![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
Right....Nick's post to me.
Jun. 28th, 2010 06:50 pmNow this is very UK-centric and so doesn't really apply to the US or anywhere else....
1. David Willetts was on Radio 4 recently. His new-ish book argues that the baby-boom generation will (over their lives and on average) get out of the welfare state an inflation-adjusted 118% of what they contributed. Unsurprisingly, he questions whether that can be sustainable.
When coming in to work in 1970s or 1980s, average wages for a 20-year old were much more than half those of the average 50 year old. Those who have entered work in the last 5 or 10 years have found the opposite environment and can be sure that they will (on average) be getting the brown end of the financial stick until the day they die. The young (in Britain and on average) do not have it tough by comparison with most people in the world or in history, merely a good deal tougher than those who are slightly less young.
For example, the period in which a normal person in their 30s can, on average, afford to buy themselves a house was only possible because of a combination of factors. For an average person who has no inheritance and is now 20, this looks as rare/ unlikely as it did to their great grand-parents.
Several of these factors, like the creation (and expansion to and sometimes beyond the maximum size that could be sustained) of global wholesale markets for lending, were one-off effects, as was 2 world wars creating a structural deficit in young workers in a rich, industrial economy. So was the creation, without ultra-long-term thinking about cost and sustainability, of the welfare state in (roughly) its current form. Those who are currently in their late 40s or 50s now are, on average, significantly richer by any normal measure than their parents were when they were 50, and richer than any sensible projection suggests their children will ever be.
Of course, for the moment, people not yet as rich as their parents can look forward to that capital coming to them one day. However, inter-generational shifts in capital can't last forever; eventually governments will have to take most of the inheritance value from most people to pay for their net deficit vis a vis the state, with helath care the most obvious part of this.
I would also argue that we have imported wealth from overseas (mainly by having lower-paid workers there see their incomes rise more slowly than appears fair) in a way that cannot continue, and that will (net) have to be paid for over the next 20 or 30 years (as their populations age and as their ability to control their own economic destiny continues to rise).
Worryingly, this means that Harold McMillan was roughly right when he said "You have never had it so good". That was of course 1957: had he said it in 1967 or 1987 or 1997 (and perhaps even in 1977), a genuinely unbiased observer would probably have said that he was quite right.
I have argued before that the easiest way for me usually to keep paranoid delusions and victim-hood in some kind of perspective is the fact that I am, by any sensible view, a member of the least persecuted & most favoured group in history, and should therefore have the decency not to complain or sulk too earnestly. The above is not the only area where this is true, but it is very relevant.
And, on a lighter note, I have just listened to a job advertisement for a small-ish town (I have forgotten which) whose council offered a starting wage of £19,000 (about matching a newly qualified nurse) for Street Naming Executive to joing their "dynamic" Street Naming Team.
2. I read your blob. Japan's excessive debt in 1990 was indeed what broke the proverbial camel's back, whether one sees it in terms of the negligible return on capital, or the skew that had vast amounts of cash with private savers and a vast need for it with companies whose creditworthiness had vanished - these are all really different aspects of (or ways of describing) the same imbalance. One can argue that Japan had plenty of cash overall in 1990, but that one portion had excess cash and one excess debt, and the capital transfer required could not be sustained - this has echoes of the economic aftermath of World War I of course...
Coincidentally, their demographic bulge peaked in savings capacity in 1990 (along with their stock market and gross leverage of Japan plc). Now corporate Japan is not very indebted, and the average Mr. & Mrs. Watanabe are still loaded, but the government's debt is 200% of GDP - the excess debt has just moved. For now, the interest rate is so low that servicing this is possible, and that low rate is possible because of said personal savings, but the demographic bulge shows to all that this situation may also not be sustainable. Fortunately, governments have a method of transferring extreme amounts of capital from people to the government that was not open to 1990 corporate Japan - taxation.
It is also worth remembering that, for most of the last 20 years, trying to fix the economy was a vote-loser in Japan. It was seen as bailing out evil Corporate Japan. More importantly, staggering house prices meant that kids never got to leave home - 20 years on, this still a huge problem The result was that the most reliable voters (over 50) were very happy to see house prices fall. After all, the paper value of their own house was irrelevant pixie money - they have to live somehere.
This makes the UK and America look different from 1990 Japan in several ways. Our government has not waited until complete stagnation has set in before acting: quite the reverse. And corporate UK is cash-rich (and needs to be), not excessively geared. Our problem is much simpler to understand and much more like Greece - we have in aggregate been spending more than can be sustained.
With an economic hat on, I can only nod at George Osborne's pronouncement that we need to cut budgets in mainstream departments by about 25% - the total figure is about right if we want to avoid the slippery slope. And avoiding it is (net) in the people's best interest - if you don't believe that, take a look at real economic disasters, like (say) Argentina in the early years of the last century.
What is horrifying is that people do not seem to understand what that will mean. However labelled, and however well a few Liberals do at trying to extract the vindictiveness (and worse) from the details, this will be carnage - how could sacking (by one label or another) huge numbers of people who today get paid somehow or other (many very directly) by government be anything less? And surely it is obvious what the effect will be on a wide variety of areas when those salaries stop being spent in shops, and when those people need state benefits - many for quite some time.
The pain will be exaggerated, at least at first, by the likelihood that inflation will start to trend upwards (though that probably won't start at once). But, eventually, the huge pile of debt will be more manageable in real terms because inflation will have devalued it and cheated those from whom we have borrowed, just as intended. And by then, the Pound will probably have fallen to a level where goods and services from overrseas are a lot less affordable, but the same inability of exported goods or labour to undercut local options will mean that our economy will be less unbalanced and more able to sustain jobs, decent benefits systems and the like. And a much lower portion of any pay cheque will be available for discretionary spending.
All this looks rather like the bad bits of the 1970s and 1980s all happening over the next 3 or 4 years - some of it will be less extreme than that picture suggests (probably the peak inflation rate this time around for example) but some bits will be worse. Note that Japan has stretched this process out over 30 years or so (i.e. there is probably still a decade to go) because they could afford to do so, but we can't. And their population bulge is worse than ours; but their location (next to Asia), their educational standards, their working efficiency in competitive areas and so on all suggest that our experience will be very different to Japan's, but probably less pleasant.
This all looks very unfair, and particularly unfair to those who are currently poor or under 35 or both. However, the big picture is that increasing communication and technology makes wider comparisons relevant. A hard-working and intelligent person in almost any country with whom we trade has much less of everything, from food to healthcare to DVDs than 99% of people here. That imbalance was probably at its most extreme 20 or 30 years ago (averaged across a country's population) but is still huge. Its correction is inevitable and inevitably grim (particularly when people are not given an understanding of what is going on and inadequate efforts are made to smooth the most severe effects - ask a miner's family). However, one thing that the correction itself is not is unfair.
The detail of who bears the brunt of Britain (and America and so on) getting poorer will be where the word "Unfair" gets really applicable. If the sacrifice of the Liberal party is the price that we pay for making the process slightly less ghastly for the non-rich population of this country, it seems a price worth paying.
i wonder whether Clegg's motives are so noble?
And if we re-run the 1970s, will vernacular music become great again?
My reply was as follows:
Thanks Nick,
Your first points I cannot but in general agree with, excepting that the funding of the welfare state was dependent upon very high taxes propping up the NI contributions that were meant to pay for it. When those taxes were brought down without significantly raising NI the welfare state was doomed. Now there are many good reasons for lowering taxes from the post-war levels, as we all agree, but every government from Thatcher's onwards has avoided addressing how to pay for the welfare state long-term. Thatcher for the obvious reason that she didn't really approve of the welfare state: Major, Blair, and Brown, because they knew that someone else would have to pick up the bill for the baby-boomers.
Mind you, we could save some £50b a year by closing tax loopholes. Or drive those folk who use such loopholes away from the UK. I mean, they've left us so well off by being here, haven't they? So we obviously need them badly.
I suppose we are unlike either Greece or Japan in real economic terms. Our total national debt is significantly lower than many developed-word economies. In fact, of the G8 countries, only Russia has a lower level of total debt than the UK: and, though our borrowing over the past two years has been large, it has been pretty much in line with neo-Keynesian models.
Essentially, it seems to me you (and the coalition) are accepting the 'double dip' as unavoidable. In which case I do wonder why we bothered with the bailout at all, given there will be fighting in the streets whatever.
But are you saying that we'd be in this position now without the financial crisis and the bailout?
Now the nub of my position in my previous blogs is that we all have paid to keep the banks and financial system afloat, because they (and it - the financial system as a whole) were/was too big to fail and would have brought down the entire capitalist-democratic system with them in their ruin. As an aside, the Welfare State redressed some of the serious inequities of the libertarian-free market-capitalist system, essentially taming the beast; domesticating it for use by grown-up human society. But to return to my point, We bailed the financial system out, but they now cannot bail us out.
Perhaps we should have let the system go down the pan: we'd now all be in this together: and the Bourgeoisie, Gentry, and Aristocracy would know what it felt like to be up shit creek along with the rest of us. But somehow it seems, along with all those others (including me, it must be said) who depend on investment income or property or whatever unearned income, the moneyed classes get off lightly, relatively speaking.
1. David Willetts was on Radio 4 recently. His new-ish book argues that the baby-boom generation will (over their lives and on average) get out of the welfare state an inflation-adjusted 118% of what they contributed. Unsurprisingly, he questions whether that can be sustainable.
When coming in to work in 1970s or 1980s, average wages for a 20-year old were much more than half those of the average 50 year old. Those who have entered work in the last 5 or 10 years have found the opposite environment and can be sure that they will (on average) be getting the brown end of the financial stick until the day they die. The young (in Britain and on average) do not have it tough by comparison with most people in the world or in history, merely a good deal tougher than those who are slightly less young.
For example, the period in which a normal person in their 30s can, on average, afford to buy themselves a house was only possible because of a combination of factors. For an average person who has no inheritance and is now 20, this looks as rare/ unlikely as it did to their great grand-parents.
Several of these factors, like the creation (and expansion to and sometimes beyond the maximum size that could be sustained) of global wholesale markets for lending, were one-off effects, as was 2 world wars creating a structural deficit in young workers in a rich, industrial economy. So was the creation, without ultra-long-term thinking about cost and sustainability, of the welfare state in (roughly) its current form. Those who are currently in their late 40s or 50s now are, on average, significantly richer by any normal measure than their parents were when they were 50, and richer than any sensible projection suggests their children will ever be.
Of course, for the moment, people not yet as rich as their parents can look forward to that capital coming to them one day. However, inter-generational shifts in capital can't last forever; eventually governments will have to take most of the inheritance value from most people to pay for their net deficit vis a vis the state, with helath care the most obvious part of this.
I would also argue that we have imported wealth from overseas (mainly by having lower-paid workers there see their incomes rise more slowly than appears fair) in a way that cannot continue, and that will (net) have to be paid for over the next 20 or 30 years (as their populations age and as their ability to control their own economic destiny continues to rise).
Worryingly, this means that Harold McMillan was roughly right when he said "You have never had it so good". That was of course 1957: had he said it in 1967 or 1987 or 1997 (and perhaps even in 1977), a genuinely unbiased observer would probably have said that he was quite right.
I have argued before that the easiest way for me usually to keep paranoid delusions and victim-hood in some kind of perspective is the fact that I am, by any sensible view, a member of the least persecuted & most favoured group in history, and should therefore have the decency not to complain or sulk too earnestly. The above is not the only area where this is true, but it is very relevant.
And, on a lighter note, I have just listened to a job advertisement for a small-ish town (I have forgotten which) whose council offered a starting wage of £19,000 (about matching a newly qualified nurse) for Street Naming Executive to joing their "dynamic" Street Naming Team.
2. I read your blob. Japan's excessive debt in 1990 was indeed what broke the proverbial camel's back, whether one sees it in terms of the negligible return on capital, or the skew that had vast amounts of cash with private savers and a vast need for it with companies whose creditworthiness had vanished - these are all really different aspects of (or ways of describing) the same imbalance. One can argue that Japan had plenty of cash overall in 1990, but that one portion had excess cash and one excess debt, and the capital transfer required could not be sustained - this has echoes of the economic aftermath of World War I of course...
Coincidentally, their demographic bulge peaked in savings capacity in 1990 (along with their stock market and gross leverage of Japan plc). Now corporate Japan is not very indebted, and the average Mr. & Mrs. Watanabe are still loaded, but the government's debt is 200% of GDP - the excess debt has just moved. For now, the interest rate is so low that servicing this is possible, and that low rate is possible because of said personal savings, but the demographic bulge shows to all that this situation may also not be sustainable. Fortunately, governments have a method of transferring extreme amounts of capital from people to the government that was not open to 1990 corporate Japan - taxation.
It is also worth remembering that, for most of the last 20 years, trying to fix the economy was a vote-loser in Japan. It was seen as bailing out evil Corporate Japan. More importantly, staggering house prices meant that kids never got to leave home - 20 years on, this still a huge problem The result was that the most reliable voters (over 50) were very happy to see house prices fall. After all, the paper value of their own house was irrelevant pixie money - they have to live somehere.
This makes the UK and America look different from 1990 Japan in several ways. Our government has not waited until complete stagnation has set in before acting: quite the reverse. And corporate UK is cash-rich (and needs to be), not excessively geared. Our problem is much simpler to understand and much more like Greece - we have in aggregate been spending more than can be sustained.
With an economic hat on, I can only nod at George Osborne's pronouncement that we need to cut budgets in mainstream departments by about 25% - the total figure is about right if we want to avoid the slippery slope. And avoiding it is (net) in the people's best interest - if you don't believe that, take a look at real economic disasters, like (say) Argentina in the early years of the last century.
What is horrifying is that people do not seem to understand what that will mean. However labelled, and however well a few Liberals do at trying to extract the vindictiveness (and worse) from the details, this will be carnage - how could sacking (by one label or another) huge numbers of people who today get paid somehow or other (many very directly) by government be anything less? And surely it is obvious what the effect will be on a wide variety of areas when those salaries stop being spent in shops, and when those people need state benefits - many for quite some time.
The pain will be exaggerated, at least at first, by the likelihood that inflation will start to trend upwards (though that probably won't start at once). But, eventually, the huge pile of debt will be more manageable in real terms because inflation will have devalued it and cheated those from whom we have borrowed, just as intended. And by then, the Pound will probably have fallen to a level where goods and services from overrseas are a lot less affordable, but the same inability of exported goods or labour to undercut local options will mean that our economy will be less unbalanced and more able to sustain jobs, decent benefits systems and the like. And a much lower portion of any pay cheque will be available for discretionary spending.
All this looks rather like the bad bits of the 1970s and 1980s all happening over the next 3 or 4 years - some of it will be less extreme than that picture suggests (probably the peak inflation rate this time around for example) but some bits will be worse. Note that Japan has stretched this process out over 30 years or so (i.e. there is probably still a decade to go) because they could afford to do so, but we can't. And their population bulge is worse than ours; but their location (next to Asia), their educational standards, their working efficiency in competitive areas and so on all suggest that our experience will be very different to Japan's, but probably less pleasant.
This all looks very unfair, and particularly unfair to those who are currently poor or under 35 or both. However, the big picture is that increasing communication and technology makes wider comparisons relevant. A hard-working and intelligent person in almost any country with whom we trade has much less of everything, from food to healthcare to DVDs than 99% of people here. That imbalance was probably at its most extreme 20 or 30 years ago (averaged across a country's population) but is still huge. Its correction is inevitable and inevitably grim (particularly when people are not given an understanding of what is going on and inadequate efforts are made to smooth the most severe effects - ask a miner's family). However, one thing that the correction itself is not is unfair.
The detail of who bears the brunt of Britain (and America and so on) getting poorer will be where the word "Unfair" gets really applicable. If the sacrifice of the Liberal party is the price that we pay for making the process slightly less ghastly for the non-rich population of this country, it seems a price worth paying.
i wonder whether Clegg's motives are so noble?
And if we re-run the 1970s, will vernacular music become great again?
My reply was as follows:
Thanks Nick,
Your first points I cannot but in general agree with, excepting that the funding of the welfare state was dependent upon very high taxes propping up the NI contributions that were meant to pay for it. When those taxes were brought down without significantly raising NI the welfare state was doomed. Now there are many good reasons for lowering taxes from the post-war levels, as we all agree, but every government from Thatcher's onwards has avoided addressing how to pay for the welfare state long-term. Thatcher for the obvious reason that she didn't really approve of the welfare state: Major, Blair, and Brown, because they knew that someone else would have to pick up the bill for the baby-boomers.
Mind you, we could save some £50b a year by closing tax loopholes. Or drive those folk who use such loopholes away from the UK. I mean, they've left us so well off by being here, haven't they? So we obviously need them badly.
I suppose we are unlike either Greece or Japan in real economic terms. Our total national debt is significantly lower than many developed-word economies. In fact, of the G8 countries, only Russia has a lower level of total debt than the UK: and, though our borrowing over the past two years has been large, it has been pretty much in line with neo-Keynesian models.
Essentially, it seems to me you (and the coalition) are accepting the 'double dip' as unavoidable. In which case I do wonder why we bothered with the bailout at all, given there will be fighting in the streets whatever.
But are you saying that we'd be in this position now without the financial crisis and the bailout?
Now the nub of my position in my previous blogs is that we all have paid to keep the banks and financial system afloat, because they (and it - the financial system as a whole) were/was too big to fail and would have brought down the entire capitalist-democratic system with them in their ruin. As an aside, the Welfare State redressed some of the serious inequities of the libertarian-free market-capitalist system, essentially taming the beast; domesticating it for use by grown-up human society. But to return to my point, We bailed the financial system out, but they now cannot bail us out.
Perhaps we should have let the system go down the pan: we'd now all be in this together: and the Bourgeoisie, Gentry, and Aristocracy would know what it felt like to be up shit creek along with the rest of us. But somehow it seems, along with all those others (including me, it must be said) who depend on investment income or property or whatever unearned income, the moneyed classes get off lightly, relatively speaking.
