Monthly Archives: September 2015

Inequality Damages Your Wealth

One of the assertions made by free market fundamentalists is the “trickle-down effect”: making rich people richer by cutting their taxes benefits everyone, as their extra wealth trickles down to the rest of us. I have long doubted this; a recent IMF report provides further evidence that this is not so.

To quote from the report:

If the income share of the top 20 percent increases by 1 percentage point, GDP growth is actually 0.08 percentage point lower in the following five years, suggesting that the benefits do not trickle down. Instead, a similar increase in the income share of the bottom 20 percent (the poor) is associated with 0.38 percentage point higher growth.”

The report goes on to say that the positive effect on growth holds true also for increasing the share of income for the middle classes – it’s only when the richest get more that we’re all worse off overall. This is hardly surprising. The poor tend to spend more of their income, not least on the basic necessities of life. The rich are more likely to save theirs – and, for the richest, often tuck it away in some offshore tax haven!

Spirit Level

In their 2009 book The Spirit Level, Richard Wilkinson and Kate Pickett demonstrated that more unequal societies had worse performance over a range of social outcomes:

  • Community life and social outcomes
  • Mental health and drug use
  • Physical health and life expectancy
  • Obesity
  • Educational performance
  • Teenage births
  • Violence
  • Imprisonment and punishment
  • Social mobility

The book goes on to state a plausible mechanism to explain why inequality has an adverse effect on each of these outcomes. If growing inequality does indeed cause all these societal problems, it’s not hard to imagine that the overall growth in the economy is reduced as well.

Concentrating Wealth

Britain does worse than most comparable countries when it comes to wealth inequality – and we’re getting more unequal faster than them. The graphs from the IMF report illustrate this, showing the proportion of all wealth owned by the top 1% and the bottom 90% of the population, for 1980 and 2010.

Top 1 percent and bottom 90 percent sharesIn the UK, the top 1% own almost as much wealth as the bottom 90% of the population. Only the USA has greater inequality and the gap between the blue (1980) and green (2010) bars is biggest for the UK. Sweden, by comparison, although getting worse, shows that it doesn’t have to be this unequal.

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Cat and Mouse

I don’t want to live in a society where I have to shop around every few months for my energy supply to stop me being ripped off by my current supplier.

Cat and mouse

Since our former public monopoly gas and electricity suppliers were privatised by the Thatcher government in the 1980s, the private companies that replaced them have been playing a game of cat and mouse on two fronts:

  • with the regulator, Ofgem;
  • with their customers.

With Ofgem, this has mainly taken the form of a bewildering mix of different tariffs, designed to make it as difficult as possible to compare prices.

The game with customers mainly focussed on winning market share in an oligopolistic market. The consequence is to offer discounts and/or more attractive tariff packages to new customers, whilst pushing up prices to existing ones. In other words, customer loyalty is penalised and everyone has to play the game of shopping around.

The energy companies didn’t invent this practice: the insurance industry led the way, as they institutionalised greed and treating their customers as a cash cow. The phone companies have also jumped onto this bandwagon.

Natural Monopolies

Even at the time the companies were privatised, I felt the idea was wrong. Gas and electricity retailing is a natural monopoly: it’s the same gas and electricity coming down the pipes and wires regardless of whom your contract is with. These industries do not form a natural market: such competition as exists is on the periphery of the service – billing and customer service – and not on the core offer.

Matters were made worse when the wholesale supply and distribution business was privatised a few years later. These industries require long-term investment, for example, in new power stations. Also, there are major externalities, such as climate change and air pollution, which should be factored in at a strategic level. Similarly, security of supply is paramount, given how much of modern life is dependent on these supplies always being there. Short-term focussed, profit-maximizing competing companies don’t match these needs.

Consumer Benefits?

Have consumers benefited from cheaper prices or better services? I doubt it, at least in the longer term. There may have been some price cutting to benefit consumers in the early days, but prices have risen faster in recent years and I am convinced we’re paying more now than we would have done under public ownership. Like the petrol retailers, gas and electricity companies are quick to raise the retail price when the wholesale price rises, and very slow to lower it when the wholesale price falls. Furthermore, the various comparison websites will quickly tell you how patchy customer service is.

Dogma Rules

What got us into this sorry mess is the mindless application of the dogma I described as “free market fundamentalism” in my earlier post Some Are More Equal. If you have a basic universal need for energy like gas and electricity, what’s wrong with it being met by an organisation driven from top to bottom by a commitment to public service principles?

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A House Is Not a Home

… when it’s an investment.

The rot started before Thatcher: she merely picked up on a changing public mood.

We’ve been talking about houses as investments for many years now and it distorts completely any rational discussion about Britain’s housing needs. The idea of “an Englishman’s home is his castle” has been around for centuries. But then people started seeing houses as more than the place where you put down your roots, live your life, bring up a family, socialize with friends and become part of your community.

For most goods and services, a price rise is generally seen as a bad thing, reducing people’s disposable income and risking a rise in inflation. Not so with housing, where a reverse logic applies. This upside-down view comes naturally for richer politicians, economists and journalists who are on the (capital) gaining side of the equation.

Housing Divides Us

But the practical result is that, as Britain becomes a more and more divided society, one of the stark distinctions between the “haves” and the “have-nots” is the ability to afford a home of your own. Those lucky enough to be homeowners already have been able to use their unearned capital gains in a variety of ways. But would-be first time buyers are being put in an ever more desperate position. The maps below show the contrast in housing affordability over the past 20 years, based upon average* incomes and average house prices, area by area.

Spread of unaffordability mapsWith blue the most affordable and red the least, the change is dramatic. In 1995, an average earner would need to spend between 3.2 and 4.4 times their salary to buy an average-priced house in their area. In 2014, the corresponding figures are between 6.1 and 12.2 times salary. In both years, unsurprisingly, the highest ratios are for London. Here, average earners now stand no chance of getting onto the housing ladder without the help of rich parents or some other equivalent advantage.

Too Few New Houses

How we came to this ridiculous state of affairs is easy to see when you look at the graph below, showing UK house building over the past 45 years. From an annual figure of around 300,000 new homes in the 1970s, often higher, the rate drops sharply following the oil price shock of the mid-1970s. After a small rally in the early 1980s, it falls to 180,000 at the end of the Thatcher and Major governments. A steady but modest rise occurs in the housebuilding rate in the New Labour period prior to the 2008 financial crisis. The crash resulted in new lows of fewer than 150,000 new homes a year, a rate which failed to recover under the 2010-15 coalition. Housing experts state that we need 200-250,000 new homes a year to keep up with demand.

housing completions

The Rise of the Private Landlord

Matters have been made worse by a huge rise in the buy-to-let market. A significant proportion of former council properties, sold off after Thatcher’s “Right to Buy” policy, have eventually ended up on the buy-to-let market. The graph below shows trends over a 10 year period to 2012.

Housing shared tend graphDuring this period, the total housing stock has risen from 25.6 million homes in 2001-2 to 27.8 million ten years later. The proportion of public sector homes fell from 21% to 18% as new public sector house building failed to keep pace with the loss through council house sales. A more dramatic drop in owner-occupied properties, from 69% to 64% demonstrates the increasing problem for first time buyers to enter the market. The slack, as can clearly be seen, has been taken up by the private rented market. Its share of the housing stock has nearly doubled, from just under 10% to 18%.

Increasing Benefits Bill

The insufficiency of house building over a long period, together with a major swing to the private rented sector has driven up housing costs dramatically, even more for those renting than for owner-occupiers. The consequential rising cost of housing benefit is one of the two major causes of the rise in social security costs over the last decade or two. (The other is our ageing population, whose pensions have been protected.) The extra public spending has gone to private landlords.

Conclusion

It does not need much mental effort to conclude that:

  • The UK housing market is dysfunctional
  • Those suffering most are those least able to afford decent housing
  • Benefit caps pile more suffering on those same people
  • Osborne’s plan to sell off the more desirable Housing Association stock simply makes the problem worse:
    • It will shift more housing from public to private rented
    • It will drive up average rents
  • Jeremy Corbyn’s “People’s Quantitative Easing” to pay for more public housing looks quite sensible:
    • It will increase the supply of genuinely affordable housing
    • It will reduce the benefits bill.

And all because we’ve been conditioned into seeing houses as financial investments instead of homes!

*median figures used throughout

Acknowledgements to: theguardian.com (03/09/2015), Channel 4 and the Office of National Statistics for source data

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Dirge

Shame on you, Jeremy Corbyn, for agreeing to sing the words of the national anthem in future!

Corbyn not singing
Jeremy Corbyn at the Battle of Britain commemoration

You will not catch me singing the words any time soon, and here’s the reason why: I don’t agree with them.

God As a rationalist and humanist, I believe God does not exist.
Save So a non-existent God can’t save anything. Presumably, “save” means “from death”: I have not the slightest personal ill-will towards the present head of state. But why should I wish this particular individual, whom I’ve never met, a long life, rather than anyone / everyone else?
Our Nothing to do with me: I had no choice in her appointment!
Gracious My dictionary defines this word as “courteous, kind and pleasant”. I have no reason to doubt these attributes could be applied to Little Betty W, at least most of the time. But this epithet was applied to all her predecessors during their reigns, regardless of their various personalities. It would be an extraordinary coincidence if they all deserved the term. So that makes it propaganda, not praise.
Queen As a republican, I want an elected head of state, not a monarchy.
Long live our noble Queen See “save” above.
God save the Queen See all above
Send her victorious Over whom, exactly?
Happy and glorious See “gracious” above
God save the Queen Repetition! It wouldn’t do in “Just a Minute”!

 

After that… which of us would be comfortable with verse two? O Lord our God arise, Scatter her enemies, And make them fall: Confound their politics, Frustrate their knavish* tricks, On Thee our hopes we fix: God save us all.

*”knavish” used to be “popish” – ah for the days when religious intolerance was official policy!!

When I attend church events like weddings and funerals, I adopt a respectful approach to those around me. This means not drawing attention to my dissenting views: I stand up and sit down at the same time as everyone else. During hymns and prayers, I stand or sit silently as a mark of respect. It would be hypocritical to join in.

This was exactly the approach Jeremy Corbyn adopted at the Battle of Britain ceremony – an honest, respectful and tolerant approach. The real or manufactured anger of his critics simply shows them to be intolerant of those whose views differ from their own. It’s not hard to work out whose attitude I prefer.

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Passion and Cool Heads

I watched Jeremy Corbyn’s victory speech live. I agree with every word he said.

Britain desperately needs an effective opposition to the bunch of incompetents currently making such a mess of running the country. (The economic so-called “recovery” is built on sand and excludes most of us.) There is now a glimmer of hope that the Labour Party will meet that need for a different vision for the country.

The first task is to begin to shift the centre of gravity of the political discourse back to the genuine centre ground. For over thirty years, we have been part of an extremist economic experiment – one which failed seven years ago: a pity that the present government hasn’t noticed yet. The real centre ground in public attitudes lies closer to Jeremy’s views than any other prominent UK politician.

I wish Jeremy and the Labour Party well in their endeavours. They will need an appealing mixture of passion and cool heads to succeed.

Passion

We saw plenty of passion from Jeremy in his speech – the sort of passion that comes from compassion. The energy and enthusiasm of newly joined members – and some returning ones – needs to be turned into an effective campaigning force ready to take on the government. A clear call for inclusiveness and a more consultative style came through also. What a welcome contrast to the various “I speak your weight” measured-soundbite politicians we normally see.

Cool Heads

But there is a need for clear heads as well – for two reasons.

Firstly, cool heads will be needed to deflect the torrent of abuse and misinformation that will now hit the Labour team. The usual hate-filled suspects in the media will already have a drawer-full of “loony-left dangerous comments” made over the past thirty years to throw back at Corbyn – presumably with the usual level of distortion. Tory ministers will make similar claims. Defence Secretary Fallon has already started with a hyperbolic and ludicrous outburst. (If he continues to cry wolf, Fallon will lose any credibility he has with the British public and his foreign counterparts. That won’t do a lot for Britain’s standing in the world.) Expect some very dirty tricks indeed.

Secondly, cool heads will be needed from suitably qualified experts to help flesh out an economic policy to give voters a credible alternative to the failed current austerity dogma. There is a credible alternative path to take – I just haven’t seen it fully worked through yet.

Tom Watson has shown himself to be grounded, resourceful and brave and will be a useful Deputy Leader with complementary strengths to his new leader.

I’m feeling optimistic right now. Time will tell. Good luck! – we need some hope for the future.

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British Values 0, Terrorism 1

I find the killing of British citizens by drone strike in Syria a very disturbing development. UK military forces killed two of its own citizens in a pre-emptive drone strike. Two problems emerge:

  1. The use of armed force in Syria defies the will of Parliament which voted against the extension of extend armed military action from Iraq into Syria.
  2. It appears to violate international law.

Overruling Parliament’s Will

David Cameron has argued that, “in an emergency”, the Prime Minister can take military action against the will of parliament.

Firstly, this demonstrates the woolliness of our famously unwritten constitution, giving great power to the executive of the day to make up the rules as they go along, to suit current needs.

Secondly, I have seen no evidence of any intended actions by the targets which would amount to an “emergency”. What appears to be the case is that these evil, misguided individuals were plotting to take violent, murderous action at some high profile events which have already happened, so they didn’t actually do it.

Illegality

A test case of 1837 established that it is legal for a country to take pre-emptive lethal action in self-defence in very limited circumstances. A threat against the state must be imminent and there must be no feasible alternative option to prevent the threat. The action must be proportionate to the threat. There is nothing in the government’s statement that could possibly be interpreted that the threat from these individuals was imminent. So the criteria were not met and the action was illegal.

Imminent?

The government has so far resisted publishing the legal advice it was given on the legality of the attack. Of particular concern is the suspicion that the British government has adopted the same re-writing of the meaning of “imminent” as the Americans. A leaked internal US white paper from 2011 radically redefined the idea of “imminence”. It states:

The condition that an operational leader present an imminent threat of violent attack against the United States does not require the United States to have clear evidence that a specific attack on US persons and interests will take place in the immediate future.”

In plain English: “imminent = they might attack us at some time in the future”.

British Values or Barbarism?

Cameron and his predecessor have been banging on about so-called “British values” for some years. Key tests of those values include respect for the law and following due process. Civilized democracies don’t do extra-judicial killing. Those targeted were truly evil individuals who wanted to do grievous harm, including the murder of innocent civilians in pursuing their warped and ultra-intolerant views.

But Britain now appears to be more barbaric than at any time since 1837. Every time we take a step towards the barbarism they espouse, the terrorists score a victory.

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Rain

Meteorologists stated today that Britain has now experienced the longest period of rain since records began. This spell now beats the previous record, set during the second half of the 19th century. Forecasters are reluctant to predict when this period of rain will end. The BBC forecast, despite its usual reputation for balance, was shrouded in a thick fog of sycophancy.

All forecasters agree that, following this period of rain, we should expect a short, stormy period of very wet weather, which is likely to cause disruption to travel plans, particularly in the Westminster area. Following this stormy period, a longer spell of more steady rain is expected.

queen umbrellaOther countries appear to have avoided suffering long periods of rain for many years. France and the USA, for example, following intense periods of intellectual investment, solved the rain problem in the late 18th century. The problem, however, is not entirely overcome in the United States, which still suffers occasional dynastic showers.

Commentators have speculated on why Britain has failed to invest in the intellectual technology required to overcome these continual outbreaks of rain. Following a brief brighter spell in the run-up to the 2010 general election, senior meteorologists in the UK have again reverted to the position of climate change deniers. A further period of hope emerged in 2012, when the MCC (Meteorological Cricket Club) proposed the so-called “Lords Reform” to tackle one of the underlying mechanisms prolonging the problem. Alas, this was undermined by the senior members of the MCC and the plan came to nothing: rain stopped play.

Expert opinion believes the underlying cause of the UK’s failure is the famous British “phlegm”. This is a chronic condition made worse by the high levels of humidity caused by the amount of rain, thus creating a debilitating vicious circle.

An umbrella group of MPs, the “long to rain over us” faction, expressed complete satisfaction with the current state of affairs.

And now the shipping forecast…

Dogger Bank: an unauthorised release by a rogue forecaster, Ashley Madison, has led to the breakdown in the relationship between the BBC and the Met Office.

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Anyone Who Had a Heart

…doesn’t include David Cameron.

The dismal performance of our Prime Minister seems to have come to a head in the past week. I’m thinking in particular of his uncomfortable, embarrassed, eye-contact avoiding interview on TV recently in response to the continuing humanitarian crisis of mass migration into Europe.

It has been obvious to me for some years just how weak a politician he has turned out to be. An example was the controversial veto of an EU agreement 2-3 years ago: a double own-goal. The rest of Europe’s leaders simply ignored his veto and went ahead without the UK. Cameron’s action reduced further any goodwill the other leaders may show him in future negotiations over EU reform.

I also quickly noticed his repeated habit of making pious, sympathetic, statements on some topic and then proceeding to do the exact opposite of what he had said. This seems to be driven by a desire to be liked by his audience, at the expense of being seen to be inconsistent and untrustworthy. For example, his pre-2010 tree-hugging, husky-loving “greenest government ever” public claim soon gave way to an overheard private comment to cut the “green crap”.

Cameron has repeatedly demonstrated poor judgement, as the following two examples show. Firstly, the appointment of Andy Coulson as his communications director was made despite warnings that the choice would be unwise. Secondly, the rash claim to reduce net immigration to a few tens of thousands was made despite him not having the powers to control this figure, as the recent record figure of over 300,000 for 2014 has shown.

His weakness is seen in the failure to stand up to his own backbenchers and UKIP, which had two main consequences:

  1. Being gradually forced into a position where he had to concede an “in-out” referendum on EU membership with an arbitrary target date when the timetable for proper negotiations was outside his control;
  2. On immigration, a deliberate, and morally despicable, blurring of the distinction between asylum seekers, refugees and “economic migrants” has boxed him into a position where he cannot convincingly speak on the more heart-rending news events without appearing to contradict his earlier narrative. The repeated assertion of the myth that immigrants are attracted to Britain because of our generous benefits has no basis in evidence. It also leaves Cameron nowhere to hide – when pictures confirming the sheer desperation of people fleeing murderous regimes show just how ludicrous such a claim is.

The tragic sight of little Aylan Kurdi on the beach and the desperation, dignity and determination of a group of Syrians marching together from Hungary to Austria has changed the moral landscape of the immigration issue. It puts Angela Merkel and Germany on the moral high ground and leaves Cameron – and by implication the rest of us – portrayed as mean-spirited and misanthropic.

Cameron needs to be reminded of three things:

  1. There is such a thing as compassion: people can rise to performing acts of enormous kindness to strangers, particularly if given inspirational leadership to do so. Look at the cheering crowds at a German railway station!
  2. There is more to life than the narrow pursuit of material self-interest.
  3. The “national interest” is not synonymous with that of his rich friends and Tory Party donors in the City.

Perhaps it’s too much to expect a member of the Bullingdon Bully Boys Club to understand these simple facts. Britain deserves better than this.

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