Category: Economics

Economics, Journal, Politics

High inflation and low growth new normal?

| admin

High inflation and low growth new normal?

The UK is suffering from Brexit-related inflation, supply shock energy and covid, with pent-up demand causing rising inflation, weak pound adds to the woes. Together this toxic mix is starting to lead to slow growth and high inflation. Strange mix of disinflationary and inflationary pressures, shocks to the economy.  Bank of England has few options, unable to reduce global energy inflation.

Simple narratives often the big picture. Fear is wage price spiral of the 1970s returns. That ignores the weak wage growth over the past decade, poor productivity that is plaguing UK. Major wage correction is required with big increases at the lower end. Public sector needs huge wage increases to keep staff. Already seeing some wage growth but that being outstripped by inflation. Companies finding keeping staff and hiring just as difficult. UK has far too many cars hand washes and little business investment.

Workers in the public sector are demanding higher pay or face strikes. Bank of England is warning workers not to seek higher wages or face fueling inflation. Misremembering what happened during the 1970s. Tories are stuck in thinking the answer comes from supply-side reforms when demand needs to be supported. A bunch of structural issues facing the UK, the housing market is sucking economic activity. Housing market is draining output as many are paying mortgages or funding retirement pots.

Simple narrative companies are greedy or workers are ignoring the complicated backdrop. No easy answers to solve the problems facing.

Northern Ireland protocol by design has created a sea border between it and UK. Closer alignment between the UK and EU would solve the issues. Border must be somewhere, some improvements but sea border must remain. Eurosceptic MPs are unlikely to support closer alignment, pragmatic thinking is dead. Scope for minor changes to be made but promises made for Eurosceptic can’t be kept. Most of the problems have been created by Boris Johnson’s own short-term thinking. Only cliff edges remain as solutions which lead us to a potential trade war with the EU. Not exactly smart to do during a period of high inflation with a weak pound.

Domestically Boris Johnson is weak and lacks the political capital or leadership to find a solution. Northern Ireland assembly DUP is blocking the appointment of a speaker. Local elections saw the DUP becoming the second-biggest party not the first. The government can’t be restored after a certain period election must be called again. DUP is demanding the Northern Ireland protocol be scrapped before they even consider coming back to the table. The UK is refusing protocol dispute resolution, recognizing European institutions would be toxic politics. EU position is renegotiation off the table, but the scope for changes once the UK implements the protocol in full. Without a change of leadership within Westminster, the deadlock looks safe to continue. Boris’s administration looks to be on its last legs, unlikely to command support within the commons. The only way forward looks to be reforming how the assembly works but Boris is refusing to listen to anybody.

The oil price had already been increasing, world reopening needed more oil as demand came back. Supply shock caused by covid would take years to resolve. The Russian invasion of Ukraine has caused energy prices to jump. Putting further pressure on supply chains, various raw materials being restricted by trade sanctions. Food prices are jumping in price, some nations are restricting exports. All of this adds to inflationary pressures facing the global economy. Energy prices rising have a disinflationary effect on demand. Growth slowing down across the world.

A weak pound causes imports to rise in price, exports should benefit but trade barriers. The labour market looks tight but ill health, and early retirement having less access to workers from the EU cause major headaches. The UK risks destroying its educated labour force with funding cuts and no retraining plan. No plan to get people back into the labour market.

Slow decline is far more likely over sudden bang but economy is looking rather sick. Wave of deregulation or supply side reforms won’t suddenly make things better. Tories no longer the party of business but stagnation suits homeowner base. High inflation could be new normal for the UK and low growth.

Economics, Journal, Politics, Thoughts

Sovereignty and trade thoughts

| admin

Time to talk about sovereignty and trade. The concept of sovereignty causes some rather big problems with trade. Binary version has not existed for hundreds of years.

Hundreds of years nations have transferred sovereignty, allowing standardisation. By doing this allowed nations to trade with each other.  On much smaller scale nations have done the same thing. Towns can trade with each other, reducing barriers causing freedom of capital or labour.  The relationship which has become a permanent feature.  Trade is very closely linked to distance.  Towns miles apart deal more trade with each other.  Local companies trade with each other more over international trade.  Opening up markets have provided them with more opportunities.  Small towns have followed rules set by bigger towns in order to trade. A core principle is required to trade. Standard is set everybody follows that standard to trade. Not by accident can order 10Kg worth of cocoa butter from Japan. Ultimately providing massive wealth to everybody.

Recent years has been calls to restore sovereignty.   Which must mean people want the breakup of the United Kingdom.  Towns split up into groups implement their own parliaments.  Standards disappear due voiding sovereignty.  Trade between towns stops, as a result, everybody gets poorer.  Sovereignty like that is rather outdated, incompatible with any economy.

White paper on Brexit covered the subject of sovereignty. United kingdom just like every town already has absolute sovereignty.

2.1 The sovereignty of Parliament is a fundamental principle of the UK constitution. Whilst Parliament has remained sovereign throughout our membership of the EU, it has not always felt like that.

Government just admitted it straight to the point in absolute certainty. The goal has already been completed yet is included in the aims.

Nobody is calling for the breakup of United kingdom apart from some nationalist parties.  Impact on trade would be massive due to more barriers.  Imagine having to visit customs office every time went into a town. Moving the economy towards the more protectionist model. Many Brexiters claim it would result in a freer trade policy.  Reality would not result in more free trade but less of it.

A couple of questions start to appear.

  • What do people mean by sovereignty?
  • How do people seek to restore sovereignty?
  • How can this policy result in freer trade if we put up barriers?
  • So what do people want to achieve?
  • What does more control mean?

Leaving the European Union seeks to reduce United Kingdom influence.  Transferring sovereignty back reduces direct influence. General public wanted more control, the United Kingdom is getting less. An analogy would be one council leaving a large council group for more funding.  Yet that won’t happen due being a smaller voice. Expect vast majority of people voted with hearts over brain. Obvious that you gain less power/influence. Barriers to trade would cause long term damage and reduce economic growth.  Great act of self-harm which undermines your own desired outcome.

Indicating take back control argument is an emotional cultural response.  Voters wanted to take back control many would be calling for constitutional reform.  The massive amount of mistrust means many don’t trust politicians.  War of misinformation around Europe with over one decade of focus has not helped.  Blaming policy decisions taken in Westminster, on somebody else avoiding blame. Angry at the system lacking trust, that people don’t share the same values or goals.  A massive amount of vision helped create the world around us now many want to set it on fire.

Transferring sovereignty has helped share British values.  Creating wealth for many opening up many opportunities.  Don’t think we need have a debate on the subject. Tackle the problem at its roots. Dealing directly with any grievances.  Requires dealing with the problem not, the symptom.

References

White paper

Economics, Politics, Thoughts

Why Vote Leave have no argument

| admin

Just hearing arguments against the Government domestic policies for last 40 years.  With politicians unwilling to admit consequences or explain that ‘bugs are features’.  Instead see politicians riding the populist wave unwilling to address the root causes.  Group of people who feel things are bad enough they are willing to risk it all.  Unwilling to even see that actions they take would cause more pain not help.

My best advice if you care enough about these issues get involved in politics.  Start doing something to help address any problems you have not just complaint on voting days.   Need to take this advice myself get in contact with my local labour party activists once again.  Make Government accountability your main goal instead of blaming anybody for the problems.

Sovereignty argument

Legal definition of Parliamentary sovereignty, from that definition United kingdom has full sovereignty. Argument is lost before it started unless you wanted a new legal definition.  Confirming United Kingdom still holds the unlimited veto powers.

Definition leave campaigners are using is inaccurate, wrong and spreading lies.  Further this point any trade agreements or membership of international organizations would reduce sovereignty.  Emotional isolation argument pretending to be about sovereignty.  Shifting the blame from domestic executive to European legal executive.   Welcome to explain how membership of the European union is wrong but World Trade Organization is fine.  Could do the same with any institution . 

What is the real intent behind anybody claiming European laws was overruling the UK legal system?

How come the domestic executive has not taken actions against problems reported in newspapers?

Could it be that newspapers are reporting inaccurate information to increase sales?  Failing in any duty to inform the public and educate them.  Causing a recession is not worth it for powers we already have.

No veto over Turkey joining the EU. 

Evidence points to that being incorrect and inaccurate.

Immigration argument

Evidence suggests that low skilled immigration, low skilled workers suffer an negative impact on wages.  Much debate over the impact various studies have shown very minor impact for workers. Government fiscal policy has caused much greater decline in real wages -10% for almost all groups. Impact from immigration on semi/low skilled workers 0.4%. Based on the evidence United Kingdom does not have major amount of low immigration.   Evidence shows that on average migrants have higher level of education compared to UK natives.  Age wise migrants are younger pay in more taxes due to taking up median to high skilled jobs on average.   Younger workers who come here pay taxes using little to no public services.  Evidence does not back up the general assumption that immigration has been terrible.  Reducing immigration would decrease the overall tax base increasing general tax rates.   Negative impact on low end wages is reduced due having a bigger working population paying taxes.

David Cameron pledge to drive immigration down was deeply unrealistic.  Listen to leave campaign your hear they want to increase immigration from outside of the EU.  Nations which have points based system have seen major inflows of people.  Vote leave want to increase immigration but decrease it?

Cost for driving down immigration is not worth it given the economic cost.  Instead the blame policy is designed to avoid criticism for policy failures many have supported but caused great pain to the poor. Social bits of policy we can do help people cope with immigration.

Infrastructure argument

Domestic executive has decreased spending with general population aging and increasing in size. Aging population puts far more strain on infrastructure compared to migrants.  Fallacy to blame this on migrants if anything poor planning from politicians.

Shared benefit

Evidence to support the European Union membership given us great number of benefits.  Helped make the United kingdom economcy far more competitive reduced regulation across Europe.   Trade barriers have declined freedom of movement has allowed travel to be expanded.  Reason why nobody wants us to leave due to being own benefit and their benefit.   Same reasoning could be applied once again to any global institution no campaign for us to leave?

Experts

Some of the Experts who wanted us to join the Euro are supporting leave.   Vast majority are against Brexit, trying to silence experts who disagree with you is silly.

Promises

Both sides have made promises but some won’t admit the truth.  Immigration won’t decline with Brexit or remain won’t decline period.  False promise if you believe that leaving would reduce it. Incredible rubbish has been provided from both sides.

Budget cuts

Blame lies with the Government for cutting public services,  not immigration.  This what happens when you have a fixed fiscal policy so much for the household budget.  Cut backs have caused the strain in public services not slow population growth.

Economics, Journal, Politics, Thoughts

Unemployment

| admin

Wrote a piece on unemployment some time ago, under the title unemployment grandiose of delusion.  Within that post talked about welfare system mainly benefit spending, populist policies, economic and personal experience.  Everybody has experience of unemployment from personal level to knowing others in that position.  Social problem with negative economic outcomes causing issues within the labour market.  Even with basic knowledge you can understand the whole concept.

Curious how measuring unemployment works this link explains the definition.  United Kingdom currently has lower unemployment compared to pre crisis.  Worth noting need to look at the numbers together compared to employment total.   Population has increased messing up the numbers even more this growth does not tell the whole story accurately.  Looking over the numbers you see self employment record high in total, almost the same level as public sector employment. Part time employment was increased, full time employment is down.  Most of the growth has been within London when comes to jobs with everybody else having less jobs growth.  Once you start to factor in these variables things become less good.  Productivity growth is low with wage growth, self employment does not appear to be doing much.  Self employment often means lower average wage compared to everybody else and not included in wage numbers.

Measuring unemployment by Labour force survey could have it own errors within it.  UK is far from full employment instead looks to have loads of slack within the economy.  Bank of England made a blog post on the subject of job market pairing people with right job.  Bank of underground blog post.

Unemployment within the UK looks to bad even worse compared to the official numbers with negative outcomes being major policy problem.  Government however is kicking the tin can down the road.  Lazy people are not holding the labour market back so what is.  Answer lies within basic idea of demand and only one source which can give more demand.  Government fiscal spending

Moving away from the subject of unemployment back to my own personal experience.

Finding a job is not easy and rejection makes you feel worthless.  Decided to keep spreadsheet with detailed information on every job application.  Mental health has taken a hit, serious hit when comes to being jobless. Unemployment is social problem with economic negative outcomes yet nobody wants to deal with it.  Time to talk more about the subject along with update on my personal experience so far.  Who knows maybe I do updates per month on the subject much to talk about from mental impacts to general health. Hoping to hear back from couple jobs soon but who knows.

Economics, Journal, Thoughts

Armchair economics thoughts

| admin

Economics is social science which has wide range of definitions.  Quite simply describes certain factors which determine production, distribution and consumption of goods and services.  Subject is study of humans interacting with the above concepts.  Grounded in reality study of human behaviour with scientific method behind it. No surprise that many different sciences come together with economics with range of skills used.

Social science which most people never learn basic concepts leaving the subject to experts.

Financial crisis: Faith no more

Financial crisis of 2007-2011 faith no more politicians and experts lost trust.  Break down in trust along with faith resulted in wave of questioning.  Opposition parties came to power pushing forward policy set designed to solve the crisis.  Crisis was created by range of factors with opposition parties blaming fiscal spending in response.  Blaming excess spending, regulation and policy failure for the crash. Right leaning opposition parties became Government due to painting this narrative. Rightly upset at lower living standards, high unemployment most voters followed the narrative hoping it would create an more stable system. Simply the goal was to reduce the deficit caused in response of the crisis. Years later deficit is still high for many nations with recovery delayed, unemployment still high yet voters still accepting the narrative. Policy was meant solve problems caused by the crisis resulting return to normal levels with growth.

Living within our means

Statement living within our means one of the main reasons given for reducing spending of governments.  Based on the assumption that governments function much like a household subject to the same limits. Debt must be repaid, generations limited by any debt we create.  Government needs taxes in order to spend can’t always borrow should not borrow. Private/public sector do share some common traits both consume and invest.

Public sector spending is not like a household…

Households can’t issue their own currency. Households can’t borrow the same amounts or even time frame. Taxes are not required in order to spend due to being able to issue currency or borrow.  Governments can issue currency cover the cost at later date with any taxes which come in.  Debt must be repaid again not true due to dynamics of being able to issue currency.  Governments can issue debt taken out decades ago which has ended.

Government debt acts as insurance policy against demand supply shocks or economic downturns.  Invested creating jobs driving up tax receipts, creating growth minor cost payout towards the owners.

Instead of being a drain insurance based asset which is tax credit or stable income for the owners.  Policy pays out every couple of weeks over number of years with holding it value.

Assumptions are incorrect mainly due to the term used to describe it.

Real argument?

Policy being applied is not rooted in economic credibility based on some incorrect assumptions.  What the real argument behind the policy of cutting public spending. Certainly not paying down debt or deficit both are natural responses to certain conditions acting as tools. Real argument is wanting smaller state but instead of making that argument used another one. Opportunity to exploit frustration at the same time with economic downturn.  Easy to understand why political apathy is so high given twisting of so many concepts.

Argument for smaller state why not make it instead of hide it?

Guessing the reason is would make any party political unelectable given how recovery yet to be felt.  All that pain for nothing but goal which you lied about from the beginning.  Damage done would return any party acting out the policy to opposition bench likely hood of being unelectable.  Some good arguments for smaller state but one should not hide true reason behind the choice.  Driven by ideology choices about public sector role within the economy.

Sectoral balances

Deficit spending more compared to what you tax

Surplus taxing more compared to what you spend

Government being in deficit means transfers towards private sector net financial assets, surplus reduced financial assets. Mathematics state that equations must be solved same goes with sectoral balances must equal zero.  Surplus means money has be taken away from private sector. Lower taxes should be compensation resulting in higher growth from this reduction due to the surplus.  Forcing surplus means private sector needs to have deficit.  Surplus in the private sector results in profits with assets.  By saying you want government to have surplus you’re saying private sector should not make a profit.  Poor reasoning with assumptions all around which policy is based on.

 

Common ground

Arguments being used do have some common ground with but method of delivery no.  Talking but actions taken have opposite effect.  Spending billions on fossil fuel subsidies rejecting green subsidies as interference.

Do agree that we should be living within our means which is why should be dealing with inequality and environment issues.  Population is consuming to many resources per person unsustainable situation. Planet can support the population only if we scale back what we’re consuming.  Does mean acting less meat using less energy being less consumer driven.

Economics so important

Government spending policy has big impact on the economy.  Consuming resources investing into resources major outcomes for populations.  Impact may not be obvious but does happen with time. Duty for people to understand even the basic concepts. Ignorance is bliss leaving complex subject to the experts who have failed far to easy.  Meat of the subject is information about the world which is at the finger tips.  Concepts we use daily easy to learn just a case of being willing to do so.  Can’t be an expert in everything but you can get good basic idea don’t need to study the subject which only focuses on narrow part of the field.

Conclusion

Recovery from Financial crisis 07-11 has resulted in questioning status quo.  Failure from politicians to answer questions has resulted populist policy taking hold. Living within our means fiscal policy helped cancel out the recovery real risk of worse long term growth.  Politicians who have twisted the truth may have chickens come home to roost due to policy choices.  Always policy alternates for the longest period of time the alternate has been silenced.  Current policy is counterintuitive towards it own goals. 

 

Economics, Journal, Politics, Thoughts

Uncertainty, fairy tales and economic myths

| admin

Uncertainty, fairy tales and economic myths

Uncertainty, fairy tales and economic myths three main themes which have become core parts of UK politics. Uncertainty helped win the Scottish referendum, defeat Labour and block military action.  Fairy tales around European union with immigration. Economic myths demonize debt, public spending has become limited as a tool due to political myths.

Uncertainty

Scottish referendum uncertainty around economic policy.  Labour fiscal policy [spending policy] which leads to issues with other policy areas.  Both suffered from a failure to defend records and vision.  SNP controlling Labour line divided Scotland and England.

Uncertainty allowed to grow used to great effect in winning battles but it has created a couple issues which won’t disappear.

Fairy Tales

European union has been turned monster when reality is it not.  Same could be said for immigration and spending policy.

Economic myths

Government borrowing should be reduced any spending should be from the private sector.

All three are linked together uncertainty leads to fairy tales and economic myths.  World at the same time is full of uncertainty geopolitical risk is high with economic.  Established ideology is under attack with powers behind it. Reward behind winning each of these battles is massive remains to be seen who is going to win.