I see the coalition is once again struggling to keep down the size of the deficit and is missing their targets for this year. It is down, of course, from the worrying levels of 2010.
But my colleague James Meadway has written a very interesting blog for the New Economics Foundation which suggests that, although the government borrowing total is down, the rest of the economy is still absolutely constipated with debt.
The latest debt statistics show that the average household debt including mortgages is £54,700. Outstanding consumer credit debt is up another £5 billion on last year.
James Meadway says that the total liabilities of the UK financial sector is now over 1,300 per cent of GDP.
Why have we created the kind of economy that seems to require money to be lent as much as it requires oil to be extracted form the ground?
Debt is a problem in the private sector because of the activities of the corporate raiders - if your balance sheet is free of debt, then you are a takeover target. The struggling consumer sector, especially when it comes to electronic equipment - rather like the airline industry - can't survive without pumping vast amounts of debt, either into the consumers or into the airlines.
Was there a moment when everything went wrong? A moment when we plucked the apple marked debt from the tree of economic knowledge?
Well, not really. But I've always wondered at the possibly mythical moment when a young Nigel Lawson persuaded the debt-phobic Margaret Thatcher that a society of homeowners could only be created by encouraging people into debt.
It was true - for a time. But that fatal conversation, which seems to have happened at the Conservative Party conference in October 1979, led to everything else. See the full story in my book Broke.
But there is another reason. Creating debt is the way that banks create most of our money in circulation. It is controversial, archaic and definitely not fit for purpose. In fact, 60 per cent of the money in circulation started life as mortgages.
It is a sobering thought that, without the house price boom, we would have so little money that life would grind slowly to a halt.
It is, in short, a ridiculous way for a modern economy to organise itself. High time somebody put forward proposals for reform. The next question is why we don't get any of these proposals...
The latest debt statistics show that the average household debt including mortgages is £54,700. Outstanding consumer credit debt is up another £5 billion on last year.
James Meadway says that the total liabilities of the UK financial sector is now over 1,300 per cent of GDP.
Why have we created the kind of economy that seems to require money to be lent as much as it requires oil to be extracted form the ground?
Debt is a problem in the private sector because of the activities of the corporate raiders - if your balance sheet is free of debt, then you are a takeover target. The struggling consumer sector, especially when it comes to electronic equipment - rather like the airline industry - can't survive without pumping vast amounts of debt, either into the consumers or into the airlines.
Was there a moment when everything went wrong? A moment when we plucked the apple marked debt from the tree of economic knowledge?
Well, not really. But I've always wondered at the possibly mythical moment when a young Nigel Lawson persuaded the debt-phobic Margaret Thatcher that a society of homeowners could only be created by encouraging people into debt.
It was true - for a time. But that fatal conversation, which seems to have happened at the Conservative Party conference in October 1979, led to everything else. See the full story in my book Broke.
But there is another reason. Creating debt is the way that banks create most of our money in circulation. It is controversial, archaic and definitely not fit for purpose. In fact, 60 per cent of the money in circulation started life as mortgages.
It is a sobering thought that, without the house price boom, we would have so little money that life would grind slowly to a halt.
It is, in short, a ridiculous way for a modern economy to organise itself. High time somebody put forward proposals for reform. The next question is why we don't get any of these proposals...
«a young Nigel Lawson persuaded the debt-phobic Margaret Thatcher that a society of homeowners could only be created by encouraging people into debt.»
ReplyDeleteThere was a paper by one of the conservative think thanks published in the late 70s that showed that even *given the same level of income and education and class* voters were far more likely to vote to the right if:
* They owned and used a car rather than using public transport.
* They owned shares rather than having a pension.
* They owned a house instead of renting.
That is even middle-upper class voters were more likely to vote left instead of right if they used public transport, had a pension, and rented, and most importantly even working class voters would vote for the right if they owned a car, some shares, and a house, no matter how thin such ownership was.
Just fancying themselves landlords with a sliver of equity in a modest 2-up-2-down made working class voters think that their interests were aligned with those of bosses and peers of the realm rather than the interests of other workers.
I think that the original push to therefore undermine public transport, pensions, rented housing came from Keith Joseph, but it could have been Nigel Lawson who clinched the deal, or Norman Tebbit, or Malcolm Rifkind.
Whoever was, that voting attitude study has become the right-wing bible in many countries, and in the UK Thatcher determinedly targeted enormous subsidies at car, share, and house ownership, while sabotaging public transport, the pensions system and the rented sector.
The stroke of genius was of course Right-to-Buy and the legal prohibition to use for house building the meager proceeds from selling rented council housing at well below market prices to future gratefully Tory voters.
But as you among very very few note the elimination of restrictions on lending against "safe" collateral like housing has been a vital step in starting what I call the debt-collateral spiral, where more debt allows bidding up the valuation of collateral, and that "justifies" bubbling up more debt.
Thank you! That is an extremely interesting response which has made me think and wonder...
ReplyDeleteOn its own cynical terms, the idea of gulling working class voters into becoming supporters of the party on the other side of the class divide was a bad idea.
ReplyDeleteIt was a bad idea because a person with a working class income and means of income that picks up some attributs of a middle class person remains working class. Though the insight that ownership, or appearing to own, your own means of transport and housing was more important to these voters than actually having use of good transport and housing was pretty shrewed.
So what happened electorally? The Conservative vote had gotten down to about 38% in 1974, mainly due to the re-emergence of a multiparty system in that election. The Thatcherite gimmicks got it up to 43% for four successive elections, low compared to the 50s and 60s but good enough to win in a multiparty system. Then the vote collapsed, more due to absention than switching to the other parties, and still has not gotten up to where it was in 1974. The influx of new voters from the working class was more than balanced by the defection of a type of educated traditionalist Tory, mainly to the center party(s).
Note also that you would have had a Conservative government in power for at least a good part of the 1980s anyway just on the basis of their being the main alternative to Labour.
«On its own cynical terms, the idea of gulling working class voters into becoming supporters of the party on the other side of the class divide was a bad idea. [ ... ] So what happened electorally? The Conservative vote had gotten down to about 38% in 1974,»
ReplyDeleteI have just reread this and I must say that it seems to me one of the daftest comments that could have been made, its daftness being based on a lack of distinction between the tory (lower case "t") and voting for the Conservative Party.
The sponsors of the Conservative Party are not specifically interested in the electoral fortunes of the Conservative party, they pay a lot more attention to the popularity of toryism; to how vigorously incumbency is a strong political value.
Currently 50%+ of UK voters are tory, and crucially the toriest are the swing voters of marginal seat.
That is a triumph. Whether the tories are voting Conservative or New Labour or LibDem does not matter for thatcherites; what matters is that their policies, to drive down wages and drive up property prices, are the largely the same, because that's what tory voters want.
Cruddas among the Labour people has been repeatedly complaining about the party leadership continuing to go after the tory vote in marginals, but the leadership keep ignoring him because they want to win election even if it is on platforms far to the right of anything the Conservative party put up pre-Thatcher.
«gulling working class voters into becoming supporters of the party on the other side of the class divide»
ReplyDeleteThis is an important point, as my understanding that was not the goal of the social engineering policy, because it was a *social* engineering policy, not a *political* engineering one.
The goal was not to make working class people change their *vote* to that for the party of another class, it was to make them change their *class identification* to that of the other class.
This arguably has succeeded *materially*. A pithy summary by the BBC on one important detail:
http://www.bbc.co.uk/news/business-19288208
«In 2001, the average price of a house was £121,769 and the average salary was £16,557, according to the National Housing Federation. A decade on, the typical price of a property is 94% higher at £236,518, while average wages are up 29% to £21,330»
Now, currently in the South-East a 230K house is a working class two-up/two-down terraces house, and 20K is a working class income, let's say in marketing categories C1-C2.
The figures above basically say that the average "working class" person in the South East got tax-free capital gains for £12,000 per year for 10 years, that is an extra 70% on top of their after-tax job income.
So if they look at their income, they are getting nearly 40% of their income from their property, for no effort whatsoever other than voting for politicians who use the word "aspiration" and dog-whistle that they will push for higher house prices and lower employment and wages.
«a person with a working class income and means of income that picks up some attributs of a middle class person remains working class.»
Perhaps culturally, but people notice when being landlords nearly doubles their income.
Even more importantly, a lot of people owning two-up/two-down properties that have generated tax free capital gains of £12,000 a year, or bigger properties, are actually not working, because they are often middle aged or retired divorced or widowed women whose main income comes from their property.
These women in the South East don't regard themselves as working class at all, except perhaps culturally, they think ruthlessly as landladies of the manor: they want workers (young men in particular) to have much lower wages, and to pay much higher rents on properties that go up and up in price, and want to pay as little interest as possible on the second mortgages with which they cash in the capital gain without actually selling their properties.
These petty rentiers are the toriest of voters, and are in large part the swing voters in marginal South-East seats that all parties try to bribe in any way they can, by pumping up property prices with extra loose money, pushing down wages (for men) by cutting benefits and boosting immigration, and by being tough on symbolic law and order.
For example ASBOs were invested and the mission of police changed from reducing crime to reducing *fear* of crime to appeal to millions of middle aged and older divorced or widowed property owning ladies in London and its suburbs.
«Though the insight that ownership, or appearing to own, your own means of transport and housing was more important to these voters than actually having use of good transport and housing was pretty shrewed.»
That works also through psychological channels, and probably would also work if property prices had not been zooming up, but probably rather less strongly.