply isn’t possible.
This is the problem which faces the coalition; the choice between the devil and the deep blue sea. Raise taxes and stifle real recovery rather than make-believe government stimuli which just postpones the problem and makes it ultimately worse, or cut public spending hard and risk civil disorder. I expect George Osbourne and Vince Cable to age very badly over the next five years. I don’t envy them. More later.
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no subject
Date: 2010-07-23 09:54 am (UTC)The unemployed being those who don't have a job and would like one now, please. There's probably more of them now, but they'll probably be on benefits for the shortest period of time.
The unable are those who can't work, through illness, disability etc. Benefits are all very well and good, but a sizeable number would probably *like* to work, if there were jobs that were suitable.
The unwilling are the kind of chav-tastic people loved by the Daily Mail. There are some people who would simply rather sit on their rears than go to work. Unfortunately, these are the same people who will spend a lot of time working out how to defraud tougher regulation.
I think the problem with the welfare system is that it makes it hard to get off benefits. Calculating if you will be 'better off' in work seems to be quite difficult. Dole vs weely wages is pretty simple, but the potential for losing council tax benefits, housing benefit, DLA, Income Support etc as well as JSA makes it seem as though the moment you get into work they are going to drop you cold.
As harsh as it may seem, a system of 'Do X or you lose your benefits' might be of use - getting people into volunteer work, even for a few hours a week provides CV experience and removes the 'or I could just sit on my arse at home' factor.
no subject
Date: 2010-07-23 10:04 am (UTC)If someone's work isn't worth £6 an hour then they won't be employed. This is directly leading to employers not taking on new trainees, but instead recruiting skilled migrant labour who are willing to work for that sort of money.
As such lots of unskilled people stay on benefits, not unwilling to be employed but effectively unemployable.
no subject
Date: 2010-07-23 10:13 am (UTC)What gets me is the situation a couple I know are in. She is disabled - she has huge internal problems which mean sometimes she can't physically get down the stairs. She has unassociated mental health issues; and associated depression due to the chronic pain. However, according to the disability allowance people she should be in work - so no disability allowance - because the doctor who assessed her , in spite of noting that she couldn't walk 5 metres or bend without being in agony, still ticked the boxes that said she was fit and healthy.
Her partner is working part-time as he's her carer. In theory they should get housing benefit. However someone is using his name to claim housing benefit in Newcastle. The benefits people refuse to do anything about it, because he's claiming housing benefit in Newcastle. This means that the benefits people are happy for fraud to be committed.
I agree that the unwilling should be penalized; mainly because they're so badly effecting the unable, let alone the unemployed.
no subject
Date: 2010-07-23 10:31 am (UTC)The problem with disability is that for the last 30 years people have been pushed onto disability to hide them from the 'official' unemployment figures, which has resulted in official unemployment being about 2 million but the total number of 'unemployed and claiming benefits' being over 6.5 million. That's pushing a quarter of the working age population and isn't economically sustainable, as we're seeing right now.
What this makes me think of is that on the wall of my dad's office there's a certificate from the 1950s stating that the company was a member of the National Scheme for the employment of disabled ex-servicemen. As far as I can make out, this scheme gave tax breaks per registered disabled ex-servive employee they took on. IMHO It would make a great deal more sense for a system like this to exist than the one we have now.
no subject
Date: 2010-07-23 10:42 am (UTC)no subject
Date: 2010-07-23 10:45 am (UTC)Either way is shouldn't make them unemployable.
I also agree with you re not working when you can. I never got into the position of volunteering when I was unemployed and job hunting - but had I not got a job rapidly when I last got made redundant I was going to look into it. Not least because damn me it's boring sitting at home all day.
no subject
Date: 2010-07-23 10:51 am (UTC)I can see both good and bad from this idea, but I bet it'll be implemented within this parliament.
no subject
Date: 2010-07-23 10:54 am (UTC)Generous welfare or migrant labour. They're incompatible.
I'll take migrant labour every day of the week.
no subject
Date: 2010-07-23 11:01 am (UTC)no subject
Date: 2010-07-23 11:06 am (UTC)no subject
Date: 2010-07-23 11:23 am (UTC)I also think open migration is an OK thing.
Prehaps the minimum wage is too high? 10,000 per year on 40 hour weeks, is £4.80ish per hour. It would make a vast number of different jobs avalible.
no subject
Date: 2010-07-23 11:30 am (UTC)They insisted that five million employed at £5 an hour was the only 'fair' option. Curiously, they also voted for Gordon Brown and were surprised when the economy collapsed. I think these facts may be related.
no subject
Date: 2010-07-23 11:47 am (UTC)no subject
Date: 2010-07-23 11:50 am (UTC)In real terms it matters not one jot what either of us think as it's going to happen anyway.
no subject
Date: 2010-07-23 11:53 am (UTC)A great example is that I was complaining to my brother (who lives in Lancaster) that there are lot of jobs I would be very interested in, but they tended to pay £12k or less (due to low hours etc). He didn't really see a problem with this because things are cheap 'up norf', but it would just about pay my mortgage (actually cheaper than renting) in Cambridge.
I do think its a bit strange to raise minimum wage *and* the income Tax threshold.
no subject
Date: 2010-07-23 11:56 am (UTC)I was very glad when Frank Field took the welfare job.
no subject
Date: 2010-07-23 11:57 am (UTC)Personally I think you should have to work for your money (including benefits) even if thats attending physio/psychotherapy, losing weight, going to school etc. to get you back into work.
That does of course require money to fund physio/psychotherapy, GP time to measure weight, extra teachers and so on so... back where we started.
no subject
Date: 2010-07-23 11:58 am (UTC)no subject
Date: 2010-07-23 12:00 pm (UTC)I guess they want to raise minimum wage to keep the taxes coming in, but I think the knock-on effect of the minimum wage going up might start to impact on the usefulness of paying less income tax as it may push prices up.
Of course, the other encouraging thing about the lib-dems was that they considered Mental health to be a 'front line service' but thats gone right out of the window.
no subject
Date: 2010-07-23 12:02 pm (UTC)no subject
Date: 2010-07-23 12:04 pm (UTC)This takes me back to the stuff above about employing the disabled. Perhaps a 'fruitcakes premium' on tax for their employers. I'm sure some spin doctor could give it a more press-release-friendly name.
no subject
Date: 2010-07-23 12:05 pm (UTC)You know all those people who kept right on voting Labour and claiming Brown had a clue? Do me a favour and punch them in the mouth, would you?
no subject
Date: 2010-07-23 12:12 pm (UTC)Having some kind of registration for 'employers who aren't dicks about disability' with a tax break would be a big step in dealing with the fear of going to interview and being asked lots of uncomfortable questions.
no subject
Date: 2010-07-23 12:13 pm (UTC)no subject
Date: 2010-07-23 12:15 pm (UTC)Its what I mostly think any time the shadow cabinet stands up to say 'see! They're doing it wrong!' at one of the coalition announcements.
Too soon Milliband, too soon.
Of course, Cameron's only real job is not to make an arse of himself during speeches and he seems to be having some trouble in that department at the moment.