Back to the workhouse

[Napster]

Calendars are not my strong point. I was asked in a meeting today what year something happened and I couldn't remember what year it is at the moment.

On the Obama stimulus, the Congressional Budget Office found that the medium term effect would be negative, though it sustained employment numbers in the immediate short-term.

There are numerous problems with infastructure projects as a stimulus in the modern era:

1 - EU labour movement - as I explained above, major infastructure projects suck in immigrant labour (see the Olyumpic Park).


2 - Planning system - "shovel ready" projects don't exist because of the planning restrictions and permissions required to start. If the UK government identified 30 projects today how long would it be before they started?

3 - What to actually build? HS2 is all but dead, a new airport? That would take years to approve. Additional road capacity, housing?

4 - How to pay for it? We can't borrow the money so how is it to be paid for without further spending cuts to revenue items (which would almost certainly be benefits and entitlements)

I hate arguing with Neil - but HS2 is well and alive. I just helped organise a conference and part of it was funding transport infrastructure.

Paying for it will mean going cap in hand to foreign institutional investors (China have just invested in a water company for example) and pension funds.

ps in China - there are almost no planning restrictions. You want a hospital, it's built. When I was last out there, there was a hospital in Shanghai that was built and staffed and ready to go in a week. China is planning to build 70 airports in the next 3 years.

 

[Tangled up in Blue]

I respect your views Neil as you obviously know your stuff and are well up on economic opinions. Where in your view does this new found economic activity and growth actually come from in a country that is fast falling onto it's backside?

How exactly does sacrificing "some social protection and spending" necessarily lead to a stimulation of "economic activity and increase growth rates?"

It reduces the cost of employment (for example cutting employer NIC and abolishing a lot of employment protection rights would be supply side reforms that decrease the unit cost of labour. In other words it would increase total factor production which is the driver of economic growth).

Cut enough spending and you can cut taxes as well, which increases demand. This is in the medium run. Short-term tax cuts would not, in my opinion, increase demand because the UK is going through a massive deleveraging process. That is, most extra cash would probably go toward paying down debt.

There are obvious trade offs here and there is no particular science to it. If spending was cut to 30% of GDP to fund tax cuts, increase work incentives (by reducing welfare entitlement) and reduce the cost of employment then growth would increase. How much it would increase by and whether it would be worth it is the key question.

Let's see if it'll be helpful to give some personal examples from practice rather than theory.

I'm still waiting to be paid for classes I've been doing at the UAB since January.I've also just been offered a July intensive course, teaching teachers, at a nearby EOI(state run official language school)but the Generalitat(Catalan Autonomous Government)can't guarantee when exactly they'll be able to pay me(last year it was at the end of July, as usual, over the last seven years).

The cost of employment to the UAB and the Generalitat,in my case is zero(apart from my salary),since I don't have a contract and as a Freelance, I pay for my own social security.

How does not paying me on time(the legal limit for late payment of invoices here is 2 months, btw)increase demand?

It's only the work I do in companies and private classes etc which enables me to subsidise the state.Indeed a young lawyer,who I teach privately, has suggested that I take the UAB to court.I'm thinking about it.:unsure:

I enjoy working in the public sector but I'd have to say I was probably better off financially during the eleven years I worked for a private Business School.

 

[Mad Cyril]

I know at least one fairly normal person who dropped out of University and is now Director of Studies at the most prestigous Business School in Barcelona.:winking:

*impressed whistle*

 

[Tangled up in Blue]

*impressed whistle*

He does have an MA though(but that's another story).:smiles:

 

[MK Shrimper]

I hate arguing with Neil - but HS2 is well and alive. I just helped organise a conference and part of it was funding transport infrastructure.

It certainly is. The amount of work that I and probably many others are doing for it is immense.

 

[Hotman]

I want to know where I can get these freebies from, saves me paying hundred quid a week to apprentices!

 

[Mad Cyril]

It certainly is. Theamount of work that I and probably many others are doing for it is immense.

It must have been a struggle to fit in nearly 27000 posts on Shrimperzone as well......

 

[Pubey]

It must have been a struggle to fit in nearly 27000 posts on Shrimperzone as well......

I just spat my beer out at this!! I can't talk though

 

[Neil_F]

I hate arguing with Neil - but HS2 is well and alive. I just helped organise a conference and part of it was funding transport infrastructure.

Word is that Osborne is going to kick it into the long grass. The Treasury has now decided that the costings are out and the benefits have been greatly overstated.

We shall see

 

[Neil_F]

Let's see if it'll be helpful to give some personal examples from practice rather than theory.

Oh dear...

The cost of employment to the UAB and the Generalitat,in my case is zero(apart from my salary),

Sorry, I found that incredibly funny

How does not paying me on time(the legal limit for late payment of invoices here is 2 months, btw)increase demand?

I don't understand this. Not settling a liability within the statutory time limit is called a criminal offence, not demand management.

The cost of employment is about much more than just salary, which is (unless you work in the public sector) determined by the market. As you're in favour of examples here is one from Germany. One of the main reasons small companies don't grow is the potential costs of hiring employees to expand, especially if those employees don't work out. Getting rid of employees can be extremely expensive (often fatal for small companies) so most don't bother. The business stays small, a potantial new job is never created and everyone loses out. In 2004 Germany made changes to dismissal laws so that companies employing fewer than 10 employees were exempt from dismissal protection laws. It was designed such that the employer and employee could quickly and cheaply agree severance terms rather than resorting to legal action.

This is a supply side reform and the type of thing I am talking about. A similar proposal was recently made in the UK but the Lib Dems rejected it out of hand. I can't be bothered to look for the data, but the reform saw an increase in employment for small firms across all sectors.

So my point remains, are we as a nation prepared to sacrifice some employment protection rights to reduce unemployment? I would say yes but the Lib Dems say no.

 

[Cricko]

I know lets lend the banks some more money....Honestly you could not make this up.

http://www.ibtimes.co.uk/articles/352490/20120615/uk-banks-credit-boost-white-paper-qe.htm

 

[Tangled up in Blue]

The cost of employment is about much more than just salary, which is (unless you work in the public sector) determined by the market. As you're in favour of examples here is one from Germany. One of the main reasons small companies don't grow is the potential costs of hiring employees to expand, especially if those employees don't work out. Getting rid of employees can be extremely expensive (often fatal for small companies) so most don't bother. The business stays small, a potantial new job is never created and everyone loses out. In 2004 Germany made changes to dismissal laws so that companies employing fewer than 10 employees were exempt from dismissal protection laws. It was designed such that the employer and employee could quickly and cheaply agree severance terms rather than resorting to legal action.

This is a supply side reform and the type of thing I am talking about. A similar proposal was recently made in the UK but the Lib Dems rejected it out of hand. I can't be bothered to look for the data, but the reform saw an increase in employment for small firms across all sectors.

So my point remains, are we as a nation prepared to sacrifice some employment protection rights to reduce unemployment? I would say yes but the Lib Dems say no.

The point I was trying to make, from personal example, was that deflationary economic policies(taken in isolation) do not stimulate demand,either in the short term and probably not in the medium term either.And as Keynes was fond of saying:"in the long term we're all dead."
Unemployment is Spain is currently 24.5 per cent(according to official figures)and youth unemployment is over twice that.About double the rates in the UK, in fact.Supply side reform and deflationary economic policies are certainly not working here, nor in the rest of the Eurozone as a whole,nor I would suggest in the UK.
The reform of German labour laws that you mention is well known.It has made the rest of Europe a cheap export zone for Germany and kept the German rate of interest for borrowing extremely low.Unfortunately the rest of Europe(including the UK)is paying a high price for Germany's "success."
The sort of reforms over dismissal which you mention have been imposed on Spain with no notable sucess so far.
I am at a loss to understand how making it easier to fire people necessarily leads to more jobs being created.Perhaps you can explain?

 

[Neil_F]

The point I was trying to make, from personal example, was that deflationary economic policies(taken in isolation) do not stimulate demand,

Of course not. The whole point of deflationary policies is to reduce aggregate demand.

The problem with the Eurozone is that it is simultaneously pursuing fiscal and monetary contraction. Add in the Basel III capital requirements for banks and you get a plunging money supply that leads towards depression.

The UK is different because the modest contractionary fiscal policy is offset by an expansionary monetary policy.

Your error, Barna, is your belief in the magic money tree. You want the nations of Europe to embark on a massive programme of spending but you never say where that money will come from. You also never consider the consequences of either trying to raise it in the debt markets or having central banks print it.

The reform of German labour laws that you mention is well known.It has made the rest of Europe a cheap export zone for Germany and kept the German rate of interest for borrowing extremely low.Unfortunately the rest of Europe(including the UK)is paying a high price for Germany's "success."

And this is the whole problem with the Eurozone. The Med countries are in trouble not because of debt but because of their lack of competitiveness with the North. Whilst Germany embarked on supply side reform and deliberately depressed wage growth, the South channeled billions into a property boom. Personally I think this was the fault of the ECB and the architects of the Euro rather than the southern countries themselves. There wasn't much they could do to stop it.

I am at a loss to understand how making it easier to fire people necessarily leads to more jobs being created.Perhaps you can explain?

Imagine you run a business. You don't employ anyone but you turnover £100k and make a profit of £30k. There is potential to expand but you need more staff. Employing someone would cost the business £40k (this includes salary and all additional costs the employer bears). With two staff revenue could potentially increase to £250k, which would give a profit of £75k.

What if that person doesn't work out though? You wouldn't be able to make them redundant and if you fired them you'd inevitably end up in court unless you managed them out of the business over a two or three year period. If the legal action cost you £20k and cost you £30k of revenue in your time dealing with it, you'd end up making a loss. Given that possibility, is it worth hiring the new employee at all?

I know you don't like theories, Barna (except ones you agree with), so perhaps you would like to look at WP/12/64 from the IMF. This study looked at 97 countries and found that increasing flexibility in labour market regulations significantly reduced unemployment outcomes. They found that, "hiring and firing regulations and hiring costs are found to have the strongest effect."

 

[Tangled up in Blue]

Neil F.

I'm reminded of Stanley Baldwin's comment on Lloyd George:"He is a dynamic force.A dynamic force may crush you but it is not necessarily right."

You are most certainly a dynamic force. But you're not necessarily right either.:nope:

I've got a copy of Paul Krugman's End This Depresion Now! and Charles Ferguson's Inside Job in my intray.When I've had time to read them and absorb their contents I'll get back to you.

Meanwhile it should be an interesting weekend with the Greek election result due on Sunday.:winking:

 

[Napster]

Word is that Osborne is going to kick it into the long grass. The Treasury has now decided that the costings are out and the benefits have been greatly overstated.

We shall see

Fair enough.

 

[MK Shrimper]

It must have been a struggle to fit in nearly 27000 posts on Shrimperzone as well......

Times have changed somewhat haven't you noticed? :finger2:

Besides if we add up all your nom-de-plumes you'd probably be beating me.......:whistling:

 

[MK Shrimper]

Word is that Osborne is going to kick it into the long grass. The Treasury has now decided that the costings are out and the benefits have been greatly overstated.

We shall see

Not a chance. WCML is full and restricts any growth. No technological advances (such as in cab signalling) is going to make an ounce of difference.

 

[Reg Martin]

I don't know any economic theories though I see this as an advantage not a handicap and here's my take on things:
The eurozone was created to a achieve a policital goal even though in economic terms (given the disparity of member countries ecomomies on joining) it made no sense
The eurozone is now on course to do wreak the same economic destruction on western europe that communism wrought on eastern europe
Things will not improve until european leaders accept that their political goal is currently unachievable and some, possibly all, countires should be allowed to leave the euro

 

[Tangled up in Blue]

The problem with the Eurozone is that it is simultaneously pursuing fiscal and monetary contraction. Add in the Basel III capital requirements for banks and you get a plunging money supply that leads towards depression.

The UK is different because the modest contractionary fiscal policy is offset by an expansionary monetary policy.

Your error, Barna, is your belief in the magic money tree. You want the nations of Europe to embark on a massive programme of spending but you never say where that money will come from. You also never consider the consequences of either trying to raise it in the debt markets or having central banks print it.




And this is the whole problem with the Eurozone. The Med countries are in trouble not because of debt but because of their lack of competitiveness with the North. Whilst Germany embarked on supply side reform and deliberately depressed wage growth, the South channeled billions into a property boom. Personally I think this was the fault of the ECB and the architects of the Euro rather than the southern countries themselves. There wasn't much they could do to stop it.I

"worst crisis since second world war."
It's not often that I agree wholeheartedly with the Governor of the Bank of England but he's quite right for once.What the EU needs is a modern equivalent of the postwar Marshall plan.Whether that comes from the US,Germany or the ECB(or all three combined or even elsewhere)).If that makes me a believer in "the money tree" then so be it.:winking:

I'm not so sure the UK is as immune from the financial storm as you appear to think.How could it be when approximately 50% of UK exports go directly to Eurozone countries?Even Osborne himself has recently blamed the Eurozone for slowing down Britain's chances of economic recovery and the further tranche of bank loans announced in the UK today would suggest that the UK's own banking crisis is far from over.

 

[Napster]

http://maxgif.com/1VX