Wednesday, Jun 14, 2017

Bear necessities: Brexit chaos fuels fall in living standards

Grauniad: Pay squeeze intensifies as wage growth falls further behind inflation

Fairly simple mechanism folks. The falling pound means more expensive imports, and wages are not keeping pace with inflation. Only one way this can impact on ability to service rent or mortgage. And can you really see it getting better as the Brexit chaos continues?

Posted by nickb @ 01:16 PM (9819 views) Add Comment


1. libertas said...

Crude oil prices presently collapsing and Trump's energy policies are likely to cause an almighty boom that will suppress energy prices worldwide. Inflation could yet collapse back and the main driver is currency moves that will be temporary.

Wednesday, June 14, 2017 06:33PM Report Comment

2. icarus said...

@1 - The fall in real wages in the UK for median (50th percentile) workers has declined steadily since 2008. And if you look at the same group in the US real wages have been stagnant since the 80s. The UK is following the US in 'labour flexibility', loss of manufacturing and weakness of unions, so don't expect any change in this trend in the UK. The UK's big problems are low productivity (partly because of its reliance on low-productivity services) and inequality, especially between regions. (The difference between purchasing power per capita in the 'capital region' is far greater in the UK than anywhere else in Europe.)

The real wage falls continue through periods of high employment, so there's no scope for wages to rise as the demand for labour increases. And average wages may track productivity but median wages are falling behind productivity (a concomitant of inequality).

These trends trump (not a pun) fluctuations in oil prices and currency moves. So don't kid yourself.

Wednesday, June 14, 2017 08:41PM Report Comment

3. icarus said...

Ist sentence - 'fall' or 'declined', not both.

Wednesday, June 14, 2017 09:56PM Report Comment

4. jack c said...


Macquaire: Humans today, Are The Equivalent Of Extinct Working Horses ~150 Years Ago

This is probably the most thought provoking piece on markets I have read in long time .

Victor shvets of Macquaire writes

“About working horses & people ‘There was a type of employee at the beginning of the industrial revolution whose job and livelihood largely vanished in the early 20th century. This was the horse. The population of working horses actually peaked long after the industrial revolution… there was always a wage at which these horses could have remained employed. But that wage was so low that it did not pay for their feed’, Brynjolfsson & McCaffe”.
We are residing in a world where return on labour is declining while returns on ‘superior brain, social capital and connectivity’ are rapidly rising. for e.g Robotics, automation, internet of things and AI is already responsible for 80%+ of global trading of financial instruments while rapidly destroying professions (ranging from paralegals to accountants) and starting to dominate the retail and wholesale sectors. The revolution is also now rapidly moving into manufacturing.Robotic factories, 3D printing and a decline in moving parts is starting to impact supply and value chains. Just several examples would suffice. GE is planning to print as many as 100,000 parts of their aircraft engines; Divergent 3D is now able to print a super car in a garage in California whilst Apis Corp has recently 3D printed an entire house for $10,000 and within 24 hours. This is not to mention, robotic (or ‘dark’) factories that are springing up from the US to China. The Fujitsu (2016) survey projects that around 90% of manufacturing companies expect a significant change in their business model within a decade or less.

And he concludes philosophically …In other words, in a somewhat callous fashion, the quote above by Brynjolfsson & McCaffe implies that humans today, are the equivalent of extinct working horses of late 19th -early 20th centuries. It is likely that within a decade or two, value would gravitate so strongly towards what Peter Thiel called ‘zero to one’, that only people with strong empathy and EQ (i.e. entertainment, priests, psychiatrists) as well as technocratic and some managerial elite,would continue to play a significant role. This also promises to be the world of even sharper income and wealth inequalities and quite likely a world of extreme political reaction against the trend of declining importance of human inputs, potentially rivalling a modern equivalent of 1789 French revolution.

What does it mean for INVESTOR.

‘There is nothing so disastrous as a rational investment policy in an irrational world’,John Maynard Keynes
The above quote from John Maynard Keynes, who apart from being an economist was also an exceptionally savvy investor, encapsulates dilemma facing investors. Current investment climate (and indeed for more than a decade) is the one of non-existent business and capital market cycles. This implies that any trading and investment strategies
based on conventional tools and variables (such as sector rotation, mean-reversion) are bound to fail.

Macquaire has and continue to recommended two complementary strategies – ‘Quality Sustainable Growth’ and ‘Thematics’. They particularly like Thematics,as these directly invest into dystopian trends of ‘declining returns on humans and capital’.

Qaulity and sustainable growth is easy to understand with relatively large universe of ideas investable ideas

what is included in Thematics is interesting.

Theme 1: “Replacing Humans”: Robots, Industrial Automation & AI

Theme 2: Asia’s High Technology niches

Theme 3: “Opium of the people”: Games, Casinos/Virtual Reality

Theme 4: “Bullets and Prisons”: Defense, Security,Prisons/Correction Centres

Theme 5: “Education & Skilling

Theme 6: “Demographics”: Funeral Parlours, Hospitals and Psychiatric Centres

The only way out is Loan waivers, basic minimum wages for majority of population and continue leveraging to continue to prepone consumption and yes it also means BIGGER GOVT and SHRINKING PRIVATE SECTOR. Peter Drucker once presciently remarked, the government is now increasingly in the business of not just ensuring that the climate is conducive to business, but instead it attempts to micro manage weather (i.e. not too cold; not too hot).Thus, they believe that a combination of rapidly evolving technology, a high degree of operating flexibility and limited demand visibility, there would be no break-out of wage pressures. Vicotr believe that it also implies that the global economy continues to reside in a deeply disinflationary climate hence invest in quality sustainable growth and Thematics

Thursday, June 15, 2017 10:32AM Report Comment

5. icarus said...

jack - Renewable energy, infrastructure (including building fireproof tower blocks) and getting corporations to clean up their pollution are just three things that spring to mind regarding significant future employment of human beings.

Another 'theme' would be to return world agriculture to practices which don't require Monsanto's poisons, don't denude soils of nutrients and don't involve suicides among indebted farmers in poor countries.

The overriding considerations are political rather than technical.

And there are more horses around today than there ever were. Just different types doing different things.

Thursday, June 15, 2017 01:10PM Report Comment

6. jack c said...

icarus - fully endorse your comments but unfortunately they seem at odds with the way businesses are headed as they strive for efficiency. Shareholders are demanding more capital growth and rising dividends.

Rise of the Robots - Martin Ford is an interesting read as is some of the work of Ben Hammersley. Tom Watson of the Labour Party has also touched heavily on this theme.

Thursday, June 15, 2017 03:25PM Report Comment

7. icarus said...

jack - as I mentioned, it's a political matter. Trump and the plutocrats and militarists are in charge (and May can't even manage a Mexican wave, so she can't change anything) so yes, now it's shareholder value at any cost - dereg, pollution, endless wars etc. But people are getting fed up, especially with austerity and lower living standards..........

Thursday, June 15, 2017 06:49PM Report Comment

8. hpwatcher said...

people are getting fed up, especially with austerity and lower living standards..........

That's the trend - nothing to do with Brexit; which at least means less overseas labour, which is much cheaper.

Friday, June 23, 2017 04:13PM Report Comment

9. libertas said...

Jack C, the only problem with your statement is that value is assessed in any economy by PEOPLE. As such, machines will only be valued where they satisfy the market, which is comprised of you and I. People will continue to value hand made things and will continue to value homes, etc. There is a resurgence right now of all things craft, despite the machine. In fact, the machine is freeing man from drudgery so he can return to crafts of old, in many walks of life, where mechanisation is faultering in some industries because it is difficult to make money with a limitless supply of low quality goods, where margins are squeezed.

Sunday, June 25, 2017 05:38PM Report Comment

10. cyril said...

I agree with Libertas for a change... the problem I have with the comparison between working horses and working people is that horses don't employ each other - the analysis suggests that people are just units of production but in reality they are more creative. But I get the general point that human labour will not be worth much in the future.

Also bear in mind that most of today's products are unnecessary, and the demand for things is created artificially by advertising. So we may end up in a situation where companies use clever technology to persuade us to buy things we don't need, which are produced by robots and sold to people who haven't got any money....

Saturday, July 1, 2017 08:55AM Report Comment

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