Concise Economic Up date

Originally Posted by Kneerly Down

if the US$ loses its position as defacto reserve currency their fall will be spectacular.

Is this one of the factors that has let the US get away with that?

Having the world reserve currency seems to have allowed them to - in a round about way - export inflation?

I wonder how much worse inflation and the value of the pound would be if the UK took the same path. They seem to have a hard time keeping a lid on it as it is (year after year promises of 2% that are never met).

I think its possible the US could lose its reserve currency status at some point (some signs its already happening). Will be interesting and frightening to see what'll happen then.

Originally Posted by Yarbles

The UK economy is 2% which may not sound allot but is about a years average net growth behind the coalition governments forcast.

And the Previous Labour government repeatedly over estimated the UK economic growth. The difference is they borrowed heavily against the forecasts too. I do believe many people have lost their jobs as a result.

Originally Posted by moth

The lines are blurred. Define 'middle class'. Krugmann's definition or your own.

Middle class is self defining. It's the middle of whatever you've got. But the argument for wealth creation not residing with the uberwealthy is pretty self evident. In a capitalist system, without a broad number of middle class occupying the peak of your bell curve you don't have a customer base to create and sustain wealth. And the wealthy aren't going to refuse a profit making opportunity just because their tax rate goes up.

Originally Posted by murcan

. And the wealthy aren't going to refuse a profit making opportunity just because their tax rate goes up.

Indeed, but they may optimise it by relocating the gain...by placing themselves outside the UK. Alternatively the UK opportunities look less attractive than non-UK opportunities. I know plenty of examples of both.
Argument of middle class is not just having the consumers - e.g. German Mittlestand is owned and run by German (upper) middle class (and had zero capital gains tax on share sales for most of 2000s) but sells mostly outside of Germany and accounts for a large proportion of exports.

This is the same segment in the UK that has been hit with big increases in cgt and income tax.

Originally Posted by Kneerly Down

Indeed, but they may optimise it by relocating the gain...by placing themselves outside the UK. Alternatively the UK opportunities look less attractive than non-UK opportunities. I know plenty of examples of both.
Argument of middle class is not just having the consumers - e.g. German Mittlestand is owned and run by German (upper) middle class (and had zero capital gains tax on share sales for most of 2000s) but sells mostly outside of Germany and accounts for a large proportion of exports.

This is the same segment in the UK that has been hit with big increases in cgt and income tax.

But that still doesn't account for the state of job creation. If they aren't the creators then it is of less concern what they do with their money. If you improve your economy by strengthening the middle class the rich will bring their money back to capitalize on the the growth. Currently we are treating the uberwealthy as though they are the job creators at the expense of the middle class, from which real long term growth will come.

Originally Posted by murcan

Currently we are treating the uberwealthy as though they are the job creators at the expense of the middle class, from which real long term growth will come.

Aren't the Richard Branson's, the Philip Green's, the James Dyson's, Ron Dennis', etc of the world job creators then?

Originally Posted by Yarbles

Just listening to radio 4 re the economy being discussed by economists and lay people not Poiticains.

Apparenly the USA has gone for a slower path to debt reduction and making cuts and has enjoyed significantly better growth and increased productivity than the euro Zone while being on target to hit its monetary targets for debt reduction by 2014.This sounds like Gordon Brown's strategy at the last election.

The eurozone has cut more quickly and seen low growth and shrinking productivity. The UK economy is 2% which may not sound allot but is about a years average net growth behind the coalition governments forcast.

So rapid measures of austerity have led to low growth or recession and falling productivity compared to the less severe US strategy maybe possibly etc.

If Coalition economic policy does prove to be over zealous some people will lose their jobs their homes perhaps even their families in the process for no reason. I very much doubt any of these poeple will be close friends fo David Cameron and his old etonian cronies.

The goal of the Tory led coalition is to shrink the state permanently paving the way for tax cuts and business giveaways to their chums. Nothing to do with the deficit, which they hope will naturally reduce as the rest of the world recovers and our new-found slave labour economy exports to them.

Originally Posted by Kneerly Down

Aren't the Richard Branson's, the Philip Green's, the James Dyson's, Ron Dennis', etc of the world job creators then?

Well they have certainly been successful at creating jobs overseas in poverty-wage countries, and creating banking jobs in tax havens.

Originally Posted by Tomcat

The goal of the Tory led coalition is to shrink the state permanently paving the way for tax cuts and business giveaways to their chums. Nothing to do with the deficit, which they hope will naturally reduce as the rest of the world recovers and our new-found slave labour economy exports to them.

I have to agree it looks that way to some extent anyway TC.

The right allow no role for the public secotor in recovery and simply raising taxation without cutting expenditure does not seem to get an airing yet this could spread the burden more evenly rather than wholesale job cuts and obviously arbitrary winners and losers.

Originally Posted by Kneerly Down

Aren't the Richard Branson's, the Philip Green's, the James Dyson's, Ron Dennis', etc of the world job creators then?

They create products and services that people can buy and they have to hire people to provide the service and product, this is true. But they do it with other peoples money (mostly middle class people's money, just look at how an IPO is worked on the stock exchange. The rich get first dibs and sell as the price goes up. They sell to the middle class and walk with a profit but it's the middle class that hold the note at the higher price. So the middle class invests the most money and has the least access to higher profit margins and holds all the risk.) for the most part and they would have no success at all if there was no one to buy their product or service. In order to sell lots of stuff you have to have lots of buyers. So, in answer to your question, they are not the wealth and job "creators". They cleverly take advantage of an opportunity. One that is largely afforded to them by the small investor/consumer. I know you will think that I am slighting them, but I'm not. We need people to come up with ideas that work and have the charisma to sell that idea. I'm just saying that ultimately the money comes from the small investor, the middle class. The guys with the big money aren't going to take any risks if they can sluff it off on the next guy down the line.

The banks and the brokers have rigged the game. An IPO could get it's initial funding from a broker that is investing from a mutual fund as easily as from a big bank. Money is money. But profit is something to hold on to and risk is something to pass on. The big firms have no difficulty buying an initial offering on margin and then selling at a near guaranteed profit. Especially when they are working with brokerage firms that are selling the idea with the stock to the small investor and then getting out early. Since they are the only ones offered first choice at the bottom of the market they will always be willing to jump in. As we have seen, it doesn't require that the stock has any long term value. They only need it to sell for a short time before they are out of it entirely. Whether the company has any long term potential is irrelevant. Now that brokerage houses are required to inform investors that the stock they are touting is their own investment there is less risk they will sacrifice their reputation for short term gain. And they are less capable of manipulating the press coverage of a particular IPO they are backing.

Originally Posted by murcan

They create products and services that people can buy and they have to hire people to provide the service and product, this is true. But they do it with other peoples money (mostly middle class people's money....

Funny you talk almost solely about IPOs when Dyson, Dennis, Green and Branson have to a large extent avoided the public market.
I wouldn't say Ron Dennis is getting money from mostly middle class people.
I'm not sure Philip Green is either, although I guess Arcadia's clientele are spread across most of the socio-economic spectrum.
Dyson is mostly getting money from middle class people I guess, but this can hardly be though of as a fault.

As for IPO underwriting, it is not a no-risk activity, as many underwriters have found in the past.
If you look at it in isolation on successful IPOs it does look like money for old rope however, much like insuring David Beckham's legs or suchlike.

If, by selling to the middle classes, entrepreneurs are considered to be milking society I guess they should stick to selling betting services, cigarettes, etc at one end and private jets at the other.

I'm not sure that by your narrow definition wealth creators can exist - certainly I was quite careful in my selection of wealth creators, people who either carried out products & services innovatively or more efficiently than previously. Most of the money they have generated for themselves and their workforces (and the governments) comes from consumers rather than investors.

Originally Posted by Tomcat

Well they have certainly been successful at creating jobs overseas in poverty-wage countries, and creating banking jobs in tax havens.

So you'd rather that Dyson didn't employ over 1500 highly skilled people on substantially above average wage in the UK?
Or Ron Dennis employing about 2000 people on an average of about £50k pa...yeah, the UK would be so much better without him!

Originally Posted by Kneerly Down

Funny you talk almost solely about IPOs when Dyson, Dennis, Green and Branson have to a large extent avoided the public market.
I wouldn't say Ron Dennis is getting money from mostly middle class people.
I'm not sure Philip Green is either, although I guess Arcadia's clientele are spread across most of the socio-economic spectrum.
Dyson is mostly getting money from middle class people I guess, but this can hardly be though of as a fault.

As for IPO underwriting, it is not a no-risk activity, as many underwriters have found in the past.
If you look at it in isolation on successful IPOs it does look like money for old rope however, much like insuring David Beckham's legs or suchlike.

If, by selling to the middle classes, entrepreneurs are considered to be milking society I guess they should stick to selling betting services, cigarettes, etc at one end and private jets at the other.

I'm not sure that by your narrow definition wealth creators can exist - certainly I was quite careful in my selection of wealth creators, people who either carried out products & services innovatively or more efficiently than previously. Most of the money they have generated for themselves and their workforces (and the governments) comes from consumers rather than investors.

It's not a fault. It's a very effective way to build. It's just the source of the wealth that I'm debating. If Branson had to depend on the uberwealthy to buy his services he would never have gotten off the ground. (see what I did there?) Capitalism depends on the mass market, with the emphasis on mass. The farther wealth distribution is drawn to the extremes of "the rich" and "everyone else" the less stable capitalism as a system becomes. Erode the middle class and capitalism, and a great deal of the progress that comes with it, will atrophy. The current philosophy of capitalism that is being hyped in this country is a mythical being. It is a creation story that was dreamt up by the left to attack wealth and embraced by the right to defend wealth. Continue in this vein and you would either have revolt or serfdom, but you won't have capitalism.

I wouldn't choose Phil Green as a poster child for job creation either. He seems to barely balance his gains against the losses of some of his takeovers once he got into the larger market. His story of clever acquisition and hard work in his youth looks pretty good, but it isn't something that could have been created out of whole cloth. (pun intended)

Of course much of the capitalists' wealth is drawn from the middle classes.
Rather than being eroded however, the mass of middle classes is increasing massively, with the growth in China, India, Brazil, etc.

Job creation as a purely statistical measure is rarely a good way of assessing the situation anyway.
If in China, 1 million men, 1 million women and 2 million children are employed working in the fields to grow food and 5 years later, thanks to wealthy people investing money in agricultural and industrial technology the same food output is obtained by 100,000 adults, with 1,850,000 adults working in mining, energy production, electronics, construction, retail & services, etc, all of them paid well and the 2 million children in education with 50,000 adults on benefits, there has been job destruction but an increase in living standards.
Step changes in productivity tend to come from those that can make the investments and who have the drive and motivation to do so - often the uberwealthy as you put it.
Capitalism does ineed depend on the mass market, and the goal of capitalism, growth, depends on increases in productivity which brings increases in products, services & utility to the masses...which doesn't tend to come from governments, is almost impossible to come from the lower & middle classes but rather from those already rich.

Originally Posted by murcan

I wouldn't choose Phil Green as a poster child for job creation either. He seems to barely balance his gains against the losses of some of his takeovers once he got into the larger market. His story of clever acquisition and hard work in his youth looks pretty good, but it isn't something that could have been created out of whole cloth. (pun intended)

I believe Green has had many more successes than failures in the business sphere by most accounts (pun intended )