UK 2015 Election: Proof I Don’t Know What I’m Talking About

In the blog-post I wrote right before this one, a few days before the UK general election, I decided to predict the outcome, and guess which of the major parties would form a government, and how long it would last.

I’m currently resting up (or at least, I’m supposed to be) after a 24-hour marathon stint on the Heart and Capital radio stations, breaking all the overnight stories of the election. As the ballot-booths are flat-packed away for now, and the black-and-white “Polling Station” signs are taken down off the walls of community centres and school halls across the country, I think it’s only fair that I look at what I wrote a few days ago, and see how it tallies with the reality.

And it’s pretty clear. I couldn’t have been more wrong about the outcome if I tried. I didn’t even entertain the idea that there might be a majority government, given the consistent message from the polls that suggested otherwise.

So I’m W. H. Wrongy McWrongstein, of Wrongsville, Carolina. Population: Wrong.

Proof, if any proof were really needed, that I don’t know what I’m talking about.

But how did all the polls get it all so wrong? We had months of the polls, from a host of different pollsters, day in and day out, all showing that no party would have enough MPs to form a majority. But when the big day came, we had one clear winner.

David Cameron and the Conservative Party wiped the floor with virtually everyone (except in Scotland, of course. There, the pollsters were spot on about the Scottish Nationalist Party and their dominance). UKIP were decimated. The Greens; right back where they started. The Liberal Democrats exiled to obscurity. And Plaid who?

And as I write, David Cameron is live-tweeting announcements about his new cabinet, fully Liberal Democrat-free following his 331 seats in parliament.

An outright Conservative majority. How did we get here?

The only explanation I can think of (and given how wrong I was in my election prediction – did I mention that? Way, way wrong – my explanation may not carry much weight), is that we’ve seen a repeat of the 1992 election.

Then, a beleaguered Tory government – Lead by John Major – was sleepwalking into a comprehensive defeat.

Their opponents – Labour – were all but guaranteed to form the next government. Labour’s leader Neil Kinnock even went as far as to host a victory rally before polling day.

Then the election day came. And the Tories won. Comprehensively.

I believe that yesterday – as in 1992 – the public maybe didn’t quite form an opinion of how to vote until they got into the polling booth. Major’s government were as far removed from ‘cool’ as you could get. Voting for them was almost an embarrassment to some. Why would you tell a pollster that’s what you were going to do? Even if it was what you were going to do?

But even if it was only in the back of their mind, there was a genuine concern about where the country was headed under a Kinnock government. Back to the old days of economic illiteracy and ‘managed decline’. The people blinked, and Major stayed in Number 10. A few years on, and our deficits turned to very impressive surpluses.

The unique way in which the global market crash in 2008 hurt Britain was – for a big part – down to our unaffordable public spending. We had the deficit of a basket-case economy. But we just kept on spending, kept on trying to live off that ‘hair of the dog’ each morning.

Though it wasn’t totally popular to some, modest steps were taken by the Conservative/Lib Dem coalition from 2010 to introduce austerity. It’s a dirty word these days, but all it really means is “living within your means”. Income has to be equal to, or lower than expenditure. That’s not evil free market dogma, or cruel Tory “ideological” cuts. It’s called maths. If you get £5 a week pocket money, and spend £6 a week on stuff, you’ll have to borrow £1. If you do that every week for ten weeks, you’ll owe £10. One day, that has to be paid back. See: maths?

Now I’m not a big fan of the coalition for a variety of reasons. The debt that’s been piled on over the past five years is inexcusable, and they’re no way near classically liberal enough for my tastes. But, the Tories wanted to eliminate the deficit in five years. They were in coalition, so couldn’t be as radical as they’d like to be. Let’s say, they could only be half as radical. So by 2015, they’ve cut the deficit in half.

It’s a fairly clear demonstration that, generally speaking, they were right. The (now unemployed after losing his seat) Shadow Chancellor Ed Balls went on every TV and radio show in the country describing the austerity (living in your means, i.e. maths) measures as being “to far and too fast” for the first two years of coalition. Turns out, if do want to criticise the coalition’s austerity measures, it’d be better to say they didn’t go far enough and weren’t implemented quickly enough.

The coalition decided to lean in the direction of maths/austerity. Labour leader Ed Milliband – who resigned this afternoon – said for every public sector job cut, a private sector job would also go, creating greater levels of unemployment.

The coalition cut half a million public sector jobs. Two million private sector jobs (more than in the 13 years of Labour) emerged. Most of them better paying, contracted jobs.

So one group called it right, one group called it wrong. It was actually so simple we missed it. And in the back of many people’s minds, they understood. Even if it took them until they had the HB pencil in their hands in the ballot booth to really see it.

But don’t listen to me. I’m W. H. Wrongy McWrongstein, of Wrongsville, Carolina, remember?

Economic Festive Cheer

It’s Christmas Eve, and as we stagger toward the end of another year, I thought I’d point out this upbeat assessment about where we’re heading in the UK job-wise.

The Institue of Economic Affairs has published this interesting piece putting to rest many of myths about the free market system. Maybe not one to take to bed after too much mulled wine, but it does point out that, as I often say on this blog, things ARE getting better.

A couple of points from the piece’s author, Christopher Snowdon:

    • Wages – Over a century’s worth of growth has led to a steady rise in wages across the board. Despite perennial claims that the poor get poorer under capitalism, government figures show that in the UK average real wages have doubled for full-time workers and come close to doubling for part-time workers since 1975. The percentage of full-time workers earning above the national minimum wage has also increased, 98% earning at least £6.19 per hour in 2013 compared to only 55% earning more than this amount in 1975 in real terms.
    • Income – Between 1977 and 2011/12, the incomes of the poorest 20% of individuals rose by 93% in real terms. The recent recession saw the incomes of the richest fifth of households hit hardest, their disposable income falling by over 5% in real terms between 2007/08 and 2012/13. According to ONS figures, during the same period average incomes of the poorest fifth rose by over 3% in real terms – the provision of state benefits cushioning declining pay.
    • Inequality – Rising income inequality and relative poverty are often mentioned by critics of capitalism. Neither offer a meaningful measurement of whether or not the poor are better off. Having peaked in 1990, income inequality in Britain has been declining ever since. Despite real disposable incomes of the poorest fifth of households rising by 50% between 1975 and 2005, the number living below the relative poverty threshold increased from 13% to 15%. Reductions in inequality and relative poverty typically coincide with periods of general impoverishment which harm the poor.
    • Social mobility – Social mobility in Britain has not ground to a halt, mobility remaining broadly constant in relative and absolute terms for at least 100 years. The majority of those that are born poor move swiftly up the income ladder, almost all becoming wealthier than their parents. Intelligence and ability play an important role in determining individual progression.
    • Working hours – Average working hours for British employees continue to fall. According to OECD figures, over half of UK workers are working less than 40 hours a week and fewer than 12% work more than 50 hours a week. Only those on high incomes have experienced an increase in their working week.
    • Economic growth – Sceptics of further economic growth should bear in mind the benefits to be had from ongoing prosperity. Between 1965 and 2000, average incomes worldwide have doubled – contributing to improved living standards and a substantial reduction in poverty. Aside from job creation and the boost to wages, further economic growth is vital in order to afford increasingly burdensome welfare spending.
In 2000, the average person in full-time employment was clocking in 37.7 hours a week. By 2011, that was 36.4 hours, with fewer than 12 percent of us working more than 50 a week. Back in 1992, it was 38.1 hours. It’s progress. Slow, but getting there.

Yes, things are getting better in the workforce. It doesn’t always feel like it, but I think we’re heading in the right direction.

Happy holidays.

The Spending Cuts (that aren’t spending cuts)

Just a quick reality check: The UK government has postured and made a loud noises about their so-called “spending cuts”, and, indeed, the opposition in the UK have also waxed lyrical about “savage cuts”.

Well, here, courtesy of the office for budget responsibility, are those “cuts”, and the projected “cuts”, in full:

Total Managed expenditure

2012-13: £701.9bn

2013-14: £717.8bn

2014-15: £730.5bn

2015-16: £744bn (OBR figures Autumn 2013)

Who the Minimum Wage Hurts

Young People Minimum Wage UK

There's some things that just don't work, but everybody loves them. I've posted before about the NHS, and other such almost religiously-supported institutions and ideas. Those who support them are – to my mind at least – kind-hearted, decent and good people. But good intentions don't make for good policy.

A case in point on this day – budget day: The UK is set to increase its minimum wage. Minimum wage laws hurt those who cannot provide a service as valuable as the minimum-wage. If, due to your circumstances, education, ability, etc. can only provide £5 an hour of value, at say, a resurant or warehouse, then you can't get a job if an employer is forced to pay you a minimum of £6.50 an hour.

The last Labour government were very proud about dispelling the naysayers of the minimum wage: “They said it would cost jobs”, they gleefully retort, “but unemployment went down in the first decade of the minimum wage!”

Yes, unemployment went down. Quite easy to do, if you're into making a massive government, centered around a client-state, where you create a lot of 'fake' government-jobs. But the growth in private-sector jobs at the same time was practically anaemic.

Those who said that the minimum wage costs jobs weren't talking about any old jobs though. We were specifically talking about those sort of jobs that younger, poorer, underskilled people typically take.

So how have, say, younger people done under the minimum wage? Well, you can see the graph above and see for yourself. Before the minimum wage, younger people were finding more and more (real) jobs, and opportunities to get on the ladder, often of their chosen career-path. But it turned almost 180 degrees after that.

I believe that the forthcoming increase in the minimum wage will, sadly, continue this tragic trend.

 

The Help To Buy “Time Bomb”

The classic definition of madness is doing the same thing over and over and expecting a different result each time.

British Prime Minister David Cameron seems very chuffed that his new Help To Buy Scheme is seeing such a large number of applicants right away. But I wonder if this isn’t another financial ticking time-bomb that’s set to go off, in a similar (if not smaller) manner that the last housing-related bubble went off?

Why is there this obsession with making people “home-owners”, foresaking decent economics in the process, even when those decent economics can steer you clear of a financial meltdown?

Buy all means, build more homes if there’s a market for them. That might curb prices and make a mortgage more economically viable. But when the government uses the banking/lending system as another tool for social engineering, you get, well, you know, what happened last time.

Some interesting views on this in the Backbencher, which is always well-worth a read.

Andy Jones TV Season 5 Episode 8

A viewer emails: “re the current economic situation, doesn’t it stand that if austerity (i.e. cuts) work and investment (i.e. growth) doesn’t, then why is America’s economy doing better than your country’s and Europe?”

Another Good News Update

With all the economic doom and gloom, it’s always worth looking at the sunnier side. Not just to be optimistic, but because it’s a fact that overall things are getting better. Generally speaking, over a long enough period of time, things always tend to get better.

I wrote a while ago about MP Douglas Carswell’s reality check on how things are getting better from the global view. Well, Jeff Randall has also pointed out very recently the ways in which the economy is improving even in the UK. As he points out:

Retail sales are up, manufacturing is improving, car sales are up, house prices are up, share prices are up and employment is at a record high.

So thinks are slowly but surely getting better. I know it’s hard to see it right now, and there’s things the government can/should do (like significant cuts in the unproductive – i.e. state sector so that the productive sector can keep more of its wealth-creating income) but even on the (too) slow and steady path we’re on right now, I think  we’ll get there.

This Isn’t What We’re Told…

With last weeks announcement that the UK economy shrank by 0.3 per cent over the last three months, everyone is holding their breath for the inevitable “triple dip recession” that will surely be just around the corner.

Once again, we’re spoon-fed vague waffle about how this is all down to the “austerity”, i.e. “cuts”.

That’s why this reality-check from Allister Heath is so worth reading in full.

Austerity – in the government sense – can mean either cuts to public spending or increases in taxation. We’ve had a lot of the latter – taxes continue to rise – but as Heath points out so clearly, the size of government has gone from 48.6% of GDP in 2011 to 49% by the end of 2012. We’re increasing the size of the state. How can we see a large supply-side boost to the productive sector if we continue this engorgement of the unproductive sector?

You can call the current government’s plan whatever you want: savage cuts, deep austerity, but it’s clear isn’t the austerity that we need.

The governments plan will eventually get us back on track, but we could get there so much faster with real reduction of government expenditure.

These “savage cuts” that Nick Clegg was banging on about… when are we actually going to get them? The status quo doesn’t seem to be working.

Sorry all, but supply-side economics is a fact.

Most political pundits and many politicians (of all flavours) describe “supply-side” economics as “voodoo economics” or the ramblings of “delusional supply-side fantasists”. But there's one problem.Whenever we get the stats in, it appears that the rate at which governments tax us actually have an effect on our behaviour, and subsequently on the amount of money that winds its way back to the treasuries.

When the change is small (say an income tax increase from 35% to 37%) there is almost no negative Laffer curve effect. But when the change is large (say a 10% increase or decrease) then this will have a more pronounced effect on government income. This simple economic reality – dynamic scoring – has for a series of bizarre anti-intellectual reasons been ignored and even ridiculed.

Well we've had some more hard data about this economic reality. Aside from this excellent summary from journalist Janet Daley, we've no one seemed to mention this when the data came in around November time.

Gordon Brown raised taxes on the higher earners from 40% to 50%. The effect? Millionaires who were eligible to pay at that rate (based on what they declared to the taxman as income) have – quite within the law, fallen from 16,000 to 6,000. The government has an estimated £7-£9 billion in lost earnings:

It turns out that the introduction of the 50p rate of income tax caused two thirds of those earning over a million pounds per year to simply disappear from the reach of HM Revenue and Customs. Whereas, under the previous highest tax level of 40p in the pound, 16,000 people were prepared to declare earnings of one million, that number shrank to only 6,000 after Gordon Brown, bless him, introduced the higher rate. Result: the Treasury actually lost 7 billion pounds in revenue.

It would appear that due to the worsening economy, and the higher taxation level both incentivising ways of getting around paying income tax at all, and also incentivising entrepreneurs not to bother trying as hard, the government has shot itself in the foot.

That's the funny thing about this supply-side “voodoo economics” that can't possibly be real: it has a tendency to actually be very real indeed.

 

St Bob, does he really know best?

There’s a great article in the Independent today by the very thoughtful Ian Birrell about the state of Africa and how lots of the aid in the continent hurts rather than helps.

He lays into Bob Geldof a bit (another super-rich, large-scale tax avoider like Bono who, with no hint of irony or self-awareness, complains that western governments are not taking more ordinary taxpayers money by force to fund an engorgement of ‘aid’ packages to the third world):

His [Geldof’s] British homes were found to be registered in offshore companies, a popular measure with the super-rich costing the hard-pressed British exchequer £1bn a year. And his non-domicile status ensures he avoids paying tax on any overseas earnings, which must be nice.

But it’s not just the hypocrisy. Birrell is pleased St. Bob is finally coming around to the idea that trade and the free market helps elevate poverty better than anything else, but if only Mr. Geldof could see and recognise the harm that the government-enforced aid has done to so many in Africa:

Western politicians of all hues, desperate to look sensitive and caring, cravenly pandered to this aid lobby led by Bob and Bono, while journalists put on kid gloves when engaging with it, ignoring practices that would provoke outrage elsewhere. As a result, global aid spending soared from £50bn a year to £83bn over the first decade of this century; today 595,000 people work in a fiercely-competitive industry.

A study last year found even among these aid workers only about one-third thought their projects worked. In private, many will admit to grave doubts. You could fill this entire newspaper with examples of how the flood of money washes down the drain: a report by two health economists, for example, found nearly two-thirds of health aid in Africa is diverted. The waste, the ineptitude, the tolerance of corruption, the support for repression, the furthering of inequality, the boosting of arms spending is utterly scandalous…all those new colonialists riding around in their big white jeeps telling the locals what is good for them.

“They don’t consult with us,” complained a minister in Somalia, latest recipient of massive British aid. “It’s like a doctor trying to prescribe medicine for a patient you haven’t seen yet.”

This distorts priorities of recipient nations. It leads to the creation of pointless bureaucracy – one study found a typical African country must churn out 10,000 aid reports each year. Additionally, while our government attacks welfare dependency at home, it encourages it abroad with unquestioning support for politicians who have no need to bother responding to the needs of their own citizens.

Imagine how we would feel if armies of Africans came and told us how to run our schools and hospitals (while living in some of the smartest homes)? Or funded politicians who steal and murder? But this is our approach abroad: we know best, our voices count. This is how Britain ended up funding a regime that sent a hit squad to this country to kill people. And how it spent £1bn supporting education in just three east African countries but failed to check whether the teachers turned up or the children were learning; sadly, they were not.

The truth is often counter intuitive. Having our governments take more of our money by force and spend it on aid programs should help so many in Africa and elsewhere. But the reality is that simply stepping back and letting freedom reign does the job far better.