Posts Tagged ‘economy’

I am a proponent on the free market. That doesn’t mean I am a hardcore economic libertarian that thinks the state should keep its nose out. Far from it. I think the free market works best well in a strongly regulated environment that forces companies to provide a high level of service and prevents them from gaining a monopoly.

Housing is a tough one though. House prices continue to go up. Why? One answer is, that people keep buying them. Getting into more and more debt. Which, as we saw in 2008, can only go so far. Yet the property market continues. While the rest of the world burned, house prices never really dropped that much.

Another reason is that the government know that home-owners vote, and so continue to push out policies that prop up house prices. As I have written about before, any consideration of the help to buy scheme quickly reveals it as a trick to help the middle class. Rather than forcing home-owners to lower prices to those affordable to first-time buyers, it forces young people to take on even more government-sponsored debt while allowing the home-owning class to extract their silver.

The problem with the housing market though, is that there is no opt-out. With consumer goods, if they are ludicrously expensive, you just buy something else with your money. Housing is not like that. You need somewhere to live. While house prices may be irrationally high but we face the same problem that those who said they knew the 2008 financial crash was coming. Just because you know it to be the case, does not mean you can stay solvent longer than the market can remain irrational.

Another reason that the free market fails with regards to house prices is that people have stronger non-financial considerations. They want to live near their friends and families for example and have jobs tying them down to locations. In a free market, everyone would move to Darlington to enjoy cheap, spacious houses. Yet people continue to rent hovels in London for £2,000 a month because their connections keep them there. They are trapped in a restricted market.

In contrast, an increased investment in council houses could help fix the market. Having council houses with reasonable rents could provide a genuine alternative to buying or renting from private landlords, forcing the private housing market to compete for customers on a truly free market.

Recently a new report by Shelter suggested that 80% of homes were unaffordable to most families. Government intervention on this issue has failed us. Perhaps it is time for a free market solution?

Firstly, the government’s “Help to Buy” scheme is not helpful. It allows people to take 95% mortgages by allowing the banks to make less risky mortgages and the government paying the rest. The problem with this is that it allows people to buy homes they can’t afford.

The example of the Help to Buy website shows the government adding in £20,000 to the £5,000 deposit the buyer has, thus allowing them to buy a £200,000 house. But they cannot afford a £200,000 house. Based on the deposit they are putting up they can afford a £40,000 house. However, state intervention then allows everyone to charge £200,000 and have buyers for them, thus house prices go up to way beyond what they should be.

Secondly, the banks are willing to take large risks on mortgages because they know the government will bail them out if they get into trouble. Thus they can take huge risks, get rich when times are good and make the tax payer pay when times are bad. Who wouldn’t do that?

The government should stop doing things to make this huge prices affordable and actually do the opposite – making them unaffordable! Thus the free market would then bring prices down.

This, not propping up unaffordable house prices, is where state intervention would be useful. In order for the free market to function effectively you need to ensure there is liquidity in the market. This can be achieved by making sitting on second homes unaffordable.

Leeds City Council has already taken steps to do this. They have revoked council tax discount on empty properties and after two years you even may a premium of an extra 50% (you pay 150% of the normal council bill) to encourage you to sell it. Similarly, as I wrote about in 2012, you could just ban people from buying second homes.

Ending the state-sponsored propping up of house prices and introducing further measures to add liquidity to the housing market could then allow the free market to bring house prices down to a reasonable level.

Obviously this is a topic that most people will have an opinion on, so I would love to hear why I am wrong (on which I expect there will be some good arguments).

How can they possibly manufacture, ship and sell a doormat, at a profit, for 99p?

The recent global recession has been a real boom time for me. I’ve switched jobs several times and now gone self employed. When I was lead developer over at Buzz we couldn’t hire people fast enough, and even when we could, the often ended up going elsewhere as other companies desperately tried to attract them with ever spiraling pay increases. Kick backs for referrals started reaching four figures.

Never the less, I heard a lot in the media, and from other people, about how hard it was to get a job and about the record levels of unemployment. The news is full of headlines about how bad things are.

I put it down to the industry I was in. We must be an island, resilient to the global economic downturn, ever-expanding while the rest of the world was reseeding. Sure it was easy to get a job if you worked in software development, but everyone else must be struggling.

Then, in April, Elina moved over to the UK. She had just graduated and had no real work experience. But together we wrote her a CV, put together a “job hunting action plan” and did some interview practice. Within two weeks she had a series of interviews lined up and was offered two of the first three she went to.

In fact, they wanted to start her so quickly that she had already done two days work for one company before receiving a better offer and leaving to go another one.

This once again made me question as to whether there really were no jobs available out there. We certainly didn’t find a lack of them when looking for Elina – just trawling through Gumtree threw up dozens of local vacancies each day.

Having spent three years working at McDonald’s, I have quite a few friends still working in McManagement. Conversations with them tell a similar story to the IT industry – they’ve been pretty much continually recruiting throughout the entire recession.

Last weekend, I also spoke to my auntie who works for a charity shop. While she took the job part-time to give her something to do in her retirement, she is currently working full time because they can’t fill the two paid vacancies they have at the moment.

So if the industry I work in has plenty of jobs, the industry my friends work in has plenty of jobs, the industry my relatives work in has plenty of jobs and Elina can get a job without any real work experience in only a matter of weeks, how then can you make the case that there are no jobs available?

The answer is, I’m not sure you can. The last resort of an answer I could pull up was perhaps due to age barriers as most of my friends are young – but as I’ve already said, my auntie has retired once!

That then opens the question up as to why there is so much unemployment.

Two answers spring to mind.

First off, people just won’t take the jobs available. It’s almost certainly no coincidence that the biggest constant in recruitment are companies like McDonald’s – nobody wants to work there. Many people consider themselves too good to work there. You can argue that it is demeaning for people with a degree to go work in fast food, but I think that is a real insult to people like myself and Norman who did go work there – and we’ll both tell you that we learnt loads!

Not to mention the fact that a bachelor’s degree is far from anything special anymore. But more to the point, it’s totally reasonable for employers to want to hire well rounded people, who have some knowledge of the real world outside of academic the academic environment.

Secondly, I think there is a failure of our education system to prepare people to job hunt. When I finished school, I will put my hand up and admit that I didn’t know how to job hunt. We had gone over writing a CV at school but that is about where it ends.

Job hunting is a lot of work! Loads! I actually much prefer being in a job (although being self-employed is even better) than looking for one because it’s LESS work. When you’re job hunting you need to be putting in a full 40 hour week, you need to be up first thing in a morning, looking presentable to go round speaking to people. When I’m working I can role out of bed any time up until 10am (I like to be in the office by 7:30, but the point is I could go in at 10), and turn up in “whatever you wake up in” – that’s a quote from one of my manager’s.

But I didn’t realise how much effort was required. Nobody at school ever said to me, “it should be a 40 hour week and you need to make sure you have an action plan and a spreadsheet of who you have contacted and when you’re chasing them up.” School should be teaching that because otherwise, it is no wonder that people are unable to find themselves one of the many jobs that are out there.

John Rentoul recently published an article on The Independent’s website, pointing to a report by the Institute for Fiscal Studies showing that the recession had actually reduced income inequality.

Key findings in the report highlight that the turn of the decade marked the biggest drop in income inequality since 1962 based upon the Gini coefficient (one of the many ways you can measure income inequality). Contrary to popular belief, it is actually the wealth that have seen the biggest percentage slashed off their income, at least according to the report.

If it is the case, then while income fails are never a good thing, it is positive that we are moving towards a more equal society – of course there is no guarantee such a trend will remain when economic times are brighter.

Total spending on religious construction is down to almost a third of what it was a decade ago.

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Total Construction Spending: Religious (TLRELCONS).

This week, George Osbourne rolled out The Budget. Norm described it as a budget he found “impossible to get angry about.” But I disagree.

The increase in the personal tax allowance is great, thumbs up there, well, on the most part. I’m not too bothered by the granny tax either, as state pensions have in fact gone up quite considerably in a time when many working people’s pay have been frozen despite the ever marching climb of inflation. Not to mention is that all that is happening is that their personal allowance is being lowered to match that of working people.

However, when it comes to the top tax bracket, it is nothing moe than a traditional Tory budget. There is little justification for giving 14,000 millionaires a tax break given the financial crisis we are in.

One of the clearest messages we have received from this government is that the previous one has left them with a huge hole in the budget and that strong austerity measures would need to be put in place. So, if it so important to plug the hole in the budget and pay back some of our borrowing, how can we afford to give tax breaks to the rich?

I’m not going to use the phrase economic crisis because we’re not in one. Everything is fine. The only reason we’re in a recession because we decided to call it a recession which then scares everyone and it becomes a self fulfilling prophecy. I would however like to throw a few ideas out there on the current economic climate.

Government’s all over the world are in the middle of nationalising banks. Like everywhere. Iceland’s Glitnir, which I’m told was a rather large bank, has recently been nationalised. Here in the UK, Bradford & Bingley have just gone. We’re still bailing out Northern Rock. Me, my tax money is bailing them out.

Point is, this isn’t how a free market capitalist economy is supposed to work. There shouldn’t be government bail outs, a free market only really works when the market is free. Companies go down, other companies take their place, circle of life and all that jazz.

Surely the way to encourage economic growth in such times is to increase the capitalist freedoms and reduce the socialist state rather than the current trend of increasing the socialist state with government bailouts and suprise taxes. Slash taxes, slash minimum wage, make it more profitable to actually generate profit than go cap in hand to the government.

We’re all moaning about these huge salaries the city big wigs are getting paid then coming to the tax payer for the bail out. Who can blaim them? That’s just common sense. They don’t lose it all when their company goes down to the toilet, most boards are remaining intact when the company is nationalised. Who wouldn’t take up that offer?

If we’re going to this whole capitalist economy (which we are, because it works, get over it) we should just get on with it. The world economy well go down the pan if government’s don’t intervene. But it will be back again. Bigger, better and even stronger than before.