3 May 2014, 9:22am
economy:
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  • There is trouble burning underground in Britain

    The Times They Are a-Changin

    Bob Dylan, 1964

    We have a problem in Britain. There are a lot of people who are pissed off with the way things are working. One of the good things is that there is some recognition now that the shift of power from labour to capital is causing grief for an increasing number of people. I’m not claiming to know what the answers are, but the one thing that I hope is that the way we humans try and work things out will stick with jaw-jaw rather than the sort of thing we had in the long hot summer of 2011 when people were rioting. And using Blackberry phones – it seems so long ago ;)

    One of the problems is the increasing polarisation of the workforce. I earned a decent wage at The Firm, but I never got anywhere near paying 45%/50% (in those days) tax, though I paid plenty of 40% tax until I wised up. I never got anywhere near six figures. That doesn’t bother me particularly 1  – if people want to push themselves hard enough have at it. Part of the secret to happiness seems to be to value  the riches that you do have 2It doesn’t particularly please me when CEOs pay themselves shitloads of money, but that’s because I don’t think they are worth it, this is a cartel in action and they are stealing money from the shareholders. I’d rather they actually got the money they want but actually did more to make the firms work better, rather than go for the willy-waving of loads of mergers and buying other firms up. Their yachts don’t really trouble me, and while I despise the louche taste so often displayed by the über rich that’s more because it’s a crime against culture and aesthetics than its effect on my world.

     

    That is one tasteless ugly piece of kit, non? And this is the attractive side. Apparently something to do with Philippe Starck, he of the elegant lemon squeezer. Where’s a Viking longboat or Jonny Ive when you need ‘em eh?

    That polarisation is starting a fight. The Torygraph highlights that higher rate taxpayers pay more than two-thirds of the income tax burden in the UK, which is supported by the excellent infographic by Mona Chalabi of the Guardian. That obviously hacks people off. It hacked me off – at the time I hadn’t jumped to the obvious incentive/conclusion, although instinctively I found an answer in the form of employee share incentive schemes, AVCs and retiring early.

    And yet I equally despise bollocks like Help To Work, which Suzanne Moore rightly called punishment for the undeserving poor. I’ve never been anywhere near a Jobcentre ever since it was called the DHSS in the early 1980s. I also don’t have a problem with calling some sectors the undeserving poor, if people want me to work because they can’t be arsed then it does make me wonder why. However, there is a deep problem in Britain today.

    There are no jobs that match the talents and living costs of an increasing part of the potential workforce. They are either not up to it, or the costs of living the way they would like to is not commensurate with the pay they can get. The whole endless hurt that is house prices in Britain is associated with that. The high house prices are where the work is. We can shovel our old gits out to the seaside as much as we want and large swathes of the North are acceptably priced, but that’s not where a lot of the jobs are. Help to Work should honestly be called workfare. And it should ideally do something useful for society, not just make people who have been out of work for three years go to a Jobcentre every flippin’ day. What the hell is the point of that? Unfortunately it’s structural, it’s not a Depression era New Deal building the interstate highways. It’s just employing a bunch of civil servants to get the long term unemployed out of bed every day. The civil servants/PFI firms are just as unemployed as the unemployed, but they get their benefits in a different way.

    We need new thinking here. Despite the ermine probably being on the right of centre, I don’t have a deep issue against the idea of a citizen’s wage, though I do feel uncomfortable being on the same side of the road as George Monbiot, never mind the Greens who couldn’t punch their way out of a paper bag IMO. At least I am also in there with the Swiss, with their vote on a Grundeinkommen who aren’t usually noted for being raving Communists. Unlike the first two, it’s also not about the ethics , it’s the interest of self-preservation. Obviously as wages polarise the highly paid will pay more in tax, for the simple reason that in the immortal words of Al Capone, that’s where the money is. No other bugger has any. With the citizen’s wage, however, I would like to see a whole load of other social  fiddling stopped.

    All the explicit subs going to families for a start – the citizen’s wage ought to be enough for two adults to put enough on their own and two kids plates, and actually get to enjoy their company. If you want three, or you want to send Tarquin to Eton, or you want to run a car, well go out to work or do without. We run a perfectly workable state school system, indeed if we could break the stranglehold of chuntering out economic units we might well run a better one from an all-round education point of view. And let’s rack back on the crazy expansion of the university system. University is about research and advancing the sum total of human knowledge. The average punter isn’t bright enough to do that, and a 50% university entrance target is basically aiming at the average and up. And the way we’ve rigged the system means that it won’t get you a better job often and the graduate premium is dropping anyway, presumably because of all the dim bulbs but also because, fundamentally, machines are getting smarter and the equalisation with China and India still has a way to go.

    There’s just less and less work to go round, and what there is demands more cognitive function, or it’s relatively mindless and low rent. The exams either need to get harder and university more elitist so the taxpayer can support people properly, or people need to lose the idea that you can pre-retire for three years at the beginning of your working life. And if you are going to pre-retire, then for God’s sake keep costs down – the fanciness of student accommodation is presumably a large part of the living costs now. It’s better than anything I was living in until I was in my late thirties!

    Luxury and student living don't go together. As a rule, avoid luxury when you're financing it with debt...

    Luxury and student living don’t go together. As a rule, avoid luxury when you’re financing it with debt…

    Pretending that power shift isn’t happening and calling workfare  Help to Work isn’t the way to fix it. Let’s have the discussions in the political arena about what might work in the future. It isn’t like Britain is creating no value, but fewer and fewer people are doing the creating, and paying a larger share of the tax burden in doing so. What the hell does success look like? Obviously everybody earning loads of money or with capital wants to hang on to it, but OTOH starving hordes of people running through the streets isn’t that much of a laugh for anyone. Somewhere in between lies the maximized quality of life for the most people. You don’t wanna be killed by the not-haves, but you don’t wanna be bled dry for the 40inch TVs either, as Jamie Oliver called out.

    I read The Spirit Level a while ago, and though I didn’t agree with the rationale or the interpretation I’m not so stupid that I’ll let prejudice stand in the way of data.  At least it opened up the debate. There’s more of this lefty stuff in Thomas Piketty’s Capital in the 21st century. I note that Piketty has a very good handle on capital, inasmuch as it costs £18 to buy an ephemeral copy as Kindle format. The Ermine generally tries to avoid buying what I can’t touch so I’m happy to wait for the library or the secondhand market to fix this for me. However, the Guardian is pretty much serialising it in a lot of articles.

    The Guardian has been getting themselves into a wet mess about Piketty’s book, so I turned to The Economist for a bit of balance. They were pleasantly even-handed to his ideas in this article, although whoever drafted the x-axis in the return on capital chart demands a lot of his readers. However, I will pinch the summary from one of the Guardian’s less breathless articles to summarise Piketty’s thesis

    Piketty deploys 200 years of data to prove them wrong. Capital, he argues, is blind. Once its returns – investing in anything from buy-to-let property to a new car factory – exceed the real growth of wages and output, as historically they always have done (excepting a few periods such as 1910 to 1950), then inevitably the stock of capital will rise disproportionately faster within the overall pattern of output. Wealth inequality rises exponentially.

    The process is made worse by inheritance and, in the US and UK, by the rise of extravagantly paid “super managers”. High executive pay has nothing to do with real merit, writes Piketty – it is much lower, for example, in mainland Europe and Japan. Rather, it has become an Anglo-Saxon social norm permitted by the ideology of “meritocratic extremism”, in essence, self-serving greed to keep up with the other rich. This is an important element in Piketty’s thinking: rising inequality of wealth is not immutable. Societies can indulge it or they can challenge it.

    I remember challenging somebody at work to a bet since he flatly refused to believe that he was in the upper 10% by income 3. I am nowhere near the top 10% by wealth – conveniently it appears you need to be a sterling millionaire according to the ONS to be in the top decile. But it is at least all my own accumulated wealth from when I started work. It is interesting what Piketty says about the toxicity of inheritance to the distribution of accumulated wealth. As an example, take a look around you. Two thirds of the land in England is owned by 0.6% of the population, and it was largely the same families who owned it 200 years ago. 50% of land in Britain is unregistered – by definition it hasn’t changed hands in modern times, but is part of ancestral wealth.

    Some might say that inheritance tax is there to address that, but it is only the little people who pay that. The aristocracy struck a deal with the post-war governments who were were keen to shift the balance, mindful of the efforts of the people in the wars. The deal was this “UK.gov, you wouldn’t want people driven off their farms because when Dad hands it on to Son, Son would have to pay 50% IHT, would you?” So there is no inheritance tax on agricultural land in the UK, so it becomes the ancestral wealth store of first resort for old money. The land has to be farmed, but now that’s hived out to contract farmers. These are good enough to rapaciously farm the land using the soil as blotting paper for chemical fertilisers, so we have increased runoff which floods some of our towns and cities, given that our forebears built their habitations around rivers that historically weren’t flash-flooded by industrial agriculture.

    This way there’s an income from the wealth and it can be kept inside the family IHT-free though it has nothing to do with farming. The little people obviously get to pay IHT, which hopefully slows down a little bit of the rampant rise in house prices compared to what it would otherwise be, but old money has nailed that IHT problem that seems to exercise the old buffers at the Torygraph ;)

    In general we seem to have designed a society in which we live materially richer than kings in recent times – and that includes people sucked into Help To Work. But we are hammering people’s emotional needs. We encourage rapacious advertising to make them always want more, we collectively mentally torture people who are unable to find work in the rapidly shrinking pool by dishonesty telling them that it is all their fault that they can’t find work to match their aptitudes that gives enough return to live in the way the advertising tells them. We make it difficult for people to raise children which is a pretty common aim of human animals, oddly enough. We glorify paid work and despise the unpaid graft that goes into making a human community. In fact generally we despise service to people and glorify service to stuff.

    Taylor Schilling in Atlas Shrugged. Apparently the movie stank. The novel has over 1000 pages so it's a big ask ;)

    Taylor Schilling in one of the movies of Atlas Shrugged. Apparently the movie stank. The novel has over 1000 pages so it’s a big ask ;)

    Before readers think the Ermine has been taken over by space aliens and become a raving Communist I don’t agree with Piketty, or the Guardian, that the answer is to steal the money from one group of people to give it all to another. Reading Ayn Rand’s Atlas Shrugged did not cause me to spill my beer. Niall Ferguson’s The Great Degeneration sums up a lot of the problems. What I’d like is for us to apply some mind and intellect to establish where we are, what we want of an economy – the hint is probably to make human life more enjoyable, rather than to worship metrics 4  and digits on a screen, and then to have a decent debate on the big picture. I’m with Scott Fitzgerald that

    The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.

    Politics now is all to much micromanagement of detail and polarised crap. I fell into that damned trap myself – I kept on earning even when the process of earning money was beginning to seriously piss me off, but never opened my mind to what am I trying to do with life, until I encountered a sudden stop. And then realised that I could stop and should stop bashing my head on a brick wall, but it would demand changes in how I did things.

    Let’s avoid that sudden stop and inquire on how to do things differently. As I wander through the neighbourhood I spot loads of UKIP posters. It reminds me of the 1970s when the National Front was marching through Lewisham High Street. UKIP seem racist in a different way – less about colour, but let’s not forget that Europe has known a terrible amount of human misery perpetrated between groups that one would be troubled to spot a difference between by sight 5. The troubled history of the Balkans and the dreadful conflict that started 100 years ago shows where that sort of thing goes. One of the delightful collective qualities of the English are that they are generally a tolerant and easy going bunch of people in comparison.

    Hopefully we will think our way out of the problems rather than fight our way out of it. But the language of some of the election literature I am receiving troubles me. I don’t normally bother with European elections for the simple reason that the European Parliament has no executive power, I of the same opinion as both Piketty and UKIP that there is a serious democratic deficit in the EU, and it would be remedied with a Parliament that was elected in proportion to population and had the power to make the running. The EU was historically a trade body set up by technocrats, and that is fine. For a trade body.  The expansion of the mandate needs different structures. But smashing it all up in a fit of pique doesn’t strike me as the smartest option either. And what I really, really, want is to lean against a UKIP victory. The East of England is already a redoubt for that party, and these guys scare me, because when you start to hear that the end justifies the means it’s not usually a sign of good times coming.

    And we need to stop lying to the people that the economy is disenfranchising.

    There’s nothing we can do for you, you’re on your own

    would be a far more honest response to the long-term unemployed than bullshit like ‘Help to Work’ and oxymoronic compulsory volunteering. I’m not smart enough to know what the answer there is, but I am smart enough to know that collectively lying to ourselves isn’t the answer. We have to deal with the world as it is, not how it was. And right now the pool of work for the averagely endowed is dropping, the returns on that work is falling, and there seems to be an increasing amount of hurt as a result. There are also a fair few own goals – one of the things I am deeply grateful to Gordon Brown for is keeping Britain out of the Euro. The Island Kingdom is essentially different when it comes to handling money, it is perhaps a shame for other members of the Europe that Britain is not the only exceptionalism.

    There’s a lot of slow-burning crap at the moment. To be fair there’s probably always a lot of slow-burning crap at any time through modern history, and every time somebody declares that the slow burning crap has been nailed it turns out that he’s standing right on top of it, like Francis Fukuyama’s The End of History and the Last Man. It’s not just human development where declaring victory is unwise, Lord Kelvin thought physics was done and largely dusted in 1900 bar improving accuracy. But it probably does to engage with the slow burn rather than pretend it isn’t there and end up like Centralia.

    Notes:

    1. a lot of people get worked up about the unfairness of some people earning shitloads of money. As a citizen of a First World country in the 21st century, many Britons are  probably doing pretty well, on a global scale…
    2. That’s maybe easier for old gits who have known outside bogs, no central heating and draughty windows. Clean water, which in fairness to Britain I have always known, being warm enough and having decent food knocks having the right iFads and consumer goods into a cocked hat. Try doing without any of them for a couple of days in February.
    3. He declined, because he had already lost £5 to me because he didn’t believe that Mustela erminea has a baculum some time before
    4. The most common metric of economic growth, GDP, has serious deficiencies as described by the OECD
    5. I’m really trying to avoid Godwin’s law here, particularly this year

    I’m for whacking up Inheritance tax towards 100% above a modest gift-like amount — say £100,000 or so — or with 100% relief on it if the money goes to heavily vetted charity list (so your kids can’t just set themselves up as a charities).

    But nobody likes it, and they believe it’s not fair, being taxed twice. ONCE WHEN THEY ARE DEAD.

    I guess people don’t really understand they’re going to die, or they genuinely think they live on in some form through their kids.

    I don’t have that particular mental pathology, but most do.

    Very thought provoking ermine.
    I think you hit the nail on the head about the lack of actual real “jobs” – hence the increase in zero hours contracts.

    I am also totally in agreement that “student life” has become the goal for a lot of kids rather than the actual education, or even job they hope it will get them. And I hate the way universities have become businesses, and the ridiculous student loan system that has ended up costing more than the old grants. But if we do discourage young people from going to uni don’t we make youth unemployment worse?

    As you say it’s a self evident truth that if most of the wealth lies in the hands of the top few % then it is inevitable that the biggest part of the tax revenue will come via them. But that wealth does also buy them tax breaks – 70% of tax relief on pensions is paid to higher rate tax payers.

    We do need a sea change in attitude. As a society we seem to increasingly value the wrong things (greed, paper qualifications, money, “assets” and celebrity). However, as the summer comes around again my feeling is that there is perhaps not the same appetite for rioting as there was. Individuals are more likely to “look after” themselves, whatever that takes. And this, in a way, is more frightening as it suggests that collective action/protest/collaboration is starting to lose out to individuals acting for themselves. The phrase “dog eat dog” springs to mind.

    @Monevator I think many people do believe they live on through their kids. There was a psychological theory called terror management theory that implied the fear of death is so existential and particularly human, children are an obvious solution to some of the issues over and above the natural animal tendency to favour their own.

    Personally, in the inlikely even any inchoate post death Ermine existence be troubled by HMRC the response should be delivered in robust Anglo-Saxon ;)

    I have to admit I was under the impression than one can give to registered charities from one’s estate tax-free. But it’s really not my problem!

    Agreed there should be a gift exception. enough to do something but not anything, to borrow ideas from Warren Buffett.

    @Cerridwen – cynics might suspect that some of the inflation in student numbers was a ply to remove a corpus of the young from the unemployment figures. If so it was a terrible thing to do to people.

    The thing is, if we encourage our young people to go into debt to have what is effectively a pre-retirement then it’s not like we are setting a good example of financial management to them unless it really is an investment in their earning power. In the past it usually was, and the State often got their grants back in the form of higher rate tax. But if university doesn’t give a decent graduate premium, then it is borrowing to fund lifestyle. And I am dead against that, and believe it’s downright criminal to encourage that at the very start of the time when people learn to manage money. At the very least we should be honest with them as to what the likely financial impacts are.

    > But that wealth does also buy them tax breaks – 70% of tax relief on pensions is paid to higher rate tax payers.

    I guess it should be noted that this is money they have earned, and will probably still be taxed on in retirement, albeit in some cases at a lower rate.

    One of Piketty’s aims was to get people to think. It’s the dearth of thinking, particularly in the Anglo-Saxon political sphere that disturbs me. Without an effective agora we paint ourselves into entrenched positions and lose common understanding. He’s made me think – my thinking is contradictory and diffuse, but I appreciate it. Far better to be a contradictory human struggling to establish values than an accurate automaton driven by metrics. I am glad to see that the French tradition of philosophy is still alive and ready to serve!

    3 May 2014, 1:30pm
    by dearieme


    “building the interstate highways” was not New Deal, it was Ike. I did enjoy your sarcastic idea of citing Hari as a source of facts, though.

    3 May 2014, 1:38pm
    by ermine


    @Dearieme you’re a hard man re Hari, though the IHT on agricultural land and the non-registered status is indeed frequently noted in Savills’ Aspects of Land magazine that I get as a non-ancestral UK landowner :) Fair cop on the highways, it was a long way before my time and I must have misread Wikipedia, or confused it with The Grapes of Wrath ;)

    I quite like Merryn Somerset Webb’s idea of taxing inheritances against the recipient, as income tax. (Though obviously it would need some ironing out as people would basically take sabbaticals! Or perhaps that would be good!)

    http://www.ft.com/cms/s/0/8738cac0-bbdc-11e3-84f1-00144feabdc0.html#axzz30gcAZUpc

    (I’m sure you can come up with a sensible google search if you don’t have access.)

    4 May 2014, 8:22am
    by ermine


    @Greg I would say the sabbaticals mean other people could get the jobs. However, when I voiced the opinion this morning Mrs Ermine charged me with succumbing to the lump of labour fallacy as a result of being a lifetime employee and never having run a SME full-time.

    In a delightfully apposite example of old money coming acropper, it appears one ancestral cache is being opened up, presumably because the current Earl was unable to comprehend or back the Trustees who openly stated

    the trustees were trying to reduce inheritance tax, and were ‘managing the estate for the benefit of the 8th Earl and the family’

    The postwar deal struck between the landed gentry and the Government allows them to do just that. But you do have to play by the rules and pay attention, and it appears Hugh failed to get that. My heart bleeds for them ;)

    4 May 2014, 3:34pm
    by Never land


    While Picketty”s solutions are just garbage, I just find the “neo-liberalist-nothing-can-be-done-shrug” just ridiculous

    What’s actually true is that the last generation who did something collectively great (win WW2) are all dead and all anyone cares about is money – to be precise their own money

    The British people get the politicians they deserve

    Witness straws in the wind: Tony Blair prostituting his own legacy for £100m from Qatar and Khazakstan; Cameron kowtowing to Communist China for some investment in a super sewer; and the response to the Russians deliberately invading and destabilising the Ukraine being determined by the likely side effects on Lobdon’s status as a wealth management centre

    Even some of Churchill’s speeches from nearly 100 years ago would be regarded as too left wing for the labour party now

    5 May 2014, 9:22am
    by living cheap in London


    A great read Ermine. You are a touch typer I can only assume!

    As a SE London resident, I can report that the NF firmly lost their “battle” on Lewisham ;-). It may not be the most beautiful High St in the country, but interestingly it was identified by some researchers in the FT as being the High Street in the UK most likely to thrive in the coming decades. Geography playing a kind card on a poor part of London.

    http://www.ft.com/cms/s/0/378dc892-7442-11e1-9951-00144feab49a.html

    An excellent piece once again.

    I agree that there should be Keynesian infrastructure stimulation from Government (the only time it should interfere, rather than nonsense such as right to buy) and some might argue that this is exactly what Crossrail and HS2 are, the only snag being that they’re in already prosperous areas!

    The other thing you touch on is the rise of nationalism in times of economic distress and I too am old enough to remember the NF daubing on walls. UKIP and (being contentious) Scotland with their desire to become ever more insular in a globalizing world is a strange response. It’s not the folks from the EU who are “taking all the jobs” it’s the multinationals who outsource to cheap centre’s of labour elsewhere. All the eager consumers buying their bargains in Primark, Dixons, et al don’t really think about the consequences of continually demanding goods at lower and lower prices.

    The final nuance is that there is probably increased expectation amongst the general population. Go back x years and if you were born a serf, you died a serf, same was true probably right up until after the 2nd World War. It wasn’t very British to “get ideas above your station” – there wasn’t any expectation of great social mobility and having it all. Now everyone “deserves” things. The problem with Downton Abbey and similar shows is people fantasise themselves as the “upstairs” staff when they almost certainly would have been “downstairs”.

    “The 1%” have always and will always (by definition) be with us, we’re probably just more aware of it. At least we don’t sack our domestics without references after getting them pregnant anymore :)

    Hi:

    I really enjoy the ranting Ermine rather than the mortgage graphs. I too am a fan of Neill Ferguson. There are other writers out there who take analysis of the West’s. situation a step further. There is a fine book by a South African writer called “Our Way Out” that suggests ways that society can deal with many of the doom and gloom scenarios facing us. At least people are out there suggesting solutions. I think it’s when we begin to lose the faith that we are societies capable of problem-solving that we enter the danger zone. I don’t think we’re there yet but we’re closer than anytime since 1939. Let’s hope better minds prevail.

    @Neverland – in my view it’s Picketty’s questions that are interesting. Demanding both reframing and inference in one go is a bit much of one fellow in one book!

    @Living cheap – I was struck by how much had changed but also stayed the same when I changed from the DLR to the bus there. That aggravation was more serious than I remembered it from the news at the time!

    @mistersquirrel – interesting angle on Scotland. At first I thought eh, but on reflection you may have a point!

    The enemy is us, indeed. It staggered me a few years ago when I replaced the first multiegion DVD player I had with one from Tesco that I needed right then. And paid £21 for it, and asked myself how the hell they can even ship it to the UK for that little, never mind make it, pay $5 mpeg2 license and the CSS license to the DVD consortium.

    I’ve never seen Downton Abbey, but we all live like upstairs now – washing machines, chairs that move us at 70mph (and others at 500), all that seeing stuff and people at a distance. Not to mention solutions to that unwanted pregnancy problem. We live upstairs of their upstairs!

    @g that book sounds interesting, though my library doesn’t have it :( We do seem to be suffering from a focus on the how rather than the why in responding to challenges – it’s good to see some new thinking rising from the financial crisis which is wider than how do we stop this happening again.

    @ mrsquirrel

    Speaking as a Scot, I see no evidence that there is any agenda to become more ‘insular’. The referendum has more to do with re-defining our position as an independent nation with a unique ‘brand’, and insourcing control of our economy. Or not, depending on how the vote goes ;)

    The ‘no’ camp have made the argument that an independent Scotland would be isolated internationally, but the ‘yes’ camp certainly don’t appear to want that (possibly as it would be economic suicide?)

    Without letting my personal thoughts in the referendum enter into it, I don’t agree with your assertion.

    6 May 2014, 9:34pm
    by Starla


    Piketty paperback £4.20, buy it now, ebay.

    6 May 2014, 9:40pm
    by Starla


    Sorry no, its an executive summary. Hazards of searching while watching the Eurovision semi finals.

     

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