Monday, 21 May 2018

Getting An Argument Entirely Backwards (And Why Falling Wages Are A Good Thing Overall)

Sonia Sadha does a brilliant job of getting her argument about pensions and risk entirely the wrong way round. She tells us that:

"We need to ask hard questions about why young people are being expected to bear increasing amounts of individual risk. The obvious example is pensions. Gone are the days when companies pledged to pay retired workers a guaranteed income for the rest of their lives; today’s workers must, instead, save into an individual pot that must last."

I'm sure the irony will be lost on most people associated with The Guardian - but this, of course, from a paper whose columnists continually bleat on about the plight of falling wages. To understand why this article is misjudged, you need to understand why falling wages are not the bogie that most think they are.

But before we get to that, it's a shame Sonia Sadha doesn't seem to grasp that pensions are not separate from the price of labour - they are deferred labour costs bundled into the same overall package as pay. Whether the pay/pension costs to the firm are at a ratio of 90/10, 80/20 or 70/30, they are still total costs that a business must factor into its overall balance sheet.

In an age where firms are forced to pay a minimum wage, which puts the value of labour out of whack with the price of labour, and then consequently only serves to increase both unemployment and consumer prices* - and in an age where people are living longer and longer, making pensions prohibitively expensive - the reality is, more and more employees are not worth the combined costs to their employer of their pay and a lengthy pension payment plan.

Because your pension is deferred pay, the only way for many employers to keep up the kind of pension commitments that were prominent when we didn't live so long would be to increase the pension to pay ratio, which would mean cutting pay to increase pension duration. And that's a policy you will never see a Guardian columnist endorse. What Sonia Sadha sees as the ignominy of apparently "forcing individuals to bear more risk" is really just a simple case of arithmetic.

Why falling wages are a good thing
Now, about falling wages: falling wages are, in net terms, a good thing for an economy overall. Obviously they are bad for the people whose wages have fallen - but falling wages are a transfer from workers to employers (and indirectly, to consumers) - there is no net negative externality, it is merely a distributional effect.

But there are several additional positive elements to lower wages. People tend to confuse economic growth and job creation, but most of the real benefits of economic progress come from saving labour, not increasing its cost. Lower wages means it costs less to produce something, which is a similar benefit to finding a new efficiency or a new technological innovation.

On top of technology improving living standards, and consumers having goods and services more cheaply, there is a third positive to falling wages in places like the UK and USA: such as boosts for our domestic economy (not to mention poorer people in the developing world having more money when home grown inefficiencies are outsourced). This is to do with the ratio of total labour costs to real output, and how the decreasing wage you need to pay employees to produce one unit of output increases the likelihood of keeping it in this country - another thing The Guardian writers have always claimed to like.

* This is basic Econ 101 that politicians love to ignore. The supply and demand curves of labour are factors that mustn't be overlooked, because employment and wages are always in a trade off tension. Price floors like a state-imposed minimum wage artificially hold wages higher than their marginal value, which means when economic supply and demand forces are trying to push wages down, something has got to give with a minimum wage law, and it's usually unemployment and increased prices for consumers.  





Sunday, 20 May 2018

Writer's Update

I know, I know - I've been quiet recently in blogosphere: a few big things have shaken up my life recently - moving house, my father's dementia, and the death of a much loved friend being the three biggest things. Under these conditions, writing has had to take a back seat. For anyone interested in what I'm chipping away at, blogging is only a tiny part of the list of projects I have on the go, and these are the biggest projects - what I like to call bestsellers that nobody has yet read!

An epistolary of wisdom and general philosophies for life

A book about God, maths and the universe

A book on morality

A book about love

A comprehensive book on economics

A book about Christianity called The Genius of the Invisible God

A book about Christianity called The Economics of being a Christian

A book called Marvin The Supercomputer, based on a massive thought experiment

A book on psychology and human behaviour

A book on fundamentalism ,cults and other dangerous in-group tribalisms

A couple (maybe three) of books of essays comprising the material that doesn't belong in any of the above

I also want to write a few plays, and I have what I think is a good idea for a TV drama screenplay too - a drama about different types of genius.

The danger is, life is so short that you really need to make these projects come to pass - make them happen!! - and this is where you need a rigorous 'To do' list structure and self-discipline in not getting sidetracked.

As I only write non-fiction, I am not going to be very edifying on the literary mechanics that operate within the author's creative engine (for that you can go to my best friend, author and creative writing lecturer Ian Nettleton).

I'm also not going to be much of a mentor to anyone on the art of self-discipline within creativity - as I have almost none. My only job in the past couple of years has been to edit the books I listed above. But instead I can't turn off my gushing tap for producing new stuff (blogs, essays, contributions to debates, fresh projects, you name it) - which means I'm in danger of always having astronomically more to do than I ever get done. It often feels like trying to mop up the water from the kitchen floor after a pipe has burst. Someone needs to temporarily turn me off at the mains.

What should help is that I now work a compressed fortnight, which means I have every other Monday off. I've decided to guard that time in order to focus on my projects, and hopefully make better progress in the coming year. Additionally, I am going to be better at writing targets for myself, as a better way of putting tangible goals on paper and measuring progress more rigorously.

Monday, 14 May 2018

The Strange Yearning For UK Manufacturing

One of the peculiar things about the current political and economic landscape is politicians' preoccupation with the UK manufacturing industry, and how important it apparently is to reconstitute some of our past manufacturing glories. It's true we once had past dominance in the manufacturing industries (along with about a dozen other leading countries), but just because people of past generations have been accustomed to something doesn't mean things should always stay the same.

When making things was the primary way to earn a living, and physical labour and extracting raw materials provided the substrate for big business, it was understandable that people were emotionally wedded to Britain's place in the global manufacturing industry. For most, their living depended on it. But the world has changed a lot.
Nowadays other nations have both the absolute and comparative advantage in manufacturing goods, and we have both the absolute and comparative advantage in providing services. IT, design, marketing, consultation, financial, legal, real estate, health care and advertising are huge industrial job creators, as are restaurants, hotels, bars and holiday services. These are based more on technical and financial assistance, leisure, entertainment, health and well-being than on physical labour and making things with raw materials.

Manufacturing things simply isn’t the source of high value, high wages or big profits like it was in the past. In fact, the UK is made better off when we have a manufacturing trade deficit with countries than can produce goods cheaper and more efficiently than we can.
Not only is it an oddity how politicians hanker for manufacturing, and galvanise people into believing that that is what they should be shouting for; it is equally odd how so many people don't understand that when other countries have the manufacturing advantage over us in terms of cheapness, quality and efficiency, it is a good thing that we buy our stuff from them, and not produce it ourselves.