NPF: The Future of Work (1) – The Economy

Economy, Business & Trade Consultation document available at Scribd.

What is your view of the current state of the economy and modern employment?

Before considering questions about the economy, I recommend viewing the Financial Times statistics page The UK economy at a glance (you’ll need to create an account but don’t need to pay a subscription fee to view them).

Our present economy continues to be defined by the Global Financial Crisis of 2007/08. All major economies responded to that by hugely increasing national borrowing both to bail out banks, and maintain public spending while tax revenues declined. All major currencies. the pound included, then followed this up with a lowering of interest rates and quantitative easing (QE), a method by which central banks buy back their own bonds, in effect printing more money than is demanded by the economy. This ought to stimulate demand by making saving unprofitable, creating inflation and devaluing the currency, but also runs the risk of leading to hyper-inflation and scaring away investors who perceive the currency as worthless in the face of all this endless money printing.

In my opinion, the method of buying back bonds just gives the money to capital investors who have no intention of spending it on consumption. They want to invest it, and by far the most profitable destinations for investment since the 1970s have been property, shares in multinational companies, financial products and derivatives and technology intensive industries. These do no create jobs or taxable growth. As a result, QE is simply a gift to the 1%. This is reflected in the way that global output quickly returned to pre-2007 levels, at the latest by mid-2013, but the average worker still has a lower standard of living than before the crisis. Monetary policy needs to tighten significantly, and the government should negotiate for international rules on taxation and ‘tax havens’ as a priority. If rules are not achieved within twelve months, capital controls should be considered as a method of retaining our domestic product and adequately taxing it. Free trade does not require free capital.

The Conservative led coalition elected in 2010 decided that their single most important task was keeping the confidence of international investors. Flawed research led them to believe that if debt exceeded a certain ratio of GDP, the cost of government borrowing would skyrocket and ruin the national economy. As a result they instituted very deep cuts to public spending (often disguised as “efficiency savings” despite lacking any methodology showing that such savings could be made without cost). The effect of this was a contracting of public demand at the same time as a contracting of private demand. The economy languished.

The extreme austerity of the Eurozone, prescribed against the advice of every major economist and even the IMF, further depressed demand. Ageing demographic trends haven’t helped, and neither did the decision in 2016 to leave the European Union – hampering recruitment efforts in key sectors and discouraging foreign investment. The devaluation of the pound that followed that vote was unfortunately also only temporary. The World Bank now predicts that 2018 will be peak growth for the foreseeable future for developed economies. Not inspiring.

As consumers, The British have continued to benefit from the expanding Chinese workforce continually lowering production costs, and e-trailers, with their tax-havens, insecure workforce and rent savings lowering service costs. It’s never been cheaper and easier to fill your life with stuff. As borrowers, those who can get a mortgage can service it easily, but will probably never pay it off. As savers, it’s been a squalid time and it’s not clear to me that Western governments are going to be able to raise interest rates. As an economy, we are getting by, but high and low wage earners are taxed too much, the top 5% continue to appropriate ever increasing amounts of the national wealth, and the trend of increasing rent and falling home ownership is brewing the sort of fundamental social crisis that leads to the French Revolution.

That’s 610 words, so it looks like I’ll have to tackle employment in the next post (don’t worry, there’s lots of questions on that).

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