Wednesday, 26 January 2011

Real Wages, After Tax.

Politicians need to be measured on their performance. Typically Labour ones like to be measured by how much they spend (they use the word "investment") on public services, because they think the NHS is a proxy for morality. (The established church concurs). Both Tory and Labour ones like to be measured by GDP growth. Tories like tax rates. Liberal Democrats are motivated mainly by facial hair and sandals.

All like to be measured by unemployment, which is reasonable. But the cause/effect loop is much, much slower than media and politicians seem to believe. A government's action has it's effect 12-18 months into the future - unemployment is steady and high, and it's still labour's fault and will be for a while, in so far as the effects of Government action can be separated from the vastly larger effects of the business cycle. Most of the fall in unemployment expected in 2011 will not be down to George Osborne's budget, but to the brute effects of the business cycle.

Most of these measures of politicians' performance are deeply flawed because they measure things that don't, in themselves matter, or are only marginally affected by politicians. GDP is only part of what makes people feel richer. In addition to employment, what actually matters to people is disposable income after tax and housing costs (so long as the housing costs aren't reduced by house prices going down). On this measure, Labour is one of the worst governments in history. Real wages (adjusted for inflation) are lower than they were in 2005, and the tax-burden is higher. Housing costs may have dropped for the 20% of households on floating rate mortgages, but remain stubbornly high for everyone else. Only in the great depression did real income stagnate for so long. When you take the effects of Labour's lunatic rise in the tax burden, people's disposable incomes have fallen steadily since 2005 and were stagnant even before the crash. That is the Labour legacy.

How does this compare with our competitors?


Well if you look at 2000-2008, the UK under Labour was towards the bottom of the OECD's table. Of the major economies only Germany (whom Labour now exhort us to emulate - despite their lamentable record on youth unemployment and economic growth) and Italy fared worse. Britain's Post-tax disposable household income rose only 14% in those 8 years, and 2008-2010 were much, much worse. Labour's economic record, as felt by the population as opposed to that reported by the press, was dire. I can't find the data, but if the Bank of England Governor reckons the situation's got worse since 2008, then who am I to argue. Gordon Brown's lunatic tax-binge, no private sector growth, all helped cause it. A devaluation of the pound may help keep exports flowing out, but the people pay for it in much higher fuel and food costs - over and above the rise in their dollar price on world markets. Once again, the people pay for the politician's focus on GDP. If Mervyn King is right, the result of 13 years of Labour is almost NO improvement in real wages after tax. None, in 13 years.

This is why the people are sullen and angry - they were told that a boom was happening prior to 2008, but because the flawed measure GDP was being used, they couldn't work out why the boom wasn't happening to THEM as they had to struggle harder and harder to make ends meet. The blame has been successfully laid at the door of the banks because of the credit crunch, but a lot of the leg work in screwing the economy was done by Labour prior to the crash in stagnating private sector employment and increasing the tax-burden. There was no Net Growth in private sector employment under labour's watch, and despite the "booming" economy youth unemployment rose. I blame the minimum wage for pricing the young out of the labour market for starter jobs, which have been taken by immigrants instead. But that opinion marks me out as a savage right-wing nut-job who would bring back slavery, because the left tell me all the time that the minimum wage has had NO effect on unemployment.

On top of a rising tax-burden and the pricing of young unskilled people out of jobs, the burdens of council snoopers, intrusive government and ever poorer services meant the people who paid for the whole shooting-match couldn't see the benefits of their sacrifice either. Labour forgot that tax is money taken from the people who earned it, in final analysis, by the threat of violence. Pay or the police will eventually kick down your door and take you to gaol. Politicians have to deliver something to the people who pay it, instead of feather-bedding a client state of ever more generously funded welfare claimants and public sector prod-noses. These prod-noses take resources FROM the public services - money which could be spent mending roads or supplying a heart-transplant is instead deployed on a Labour-voting fuck wit with a clip-board saying "no" to people. Would you rather have your pot-holed road re-surfaced occasionally, or a Diversity outreach co-ordinator for one year? Me too.

Now, with the deficit running at 10% of GDP as a result of over-generous benefits and a vast client state, the Government is borrowing £1 in every £4 it spends. Spending cuts (making services EVEN WORSE, as bureaucrats don't cut their own preferring to slash the "front-line") and tax-rises are set to remove even more of people's money. Furthermore rampant inflation, not captured by Gordon Brown's fudged CPI measure, serves to further reduce people's standards of living. The sins of a decade of Labour's criminal mismanagement of the economy are going to be felt in materially lower standards of living for the next couple of years. All of the rises in living standards under the early years of Labour (themselves nothing to crow about) are going to be proved to be illusory in the next few years.

Labour's solution in office: Pay people in the public sector to do unnecessary jobs. Their "growth policy" opposition: Continue to pay people to do unnecessary jobs. Whilst it MAY support GDP numbers in the short term, because of the debt burden it creates merely delayed the day of reckoning with reality. However much Labour bleat, the cuts are Labour cuts, they are the result of a decade of criminally wasteful overspend across the whole public sector. We might as well have been paying men to dig holes and fill them in again. In fact, that might have been better, because those men would not be getting in the way of the productive elements of society by standing there with a clip-board saying "you don't want to do it like that.... "

In truth, Labour admit that the deficit needs to be cut. In private, they will agree that 2011 was the year that LABOUR CUTS would have started. The Tories may be going a little further and a little faster, but CUTS! are the only show in town. However Labour choose to present it, they know it's their fault. And deep down, so to the British people.

What is necessary to prevent this insanity recurring is a measure of Government performance which takes into account the tax-burden as well as growth. That takes into account the benefits of state spending but reflects the actual prosperity of the broad mass of the British population: Disposable income after tax which should be compared to disposable income after tax and healthcare costs in other countries. If people get richer, the Government should be praised, if they get poorer, the Government should be punished. Steadily rising income makes people happy. Having to struggle makes them sad. This simple economic measure, if more widely reported than the illusory GDP would render moot Cameron's Gross National Happiness. It would reveal the lie at the heart of the Brownite plan of the Noughties to shovel ever more state spending at unreformed public services, and instead reward Governments for tax-cuts.

My guess is that cutting taxes (starting with corporation tax) and slashing spending whilst simplifying the welfare state and marketising both health and education in the pursuit of economies in the public services, is exactly the medicine the economy needs to improve household disposable income after tax. I don't say this because I am a Tory. I support the Tories because I think they have the right plan.



6 comments:

marksany said...

I have often thought politicians should be made to play Deming's funnel. But to do it with a 18 month lag would be interesting.

Mr Ecks said...

Spending to 2015 is going up. The "cuts" are a joke. Your plastic-faced hero is going to spend public money to ensure that infant school kids get lessons promoting homosexuality.The lib=lab=con party aren't going to make any cuts beyond the cosmetic EVER if they can get away with it, because such cuts would also cut the power they want to wield against us. Soon or later reality will make the cuts for them, but trying to pretend cammy's shower have a clue, let alone any real intent to save this nation is just silly.

cuffleyburgers said...

that's only partially correct, because it would still imply to the thoughtless that the government is responsible for wealth and happiness, whereas its real role is to get the fuck out of the way of the productive economy and do as little damage as possible.

So yes in principle it is a better measure than the current ones, and in the current political climate it might even be the best or least bad available, and applied hard, would fuck Labour, an outcome greatly to be desired.

Anonymous said...

Well, I worked out a few years ago what taxes I was paying at the end of Labours goverment.

On 19k I was paying 40% tax.

FORTY EFFING PERCENT!

(This is when you include income tax, Nat insurance, vat (remember to check all the sources of taxable vat), fuel tax etc.)

I didnt vote tory either, because the current tory party isnt any better.

Anonymous said...

"We might as well have been paying men to dig holes and fill them in again. In fact, that might have been better, because those men would not be getting in the way of the productive elements of society by standing there with a clip-board saying "you don't want to do it like that.... "

Ahh but at the Mersey Tunnels they have both and a fine set up it has been for the last 30 odd years.

startledcod said...

It took me quite some time to explain to an unemployed youth working in my garden (during his unpaid lunch break) why the minimum wage increased youth unemployment.

It finally dawned that in the same way he was prepared to work occasionally for me at below the minimum rate he might also be prepared to work for a proper employer. He appreciated that although the job that he could not get because it hadn't been created was properly remunerated it was of no benefit to the unemployed like him because it was illusory.

It all ended happily for him. He did lots and lots of below minimum wage part-time work and saved and saved and is now smoking drugs on a beach in Thailand so doesn't even register as an unemployed youth.

That's a free labour market for yer.

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