Transcript Presentation by Dr Stephen Barberx

TRAGEDY
Dr Stephen
OF Barber
RICHES
Putting the Downturn
into Perspective
TRAGEDY OF RICHES
• Credit Crunch is having
profound impact on attitudes
• Entered a new era where we
vilify those who we see as ‘the
rich’
• Implications for longer-term
policy
TRAGEDY OF RICHES
• Despite our great advantages,
something is not quite right
• Politics is incapable of
articulating a purpose to our
riches leading to ‘the blame
game’
• The problem is not our
economics but our politics
TRAGEDY OF RICHES
‘Crony Capitalism’
‘Good Capitalism and Bad Capitalism’
‘ Can’t Have Something for Nothing!’
ANTI-RICH RHETORIC
Business leaders are ‘filling
their boots’, ‘second rate
executives’ are ‘ripping off
shareholders’. It’s time to
throw out ‘crony
capitalism’
TRAGEDY OF RICHES
Vilification of a few rich
men
Change of the times Hester’s bonus was
twice the size last year
TRAGEDY OF RICHES
Is Britain Still Open for
Business?
In 1989 11% of Sunday Times
Rich List were from
overseas...
...by 2011, 16 of top 20 are
migrants
TRAGEDY OF RICHES
• Central to elections across Europe – especially
in France and Greece
TRAGEDY OF RICHES
Become a feature of the US elections
Electoral lifeline for Obama
But we are all rich!
OUR BUBBLE OF PROSPERITY
OUR BUBBLE OF PROSPERITY
•
2009 GDP per capita (Purchasing Power Parity)
– The European Union today (enlarged to include the poorer nations of
the East) had of a little under 30,000 International Dollars
– The more exclusive G7 at almost $39,000
– Sub-Saharan Africa by contrast reaches little over $2,000
• There are 1bn ‘hungry’ people in the world
• Early 19th century average incomes in Europe and Africa broadly the same,
as was life expectancy (about 40).
OUR BUBBLE OF PROSPERITY
But how rich are we?
HOW RICH ARE WE?
• A person with $20,000 post-tax income per year is in the world’s
wealthiest 4.6%
• $38,500 after tax, gets you into the top 1%
• In the USA 85% of the wealth is controlled by the richest 20% of the
population; the richest 1% of Americans own almost 35%
• Fidelity’s 2011 survey of those with investable assets of at least $1 million
(average $3.5 million).
– 42% said that they did not feel wealthy. To ‘feel rich’ respondents
needed at least $7.5 million!
‘Wealth relativity’
HOW RICH ARE WE?
• Politics of greed, politics of envy
and now politics of hypocrisy
• We want someone to blame and
we do not want to take individual
responsibility
• We have all benefitted from the
bubble of prosperity
WHO PAYS?
• Company bosses saw a 10% pay
increase in 2010 and a 17% increase in
2011
• In contrast, 99% of workers received
pay deals worth less than the rate of
inflation
• But are we dependent on the rich?
– The richest 1% of Britons earn 13% of
salaries but contribute 28% of tax
collected
WHO PAYS?
ECONOMIC STRENGTH
• 2009 London G20 meeting injected $1.1 trillion into
the global economy
• $8.42 trillion promised in bank bailouts enough to
end extreme poverty for 50 years according to Oxfam
• Contrast in global wealth
• Who is the 1% here?
TRANSLATION INTO POLICY
“The recovery plan and the financial stability plan are the
immediate steps we're taking to revive our economy in the
short-term. But the only way to fully restore America's
economic strength is to make the long-term investments that
will lead to new jobs, new industries, and a renewed ability
to compete with the rest of the world.”
Barack Obama addressing Congress 25/2/09
UNSUSTAINABLE CHEAT
• We demand conflicting policies from our politicians
and punish those who do not deliver the impossible
• Collusion between voter and politicians which
pretends we can have it all our own way
• Democracy is not widely valued and we tend to vote
on bread and butter issues
• Post Ideological politics
POLICY BECOMES DIFFICULT
• Post Ideological politics
– Greater agreement but less consensus
– The easy decisions have been made
– Party politics makes difficult decisions harder because
opposition is not made on ideological grounds
– Beauty contest
HARDSHIP & REJUVINATION
• It turns out the financial crisis was not a watershed
moment in policymaking terms
• We determined not to do anything substantially different
• Today’s backlash is against a perceived unfairness in our
economic system not a perceived political dysfunctionality
• But there are changes...
SOUND MONEY
• Plan to eradicate the deficit during the Parliament – even more
ambitious than Darling’s Fiscal Responsibility Act
• Calls for a ‘Balanced Budget Amendment’ in the USA
• EU Fiscal Union will require Euro members to live within their
means, controlled from Brussels regardless of the ballot box
• Medium term trend away from debt financed spending
SOUND MONEY
• But democracy makes it difficult for politicians
to take the ‘difficult decisions’
RETREAT OF THE STATE
• As public spending is tighter, the state tries to do less
• New blurring between public/third/private sectors
• Talks localism but retains centralist instincts
• Also looks to the supply side to stimulate growth – cutting
taxes, regulations, etc.
• Infrastructure spending from international sovereign wealth.
COMPETITION STATES
“If you look at the troubles which happened in
European countries, this is purely because of
the accumulated troubles of the worn out
welfare society. I think the labour laws are
outdated. The labour laws induce sloth,
indolence, rather than hardworking.”
Jin Liqun, supervising chairman of [Communist] China’s $400 billion sovereign
wealth fund, 8/11/11
ECONOMIC FOCUS
• Few judged the peak of the last period of expansion to be a
‘boom’
• This was because inflation remained low, interest rates low
and growth steady
• Idea of stable economy and industrial policy emerging –
monetarist idea of controlling inflation, insufficient?
ATTITUDES
• We have become hostile to ‘the rich’
• We have become hostile to those on welfare
• We are suspicious of ‘well paid’ public
servants and are more critical of spending
• We approve cuts except where they affect us
• Essentially we want someone to blame
END OF BUBBLES?
Pre-banking
crisis housing
bubble
Technology
bubble
1920s equity
bubble
17th century
tulip bubble
29
BUBBLES
‘Someday, no one can tell when, there will be another
speculative climax and crash. There is no chance
that, as the market moves to the brink, those
involved will see the nature of the illusion and so
protect themselves and the system. The mad can
communicate their madness; they cannot perceive it
and resolve to be sane.’
J.K. Galbraith
(1961, writing of the 1929 Crash)
30
POLICY FOCUS
• Policy makers focus on the economic system – and
‘populist’ at that...
– Banking regulation
– Executive pay
– Welfare reform
• The 99%ers think they have
achieved this
WHAT IT WILL MEAN
• Small amount of legislative change and shareholder
power
• Conflicting pressure to reduce workplace regulations
and employee protections
• Interesting emerging debate about earnings from
work being taxed lower than earnings from wealth
• Great opportunity for political argument
MEANWHILE
• Politics is not engaging...
80%
UK Local
Elections 2012
70%
60%
50%
40%
Labour
Conservative
30%
Lib Dem
Couldn't be bothered
20%
10%
0%
Labour
Conservative
Lib Dem
Couldn't be bothered
POLICY NEEDS
• Our politics needs renewing not our economics
• There are limits to the abilities of the state as politics
‘becomes difficult’
• Politics has to become much more a multidirectional process; less about party advantage and
more about ideas.
“What can’t go on forever,
won’t.”
Herb Stein