Thursday, May 30, 2013


The article I saw on the paper lying next to me on the train makes disturbing reading.  Breadline headline in Metro.  Sigh.

With no real sign of let up on the economic front and clear bad news from Europe in terms of figures regarding employment (especially the young), the drag that this will have on the UK economy and reductions in government spending to a level which is all but rendering it ineffective I am starting to struggle to see how this is going to get better before it gets worse.  This is not about my normal levels of pessimism.  This is about sleepwalking into a very nasty situation.

Globalisation is good in many ways.  It allows trade across borders and exports.  But this has been a double edged sword for much of the wealth generated by such corporate expansion has not benefited the UK.  With a globally competitive market we have global tax competition.  The ability to trade has been opened to all but the rules governing such trade have not been robust enough.  Obviously to prevent such cross border exodus of capital and wealth requires international level cooperation which at the moment is simply not present.  Attempts in the EU to level the playing field have of course been scuppered with the politics of in/out being the regular headline.  If it cannot be achieved in the EU, what hope globally.

It is not hard to see where this is all heading.   The trend is for more open markets, less regulation and lower levels of controls.  A 'let nature take its course' approach to capitalism.  The trick of course is consistency.  It is fine to let nature take its course provided you are not putting controls in place at the bottom end around.  One such control is of course limits on benefits.  They have a good point.

It cannot be right that someone who gets up to work every day sees the guy across the road earning the same money in benefits without working.  These deep seated cultural issues will not be solved in my generation.  But without any controls on the market, spending on welfare needs to be raised.  This is simply because without controls, costs are spiralling for those at the bottom end of society (economically) and this is one of the absolute vs relative debates.

Yes, inflation may be at x% a year.  But this is a complex calculation.  People have much simpler local issues.  Rent is rising at a fast rate and so is energy and food.  Yes, prices may be inflating at say 5% (for these listed areas) but if that 5% is actually 20% of your available funds which is the true inflation figure.  I have always pointed out, tax at 40% is fine if you are earning £1million pounds because you will have lots and lots of money left.  If you earn £20,000 then the absolute amount is significant.  £10 to someone with £600K is nothing.  £10 is everything.  Working out inflation based upon a national position is one thing.  But it needs to be looked at in terms of the individual or family.

The trend is such that in the next 5 years there will be a crunch point.  Government will need to intervene.  It will not longer be good enough to say that inflation is at 3% if the 3% is applied to costs which are already 70% of many people's earnings.  Rents continue to rise.  Wages remain static to low in growth and this is only relevant if you have a job.  Tax credits continue to subsidise low wages for business who can then make bigger profits to go abroad to avoid tax.

Exaggeration maybe, but it is not a sustainable model.

Globalised economies are great if there are globalised controls to underpin it.  There are not and there lies the rub as they say.


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