Yep - I still see a dire future for Britain until something major is done, but I don't think the Tories really have any plans to address the problems.
And I still maintain that GDP as an indicator is not reliable unless considered in context with the balance of trade.
And house prices are the worst indicator of all - largely irrelevant and hugely distorted by the massive rise in population (thanks to immigration) over the last 20 years.
All in all our economy is still based on ever-expanding debt through easy availability of credit based on over-inflated house prices.
It's a recipe for disaster.
Okay, here's the problem. Most of the influential class- and indeed most everybody- believes in monetary expansion. They believe it is necessary to create investment. They believe it is necessary to overcome false consciousness in workers regarding pay. They believe that economic growth cannot occur without monetary expansion ("people cannot earn more unless more money is available to pay them"- the answer to this is that wealth comes through price reductions, not price increases). And so on. It is economic voodoo, but most peole believe it because it seems to make sense.
No amount of fiscal rules will improve matters until this fundamental economic/philosophical fallacy is rejected. You cannot make a fiscally expansionary policy work. It will always boom and always bust, and the longer it takes to bust the bigger the bust will be. And while big busts can be a boon in some contexts, they are a disaster economically.
People forget that the Bank of England is supposedly "controlling" inflation- that is, supposedly stopping it spiral up out of control, they are also obligated to ensure there is some inflation. No inflation is not allowed. It is considered a Bad Thing. The government via the Bank deliberately force prices up, year after year after year. Then they try to claim credit for not forcing up prices too much. This policy is nonsense. There is a terror of "deflation". This is nonsense too.
Wealth comes from falling goods and services prices. A falling price means that supply has increased and resources required for creation have reduced. Falling prices- sneered at as "deflation"- make us wealthier, because we can get more stuff for the same money (which itself represents our resource input to the economy). We can get more for the same work, or the same for less work. I have a computer from 1987 in store, an IBM Model 60- 286 12MHz, VGA, 1MB Ram, 42MB hard disk. It cost $10,000 when on sale. It was top of the range. A top quality computer now might cost 1/20th of that. We do not all now own computers because our wages have risen by a factor of 20, we own them because the prices have fallen. Computers have deflated.
Inflationists believe that in order for prices to fall, wages must fall. Since workers will not readily accept reduced wages, inflation must silently steal their wage value. This is not true. Wage bills fall not by reducing wages, but by efficiency gains which reduced the number of workers per product. Redundant workers are then freed to make other products.
If the quantity of money were not increased, and we thus lived in a non-inflationary economy, it would work much better. Prices would, over time, gently fall due to efficiency gains. The deliberate attempts to prevent this natural economic process occurring are the cause of many of our woes. But until our rulers, their advisors and the people in general stop supporting inflation, no amount of fiscal rules controlling how it should be done will solv
...solve anything. The basic idea is broken. It forces excessive speculation. It forces extreme and unsustainable property price spirals. It prevents sensible saving and rational economic decisions by the actors in the economy. It is a recipe for disaster, and fiddling slightly with the recipe will change nothing.
(ooh, there appears to be a verbosity filter!)
Ian B,
Money represents the amount of time exchanged in the economy.
The monetary regulator should increase and decrease it accordingly.
@IanB,
I'm no economist but I cannot see how what your suggesting would work: you would have the same amount of money chasing after an increasing number of items being produced (and raw materials etc). Surely there would be a supply-and-demand thing going on here.
The only outcome I can see with a fixed supply of money is a reversal of our progress (technological at least) and this itself would be self-fulfilling as new technologies would not be developed thus limiting the amount of efficiency gains.
Over time, wouldn't prices inevitably increase?
I would love to know if I got this right - please blow my comment to pieces.
Roy Davis
Yep, you have got it the wrong way around.
If goods expand but money doesn't then the price will reduce.
Price = Demand/Supply.
I can't see how fiscal rules will make any difference. There were in place, but as soon as New Labour thought it convenient, they were dumped.
Macroeconomic stability requires an "upfront payment" of large public expenditure cuts and tax increases. Otherwise a fiscal consolidation plan won't be credible.
The time for promises is over.
Alice Cook
Thanks AC1.
I'm trying to write down a response to explain a little better how I came about the reasons why I expected prices to increase, but I think my head is about to explode - so many different variables!
Where I was coming from though (I think) is that I assumed money is used for the purchasing of "things" - ie, raw materials, etc. However you put your post in as I was writing mine. The fact that it's used to value time makes sense, and failing to create new money would indeed cause deflation, just as yourself and Ian B say.
However (and this is how I am seeing this in my head), wouldn't a freeze on the increases in supply of money have an effect on demand (much as cheap credit does - and we all know where that gets us) and in certain situations prices could just as easily inflate? Also, wouldn't money (or wealth) be more disproportionately distributed than it is now?
On social mobility, some people do escape this trap and earn more than their parents, however we're held back by not only social mobility but also physical mobility.
A friend of mine works in London in the city. He lives in Diss, Suffolk. The cost of the commute eats a large chunk of his income every month. You don't have such costs in France, Switzerland or Germany.
It is rather sad but class does still exist. Working on contract at a private school showed extremely well bred pupils with high earning parents. With a class size of seven it is inevitable they will be better taught than one of 35.
Thus the cycle perpetuates.
Culturally we've a problem in that hard work and academic achievement are no longer valued commodities. It is, frankly, easier to do nothing than to be industrious and work to better yourself. This attitude has been drummed into a whole generation who want the quick road to success without the hardship of work.
As a nation we no longer respect what used to be values - for others, for property, for hard work. Instead we have "everything now". We need to change who we are - the only reverse out of this situation is to completely cut off any form of external support for everyone except the most needful, and encourage a long lost term: responsibility.
The problem isn't the rich, it's the poor. Now, Labour's proud to call itself the party of the poor. It depends on their votes to achieve power; that is, it has a direct vested interest in maximising poverty. So that's what it does. If it let poor people get prosperous they'd all be off voting Conservative, leaving the mass of unskilled Labour politicians with no choice but working for a living.
This diabolical plot to expand poverty fully explains Mr Brown's bizarre, indeed superficially lunatic, financial behaviour over the last 12 years.
To reject this thesis involves accepting that a group of people (Labour politicians) uniformly, consistently and with premeditation act to destroy their own self-interest.
Tell that to Adam Smith!
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