Tag Archives: economic growth

The Inequality and Iniquity of Growth.

This Christmas there will be millions of puzzled and sometimes hungry people staring at their televisions. Their hunger is easily explained – they are poor but what will confuse them will be the newsflashes showing smiling people shopping and talking about ‘Tablets’ at £500 each, Champagne, and a million other expensive items and yes…even Christmas turkeys!

Then they will see celebrity chefs cooking Brussels sprouts with pancetta, more champagne, the perennial debate about goose fat versus oil on roasties and how we’ll ALL be ‘over-indulging’ and falling asleep on the sofa! An alien world which some will have tasted but sadly, too many – especially children, will never inhabit.

This (to them) is a ‘make-believe’ world of plenty. They know it exists somewhere near them but it is like the parallel universe of science fiction….there but impossible to access.

They see shiny, smug politicians saying words about ‘the recession being over’….something the poor haven’t been too acutely aware of because what the politician calls ‘recession’ and ‘austerity’, they call “LIFE”.

‘The economy’ appears to be doing very well! …………..By the way….what is that?

The disparity between the most affluent Brits and the rest is hurting the economy. This chasm between rich and poor appears to have become an unacknowledged issue, primarily as the result of too many of the Cabinet belonging to ‘the Affs’. It is apparent that few understand that everyone (up to middle class) has seen their income stagnate, whilst wealthy households have really thrived.

Note: I propose to dispense with euphemisms such as “the well-off” and “society’s disadvantaged”. Let’s stick to rich and poor.

Bonuses, higher salaries, higher profits and exceptional stock market gains are flowing almost exclusively to the already-rich. Proportionately, however, the affluent household ‘spend’ represents much less of their money than that of  low and middle-income consumers.

One of the priorities of this government should be to engineer a much broader spending base – one which encompasses the poor……allowing them to actually participate in the economy.

Currently, there is a very distorted  picture of consumer spending because it is driven by the rich. The poor and the poorer are doing their best to keep up but inevitably need to borrow in order to spend – thus making themselves even poorer. Meanwhile, many rich are gaining profits from  bank or lending company shares which are fueled by the poors’ accelerating poverty….but the rich have something else which the poor have never had: OPTIONS or CHOICE!

One very profitable option this year has been the stock market – but once the markets have calmed down (which they will!) and gains are no longer eye-wateringly high, the affluent (As and Bs) will stop spending or at least, cut back dramatically.

THAT will have an immediate and devastating effect on this virtual economic recovery. SO, it is in the government’s interest to sustain the recovery illusion by keeping interest rates low and Quantitative Easing flowing to the banks so that , from an investment point of view, the equity markets (stocks and shares) remain the only game in town, so that the rich retain their mega spending power for as long as possible – at least until May 2015!

That is a very dangerous game for any government to play.

This is the phenomenon which has created and is sustaining the ever more bitter ‘CLASS’ debate and is in danger of feeding Populism and ultimately, major unrest.

Income Inequality and not airports or trains should be the government’s priority.

There is now little doubt that in spite of government policy, the United Kingdom’s economic growth is picking up….as it is everywhere else (Global Economy!)

NOW, while the mini-recovery lasts, would be a good time for the government to tackle the INEQUALITY OF GROWTH which is not an iniquity but the iniquity of modern times.

Straw-Clutch Economics

“I don’t think so!”

The Office for National Statistics (ONS) tells us that during October, November and December 2009 (Q4), the economy, or more specifically UK’s production and service sectors grew by 0.1%.  That’s the good news.

The bad news is that  during the whole of 2009, our Gross Domestic Product (GDP) fell by a record 4.8%.

You have to remember that the above figures are derived statistically with a plus/minus margin of error and in addition, that today’s announcement is not based on all the available data . Therefore if the margin of error is, say +/- 0.1%,  then  that should  put today’s announcement into perspective. The growth figure is so minute as to be meaningless.

Officially, after 18 months of negative growth, the government is telling us that we are now officially “out of recession”. The Chancellor has said that “confidence is returning” but there seemed to be a bit of a “whistling in the dark” aspect to his statement.

The car scrappage scheme and  cash handouts to the banks have treated the economic symptom but definitely not the cause.  In spite of  £178 billions-worth of public borrowing during the last 18 months, economic output fell by 6%.

Had the announcement said that the  0.1% economic growth been as a result of increased spending and increased production then we might have been more inclined to show a bit more enthusiasm. As things stand, it is impossible to extrapolate from such a weak figure and agree with the government that the United Kingdom’s recession is over.

Some commentators are agreeing with the government and saying  that the economy has just crossed the line in coming out 0f the recession. The economy has definitely not crossed the line on its own steam – it was pushed by a panicked government. Because current figures have too much “static” in them, primarily as a result of the government’s monetary intervention, it is difficult to see how we can claim to be witnessing real economic growth. Real growth will only come when the government backs off and allows the economy to stand on its own shaky feet.

It is not even 100% certain that 2009 Q4 figures are either accurate or that they represent any meaningful trend.

What the media have not fully explained is that the 0.1% figure is only preliminary and therefore more of a “guesstimate” rather than a “set-in-stone” absolute.  The ONS has to strike a balance between accuracy and the pressure on them to produce some sort of number. Consequently, the figure given today is only based on about 40% of the available data. The 0.1% figure will definitely be revised with the real possibility of a downward revision. That could mean that technically we are still in recession. Two more revised figures will be published – on 26th February and 30th March.

Most analysts and commentators (and, one suspects, the government) had been expecting  and hoping for a decisive upward swing in the economy but what has been delivered is the economic equivalent of a damp squib. The economy is still operating at way below pre-recession levels – and will probably continue to do so for a long time yet.

The pound-sterling will now get a pasting on the foreign exchanges and the best that the Chancellor will probably come up with, will be that “it will be good for exports”.

As usual, this is a lacklustre result from a lacklustre economy, led by a lacklustre government which seems to be doomed to the political equivalent of a Jolly Boy’s outing to the Dignitas Clinic.