Tag Archives: money

Austerity – myth or reality

Just read an article by Mark Serwotka, general secretary of the Public and Commercial Services Union, that has prompted this quick response – would like to have done it through twitter but I need more than 140ch to get it off my chest.

Now I must admit I went into this full of optimism that someone was finally set to expose the austerity story. The article at http://bit.ly/TYXXNJ starts quite well – but then it tails off into a whole pile of populist drivel. The sort of garbage that raises a loud cheer amongst the troops, but does nothing to show us the light.

The situation in the UK is fairly straightforward. We have an enormous debt of around £1.3tn (excluding a public pension deficit that would probably dwarf that figure) that continues to grow at an alarming rate. All we hear in the news is about reducing the budget deficit – which means we’re not reducing the debt at all, just reducing the rate at which is grows. I’d say that’s cause for concern not just for this generation but all those with the unpleasant task of following us and sorting out our mess.

So let’s be clear Mark about your statement, “But is there really less money around? Of course not. Our economy is still one of the largest in the world and some people are still doing very nicely, thank you very much”. What you fail to observe is that technically we are bust – if we were a business or an individual we would be declared bankrupt. The only money that is around comes from increasing the debt which a business or individual would not be allowed to do. I’m one of those old-fashioned types who believes if you can’t afford it, you can’t have it, but clearly when you refer to money your views are more “I want it, therefore it is my right to have it”.

What saves us is the fact that many other countries are in the same boat and one country will not call the loans on another because it would spark a meltdown that would put 2008 into the “nice to have” category. Fortunately, we have the luxury compared to some of being able to set our own interest rates. The Bank of England decided that low-interest rates were the order of the day – again only possible because everyone else was doing it. There were several reasons for that decision and one in particular related to our very high levels of household debt (which last year stood at around £28k for every single adult in this country) – and the absolute need to prevent a housing crisis similar to that seen in the US with sub-prime.

So prior to the 2008 financial crisis, we had interest rates running at around 5% and they are now at 0.5%. So what that means is the vast majority of people in debt were actually financially better off after the crisis than before because they were paying less to service their debt. Without all the trimmings (again to keep it simple) the average mortgage payments for approximately 10 million mortgage holding households have gone down by over £3000 per year. So every person who has remained in employment (we have more people in employment now than in 2008) who carries debt is better off now than before the crisis. That’s an awful lot of people.

I do however recognise that alongside that, many people have seen their pay reduced and for them the benefit of interest rate reductions might simply soften the blow. Mike points out that the public sector has come in for some fairly rough treatment and that is right. However one could argue that the public sector has simply become too big and needs trimming back – in 2013 almost 20% of all jobs were in the public sector. Whether you like it or not, the size of the public sector is dictated by the size of the private sector – the bigger the private sector, the more money is taken into the public purse to pay for services. The size of our national debt would infer the public sector is too big and the choice facing the budget holders is to reduce jobs, pay or both.

However, the people I feel sorry for are those with savings because the cut in interest rates means they are worse off. The moral of the government approach is spend yourself silly, get into debt, have everything you want now regardless of whether you can afford it (spending is always good for the economy) and then when it all goes pear-shaped we’ll help you out and shaft all those people who’ve tried to live within their means. Brilliant but the inevitable consequence is people won’t learn. Only next time it will be worse because all those debt addicts will carry on and many savers will join them because they might as well enjoy themselves.

Mark also refers to poverty which is something of red rag to a bull with me. Relative poverty defines income or resources in relation to the average. So let’s assume we have 5 people with incomes 100, 150, 175, 200, 225 – to put the average at 170 – which means that 2 people are in relative poverty. Now if someone enters our country with a large wad of cash (perhaps a Russian oligarch, a Chinese billionaire or rich Europeans hedging their assets) and an income of 350, then all of a sudden our average moves to 200 and we now have 3 if not 4 people staring at poverty. Their circumstances haven’t changed, but the headline figure of 4 in 6 people now in poverty is a real attention grabber. Even better, our economy is now showing growth because our new wealthy immigrant has lots of money to spend in the shops and on property and is more than willing to do so.

So let’s be clear relative poverty is not a very good definition of a person’s struggle to survive – it is simply a measure of the gap between the top and the bottom. That’s not to say it doesn’t have it’s place, but it is currently being used mischievously out of context. And when you then use the poverty card against utility companies you seem to ignore the reasons why their prices have increased or the fact that many of our pensions a leading shareholders in those companies.

It also leads to another interesting question. In your country would you rather have more millionaires or less? Personally I don’t want to see millionaires who are well off because they have simply exploited others. I categorize people working in and around the stock market as such because all they do is gamble with other people’s money – if they win, they receive a ridiculously high bonus whilst the pension pot receives 5% and if they lose they receive a moderate bonus whilst the pension pot is obliterated. How the stock market is allowed to work as a no-lose casino for the traders is beyond me – but that’s for another day and another blog.

However I do want to see more millionaires who have created something – created products and services that generate good employment. Employment where the employees receive a fair market rate and good working conditions and prospects. The more of those millionaires the better and I’m sure their money will be welcomed up and down the country in every shop they walk into. I agree morally it is not comfortable to hear that the top 5 wealthy families are worth more than the bottom 20%. Clearly there is an imbalance but I’m not jealous of what they have earned – I’m thankful that they’ve chosen to do it in the UK so we have a little more money to fund our public services without financially crippling our future generations. Having said that, you might find if those families chose to leave the UK (and they are wealthy enough do so) then it would drag a large number of people out of poverty.

If Mike is going to be a responsible trade union leader he needs to think first about what is best for the country, then what is best for his members. That cannot ignore the debt.

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