Martin Wolf writes in the FT this morning with reference to the Japanese economy:
The real problem is the weakness of private demand. The indicator of that is the enormous private sector financial surpluses – the excess of private savings over private investment. This surplus has oscillated between 5 per cent and 14 per cent of GDP since the mid-1990s.
Japan may be a little extreme but in the world's developed economies as a whole there is a shortage of demand from those with the ability to spend. That is why we have a recessionary environment.
I stress, that does not mean that everyone has everything they want. There are far too many people in all such economies without the ability to spend on what they need. But that is not to deny the apparently consistent phenomenon that many with the means to spend are not doing so. And it makes me wonder if the reality is that this is because there is nothing they now want.
I explored ideas on excess demand for purchased gratification in my book The Courageous State. I will be honest, many have said that the ideas I wrote about in the middle third of that book were tough going and they opted to skip that bit: the first and last thirds could be read without it, but the explanation as to why I reached some conclusions was missed as a result.
In essence my argument was then, and is now, that it is possible to over consume material goods, or services demanding the consumption of material goods in the course of their supply. Over consumption happens whenever we consume a greater share of the world's natural resources than appears appropriate, given the current state of knowledge, if the generations to come are to have the opportunity to live sustainably on this planet.
I argued that over consumption of this sort was driven by advertising, in turn fuelled by a drive to create growing debt levels to increase interest income. And I argued that once we over consumed then our capacity to achieve our potential in our intellectual, emotional and spiritual lives was, inevitably, constrained with real risk to our well-being resulting.
I stress, this is a condition that can afflict some in a society whilst others are constrained by inability to secure enough income, including as a result of the burden of interest or rent payments, both representing transfers and not productive gain.
Now you can accept my theory, or not. But what it suggests is that there may come a point where those able to make the choice to reduce their demand might do so because they perceive that reducing their material well being is actually good for their overall well being. And in the process of doing this they might also reduce their debt. This is, of course, done by saving since debt repayment is exactly the same in economic terms as saving.
I cannot prove that this is the choice being made by an important and influential group of consumers the world over right now, but it appears it may be. What is happening is that people are refusing to consume more. They are saying they have had enough. For thus group advertising is not working. They realise that they will not be better off with more stuff. And they will be better off with less debt. And they are taking the steps to achieve that result.
If that change is not temporary but is instead systemic and permanent then we face a much bigger economic change than most imagine. It implies all the logic of conventional economics might cease to work. And that the logic of more is forever better is wrong. And it might even say there is more to life than consumption. Behaviour since 1945 has not challenged the core assumption of growth being forever good. I think that may be happening.
If so the new economic narrative that we need is much bigger than anyone in any government of a G20 country is willing to think about.
But it is also a lot more exciting.
And the prospect for real change for the majority of people might improve as a result, because one of the arguments I pout forward is that those who realise that consumption cannot solve all needs also realise that more equality can address existential needs in a way that consumption cannot. But, and I stress it, that is just my theory, albeit one that I think based on a reality that might be developing.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Spot on again Richard Skint Consumers don’t spend and those more affluent ones pay down their debts – i.e. they save.
“What is happening is that people are refusing to consume more. They are saying they have had enough.”
Is this reflecting growing job insecurity, zero hours contracts, the lack of a reasonable safety net and additionally in the UK the eventual full privatisation of the NHS? Is this the begining of the end of the neo-liberal dream or nightmare depending on your circumstances?
I think it is the end of that era: yes
Well let us hope that this era is replaced by something better.
While I’m of a generally cheerful nature, and hope that it could be acheived peacefully, I just cannot see it.
It took 2 world wars(my grandfather had to work in both) to liberate ourselves from abjection.
Both of these were an expression of the same desires the EU/NATO monstrosity cannot existentially resist.
A society of manners, the great chain of being, forever.
There is something else to factor in, perhaps. Some people have understood what I will call the IKEA business model (other people use it too): the design life of what is sold is short to ensure that it is cheap. If you have enough money, you don’t buy IKEA wardrobes that will be broken in two to three years: you buy something made of solid wood which will last for twenty or thirty.
The extra upfront cost is more than recouped by not having to keep replacing goods, but this would be deflationary because there would not be demand for new goods all the time.
Yep, planned obsolescence ensures that the supposed cheapness is lost with the rate of replacement.
A supposition — a lot of what used to show up as economic activity is now disappearing off the statistical radar. Over the last twenty odd years there has been tremendous development in digital technologies — in particular communication and in the delivery of information — and not much else in other spheres (where are the jetpacks?). In the digital world a lot can be achieved by relatively small investment and labour forces, and much of what is output is at virtually zero marginal cost. One suspects that this might have a depressing effect on the GDP numbers. (This is implied in Martin Ford’s recent The Rise of the Robots).
Could the same thing happening on the consumption side of the balance? Thirty years ago if you wanted to listen to music you had to a buy a record or CD, to read you had to buy (or borrow) a book or a paper, to interact with friends involved going down the pub and spending money. Now downloads are available free or very cheaply. Social media are the creation of the last ten years. In the past, social life generally required that one had more than one outfit of clothes, few today need more than one Iphone or tablet. The mere fact that so much time appears to be spent on Google, Facebook what have you, means that people feel that there is less time available to do stuff that involves spending money.
I’m not suggesting by this that everything is OK and that we have no need to worry. Potentially the automation of everything we now call work and a move into a zero marginal cost world would be the greatest liberation in human history. However if we fail to get the ‘accounting’ right — i.e. putting money (in one form or another) in people’s hands — we could be headed for a social disaster.
Have you read Paul Mason?
This also has some observations of relevance and value in this debate:
http://www.socialeurope.eu/2016/01/caputalism/
Particularly where he echos Masons point about an absence of new innovation to drive the next wave of productive technologies and replace the jobs, with the necessary wage levels, vital to power the system.. without which the system gradually slows, breaks down, and decays out of existence and efficacy.
By now we should be expecting on stream sight of breakthroughs in materials science technologies merging 3D printing with nano fabrication, in much the same way communications technology started merging with computing technology in the late 80’s/ early 90’s, giving us “machines” of the type Mason alludes to that Mark predicted.
But it’s like a desert out there at present and Misik is spot on here to imply that we are witnessing a classic systems failure in which current economic orthodoxy has no answers yet insists on being the only game in town which in effect speeds up the negative feedback loops making things drastically worse. The only question at this point is whether or not there is any deliberate design in what is taking place with a view to using the situation to reduce those considered surplus to requirements?
The risks developing, rapidly, are staggering
John Stuart Mill saw it coming.
In response to Richard, Dave Hansell, Chris Smith (and other wise contributors) I offer the following as deliberate over-simplification:
The current shortfall in aggregate demand can (to some extent) be redressed by reducing inequality and increasing the wage share because the poor and average earners have a higher propensity to consume. This was discussed in a TUC Touchstone pamphlet that was raised in this blog (can’t remember when).
https://www.tuc.org.uk/sites/default/files/tucfiles/How%20to%20Boost%20the%20Wage%20Share.pdf
Increasing the wage share will not entirely solve the problem as the “Rise of the Robots” has the potential to do most us of out of a job at any realistic level of aggregate demand. Potentially, the robot owners will be kicking an own goal as they discover that virtually no one can afford to buy their stuff.
So, what is realistic demand? Our willingness to consume is arguably limited and a finite planet cannot only accommodate a limited growth in consumption. In productivity terms, It is not labour and capital but land and natural resources that have become the limiting factors of production (and consumption). Beyond that there is an enormous potential problem for allocating employment and distributing income. In the low employment, robot world a market system can’t do it alone. If it tries to we will find that technology and productivity growth will not improve our quality of life they will, paradoxically, degrade it.
Chris Smith rightly observes that many digital advances are essentially qualitative (not quantitative)and therefore not measured in GDP. Conversely we might also note that recent declines environmental quality, housing affordability (etc.) have also escaped effective measurement in per-capita growth and real income terms. Does all this mean that economics as we know it is becoming irrelevant – yes,. It also signals the inevitable end of growth and growth dependent models as well as the emergence of a steady or ‘stationary’ state.
In his own way, John Stuart Mill foresaw these questions 167 years ago in his chapter on the ‘The Stationary State’. It is quite short in length but very good. If you haven’t already read this I would beg you to do so.
http://www.econlib.org/library/Mill/mlP61.html
Will do later
A flight home tonight, maybe
Thanks
Marco Fante: Mill makes it very clear (thanks for the reference):
“But the best state for human nature is that in which, while no one is poor, no one desires to be richer, nor has any reason to fear being thrust back by the efforts of others to push themselves forward.”
I think this links with William Morris’ views that late 19th Century Industrial development was crushing human needs for cultural life that could create meaning-this was followed up in Germany by Rudolf Steiner and thinkers like Silvio Gesell.
On consumption of information, music etc. over the internet we need to be cautious in seeing this as ‘free’. We might not be asked to pay money for these services but we are paying by providing our personal data, which are highly valuable to the big IT companies. This is recognised in their high stock market valuations, even though these transactions do not appear in GDP.
(As it happens, I was listening to some ‘free’ jazz while typing this and it’s just cut into an advertisement for Experian credit scoring, which I think makes my point for me.)
🙂
Richard – In my view, this is one of your MOST important blogs and shows the link between economics and psychology (which people like Keynes understood). I think you are on to something fundamental here and needs further explanation and research- I have been thinking about this for sometime and, in my own terms refer to it as:
‘THE GOODS AREN’T DELIVERING THE GOODS’ and that we might have reached a point where the purchase of ‘bling’ can no longer have conspicuous consumption value. Of course a lot of ‘bling’ as it becomes cheaper loses it’s ‘Veblen effect’ and combined with debt (rent/credit card) the demand for that is reducing.
As you say, it’s difficult to show is as private debt factors might be the main cause rather than a ‘psychological’ change towards the perception of consumption and well behind but my hunch (wish being father of the thought?) is that you might well be hitting the nail on the head with a macro-psychological insight. If this is the case then we are on the cusp of a significant cultural change. Never the less we witness the opposing forces working ever harder to pretend the rules of the game are the same and can expect this to continue.
I’ve often thought that supply/demand curves swinging the other way would be a good sign!
A caveat is needed here: if this change is happening at some subliminal level then people will need cultural institutions to change to accommodate that which will substitute the ‘conspicuous consumption’-this can only be done by a renaissance of educational/cultural facilities/strengthening of communities and an increase in collegiate activity -I suspect the transition will be messy.
We are on a wavelength
I fear it will be messy
The rentier institutions will fight back hard
Good comment Simon. I especially like the last paragraph. I recommend that you go to my comment above and click on the link to John Stuart Mill. I am fairly sure that you will enjoy it.
Robots can’t buy cars (as Henry Ford wisely realised) and neither can people who have little or no surplus money after the essentials are paid (as bankers realised when they pushed credit as the alternative to encouraging businesses to pay higher wages).
But when people have been stretched to their limits and now have to beg, borrow or steal just to stand still – it is not surprising that they have become satiated with the idea of ever more consumption.
If idle private savings are not put to productive uses to generate well paid jobs in the developed countries, then those idle savings should be taxed heavily or otherwise appropriated by the states that can put it to good use for the good of humanity and the planet.
“If idle private savings are not put to productive uses to generate well paid jobs in the developed countries, then those idle savings should be taxed heavily or otherwise appropriated by the states that can put it to good use for the good of humanity and the planet.”
They should for fairness, but I should note it is not necessary for our currency issuing government to tax savings.
No kne needs savings to create investment
That, I am afraid, is myth
Just wonderful Mr Murphy, you always seem to be completely succinct. Because I am old, the changes in my adult life are immense, obviously, a lot of it simply wonderfully helpful, though it has left through deliberate ideology a massive so called acceptable large section of people, especially the young floundering. Has technology caused all this. Higher education, not affordable, housing not affordable, these things should be a right. Class still rules, not just in this country and not just royals but in a world where firmly entrenched powerful selfish ideas flourish. But the change I hope, will be through a peaceful and just army of individuals, recognising differences. Before my rage dims, I should love to see at least a huge leg up for our beautiful worthy young. Give them everything they deserve. Off my soapbox now.
It would be great if that was possible
I’m sure you’re right about the psychology, but as I think you’ve noted elsewhere, this also comes at a time when a lot of consumer devices have also reached a level where upgrading makes little difference and that very good performance is available to most.
Even ‘budget’ TVs, phones, laptops, tablets or whatever, are now available at resolutions that humans struggle to see the pixels so what’s the point in a new one?
3D, 4K etc haven’t made anywhere near the impact I’m sure the manufacturers would have liked — despite the advertising budgets — and I’m quite comfortable with that – and as you say, it could be exciting if this leads to imaginative use of the resources that would otherwise have gone on them.
All of this is, of course, why the neoliberals are so keen to monetise our essentials.
Data may be all that’s made for some time
And maybe pharma
AdrianD
You’ve touched on something important here. Much of it comes under the heading of Planned Obsolescence – The producers of durable goods overcome limited demand through the rate of replacement – getting us to buy the same stuff repeatedly and sooner than we should do.
In this case it is Technical Obsolescence. For example getting people to replace their existing music collection by changing the dominant format – or coaxing or forcing us into the purchase of superfluous and unnecessary ‘upgrades’. Sometimes a technological advance will be spread out over several upgrades (Postponed Obsolescence).
From the consumer’s perspective, the net result is that these practices destroy value and decrease real incomes.
Don’t overlook to in-built design faults, such as Ipad/phone screens splitting or cracking for no apparent reason or battery chargers for electric bikes failing after six months or so. Two examples of regular occurrences that require expensive (comparatively and actually) parts replacements. (Typed on an ageing Windows XP notepad that should have been retired by now.)
XP worked
Though my XP machine did finally fail in December
I wonder what the gap would be between ‘planned obsolescence and ‘natural obsolescence’ ( the obsolescence that would occur if maximum durability was ensured). Goods that have become cheaper in response to stagnant wages create massive externalities that are diametrically opposed to the needs of ecological realities.
Only a return to solving problems in a collegiate manner can deal with this- running businesses on a co-operative basis could help-but the transition from where we are now to this feels light years away!
I for one enjoyed the middle section of The Courageous State because you really went to town on some fundamental ideas about the economics of capitalism at the consumer/individual level.
It made me think about how one moment we can watch a TV advert about the latest car (always of course driven on a road devoid of other cars) which insinuates that there are people who can afford to buy them (or – more realistically – have enough income to qualify for the finance) and then deal with the concept of the growth of food banks – where recipients of that service are obviously people who cannot afford the very basics and need to get free food.
The highest level of need is those who need food banks (food is essential); yet more effort and expense (and lies) goes into the selling of the NEW car (arguably one may not need a new car every year or one to live at all perhaps?).
It constitutes a complete misallocation of resources that pulls the problem solving and potential equality-making power of the economy in the wrong direction – towards satiating the needs of those who have enough over those who haven’t got as much or very little. An economy set up for those with big wallets.
It’s as though the economy is being dominated by ‘big ticket’ items and not everyday transactions for essentials. An economy that sells dreams rather than the ability to live at all. Bizarre.
I agree with your comment about the rentier class: until there are more realistic expectations from investors or the investment and return cycle is changed to a more mutually beneficial model it is likely that this mismatch of allocation towards things that we desire rather than what we need will continue. Such a change will need to be legal since I understand that investor welfare comes before any other – including actual customers. And the planet itself. Changes also need to be made to how we pay for pensions since I understand that workers get laid off or have their wages reduced in order for those cash savings to go into sustaining the value of pensions. I mean – is that be equitable?
We would also need to look at how we measure worker output – going beyond actual goods/services produced per worker to also include the fact that employing people even during demand downturns because of employment/wages/paying taxes etc., is good for people and society as a whole.
Are people becoming dissatisfied with consumption? Here I am not too sure. I know a lot of people paying off credit card debt or saving for things to avoid some of the stupid interest rates being advertised and there are warnings that CC debt is very high. I awoke after Christmas to find my neighbour had bought new car – his first one in 11 years.
Having said that we also know that more and more people are unhappy with their lives related perhaps to comparing themselves unfavourably with others or feeling that they cannot keep up as they feel under pressure to have the latest gizmo or car. And of course there is pressure to be on the property ladder. Yet incomes are declining along with working conditions and the quality of jobs. Some will feel this more than others. Advertising is a key source of unhappiness – as the father of a 12 year old girl, my daughter is already worrying that she does not meet whatever the ideal body politic is now and is really down on her self for not conforming to what she sees on TV and online.
What we may also be seeing is what others here allude to: that even those of us who have done well or like myself have just managed to get by at all since 2010 live in fear that it could be us next. That we will simply not be able to consume in the future and we are preparing for that by paying off debt or saving for what we want as quickly as possible to make a living without a regular wage or lower income more sustainable. My family are saving for a new kitchen at home as I write because the current one is life expired. When we have paid for it, it will be ours – unlike the rest of our house which will be essentially the bank’s property for another 6 years!
George Osbourne has certainly not made many of us feel confident – his last well reported ‘assessment’ was doom and gloom again. He is good at creating fear in order to manufacture consent to cut the State which (lying of course) he says is bloated; yet he may also be causing collateral damage in the private economy by putting people off spending.
In conclusion all of these factors (and more) could be at play. After all we are not neo-liberals here, over-simplifying complex issues in order to pretend to understand the world. So the questions you raise are – as I said – fundamental and I’d heartily recommend we keep returning to them in your blog.
Thank you
That was encouraging
And I will keep at the theme
Pilgrim SR,
With regard to your observation about:
“An economy set up for those with big wallets. It’s as though the economy is being dominated by ‘big ticket’ items and not everyday transactions for essentials. An economy that sells dreams rather than the ability to live at all”.
It may interest you to know that Citibank economists said something very similar in a secret but subsequently leaked company document and their word for this type of economy is “Plutonomy”
The reference is on page 24 of this TUC document:
https://www.tuc.org.uk/sites/default/files/tucfiles/How%20to%20Boost%20the%20Wage%20Share.pdf
Pages 22-26 will probably interest you generally. In fact, the whole thing is good if you have time.
Cheers.
Martin Wolf is one of the few journalists who, nearly, gets how a fiat currency economy works. I was originally directed to this web site on the basis that it understood the basics of Modern Monterey Theory (MMT); but it doesn’t.
I can see no understanding of what a taxation system is meant to achieve. Particularly the diversion of goods and services to “public” consumption, rather than everything being consumed by “private” sector agents.
Prof Randall Wray says “tax bads not goods”. If you want your people to stop smoking, you tax tobacco. The object being to stop tobacco smoking NOT to raise revenue from tobacco smokers. If the tax raises nothing it has been a total success.
Of the four basic taxes, that is, tax on products; tax on production of products; taxes on income and taxes on wealth, taxes on the production of products is the one that is basically daft. That is, Corporation Tax (CT) and Business Rates. CT is one that this website appears to be obsessed with. The simple answer, do away with it.
Those of you that have a business in France for instance, will know that it is much cheaper to run business premises there, than it is in the UK. If you make any money, then you pay taxes. Corporation Tax raises a mere £45 billion, Business Rates £28 billion in the UK; out of a £682 billion tax grab by the UK government. The affect of applying these fixed rate taxes to a new business venture, in its first year of trading, is condemning it to fail.
Ah, the great MMT misunderstanding of tax
I think I pretty much get MMT
I just don’t buy the attached social values
Like not taxing capital
But taxing ordinary people
And not worrying about redistribution
And the fact that no business failed for paying tax on profit
I am post-MMT: the understnding of money with the understanding of tax needed to create a credible political solution
I’ve always understood from reading profs. Bill Mitchell and L. Randall Wray that MMT is apolitcial and amoral. It simply (lol!) explains how a post-gold standard, fiat monetary / financial system really works. Unless you understand how it functions you can’t design and run a fully effective economic policy. It’s a bit like a pilot trying to fly a jet if his only experience is with a turbo-prop (not the best analogy but hopefully you get my drift). Then once you fully understand the basic principles it’s up to you how you use the control system to optimise its potential and achieve specific socio-political goals. Maybe I’m wrong or have misleadingly over-simplified a complex topic? But maybe, also, your tax ideas are not so incompatible with MMT basics. Just asking!
I do not see any economic system as apolitical or amoral
That is in fact an impossibility
And as a matter of fact o cannot see how MMT can be described as such
I also happen to think it understands why we tax correctly tl a fair degree bug utterly misses the social consequence of it in a great many ways
Oops! Apologies. Seems I’m wrong about MMT – or at least Prof. Wray. A selected quote from him: “I can’t see the point in doing economics, or any social science, without values. I think the financial system is there to serve a public purpose. If it was not then there should be absolutely no government assistance and backup to the financial system. But we recognize that the financial system has to serve a public purpose and that is why we have a variety of backstops for the financial system ……” http://www.economonitor.com/lrwray/2014/04/23/mmt-does-do-policy).
There is a hell of a lot that I like about MMT but it can go astray at times. From what I can gather it would appear that some its adherents have responded to fundamentalist classical orthodoxy with a fundamentalist doctrine of their own (they’ve fallen into the same trap).
There is something of a tendency to righteousness and to rely on theory and theory alone, and to reduce all economic issues to monetary issues.
When they are good they are very, very good. There are other times when you’d be perfectly happy if you never heard about sectoral balances again.
I recognise those sentiments
yes-some convergence is required before Keynes’ hope can be realised:
“The day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems – the problems of life and of human relations, of creation and behaviour and religion.”
Hopefully we won’t have to wait for scorched earth.
Think many of those who are able have given up buying ‘stuff’ because they don’t need it. But isn’t this why National Trust membership is the highest ever and the high street itself has a million coffee shops?
Food and drink is of course a market of the literal consumer, which is intensely competitive, and once had only has population increase to boost its sales but now there are changes in channel and style, which allows different dissections of the market – and the rise and fall of Tesco and others. But it is basically a pretty reliable way of making a return. Indeed the Tesco problem is basically too large a foray into non food – ie ‘stuff’! Which problem for the UK’s biggest retailer and second biggest employer, would tend to confirm a structural change in the economy.
But of course the shops that aren’t coffee are charity and I wonder if charity shops are included in GDP statistics? They’re a good method of recycling, but they are getting more and more professional and, anecdotally, I noticed kitchen implements donated by Tesco – still with their description tags attached – being sold for more than the virtually identical new item by Wilkinson round the corner! If this charity shop turnover isn’t covered (do I suspect correctly?) then it’s a major hole..
Charityu shop sales will be in GDP
There is plenty of demand for housing, but it is not effective demand because of the appropriation of the wealth produced by labour by the owners of land and capital.
However, having just read Wolf’s piece, that is clearly not the problem in Japan. With a declining population that is understandable.
A degree of inequality is essential to drive ambition and aspiration otherwise you are stuck with communist-like stagnation. But if you have too much inequality you have stagnant finance lodged in asset bubbles alongside a stagnant economy; which is where we are now!
When talking about inequality, it is important to define what inequality you mean. Inequality in income, wealth, opportunity, health, housing, cars or something else?
The big issue of inequality is that of wealth, be it inherited or amassed during a lifetime. Concentrated wealth is always a destructive and divisive force. It is what lies at the heart of power and therefore is fought over constantly by those who seek power.
Concentrated wealth is what capitalism (or the current form of it) produces, it is the inevitable result as it is its primary goal. To achieve concentrated wealth a capitalist must ensure that almost everyone else in society has little or no wealth. It cannot work any other way, unless the rules of wealth ownership were to be changed.
To address almost all of the problems the world faces today, the question of the ownership of wealth is fundamental in my opinion. Piketty understands this, as do most people who understand finance and economics. The general public rarely talk about it, politicians and the media hate to discuss it, but the discussion has to be had.
If there was ever a good subject for a referendum it would be – How much wealth inequality should be allowed in our society? a) A little b) A lot
Now I wonder what the British public would say?
“A degree of inequality is essential to drive ambition and aspiration”-I’m not sure why we take this sort of apparent ‘truism’ for granted. Aspiration takes many forms. The real question is will people do certain types of jobs (manufacture loo rolls; go down sewers), that is the jobs that seem unappealing yet are necessary for all of us.
In the Mill book that marco (above) referred us to he writes:
“I confess I am not charmed with the ideal of life held out by those who think that the normal state of human beings is that of struggling to get on; that the trampling, crushing, elbowing, and treading on each other’s heels, which form the existing type of social life, are the most desirable lot of human kind, or anything but the disagreeable symptoms of one of the phases of industrial progress. “
@Keith
Inequality of wealth boils down to ownership of the factors of production: land, labour and capital (which is derived from land and labour). People in the past accumulated riches from owning land and labour (slavery). Nowadays it is generally considered that it’s the ownership of (financial) capital which is most important. But landownership is still hugely concentrated (see ‘Who Owns Britain?’)and Piketty unfortunately conflates land and capital, as do most economists. The relevance here is that land ownership can easily be fixed by Land Value Taxation. However, I do not agree with ‘georgists’ who consider that LVT would sort the ownership of capital problem as well. There has been far too much accumulation for that to happen. Which is why I would be very happy with a self declaratory/assessment wealth tax as propounded by Greg Philo.
This is not sound reasoning when considered on a global basis. Trade policies of Germany, China and others have created massive amounts of capacity and savings, pushed on to the developed world. Nothing of consequence changes until these policies and the excess savings are reversed. The gross under-consumption by historical standards would reverse.
No, things do change
Credit bubbles burst
That’s the risk
And the policy will not change ebfore they do
I just thought I’d add that there is plenty of demand (and always will be) for health provision, education, energy and, as MayP says, the essential of food. Presumably the ‘certainty of demand’ is why there is a determination to privatise (or keep private)… particularly if the state acts as the payer. Max Keiser suggested that these enterprises are perceived as safe hedges against more speculative ventures.
Interesting, and possibly hopeful if it reflects a realisation by the rich and comfortably off that they’re already above the happiness/well-being threshold, and possibly that for the affluent, less means greener.
But I wonder if many are older people saving in order to provide help to their much less fortunate adult children who have to negotiate student debts, precarious work and silly house prices.
Interesting idea
I would add to this that many middle aged or older people are reluctant to spend from a fear of financial insecurity. Defined benefit pensions are rapidly vanishing and returns on alternatives are low and uncertain. The prospect of having to pay care costs that could not just burn up life savings but also force the sale of the family home leaving little to pass on to one’s children looms large for many.
The Chinese authorities have recognised that if they are to shift demand from exports and investment towards more domestic consumption they will need to improve health and social security provision. People are reluctant to take risks or spend unless they feel secure.
I agree with all tgat
Without a sufficiently sized state growth suffers
Couldn’t it be just that people are finding it harder and harder to spend on their wants let alone their basic needs because of years of wage stagnation and the currently bad job scene? And they are also probably paying off their private household debts which if I remember correctly, doesn’t count towards GDP?
Paying debt down does not count towards GDP
But it does deny resources that might sustain it
Interesting that France is also moving towards a potential Universal Basic Income scheme. This seems to be a growing trend, possibly in recognition of the changing structure of work and increasing job insecurity for many people at all levels in society.
http://www.independent.co.uk/news/world/politics/french-national-assembly-to-vote-on-universal-basic-income-feasibility-study-a6810231.html
It is interesting how the article refers to UBI as being a replacement of benefits-in the UK this would not be possible because of 35 years of housing bubbles as I think Richard acknowledges in his book (Joy of Tax) ..
The article also raise the issue of USB balancing fairly with work, in other words would USB create a higher level of the disutility of work? In a society like ours with stagnant wages and zero hours contract it could and perhaps it should? The USB would then act as the lower bound for people accepting employment.
This begs many questions about work and social value.