The western world has spent beyond its means for a number of years; economic power is shifting to the developing world; and there is not a lot we can do about it except argue about who bears the brunt of the pain. I reckon we all really know this whether we understand economic jargon or not.
Earnings per share growth have lagged GDP growth over the long term. Companies have reduced the payout ratio without growing earnings sufficiently to compensate. Since the overall remuneration of executives has grown dramatically faster than GDP over the last forty years, it is not difficult to see where the money has gone. A bit more jargon here, but essentially this means we’ve been shafted by rich con-artists pretending to be financial and leadership wizards. A bit like one of those pricks who takes 6 months with a statistics package to work out lifting Billy the Burglar might stop a few break-ins, being taken out to overnight-diner by some SMTwonk with his target bonus; only here we’re talking executive Lear-jet to the property at St. Tropez.
Vince Cable was on about this stuff, which is known as the ‘agency problem’ – that managers don’t really act in shareholder or public interests, but their own. Putting number 1 first – geeze what a ‘theory’. People are devious, selfish bastards after all. Rush down to your local Nick and tell a copper! Dr Cable’s remarks hardly represent a call for the collective ownership of the means of production, distribution and exchange but standard issues that are debated in the political and academic mainstream. Even ones known to Plods.
There’s a tendency amongst idiots to construe economics as capitalist or Marxist. The real choices we have are more like the difference between the USA in 2010 and 1950s America, which had a more equal income distribution, but was fiercely anti-communist. All western democracies are mixed economies, in which the State performs some functions and the private sector others. The argument is about where to draw the line, and it goes back and forth in a process of trial and error. Because we are idiots as voters, politicians have to lie to us about how certain they are, or are so dumb they believe the crap they are fed. There is and never has been any ‘communism’, other than the laughable, upper-class, slave-based clownocracy of Plato, policed by fascists.
We are all caught up in a failure. And we are caught up personally and selfishly. Take pensions – go on, define what one is. Pensions are deferred pay, until you try to get the money anyway. Quite a few people have lost theirs altogether. But more than this, pensions have been offered to employees often as a way of heading off pressure for higher salaries; a classic mechanism for putting off a problem. Many corporate schemes took pension holidays. But a combination of dismal asset returns in the current century, improved longevity and a change in the accounting rules has brought the true cost home; employers have switched to the cheaper defined contribution option, particularly for new employees. The public sector hasn’t, and you selfish lard-arses may think you have won out at last against the over-paid private sector. Take it while you can get it boys and girls. Your pots are really as empty as anyone else’s. Just like the bankers you want the rest of us to bail you out.
But the public sector has stuck with the expensive final salary option. How much does this cost? UK liability is around £1 trillion ($1.5 trillion). In the US, the total value of pension promises made by individual states may be as much as $4.4 trillion with a shortfall of $2.5 trillion.
Pensions are promises to pay employees set sums in the future. Valuing them thus depends on the discount rate applied to these future liabilities. In a world where Treasury bonds yield less than 3% and the dividend yield is 2.5%, we are still pretending returns of 8% can be relied on to grow pension pots. The liabilities would look even smaller if we pretended we could fund them by 15% returns on Zimbabwean junk bonds.
Every selfish berk, as we are brought up to be, thinks he or she has paid for that pension. Wake up – they have trained you to lie to yourself. Your kids or immigrant workers will be paying for it. They’ve had it away with what money there was, and much more needed to be put in anyway. The Bank of England pension fund recognises that a pension promise is an agreement to pay a series of inflation-linked payments in future. So it funds the promise with index-linked gilts and puts aside 44% of its payroll to do so. You been paying half your salary towards pension then? Governments have huge liabilities that are not included in the official debt-to-GDP ratios because of these pensions. Public sector workers are getting a huge benefit that is not recognised in pay comparisons; with the employer contribution into DC schemes generally less than 10%, this advantage is worth 30% or more of pay.
What’s lacking in our perspective when we read-a-long-a-Gadget doing the beginnings of ethnography on the Swamp, is the extent to which we have stolen resources ourselves and this has caused much of the deprivation. While we weren’t building prisons, modernising education properly for people who couldn’t collect enough cornflake packet tops to get their kids a few O levels and three years of childminding at university and a new jobs system, we were paying each other more and more and creating a nomenclature of rip-off managers.
If Rooney is worth his salt, we are clearly all worth more pay. He gets his money to play. We pay off disasters in fortunes, surely we are worth more. The idle, evil poor live wonderful lives on our backs. We are dull Plods when it comes to economics. Selfish, mean, stereotyping, ignorant and dishonest.
http://www.bbc.co.uk/news/business-11466273 gives some clue your pensions are under threat. You never paid for them in the first place, unlike some poor sods who have lost theirs, if you are in the public sector. The money that could have was given away to the rich promoted jerks. The evidence suggests that social mobility is falling in America and Britain, probably because the wealthy can gain advantages for their offspring via private education (or manipulating the state system). Meritocracy is probably failing.
I wouldn’t look to the Swamp for reasons why our society is so crap, but our thieving nomenclature. Pension schemes in the UK “cost” twice as much to run as those in Holland. Thieves are at work in our system. Our Army is now smaller than the US Marine Corps, yet has 470 ‘Brigadiers’ compared with their 70. Thieves at work. ACPO – thieves at work. Collectively in the UK we have a problem similar to the old British Leyland nightshift. We pay non-productive sleepers all over. The new thieves dress in suits. Their crimes dwarf those of the swamps by powers of ten. This excuses not one child-brained adult on any swamp not one jot. Maybe if we’d educated them, they’d be thieves in suits too?