Some failure

The ideas of the modern left were primarily born out of a new kind of practice and some undeniable facts. Neoliberalism had failed. In the survival strategies adopted by governments it has become, as the economist William Davies writes, “literally unjustified”.

The socio-economic system which has caused the greatest reduction in absolute poverty in the history of our species has failed?

Willy Hutton’s mistake

OK, OK, just today’s mistake from Willy Hutton:

Cities have always been the load-bearers of economic and social advance: agglomerations of people are the source of creativity and scientific experimentation; they also create demand and then supply that demand. Cities are ever more important, but they need to be big – at least 2 million in population by some estimates –to create the scale on which diverse economies depend. London’s advantage, above all, is its size, although it has benefited hugely from an undeclared industrial strategy favouring financial services, the creative industries, its transport and, most recently, its education system. Being the capital doesn’t hurt either, while membership of the EU has attracted hundreds of companies to locate their headquarters there.

Birmingham and Manchester, England’s next biggest cities, need to be bigger and governed as regions to capture these agglomeration effects and organise strategies better to support themselves economically and socially.

Yep, agglomeration, all entirely true. It’s people interacting with people which create economic wealth. Great.

But note the elision there. Willy says that’s about governance. That is, he’s insisting that London’s wealth generation is coming from the GLC (or whatever it’s called now), therefore Brum should have a BLC etc.

London was one of the pre-eminent economies of the globe rather before the GLC existed. The economic wealth creation isn’t therefore reliant upon this method of governance.


So what is Galloway’s argument? Patient readers must plow through nearly half the essay — though many lovely charts will aid the journey — to find out. Before getting to his casus belli against the SVTAJKSSM, Galloway first runs through a series of “valid concerns” to whet the appetite for antitrust destruction: The Four are really, really big. The Four are addictive. “Google is our modern day god.” The Four don’t pay enough taxes. The Four are destroying massive numbers of jobs.

But destroying jobs is the very point of economic advance.

Well, yes Zoe, I suppose so

How language duped us into austerity
Zoe Williams

Interestingly, the actual economic definition of austerity, as Simon Wren Lewis put it.

Roughly – “Any level of spending which does not prevent a fall in employment.”

That’s a rather different meaning from the more general one, no?

Further, cash spend has continued to increase, spend as a percentage of GDP is still above long term averages.

What sodding austerity?

A little musing on the labour share- possibly stupid musing.

OK, so the OECD tells us that the labour share has been falling.

One question arises whether the low level in the labour share witnessed today
corresponds to a historical low point when looking at data over the entire 20th century.
Annex B shows the evolution of the labour share of income using historical data for
France (1897-2010), United Kingdom (1856-2010) and the United States (1899-2010).
The labour share has reached a low point since World War II and is back to its 1897 level
in France. Similarly in the United Kingdom, the labour share is reaching a level similar to
the level reached before World War II. In the United States, the labour share shows a
decline in the past 30 years that pushes the labour share down to a level lower than the
level reached in the 1930s.

And how the musing. From Saez and Zucman (page 556) we find that pensions savings are now a significant portion of national wealth. Actually, it’s the major change in the make up of familial wealth.

So, our musing. Is a pension a return to capital? Sure it is in the standard accounting. But should it be? It’s rather more delayed compensation to labour, isn’t it? And if that’s so, is the decline in the labour share simply because we’re not counting pensions as labour income?

No, I don’t know, but it would be interesting to find out, wouldn’t it?

If architects think this way no wonder housing’s in a mess

Labour’s proposal to force cheap sales of land to the state for social housing (Report, 2 February) is laudable in so much as it identifies rocketing land values as the reason why social housing providers cannot compete with private developers, but it does not address the principal cause, which is the relaxation of planning guidelines over the past 20 years. This is no more evident than in London, where the Thames corridor skyline has sprouted a spiralling number of high-rise residential properties for sale, many of which are bought for investment rather than to provide homes.

This dramatic change can be traced back to the 1990s when planning densities were relaxed, so that it is now possible to see modest four-storey private estates built in the 1980s on the riverfront beside modern residential towers of 30 or more storeys. The increase in land values is a direct result of the increase in density and building heights now permitted in planning approvals, with developers claiming that the higher cost of land prevents them from providing the proportion of affordable homes that would otherwise be required. The way to bring down land values to a level where social housing providers can compete with private developers in the open market is to lower permitted residential densities. This would inevitably impact on the property investment market, but would increase the number of affordable homes available for rent or sale.
David Graham
(Architect) Richmond, Surrey

You can see what he’s trying to say. More housing upon a hectare means more can be charged for the housing on that hectare.

But really, an architect trying to insist that low density housing will be cheaper than high density? Doesn’t it take 7 years to become such a professional and if so what in buggery are they teaching them in that time? Hasn’t he even observed an actual property market?

Alternative economic stories

London’s leading index fell by more than 250 points this morning as part of a global market sell-off after Wall Street suffered its biggest one-day fall on record.

The FTSE 100 started the day down 3.4 per cent at 7,083. It was the second day that markets in Europe and Asia fell. In Tokyo the Nikkei 225 index slumped 1,071.84 points, or 4.7 per cent, to 21,610.24m and in Paris the CAC 40 fell 3.1 per cent.

“This is fear rolling over itself, ” said Jingyi Pan, market strategist for IG Singapore.

Intensifying worries over the impact of rising inflation piled pressure on to markets across the world. Central banks respond to rising inflation by raising interest rates. This increases costs for businesses and households, curbing investment and spending and slowing economic growth. It also makes shares less attractive than other investments such as bonds.

We could also write this as: QE increased asset values. The return of inflation – an aim of QE – means less QE is required, even that it will be slowly reversed, as the US has already announced. Therefore asset values should give up their QE boost.

I wouldn’t say that either story is 100% true and complete but I’d take a stab at claiming the second one is better.

Oh dear Polly

There is plenty of national wealth to pay for everything: last week the ONS reported more household wealth than ever, up 15% in the two years to the Brexit vote.

Using wealth to pay for current spending is, in Harold MacMillan’s phrase, known as “selling the family silver.”

It’s not a sustainable solution.

It’s astonishing that this bloke is employed to write about economics

For he seems not to grasp the very basics of the subject, looking for the unseen:

Nonetheless, the message was clear. No one should despair about quitting the EU; an investment boom that consigns the standstill of the last 10 years to history is still possible.

However, the evidence for this assertion is alarmingly thin. Most companies with spare cash have preferred to milk their customers, sweat their assets and pass on the proceeds to investors through share buybacks and dividends.

That’s not just a UK trend. It can be seen in the US, where large corporations are trumpeting how much of Donald Trump’s tax cuts are being spent on wage rises and investment, although these sums are likely to be dwarfed by the amounts passed back to shareholders.

And what happens next? Shareholders can either spend or invest, it is not possible to do anything else.

This idea that investment must, can only, happen inside extant companies is just nonsense.

Fascinating finding

A new report by EPI economist Ben Zipperer and economic analyst Janelle Jones finds that Amazon fulfillment centers do not boost overall employment in the counties where they open—undermining the case for providing large tax breaks and incentives to lure Amazon facilities to a particular place.

Analyzing data for counties in 25 states containing Amazon fulfillment centers, the authors find that within two years, the opening of an Amazon fulfillment center leads to a 30 percent increase in warehouse and storage employment in the surrounding county. However, this does not lead to an increase in overall employment in the county—and in some cases, the data even suggest reductions in overall employment.

“Amazon has received over $1 billion in state and local subsidies to open its fulfillment centers at taxpayers’ expense—but does not increase overall employment in the county,” said Zipperer. “If policymakers instead invested in public services—particularly in early-childhood education and infrastructure—that would be a much stronger recipe for long-term economic development, rather than giving tax breaks to national employers like Amazon.”

The authors speculate that jobs created in warehousing and the storage sectors are offset by job losses in other industries, or that the employment growth generated by Amazon is simply too small to be meaningfully detected in the data.

This does therefore mean that closing a factory – due to, say, increased trade – doesn’t lower the number of jobs in a county either.

Which is a bit of a killer for just about every complaint the EPI ha about trade really.

Oh dear

Writing in the recent McKinsey quarterly, W Brian Arthur put it this way: “Offshoring in the last few decades has eaten up physical jobs and whole industries, jobs that were not replaced. The current transfer of jobs from the physical to the virtual economy is a different sort of offshoring, not to a foreign country but to a virtual one. If we follow recent history we can’t assume these jobs will be replaced either.”

An economy at full employment has lost jobs which weren’t replaced, has it?

Is it actually necessary to be an ignorant twat to get a job at McKinsey?

Larry Elliot’s also rather failing:

The experience of past industrial revolutions suggests that resisting technological change is futile.

Indeed so. Then:

But there are going to be middle-class casualties too: machines can replace radiologists, lawyers and journalists just as they have already replaced bank cashiers and will soon be replacing lorry drivers. Clearly, it is important to avoid repeating the mistakes of the past. Any response to the challenge posed by smart machines must be to invest more in education, training and skills. One suggestion made in Davos was that governments should consider tax incentives for investment in human, as well as physical, capital.

Still this won’t be sufficient. As the Institute for Public Policy Research has noted, new models of ownership are needed to ensure that the dividends of automation are broadly shared. One of its suggestions is a citizens’ wealth fund that would own a broad portfolio of assets on behalf of the public and would pay out a universal capital dividend. This could be financed either from the proceeds of asset sales or by companies paying corporation tax in the form of shares that would become more valuable due to the higher profits generated by automation.

Those past technological revolutions didn’t require such things and we’re all vastly richer as a result of those past technological revolutions. Thus we need a different reaction this time because?

Not exactly a ringing endorsement of Corbynism

The city of Preston in Lancashire dates back to Roman times. It is listed in the Domesday book as Prestune. It’s where inventor Richard Arkwright kickstarted the cotton trade. Yet ask local people to tell you its history and they jump straight to 2011. That was Preston’s year zero, when the grand schemes for the city fell apart. For more than a decade the council had bet everything on a massive shopping mall. The Tithebarn would sprawl over the city centre, cost £700m and be built by two of the biggest developers on the planet. It was going to have a Marks & Sparks, a multiplex and a huge John Lewis store. It was the lottery ticket, said the council leader. The lifeline, the turnaround, the magic bullet.

Then came the banking crash, and cranes across the country stopped dead. Businesses grew cooler on the Tithebarn until, in November 2011, John Lewis pulled out. The council found its sums no longer added up, and killed the entire scheme. Where once there was a masterplan, Preston now had a vacuum.

The answer, it appears, is to have small scale experiments in this and that according to local circumstances.

This is an endorsement of Corbyn’s insistence that the economy should be centrally planned in what manner?

How excellent

Rwanda has become the first low-income country to provide universal eye care for its 12 million population.

No, not a joke nor a sneer. All the people of a poor country now get eye care. Excellent.

However, this is to manage poverty. What we really want is to abolish poverty. For there are 98,000 (internet statistic) such problems in each and every poor country and getting rid o the poverty solves all of them at once.

No, not even don’t take glasses to the myopic, it’s not even that. Just don’t allow minor successes to lead to losing sight of the goal.

Technological change

The peak of the textile trade was in 1801 and after 1811, the exports declined sharply. By 1830
British goods began to displace Indian goods in the Indian market. One of the most dramatic
technological change was in spinning. It took 10,000 operative hours to spin 100 lbs of cotton
in India. Crompton’s mule, one of the first machines of the industrial revolution in 1780, did
this in 2000 operative hours. By 1825, the number was down to 125 with Robert’s automatic
mule. (Broadberry and Gupta 20094)

Yes, yes, yes, we all know, spinning, textiles, industrial revolution.

But think about the truly important part of this, how this really made us all richer.

That’s 9,875 hours, for every 100 lbs of cotton, of human labour which can be used to go do something else. And people did.

The point about the mechanisation isn’t so much that we got the machines to do the spinning but that humans didn’t have to do the spinning.

Quelle surprise

Nutella riots show that even the French can go nuts over a bargain

Well, yes. It’s one of the core observations of economics. Human beings like to get more for less.

From which we can derive two fairly important results.

1) Economic systems which do not have this observation as a core part of the structure aren’t going to work very well. Trying to insist that people will get less for more won’t work. We should pay farmers more for food because farmers doesn’t, for example. Quadruple (an actual demand being made) the wages in those garment sheds in Bangladesh and everyone will be happy to pay the resultant price increase in Zara doesn’t.

2) Economic systems which do cater to this human desire seem to work rather well. One thing we can absolutely say about this capitalism/free market mix is that it makes things cheap. It caters to this handing over less to gain more.

Well done.

Yes, this applies even to the French, concerns about their relationship with homo sapiens sapiens notwithstanding.

Anne Pettifor calls herself an economist, does she?

Everyone – from the government, to housing charities, to housebuilders – has bought into the conventional wisdom that the dysfunction that racks our housing market is a matter of demand and supply. We’re not building enough houses, so house prices have been sent rocketing, taking home-ownership out of reach for growing numbers of young people. But in reality, our housing problems are not a simple feature of supply and demand. Rather, our housing market has a bitcoin problem.

What has bitcoin mania got in common with house prices, especially in the capital? For starters, both are speculative bubbles. Vast sums of money have been poured into finite supplies of bitcoins and London property. Both have consequently exploded in value, albeit over different time periods. And so both have become financialised assets that deliver capital gains far in excess of people’s ability to earn income from work, or from investment in the real economy. And as with bitcoin, so with London property: speculators are convinced that prices will continue to rise for ever.

Yes. So, if we expand the supply what happens to the price?

What’s more amusing is that, as the property industry itself is pointing out, prices are falling in London. You know, exactly that thing which Ms. Pettifor tells us cannot happen?

This will lower house prices

More than half of the 1,900 ultra-luxury apartments built in London last year failed to sell, raising fears that the capital will be left with dozens of “posh ghost towers”.

The swanky flats, complete with private gyms, swimming pools and cinema rooms, are lying empty as hundreds of thousands of would-be first-time buyers struggle to find an affordable home.

The total number of unsold luxury new-build homes, which are rarely advertised at less than £1m, has now hit a record high of 3,000 units, as the rich overseas investors they were built for turn their backs on the UK due to Brexit uncertainty and the hike in stamp duty on second homes.

It doesn’t matter that these are “luxury” not “affordable.” There are still 3,000 more units and that will lower the price, fractionally of course, of every other property on the market. Because this supply and demand stuff really does work.

Wouldn’t surprise me at all if one or more of the developers, or perhaps developments, goes bust which would be an interesting time for a housing association to pick up some cheap stock, no?