21 May 2011, 12:32am
economy:
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  • The Times They are A Changing – Be No Boiled Frog

    Change is part of life, it indeed is characteristic of life itself. It’s a double-edged sword; it makes life more interesting on one hand. We go on holiday to find change, else we’d just stick at home and go to the park on our time off.

    On the other hand, it makes it hard to live life, set in a sea of roiling change in the society and expectations around us. One of the characteristics of previous ages was that people lived more stable lives – there were people only a generation or two ago who grew up, raised a family and lived and died without having ever been more than 50 miles from the place they were born. George Ewart Evans related some of these tales from first-hand interviews in his book “Ask the Fellows Who Cut The Hay”.

    As a result, societal changes happened slowly, whereas now they happen a lot more quickly.

    There are some assumptions that many people build into their lives that were drawn from how their parents and other lived. In particular, some of the assumptions of how to live a middle class life are becoming very shaky indeed.

    President Obama called it out well in his State of the Union speech.

    “Many people watching tonight can probably remember a time when finding a good job meant showing up at a nearby factory or a business downtown. You didn’t always need a degree, and your competition was pretty much limited to your neighbours. If you worked hard, chances are you’d have a job for life, with a decent paycheck, good benefits, and the occasional promotion. Maybe you’d even have the pride of seeing your kids work at the same company. That world has changed. And for many, the change has been painful.”

    There are lots of difficult questions we might want to ask our politicians about how they delivered us such a screwed up world where so many of us have taken the shaft. In return, the more astute of them might return that they are merely a mirror to our desires and hopes. The problem is that

    we wanted it all, and we wanted it now, and it was mainly in terms of things and stuff

    Satisfaction delivered, largely, in the West. In the first half of the 20th century, lots of Stuff made great improvements in people’s lives, you can’t knock decent sanitation, the arrival of electricity in the 1930s, washing machines and vacuum cleaners in the 1950s, cars in the 1960s and 70s, central heating and double glazing in the 1970s.

    Then it all started to go wrong, and in a sudden rush of blood to the head we wanted more and more stuff, while not realising that we were taking on more and more debt simply to live.

    That was sustainable in the world that President Obama described, of stable jobs and a steady society. However, we started to demand more and more of our companies, and in order to deliver on the promises they made to our pension funds, our companies started to demand more and more of us. We could have had the Fifties lifestyle but working far fewer hours, but companies don’t like hiring part time staff, so what we got was a lot more unemployment, and a rise in asset prices like houses.

    Let’s take a look at where things have gone wrong:

    Jobs

    • there aren’t enough of them, decent ones anyway. We doubled the workforce in the 1970s, and the economy hasn’t adapted well
    • they aren’t particularly secure
    • you don’t get career progression, everything is a fight now
    • on the job training is disappearing
    • job descriptions are exploding in complexity without much cash return
    • people are managed as interchangeable components, less and less attention is paid to using them to the best mix of talents and specialisations
    • increased focus on paper accreditations rather than successful work done
    • far less opportunity to shine as an individual, everyone is a cog in a team now
    • more rigid structures
    • outsourcing and faux-self-employed agency working without rights

    Housing

    • Ever since Thatcher’s sale of council housing we have had insufficient housing, poor rental conditions and increasingly overpriced owner-occupation
    • the rise and rise of the interest only loan. Why do people to this to themselves FFS.
    • the rigidity of owner-occupation doesn’t suit the mobility requirements of todays insecure jobs, so we have accidental amateur landlords
    • Buy To Let. About time you started to pay capital gains tax, guys. There’s actually a case to be made for that on all property, but definitely on non-main-residences.  It also results in old money competing with young money, and old money always wins…
    • You need two earners to be able to afford a house

    Education

    • When everybody gets a gold star because we can’t allow ourselves to tell some of our children that they are thick, we can’t tell who’s bright and who isn’t. Plus some people get to leave school without being able to read properly or add up.
    • University. What is it for and what good is it? How do we know who is good enough and who isn’t. Is there any such thing as not good enough?
    • Student Loans/tax
    • Is 50% university entry desirable? This means university entry for people with an IQ of 100 or above. IMO universities should be more selective, they were in my day, taking about 7% of school-leavers.

    This is what has gone wrong in the last 20-30 years. Let’s take a look and what is likely to go wrong in the next 20:

    • Britain, and the West in general is bankrupt. In the end the rest of the world is going to get bored with giving us money to keep our lifestyles high. What that means is that wages, in real terms, are going to come down. Big time – I would guess at least 50%, if not more.
    • We have an increasing polarisation of wealth

    The share of UK income taken by those on various slices of the top income ranges

    Look at where that is going. That means you want to be in the top 10-20% of the income distribution. You can find out where you are with the Institute of Fiscal Studies’ Where Do You Fit In page.

    If you’re not up there, then you will find it increasingly hard to do many of the things that you saw your parents do. If your household income isn’t in the top 10% you would be unwise to take out a mortgage to buy a house in my view, as over the 25 year term you will probably not be able to accumulate enough wealth to pay down the capital. You’re better off renting, because losing a house involuntarily means it gets sold off for a song and you still get chased for the debt, unlike in the US with their non-recourse mortgages. You still get to lose your house in the States, but the debt is cleared.

    If you’re young, you probably want to think about whether you want to move abroad to a more dynamic economy. Asia isn’t bad… Germany is good for budding engineers, if I were in my 20s Germany is where I would be looking! There may be advantages to your university funding, should you choose that way.

    University – to go or not to go? I can’t really understand why anybody would go in England, saving £30,000 seems worth learning a foreign language for and studying at least in Europe.

    Lots of people are going to come unstuck in the couple of decades ahead making bad assumptions that they will track some of the life path their parents did. I was older when I discharged my mortgage that my Dad was when he paid off his mortgage, we were both single wage-earners, but he managed to do it while raising children! I was a white-collar worker, he was blue-collar. The reason it took me longer is written in the shape of that graph – Dad managed to buy his house on the downswing when wealth was shared more evenly from 1960 to 1985, I was in the upswing from 1988 to 2008. Not only that, he was competing with other families with a single breadwinner, I was the single breadwinner as only occupant, competing with two-income households so I had to pay more for my house as a proportion of my salary, even though on other measures I was earning more than Dad. That will hold more and more, as governments lower benefits and increase taxation to try and balance the books.

    Additionally, we have increasing competition. From 1950 to 2000, the West had a clear run, but other countries are catching up fast, and they have far larger and younger populations.

    The world may start running out of resources, particularly oil. we’ve only got one world, and we are adding an increasing number of people to it, and their lifestyle is increasing. There’s not enough world for everybody to have a European lifestyle. Globalisation will be the great leveller, it was great when it meant cheap DVD players in Tesco, it’s not so great when it means petrol at £50/litre.

    How do you respond to this?

    • You avoid debt, at all costs, particularly debt incurred to fund a ‘lifestyle’
    • eliminate fixed costs as far a possible
    • where possible, organise with other people to produce essentials for yourselves and grow food.
    • Spend less than you earn
    • Consider some of these ideas

    It’s all about resilience and eliminating unnecessary costs. It’s about people, not things – a lot of your quality of life comes from who you know, not what you have. There is a whole advertising industry telling you otherwise, but a lie repeated is still a lie. Our lifestyle and  standard of living may have to drop, but if we live in a way more according with our values and relate better to each other then our quality of life may not drop.

    Forewarned is forearmed. It’s more comfortable to go lalalalalalalala and believe the ads. Taking on extra debt is like the junk food mantra ‘a moment on the lips, a lifetime on the hips’. Live within your means – or be a wage slave for your whole life. It will be harder in future to recover from a debt binge.

    Funnily enough, Vince Cable seems to be of a similar opinion regarding the coming decline in British living standards.

    People do not understand how bad the economy is […] politicians have not made clear the time and pain needed to restructure Britain’s broken economic model

     

     
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