And he teaches economics, does he?

We may be near ‘Peak stuff’ and that will create a crisis
Posted on August 21 2018

The challenges within our economy and society can only grow as far as I can see. At the most basic level at some time soon we are going to face the problem of ‘peak stuff’. That is, the amount of physical consumption by people is going to start declining, at least in aggregate.

This has to happen. I would love to say that is because of a growing green awareness. That, though, is not true. The mountain of debt we now face will be what achieves this.

Manufacturing, that creation of stuff, is 10% or so of our economy. It’s really about time to realise that we consume value, not stuff, no? GDP, of course, being value, not stuff.

Last year UK households dis-saved for the first time since records began: that is, they borrowed more than they saved, overall.

This is the standard Keynesian cure for a recession. Didn’t you know that Senior Lecturer?

At a macro level this debt will implode. It has to. Some of it is unplayable. I have little doubt that those who are owed have yet to realistically appraise how much their debts will amount to because over the last decade accountancy has forgotten how to appropriately debt provision because the rules have not required them to do so. That’s a contributory cause of this crisis that will have market repercussions.

Wasn’t it Gordon Brown who positively forbade banks from provisioning for debt that might go bad?

More generally, there will also be a downturn. When the domestic credit line is finally maxed out (and this analogy works perfectly in this context) the spending has to stop. And it will. And that has ripple effects. Multipliers exist in the private as well as the public sector. Add this onto any one of a range of other potential tipping points, from Brexit onwards, and the risk of a recession, or worse, is high.

People will consume less and therefore we’ll have a recession? Blimey, that’s bleedin’ edge thinking there.

But this is the joyous bit:

That choice will be morally sanctified: it will be claimed no one had to take debt on and people must live with the consequences of their actions. I can hear the libertarians rolling out the excuses for their contempt already. But they are wrong. For many there was no choice. And those libertarians ignore the enormous effort put by the debt creators into distorting choice, from car manufacturer promotions to daytime television debt advertising onwards. So the libertarian claim is nonsense.

What can be done then? The answer is obvious. We need to prepare for redistribution. The savers will need to be the saviours. The simple fact is that we have massively skewed wealth distribution in the UK, and we have a tax system that massively favours those who earn income from wealth as opposed to those who earn income from working. Of course the two comments are not unrelated: under taxed income from wealth does, of course, get saved, in the main, so increasing wealth inequality exponentially.

In that case peak stuff has to be marked by two things. The first is increased taxes on income from wealth. I explain how, here.

And the second is wealth taxation. That could be by taxing property more effectively, both during life and on death. It could be by making inheritance tax work, which might well mean reducing many of the exemptions that mean that the very wealthy simply avoid the tax. And it could mean a new wealth tax to replace inheritance tax altogether.

But what we do not have is the option of leaving large parts of the country behind because they have been crippled by debt.

And nor am I making a special pleading for the goodwill of those with some wealth. The reality is that there is a risk, which I acknowledge, that they will be the largest gainers from such a programme. The reality is that if, collectively, those who owe (and there are many) are provided with the means to pay then those who are owed (and there are fewer of them) stand to gain.

Call it enlightened self-interest if you like, but the wealthy need to stump up to make the system work if they wish for it to act in their interests. The alternatives all look to be worse for them.

OK, some people will have taken on more debt than they can repay. The people the debt is owed to will have to have a little less in order that we don’t reinstitute the debtors’ prisons.

OK, seems fair enough. So, why not have a system whereby those with too much debt can submit their too much to examination? Where they really do have too much then some of it could be forgiven. You know, on the grounds that debts which cannot be repaid will not be. So, just recognise that fact and get on with things.

We could even have a dual level system. One where we call a halt to attempts to collect today, reschedule and generally aid in working things out. And a throw up the hands in horror and just strike the lot level.

Why not call level 1 a CVA, level 2 a bankruptcy. You know, the system we’ve got in place today?

That way the releif goes to those who really have got too much debt, the costs fall on those who really did lend too much to the wrong people.

15 thoughts on “And he teaches economics, does he?”

  1. Tim, you’re “interested in what Ritchie thinks the cause of this hyperinflation is”

    Evil Neo-Liberals, supported by an army of Evil Space Monkeys.

  2. Janet carter, who may or may not be a relative of mine, has asked a question which seems to have tipped Murphy into full on gibberish mode. Can anyone at all work out what he’s trying to say?

    Janet Carter says:

    [Richard, you say of Venezuela] “many causes for inflation, many of which are external to any economy”

    You’ve explained in the past that taxation can be used to curb inflation but if inflation can be caused by forces external to the economy, how can taxation ever be relied on to bring inflation under control?”

    Richard Murphy says:

    Only free floating exchange rates can do that

    A problem Venezuela has is effective dollar pegging which has not allowed this

    I never said tax solves al problems

    And externally imposed inflation an economy has no choice but embrace by exchange / conmuptuon adjustments.

    Beep Beep Derrrrrrrrrrrrrrrrrrrrrrrrrrrrr.

    (I added that last bit)

  3. One sensible commenter politely asked what is causing the hyper inflation in Venezuela. He branded him as “far-right” and banned him.

    The fool is a writ waiting to happen.

  4. We need to prepare for redistribution. The savers will need to be the saviours.

    Er, I don’t want to be a saviour, thanks. I don’t want thieves stealing my savings just because I deferred my gratification when others didn’t. Fuck right off.

  5. “Wasn’t it Gordon Brown who positively forbade banks from provisioning for debt that might go bad?”
    Of course it was. It hid the size of his budget deficit by taxing imaginary profits. (I can prove that mathematically if anyone needs a cure for insomnia)
    But there is some good news – IFRS is on the case, a mere dozen years too late, and now requires provisions to be made at the time that the loan is made.
    Since Murphy hates IFRS he will not admit that it can do anything good.
    “Of course the two comments are not unrelated: under taxed income from wealth does, of course, get saved, in the main, so increasing wealth inequality exponentially.”
    ER?!? Real returns on risk-free and low-risk assets have been negative for a decade! That’s even if they aren’t taxed. The negative real returns on savings decrease wealth inequality (do you need a proof?) – but the real sufferers are the prudent working class who are trying to save up for a rainy day or their retirement.

  6. AndrewC

    “Janet carter, who may or may not be a relative of mine, has asked a question”

    Or Janet Carter may be your Tuesday self-selected female gender self?

  7. @ Rob
    The old-fashioned Tory believed in “Original Sin” and the difference between the deserving poor and the undeserving poor. “The poor will always be with you”, but we are called to help the deserving poor, not parasites.
    Regrettably Murphy has either confused the two categories or got them the wrong way round.
    My little sister is involved with a charity that provides *some of* the innocent destitute with a roof and £10 a week (because Glasgow has a “night shelter” for men but not for women) – Murphy wants us to hand £thousands to those who have wasted money that they hadn’t earned on booze and foreign holidays and fancy clothes.
    Of course, as Margaret Thatcher pointed out, *only* the savers can be saviours. That doesn’t mean *all* savers need to be saviours, but who expects Murphy to understand logic?
    I, unlike Murphy, am not demanding that you should be a saviour if you don’t want to be – I am just asking that you spot his “bait and switch”.
    [Presumably those who like boiled rice can survive on £10 a week until DWP corrects its errors, but that does illustrate how ridiculous are the demands of the Joseph Rowntree Trust.]

  8. Er, Tim
    A CVA is only for companies – individuals have an IVA.
    And the really poor ones can get a DRO if they genuinely have zilch assets and no chance of repaying the sort of debt that your or my credit card would cover (different names in Scotland for almost identical things).
    CVA is not the same as Chapter 11 but the nearest equivalent in an honest country.

  9. Not surprised this evil cunt wants to tax savers to bail out the feckless, What’s surprising is that he isn’t blaming pensioners (one of his hate groups) and homeowners. Suddenly as his pension days loom near his attacks on pension tax relief/funds and pensioners /homeowners wanes. Was there ever such apiece of slime ?

  10. We can add ‘exponentially’ to the long, long list of words he doesn’t understand. Where can I get this investment with exponential returns?

  11. @Rob
    Any investment that is subject to a constant rate of compound interest grows ‘exponentially’, though the rate of growth may be very small. ‘Exponential’ (in its proper, mathematical sense) is not a synonym for ‘big’.

  12. Bloke in North Dorset

    “Last year UK households dis-saved for the first time since records began: that is, they borrowed more than they saved, overall.Last year UK households dis-saved for the first time since records began: that is, they borrowed more than they saved, overall.”

    Isn’t this likely to happen more often as ever more baby boomers stop work? By choice I’ve been living off saving since last March and unless a former client suddenly offers me an interesting project for winter I don’t think I’ll be earning again, by choice.

  13. As to “peak stuff”. Well, when it comes to manufacted goods… Yes. I spend vastly more on the soft than the hard these days than I ever did. For example what with streaming etc what is the point of a CD or DVD. Or the fact is the software on this laptop cost a lot more than this laptop. Not something that would have been the case 20 years ago or even 10. Cars last longer too.

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