I love the fact that you just got served by Dan Hodges for your breathtaking delusion that Labour are winning the economic argument.

I also love the fact that your response to being exposed as a shrill delusional is to become *ever more* shrill and delusional.

Truly, you are a force of nature, Sunny.

“Does anyone seriously believe this is not of Osborne’s making?”

According to polling, the electorate, although presumably what they think doesn’t matter. You may not have convinced anyone else, but you’ve convinced yourself and a few of your more credulous mates.

And in politics, isn’t that all that matters?

Martin, apart from the routine abuse, do you have a contribution to offer?

No, thought not.

Does anyone seriously believe this is not of Osborne’s making?

Not sure there’s any real comfort for Labour in any of the polling figures.

Indeed, if we look at YouGov’s tracking data on which party is best able to deal with the economy, we find very little change since the start of the year. The Conservatives led Labour by five points then, and by six points in our latest survey. This matters. I cannot think of a General Election when a party has lost the economic argument and won more seats than its main rival. The figures suggest that Labour’s currently modest lead in voting intentions is fragile, and may well crumble in the face of a fierce election campaign.

https://today.yougov.co.uk/commentary/peter-kellner/britains-economy-state-blame-game

The Govt can run the line that Labour screwed everything up so badly that it will take years to fix. It’s easy to understand, and has the benefit of being basically true.

As you can see from the responses, Tories love the fact they’re wrecking the economy.

Again.

Better a moderate slowdown now than a more painful one later on.

Since when did “austerity” mean “spending more on consumer goods”? The government’s pitch is designed to deepen the crisis, it isn’t accidental at all. The worse the shock and awe, the more they can do to destroy public services and transfer money from the poor to the rich. This will mean “modernisation” more radical than ever Bliar dreamt of.

Remember how Thatcher abandoned monetarism 25 years ago? Don’t be surprised if when the Tories’ economic policy turns out to be such a disaster that even they have to admit it, they’ll dump it while insisting that they have done so such thing.

@4, Tim J,

The Govt can run the line that Labour screwed everything up so badly that it will take years to fix. It’s easy to understand, and has the benefit of being basically true.

For once, Tim, you’re half right.

AFZ

In the Sunday Times, the non-partisan David Smith (Economic Outlook, 29/05/11) wrote:

“There is no case yet for the argument that spending cuts are killing the economy.”

As for the claim by Sunny that “Above inflation wage growth is about the only thing that will save this economy”, how will wage-inflation help the UK? It will only make the UK uncompetitive and in the public sector lead to more job losses.

Pretty sure wage growth isn’t going to solve anything long term – it’s jsut going to push inflation higher. The problem really is that households and the government were spending too much, and one way or other that is going to have to come back into line, likely through a combination of austerity, inflation and lower living standards – exactly what we are seeing in fact.

As to Sunny’s “solutions” to the problems, from his earlier article;

1. Protecting which jobs?? Public sector ones? The logic only really applies to *productive* jobs, not all. Otherwise we get back to the Keynesian scenario which many on the left misinterpret – constantly paying people more increases growth (it doesn’t, it just increases money supply).

2 and 3. Agreed, though the IMF say this…

4. Here is where the total nonsense begins, at least in part to the utter rubbish Richard Murphy and his ilk spout.

Mansion taxes won’t do much except crush house prices, and in the process home equity and the banks who have the mortgages. It would be a disaster for the economy, and raise very little.

Robin Hood taxes will jsut get passed down to the end users, and make the cost of doing business and banking more expensive. Everything from high street banking to mortgages to pensions to even the products we buy would be more expensive. Sure you’d raise moeny, but it would be the consumer who would pay for it at the end of the day – directly in contradiction of Sunny saying that the government should reduce VAT.

As for tax avoidance….apart from being legal, the numbers have been vastly inflated by the left. Without going over the obvious again, you aren’t going to magic up billions out of thin air on this either.

I assume because of your reference to talking down the economy, you will no longer be claiming that the cuts are bad for it. After all, it’s not like the left has been insisting that cuts will result in economic armageddon since the election, and of course have had no impact on consumer confidence themselves.

Better a moderate slowdown now than a more painful one later on.

This is quite a catastrophic slowdown actually.

Doing an Osborne and crashing from 1.1pc quarterly growth to, er, nothing, is serious.

11. Tyler

As for tax avoidance….apart from being legal, the numbers have been vastly inflated by the left.

“Legal” but immoral.

And economically damaging.

So it’s also massively unpatriotic.

There are two separate issues here. In policy terms, Osborne is closer to the mark than any of his opponents. Whether as a politician he inspires confidence in people (and the economy as a whole) is a separate issue. My gut feeling is he has more confidence from the international markets than he does from the average man on the street or small businessman who is thinking whether or not to take a risk,

http://outspokenrabbit.blogspot.com/

And economically damaging.

So it’s also massively unpatriotic.

But Ben, you’re in favour of economic stimulus – you always have been. It would be massively economically damaging to impose drastic real tax rises, thereby implementing fiscal tightening and doing terrible, anti-Keynsian things to the economy.

Thank heavens for the patriotic actions of the tax avoiders who are doing their bit to provide the fiscal stimulus that this terrible Govt refuses to give us.

In the Sky news this Tuesday morning:

House prices have fallen at their sharpest annual rate in 18 months, according to the latest figures from mortgage lender, Halifax.
http://news.sky.com/skynews/Home/Business/Halifax-House-Prices-Fall-At-Their-Sharpest-Annual-Rate-In-18-Months-Despite-Slight-Rise-In-May/Article/201106116007009?lpos=Business_First_Buisness_Article_Teaser_Region_1&lid=ARTICLE_16007009_Halifax%3A_House_Prices_Fall_At_Their_Sharpest_Annual_Rate_In_18_Months%2C_Despite_Slight_Rise_In_May

As reported: “It means that when the market’s performance as a whole over the last three months is examined, prices tumbled 4.2% – the biggest fall since October 2009.”

Evidently, there is an excess of supply over demand.

As Mrs Thatcher used to say, “You can’t buck the market.”

Hah! Coxall is accusing me of being shrill. Hilarious.

The Govt can run the line that Labour screwed everything up so badly that it will take years to fix. It’s easy to understand, and has the benefit of being basically true.

Not exactly. Firstly, voters won’t give Tories forever, in the same way that while Obama has some leeway, it won’t last forever.

And the UK election is still 4 years away, after which patience will run out. So I’m not worried about that argument.

All Labour have to do is make the same argument Reagan did: Do you feel better than you did 5 years ago? the answer for most will be NO.

Adam B your point made no sense whatsoever. Talking up the cuts HAVE depressed confidence. It’s plain to see.

Above inflation wage growth is about the only thing that will save this economy. It won’t be exports. It won’t be Quantitative Easing (as the IMF bizarrely suggested yesterday). Just simply old wage growth.

I do wonder what the source of these confident assertions is – theory? empirics? or, simply the power of your economic intuition.

There is a relationship between QE, the exchange rate, and exports. I don’t know what basis you have for ruling out expansionary monetary policy, devaluation and help from exports.

Equally, much as I’d like to see real wage increases, I don’t know where your confidence in the stimulative impact of negotiated wage increases comes from. Give some thought to the third of Chris’s worries here.

What we really need is a reduction in unemployment. Surely you recognize the tension between that goal and attempts to push up wages. One potential path to that outcome is large multinationals moving production (back) to the UK, if the currency devalues and the relative cost of doing things in the UK falls. If you are interested in demand multipliers, large employers are where the action is – see here on cyclicality of hiring and firm size. Pushing up wages, without any attendant productivity increase, could work in the opposite direction.

note that higher negotiated nominal wages do not necessarily mean higher real wages, if firms respond to higher wages by putting up prices. The BoE can keep monetary policy loose so long as inflation is externally, import price, driven. We get into a higher wages, higher domestic prices cycle, and BoE will raise rate at that will really crap on the recovery. Just in case anybody interested in economics hasn’t read this yet …

It’s simple – they don’t know what they are doing.

don’t forget, the economists advising Government are the same fools who advised the last Government – and politicians know NOTHING about economis – or they would be economists and not politicians – the one job which require NO qualifications.

I would be much more surprised if the plan WAS working.

…and I wouldn’t listen too hard to the IMF – they are a BANKING organisation which is there to ensure the BANKERS get paid by the sovereign nations. They don’t actually care if they get paid in money – or blood – but they do care about getting paid.

Rather amusing to see neoliberal trolls, like TimJ and Luis Enrique, trying to justify their ‘President Hoover was right all along and Roosevelt and Maynard Keynes wrong’ car crash slowly unwind.

As I’ve said before they’re like Edwardians who in August 1914 thought “the war will last a few months then it will be back to business as usual”.

These comic contortions can can only get more complex in the months to come.

And remember, Thacther was the the lady’s not for turning and TINA = There Is No Alternative, till monetarism was suddenly ditched in autumn 1985.

See you next Tuesday Luis Enrique.

“The Govt can run the line that Labour screwed everything up so badly that it will take years to fix. It’s easy to understand, and has the benefit of being basically true.”

This statement demonstrates your stupidity – it was Capitalism wot did it.

All wrtitten out for you in 3 volumes – which I suspect you have NEVER READ – and yet you are so sure you are right.

You can put superman in charge – it will make no difference whatsoever. Cuts or spending – both lead to disaster. The die was cast a long time ago and the politicians and dumbed down public have allowed the boil to fester.

Is there anyone of the right wing trolls on here prepared to give JUST ONE example of a nation which cut it’s way to recovery during a global slowdown?

I shall go first – the US in 1930 made cuts which are widely believed to have plummeted them into depression for the next decade.

….now can we have an example from the right? (No, Canada is not an example as this was NOT in a global slowdown and it had many highly demanded commodity resources which it sold off to fill the gaps)

The right are very good at saying “the deficit left by the last Government” – but not so good when it comes to economic reality about their chosen course of action.

Have you actually looked at the numbers, Sunny?

It is kind of absurd to say both “it’s all Osborne’s fault” and “ignore inflation”.

The rate of growth in nominal spending (GDP at market prices) is a reasonal measure of aggregate demand. The Darling budget forecast was: 3.75%-4.25% for 2010, 4.5%-5% for 2011.

Outturns currently estimated at:

09Q4 to 10Q4: 4.2%
10Q1 to 11Q1: 4.6%

so these look quite acceptable.

The (real) GDP growth figures look weak because the GDP deflators are coming in way above forecast. The Darling forecast was 1.5% for 2011 – the outturn for 11Q1 was 2.8% (year-on-year).

‘President Hoover was right all along and Roosevelt and Maynard Keynes wrong’

President Hoover dramatically increased public spending in an attempt to counter the Depression. The difference between his fiscal policies and Roosevelt’s was merely one of degree.

In the UK, of course, we responded by coming off the Gold Standard and cutting public spending, and were out of recession by 1932. And any Edwardians still around in 1914 were rather ebhind the times.

Nice to be paired with Luis though (unusually, admittedly). I’d always rather be on the smart side.

swing, you dipshit, I’m with him not him

Is there anyone of the right wing trolls on here prepared to give JUST ONE example of a nation which cut it’s way to recovery during a global slowdown?

Cal Coolidge, US, early 1920s. Cut spending, cut taxes, returned the US to strong economic growth. Happy?

I shall go first – the US in 1930 made cuts which are widely believed to have plummeted them into depression for the next decade.

This is simply wrong. The belief that Hoover cut spending in response to the Crash and Depression is based in ignorance. Here’s a table setting out the US Federal budgets of that period.

http://www.presidency.ucsb.edu/data/budget.php

Do I need to explain it to you?

TimJ

Stop trying to rewrite history.

An early 1920s bout of spending cuts you say?

And what happened at the end of the 1920s?

Sorry, drunk – strategicaly, it was necessary. You can only audit after events. Time to realx.

28 – A crash and a subsequent depression. We’re just lucky that Gordon Brown abolished boom and bust aren’t we?

If you’re arguing that the Harding/Coolidge spending plans in 1923/4 caused the Great Depression, then you’ll have to a bit more than assert it by reference.

@ 14 Ben M

Most of the UKUncut/Richard Murphy bollocks on tax avoidance was just that; they massively overestimated total amounts, then proceeded to ignore profits earned offshore (for example Barclays) and conflated gross and net profits.

The long short was that the 90bn odd figure these people have run around with is in fact total nonsense.

Whilst you might not like that multinational companies act to minimise their tax bills, they do it legally and there is little you can do to stop it short of normalising taxes globally. It doesn’t mean they are not paying tax though – just not paying it all here.

@19/20 Luis E

= lower living standards.

though the typical left wing fallacy prevails here in that they think higher wages helps the economy, when in fact they destroy jobs. might be no fun for those emmployed to earn less in real terms, but if wages outpace profits then it will be the number of jobs that suffers first, which is bad for the unemployed. I cannot understand how some on the left fail to see this.

@ 23 Destiny’s Child

New Zealand is the best example, but if you look at real terms cuts you could also count Switzerland, and even Germany for short periods.

There is little evidence that neo-keynesianism works either (the spend yesterday, spend today and spend tomorrow version espoused by the current left. Keynes suggested running these little things called “surpluses” every now and again), and during the great depression there is a lot of evidence to show that countries which didn’t indulge in massive deficit spending fared better (compare US and UK as immediate example).

Tyler,

stated simply, it’s just not true higher wages destroy jobs – of course we see periods of increases real wages and increasing employment, although causation may be running from latter to former.

It may be true that higher wages will help the economy – it depends what’s holding the economy back. If the problem is a lack of spending power on the part of the majority of workers, then the positive demand effect of higher wages might offset the initial reduction in profits and help both firms and workers. You seem to be only thinking about lower profits and not thinking about demand side effects. This might be the case now, although it’s not obvious what we can do about it (unions can only negotiate over nominal wage, not real wages) for more detail see that Chris Dillow post I link to above.

oops. I will try to close that tag

Thing is – ther are some trigger economicc activities that the government can prime to support further growth. Brown just about got this right, bringing forward construction projects b supporting stalled projects that were otherwise waiting for bank lending to pick up.

Unfortunately the new government has basically undone that process by withdrawing funding support for the economic activities that can spur growth.

Main areas for this are export led industries and construction (of infrastructure in particular, which tends to result in a six to one return in regards to economic output resulting from investment.

Sadly while capital spending budgets were not cut too badly – a series of major capital programmes were scrapped (often by illegal process like Building Schools for the Future) – likewise maintenance budgets were cut and so maintenance is now drawing on capital budgets, thus cutting capital investment.

Meanwhile export industries have recieved no support – and had support removed from them. Worst of all was the utterly incompetent treatment of the UK’s digital programming sector. This is a massive exporter in the UK, but with tax breaks drawing the most mobile industry in the world to places like Canada – the Tories came in and announced they would cancel plans for similar tax cuts for programmers in the UK.

Meanwhile they cut corporation tax, claiming that banks – which are highly immobile in regards to their large workforces (remember, when they move headquarters all they really do is redesignate existing offices, and so move no economic activity because thousands of high value staff don’t want to leave their big homes and glossy lifestyles behind) would otherwise move abroad.

The myopia is shocking.

Tyler @ 31

though the typical left wing fallacy prevails here in that they think higher wages helps the economy, when in fact they destroy jobs

That has to be the most idiotic statement I have read in a long time here, even allowing for the fact that Matt Monroe has stopped posting. If ‘high wages’ cost jobs is true then why do ‘high wages’ ever exist? The regions of highest rates of employment and the highest wages are the same and the lowest wages are paid in areas of higher unemployment. Christ, everyone knows that and I cannot imagine why anyone would post such an obviously false statement. Apart from trying to impress other halfwits, what are you getting from posting this shite?

Surely to fuck you would at least be able to concede that people like Audi, Apple, Sony et al rely on high European wages to sell their products?

Or are you seriously trying to suggest that if Apple succeeded in driving typical European/American wages to their Chinese manufacturers’ rates, they would still be able to sell their products to people?

Let us imagine that Cameron, Obama and the rest of the Western World somehow managed (if it where possible) to retool the entire Western economy so that the Western wage was circa £0.85 per hour. Who would Sony sell its three grand TVs too? Or Audi sell TTs to either, for that matter, or who would be going to DisneyWorld?

People like Sony and Apple are parasites, because they want all the trappings of the first World. They want highly paid consumers without the inconvenience of highly paid workforces.

@ 35 Jim

It’s called supply and demand. I should have been more explicit, but if you demand increased wages for low skilled jobs, you do increase their spending power, but at the cost of more inflation and lower jobs. The problem is that most people are employed in low skilled jobs. If profits aren’t increasing, companies will simply fire people to compensate for higher wages for the rest of staff.

Germany is a prime example of this; they’ve kept wage growth low for a very long time, yet despite the recession, have unemployment at a 19y low. Wages have grown their, but have been kept beneath inflation and productivity, so in real terms have fallen.

In highly skilled jobs where there is significant demand, you are going to see wage growth.

By an extension of your (idiotic) logic though, we should simply jsut double wages for everyone. That’ll solve the crisis overnight. Screw that, why stop at doubling them?

Luis, Duncan Weldon has written extensively on why wage growth is the only way the economy will grow again. People are deep in debt. They need to feel financially well off in order to start spending again.

Tyler @ 36

The problem is that most people are employed in low skilled jobs.

So? Totally irrelevant. It does not matter how ‘skilled’ your job is it only matters how profitable your job is. Tesco employ thousands of people in unskilled jobs and they make a huge profit from them. It doesn’t really matter how much the minimum wage goes up, they are always going to need to restock their shelves, aren’t they?

The median wage in this Country is around 500 quid a week. That means that at least 14 million people and above is earning double and every other multiple up to a point about what? Six million quid a year? All those jobs survive, because they can draw a profit, not because they are ‘cheap’.

If profits aren’t increasing, companies will simply fire people to compensate for higher wages for the rest of staff.

Only if they can do so without losing productivity, though. If fact the number of people who are in employment after the minimum wage was introduced.

Again take tesco, if the minimum wage goes up to say ten quid an hour, it suddenly doesn’t mean that they will decide to to leave their shelves un stocked does it? Or leave their toilets uncleaned and offices in a state either, are they?

People are not going to stop drinking in the local boozer, just because it now costs another ten pence a pint, either, nor are people’s hair suddenly stop growing either. The old are not going to be transported back from care homes into their children’s houses.

In fact there are whole industries that are totally demand driven and more money in the low paid’s pockets will mean more demand.

Of course the big paradox is that for many of the lowest paid jobs in the Country, the price of their labour is ALREADY around ten quid an hour because that what the parasite agency charges for it.

Again take tesco, if the minimum wage goes up to say ten quid an hour, it suddenly doesn’t mean that they will decide to to leave their shelves un stocked does it? Or leave their toilets uncleaned and offices in a state either, are they?

People are not going to stop drinking in the local boozer, just because it now costs another ten pence a pint, either, nor are people’s hair suddenly stop growing either. The old are not going to be transported back from care homes into their children’s houses.

No, but Tesco will employ fewer shelf stackers. Boozers will buy fewer pints. People will seek out cheaper hairdressers. Increasing the price of something (unless it has negative price elasticity) will reduce the quantity consumed. That does apply to labour, as much as any other economic good.

Tim J @ 39

Is any of that true though? I presume that the number of shelves will not diminish at my local Tesco and I also assume that the workers there are working to a pretermined target already. I doubt that the nightshift manager is allowing his staff to work at 50% speed at the moment. So where will the improved productivity come from?

If peple buy less pints (and that is a big ‘if’), then surely they will spend their drinking money elsewhere? That will cause demand somewhere else in the economy, no? What if increasing the minimum wage means people stop out for a couple of extra pints.

As for your hairdresser, well, okay let us imagine that some people choose to forgo the salon and settle for the ‘Sweaty Betty’ mate in her kitchen who has done a course in hairdressing, how likely is that? If you are paying £40 now are you likely to go to your mate to scrimp on an extra two quid and come out with a back door hairdo?

I stopped getting my haircut at the barbers years ago, but not because of the cost, but because rumping my hair with a number one is far more easier and is a style that suits the amount of hair I have left.

Yup, call me Dave and Pip Squeak talked the UK down before the election.

Then they came in and slashed spending, and talked about 40% cuts across the board. They scared the shit out of everyone, and now the growth figure is going down every month.

But of course we know that the elites don’t give a shit about the economy in the short term. This is about cutting spending for ideological purposes. If people have to lose their jobs then that is a price worth paying if it means lost of nice tax cuts for the rich later on.

There is a world of difference between the truism that if incomes rise people will be able to spend more, and the idea that there is a policy instrument that will increase wages at the expense of profits, as opposed to a wage increase being matched by price increases, perhaps via union pressure, that will have a strong enough impact on demand to offset any negative impact on investment and employment. That is a possibility, but I’d not call it definitely the only way the economy will recover.

“President Hoover was right all along and Roosevelt and Maynard Keynes wrong’”

That would be the President Hoover who discouraged wage reductions and even introduced stimulus programmes of his own? The idea that Hoover was laissez-faire was shown to be myth long ago but it is still hung onto my some.

) will reduce the quantity consumed. That does apply to labour, as much as any other economic good.

Typically right-wing and discredited view of how the economy works. If Tesco start paying more to its poorest, then its profits are slightly lower, but people start spending more. That leads to more jobs being created as consumption rises, and thus more money being spent at tesco over the longer term.

What we have now is a situation where people’s wages are being driven down, so they spend less and worry about their future prospect. That means less money circulates around the economy and its contracts further.. putting a downward pressure on jobs and leading to more job losses.

Simple equation… yet it seems right-wingers have learnt nothing from the last 30 years of wage stagnation.

“President Hoover was right all along and Roosevelt and Maynard Keynes wrong’”

Too stupid !

I like the idea that Tescos will have less profits if they raise wages. Of course they won’t, if the bully boy unions force up wages then companies like Tescos will simply increase prices thus wiping out any extra spending money their staff had and making things worse for people who didn’t get a wage rise.

Tim, Sunny

depends whether you are talking micro or macro level. At micro (firm, sector) level, the idea higher wages cause lower employment is certainly not “discredited right-wing thinking” – the sector/firm can either substitute capital for labour, or higher costs may mean higher prices and lower demand. The feedback effect on demand definitely won’t be enough to offset that (Tesco workers do not spend all of their wages at Tesco).

at macro level, the question is what happens if wages rise across the economy, across all sectors. Real wages and profits rise as econ grows. Question here is what if wages rise at expense of profits – an increase in the labour share of income.

First thing to note is that more income to workers means less income to capital – so more spending by workers can only cause overall demand to increase if it offsets less spending by capital income types, who may also be spending their earnings on either consumption or investment goods. This angle is absent from you story, Sunny. But assuming workers are for some reason more inclined to spend wages in a way that increases domestic demand than capitalists, the mechanism doesn’t nec work – if it always worked, then every increase in the labour share would cause higher output … that can’t go on until the labour share equals 1, there is no magic perpetual motion machine – at some point, reductions in the return to capital will cause a decrease in investment, reduce output, reduce real wages. So Sunny your story is one that may only be true in certain circumstance, it’s not always the case that a higher labour share will boost output.

However, it is a story that might just be true in this economy, right now (although whether we have the policy instruments to make it happen is another question). And I think Sunny is right to say that right-wingers do overlook or dispute demand-side stories like the idea higher wage might have a large enough feedback effect on demand to raise output. For example, it might be that at a macro level, if wages are high, firms use more capital and employ fewer workers. This stuff isn’t settled.

Shorter Vince troll ……

“pay your staff nothing ,and then there will be cheap prices for all.

The race to the bottom continues.

Sally,

If I paid you nothing then you would still be overpaid compared to your contribution.

Luis Enrique @ 47

The feedback effect on demand definitely won’t be enough to offset that (Tesco workers do not spend all of their wages at Tesco).

I doubt we are talking about ONLY Tesco increasing their wages. I think we are talking about a general rise in the NMW across the board. Even if not every penny of employees is not actually spent in Tesco, even Tesco represents a small part of the labour market. They do take a large amount of the Country’s total spend, so even if the people on low incomes have that income raise by 10% Tesco would expect to see that in their tills, in one form or another. Either directly via the people whose wage packets are increased spending more money in Tesco, or the people who benefit from that increased spend, spending their profits in Tesco as well.
This stuff isn’t settled.

Surely, we can look at the actual results with regard to the minimum wage? Given there has always been a number of sectors that have traded on very low wages, that have seen wage double in little over 10 years what has been the results in those sectors? We used hairdressing as one example? Are there hairdressing salons closing as the minimum wage ripped into the sector? Are we all walking about with long hair/short cropped on a six month rotation basis as we struggle to afford a decent haircut? Or do hairdresses simply get more wages and less tips?

My own guess is, from looking at the high street there appears to roughly the same number of salons as there were ten years ago. No doubt the trade group will still be decrying the minimum wage, but I wonder if what your average salon wants is her clients having thirty quid a wek less money in their pocket?

Not only that, but I see any number of fast food chains frequent the high street, so the National Minimum Wage has not exactly destroyed that sector either?

One thing though I have noticed. The rogue Security Grauds have been replaced by card carrying fully acreditted and acountable ones. Perhaps the minimum wage replacing the guy on £1.20 for a sixty hour a week has been a good move.

Jim,

Er, I know we’re not just talking about Tesco, did you read the rest of my comment about wage increases across the board? I wouldn’t dispute idea min wage hasn’t reduced employment in all sectors in which it applies. . . Hairdressers not easy to replace with machines. Sadly not true for check out workers.

Production comes before consumption. To produce you have to save – which is why I’m not fussed about a drop in consumer demand. If businesses decide not to invest then so be it – let prices decline as money is hoarded until it becomes attractive to invest again.

“let prices decline as money is hoarded until it becomes attractive to invest again.”

But the BoE’s discount rate is already at a record low and can’t go lower.

For many businesses, the prospect of prices falling indefinitely is not much of an encouragement to invest in new business ventures, partly because the real value of debt incurred at the start is increasing.

@ 37/44 Sunny

Duncan has written on wage growth, but unfortunately he is wrong, in a typically left wing Keynesian consumption drives everything way. A good start would be to model the economy as something other than a closed system.

I can’t think of ANY examples of where wages outstripping inflation and productivity has led to sustainable growth. However, we have a great example of the opposite; Germany.

In Germany, wage increases have been kept low. Whilst individual workers might feel their living standards squeezed, but it has allowed their industry to remain highly competative. The result? One of the smallest recessions in the world during the last few years, excellent subsequent growth and unemployement at 19 years lows. They don’t have to extend credit/increase wages to try and spur some artificial consumption fuelled growth.

But let’s just drive the point home shall we?

Let’s say Tesco and other employers do increase their wages. What then happens?

First thing that happens is that company profits decrease, with the corresponding damage to share prices and the pension funds who hold the bulk of the shares. Those savers thus have to save more (and spend less) for their retirements. That’s not the most important effect though. Other companies who pay their staff less can then offer their product cheaper, and undercut UK companies, driving UK profits down even further. Eventually, as profit margins do become thinner, and you can’t pay your staff less, jobs inevitably get lost, and it certianly precludes hiring people. Smaller profit margins also mean companies can’t invest as much, slowing their, and the countries, growth.

Or of course, to keep margins the same, companies are forced to put up prices. Any benefit from the increased wages is immediately counteracted, and you get the same undercutting effect from offshore companies. In both cases inflation would move higher, acting to reduce that real wage growth again. Either way, it just doesn’t work, because you ar emaking your economy LESS competative. Good job, Sunny and friends.

It ONLY works when productivity is increasing faster than wages. Simply increasing wages doesn’t and will never work. If it did, why not just double everyone’s salaries?

You also make two other general errors;

1. The minimum wage hasn’t been shown to have increased the numbers of jobs. The number of jobs did increase, but it is unrelated (and some evidence shows negatively correlated) to the minimum wage.

2. There is plenty of real world evidence to show that rapid (real, i.e. inflation adjusted) wage growth without the productivity/profit growth to go with it acts as a drag on job creation. Lower unemployment is seen as better for an economy and it’s growth, but by increasing wages, you are limiting employment growth. Oxymoron, no?

“First thing that happens is that company profits decrease, with the corresponding damage to share prices and the pension funds who hold the bulk of the shares. ”

C’mon. By many reports, Tesco has a dominant market share of over 30% of the UK market. The Tesco chain will most likely respond to paying higher wages by increasing prices – or by saving on other store running costs such as checking that posted shelf prices match the prices charged at the checkouts. It’s better to leave out Tesco as an illustrative example.

The link @17 reports that UK house prices are falling because demand has been hit by the declining value of real earnings and worries about job security. The problem is that the higher energy and food prices impacting on living standards have been driven by movements in world prices and the weaker pound. One way or another, real incomes will fall as a consequence. It’s a question of how the inevitable decline in living standards is distributed.

I suggest checking out Martin Wolf in Wednesday’s FT on: The road to recovery gets steeper:
http://www.ft.com/cms/s/0/fe232d14-9133-11e0-9668-00144feab49a.html#axzz1Ofak8P8C

If peple buy less pints (and that is a big ‘if’), then surely they will spend their drinking money elsewhere?

They already are spending their drinking money, it’s just that you’ve made pints more expensive and therefore their drinking money buys fewer of them. Is the concept of a supply/demand curve really so outlandish?

If Tesco start paying more to its poorest, then its profits are slightly lower, but people start spending more.

If you make Tesco’s labour costs rise then they will employ less labour at the margin. Luis gave an extremely good example of this – switching check-out staff for automated check-outs. My economics expertise ended at A-level, but this is pretty entry-level stuff.

@ 46 Vince

“the idea that Tescos will have less profits if they raise wages. Of course they won’t, if the bully boy unions force up wages then companies like Tescos will simply increase prices thus wiping out any extra spending money their staff had and making things worse for people who didn’t get a wage rise”

If Tesco could boost their profits by raising prices, why haven’t they done so already? Altruism?

57 – Because their prices are optimised against their costs? If you raise their costs, wouldn’t the equation change too?

Tyler

I can’t think of ANY examples of where wages outstripping inflation and productivity has led to sustainable growth.

and that’s you with your encylopedic knowledge of the global empirical correlations between changes in the labour share and growth rates! I haven’t looked myself, but I’d be prepared to bet that the number of cases where labour income has increased as a share of output, and output has grown, is not zero. Because that’s what we’re talking about here Tyler, higher wages at the expense of profits.

First thing that happens is that company profits decrease

we are not talking about a company or a sector increasing wages unilaterally and expecting that to increase aggregate economic growth, we are talking about the share of wages – particularly low wage workers (so acutally, it could come at the cost of higher paid workers, not nec just capital income) rising across the economy. Yes profit margins would fall but if higher demand boosts economic activity then volumes would rise, absolute profits are margins*volumes, and if capital is constant the returns on capital would rise (but hopefull investment woudl increase capital stocks too). That’s the mechanism being suggested and the one you steadfastly refuse to engage with.

I’m stuck in the middle trying to argue both sides here – I’m trying to convince Sunny that it isn’t the sure-fire winner he imagines becasue 1) we lack policy instruments and even if we had them 2) there are lots of ways it can go wrong (higher prices, lower employment, lower invesment) – and I’m trying to convince you that it could work, if the economy is demand constrained and the shift in demand arising from the proposed shift in the distribution of income (towards wages) has a large enough impact.

It ONLY works when productivity is increasing faster than wages. Simply increasing wages doesn’t and will never work. If it did, why not just double everyone’s salaries?

let’s get this straight – there are at least 3 possibilities here

1. increasing the nominal level of wages, accompanied by an increase in prices => inflation. Useful for paying down debt, but bad news because of inevitable monetary policy response.

2. increasing real wages and increasing real profits. This is economic growth – you might as well argue that what we need to deliver growth is growth.

3. increasing the labour share of income and decreasing the capital share. If that does not cause growth, that’s increasing real wages and decreasing real profits. If it does cause growth, then you can increase both (capital gets a smaller slice of a bigger pie).

3. is what we are discussing – or what we ought to be discussing – and if you think 3 will work, that doesn’t imply you think “just doubling everybody’s nominal wage” would work. Also 3. is not an argument you can appeal to at any and all times – it is not a general rule that increasing the labour share will boost output.

@57: “If Tesco could boost their profits by raising prices, why haven’t they done so already? ”

Worried about the possibility of losing market share?

From personal experience, Tesco stores have certainly been economising on store running costs by not checking whether shelf prices match checkout prices, by taking out those useful lockers for parking loaded shopping trolleys while feeding in store restaurants or going to loos which are increasingly poorly maintained. I used to shop regularly at Tesco stores but I don’t any longer . .

And this recent news report in the Mail certainly reflects all the characteristics of profit maximising behaviour:

‘Greedy’ Tesco orders councils to remove recycling bins from car parks so supermarket can cash in with its own
http://www.dailymail.co.uk/news/article-1390086/Greedy-Tesco-ordering-councils-remove-recycling-bins-car-parks-supermarket-cash-in.html

Tim J @ 56

They already are spending their drinking money, it’s just that you’ve made pints more expensive and therefore their drinking money buys fewer of them

But you are assuming that the price of a pint will rise by higher than the proposed wage rise of the average consumer. If your average punter’s disopable income rises by say £20, for example, then that gives the the pub landlord a huge incentive to absorb as much of the labour cost as possible. If the local Weatherspoons can keep the punters happy, then everyone around need to compete with him. Even if my pint goes up by ten pence, as long as my income has gone up enough to cover that, the local pub is not going to suffer, is it?

And if getting bladdered loses its appeal then I will just have to spend my beer money somewhere else in the economy creating jobs in the process.

Luis gave an extremely good example of this – switching check-out staff for automated check-outs.

Not so simple, though is it? These machines are still ‘manned’ (or personed, if you prefer). Again, from memory, I think takes four self service machines (shoppers are slower than checkout staff) to replace a full service checkout.

Jim, it is simple. either machines (like self-checkouts) decrease employment, or they do not. Are you arguing self-checkout machines are not reducing employment in supermarkets.

that will come as a great relief to Mc Donalds cashiers about to be replaced by touch-screen terminals

@ 57 Tim J

“Because their prices are optimised against their costs? If you raise their costs, wouldn’t the equation change too?”

and

@ 60 Bob B

“Worried about the possibility of losing market share?”

Precisely. If Tesco’s costs were increased, they probably would raise prices. But it’s ridiculous to suggest, as Vince does @46, that they would maintain the same level of profit. If that were true, they could just raise their profit now by increasing prices to that level. Higher prices tend to mean less sales.

Higher prices tend to mean less sales.

Apparently the raising of the minimum wage reverses the demand curve.

@ 64

Sorry, what?

@ 55 BobB

As I say, share prices falling will be an effect, but less important than passing on increased prices. Cost push inflation, no less. So those extra wages will get spent on buying the same products at higher prices, for no net gain to (real) GDP.

@ 59 Luis

It does happen, but mostly in emerging economies where wages come from an extremely low base and industrial capacity is heavily underutilized. It doesn’t last long though – that’s the important bit. In western economies it just doesn’t happen – what ends up happening is that credit exapnsion ends up making up the difference, and as we have seen, can end in disaster. PIGS countries vs Germany being the best current example.

I’m simply looking at charts of GDP vs wages and productivity here btw – should be fairly easy to obtain even if you aren’t lucky to have a Bloomberg terminal in front of you as I do.

I do understand what you (and Sunny and friends) are trying to argue. I just haven’t seen any real world proof it works UNLESS productivity is increasing faster – where it certainly can.

Just increasing wages, whilst it might increase demand to an extent, will impact company profits unless somehow the increased demand counteracts this. For most high volume businesses, in practice it never does, which is why you see so much emphasis on minimising costs. If profits fall the companies return on equity falls, and the reward for investing and growing is less….again productivity over wage (or more generally cost) growth is the key.

As for your points;

1. The inflation causes higher prices, so your REAL wage growth goes back towards zero. Nominal wages don’t really matter in economic terms.

2. Sort of. I’m saying that if companies get more efficient, driving profits, they can afford to pay their employees more AND are incentivised to invest to maximise profits AND growth. Basically a positive mulitplier effect. One you don’t get if you jsut increase wages/decrease profits, as the company does have as much money or incentive to invest/grow.

3. Goes back to what I was trying to say earlier. Do you want higher wages for some or more jobs for all? Economically, its better to have more jobs, even if they don’t pay quite as well…and reducing capital formation (through lower profits) will mean less growth.

65 – Jim sets it all out at 61, Sunny at 44.

For what it’s worth, I’ve been trying to say that raising the price of goods reduces demand for them all thread, but I’ve met with resistance.

@ 67 Tim J

But Jim and Sunny aren’t saying that “raising of the minimum wage reverses the demand curve”.

It’s a two-part statement. 1) Raising prices (due to higher employer costs) reduces demand for products. 2) Raising wages increases demand for products.

I’d say that this would still slightly reduce demand overall, because of tax (i.e. the amount of extra spending money would be less than the amount of extra costs to the employers). But concievably it would raise demand, depending on specific variables.

@63: “Higher prices tend to mean less sales.”

By online reports, Tesco’s UK market share has been edging up a little so management could be feeling more confident about getting away with raising prices more assertively, especially with Tesco’s market dominance and in a context of general increases in food prices.

The general fundamental in all this is that the prices of foods and energy have been rising in world markets and more so in Britain because of the depreciating Pound.

The implication is that average living standards must decline in consequence and the only scope for argument is about how that decline is distributed – as between wages and profits or between high and low incomes. The raising of the tax threshhold in the budget gives some respite to those with low incomes but pensioners are being under-compensated by the switch in indexation from RPI to CPI.

The fact is that the share of GDP going to wages and salaries has been on a declining trend over decades.

Tesco is not a good example to pick on to illustrate the analysis here because of many factors peculiar to Tesco’s – which is the third largest GLOBAL retail chain and the dominant UK supermarket chain by a large margin: it’s market share is about equal to the shares of Asda and Sainsbury’s combined.

Far better to pick on the representative SME business as these provide about half of all private sector employment, but SMEs are very varied. At the one extreme, look at the increasing numbers of vacant shops along any high street and growth in the service sector – which accounts for about 2/3rds of the economy – is flagging:

“Fresh evidence of a slowdown in the UK’s pace of growth emerged on Friday when the monthly snapshot of the services sector showed activity at its weakest …” [3 June]
http://www.guardian.co.uk/business/2011/jun/03/service-sector-growth-weakest-in-three-months

OTOH there are signs of another technology bubble starting to build but high-tech personal skills are certainly not evenly distributed. By many reports, bonuses in the financial services sector are back to their usual even though the banks haven’t been meeting their Merlin Project objectives:

Latest news: “Business Secretary Vince Cable has said the government is willing to take ‘further action with tax on banks’ if they do not increase lending to small and medium-sized enterprises (SMEs).”
http://www.bbc.co.uk/news/business-13694198

Richard @52:

Production comes before consumption.

Kinda, yeah.

And then again… thing is, Britain is no longer an economy that primarily produces, in the same sense that in 1750, the economic utility of aristocrats was not primarily as producers.

We as an economy don’t make boxes; we trade services. We went into post-industrial status (most of our economy is tertiary rather than primary or secondary industry) some time ago now. We have been importing massively more than we export (in boxes-of-things terms*) for quite some time now. Britain’s economy is not driven by production (making boxes) it’s driven by consumption (high-street spending).

In an industrialising, or an industrial, economy you really do want resources concentrated in the hands of an investment class who can leverage wealth to make boxes and export them. But we aren’t an industrial economy any more… We’re the first post-industrial nation, and no-one has really written rules for that yet.

IIRC Britain has been a net importer since the early ’80s, if not before. I believe this might be connected to our debt levels in some way. Even the USA, which produces vastly more than we do, consumes more than it produces.

Hmm. I could be wrong on that one, actually; as it would imply that the USA had joined us in post-industrialism and I’m not sure that’s actually happened yet. Anyone got figures?

* Companies based here produce vast numbers of boxes, that’s still true. But many, or most, of these boxes are physically made, i.e. produced, at a plant owned by said companies somewhere cheap in the Developing World. Thus, they are not boxes produced by the British economy, if you see what I mean. The workers paid to make them don’t spend money in British high-streets, or buying British homes, or paying British taxes.

Jim @61:

They already are spending their drinking money, it’s just that you’ve made pints more expensive and therefore their drinking money buys fewer of them

But you are assuming that the price of a pint will rise by higher than the proposed wage rise of the average consumer.

I’m going to let you into a little, closely-kept secret of the selling-pints industry.

That’s not an assumption. It’s already true. And has been for quite a long time.

The price of a pint has gone up by more than average wages for at least the last five years in a row. There is no indication that this will stop. It is not accidental that people in Britain spend less of their money in the pub; it is an artifact of persistent policy, misguided governmental moralising, and the lobbying power of the Big Four by comparison with the lobbying power of free-house publicans.

@ 69 BobB

“The fact is that the share of GDP going to wages and salaries has been on a declining trend over decades.”

This is indeed true. Big but though; it’s not because of evil employers paying their staff less. In fact, living standards globally having being going up for years.

The cause is mostly driven by mechanization – simply put, less staff are needed (so wages are lower) per input to create the same GDP output. Demographics also play a huge part.

@72: “The cause is mostly driven by mechanization – simply put, less staff are needed (so wages are lower) per input to create the same GDP output. Demographics also play a huge part.”

But that is of no comfort to low and middle income earners who have noticed that their real living standards are declining on trend while average living standards about them are rising.

Nor is this of comfort in America:

“Warren Buffett, the third-richest man in the world, has criticised the US tax system for allowing him to pay a lower rate than his secretary and his cleaner.” (2007)
http://www.timesonline.co.uk/tol/money/tax/article1996735.ece

Denmark has the highest tax burden among OECD countries but it is one of the most affluent EU countries and it also has one of the most evenly spread income distributions among countries for which incomes data are available.

In Britain, what job prospects will there be for those not in education, employment, or training (Neet) when all the evidence points to premium earnings for scarce skills?

A total of 938,000 – 15.6% of 16-24-year-olds – were Neet in December 2010, the highest final-quarter figure since 2005.
http://www.bbc.co.uk/news/education-12565041

Another New Labour legacy?

There is serious confusion on this thread about the difference between micro and macro. At the micro level the likes of Tesco could raise wages for their workers without causing a wage inflation spiral. I understand that they already pay all their workers above the NMW, so they are probably a poor example. However, at the macro level if all workers received wage rises above the national productivity growth rate core inflation would rise and this would erode the nominal wage rise. Workers real wage would be no higher. However, the unit labour costs of Britain compared to international peers would have lost competitiveness. Unemployment would rise so workers would lose out on two fronts.

It is perfectly possible to put in place policies to raise the wages of specific workers. However, if we want to raise the wages of all workers without a damaging inflation wage spiral, we really want productivity and RGDP to be growing. That should be the argument against Mr Osborne and the Coalition. They are not putting in place enough policies to allow the economy to grow to offset their fiscal consolidation.

Inflation only matters because the economy is not growing. Headline inflation rates do not make people worse off. However, lack of growth and as a consequence a lack of wage increases is what makes people worse off and that is why they feel the price level changes more severely. Core inflation will not increase in the absence of wage rises unless basic arithmetic no longer applies. Get NGDP growing at 5 per cent and income and wage increases will follow. If the NGDP was only made up with inflation and little RGDP, then the UK economy has structural problems that require supply side solutions. A coherent growth strategy is sadly lacking with the Coalition. Might I suggest euthanasia for the NIIMBY’s and BANANA brigade rather than pandering to them.

How much is the slowdown down to the government personally? When they were in opposition they like all oppositions blamed everything on the incumbent government. Therefore, they can hardly complain when the same thing is done to them. There has been a global slowdown since last year and it was evident in G7 real narrow money trends. China has been tightening for some time as has much of the emerging world Monetary trends leads output by six months and prices by 18 months. China has been tightening for some time as has much of the emerging world. Tensions and uncertainty in the Middle East are a drag on global growth and is evident in the oil price. Moreover, the uncertainty in the eurozone continues to affect us badly. G7 monetary trends have recently started to rise so expect a pick up in the UK economy in the final quarter of this year.

Those are some of the reasons for a slowdown in the UK economy that was out of the hands of the government. However, they were to blame for irresponsible scaremongering. Expectations really do matter as financial markets, firms and households are forward looking. If the government ministers who matter are trying to emphasise for political credibilty toughness reasons how bad things will be then people act accordingly. Firms take it as signal that there will be less profits available in the future and don’t buy new equipment take on new workers etc. If government ministers just STFU would be a massive improvement.

Tyler, Germany did not have one of the smallest recessions in the world. On the contrary, they had one of the deepest with a larger fall in output than the UK. However, their recovery has been much more pronounced than the UK. Competitive unit labour costs is undoubtedly a major factor as is a lack of a debt overhang.

@ Tyler

>>It’s called supply and demand. I should have been more explicit, but if you demand increased wages for low skilled jobs, you do increase their spending power, but at the cost of more inflation and lower jobs. The problem is that most people are employed in low skilled jobs. If profits aren’t increasing, companies will simply fire people to compensate for higher wages for the rest of staff.<>Germany is a prime example of this; they’ve kept wage growth low for a very long time, yet despite the recession, have unemployment at a 19y low. Wages have grown their, but have been kept beneath inflation and productivity, so in real terms have fallen.<>In highly skilled jobs where there is significant demand, you are going to see wage growth.<>By an extension of your (idiotic) logic though, we should simply jsut double wages for everyone. That’ll solve the crisis overnight. Screw that, why stop at doubling them?<<

I don't think anyone is arguing that. We should increase lower wages and if anything lower the wages of the super-rich.

Richard W

I certainly agree about the micro macro distinction (see #47) but …

at the macro level if all workers received wage rises above the national productivity growth rate core inflation would rise and this would erode the nominal wage rise

I think you’re missing the key idea – unless the wage rise comes at the expense of profits meaning prices don’t rise, but rather the mark-up falls. Remember 1st year macro? P=(1+u)W, so W/P=1/(1+u) – productivity normalized to 1. u down and W up means wage increases faster than productivity growth, no inflation.

now, it’s true that we don’t have a policy instrument to do that – unions only bargain over W and can’t stop firms raising P – nonetheless the argument that somehow shifting the distribution of income towards the large number of households that have had stagnant income could boost the economy, all else equal, has some merit. Although maybe only of academic interest, because we don’t know how to bring it about – perhaps those living wage campaigns are the ticket.

I share your concern that it’s proponents are too relaxed (to the point of ignoring) the effect upon employment (and investment), particularly the global location decision of firms producing traded goods. However, lots of multinationals already pay far about the min wage (take Nissan for example, that has just announced another big investment in UK) so aren’t really going to be affected.

If wage increases are as bad as everyone points out, then where do we stand with regard to the fact that among the middle classes, we have seen huge wage rises over the last thirty or so years? We have seen CEO wages go into obrit over that time and many other jobs among the middle and top earners have sprouted beyond reasonable amounts. In fact, even manual labour people like plumbers have seen their wages rise beyond their wildest dreams as well.

The median wage is around £500 a week in this Country, but apparently the shelf stacker who may get a quid an hour will bring the entire Nation to a standstill? Nope sorry, if a plumber earning £70 an hour is a ‘success’ then there is simply no way that the ten percent of the workforce who has the temerity to expect to earn one tenth of that is responsible for dragging the economy into the ground.

@ 73 Bob B

Never said it was comforting…just happens to be true though.

@ 75 Ben/@ 77 Jim

Just don’t get it do you. If you increase wages *without* the comensurate increase in productivity/profitability, it is BAD for jobs and growth.

Less profit = less investment = less growth = fewer jobs.

It’s pretty simple.

Wage growth in itself is not bad thing – and over the last 30 years it has come from increased productivity. Not from artificially handing people more money.

Less profit = less investment = less growth = fewer jobs.

this is pure bullshit. See: data on 1. profits 2. investment 3. growth and 4. employment