The amazing Prem Sikka

The data published by the Office for National Statistics show that at the end of 2015, workers’ share of gross domestic product (GDP) sank to 49.7% (see Table D on page 44 of the PDF file downloadable from here), compared with 65.1% in 1976. This is the biggest rate of decline in any western economy. Proponents of neoliberalism claim that workers’ low share of the GDP is the outcome of market forces.

Not really quite sure what “the workers’ share” is. We don’t usually measure GDP in that manner. However, to get to his 49.7 % in Table D he means total compensation, or the labour share of GDP. Note this is not the wage share but the labour share (ie, includes NI etc).

And back in 1976 this was 57% or so of GDP (look up YBHA and DTWMJ here.)

So, not sure what he’s doing at all. Could be that I’ve got it wrong so, if someone who is rather more au fait with the ONS site would like to check my numbers?

It’s also wrong to call the labour share the workers’ share anyway. Other income (17% of GDP or so both times) includes the incomes of the self employed….

As to what has actually changed over time. The low capital share back then is known to have been unsustainable. Not enough to cover depreciation near enough, let alone produce profit. So, it’s right that it has risen from 16% to 21%. Which is about long term average. What Prem is doing here is comparing to a time when that capital share was unusually low but presenting it as the norm.

The other big change is taxes and subsidies on production, from 7.7% to 12% of GDP. That’s essentially the rise in VAT over these decades.

As to the actual point that Sikka is trying to make, he’s claiming that Corbyn will take us back to those halcyon days of the mid-70s.

Oh joy.

You what?

The full amount of this tax would be borne by the financial industry, and not individual holders of stock or pension funds and other institutional investors. Evidence suggests that trading volume is elastic with respect to price, meaning that any drop in trading volume resulting from the tax would reduce costs for end users by a larger amount than the tax would increase them.

What the fuck has Dean Baker been smoking?

Trading volume falls, liquidity falls (same statement), bid ask spreads widen trading becomes more expensive.


My word, this is fun

Stephen Hawking on the real meaning of wealth (which he gets rather wrong) in The Guardian.

So I would be the last person to decry the significance of money. However, although wealth has played an important practical role in my life, I have of course had a different relationship with it to most people. Paying for my care as a severely disabled man, and my work, is crucial; the acquisition of possessions is not. I don’t know what I would do with a racehorse, or indeed a Ferrari, even if I could afford one. So I have come to see money as a facilitator, as a means to an end – whether it is for ideas, or health, or security – but never as an end in itself.

Interestingly this attitude, for a long time seen as the predictable eccentricity of a Cambridge academic, is now more widely shared.

Err, no, not really, standard economic structure is that wealth is the ability to increase utility. How utility is increased is entirely up to the individual, as our utility functions differ.

Or, if you’d like to put it this way, wealth is a facilitator, something that facilitates us increasing our utility.

Not unusual this, someone looking at an economic question from basic principles, getting close to the right answer but not realising that economics got there a century or more before. A better try at it that Ritchie of course, who usually manages to glom onto something which has been disproven via the same logical route but…..

Anyway, what’s really fun about this is that’s it’s a PR puff piece for a new web site run by UBS. You know, the Swiss bank and wealth management people?

Deeply unconvincing argument about ARM

No, really, no:

On the face of it, Mr Son is paying a fabulous price for ARM – a mouth-watering 60 times last year’s earnings, and a near 50pc premium to the company’s pre-bid value. But if he’s right in his vision, then it’s going to look a bargain ten years from now. Already, there are mutterings that he is underpaying, amid reports of strong sales growth.

Forgive the terrible pun, suggested by a well known City fund manager who won’t forgive me if I attribute it to him, but is SoftBank paying an arm a leg, or is ARM being sold for a son?

It will be a while before we know, yet it seems to be one of those other British deficiencies that we are good at innovation and start-ups but atrocious when it comes to developing them into global players. Too often companies are sold before they properly get going.

We really cannot use the example of ARM to show that we don’t build companies into world beaters. Because ARM is a world beater. So it’s an example of entirely the contrary, that we can and do build companies into world beaters. This is also wrong:

One of the things Theresa May promises to address in a still somewhat ill-defined and unconvincing agenda for revitalising the UK economy is Britain’s productivity deficit. This is of course the holy grail of successive post-war UK governments, and whereas some have done better than others, none has so far managed any more than limited progress in closing the productivity gap. So we must wish her luck.

One place she could usefully start is in taking on the endemic problem of “short-termist” thinking among UK investors and managers, a mind set that is deeply ingrained in British corporate, investment and banking culture.

I’ve long thought this a major part of Britain’s productivity challenge, and I’m happy to see that the City veteran and corporate financier, Sir Simon Robertson, a former stalwart of Kleinwort Benson and Goldman Sachs, agrees with me.

Measurements of productivity have sweet fuck all to do with who owns a company. they’re measures of the output (per hour normally) of people working within the British economy.

Who owns, who gets the profits, makes completely sod all difference to productivity measures. Productivity is measured by the hours those 3,000 around Cambridge put in as against the value of their output. And that’s it. British productivity will change by not one whit or iota as ownership moves from roughly 43% US, 35% UK, balance European to 100% Japanese.

It’s simply trying to measure things using entirely the wrong ruler.

We’ve looked at this before

Living near Waitrose could add £38,831 to your house price, survey says

No, Waitrose sells to the yummy mummys. That is, they deliberately target the middle to upper end of the socio economic spectrum.

There’s a Waitrose around the corner because your house is worth more.

Err, yes, yes it is

It is not companies like ARM that will in themselves drive up the country’s pay and productivity.

Average pay is set by average productivity in the economy. Having high productivity and high pay companies like ARM in the economy thus pushes up average pay.

Come on, this is basic, basic, stuff.

Technological excellence and innovation are not enough; but if leading companies, like ARM, that are most likely to drive such a transformation are sold abroad, their tax revenues and ultimately their management put in the hands of individuals with less stake in the country, their strategic value is at least compromised.

UK profits will be taxed just like they are now. Non-UK profits aren’t taxed in the UK today anyway. So, no change there then.

Idiot fucking Guardian.

despite Brexit – which, by causing sterling to depreciate sharply, made it such an attractive deal

ARM’s revenues are almost entirely in US $. That’s why the share price rose 20% following Brexit and before the bid, as sterling declined against the $ making that foreign income stream more valuable in sterling.


And this tosser definitely needs a reaming:

Over the past few decades Britain has sold companies to overseas interests at an unprecedented level,

Britain has sold fuck all. Some number of British people might have sold their private property but that’s a rather different thing, isn’t it?

I’ll bet that New Scientist has this space law thing wrong

Or rather, the economics of how it must be:

It is a dystopian vision, but not an inconceivable one. China is weighing up the business case for mining the moon, while the US firm Moon Express is already developing technology to do it. Then there are the companies planning to mine asteroids. Such ventures received a shot in the arm last November when President Obama signed the Commercial Space Launch Competitiveness Act, aka the Space Act, which grants US citizens and companies ownership of anything they can extract from celestial bodies. It fired the starting pistol for a dash to carve up the riches buried in space.

The risks and potential rewards are astronomical, and the whole enterprise is blasting off into a legal void. That could spell trouble on a cosmic scale. “We need rules, preferably at international level,” says Tanja Masson-Zwaan, president of the International Institute of Air and Space Law at Leiden University in the Netherlands. But what should those rules be?

But I’m not prepared to subscribe to find out how wrong…..

Yes, yes, that’ll do it!

Britain’s run down coastal resorts should be saved by the Government appointing of a “seaside tsar”.

More politics! More bureaucracy!

The British Hospitality Association said massive investment is needed to regenerate poverty stricken coastal communities.


That’s how economic development always happens, isn’t it?

A little economic oddity

I needed a slide that had something to do with economic planning for an illustration to a piece elsewhere.

OK, so, Google Images search for “economic planning”. And a good 50% or so of the images there were referencing India.

India’s GDP per capita is some $1,500 a year or so.


And Guardian commenters even more clueless on economics

Manufacturing (the only thing you can export) is only 5% of the UK economy.

Manufacturing is around and about 10% of the UK economy. And services exports are quite large really:

Total UK exports of services (excluding travel, transport and banking) in current prices continued to rise, increasing from £103,828 million in 2012 to £117,193 million in 2013, an increase of 12.9%.
Total UK exports of services to Europe witnessed the largest increase in 2013 rising from £51,963 million in 2012 to £57,150 million, an increase of 10.0%. Exports to Germany contributed most towards the increase.
The professional, scientific and technical activities sector continued to be the largest sector contributing 27.4% of total UK exports in 2013.
Total UK imports of services (excluding travel, transport and banking) in current prices increased by 15.1% rising from £46,399 million in 2012 to £53,387 million in 2013.

Services exports are some 7 or 8% of the UK economy. The services trade surplus is some 3 or 4% of the economy, summat like that.

Guardian economics still wrong

In the run-up to the referendum, it was common for Leave campaigners to compare quitting the EU to Britain’s embarrassing but ultimately beneficial departure from the European exchange rate mechanism (ERM) in 1992. The pound tumbled after “Black Wednesday”, and by 1995 the economy had begun to rocket.

George Magnus, a former chief economist at Swiss investment bank UBS, says there is no question the recent fall in the pound will help some companies, “but it’s most unlikely to offset other economic problems the UK is going to encounter”.

He says that, unlike in the 1990s, the pound is not starting from a “chronically overvalued” position.

Hmm, OK, and the proof of this is what?

As if this wasn’t bad enough, the UK’s balance of payments deficit of 7% is three times as big as it was before the ERM exit.

Well, we don’t have a balance of payments deficit because the balance of payments always, by definition, balances. We have a trade deficit.

And a large trade deficit is one of those signals that a currency is over valued, isn’t it?

What a stunning economic finding

London’s outsized contribution to the exchequer should make defending its position a priority in the years after the Brexit vote, a think-tank report has suggested.

Centre for Cities calculated that in the last financial year the capital generated under 30pc of so-called “economy taxes”, the levies most associated with economic growth. The share of these taxes delivered by London has risen by five percentage points, as the Government’s dependence on the city has increased.

London and the SE (really, one economic area in many ways) are some 30% of the UK economy.

Can we track UK real living standards?

An interesting question in the comments:

Tim, do you know of anywhere I can find information about the evolution of absolute living standards for the working class in the UK?

Whatever I search for I always end up with information about relative ‘poverty’.

My answer:

I don’t know of a one stop shop, no.

I can think of a way of constructing it though. Have a look at what the inflation basket is. CPI or RPI, won’t make much difference.

The thought here is that the basket of what we measure to calculate inflation changes. And it’s always being adjusted so as to at least try and reflect what the “average” household is actually buying. So, black and white TVs are no longer in the index, maybe even CRTs aren’t, while flat screens and internet access are.

I’ve not looked to see whether there’s an historical record of what the CPI basket is but if you contact ONS they would certainly be able to point you in the right direction. They might even have (the Americans do, a bit) different baskets for different income quintiles or deciles.

Sorry that’s a rather technical answer and there may well be a better one.

There almost certainly is a better answer. But does anyone know what it is?

Actually, Chris Dillow will know…..

What an astonishing result

The number of children living in poverty in the UK has jumped by 200,000 in a year, according to the latest official data.

There were 3.9 million children living in “relative poverty” in 2014-15, up from 3.7 million a year earlier, the figures from the Department for Work and Pensions show.

It was the first increase, when housing costs were included, since 2011-12. An individual is considered to be in relative poverty if their household income is less than 60% of median income.

Inequality falls in a recession. Inequality increases in the recovery from a recession. the UK is recovering from recession – such a shock, isn’t it?

Stepping very close to the libel law here Aditya

But then, Green is used to cherry-picking which rules he plays by. Take this example: he buys Arcadia, the company that owns Topshop, then arranges for it to give his wife a dividend of £1.2bn. Since Tina Green is, conveniently, a resident of Monaco, the tax savings on that one payment alone are worth an estimated £300m.

Well, no, not really.

As The Guardian pointed out in a correction:

The following correction was printed in the Guardian’s Corrections and clarifications column, Tuesday November 9 2004

Philip Green, the retailer, has asked us to point out that contrary to the impression given in the headline of this article, Arcadia has at all times been owned by his wife since the business was acquired in 2002.


Paul Mason’s cure for the British economy

So, if you want to prevent wealth flowing from productive people to the elite, you have to restructure the economy. You have to stop believing £24m annual paydays are the result of an accident. You have to make property speculation a crime and pursue policies that can suppress boom and bust, whether it is in the property market, the stock market or any other market.

And you have to tax assets, not just income. Executive pay is structured around share options, not just salaries and bonuses, because it is more “tax efficient”. A tax on shares held; a tax on the value of property designed to stop it rising faster than GDP – these are the measures that would actually work. Plus, make a positive case for rent controls.

If Jeremy Corbyn’s Labour can become the first advanced-country government to suppress the causes of obscene executive pay, it will reap a massive first-mover advantage. The property market will stabilise; housing will become affordable as billionaires – foreign and domestic – take their money elsewhere. The stock market then will move in line with the real economy, not the fantasy economy created by a shortage of housing and a glut of money.

Finally, the overpaid elite will drag their sorrows through the world to another jurisdiction. Personally, I cannot wait to see them go.

Err, yes, yes.

Let’s drive capital out of the country then Paul. Because, you know, it never does anything and we’ll not miss it when it’s gone.

Anyone remember the last time we had socialists in charge? They had to ban capital from leaving the country because it did actually make a difference…..

Interesting claim Paul

Social democracy’s electoral decline – from Scotland to Poland – is rooted in its attachment to free-market economics, which it needs to deliver rising wealth and wellbeing for the broad mass of people. The years since 2008 have shown that it does noth and it cannot.

Guess that 250 years of the Great Divergence and economic growth was just a mirage then.