This excerpt from Stewart Lansley (author of The Cost of Inequality: Three Decades of the Super-Rich and the Economy) succinctly sums up some of the problems caused by the deregulation of Capitalism:
The main outcome of the post-1980 experiment – one based on a return to blind-eye regulation of the City, fewer controls over business and a weakening of collective bargaining – has been an economy that is both more unequal and more fragile and prone to crisis.
So why is this? The reason lies in the relationship between wages, productivity (the increase in productive capacity) and growth. When wages fall increasingly behind growth and productivity – as they have in both the UK and the US in the last 30 years, and at an accelerating rate – the natural mechanisms that bring economic stability stop working. The decoupling of earnings from growth creates three powerful forces that bring first imbalance and then economic failure.
First they suck purchasing power out of the economy. For the last thirty years, an increasing number of rich nations have been running their economies on low levels of wage-generated consumer demand, necessitating an increasing reliance on debt to prevent implosion. In both the UK and the US, the rising levels of politically sanctioned debt enriched financiers and kept economies going for a while. But they were never sustainable.
Secondly, concentrating income at the top, amongst a group more likely to engage in reckless speculation than spend their wealth in ways that benefit the productive economy, eventually leads to asset price bubbles in property, commodities and business values. Thirdly, great levels of inequality bring unequal power. Over recent times, the rise of dominant wealth-diverting finance capitalism has created a powerful new and unaccountable economic elite. Hence the inaction on tax havens, blind-eye regulation on the City and Wall Street and the way the super-rich are treated as a special case for tax. These are all factors that contributed to both the build-up to the Crash of 2008 and to the persistence of the crisis.
Rising executive pay and soaring personal fortunes are important issues of social justice. Levels of personal wealth at the top have risen to levels that are indefensible in terms of economic contribution. But they also have important implications for the way economies function. Until we find ways of breaking up these great concentrations of wealth and power, fragility will remain, and the global economy will struggle to recover.
Tuesday, 1 November 2011
Monday, 3 January 2011
Do House Prices Absorb Excess Wealth?
Astonishingly, coalition minister for Housing Grant Shapps is speaking sensibly about the UK Housing Market on BBC R4 Today this morning (3rd Jan 2011 - see http://news.bbc.co.uk/today/hi/today/newsid_9334000/9334045.stm). I agree with him that a stable market is a good thing, that property bubbles are very bad, and that the current market is considerably overpriced. He's also right that a fast correction will be a devastating thing. Look at Ireland for example. However, I do not believe he is correct on 2 important points:
1. His prediction that the market will slow down and stabilise gradually. Putting policies in place to make this happen (build more homes etc) is GOOD, but his colleague's austerity cuts, VAT rise and general crusade to get rid of a huge number of government related jobs will almost certainly mean this thing goes down like a Tiger-shaped hot-air balloon that's run out of gas.
2. That house-prices should end up cheap - like white-goods and TVs. This is hokum, and not because houses can't be shipped from China (although they can), but because house price inflation partly happens to absorb excess wealth. As we get richer (due to most things becoming more affordable) our societies reach consumerism saturation point - that point you might have reached when asked what you want for Christmas and it's a job to know. We've bought the dishwasher, PS3, huge TV, MacBook, Sky+Broadband, Fender guitar. What else IS there to get? There's only so many holidays you can take - and your car can only be incrementally better than a Focus. But I believe as humans we NEED to make progress, to accumulate "achievements" (which is what all of those materialist goods supposedly mean to us) - we have to aspire. It sounds strange to think that we subconsciously want to have things that are out-of-reach, but here we are paying what is in reality a 1/4 or 1/3 of a million pounds for a few rooms with shit carpets. Land is the one thing that cannot be manufactured (easily) and is therefore the one thing that will become in short supply (and thus more valuable) when everyone has everything else.
(Just as 'real' animals are more valuable in Blade Runner ;)
I am no economist. Nor do have any proof other than the correlation between house-prices and previous times of wealth. But I bet you this - as the economy turns dark that trend will be reversed, and assuming we come out the other-end into a new time of prosperity (2020?) we will see that which has a limited scarcity soaking up excess cash once more.
1. His prediction that the market will slow down and stabilise gradually. Putting policies in place to make this happen (build more homes etc) is GOOD, but his colleague's austerity cuts, VAT rise and general crusade to get rid of a huge number of government related jobs will almost certainly mean this thing goes down like a Tiger-shaped hot-air balloon that's run out of gas.
2. That house-prices should end up cheap - like white-goods and TVs. This is hokum, and not because houses can't be shipped from China (although they can), but because house price inflation partly happens to absorb excess wealth. As we get richer (due to most things becoming more affordable) our societies reach consumerism saturation point - that point you might have reached when asked what you want for Christmas and it's a job to know. We've bought the dishwasher, PS3, huge TV, MacBook, Sky+Broadband, Fender guitar. What else IS there to get? There's only so many holidays you can take - and your car can only be incrementally better than a Focus. But I believe as humans we NEED to make progress, to accumulate "achievements" (which is what all of those materialist goods supposedly mean to us) - we have to aspire. It sounds strange to think that we subconsciously want to have things that are out-of-reach, but here we are paying what is in reality a 1/4 or 1/3 of a million pounds for a few rooms with shit carpets. Land is the one thing that cannot be manufactured (easily) and is therefore the one thing that will become in short supply (and thus more valuable) when everyone has everything else.
(Just as 'real' animals are more valuable in Blade Runner ;)
I am no economist. Nor do have any proof other than the correlation between house-prices and previous times of wealth. But I bet you this - as the economy turns dark that trend will be reversed, and assuming we come out the other-end into a new time of prosperity (2020?) we will see that which has a limited scarcity soaking up excess cash once more.
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