Sunday, 9 September 2012

Data show UK emerging from recession

This is not even about challenging a particular ideology, but it is about economic reasoning.  The myth of wealth creators has been repeatedly busted over the medium term: the Bush tax cuts have been disastrous, and so was the noughties boom in the UK.  While the rich got richer, the average GDP growth has fooled everybody into a sense of general prosperity and a dangerous complacency about the real needs of the economy.  The market forces have indeed generated more wealth for the wealthy and wealth illusion for the masses, but the average person has managed to temporarily raise its living standards through debt, and not wealth, accumulation.  The unsustainability of these models do not recommend them as the solution for getting out of a crisis they created in the first place.   The capital providing industries have prospered but ironically this has eventually starved the others of credit.  The bust has revealed that you cannot grow through uncontrolled leverage, but few can make a lot of money in an abundant credit environment.        

The main issue with Cameron (or Romney) programs is these are balance sheet wizzardries, and do not recognise fundamental societal problems: demographic changes, sectoral landscape, risk and reward, performance and compensation, fairness and equality of opportunity.  The state needs to show stewardship.  It is absurd to remove spending from the federal government by pushing it to the states, this does not drive any fundamental improvement, it just means you off load liabilities from the central balance sheet and load them to others’.  This proves that comparing running a country with successfully making money from leveraged buy-outs is a really dangerous game.

Similarly, government intervention does not mean more red tape, it can mean elimination of loopholes and exemptions or simplification of regulation.  If anyone truly believes more homes are not built because too many affordable ones are required, is delusional.  Planning in Britain is the most rheumatic in Europe, and the nymby culture has deep roots.  The landowners in London want no more houses be built, and no re-developments.  Their defence includes scaremongering around building on greenbelt (which is completely unnecessary).  They also say high rise is not for London, finger pointing the council blocks of the 70s.  15,000 new homes will be built in London, many in 6, 12 or 30 storey blocks, only the average price per unit is 2.5 million pounds.   

David Cameron needs to be more taxpayer, and not business, focused.  Building conservatories will drive constructors’ profits, but what is the real benefit for you and me?  It won’t even increase the builders’ earnings so that they will consume more and drive everyone’s real income so that people will afford mortgages at current house prices.  The 250,000 homes / year shortage means more houses should be built on existing housing estates, public or private.  The average house price needs actually to go down so that a 35,000 GBP salaried man or woman can afford a London mortgage.   This is not what the government donors want to hear though.     

Similarly, QR has driven so far banks profits, and not taxpayer wealth.  And sadly lead to no economic recovery.  People making 20 to 30 thousand pounds per year need to have more purchasing power, both in absolute terms and relatively to the top 5% of the population.  How to enhance productivity, how to simplify effective tax rates and make them progressive, how to use the government balance sheet to boost infrastructure and education, that’s the core set of questions to this government.  They haven’t found the answers, because they do not want to look for them. 

Anything is acceptable only if it generates profits for the wealthy.  This has to change.

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