Category Archives: economy

On The Collapse Of Our Civilisation, And More Cheerful Matters

So where are we today? (I did love the story the other day that NASA, I think, had detected activity in the outer atmosphere of Mars. A bit like the first chapter of HG Wells’ The War Of The Worlds. And a potential war between the nuclear-armed India and China. 2020 is truly the gift that keeps on giving, and we are less than half way through.)
Johnson has ended lockdown, effectively, because he thinks several hundred thousand more deaths will be less politically damaging than five or six million job losses.
Those job losses will be laid at his door because they would not have happened, thosee jobless will know, if he had not ended the lockdown. They will diminish that, to me, baffling popularity he enjoys among a proportion of the electorate who accept that bumbling, Billy  Bunteresque, fluffy haired persona he has constructed. (The reality is something much darker, as those who know him better than I do have written.) It will hit those people especially hardest in the former Labour constituencies that gifted him the last election.
Two hundred thousand deaths or potentially more can be spun away as an unavoidable sacrifice – “world-beating” efforts to combat the virus, the Olympic levels of lies and deceit we have seen so far. “Hundreds of thousands’” of tests each day. Demonstrably untrue. Just lies, in plain sight.
People want to believe Johnson because they do not want to accept they have taken in by the lies so far and been deceived. Confirmation bias, it is called.
Let’s move forward. Tory MPs know Johnson is leaking that baffling popularity that won him the last election like air from a deflating balloon. The Cummings affair only accelerated that. They will bin him when he is no longer able to win elections for them, they judge. Not long now.
No one wants to take over, even though, as I have suggested here, he might not want to continue. Get the next few months over, and let him and his advisers take the blame.
We face the twin effects of a virus-induced economic collapse, our national net worth down by a fifth as measured in terms of GDP already, and the aftermath of a No Deal Brexit, which looks like what will happen because madmen think it is a good idea and the hedge fund managers will benefit and make billions. Is this where you want to be, in a country run by the functionally insane and those who will become rich from your future misery? Answers on one side of the paper only.
Put those two together and think forward for a moment.
The consequences will be at best catastrophic. Five, six million unemployed, the end of whole industries, travel, hospitality, chunks of retail, commercial property now worthless, a disintegrating housing market, banks valueless as compulsory debt forgiveness destroys their net worth. This will happen.
That is the best case scenario. The worst is this. There comes a stage when the government can no longer print/create money because no one will take it. (Economists are divided on this one.)
Food shortages, leading to mass starvation as the poor, in inner cities especially, cannot buy what they need at prices they can afford.
A level of civil disorder that resembles a minor civil war.
The lack of basic pharmaceuticals as they are held up at our borders that means hundreds of thousands will die from a shortage of anything from asthma treatments through cancer drugs to antibiotics. (Try to work out how many of our antibiotics are sourced from abroad. Not easy.)
This is pretty much the collapse of our civilisation. It is all very well to say this kind of thing can never happen here. Not in this country. Except that we have already suffered enough from the myth of British exceptionalism.

On Tax, But Perhaps Not As Dull As It Seems

As I suggested here the other day, some time the bill for all this, paid by the State and running into trillions, will land. Furloughing, support for small businesses, the inevitable bail-out of the banks… the public finances will have to be reimbursed.
There are various ways this can be done but they all require some sort of unprecedented increase in taxation. The options:
1) My earlier suggestion, a straight wealth tax. Anyone with money in the bank above, say, £25,000 to prevent taxing the less well off, has to hand over ten per cent. This includes pensioners like me whose cash balances have to help fund their retirement. Advantages: raises a lot of cash. Disadvantages: politically unpopular with core Tory voters, and the rich stash much of their wealth overseas.
2) A land value tax, or LVT. This is an idea that was being bounced around by economists and generally attributed to one, Henry George, well before the virus. The value of land, not buildings or other property, is assessed and a percentage has to be paid, as a one-off. Advantages: not hard to levy. Progressive; the value of land tends to rise as other development takes place nearby, funded by other people. It also hits the rich, such as owners of large estates, who have the choice of funding it out of their own resources or selling off some of that land. Disadvantages: few.
3) A Tobin tax. Named after the economist James Tobin, this envisaged a levy of, say, one per cent on all speculative financial transactions. Tobin thought to limit it to currency dealings but since his time a huge speculative trade in derivatives and other financial instruments has been created. It could even be extended to share dealing on the London Stock Exchange. Advantages: raises huge amounts of capital while at such a low level unlikely to affect the volume of such trades. Politically popular. Disadvantages: hard to police, given how much of such trade is global. Could arguably, though not in my view, threaten the City’s leading position among world capital markets.
4) A total crackdown on tax avoidance. The non-payment of tax at the appropriate rate, at 40 per cent for the wealthy, becomes a strict liability offence, no matter what legal or financial mechanisms are put in place to offshore earnings through tax havens. Strict liability offences include speeding, for example; travel in a vehicle above 80 mph and there are almost no excuses. Advantages: pretty obvious really, hitting the people who can afford to pay and levying off them what they should pay. Disadvantages: given that almost all the printed media companies, including the saintly Guardian, or their proprietors employ tax avoidance mechanisms, this will not be terribly well written up in the editorial columns. The rich will flee abroad. Except that they had better choose somewhere with no extradition treaty with the UK, which limits the choice of attractive boltholes. Plus, their UK assets can be seized and sold.
5) The nuclear option. 4), but retrospective. Earlier tax avoidance to be repaid, on pain of criminal prosecution and a jail sentence. Over a set period, going five or even ten years back.
Advantages: some of the country’s worst slime bags get to pay their fair share at last. Disadvantages: see the above. They flee abroad. Would we miss them?
All the above is constitutionally and legally feasible. Alternatively, we could attempt to repair the public finances by freezing nurses’ pay. Yup, that could work.

On Brexit, And Inchoate Rage

I was in Cambridge over the weekend, to see Daughter graduate. (A high 2.1, since you ask.)  As the vice chancellor of her college said to her and her fellow graduates, you are clever and self-confident young women. Now go out and take your places in the world.

What world? Cambridge is like London writ small. Prosperous, with plenty of job opportunities for the young, in vibrant local industries in IT and biotech, at the thousands of small and growing businesses  that have sprung up out of academe over the past four decades. With high house prices and choked infrastructure as a consequence.

Those leaflets still in the window said Remain. Cambridge, along with Oxford, Bristol, London and other areas that are doing well out of globalisation, all voted In. Those who voted Out mainly live in the other Britain, the one we don’t visit, the one we only talk about with hand-wringing desperation.

The faded seaside towns, the ports where the fishing fleet has long given up the ghost. The post-industrial wastelands, the agricultural areas where the locals are priced out of the only jobs around by immigrants prepared to work in conditions and for wages they would not tolerate. It’s all very well telling people to take whatever work is available, but there is a point where the dole is more attractive than trying to compete with the truly desperate.

These are the ones who voted for Brexit and will bear the brunt of whatever fall-out results from it – even if at a City lunch I was at today many believed, as I do, that for purely practical reasons we will never actually quit the EU. If I had one concern over voting Remain, it was the effects of uncontrolled immigration on those at the bottom of the heap.

They voted out of an inchoate fury that had little to do with the facts of EU membership – not that they heard much of these from either side of the argument. That fury was forged from seeing chief executives earning the equivalent of a lottery win each year telling them how to vote – those same chief executives, in many cases, who were enriching themselves from cheap immigrant labour. From an understandable fury at where they are and the non-place they are going, and an elite that might as well be living in another country.

That anger is not going away. We are now, just as surely as America with its fly-over states that the haves do not visit, two Britains, the Britain of Cambridge and London and the Britain of that inchoate fury and hopelessness. You and I live in another country now.

On Brexit

There is a perfectly simple way out of this morass, as suggested by the Labour MP David Lammy and others. Parliament merely refuses to vote through the measures needed for the UK to leave the EU.

The way our constitution works, and I channel here Edmund Burke et al, is that Parliament is paramount. Any piece of legislation passed today can be annulled tomorrow. Parliament cannot bind its successors, as I was repeatedly told when I studied the subject.

The referendum was a glorified, and very expensive, opinion poll. It has no legal status. The majority of MPs want to stay in the EU, and are entitled to vote thus. It is called a representative democracy.

If we had a democracy where MPs were required to back every single strand of public opinion, as expressed as a majority in opinion polls, we would still have hanging. To be strictly analytical, we would have hanging on the day after a particularly horrible murder of a child or a policeman or policewoman, and then not the next day. No way to run a country.

If MPs refuse to vote through Brexit, they have to go to their constituents, in those cases where there is a majority for Out, at the next election and face the consequences. It is called voting according to your conscience. Let us hope they are up to the challenge.

(Worth it to see the expression on Nigel Farage’s face, at the least.)

It is time for US to take back OUR country.

On The Death Of Corporations, And Inequality

There is an extraordinary essay by Paul Graham, a US entrepreneur and author, giving a new insight into the reasons behind growing inequality. I will leave a link later on, and I urge you to read it in its entirety. I will also try, probably badly, to summarise.

Graham’s thesis is that The Refragmentation, as he calls it, is caused by the cessation of twin forces that had previously been bringing together different strands of society into a more homogenous whole. Instead, anything from politics to culture to the spread of individual incomes is increasingly being pulled apart and fragmenting.

(I have to thank the often excellent Capitalists@Work blogsite for bring this to my attention.)

Those two forces of integration were WW2 and the rise of the global US corporation. Graham writes, understandably, from a US perspective, but much of his argument applies as well to the UK.

WW2 saw conscription, and was followed by an expansion in higher education, former soldiers being funded by the state to go to college. As he points out, the man behind the mule team in West Virginia didn’t return there when hostilities ended. He got a degree and went to work for one of the emerging corporations.

These were heavily unionised, which exerted upwards pressure on salaries at the bottom. Meanwhile, there were none of the extravagant rewards for the executives we see today, when in the UK we have just passed the day on the calendar by which the average FTSE-100 boss will have already this year have earned the average annual salary of the rest.

The corporations were, in salary terms, a flattened pyramid, then.

Back in the post-way years and beyond, there were few entrepreneurs, and they were probably only running small stores and gas stations, or working as plumbers or other contractors. (My interpretation.) The middle classes worked for those big corporations – the biggest of all even had a name, the Nifty Fifty. (Again, my comment.) They stayed for life, often, because it was a safe job leading to a safe pension, and it was hard to move around.

The media was consolidated into three US channels – two in the UK, even after 1955. Independent films would have difficulty finding distributors.

This was all broken apart by disruptive technology. IBM was destroyed by Apple and Microsoft, after one of the worst decisions ever made in the business world, its failure to acquire exclusivity for the DOS operating system.

Then Netflix, Amazon – other routes to market that challenged the old oligopolies. The rise of the multi-billionaire dotcom entrepreneur. These so weakened those global corporations that they were no longer offering jobs for life. Those that survived at the top saw their salaries spiral up. The unions were weakened because the survivors had to cut costs to compete. Downward pressure on salaries at the bottom. Automation didn’t help.

Choices for consumers grew. People began to dress differently. They ate differently. Fragmentation everywhere.

If Graham’s thesis is right, then this will only continue.  Refragmentation, because it is in reality a return to the old social inequalities before those two factors, WW2 and the corporation, kicked in.

Anyway, take time to read the essay. You can find it here:

On Christmas Comes Early

There is a brass band outside my local department store paying Christmas carols.

I keep being reminded by people that Christmas is just eight weeks away. Less than two months to, er, buy the tinsel. Order the presents online. Buy the tree. Replace those ornaments that broke last year.

Choose and order the turkey. Do all those other things that are essential to ensure December 25 and 26 pass with that usual sense of slight disappointment .

Almost two months then. The sense of urgency is overwhelming. Or not. Every year the start of preparations arrives earlier. I rather suspect this year the retailers believe we are in for a bumper season, perhaps the best from their point of view, since the economic crisis began. So start shopping now.

I suspect, too, they are missing one factor needed for those cheery forecasts, that there is a shortage of must-have items this year to spur demand. (With the exception of those motorised skateboards that have a regrettable habit of bursting into flames and that you can’t ride anywhere legally anyway. Might have to do better than that.)

Anyway, we went to our local garden centre to buy plants, for the autumn planting season. The supply was limited and disorganised. Aside from a range of china Santas, each with a plant pot attached containing a succulent of decidedly short life expectancy.

And the most astonishing array, even bigger than usual, of plastic Xmas tat. Including a full-sized nodding reindeer. Where do you put it the rest of the year? Have you ever tried to get a full-sized sodding, nodding reindeer up a loft ladder?

It is going to be a very long two months. Time for the first bah humbug of the season.

On Falling Numbers of Wage Slaves

You will have read elsewhere that inflation is below zero and wages, after a period of stagnation, are rising again.

That last is generally ascribed to a recovery after the recession. With unemployment now having apparently settled below 6 per cent in the UK, people are confident enough to ask for more money, and employers are prosperous enough to afford this.

There is a much wider picture, though. The world is running out of wage slaves.

Have a look at this blog from Duncan Weldon, Newsnight economics correspondent. You can find it here.

Weldon’s thesis, and that of other economists, is that the proportion of the world population that is in work rose sharply in the four decades to 2013. The “Baby Boomers” born after the War came to maturity, and contraception kept the number of dependent children down, allowing more of them to work.

Then China and the former Soviet Union entered the world economy. Weldon says the global workforce available to employers roughly doubled in two decades.

Since 2012, when the share of the world population of working age peaked, it has been declining. The Baby Boomers started to retire. That lower birth rate meant there were fewer of their offspring available to replace them. Before that, the ready availability of labour had been driving down wages across the world, in countries as different economically as the US, Japan and Sweden.

This is why the Germans are so ambivalent about migration. They appreciate they will have to import workers from younger working populations. There is a limit to the extent that can happen, for reasons of social cohesion.

Acting against this fall in the availability of labour, of course, is automation and advances in IT, I would point out. How they will balance out remains to be seen.

This looks like a huge demographic change, though. Already the rising cost of living in cities like London is leading to staff shortages. Ask any recruitment specialist, and I speak to them regularly, and they tell of a lack of trained people, especially in areas such as IT. The IT crowd can in some places name its price. And demand offices in trendy areas such as Clerkenwell with chill-out rooms, table tennis tables and Spacehoppers to get around the office. (This is true, BTW, except perhaps the Spacehoppers. Well, not in every office.)

If that supply of available labour does tighten, then the current rise in wages, against a low inflation environment, will accelerate drastically. It has to. Those higher wages, though, may then stoke inflation. Which will trigger further demand for higher wages.

We have been here before. The Black Death in the 14th Century, when a third of the population died, led to a shortage of agricultural labour. Wages shot up. The extra freedom this gave workers was one of the factors that broke the old feudal system, and led to the rise of the mercantile middle classes, and the transfer of economic and political power from the old aristocracy to them. It ultimately led to the Civil War.

One thing that keeps the chief executives I speak to every day awake at night is that shortage of the right people for the right jobs. This is why the business community is so keen on immigration, not just to find low-paid workers but to bring in well-trained technocrats.

If the above is true, the relationship between employee and employer could be set for a radical change, to the great benefit of the former. Bring it on.

On Steve Hilton, And The Living Wage

“More joy shall be in Heaven over one sinner that repenteth.”

Until a few years ago we had our car serviced at a light industrial estate in one of the more run-down corners of the borough. Waiting outside for the garage to open, I had plenty of opportunity to observe one of the local businesses, a delivery service for ready-made sandwiches and snacks.

Most of the workers there were eastern European immigrants. This is the bottom end of the pile, miserable, hard labour driving overloaded bikes around the London streets in all weathers.

They were not enjoying it, and you could tell. These were not rosy-cheeked Czech barmaids or happy-go-lucky Polish plumbers, here to boost our economy and offer much-needed services. Such businesses often pay their employees as little as they can get away with, probably below the legal minimum, certainly below the £9.15 an hour deemed to be the living wage in London.

There are plenty of other, more mainstream employers who do much the same. One supermarket chain recently suggested, outrageously, that the fact that its staff got a discount on goods bought there justified low wages. The chain wins both ways, then – cheap staff forced to shop there. Serfdom 21st century-style.

Now to the point. Steve Hilton, Cameron’s former director of strategy, has been out and about stating his conversion to the living wage and dislike of employers that pay their workers too little to live on, and expect the state to top their wages up by means of tax credits. This is a hot topic at present; both Labour and the Tories are coming around to the belief that it distorts the labour market and acts as a hidden subsidy for mean employers.

Hilton admits that, when working for Number Ten, he lobbied against the introduction of the minimum wage because it would, he then believed, cause unemployment to soar.

He now accepts this is not so – see his eloquent piece on the subject on The Guardian website here –

I was particularly struck by the remarks of the boss of a small east London food business, someone least able to afford to pay high wages. Everyone who is employed costs somebody at least what the living wage is worth, she says.

As I said, you do not have to be a diehard socialist, Occupy activist or Russell Brand to accept this. It is an idea whose time has come. Some of the worst offenders are the big supermarkets, and the usual retail pressure groups and free market think tanks have been on their hind legs defending the system that subsidises their businesses, to the enrichment of shareholders and impoverishment of employees.

They would, wouldn’t they? And remind me – how are those supermarkets, and that business model, doing just now? Not so well.