Saturday 5 April 2014

Saturday, April 05, 2014 Posted by Jake No comments Labels: , , , , , , , , , ,
Posted by Jake on Saturday, April 05, 2014 with No comments | Labels: , , , , , , , , , ,

It's the oldest trick in the book. Convince your competitor to lower his guard, and then biff him.  

Adam Smith, the capitalist icon, believed everyone scuffling selfishly for their own benefit would result in an ‘invisible hand’ distributing a nation’s wealth pretty fairly. 

Smith’s advice was based on the reality that you can’t trust anybody else to pull for your benefit. You can only really trust people who are pulling in the same direction as you. And any student of tug-of-war will know it is all much less strenuous if the other side simply drops the rope and stops pulling.

Graphs from the “Budget 2014: Background Briefing”, produced by Parliament's impartial House of Commons Library, show how ordinary Britons have been tricked into dropping the rope in the great economic tug-of-war. It also shows how those who want Britain to be a more prosperous place, whether of the left or of the right, should stiffen up and grab the rope again.

From Budget 2014: Background Briefing
The Budget Briefing report shows between 2007 and 2014 average earnings have dropped more than 12% in real terms. The same graph shows that household consumption (i.e. spending) has almost returned to its peak level. Consumption that has been helped by household debt rising to record levels according to a report in November 2013 by Iain Duncan Smith's "Centre for Social Justice".

A separate graph using ONS data shows that the fall in wages is not a short term effect of the recession triggered by the banking crash. In the decades since the 1960's the share of GDP paid to employees has dropped from around 60% down to around 54%.

Graph of Compensation of employees as % of Gross Domestic Product: CP SA (Quarterly)
(The ONS defines "Compensation of employees" as wages, salaries and social contributions made by employers).
Falling wages are the result of companies pulling their end of the rope to maximise their profits, while the employees just get yanked along. The graph below by the CIPD shows the change in real terms of the average (median) hourly earnings for various categories of employees between 2008-2013.

Change is real median hourly earnings between 2008 and 2013

This also explains the government's attacks on benefits. The problem was never about benefits rising so fast that the nation couldn't afford them. It was all about making sure benefits, which are largely paid to working people, keep down with wages.

Another graph from the same Budget 2014 report shows that even the rightest winger should lament the fall in household incomes - whether from wages or benefits. The graph shows the recovery has been driven by household spending. 

Osborne, pulling cussedly at his end of the rope, thinks he has found a wizard way of getting people to keep spending without giving them any more money: give them access to their pension pots! Having already spent the equity in our houses, liquidating them with the easy mortgages that led up to the Banking Bust, we are now invited to spend our pension savings. Getting ordinary people to spend more and receive less may have a great short-term effect on growth, but will end as horribly as experience should have already taught us. 

The IMF predicts a stonking 2.4% rate of UK GDP growth in 2014. Growth that, with caps on benefits, changes to pension indexation from RPI to the lower CPI, and poor wage growth, will not be shared with ordinary Britons. Not unless ordinary Britons pull in their own direction as hard as the companies, executives and politicians do in theirs.

But how can all us individual Britons become a force against corporate Britain in this economic tug-of-war over wages? First we have to realise that better wages are in the national economic interest, and that we need to pick up the rope again to pull in our direction. 

Then we need to find others who are pulling in the same direction, and we need to join them. They are already there, in the form of the unions.

The Tories have appealed to Britons to be unselfish and accept less for the good of Britain. "We are all in it together" they tell us. For Adam Smith's "invisible hand" to distribute the wealth of the nation more fairly we need selfish forces pulling in every direction. Be selfish for the good of Britain - join a union!


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