Category Archives: Economics

UK economy grows faster than thought

UK economy grows faster than thought

From: http://www.bbc.co.uk/news/business-39049073

The UK economy grew by more than previously reported in the final three months of 2016, according to the latest official estimate.

Gross Domestic Product (GDP) increased by 0.7%, up from 0.6%, according to the Office for National Statistics (ONS).

The upward revision is mainly due to manufacturing industry having done better than thought.

The ONS cut its estimate for growth in 2016 as a whole to 1.8%, down from the 2% it forecast last month.

This downward revision pushes UK slightly below Germany, with an estimate of 1.9%, in the G7 growth league, said John Hawksworth, chief economist at PwC, “though the difference is well within the margin of error on any such early GDP estimates.”

The downward revision appeared to have been prompted by weaker North Sea oil and gas production during the first six months of 2016, and did not reflect the underlying strength of the UK economy, he added.

“Excluding oil and gas output, estimated UK GDP growth might actually have been revised up in 2016,” added Mr Hawksworth.

The third revision of the figures will be on 31 March, after the Budget on 8 March.

“Unfortunately, this means that the chancellor won’t be able to say that the UK was the fastest-growing G7 economy in 2016 in his upcoming Budget – Germany grew by 1.9%,” said Capital Economics UK economist Paul Hollingsworth.

UK Unemployment – down again!

Unemployment remains at 11-year low

Over the last seven years we have been working hard to create more opportunities for ordinary working people. That starts by helping more people into work so that they can earn a living and provide for themselves and their family.

Five years ago there were more than 2.6 million people who were unemployed. Today that number has fallen by almost a million.

And there’s more good news – since 2010 almost 2.7 million people more are in work. That’s millions more people going to work, earning a living and better able to provide for themselves and their family.

With more people in work than ever before, unemployment at its lowest in more than a decade, our economy growing and wages rising, our plan to support ordinary working people is working.

But whilst this is good progress, we know that there is so much more to do if we are to truly build a country that works for everyone.

Share this important news, and together let’s build a country that works for everyone.

Throwing Water On The Coals

Throwing Water On The Coals

I don’t know how many readers have ever sat in a sauna?  Quite a few, I would imagine.  You will recognise, then, the little bucket you sometimes find, complete with a ladle to put some additional water on the coals.  Doing this creates a hiss of steam as the air grows suddenly much hotter.  Sometimes, in a show of much macho bravado, I have seen people pour several ladles onto the coals at once.  The air becomes unbearable, it hurts to breathe, your skin stings with the high temperature of the steam that rises quickly up to the ceiling.

But what is really happening?  Does the sauna get hotter?

Nope.

In fact, every time you ladle more water onto those coals you cool the sauna down.  It doesn’t feel like that’s what is happening, because the temporary burst of steam itself is immediate and hot.  But the overall ambient temperature falls, as the heat energy is used to turn the cold water to hot steam.

Newcomers to saunas don’t realise this.  They think that the more water you put on, the hotter the sauna gets.  This isn’t a poor conclusion, given the tangible evidence you experience.  It just happens to be wrong.  In fact, you are transferring heat from the coals to the air, which is why the sauna feels hotter temporarily due to the heated moisture/humidity now contacting your skin, while the overall temperature of the sauna as a whole fractionally falls.

The Bank Of England’s “solution” to the “problem” of a “slowdown” in the UK Economy after Brexit is to “stimulate” the economy through a series of measures.  They dropped the interest rate from half a percent, to quarter of a percent.  They’ve started another load of Devil’s Work Quantitative Easing.  All aimed at kicking the economy into action.

So, presuming the banks even bother to pass on the cut in interest rates, what do we achieve?  At a quarter of a percent, what is even the point of saving at all?  Inflation wipes out any gains you make.  Why would anybody bother?  At some point everybody seems to forget that in order to have money for people to borrow, somebody has to be saving it.

Unless, of course, you are just printing more money.  Then nobody needs to save, right?  You crank up the (virtual) printing press and out come those (virtual) crisp fresh notes.  Free money!   But it isn’t, is it?  It’s just devaluing all the money presently in existence.  Which creates price inflation.  Quantitative Easing is simply the transfer of money from everybody who has some, to whoever gets the new money the earliest.  Which, conveniently, is the banks and the Government.

Meanwhile, banks are encouraged to lend more, while nobody is encouraged to save more.  More and more and more borrowing to “stimulate” the economy.  This is Keynes at his foul work again, encourage Governments to do what they do best – tax, borrow and spend.

And the sad thing is – it works.  For a while.  The FTSE’s soar on the expectation of “stimulus” (and why wouldn’t they, when the Government is stealth taxing people and then hurling the money at the big players?).  Business grow “confident” – as long as you talk to and listen to the right businesses.  Those being the ones closest to the Magic Money Tree.   It’s win-win.  Since, if it causes economic stagnation, inflation, unemployment, cost-of-living rises and other economic woes you can just say: “We didn’t do enough, Brexit brought us down despite our efforts.”  And if it succeeds (due to other factors) you can say: “We’d have been better off without Brexit, but at least our stimulus saved us from the worst.”

By trying to create a growing economy by slashing interest rates below the point anybody would bother saving, and by printing new money and pushing it out into the markets – you are doing the economic equivalent of throwing water on the coals in the sauna.  There’s noise, and it feels really hot for a while, and you might even get burned.  But when the mist settles, the temperature drops below the level it was at before.  How much lower?  That depends on how much economic macho bravado you choose to indulge in.  A little and the harm is minimal.  A lot?  That’s a different pile of hot stones entirely.

https://www.youtube.com/watch?v=QGBrln9HP7c

This excellent video is aimed at an American audience, but remains every
bit as true in the United Kingdom.

https://www.youtube.com/watch?v=CyVmWgdIAmY

And this is great too.

“Too Few Jobs”

“Too Few Jobs”

I am tired of hearing the argument trotted out that immigration is bad because the newcomers are “taking all the jobs.”  Uncontrolled immigration is a problem – and Labour did make a terrible mistake by opening the doors so wide for so long.  But if you try and make the case as to why uncontrolled immigration  is a problem with a false argument you devalue your position.  This is important because every time you do this, you empower those who think uncontrolled immigration is great.  They can point at you and say: “Look at what this idiot says” and it seems, to a neutral observer, as if they must therefore be the ones who are correct.  In the battle of ideas, a poor weapon damages both you and your idea.

The reason the argument is wrong is because it is based upon the supposition that there are a fixed number of jobs in the country.  As if the jobs are a resource, like coal, or oil, or gold.  Jobs are not a finite resource, a limited pot for us to carefully share amongst ourselves.  Jobs are the outcome of our need for things; goods, services.  As the community grows in size, the need for services also grows in size.  The bigger the community, the more the demand for goods and services, the more jobs.  So immigration purely in and of itself does not create fewer opportunities for jobs.  There is a balance – more people, more jobs.  And when somebody says: “a Million people are coming here and there aren’t enough jobs for them” you are both right and wrong.  You’re right in that all those jobs don’t exist at the moment of their arrival (unless there is a real shortage of labor in the country at hand) but the additional demand of those new Million People will create the jobs accordingly.  In fact, given the entrepreneurial nature of human beings, those new arrivals should create more wealth and jobs.   Human beings are amazing like that.

If you remain sceptical of this, just think about how our country has changed.  Once we had a tiny fraction of our current population – but even though the population has grown exponentially, we don’t see unemployment at 80%.  Because the demand for goods and services grew in  proportion to the population – and new jobs were created.

There are some effects of immigration on the jobs market.  But even these are not as clear cut as they appear.  For instance, immigration does drive down the cost of Labor.  This is a standard rule of Supply and Demand.  As the supply of Labor increases, the cost decreases.  So if more people are looking for employment then this drives down wages.   But at the same time, those new arrivals are increasing the demand for services, which means companies will expand, which means the demand for Labor will increase.  This drives wage levels up.  However, it takes time for businesses to expand to meet new demand and so the initial effect is for wages to decrease, after which they should gradually rise to their old level – other market conditions permitting.

So – at this point you can say: “Well we don’t want our wages driven down, even if its not forever” and that would be a fair point, but it does miss the other side of the equation.  Which is that if wages are driven down, then the cost of producing goods and services is also driven down, making everything slightly cheaper.  The effect being a constant near-equilibrium.

Now I know that at this point many people will be shouting at their computer monitor: “Your theoretical situation isn’t what actually happens!  Look around you.”  And I would agree, that the theoretical situation is not what happens in every case.  Though it certainly does conform in some cases.  The reason it doesn’t happen is because markets are so massive skewed by state intervention.  In every corner of our economy there are state disincentives, taxes, heavy regulations, state obligations, and immense borrowing and interest payments – and these are like spanners in the works of the machine.  But it is wrong to blame immigration for employment issues simply in and of itself.  In fact, it is at worst job-neutral.

But there is a time when immigration really does have a direct effect on the economy.  If immigrants come to the UK and do not work, but simply feed off the system, then they are an economic burden, not an economic boon.  However, the official figures for this don’t meet with the anti-immigrant propaganda.  Broadly, the percentage of immigrants claiming benefits is really quite low compared to indiginous folk.  Here’s the November study from the Office Of National Statistics:-

According to a wide-ranging study based on data from the Office for National Statistics’ Labour Force Survey, immigrants arriving from euro-area countries between 2001 and 2011 paid 34 percent more in tax than they received in benefits, while those from other countries paid in about two percent more than they took out.

All immigrants were 45 percent less likely to claim from the state than “native”, British-born citizens, the report showed.

Now I will be the first to agree that statistics can be misleading and that different people can use them in different ways to prove quite different things.  But based on the Office of National Statistics study, immigrants would appear to be a net benefit to us, in regards to benefits.  In short, because they are in surplus, they are actually helping us pay our benefits bill.  That’s quite different to the shrieking stuff you hear from the Daily Mail, and UKIP isn’t it?~

There really are good reasons to worry about uncontrolled immigration, but they are not usually economic ones.  At least not at the moment – that could change if immigrants stop wanting to work and start wanting to sit around and play Xbox.  The good reasons are mostly social ones.  When you invite in huge numbers of people from a different culture, who speak a different language and who cannot integrate quickly, you create resentment, fear and anger.  If you invite those huge numbers very quickly the resentment, fear and anger are compounded.  And when you have resentment, fear and anger in your communities it does not take long for scapegoating, scaremongering and poor economic arguments to begin to appear as a consequence.  If this is not dealt with, unrest can follow.

The current situation is a direct result of both Labour’s crazy (and deliberate) mismanagement of our borders and of our membership of the EU.  It is not good enough for very uber-Liberal folk to say: “But exposure to different cultures is a good thing.”  Yes, it may be a good thing on some levels.  But you are ignoring the nature of people, who, en masse, don’t like massive changes to their neighbourhoods and lives.  You can’t pout and demand human nature cease to exist.  Not only  doesn’t that work, but it actually makes things worse.

In conclusion – I support the need to properly control our borders and I would love us to leave the EU.  But I wont join the immigrant-bashers who think everything is their fault.  It really isn’t.  And I certainly don’t think immigrants are “stealing all the jobs.”  Because how many jobs are out there is not just about “supply”, but subject to both supply and demand.  The solution to increasing employment is to cut the taxes and regulations which are stifling job creation.

The Fallacy Of Green Jobs

The Fallacy Of Green Jobs

Dan Hannan quotes the classic Broken Window Fallacy in his short intelligent speech.

To The Manor Born

To The Manor Born

Imagine, if you will, that there is a well-to-do household somewhere in the countryside which consists of a Mother, who is the primary breadwinner, and 6 other family members.   They live in a huge house with large grounds and their two lovely Bentleys.  The Mother’s job is not high-profile, but is one of those sort of jobs which commands extremely high pay packets.

So that’s the premise.

Now the six other family members might be in quite different circumstances.  One might have a low-paid job in a local shop.  Another might not have a job at all.  But they are unlikely to ever feel, or appear, “poor”.  Sure, the Son might resent having to ask to borrow the spare Bentley instead of being able to buy his own.  The daughter might need to ask for the occasional “loan” which she knows her Mother probably won’t expect her to ever repay.  But they’ll always have plenty of food.  They’ll always be warm.  They’ll always have more choices and options available to them than somebody who doesn’t live in a house with a well-paid benefactor like their Mother.

Okay, so in our story the Mother decides to take out some loans.  She’s not short of cash at all, but the old house is huge and expensive to upkeep and she thinks it needs a lot of work.  The roof needs an expensive repair, the ornate fountain on the front lawn hasn’t worked properly for years and let’s face it – it all needs a complete redecoration.  Plus, they could do with another couple of cars.  The Bentley is awesome, of course, but it’s not really ideal for quick trips around town.

Lenders fall over themselves to lend the Mother money.  Of course they do, she’s the best risk ever.  She has a great job with a solid income, she’s stable and reliable and has never had any kind of bad debt.  And she has that enormous house and those beautiful cars as collateral to back up the debt.

Mother borrows a vast amount of money.  But there is a secret and the secret is this – Mother has quit her job.  Quietly, carefully, she has decided that she has spent long enough in the Rat Race.  She wants to spend more time with her family.  She wants to enjoy life a little.  She wants to work less and play more.  So she’s handed in her notice.

Over the next couple of years nothing changes at all.  The family still go on expensive Summer holidays.  They still swan about town in luxurious vehicles.  They still wear designer clothes.  Nobody suspects a thing.  But a closer look might reveal some telling points.  The fountain still isn’t working.  The garden is somewhat overgrown.  The roof is now leaking into several of the rooms upstairs, which have been temporarily closed off.  Temporarily, in this case, apparently meaning Until Further Notice.  Still, it’s fair to say that the other six members of the family haven’t changed their lifestyle at all.  They don’t even know that Mother isn’t working, since she keeps up an elaborate charade.  Their individual circumstances continue to vary, but they still have the security and safety they have come to rely on behind them.  Or they think they do, at least.

At some point Mother notices the money she borrowed is dwindling.  So she goes to the Lenders again and asks for more.  She has never missed a payment, because she has used the borrowed money, in part, to make those payments.  She still has the big house and the flash cars and she still looks like a good credit risk in that respect.  But, some of the Lenders notice that her income has changed, that the house value has changed due to its gradual disrepair and that she really does have quite a lot of debt now.  They agree to lend her more money – but they increase their rates and they decrease the size of the loans she can have.  Mother is really put out by this.  How dare they?  Don’t they know who she is?  But she has no choice but to accept.  Choices, for her, are beginning to look limited.

For another Eighteen months not much changes.  Still the neighbourhood see the Family as wealthy and well-to-do.  Though there is now some gossip relating to the deterioration of the property, most just think it is because Mother is “tight” and prefers to hoard her money.  The Family Members still have almost no clue as to what is going on.  Though Aunt Hilda is becoming increasingly concerned by the fact that so much of the house is sealed off due leaks, that there is such aggressive damp on the back walls and that the fountain is now buried entirely beneath a mass of weeds and wild flowers.   One of the Bentleys is now stored in the garage.  It’s not working and nobody seems in a rush to get it repaired.  The whole family are now sharing one car, but they aren’t likely to get any pity.  After all, telling somebody you have to get by on “just one Bentley” doesn’t exactly pull on the old heart strings.

Where does this story end?  Perhaps Mother can spin her debt out a third time and grant them a few more years?  Perhaps some miracle of luck will save them – oil found beneath the paddock, or a rare and valuable painting in the attic.  Though even those things will simply buy more time, unless Mother and the rest of the family make different choices in future.

The fact is, sooner or later, the Family will not be able to borrow anymore.  The debt will be unserviceable and the Lenders will close their doors.  The bailiffs will begin to pay regular visits and they will take the grand furniture, the suit of armour, the portraits of long dead queens, the rare book collection.  Eventually there will be almost nothing left.  This will make some of the family very angry.  These things belong to The Family!  How dare outsiders remove them and claim them?  Debt?  Pah.  Mother should just refuse to let them in and the debt be damned!  But the cries will fall on deaf ears because the Family have still not understood that due to the vast debts involved, Mother is not pulling the strings anymore.  Mother doesn’t have a say in it.

At this point the family member’s different lifestyles and personal choices will be thrown into stark relief.  Once their rich benefactor is revealed as debt-ridden and bankrupt they will have to pay for their own food.  Their own warmth.  Their own shelter.  Their own everything.   Some of them will be better placed than others to handle this.  But all of them will be faced with a surprising and chilling dose of reality.

For a while they will blame Mother.  And they will be right in some respects, because Mother did make some unwise choices.  Suddenly forced into rented accommodation, different jobs (in some cases their first job ever.)  Eating less caviar and steak, more sausages and mash.  Having to pay their own bills and their own way, they could be forgiven for thinking that their living standards have dramatically reduced through no fault of their own.  It is Mother’s fault.  Right?

But slowly, gradually, surely, if they are honest the Family may come to see that they are not resolved of fault themselves.  Why was it Mother’s job to provide for them all?  Couldn’t they see that the lifestyle that had come to think was “normal” and even begun to consider an Entitlement was a fantasy?  Didn’t they have some responsibility to understand the family finances and contribute where necessary?  The situation was built, first of all, by reliance on Mother to always be there and always be able to work on their behalf.  And secondly, on Mother having to borrow until she was bankrupt to maintain the illusion of wealth.

At some point the Family members may consider that their new standard of living is not the aberration they think.  It was the wealth that was the aberration, because it was not based on any real wealth-creation.  What has happened is that the Lies and Falsehoods have crumbled away to reveal the true state of play.  It’s not pretty.  It’s not going to be fun.  But at least, now, the truth is clear and once that is realised the Family can work towards a genuine, sustainable and tangible recovery that will benefit them all.  Or they can stick their heads in the sand and demand entitlements until the end of time.  But that’s entirely up to them.

On Price Controls

On Price Controls

Imagine, for a moment, that the government decided that Mercedes were too expensive.  It was unfair that only the wealthy could afford a new Merc.  That the company was making obscene profits from the manufacture of those cars and that if only they would sell them at the price they cost to make many more people could have them.  Faster than you can say: “Social Justice” the government makes a law that forces the company to sell every model of brand new Mercedes for £500.00   What would happen?

First of all, It’d be a popular policy idea.  Millions of people would rush out to buy a new Mercedes for £500.00.  Not everyone, because there are (of course) many people who simply can’t lay their hands on £500.00 quickly no matter how much they want to.  But the government could help those people with free, or cheap loans.

So immediately, the demand for the car would rise dramatically.  In a normal economic system this rise in demand would cause a rise in price, as more and more buyers chased a finite resource.  But the law does not allow the price to rise.  The immediate effect would therefore be to create enormous waiting lists for new Mercedes.

The next effect would be that Mercedes-Benz would threaten to withdraw from the British market on the basis that the market was no longer profitable.  The government might be able to keep them here by offering to cover the difference in cost with a direct subsidy, or they might refuse and then the only people who would be able to get a Mercedes would be those rich enough to import them (much the same people as were buying them in the first place.)  The government might respond to this by setting a huge import tax on Mercedes, which would simply drive customers to a different make of premium luxury car.  Meanwhile, all the people who worked for Mercedes at any level would be out of a job in the UK and companies whose businesses were attached would be badly damaged.

Now imagine that, having tried this on several brands of luxury car and failed each time the government grew furious at the greedy car “fat cats” and decided that the obvious solution was to go into the car manufacture business themselves.  This new public enterprise would make luxury cars and sell them for £500.00 each.  When they found that they were unable to do so, they could simply subsidise the difference from the public coffers.  The end result of this would be that people would think they were getting a gift, a fantastic luxury vehicle for only £500.00.  The truth would of course be that they were still paying the full price, but the bulk of it came through taxation – because taxation is the only way government gets any money at all in the long run.

The truth is that when the State forces a price down to a set level which is lower than the level which would be set in a free market there are two immediate effects.  Demand for the goods increases, while supply decreases.  This is pretty basic economics.  Demand rises because more people want the goods as they are cheaper than they would normally be.  Supply decreases because there are lower profit margins and so less incentive to produce more and bring in competition.  Both increased demand and decreased supply on their own cause prices to rise, so when you get both together you get fast and significant price rises.  The only way for the State to then deal with this problem it has caused is with subsidy and more state interference.

This is a classic deadly circle.  No matter how noble the intentions, no matter how big the heart which set the policy – State Price Fixing leads to higher costs and decreased supply – which leads to more State Price Fixing.  Now your average “Social Justice Crusader” might say that this is okay, as long as the costs fall on the rich.  Sadly though, this isn’t the case.  In every instance, rising prices caused by Statist market interference fall disproportionately on the poorest people.  The reason is simple.  In any market it is those with the greatest spending power who are able to get the best deals.  So all you do, when you interfere with markets, is make the rich richer and the poor poorer.  It is for this reason that people who genuinely care about the “Cost of Living” and supporting the poorest in society are the ones who champion free markets and enterprise.  Capitalism is not evil.  Profit is not evil.  Markets are not evil.  They are the signals created by millions of people all over the world – you and I, dear reader, and everybody else – that enable finite resources to be best-used by the most people.  It is Capitalism that has taken us from short lives of subsistence farming to central heating, fridges and National Health Care.  What, you think Socialism made the NHS?  Really?  Then how, dear reader, is it paid for?  In order to spend it, you must first earn it.

It’s nothing. Forget about it.

It’s nothing.  Forget about it.

Some time ago I wrote a blog post entitled On Interest which discussed the problems that can come about when people who know absolutely nothing about banking, or economics for that matter, get their hands on the levers of power at a financial institution.  It is with some fascination that I watch the unfolding financial bloodbath that is/was the Co-Operative bank.  An “ethical” bank, no less.   So we’re told.

The Co-Operative group’s parent company were just the kind of outfit I’d envisoned.  With what appears to be a very limited experience of any sort of banking they were nominally at the top of the heap.  Unfortunately, it would appear that they led their institution into disaster.  Ignoring the advice of people who actually did know a thing or two about banking they ploughed ahead with mergers and purchases – accruing a colossal amount of bed debt in the form of the “ethical”  “specialist” loans to people who would not – in the normal state of affairs – ever be able to get a loan.  “Self-Certified” loans, and high loan-to-value deals, all the sort of cases where “ethical” banking is supposed to step in and “help.”

Nor are we talking peanuts here.  We’re talking hundreds of millions of pounds.  That’s a lot of money unless, of course, it’s somebody else’s money.  In this case it was – broadly speaking – the bondholder’s money.  And who are these Fat Cat Bondholders, I hear you cry?  Well, mostly they are pensioners who had the temerity to save and invest for their retirement and thought it might be nice to invest it in an “ethical” company.  A billion pounds is quite a high price tag for some self-proclaimed “ethics”, but I suppose you can’t really put a price on it.  You particularly don’t need to, if it’s some pensioners who are paying for it instead of you…

Quite a lot of senior executives seem to be leaving the sinking ship moving on from Co-Op at the moment as the company seeks to undo the damage that has been inflicted upon it.  I suppose being “ethical” with other people’s money stops being fun when you lose such a vast amount of it.  And yet – where are the cries of outrage from the left?  Where are the furious witchfinders raising their Fat Cat banners and decrying the harm done to innocent investors who are just trying to get by?  Silence is golden, huh?

Meanwhile, in other news, one credit union is going bust approximately every month.  In 2011 and 2012 it was only half a dozen or so that went bust.  It seems to be accelerating.  But never you mind, oh fearful one.  If these ethical lenders go down and you have money in them, you’re protected.  The Financial Services Compensation Scheme (FSCS) jumps right in and refunds you from it’s money pot.

Where does it get the money in its money pot from, I hear you ask?  Well from ” levies on authorised financial services firms” of course.  But wait.  Does that mean that these ethical lenders are going bust left, right and center and being bailed out by all those nasty Fat Cat unethical lenders?  Oh dear.  I’m sure the bloated greedy Fat Cat ones deserve it.  Maybe not their customers – who are actually paying for it – but that’s neither here nor there, right?

Look – I have no love of bankers.  I’m sure some of them are lovely, but I bet some of them are horrible too.  I certainly don’t admire the fact that they expect the public to bail them out when they fail. That’s not capitalism.  That’s corporatism. Which is why it was the Labour Party that did it.  Furthermore I do not have any issue with credit unions.  As I’ve said before – any business model is fine by me as long as it competes on a level playing field, without expecting subsidy or special treatment, in a legal and transparent way, with all parties in agreement on the terms and conditions.  But when it comes to failing institutions – there’s a lot of them about.  Some of them are just better at hiding than others.  Maybe you’ve got a great one.  Maybe not.  Why not ask them, perhaps with a FOI request?  Can’t hurt, can it?   Ask your local credit union* how many savers they have, how many investors, what sum of money has been saved and invested.  What sum of money has been borrowed.  While you’re at it, ask them what their APR is.  And what level of default they have experienced so far, and what they’ve planned for in the future.  Never hurts to be informed, right?

Meanwhile, we are told that new Credit Unions are springing up faster than ever.  They offer loans to people who wouldn’t otherwise get them, at ethical rates that they would not otherwise get, and its safe to invest because they’ll be bailed out by the unethical banks.  The fact that their stated intention is to stamp out those other “unethical” lenders is neither here nor there.  There’s no need to play that scenario out in your head.  It’s nothing.  Forget about it.

*Of course I am not referring to my own local Credit Union, which is almost certainly awesome in every respect.

Soap Box Column – A Sensible Path

Soap Box Column – A Sensible Path

All this talk about a “cost of living crisis” is certainly enlivening the national debate.  We have Labour proposing that hoary old dog the “Price Control” (because what the economy really, really needs is a slice of the nineteen-seventies to pep it up, right?)  And we have the Lib Dems talking about … something or other .. I forget precisely what.  Their conference seems like it happened a decade ago and, other than Vince Cable disagreeing with himself, was hardly what you’d call memorable.

Meanwhile the Chancellor is staying true to his economic path which is – to the surprise of some – working out okay right about now.   Good for him.  I’m not a fan of every policy proposal, but focusing on the economy, immigration and welfare control are certainly three issues which chime with what members of the public tell me particularly concern them.

You may notice that nobody is talking about what might have caused the “cost of living crisis” though?  There’s a reason.  Well, they are talking about it, but they’re shooting on full automatic, filling the air with bullets that aren’t particularly well-targeted and this is because they either don’t have a clue, or don’t want others to think too hard about it.

So, when you pull apart the “cost of living crisis” to see what it really is, what do you get?  Rising prices for the sort of things people use all the time; food, clothing, energy.  But no corresponding rise in wages.  But how can this be?  After all, in an old-fashioned bubble-oriented inflationary scenario you would usually expect to see the cost of everything rising, wages included.  Why are only the consumables of everyday life shooting skyward as normal income remains stuck firmly at the levels of the last few years?  Particularly with house prices on the rise in some places again – where’s the “proper” boom?  Something is awry, right?

If you believe the socialists – which you don’t, unless you are one of the aforementioned no-clues – then it’s probably something to do with the bankers and people who don’t pay as much tax as the socialists wish they would (which, let’s face it, would be 100% tax.)  There’s no need to specify quite how or why this might be the case because just mentioning those things is enough to cause most left-leaning “thinkers” to flush red with rage.

If you believe the Lib Dems then it’s probably something to do with Global Warming and our lack of enthusiasm for the Euro.

If you believe UKIP then foreigners are to blame.  Free-market Libertarians that they are, UKIP know that what you do if you want to improve your economy is engage in a little protectionism and nationalism, find yourselves a scapegoat and then, you know, blame them.  Sure beats actually knowing anything about economics, anyway.  Popular, too.

Nobody mentions our old friend the quantitative easing program, engaged in by both the Labour party and the Coalition.  The laws of supply and demand are quite difficult to get around, so it’s best not to mention them.  Printing billions of pounds means that a lot more money is chasing the same services.  Supply of money has increased therefore price inflation will follow.   It was even predicted that it would take a few years for the “new” money to filter through from the point of injection to the general public.  Indeed, it was even predicted on this blog.  And here we are.

In an austerity environment, with nervous banks being careful what they lend, the one place that companies can be sure to keep costs down is wages.  It’s one of the few things directly under their control, when you think about it.  So, while things remain uncertain, bosses take the decision to freeze wages.  It’s that or lay people off – and laying people off is a terrible idea both for their own livelihood (contrary to popular opinion, most bosses care about their staff) and also because if the economy continues to recover you’ll need those people to meet your orders and you don’t want to have to start recruiting and training all over again just when you need to be invoicing your sales.  You could even take the view that the sticky wages is a positive sign, though its certainly darn hard for everyone involved.  If firms didn’t believe a real recovery was on the way they’d opt for lay-offs instead of wage freezes.

The fact is that if you follow the evidence in a logical way then one of the main culprits for our “cost of living crisis” is not hard to find.  It’s Quantitative Easing.  There are many ways to tax and many ways to borrow and QE is just another one of them.  It was used as a monetary tool and I am confident that there were folk pulling the levers of power in both governments who knew the consequences of that decision.  But then – thanks to the madness that was the last Labour government – we always knew we had an enormous problem to solve that was never going to get fixed overnight.  Socialist governments always leave their successors with a grim environment and difficult choices.  It’s the law.

The next time Ed Miliband is calling for a return to his maniacal spend-borrow-guess policies or Nick Clegg is telling you that it can all be solved by giving away some free stuff to kids and mothers, or Nigel Farage is claiming that a billion Polish immigrants will arrive and eat your children – just take a deep breath and repeat this simple mantra: “Live within our means.  Live within our means.”  Eventually, the distractions and propaganda clear away like the illusions that they always were and a sensible path becomes clear again.  Responsibility, community, hard work, creativity, ingenuity and confidence.  What we’ve always been rather good at, as a nation.

Economics On One Foot

Economics On One Foot