In short, money can be anything that can serve as a
• store of value, which means people can save it and use it later—smoothing their purchases over time;
• unit of account, that is, provide a common base for prices; or
• medium of exchange, something that people can use to buy and sell from one another.
One way that money as a store of value is relevant to the economy is that most savings are invested. And saying that "money isn't real" doesn't seem an especially useful way of thinking about it. Money is "real" because societies believe it is:
Belief can fade
Countries that have been down the path of high inflation experienced firsthand how the value of money essentially depends on people believing in it.
...
Some policies governments have used to restore confidence in a currency nicely highlight the “faith” part of money functioning. In Turkey, for example, the government rebased the currency, the lira, eliminating six zeros in 2005. Overnight, 1,000,000 liras became 1 lira. Brazil, on the other hand, introduced a new currency in 1994, the real. In both countries, citizens went along, demonstrating that as long as everyone accepts that a different denomination or a new currency is the norm, it simply will be. Just like fiat money. If it is accepted as money, it is money.
But, national governments still hold that power to issue currency, and as currencies are no longer linked directly to tangible wealth (eg: gold reserves) there are no theoretical limits to how much money a government issues to fund government programmes - though there are other significant economic impacts of doing so.
One impact highlighted by that IMF page is that too much inflation undermines the trust that people have in money.
In short, money can be anything that can serve as a
• store of value, which means people can save it and use it later—smoothing their purchases over time;
• unit of account, that is, provide a common base for prices; or
• medium of exchange, something that people can use to buy and sell from one another.
One way that money as a store of value is relevant to the economy is that most savings are invested. And saying that "money isn't real" doesn't seem an especially useful way of thinking about it. Money is "real" because societies believe it is:
Belief can fade
Countries that have been down the path of high inflation experienced firsthand how the value of money essentially depends on people believing in it.
...
Some policies governments have used to restore confidence in a currency nicely highlight the “faith” part of money functioning. In Turkey, for example, the government rebased the currency, the lira, eliminating six zeros in 2005. Overnight, 1,000,000 liras became 1 lira. Brazil, on the other hand, introduced a new currency in 1994, the real. In both countries, citizens went along, demonstrating that as long as everyone accepts that a different denomination or a new currency is the norm, it simply will be. Just like fiat money. If it is accepted as money, it is money.
But, national governments still hold that power to issue currency, and as currencies are no longer linked directly to tangible wealth (eg: gold reserves) there are no theoretical limits to how much money a government issues to fund government programmes - though there are other significant economic impacts of doing so.
One impact highlighted by that IMF page is that too much inflation undermines the trust that people have in money.
All true but I was trying to keep the story as simple as possible at this point, whilst also fighting a post limit. I literally couldn't have written anymore. One of the reasons for including the link.
Inflation is also a more complex story. Too much is bad but too little can actually be a whole lot worse.
I don't see how the unions are responsible for the UK's economic woes. Industrial unrest is generally a symptom not a cause, I'd have thought.
Sure, there have probably been more industrial disputes recently than have been for a long time but it doesn't feel 1970s scale to me.
It feels to me like a combination of things getting tougher after the pandemic and poor choices on the part of successive Conservative or Conservative-led governments.
I'm no economist but it strikes me that blaming the unions in this instance would be like blaming the stewards and other staff on an aeroplane flight for mistakes made by the cabin crew.
I followed @Arethosemyfeet's argument/summary - although suspect things are more complicated - but governments being 'less shit' would be a good place to start.
As an aside, I've heard young and quite scary converts to Orthodoxy argue that monarchies are the way to go because the King owns everything, rewards his followers and keeps taxation low lest there be armed rebellion.
I'm not an economist. But it seems to me that an important part of the discussion (generally) which is left unspoken is that economies are in competition so the value of one national economy (or supranational such as eurozone) economy is only really understood when measured against another.
And for historical reasons, Sterling has been extremely strong and trusted for a very long time.
Which isn't to say it should be, my contention historically is that we live with the relics of empire and our wealth has been inherited from the ill-gotten gains of exploitation and slavery.
Anyway, without arguing with the detail of the quotes from the IMF, it seems to me that there is much more to lose by damaging sterling with bad political choices than there might be from other weaker currencies.
It's true in a theoretical sense that sterling is an imaginary thing like every other currency. However it is also true in a very real sense that we all gain from the strength of sterling, which is absolutely based on specific types of economic/political management over many years.
As an aside, we were recently asked to go to Zimbabwe for an academic exchange trip thing. As I'm sure everyone knows, their currency has taken a beating for decades, and at present they have something of a cash crisis. Which makes visiting quite difficult - the advice currently is to take what you need for the trip into the country in foreign cash, that bank machines might be empty and international bank cards might not work. For my university, the most critical aspect for a travelling academic is insurance, which at present is difficult. In the end, it was decided that it wasn't possible at this time (which isn't necessarily to say that people living there find it impossible, that other types of visitor find it difficult nor that it won't change again in the future). Which perhaps illustrates how hard it is to operate in a situation with a really weak currency.
I'm not an economist. But it seems to me that an important part of the discussion (generally) which is left unspoken is that economies are in competition so the value of one national economy (or supranational such as eurozone) economy is only really understood when measured against another.
And for historical reasons, Sterling has been extremely strong and trusted for a very long time.
Which isn't to say it should be, my contention historically is that we live with the relics of empire and our wealth has been inherited from the ill-gotten gains of exploitation and slavery.
Anyway, without arguing with the detail of the quotes from the IMF, it seems to me that there is much more to lose by damaging sterling with bad political choices than there might be from other weaker currencies.
It's true in a theoretical sense that sterling is an imaginary thing like every other currency. However it is also true in a very real sense that we all gain from the strength of sterling, which is absolutely based on specific types of economic/political management over many years.
As an aside, we were recently asked to go to Zimbabwe for an academic exchange trip thing. As I'm sure everyone knows, their currency has taken a beating for decades, and at present they have something of a cash crisis. Which makes visiting quite difficult - the advice currently is to take what you need for the trip into the country in foreign cash, that bank machines might be empty and international bank cards might not work. For my university, the most critical aspect for a travelling academic is insurance, which at present is difficult. In the end, it was decided that it wasn't possible at this time (which isn't necessarily to say that people living there find it impossible, that other types of visitor find it difficult nor that it won't change again in the future). Which perhaps illustrates how hard it is to operate in a situation with a really weak currency.
Whilst it is true that economies compete in many senses, they also cooperate. The value of Sterling is a relatively small factor in how well the UK economy does. If Sterling falls in value (relative to other currencies) then imports get more expensive. If Sterling rises in value then it makes the prices of exports go up so exporters have a slighter harder time selling their wares. That's basically the whole effect of the relative price of currency, in normal times.
There's one big caveat on that which is oil. Oil is priced in dollars, so even though the UK sources most of its oil from domestic production (around 70%, last time I checked), in terms of the price we all pay as consumers it is effectively an import. Only in terms of pricing: a change in value of Sterling - such as the fall that happened with Brexit pushed up oil prices.
The situation in Zimbabwe is somewhat different. When confidence is lost in an economy and a currency and you have hyperinflation then it's a whole horrible mess. I may be wrong but I think 1923 Germany is the last time that happened in Europe.
The sort of competition that is real for the UK economy is for investment. Both internal and inward. Especially for inward investment, stability of the currency is important - otherwise investors cannot get a meaningful return but otherwise the relative value of Sterling to the Euro or the Dollar is nor particularly important.
I'm not an economist. But it seems to me that an important part of the discussion (generally) which is left unspoken is that economies are in competition so the value of one national economy (or supranational such as eurozone) economy is only really understood when measured against another.
They're not really in competition, or at least the situation is a lot more complex.
The better an economy is doing the more economic activity it has available to trade with other economies. The effects of that on another reasonably healthy economy outweigh the negative effects of competition overall. That's why in the 1920s, when governments reacted to the Great Depression by taking protectionist measures that exacerbated the depression.
I'm not an economist. But it seems to me that an important part of the discussion (generally) which is left unspoken is that economies are in competition so the value of one national economy (or supranational such as eurozone) economy is only really understood when measured against another.
And for historical reasons, Sterling has been extremely strong and trusted for a very long time.
What matters is not a nominal figure but that re-valuations don't happen frequently. At the current point what really matters is convertibility with the US dollar (as it's the global reserve currency), in historical terms sterling has gradually devalued against the dollar ever since the end of Bretton Woods.
The issue with Zimbabwe is that they are in a balance of payments crisis, caused by both the need to purchase external goods they don't produce themselves as well as to service dollar denominated debt they took on.
There's one big caveat on that which is oil. Oil is priced in dollars, so even though the UK sources most of its oil from domestic production (around 70%, last time I checked), in terms of the price we all pay as consumers it is effectively an import. Only in terms of pricing: a change in value of Sterling - such as the fall that happened with Brexit pushed up oil prices.
The 70% figure only relates to the quantities involved, not the source of the oil. In relation to the physical substance, I believe the UK exports something like 80% of the oil it produces, and imports over 80% of the oil it consumes, largely because British refineries were not designed for processing British oil.
The sort of competition that is real for the UK economy is for investment. Both internal and inward. Especially for inward investment, stability of the currency is important - otherwise investors cannot get a meaningful return but otherwise the relative value of Sterling to the Euro or the Dollar is nor particularly important.
Indeed. Stability of legislation and regulation is also relevant, over which governments have quite a lot of control.
The issue with Zimbabwe is that they are in a balance of payments crisis, caused by both the need to purchase external goods they don't produce themselves as well as to service dollar denominated debt they took on.
There's an argument that countries like Zimbabwe are burdened by debt largely as a consequence of (people from) countries like ours telling them they needed to borrow. Debt is real, and often pernicious, but always forgivable.
The issue with Zimbabwe is that they are in a balance of payments crisis, caused by both the need to purchase external goods they don't produce themselves as well as to service dollar denominated debt they took on.
There's an argument that countries like Zimbabwe are burdened by debt largely as a consequence of (people from) countries like ours telling them they needed to borrow. Debt is real, and often pernicious, but always forgivable.
In this context the point was that Zimbabwe borrows in a currency it does not itself issue. Which exacerbates the balance of payments problem.
I don't see how the unions are responsible for the UK's economic woes. Industrial unrest is generally a symptom not a cause, I'd have thought.
I'd agree with that: a feeling of unfairness and a lack of confidence in management/government.
There's nothing inherently virtuous about unions. Governments can abuse power. Unions can abuse power. Any group of humans that is given power by some process can abuse that power. And if what you have is two rival power blocs competing, it often develops in to a cooperative conspiracy that screws everyone else at the expense of the major players in the rival power blocs.
I'd agree that unions are not responsible for the current problems in the UK economy, and would suggest that this is because since the Thatcherite reforms, the ability of the unions to leverage their power is limited.
There's one big caveat on that which is oil. Oil is priced in dollars, so even though the UK sources most of its oil from domestic production (around 70%, last time I checked), in terms of the price we all pay as consumers it is effectively an import. Only in terms of pricing: a change in value of Sterling - such as the fall that happened with Brexit pushed up oil prices.
The 70% figure only relates to the quantities involved, not the source of the oil. In relation to the physical substance, I believe the UK exports something like 80% of the oil it produces, and imports over 80% of the oil it consumes, largely because British refineries were not designed for processing British oil.
Indeed that's true. For the purpose of this discussion though it's not strictly relevant. If oil was priced in £'s it would be different. Oil is priced in dollars regardless of where it comes from, so changes in the relative value of the pound and dollar affect the price we all pay. Oil being vital for road transportation means that a rise in oil prices triggers a rise in food and other goods as well.
For the purposes of our discussion here about the election though, the relative value of Sterling is not a major factor.
As an important aside, though North Sea oil and gas are sold on the international market at market rates so when politicians tell you that by allowing more oil and gas to be produced, UK prices will fall are lying to you. The UK fields are tiny by world-wide standards and therefore the increased supply is nowhere near enough to affect prices.
I don't see how the unions are responsible for the UK's economic woes. Industrial unrest is generally a symptom not a cause, I'd have thought.
Junior doctors demanding 35% is not helpful and I don't know how Labour will be able to afford it because everything they intend to pay for has been already costed.
Asking for employers to at least listen to requests for fair pay, after years of below inflation pay rises, isn't demanding anything except what is fair. Especially when those workers are highly skilled and essential, such as doctors and train drivers (and, in the case of the railways, a lot of other railway workers who are paid much less but do work essential to the safety of passengers, including guards)
I don't see how the unions are responsible for the UK's economic woes. Industrial unrest is generally a symptom not a cause, I'd have thought.
Junior doctors demanding 35% is not helpful and I don't know how Labour will be able to afford it because everything they intend to pay for has been already costed.
Train divers were greedy.
Junior doctors are not demanding 35%.
Junior doctors have calculated how much pay has been eroded since 2010. The calculation shows that to correct that would take 35% now. What Junior doctors are demanding is an above inflation rise now with a commitment to honest negotiations towards pay restoration going forward.
As to the cost, because there isn't actually that many Junior doctors it's £1-2Bn. The cost of not fixing Junior pay is a helluva lot higher.
The only legitimate argument the government has is the potential knock on effect. What if every group starts demanding such rises? Well there's a simple defence in that the other groups have not had the same erosion so I think it doable.
In fact, the Scottish government managed something similar so why not?
I don't see how the unions are responsible for the UK's economic woes. Industrial unrest is generally a symptom not a cause, I'd have thought.
Junior doctors demanding 35% is not helpful and I don't know how Labour will be able to afford it because everything they intend to pay for has been already costed.
Train divers were greedy.
Whether or not this is the case - and I don't think it's that simple - it still doesn't make them responsible for the nation's economic woes, which go back longer than the last 12 months.
Junior doctors have calculated how much pay has been eroded since 2010. The calculation shows that to correct that would take 35% now. What Junior doctors are demanding is an above inflation rise now with a commitment to honest negotiations towards pay restoration going forward.
As a sidenote, whenever someone (of any political persuasion) makes a reference like this to a particular baseline year, I assume that the baseline year has been carefully chosen to make their case look good.
What answer do you get if the baseline year chosen is 2005, or 2000, or some other choice?
2010 works as a baseline because that's the period of Conservative government.
The BMA calculations are actually based on 2008, which gives a 26% real-term pay cut based on RPI. The 35% is what's needed to hike current salaries to what they would have been if not cut by 26%. If you use CPI as your inflation figure the pay deficit is less than that, around 15%.
Junior doctors have calculated how much pay has been eroded since 2010. The calculation shows that to correct that would take 35% now. What Junior doctors are demanding is an above inflation rise now with a commitment to honest negotiations towards pay restoration going forward.
As a sidenote, whenever someone (of any political persuasion) makes a reference like this to a particular baseline year, I assume that the baseline year has been carefully chosen to make their case look good.
What answer do you get if the baseline year chosen is 2005, or 2000, or some other choice?
I fail to see how an even earlier comparison would make the difference you suggest it would.
Unless you want to contend that they had a massive pay rise between 2000/2005 and 2010.
The issue with Zimbabwe is that they are in a balance of payments crisis, caused by both the need to purchase external goods they don't produce themselves as well as to service dollar denominated debt they took on.
There's an argument that countries like Zimbabwe are burdened by debt largely as a consequence of (people from) countries like ours telling them they needed to borrow. Debt is real, and often pernicious, but always forgivable.
In this context the point was that Zimbabwe borrows in a currency it does not itself issue. Which exacerbates the balance of payments problem.
That's true.
It seems reasonable to ask how Zimbabwe arrived in such an unfavourable situation and why it has languished there for so long. There's a historical snapshot of Zimbabwe's debts here (written in 2020). And it's not pretty. I note that the Zimbabwe Coalition on Debt and Development argues that much of the country's debt is illegitimate.
From an international perspective, what useful purpose is served by keeping Zimbabwe's loan arrears on its books?
Or, more generally, whose interests do the international "rules" about debt serve? And how much freedom do individual nations have about their economic policies?
Or, more parochially, why do the prospective governments here think it's important to say what they'll do about national debt? (With AFZ's earlier footnote in mind.)
I think this comes back to part of the problem with the press. They insist in talking about national economic issues as if they are and should be managed like personal finances. Which then draws politicians into that kind of conversation.
I think this comes back to part of the problem with the press. They insist in talking about national economic issues as if they are and should be managed like personal finances. Which then draws politicians into that kind of conversation.
This. And because economic literacy is so non-existent, people don't see through it.
Which is why the Conservatives can (often) get away with the myth that they are good for the economy.
I fail to see how an even earlier comparison would make the difference you suggest it would.
Unless you want to contend that they had a massive pay rise between 2000/2005 and 2010.
I'm not contending anything, except that I'm naturally suspicious of people who pick a baseline year without demonstrating that had they picked any one of the several years prior to their chosen baseline, they wouldn't get a markedly different answer.
I fail to see how an even earlier comparison would make the difference you suggest it would.
Unless you want to contend that they had a massive pay rise between 2000/2005 and 2010.
I'm not contending anything, except that I'm naturally suspicious of people who pick a baseline year without demonstrating that had they picked any one of the several years prior to their chosen baseline, they wouldn't get a markedly different answer.
And my point is that question sounds more profound than it is because you are applying it outside a context in which its likely to be reasonable or useful.
This is going to be most relevant when applied to a measure that's likely to go down as well as up (for instance it would be fair to ask the question when a comparison is made between NHS waiting lists in the present day vs vs the figures in 2010), it's less useful when applied to a figure that should trend upwards, unless you can point to a rapid movement somewhere in the series (hence the question).
It shows a figure that's more or less flat between 2005 and 2008, with the large declines during the early stages of austerity, a nearly ten year period during which it is either flat or declining, followed by a very steep decline in 2022 and a modest uplift the following year.
This is going to be most relevant when applied to a measure that's likely to go down as well as up (for instance it would be fair to ask the question when a comparison is made between NHS waiting lists in the present day vs vs the figures in 2010), it's less useful when applied to a figure that should trend upwards, unless you can point to a rapid movement somewhere in the series (hence the question).
If there is any year to year variation on top of an overall trend, then you're vulnerable to selective picking of a baseline year. The important question is the size of the year to year fluctuation, and not the size of the long-term trend that that fluctuation sits on top of.
I fail to see how an even earlier comparison would make the difference you suggest it would.
Unless you want to contend that they had a massive pay rise between 2000/2005 and 2010.
I'm not contending anything, except that I'm naturally suspicious of people who pick a baseline year without demonstrating that had they picked any one of the several years prior to their chosen baseline, they wouldn't get a markedly different answer.
And my point is that question sounds more profound than it is because you are applying it outside a context in which its likely to be reasonable or useful.
This is going to be most relevant when applied to a measure that's likely to go down as well as up (for instance it would be fair to ask the question when a comparison is made between NHS waiting lists in the present day vs vs the figures in 2010), it's less useful when applied to a figure that should trend upwards, unless you can point to a rapid movement somewhere in the series (hence the question).
It shows a figure that's more or less flat between 2005 and 2008, with the large declines during the early stages of austerity, a nearly ten year period during which it is either flat or declining, followed by a very steep decline in 2022 and a modest uplift the following year.
Asuuming they are still in the UK and in the profession, how much are they earning at the moment
That seems to be an inappropriate measure. Of course, anyone employed as a junior doctor in 2010 would now be earning more in real terms, because they would have 14 years more experience that would justify being on a higher pay grade - and they may have got a position as a consultant or other promotion.
The appropriate measure is are junior doctors (consultants, nurses, rail workers, etc) at the same position on their career path today paid the same, in real terms, as they were in 2008*. The answer is, they aren't, there's a pay deficit of 26% if using RPI or 15% using CPI.
* using 2008 because a) that's what BMA has used and b) that was basically the same as wages for the previous few years so an average of that period before the 2008 global economic decline doesn't seem unreasonable.
This is going to be most relevant when applied to a measure that's likely to go down as well as up (for instance it would be fair to ask the question when a comparison is made between NHS waiting lists in the present day vs vs the figures in 2010), it's less useful when applied to a figure that should trend upwards, unless you can point to a rapid movement somewhere in the series (hence the question).
If there is any year to year variation on top of an overall trend, then you're vulnerable to selective picking of a baseline year.
It only matters if the year to year variation is a significant proportion of the final figure - which given the magnitude of the shortfall is unlikely (unless junior doctors were paid significantly more or less in real terms in the past - i.e the trend line has changed).
The answer is, they aren't, there's a pay deficit of 26% if using RPI or 15% using CPI.
What is the difference between RPI and CPI?
The only differences I've been able to find is that CPI includes things like the cost of house repairs for owner-occupiers that are only relevant to owner-occupiers.
I don't know to be honest, it's not really my area of expertise. But, the differences must be quite significant given the difference in wage erosion produced using the two different inflation indices.
CPI is the index used by the ONS, so is the headline figure we keep seeing reported on our news feeds. But, we also all know that prices in different parts of the retail and service sectors increase at different rates so the inflation each of us experiences will differ from the headline value - eg: food inflation has been higher than other consumer items so those who spend proportionally more on food than, say, new clothes or foreign holidays will have experienced a greater squeeze.
As you say, RPI only includes retail and some associated services, and explicitly excludes cost for home owners. Given that early career junior doctors are less likely to be able to afford to buy, and may be moving around between positions as well, they're probably more likely to be renting than doctors further along their career paths. So, that might be part of the reason the BMA used that measure of inflation to calculate real term wage changes.
If memory serves CPI uses a harmonic mean resulting, all other things being equal, in a lower figure than using an arithmetic mean, which is what RPI uses. The switch from RPI to CPI as the government's preferred measure (and used for pensions etc) was in large part simply due to it being lower most of the time.
If memory serves CPI uses a harmonic mean resulting, all other things being equal, in a lower figure than using an arithmetic mean, which is what RPI uses. The switch from RPI to CPI as the government's preferred measure (and used for pensions etc) was in large part simply due to it being lower most of the time.
geometric mean, but otherwise the the rest is all true.
If memory serves CPI uses a harmonic mean resulting, all other things being equal, in a lower figure than using an arithmetic mean, which is what RPI uses. The switch from RPI to CPI as the government's preferred measure (and used for pensions etc) was in large part simply due to it being lower most of the time.
geometric mean, but otherwise the the rest is all true.
The problem with politicians is that the skills they need to get elected are not the same as those needed to govern well, and it's very rare to find one person with all of them. People who shout the loudest, such as (shudder) Farage, are more likely to gain votes, but once in government their job will entail sitting through interminable meetings and reading mountains of highly technical and extremely dull documents, and somehow staying functional enough to make rational decisions about government policy. And not caring if nobody notices when they've done a good job.
Short of selecting MPs by lot, I don't see a way round the problem.
Isn't a trustworthy and competent civil service which is relied upon by parliamentarians and (especially) ministers supposed to be part of the answer to this problem?
The unspeakable and loathsome Farage is delivering his manifesto as I write, so no doubt there will be useful (?) summaries on the Noos later on today, along with pithy comments...
The very thought of Farage being PM in a few years' time is as unspeakable and loathsome as the man himself.
I suspect it's an unlikely scenario, but who knows? Still, never mind - we might all have been nuked by then, or burnt up/drowned/starved (delete as appropriate) by the climate disaster which many politicians seem to think isn't actually happening.
If 'not being very nice to this government' includes telling them when their policies are unworkable, will break international law or are just batshit crazy, I suppose the civil service hasn't been very nice to this government. I would say that is part of their duty as responsible public servants.
I caught Grant Shapps on Radio 4 Today, this morning.
In his defence, he wasn't the biggest liar on the show as Farage was on.
However, I want to reflect on, and respond to his framing of the discussion. Essentially, he was saying Things are not great in the UK, but we faced a once-in-a-century pandemic and the Russian invasion of Ukraine, so actually we've done really well.
Even if it was true, it's a problematic position. In 2010 - and more importantly, ever since - he and his party have weaponised a once-in-two-generation, international financial crash against the Labour Party. If we simply hold them to their own standards, then everyone is entitled to weaponise the pandemic against them.
Indeed the idea that the UK's situation is due to external factors is not credible, anyway, not least because, in many ways, the effect of the pandemic has passed. I'll come back to that. What I want to do, is to analyse the response to external shocks.
The 2008 financial crash was very similar to the 1929 crash in terms of its size and international implications. The 1929 crash was followed by a banking crisis which is one of the reasons that there was a depression in the 1930s which was an important cause of World War II.
As far as I am aware, there are no serious commentators who don't acknowledge that Gordon Brown and Alastair Darling handled the crisis extremely well. Especially, in terms of providing international leadership that prevented a banking crisis. In a modern economy, a banking crisis is really scary. I do think Brown/Darling could have got more back from the banks than they did but that's a minor quibble really. Osborne was able to sell RBS and Lloyds at a profit. Could Labour have prevented the crisis and/or being better prepared for it? The answer to that question is that the UK fiscal picture would have been essentially the same regardless of the spending before hand - it's a lie to say otherwise, the maths does not support it. Could the UK have regulated the financial services better? Yes. Two points though - unless the UK was regulating the US sub-prime mortgage system, that's only a minor point with very little effect on what happened to the UK and Cameron/Osborne, along with their party, were calling for less regulation at the time.
The reason for labouring those points is that I want to draw the parallel with Covid. Was Johnson in any way responsible for the pandemic? Absolutely not. However: 1) His handling of the pandemic was poor in almost every way. (Details here: https://alienfromzog.blogspot.com/2021/02/covid-19-and-how-johnsons-government.html). And 2) It has been well-documented but not well-discussed that Hunt / austerity hugely undermined the UK's pandemic planning and preparation so that when the pandemic hit, we were not well-placed. (Stockpiles of PPE etc. had been run down...)
My point is simple: The We've done a good job in difficult circumstances argument from the Tories does not stand up to any actual analysis and it's incredible hypocrisy.
The Ukraine invasion, of course, hit energy prices which didn't help. Again, the government bears no blame for this, their response was woeful and inadequate.
Is the pandemic relevant? The economic slow-down of Covid was followed by a very sharp recovery (as standard macro-ecomics would predict). So blaming economic woes now on the pandemic is mainly misattribution. It's not entirely because there are many people who have decided to be economic inactive (who can afford it) in later middle age and so the work-force is smaller and because Covid may have hurt the UK's productivity and because there are chronic health implications of Covid for some. I mention each of these because I want to be as fair as possible but the truth is that they are minor effects on the current picture compared to the massive costs of austerity and Brexit which (on current evidence) has hurt the UK economy's growth potential. We are all a lot worse off than we would be if growth had returned to trend in 2011-12
Comments
All true but I was trying to keep the story as simple as possible at this point, whilst also fighting a post limit. I literally couldn't have written anymore. One of the reasons for including the link.
Inflation is also a more complex story. Too much is bad but too little can actually be a whole lot worse.
AFZ
In the past 12 months I would also be blaming the unions
I don't see how the unions are responsible for the UK's economic woes. Industrial unrest is generally a symptom not a cause, I'd have thought.
Sure, there have probably been more industrial disputes recently than have been for a long time but it doesn't feel 1970s scale to me.
It feels to me like a combination of things getting tougher after the pandemic and poor choices on the part of successive Conservative or Conservative-led governments.
I'm no economist but it strikes me that blaming the unions in this instance would be like blaming the stewards and other staff on an aeroplane flight for mistakes made by the cabin crew.
I followed @Arethosemyfeet's argument/summary - although suspect things are more complicated - but governments being 'less shit' would be a good place to start.
As an aside, I've heard young and quite scary converts to Orthodoxy argue that monarchies are the way to go because the King owns everything, rewards his followers and keeps taxation low lest there be armed rebellion.
Yeah, right ...
And for historical reasons, Sterling has been extremely strong and trusted for a very long time.
Which isn't to say it should be, my contention historically is that we live with the relics of empire and our wealth has been inherited from the ill-gotten gains of exploitation and slavery.
Anyway, without arguing with the detail of the quotes from the IMF, it seems to me that there is much more to lose by damaging sterling with bad political choices than there might be from other weaker currencies.
It's true in a theoretical sense that sterling is an imaginary thing like every other currency. However it is also true in a very real sense that we all gain from the strength of sterling, which is absolutely based on specific types of economic/political management over many years.
As an aside, we were recently asked to go to Zimbabwe for an academic exchange trip thing. As I'm sure everyone knows, their currency has taken a beating for decades, and at present they have something of a cash crisis. Which makes visiting quite difficult - the advice currently is to take what you need for the trip into the country in foreign cash, that bank machines might be empty and international bank cards might not work. For my university, the most critical aspect for a travelling academic is insurance, which at present is difficult. In the end, it was decided that it wasn't possible at this time (which isn't necessarily to say that people living there find it impossible, that other types of visitor find it difficult nor that it won't change again in the future). Which perhaps illustrates how hard it is to operate in a situation with a really weak currency.
Whilst it is true that economies compete in many senses, they also cooperate. The value of Sterling is a relatively small factor in how well the UK economy does. If Sterling falls in value (relative to other currencies) then imports get more expensive. If Sterling rises in value then it makes the prices of exports go up so exporters have a slighter harder time selling their wares. That's basically the whole effect of the relative price of currency, in normal times.
There's one big caveat on that which is oil. Oil is priced in dollars, so even though the UK sources most of its oil from domestic production (around 70%, last time I checked), in terms of the price we all pay as consumers it is effectively an import. Only in terms of pricing: a change in value of Sterling - such as the fall that happened with Brexit pushed up oil prices.
The situation in Zimbabwe is somewhat different. When confidence is lost in an economy and a currency and you have hyperinflation then it's a whole horrible mess. I may be wrong but I think 1923 Germany is the last time that happened in Europe.
The sort of competition that is real for the UK economy is for investment. Both internal and inward. Especially for inward investment, stability of the currency is important - otherwise investors cannot get a meaningful return but otherwise the relative value of Sterling to the Euro or the Dollar is nor particularly important.
AFZ
The better an economy is doing the more economic activity it has available to trade with other economies. The effects of that on another reasonably healthy economy outweigh the negative effects of competition overall. That's why in the 1920s, when governments reacted to the Great Depression by taking protectionist measures that exacerbated the depression.
What matters is not a nominal figure but that re-valuations don't happen frequently. At the current point what really matters is convertibility with the US dollar (as it's the global reserve currency), in historical terms sterling has gradually devalued against the dollar ever since the end of Bretton Woods.
The issue with Zimbabwe is that they are in a balance of payments crisis, caused by both the need to purchase external goods they don't produce themselves as well as to service dollar denominated debt they took on.
Indeed. Stability of legislation and regulation is also relevant, over which governments have quite a lot of control.
There's an argument that countries like Zimbabwe are burdened by debt largely as a consequence of (people from) countries like ours telling them they needed to borrow. Debt is real, and often pernicious, but always forgivable.
In this context the point was that Zimbabwe borrows in a currency it does not itself issue. Which exacerbates the balance of payments problem.
There's nothing inherently virtuous about unions. Governments can abuse power. Unions can abuse power. Any group of humans that is given power by some process can abuse that power. And if what you have is two rival power blocs competing, it often develops in to a cooperative conspiracy that screws everyone else at the expense of the major players in the rival power blocs.
I'd agree that unions are not responsible for the current problems in the UK economy, and would suggest that this is because since the Thatcherite reforms, the ability of the unions to leverage their power is limited.
Indeed that's true. For the purpose of this discussion though it's not strictly relevant. If oil was priced in £'s it would be different. Oil is priced in dollars regardless of where it comes from, so changes in the relative value of the pound and dollar affect the price we all pay. Oil being vital for road transportation means that a rise in oil prices triggers a rise in food and other goods as well.
For the purposes of our discussion here about the election though, the relative value of Sterling is not a major factor.
As an important aside, though North Sea oil and gas are sold on the international market at market rates so when politicians tell you that by allowing more oil and gas to be produced, UK prices will fall are lying to you. The UK fields are tiny by world-wide standards and therefore the increased supply is nowhere near enough to affect prices.
AFZ
P.S. If anyone is interested.... https://assets.publishing.service.gov.uk/media/654e1dee5d6095000dbec8fb/Diversity_of_Oil_Supply_2022.pdf
Train divers were greedy.
Junior doctors are not demanding 35%.
Junior doctors have calculated how much pay has been eroded since 2010. The calculation shows that to correct that would take 35% now. What Junior doctors are demanding is an above inflation rise now with a commitment to honest negotiations towards pay restoration going forward.
As to the cost, because there isn't actually that many Junior doctors it's £1-2Bn. The cost of not fixing Junior pay is a helluva lot higher.
The only legitimate argument the government has is the potential knock on effect. What if every group starts demanding such rises? Well there's a simple defence in that the other groups have not had the same erosion so I think it doable.
In fact, the Scottish government managed something similar so why not?
AFZ
Whether or not this is the case - and I don't think it's that simple - it still doesn't make them responsible for the nation's economic woes, which go back longer than the last 12 months.
As a sidenote, whenever someone (of any political persuasion) makes a reference like this to a particular baseline year, I assume that the baseline year has been carefully chosen to make their case look good.
What answer do you get if the baseline year chosen is 2005, or 2000, or some other choice?
The BMA calculations are actually based on 2008, which gives a 26% real-term pay cut based on RPI. The 35% is what's needed to hike current salaries to what they would have been if not cut by 26%. If you use CPI as your inflation figure the pay deficit is less than that, around 15%.
C4 news fact checker published a year ago explains things in more detail
I fail to see how an even earlier comparison would make the difference you suggest it would.
Unless you want to contend that they had a massive pay rise between 2000/2005 and 2010.
It seems reasonable to ask how Zimbabwe arrived in such an unfavourable situation and why it has languished there for so long. There's a historical snapshot of Zimbabwe's debts here (written in 2020). And it's not pretty. I note that the Zimbabwe Coalition on Debt and Development argues that much of the country's debt is illegitimate.
From an international perspective, what useful purpose is served by keeping Zimbabwe's loan arrears on its books?
Or, more generally, whose interests do the international "rules" about debt serve? And how much freedom do individual nations have about their economic policies?
Or, more parochially, why do the prospective governments here think it's important to say what they'll do about national debt? (With AFZ's earlier footnote in mind.)
This. And because economic literacy is so non-existent, people don't see through it.
Which is why the Conservatives can (often) get away with the myth that they are good for the economy.
AFZ
P.s. I hope this is allowed... just a bit of fun but how many Tory MPs will there be after the election?
https://www.surveymonkey.com/r/CNZFXCG
I'm not contending anything, except that I'm naturally suspicious of people who pick a baseline year without demonstrating that had they picked any one of the several years prior to their chosen baseline, they wouldn't get a markedly different answer.
Googling leads me to a chart in this document: https://www.nuffieldtrust.org.uk/resource/exploring-the-earnings-of-nhs-doctors-in-england which suggests consistent real-terms growth in junior doctor's pay from 1990 to 2005, followed by real-terms declines until 2014, then not far off net zero until 2021, whereafter there was a big real-terms decline.
And my point is that question sounds more profound than it is because you are applying it outside a context in which its likely to be reasonable or useful.
This is going to be most relevant when applied to a measure that's likely to go down as well as up (for instance it would be fair to ask the question when a comparison is made between NHS waiting lists in the present day vs vs the figures in 2010), it's less useful when applied to a figure that should trend upwards, unless you can point to a rapid movement somewhere in the series (hence the question).
It shows a figure that's more or less flat between 2005 and 2008, with the large declines during the early stages of austerity, a nearly ten year period during which it is either flat or declining, followed by a very steep decline in 2022 and a modest uplift the following year.
If there is any year to year variation on top of an overall trend, then you're vulnerable to selective picking of a baseline year. The important question is the size of the year to year fluctuation, and not the size of the long-term trend that that fluctuation sits on top of.
The appropriate measure is are junior doctors (consultants, nurses, rail workers, etc) at the same position on their career path today paid the same, in real terms, as they were in 2008*. The answer is, they aren't, there's a pay deficit of 26% if using RPI or 15% using CPI.
* using 2008 because a) that's what BMA has used and b) that was basically the same as wages for the previous few years so an average of that period before the 2008 global economic decline doesn't seem unreasonable.
It only matters if the year to year variation is a significant proportion of the final figure - which given the magnitude of the shortfall is unlikely (unless junior doctors were paid significantly more or less in real terms in the past - i.e the trend line has changed).
The only differences I've been able to find is that CPI includes things like the cost of house repairs for owner-occupiers that are only relevant to owner-occupiers.
CPI is the index used by the ONS, so is the headline figure we keep seeing reported on our news feeds. But, we also all know that prices in different parts of the retail and service sectors increase at different rates so the inflation each of us experiences will differ from the headline value - eg: food inflation has been higher than other consumer items so those who spend proportionally more on food than, say, new clothes or foreign holidays will have experienced a greater squeeze.
As you say, RPI only includes retail and some associated services, and explicitly excludes cost for home owners. Given that early career junior doctors are less likely to be able to afford to buy, and may be moving around between positions as well, they're probably more likely to be renting than doctors further along their career paths. So, that might be part of the reason the BMA used that measure of inflation to calculate real term wage changes.
geometric mean, but otherwise the the rest is all true.
Yes, you're right, thank you.
Short of selecting MPs by lot, I don't see a way round the problem.
The very thought of Farage being PM in a few years' time is as unspeakable and loathsome as the man himself.
I suspect it's an unlikely scenario, but who knows? Still, never mind - we might all have been nuked by then, or burnt up/drowned/starved (delete as appropriate) by the climate disaster which many politicians seem to think isn't actually happening.
In his defence, he wasn't the biggest liar on the show as Farage was on.
However, I want to reflect on, and respond to his framing of the discussion. Essentially, he was saying Things are not great in the UK, but we faced a once-in-a-century pandemic and the Russian invasion of Ukraine, so actually we've done really well.
Even if it was true, it's a problematic position. In 2010 - and more importantly, ever since - he and his party have weaponised a once-in-two-generation, international financial crash against the Labour Party. If we simply hold them to their own standards, then everyone is entitled to weaponise the pandemic against them.
Indeed the idea that the UK's situation is due to external factors is not credible, anyway, not least because, in many ways, the effect of the pandemic has passed. I'll come back to that. What I want to do, is to analyse the response to external shocks.
The 2008 financial crash was very similar to the 1929 crash in terms of its size and international implications. The 1929 crash was followed by a banking crisis which is one of the reasons that there was a depression in the 1930s which was an important cause of World War II.
As far as I am aware, there are no serious commentators who don't acknowledge that Gordon Brown and Alastair Darling handled the crisis extremely well. Especially, in terms of providing international leadership that prevented a banking crisis. In a modern economy, a banking crisis is really scary. I do think Brown/Darling could have got more back from the banks than they did but that's a minor quibble really. Osborne was able to sell RBS and Lloyds at a profit. Could Labour have prevented the crisis and/or being better prepared for it? The answer to that question is that the UK fiscal picture would have been essentially the same regardless of the spending before hand - it's a lie to say otherwise, the maths does not support it. Could the UK have regulated the financial services better? Yes. Two points though - unless the UK was regulating the US sub-prime mortgage system, that's only a minor point with very little effect on what happened to the UK and Cameron/Osborne, along with their party, were calling for less regulation at the time.
The reason for labouring those points is that I want to draw the parallel with Covid. Was Johnson in any way responsible for the pandemic? Absolutely not. However: 1) His handling of the pandemic was poor in almost every way. (Details here: https://alienfromzog.blogspot.com/2021/02/covid-19-and-how-johnsons-government.html). And 2) It has been well-documented but not well-discussed that Hunt / austerity hugely undermined the UK's pandemic planning and preparation so that when the pandemic hit, we were not well-placed. (Stockpiles of PPE etc. had been run down...)
My point is simple: The We've done a good job in difficult circumstances argument from the Tories does not stand up to any actual analysis and it's incredible hypocrisy.
The Ukraine invasion, of course, hit energy prices which didn't help. Again, the government bears no blame for this, their response was woeful and inadequate.
Is the pandemic relevant? The economic slow-down of Covid was followed by a very sharp recovery (as standard macro-ecomics would predict). So blaming economic woes now on the pandemic is mainly misattribution. It's not entirely because there are many people who have decided to be economic inactive (who can afford it) in later middle age and so the work-force is smaller and because Covid may have hurt the UK's productivity and because there are chronic health implications of Covid for some. I mention each of these because I want to be as fair as possible but the truth is that they are minor effects on the current picture compared to the massive costs of austerity and Brexit which (on current evidence) has hurt the UK economy's growth potential. We are all a lot worse off than we would be if growth had returned to trend in 2011-12
AFZ
The 'on the up' of '97 is desperately oversold. There is no such 'up' right now.
There was a recovery in 2010 until Osborne killed it.
But the Tory economic myths never seem to die.
How is the economy "on the up"?