2015 seems to be the year of the foreign headline for me (albeit wrongly declined on occasion – it’s magnuM opus not magnuS ). But whether you’re intrigued by this new slant, or you just look forward to what I have to say, thankyou for reading my thoughts. I hope you enjoy them, and David’s cartoons (or maybe you just enjoy the cartoons?).
I shan’t ask for any more of your indulgence but I shall now explain why I think that this acronym makes the main event of 2015 (in the U.K.) – our impending general election – something of a sideshow. My contention is that whoever wins, or partially wins, or grabs power by an alliance (unholy or otherwise) with parties with whom they have said they will never ally, they won’t make much difference to our lives because, as a national government, they can’t do much more than has been done. They can make some cosmetic changes but it will take more than one Cameron or two Eds to alter the 4 things that need addressing: jobs, equity, taxation and education. I realise that these sound like the sort of things that politicians address but let me explain why they can’t solve them.
We can create jobs, and have done well at doing so. But what we really want are valuable jobs and that is a much bigger challenge for two reasons: low skilled work can be carried out far more cheaply in developing countries; and technology reduces the reliance on those workers that are required. So jobs don’t make enough money to satisfy us.
It’s equity that does this and the main reason for the rising inequality, in my view and that of some others more economically literate than me, is that the top 1% and especially the top 0.1% invest in equity, not cash, and other so-called safe things. Until this message is heard there is no chance of the wealth gap getting smaller. Robert Peston is continuing to push the message that in the Great Recession, everyone got poorer except the very wealthy. He didn’t support this and I find it hard to believe. My straw poll reveals that everyone got a bit poorer. But rather than become more risk averse, those that didn’t reduce their appetite for risk are now doing well again.
Until this message is received we will have to rely on taxation to reduce wealth inequalities. But again the problem is too big for a national government to handle because ever-increasing amounts of wealth are being generated in low tax or no tax places. I also believe that this is exaggerated because the greater wealth creators (financial services and software rather than manufacturing and services) are the most mobile. One interim solution would be to tax more of the things that are less mobile and I advocate taxing of residential property.
Politicians can’t say that of course because people’s financial education is not sufficiently deep or widespread to be able to demonstrate the benefit to us all: instead of having equity in something that produces nothing, economically, we would invest in equity that does produce wealth, and so turn some of our salary into real value (I’d introduce tax incentives for this at the same time as taxing houses).
I think that the new courses in financial education of sixth formers are a great idea but we need everyone to have good financial understanding, rather than rely on their children to pass on this knowledge. If that worked, if people really understood what made them wealthy, then we could transform our economy and it wouldn’t only be the Chancellor of the Exchequer who would do a jeté for joy.