He wants to make us poorer now

The first is that leaving the EU ends the obligation for the UK to partake in the free movement of capital. It’s not just free movement of labour that is guaranteed by the EU: so too is free movement of capital and there has always been a fundamental problem in linking to the two. Because capital can move vastly more quickly and easily than people (it has no family ties or school arrangements to worry about, for a start) having freedom for both capital and always meant that reward was going to shift from labour to capital because capital has the greater agility. The time has come then to make clear that it is restriction on the free movement of capital that will be needed if the return to labour is to improve in the UK.

We import capital in the UK. That capital adds to the productivity of labour and thus the wages of labour. It’s possible that stopping the free movement of capital will change the share of GDP going to labour and or capital. But it will be of a smaller GDP.

He’s going to make us poorer.

22 comments on “He wants to make us poorer now

  1. Because capital can move vastly more quickly and easily than people having freedom for both capital and always meant that reward was going to shift from labour to capital because capital has the greater agility.

    That, literally, makes no sense.

  2. I am not following the importing capital argument. I am going to briefly state, probably not using proper terms, my understanding and hopefully this can be cleared up quickly.

    Currently Britain is running a trade deficit on goods and services. In order to balance the books this means capital must be exported to cover the difference.

    What am I missing?

  3. Chris Miller: “@Surreptitious Evil

    Not quite, “free movement of services” has been even worse.”

    You’re right, and it shows the nauseating hypocrisy of the EU that they say the four freedoms are indivisible but the one area where the UK excels – services – is the one they have consistently blocked.

  4. “He’s going to make us poorer.”

    As he has already put forward a consumption tax (on bank transactions, hilariously) which is eye-wateringly punitive and would return the population to the standard of living enjoyed in a Sunderland terrace in the 1950s, this isn’t a revelation.

  5. When Ritchie talks about restricting the freedom of movement of ‘capital’, he means putting up barbed wire enclosures, herding the ‘capital’ into cattle trucks, and locking ‘capital’ up. Gassing ‘capital’ and burning the bodies in ovens comes later.

    LY>

    No, you have that the wrong way up. We are ‘exporting’ assets, we’re importing capital to balance the account. And of course, as long as we’re selling assets more slowly than the asset base increases, there’s no reason why that can’t go on forever.

  6. Dave,

    Would those assets be things like the sippy cup molds mentioned in a story a while back? If so, I’d expect those to show up in the exports column and I’m still confused.

    If on the other hand, we’re talking about things like Russia oligarchs buying London real estate what happens if those oligarchs suddenly need their capital back?

  7. They sell at a loss/distressed rate or dig up vast swathes if Knightsbridge and fly them out in the back of an Antinov.

  8. If you look at the Curajus state in the real world people are willing to risk swimming a 20 mile plus polluted river and potentially being rounded up and sent back to a forced Labour camp so this should not be a surprise to anyone….

  9. LY>

    Assets come in many forms, from IP and companies owned here to property and physical assets. Anything that’s part of the general stock of wealth can be sold for cash which is used to buy stuff from overseas.

    “what happens if those oligarchs suddenly need their capital back?”

    Then those oligarchs will be in trouble. It’s not their capital anymore, it now belongs to whoever they traded it with for the houses they now own. They would have to try to liquidate the assets they bought with it.

    In practice, I don’t think it would be too much of a problem. If one oligarch needed cash, they’d have no trouble at all selling in short order at something very close to the normal market value. If all the Russians needed to sell at the same time it would create more of a problem, but I think there are plenty of investors who’d bite your hand off for the chance to buy a £40m property for £30m, as long as the only reason is a temporary glut on the market and the seller’s need for quick cash.

  10. > Tim Worstall

    ” Trade deficit means we import capital to balance”

    is that inherently true , a lot of imports involve the import being exchanged with the importer’s domestic currency, where that is the case, it is not a capital inflow, is it.

  11. It’s definitionally true. A trade (more accurately, a current account) deficit is always balanced by a capital account surplus because the balance of payments does balance.

    It is simply not possible for this not to be true. If we buy more from the rest of the world than we sell to them (other than the difference between trade account and current account which really isn’t important here) Then they must, MUST, be investing more in our place than we are in their.

  12. > Tim Worstell

    No that is not the case.

    If an exporter to the UK accepts sterling deposits in exchange for their products they are not investing in the UK then they are accepting a liability from the UK.

  13. Dave,

    If you have a similar boomer problem over there then those oligarchs selling might not be a temporary downturn. I’m curious what will happen once our boomers really start pulling $1T(based on $13k/yr/boomer) from the markets and the SSTF.

    Tim,

    Your second comment is much more informative.

  14. Dinero>

    “If an exporter to the UK accepts sterling deposits in exchange for their products they are not investing in the UK then they are accepting a liability from the UK.”

    We’re talking about the other side of that coin, where that exporter then takes the cash and buys UK assets with it – which is the only thing they can do, other than hold the cash. It may not be the exporter directly, of course, they can trade with others who want to invest in the UK.

    LY>

    I don’t see any link between the two topics. But do bear in mind that money taken from investments is being spent, in your hypothetical, so there’s a corresponding boost to consumer spending. It’s not clear the first-order effect is negative, rather than a stimulus to the economy. The higher order effects are even harder to understand.

  15. Dave

    Dinero>

    “If an exporter to the UK accepts sterling deposits in exchange for their products they are not investing in the UK then they are accepting a liability from the UK.”

    We’re talking about the other side of that coin, where that exporter then takes the cash and buys UK assets with it – which is the only thing they can do, other than hold the cash. It may not be the exporter directly, of course, they can trade with others who want to invest in the UK.

    Or the exporter doesn’t “invest” with his pound coins, but instead buys UK goods / services / hookers, etc, with them. But then of course there is no “trade” deficit: goods in = goods out.

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