Englands Austerity Plan

[Enoch]

Don't all countries who can try and do that, affect the currency to their own advantage. It's a bit much to expect countries to be responsible when there is an advantage in not doing so.

There's a higher standard applied to the U.S. at present, simply because the Dollar is pretty uniformly viewed as the global reserve currency of choice, and because the big moneymaking engine of world trade for emerging economies over the past 30 years is basically summed up as "sell things to Americans."

 

It's a puzzling little mess we're in. There is no budget (or political will) for further fiscal stimulus (quite the opposite, really, particularly at the state and local level), so the Fed is the only one that can really act to try to do something to alleviate economic problems. But their big weapon-- a second round of "quantitative easing"-- probably isn't going to work particularly well. It's main function is to flood the banking industry with cheap liquidity. That's great for the balance sheets of the banks, but they're not really passing on that lending to the small and medium-sized American businesses that are going to have to be the engine of recovery. Instead, most of it either sits on their books or gets lent into overseas emerging markets. The emerging markets (like the Russian chap WoD quotes) don't view this all too kindly, though, as the flood of cheap lending has the effect of strengthening their currency and raising the price of their exports. This helps American businesses indirectly (raising the price of competing imports and strengthening their exported products), but it's a weak echo of the original action, and creates its own complications in inviting unfriendly trade practices in return.

 

It's going to be a rough decade. And, really, this or something like this has been baked into the pie for the last 10 or 15 years. The American economy has been fundamentally misallocating resources for a long time due to many factors, but chiefly to perverse incentives in the financial sector and the inability/unwillingness of regulators to recognize and/or correct them.

 

 

As for other countries, I find it somewhat comforting that, after all the cultural homogenization and making nicey-nicey of the last 60 years, countries are sticking so closely to their national stereotypes. Half a million job cuts announced in the UK, and the Brits apply an extra-thick coat of lip-stiffener. Threaten to raise the retirement age 2 years in France, and the mob takes to the streets and shuts down any actual work for weeks.

[Oblarg]

Ideally you should let the market determine exchange rates, and it will in the long run regardless. The funny thing about US policy is that the Chinese are able to keep their currency artificially low precisely because US can't control its own spending and keeps borrowing from abroad.

 

This is, sadly, 100% true.

[Nepenthe]

What I still don't understand is why the only people who haven't been hurt by this financial crisis are the ***-stained ****ers who got us into it. Whack a two year levy on the bastards. Not long enough in duration to make it worthwhile leaving the country, but squeeze the juice out of them.

High hopes for the G20 meet. The Eurozone countries are spitting mad over Greece and I don't think the Brits will be too averse on coming down hard on the financial sector. My natural optimism prevents me from claiming "watered-down compromise", but we'll see.

[Slowtrain]

The government shouldn't be simply a giant industry that pays a huge percentage of the workforce just to keep them unemployed. But once that situation has been set up, you can't just cut a huge chunk of them lose without causing bigger problems.

 

A better solution would simply be to cut ALL government paychecks, long term visionaries and broom pushers alike, by 30% across the board over 5 years. Hurt everyone equally and give them time to adjust.

 

But like that would ever happen.

Most organizations prefer to select who gets cut themselves, lowering everyone's pay only makes it more likely the most competent will leave for greener pastures, while the deadwood who can't get another job will hang around forever.

 

 

Problems occur when it is the deadwood making the cuts. They aren't cutting themselves.

 

That's one reason why these sorts of mass job cuts never work. The wrong people are always sent packing. Its what happens when the inmates run the asylum.

[Monte Carlo]

The cuts are spread over four years, a 20% cut is 5% per annum until 2014 for example. Most public spending in the UK is predicated on year-on-year increases so it's a bit of a double whammy.

 

I'm going to be about

[Walsingham]

I like Slowtrain's notion of a paycut across the whole sector, in so far as it is unlikely to result in people jumping ship to seek higher wages elesehwre at the moment. On the other hand, a high earner taking a 20% hit can just cut their foreign holidays and sell the car. I low income earner is likely to be disposing of almost all their income already.

[Humodour]

It's kind of surreal reading this thread. Over here the thing the people are most concerned about is the fact that too many people have jobs (full employment) causing inflationary pressure on prices and thus requiring the Reserve Bank to raise the interest rate above 4.5%.

 

Oh, and the dollar. Our export sector is pissed off that we're at parity with the USD because their goods no longer have a competitive advantage in currency exchange rates. The rest of the country is too busy buying **** from America at half price to notice... or care.

[Monte Carlo]

Krezack, of course you are correct. The one thing that is occurring here is that the economic situation in the UK is keeping interest rates low, which is good news for home-owners. Home-ownership is deeply ingrained into the DNA of the UK economy, higher interest rates could seriously be the straw that breaks the camel's back.

[Humodour]

Krezack, of course you are correct. The one thing that is occurring here is that the economic situation in the UK is keeping interest rates low, which is good news for home-owners. Home-ownership is deeply ingrained into the DNA of the UK economy, higher interest rates could seriously be the straw that breaks the camel's back.

 

How is inflation in the UK?

 

I don't understand how you can persistently hold interest rates at near zero levels and not cause a bubble several years later (this applies to Japan, America, and others too).

[Nepenthe]

Krezack, of course you are correct. The one thing that is occurring here is that the economic situation in the UK is keeping interest rates low, which is good news for home-owners. Home-ownership is deeply ingrained into the DNA of the UK economy, higher interest rates could seriously be the straw that breaks the camel's back.

 

How is inflation in the UK?

 

I don't understand how you can persistently hold interest rates at near zero levels and not cause a bubble several years later (this applies to Japan, America, and others too).

 

They just did.

[Walsingham]

The alternative way to look at public sector cuts (which I just thought of) is that we just freed up half a million souls for use in the proper economy - you know - making money.

[Nepenthe]

The alternative way to look at public sector cuts (which I just thought of) is that we just freed up half a million souls for use in the proper economy - you know - making money.

 

You could start by joining the Schengen and sacking all the border guards.

[Monte Carlo]

The alternative way to look at public sector cuts (which I just thought of) is that we just freed up half a million souls for use in the proper economy - you know - making money.

 

You could start by joining the Schengen and sacking all the border guards.

 

No.

[Humodour]

The alternative way to look at public sector cuts (which I just thought of) is that we just freed up half a million souls for use in the proper economy - you know - making money.

 

I favour this outlook. It reminds me of opportunity cost - when the government employs a person that's one less person available to the private sector.

 

Obviously this is more revelant in cases of government largesse or excess beauraucracy than when a government is supplying and maintaining public services in a reasonably efficient manner (translation: I do NOT unconditionally support decreasing the size of government).

[mkreku]

You could start by joining the Schengen and sacking all the border guards.

Last time I went to London I forgot they aren't in Schengen and left my passport at home.. That was troublesome.

[Walsingham]

Talking to my stepfather - who is normally very wise on such matters - he observed that under Labour the govt controlled more than half the total economy directly.

 

Given the way government officials are selected this thought gives me the screaming abdabs.

[Wrath of Dagon]

You guys sound like a bunch of raving tea-partiers.

[Walsingham]

I assume that was a gag.

 

Seems common sense to me. Civil servants don't make money. They enable making money, sure. Roads, police, financial regulation etc. But having more than 50% of the economy doing that...

 

Moreover, running the mass of the economy by any single body is surely bad systems theory. It's a single point of failure.

[Atreides]

Half a million into the private sector could cause private sector (new) wages to go down. Or retrenching older workers to hire younger, cheaper, tech-savvy and perhaps hungrier people.

 

Good for employers.

[Morgoth]

There just aren't enough jobs available, neither in private nor public sector. Automation makes them obsolete.

[Wrath of Dagon]

When the economy is booming here, there are always labor shortages. Automation doesn't have anything to do with it, not until you can actually completely replace a human being, automation just creates different jobs.

[Walsingham]

One thing I really don't understand is, there must be some sort of baseline in business ecology. Some economic activity which actiuvely creates wealth, and doesn't just move it around.

 

What is it? Manufacturing? Mining?

[Atreides]

Increasing production per person I think. Tech and education usually help.

[Walsingham]

Increasing production per person I think. Tech and education usually help.

 

But do they? Some of the most productive peopel I've ever met have been barely high school educated, and work with little more than hand tools. And some of the biggest wasters have been fully tech enabled PhDs.

[Atreides]

China still has extreme poverty, but there's no denying as a whole how far they've come in a relatively short period of time. They'd make an interesting case study.

 

The last chapter of The Undercover Economist: How China Grew Rich is a short read. In general the book's a nice read, quite traditional economics in the sense that capitalism and free markets within reason are the way forward.