Remove 8 zeros from the US national figures and show it as a household budget.
• Annual family income: $21,700
• Money the family spent: $38,200
• New debt on the credit card: $16,500
• Outstanding balance on the credit card: $142,710
• Total budget cuts: $385
Here is the UK equivalent for 2011 (taking off 7 zeros)
Family income: £54,800 (including £25,300 of income tax and NI)
Family spending: £64,800
Credit card balance at start of year: £90,900
Interest on the balance: £4,300
Total amount added to the credit card: £14,300
Total planned budget cuts: £5,000
Through the 1970s and 1980s in Great Britain we had an even nastier kind of socialism than usual (which takes some doing) called Militant Tendency. They were so bad and nasty that nobody in their right mind would vote for them, so they became a part of the Labour party, where their aims, aspirations, ambitions and policies could be hidden from public view whilst being advanced surreptitiously. They were like a small parasite trying to take over a bigger organism for their own benefits. In politics this is called entryism. It took a long time for the Labour leadership to grow big enough balls to kick Militant out, even though they clearly broke party rules. But eventually they did, before the parasite destroyed them.
Zoom forward around 40 years and we have a similar phenomenon, this time on the right and in America, it is called the Tea Party and it is a more right wing version of the Republican party that is using the party to advance its own agenda.
The United States of America has a fundamental problem. The last two presidents, Bush and Obama, have been abysmal and have spent immense, almost unbelievable, amounts of money that the country simply doesn’t have. With no thought to how it will ever be paid off. They only got away with this profligacy because the dollar is the world’s reserve currency so there is a big queue to buy American bonds.
America grew to be great by implementing libertarian policies with low spending, low tax government. Now they have a total muddle with high spending, low tax government and it quite simple cannot go on. America needs to cut back the size of the state, massively increase taxation, or some combination of the two. We know from looking at the rest of the world that cutting back the state works best, but it is difficult to get the state to realise this, they mostly don’t want to cut themselves back, no matter how inappropriate their spending is. They always want to spend more, just look at what Gordon Brown did.
The Tea Party movement is a grassroots, populist movement within the Republican party that seeks to achieve this return to libertarianism and their “Contract from America” contains the sensible policies needed to fix the vast economic problems that they have:
Identify constitutionality of every new law
Reject emissions trading
Demand a balanced federal budget
Simplify the tax system
Audit federal government agencies for waste and constitutionality
Limit annual growth in federal spending
Repeal the healthcare legislation passed on March 23, 2010
Pass an ‘All-of-the-Above’ Energy Policy
Reduce Earmarks
Reduce Taxes
It is a pity we don’t have a Tea Party in the UK, these are the kinds of policies we need to sweep away the evils of socialism that are embedded in our society and which cause us an immense number of social and financial problems. The recent riots, for example.
But the Tea Party has a problem. Whilst it is practising entryism on the Republican party there are some who are practising entryism on the Tea party. And what these people are doing is bible bashing. They are people who actually believe in an all powerful divine being, that are religious fundamentalists who want to impose their views on everyone else. And they are very socially illiberal. They don’t even like the knowledge of the science of evolution being taught, never mind homosexuality, the use of recreational drugs or a woman’s right to abortion. In other words they are not the sort of person that the world wants or needs to have with any sort of power in society. We have seen the effect of similar nutters running Iran.
Which makes the Tea Party a bit of a curates egg. Economically they are bang on the nail and are proposing exactly what is needed. But the illiberal Christian fundamentalist nutters who they are carrying along with them as fellow travellers are not the sort of person that any educated person wants to see anywhere near power.
As discussed many times before on the blog the creation of the Euro (the world’s biggest currency) allowed counties to behave differently than when they had their own currencies. It gave them a higher credit rating so they could borrow more easily and at lower interest rates. To prevent excesses there was the Stability and Growth Pact (SGP) that limited each country to an annual budget deficit no higher than 3% of GDP and a national debt lower than 60% of GDP (oh how they wish these were the case now). With punitive penalties for breaking this. France then did break it and wasn’t punished which opened the floodgates for very badly managed countries to spend, spend, spend (much as Gordon Brown also did in the UK). Presumably with the assumption that ultimately the other member states of the Euro would bail them out.
The IMF has come up with some bail outs, the European Financial Stabilisation Mechanism (EFSM) and the European Financial Stability Facility (EFSF) were set up but they were always too little too late. But the reality is that if the seven countries listed above start falling successively into default then all the money in the world won’t stop it. The debts are just unsupportable.
For a country going into default isn’t the end of the world. Those that have done it in recent times like Russia and Argentina have come out of it with far better and far stronger economies. It just hurts a lot at the time and that hurt is also felt by everyone who has lent to that country.
If the Euro countries had any sense they would have a simple rule that if any country defaults then it gets kicked out. This would work in so many ways to prevent problems and to handle them when they occur. But the EU politicians are doing the exact opposite, they are trying to keep everyone in, no matter what the cost. But it is something they may well not be able to afford or be allowed to pay for by their voters.
Meanwhile the market would probably like to see Eurobonds as the answer, borrowing jointly and severally guaranteed by all the Eurozone members. This would be fun with Greece going back to spend, spend spend with other people’s money.
The problem with the Euro is that it is fundamentally technically flawed. It tries to bundle together disparate countries with disparate economies and disparate attitudes to financial probity. The constituents are insufficiently heterogeneous for it to work. Sweden has been very sensible and very crafty in the way it has kept out of its obligation to join.
So it is time for us to break out yet more popcorn and watch from the sidelines as this story evolves. As it must because the current situation is impossible to maintain. We are in for some fireworks.
In an open market price is driven by just one factor, and that is sentiment. Mathematicians can use computers to come up with wonderful models, but at the end of the day it is what people are prepared to buy and sell for that really matters. The two extremes of sentiment are fear and greed and there are times when each of these gets a grip of the market. And right now it is fear.
The Euro allowed governments to borrow money far easier than if they had their own, sovereign, currency. It also kept interest rates on that borrowing down to very cheap levels for dodgy countries, which encouraged them to borrow spend even more. And spend they did, living the good life on other people’s money with no plans to ever pay it back.
So now we have the train wreck of whole countries going bust whilst the politicians do their Nero impressions and play their fiddles. Greece, Portugal, Ireland, Spain, Italy, (the original PIIGS) plus the bonus member that is Belgium. The markets have woken up to the fact that money lent to them is not safe so theses countries are having trouble borrowing any. And of course they still need to borrow like crazy because they are still spending far more than they earn. In some of these countries paying income tax is seen as being optional, an option that many can’t be bothered with.
The biggest problem, as ever, has been socialist governments who think it is the state’s job to spend other people’s money. They think that the more they spend the better the job they are doing. And actually earning the money to pay for things is someone else’s problem. We had this disease in the UK with Gordon Brown but thankfully the people here booted him out and now we have a chancellor that is trusted by the markets. You can see that we would be joining the PIIGS pretty quickly if Ed Balls’s ludicrous plans were implemented.
What we are seeing is the beginnings of the biggest financial disaster since the great depression. Or even worse. Some people try to play down huge market movements as “corrections”. They are far more than that. Because the politicians continue to only do enough to prop up Greece from falling over the edge we seem to be in a surreal world where everything happens in slow motion. So the markets have been very slow to react to the reality that is staring them in the face.
Justice seems to be happening in that France created this problem many years ago by breaking the rules of the Euro club. Now it is the French banks that are massively exposed in Greece and in Italy. They are probably all going to end up owned by the Chinese! That’s if the Chinese are feeling generous, because they are the only nation on planet earth with the financial muscle to rescue the situation.
Right now any country that defaults should be kicked straight out of the Euro, it is only the threat of this punishment that will prevent contagion. Then Greece needs a package imposed on them that is affordable and realistic. This will involve banks and countries taking a very severe haircut, but it will be vastly cheaper than letting the whole castle of cards come tumbling down. But the chances of sensible, decisive action like this happening currently look close to zero.
And all the financial multi millionaires sunning themselves on the beaches of Barbuda, Anguilla and St Barts must be flattening the batteries of their Blackberries pretty quickly and many will be scrambling in the queue for first class tickets back to London. They will be a lot poorer by the time they get here unless they have gone short like crazy, which is hardly likely from a tropical beach.
There are two different ways to run a society, socialism and libertarianism.
With libertarianism people are allowed to keep most of the money that they earn, they can then make their own choices about spending it on the goods and services that they want and need. The government provides services that individuals cannot provide for themselves, like national defence. And there are safety nets for those in society who are genuinely unable to provide for themselves.
It is with libertarianism that the United States of America grew to become the richest and most powerful nation on earth. Something that two successive profligate spending presidents have done their best to destroy.
It is pretty obvious that libertarianism works a whole lot better than socialism, people are just so much better than the state at spending their own money. And the state is incredibly inefficient at supplying anything, so the less that they supply the better the economy works.
It is mainly socialism that has dragged Great Britain down from being the richest nation on earth and that has destroyed many of our traditional industries.
In the real world libertarianism produces amazing results. In China (supposedly a communist country!) the private sector is 80% of the economy and the state is just 20%. And their commercial success is such that they now produce half of all the world’s manufactured goods. Many developing nations are following this model. But the Chinese copied it from Hong Kong.
In 1961 an Britain, John James Cowperthwaite, became financial secretary of Hong Kong, then a very poor colony with no resources other than its workforce. He invented and implemented “positive non interventionism” a highly libertarian management of the economy. This worked like magic and between 1961 and 1997 Hong Kong’s gross domestic product grew to be 180 times bigger! From being a very poor nation the people of Hong Kong now have a GDP per capita (PPP) of $45,736 whilst in Britain we manage just $35,843. They are richer than us and continue to become even richer whilst we wallow in socialist inefficiency. And their MAXIMUM income tax rate is 15%.
In China an Britain, Sir John James Cowperthwaite, is a hero for the wealth that his ideas have bought them. They make busts of him to celebrate this. I suggest that George Osborne buys one of these busts, puts it on his desk and uses it for inspiration.
Over the last week the biggest story amongst the chattering classes was about Rupert Murdoch, his organisation, the people in it and sundry other actors in the unfolding drama. Meanwhile the real big story, the matter that most galvanised the most members of the UK population was that energy prices are to rocket, this at a time when most real household incomes are falling and when many are already having trouble meeting their energy bills.
But the story that will possibly have the biggest impact on our lives is that the Euro zone contagion has spread to Italy, as predicted in this blog. In reality it is quite amazing that it took so long for the financial world to cotton on, it is not as if the figures are secret.
We now know that Greece is definitely going to default on its government debt. Firstly because the task of servicing and paying back their loans is financially impossible. Secondly because the Greek people don’t see why they should pay back the money they have borrowed and spent when the rich Germans can pay it off for them. The Greeks don’t like to pay taxes and they expect to retire on a big government paid pension when they are 50, why should they be expected to give up the good life that the rest of Europe has paid for since 1981?
When the default happens the debt will be written down by, say, 50%. In which case the Greeks would eventually be expected to pay back half what they have borrowed and the lenders will take the loss on the other half. If the write down isn’t big enough the Greeks still won’t pay the loans back, so the write down needs to be significant. The losses will hit every bank in Europe and many elsewhere in the world. It will also hit lots of governments really hard. So there will be a big fallout and big costs for everyone including you and me.
Then of course the Portuguese and the Irish will say that if the Greeks receive this write down then they deserve the same. So, inevitably all the banks and governments will take a further hit. So now we are talking about a far bigger upset than the sub-prime contagion that started in 2007 and which took out Lehman Brothers. Which brings us to the dominoes.
Greece 305
Ireland 204
Portugal 229
Italy 2,055
Spain 1,410
Belgium 466
UK 2,247
What is not good is that the financial markets are already writing this domino effect into their activities, which makes it even more likely to happen.
So how will the world handle defaults on this scale? The simplest way is for the governments involved to print a lot of new money. It is called quantitative easing and it was used to help pay for the consequences of the sub-prime disaster so it is a well trodden path. So very many hundreds of new Dollars, Pounds and Euros will pay off debt, but in doing so they will devalue all the money that is already out there by way of inflation. The commercial banks will be in big trouble because the losses from the write downs on their lending will erode their capital bases. The way out of this is for governments to invest in the banks in the form of new equity, once again a well trodden path.
Once you realise what is going to happen you can see why gold, which provides no income, is rocketing in value. Events will be so seismic that they will put many economies into recession and will reduce the quality of life for hundreds of millions of people. Thank you Greece. One good side effect will be that reduced energy demand will bring down electricity and gas prices for overburdened British households.
Meanwhile our politicians are being indecisive and are refusing to get a grip on things. Ostriches with their heads in the sand. German politicians know that their voters will be making the biggest pay outs and they know that it will be exceedingly unpopular. But it is what will happen no matter what way events unfold. It would be far better if politicians could accept the facts and then take control of events because the way things are going just now we could descend into the same sort of chaos that attended the sub-prime crisis.
One player on the world stage that could cushion the blow for everyone is China. They did it during the sub-prime crisis by sharply increasing their domestic consumer demand and they easily have the money to do it again. In fact so interconnected is the global economy these days that the Chinese economy will take an enormous hit if they don’t act as fairy godmothers. Being generous will be the cheapest route for them.
And so what of the Euro, the fatally flawed mechanics of which allowed the Greeks to instigate this whole mess? It looks like the politicians think that it will only work going forward with fiscal union. So ironically events that should lead to less federalism will lead to more federalism. As to who will be allowed to be in the Euro, that is a different matter. There is talk now of a Super-Euro for the financially responsible “northern” countries with the dissolute “southern” countries forced back to their Drachmas, Pesetas, Liras, Escudos and Punts.
All in all this is far, far more important and will impact on us far more than tabloid journalists behaving like tabloid journalists and corrupt policemen behaving like corrupt policemen.
As regular readers will know the public or state sector of our economy is parasitic on the private sector, where all the wealth is generated. Not only that, the state sector is only about half as productive as the private sector yet is more highly paid. And the activities that the state sector undertake are centrally dictated instead of being driven by the market, which makes them even more inefficient. Currently, thanks to the gross ineptitude of the last Labour government, the state sector has ballooned to become over half the British economy, an immense burden on the private sector who have to earn the money to pay for it. Especially as the last Labour government borrowed like crazy to pay for their profligacy. Debt that interest has to be paid on and which needs to be paid back.
The current government is trying to cut public expenditure whilst increasing taxation in what is a vain attempt to balance the books. They have been very timid, merely rolling back a few years in expenditure terms. This is because they are fearful of making things worse with an unemployment led recession. They need not fear, the private sector is employing new people faster than the public sector is losing them. There are always jobs for good people and still plenty are arriving here from Eastern Europe and finding jobs.
Now the Office for Budget Responsibility (OBR) says that we are headed for big trouble. State expenditure is still far, far too high. Government debt as a percentage of Gross Domestic Product (GDP) is currently under 70%, in itself this is a shocking figure and is the heritage of Gordon Brown’s economic mismanagement. However it is forecast to rise to 107% by 2060. As a nation we are peering over the edge of a precipice and are heading for a situation far worse than that of Greece. Nobody is big enough to bail us out.
It is a simple matter of fact that the less a state is involved in an economy the more successful that economy is. 100% state control, as in the old Soviet Union, is a recipe for disaster, whilst a state that is 20% of the economy, as in China today, is a recipe for booming wealth. You only have to look at the vast success of Hong Kong and Singapore over the last 20 years to see the benefits of a small state. This is what Britain needs, a huge cutback in the size of the state which would allow the private sector to grow and generate lots of wealth. Here are some policies:
Repeal legislation that costs money to implement. Especially political correctness and health and safety laws. Let people go back to using common sense.
Minimally enforce European legislation, instead of gold plating it as is now the case. Go back through previous European legislation and pare it down to the bone.
Increase retirement age again towards 70 for the state pension and for public sector pensions.
Wage freeze the massively overpaid sectors of the public sector, GPs, policemen and firemen for instance, till inflation brings it back to where it should be.
Build a huge brand new airport east of London with fantastic infrastructure. The lack of this is immensely damaging to our country. European competitors are now better connected.
Massively increase criminal fines, especially for career criminals and confiscate their goods to pay the fines. Only imprison those who are a menace to society.
Do not give any state aid whatsoever to economic migrants who have not contributed to our economy. Significantly raise the bar for asylum seekers. There are billions of people in the world who probably currently qualify.
Prune our armed forces back to our real needs. Do we need all those tanks in Germany, warships scattered around the world etc etc? Build big volunteer reserves for emergencies. Cull senior officers by at least 75%. Don’t fight other people’s wars.
Re-jig the rules of the dependency culture so it doesn’t pay to join a dissolute underclass. Especially stop babies from being used as an income stream.
Close down the disability gravy train except for the relatively few who are genuinely incapable of work.
Depending on your political viewpoint you may think that some of these are radical. But we will see many of them, there is no alternative.
The Greeks are just like the British Labour party, they will foolishly spend other people’s money till they reach the limit of finding people stupid enough to lend to them. According to Greek figures (which have a long history of saying what the listener wants to hear) their sovereign debt is 340 billion Euros. Currently they are asking for a 12 billion Euro top up. With a population of 11 million their current stated debt works out at 31,000 Euros for every man woman and child in the country. But you can add to that a mountain of off balance sheet debt, the borrowings of their many nationalised businesses, commercial debt including billions to their shipping industry, private debt and tens of billions worth of derivative contracts.
I would be very surprised indeed if the real total debt was less than 100,000 Euros per capita before property (mortgage) borrowing. With a retirement age of just 58 years and a life expectancy of 80 it is easy to see that the working population is about half the total population. So the debt becomes 200,000 Euros for everyone in the working population. But over 14% of that labour force are unemployed. Then we look at a GDP per capita of $28,000 (and declining rapidly) and you can see that it is impossible for them to even pay the interest on what they owe. Greece is just one big Ponzi scheme.
So, when Greece decides it isn’t going to honour the agreements it came to when it borrowed and spent all this money, what are the rest of the PIIGS going to do? Ireland and Portugal are already on life support with Spain and Italy not far behind. The countries in Europe who would be called on to bail them out simply can’t afford to and even if they could their voters just won’t let them.
It really looks like the end of the whole Euro currency project is in sight, it is just the nature of the collapse that is up for discussion. What order will countries leave in? What terms will they leave under? Who will pick up the bill? And how much bigger than the banking problems we just suffered is this going to be?
With hindsight the Euro should have been an extra currency, for trading, on top of the existing national currencies. Then it would have done most of the good things for economies without doing most of the bad things.
One very good thing that must come out of this is a re-evaluation of what the EU is about. It is very obvious now that a federal super state is just not going to work, so everyone working towards that aim should stop immediately and all the edifices they have erected, like the European Parliament, should be dismantled. Instead the EU should concentrate on being a free trade zone, this is what will bring the maximum benefit to its population. And to do that we urgently need to get rid of the very many non tariff barriers that EU member states have erected out of misguided nationalist protectionism. Also the system of giving lots of money to corrupt countries to squander on their political classes should be stopped immediately. Equalisation of economies will happen very quickly if free markets are allowed to operate.
Finally I have a partial solution to Greece’s problem. Look at the map of the Aegean above and you can see that from a geopolitical perspective Greece contains a lot of islands that should be Turkish. The Greeks grabbed them when the Ottoman empire collapsed. Why not sell them back to the Turks who have a thriving economy and who would be more than willing to pay up? After all America bought Alaska from the Russians.
Enter George Osborne who has done the only thing possible in increasing taxation to increase income whilst cutting spending (the so called plan A). It is called balancing the books. This involved lots of hard decisions. But then we live in difficult times and there really is no more money. Osborne’s approach has been widely praised by any economist with any credibility, such as the IMF. It is only the occasional deficit denying nutter who has suggested anything else. One of which is Ed Balls, who wants to continue the profligate spend that got us into this trouble in the first place (the so called plan B).
Now obviously Ed Balls’ ideas are totally discredited and would not work. Not only that, Osborne’s policies can be seen to be working. Steering the supertanker that is our economy away from the precipice is a mammoth task, but we are getting increasing signs that it is responding to the helm. This is leaving Balls with no ground to attack the coalition, it has become so obvious that he is wrong and they are right.
So now, suddenly and overnight Ed Balls has dragged the Labour party into a massive policy switch, from the nutty left of politics to the right. He has, presumably on a whim, decided to back what is known as Plan A+. This was postulated by the IMF as a possible variation on what Osborne is already doing and consists of a temporary tax drop to stimulate the economy. To be effective you would reduce income tax on the poorest by raising personal allowances. The downside is that it delays balancing the books so leaves the government in a financial hole for far longer.
Now it is a simple fact that George Osborne is already doing this as much as he can, it is a matter of delicate balance. He is massively and permanently increasing personal allowances in this parliament, to £10,000, in a move that favours the poorest in our society. It is far, far more progressive than anything that Blair or Brown did in all their years in power. Yes, the Conservatives are looking after the poor better than Labour did. Which is just as interesting as seeing Ed Balls drag the Labour party so radically to the right.
So we have a Conservative party that is to the left of Labour in looking after the poor and a Labour party that is suddenly to the right of the Conservatives on handling the deficit. Presumably Ed Milliband will be calling for the return of public hanging at Tyburn next.
When you needed a wheelbarrow full of cash to go shopping
So inflation remains at 4.5% (or 5.2% if you take retain price inflation), more than double the 2% target that the government is supposed to work to. Without drops in transport costs the figures would have been even worse. And this is happening when there is lots of spare capacity in the economy, which is supposed to hold inflation down. So what is going wrong?
Firstly there is the £200 billion of quantitative easing (QE). Printing this much extra money dilutes the money that is already out there making it less valuable, so inflation is inevitable. Then there are the higher commodity costs as global demand increases with the way the developing world is catching up with us. Don’t expect the Chinese to give up their cars any time soon. And of course there is the low value of the pound which makes our vast level of imports more expensive.
And of course inflation could get a lot worse, as we have seen in the past. Our economy is growing and will soon use up that spare capacity and commodity prices look to stay expensive. If people start generally getting pay increases to compensate for the inflation we could very quickly end up in an inflationary spiral.
The answer, naturally, is higher interest rates. But this would hit the housing market. People with mortgages have been having it very easy for the past few years and a return to normal interest rates would be a shock to many. Though some may say this is a good thing as we still have a housing bubble that needs correcting.
An interest rate increase would make the pound stronger making imports cheaper and exports more expensive, this may help reduce inflation but it doesn’t help our trade gap and the big numbers of workers employed in export industries. So it is a fine balancing act.
Then there are the many people leaving the public sector (not enough). They will help keep wage inflation down by increasing the supply of labour. If they are capable of doing real world jobs.
And finally there is the thought that the government might actually like a fairly high level of inflation for a while. It effectively erodes the value of our immense national debt, meaning we pay back far less in real terms. And it brings down the value of inflated assets, like houses, without it being too obvious to the owner of those assets.
So it is easy to see why the majority of the MPC (Monetary Policy Committee of the Bank of England) continue to vote to keep interest rates down. But at the same time they really are playing with fire.
Yet look at the real facts and you get a different story. The Office for Budget Responsibility at the time of the last budget calculated that the bank bailout was generating a PROFIT of £3.4 billion for the British taxpayer. Now this is pretty obvious when you think about it because the assets that we bought were bought at rock bottom price or less (we paid nothing for Northern Rock). And now the crisis is over they are worth considerably more.
In fact that £3.4 billion profit figure is a very cautious understatement. As the assets are slowly returned to the private sector they will realise far higher figures. Already the predicted sale of Northern Rock and some Lloyds Banking Group branches is said to be worth £4.4 billion pounds.
It has been pointed out on here many times that all our wealth, ultimately, comes from the private sector making profits. Everything else is parasitic on this. So the easier we make it for the private sector to work, run and compete effectively and efficiently the better off we all are. This is irrefutable fact, even though socialists and unions are in denial.
For any company the most important element of their existence is the people they employ. With the right people you can get everything else you need. With the right people doing the right jobs with the right management it is easy to find ideas, money, customers and everything else that a business needs. So private sector organisations put a lot of effort into employing the right people, giving them the right work, training them, rewarding them and managing them effectively. It could be argued that this is all there is to running a business.
People are so important that having the wrong ones can be a huge burden. And as both businesses and people are constantly changing, dynamic entities it is inevitable that sometimes an employer and an employee are better parting company. Under current British law it is perfectly OK for the employee to do this any time that they want, potentially taking with them a huge investment in training and knowledge without having to compensate the employer in any way whatsoever. Yet it is very difficult indeed for an employer to get rid of an employee who is no longer wanted or needed.
Of course this is the legacy of misguided socialists and over powerful unions and it is very damaging to everyone in Britain, here’s why:
Huge increase in unemployment because employers are unwilling to take on staff they subsequently can’t get rid of. This happened on a large scale in France.
Huge increase in employment in our global age as employers move jobs offshore where there is greater labour flexibility.
Places a huge administrative burden on businesses, especially the small and medium sized enterprises where most private sector employees work.
Companies making far less profit (national wealth) because they are carrying the burden of the wrong people.
Companies denied the flexibility to expand and contract to meet the needs of the market. Ultimately this means less profit and less jobs.
Creates a whole parasitic employment law industry that benefits nobody.
People stuck in jobs where they do no good (or even do harm) when they could be contributing to the economy far more effectively doing a different job or in a different company.
Risk aversion. Companies are loath to try something new in case it doesn’t work and they are stuck with the staff.
So it is self evident that employment protection laws are a very bad thing for this country and that they should all be removed. Employer should be able to hire and fire at will. If this was enacted our economy would boom like crazy. So it was excellent news yesterday that George Osborne (who has grown massively in stature over the last year), speaking at the Institute of Directors, revealed that the government was going to tear up sections of the employment law. Obviously the deeply embedded socialism in this country means that he will not be able to go as far as is necessary, but acknowledging the problem and making a start is pretty much all we can expect for now. Let’s hope this is the first step towards true liberalisation of the labour market.
Reacting to this Brendan Barber who is general secretary of the TUC and thus self evidently a dinosaur said: “Making it easier to make people redundant and giving the workforce less time to come up with alternatives to job losses threatens to make unemployment even worse”. How sad, if he understood economics and business he would understand that the exact opposite is true. If Brendan Barber wanted to do the British working man a favour he would be working with employers to increase productivity. It is only by being competitive that the country can prosper.
