The squeezed middle

Having spent three years droning on about the flat lining economy, when growth returned this summer the Labour party had to switch horses, which they have done most successfully.  The focus is now on living standards (which incidentally dropped 7.5% in the last years of the labour government).  The question is, who is really feeling the pinch and what should be done about it?

Let Them Eat Cake  - Posted on 2nd May 2014 The key to good economics is timing, Adam Smith was banging on about pins when pins where the last word in precision technology, Keynes was lucky to be at the height of his powers when the world needed him most and Milton Friedman took his bow when everyone had gotten bored of trying to make Keynes ‘General Theory' work.  Enter stage right Thomas Piketty, who is also lucky to be making his pronouncements on inequality as a new gilded age dawns bright.  Incidentally, one of the last gilded ages led to Equality, Fraternity and Liberty by way of the Guillotine so M. Piketty, a Frenchman, should be careful what he wishes for. ----------------------------- Float My Boat  - Posted on 10th March 2014 Five years after the Great Recession there is a sense that the world’s economy no longer adheres to normal rules, the tide is moving in a mysterious way.  In a recession wages are meant to be sticky and as a result of this unemployment rises sharply as workesr price themselves out of the market.  Following a recession, typically, productivity and wages pick-up quickly and eventually unemployment should fall.  This time around rates of employment have remained quite high through the recession, wages and earnings have fallen sharply and productivity has not bounced back; so why? ----------------------------------------- A stick mess for Economist - Posted on 14th February 2014 Real earnings have fallen by 7% or more over the last 5 years in the UK and employment levels have remained relatively high since the Great Recession .  This is not meant to happen - wages are meant to be sticky.  So having fallen will they surprise us all again by rising quickly? --------------------------------- Living in the past posted on 23rd September 2013 The back room boys in the Labour Party have been doing their sums and have worked out that although the economy in recovering nicely (no need for plan B now) there is little time for this to feed through to better living standards. These of course are the same people who swore that Plan A – a mix of Fiscal austerity and loose monetary conditions - would never work,  so their sums and assumption should be scrutinised carefully.  Are Labour right to focus on living standards?

Living it up - Shedding a light on living standards  Posted on 24th September 2013 Our demand shortfall has played its part in creating the “flatlining” economy that Ed Balls was so fond of. The main reason for this lack of demand has been the squeeze on private sector pay and living standards, this squeeze has been vicious and this is because disposable income is “marginal”.  A wage earner on average income of £37,000 has about £15,000 of disposable income a year after paying for taxes, housing costs, utilities and transport.  Since 2008 pay increases have been less than 2% a year and prices have increased at 3.5%.  Five years of real earnings decline at 1.5% annually means a reduction of £2,600 or a whopping 17% of disposable income. Why living standards may recover more quickly than everyone thinks?

The Great British Bail-in posted on 15th November In an act of extreme foolishness and cruelty the Government decided that they would raise the money required for austerity from one source and one source alone – the British middle class.  Generally speaking the poor (on benefits or poorly paid) have been protected with inflation linked increases to benefit and tax credits.  At the other end the rich and owners of capital have done pretty well as corporation taxes have been eased.   Amazingly the sacrifices made will the minimum of fuss and complaint – people have just got on with it.  There have been no petrol bombs no manning of barricades just the stoic suffering in silence! Who’s living standards have suffered the most and why?

Return of the robber barons Posted on 5th November Apart for the rising share that the wealthy take there is a wider problem with the overall share labour takes of national income.  For decades labour could rely on a pretty static share of all national income in the developed world this equated to about 70% of GPD (that is to say 70% of GDP was paid directly to labour working in the economy).  For many years this share was relatively static but over the last 20 years things have been changing, and it’s not been good news for the workers!  The Organisation for Economic Co-operation and Development (OECD), reckons that labour has captured just 62% of all income in the 2000s, down from over 66% in the early 1990s and 70% in the 1980s. Even among wage-earners the rich have done much better than the rest:  the share of income earned by the top 1% of wage earners has increased since the 1990s as the overall labour share has fallen.  The rich get richer and the rest of us get poorer, have we stepped back into dark ages

Where have all the bubbles gone posted on 25th November The main problem here is that asset prices are stuck at levels that make rapid growth unlikely, the Dow has just breached 16,000 for the first time. The world has become capital rich and income poor. This imbalance in the relationship between those who own assets and those that rely on income from these over-priced assets is killing us. The benign environment that exists for the owners of capital is driven by misguided policy making that reduces taxes on profits and allows owners to avoid their basic tax obligations.  Business and government are jointly responsible for the squeeze on the middle classes