Wednesday, 23 March 2016

Out of the Doldrums

Hmm, a week is a long time in politics!

One of the key reasons that the Budget and Welfare Reform have become a horrendous zero-sum game is because the economy is not performing as brightly as lots of people had hoped. This recovery does not seem to be like the good, old-fashioned booms of yesteryear. Normally, after a deep recession (and usually a bit later, after financial crises) the economy bounces back quite strongly on the back of looser money, a bit of judicious fiscal pump-priming, and the reversion to norm. Productivity, which is the only real driver of growth and living standards, catches up, firms invest in the next round of equipment and skills and the economy gets better almost by magic.

But as my esteemed colleague CU likes to point out, we are now quite a long way away from the 2007/8 financial crisis. There are still lots of problems around the world: the Eurozone, the China panic (lots of people say that the panic was seriously overblown), the correction of the oil price, and so on. But still.

The Chancellor finds himself boxed in. He has promised to balance the books. He has promised not to do this by raising the main tax rates. He has even been cutting some taxes, although this seems to be more than made up elsewhere. Overall, despite the wailing from the Right, there has been and will continue to be a significant tightening of the government's finances. I think even George himself would accept that the retrenchment has not been as fast as he would have liked when he was appointed; he would accept that some mistakes have been made. There are only limited areas which can be cut, thanks to the promises made by Cameron et al. in the 2010 and 2015 manifestos. They gave themselves far too little room for manoeuvre, presumably because they did not expect to win the election outright.

In an economy with its own fiscal and monetary sovereignty, fiscal and monetary policies can adjust in relation to each other quite easily. Sadly, the UK has fallen victim to the idea that nothing more can be done on the monetary front. The consensus view seems to be that because interest rates are "low" that monetary policy is "loose" and so it would be dangerous to try to revive the economy. The evidence to the contrary is deafening: inflation was zero in 2015. Inflation has burst onto the scene in 2016 by reaching the heady heights of 0.3% in March. Wages are stagnating. Exports are sluggish. The trade gap is yawning. These are all symptoms of money being far too tight.

But looser money isn't the only thing which we need. We need structural reform, undertaken with a zeal that Mrs T and Hezza would have blanched at. As I predict will be pointed out in the comments, looser money on its own might just end up boosting house prices. Again. What we need is deregulation and immediate and heavy investment in public infrastructure. 

An amazing stat for you: 20% of London's existing housing stock was built between 1919 and 1939. As in, a fifth of what is standing now was built in a twenty year period in a city which has been here since at least Roman times and which was the first city in the world to reach a population of over a million: about 200 years ago. A city which was devastated by bombing in a period immediately after that 1939 cut-off, and which suffered at the hands of the post-1945 planners. 20%.

And we know how they did it. Pre-1945 there was very little restriction on what could be built and where. Nobody is proposing to tear up the rule-book in its entirety, although in these post-industrial days I doubt it would be as toxic to do so as people might think. Have you been to a factory recently? They are generally cleaner than most homes! Anyway, in the 1920s and 1930s, the state built extensions to tube lines, it built trunk roads, it built electricity infrastructure, and so on. It built the stuff which was needed to open up new areas for development. We should do this now, and not just because John McDonnell says so. We should press Go on new towns, on the freedom to redevelop existing developed land (although, to be fair, George has made some progress on this, much to the horror of Blue Rinse Tories and local government officials). We need skyscrapers and new transport links in our cities, and fast links between cities. We need a step-change in broadband provision.

We also need to let rip elsewhere. Businesses are held up by restrictions. The courts need to get better, faster and cheaper. We need to boost training schemes so that the new boom does not inflate away because of skills shortages.

Basically, we need a full-fronted assault on the stagnant economy. That will require cultural change which means strong leadership by someone who knows what to do and is prepared to fight to achieve it. So, probably not George, then.

22 comments:

Anonymous said...

Have just been to France and Spain. While Madrid still seems to be slowly recovering, there is still real pain out there. So many street people side by side with old money. France is much less so and seems to have the same issues as the UK - "rejecting" austerity as if a rejection will bring back economic success.

However the real differences can be seen in the infrastructure spend. New rail and road links are popping up helping freight move quickly across mainland Europe so the market reach of French and Spanish companies is improved. Meanwhile in the UK we are not spending as much as we should on market reach and appear intent on turning our backs on major markets closer to us in the expectation there is some unknown opportunities outside Europe that the Germans haven't found yet.

Restrictions are there to be removed not complained out.

Antisthenes said...

You identified the cause a structural problem. By that I infer you mean that our government has systemic fails and gross ones at that. Then you went on to describe how to treat the symptoms. To a great extent tackling the first would automatically address the second. To some degree the first is happening decentralisation and deregulation is being experimented with. However to do the job better then more is needed. The EU has to go, so has the public sector to the most part and government needs to shrink drastically. Not forgetting that progressives should be ignored and their views, policies and practices should be consigned to the dustbin. They subscribe to Marx who developed theories that would be suitable only if humans behaved like ants.

Weekend Yachtsman said...

"we need a full-fronted assault on the stagnant economy"

We need a full-fronted assault on the bureacracy.

Sadly, now that we have six million (or whatever the number is) tax-eaters, this is unlikely to happen - too many vested interests and too much Parkinson's Law going on.

Someone has to cut through the crap, but I can't see much sign of it happening.

Steven_L said...

So basically you're prescribing a devaluation in sterling and a 'new deal' style government works program?

Or do you simply mean the government should reduce your mortgage interest and build a new tube line to your front door. Perhaps this would help the trade gap when you feel rich enough to buy a nice German-made motor on tick and take another holiday to Japan?

On the 'deregulation' front, I'd be interested to know which laws you want repealing. I see BIS/DCLG have yet another 'red tape challenge' on the go. Presumably there's been so much new regulation since the last three 'dergulation' reviews we need another one? Rather than just repeat the mantra, maybe you could make a useful list of regulations you want to see get the chop?

Since the last one, and now that pet shop licenses and the weights and measures knitting yarn order are gone, why isn't our economy growing more?

Professor Pizzle said...

Couldn't agree about planning more. But it will never happen. Nimbyism is now institutional and, via the Greens, a cultural belief system.

Infrastructure spending could help. But the problem, as always, is not the spending. It's who chooses what to spend, and where to spend it. And in this instance that choosing will be done by the very people and bureaucracies that cause all the current problems in the first place.

And, in the unlikely event of them choosing some sensible infrastructure build, the Nimbys will kill it.

CityUnslicker said...

Interesting BE.

I don't agree at all about monetary issues. The issue is that there is too much money and not enough yield to chase. Lots of money goes into very unrisky stuff like central London offices.

The issue at stake is that there are not enough new investments to be made that would spur the economy. Where is, in reality, our set of Tech Unicorns from the silicon valley?

Also, infrastructure spend sounds good but is hard to deliver. One reason often unmentioned for the lack of housebuilding is the, er, lack of builders. carpenters as an example are very hard to find.

If you try and build all the infrastructure at once it will be very expensive and undeliverable. Even now I fear there is too much with Heathrow,Hs2 Cross-rail 2 etc.

dearieme said...

I gather that the supply of construction labour poses problems. So that's another reason to cancel the bonkers HS2 and devote the labour to more intelligent things.

Frexample, bring in some of those firms that tunnel in Norway and drive through the proposed tunnel under the Pennines/Peak District. There's probably more surplus labour Oop North.

dearieme said...

P.S. And Norwich could do with some decent road connections e.g. to London and to Cambridge/Peterborough.

Electro-Kevin said...

We're stuffed and this is not the solution. At the time that we face a tilt of wealth and IQ to the East our people face the tripple whammy of:

- automation of their jobs
- outsourcing of their jobs
- migrants doing their jobs

If we build and build and build where does it stop ? For every job created who knows how many make their way here to fill it ? So of course wages are stagnating and the Govt has had to force a minimum wage.

Productivity isn't just the only driver of living standards. A balanced and stable population is too. Wealth is dependent on how many people are tucking into the pie.

Electro-Kevin said...

Dearieme - Rail projects aren't as labour intensive as they used to be. There is much automation involved and much of that will be contracted out to European firms.

MyNaturalName said...

LVT is the answer, in the short/medium term.

The assets that have been supported by QE mainly (but not exclusively) property must now be taxed.

Non-natural persons must be barred from holding residential property.

Non-natural persons (from any juristiction) must pay income and capital gains tax on income derived from the UK.

Non-natural persons must must nominate a natural person responsible by law for its actions.

Lets see whos getting the jist of this............

Sebastian Weetabix said...

'Non natural persons must be barred from holding residential property'

Well, that's housing associations fucked, innit?

LVT turns us all into serfs of the state. It's just a nutty idea.

Jan said...

Maybe not LVT but we definitely need to tax wealth more and income less somehow.

Sebastian Weetabix said...

No. We need a smaller state that does less, does it better, and stops strangling the productive part of the economy. The clerisy of the public sector needs reducing.

Weekend Yachtsman said...

MyNaturalName is a pseudonym for Mark Wadsworth, isn't it?

MyUnnaturalName said...

@WeekendYachtsman - no. Dont know who that is... will google.

LVT balances the burden socially, demographically and physically.
Labour, capital and enterprise are all taxed why isnt the '4th pillar' of economics - Land?

Because of who owns it.

Not only that, but nearly 40% of the euro budget goes into the CAP which is a subsidy to landowners. Its a fucking joke; perpetuating an hereditary oligarchy by law. Daniel Hannan has spoken out against this on many occasions.

Lets see how keen Russian mafia types or Chinese party apparatchiks are to move money to where its taxed. Land/property at the moment is a gigantic money laundering scheme and by design.

If youre into condoning criminality, fine, thats up to you.
But accepting this at the financial expense of the native populace is to condone what it really is - institutionalized, codified corruption.

All the rest is just subsidy junkies blowing smoke out of their asses and looking for the next state handout. The Tories should start here if they want to cut handouts and welfare.

As someone once said 'On yer bike' Mr Weetabix!!!!!

Sebastian Weetabix said...

I own my land. I paid for it. I turned it from derelict to a sylvan glade. It is mine. My property. The government comes along and says 'nice bit of land you've got there. You'd better pay us rent on that. Oh, can't pay what we've assessed? Better sell it then'. LVT doesn't balance anything. It just a clever-clever version of Israel Hands coveting the officers' pickles n wines.

So fuck off you wretched communist.

MyUnNaturalNaturalName said...

Stop whining. You own nothing. The Crown owns it all.
Just like the currency.

Theres a much stronger case for labour or enterprise (entrepreneurial) to be untaxed.

LVT is coming anyway because (1) its attracted so much money and the government needs money.
(2) it allows the govt to tax foreign investors
(3) along with pensions its the biggest cash-cow in the state.

Of course, if we get a Brexit land prices will fall precipitously because (at the margins) subsidy will be lost, so income generated will be lower.

I really do tire of these bloody spongers and their 'I'm entitled to it' rants. Nearly two decades of bullshit artists, whingers and subsidy junkies like yourself have this country on its arse.

Communist? Me? Pppffff.....
Let go of your subsidy - both EU and QE - and pay your way.
I dont live off handouts, and I want rid of this mentality, why should you? Its because of this I'll be voting 'out' in June.

Charlie said...

Another vote for LVT here. The economy is on its arse because QE drove asset prices up to such an extent that your average person's disposable income is squeezed by servicing huge mortgage debts, either directly or on behalf of a BTL landlord, even with IRs as low as they are. Couple that with the ridiculous level of taxation and we have got to the point where, if you rationalise things, there really is no point working in the UK. My "more productive" friends see no future in the UK and most have already buggered off abroad citing the crazy cost of living back home and the poor wages that come with pretty much any job outside of banking.

Slash the benefit bill, get the state out of everything it doesn't need to be involved in, bin all the stealth taxes, cut NI and VAT, then we might see something approaching a recovery. Give people a reason to work in the UK (such as, they might one day be able to afford not to live under threat of eviction from a sh*tty rental). Until that happens, the UK is fecked and we'll continue to see our highly-skilled people flee eastward while they are replaced with illiterate breeders.

Wildgoose said...

Another vote for the Land Tax here, even though I have a very large garden in a very nice area. Replace Council Tax with Land Tax and have the Government only provide finance to those Councils with areas poor enough to need it. Make Local Government responsible for Local Taxation and spending completely separate from Whitehall. If nothing else it will re-invigorate local democracy.

That would free up monies that can be directed at reducing the deficit and eventually paying down our unsustainably large debts.

Electro-Kevin said...

Communism is the future, I'm afraid. Mywhateverhisname is right.

We have a mahoosive, uncounted and growing sub-class of people who are going to have to be counted one day. They will demand it and our sense of fairness will agree (that and our inability to cope with the rioting.)

There will be the million man march, the Ghandi figure accompanied by Amal Clooney (and George)

"We have contributed to this country more than most. We want our stake in it !" And to some degree they will be right, even if that contribution was through the black market - they'll claim they were innocent slaves. And Britain cannot have slaves. It does not kick people out and it does not shoot them.

So what alternative to grinding (and I mean grinding) poverty and enslavement ?

Why - a massive redistribution of personal wealth, of course. Through taxation.

Get used to it or get out.

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