Monday, Apr 28, 2008
What to do after the Crash
MSN: How to fix the economy
Last week I talked about what the likely outcome of the housing crash was going to be. And let's make no mistake about it - there will be a housing crash. There's not much that can be done to prevent that now. But what can we do to make a better, more functional economy when we actually start to recover?
Has John been reading this site?
Posted by renting2 @ 10:29 AM (837 views) Add Comment
15 Comments
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1. Greg Wp said...
The article starts well until we get to 'Capital Economics'. Does anyone take them seriously?
2. stillthinking said...
The problem isn't finding a government willing to reduce the size of government, the problem is the huge number of voters who realise they personally are at risk from any reduction. We have nearly 50% state employment. Half of the voters won't agree with government downsizing. This is why we have passed the tipping point already, and will get poorer from this point on.
The best thing would be to freeze recruitment which might come over as acceptable. The UK gov. is an enormous gravy train for those on it, 6 weeks holiday a year, flexi-time so you only have to work 4 days a week if you do an extra hour on those days (you can just sit there if you like), you can't lose your job after a year, lots of courses and training, subsidised canteens, generous pension schemes, private sector people to do anything complicated. Basically unbelievable.
Nobody will vote that away if they have it, and half of the people do (yes I know some are hard working I just never met any out of the couple of hundred I have seen so far).
3. mark wadsworth said...
Stillthinking, it's actually only about a quarter of all workers & self employed on government payroll.
Of whom the majority are doing useful stuff. It's only two or three million who are superfluous.
As to fixing extreme swings of boom and bust, what we need is a Property Bubble Tax (aka Land Value Tax) that will keep house prices low and stable, so preventing asset price and credit bubbles (to a large extent).
And poverty trap can be fixed by having citizen's income and low marginal withdrawal rates, preferably no higher than the normal income tax/NI rate.
4. Neo-serf said...
Stop using neo-classical economics and revert to the classical economists who weren't swayed by the vested interests.
Land, labour and Capital
Not Labour and Capital - the tripod will only stand for a moment with two legs.
We the plebeians need to wake and demand the radical changes that are long overdue.
5. mrmickey said...
Don't forget to add in all the people working in the private sector on government funded projects and working in various industries like construction which jobs have been created by the governments bubble policies.
6. icarus said...
Broadly agree, but I'd add/change a couple of things. (1) "The world's central banks stepped in to save (investors) from their own folly". I think the world's central bankers stepped in to save the shareholders of the world's central banks. (2) You cannot talk about the effects of changes in manufacturing employment without discussing whether there have been compensatory changes in productivity. Roughly speaking, in the UK there haven't, in the US there have. (3) There is v little 'trickle down' wealth - the rich have got richer AT THE EXPENSE OF everybody else apart from a few of their lackeys. (4) On tax cuts - there's a big budget deficit, so yes, cutting govt employment is all that's left - but govt employees are consumers too, so cutting govt employment to take pressure off hard-pressed consumers.............
7. uncle tom said...
To avoid boom 'n' bust cycles you need to supress credit.
A 2% p.a. tax on all new loans advanced would be quite an effective measure, encouraging people to borrow less and pay off sooner.
8. icarus said...
Broadly agree with mark w @ 2 - and many govt employees are over-worked and under-paid (many go to the private sector if they get the chance) and to some extent they make up for the superfluous ones. But if you prevented property bubbles in this way cheap money would create bubbles in other assets.
9. Dude said...
Hmm, "Typically, the more input a government has into an economy, the less productive it becomes."
A bit of a sweeping statement. Apart from the issue of we don't export enough (now when did we start to destroy the manufacturing sector?) our economy is dominated in the SE by the Finance sector. I read somewhere that someone had worked out something like 20% of jobs nationally depended directly or at one remove on the Finance sector. With the banks at last facing a reality check the longer term knock on effects may well be massive.
But the government *must* have a finger in the pie. If it doesn't the free market will rabidly attack everyone, leaving the rich to get much richer and the poor much poorer (and it is doing that, so the finger needs to be pushed in much deeper, not pulled out).
A much stronger regional policy, encouraging companies to set up outside the SE would be a good shift. On a personal basis it annoys me that I have to go down to London because that's were the work is. The people in the SE often whinge that their economy is overheating, but no one seems to want to push the politicians to do the right thing -- intervene.
As long as the market is left to dominate and rule we will have distortions and inequalities.
10. plato said...
I'll confine it to housing as the starting point :
Your home must be cheap and affordable. Your other house or houses must be a massive tax burden. Therefore no investment value in this market. There are plenty of alternative investment vehicles.
All the associated economics will soon improve.
11. waiting for the crash said...
stillthinking
Its not impossible to have private businesses provide the benefits that govt employees have. It just means shareholders want get so much didvidends and the maximise profit motive is not put at the expense of employees and customers.
Waitrose v ASDA - have very different policies to their respective employees. It's possible to have capitalism with a social conscious, Germany can acheive it, Sweden etc but its the mentality of the leadership that needs to be different and the mentality of the sheeple as well.
UK plc is currently ethicially, morally bankcrupt. Fix the mentality first, which will drive policies and business actions then the economy will fix itself.
12. renting2 said...
Personally I would like there to be much more discussion in the mainstream press etc on this extremely fundamental topic. otherwise we'll be here again in 18-20 years time.
13. planning4acrash said...
Icarus is right. Inflation is inevitable with our fiat money system. Question is where do you want it? Houses are unproductive, better there than food. Tho only real solution is 2 end fiat currency and bring on a 100% gold standard!
14. shipbuilder said...
Great posts on here - as renting2 says, we desperately need these sorts of questions and solutions to be pushed into the mainstream, or even a decent political party to champion them. It does need to start with the education system - in my opinion one of the greatest sins has been the ever-narrower obsession with money, finance and business over the last 20-30 years. Education solely focussed on 'getting a job' and hitting targets rather than nurturing the skills useful to society - all we teach kids now is to be good little consumers and compliant, obedient and 'productive' citizens. The public sector should be the public sector and not subject to New Labour's 'third way' obsession with running it like a business.
15. Shipbuilder said...
Abolition of fiat money, replacement of the entire tax and benefits system with income or purchase tax, re-nationalisation (and localisation) of essential services. There's plenty of ideas out there - so why is no-one in the mainstream biting the bullet?